ELOQUENT INC, S-1/A, 1999-12-02

ELOQUENT INC
S-1/A, 1999-12-02
COMPUTER PROGRAMMING SERVICES

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 2, 1999

REGISTRATION NO. 333-89537
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

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

AMENDMENT NO. 1
TO

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

ELOQUENT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
DELAWARE 7379 94-3221868
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE) IDENTIFICATION NUMBER)
</TABLE>

2000 ALAMEDA DE LAS PULGAS, SUITE 100
SAN MATEO, CA 94403
(650) 294-6500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------

ABRAHAM KLEINFELD
CHIEF EXECUTIVE OFFICER
ELOQUENT, INC.
2000 ALAMEDA DE LAS PULGAS, SUITE 100
SAN MATEO, CA 94403
(650) 294-6500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:

<TABLE>
<S> <C>
KENNETH L. GUERNSEY ROBERT P. LATTA
JODIE M. BOURDET CHRISTOPHER F. FENNELL
STEVEN R. HARMON CHRISTIAN E. MONTEGUT
DAVID J. PAUL PRIYA CHERIAN HUSKINS
COOLEY GODWARD LLP JILL K. BJORKHOLM
ONE MARITIME PLAZA, 20TH FLOOR WILSON SONSINI GOODRICH & ROSATI,
SAN FRANCISCO, CA 94111 A PROFESSIONAL CORPORATION
(415) 693-2000 650 PAGE MILL ROAD
PALO ALTO, CA 94304
(650) 493-9300
</TABLE>

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO 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 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, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement number 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 WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.

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<PAGE> 2

THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE SECURITIES AND EXCHANGE COMMISSION
DECLARES OUR REGISTRATION STATEMENT EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.

SUBJECT TO COMPLETION, DATED , 2000

ELOQUENT, INC. [ELOQUENT, INC. LOGO]

COMMON STOCK

$ PER SHARE

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<TABLE>
<S> <C>
- - Eloquent, Inc. is offering - This is our initial public offering and
shares. no public market currently exists for our
shares.
- - We anticipate that the initial public - Proposed trading symbol: Nasdaq National
offering price will be between Market -- ELOQ.
$ and $ per share.
</TABLE>

---------------------------------------------

THIS INVESTMENT INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A
DESCRIPTION OF SOME OF THE RISKS OF INVESTING IN OUR STOCK.

<TABLE>
<CAPTION>
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PER SHARE TOTAL
--------- -------
<S> <C> <C>
Public offering price....................................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to Eloquent, Inc. ............... $ $
=================================================================================
</TABLE>

The underwriters have a 30-day option to purchase up to
additional shares of common stock from us to cover over-allotments, if any.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OF ANYONE'S INVESTMENT IN THESE SECURITIES OR DETERMINED
IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

U.S. BANCORP PIPER JAFFRAY
BANC OF AMERICA SECURITIES LLC
THOMAS WEISEL PARTNERS LLC

THE DATE OF THIS PROSPECTUS IS , 2000.

<PAGE> 3

GATEFOLD

GRAPHICS: GRAPHICAL DEPICTION OF PRODUCTION PROCESS AND USES OF
ELOQUENT SOLUTION

TEXT:

ELOQUENT OFFERS COMPLETE END-TO-END SOLUTIONS FOR WEB-BASED RICH MEDIA
BUSINESS-TO-BUSINESS COMMUNICATIONS

ELOQUENT APPLICATIONS SERVER SOFTWARE
Content aggregation
Personalized delivery
Usage reporting
Bandwidth management
Integration with enterprise systems
Open architecture

ELOQUENT PRESENTER!
Browser-based player

ELOQUENT CONTENT PRODUCTION
Full motion video and audio
Presentation materials
Electronic documents

FULLY INTEGRATED CD-ROM DELIVERY FOR OFFLINE USE

INTERNET/INTRANET

SALES CHANNEL COMMUNICATIONS

Customers use Eloquent solutions to educate their field personnel and
resellers about new products and marketing strategies. User have continued,
on-demand access to the information.

EMPLOYEE COMMUNICATIONS

Eloquent solutions deliver senior management's messages to a globally
distributed workforce, including employees who joined the company after the
presentation was initially made.

SALES AND MARKETING PRESENTATIONS

Companies use Eloquent solutions on their Web sites to present corporate
information and to demonstrate their products to potential customers or
business partners.

CUSTOMER SUPPORT

Businesses use Eloquent solutions to deliver technical and product support
information to their customers on an ongoing basis.

<PAGE> 4

INSIDE FRONT COVER

GRAPHIC: SCREEN SHOT OF ELOQUENT DESKTOP PLAYER SOFTWARE

TEXT:

THE ELOQUENT PRESENTER! PLAYER SOFTWARE IS DESIGNED SPECIFICALLY FOR RICH MEDIA
BUSINESS-TO-BUSINESS COMMUNICATIONS

1. FULL MOTION VIDEO OF PRESENTER

2. SYNCHRONIZED SLIDES/DEMONSTRATIONS

3. SYNCHRONIZED TEXT TRANSCRIPT

4. HYPERLINKS TO OTHER WEB-BASED INFORMATION

5. FULL-FEATURED NAVIGATION TOOLS

- SPEED CONTROL

- SEARCH CAPABILITIES

- BOOKMARKS

- SLIDE NAVIGATION

- TRANSLATED TRANSCRIPTS

<PAGE> 5

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary..................................................... 4
Risk Factors................................................ 9
Special Note on Forward-Looking Statements.................. 17
Use of Proceeds............................................. 18
Dividend Policy............................................. 18
Capitalization.............................................. 19
Dilution.................................................... 20
Selected Financial Data..................................... 22
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 24
Business.................................................... 34
Management.................................................. 46
Certain Transactions........................................ 60
Principal Stockholders...................................... 62
Description of Capital Stock................................ 64
Shares Eligible for Future Sale............................. 69
Underwriting................................................ 71
Legal Matters............................................... 73
Experts..................................................... 73
Where You Can Find More Information......................... 74
Index to Financial Statements............................... F-1
</TABLE>

---------------------------------------------

You should rely only on the information contained in this prospectus. We have
not, and the underwriters have not, authorized any other person to provide you
with different information. This prospectus is not an offer to sell, nor is it
seeking an offer to buy, these securities in any state where the offer or sale
is not permitted. The information in this prospectus is complete and accurate as
of the date on the front cover, but the information may have changed since that
date.

3
<PAGE> 6
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SUMMARY

The items in the following summary are described in more detail later in this
prospectus. This summary provides an overview of selected information and does
not contain all the information you should consider. Therefore, you should also
read the more detailed information contained in this prospectus, including the
financial statements and related notes.

ELOQUENT

Eloquent provides rich media solutions for business-to-business communications.
"Rich media" is the combination of video, audio, sophisticated graphics and text
into a synchronized, interactive, navigable and searchable format. We have
developed a unique and proprietary combination of software and services that we
use together, in what we call a "solutions platform," to create and deliver rich
media presentations, or "events," on behalf of our customers. These events can
be delivered over Web-based channels or CD-ROMs to be viewed by end users on
their personal computers. "Web-based channels" includes the World Wide Web,
internal computer networks known as "intranets," and computer networks that
provide access to customers and business partners but not the public known as
"extranets."

Our customers, which are primarily large companies, use our solutions to
communicate time-sensitive, business-critical information to target audiences in
an effective, consistent and cost-efficient manner. Customers use our events for
product launch briefings to sales teams, strategic and corporate alignment
presentations to employees, sales pitches to potential customers, employee
training seminars, business partner education programs and complex customer
support activities. Since our inception in March 1995, we have produced over 700
rich media events consisting of over 3,500 hours of content for more than 150
customers.

Business-to-business communications involve the dissemination of corporate
information to audiences both inside and outside an organization, including
employees, customers and business partners. The ability to communicate
effectively with these audiences represents an important competitive advantage
for companies under increasing pressure to operate more efficiently and to
better serve the needs of their customers. Companies disseminate information to
their target audiences through a variety of means and a number of different
technologies that, although useful, do not always provide the most efficient and
robust means of delivering communications.

The emergence of the Web as a global communications medium has enabled companies
to gather information, communicate and conduct business electronically over
Web-based channels. Furthermore, the development of streaming media technologies
and the proliferation of multimedia-capable computers has enabled the delivery
of continuous "streams" of video and audio content, including our rich media
events. Most streaming media applications, however, have been focused on
entertainment applications and do not provide for synchronization of multiple
media or sophisticated search and navigation capabilities. Additionally, a
number of technical challenges have limited the adoption of streaming media
technology for business-to-business communications. We believe our customers
recognize the benefits of outsourcing the production and delivery of rich media
events to Eloquent because we have specialized rich media expertise, the ability
to deliver a complete set of products and services, and the ability to achieve
economies of scale in producing rich media events.

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4
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Our platform includes all of the software and services our customers need to
deliver rich media business-to-business communications to their target
audiences. We have developed what we believe to be the most effective,
comprehensive and robust platform available for producing and delivering rich
media events for business-to-business communications that are:

- easier to produce and deliver -- we have the capability to produce rich
media events for our clients in a turnkey fashion. By "turnkey" we mean
that we do substantially all of the work to produce an event ourselves
from start to finish, rather than providing our customers with tools
with which to produce an event themselves. In addition, by delivering
rich media events through the Web, intranets, extranets and CD-ROMs, we
enable our customers to reach their entire target audience easily.

- more effective -- our rich media events provide users with
business-critical information in an interactive, searchable and
navigable format that we believe makes our events more engaging than
other forms of business-to-business communication, enhancing
comprehension and retention of the information.

- faster -- we enable our customers to disseminate critical information
rapidly due to our unique and efficient production process and Web-based
channel and CD-ROM delivery. Using our proprietary scheduling software
and production expertise, we can produce a typical four- to five-hour
rich media event in nine business days, compared to months for
alternative solutions.

- less expensive -- our solutions eliminate many of the costs associated
with traditional business presentations, including airline, hotel and
other travel expenses for event participants, facilities costs and the
opportunity costs associated with diverting employees from their work
schedules.

We believe that these benefits can result in a number of strategic and
competitive advantages for our customers, including accelerating the commercial
launch of new products, increasing employee productivity, strengthening
important business relationships and enhancing sales and marketing efforts.

Our objective is to enhance our leadership position in rich media solutions for
business-to-business communications. Key elements of our strategy include:

- further penetration of our existing customer base of large corporate
accounts;

- expansion into additional industries;

- identification of new applications for our solutions;

- expansion and enhancement of our existing set of customer solutions by
broadening the functionality of our platform and adding value-added
services; and

- expansion into international markets.

OFFICE LOCATION

Our principal executive offices are located at 2000 Alameda de las Pulgas, Suite
100, San Mateo, California 94403 and our telephone number is (650) 294-6500. Our
primary Web site is located at www.eloquent.com. Information contained on our
Web site is not part of this prospectus.

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5
<PAGE> 8
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THE OFFERING

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

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

Offering price............................ $ per share

Use of proceeds........................... We will receive net proceeds from
this offering of approximately
$ million. We intend to
use approximately $23.0 million of
these net proceeds for the
repayment of debt. We intend to
use the remaining proceeds for
increasing the size of our sales
and marketing organizations,
enhancing the functionality of our
platform, expanding
internationally, working capital
and general corporate purposes.
See "Use of Proceeds" beginning on
page 18 for a more detailed
description of our plans to use
the net proceeds of this offering.

Proposed Nasdaq National Market symbol.... ELOQ

The number of shares of common stock to be outstanding after the offering set
forth above is based on the total number of shares outstanding on September 30,
1999, but includes 15,000 shares of common stock issued as partial payment of a
placement agent fee owed in connection with our sale of subordinated notes and
warrants in October 1999 and 22,500 shares of common stock issued upon exercise
of warrants issued in the financing. The number of shares set forth above
excludes:

- 2,683,525 shares of common stock issuable upon exercise of stock options
outstanding as of September 30, 1999;

- 2,905,799 shares of common stock reserved for issuance under our equity
incentive and stock purchase plans, based on stock options outstanding
as of September 30, 1999 and taking into account increases in share
reserves since that date;

- 207,887 shares of common stock issuable upon exercise of outstanding
warrants, 14,450 of which will expire upon the closing of this offering
if not exercised by that time; and

- 1,477,500 shares of common stock issuable upon exercise of warrants
issued in connection with our sale of subordinated notes in October
1999.

Unless otherwise specifically stated, information contained in this prospectus:

- does not take into account the exercise of the underwriters'
over-allotment option to purchase up to shares of our
common stock; and

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

"Eloquent" and the Eloquent logo are trademarks of Eloquent, Inc. that are
registered in the United States and other jurisdictions. All other trademarks or
service marks appearing in this prospectus are trademarks or service marks of
the respective companies that use them.

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6
<PAGE> 9
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SUMMARY FINANCIAL DATA

<TABLE>
<CAPTION>
INCEPTION
(MARCH 29,
1995) NINE MONTHS ENDED
THROUGH YEAR ENDED DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ------------------------------------------ ---------------------------
1995 1996 1997 1998 1998 1999
------------ ------------ ------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Content production
services................ $ 55 $ 944 $ 3,519 $ 6,750 $ 5,134 $ 6,404
Software licenses and
maintenance............... -- -- 406 993 677 1,592
Professional services..... -- -- -- -- -- 379
-------- -------- -------- -------- -------- --------
Total revenues..... 55 944 3,925 7,743 5,811 8,375
-------- -------- -------- -------- -------- --------
Cost of revenues:
Content production
services................ -- 405 3,717 5,730 4,277 3,907
Software licenses and
maintenance............. -- -- 50 445 319 407
Professional services..... -- -- -- -- -- 783
-------- -------- -------- -------- -------- --------
Total cost of revenues.. -- 405 3,767 6,175 4,596 5,097
-------- -------- -------- -------- -------- --------
Gross margin.............. 55 539 158 1,568 1,215 3,278
Operating expenses:
Sales and marketing....... 81 846 3,785 6,812 4,832 5,684
Research and
development............. 86 659 845 1,510 1,111 1,417
General and
administrative.......... 208 597 1,876 2,211 1,546 2,586
Stock-based
compensation............ -- -- -- 992 580 3,343
-------- -------- -------- -------- -------- --------
Total operating
expenses......... 375 2,102 6,506 11,525 8,069 13,030
-------- -------- -------- -------- -------- --------
Loss from
operations..... (320) (1,563) (6,348) (9,957) (6,854) (9,752)
Interest expense and other
charges................... 1 (21) (100) (259) (207) (418)
Interest income and other
income.................... -- 49 79 208 120 123
-------- -------- -------- -------- -------- --------
Net loss.................... $ (319) $ (1,535) $ (6,369) $(10,008) $ (6,941) $(10,047)
======== ======== ======== ======== ======== ========
Net loss per share, basic
and diluted............... $ (1.33) $ (1.97) $ (4.59) $ (4.74) $ (3.49) $ (3.06)
======== ======== ======== ======== ======== ========
Weighted average shares,
basic and diluted......... 240 781 1,388 2,111 1,990 3,286
======== ======== ======== ======== ======== ========
Pro forma net loss per
share, basic and
diluted................... $ (1.21) $ (0.96)
======== ========
Pro forma weighted average
shares, basic and
diluted................... 8,285 10,444
======== ========
</TABLE>

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7
<PAGE> 10
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The following table summarizes our balance sheet as of September 30, 1999:

- on an actual basis;

- on a pro forma basis to reflect (1) the receipt of $18.8 million in
estimated aggregate net proceeds from the sale of $20.0 million of
subordinated notes and warrants to purchase 1,500,000 shares of common
stock in October 1999 and the issuance of 22,500 of these shares upon
exercise of a portion of these warrants in October 1999, (2) the
issuance of 15,000 shares as partial payment of a placement agent fee
owed in connection with such sale and (3) the application of $2.6
million of the net proceeds from the notes to repay a portion of our
existing line of credit; and

- on a pro forma, as adjusted basis to reflect the shares of
common stock offered hereby at an assumed offering price of $ per
share, after deducting estimated underwriting discounts, commissions and
offering expenses, and the application of the net proceeds from the
offering.

<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 3,431 $19,644
Working capital (deficit)................................... (2,688) 16,082
Total assets................................................ 9,689 26,764
Long term obligations and subordinated notes................ 889 8,389
Total stockholders' equity (deficit)........................ (832) 11,301
</TABLE>

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RISK FACTORS

Investing in our common stock involves a high degree of risk. You should
carefully consider the risks described below as well as the other information in
this prospectus before investing in our common stock. Our business, financial
condition or operating results could be seriously harmed by any of the following
risks. In addition, the trading price of our common stock could decline due to
any of the following risks, and you may lose all or part of your investment.

RISKS RELATED TO OUR BUSINESS

BECAUSE WE HAVE A LIMITED OPERATING HISTORY, IT MAY BE DIFFICULT FOR YOU TO
EVALUATE OUR BUSINESS AND PROSPECTS.

Eloquent was formed in March 1995. Thus, we have a limited operating history,
which may make it difficult for you to evaluate our business. In part because we
are subject to the risks, expenses and uncertainties frequently encountered by
companies in new and rapidly evolving technology and Web-related markets, we
cannot be sure that our business model and future operating performance will
yield the results that we seek. Moreover, because these markets are constantly
changing, we may need to change our business model to adapt. When making your
investment decision, you should consider the risks, expenses and uncertainties
that we may encounter as an early-stage company. Among other things, we have not
yet proven our ability, on a sustained basis, to achieve the following:

- maintain and expand our customer base;

- identify new applications for our existing products;

- expand and enhance our customer solutions;

- maintain market prices for our solutions despite competition;

- effectively integrate any acquired businesses or technologies with our
operations;

- prevent technologies we use in our operations from failing or operating
poorly; and

- identify, attract, retain and motivate qualified personnel.

We may not be successful in achieving these objectives on a long-term basis. If
we are unable to do so, our business, financial condition and operating results
would suffer.

WE EXPECT TO CONTINUE TO INCUR LOSSES, AND AS A RESULT WE MAY NOT ACHIEVE
PROFITABILITY.

We have not achieved profitability on a quarterly or annual basis to date and we
anticipate that we will continue to incur net losses for the foreseeable future.
Our failure to achieve profitability could deplete our current capital resources
and reduce our ability to raise additional capital. We incurred net losses of
approximately $1.5 million for the year ended December 31, 1996, $6.4 million
for the year ended December 31, 1997, $10.0 million for the year ended December
31, 1998 and $10.0 million for the nine months ended September 30, 1999. As of
September 30, 1999, we had an accumulated deficit of approximately $28.3
million. We expect to increase our operating expenses significantly, expand our
sales and marketing operations and continue to develop and expand our service
offerings. If these increased expenses are not accompanied by increased
revenues, we will not achieve profitability.

In addition, our October 1999 sale of subordinated notes and warrants will
result in accounting charges that will inhibit our ability to achieve
profitability in the near term. Upon repayment of the notes when this offering
is consummated, we must recognize an extraordinary loss on extinguishment of
debt of up to $9.0 million. See "Management's Discussion and Analysis of
Financial Condition and Operations --

9
<PAGE> 12

Overview" beginning on page 24 for a more detailed description of the accounting
consequences of the financing.

OUR QUARTERLY OPERATING RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS, AND AN
UNANTICIPATED DECLINE IN REVENUES MAY CAUSE OUR STOCK PRICE TO FALL.

In some future quarter, our operating results may be below the expectations of
public market analysts and investors, which would cause the price of our common
stock to fall. The factors that may cause our quarterly operating results to
fall short of expectations include:

- delays of large customer orders, which could prevent us from recognizing
revenues until later quarters;

- downward pressure on prices paid by our customers, as a result of
competition or other factors, which could reduce our quarterly revenues
even if we maintain or increase the number of sales;

- new product and service introductions by our competitors, which could
cause our competitors to capture revenues that we otherwise could have
received;

- increased costs incurred as we expand operations, increase our marketing
efforts or undertake other initiatives, which could reduce our profit
margin if not matched by a corresponding growth in revenues; and

- technical difficulties or system downtime affecting the Web generally or
the operation of our network or servers, which could cause customer
dissatisfaction and reduce our revenues.

Our quarterly operating results may fluctuate significantly in the future
because of a variety of factors, many of which are outside our control. As a
result, operating results for any particular quarter may not be indicative of
future operating results.

WE DEPEND ON A LIMITED NUMBER OF LARGE CUSTOMERS FOR A MAJORITY OF OUR REVENUES,
SO THE LOSS OF OR DELAY IN PAYMENT FROM ONE OR A SMALL NUMBER OF CUSTOMERS COULD
HAVE A LARGE IMPACT ON OUR REVENUES AND OPERATING RESULTS.

If we were to lose a key customer, our business, financial condition and
operating results would suffer. In addition, if a key customer fails to pay
amounts it owes us, or does not pay those amounts on time, our revenues and
operating results would suffer. A limited number of large customers have
accounted for a majority of our revenues and will continue to do so for the
foreseeable future. For example, our top 15 customers during the nine months
ended September 30, 1999 accounted for 46% of our revenues during that period.
Due to our limited number of large customers, the cancellation or delay of a
customer order during a given quarter is likely to significantly reduce revenues
for the quarter.

THE LENGTH OF OUR SALES CYCLE IS UNCERTAIN AND THEREFORE COULD CAUSE SIGNIFICANT
VARIATIONS IN OUR OPERATING RESULTS.

Because our customers are typically large corporations, the length of our sales
cycle -- the time between an initial customer contact and completing a
sale -- can be unpredictable. The time between the date of our initial contact
with a potential new customer and the execution of a sales contract with that
customer ranges from less than two weeks to more than three months, depending on
the size of the customer, the application of our solution and other factors. Our
sales cycle is also subject to delays as a result of customer-specific factors
over which we have little or no control, including budgetary constraints and
internal acceptance procedures. During the sales cycle, we may expend
substantial sales and management resources without generating corresponding
revenues. Our expense levels are relatively fixed in the short term and are
based in part on our expectations of our future revenues. As a result, any delay
in our sales

10
<PAGE> 13

cycle could cause significant variations in our operating results, particularly
because a relatively small number of customer orders represents a large portion
of our revenues.

WE MAY NOT BE ABLE TO INCREASE THE SIZE OF OUR SALES ORGANIZATION, WHICH WOULD
PREVENT US FROM ACHIEVING THE INCREASED SALES VOLUME NECESSARY FOR US TO ACHIEVE
PROFITABILITY.

In order to increase our revenues, we must recruit, train and retain a
significant number of sales personnel. If we do not do so, we will not be able
to increase our sales sufficiently to achieve profitability. In the past, we
have had difficulty recruiting and retaining qualified sales personnel. We
cannot guarantee that we will not encounter similar difficulties in the future.
Competition for personnel, particularly in the San Francisco Bay Area, where we
are located, is intense. Many of the companies competing with us for qualified
sales personnel are larger and more established than we are and have greater
financial resources than we do. This may make it even more difficult for us to
recruit and retain such personnel.

Our operational history suggests that the level of sales we achieve is generally
determined by the number of sales personnel we employ. In 1998 and early 1999,
we suffered a significant decline in sales to customers in the western United
States primarily due to attrition in our West Coast sales force. If we
experience turnover in our sales force in the future, our business, financial
condition and operating results will suffer. Newly hired sales personnel
generally do not become fully productive until they have worked for at least two
quarters. Because of the time required to recruit new sales personnel and for
them to become fully productive, an unanticipated loss of sales personnel could
result in an underproductive sales organization and reduced sales for a
significant period of time.

WE FACE INTENSE COMPETITION FOR PERSONNEL, WHICH COULD IMPAIR OUR ABILITY TO
RECRUIT AND RETAIN KEY PERSONNEL.

Our ability to develop, market and sell our solutions and to maintain our
competitive position depends on our ability to attract, retain and motivate
highly skilled technical, sales and marketing and other personnel. There is a
limited number of people with the necessary technical skills and understanding,
and competition for their services, particularly in the San Francisco Bay Area,
is intense. If we fail to recruit or retain these personnel, our ability to
develop, market and sell our solutions will suffer.

WE DEPEND ON TECHNOLOGY LICENSED FROM OTHER COMPANIES. WE MAY NOT BE ABLE TO
RENEW THESE LICENSES AS THEY EXPIRE FROM TIME TO TIME, AND WE MAY NOT BE ABLE TO
REPLACE THE LICENSED TECHNOLOGY WITHOUT SIGNIFICANT EXPENSE OR ENGINEERING
EFFORTS, IF AT ALL.

Our desktop player software, which runs on an end user's personal computer to
allow the user to view an event, includes technologies that other companies have
licensed to us. If we are unable to maintain or renew these licenses when they
expire, we would be forced to remove these technologies from our software and
develop or license comparable technologies. This could require additional
license fees or extensive engineering efforts, or significantly decrease our
software's functionality, either of which could harm our business, financial
condition and operating results.

In addition, we have developed our products to integrate well with the Microsoft
Windows NT operating system, the operating system used by most of our customers
to run our software. If the Windows NT operating system is changed by Microsoft
so that it no longer integrates well with our products, or if Windows NT
experiences technical problems, the operation of our software could be impaired.
In that event, our business, financial condition and operating results could be
harmed. Microsoft is not obligated to ensure that Windows NT integrates well
with our products.

We may be required to obtain licenses from third parties to refine, develop,
market and deliver new products. We may be unable to obtain any needed license
on commercially reasonable terms or at all and rights granted under any licenses
may not be valid and enforceable.

11
<PAGE> 14

WE OPERATE IN MARKETS THAT WILL BECOME INCREASINGLY COMPETITIVE, WHICH COULD
LEAD TO DECREASING PRICES AND REDUCED PROFITABILITY.

The market for rich media business-to-business communications solutions is new
and rapidly evolving. We expect that competition will intensify. Increased
competition could lead to decreasing prices and profitability. We compete with
companies that offer components of a rich media business-to-business
communications solution, including:

- providers of rich media software tools;

- multimedia content production and delivery companies;

- companies that provide content hosting services, which include storing,
delivering and tracking the distribution of content; and

- traditional business-to-business communications and learning solution
companies that offer live meeting and seminar services.

In addition, our customers and potential customers represent a source of
competition to the extent they determine to develop in-house
business-to-business communications solutions.

Many of our current and potential competitors have longer operating histories,
significantly greater financial, technical and marketing resources, greater name
recognition and larger existing customer bases than we do. These competitors may
also be able to undertake more extensive marketing campaigns for their brands
and services, adopt more aggressive pricing policies and make more attractive
offers to potential employees and partners. We may be unable to compete
successfully against current or future competitors and competitive pressures may
cause our business to suffer.

MOST OF OUR MANAGEMENT TEAM HAS ONLY RECENTLY JOINED ELOQUENT AND HAS LITTLE
EXPERIENCE WORKING TOGETHER, WHICH COULD LIMIT THE TEAM'S EFFECTIVENESS IN
OPERATING OUR BUSINESS.

Our management team does not have significant experience working together at
Eloquent, because most members of our management team have been employed by
Eloquent for a short period of time. This could prevent or limit our management
team's ability to work together effectively. The failure of our new management
team to work together effectively could delay efficient decision-making and
execution of business objectives, which would negatively impact our business,
financial condition and operating results. See "Management -- Executive
Officers, Directors and Other Management Employees" beginning on page 46 for
additional information about our management team.

WE MAY NOT BE ABLE TO ADEQUATELY MANAGE OUR ANTICIPATED GROWTH, WHICH COULD
IMPAIR OUR EFFICIENCY AND NEGATIVELY IMPACT OUR OPERATIONS.

We may not be able to manage our growth effectively, which could impair our
efficiency, reduce the quality of our solutions, impair further growth and harm
our business, financial condition and operating results. If we do not
effectively manage this growth, we will not be able to operate efficiently or
maintain the quality of our products. Either outcome would harm our operating
results. In the past, we have experienced rapid growth, and we plan to continue
to expand our operations. This expansion is expensive and places a significant
strain on our personnel and other resources. To manage our expanded operations
effectively, we will need to further improve our operational, financial and
management systems and successfully hire, train, motivate and manage our
employees.

12
<PAGE> 15

WE PLAN TO EXPAND OUR BUSINESS INTO INTERNATIONAL MARKETS, IN WHICH WE HAVE NO
PRIOR EXPERIENCE. INTERNATIONAL EXPANSION WILL REQUIRE SIGNIFICANT RESOURCES AND
WILL SUBJECT US TO NEW RISKS THAT MAY LIMIT OUR RETURN FROM OUR INTERNATIONAL
SALES EFFORTS.

One of our strategies to increase our sales sufficiently to achieve
profitability is to add an international sales force and operations. This
expansion will involve a significant use of management and financial resources,
particularly because we have no previous experience with international
operations. We may not be successful in creating international operations or
sales. In addition, international business activities are subject to a variety
of risks, including the adoption of laws, currency fluctuations, actions by
third parties and political and economic conditions, any of which could restrict
or eliminate our ability to do business in foreign jurisdictions.

WE WILL DEPEND ON REVENUES FROM OUR CONTENT HOSTING BUSINESS, WHICH WILL SUFFER
IF OUR HOSTING EQUIPMENT AND SOFTWARE EXPERIENCE SYSTEM FAILURES.

Our future success depends in part on our ability to successfully host our
customers' content on our servers. Our ability to host content will depend on
the efficient and uninterrupted operation of our computer and communications
hardware and software systems. We do not have fully redundant content hosting
systems, a formal disaster recovery plan or alternative providers of hosting
services. We also may not have business interruption insurance sufficient to
compensate us for losses that may occur. All of our content hosting servers are
located at Concentric Network Corporation's facilities in Cupertino, California.
These systems and operations are vulnerable to damage or interruption from
earthquakes, floods, fires, power loss, telecommunication failures or similar
events. They are also subject to computer viruses, break-ins, sabotage,
intentional acts of vandalism and similar misconduct. Despite any precautions we
may take, the occurrence of a natural disaster or other unanticipated problems
at the Concentric Network facility could result in interruptions in our content
hosting service. In addition, the failure by Concentric Network to provide the
data communications capacity that we require could result in interruptions in
our content hosting service. Any damage to or failure of our content hosting
systems could result in interruptions in our content hosting service. System
interruptions will reduce our revenues and profits, and our future revenues and
profits will be harmed if our customers believe that our content hosting system
is unreliable.

POTENTIAL ERRORS IN OUR SOFTWARE COULD HARM OUR REPUTATION AND REDUCE OUR SALES
AND PROFITABILITY.

Software defects discovered after we release our software could result in loss
of revenues, delays in market acceptance and harm to our reputation. Any product
liability claim against us, if successful and of sufficient magnitude, could
harm our profitability and future sales. Our software has in the past contained,
and may in the future contain, "bugs" or errors. Although we typically design
our customer license agreements to contain provisions that limit our exposure to
potential product liability claims, we cannot guarantee that contractual
limitations of liability would be enforceable or would otherwise protect us from
liability for damages to a customer resulting from a defect in our software.
Even though we maintain insurance that covers damages arising from the
implementation and use of our software, we cannot assure you that our insurance
would cover or be sufficient to cover any product liability claims against us.

THE FAILURE OF OUR PRODUCTS AND COMPUTER SYSTEMS TO BE YEAR 2000 COMPLIANT WOULD
HURT OUR BUSINESS.

Our business would suffer if our products and the computer systems we use, as
well as the computer systems used by our customers, users and vendors, do not
correctly process the change in year from "99" to "00" on January 1, 2000. We
are working to avoid such problems and to obtain assurances from our vendors
that they are taking similar steps. We believe that our products and computer
systems will successfully handle the year 2000 issue, but there may be parts of
our products and computer systems and aspects of the year 2000 issue, including
the potential cost of addressing the year 2000 issue, that we have

13
<PAGE> 16

failed to consider. If our efforts and the efforts of our vendors and customers
to address the year 2000 issue are not successful, our business, financial
condition and operating results would be harmed.

WE HAVE IN THE PAST EXPERIENCED RETURNS OF OUR PRODUCTS, AND AS OUR BUSINESS
GROWS WE MAY EXPERIENCE INCREASED RETURNS, WHICH COULD HARM OUR REPUTATION AND
NEGATIVELY IMPACT OUR OPERATING RESULTS.

In the past, some of our customers have returned our rich media events to us
because they felt that modifications were required for the product to meet
project specifications and the customer's requirements. It is likely that we
will experience some level of returns in the future and, as our business grows,
the amount of returns may increase despite our efforts to minimize returns.
Also, returns may adversely affect our relationship with affected customers and
may harm our reputation. This could cause us to lose potential customers and
business in the future. We maintain a reserve for future returns that we believe
is adequate given our historical level of returns. If returns increase, however,
our reserve may not be sufficient and our operating results would be negatively
affected.

THE FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY MAY IMPAIR OUR COMPETITIVE
POSITION.

Our copyrights, service marks, trademarks, trade secrets, proprietary technology
and similar intellectual property are critical to our success. If we are unable
to adequately protect our rights from infringement by competitors or others, or
from misuse by our licensees, the competitive advantage that our rights provide
will be weakened.

We rely on trademark and copyright law, trade secret protection and
confidentiality and license agreements with our employees and independent
contractors to protect our proprietary rights. We strategically pursue the
registration of trademarks and service marks in the United States and abroad.
Effective trademark, service mark, copyright and trade secret protection may not
be available in every country in which our products and services are made
available.

We have licensed in the past, and expect to license in the future, certain of
our proprietary rights to third parties. The steps taken by us to protect our
proprietary rights may not be adequate. Although we attempt to ensure that the
quality of our brand is maintained by these licensees, licensees may take
actions that may harm the value of our proprietary rights or reputation.

WE MAY BECOME SUBJECT TO INTELLECTUAL PROPERTY LITIGATION IN THE FUTURE THAT
COULD CAUSE US TO INCUR SIGNIFICANT EXPENSE AND COULD REQUIRE US TO ALTER OUR
PRODUCTS.

We may be subject to legal proceedings and claims associated with our
intellectual property from time to time in the future. These claims, even if
without merit, could cause us to expend significant financial and managerial
resources. Further, if these claims are successful, we may be required to change
our trademarks, alter our copyrighted material or pay financial damages, any of
which could harm our business. Third parties may infringe or misappropriate our
copyrights, trademarks or similar proprietary rights in the future. In such
event, we may be forced to pursue infringement claims against such third
parties. These claims also could cause us to expend significant financial and
managerial resources.

14
<PAGE> 17

RISKS RELATED TO THE INTERNET

OUR FUTURE SUCCESS DEPENDS ON CONTINUED GROWTH IN USE OF THE WORLD WIDE WEB FOR
BUSINESS-TO-BUSINESS COMMUNICATIONS.

Our business could suffer if Web usage does not continue to grow. Web usage may
be inhibited for a number of reasons, including:

- inadequate network infrastructure;

- security concerns;

- inconsistent quality of service;

- lack of availability of cost-effective and high-speed service; and

- changes in government regulation of the Web.

If Web usage grows, the Web infrastructure may not be able to support the
demands placed on it by this growth or its performance and reliability may
decline. In addition, future outages and other interruptions occurring
throughout the Web could lead to decreased use of our products and would
therefore harm our business.

IF WE ARE UNABLE TO KEEP UP WITH THE RAPID TECHNOLOGICAL CHANGES THAT
CHARACTERIZE THE WEB, OUR BUSINESS WOULD SUFFER.

Our future success will depend on our ability to continually improve our
solutions. To do so, we will need to continually enhance our solutions in
response to the rapid technological developments, evolving industry standards
and user demands, and frequent new product introductions and enhancements that
characterize the market for Web products and services. In the event new
multimedia-enabling technologies are developed and widely adopted, we may be
required to make fundamental and costly changes in our technology. We may not be
able to make these enhancements or changes in a cost-effective manner, fast
enough to keep up with our competitors or at all. In this event, our business
would suffer.

RISKS RELATED TO THIS OFFERING

OUR MANAGEMENT WILL HAVE BROAD DISCRETION TO USE THE PROCEEDS OF THIS OFFERING
AND THEIR USES MAY NOT YIELD A FAVORABLE RETURN.

Most of the net proceeds of this offering have not been allocated for specific
uses. Our management will have broad discretion to spend the proceeds from this
offering in ways with which stockholders may not agree. The failure of our
management to use these funds effectively could result in unfavorable returns.
This could have significant adverse effects on our financial condition and could
cause the price of our common stock to decline.

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

There has been no public trading market for our common stock prior to this
offering. If no public trading market for our common stock 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. 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.

15
<PAGE> 18

OUR STOCK PRICE IS LIKELY TO BE EXTREMELY VOLATILE, WHICH COULD CAUSE YOU TO
LOSE ALL OR A PART OF YOUR INVESTMENT AND MAY RESULT IN COSTLY AND DISTRACTING
SECURITIES LITIGATION.

The market price of our common stock is likely to be extremely volatile. In the
past, following periods of volatility in the market price of a company's
securities, securities class action litigation has often been instituted against
such a company. Securities litigation could result in substantial costs and a
diversion of our management's attention and resources. The stocks of Web-related
and technology companies like ours have experienced extreme price and volume
fluctuations in recent months, many of which fluctuations appear unrelated to
the companies' business, financial condition or operating results. Although the
market price of our stock will in part be based on our business, financial
condition and operating results, we expect that it will also be affected to a
significant degree by these industry-wide price and volume fluctuations.

OUR DIRECTORS AND EXECUTIVE OFFICERS OWN A SIGNIFICANT AMOUNT OF OUR COMMON
STOCK, WHICH MAY ENABLE THEM TO SIGNIFICANTLY INFLUENCE MATTERS DECIDED BY THE
STOCKHOLDERS.

After this offering, our directors and executive officers and their affiliates
will beneficially own approximately % of our outstanding common stock. As a
result of their beneficial ownership, our directors and executive officers,
acting alone or with others, will be able to significantly influence all matters
requiring stockholder approval, including the election of directors and approval
of significant transactions. This concentration of ownership may also have the
effect of delaying or preventing a change in control of Eloquent. This could
prevent our stockholders from realizing a premium over the market price for
their shares or from bringing about a change in management.

ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND THE DELAWARE GENERAL
CORPORATION LAW MAY INHIBIT A TAKEOVER OF ELOQUENT, EVEN IF THE TAKEOVER WOULD
BE BENEFICIAL TO ELOQUENT STOCKHOLDERS.

Provisions in our certificate of incorporation and bylaws and the Delaware
General Corporation Law could make it more difficult for a third party to
acquire us, even if a change in control would be beneficial to our stockholders.
These provisions include:

- the requirement that a special meeting of stockholder not be called by
stockholders, but instead may be called only by our board of directors,
Chairman of the Board, Chief Executive Officer or President; and

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

Furthermore, Section 203 of the Delaware General Corporation Law prohibits a
stockholder owning 15% or more of our outstanding shares from acquiring Eloquent
unless it receives board approval of the transaction or unless 66 2/3% of our
outstanding shares not owned by this stockholder approve the transaction. See
"Description of Capital Stock -- Delaware Anti-Takeover Law and Certain Charter
and Bylaw Provisions" beginning on page 66 for a more detailed description of
the provisions in our charter documents and the Delaware General Corporation Law
that may inhibit a takeover of Eloquent.

THE LARGE NUMBER OF SHARES THAT MAY BE RESOLD IN THE PUBLIC MARKET AFTER THIS
OFFERING COULD CAUSE OUR STOCK PRICE TO DECLINE.

As our shares become eligible for public resale, the market price of our common
stock may drop if the holders of these shares sell them or are perceived by the
market as intending to sell them. Most of the shares we will have outstanding or
issuable upon exercise of options or warrants after this offering will become
eligible for public resale 180 days after the closing of this offering. See
"Shares Eligible for Future Sale" beginning on page 69 for a more detailed
description of the eligibility of the outstanding shares of our common stock for
resale in the public market after this offering.

16
<PAGE> 19

SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. These statements relate to
our future plans, objectives and expectations and our current intentions. In
some cases, you can identify these statements by the use of the words such as
"anticipates," "believes," "may," "should," "will," "could," "plans," "expects,"
"future," "intends" and similar expressions. Each of these forward-looking
statements involves risks and uncertainties. In addition to forward-looking
statements made by us, this prospectus also contains forward-looking statements
attributed to certain third parties. Our actual results could differ materially
from those anticipated in these forward-looking statements for many reasons,
including the risks faced by us described above and elsewhere in this
prospectus.

17
<PAGE> 20

USE OF PROCEEDS

We estimate that our net proceeds from the offering will be approximately $
million, at an assumed public offering price of $ per share and after
deducting the estimated underwriting discount and commissions and estimated
offering expenses. If the underwriters' over-allotment option is exercised in
full, we estimate that the net proceeds will be $ million.

We plan to use approximately $3.0 million of the net proceeds of this offering
to repay existing indebtedness owed under our existing secured credit facility
and $20.0 million of the proceeds to repay the subordinated notes we issued in
October 1999. The subordinated debt facility bears interest at prime plus 3.5%
per annum, compounded annually, and is due in January 2001. The subordinated
notes bear interest at 12% per annum, compounded quarterly, and are due upon the
closing of this offering. We plan to use the remaining net proceeds from this
offering to increase the size of our sales and marketing organizations, to
expand research and development efforts in order to enhance the functionality of
our platform and to expand internationally, for working capital and for general
corporate purposes. In addition, we may use a portion of the net proceeds from
this offering to make strategic acquisitions of companies or technology. We are
not currently a party to any discussions with respect to any acquisitions.

As of the date of this prospectus, other than with respect to the debt repayment
described above, we have no specific plan detailing the expected amount of the
proceeds to be used for each of the purposes described above and cannot specify
with certainty the particular uses for the net proceeds to be received upon
completion of this offering. The actual amounts and timing of these expenditures
will vary significantly depending on a number of factors including, but not
limited to, the amount of cash used in or generated by our operations. Our
management will have discretion over the use and investment of the net proceeds
of this offering. Pending such uses, we intend to invest the net proceeds from
this offering in short-term, interest-bearing, investment grade securities until
they are used.

DIVIDEND POLICY

We have never declared or paid any cash dividends on our capital stock. We
intend to retain future earnings, if any, to finance the expansion of our
business and we do not expect to pay any cash dividends in the foreseeable
future. Any determination to pay dividends in the future will be at the
discretion of our board of directors and will depend upon our financial
condition, operating results and capital requirements. Additionally, the terms
of our existing secured credit facility prohibit us from paying cash dividends
on our common stock.

18
<PAGE> 21

CAPITALIZATION

The following table sets forth our total capitalization as of September 30,
1999:

- on an actual basis;

- on a pro forma basis to reflect (1) the receipt of $18.8 million in
estimated aggregate net proceeds from the sale of $20.0 million in
subordinated notes and warrants to purchase 1,500,000 shares of common
stock in October 1999 and the issuance of 22,500 of these shares upon
exercise of a portion of these warrants in October 1999, (2) the
issuance of 15,000 shares as partial payment of a placement agent fee
owed in connection with such sale, (3) the application of $2.6 million
of the net proceeds from the notes to repay a portion of our existing
line of credit, (4) an increase in the authorized number of shares of
common and preferred stock and (5) the conversion of all of our
outstanding preferred stock into common stock upon the closing of this
offering; and

- on a pro forma, as adjusted basis to reflect the sale of the shares of
common stock offered hereby at an assumed initial offering price of
$ per share, after deducting estimated underwriting discounts,
commissions and offering expenses, and the application of $20.0 million
of the net proceeds from the offering to repay the subordinated notes.

<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term obligations and debt (net of debt discounts of
$12.5 million, pro forma)................................... $ 889 $ 8,389 $
-------- -------- --------
Preferred stock, $0.001 par value: 7,438,844 shares
authorized actual; 10,000,000 shares authorized pro forma
and pro forma, as adjusted; 7,159,009 shares outstanding
actual; no shares issued and outstanding, pro forma and
pro forma, as adjusted.................................... 7 -- --
Common stock, $0.001 par value: 17,000,000 shares authorized
actual; 40,000,000 shares authorized pro forma and pro
forma, as adjusted; 3,452,238 shares issued and
outstanding actual; 10,648,747 shares issued and
outstanding pro forma; shares issued and outstanding
pro forma, as adjusted.................................... 3 11
Additional paid-in capital.................................. 35,647 47,779
Unearned stock-based compensation........................... (8,210) (8,210)
Accumulated deficit......................................... (28,279) (28,279)
-------- -------- --------
Total stockholders' equity........................ (832) 11,301
-------- -------- --------
Total capitalization.............................. $ 57 $ 19,690 $
======== ======== ========
</TABLE>

The above information excludes:

- 2,683,525 shares of common stock issuable upon exercise of stock options
outstanding as of September 30, 1999 with a weighted average exercise
price of $0.93 per share;

- 207,887 shares of common stock issuable upon exercise of warrants
outstanding with a weighted average exercise price of $2.86 per share,
14,450 of which will expire upon the closing of this offering if not
exercised by that time.

- 1,477,500 shares of common stock issuable upon exercise of warrants with
an exercise price of $0.01 per share issued in connection with our sale
of subordinated notes in October 1999.

19
<PAGE> 22

DILUTION

Our pro forma net tangible book value at September 30, 1999 was approximately
$10.0 million, or $0.94 per share. Pro forma net tangible book value per share
is determined by dividing our pro forma tangible net worth, which is our total
tangible assets less total liabilities, by the number of shares of outstanding
common stock, after giving effect to:

- the receipt of $18.8 million in estimated aggregate net proceeds from
the sale of $20.0 million in subordinated notes and warrants to purchase
1,500,000 shares of common stock in October 1999;

- the issuance of 15,000 shares as partial payment of a placement agent
fee owed in connection with such sale and the issuance of 22,500 shares
upon exercise of a portion of such warrants;

- the application of $2.6 million of the net proceeds from the notes to
repay a portion of our existing line of credit;

- an increase in the authorized number of shares of common and preferred
stock; and

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

Assuming the sale of the shares of common stock offered hereby at
an assumed offering price of $ per share, after deducting estimated
underwriting discounts, commissions and offering expenses payable by us, and the
application of $20.0 million of net proceeds from this offering to repay the
subordinated notes, our pro forma, as adjusted net tangible book value as of
September 30, 1999 would have been approximately $ , or $ per
share. This represents an immediate increase in the pro forma net tangible book
value per share of $ per share to existing stockholders and an immediate
dilution of $ per share to new investors purchasing shares at the initial
public offering price. If the initial public offering price is higher or lower,
the dilution to new investors will be greater or less. The following table
illustrates that new investors could pay as much as $ per share in this
offering to acquire shares of Eloquent that each have a net tangible book value
of $ , based on the pro forma per share value of Eloquent's tangible
assets after subtracting its liabilities:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of
September 30, 1999..................................... $ 0.94
Increase in pro forma net tangible book value per share
attributable to new investors..........................
-------
Pro forma, as adjusted net tangible book value per share
after the offering........................................
-------
Dilution per share to new investors......................... $
=======
</TABLE>

20
<PAGE> 23

The following table summarizes, on a pro forma basis as of September 30, 1999,
the number of shares of common stock purchased from us, the total consideration
provided to us and the average price per share provided by existing stockholders
and new investors after giving effect to the events described in the pro forma
net tangible book value calculation noted above. The calculation is based on an
assumed initial public offering of $ per share, before deducting the
estimated underwriting discounts, commissions and offering expenses. The table
illustrates that, while investors purchasing shares in this offering will have
contributed approximately % of the total amount of capital contributed by
Eloquent stockholders, they will own only approximately % of the outstanding
shares of Eloquent.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.............. 10,648,747 % $22,640,654 % $2.13
New investors......................
---------- ----- ----------- -----
Total.................... 100.0% $ 100.0%
========== ===== =========== =====
</TABLE>

The foregoing discussion and tables are based on the total number of shares
outstanding on September 30, 1999 and exclude:

- 2,683,525 shares of common stock issuable upon exercise of stock options
outstanding as of September 30, 1999 with a weighted average exercise
price of $0.93 per share;

- 2,905,799 shares of common stock reserved for issuance under our equity
incentive and stock purchase plans, based on options outstanding as of
September 30, 1999 and taking into account increases in share reserves
since that date;

- 1,477,500 shares of common stock issuable upon exercise of warrants with
an exercise price of $0.01 per share issued in connection with our sale
of subordinated notes in October 1999.

To the extent that any of these options or warrants are exercised, new investors
will suffer additional dilution.

21
<PAGE> 24

SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The following selected Eloquent statements of operations for the years ended
December 31, 1996, 1997 and 1998 and the balance sheet data at December 31, 1997
and 1998 are derived from the financial statements of Eloquent that have been
audited by PricewaterhouseCoopers LLP, independent accountants, and are included
in this prospectus. The Eloquent statement of operations for the period from
March 29, 1995, our date of inception, to December 31, 1995 and the balance
sheet data at December 31, 1995 and 1996 are derived from the financial
statements of Eloquent that have been audited by PricewaterhouseCoopers LLP,
independent accountants, and are not included in this prospectus. The statement
of operations for the nine months ended September 30, 1999 and 1998 and the
balance sheet data at September 30, 1999 are derived from our unaudited
financial statements that include, in our opinion, all adjustments, consisting
of only normal recurring adjustments, necessary for the fair presentation of the
financial condition and results of operations for such period. The results of
operations for the nine months ended September 30, 1999, or any other period are
not necessarily indicative of our future results. The selected financial data
should be read in conjunction with our financial statements and related notes
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus.

<TABLE>
<CAPTION>
INCEPTION
(MARCH 29, 1995) NINE MONTHS ENDED
THROUGH YEAR ENDED DECEMBER 31, SEPTEMBER 30,
DECEMBER 31, ------------------------------ -------------------
1995 1996 1997 1998 1998 1999
---------------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Content production services..... $ 55 $ 944 $ 3,519 $ 6,750 $ 5,134 $ 6,404
Software licenses and
maintenance................... -- -- 406 993 677 1,592
Professional services........... -- -- -- -- -- 379
-------- -------- -------- -------- -------- --------
Total revenues........... 55 944 3,925 7,743 5,811 8,375
-------- -------- -------- -------- -------- --------
Cost of revenues:
Content production services..... -- 405 3,717 5,730 4,277 3,907
Software licenses and
maintenance................... -- -- 50 445 319 407
Professional services........... -- -- -- -- -- 783
-------- -------- -------- -------- -------- --------
Total cost of revenues... -- 405 3,767 6,175 4,596 5,097
-------- -------- -------- -------- -------- --------
Gross margin.................... 55 539 158 1,568 1,215 3,278
Operating expenses:
Sales and marketing............. 81 846 3,785 6,812 4,832 5,684
Research and development........ 86 659 845 1,510 1,111 1,417
General and administrative...... 208 597 1,876 2,211 1,546 2,586
Stock-based compensation........ -- -- -- 992 580 3,343
-------- -------- -------- -------- -------- --------
Total operating
expenses............... 375 2,102 6,506 11,525 8,069 13,030
-------- -------- -------- -------- -------- --------
Loss from operations... (320) (1,563) (6,348) (9,957) (6,854) (9,752)
Interest expense and other
charges......................... 1 (21) (100) (259) (207) (418)
Interest income and other
income.......................... -- 49 79 208 120 123
-------- -------- -------- -------- -------- --------
Net loss.......................... $ (319) $ (1,535) $ (6,369) $(10,008) $ (6,941) $(10,047)
======== ======== ======== ======== ======== ========
Net loss per share, basic and
diluted......................... $ (1.33) $ (1.97) $ (4.59) $ (4.74) $ (3.49) $ (3.06)
======== ======== ======== ======== ======== ========
Weighted average shares, basic and
diluted......................... 240 781 1,388 2,111 1,990 3,286
======== ======== ======== ======== ======== ========
Pro forma net loss per share,
basic and diluted............... $ (1.21) $ (0.96)
======== ========
Pro forma weighted average shares,
basic and diluted............... 8,285 10,444
======== ========
</TABLE>

22
<PAGE> 25

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------- SEPTEMBER 30,
1995 1996 1997 1998 1999
---- ------ ------ ------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents......................... $216 $2,280 $4,016 $ 6,661 $ 3,431
Working capital (deficit)......................... 120 2,124 2,551 4,164 (2,688)
Total assets...................................... 390 3,124 8,073 11,461 9,689
Long-term obligations............................. 61 189 1,271 1,254 889
Total stockholders' equity (deficit).............. 184 2,455 3,589 5,356 (832)
</TABLE>

23
<PAGE> 26

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

The following discussion should be read in conjunction with our financial
statements and the accompanying notes appearing elsewhere in this prospectus.
The following discussion contains forward-looking statements that involve risks
and uncertainties. These statements relate to our future plans, objectives,
beliefs, expectations and intentions. These statements may be identified by the
use of words such as "expects," "anticipates," "believes," "intends," "plans"
and similar expressions. Our actual results may differ significantly from those
projected in the forward-looking statements. Factors that may cause future
results to differ materially from those projected in the forward-looking
statements include, but are not limited to, those discussed in "Risk Factors"
and elsewhere in this prospectus.

OVERVIEW

We incorporated in Delaware in March 1995. In February 1996, we launched Version
1.0 of our solutions platform, which included the essential elements of content
production and navigation, including synchronized video, audio, graphics and
text as well as searchable transcripts, for delivery on CD-ROM only. In July
1996, we launched Version 2.0, which expanded delivery from CD-ROM to intranets,
included searchable slides and added variable speed playback. In November 1997,
we launched Version 3.0. It further expanded delivery options to include
Web-based transmission at 28.8 Kbps and added tracking and reporting and
software demonstrations. In April 1998, we introduced our content hosting
service and software. In January 1999, we launched our professional services
organization to provide integration services and professional media development
services. In April 1999, we launched Version 4.0 of our solutions platform,
which includes our publishing tools and added support for high-resolution video
and the ability for application developers to customize certain aspects of our
software.

We generate revenues through content production services, software licenses and
maintenance and professional services. For each content production transaction,
we charge our customers a fixed project set-up fee plus a fee for each hour of
finished content. Our software licenses revenues consist of one-time fees
charged for the use of our desktop player and applications server software and
monthly fees for content hosting. Our maintenance revenues consist of prepaid
contracts related to software, which are recognized over the contract term,
usually one year. Our professional services revenues are from contracted
services to customize the content and software for our customers. Most of our
revenues to date have been from our content production services. We expect
content production services to produce the largest portion of our revenues for
the foreseeable future, but we intend to increase sales of our applications
server software and content hosting so that software license revenues constitute
an increasing percentage of our revenues. The gross margins attributable to
software license revenues are significantly higher than those for our content
production services. We cannot assure you that we will be able to increase the
proportion of software license revenues and, therefore, we cannot assure you
that we will be able to proportionally improve our gross margins.

We generally recognize content production revenues upon shipment of the final
rich media event to the customer and software license revenues upon delivery of
software to the customer. Included within content production services are
revenues for CD-ROM duplication. We recognize these revenues upon shipment of
the duplicated CD-ROMs. The revenues for software licenses are recognized upon
shipment, or upon notification by the customer, dependent on the delivery
medium. We recognize revenues for maintenance and content hosting ratably over
the period of the maintenance or content hosting contract. We recognize
professional services revenues on a percentage of completion basis correlated
with projected costs at completion.

A limited number of large customers have accounted for a majority of our
revenues, and will continue to do so for the foreseeable future. Although no
customer accounted for more than 10% of our total revenues in the nine months
ended September 30, 1999, Cisco Systems accounted for more than 10% of our total

24
<PAGE> 27

revenues in 1998. Cisco Systems, Inc. and Tandem Computers Incorporated, which
is now a division of Compaq Computer Corporation, each accounted for more than
10% of our total revenues in 1997 and 1996. To date, most of our customers have
been in the telecommunications, software, high-technology manufacturing,
financial services and pharmaceuticals industries.

Stock-based compensation charges consist primarily of charges related to the
difference between employee option exercise prices and deemed fair market values
on the date of grant amortized over the vesting period of the options. Through
September 30, 1999, we recorded a total of $12.5 million in stock-based
compensation charges in connection with stock option grants to our employees and
consultants, which is being amortized using an accelerated method of
amortization as described in Financial Accounting Standards Board Interpretation
No. 28, over the vesting periods of the options, generally four to five years.
Through September 30, 1999 we have recognized stock based-compensation expense
of $4.3 million.

In October 1999, we raised $20.0 million in gross proceeds from the sale of
subordinated notes and warrants to purchase common stock. Applicable accounting
rules require that we allocate the gross proceeds among the notes, the
beneficial conversion feature of the notes and the warrants. As a result of that
allocation, the subordinated notes will initially be recorded on our balance
sheet at a discounted value of approximately $7.5 million. The $7.5 million
discount resulting from the issuance of warrants will be amortized over the
five-year term of the notes and the $5.0 million discount resulting from the
beneficial conversion feature will be amortized over the one-year period during
which the note may not be converted. If the notes are repaid by us prior to the
end of their term, the unamortized portion of the discount resulting from the
issuance of the warrants and debt issuance costs will be recorded as an
extraordinary loss on extinguishment of debt during the period in which the
notes are repaid. We are required to repay the notes upon the completion of this
offering. Accordingly, upon completion of this offering we will have to
recognize an extraordinary loss on extinguishment of debt of up to $9.0 million.
Upon repayment of the notes, the beneficial conversion feature will be reversed
by a charge to additional paid in capital.

No costs for our internal software development efforts have been capitalized as
of September 30, 1999 because Eloquent's products have generally reached
technological feasibility and have been released for sale at substantially the
same time. However, costs incurred for outside contractors to develop aspects of
our internal production management system were capitalized as an asset on our
balance sheet.

We have not achieved profitability on a quarterly or annual basis to date and we
anticipate that we will continue to incur net losses for the foreseeable future.
As of September 30, 1999, we had an accumulated deficit of $28.3 million. We
expect to increase our operating expenses significantly, expand our sales and
marketing operations and continue to develop and expand our solutions platform.
If these increased expenses are not accompanied by increased revenues, our
business, financial condition and operating results would suffer.

As of December 31, 1998, we had available net operating loss carryforwards of
$15.6 million that expire beginning in 2003. These carryforwards have not been
recorded on our balance sheet as an asset because they have been fully reserved
against due to uncertainty about our ability to utilize such carryforwards. In
addition, the Tax Reform Act of 1986 imposes limitations on the use of net
operating loss carryforwards if certain stock ownership changes occur in the
future.

25
<PAGE> 28

RESULTS OF OPERATIONS

The following table sets forth certain statement of operations data for the
periods indicated as a percentage of total revenues.

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------- --------------
1996 1997 1998 1998 1999
---- ---- ---- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Content production services......................... 100% 90% 87% 88% 76%
Software licenses and maintenance................... -- 10 13 12 19
Professional services............................... -- -- -- -- 5
---- ---- ---- ---- ----
Total revenues.............................. 100 100 100 100 100
---- ---- ---- ---- ----
Cost of revenues:
Content production services......................... 43 95 74 73 47
Software licenses and maintenance................... -- 1 6 6 5
Professional services............................... -- -- -- -- 9
---- ---- ---- ---- ----
Total cost of revenues...................... 43 96 80 79 61
---- ---- ---- ---- ----
Gross margin..................................... 57 4 20 21 39
---- ---- ---- ---- ----
Operating expenses:
Sales and marketing................................. 90 96 88 83 68
Research and development............................ 70 22 20 19 17
General and administrative.......................... 63 48 28 27 31
Stock-based compensation............................ -- -- 13 10 40
---- ---- ---- ---- ----
Total operating expenses.................... 223 166 149 139 156
---- ---- ---- ---- ----
Loss from operations...................... (166) (162) (129) (118) (117)
Interest expenses and other charges................... (2) (3) (3) (4) (5)
Interest income and other income...................... 5 2 3 2 1
---- ---- ---- ---- ----
Net loss.............................................. (163)% (163)% (129)% (120)% (121)%
==== ==== ==== ==== ====
</TABLE>

NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999

REVENUES. Total revenues were $8.4 million in the nine months ended September
30, 1999, an increase of $2.6 million, or 44%, from the same period in 1998. The
increase in revenues is attributable to an increase in the number and average
size of sales of our products and services generated by a larger sales force in
the 1999 period and, to a lesser extent, higher prices in the 1999 period.

Content production services. Content production services revenues were $6.4
million in the nine months ended September 30, 1999, an increase of $1.3 million
or 25%, from the same period in 1998. Approximately 43% of the increase was due
to the effect of a price increase and additional service charges, 17% was
attributable to an increase in CD-ROM duplication, and the remainder of the
increase was due to an increase in the number of rich media events produced by
Eloquent to 250 events in the 1999 period from 224 events in the 1998 period.

Software licenses and maintenance. Revenues from software licenses and
maintenance were $1.6 million in the nine months ended September 30, 1999, an
increase of $915,000, or 135%, from the same period in 1998. The increase was
due primarily to the introduction of a new server product, the Enterprise
Communications Portal server, which added functionality and was offered at a
substantially higher price

26
<PAGE> 29

than our previously available server products. The list price of the Enterprise
Communications Portal server is $125,000, compared to the list price of $30,000
for the previously available server products.

Professional services. We launched our professional services organization in the
first quarter of 1999. Professional services revenues were $379,000 in the nine
months ended September 30, 1999.

COST OF REVENUES. Cost of revenues consists primarily of content production
costs, software licenses and maintenance costs, and professional services costs.
Cost of content production consists of event production costs and direct
personnel expenses associated with event production, with some fixed overhead
components for facilities and infrastructure support charges. Direct labor costs
associated with content production are deferred until revenues are recognized,
at which time they are expensed as cost of revenues. Cost of software licenses
and maintenance consists of customer support and content hosting personnel and
royalty payments due to the owners of licensed third-party software. Cost of
professional services consists of direct labor costs associated with providing
professional services, which are deferred until revenues are recognized, at
which time they are expensed as cost of revenues.

Cost of content production services was $3.9 million in the nine months ended
September 30, 1999, a decrease of $370,000, or 9%, from the same period in 1998.
The decrease was due to a reduced fixed and variable cost structure in the 1999
period, which we achieved in early 1999 through a restructuring of our
production facility and processes. The restructuring included the termination of
eight full-time content production employees, six of whom previously had been
classified as production overhead. We also undertook to more closely manage the
correlation of our direct labor force with content production volume, resulting
in reduced utilization of approximately 36 temporary direct labor employees.
Several efficiency measures were also introduced including: initiating content
production on an event-only basis when all customer materials were acquired;
parallel processing paths for certain production activities; electronic exchange
with customers for revisions of certain event elements; greater workflow and
document integration with our automated event management system to minimize
paper documents; and earlier production involvement in the post-sales process to
clearly delineate customer expectations and event requirements. These
restructuring initiatives yielded higher production efficiency, including faster
content production times and higher production capacity.

Cost of software licenses and maintenance was $407,000 in the nine months ended
September 30, 1999, an increase of $88,000, or 28%, from the same period in
1998. This increase is due to higher royalty payments under our license
agreements due to our increased revenues for the nine months ended September 30,
1999.

Cost of professional services was $783,000 in the nine months ended September
30, 1999.

To the extent we are successful in increasing revenues, we expect the cost of
revenues to increase in absolute dollars, but to decrease as a percentage of
total revenues.

OPERATING EXPENSES. Operating expenses were $13.0 million in the nine months
ended September 30, 1999, an increase of $5.0 million, or 61%, from the same
period in 1998. Without the effect of stock-based compensation charges,
operating expenses for the 1999 period would have been $9.7 million, an increase
of $2.2 million, or 29%, from the same period in 1998.

Sales and marketing. Sales and marketing expenses consist primarily of personnel
expenses associated with the sale of our products and services, personnel and
marketing materials and expenses associated with the marketing of our products
and services. Sales and marketing expenses were $5.7 million in the nine months
ended September 30, 1999, an increase of $852,000, or 18%, from the same period
in 1998. Over 80% of the increase was due to higher personnel expenses
associated with growth in our sales force and marketing staff. Approximately 12%
of the increase reflects increased direct marketing expenses. We expect sales
and marketing expenses to increase in absolute dollars and as a percentage of
total revenues in the near future as we seek to build our sales organization.

27
<PAGE> 30

Research and development. Research and development expenses consist primarily of
personnel expenses associated with software development. Research and
development expenses were $1.4 million in the nine months ended September 30,
1999, an increase of $306,000, or 28%, from the same period in 1998. The
increase was due primarily to higher personnel expenses associated with growth
in our engineering staff. We expect research and development expenses to
increase in absolute dollars as we seek to increase the functionality of our
solutions platform.

General and administrative. General and administrative expenses consist
primarily of administrative personnel expenses, professional fees and facilities
costs. General and administrative expenses were $2.6 million in the nine months
ended September 30, 1999, an increase of $1.0 million, or 67%, from the same
period in 1998. Approximately 60% of the increase was due to higher personnel
expenses. Approximately 13% of the increase relates to our allowance for
identified doubtful accounts, and 11% of the increase reflects additional
professional fees necessary to support our growth. We expect general and
administrative expenses to increase in absolute dollars but to decrease as a
percentage of total revenues.

INTEREST EXPENSE AND OTHER CHARGES. Interest expense and other charges consist
primarily of interest payments on equipment leases and bank lines of credit.
Interest expense and other charges were $418,000 in the nine months ended
September 30, 1999, an increase of $211,000, or 102%, from the same period in
1998. The increase was due to additional borrowings in the 1999 period.

INTEREST INCOME AND OTHER INCOME. Interest income and other income consists
primarily of interest earnings on our cash and cash equivalents. Interest income
and other income was $123,000 in the nine months ended September 30, 1999, an
increase of $3,000, or 3%, from the same period in 1998. The increase was due to
higher average cash balances in the 1999 period.

YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

REVENUES. Total revenues were $7.7 million, $3.9 million and $944,000 in 1998,
1997 and 1996. The increase in revenues is attributable to an increase in the
number of sales of our products and services. The primary reason for the
increase in number of sales was a growing sales force and increased market
acceptance of our solutions.

Content production services. Content production services revenues were $6.8
million, $3.5 million and $944,000 in 1998, 1997 and 1996. Of the increase in
1998 over 1997, 14% was attributable to an increase in CD-ROM duplication and
23% was due to additional service charges. The remainder was attributable to an
increase in the number of rich media events we produced, from 155 events in 1997
to 265 events in 1998. Of the increase in 1997 over 1996, 24% was attributable
to an increase in CD-ROM duplication, and the remainder was due to an increase
in the number of rich media events we produced, from 46 events in 1996 to 155
events in 1997.

Software licenses and maintenance. Revenues from software licenses and
maintenance were $993,000 in 1998 and $406,000 in 1997. We did not recognize
software license revenues in 1996. The increase from 1997 to 1998 was due
primarily to the increased number of CD-ROMs shipped to customers, for which we
were paid a software license fee of approximately $2 per CD-ROM, to an increased
number of server licenses sold and to the introduction of content hosting in
1998.

COST OF REVENUES. Cost of content production was $5.7 million, $3.7 million and
$405,000 in 1998, 1997 and 1996. The increase was primarily due to personnel
costs required for the production of additional rich media events. Cost of
software licenses and maintenance was $445,000 in 1998 and $50,000 in 1997.
Approximately 90% of the increase reflects increases in customer service
personnel and content hosting activities to support software licenses and
maintenance, and the remainder reflects higher royalty payments due to increased
revenues.

28
<PAGE> 31

OPERATING EXPENSES. Operating expenses were $11.5 million, $6.5 million and $2.1
million in 1998, 1997 and 1996. Without the effect of stock-based compensation
charges, operating expenses for 1998 would have been $10.5 million.

Sales and marketing. Sales and marketing expenses were $6.8 million, $3.8
million and $846,000 in 1998, 1997 and 1996. The increases were due primarily to
higher personnel expenses associated with growth in our sales force and
marketing staff.

Research and development. Research and development expenses were $1.5 million,
$845,000 and $659,000 in 1998, 1997 and 1996. The increases were due primarily
to higher personnel expenses associated with growth in our engineering staff.

General and administrative. General and administrative expenses were $2.2
million, $1.9 million and $597,000 in 1998, 1997 and 1996. Higher personnel
expenses accounted for approximately 132% of the increase from 1997 to 1998, but
this factor was partially offset by a decrease in professional fees, in an
amount equal to approximately 24% of the increase in general and administrative
expenses. Increased facilities costs also accounted for approximately 16% of the
increase in general administrative expenses from 1997 to 1998. Approximately 60%
of the increase in general and administrative expenses from 1996 to 1997
reflects higher personnel expenses to support our growth. Higher facilities
costs and professional fees in 1997 each accounted for approximately 10% of the
increase in general and administrative expenses from 1996 to 1997.

INTEREST EXPENSE AND OTHER CHARGES. Interest expense and other charges were
$259,000, $100,000 and $21,000 in 1998, 1997 and 1996. The increases were due to
increased borrowings in the later periods.

INTEREST INCOME AND OTHER INCOME. Interest income and other income was $208,000,
$79,000 and $49,000 in 1998, 1997 and 1996. The increases were due to higher
average cash balances in the later periods.

29
<PAGE> 32

QUARTERLY RESULTS OF OPERATIONS

The following tables contain statement of operations data for each of the six
quarters ended September 30, 1999, as well as the percentage of revenues
represented by such items. All data is unaudited. The data have been prepared on
the same basis as the audited financial statements contained elsewhere in this
prospectus and, in the opinion of management, include all adjustments,
consisting only of normal recurring adjustments, considered necessary for a fair
presentation of such information. Historical results are not necessarily
indicative of the results to be expected in the future and the results of
interim periods are not necessarily indicative of results for the entire year.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------
JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1998 1998 1998 1999 1999 1999
-------- ------------- ------------ --------- -------- -------------
(IN THOUSANDS, EXCEPT PERCENTAGE DATA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Content production services........... $ 1,664 $ 2,083 $ 1,616 $ 1,602 $ 2,042 $ 2,760
Software licenses and maintenance..... 251 229 316 340 540 712
Professional services................. -- -- -- 5 218 156
------- ------- ------- ------- ------- -------
Total revenues................ 1,915 2,312 1,932 1,947 2,800 3,628
------- ------- ------- ------- ------- -------
Cost of revenues:
Content production services........... 1,556 1,347 1,453 1,154 1,245 1,508
Software licenses and maintenance..... 127 125 126 96 135 176
Professional services................. -- -- -- 109 355 319
------- ------- ------- ------- ------- -------
Total cost of revenues........ 1,683 1,472 1,579 1,359 1,735 2,003
------- ------- ------- ------- ------- -------
Gross margin....................... 232 840 353 588 1,065 1,625
------- ------- ------- ------- ------- -------
Operating expenses:
Sales and marketing................... 1,633 1,710 1,980 1,806 1,862 2,016
Research and development.............. 401 408 399 466 484 467
General and administrative............ 453 665 665 855 816 915
Stock-based compensation.............. 225 305 412 1,129 913 1,301
------- ------- ------- ------- ------- -------
Total operating expenses...... 2,712 3,088 3,456 4,256 4,075 4,699
------- ------- ------- ------- ------- -------
Loss from operations..... (2,480) (2,248) (3,103) (3,668) (3,010) (3,074)
Interest expense and other charges...... (89) (53) (52) (94) (103) (221)
Interest income and other income........ 15 71 88 50 38 35
------- ------- ------- ------- ------- -------
Net loss................................ $(2,554) $(2,230) $(3,067) $(3,712) $(3,075) $(3,260)
======= ======= ======= ======= ======= =======
AS A PERCENTAGE OF TOTAL REVENUES:
Revenues:
Content production services........... 87% 90% 84% 83% 73% 76%
Software licenses and maintenance..... 13 10 16 17 19 20
Professional services................. -- -- -- -- 8 4
------- ------- ------- ------- ------- -------
Total revenues................ 100 100 100 100 100 100
------- ------- ------- ------- ------- -------
Cost of revenues:
Content production services........... 81 58 75 59 44 41
Software licenses and maintenance..... 7 5 7 5 5 5
Professional services................. -- -- -- 6 13 9
------- ------- ------- ------- ------- -------
Total cost of revenues........ 88 63 82 70 62 55
------- ------- ------- ------- ------- -------
Gross margin....................... 12 37 18 30 38 45
------- ------- ------- ------- ------- -------
Operating expenses:
Sales and marketing................... 85 74 102 92 67 56
Research and development.............. 21 18 21 24 17 13
General and administrative............ 24 29 35 44 29 25
Stock-based compensation.............. 12 13 21 58 33 36
------- ------- ------- ------- ------- -------
Total operating expenses...... 142 134 179 218 146 130
------- ------- ------- ------- ------- -------
Loss from operations..... (130) (97) (161) (188) (108) (85)
Interest expense and other charges...... (5) (2) (3) (5) (3) (6)
Interest income and other income........ 1 3 5 3 1 1
Net loss................................ (134)% (96)% (159)% (191)% (110)% (90)%
======= ======= ======= ======= ======= =======
</TABLE>

30
<PAGE> 33

LIQUIDITY AND CAPITAL RESOURCES

Since our inception, we have financed our operations through private sales of
preferred stock and, to a lesser extent, borrowings under lines of credit. Net
proceeds from sales of preferred stock from inception to September 30, 1999 have
totaled approximately $22.4 million. In addition, we raised $18.8 million in net
proceeds through the sale of exchangeable subordinated notes and warrants in
October 1999. At September 30, 1999, we had approximately $3.4 million of cash
and cash equivalents. We have entered into capital lease arrangements that
provide for up to $4.2 million for equipment purchases, of which we have
utilized approximately $2.9 million as of September 30, 1999. Our capital
expenditure budget for the 12 months ending September 30, 2000 is approximately
$1.0 million. In addition, we have a revolving line of credit and debt facility
that provides for borrowings up to $6.0 million for working capital requirements
and equipment purchases.

As of September 30, 1999, we had borrowed $2.5 million against the revolving
line of credit outstanding and $3.0 million under the debt facility. The line of
credit bears interest at prime plus 2% per annum, compounded annually, and the
debt facility bears interest at prime plus 3.5% per annum, compounded annually.
All borrowing under the line of credit and debt facility is due in January 2001.
The revolving line of credit was repaid in its entirety using the proceeds from
our sale of subordinated notes. The subordinated notes bear interest at 12.0%
per annum, compounded quarterly, and are due upon the closing of this offering.
We intend to repay the debt facility and the subordinated notes in their
entirety using proceeds from this offering.

Net cash used in operating activities was $8.8 million, $5.5 million and $1.6
million in 1998, 1997 and 1996. For the nine months ended September 30, 1999,
net cash used in operating activities was $6.4 million. Net cash used in
operating activities in all such periods was primarily attributable to net
losses.

Net cash provided by investing activities was $925,000 in 1997. Net cash used in
investing activities was $146,000 in 1998 and $1.2 million in 1996. For the nine
months ended September 30, 1999, net cash used in investing activities was
$337,000. Net cash used in investing activities in 1996 was primarily related to
purchases of short-term investments and, to a lesser extent, purchases of
property and equipment. Net cash provided by investing activities in 1997 was
primarily related to the maturity of short-term investments, offset in part by
purchases of property and equipment. Net cash used in investing activities in
1998 and the 1999 period was primarily related to purchases of property and
equipment.

Net cash provided by financing activities was $11.6 million, $7.5 million and
$3.7 million in 1998, 1997 and 1996. For the nine months ended September 30,
1999, net cash provided by financing activities was $3.6 million. Net cash
provided by financing activities resulted primarily from the sale of preferred
stock and borrowings under our bank lines of credit.

We believe that the net proceeds from this offering, together with our current
cash and cash equivalents, will be sufficient to meet our anticipated cash needs
for working capital and capital expenditures for at least the next 12 months. We
may need to raise additional funds thereafter through public or private
financings, or other arrangements. There can be no assurance that such
additional financings, if needed, will be available on terms attractive to us,
if at all. Our failure to raise capital when needed could have a material
adverse effect on our business, financial condition and operating results. If
additional funds are raised through the issuance of equity securities, the
percentage ownership of our then-current stockholders would be reduced.
Furthermore, such equity securities may have rights, preferences or privileges
senior to those of our common stock.

YEAR 2000 READINESS

There are issues associated with the programming code in existing computer
systems as the year 2000 approaches. The "year 2000 problem" is pervasive and
complex, as virtually every computer operation will

31
<PAGE> 34

be affected in some way by the rollover of the two-digit year value to 00. The
issue is whether computer systems will properly recognize date-sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail. We are in the process of working with our software vendors to assure that
we are prepared for the year 2000. We have not verified that companies that we
do business with are year 2000 compliant. We do not anticipate that we will
incur significant operating expenses or be required to invest heavily in
computer systems improvements to be year 2000 compliant. However, significant
uncertainty exists concerning the potential costs and effects associated with
year 2000 compliance. Any year 2000 compliance problem experienced by us, our
vendors, users or customers could harm our business, financial condition and
operating results. We believe our product offerings are year 2000 compliant.

STATE OF READINESS. Beginning in early 1999, we began assessing the ability of
our software and systems to operate properly in the year 2000. Our efforts have
included contacting our vendors, purchasing software inventory tools and
scheduling upgrades of some internal systems. We expect to complete our
assessment and remediation efforts in the fourth quarter of 1999.

COST. We do not expect to spend more than $100,000 on the direct costs of
assessing and remediating year 2000 problems. This expectation is based on the
size of our operation, the percentage of our vendors that are standard to our
industry, and the lack of dependency on older legacy software in our internal
systems. The indirect costs, including business disruptions described in "Risks"
below, could be greater.

RISKS. We may be exposed to a loss of revenues and our operating expenses could
increase if the systems on which we are dependent to conduct our operations are
not year 2000 compliant. Our potential areas of exposure include products
purchased from third parties, information technology, including computers and
software, and non-information technology, including telephone systems and other
equipment used internally. The reasonably likely worst case scenario for year
2000 issues would be if a significant defect exists in key hardware or software
and if a solution for such a problem were not immediately available.

We believe that it is not possible to determine with complete certainty that all
year 2000 problems affecting us have been identified or corrected. The number of
devices and systems that could be affected and the interactions among these
devices and systems are too numerous to address. As a result, we believe that
the following consequences are possible:

- a significant number of operational inconveniences and inefficiencies
for us and our customers that would divert management's time and
attention as well as financial and human resources from ordinary
business activities;

- possible minor business disputes and claims, including claims under
product warranties, due to year 2000 problems experienced by our
customers and incorrectly attributed to our products or performance; and

- possible serious business disputes alleging that we failed to comply
with the terms of contracts or industry standards, some of which could
result in litigation or contract termination.

In the event that our production and operational facilities that support our
internal and external Web sites, and those sites we operate for customers, are
not year 2000 compliant, portions of our Web sites may become inaccessible. A
prolonged disruption in our operations could cause our business clients and
network participants to stop doing business with us. In the event that our
Web-hosting facilities are not year 2000 compliant, our Web sites would be
unavailable and we would not be able to deliver services to our users.

If our present efforts to address the year 2000 compliance issues are not
successful, or if distributors, suppliers, and other third parties with whom we
conduct business do not successfully address such issues, our business could be
significantly disrupted.

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CONTINGENCY PLAN. We are currently developing contingency plans to be
implemented if our efforts to identify and correct year 2000 problems affecting
our internal systems are not effective. We expect to complete our contingency
plans by the end of 1999. Depending on the systems affected, these plans could
include:

- accelerated replacement of affected equipment or software;

- short to medium-term use of back-up equipment and software or other
redundant systems;

- increased work hours for our personnel or the hiring of additional
information technology staff; and

- the use of contract personnel to correct, on an accelerated basis, any
year 2000 problems that arise or to provide interim alternate solutions
for information system deficiencies.

The discussion of our efforts and expectations relating to year 2000 compliance
are forward-looking statements. Our ability to achieve year 2000 compliance, and
the level of incremental costs associated with compliance, could be adversely
affected by, among other things, the availability and cost of contract personnel
and external resources, third party suppliers' ability to modify proprietary
software, and unanticipated problems not identified in our ongoing review.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS

Our exposure to market risk is limited to interest income sensitivity, which is
affected by changes in the general level of U.S. interest rates, particularly
because the majority of our investments are in short-term debt securities issued
by corporations. We place our investments with high-quality issuers and limit
the amount of credit exposure to any one issuer. Due to the nature of our
short-term investments, we believe that we are not subject to any material
market risk exposure. We do not have any foreign currency or other derivative
financial instruments.

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BUSINESS

OVERVIEW

Eloquent provides rich media solutions for business-to-business communications.
"Rich media" is the combination of video, audio, sophisticated graphics and text
into a synchronized, interactive, navigable and searchable format. We have
developed a unique, proprietary solutions platform consisting of software and
services that we use to create and deliver rich media presentations, or
"events," on behalf of our customers. Our customers, which are primarily large
companies, use our solutions to communicate time-sensitive, business-critical
information to target audiences, primarily customers, employees and business
partners, in an effective, consistent and cost-efficient manner. Our rich media
events can be delivered over Web-based channels, including the World Wide Web,
intranets and extranets, and CD-ROMs to be viewed by end users on their personal
computers. Since our inception in March 1995, we have produced over 700 rich
media events consisting of over 3,500 hours of content for more than 150
customers.

INDUSTRY BACKGROUND

NEED FOR MORE EFFECTIVE BUSINESS-TO-BUSINESS COMMUNICATIONS. As companies face
increasing pressure to operate more efficiently and to better serve customer
needs, effective business-to-business communications represent a key competitive
advantage. Business-to-business communications are the production and
dissemination of corporate information to audiences both inside and outside an
organization, including employees, customers and business partners. Examples of
business-to-business communications include product launch briefings to sales
teams, strategic and corporate alignment presentations to employees, sales
pitches to potential customers, employee training seminars, business partner
education programs and complex customer support activities. These communications
are essential to a company's ability to unify its work force and strengthen its
relationships with customers and partners.

In order to increase the effectiveness of business-to-business communications,
companies need to deliver information in a timely, economical and attractive
way -- a requirement that is even more critical given today's increasingly
dispersed work force, accelerated product cycles and complex products and
services. Companies disseminate information to their constituents through a
variety of means and using a number of different technologies that, although
useful, do not always provide the most efficient and robust means of delivering
business-to-business communications. For example:

- in-person presentations using audio/visual equipment provide rich
presentations, but are often inconvenient and time-consuming for both
the presenter and the audience, and often involve costly travel
expenses.

- teleconferencing is a relatively inexpensive and fast means of
communication, but provides for limited use of visual aids, does not
easily accommodate large audiences and requires everyone to participate
at the same time.

- Web and satellite broadcasts, although convenient and useful for large
audiences, do not provide personalization and interactivity with
different constituencies in the audience.

GROWTH OF THE WEB. The Web has emerged as a global communications medium,
enabling millions of people to gather information, communicate and conduct
business electronically. The broad acceptance of the Internet Protocol standard
has also led to the emergence of corporate intranets and extranets and the
development of new ways to access the Web, intranets and extranets, such as
through the television.

EMERGENCE OF STREAMING MEDIA TECHNOLOGY. The Web has recently evolved from a
mass of static, text-oriented pages to a much richer environment, capable of
delivering graphical, interactive and multimedia content. Prior to the
development of streaming media technologies, accessing video and audio files
over the Web was impractical because users could not experience the content
until the time-consuming process of

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downloading the files was complete. Today, streaming media technologies and the
proliferation of multimedia-capable computers allow almost immediate playback of
continuous "streams" of video and audio content over the Web, intranets and
extranets. The emergence of streaming media technology has enabled highly
interactive, rich media applications to be effectively delivered over the Web
and Web-based channels such as corporate intranets and extranets.

OPPORTUNITY FOR RICH MEDIA BUSINESS-TO-BUSINESS COMMUNICATIONS SOLUTIONS
PROVIDERS. Companies now have the ability to deliver business-to-business
communications over Web-based channels using streaming media technology.
However, existing streaming media technology by itself does not give companies
the ability to deliver compelling business-to-business communications that
include multiple media, such as video, audio, sophisticated graphics and text,
in a synchronized, easy-to-use format. Most streaming media applications have
been focused on the delivery of films, videos or news to consumers. They do not
provide for synchronization of multiple media or sophisticated search and
navigation capabilities required by business users. While companies can obtain
each of the component technologies required to produce and deliver their own
rich media events, they face a variety of challenges in doing so, particularly
in a timely manner. These challenges include:

- Producing engaging rich media events is complicated and, for companies
lacking particular expertise in producing such events, very difficult.

- Enhancing existing streaming media technology to deliver high-quality
rich media events is technologically complicated.

- Producing rich media events for internal use generally cannot result in
the economies of scale of producing dozens of rich media events per
month, without which production is inefficient, expensive and
time-consuming.

- Integrating rich media products into existing enterprise applications,
such as sales force automation systems, is expensive and difficult.

Despite the compelling benefits of streaming media technology, we believe these
challenges have limited its adoption for business-to-business communications. We
believe most companies recognize that it is easier and more cost-effective to
outsource the production and delivery of rich media events to a company that has
specialized rich media expertise, the ability to deliver a complete solution and
the ability to achieve economies of scale in producing rich media events.

THE ELOQUENT RICH MEDIA SOLUTIONS PLATFORM

We believe that Eloquent is the leading provider of rich media solutions for
business-to-business communications.

ELEMENTS OF THE PLATFORM. We use our unique, proprietary rich media solutions
platform to create rich media events for our customers in a complete turnkey
process. Our platform includes all of the software

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and services our customers need to deliver custom rich media
business-to-business communications to their target audiences. The following
diagram illustrates the components of our platform:

[GRAPHICS: GRAPHICAL DEPICTION OF THE SOLUTIONS PLATFORM]

Production Solution. We provide all of the necessary software and services for
producing rich media events from videotapes of speakers and their slides.
Elements of our production solution include:

- Content Production Services. We quickly produce and deliver rich media
events in a complete turnkey process. We can produce events for delivery
over the Web, intranets, extranets or CD-ROM, or a combination of them,
enabling our customers to provide their business-to-business
communications to their entire target audience.

- Professional Media Services. Our professional services organization
enables us to offer our customers advanced content development services.
These services are used by our customers to add elements of visual
interest and interactivity to their rich media events.

- Content Production Software. We also license our suite of internally
used publishing tools, excluding our proprietary workflow management
software, to some of our larger customers. We offer these customers
perpetual, nonexclusive licenses to use our publishing tools and, for an
annual fee, we will provide periodic enhancements and other maintenance.
The licenses allow these customers to use the publishing tools to
assemble, for their internal use only, their own Eloquent events from
digital video and electronic slides.

Delivery Solution. We provide all of the necessary software and services for
delivering rich media events to end users and allowing those users to interact
with the rich media events. To enable our customers to reach their entire target
audience, we provide multiple methods of delivery: over the Web using the
customer's own network connections, over the Web using our network connections
and by CD-ROM. The CD-ROM option gives customers the ability to reach users who
do not have ready access to the Web, such as constituents in less-developed
countries or who are traveling. Elements of our delivery solution include:

- Applications Server Software. Our applications server software enables
customers to load Eloquent-produced events onto their own servers and
deliver the events to their target audience over their network
connections. It allows users with Eloquent desktop player software to
navigate through the Eloquent content and access related content in
other, non-Eloquent formats, such as HTML documents or Macromedia
Authorware pieces.

Our server software helps users find their way through large collections
of content by personalizing the content for each user based on a profile
of the user's interests. It keeps track of which users watched which
Eloquent content and can produce reports detailing the exact usage of
each event. Our software can also record the results of users answering
quizzes and produce "report cards."

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Our customers can either license our application server software and run
it on their internal hardware, or they can have us run the software for
them as part of our content hosting service. The applications server
software delivers the same content over the Web that the desktop player
delivers to the user from CD-ROM. Eloquent content can be produced in
Eloquent's standard Microsoft format, or reformatted into the
RealNetworks SMIL format. We typically offer a perpetual, nonexclusive
license to use our applications server software for the purposes
identified above and, for an annual fee, we will provide periodic
enhancements and other maintenance.

- Desktop Player Software. Our user-friendly desktop player software
enables users to view rich media events on their computers. The desktop
player software is included with the event on the CD-ROM or stored on a
customer's network and delivered using our applications server software.
The player includes search and navigation capabilities that allow users
to interact with the content at their own pace in their preferred
sequence. Users may navigate through the content by speeding up or
slowing down playback of the video and audio without distortion of the
speaker's voice, scrolling through the transcript, stepping through the
slides and searching for key words in the transcript and slides. We
typically offer a perpetual, nonexclusive license to use our desktop
player software for these purposes.

- Content Hosting. Our optional content hosting service enables customers
to deliver rich media events to their target audience over the Web on
our servers utilizing our content hosting software, which relieves our
customers of the need to manage the servers and solve integration
issues.

- Professional Integration Services. Our professional services
organization enables us to offer our customers custom application
development and integration services. For example, we will integrate our
customers' rich media sales applications with their sales force
automation systems.

BENEFITS OF THE ELOQUENT SOLUTIONS PLATFORM. We believe that we have developed
the most effective, comprehensive and robust platform available for producing
and delivering rich media events for business-to-business communications. We
believe that our platform provides our customers with business-to-business
communications that are:

- Complete Outsource Solutions. We have the capability to produce rich
media events for our clients from start to finish in a turnkey fashion.
For event production, the customer's input is needed only for
information content and guidance on the general tone, look and feel of
the presentations. In addition, by delivering rich media events through
the Web, intranets, extranets and CD-ROM, or a combination of them, we
enable our customers to reach their entire target audience. The CD-ROM
alternative is particularly important to customers with traveling or
international target audiences, such as a global sales force, who may
not have easy access to Web-based channels. Through our translation
service, we ensure that our rich media events can be used by a
customer's international audience. Furthermore, companies can use our
solutions to build a central Web site, or "portal," for employees,
customers and business partners around the world to obtain information
on a multitude of topics, delivered on demand through Eloquent rich
media events.

- More Effective. Our rich media events provide users with
business-critical information in an interactive, searchable, navigable
format. We believe this format, combined with our delivery of multiple
media -- video, audio, text and graphics -- makes our rich media events
more engaging than other forms of business-to-business communication. We
also believe that users comprehend and retain the information contained
in a rich media event better than that contained in other methods of
business-to-business communications. Our applications server and content
hosting software automatically keeps track of the interactions each user
has had with particular rich media events. Customers can view a set of
reports that show how much of each rich media event is used, how often
each rich media event is used and the persons using each rich media
event. By adding optional testing capabilities, our customers can ensure
that members of their target audience have

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understood the presentation. In addition, by delivering the same
business-to-business communication to each member of the target
audience, our customers can ensure that consistent information is
delivered to the entire enterprise.

- Faster. Getting critical information to employees, customers and
business partners rapidly is a significant competitive advantage for our
customers. We enable our customers to disseminate critical information
contained in a rich media event rapidly due to our unique and efficient
production process and Web and CD-ROM delivery. Using our proprietary
scheduling software and production expertise, we quickly produce and
deliver rich media events to our customers in a complete turnkey
process. We can produce a typical four- to five-hour rich media event
within nine business days after obtaining the raw video and audio
material, compared to months for alternative solutions. By delivering
our rich media events through the Web, intranets, extranets and CD-ROM,
the critical information contained in the events can be disseminated
quickly to each member of the target audience regardless of location.
Our rapid production and delivery of rich media events can accelerate
dissemination of information by weeks or even months by eliminating the
need for the presenter to travel to multiple locations to deliver the
presentation. This is particularly significant for customers with a
geographically dispersed target audience, such as a worldwide employee
base. In addition, users can get the information they need from our
events quickly because they can search and navigate the event so that
they only view exactly what they need.

- Less Expensive. Our solutions eliminate many of the costs associated
with traditional business presentations, including airline, hotel and
other travel expenses for event participants, facilities costs and the
opportunity costs associated with diverting employees from their work
schedules. In addition, we believe our technology and expertise enable
us to charge fees to create a rich media event that are lower than the
cost our typical customer would incur producing the event in-house.

We believe that these benefits can result in a number of strategic and
competitive advantages for our customers. For example:

- Faster Time to Market. By using an Eloquent rich media event to educate
its sales force about a new product introduction instead of having the
product manager travel to each sales office to do so in person, our
customers can commercially launch new products more quickly.

- Increased Employee Productivity. Using our solutions means that a key
business presentation only needs to be made once, thereby freeing the
presenter to focus on his or her work instead of traveling to different
offices to make the presentation. Work interruptions can be minimized
because employees view the presentation at a time and place convenient
to them instead of when the presenter is available. In addition, we
believe our interactive, searchable, navigable format and engaging
multimedia presentation enables employees to comprehend and retain
information in a rich media event better than that contained in
traditional forms of business presentation.

- Stronger Relationships with Important Constituencies. By keeping their
employees, customers and business partners well-informed on a timely
basis about topics that are important to them, our customers can
strengthen their relationships with these constituencies. For example, a
company can bolster employee morale by having its chief executive
officer speak to employees about recent business developments. This is
often difficult to accomplish when the company has a large or
geographically dispersed workforce. Our solutions enable our customers
to keep their constituencies up-to-date by providing rapid delivery of
consistent information to large and widely dispersed audiences. Using
our example, a rich media event containing the chief executive officer's
speech could be deployed on the company's Web site, allowing every
employee to view the same speech at his or her desk on demand.

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- Enhanced Sales and Marketing Efforts. Some of our customers are using
our solutions to make company presentations and product demonstrations
on their Web sites. Potential consumers or business partners can visit
the company's Web site and view a carefully produced sales pitch without
using sales force resources. Our customers may also use this type of
event to educate their third-party distribution channel partners and to
provide customer support.

STRATEGY

Our objective is to enhance our leadership position in rich media solutions for
business-to-business communications. The key elements of our strategy are:

FURTHER PENETRATE LARGE CORPORATE ACCOUNTS. We believe that our existing
customer base of large corporations presents a significant opportunity for
additional revenues. Historically, over 90% of our customers have purchased
additional Eloquent products or services within 12 months after their initial
orders. We believe we have an opportunity to deepen our relationships with these
customers by selling additional products and services and by selling to
different divisions of the same company. For example, as our customers
increasingly adopt Web-based methods of communication with their constituencies,
we believe there is a significant opportunity to sell our applications server
software and content hosting to our existing customers.

EXPAND INTO ADDITIONAL INDUSTRIES. Because the format and delivery of a business
presentation is virtually the same in every industry, our solutions do not
require modification for use by any particular industry. As a result, we believe
that there is a significant opportunity to increase revenues by identifying and
selling our solutions into many new industries. We have found that our most
effective sales and marketing efforts have been those that are
industry-specific. We have generated most of our revenues by selling into
industries that we believed would be "early adopters" of our solutions,
including telecommunications, software, high-technology manufacturing, financial
services and pharmaceuticals. New industries that we have targeted include
manufacturing, automotive, consumer products, health care and energy. We intend
to continue industry-specific sales and marketing efforts in order to maximize
our penetration of new and existing industries.

IDENTIFY NEW APPLICATIONS FOR OUR SOLUTIONS. Our flexible rich media solutions
platform allows us to develop specific applications designed to capture
strategic revenue opportunities. Traditional applications of our solutions
include sales channel communications and employee communications. Newer
applications include sales and marketing presentations and customer support. We
continually seek to identify new applications, within existing markets and
within new industries, that can benefit from our solutions.

EXPAND AND ENHANCE CUSTOMER SOLUTIONS. Our goal is to provide our customers with
the most comprehensive portfolio of rich media business-to-business
communications products and services. We intend to increase revenues by
continually broadening the functionality of our rich media solutions platform
and adding value-added services to our offerings, through both in-house
development efforts and strategic acquisitions. For example, through our
applications server and content hosting software, we are now assisting customers
in building Web "portals" using Eloquent rich media events. We intend to add
live broadcast capabilities, which will allow instant, simultaneous and
interactive delivery of business-to-business communications, to our platform. We
plan for these broadcasts to be viewed by users live from their computers. These
products will then be available on demand for later viewing in our synchronized,
navigable, searchable format. In addition, we plan to explore
business-to-customer communications applications.

EXPAND INTERNATIONALLY. We currently sell our solutions within the United
States. Many of our customers have international operations and use our rich
media events around the world. As a result, we believe there is a significant
opportunity to increase revenues by selling our products and services
internationally. To

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exploit this opportunity, we intend to increase our sales and marketing efforts
abroad, beginning with Europe and Japan.

RICH MEDIA EVENT PRODUCTION AND DELIVERY

We have developed significant expertise and proprietary technology in order to
produce rich media events for our customers in a fast, turnkey process and
enable our customers to deliver those rich media events to their constituencies
in an engaging, interactive manner.

PRODUCTION OF RICH MEDIA CONTENT. Our customers generally use Eloquent to
produce the rich media content for use with our software. The production steps
and the technologies used in the production process are summarized below:

- Video and Audio. We videotape live speakers, using local video crews and
simple lighting. We convert the video into digital format and divide
long segments into short talks and remove outtakes. We then "compress"
the digital video and audio tracks using our proprietary compression
technology and other compression technologies. One of the features of
our software is the ability to play back an event at different speeds
without a change in the speaker's pitch. To enable this, we index the
audio track for variable speed playback using our proprietary pitch
compression technology.

- Transcription. We transcribe the audio track to create a transcript,
utilizing a proprietary transcription tool that automatically
synchronizes the text to the audio track, and proofread it carefully in
conjunction with the customer. If desired by the customer, we will have
the transcript translated into different languages.

- Graphics. We obtain electronic copies of the speaker's slides or we
electronically capture the speaker's software demonstration. If the
presentation contains slides, we transform the slides into a format
suitable for delivery over a low-bandwidth network. If the event
contains a software demonstration, we compress the demonstration using
our proprietary video compression technology.

- Assembly. We assemble the video, audio, graphics and text using our
proprietary synchronization technology. To enable full navigation and
search capabilities, we create a table of contents and electronic links
and index the text and slides so that the user may search for a chosen
portion of the event using an embedded search engine. At the request of
a customer, we will incorporate user tests in our standard format and
add other features developed by our professional services staff.

Our proprietary Event Management System, which we refer to as "EMS," enables our
production staff to organize, track and simultaneously produce high volumes of
projects. The EMS enables us to efficiently allocate staff to tasks that ensures
on-time completion.

CONTENT DELIVERY. We provide our customers with three ways to deliver an
Eloquent event:

- Web, Intranets and Extranets -- Using Applications Server
Software. Customers can run our desktop player using our applications
server software on their own Microsoft Windows NT servers. Our
professional services organization can integrate the Eloquent
applications servers with existing enterprise applications, such as
sales force automation systems.

- Web -- Using Content Hosting. In addition, we allow our customers to
store their rich media events and the Eloquent desktop player on our
server hardware running our content hosting software. Users can then
download the Eloquent desktop player to their desktop PC and interact
with the customer's rich media events. Our content-hosting servers are
located at Concentric Network Corporation's facilities in Cupertino,
California.

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- CD-ROM. We will duplicate and ship CD-ROMs containing the event to our
customers. The CD-ROM contains the Eloquent desktop player software as
well as the event. We have found that our customers need the CD-ROM
alternative because many of their constituents do not have ready access
to the Web. This is particularly true for customers with international
target audiences or that seek to educate their traveling sales forces.
Customers may order rich media events on CD-ROM alone or in conjunction
with Web, intranet or extranet delivery.

CUSTOMERS

Our customers use our solutions for a number of applications, including:

SALES CHANNEL COMMUNICATIONS. Some of our customers use our solutions to educate
their sales forces and resellers about newly-launched products. We can create
rich media events out of traditional sales force presentations about new
products and deliver these events to our customers' sales forces. Through our
events, our customers are able to educate their sales forces faster and more
economically than by flying speakers around the country or world to deliver the
presentation. Our solutions also enable our customers to provide consistent,
controlled information to their sales representatives in a format that is more
appealing and interactive than a teleconference presentation or videotape.

EMPLOYEE COMMUNICATIONS. Some of our customers use our solutions to deliver
senior management messages to a globally distributed workforce. We create a rich
media event out of, for example, a chief executive officer's presentation to
employees about the customer's strategic direction or a pending merger or
acquisition, which is then delivered to employees. By doing so, our customer is
able to economically deliver a consistent message to all of its employees,
including those who joined the company after the presentation was made.

SALES AND MARKETING PRESENTATIONS. Some of our customers use our solutions on
their Web sites to present company information or demonstrate their products to
potential consumers or business partners. These events provide an engaging,
low-cost mechanism for offering consistent company or product demonstrations to
a large audience of potential buyers.

CUSTOMER SUPPORT. Some of our customers use our solutions to deliver technical
product support information to their end users. The Eloquent event format gives
end users the needed information in the "user-friendly" format of an in-person
presentation instead of through a technical manual. Eloquent's search and
navigation capabilities allow end users to quickly find the information they
need.

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The following table lists our ten largest customers for the nine months ended
September 30, 1999, as well as the applications for which they have used our
solutions. Each of these customers accounted for more than $150,000 of our
revenues during the nine months ended September 30, 1999.

<TABLE>
<CAPTION>
CUSTOMER APPLICATIONS
- -----------------------------------------------------------------------------------------------------
<S> <C>
Ascend Communications Inc. (a wholly-owned Sales force education
subsidiary of Lucent Technologies) Customer product education
- -----------------------------------------------------------------------------------------------------
AT&T Corporation Marketing strategy rollouts
Technical conferences
Software system rollouts
- -----------------------------------------------------------------------------------------------------
Cisco Systems, Inc. New product launches
Channel certification
Technical updates
- -----------------------------------------------------------------------------------------------------
Citibank Technical expertise dissemination
Employee certification
Sales force product cross-training
- -----------------------------------------------------------------------------------------------------
Compaq Computer Corporation Sales force and partner product rollouts
Sales force and partner technical education
Account management education
- -----------------------------------------------------------------------------------------------------
FileNET Corporation New product rollouts
Product updates
- -----------------------------------------------------------------------------------------------------
IBM Corporation Field employee updates
Partner program rollouts
- -----------------------------------------------------------------------------------------------------
Lucent Technologies Sales force product education
Sales force technical updates
National marketing communications
Marketing program tool rollouts
Executive sales presentation tool education
- -----------------------------------------------------------------------------------------------------
Microsoft Corporation OEM product education
Sales force product rollouts
Customer support product education
- -----------------------------------------------------------------------------------------------------
Storage Tek NSG New product rollouts
Strategy rollouts
New hire orientation
</TABLE>

SALES AND MARKETING

We sell our solutions in the United States through a direct sales force. Our
sales organization consisted of 38 employees as of September 30, 1999, including
six sales representatives located at our San Mateo, California headquarters. We
also have sales representatives in the Los Angeles, Chicago, Dallas, Boston, New
York City, New Jersey and Washington, D.C. metropolitan areas. Our sales
strategy is to pursue opportunities with large accounts and industry leaders and
to penetrate various targeted vertical market segments. To implement this
strategy, each customer has a dedicated sales representative who is responsible
for maintaining the customer relationship. To assist our customers in maximizing
the benefits of our solutions, we have built an experienced professional
services organization to facilitate the successful production and utilization of
rich media events. We intend to expand our sales and professional services
organizations and to establish additional sales offices domestically and
internationally.

We market our solutions through an in-house marketing staff and an outside
public relations firm. Our in-house marketing organization consisted of six
employees as of September 30, 1999, all of whom were located in our San Mateo,
California headquarters. We conduct a variety of marketing programs nationwide
to educate our target market, create awareness and generate leads for our
solutions. To achieve these goals, we have engaged in activities such as direct
mail campaigns, seminars, print advertising and

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trade shows. These programs are targeted at key executives within identified
vertical markets. In addition, we conduct comprehensive public relations efforts
that include establishing and maintaining relationships with key trade press,
business press and industry analysts as well as an active executive speakers'
bureau. We intend to expand our marketing activities in conjunction with the
planned expansion of our sales force.

COMPETITION

- providers of rich media software tools;

- multimedia content production and delivery companies;

- companies that provide content hosting services; and

- traditional business-to-business communications and learning solution
companies that offer live meeting and seminar services.

We believe that our competitors include, principally, Digital Lava Inc., a rich
media production tools company that enables its customers to develop rich media
content similar to ours; Pacific Media, a media production company that produces
custom rich media content similar to ours; and DigitalThink, Inc., an
educational curriculum development company that offers custom content production
services similar to ours. In addition, our customers and potential customers
represent a source of competition, to the extent they determine to develop
in-house business-to-business communications solutions.

We believe the principal competitive factors in the rich media
business-to-business communications solutions are:

- quality, price and timeliness of content production services and
associated professional services;

- quality of the end-user experience provided by the desktop player
software;

- ease of use of our applications and tools;

- amount and quality of customer support; and

- brand recognition.

We believe that we compete favorably with respect to each of these factors and
that our competitors generally do not offer the broad range of software and
services for rich media production and delivery that we offer our customers.
Nevertheless, many of our current and potential competitors have longer
operating histories, significantly greater financial, technical and marketing
resources, greater name recognition and larger existing customer bases than we
do. These competitors may also be able to undertake more extensive marketing
campaigns for their brands and services, adopt more aggressive pricing policies
and make more attractive offers to potential employees and partners. We may be
unable to compete successfully against current or future competitors and
competitive pressures may cause our business to suffer.

INTELLECTUAL PROPERTY

We regard our copyrights, service marks, trademarks, trade secrets, proprietary
technology and similar intellectual property as critical to our success, and we
rely on trademark and copyright law, trade secret protection and confidentiality
and license agreements with our employees and independent contractors to

43
<PAGE> 46

protect our proprietary rights. We strategically pursue the registration of
trademarks and service marks in the United States and abroad. Effective
trademark, service mark, copyright and trade secret protection may not be
available in every country in which our products and services are made
available.

We have licensed in the past, and expect to license in the future, certain of
our proprietary rights to third parties. Specifically, we have licensed the
right to reproduce our desktop player software to customers that desire to
arrange for their own CD-ROM duplication services. While we attempt to ensure
that the quality of our brand is maintained by these licensees, licensees may
take actions that may harm the value of our proprietary rights or reputation.
The steps taken by us to protect our proprietary rights may not be adequate and
third parties may infringe or misappropriate our copyrights, trademarks or
similar proprietary rights. In addition, other parties may assert claims of
infringement of intellectual property rights against us.

Our products and internally used authoring tools incorporate technology licensed
to us as follows:

- We have a license from Verity, Inc. that grants us the rights to use
Verity's proprietary search software in developing our products and
authoring tools, and also grants us the worldwide right to use,
reproduce, market and distribute Verity's search software as an embedded
component of our products. Verity is free to grant identical or similar
licenses to others. Generally, we are not permitted to transfer our
license rights to others, other than in connection with or sale of our
products. In consideration for our license rights, we have paid an
initial license fee of $25,000, and we pay royalties to Verity equal to
2.5% of all sales of our products containing the licensed software. The
Verity license expires in May 2000, but automatically renews for
successive one-year terms if neither party gives 30 days' notice of
nonrenewal prior to the end of each term.

- We have a license from Voxware, Inc. that grants us the right to use
Voxware's proprietary compression software in developing our products
and to incorporate Voxware's compression software into our products.
Voxware is free to grant identical or similar licenses to others.
Generally, we are not permitted to transfer our license rights to
others, other than in connection with a sale of our products. In
consideration for our license rights, we have paid Voxware an initial
license fee of $20,000 and we pay royalties to Voxware equal to 1.5% of
all sales of our products containing the licensed software. The license
from Voxware expires in April 2000, but automatically renews for
successive one-year terms if neither party gives 90 days' notice of
nonrenewal prior to the end of each term.

If we are unable to maintain or renew such licenses, we would be forced to
remove such technologies from our software and develop or license comparable
technology. This could require additional license fees or extensive engineering
efforts, or significantly decrease our software's functionality, either of which
could harm our business, financial condition and operating results.

In addition, we have developed our products to integrate well with the Microsoft
Windows NT operating system, the operating system used by most of our customers
to run our software. If the Windows NT operating system is changed by Microsoft
so that it no longer integrates well with our products, or if Windows NT
experiences technical problems, the operation of our software could be impaired.
In such event, our business, financial condition and operating results could be
harmed. Microsoft is not obligated to ensure that Windows NT integrates well
with our products.

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<PAGE> 47

EMPLOYEES

As of September 30, 1999, we had a total of 115 full-time employees, all of whom
were located in the United States. Of the total, 37 were in content production
services, 42 were in sales and marketing, 6 were in research and development, 4
were in professional services, 22 were in general and administrative and 4 were
in customer service and software support. None of our employees is represented
by a labor union. We have not experienced any work stoppages, and we consider
our relations with our employees to be good.

FACILITIES

Our principal offices currently occupy approximately 25,000 square feet in San
Mateo, California under two leases, one of which expires in May 2002 and the
other of which expires in July 2002. In addition, we also lease sales and
support offices in Washington, D.C., Boston, Chicago and Dallas. We anticipate
that we will require additional space within the next 12 months and that
suitable additional space will be available on commercially reasonable terms.

LEGAL PROCEEDINGS

We are not currently subject to any material legal proceedings.

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<PAGE> 48

MANAGEMENT

EXECUTIVE OFFICERS, DIRECTORS AND OTHER MANAGEMENT EMPLOYEES

The following table sets forth certain information regarding our executive
officers, directors and other management employees, including their ages as of
September 30, 1999:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Abraham Kleinfeld........................... 41 Chief Executive Officer, President and Director
Clifford A. Reid, Ph.D...................... 40 Chairman of the Board and Director
R. John Curson.............................. 56 Chief Financial Officer, Secretary and Treasurer
David Glazer................................ 38 Chief Technical Officer
Marc A. Schnabolk........................... 42 Vice President, Sales
Jane Beule.................................. 48 Vice President, Marketing
Anthony P. Brenner.......................... 42 Director
David F. Millet............................. 55 Director
Kathryn C. Gould............................ 49 Director
Terry L. Opdendyk........................... 51 Director
Mark C. Thompson............................ 42 Director
Michael E. Herman........................... 58 Director
Alan Atlas.................................. 47 Vice President, Engineering
Deborah L. Miller........................... 46 Vice President, Production
Robert A. Kliger............................ 46 Vice President, Professional Services
</TABLE>

Abraham Kleinfeld has served as our Chief Executive Officer and President and as
a director since January 1999. From October 1995 to October 1998, Mr. Kleinfeld
worked at Open Text Corporation, a knowledge management software products
company, where he was the Vice President of North American Sales from October
1995 to June 1997 and the Senior Vice President of Marketing from April 1997 to
October 1998. From January 1991 to October 1995, Mr. Kleinfeld served as Vice
President of Sales at Odesta Systems, a document management software products
company that he co-founded and that was acquired by Open Text in 1995. From 1989
to 1991, Mr. Kleinfeld worked at Oracle Corporation, where he was the Business
Development Manager for Office Automation Products. Mr. Kleinfeld holds a B.A.
in computer science from the State University of New York-Oswego.

Clifford A. Reid, Ph.D. co-founded Eloquent in March 1995 and has served as our
Chairman of the Board since Eloquent's inception. From March 1995 to January
1999, he also served as our Chief Executive Officer and President. In April
1988, Dr. Reid co-founded Verity, Inc., a search software products company,
where he was Vice President of Engineering from 1988 to 1992 and Executive Vice
President from 1992 to 1993. Dr. Reid holds an S.B. in physics from the
Massachusetts Institute of Technology, an M.B.A from Harvard University and a
Ph.D. in engineering-economic systems from Stanford University.

R. John Curson has served as our Chief Financial Officer, Secretary and
Treasurer since June 1999. From March 1999 to June 1999, Mr. Curson served as a
consultant to Pinnacle Systems, Inc., assisting with the integration into
Pinnacle of Truevision, Inc., formerly known as RasterOps, a digital imaging and
video products company that Pinnacle acquired in March 1999. Prior to that, Mr.
Curson served as Truevision's Chief Financial Officer from December 1993 to
March 1999. From 1992 to 1993, Mr. Curson served as Chief Financial Officer of
LH Research Inc., a power-supply developer and manufacturer. From 1989 to 1992,
Mr. Curson served as Chief Financial Officer for Martec Controls, a high-tech
surveillance and remote tracking products company. From 1987 to 1989, Mr. Curson
served as Vice President of Finance for Xidex Inc./Dysan International, a memory
media products company. From 1976 to 1987, Mr. Curson worked at Dataproducts
Corporation, a computer printer company, where he held a variety of financial
positions. Mr. Curson holds a B.S.C. in mechanical engineering from the
University of Leeds, an M.B.A. from the University of Leeds and an M.B.A from
the University of California, Los Angeles.

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<PAGE> 49

David Glazer co-founded Eloquent in March 1995 and has served as our Chief
Technical Officer since Eloquent's inception. From November 1994 to March 1995,
he was an independent Web information delivery systems consultant to clients
including Netscape Communications Corporation, Adobe Systems Incorporated and
Tandem Computers Incorporated, which is now a division of Compaq Computer
Corporation. In April 1988, Mr. Glazer co-founded Verity, Inc., a search
software products company, where he served as Senior Software Architect from
June 1988 to November 1994 . From 1984 to 1988, Mr. Glazer worked as an
independent contractor for Lotus Development Corporation, a software products
company. Mr. Glazer holds an S.B. in physics from the Massachusetts Institute of
Technology.

Jane Beule has served as our Vice President, Marketing since March 1999. From
September 1998 to March 1999, Ms. Beule was a freelance marketing consultant.
From February 1998 to September 1998, Ms. Beule was Vice President of Marketing
at MarketFirst Software, Inc., a marketing automation software products company.
From November 1997 to February 1998, Ms. Beule was a marketing consultant to
ProBusiness Services, Inc., a provider of employee services and software to
large employers. Prior to that, she served as ProBusiness' Vice President of
Marketing from October 1994 to November 1997. Ms. Beule holds a B.A. in
linguistics from the University of Wisconsin-Madison and an M.B.A. from Harvard
University.

Marc A. Schnabolk has served as our Vice President, Sales since July 1999. Prior
to joining Eloquent, Mr. Schnabolk worked at Open Text Corporation, a knowledge
management software products company, where he was Director of Eastern Regional
Sales from September 1996 to June 1997 and Vice President of North American
Sales from July 1997 to June 1999. From January 1995 to September 1996, Mr.
Schnabolk served as Regional Sales Manager, New Media Sales, at Oracle
Corporation, a database manufacturer. From November 1992 to December 1994, Mr.
Schnabolk served as Regional Sales Manager of Interleaf, Inc., a content
management and publishing software company. From 1985 to 1992, Mr. Schnabolk
held various technical, sales and sales management positions at Oracle. Mr.
Schnabolk holds a B.S. in mathematics from Bates College and an M.B.A. from
Fairleigh Dickinson University.

Anthony P. Brenner has served as a director of Eloquent since July 1998. Mr.
Brenner has been a managing director and partner at Crosslink Capital, Inc., a
venture capital firm that was formerly the Omega Ventures arm of Robertson,
Stephens & Company, since January 1998, prior to which he was a independent
consultant to Omega Ventures from September 1997 to December 1997. Since January
1989, Mr. Brenner has served as President of Cedar Point Partners, L.P., a
private equity investment partnership. From May 1994 to September 1996, Mr.
Brenner was Senior Managing Director of Advanta Partners, a venture capital firm
affiliated with Advanta Corporation, a financial services company. Mr. Brenner
also served as a member of the board of directors of Advanta Corporation from
May 1992 to August 1996. Mr. Brenner holds a B.A. in economics from Yale
University and an M.B.A. from Stanford University.

Kathryn C. Gould has served as a director of Eloquent since July 1996. Ms. Gould
has been a member of Foundation Capital Management, LLC, since December 1995.
Foundation Capital Management is the general partner of the Foundation Capital
venture capital funds that have invested in Eloquent. From September 1989 to
December 1995, Ms. Gould was a partner of Merrill, Pickard, Anderson & Eyre, a
venture capital firm. Ms. Gould also serves on the boards of directors of
Documentum, Inc. and Interwoven, Inc. Ms. Gould holds a B.S. in physics from the
University of Toronto and an M.B.A. from the University of Chicago.

David F. Millet has served as a director of Eloquent since October 1999. Mr.
Millet is a founding member of Gemini Investors LLC, a venture capital firm, and
has served as its Managing Director since 1997. Gemini Investors manages GMN
Investors II, L.P., which purchased subordinated sales and common stock warrants
from Eloquent in October 1999. Prior to joining Gemini Investors, Mr. Millet
spent the preceding ten years as Vice President and President of Chatham Venture
Corp., a venture capital firm. From 1983 to 1988, Mr. Millet served as Chief
Executive Officer of Continuing Care Associates, a provider of home healthcare
products and services. Prior to 1983, Mr. Millet served in various

47
<PAGE> 50

management roles in NEC Electronics, USA, the U.S. subsidiary of NEC Corp. of
Tokyo, Japan. From 1966 to 1975, Mr. Millet was a member of the Senior Staff of
Arthur D. Little, Inc., an international consulting firm. Mr. Millet is on the
Board of Directors of Wall Data Incorporated and View Tech, Inc. Mr. Millet
holds a B.A. in physical sciences from Harvard University.

Terry L. Opdendyk has served as a director of Eloquent since October 1995. Mr.
Opdendyk has been a partner of ONSET Ventures since 1984. He currently serves as
Chairman of ONSET Venture Services Corporation; General Partner of OEA
Management, L.P., the General Partner of ONSET Enterprise Associates, L.P.;
General Partner of OEA II Management, L.P., the General Partner of ONSET
Enterprise Associates II, L.P.; and Managing Director of OEA III Management,
LLC, the General Partner of ONSET Enterprise Associates III, L.P. Mr. Opdendyk
holds a B.S. in computer science from Michigan State University and an M.S. in
computer science from Stanford University.

Mark C. Thompson has served as a director of Eloquent since October 1999. Since
1988, Mr. Thompson has served in a number of positions with Charles Schwab &
Co., Inc., a financial services center, including most recently Executive
Producer and Senior Vice President, Electronic Brokerage. Mr. Thompson serves on
the board of directors of Interwoven, Inc. Mr. Thompson holds a B.A. in
international relations and an M.A. in new media from Stanford University.

Michael E. Herman has served as a director of Eloquent since November 1999.
Since 1993, Mr. Herman has served as President of the Kansas City Royals, a
major league baseball team. Since 1990, Mr. Herman has also served as the
Chairman of the Investment Committee of the Ewing Marion Kauffman Foundation, a
private foundation, of which Mr. Herman was President and Chief Operating
Officer from 1985 to 1990. From 1974 to 1990, Mr. Herman served as Executive
Vice President and Chief Financial Officer of Marion Laboratories, a
pharmaceutical company. Mr. Herman serves on the board of directors of Janus
Capital Corporation and Cerner Corporation. Mr. Herman holds a B.S. in
Metallurgical Engineering from Rensselaer Polytechnic Institute and an M.B.A.
from the University of Chicago.

Alan Atlas has served as our Vice President, Engineering since February 1999.
From May 1996 to February 1999, Mr. Atlas was Director of Newsroom System
Engineering at Avid Technology, Inc., a digital video editing tools company.
From February 1994 to April 1996, Mr. Atlas was Vice President of Engineering at
Sarrus Software, a NextStep groupware company. Mr. Atlas holds a B.A. in
Psychology from Brown University, a B.S. in electrical engineering from the
University of Massachusetts and an M.S. in electrical engineering from Georgia
Institute of Technology.

Deborah L. Miller has served as our Vice President, Production since July 1998.
From September 1996 to June 1998, Ms. Miller was Director, Materials at
Electronic Arts, a multimedia games production company. From March 1994 to
August 1996, Ms. Miller was Business Development Manager and Global Program
Manager at Solectron, Inc., a contract manufacturer. From June 1982 to February
1994, Ms. Miller held various positions in finance and manufacturing at Amdahl
Corporation, a manufacturer of mainframe computers. Ms. Miller holds a B.A. in
business from San Francisco State University and an M.B.A. from the University
of Washington.

Robert A. Kliger has served as our Vice President, Professional Services since
March 1999. From January 1998 to June 1998, Mr. Kliger was Western Regional
Manager at Documentum, Inc., a document management software products company.
From 1990 to January 1998, Mr. Kliger was President and Chief Executive Officer
of Workgroup Management, Inc., a professional services firm founded by Mr.
Kliger that specialized in document management applications development and was
acquired by Documentum in 1998. Mr. Kliger holds a B.A. in music from Mercy
College and an M.B.A. from the University of Illinois.

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<PAGE> 51

BOARD COMPOSITION

Eloquent has authorized eight directors. In accordance with the terms of our
amended and restated certificate of incorporation and amended and restated
bylaws, each of which will become effective upon the completion of this
offering, the board of directors will be divided into three classes, Class I,
Class II and Class III, with each class serving staggered three-year terms. Upon
the completion of this offering, the members of classes will be divided as
follows:

- Class I: David Millet and Abraham Kleinfeld

- Class II: Clifford Reid, Kathryn Gould and Michael Herman

- Class III: Anthony Brenner, Terry Opdendyk and Mark Thompson

The Class I directors will stand for re-election or election at the 2000 annual
meeting of stockholders. The Class II directors will stand for re-election or
election at the 2001 annual meeting of stockholders. The Class III directors
will stand for re-election or election at the 2002 annual meeting of
stockholders. At each annual meeting of stockholders after the initial
classification, the successors to directors whose terms will then expire will be
elected to serve from the time of election and qualification until the third
annual meeting following the election or special meeting held in lieu thereof.

The amended and restated certificate of incorporation provides that the
authorized number of directors may be changed only by resolution of the board of
directors. Any additional directorships resulting from an increase in the number
of directors will be distributed between the three classes so that, as nearly as
possible, each class will consist of one third of the directors. This
classification of the board of directors may have the effect of delaying or
preventing changes in the control or management of Eloquent. However, if
Eloquent is subject to Section 2115 of the California General Corporation Law,
all directors will be designated of the same class, and such directors will be
elected by cumulative voting if any stockholder requests cumulative voting. See
"Description of Capital Stock -- Section 2115" beginning on page 66 for a more
detailed description of the applicability of Section 2115 to Eloquent and its
effect, if applicable, on election of our directors.

Our directors may be removed for cause by the affirmative vote of the holders of
a majority of our voting stock, and directors may be removed without cause by
the affirmative vote of the holders of at least two-thirds of our voting stock.
However, if we are subject to Section 2115 of the California General Corporation
Law, unless the entire board is removed, no single director may be removed
without cause when the votes cast against such director's removal would be
sufficient to elect that director if voted cumulatively. See "Description of
Capital Stock -- Section 2115" beginning on page 66 for a more detailed
description of the applicability of Section 2115 to Eloquent.

BOARD COMMITTEES

The Audit Committee of our board of directors consists of Messrs. Brenner and
Opdendyk. The Audit Committee reviews our financial statements and accounting
practices, makes recommendations to the board regarding the selection of
independent auditors and reviews the results and scope of the audit and other
services provided by our independent auditors. The Compensation Committee of our
board of directors consists of Mr. Opdendyk, Ms. Gould and Mr. Millet. The
Compensation Committee makes recommendations to the board concerning salaries
and incentive compensation for our officers and employees and administers our
employee benefit plans.

DIRECTOR COMPENSATION

We have not provided cash compensation to non-employee directors for their
services as directors or members of committees of the board of directors.

49
<PAGE> 52

We granted options to acquire 25,000 shares of our common stock at an exercise
price of $5.00 per share to Mr. Thompson in October 1999 and to Mr. Herman in
November 1999. These options vest over three years. By virtue of their receipt
of these options, Messrs. Thompson and Herman will be ineligible to receive the
initial option to acquire 25,000 shares of our common stock that each of our
other non-employee directors will receive upon the completion of this offering.
See "-- Employee Benefit Plans" beginning on page 53 for a more detailed
description of automatic stock option grants to non-employee directors.

Following the completion of this offering, all directors will be eligible to
participate in our 1999 Equity Incentive Plan. Employee directors also will be
eligible to participate in our 1999 Employee Stock Purchase Plan. See
"-- Employee Benefit Plans" beginning on page 53 for a more detailed description
of each of these plans.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

None of the members of the Compensation Committee was at any time since the
formation of Eloquent one of our officers or employees. None of our executive
officers serves as a member of the board of directors or compensation committee
of any entity that has one or more executive officers serving on our board of
directors or Compensation Committee.

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<PAGE> 53

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE. The following table sets forth cash and certain
other compensation earned during 1998 by our Chief Executive Officer and our
only other executive officers who earned more than $100,000 in 1998. These
people are referred to as the named executive officers. The information in the
table includes salaries, bonuses, stock options granted and other miscellaneous
compensation. We have not granted stock appreciation rights or restricted stock
awards and provide no long-term compensation benefits other than stock options.

In accordance with the rules of the Securities and Exchange Commission, the
compensation described in this table does not include medical, group life
insurance or other benefits received by the named executive officers that are
available generally to all of our salaried employees and perquisites and other
personal benefits received by the named executive officers that do not exceed
$50,000 or 10% of any such officer's salary and bonus disclosed in this table,
whichever is less.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------- ------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS(#)
--------------------------- --------- -------- ------------
<S> <C> <C> <C>
Clifford A. Reid, Ph.D.(1)................................. 140,000 25,049 --
Chairman of the Board and Former Chief
Executive Officer and President
David Glazer............................................... 145,000 24,351 --
Chief Technical Officer
Susan Dickerson(2)......................................... 127,199 20,286 --
Former Vice President, Sales
Bruce A. Forgrieve(3)...................................... 181,281 14,851 --
Former Chief Financial Officer and Secretary
William Glazier(2)......................................... 151,794 15,893 --
Former Vice President, Marketing
Gloria M. Purdy(4)......................................... 128,780 7,280 225,000
Former Chief Financial Officer, Secretary
and Treasurer
</TABLE>

- ---------------------------------------------
(1) Mr. Reid served as our Chief Executive Officer and President from our
inception until January 1999, at which time Mr. Kleinfeld became our Chief
Executive Officer and President.

(2) Ms. Dickerson left Eloquent in January 1999 and Mr. Glazier left Eloquent in
October 1998.

(3) Mr. Forgrieve resigned as our Chief Financial Officer and Secretary in June
1998.

(4) Ms. Purdy joined Eloquent as our Chief Financial Officer, Secretary and
Treasurer in April 1998, resigned from these positions in January 1999 and
ceased to be an employee of Eloquent in August 1999. She exercised the
above-referenced option as to 60,000 shares, constituting the vested portion
at the time she ceased to be an employee. The unvested remaining shares
subject to the option were cancelled. Mr. Curson joined Eloquent as our
Chief Financial Officer, Secretary and Treasurer in June 1999.

OPTION GRANTS DURING 1998. Options granted in the year ended December 31, 1998
to the named executive officers were granted under the 1997 Equity Incentive
Plan. The exercise price per share of each option granted was equal to the fair
market value of the common stock as determined by the board of directors on the
date of the grant. In determining the fair market value of the stock granted on
the grant date, the board of directors considered, among other things, our
absolute and relative levels of revenues and other operating results. All
options granted to the named executive officers were immediately exercisable and
were intended to qualify as incentive stock options, to the extent permissible
under

51
<PAGE> 54

applicable IRS regulations. Generally, options granted prior to September 1998
vest as to 20% of the shares subject to the option one year after the vesting
commencement date and 1/48 of the remaining shares subject to the option vest on
each of the 48 monthly anniversaries thereafter. Generally, options granted in
September 1998 and thereafter vest as to 25% of the shares subject to the option
one year after the vesting commencement date and 1/36 of the remaining shares
subject to the option vest on each of the 36 monthly anniversaries thereafter.
Unvested shares are subject to Eloquent's right of repurchase upon termination
of employment. Options expire ten years from the date of grant.

We granted options covering an aggregate of 956,700 shares to our employees
during 1998, including named executive officers.

The following table sets forth each grant of stock options made during 1998 to
each of the named executive officers.

1998 STOCK OPTION GRANTS

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
PERCENTAGE ANNUAL RATES OF
NUMBER OF OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM(1)
OPTIONS EMPLOYEES EXERCISE PRICE EXPIRATION ---------------------
NAME GRANTED IN 1998 ($/SHARE) DATE 5%($) 10%($)
---- ---------- ------------- -------------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Clifford A. Reid, Ph.D..................... -- -- -- -- -- --
David Glazer............................... -- -- -- -- -- --
Susan Dickerson............................ -- -- -- -- -- --
Bruce A. Forgrieve......................... -- -- -- -- -- --
William Glazier............................ -- -- -- -- -- --
Gloria M. Purdy(2)......................... 225,000 23.5% $0.39 4/22/08 $ $
</TABLE>

- ---------------------------------------------

(1) Potential realizable values are computed by (a) multiplying the number of
shares of common stock subject to a given option by an assumed initial
public offering price of $ per share, (b) assuming that the aggregate
stock value derived from that calculation compounds at the annual 5% or 10%
rate shown in the table for the remainder of the ten-year term of the option
and (c) subtracting from that result the aggregate option exercise price.
The 5% and 10% assumed annual rates of stock price appreciation are mandated
by the rules of the SEC and do not represent our estimate or projection of
future common stock prices.

(2) Ms. Purdy resigned as our Chief Financial Officer, Secretary and Treasurer
in January 1999 and ceased to be an employee of Eloquent in August 1999. She
exercised the above-referenced option as to 60,000 shares, constituting the
vested portion at the time she ceased to be an employee. The unvested
remaining shares subject to the option were cancelled.

AGGREGATE OPTION VALUES AT DECEMBER 31, 1998. Options granted to named executive
officers may be exercised prior to vesting, pursuant to early exercise
provisions contained in option agreements. Any unvested shares issued pursuant
to any such early exercise are subject to a repurchase option in favor of
Eloquent at the original exercise price paid per share upon the optionee's
cessation of service as an employee, director or consultant prior to the vesting
of such shares. Such repurchase option lapses at a rate reflecting the vesting
schedule of the underlying option.

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<PAGE> 55

The following table sets forth the number of shares of common stock subject to
exercisable and unexercisable stock options held as of December 31, 1998 by each
of the named executive officers. Value at fiscal year end is measured as the
difference between the exercise price per share and the initial public offering
price per share of $ . No options to acquire shares of our common stock
were exercised by the named executive officers during 1998.

AGGREGATE OPTION VALUES AT DECEMBER 31, 1998

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 31, 1998 DECEMBER 31, 1998(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Clifford A. Reid, Ph.D..................... -- -- $-- $--
David Glazer............................... -- -- -- --
Susan Dickerson............................ -- -- -- --
Bruce A. Forgrieve......................... -- -- -- --
William Glazier............................ -- -- -- --
Gloria M. Purdy(2)......................... 225,000 -- $ --
</TABLE>

- ---------------------------------------------

(1) Value of unexercised in-the-money options equals the assumed initial public
offering price of $ per share, minus the per share exercise price,
multiplied by the number of shares underlying the option.

(2) In August 1999, Ms. Purdy exercised options to acquire 60,000 shares of our
common stock at $0.39 per share, constituting the vested portion of an
option exercisable for 225,000 shares granted to her in April 1998. Had such
exercise occurred during 1998, all of such shares would have been unvested
and subject to Eloquent's right of repurchase and the value realized would
have been $ , based on the assumed initial public offering price per
share of $ , minus the per share exercise price, multiplied by the
number of shares issued upon exercise of the option.

EMPLOYEE BENEFIT PLANS

Since 1995, we have established three equity incentive plans under which we may
offer incentive stock options, nonstatutory stock options, restricted stock and
stock bonuses to employees, officers, non-employee directors and consultants.
The plans are intended to help us retain the services of individuals who can
operate and grow our business and align their interests with those of our
stockholders.

EQUITY INCENTIVE PLAN. In December 1995, the board of directors adopted, and the
stockholders approved, the Equity Incentive Plan. The incentive plan was most
recently amended in November 1999. The incentive plan will terminate in December
2005 unless it is terminated earlier by the board of directors. The incentive
plan provides for the grant of stock awards, which are:

- incentive stock options, as defined under the Internal Revenue Code of
1986, as amended, which may be granted solely to officer and non-officer
employees; and

- nonstatutory stock options, restricted stock purchase awards, and stock
bonuses, which may be granted to officer and non-officer employees,
non-employee directors and consultants.

Plan administration. The incentive plan is administered by the board of
directors. The board of directors may delegate authority to administer the
incentive plan to a committee. Subject to the terms of the plan, the board of
directors or its authorized committee determines recipients, the numbers and
types of stock awards to be granted, and the terms and conditions of the stock
awards including the period of their exercisability and vesting. Subject to the
plan limitations set forth below, the board of directors or its authorized
committee also determines the exercise price of options granted and the right to
purchase restricted stock.

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<PAGE> 56

Stock options. Stock options are granted pursuant to stock option agreements.
The exercise price for an incentive stock option cannot be less than 100% of the
fair market value of the common stock on the date of grant. The exercise price
for a nonstatutory stock option cannot be less than 85% of the fair market value
of the common stock on the date of grant. Options granted under the incentive
plan vest at the rate specified in the option agreement.

The term of stock options granted under the incentive plan may not exceed 10
years. Unless the terms of an optionee's stock option agreement provide for
earlier termination, in the event an optionee's service relationship with us, or
any affiliate or ours, ceases due to disability, the optionee may exercise any
vested options up to 12 months after the date such service relationship ends. In
the case of the optionee's death, absent a provision for earlier termination in
the stock option agreement, a beneficiary of the optionee may exercise any
vested options up to 18 months after the date the service relationship ends. If
an optionee's relationship with us, or any affiliate of ours, ceases for any
reason other than disability or death, absent a provision for earlier
termination in the stock option agreements, the optionee may exercise any vested
options up to three months from cessation of service. However, an option may not
be exercised after the expiration of its term.

Acceptable consideration for the purchase of common stock issued under the
equity incentive plan is determined by the board of directors and may include
cash, common stock previously owned by the optionee, a deferred payment
arrangement and other legal consideration approved by the board of directors.

An optionee may not transfer a stock option other than by will or the laws of
descent or distribution unless the optionee holds a nonstatutory stock option
that provides otherwise. However, an optionee may designate a beneficiary who
may exercise the option following the optionee's death.

Tax limitations on stock option grants. Under current tax laws, incentive stock
options may be granted only to our employees. Only the first $100,000 worth of
stock options exercisable for the first time in one calendar year can be treated
as an incentive stock option. For this purpose, the value of the stock option
grant is the fair market value of the underlying stock at the date of grant. No
incentive stock option may be granted to any person who, at the time of the
grant, owns or is deemed to own stock possessing more than 10% of the total
combined voting power of Eloquent or any affiliate unless the following
conditions are satisfied:

- the option exercise price must be at least 110% of the fair market value
of the stock subject to the option on the date of grant; and

- the term of any incentive stock option award must not exceed five years
from the date of grant.

Restricted stock and stock bonus awards. The purchase price for each restricted
stock award granted must be at least 85% of the fair market value of the stock
on the date of the award or at the time the purchase is consummated. Rights to
acquire shares under a stock bonus or restricted stock bonus agreement may not
be transferred other than by will or by the laws of descent and distribution and
are exercisable during the life of the optionee only by the optionee.

Changes in control. In the event of certain changes in control, all outstanding
stock awards under the incentive plan either will be assumed, continued or
substituted for by any surviving entity. If the surviving entity refuses to
assume, continue or substitute for outstanding stock awards, they will be
terminated upon the change in control if not previously exercised.

Authorized shares. An aggregate of 1,070,000 shares of common stock currently
are authorized for issuance under the incentive plan. As of September 30, 1999,
options to purchase a total of 198,600 shares of our common stock were held by
all participants under the incentive plan. After the date of the offering, no
further stock awards will be made under the incentive plan. Shares subject to
stock options that have expired or otherwise terminated without having been
exercised in full will again become available for the

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<PAGE> 57

grant of awards under the incentive plan. Shares issued under the incentive plan
may be previously unissued shares or reacquired shares bought on the market or
otherwise.

1997 EQUITY INCENTIVE PLAN. In July 1997, the board of directors adopted, and
the stockholders approved, the 1997 Equity Incentive Plan. The 1997 incentive
plan was most recently amended in November 1999. The 1997 incentive plan will
terminate in July 2007 unless it is terminated earlier by the board of
directors. The 1997 incentive plan provides for the grant of stock awards, which
are:

- incentive stock options, as defined under the Internal Revenue Code of
1986, as amended, which may be granted solely to officer and non-officer
employees, including officers; and

- nonstatutory stock options, restricted stock purchase awards, and stock
bonuses which may be granted to officer and non-officer employees,
non-employee directors and consultants.

Plan administration. The 1997 incentive plan is administered by the board of
directors. The board of directors may delegate authority to administer the 1997
incentive plan to a committee. Subject to the terms of the plan, the board of
directors or its authorized committee determines recipients, the numbers and
types of stock awards to be granted, and the terms and conditions of the stock
awards including the period of their exercisability and vesting. Subject to the
plan limitations set forth below, the board of directors or its authorized
committee also determines the exercise price of options granted and the right to
purchase restricted stock.

Stock options. Stock options are granted pursuant to stock option agreements.
The exercise price for an incentive stock option cannot be less than 100% of the
fair market value of the common stock on the date of grant. The exercise price
for a nonstatutory stock option cannot be less than 85% of the fair market value
of the common stock on the date of grant. Options granted under the 1997
incentive plan vest at the rate specified in the option agreement.

The term of stock options granted under the 1997 incentive plan may not exceed
10 years. Unless the terms of an optionee's stock option agreement provide for
earlier termination, in the event an optionee's service relationship with us, or
any affiliate or ours, ceases due to disability, the optionee may exercise any
vested options up to 12 months after the date such service relationship ends. In
the case of the optionee's death, absent a provision for earlier termination in
the stock option agreement, a beneficiary of the optionee may exercise any
vested options up to 18 months after the date the service relationship ends. If
an optionee's relationship with us, or any affiliate of ours, ceases for any
reason other than disability or death, absent a provision for earlier
termination in the stock option agreement, the optionee may exercise any vested
options up to three months from cessation of service. However, an option may not
be exercised after the expiration of its term.

Acceptable consideration for the purchase of common stock issued under the 1997
incentive plan is determined by the board of directors and may include cash,
common stock previously owned by the optionee, a deferred payment arrangement
and other legal consideration approved by the board of directors.

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<PAGE> 58

more than 10% of the total combined voting power of Eloquent or any affiliate
unless the following conditions are satisfied:

- the option exercise price must be at least 110% of the fair market value
of the stock subject to the option on the date of grant; and

- the term of any incentive stock option award must not exceed five years
from the date of grant.

Changes in control. In the event of certain changes in control, all outstanding
stock awards under the 1997 incentive plan either will be assumed, continued or
substituted for by any surviving entity. If the surviving entity refuses to
assume, continue or substitute for outstanding stock awards, they will be
terminated upon the change in control if not previously exercised.

Authorized shares. An aggregate of 2,934,500 shares of common stock currently
are authorized for issuance under the 1997 incentive plan. As of September 30,
1999, options to purchase a total of 2,484,925 shares of our common stock were
held by all participants under the 1997 incentive plan. After the date of this
offering, no further stock awards will be made under the 1997 incentive plan.
Shares subject to stock options that have expired or otherwise terminated
without having been exercised in full will again become available for the grant
of awards under the 1997 incentive plan. Shares issued under the 1997 incentive
plan may be previously unissued shares or reacquired shares bought on the market
or otherwise.

1999 EQUITY INCENTIVE PLAN. In October 1999, the board of directors adopted, and
in November 1999, the stockholders approved, the 1999 Equity Incentive Plan. The
1999 incentive plan will terminate in October 2009 unless it is terminated
earlier by the board of directors. The 1999 incentive plan provides for the
grant of stock awards, which are:

- incentive stock options, as defined under the Internal Revenue Code of
1986, as amended, which may be granted solely to officer and non-officer
employees including officers; and

- nonstatutory stock options, restricted stock purchase awards, and stock
bonuses which may be granted to officer and non-officer employees,
non-employee directors and consultants.

Plan administration. The 1999 incentive plan is administered by the board of
directors. The board of directors may delegate authority to administer the 1999
incentive plan to a committee. Subject to the terms of the plan, the board of
directors or its authorized committee determines recipients, the numbers and
types of stock awards to be granted, and the terms and conditions of the stock
awards including the period of their exercisability and vesting. Subject to the
plan limitations set forth below, the board of directors or its authorized
committee also determines the exercise price of options granted and the right to
purchase restricted stock.

Stock options. Stock options are granted pursuant to stock option agreements.
The exercise price for an incentive stock option cannot be less than 100% of the
fair market value of the common stock on the date of grant. The exercise price
for a nonstatutory stock option cannot be less than 85% of the fair market value
of the common stock on the date of grant. Options granted under the 1999
incentive plan vest at the rate specified in the option agreement.

The term of incentive stock options granted under the 1999 incentive plan may
not exceed 10 years. Unless the terms of an optionee's stock option agreement
provide for earlier termination, in the event an optionee's service relationship
with us, or any affiliate or ours, ceases due to disability, the optionee may
exercise any vested options up to 12 months after the date such service
relationship ends. In the case of the optionee's death, absent a provision for
earlier termination in the stock option agreement, a beneficiary

56
<PAGE> 59

of the optionee may exercise any vested options up to 18 months after the date
the service relationship ends. If an optionee's relationship with us, or any
affiliate of ours, ceases for any reason other than disability or death, absent
a provision for earlier termination in the stock option agreement, the optionee
may exercise any vested options up to three months from cessation of service.
However, an option may not be exercised after the expiration of its term.

Acceptable consideration for the purchase of common stock issued under the 1999
incentive plan is determined by the board of directors and may include cash,
common stock previously owned by the optionee, a deferred payment arrangement
and other legal consideration approved by the board of directors.

- the option exercise price must be at least 110% of the fair market value
of the stock subject to the option on the date of grant; and

- the term of any incentive stock option award must not exceed five years
from the date of grant.

Section 162(m). Section 162(m) of the Internal Revenue Code of 1986 denies an
income tax deduction to publicly held corporations for certain compensation paid
to specified employees in a taxable year to the extent that the compensation
exceeds $1 million, unless the compensation constitutes "performance-based
compensation." In order to ensure that option grants under the 1999 incentive
plan constitute "performance-based compensation," no person may be granted
options under the 1999 incentive plan covering more than 2,500,000 shares of
common stock in any calendar year. Under its general authority to grant options,
the board of directors has the implicit authority to reprice outstanding options
or to offer optionees the opportunity to replace outstanding options with new
options for the same or a different number of shares. Both the original and new
options will count toward the Section 162(m) limitation.

Changes in control. In the event of certain changes in control, all outstanding
stock awards under the 1999 incentive plan either will be assumed, continued or
substituted for by any surviving entity. If the surviving entity refuses to
assume, continue or substitute for such awards, the vesting provisions of
outstanding stock awards held by persons whose service relationship with us has
not terminated at the time of the change in control will be accelerated. These
stock awards will be terminated upon the change in control if not previously
exercised.

Authorized shares. Upon the effectiveness of the 1999 incentive plan, shares
available for issuance under our two pre-existing incentive plans will become
authorized for issuance under the 1999 incentive plan. Based on options
outstanding at September 30, 1999 and taking into account increases in share
reserves

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<PAGE> 60

after that date, the initial reserve under the 1999 incentive plan will be
approximately 2,205,799 shares. Beginning January 1, 2001, the number of shares
of common stock authorized for issuance under the 1999 incentive plan will be
increased on each January 1 by 4% of the number of shares of common stock
outstanding on that date. However, the board of directors has the authority to
designate a smaller number of shares by which the authorized number of shares of
common stock will be increased on that date. As of the date hereof, no stock
awards have been granted under the 1999 incentive plan.

Shares subject to stock options granted under the incentive plan, the 1997
incentive plan and the 1999 incentive plan that have expired or otherwise
terminated without having been exercised in full will again become available for
the grant of awards under the 1999 incentive plan. Likewise, shares of
restricted stock awarded under these three plans that have not become fully
vested will again become available for the grant of awards under the 1999
incentive plan. Shares issued under the 1999 incentive plan may be previously
unissued shares or reacquired shares bought on the market or otherwise.

STOCK OPTION GRANTS TO NON-EMPLOYEE DIRECTORS. The 1999 incentive plan provides
for the automatic grant of nonstatutory stock options to purchase shares of
common stock to our non-employee directors.

Administration and terms. The board of directors administers automatic option
grants to non-employee directors, unless and until it delegates administration
to a committee. Options granted to non-employee directors are generally subject
to the following terms:

- the exercise price of options granted will be equal to the fair market
value of the common stock on the date of grant;

- no option granted may be exercised after the expiration of 10 years from
the date it was granted;

- options granted are not transferable other than by will or by the laws
of descent and distribution and are exercisable during the life of the
optionee only by the optionee;

- an optionee may designate a beneficiary who may exercise the option
following the optionee's death; and

- an optionee whose service relationship with Eloquent or any affiliate,
whether as a non-employee director of Eloquent or subsequently as an
employee, director or consultant of either Eloquent or an affiliate,
ceases for any reason may exercise vested options for the term provided
in the option agreement, which is generally 12 months, or 18 months in
the event of the optionee's death. However, an option may not be
exercised after the expiration of its term.

Automatic grants. Upon the completion of this offering, subject to certain
exceptions, each non-employee director that has not previously received Eloquent
stock options will automatically be granted an option to purchase 25,000 shares
of common stock. Any individual who becomes a non-employee director after this
offering will automatically receive this initial grant upon being elected to the
board of directors. Each year, on the day after our annual stockholders'
meeting, commencing in 2000, any person who is then a non-employee director will
automatically be granted an option to purchase 5,000 shares of common stock,
provided that if any non-employee director that had not served in that capacity
for the entire period since the preceding annual stockholders' meeting, then the
number of shares subject to the annual grant shall be reduced, pro rata, for
each full quarter the person did not serve during the previous period. Initial
grants vest over a three-year period, and annual grants vest one year from the
date of grant. All automatic director grants become immediately exercisable upon
grant.

1999 EMPLOYEE STOCK PURCHASE PLAN. In October 1999, the board of directors
adopted, and in November 1999, the stockholders approved, the 1999 Employee
Stock Purchase Plan, authorizing the issuance of shares of common stock pursuant
to purchase rights granted to our employees or to employees of any of our
affiliates. The purchase plan is intended to qualify as an employee stock
purchase plan within the meaning of Section 423 of the Code. The purchase plan
provides a means by which employees may purchase our common stock through
payroll deductions. As of the date hereof, no shares of common stock have been
purchased under the purchase plan.

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<PAGE> 61

Administration. The purchase plan is administered by the board of directors. The
board of directors may delegate authority to administer the purchase plan to a
committee. Subject to the terms of the plan, the board of directors or its
authorized committee determines when and how rights to purchase shares will be
granted and the provisions of each offering of rights. Under the plan, we may
specify offerings with a duration of not more than 27 months, and may specify
shorter purchase periods within each offering. The first offering will begin on
the effective date of this offering and be approximately 25 months in duration,
with purchases occurring every six months. Unless otherwise determined by the
board of directors, common stock is purchased for accounts of employees
participating in the purchase plan at a price per share equal to the lower of:

- 85% of the fair market value of a share of our common stock on the date
of commencement of participation in the offering; or

- 85% of the fair market value of a share of our common stock on the date
of purchase.

Eligibility. The purchase plan is implemented by offerings of rights to eligible
employees. Generally, all regular employees, including executive officers, who
work at least 20 hours per week and are customarily employed by Eloquent or by
an affiliate of Eloquent for at least five months per calendar year may
participate in the purchase plan and may authorize payroll deductions of up to
15% of their earnings for the purchase of stock under the purchase plan.
Eligible employees may be granted rights only if the rights, together with any
other rights granted under employee stock purchase plans, do not permit such
employee's rights to purchase our stock to accrue at a rate which exceeds
$25,000 of the fair market value of such stock for each calendar year in which
such rights are outstanding. No employee shall be eligible for the grant of any
rights under the purchase plan if immediately after such rights are granted,
such employee has voting power over 5% or more of our outstanding capital stock
measured by vote or value.

Changes in control. In the event of changes in control described in the plan,
the surviving entity may assume or substitute for rights outstanding under the
purchase plan. If the surviving entity does not assume or substitute for
outstanding rights, then the board of directors has discretion to cause:

- the rights to continue in full force and effect; or

- a participant's accumulated payroll deductions to be used to purchase
shares, immediately prior to the change in control, and their
outstanding rights thereafter to be terminated.

Authorized shares. The purchase plan authorizes the issuance of 700,000 shares
of common stock under the purchase plan which amount is increased each January
1, beginning January 1, 2001, by 1.0% of the number of shares of common stock
outstanding on that date. However, the board of directors has the authority to
designate a smaller number of shares by which the authorized number of shares of
common stock will be increased on that date.

EMPLOYMENT AGREEMENTS

In December 1998, we entered into an employment agreement with Mr. Kleinfeld,
under which Mr. Kleinfeld is compensated at a rate of $215,000 per year and is
eligible to receive a 1999 cash bonus of up to $100,000, subject to fulfillment
of objectives established by the board of directors. In addition, pursuant to
this agreement, Mr. Kleinfeld received options to purchase 1,160,000 shares of
our common stock at an exercise price of $1.00 per share in January 1999 and
options to purchase 65,000 shares of our common stock at an exercise price of
$2.00 per share in October 1999. These options vest over four years. To the
extent permissible under applicable IRS rules, these options will be incentive
stock options. In the event Mr. Kleinfeld is terminated without "cause," he is
entitled to receive from us continued payment of his base salary for a period of
six months and continued vesting of outstanding stock options during such
period. In addition, in the event of a change in control of Eloquent, one-half
of the then-unvested shares subject to the options will immediately vest.

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CERTAIN TRANSACTIONS

In March 1995, we issued and sold an aggregate of 3,300,000 shares of our common
stock at $0.001 per share. In October 1995, we issued and sold an aggregate of
1,250,000 shares of our Series A preferred stock at $0.80 per share. From August
to September 1996, we issued and sold an aggregate of 1,907,513 shares of our
Series B preferred stock at $1.73 per share. From August to October 1997, we
issued and sold an aggregate of 1,912,233 shares of Series C preferred stock at
$3.90 per share. In June 1998, we issued and sold an aggregate of 2,089,263
shares of Series D preferred stock at $5.10 per share. Each outstanding share of
Series A, Series B, Series C and Series D preferred stock is convertible at the
election of the holder into one share of common stock and, upon the closing of
this offering, each of these shares not previously converted to common stock
will be automatically converted to common stock.

In October 1999, we issued and sold subordinated notes with an aggregate initial
principal amount of $20.0 million and warrants to purchase 1,500,000 shares of
common stock with an exercise price of $0.01 per share. The subordinated notes
are convertible into Series E preferred stock at an initial conversion rate of
$8.00 per share after December 31, 2000. However, because these subordinated
notes must be repaid with proceeds from this offering, we do not expect any
shares of Series E preferred stock to be issued.

The following table identifies the directors, executive officers and five
percent stockholders who have purchased shares of our preferred stock or common
stock, or purchased our subordinated notes and warrants. See "Principal
Stockholders" beginning on page 61 for additional information relating to the
beneficial ownership of these stockholders.

<TABLE>
<CAPTION>
SHARES OF COMMON
STOCK SUBJECT
TO WARRANTS
SHARES OF COMMON SHARES OF PREFERRED PRINCIPAL AMOUNT OF ASSOCIATED
INVESTOR STOCK PURCHASED STOCK PURCHASED NOTES PURCHASED WITH NOTES
-------- ---------------- ------------------- ------------------- ----------------
<S> <C> <C> <C> <C>
Clifford A. Reid, Ph.D.(1).... 2,100,000 -- -- --
Bruce A. Forgrieve(2)......... 600,000 -- -- --
David Glazer(3)............... 600,000 -- -- --
Entities associated with ONSET
Ventures(4)................. -- 2,768,151 $2,000,000 150,000
Entities associated with
Foundation Capital(5)....... -- 1,604,096 $1,000,000 75,000
Entities associated with
Crosslink Capital,
Inc.(6)..................... -- 1,372,548 $1,000,000 75,000
Entities associated with Menlo
Ventures(7)................. -- 1,305,129 $1,000,000 75,000
GMN Investors II, L.P.(8)..... -- -- $5,000,000 375,000
</TABLE>

- ---------------------------------------------

(1) Dr. Reid contributed 420,000 of such shares to Eloquent in October 1995 and
sold 96,000 of such shares to Mr. Forgrieve in November 1995. Dr. Reid is a
director, executive officer and beneficial owner of more than 5% of the
common stock of Eloquent.

(2) Mr. Forgrieve purchased an additional 96,000 shares from Dr. Reid in
November 1995. In June 1998, Eloquent repurchased 140,000 of the shares
listed above at cost in connection with Mr. Forgrieve's termination of
employment. Mr. Forgrieve is a former director, former executive officer and
beneficial owner of more than 5% of the common stock of Eloquent.

(3) Mr. Glazer is an executive officer and beneficial owner of more than 5% of
the common stock of Eloquent.

(4) Terry L. Opdendyk, a director of Eloquent, is a general partner of each of
the referenced entities associated with ONSET Ventures (collectively, the
"ONSET Funds"), and the ONSET Funds, collectively, are the beneficial owner
of more than 5% of our common stock.

(5) Kathryn C. Gould, a director of Eloquent, is a general partner of each of
the referenced entities associated with Foundation Capital (collectively,
the "Foundation Funds"), and the Foundation Funds, collectively, are the
beneficial owner of more than 5% of our common stock.

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<PAGE> 63

(6) Anthony P. Brenner, a director of Eloquent, is either a member or a member
of the general partner of each of the referenced entities associated with
Crosslink Capital, Inc. (collectively, the "Crosslink Funds"), and the
Crosslink Funds, collectively, are the beneficial owner of more than 5% of
our common stock.

(7) The referenced entities associated with Menlo Ventures, collectively, are
the beneficial owner of more than 5% of our common stock.

(8) David F. Millet, a director of Eloquent, is an officer of the general
partner of GMN Investors II, L.P.

In July 1996, we entered into a Note and Warrant Purchase Agreement with ONSET
Enterprise Associates II, L.P., a holder of more than five percent of our
outstanding capital stock and an entity affiliated with Mr. Opdendyk, a director
of Eloquent. Pursuant to this agreement, we borrowed $250,000 from ONSET and
issued and sold to ONSET a warrant to purchase 14,450 shares of our common stock
at an exercise price of $0.173 per share that will expire upon the closing of
this offering. The loan was evidenced by a promissory note in the amount of
$250,000, bearing interest at an annual rate of six percent, with principal and
accrued interest due and payable in October 1996. The note provided that ONSET
had the option to convert outstanding principal and interest on the loan into
shares of Eloquent stock upon a subsequent sale of stock to institutional
venture investors with proceeds to Eloquent of at least $2,000,000. The
principal and interest amount was paid to ONSET in August 1996.

Pursuant to an agreement dated October 20, 1999, between Eloquent and investors
that have purchased our preferred stock or subordinated notes or that hold
certain warrants to purchase our stock, the investors have certain registration
rights for the shares of common stock held by them, or subject to acquisition
upon exercise of certain warrants. See "Description of Capital
Stock -- Registration Rights" beginning on page 65 for a more detailed
description of these registration rights.

In December 1998, we entered into our standard Player Package Agreement with
eCicero Corporation pursuant to which we agreed to produce rich media events for
eCicero from time to time and we granted eCicero a license to distribute our
desktop player software together with the events. Bruce A. Forgrieve, a former
executive officer and director of Eloquent, founded eCicero and serves as its
President and Chief Executive Officer and a member of its board of directors. In
addition, in March 1999, we entered into a Software and Services Agreement with
eCicero. Pursuant to this agreement, we licensed to eCicero certain of our
content production software and our applications server software, and eCicero
agreed to use our content production services to produce at least forty hours of
content over a two-year period. The agreement permits eCicero to produce
standardized events presented by subject matter experts, using our platform, or
to have us produce the events, and to resell the events to its own customers.
eCicero is required to pay Eloquent a one-time software site license fee of
$100,000, an annual software maintenance fee of $15,000 and content production
fees of $2,000 per finished hour of content for an event.

In January 1999, we entered into a Confidential Agreement and General Release
with Gloria M. Purdy, providing for her resignation, effective as of February 1,
1999, from the positions of Chief Financial Officer, Secretary and Treasurer.
The agreement further provided for Ms. Purdy's continued service as a consultant
to Eloquent through August 1, 1999. In exchange for her release of all claims
against Eloquent and in consideration for her services as a consultant, Ms.
Purdy continued to receive her base pay and certain health, vacation, executive
bonus and reimbursement benefits through August 1, 1999. The aggregate value of
such benefits provided to Ms. Purdy under the agreement was approximately
$113,000. Additionally, Ms. Purdy's grant of options to purchase 225,000 shares
of our common stock, originally granted in April 1998, continued to vest at a
rate of 3,750 shares per month during the six-month period that she served as a
consultant. For additional information relating to Ms. Purdy's compensation see
"Management -- Executive Compensation" beginning on page 51.

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<PAGE> 64

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information known to us with respect to
beneficial ownership of our common stock as of September 30, 1999 by:

- each stockholder known by us to be the beneficial owner of more than 5%
of our common stock;

- each of our directors;

- the named executive officers;

- all current executive officers and directors as a group.

Unless otherwise indicated below, the persons and entities named in the table
have sole voting and sole investment power with respect to all shares
beneficially owned, subject to community property laws where applicable.
Percentage ownership is based on 10,611,247 shares of common stock outstanding
as of September 30, 1999 and shares outstanding immediately
following the completion of this offering, assuming no exercise by the
underwriters of their over-allotment option to purchase additional shares of our
common stock. Shares of common stock subject to options and warrants that are
currently exercisable or exercisable within 60 days of September 30, 1999 are
deemed to be outstanding and to be beneficially owned by the person holding such
options for the purpose of computing the percentage ownership of that person but
are not treated as outstanding for the purpose of computing the percentage
ownership of any other person. The following table is presented on a pro forma
basis to reflect the issuance of warrants to purchase 1,500,000 shares of common
stock in October 1999 as if such issuance occurred on September 30, 1999.

Unless otherwise noted, the address for the individuals listed below is: c/o
Eloquent, Inc., 2000 Alameda de las Pulgas, Suite 100, San Mateo, California
94403.

<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED
--------------------
NUMBER OF BEFORE AFTER
NAME OF BENEFICIAL OWNER SHARES OFFERING OFFERING
------------------------ ---------- -------- --------
<S> <C> <C> <C>
Entities associated with ONSET Ventures(1).................. 2,932,601 27.2%
2490 Sand Hill Road
Menlo Park, CA 94025
Entities associated with Foundation Capital(2).............. 1,679,096 15.7%
70 Willow Road, Suite 200
Menlo Park, CA 94025
Clifford A. Reid, Ph.D.(3).................................. 1,584,000 14.9%
Entities associated with Crosslink Capital, Inc.(4)......... 1,447,548 13.5%
555 California Street
Suite 2350
San Francisco, CA 94104
Entities associated with Menlo Ventures(5).................. 1,380,129 12.9%
3000 Sand Hill Road
Building 4, Suite 100
Menlo Park, CA 94025
Abraham Kleinfeld(6)........................................ 1,225,000 10.3%
David Glazer................................................ 600,000 5.7%
Bruce A. Forgrieve(7)....................................... 556,000 5.2%
2720 Wakefield Drive
Belmont, CA 94002
</TABLE>

62
<PAGE> 65

<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED
--------------------
NUMBER OF BEFORE AFTER
NAME OF BENEFICIAL OWNER SHARES OFFERING OFFERING
------------------------ ---------- -------- --------
<S> <C> <C> <C>
Anthony P. Brenner(4)....................................... 1,447,548 13.5%
c/o Crosslink Capital, Inc.
555 California Street
Suite 2350
San Francisco, CA 94104
Kathryn C. Gould(2)......................................... 1,679,096 15.7%
c/o Foundation Capital
70 Willow Road, Suite 200
Menlo Park, CA 94025
Michael E. Herman........................................... 0 * *
David F. Millet(8).......................................... 375,000 3.4%
Terry L. Opdendyk(1)........................................ 2,932,601 27.2%
c/o ONSET Ventures
2490 Sand Hill Road
Menlo Park, CA 94025
Mark C. Thompson............................................ 0 * *
Susan Dickerson............................................. 79,333 *
William Glazier............................................. 31,500 *
Gloria M. Purdy............................................. 60,000 *
All directors and current executive officers
As a group (10 persons)(9)................................ 10,407,445 80.1%
</TABLE>

- ---------------------------------------------
* Less than one percent.

(1) Includes 2,413,700 shares, a warrant to purchase 14,450 shares and a
warrant to purchase 75,000 shares held by ONSET Enterprise Associates II,
L.P. and 354,451 shares and a warrant to purchase 75,000 shares, held by
ONSET Enterprise Associates III, L.P. (collectively, the "ONSET Funds").
Mr. Opdendyk, a director of Eloquent, is a general partner of each of the
ONSET Funds. Mr. Opdendyk disclaims beneficial ownership of these shares
within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934.

(2) Includes 1,470,022 shares and a warrant to purchase 67,500 shares held by
Foundation Capital, L.P. and 134,074 shares and a warrant to purchase 7,500
shares held by Foundation Capital Entrepreneurs Fund, LLC (collectively,
the "Foundation Funds"). Ms. Gould, a director of Eloquent, is a general
partner of each of the Foundation Funds. Ms. Gould disclaims beneficial
ownership of these shares within the meaning of Rule 13d-3 under the
Securities Exchange Act of 1934.

(3) Darlene K. Mann, Mr. Reid's domestic partner, is a general partner of each
of the ONSET Funds. Mr. Reid disclaims beneficial ownership of any of the
shares held by the ONSET Funds.

(4) Includes 63,747 shares and a warrant to purchase 3,487 shares held by Omega
Bayview, L.L.C., 118,982 shares held by Crosslink Crossover Fund II, L.P.,
a warrant to purchase 6,502 shares held by Crosslink Crossover Fund III,
L.P., 464,984 shares and a warrant to purchase 25,407 shares held by
Crosslink Omega Ventures III, L.L.C., and 724,835 shares and a warrant to
purchase 39,604 shares held by Crosslink Offshore Omega Ventures III, A
Cayman Islands Trust (collectively, the "Crosslink Funds"). Mr. Brenner, a
director of Eloquent, is a member of Omega Bayview, L.L.C. and is a member
of the general partner of each of the other Crosslink Funds. Mr. Brenner
disclaims beneficial ownership of these shares within the meaning of Rule
13d-3 under the Securities Exchange Act of 1934.

(5) Includes 55,559 shares and a warrant to purchase 3,000 shares held by Menlo
Entrepreneurs Fund VII, L.P. and 1,249,570 shares and a warrant to purchase
72,000 shares held by Menlo Ventures VII, L.P. (collectively, the "Menlo
Funds").

(6) Includes 1,225,000 shares underlying currently exercisable stock options
granted to Mr. Kleinfeld under our 1997 Equity Incentive Plan. If these
options were exercised in full within 60 days of September 30, 1999,
741,667 shares would be subject to a repurchase right in favor of Eloquent.

(7) Includes 556,000 shares held in the Bruce A. Forgrieve Living Trust, for
which Mr. Forgrieve, a former executive officer of Eloquent, serves as a
trustee.

(8) Includes a warrant to purchase 375,000 shares held by GMN Investors II,
L.P. Mr. Millet is an officer of the general partner of such fund. Mr.
Millet disclaims beneficial ownership of those shares within the meaning of
Rule 13d-3 under the Securities Exchange Act of 1934.

(9) Includes 1,689,200 shares underlying currently exercisable stock options
granted to seven of our executive officers under our 1997 Equity Incentive
Plan. One of these seven executive officers is also a director of Eloquent.
If these options were exercised in full within 60 days of September 30,
1999, 1,140,877 shares would be subject to a repurchase right in favor of
Eloquent.

63
<PAGE> 66

DESCRIPTION OF CAPITAL STOCK

The following section describes the capital stock of Eloquent and certain
provisions of our certificate of incorporation and bylaws that will govern the
rights of and restrictions on our capital stock after the completion of this
offering. To learn more about the terms of our capital stock, you are encouraged
to review the complete provisions of our certificate of incorporation and
bylaws, which have been filed as exhibits to the registration statement, of
which this prospectus is a part.

Upon the closing of this offering, the authorized capital stock of Eloquent will
consist of 40,000,000 shares of common stock, $0.001 par value per share, and
10,000,000 shares of preferred stock, $0.001 par value per share.

COMMON STOCK

As of September 30, 1999, there were 3,452,238 shares of our common stock
outstanding, held of record by 61 stockholders. Subject to preferences that
apply to shares of preferred stock outstanding at the time, the holders of
outstanding shares of common stock are entitled to receive dividends out of
assets legally available therefor at such times and in such amounts as the board
of directors may from time to time determine. Each stockholder is entitled to
one vote for each share of common stock held on all matters submitted to a vote
of stockholders. Unless Section 2115 of the California General Corporation Law
is applicable to us, holders of common stock are not entitled to cumulative
voting rights with respect to the election of directors and, as a consequence,
minority stockholders will not be able to elect directors on the basis of their
votes alone. The common stock is not entitled to preemptive rights and is not
subject to redemption. Upon a liquidation, dissolution or winding-up of
Eloquent, the assets legally available for distribution to stockholders are
distributable ratably among the holders of the common stock and any
participating preferred stock outstanding at that time after payment of
liquidation preferences, if any, on any outstanding preferred stock and payment
of other claims of creditors. Each outstanding share of common stock is, and all
shares of common stock to be outstanding upon completion of this offering will
be, fully paid and nonassessable.

PREFERRED STOCK

As of September 30, 1999, there were 7,159,009 shares of our Series A, Series B,
Series C and Series D preferred stock outstanding, held of record by 16
stockholders. Upon the closing of this offering, all outstanding shares of
Series A, Series B, Series C and Series D preferred stock will be converted into
7,159,009 shares of common stock. Following the conversion, the shares converted
will be retired from the number of authorized shares of preferred stock. In
connection with our subordinated note and warrant financing in October 1999, we
authorized the issuance of 2,500,000 shares of Series E preferred stock. The
subordinated notes are convertible into Series E preferred stock after December
31, 2000, but must be repaid with proceeds from this offering, so we do not
expect any shares of Series E preferred stock to be issued.

Upon the closing of this offering, the board of directors will have the
authority, without further action by the stockholders, to issue up to 10,000,000
shares of preferred stock in one or more series, to establish from time to time
the number of shares to be included in each such series, to fix the rights,
preferences and privileges of the shares of each wholly unissued series and any
qualifications, limitations or restrictions thereon, and to increase or decrease
the number of shares of any such series, although the board cannot reduce the
number of shares of a series below the number of shares of such series then
outstanding. The board of directors may authorize the issuance of preferred
stock with voting or conversion rights that could adversely affect the voting
power or other rights of the holders of the common stock. The issuance of
preferred stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could, among other things, have the
effect of delaying, deferring or preventing a change in

64
<PAGE> 67

control of Eloquent and may adversely affect the market price of the common
stock and the voting and other rights of the holders of common stock.

WARRANTS

Between November 1995 and March 1998, we issued warrants to purchase an
aggregate of 108,986 shares of our common stock at a weighted average exercise
price of $2.15 per share to Lighthouse Capital Partners, L.P. and Lighthouse
Capital Partners II, L.P. In July 1996, we issued and sold a warrant to purchase
up to 14,450 shares of our common stock at an exercise price of $0.173 per share
to ONSET Enterprise Associates II, L.P.

In May 1997, we issued a warrant to purchase up to 14,451 shares of our Series B
preferred stock at an exercise price of $1.73 per share to Imperial Bank. In
July 1999, we issued a warrant to purchase up to 70,000 shares of our common
stock at an exercise price of $5.10 per share to an affiliate of Transamerica
Business Credit Corporation, TBCC Funding Trust II.

In October 1999, we issued warrants to purchase an aggregate of 1,500,000 shares
of our common stock with an exercise price of $0.01 per share to purchasers of
our subordinated notes.

All warrants are subject to the provisions of an investors' rights agreement.
See "-- Registration Rights" beginning on this page for additional information
relating to this agreement.

REGISTRATION RIGHTS

Pursuant to an investors' rights agreement dated October 20, 1999, between
Eloquent and some of our investors and warrantholders, the investors and
warrantholders have registration rights for the 8,659,009 shares of common stock
held by them, or issuable upon conversion of their preferred stock and exercise
of their warrants. Under the rights agreement, investors holding more than 50%
of the then outstanding registrable securities may demand that we file a
registration statement under the Securities Act covering all or a portion of the
investors' registrable securities. A registration demand must cover at least 20%
of the investors' then outstanding registrable securities or any lesser
percentage of such securities if the registration has an aggregate offering
price to the public of at least $2 million. These registration rights are
subject to our right to delay the filing of a registration statement for a
period not to exceed 180 days after receiving the registration demand, although
we cannot delay more than once in a 12-month period. The managing underwriter,
if any, of any such offering has the right to limit the number of the
registrable securities proposed to be included in such registration.

If we are eligible to effect a registration on Form S-3, the investors holding
more than 25% of the then outstanding registrable securities may demand, that we
file a registration statement on Form S-3 covering all or a portion of the
investors' registrable securities, provided that the registration has an
aggregate offering price to the public of more than $500,000. These registration
rights are subject to our right to delay the filing of a registration statement
for a period not to exceed 90 days after receiving the registration demand,
although we cannot delay more than twice in a 12-month period.

In addition, the investors have "piggyback" registration rights. If we propose
to register any of our securities under the Securities Act other than pursuant
to the investors' demand registration rights noted above, the investors may
require us to include all or a portion of their registrable securities in the
registration. The managing underwriter, if any, of any such offering will have
the right to limit the number of the registrable securities to no less than
one-third of the total number of securities proposed to be included in such
registration.

All registration expenses incurred in connection with the first three
registrations requested pursuant to each of the three foregoing paragraphs, will
be borne by us. Thereafter, all registration expenses will be paid by the
selling investors pro rata in proportion to the number of securities sold. In
any registration, including

65
<PAGE> 68

the first three, each selling investor will pay all underwriting discounts and
selling commissions applicable to the sale of his or its registrable securities.

All registration rights described above will terminate seven years after this
offering. Following the closing of this offering, the rights of each investor
holding less than 1% of our outstanding common stock under the rights agreement
will terminate when that investor may sell all of its shares during any 90-day
period under Rule 144 of the Securities Act.

SECTION 2115

Eloquent is a corporation formed under Delaware law, and therefore is governed
by the Delaware General Corporation Law. However, we are also currently subject
to Section 2115 of the California General Corporation Law. Section 2115 provides
that, regardless of a company's state of incorporation, certain provisions of
California corporate law will apply to that company if more than 50% of its
outstanding voting securities are held of record by persons having addresses in
California and the majority of the company's operations occur in California. For
example, while we are subject to Section 2115, stockholders may cumulate votes
in electing directors. This means that each stockholder may vote the number of
votes equal to the number of candidates multiplied by the number of votes to
which the stockholder's shares are normally entitled in favor of one candidate.
This potentially allows minority stockholders to elect some members of the board
of directors. When we are no longer subject to Section 2115, cumulative voting
will not be allowed and a holder of 50% or more of our voting stock will be able
to control the election of all directors. In addition to this difference,
Section 2115 has the following additional effects:

- enables removal of directors with or without cause with majority
stockholder approval;

- places limitations on the distribution of dividends;

- extends additional rights to dissenting stockholders in any
reorganization, including a merger, sale of assets or exchange of
shares; and

- provides for information rights and required filings in the event we
effect a sale of assets or complete a merger.

We anticipate that our common stock will be qualified for trading as a national
market security on the Nasdaq National Market and that we will have at least 800
stockholders of record by the record date for our 2000 annual meeting of
stockholders. If these two conditions occur, then we will no longer be subject
to Section 2115 as of the record date for our 2000 annual meeting of
stockholders. See "-- Common Stock" beginning on page 63 and
"Management -- Board Composition" beginning on page 49 for additional
information relating to the effects of Section 2115 on Eloquent.

DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS

DELAWARE LAW. We are subject to Section 203 of the Delaware General Corporation
Law regulating corporate takeovers. Section 203, subject to 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 the stockholder became an interested stockholder unless:

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

- upon consummation of the transaction that resulted in the stockholder's
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 those shares owned by persons who
are directors and also officers, and employee stock plans in which
employee participants do not

66
<PAGE> 69

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 that 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 two-thirds 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 involving the interested
stockholder of 10% or more of the assets of the corporation involving
the interested stockholder;

- subject to 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 that has the effect of increasing the proportionate
share of the stock of any class or series 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.

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 the
entity or person.

A Delaware corporation may "opt out" of Section 203 with an express provision in
its original certificate of incorporation or an express provision in its
certificate or incorporation or bylaws resulting from a stockholders' amendment
approved by at least a majority of the outstanding voting shares. We have not
"opted out" of the provisions of Section 203. The statute could prohibit or
delay mergers or other takeover or change-in-control attempts with respect to
Eloquent and, accordingly, may discourage attempts to acquire Eloquent.

CHARTER PROVISIONS. Our bylaws, which will become effective upon the closing of
this offering, divide the board of directors into three classes as nearly equal
in size as possible with staggered three-year terms. The classification of the
board of directors could have the effect of making it more difficult for a third
party to acquire, or of discouraging a third party from acquiring, control of
Eloquent. In addition, the bylaws provide that any action required or permitted
to be taken by our stockholders at an annual meeting or a special meeting of the
stockholders may be taken only if it is properly brought before such meeting and
may not be taken by written action in lieu of a meeting. The Bylaws also provide
that special meetings of the stockholders may be called only by the board of
directors, the chairman of the board or the chief executive officer. See
"Management -- Board Composition" beginning on page 49 for additional
information relating to the classification of the board of directors.

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<PAGE> 70

LIMITATION OF LIABILITY AND INDEMNIFICATION

Our amended and restated certificate of incorporation, which will become
effective upon the closing of this offering, contains provisions permitted under
Delaware law relating to the liability of directors. These provisions eliminate
a director's personal liability for monetary damages resulting from a breach of
fiduciary duty, except in circumstances involving wrongful acts, such as:

- any breach of the director's duty of loyalty;

- acts or omissions which involve a lack of good faith, intentional
misconduct or a knowing violation of the law;

- payment of dividends or approval of stock repurchases or redemptions
that are unlawful under Delaware law; or

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

These provisions do not limit or eliminate our rights or any stockholder's
rights to seek non-monetary relief, such as an injunction or rescission, in the
event of a breach of director's fiduciary duty. These provisions will not alter
a director's liability under federal securities laws.

Our bylaws, which will become effective upon the closing of this offering,
require us to indemnify our directors and executive officers to the fullest
extent not prohibited by the Delaware law. We may modify the extent of such
indemnification by individual contracts with our directors and executive
officers. Further, we may decline to indemnify any director or executive officer
in connection with any proceeding initiated by such person, unless such
indemnification is expressly required to be made by law or the proceeding was
authorized by our board of directors.

We have entered into indemnity agreements with each of our current directors and
executive officers to give such directors and officers additional contractual
assurances regarding the scope of the indemnification set forth in our
certificate of incorporation and bylaws and to provide additional procedural
protections. At present, there is no pending litigation or proceeding involving
any of our directors, officers or employees for which indemnification is sought,
nor are we aware of any threatened litigation that may result in claims for
indemnification.

We have the power to indemnify our other officers, employees and other agents,
as permitted by Delaware law, but we are not required to do so.

We plan to obtain directors' and officers' liability insurance.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for our common stock is ChaseMellon Shareholder
Services, LLC.

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<PAGE> 71

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, we will have outstanding shares
of common stock, based on common stock outstanding as of September 30, 1999,
assuming no exercise of the underwriters' over-allotment option and no exercise
of outstanding options. Of these shares, the shares sold in this
offering will be freely tradable without restriction under the Securities Act
unless purchased by "affiliates" of Eloquent as that term is defined in Rule 144
under the Securities Act.

All of the remaining shares are subject to lock-up agreements generally
providing that the stockholder will not:

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

- enter into any swap or other agreement that transfers, in whole or in
part, any of the economic consequences of ownership of the common stock
or any securities convertible into, or exercisable or exchangeable for,
common stock,

whether any such transaction above is to be settled by delivery of common stock
or other securities, in cash or otherwise, without the prior written consent of
U.S. Bancorp Piper Jaffray Inc. on behalf of the underwriters, for a period of
180 days after the date of this prospectus.

The table below indicates approximately when the restricted stock and stock
issuable upon exercise of options and warrants outstanding as of September 30,
1999 as well as warrants issued in our October 1999 subordinated note and
warrant financing will be eligible for sale in the public market as a result of
the lock-up agreements described above, the operation of Rules 144, 144(k) and
701 and vesting restrictions. Some of the shares that will be eligible for sale
in the public market will be subject to volume and other resale restrictions as
a result of Rule 144 because the holders are affiliates of Eloquent.

ELIGIBILITY OF RESTRICTED SHARES FOR SALE IN THE PUBLIC MARKET

<TABLE>
<CAPTION>
OUTSTANDING OUTSTANDING OUTSTANDING
SHARES OPTIONS WARRANTS
----------- ----------- -----------
<S> <C> <C> <C>
On the effective date of the offering....................... 0 0 0
90 days after the effective date............................ 0 0 0
181 days after the effective date........................... 10,611,247 1,310,832 137,887
After 181 days after the effective date..................... 0 1,372,693 1,569,990
</TABLE>

In general, a person, or group of persons whose shares are aggregated must have
beneficially owned restricted shares for at least one year to be eligible to
sell shares under Rule 144. The holding period of a prior owner that is not an
affiliate may be included for purposes of satisfying the one-year holding period
requirement. A person or group of persons eligible to sell shares under Rule 144
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; 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 provisions and
notice requirements and to the availability of current public information about
Eloquent. Under Rule 144(k), a person who is not

69
<PAGE> 72

deemed to have been an affiliate of Eloquent 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. The holding period of a prior owner that is not an affiliate may be
included for purposes of satisfying the two-year holding period requirement.

Rule 701 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 his or her shares pursuant to a written compensatory plan or contract
may be entitled to rely on Rule 701's resale provisions 90 days after the
effective date of this offering. 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 non-affiliates 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.

Certain holders of shares of common stock are also entitled to certain rights
with respect to registration of such shares of common stock for offer and sale
to the public. See "Description of Capital Stock -- Registration Rights"
beginning on page 64 for a more detailed description of these registration
rights.

We intend to file, within 180 days after the effective date of the offering, a
Form S-8 registration statement under the Securities Act to register shares
issued in connection with option exercises and shares reserved for issuance
under our equity incentive plans. Common stock issued upon exercise of options
after the effective date of the Form S-8 will be available for sale in the
public market, subject to Rule 144 volume limitations applicable to affiliates
and to lock-up agreements.

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<PAGE> 73

UNDERWRITING

The underwriters named below, for whom U.S. Bancorp Piper Jaffray Inc., Banc of
America Securities LLC and Thomas Weisel Partners LLC are acting as
representatives, have agreed to buy, subject to the terms and conditions of the
purchase agreement, the number of shares listed opposite their names below. The
underwriters are committed to purchase and pay for all of the shares if any are
purchased, other than those shares covered by the over-allotment option
described below.

<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------ ---------
<S> <C>
U.S. Bancorp Piper Jaffray Inc.......................
Banc of America Securities LLC.......................
Thomas Weisel Partners LLC...........................

--------
Total.......................................
========
</TABLE>

The underwriters have advised us that they propose to offer the shares to the
public at $ per share. The underwriters propose to offer the shares to
certain dealers at the same price less a concession of not more than $ per
share. The underwriters may allow and the dealers may reallow a concession of
not more than $ per share on sales to certain other brokers and dealers.
After this offering, these amounts may be changed by the underwriters.

We have granted to the underwriters an option to purchase up to an additional
shares of common stock from us at the same price to the public,
and with the same underwriting discount, as set forth in the prior paragraph.
The underwriters may exercise this option any time during the 30-day period
after the date of this prospectus, but only to cover over-allotments, if any. To
the extent the underwriters exercise the option, each underwriter will become
obligated, subject to certain conditions, to purchase approximately the same
percentage of the additional shares as it was obligated to purchase under the
purchase agreement.

The following table shows the per share and total underwriting discount to be
paid to the underwriters in connection with this offering. These amounts are
shown assuming both no exercise and full exercise of the over-allotment option.

<TABLE>
<CAPTION>
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per share.............................. $ $
Total.................................. $ $
</TABLE>

The underwriting discount is an amount equal to the offering price per share to
the public of the common stock, less the amount paid by the underwriters to
Eloquent per share of common stock. The underwriting discount is %.

We have agreed to indemnify the underwriters against certain liabilities,
including civil liabilities under the Securities Act of 1933, as amended, or to
contribute to payments that the underwriters may be required to make in respect
of those liabilities.

The expenses of the offering, exclusive of the underwriting discount, include
the Securities and Exchange Commission registration fee, the National
Association of Securities Dealers filing fee, the Nasdaq National

71
<PAGE> 74

Market listing fee, printing expenses, legal fees and expenses, accounting fees
and expenses, road show expenses, Blue Sky fees and expenses, transfer agent and
registrar fees and other miscellaneous fees. We estimate that these fees and
expenses will be an aggregate of approximately $1,500,000. These fees and
expenses are payable entirely by us.

We and each of our directors, executive officers and certain stockholders have
agreed to restrictions on our ability to sell additional shares of our common
stock for a period of 180 days after the date of this prospectus. We have agreed
not to directly or indirectly offer for sale, sell, contract to sell, grant any
option for the sale of, or otherwise issue or dispose of, any shares of common
stock, options or warrants to acquire shares of common stock, or any related
security or instrument, without the prior written consent of U.S. Bancorp Piper
Jaffray. The agreements provide exceptions for:

- sales to underwriters pursuant to the purchase agreement;

- our sales in connection with the exercise of options granted and the
granting of options to purchase shares under our existing stock option
plans; and

- certain other exceptions specified in the purchase agreement and lock-up
agreements.

Of the shares of common stock offered by us,
shares will be reserved for sale to persons designated by us.
Total shares reserved for sale to persons designated by us will not exceed 5% of
the total shares offered. Shares not sold to these persons will be reoffered
immediately by the underwriters to the public at the initial public offering
price.

Thomas Weisel Partners LLC, one of the representatives of the underwriters, was
organized and registered as a broker-dealer in December 1998. Since December
1998, Thomas Weisel Partners has been named as a lead or co-manager of 91 filed
public offerings of equity securities, of which 73 have been completed, and has
acted as a syndicate member in an additional 48 public offerings of equity
securities. Thomas Weisel Partners does not have any material relationship with
Eloquent or any of our officers, directors or other controlling persons, except
for its contractual relationship with Eloquent under the terms of the
underwriting agreement entered into in connection with this offering.

Prior to the offering, there has been no established trading market for our
common stock. The initial public offering price will be negotiated by us and the
underwriters. The factors considered in determining the initial public offering
price will include:

- the history of and the prospects for the industry in which we compete;

- our past and present operations;

- our historical results of operations;

- our prospects for future earnings;

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

- the general condition of the securities markets at the time of the
offering; and

- other relevant factors.

We cannot assure you that the initial public offering price of the common stock
will correspond to the price at which the common stock will trade in the public
market subsequent to this offering or that an active public market for the
common stock will develop and continue after this offering.

To facilitate the offering, the underwriters may engage in transactions that
stabilize, maintain or otherwise affect the price of the common stock during and
after the offering. Specifically, the underwriters may over-allot or otherwise
create a short position in the common stock for their own account by selling
more shares

72
<PAGE> 75

of common stock than have been sold to them by us. The underwriters may elect to
cover any such short position by purchasing shares of common stock in the open
market or by exercising the over-allotment option granted to the underwriters.
In addition, the underwriters may stabilize or maintain the price of the common
stock by bidding for or purchasing shares of common stock in the open market and
may impose penalty bids. If penalty bids are imposed, selling concessions
allowed to syndicate members or other broker-dealers participating in the
offering are reclaimed if shares of common stock previously distributed in the
offering are repurchased, whether in connection with stabilization transactions
or otherwise. The effect of these transactions may be to stabilize or maintain
the market price of the common stock at a level above that which might otherwise
prevail in the open market. The imposition of a penalty bid may also affect the
price of the common stock to the extent that it discourages resales of the
common stock. The magnitude or effect of any stabilization or other transactions
is uncertain. These transactions may be effected on the Nasdaq National Market
or otherwise and, if commenced, may be discontinued at any time.

U.S. Bancorp Piper Jaffray acted as placement agent in connection with our sale
of exchangeable subordinated notes and warrants to purchase common stock in
October 1999. As compensation for those services, we paid U.S. Bancorp Piper
Jaffray a cash fee of $1,000,100 and issued to U.S. Bancorp Piper Jaffray 15,000
shares of our common stock. In addition, three individuals affiliated with U.S.
Bancorp Piper Jaffray and one individual affiliated with Banc of America
Securities LLC participated in our subordinated notes and warrant financing in
October 1999. These individuals purchased notes with an aggregate principal
amount of $300,000 and acquired warrants to purchase a total of 22,500 shares of
common stock. These warrants were exercised in full immediately after they were
issued. Rule 2710(c)(7) of the National Association of Securities Dealers'
conduct rules prohibits the sale or transfer of the shares for one year from the
date of the closing of this offering.

LEGAL MATTERS

The validity of the shares of common stock offered hereby will be passed upon
for Eloquent by Cooley Godward LLP, San Francisco, California. Certain legal
matters will be passed upon for the underwriters by Wilson Sonsini Goodrich &
Rosati, Professional Corporation, Palo Alto, California.

EXPERTS

The financial statements of Eloquent, Inc., as of December 31, 1998 and 1997 and
for each of the three years in the period ended December 31, 1998 included in
this prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.

73
<PAGE> 76

WHERE YOU CAN FIND MORE INFORMATION

We have filed a registration statement on Form S-1 with the SEC for the stock we
are offering by this prospectus. This prospectus does not include all of the
information contained in the registration statement. You should refer to the
registration statement and its exhibits for additional information. Whenever we
make reference in this prospectus to any of our contracts, agreements or other
documents, the references are not necessarily complete and you should refer to
the exhibits attached to the registration statement for copies of the actual
contract, agreement or other document. When we complete this offering, we will
also be required to file annual, quarterly and special reports, proxy statements
and other information with the SEC.

You can read our SEC filings, including the registration statement, over the
Internet at the SEC's web site at http://www.sec.gov. You may also read and copy
any document we file with the SEC at its public reference facilities at 450
Fifth Street, NW, Washington, DC 20549, 7 World Trade Center, Suite 1300, New
York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. You may also obtain copies of the documents at
prescribed rates by writing to the Public Reference Section of the SEC at 450
Fifth Street, NW, Washington, DC 20549. Please call the SEC at 1-800-SEC-0330
for further information on the operation of the public reference facilities. Our
SEC filings are also available at the office of the Nasdaq National Market. For
further information on obtaining copies of our public filings at the Nasdaq
National Market, you should call (212) 656-5060.

74
<PAGE> 77

ELOQUENT, INC.

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AUDITED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED
DECEMBER 31, 1998, DECEMBER 31, 1997 AND DECEMBER 31,
1996:
Report of Independent Accountants........................... F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statements of Stockholders' Equity.......................... F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7

UNAUDITED CONDENSED FINANCIAL STATEMENTS AS OF AND FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1999:
Unaudited Condensed Balance Sheets.......................... F-23
Unaudited Condensed Statements of Operations................ F-24
Unaudited Condensed Statements of Cash Flows................ F-25
Notes to Unaudited Condensed Financial Statements........... F-26
</TABLE>

F-1
<PAGE> 78

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
Eloquent, Inc:

In our opinion, the accompanying balance sheets and the related statements of
operations, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Eloquent, Inc. at December 31, 1997
and 1998, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1998 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.

PricewaterhouseCoopers LLP

San Jose, California
August 30, 1999, except
as to Note 11 for which
the date is October 21, 1999

F-2
<PAGE> 79

ELOQUENT, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1997 1998
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 4,016,103 $ 6,660,939
Accounts receivable, net of allowances for doubtful
accounts of $115,075 and $104,950 in 1997 and 1998,
respectively........................................... 1,454,556 1,981,827
Deferred production costs................................. 199,763 263,573
Prepaid expenses.......................................... 93,847 109,210
----------- ------------
Total current assets.............................. 5,764,269 9,015,549
Property and equipment, net............................... 2,070,459 2,187,815
Other assets.............................................. 238,275 258,011
----------- ------------
Total assets...................................... $ 8,073,003 $ 11,461,375
=========== ============
LIABILITIES
Current liabilities:
Bank line of credit....................................... $ 200,000 $ 1,500,000
Accounts payable and other liabilities.................... 2,111,378 1,955,375
Capital lease obligation -- current portion............... 486,132 689,891
Deferred revenue.......................................... 415,778 706,422
----------- ------------
Total current liabilities......................... 3,213,288 4,851,688
Capital lease obligation, net of current portion............ 1,270,585 1,253,883
----------- ------------
Total liabilities................................. 4,483,873 6,105,571
----------- ------------
Commitments and contingencies (Note 6)
STOCKHOLDERS' EQUITY
Convertible preferred stock, $0.001 par value:
Authorized shares; 7,500,000 shares in 1997 and 7,438,844
shares
in 1998................................................
Issued and outstanding; 5,069,746 shares in 1997 and
7,159,009 shares
in 1998................................................ 5,070 7,159
(Liquidation value of $22,412,948)........................
Common stock, $0.001 par value:
Authorized shares; 15,000,000 shares in 1997 and
17,000,000 shares
in 1998................................................
Issued and outstanding; 3,187,900 shares in 1997 and
3,471,316 shares
in 1998................................................ 3,188 3,472
Unearned stock-based compensation........................... -- (2,344,042)
Additional paid-in capital.................................. 11,805,321 25,921,704
Accumulated deficit......................................... (8,224,449) (18,232,489)
----------- ------------
Total stockholders' equity........................ 3,589,130 5,355,804
----------- ------------
Total liabilities and stockholders' equity........ $ 8,073,003 $ 11,461,375
=========== ============
</TABLE>

The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 80

ELOQUENT, INC.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1996 1997 1998
----------- ----------- ------------
<S> <C> <C> <C>
Revenues:
Content production services...................... $ 943,700 $ 3,518,600 $ 6,750,200
Software licenses and maintenance................ -- 405,595 993,293
----------- ----------- ------------
Total revenues........................... 943,700 3,924,195 7,743,493
----------- ----------- ------------
Cost of revenues:
Content production services...................... 405,299 3,716,426 5,729,765
Software licenses and maintenance................ -- 49,924 445,267
----------- ----------- ------------
Total cost of revenues................... 405,299 3,766,350 6,175,032
----------- ----------- ------------
Gross margin..................................... 538,401 157,845 1,568,461
----------- ----------- ------------
Costs and expenses:
Sales and marketing.............................. 846,269 3,784,703 6,812,416
Research and development......................... 659,036 845,104 1,509,846
General and administrative....................... 596,494 1,876,228 2,210,907
Stock-based compensation......................... -- -- 991,533
----------- ----------- ------------
Total operating expenses................. 2,101,799 6,506,035 11,524,702
----------- ----------- ------------
Loss from operations..................... (1,563,398) (6,348,190) (9,956,241)
Interest expense and other charges................. (21,080) (100,211) (259,343)
Interest income and other income................... 48,800 79,103 207,544
----------- ----------- ------------
Net loss................................. $(1,535,678) $(6,369,298) $(10,008,040)
----------- ----------- ------------
Net loss per share:
Basic and diluted................................ $ (1.97) $ (4.59) $ (4.74)
=========== =========== ============
Weighted average shares -- basic and diluted....... 780,661 1,388,023 2,110,982
=========== =========== ============
Pro forma net loss per share:
Basic and diluted................................ $ (1.21)
============
Pro forma weighted average shares -- basic and
diluted....................................... 8,285,462
============
</TABLE>

The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 81

ELOQUENT, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED
STOCK COMMON STOCK ADDITIONAL UNEARNED
------------------ ------------------ PAID-IN STOCK-BASED ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION DEFICIT TOTAL
--------- ------ --------- ------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES, JANUARY 1, 1996... 625,000 $ 625 2,880,000 $2,880 $ 499,795 $ -- $ (319,473) $ 183,827
Issuance of common stock
warrants in exchange for
services................ -- -- -- -- 2,375 -- -- 2,375
Issuance of Series A
convertible preferred
stock................... 625,000 625 -- -- 499,375 -- -- 500,000
Exercise of stock
options................. -- -- 75,000 75 5,925 -- -- 6,000
Issuance of Series B
convertible preferred
stock................... 1,907,513 1,908 -- -- 3,298,090 -- -- 3,299,998
Net loss.................. -- -- -- -- -- -- (1,535,678) (1,535,678)
--------- ------ --------- ------ ----------- ----------- ------------ ------------
BALANCES, DECEMBER 31,
1996...................... 3,157,513 3,158 2,955,000 2,955 4,305,560 -- (1,855,151) 2,456,522
Issuance of Series C
convertible preferred
stock................... 1,912,233 1,912 -- -- 7,455,796 -- -- 7,457,708
Exercise of stock
options................. -- -- 232,900 233 37,750 -- -- 37,983
Issuance of common and
preferred stock warrants
in exchange for
services................ -- -- -- -- 6,215 -- -- 6,215
Net loss.................. -- -- -- -- -- -- (6,369,298) (6,369,298)
--------- ------ --------- ------ ----------- ----------- ------------ ------------
BALANCES, DECEMBER 31,
1997...................... 5,069,746 5,070 3,187,900 3,188 11,805,321 -- (8,224,449) 3,589,130
Issuance of Series D
convertible preferred
stock................... 2,089,263 2,089 -- -- 10,653,147 -- -- 10,655,236
Exercise of stock
options................. -- -- 483,766 484 100,962 -- -- 101,446
Repurchase of unvested
common stock............ -- -- (200,350) (200) (13,301) -- -- (13,501)
Unearned stock-based
compensation............ -- -- -- -- 3,335,575 (3,335,575) -- --
Amortization of
stock-based
compensation............ -- -- -- -- -- 991,533 -- 991,533
Issuance of common stock
warrants in exchange for
services................ -- -- -- -- 40,000 -- -- 40,000
Net loss.................. -- -- -- -- -- -- (10,008,040) (10,008,040)
--------- ------ --------- ------ ----------- ----------- ------------ ------------
BALANCES, DECEMBER 31,
1998...................... 7,159,009 $7,159 3,471,316 $3,472 $25,921,704 $(2,344,042) $(18,232,489) $ 5,355,804
========= ====== ========= ====== =========== =========== ============ ============
</TABLE>

The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 82

ELOQUENT, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1996 1997 1998
----------- ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................. $(1,535,678) $(6,369,298) $(10,008,040)
Adjustment to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization..................... 60,036 222,532 707,402
Issuance of warrants in exchange for services..... 2,375 6,215 40,000
Amortization of stock-based compensation.......... -- -- 991,533
Changes in operating assets and liabilities:
Accounts receivable............................. (227,966) (1,180,820) (527,271)
Deferred production costs....................... (23,156) (176,607) (63,810)
Prepaid expenses................................ (24,381) (66,605) (15,363)
Other assets.................................... (153,393) (59,663) (19,736)
Accounts payable and other liabilities.......... 156,418 1,871,232 (156,003)
Deferred revenue................................ 108,230 267,548 290,644
----------- ----------- ------------
Net cash used in operating activities........ (1,637,515) (5,485,466) (8,760,644)
----------- ----------- ------------
Cash flows from investing activities:
Acquisition of property and equipment................ (45,603) (253,026) (146,315)
Acquisition and maturity of short-term investments... (1,178,176) 1,178,176 --
----------- ----------- ------------
Net cash provided by (used in) investing
activities................................. (1,223,779) 925,150 (146,315)
----------- ----------- ------------
Cash flows from financing activities:
Proceeds from borrowings under line of credit........ -- 1,400,000 3,300,000
Repayments of borrowings under line of credit........ -- (1,200,000) (2,000,000)
Proceeds from issuance of convertible preferred
stock............................................. 3,799,998 7,457,708 10,655,236
Proceeds from issuance of common stock............... 6,000 37,983 101,446
Repurchases of unvested common stock................. -- -- (13,501)
Proceeds from working capital line of credit from
a related party................................... 250,000 -- --
Repayment of working capital line of credit to
a related party................................... (250,000) -- --
Payment of principal of capital lease obligations.... (58,595) (221,283) (491,386)
----------- ----------- ------------
Net cash provided by financing activities.... 3,747,403 7,474,408 11,551,795
----------- ----------- ------------
Net increase in cash and cash equivalents.............. 886,109 2,914,092 2,644,836
Cash and cash equivalents, beginning of period......... 215,902 1,102,011 4,016,103
----------- ----------- ------------
Cash and cash equivalents, end of period............... $ 1,102,011 $ 4,016,103 $ 6,660,939
=========== =========== ============
</TABLE>

The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 83

ELOQUENT, INC.

NOTES TO FINANCIAL STATEMENTS

1. FORMATION AND BUSINESS

Eloquent, Inc. was incorporated in Delaware in March 1995. Eloquent produces
rich media solutions for business communications. These rich media solutions are
used to communicate to target audiences through the combination of video, audio,
graphics and text in a synchronized, searchable and navigable format. These rich
media presentations can be delivered via the Web, intranets, extranets and
CD-ROMs.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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.

CASH AND CASH EQUIVALENTS

Eloquent considers all highly liquid investments, purchased with an original or
remaining maturity of three months or less, as of the date of purchase, to be
cash equivalents and those with an original or remaining maturity, as of the
date of purchase, of greater than three months to be short-term investments. At
December 31, 1997 and 1998 Eloquent did not hold any securities with an original
or remaining maturity, as of the date of purchase, of three months or more.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Carrying amounts of Eloquent's financial instruments including cash and cash
equivalents, accounts receivable, accounts payable and accrued liabilities
approximate fair value due to their short maturities. Based on borrowing rates
currently available to Eloquent for loans with similar terms, the carrying value
of the bank line of credit and capital lease obligations approximate fair value.

CERTAIN RISKS AND CONCENTRATIONS

Financial instruments which potentially subject Eloquent to concentrations of
credit risk consist principally of trade accounts receivable and cash and cash
equivalents.

Substantially all of Eloquent's cash and cash equivalents as of December 31,
1998 are on deposit with two major U.S. financial institutions. Deposits at any
point in time may exceed the federally insured limits.

Eloquent supplies a variety of customers and generally does not require
collateral against orders. Although Eloquent maintains an allowance for
potential credit losses it believes to be adequate, a payment default on a
significant sale could materially and adversely affect its operating results and
financial condition. At December 31, 1997 four customers accounted for
approximately 51% of accounts receivable. At December 31, 1998 no customer
accounted for greater than 10% of accounts receivable. For fiscal year 1998, one
customer accounted for approximately 13% of revenues.

Eloquent operates in a single business segment that is characterized by rapid
technological advances, changes in customer requirements and evolving industry
standards. Any failure by Eloquent to anticipate or respond to changes in demand
could have a material adverse effect on its business and operating results.

F-7
<PAGE> 84
ELOQUENT, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Eloquent relies on a number of third party suppliers for various services. While
management believes Eloquent could obtain these services from other qualified
suppliers on similar terms and conditions, a disruption in the supply of these
services by the current suppliers could have an adverse impact on the business
and operating results.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is provided using the straight-line method over the
estimated useful lives of the assets.

<TABLE>
<S> <C>
Furniture and equipment..................................... 5 years
Computers and software...................................... 3 years
</TABLE>

Leasehold improvements are amortized on a straight-line basis over their
estimated useful life or their lease term, whichever is less. Assets acquired
under capital lease are amortized over the shorter of the estimated useful
economic life or the length of the lease. Repairs and maintenance costs are
expensed as incurred.

Eloquent periodically evaluates the carrying value of equipment and leasehold
improvements held when events and circumstances warrant such a review. When the
carrying value of equipment and leasehold improvements is considered impaired, a
loss is recognized based on the amount by which the carrying value exceeds the
fair value of the asset.

DEFERRED PRODUCTION COSTS

Costs that relate to uncompleted event production are included in the financial
statements as deferred production costs. The deferred production costs at
December 31, 1998 are expected to be entirely billed and collected in 1999.

REVENUE RECOGNITION

Eloquent adopted the provisions of Statement of Position 97-2, or SOP 97-2,
Software Revenue Recognition, as amended by Statement of Position 98-4, Deferral
of Effective Date of Certain Provisions of SOP 97-2, effective January 1, 1998.
SOP 97-2 supersedes Statement of Position 91-1, Software Revenue Recognition,
and delineates the accounting for software products, products including software
that is not incidental to the product and maintenance revenues. Under SOP 97-2,
Eloquent recognizes content production revenues upon shipment of the master copy
if evidence of an arrangement exists, the fee is fixed and determinable and
collection of resulting receivables is probable.

For contracts with multiple obligations, (e.g., undelivered content production
events, compact disc duplication, maintenance, desktop player and applications
server software licenses, content hosting and other services) revenues from
content production events are recognized when delivery has occurred, collection
of the receivable is probable, the fee is fixed or determinable and
vendor-specific objective evidence exists to allocate the total fee to all
delivered and undelivered elements of the arrangement. Eloquent recognizes
revenue allocated to undelivered content production events when the criteria for
content production revenue set forth above are met. Eloquent recognizes revenue
for compact disc duplication upon shipment of the duplicated compact discs.

Software licenses and maintenance include revenues in relation to desktop player
and applications server software licenses, software maintenance and content
hosting. The revenues for desktop player and

F-8
<PAGE> 85
ELOQUENT, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

applications server software licenses are recognized upon shipment, or upon
notification by the customer, dependent on the delivery medium. Eloquent
recognizes revenues for maintenance and content hosting ratably over the period
of the maintenance or content hosting contract.

Prior to the adoption of SOP 97-2, effective January 1, 1998, Eloquent
recognized revenues from the sale of content production upon delivery of the
master copy if remaining obligations were insignificant and collection of the
resulting accounts receivable was probable. Revenues from the duplication of
compact disc was recognized upon shipment to the customer. Eloquent recognized
revenues from end user usage fees upon shipment, or notification of shipment, to
the customer. Revenues from content hosting and maintenance were deferred and
recognized ratably over the period of the contract.

ADVERTISING EXPENSE

Eloquent expenses advertising costs as they are incurred. Advertising expenses
for fiscal years 1996, 1997 and 1998 were not significant.

RESEARCH AND DEVELOPMENT COSTS

Research and development costs are expensed as incurred. To date, products have
generally reached technological feasibility and have been released for sale at
substantially the same time. Accordingly, no software development costs have
been capitalized as of December 31, 1998.

STOCK-BASED COMPENSATION

Eloquent accounts for stock-based compensation issued to employees in accordance
with the provisions of Accounting Principles Board Opinion ("APB") No. 25,
Accounting for Stock Issued to Employees, and complies with the disclosure
provisions of Statement of Financial Accounting Standards ("SFAS") No. 123,
Accounting for Stock-Based Compensation. Under APB No. 25, expense is based on
the difference, if any, on the date of grant, between the fair value of common
stock and the exercise price. Stock issued to non-employees has been accounted
for in accordance with SFAS No. 123 and valued using the Black-Scholes option
pricing model.

INCOME TAXES

Eloquent accounts for income taxes using the liability method under which,
deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amounts expected to be realized.

NET LOSS PER SHARE

Eloquent computes net loss per share in accordance with SFAS No. 128 Earnings
Per Share. Under the provisions of SFAS No. 128 basic net loss per share is
computed by dividing the net loss for the period by the weighted average number
of vested common shares outstanding during the period. Diluted net loss per
share is computed by dividing the net loss for the period by the weighted
average number of common and common stock equivalent shares outstanding during
the period. Common equivalent shares are composed of common shares issuable upon
conversion of convertible preferred stock (using the if-converted method)

F-9
<PAGE> 86
ELOQUENT, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

and shares issuable upon the exercise of stock options and warrants and are
included in the diluted net loss per share to the extent that they are dilutive.

The following table sets forth the computation of basic and diluted net loss per
share for the periods indicated:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1996 1997 1998
----------- ----------- ------------
<S> <C> <C> <C>
NUMERATOR:
Net loss......................................... $(1,535,678) $(6,369,298) $(10,008,040)
----------- ----------- ------------
DENOMINATOR:
Weighted average common stock outstanding........ 2,909,521 3,052,759 3,431,042
Weighted average unvested common stock subject to
repurchase.................................... (2,128,859) (1,664,736) (1,320,060)
----------- ----------- ------------
Denominator for basic and diluted calculation...... 780,662 1,388,023 2,110,982
----------- ----------- ------------
Basic and diluted net loss per share............... $ (1.97) $ (4.59) $ (4.74)
----------- ----------- ------------
ANTIDILUTIVE SECURITIES:
Options to purchase common stock................. 482,000 1,010,061 1,318,712
Warrants......................................... 51,637 115,771 137,886
Convertible preferred stock...................... 3,157,513 5,069,746 7,159,009
----------- ----------- ------------
3,691,150 6,195,578 8,615,607
=========== =========== ============
</TABLE>

Pro forma net loss per share for the year ended December 31, 1998 is computed
using the weighted average number of common shares outstanding, including the
pro forma effects of the conversion of preferred stock into common stock
effective upon the closing of Eloquent's initial public offering on an as-if
converted basis. Pro forma diluted net loss per share is computed using the pro
forma weighted average number of common and common equivalent shares
outstanding. Common equivalent shares, composed of common shares issuable upon
the decrease of stock options and warrants, are not included in diluted net loss
per share so such shares are antidulutive.

Pro forma basic and diluted net loss per share is as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
-----------------
(UNAUDITED)
<S> <C>
Net loss.................................................... $(10,008,040)
============
Shares used in computing basic and diluted net loss per
share..................................................... 2,110,982
Adjusted to reflect the effect of the assumed conversion of
all convertible preferred stock from the date of
issuance.................................................. 6,174,480
------------
Weighted average shares used in computing pro forma basic
and diluted net loss per share............................ 8,285,462
============
Pro forma basic and diluted net loss per share.............. $ (1.21)
============
</TABLE>

COMPREHENSIVE INCOME (LOSS)

F-10
<PAGE> 87
ELOQUENT, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

components in the financial statements and display the accumulated balance of
other comprehensive income separately in the equity section of a statement of
financial position. To date, Eloquent has not had any transactions that are
required to be reported as other comprehensive income (loss).

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
131, Disclosures about Segments of an Enterprise and Related Information. This
statement established standards for reporting information about operating
segments in annual financial statements. It also established standards for
related disclosures about products and services, geographic areas and major
customers. The disclosures prescribed by SFAS No. 131 are effective for fiscal
years beginning after December 15, 1997. Eloquent has determined that it does
not have any separately reportable business segments as of December 31, 1998.

In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1 Accounting for Costs of Computer Software Developed
or Obtained for Internal Use. This standard requires companies to capitalize
qualifying computer software costs which are incurred during the application
development stage and amortize them over the software's estimated useful life.
SOP 98-1 is effective for fiscal years beginning after December 15, 1998.
Eloquent will adopt SOP 98-1 for the 1999 fiscal year, but does not expect such
adoption to have a material effect on its reported financial results.

In April 1998, AcSEC issued SOP 98-5, Reporting on the Costs of Start-Up
Activities. This SOP provides guidance on the financial reporting of start-up
costs. It requires the costs of start-up activities and organization costs to be
expensed as incurred. The SOP is effective for financial statements for fiscal
years beginning after December 15, 1998. The adoption of SOP 98-5 is not
expected to have a material impact on the financial statements of Eloquent.

In June 1998, the FASB Issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes methods of
accounting for derivative financial instruments and hedging activities related
to those instruments as well as other hedging activities, and is effective for
fiscal years beginning after June 15, 1999. In June 1999, the FASB issued SFAS
No. 137, Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133 an
amendment of FASB Statement No. 133. SFAS No. 137 defers the application of SFAS
No. 133 to be effective for all fiscal quarters of all fiscal years beginning
after June 15, 2000, however, early application is encouraged. Eloquent will
adopt SFAS No. 133 for the 2001 fiscal year, but does not expect such adoption
to materially affect the financial statement presentation.

In December 1998, AcSEC released Statement of Position 98-9, Modification of SOP
97-2, Software Revenue Recognition. SOP 98-9 amends SOP 97-2 to require that an
entity recognize revenue for multiple element arrangements by means of the
"residual method" when (1) there is no vendor-specific objective evidence
("VSOE") of the fair values of all the undelivered elements that are not
accounted for by means of long-term contract accounting, (2) VSOE of fair value
does not exist for one or more of the delivered elements, and (3) all revenue
recognition criteria of SOP 97-2 (other than the requirement for VSOE of the
fair value of each delivered element) are satisfied. The provisions of SOP 98-9
that extend the deferral of certain paragraphs of SOP 97-2 and SOP 98-9 will be
effective for transactions that are entered into in fiscal years beginning after
March 15, 1999. Retroactive application is prohibited. Eloquent is currently
evaluating the impact of the requirements of SOP 98-9 and the effects, if any,
on its current revenue recognition policies.

F-11
<PAGE> 88
ELOQUENT, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

3. PROPERTY AND EQUIPMENT

<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Computer equipment and software..................... $ 262,281 $ 286,683
Furniture and fixtures.............................. 54,032 66,065
Computer equipment acquired under capital lease
obligations....................................... 1,588,032 2,330,354
Leasehold improvements under capital lease
obligations....................................... 450,000 496,000
---------- ----------
2,354,345 3,179,102
Less accumulated depreciation and amortization...... (283,886) (991,287)
---------- ----------
$2,070,459 $2,187,815
========== ==========
</TABLE>

Accumulated amortization on equipment acquired under capital lease obligations
was $777,622 and $202,254 as of December 31, 1998 and 1997, respectively.

4. ACCOUNTS PAYABLE AND OTHER LIABILITIES

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1998
---------- ----------
<S> <C> <C>
Accounts payable.................................... $ 741,036 $ 783,720
Accrued compensation and related expenses........... 458,195 539,008
Accrued sales and property taxes.................... 263,169 414,768
Accrued liabilities................................. 648,978 217,879
---------- ----------
$2,111,378 $1,955,375
========== ==========
</TABLE>

5. BANK LINE OF CREDIT AND CAPITAL LEASE OBLIGATIONS

BANK LINE OF CREDIT

At December 31, 1998, Eloquent had a revolving line of credit agreement which
provided the ability to borrow a maximum of $3 million. Of the revolving line of
credit, $2.5 million was limited to 80% of eligible accounts receivable, as
defined, and 60% of backlog. The line of credit, which is collateralized by the
assets of Eloquent, matured on July 19, 1999 and required Eloquent to maintain
certain financial covenants, including among others, specified levels of net
worth and financial ratios. At December 31, 1998, Eloquent was in compliance
with all of the financial covenants. Subsequent to December 31, 1998, Eloquent
refinanced the revolving line of credit agreement. (See Note 11: Subsequent
Events.) Borrowings under the line of credit bears interest at a rate equal to
the lender's prime rate. At December 31, 1997 and 1998, the outstanding
borrowings under the line of credit totaled $200,000 and $1,500,000,
respectively.

CAPITAL LEASE OBLIGATIONS

Eloquent has available a lease line of credit facility which allows for
borrowings up to $2,150,000 to finance equipment purchases. Leases bear interest
at rates ranging from 9.95% to 10.54%, are collateralized by the underlying
equipment, and are payable over the equipment lease term.

F-12
<PAGE> 89
ELOQUENT, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Future annual minimum lease payments due under the lease agreements at December
31, 1998 are as follows:

<TABLE>
<S> <C>
1999................................................... $ 854,981
2000................................................... 776,073
2001................................................... 529,768
2002................................................... 82,368
----------
Total minimum lease payments................. 2,243,190
Less interest.......................................... (299,416)
----------
Principal minimum lease payments....................... 1,943,774
Less current portion................................... (689,891)
----------
Long-term obligations under capital leases............. $1,253,883
==========
</TABLE>

6. COMMITMENTS AND CONTINGENCIES

OPERATING LEASE OBLIGATIONS

Eloquent leases certain office facilities under noncancelable operating lease
arrangements expiring between 2001 and 2002. As of December 31, 1998, future
minimum lease commitments under noncancelable operating leases are as follows:

Rental expense for the years ended December 31, 1996, 1997 and 1998 was $32,951,
$427,742 and $1,127,125, respectively.

LITIGATION

From time to time Eloquent is subject to legal proceedings and claims in the
ordinary course of business. Eloquent is not currently aware of any legal
proceedings or claims which it believes will have, individually or in the
aggregate, a material adverse effect on its financial position or results of
operations.

F-13
<PAGE> 90
ELOQUENT, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

7. STOCKHOLDERS' EQUITY

CONVERTIBLE PREFERRED STOCK

The convertible preferred stock as of December 31, 1998 comprises:

<TABLE>
<CAPTION>
NUMBER OF COMMON
NUMBER OF SHARES SHARES
SHARES ISSUED AND RESERVED FOR LIQUIDATION
AUTHORIZED OUTSTANDING CONVERSION VALUE
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Series A................................... 1,250,000 1,250,000 1,250,000 $ 1,000,000
Series B................................... 1,921,964 1,907,513 1,907,513 3,299,998
Series C................................... 1,912,233 1,912,233 1,912,233 7,457,709
Series D................................... 2,354,647 2,089,263 2,089,263 10,655,241
--------- --------- --------- -----------
7,438,844 7,159,009 7,159,009 $22,412,948
========= ========= ========= ===========
</TABLE>

The preferred stock authorized by Eloquent's Articles of Incorporation may be
issued in one or more series.

The rights, preferences and privileges of the Series A, Series B, Series C and
Series D preferred stockholders are as follows:

Conversion

Each share of the Series A, Series B, Series C and Series D preferred stock
shall be convertible at the option of the holder, at any time after the
date of issuance, into one fully paid and nonassessable share of common
stock.

Conversion is automatic upon either the closing of a public offering of the
Eloquent's common stock at a purchase price of not less than $5.10 per
share and total proceeds of at least $15,000,000 or, for each series, at
the election of two-thirds of the outstanding preferred stockholders of
that series.

Dividends

Series A, Series B, Series C and Series D preferred stockholders are
entitled to noncumulative dividends at a rate of ten percent of the
original issue price per share per annum when and if declared by the Board
of Directors. The Series A, Series B, Series C and Series D preferred
stockholders are entitled to participate in all dividends paid to common
stockholders in equal amount per share, on an as-if-converted basis, to the
amount paid for each common share. As of December 31, 1998, no dividends
have been declared.

Voting Rights and Liquidation Preference

Series A, B, C and D preferred stock have voting rights equal to the number
of shares of common stock into which the preferred stock will convert.

The Series A, Series B, Series C and Series D preferred stock have a
liquidation preference of $0.80, $1.73, $3.90 and $5.10, respectively,
subject to adjustment for splits and other recapitalizations, plus all
declared but unpaid dividends. If funds are insufficient for full payment
of these amounts, all assets and funds of Eloquent legally available will
be distributed ratably among the holders of preferred stock. If funds are
sufficient for full payment of these amounts, the holders of each share of
preferred

F-14
<PAGE> 91
ELOQUENT, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

stock will receive, from legally available funds, additional payment to a
maximum of $4.75 per share. Thereafter, should any funds be available for
distribution, these shall be distributed ratably amongst the common
stockholders.

CONVERTIBLE PREFERRED STOCK WARRANTS

In May 1997, in conjunction with a short-term financing arrangement, Eloquent
issued fully exercisable warrants to purchase 14,451 shares of Series B
convertible preferred stock at a price of $1.73 per share which expire May 12,
2002. The fair value of these warrants was estimated using the Black-Scholes
option pricing model and the following assumptions: dividend yield of 0%;
volatility of 55%, risk-free interest rate of 6.57% and a term of 5 years. The
fair value of these warrants was recorded as an expense in the year ended
December 31, 1997.

COMMON STOCK

Each share of common stock has the right to one vote. The holders of common
stock are also entitled to receive dividends whenever funds are legally
available and when declared by the Board of Directors, subject to the prior
rights of the holders of all classes of stock outstanding having priority rights
as to dividends.

At December 31, 1998, Eloquent had reserved shares of common stock for future
issuance as follows:

<TABLE>
<S> <C>
Convertible preferred stock............................... 7,159,009
Warrants.................................................. 137,886
Stock option plan......................................... 2,113,724
---------
9,410,619
=========
</TABLE>

FOUNDERS COMMON STOCK

Certain common stock was issued to the founders and is subject to repurchase at
the original issue price, at Eloquent's option, should the founders cease to be
employed for any reason. Shares vest ratably over a five year period. At
December 31, 1997 and 1998, approximately 1,075,100 and 389,000 shares,
respectively, were subject to repurchase at the original purchase price of
$0.01.

COMMON STOCK WARRANTS

In 1995, Eloquent issued fully exercisable warrants to purchase 37,187 shares of
common stock for $0.80 per share in connection with a capital lease facility.
The warrants expire November 30, 2002. The fair value of these warrants was
estimated using the Black-Scholes option pricing model and the following
assumptions: dividend yield of 0%; volatility of 55%, risk-free interest rate of
6.50% and a term of 7 years. The fair value of these warrants was recorded as an
expense in the year ended December 31, 1995.

In 1996, Eloquent issued fully exercisable warrants to purchase 14,450 shares of
common stock for $0.173 per share in connection with working capital obtained
from a related party. The warrants expire July 10, 2001 or upon an initial
public offering. The fair value of these warrants was estimated using the Black-
Scholes option pricing model and the following assumptions: dividend yield of
0%; volatility of 55%, risk-free interest rate of 6.18% and a term of 5 years.
The fair value of these warrants was recorded as an expense in the year ended
December 31, 1996.

F-15
<PAGE> 92
ELOQUENT, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

In 1997, Eloquent issued fully exercisable warrants to purchase 34,683 and
15,000 shares of common stock for $1.73 and $3.60 per share, respectively, in
connection with capital lease arrangements. The warrants expire March 31, 2004.
The fair value of these warrants was estimated using the Black-Scholes option
pricing model and the following assumptions: dividend yield of 0%; volatility of
55%, risk-free interest rate of 6.66% and a term of 7 years. The fair value of
these warrants was recorded as an expense in the year ended December 31, 1997.

In 1998, Eloquent issued fully exercisable warrants to purchase 22,115 shares of
common stock for $3.90 per share in connection with a capital lease arrangement.
The warrants expire March 2005. The fair market value of these warrants was
estimated using the Black-Scholes option pricing model and the following
assumptions; dividend yield of 0%; volatility of 55%, risk-free interest rate of
5.61% and a term of 7 years. The fair value was recorded as an expense in the
year ended December 31, 1998.

Warrant activity is as follows:

<TABLE>
<CAPTION>
WARRANTS OUTSTANDING
--------------------------
PRICE
DESCRIPTION SHARES PER SHARE
----------- ------- ---------------
<S> <C> <C>
Balance, December 31, 1995.................................. 37,187 $ 0.80
Warrants granted............................................ 14,450 $ 0.173
------- ---------------
Balance, December 31, 1996.................................. 51,637 $ 0.173 - $0.80
Warrants granted............................................ 49,683 $ 1.73 - $3.90
------- ---------------
December 31, 1997........................................... 101,320 $ 0.173 - $3.90
Warrants granted............................................ 22,115 $ 3.90
------- ---------------
Balance, December 31, 1998.................................. 123,435 $ 0.173 - $3.90
======= ===============
</TABLE>

At December 31, 1998, none of the warrants had been exercised.

COMMON STOCK OPTION PLAN

Eloquent has two stock option plans (collectively, "the Plans") under which
2,844,500 shares of common stock have been authorized for issuance of stock
options to employees, directors, or consultants. Both Plans are constituted and
operated under similar terms and conditions. Under the terms of the Plans,
incentive options may be granted to employees, and nonstatutory options may be
granted to employees, directors and consultants, at prices no less than 100% and
85%, respectively, of the fair market value of Eloquent's common stock at the
date of grant, as determined by the Board of Directors. For 10% stockholders,
options may be granted at prices not less than 110% of the fair market value of
the common stock on the date of grant.

Options granted under the Plans prior to November 1998 generally become
exercisable immediately and vest at 20% upon completion of one year from the
vesting commencement date and ratably 1/60 each month thereafter. The options
expire ten years from the date of grant, and Eloquent holds the right to
repurchase unvested shares issued pursuant to their exercise at the original
exercise price. In November 1998, Eloquent adjusted the terms of prospective
option grants under the Plans. Grants after November 1998 generally vest at 25%
upon completion of one year from the vesting commencement date and ratably 1/48
each month thereafter and become exercisable immediately.

F-16
<PAGE> 93
ELOQUENT, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Stock option activity under the Plans is summarized as follows:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------------------------
SHARES AVAILABLE SHARES WEIGHTED AVERAGE
FOR GRANT UNDER OPTION EXERCISE PRICE
---------------- ------------ ----------------
<S> <C> <C> <C>
Shares reserved............................. 1,070,000
Options granted............................. (569,000) 569,000 $0.13
Options exercised........................... -- (75,000) $0.08
Options canceled............................ 12,000 (12,000) $0.08
---------- ----------
Balance, December 31, 1996.................. 513,000 482,000 $0.14
Additional shares reserved.................. 619,500
Options granted............................. (884,561) 884,561 $0.25
Options exercised........................... -- (232,900) $0.16
Options canceled............................ 123,600 (123,600) $0.13
---------- ----------
Balance, December 31, 1997.................. 371,539 1,010,061 $0.23
Additional shares reserved.................. 1,155,000
Options granted............................. (1,061,934) 1,061,934 $0.59
Options exercised........................... -- (483,766) $0.21
Options canceled............................ 269,517 (269,517) $0.23
---------- ----------
Balance, December 31, 1998.................. 734,122 1,318,712 $0.49
========== ==========
</TABLE>

The options outstanding and currently vested by exercise price at December 31,
1998 were as follows:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------
WEIGHTED VESTED OPTIONS
AVERAGE ------------------
REMAINING WEIGHTED WEIGHTED
EXERCISE CONTRACTUAL AVERAGE AVERAGE
PRICE SHARES LIFE PRICE SHARES PRICE
- -------- --------- ----------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
$0.08 16,600 7.12 $0.08 11,100 $0.08
$0.17 307,902 8.20 $0.17 105,434 $0.17
$0.39 655,479 9.08 $0.39 122,295 $0.39
$1.00 338,731 9.68 $1.00 25,853 $1.00
--------- -------
1,318,712 264,682
========= =======
</TABLE>

FAIR VALUE DISCLOSURES

Eloquent calculated the minimum fair value of each option grant on the date of
grant using the minimum value option pricing model as prescribed by SFAS No. 123
using the following assumptions:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Risk-free interest rate................................ 6.27% 6.21% 5.21%
Expected life.......................................... 5 5 5
Dividend yield......................................... -- -- --
</TABLE>

The weighted average fair value of the options granted in 1996, 1997 and 1998
are $0.13, $0.25 and $3.69.

F-17
<PAGE> 94
ELOQUENT, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the option's vesting period. Eloquent's pro forma
information follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1996 1997 1998
----------- ----------- ------------
<S> <C> <C> <C>
Net loss........................... $(1,535,678) $(6,369,298) $(10,008,040)
=========== =========== ============
Net loss -- FAS 123 adjusted....... $(1,539,731) $(6,389,860) $(10,066,083)
=========== =========== ============
Net loss per share as reported
Basic and diluted.................. $ (1.97) $ (4.59) $ (4.74)
=========== =========== ============
Net loss per share -- FAS 123
adjusted
Basic and diluted.................. $ (1.97) $ (4.60) $ (4.76)
=========== =========== ============
</TABLE>

The effects of applying SFAS 123 in this pro forma disclosure may not be
indicative of future amounts. Additional rewards in future years are
anticipated.

STOCK-BASED COMPENSATION

In connection with certain stock option grants during the year ended December
31, 1998, Eloquent recorded unearned stock-based compensation totaling
$3,335,575, which is being amortized over the vesting periods of the related
options which is generally four to five years. Amortization of this stock-based
compensation recognized during the year ended December 31, 1998 totaled
$991,533. No stock-based compensation was recorded in fiscal years 1996 and
1997.

If the stock-based compensation for year ended December 31, 1998 had been
allocated across the relevant functional expense categories within operating
expenses, it would be allocated as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1998
------------
<S> <C>
Cost of revenues............................................ $149,555
Sales and marketing......................................... 242,134
Research and development.................................... 239,161
General and administrative.................................. 360,683
--------
$991,533
========
</TABLE>

8. SUPPLEMENTAL CASH FLOW INFORMATION

<TABLE>
<CAPTION>
1996 1997 1998
--------- ----------- ----------
<S> <C> <C> <C>
Supplemental Cash Flow Information:
Cash paid for interest................................ $ (19,932) $ (99,809) $ (259,720)
========= =========== ==========
Noncash investing and financing activities:
Assets acquired under capital leases................ $(255,859) $(1,698,954) $ (678,443)
========= =========== ==========
Stock-based compensation............................ $ -- $ -- $3,335,575
========= =========== ==========
</TABLE>

F-18
<PAGE> 95
ELOQUENT, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

9. INCOME TAXES

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amount used for income tax purposes. Significant components of
deferred tax assets for federal and state income taxes are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1998
----------- -----------
<S> <C> <C>
State taxes................................................. $ 272 $ 1,663
Depreciation and amortization............................... (64,620) (44,244)
Other....................................................... 312,157 529,739
Research and development credits............................ 86,057 102,663
Net operating losses........................................ 2,730,911 6,192,132
----------- -----------
Net deferred tax asset...................................... 3,064,777 6,781,953
Less valuation allowance.................................... (3,064,777) (6,781,953)
----------- -----------
$ -- $ --
=========== ===========
</TABLE>

Eloquent has established a valuation allowance against its deferred tax assets
due to the uncertainty surrounding the realization of such assets. Management
evaluates on an annual basis the recoverability of the deferred tax assets and
the level of the valuation allowance. At such time as it is determined that it
is more likely than not that the deferred tax assets are realizable, the
valuation allowance will be reduced.

Eloquent's effective tax rate differs from the statutory federal income tax rate
as shown in the following schedule:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1997 1998
---- ----
<S> <C> <C>
Statutory federal income tax rate........................... (34)% (34)%
Valuation allowance on deferred tax assets.................. 34 34
--- ---
Effective tax rate................................ --% --%
=== ===
</TABLE>

At December 31, 1998, Eloquent had federal and state net operating loss
carryforwards of approximately $15,618,977 and $15,111,744, respectively, and a
total of federal and state research and development tax credit carryforwards of
$301,950. Eloquent's net operating loss carryforwards, as well as credit
carryforwards, expire between the years 2003 and 2018, if not utilized.

The Tax Reform Act of 1986 limits the use of net operating loss and tax credit
carryforwards in certain situations where changes occur in the stock ownership
of a company. If Eloquent should have an ownership change, as defined,
utilization of the carryforwards would be restricted.

10. 401(k) SAVINGS PLAN

Eloquent has a savings plan (the "Savings Plan") that qualifies as a deferred
salary arrangement under Section 401(k) of the Internal Revenue Code, under
which, participating employees may defer a percentage (not to exceed 15%) of
their eligible pretax earnings up to the Internal Revenue Service's annual
contribution limit. All employees of Eloquent are eligible to participate in the
Savings Plan. Eloquent is not required to contribute to the Savings Plan and has
made no contributions since the inception of the Savings Plan.

F-19
<PAGE> 96
ELOQUENT, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

11. SUBSEQUENT EVENTS

LINE OF CREDIT AGREEMENT

On July 14, 1999, Eloquent entered into a revolving line of credit agreement
with a financial institution. The line of credit allows for borrowings up to the
lesser of $5,000,000 or 85% of eligible receivables, as defined, plus 75% of the
unbilled receivables, as defined, plus $3,000,000 at any time outstanding. The
interest rate is the highest prime rate, as defined, plus 2% per annum for
formula loans and 3.5% per annum for non-formula loans. The interest rate shall
not exceed 9% per annum. In conjunction with the revolving line of credit,
Eloquent provided the lender with warrants to purchase 70,000 shares of common
stock at $5.10 per share. The warrants expire July 2006. Eloquent valued the
warrants using the Black-Scholes option pricing models at $402,570. This was
estimated using the following assumptions: dividend yield of 0%; volatility of
55%; risk free interest rate of 5.94% and a term of 7 years. The value will be
amortized over the term of the facility.

SALE OF $20.0 MILLION OF CONVERTIBLE NOTES AND DETACHABLE WARRANTS TO PURCHASE
1,500,000 SHARES OF COMMON STOCK

On October 20, 1999, Eloquent sold convertible notes and detachable warrants to
purchase 1,500,000 shares of common stock for aggregate gross consideration of
$20.0 million. In conjunction with the sale of the notes Eloquent incurred $1.4
million in debt issuance costs.

The notes mature on October 20, 2004 and bear interest at 12% per annum. The
notes are required to be automatically repaid when certain conditions are met,
including (i) a 50 percent change in ownership, (ii) sale of all, or
substantially all, of Eloquent's assets, (iii) merger or consolidation of
Eloquent with a third party, or (iv) the completion of an initial public
offering of common stock.

After December 31, 2000, the investors, at their option, may convert the notes
to Series E preferred stock at an initial conversion rate of $8.00 per share,
subject to certain anti-dilutive provisions. This gives rise to a beneficial
conversion feature of $5.0 million, based on the fair value of common stock at
the date of the sale of the notes and detachable warrants.

In conjunction with the sale of the notes, Eloquent issued to the investors
detachable warrants to purchase 1,500,000 shares of common stock with an
exercise price of $0.01 per share. The warrants expire the earlier of 5 years
after the repayment of the notes or October 20, 2006.

The gross consideration received from the notes will be allocated between the
notes and the warrants in accordance with Accounting Principles Board Opinion
No. 14 "Accounting for Convertible Debt and Debt Issued with Stock Purchase
Warrants." as follows:

<TABLE>
<S> <C>
Long term notes payable..................................... $12,500,000
Warrants.................................................... 7,500,000
-----------
Gross consideration......................................... $20,000,000
===========
</TABLE>

The beneficial conversion feature valued at $5,000,000 will be recorded as a
further discount on the sale of the notes.

The debt issuance costs and the discount resulting from the issuance of the
warrants will be amortized to interest expense over the life of the notes. The
beneficial conversion feature will be amortized over the one year period up to
the earliest conversion date.

F-20
<PAGE> 97
ELOQUENT, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

EMPLOYEE STOCK PURCHASE PLAN

In October 1999, the Board approved the Employee Stock Purchase Plan covering an
aggregate of 700,000 shares of common stock. The Employee Stock Purchase Plan
will become effective on the effective date of the initial public offering and
is intended to qualify as an "employee stock purchase plan" within the meaning
of Section 423 of the Internal Revenue Code of 1986, as amended.

EQUITY INCENTIVE PLAN

In October 1999, the Board approved Eloquent's 1999 Equity Incentive Plan. The
1999 Equity Incentive Plan will become effective on the effective date of the
initial public offering and will terminate in October 2009, unless terminated
earlier by the Board of Directors. The plan provides for the grant of incentive
stock options, nonstatutory stock options and other equity instruments. Upon the
effectiveness of the plan, shares available under existing incentive plans will
become authorized for issuance under the plan.

F-21
<PAGE> 98

[INTENTIONALLY LEFT BLANK]

F-22
<PAGE> 99

ELOQUENT, INC.

CONDENSED BALANCE SHEETS
(UNAUDITED)

<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
1998 1999 1999
------------ ------------- -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $ 6,660,939 $ 3,431,202 $19,644,308
Accounts receivable, net allowance for doubtful
accounts of $104,950 and $343,528,
respectively................................. 1,981,827 3,163,752 3,163,752
Deferred production costs....................... 263,573 111,802 111,802
Prepaid expenses................................ 109,210 236,789 236,789
------------ ------------ -----------
Total current assets.................... 9,015,549 6,943,545 23,156,651
Property and equipment, net..................... 2,187,815 2,025,540 2,025,540
Deferred charges................................ -- 421,457 1,283,676
Deposits........................................ 258,011 298,180 298,180
------------ ------------ -----------
Total assets............................ $ 11,461,375 $ 9,688,722 $26,764,047
============ ============ ===========
LIABILITIES
Current liabilities:
Bank line of credit............................. $ 1,500,000 $ 5,520,656 $ 2,963,087
Accounts payable and other liabilities.......... 1,955,375 2,867,479 2,867,479
Capital lease obligation -- current portion..... 689,891 690,629 690,629
Deferred revenue................................ 706,422 553,150 553,150
------------ ------------ -----------
Total current liabilities............... 4,851,688 9,631,914 7,074,345
Capital lease obligation, net of current
portion......................................... 1,253,883 888,774 888,774
Long term notes payable........................... -- -- 7,500,000
------------ ------------ -----------
Total liabilities....................... 6,105,571 10,520,688 15,463,119
------------ ------------ -----------
STOCKHOLDERS' EQUITY (DEFICIT)
Convertible preferred stock, $0.001 par value:
Authorized shares; 7,438,844 shares (actual) at
December 31, 1998 and September 30, 1999 and
10,000,000 shares (pro forma) at September
30, 1999
Issued and outstanding $7,159,009 shares
(actual) at December 31, 1998 and September
30, 1999 and no shares (pro forma) at
September 30, 1999........................... 7,159 7,159 --
Common stock, $0.001 par value:
Authorized shares; 17,000,000 shares (actual) at
December 31, 1999 and September 30, 1999
17,000,000 shares (pro forma) at September
30, 1999
Issued and outstanding 3,471,316 shares at
December 31, 1998 and 3,452,238 shares
(actual) 10,648,747 shares (pro forma) at
September 30, 1999........................... 3,472 3,452 10,649
Unearned stock-based compensation................. (2,344,042) (8,209,918) (8,209,918)
Additional paid-in capital........................ 25,921,704 35,645,885 47,778,741
Accumulated deficit............................... (18,232,489) (28,278,544) (28,278,544)
------------ ------------ -----------
Total stockholders' equity (deficit).... 5,355,804 (831,966) 11,300,928
------------ ------------ -----------
Total liabilities and stockholders'
equity
(deficit)............................. $ 11,461,375 $ 9,688,722 $26,764,047
============ ============ ===========
</TABLE>

The accompanying notes are an integral part of these financial statements.
F-23
<PAGE> 100

ELOQUENT, INC.

CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1998 1999
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenues:
Content production services............................... $ 5,134,577 $ 6,404,774
Software licenses and maintenance......................... 676,632 1,591,034
Professional services..................................... -- 379,482
----------- ------------
Total revenues.................................... 5,811,209 8,375,290
----------- ------------
Cost of revenues:
Content production services............................... 4,276,746 3,907,178
Software licenses & maintenance........................... 319,343 406,685
Professional services..................................... -- 783,267
----------- ------------
Total cost of revenues............................ 4,596,089 5,097,130
----------- ------------
Gross margin.............................................. 1,215,120 3,278,160
----------- ------------
Costs and expenses:
Sales and marketing....................................... 4,832,501 5,683,805
Research and development.................................. 1,110,847 1,416,367
General and administrative................................ 1,546,381 2,586,594
Stock-based compensation.................................. 579,931 3,342,146
----------- ------------
Total operating expenses.......................... 8,069,660 13,028,912
----------- ------------
Loss from operations......................... (6,854,540) (9,750,752)
Interest expense and other charges.......................... (207,270) (418,594)
Interest income and other income............................ 119,839 123,291
----------- ------------
Net loss.......................................... $(6,941,971) $(10,046,055)
=========== ============
Net loss per share:
Basic and diluted......................................... $ (3.49) $ (3.06)
=========== ============
Weighted average shares -- basic and diluted................ 1,989,998 3,285,615
=========== ============
Pro forma net loss per share:
Basic and diluted......................................... $ (0.96)
============
Pro forma weighted average shares -- basic and diluted...... 10,444,624
============
</TABLE>

The accompanying notes are an integral part of these financial statements.
F-24
<PAGE> 101

ELOQUENT, INC.

CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1998 1999
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(6,941,971) $(10,046,055)
Adjustment to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 513,094 697,411
Amortization of stock-based compensation............... 579,931 3,342,146
Changes in operating assets and liabilities:
Accounts receivable.................................. (415,654) (1,152,045)
Deferred production costs............................ (36,037) 151,771
Prepaid expenses..................................... (167,178) (157,459)
Other................................................ (19,737) (40,169)
Accounts payable and other liabilities............... (317,501) 912,104
Deferred revenue..................................... 32,263 (153,272)
----------- ------------
Net cash used in operating activities............. (6,772,790) (6,445,568)
----------- ------------
Cash flows from investing activities:
Acquisition of property and equipment..................... (163,526) (336,828)
----------- ------------
Net cash used in investing activities............. (163,526) (336,828)
----------- ------------
Cash flows from financing activities:
Proceeds from borrowings under line of credit............. (200,000) 7,119,673
Repayments of borrowings under line of credit............. -- (3,099,017)
Debt issue costs.......................................... -- (70,550)
Proceeds from issuance of redeemable convertible preferred
stock, net of issuance costs........................... 10,655,236 --
Proceeds from issuance of common stock.................... 91,893 215,882
Repurchase of common stock................................ -- (102,313)
Capital lease payment..................................... (322,380) (511,016)
----------- ------------
Net cash provided by financing activities......... 10,224,749 3,552,659
----------- ------------
Net increase in cash and cash equivalents................... 3,288,433 (3,229,737)
Cash and cash equivalents, beginning of period.............. 4,016,103 6,660,939
----------- ------------
Cash and cash equivalents, end of period.................... $ 7,304,536 $ 3,431,202
=========== ============
</TABLE>

The accompanying notes are an integral part of these financial statements.
F-25
<PAGE> 102

ELOQUENT, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)

1. FORMATION AND BUSINESS

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

BASIS OF PREPARATION

In the opinion of management, the accompanying unaudited condensed financial
statements included herein have been prepared on a consistent basis with prior
periods reported financial statements and include all material adjustments,
consisting of normal recurring adjustments, considered necessary for a fair
presentation of Eloquent's financial position as of September 30, 1999 and its
results of operations and cash flows for the nine months ended September 30,
1999 and 1998. The results of operations and cash flows for the nine months
ended September 30, 1999 and 1998 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1999 and 1998. These
condensed unaudited financial statements should be read in conjunction with
Eloquent's audited financial statements for the year ended December 31, 1998.

Certain information and footnote disclosures normally included in the financial
statements have been condensed or omitted pursuant to rules and regulations of
the Securities and Exchange Commission, although Eloquent believes that the
disclosures in the unaudited interim financial results are adequate to ensure
that the information presented is not misleading.

NET LOSS PER SHARE

Eloquent computes net loss per share in accordance with SFAS No. 128 Earnings
Per Share. Under the provisions of SFAS No. 128 basic net loss per share is
computed by dividing the net loss for the period by the weighted average number
of common shares outstanding during the period. Diluted net loss per share is
computed by dividing the net loss for the period by the weighted average number
of common and common stock equivalent shares outstanding during the period.
Common equivalent shares, are composed of common shares issuable upon conversion
of convertible preferred stock (using the if-converted method) and shares
issuable upon the exercise of stock options and warrants are included in the
diluted net loss per share to the extent that such shares are dilutive.

F-26
<PAGE> 103
ELOQUENT, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

The following table sets forth the computation of basic and diluted net loss per
share for the periods indicated:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1998 1999
------------- -------------
<S> <C> <C>
NUMERATOR:
Net loss.................................................. $(6,941,971) $(10,046,055)
=========== ============
DENOMINATOR:
Weighted average common shares outstanding................ 3,373,422 3,760,289
Weighted average unvested common shares subject to
repurchase............................................. (1,383,424) (474,674)
----------- ------------
Denominator for basic and diluted calculation............... 1,989,998 3,285,615
=========== ============
Basic and diluted net loss per share........................ $ (3.49) $ (3.06)
=========== ============
ANTIDILUTIVE SECURITIES:
Options to purchase common stock.......................... 1,297,231 2,678,525
Warrants.................................................. 137,886 207,886
Convertible preferred stock............................... 7,159,009 7,159,009
----------- ------------
8,594,126 10,045,420
=========== ============
</TABLE>

Pro forma net loss per share for the nine months ended September 30, 1999 is
computed using the weighted average number of common shares outstanding,
including the pro forma effects of the automatic conversion of preferred stock
into common stock effective upon the closing of Eloquent's initial public
offering on an as-if converted basis. Pro forma diluted net loss per share is
computed using the pro forma weighted average number of common and common
equivalent shares outstanding. Common equivalent shares, composed of common
shares issuable upon the decrease of stock options and warrants, are not
included in diluted net loss per share so such shares are antidulutive.

Pro forma basic and diluted net loss per share is as follows:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1999
------------------
<S> <C>
Net loss.................................................... $(10,046,055)
============
Shares used in computing basic and diluted net loss per
share..................................................... 3,285,615
Adjusted to reflect the effect of the assumed conversion of
all convertible preferred stock from the date of
issuance.................................................. 7,159,009
------------
Weighted average shares used in computing pro forma basic
and diluted net loss per share............................ 10,444,624
============
Pro forma basic and diluted net loss per share.............. $ (0.96)
============
</TABLE>

F-27
<PAGE> 104
ELOQUENT, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

PRO FORMA SEPTEMBER 30, 1999

Effective upon the closing of Eloquent's initial public offering all outstanding
shares of preferred stock will convert into 7,159,009 shares of common stock.

On October 20, 1999, Eloquent sold $20.0 million of subordinated notes and
1,500,000 detachable warrants (See Note 8 "Subsequent Events"). In connection
with the sale of the notes, Eloquent issued 15,000 shares of common stock as
partial payment of a placement agent fee. Of the 1,500,000 detachable warrants,
22,500 will be exercised upon the closing of Eloquent's initial public offering.
Eloquent is required to use $2.6 million of the expected $18.8 million in net
proceeds from the initial sale of the notes to repay a portion of their existing
bank line of credit.

The pro forma effect of these events has been presented as a separate column in
the company's balance sheet, assuming the sale of the subordinated notes and
related events, as noted above had occurred as of September 30, 1999.

COMPREHENSIVE INCOME (LOSS)

Effective January 1, 1998 Eloquent adopted the provisions of SFAS No. 130,
Reporting of Comprehensive Income. This statement requires companies to classify
items of other comprehensive income by their components in the financial
statements and display the accumulated balance of other comprehensive income
separately in the equity section of a statement of financial position. To date,
Eloquent has not had any transactions that are required to be reported as other
comprehensive income (loss).

RECENT ACCOUNTING PRONOUNCEMENTS

In April 1998, AcSEC issued Statement of Position No. 98-5, Reporting on the
Costs of Start-Up Activities. This SOP provides guidance on the financial
reporting of start-up costs. It requires the costs of start-up activities and
organization costs to be expensed as incurred. The SOP is effective for
financial statements for fiscal years beginning after December 15, 1998. The
adoption of SOP No. 98-5 will not have a material impact on the financial
statements of Eloquent.

In December 1998, AcSEC released Statement of Position 98-9. Modification of SOP
97-2, "Software Revenue Recognition." SOP 98-9 amends SOP 97-2 to require that
an entity recognize revenue for multiple element arrangements by means of the
"residual method" when (1) there is no vendor-specific objective evidence
("VSOE") of the fair value of all the undelivered elements that are not
accounted for by means of long-term contract accounting, (2) VSOE of fair value
does not exist for one or more of the delivered elements, and (3) all revenue
recognition criteria of SOP 97-2 (*other than the requirement for VSOE of the
fair value of each delivered element) are satisfied. The provisions of SOP 98-9
that extend

F-28
<PAGE> 105
ELOQUENT, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

the deferral of certain paragraphs of SOP 97-2 became effective December 15,
1998. These paragraphs of SOP 97-2 and SOP 98-9 will be effective to
transactions that are entered into in fiscal years beginning after March 15,
1999. Retroactive application is prohibited. The Company is currently evaluating
the impact of the requirements of SOP 98-9 and the effects, if any, on its
current revenue recognition policies.

3. DEFERRED CHARGES

In conjunction with the revolving line of credit, Eloquent issued to the lender
warrants to purchase 70,000 shares of common stock at $5.10 per share. The
warrants expire July 2006. Eloquent valued the warrants using the Black-Scholes
option pricing models at $402,570, and has recorded the value of the warrants as
debt issuance costs. Debt issue costs are being amortized over the life of the
revolving credit facility which is 18 months. This was estimated using the
following assumptions: dividend yield of 0%; volatility of 55%; risk free
interest rate of 5.94% and the expected life of 7 years.

In connection with the issuance of $20.0 million of convertible notes (see Note
8, "Subsequent Events") Eloquent has incurred costs of $70,550. These costs have
been recorded as debt issue costs and will be amortized over the life of the
notes.

4. BANK LINE OF CREDIT AND CAPITAL LEASE OBLIGATIONS

BANK LINE OF CREDIT

On July 14, 1999, Eloquent entered into a revolving line of credit agreement
with a financial institution. The line of credit allows for borrowings up to the
lesser of $5,000,000 or 85% of the company's eligible receivables, as defined,
plus 75% of the unbilled receivables, as defined, plus $3,000,000 at any time
outstanding. This line of credit replaces a $2.5 million credit agreement that
expired as of July 19, 1999. The interest rate is the highest prime rate, as
defined, plus 2% per annum for formula loans and 3.5% per annum for non-formula
loans. The interest rate shall not exceed 9% per annum. At December 31, 1998 and
September 30, 1999, the outstanding borrowings under the respective lines of
credit totaled $1,500,000 and $5,520,656, respectively.

CAPITAL LEASE OBLIGATIONS

On August 5, 1999, Eloquent entered into a lease line of credit agreement with a
financial intermediary. The line of credit allows for principal borrowings of up
to $1,500,000. The ability to finance principal expires on the earlier of
reaching the $1,500,000 limit or July 31, 2000. The agreement replaces
Eloquent's previous lease line of credit agreement that expired in the third
quarter of 1999. Leases bear interest at rates ranging from 9.95% to 10.54%, are
collateralized by the underlying equipment, and are payable over the equipment
lease term.

5. COMMITMENTS AND CONTINGENCIES

LITIGATION

From time to time Eloquent is subject to legal proceedings and claims in the
ordinary course of business. Eloquent is not currently aware of any legal
proceedings or claims which Eloquent believes will have, individually or in the
aggregate, a material adverse effect on Eloquent's financial position or results
of operations.

F-29
<PAGE> 106
ELOQUENT, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

6. STOCKHOLDERS' EQUITY

Stock option activity under the Eloquent's stock option plans, is summarized as
follows:

<TABLE>
<CAPTION>
OPTION OUTSTANDING
--------------------------------------------------
SHARES AVAILABLE SHARES AVERAGE WEIGHTED
FOR GRANT UNDER OPTION EXERCISE PRICE
---------------- ------------ ----------------
<S> <C> <C> <C>
Balance, December 31, 1997.................. 371,539 1,010,061 $0.23
Additional shares reserved.................. 1,155,000 --
Options granted............................. (1,061,934) 1,061,934 $0.59
Options exercised........................... -- (483,766) $0.29
Options canceled............................ 269,517 (269,517) $0.23
---------- ---------
Balance, December 31, 1998.................. 734,122 1,318,712 $0.49
Additional shares reserved.................. 1,760,000 --
Options granted............................. (2,268,300) 2,268,300 $1.04
Options exercised........................... -- (323,510) $0.67
Options canceled............................ 579,977 (579,977) $0.45
---------- ---------
Balance, September 30, 1999................. 805,799 2,683,525 $0.93
========== =========
</TABLE>

STOCK BASED COMPENSATION

In connection with certain stock option grants during the nine months ended
September 30, 1998 and 1999, Eloquent recorded unearned stock-based compensation
totaling $2,528,671 and $9,208,022, respectively, which is being amortized over
the vesting periods of the related options which is generally four to five
years. Amortization of this stock-based compensation recognized during the nine
months ended September 30, 1998 and 1999 totaled approximately $579,931 and
$3,342,126, respectively.

Stock option grants during the nine months ended September 30, 1999 included
1,370,000 of common stock option granted to executive officers of Eloquent.

If the stock-based compensation for the nine months ended September 30, 1999 and
1998 had been allocated across the relevant functional expense categories within
operating expenses, it would be allocated as follows:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1998 1999
-------- ----------
<S> <C> <C>
Cost of revenues........................................... $105,886 $ 152,147
Sales and marketing........................................ 139,305 717,874
Research and development................................... 138,172 11,994
General and administrative................................. 196,568 2,460,131
-------- ----------
$579,931 $3,342,146
======== ==========
</TABLE>

F-30
<PAGE> 107
ELOQUENT, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

7. SUPPLEMENTAL CASH FLOW INFORMATION

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1998 1999
---------- ----------
<S> <C> <C>
Noncash investing and financing activities:
Assets acquired under capital leases........................ $ 519,968 $ 146,645
========== ==========
Stock based compensation.................................. $2,528,671 $9,208,022
========== ==========
</TABLE>

8. SUBSEQUENT EVENTS

SALE OF $20.0 MILLION OF CONVERTIBLE NOTES AND DETACHABLE WARRANTS TO PURCHASE
1,500,000 SHARES OF COMMON STOCK

After December 31, 2000, the investors, at their option, may convert the notes
to Series E preferred stock at an initial conversion rate of $8 per share,
subject to certain anti-dilutive provisions. This gives rise to a beneficial
conversion feature of $5.0 million, based on the fair value of common stock on
the date of the sale of the notes and detachable warrants.

In conjunction with the sale of the notes, Eloquent issued to the investors
detachable warrants to purchase 1,500,000 shares of common stock with an
exercise price of $0.01 per share. The warrants expire on the earlier of 5 years
after the repayment of the notes or October 20, 2006.

The beneficial conversion feature valued at $5,000,000 will be recorded as a
further discount on the sale of the notes.

EMPLOYEE STOCK PURCHASE PLAN

F-31
<PAGE> 108
ELOQUENT, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)

meaning of Section 423 of the Internal Revenue Code of 1986, as amended. the
initial public offering and is intended to qualify as an "employee stock
purchase plan" within the meaning of Section 423 of the Internal Revenue Code of
1986, as amended.

EQUITY INCENTIVE PLAN

F-32
<PAGE> 109

ELOQUENT, INC.

COMMON STOCK

[LOGO]

---------------------------
PROSPECTUS
---------------------------

Until , 2000, all dealers that effect transactions in these
securities, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the dealers' obligation to deliver
a prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.

U.S. BANCORP PIPER JAFFRAY

BANC OF AMERICA SECURITIES LLC

THOMAS WEISEL PARTNERS LLC

, 2000

<PAGE> 110

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the costs and expenses to be paid by Eloquent in
connection with the sale of the shares of common stock being registered hereby.
All amounts are estimates except for the Securities and Exchange Commission
registration fee, the NASD filing fee and the Nasdaq National Market filing fee.

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 15,985
NASD filing fee............................................. 6,250
Nasdaq National Market filing fee........................... 85,000
Accounting fees and expenses................................ 350,000
Legal fees and expenses..................................... 300,000
Printing and engraving expenses............................. 250,000
Blue sky fees and expenses.................................. 5,000
Transfer agent and registrar fees and expenses.............. 5,000
Miscellaneous............................................... 482,765
----------
Total............................................. $1,500,000
==========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

- any breach of the director's duty of loyalty;

- acts or omissions which involve a lack of good faith, intentional
misconduct or a knowing violation of the law;

- payment of dividends or approval of stock repurchases or redemptions
that are unlawful under Delaware law; or

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

II-1
<PAGE> 111

which indemnification is sought, nor are we aware of any threatened litigation
that may result in claims for indemnification.

We have the power to indemnify our other officers, employees and other agents,
as permitted by Delaware law, but we are not required to do so.

We plan to obtain directors' and officers' liability insurance.

Reference is made to the following documents filed or incorporated by reference
as exhibits to this Registration Statement regarding relevant indemnification
provisions described above and elsewhere herein:

<TABLE>
<CAPTION>
EXHIBIT DOCUMENT NUMBER
---------------- ------
<S> <C>
Form of Underwriting Agreement.............................. 1.01
Amended and Restated Certificate of Incorporation........... 3.03
Amended and Restated Bylaws................................. 3.04
Fourth Amended and Restated Investors' Rights Agreement
dated October 20, 1999.................................... 4.02
Form of Indemnity Agreement................................. 10.01
</TABLE>

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

The following table sets forth information regarding all securities sold by the
Registrant since its inception on March 29, 1995.

1. In March 1995, Eloquent issued and sold and aggregate of 3,300,000
shares of its common stock at $0.001 per share to three individual
accredited investors, 2,100,000 of which were sold to a 5% stockholder
of Eloquent and 2,700,000 of which were sold to two executive officers
and directors of Eloquent. The aggregate amount paid to Eloquent for
these securities was $3,300.

2. In October 1995, Eloquent issued and sold an aggregate of 1,250,000
shares of Series A Preferred Stock at $0.80 per share to an
institutional accredited investor that is both a 5% stockholder of
Eloquent and an entity affiliated with a director of Eloquent. The
aggregate amount paid to Eloquent for these securities was $1,000,000.

3. In November 1995, in connection with the establishment of a credit
facility, Eloquent issued a warrant to purchase up to 37,188 shares of
common stock at an exercise price of $0.80 per share to a secured lender
that is not a 5% stockholder of Eloquent or an executive officer or
director (or related entity) of Eloquent.

4. In July 1996, Eloquent issued and sold a warrant to purchase up to
14,450 shares of common stock at an exercise price of $0.173 per share
to an institutional accredited investor that is both a 5% stockholder of
Eloquent and an entity affiliated with a director of Eloquent. The
aggregate purchase price paid to Eloquent for this warrant was $144.50.

5. From August to September 1996, Eloquent issued and sold an aggregate of
1,907,513 shares of Series B Preferred Stock at $1.73 per share to four
accredited investors, 1,849,711 of which were sold to two institutional
5% stockholders, both of which are entities affiliated with a director
of Eloquent, and 57,802 of which were sold to two individual investors.
The aggregate amount paid to Eloquent for these securities was
$3,299,997.

6. In March 1997, in connection with the establishment of a credit
facility, Eloquent issued a warrant to purchase up to 34,683 shares of
common stock at an exercise price of $1.73 per share to a secured lender
that is not a 5% stockholder of Eloquent or an executive officer or
director (or related entity) of Eloquent.

II-2
<PAGE> 112

7. In May 1997, in connection with the establishment of a credit facility,
Eloquent issued a warrant to purchase up to 14,451 shares of Series B
Preferred Stock at an exercise price of $1.73 per share to a secured
lender that is not a 5% stockholder of Eloquent or an executive officer
or director (or related entity) of Eloquent.

8. From August 1997 to October 1997, Eloquent issued and sold an aggregate
of 1,912,233 shares of Series C Preferred Stock at $3.90 per share to
eight accredited investors, 1,860,950 of which were sold to three
institutional 5% stockholders, each of which is affiliated with a
director of Eloquent, and 51,283 of which were sold to five individual
investors. The aggregate amount paid to Eloquent for these securities
was $7,457,708.70.

9. In October 1997, in connection with the establishment of a credit
facility, Eloquent issued a warrant to purchase up to 15,000 shares of
common stock at an exercise price of $3.90 per share to a secured lender
that is not a 5% stockholder of Eloquent or an executive officer or
director (or related entity) of Eloquent.

10. In March 1998, in connection with the establishment of a credit
facility, Eloquent issued a warrant to purchase up to 22,115 shares of
common stock at an exercise price of $3.90 per share to a secured
lender that is not a 5% stockholder of Eloquent or an executive officer
or director (or related entity) of Eloquent.

11. In June 1998, Eloquent issued and sold an aggregate of 2,089,263 shares
of Series D Preferred Stock at $5.10 per share to four institutional
accredited investors, all of which were sold to entities that are both
5% stockholders and affiliated with directors of Eloquent. The
aggregate amount paid to Eloquent for these securities was
$10,655,241.00.

12. In July 1999, in connection with the establishment of a credit
facility, Eloquent issued a warrant to purchase up to 70,000 shares of
common stock at an exercise price of $5.10 per share to a secured
lender that is not a 5% stockholder of Eloquent or an executive officer
or director (or related entity) of Eloquent.

13. In October 1999, Eloquent issued $20.0 million in principal amount of
subordinated notes and warrants to purchase 1,500,000 shares of common
stock with an exercise price of $0.01 per share to 15 accredited
investors, 25% of which were sold to institutional 5% stockholders of
Eloquent. The aggregate amount paid to Eloquent for these securities
was $20,002,000. In addition, Eloquent issued 15,000 shares of common
stock to U.S. Bancorp Piper Jaffray in consideration for its services
as placement agent.

14. Since inception, Eloquent has granted stock options to its employees,
consultants and directors under its Equity Incentive Plan and 1997
Equity Incentive Plan, covering an aggregate of 4,489,201 shares of
common stock, net of expirations and cancellations, at exercise prices
ranging from $0.08 to $7.50 per share.

15. Since inception, options to purchase an aggregate of 1,203,876 shares
of common stock under Eloquent's Equity Incentive Plan and 1997 Equity
Incentive Plan were exercised by employees and consultants of Eloquent
for an aggregate purchase price of $432,557 with a weighted average
exercise price of $0.36 per share.

All sales of common stock made pursuant to the exercise of stock options granted
under the Equity Incentive Plan and 1997 Equity Incentive Plan to Eloquent's
officers, directors, employees and consultants were made in reliance on Rule 701
under the Securities Act or on Section 4(2) of the Securities Act.

All other sales were made in reliance on Section 4(2) of the Securities Act
and/or Regulation D promulgated under the Securities Act. These sales were made
without general solicitation or advertising.

II-3
<PAGE> 113

Each purchaser was a sophisticated investor with access to all relevant
information necessary to evaluate the investment and represented to Eloquent
that the shares were being acquired for investment.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) The following exhibits are filed herewith:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
<C> <S>
1.01* Form of Underwriting Agreement.
3.01 Amended and Restated Certificate of Incorporation.
3.02+ Amended and Restated Bylaws.
3.03+ Form of Amended and Restated Certificate of Incorporation to
be filed upon completion of this offering.
3.04 Form of Amended and Restated Bylaws to be effective upon
completion of this offering.
4.01+ Form of Specimen Stock Certificate.
4.02+ Fourth Amended and Restated Investors' Rights Agreement,
dated October 20, 1999, among Eloquent and certain investors
named therein.
4.03+ Securities Purchase Agreement, dated October 20, 1999, by
and among Eloquent and certain investors named therein.
5.01* Opinion of Cooley Godward LLP regarding legality of the
securities being registered.
10.01+ Form of Indemnity Agreement entered into by Eloquent with
each of its directors and executive officers.
10.02 Equity Incentive Plan.
10.03+ Form of Stock Option Agreement under the Equity Incentive
Plan.
10.04 1997 Equity Incentive Plan.
10.05+ Form of Stock Option Agreement under the 1997 Equity
Incentive Plan.
10.06 1999 Equity Incentive Plan.
10.07+ Form of Stock Option Agreement under the 1999 Equity
Incentive Plan.
10.08+ Form of Nonstatutory Stock Option Agreement for Non-Employee
Director Grants under the 1999 Equity Incentive Plan.
10.09+ 1999 Employee Stock Purchase Plan.
10.10+ Form of 1999 Employee Stock Purchase Plan Offering.
10.11+ Employment Agreement, dated December 23, 1998, between
Eloquent and Abraham Kleinfeld.
10.12+ Office Lease, dated November 19, 1996, between Eloquent and
California Casualty Indemnity Exchange, as amended.
10.13+ OEM Agreement, dated May 30, 1997, between Eloquent and
Verity, Inc.
10.14+ Software License Agreement, dated June 30, 1997, between
Eloquent and Voxware, Inc.
10.15+ Co-location Service Agreement, dated March 30, 1998 between
Eloquent and Concentric Network Corporation.
10.16+ Sublease Agreement, dated June 1, 1999, between Eloquent and
California Casualty Indemnity Exchange.
23.01* Consent of Cooley Godward LLP(included in Exhibit 5.01).
</TABLE>

II-4
<PAGE> 114

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
<C> <S>
23.02 Consent of PricewaterhouseCoopers LLP, independent
accountants.
24.01+ Power of Attorney. Reference is made to page III-6.
27.01+ Financial Data Schedule.
</TABLE>

- ---------------------------------------------

+ Previously filed.

* To be filed by amendment.

(b) FINANCIAL STATEMENT SCHEDULES.

II-5
<PAGE> 115

REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE

To the Board of Directors and Stockholders of Eloquent, Inc.

In connection with our audits of the financial statements of Eloquent, Inc. as
of December 31, 1997 and 1998, and for each of the three years in the period
ended December 31, 1998, which financial statements are included in the
Prospectus, we have also audited the financial statement schedule listed in Item
16(b) herein. In our opinion, this financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly,
in all material respects, the information required to be included therein.

PricewaterhouseCoopers LLP

San Jose, California
August 30, 1999

II-6
<PAGE> 116

ELOQUENT, INC.
VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
BALANCE AT
BEGINNING ADDITIONS BALANCE AT
OF YEAR (REDUCTIONS) WRITE-OFFS END OF YEAR
---------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1996.............. $ -- $ -- $ -- $ --
Year ended December 31, 1997.............. -- 122,483 (7,408) 115,075
Year ended December 31, 1998.............. 115,075 9,754 (19,879) 104,950
Valuation allowance for deferred tax assets:
Year ended December 31, 1996.............. 127,747 592,750 -- 720,497
Year ended December 31, 1997.............. 720,497 2,344,280 -- 3,064,777
Year ended December 31, 1998.............. 3,064,777 3,717,176 -- 6,781,953
</TABLE>

ITEM 17. UNDERTAKINGS.

The undersigned 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 provisions described under Item 14 above, 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, 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 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 undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-7
<PAGE> 117

SIGNATURES

Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Mateo, State of
California, on the 2nd day of December, 1999.

ELOQUENT, INC.

By: /s/ ABRAHAM KLEINFELD
------------------------------------
Abraham Kleinfeld
President and Chief Executive
Officer

Pursuant to the requirements of the Securities Act, this Registration Statement
has been signed by the following persons in the capacities and on the dates
indicated.

<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----

<S> <C> <C>
Chief Executive Officer, President December 2, 1999
/s/ ABRAHAM KLEINFELD and Director (Principal Executive
- ------------------------------------ Officer)
Abraham Kleinfeld

* Chairman of the Board December 2, 1999
- ------------------------------------
Clifford A. Reid, Ph.D.

* Chief Financial Officer, Secretary December 2, 1999
- ------------------------------------ and Treasurer (Principal Financial
R. John Curson and Accounting Officer)

* Director December 2, 1999
- ------------------------------------
Terry L. Opdendyk

* Director December 2, 1999
- ------------------------------------
Kathryn C. Gould

* Director December 2, 1999
- ------------------------------------
Anthony P. Brenner

Director December 2, 1999
- ------------------------------------
David F. Millet

Director December 2, 1999
- ------------------------------------
Mark C. Thompson
</TABLE>

II-8
<PAGE> 118

<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----

<S> <C> <C>
Director December 2, 1999
- ------------------------------------
Michael E. Herman

*By /s/ ABRAHAM KLEINFELD
- ------------------------------------
Abraham Kleinfeld
Attorney-in-fact
</TABLE>

II-9
<PAGE> 119

EXHIBIT INDEX

- ---------------------------------------------

+ Previously filed.

* To be filed by amendment.

<PAGE> 1
EXHIBIT 3.1

AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF ELOQUENT, INC.

Abraham Kleinfeld hereby certifies that:

ONE: The date of filing the original Certificate of Incorporation of
this corporation with the Secretary of State of the State of Delaware is March
29, 1995.

TWO: He is the duly elected and acting Chief Executive Officer of
Eloquent, Inc., a Delaware corporation.

THREE: The Certificate of Incorporation of this corporation is hereby
amended and restated to read as follows:

The name of the corporation is Eloquent, Inc. (the "Company").

II.

The address of the registered office of the Company in the State of
Delaware is:

The Prentice-Hall Corporation System, Inc.
1013 Centre Road

Wilmington, DE 19805
New Castle County

The name of the Company's registered agent at said address is The
Prentice-Hall Corporation System, Inc.

III.

The purpose of the Company is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
the State of Delaware.

IV.

A. The Company is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares that the Company is authorized to issue is 39,938,844 shares,
30,000,000 of which shall be Common Stock (the "Common Stock") and 9,938,844
shares of which shall be Preferred Stock (the "Preferred Stock"). The Preferred
Stock shall have a par value of $.001 per share and the Common Stock shall have
a par value of $.001 per share.

B. 1,250,000 of the authorized shares of Preferred Stock are hereby
designated "Series A Preferred Stock" (the "Series A Preferred").

<PAGE> 2
C. 1,921,964 of the authorized shares of Preferred Stock are hereby
designated "Series B Preferred Stock" (the "Series B Preferred").

D. 1,912,233 of the authorized shares of Preferred Stock are hereby
designated "Series C Preferred Stock" (the "Series C Preferred").

E. 2,354,647 of the authorized shares of Preferred Stock are hereby
designated "Series D Preferred Stock" (the "Series D Preferred").

F. 2,500,000 of the authorized shares of Preferred Stock are hereby
designated "Series E Preferred Stock" (the "Series E Preferred"). References
hereinafter to the "Preferred Stock" shall mean, collectively, the Series A
Preferred, the Series B Preferred, the Series C Preferred, the Series D
Preferred and the Series E Preferred.

G. The rights, preferences, privileges, restrictions and other matters
relating to the Preferred Stock are as follows:

1. DIVIDEND RIGHTS.

(a) Holders of Preferred Stock, in preference to the
holders of any other stock of the Company ("Junior Stock"), shall be entitled to
receive, when and as declared by the Board of Directors, but only out of funds
that are legally available therefor, cash dividends at the rate of 10% of the
"Original Issue Price" per annum on each outstanding share of Preferred Stock
(as adjusted for any stock dividends, combinations, splits, recapitalizations
and the like with respect to such shares). The Original Issue Price of the
Series A Preferred shall be $0.80. The Original Issue Price of the Series B
Preferred shall be $1.73. The Original Issue Price of the Series C Preferred
shall be $3.90. The Original Issue Price of the Series D Preferred shall be
$5.10. The Original Issue Price of the Series E Preferred shall be $8.00. Such
dividends shall be payable to the holders of the Preferred Stock only when, as
and if declared by the Board of Directors and shall be non-cumulative from the
"Original Issue Date" of each series of Preferred Stock. The Original Issue Date
of each series of Preferred Stock shall be the date that the first share of such
series of Preferred Stock is issued.

(b) So long as any shares of Preferred Stock shall be
outstanding, no dividend, whether in cash or property, shall be paid or
declared, nor shall any other distribution be made, on any Junior Stock, nor
shall any shares of any Junior Stock of the Company be purchased, redeemed, or
otherwise acquired for value by the Company (except for acquisitions of Common
Stock by the Company pursuant to agreements that permit the Company to
repurchase such shares upon termination of services to the Company or in
exercise of the Company's right of first refusal upon a proposed transfer) until
all dividends (set forth in Section 1(a) above) on Preferred Stock shall have
been paid or declared and set apart. In the event dividends are paid on any
share of Common Stock, an additional dividend shall be paid with respect to all
outstanding shares of Preferred Stock in an amount equal per share (on an
as-if-converted to Common Stock basis) to the amount paid or set aside for each
share of Common Stock. The provisions of this Section 1(b) shall not, however,
apply to (i) a dividend payable in Common Stock for which adjustment is made
pursuant to Section 4(f), (ii) the acquisition of shares of any Junior Stock in
exchange for shares of any other Junior Stock, or (iii) any

<PAGE> 3
repurchase of any outstanding securities of the Company that is unanimously
approved by the Company's Board of Directors.

2. VOTING RIGHTS.

(a) GENERAL RIGHTS. Except as otherwise provided herein or
as required by law, shares of Preferred Stock shall be voted equally with the
shares of the Common Stock of the Company and not as a separate class, at any
annual or special meeting of stockholders of the Company, and may act by written
consent in the same manner as the Common Stock, in either case upon the
following basis: each holder of shares of Preferred Stock shall be entitled to
such number of votes as shall be equal to the whole number of shares of Common
Stock into which such holder's aggregate number of shares of Preferred Stock are
convertible (pursuant to Section 4 hereof) immediately after the close of
business on the record date fixed for such meeting or the effective date of such
written consent.

(b) SEPARATE VOTE OF PREFERRED STOCK. For so long as at
least 2,500,000 shares of Preferred Stock (subject to adjustment for any stock
split, reverse stock split or other similar event affecting the Preferred Stock)
remain outstanding, in addition to any other vote or consent required herein or
by law, the vote or written consent of the holders of at least 66-2/3% of the
outstanding Preferred Stock (on an as-if-converted basis) shall be necessary for
effecting or validating the following actions:

(i) Any amendment, alteration or repeal of any
provision of the Restated Certificate or the Bylaws of the Company (including
any filing of a Certificate of Designation) that affects materially and
adversely the voting powers, preferences or other special rights or privileges,
qualifications, limitations or restrictions of Preferred Stock;

(ii) Any increase or decrease (other than by
redemption or conversion) in the authorized number of shares of Common Stock or
Preferred Stock;

(iii) Any authorization or designation, whether by
reclassification or otherwise, of any new class of shares or series of equity
securities or any other securities convertible into equity securities of the
Company ranking on a parity with or senior to one or more series of Preferred
Stock in rights of redemption, liquidation preference, voting or dividends or
any increase in the authorized or designated number of any such new class or
series;

(iv) Any redemption, repurchase, payment of dividends
or other distributions with respect to Junior Stock (except for acquisitions of
Common Stock by the Company pursuant to agreements that permit the Company to
repurchase such shares upon termination of services to the Company or in
exercise of the Company's right of first refusal upon a proposed transfer);

(v) Any agreement by the Company regarding an Asset
Transfer or Acquisition (each as defined in Section 3(c));

(vi) A sale, lease or other disposition by the
Company outside its ordinary course of business of a substantial portion of its
assets that are material to the Company's core business;

<PAGE> 4
(vii) Any increase in the authorized number of
directors of the Company;

(VIII) Any voluntary dissolution or liquidation of
the Company; or

(ix) Any action that results in the payment or
declaration of any dividend on any shares of Common Stock or Preferred Stock.

In addition, for so long as at least 625,000 shares of Series E Preferred
(subject to adjustment for any stock split, reverse stock split or other similar
event affecting the Preferred Stock) remain outstanding, in addition to any
other vote or consent required herein or by law, the vote or written consent of
the holders of at least 66-2/3% of the outstanding Series E Preferred shall be
necessary for effecting or validating any amendment, alteration or repeal of any
provision of the Restated Certificate or the Bylaws of the Company (including
any filing of a Certificate of Designation) that affects materially and
adversely the voting powers, preferences or other special rights or privileges,
qualifications, limitations or restrictions of the Series E Preferred.

(c) ELECTION OF BOARD OF DIRECTORS. For so long as at
least 2,500,000 shares of Preferred Stock (subject to adjustment for any stock
split, reverse stock split or other similar event affecting the Preferred Stock)
remain outstanding, but subject to that certain Voting Agreement to be entered
into among the Company and certain investors in the Company in connection with
the sale of Subordinated Notes (the "Investor Notes") and Detachable Warrants
(the "Investors Warrants") in October 1999, and that certain Voting Agreement,
dated as of June 22, 1998, among the Company and certain investors in the
Company, (i) the holders of Preferred Stock, voting together as a separate class
on an as-if-converted to Common Stock basis, shall be entitled to elect one
member of the Company's Board of Directors (the "Preferred Stock Director") at
each meeting or pursuant to each consent of the Company's stockholders for the
election of directors, and to remove from office such director and to fill any
vacancy caused by the resignation, death or removal of such director; (ii) the
holders of Common Stock, voting as a separate class, shall be entitled to elect
one member of the Board of Directors (the "Common Stock Director") at each
meeting or pursuant to each consent of the Company's stockholders for the
election of directors, and to remove from office such director and to fill any
vacancy caused by the resignation, death or removal of such director; and (iii)
the holders of Common Stock and Preferred Stock, voting together as a class on
an as-if-converted to Common Stock basis, shall be entitled to elect all
remaining members of the Board of Directors (the "Remaining Directors"). If at
any time less than 2,500,000 shares of Preferred Stock (subject to adjustment
for any stock split, reverse stock split or other similar event affecting the
Preferred Stock) remain outstanding, all of the members of the Board of
Directors shall be elected by all of the holders of Preferred Stock and the
Common Stock, voting together as a class on an as-if-converted to Common Stock
basis.

3. LIQUIDATION RIGHTS.

(a) Upon any liquidation, dissolution, or winding up of
the Company, whether voluntary or involuntary, before any distribution or
payment shall be made to the holders of any Junior Stock, the holders of
Preferred Stock shall be entitled to be paid out of the

<PAGE> 5
assets of the Company an amount per share of Preferred Stock equal to the
Original Issue Price of such share plus all declared and unpaid dividends on
such shares of Preferred Stock (as adjusted for any stock dividends,
combinations, splits, recapitalizations and the like with respect to such
shares) for each share of Preferred Stock held by them.

(b) After the payment of the full liquidation preference
of the Preferred Stock as set forth in Section 3(a) above, the assets of the
Company legally available for distribution, if any, shall be distributed ratably
to the holders of the Common Stock and the Preferred Stock on an as-if-converted
to Common Stock basis until such time as (1) the holders of Series A Preferred,
Series B Preferred and Series C Preferred have received an amount per share of
Preferred Stock equal to $4.75 per share (as adjusted for any stock dividends,
combinations, splits, recapitalizations and the like with respect to such
shares) and (2) the holders of Series E Preferred have received an amount per
share of Series E Preferred, in addition to the amount received pursuant to
Section 3(a) above, equal to $8.00 (as adjusted for any stock dividends,
combinations, splits, recapitalizations and the like with respect to such
shares). The remaining assets of the Company legally available for distribution,
if any, shall be distributed ratably to the holders of the Common Stock.

(i) any consolidation or merger of the Company with
or into any other corporation or other entity or person, or any other corporate
reorganization, in which the stockholders of the Company immediately prior to
such consolidation, merger or reorganization, own less than 50% of the Company's
voting power immediately after such consolidation, merger or reorganization, or
any transaction or series of related transactions in which in excess of 50% of
the Company's voting power is transferred (an "Acquisition"); or

(ii) a sale, lease or other disposition of all or
substantially all of the assets of the Company (an "Asset Transfer").

(d) If, upon any liquidation, distribution, or winding up,
the assets of the Company shall be insufficient to make payment in full to all
holders of Preferred Stock of the liquidation preference set forth in Section
3(a), then such assets shall be distributed among the holders of Preferred Stock
at the time outstanding, ratably in proportion to the full amounts to which they
would otherwise be respectively entitled.

4. CONVERSION RIGHTS.

The holders of Preferred Stock shall have the following
rights with respect to the conversion of Preferred Stock into shares of Common
Stock (the "Conversion Rights"):

(a) OPTIONAL CONVERSION. Subject to and in compliance with
the provisions of this Section 4, any shares of Preferred Stock may, at the
option of the holder, be converted at any time into fully-paid and nonassessable
shares of Common Stock. The number of shares of Common Stock to which a holder
of Preferred Stock shall be entitled upon conversion shall be the product
obtained by multiplying the "Conversion Rate" of each series of

<PAGE> 6
Preferred Stock then in effect (determined as provided in Section 4(b)) by the
number of shares of Preferred Stock being converted.

(b) CONVERSION RATE. The conversion rate in effect at any
time for conversion of each series of Preferred Stock shall be the quotient
obtained by dividing the Original Issue Price of such series of Preferred Stock
by the "Conversion Price" of such series of Preferred Stock, calculated as
provided in Section 4(c).

(c) CONVERSION PRICES. The conversion price for each
series of Preferred Stock initially shall be the Original Issue Price of such
series of Preferred Stock (the "Conversion Price"). Such initial Conversion
Price of each series of Preferred Stock shall be adjusted from time to time in
accordance with this Section 4. All references to the Conversion Price herein
shall mean the Conversion Price of each series of Preferred Stock as so
adjusted.

(d) MECHANICS OF CONVERSION. Each holder of Preferred
Stock who desires to convert the same into shares of Common Stock pursuant to
this Section 4 shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Company or any transfer agent for the Preferred
Stock, and shall give written notice to the Company at such office that such
holder elects to convert the same. Such notice shall state the number of shares
of Preferred Stock being converted. Thereupon, the Company shall promptly issue
and deliver at such office to such holder a certificate or certificates for the
number of shares of Common Stock to which such holder is entitled and shall
promptly pay in cash or, to the extent sufficient funds are not then legally
available therefor, in Common Stock (at the Common Stock's fair market value
determined by the Board of Directors as of the date of such conversion), any
declared and unpaid dividends on the shares of Preferred Stock being converted.
Such conversion shall be deemed to have been made at the close of business on
the date of such surrender of the certificates representing the shares of
Preferred Stock to be converted, and the person entitled to receive the shares
of Common Stock issuable upon such conversion shall be treated for all purposes
as the record holder of such shares of Common Stock on such date.

(e) ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the
Company shall at any time or from time to time effect a subdivision of the
outstanding Common Stock, the Conversion Price of each series of Preferred Stock
in effect immediately before that subdivision shall be proportionately
decreased. Conversely, if the Company shall at any time or from time to time
combine the outstanding shares of Common Stock into a smaller number of shares,
the Conversion Price of each series of Preferred Stock in effect immediately
before the combination shall be proportionately increased. Any adjustment under
this Section 4(e) shall become effective at the close of business on the date
the subdivision or combination becomes effective.

(f) ADJUSTMENT FOR COMMON STOCK DIVIDENDS AND
DISTRIBUTIONS. If the Company at any time or from time to time makes, or fixes a
record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in additional shares of Common
Stock, in each such event the Conversion Price of each series of Preferred Stock
that is then in effect shall be decreased as of the time of such issuance or, in
the event such record date is fixed, as of the close of business on such record
date, by multiplying the Conversion Price of each series of Preferred Stock then
in effect by a fraction

<PAGE> 7
(i) the numerator of which is the total number of shares of Common Stock issued
and outstanding immediately prior to the time of such issuance or the close of
business on such record date, and (ii) the denominator of which is the total
number of shares of Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record date plus the
number of shares of Common Stock issuable in payment of such dividend or
distribution; provided, however, that if such record date is fixed and such
dividend is not fully paid or if such distribution is not fully made on the date
fixed therefor, the Conversion Price of each series of Preferred Stock shall be
recomputed accordingly as of the close of business on such record date and
thereafter the Conversion Price of each series of Preferred Stock shall be
adjusted pursuant to this Section 4(f) to reflect the actual payment of such
dividend or distribution.

(g) ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. If
the Company at any time or from time to time makes, or fixes a record date for
the determination of holders of Common Stock entitled to receive, a dividend or
other distribution payable in securities of the Company other than shares of
Common Stock, in each such event provision shall be made so that the holders of
Preferred Stock shall receive upon conversion thereof, in addition to the number
of shares of Common Stock receivable thereupon, the amount of other securities
of the Company that they would have received had their Preferred Stock been
converted into Common Stock on the date of such event and had they thereafter,
during the period from the date of such event to and including the conversion
date, retained such securities receivable by them as aforesaid during such
period, subject to all other adjustments called for during such period under
this Section 4 with respect to the rights of the holders of Preferred Stock or
with respect to such other securities by their terms.

(h) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE AND
SUBSTITUTION. If at any time or from time to time, the Common Stock issuable
upon the conversion of Preferred Stock is changed into the same or a different
number of shares of any class or classes of stock, whether by recapitalization,
reclassification or otherwise (other than an Acquisition or Asset Transfer as
defined in Section 3(c) or a subdivision or combination of shares or stock
dividend or a reorganization, merger, consolidation or sale of assets provided
for elsewhere in this Section 4), in any such event each holder of Preferred
Stock shall have the right thereafter to convert such stock into the kind and
amount of stock and other securities and property receivable upon such
recapitalization, reclassification or other change by holders of the maximum
number of shares of Common Stock into which such shares of Preferred Stock could
have been converted immediately prior to such recapitalization, reclassification
or change, all subject to further adjustment as provided herein or with respect
to such other securities or property by the terms thereof.

(i) REORGANIZATIONS, MERGERS, CONSOLIDATIONS OR SALES OF
ASSETS. If at any time or from time to time, there is a capital reorganization
of the Common Stock (other than an Acquisition or Asset Transfer as defined in
Section 3(c) or a recapitalization, subdivision, combination, reclassification,
exchange or substitution of shares provided for elsewhere in this Section 4), as
a part of such capital reorganization, provision shall be made so that the
holders of Preferred Stock shall thereafter be entitled to receive upon
conversion of Preferred Stock the number of shares of stock or other securities
or property of the Company to which a holder of the number of shares of Common
Stock deliverable upon conversion would

<PAGE> 8
have been entitled on such capital reorganization, subject to adjustment in
respect of such stock or securities by the terms thereof. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 4 with respect to the rights of the holders of Preferred Stock
after the capital reorganization to the end that the provisions of this Section
4 (including adjustment of the Conversion Price of each series of Preferred
Stock then in effect and the number of shares issuable upon conversion of
Preferred Stock) shall be applicable after that event and be as nearly
equivalent as practicable.

(j) SALE OF ADDITIONAL SHARES OF COMMON STOCK.

(i) If at any time or from time to time, the Company
issues or sells, or is deemed by the express provisions of this subsection (j)
to have issued or sold, Additional Shares of Common Stock (as hereinafter
defined), other than as a dividend or other distribution on the Company's
outstanding capital stock as provided in Section 4(f) above, and other than a
subdivision or combination of the Company's outstanding capital stock as
provided in Section 4(e) above, then and in each such case the then existing
Conversion Price of each series of Preferred Stock shall be adjusted to a new
Conversion Price of each series of Preferred Stock (calculated to the nearest
cent) equal to the quotient of

A. an amount equal to (i) the total number of
shares of Common Stock Outstanding (as hereinafter defined) at the close of
business on the Original Issue Date of such series of Preferred Stock,
multiplied by the respective Original Issue Price of such series of Preferred
Stock, plus (ii) the aggregate of the amount of all consideration, if any,
received by the Company for the issuance or sale of Additional Shares of Common
Stock, divided by

B. the total number of shares of Common Stock
Outstanding immediately prior to such issuance or sale plus the Additional
Shares of Common Stock issued or deemed to be issued;

provided, however, that the Conversion Price of each series of Preferred Stock
shall at no time exceed the respective Original Issue Price of such series of
Preferred Stock, as adjusted for stock splits, combinations and similar events
(the "Maximum Conversion Price"). For the purposes of this subsection (j)(i),
"Common Stock Outstanding" shall mean all outstanding shares of Common Stock and
all shares of Common Stock issuable upon conversion of Preferred Stock (assuming
a Conversion Price of each series of Preferred Stock equal to the respective
Maximum Conversion Price of such series of Preferred Stock) or other convertible
instruments or upon exercise of options or warrants or other rights to acquire
Common Stock that are outstanding as of the close of business on any applicable
date; provided, however, that the Option Pool Shares (as hereinafter defined)
and the Financing Shares (as hereinafter defined) excluded from the definition
of Additional Shares of Common Stock in subsection (j)(iv) below shall be
excluded from the definition of Common Stock Outstanding.

(ii) For the purpose of making any adjustment
required under this Section 4(j), the consideration received by the Company for
any issue or sale of securities shall (A) to the extent it consists of cash, be
computed at the net amount of cash received by the Company after deduction of
any underwriting or similar commissions, compensation or

<PAGE> 9
concessions paid or allowed by the Company in connection with such issue or sale
but without deduction of any expenses payable by the Company, (B) to the extent
it consists of property other than cash, be computed at the fair value of that
property as determined in good faith by the Board of Directors, and (C) if
Additional Shares of Common Stock, Convertible Securities (as hereinafter
defined) or rights or options to purchase either Additional Shares of Common
Stock or Convertible Securities are issued or sold together with other stock or
securities or other assets of the Company for a consideration that covers both,
be computed as the portion of the consideration so received that may be
reasonably determined in good faith by the Board of Directors to be allocable to
such Additional Shares of Common Stock, Convertible Securities or rights or
options.

(iii) For the purpose of the adjustment required under
this Section 4(j), if the Company issues or sells any rights or options for the
purchase of, or stock or other securities convertible into, Additional Shares of
Common Stock (such convertible stock or securities being herein referred to as
"Convertible Securities"), in each case the Company shall be deemed to have
issued at the time of the issuance of such rights or options or Convertible
Securities the maximum number of Additional Shares of Common Stock issuable upon
exercise or conversion thereof and to have received as consideration for the
issuance of such shares an amount equal to the total amount of the
consideration, if any, received by the Company for the issuance of such rights
or options or Convertible Securities, plus, in the case of such rights or
options, the minimum amounts of consideration, if any, payable to the Company
upon the exercise of such rights or options, plus, in the case of Convertible
Securities, the minimum amounts of consideration, if any, payable to the Company
(other than by cancellation of liabilities or obligations evidenced by such
Convertible Securities) upon the conversion thereof; provided that if in the
case of Convertible Securities the minimum amounts of such consideration cannot
be ascertained, but are a function of antidilution or similar protective
clauses, the Company shall be deemed to have received the minimum amounts of
consideration without reference to such clauses; provided further that if the
minimum amount of consideration payable to the Company upon the exercise or
conversion of rights, options or Convertible Securities is reduced over time or
on the occurrence or non-occurrence of specified events other than by reason of
antidilution adjustments, the amount of consideration deemed to be received by
the Company shall be recalculated using the figure to which such minimum amount
of consideration is reduced; provided further that if the minimum amount of
consideration payable to the Company upon the exercise or conversion of such
rights, options or Convertible Securities is subsequently increased, the amount
of consideration deemed to be received by the Company shall be again
recalculated using the increased minimum amount of consideration payable to the
Company upon the exercise or conversion of such rights, options or Convertible
Securities. No further adjustment of the Conversion Price of each series of
Preferred Stock, as adjusted upon the issuance of such rights, options or
Convertible Securities, shall be made as a result of the actual issuance of
Additional Shares of Common Stock on the exercise of any such rights or options
or the conversion of any such Convertible Securities. If any such rights or
options or the conversion privilege represented by any such Convertible
Securities shall expire without having been exercised, the Conversion Price of
each series of Preferred Stock, as adjusted upon the issuance of such rights,
options or Convertible Securities shall be readjusted to such conversion price
that would have been in effect had an adjustment been made on the basis that the
only Additional Shares of Common Stock so issued were the Additional Shares of
Common Stock, if any, actually issued or sold on the exercise of such rights or
options or rights of conversion of

<PAGE> 10
such Convertible Securities, and such Additional Shares of Common Stock, if any,
were issued or sold for the consideration actually received by the Company upon
such exercise, plus the consideration, if any, actually received by the Company
for the granting of all such rights or options, whether or not exercised, plus
the consideration received for issuing or selling the Convertible Securities
actually converted, plus the consideration, if any, actually received by the
Company (other than by cancellation of liabilities or obligations evidenced by
such Convertible Securities) on the conversion of such Convertible Securities,
provided that such readjustment shall not apply to prior conversions of shares
of a particular series of Preferred Stock.

(iv) "ADDITIONAL SHARES OF COMMON STOCK" shall mean
all shares of Common Stock issued, or deemed issued pursuant to this Section
4(j), by the Company after the Original Issue Date, whether or not subsequently
reacquired or retired by the Company, other than (A) shares of Common Stock
issued upon conversion of the Preferred Stock, (B) up to 6,004,500 shares (net
of repurchases and option cancellations, and subject to adjustments for stock
splits, reverse stock splits, combinations and similar events) of Common Stock
(and/or options, warrants or other Common Stock purchase rights, and the Common
Stock issued pursuant to such options, warrants or other rights) issued or to be
issued to employees, officers or directors of, or consultants or advisors to the
Company or any subsidiary pursuant to stock purchase or stock option plans or
other arrangements that are approved by the Board of Directors (the "Option Pool
Shares"), (C) shares of Common Stock or Preferred Stock (and/or options,
warrants or other rights) issued pursuant to any equipment leasing arrangement
or bank financing approved by the Board of Directors (the "Financing Shares")
and (D) shares of Common Stock or Preferred Stock issuable upon conversion or
exercise of the Investor Notes and the Investor Warrants.

(k) ACCOUNTANTS' CERTIFICATE OF ADJUSTMENT. In each case
of an adjustment or readjustment of the Conversion Price of any series of
Preferred Stock or the number of shares of Common Stock or other securities
issuable upon conversion of any series of Preferred Stock, if the series of
Preferred Stock is then convertible pursuant to this Section 4, the Company, at
its expense, shall compute such adjustment or readjustment in accordance with
the provisions hereof and prepare a certificate showing such adjustment or
readjustment, and shall mail such certificate, by first class mail, postage
prepaid, to each registered holder of such series of the Preferred Stock at the
holder's address as shown in the Company's books. The certificate shall set
forth such adjustment or readjustment, showing in detail the facts upon which
such adjustment or readjustment is based, including a statement of (i) the
consideration received or deemed to be received by the Company for any
Additional Shares of Common Stock issued or sold or deemed to have been issued
or sold, (ii) the Conversion Price of such series of Preferred Stock at the time
in effect, (i) the number of Additional Shares of Common Stock and (ii) the type
and amount, if any, of other property that at the time would be received upon
conversion of the shares of such series of Preferred Stock.

(l) NOTICES OF RECORD DATE. Upon (i) any taking by the
Company of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend or
other distribution, or (ii) any Acquisition (as defined in Section 3(c)) or
other capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company, any merger or
consolidation of the Company with or into any other corporation, or any Asset
Transfer (as defined in Section 3(c)),

10.

<PAGE> 11
or any voluntary or involuntary dissolution, liquidation or winding up of the
Company, the Company shall mail to each holder of Preferred Stock at least 20
days prior to the record date specified therein a notice specifying (A) the date
on which any such record is to be taken for the purpose of such dividend or
distribution and a description of such dividend or distribution, (B) the date on
which any such Acquisition, reorganization, reclassification, transfer,
consolidation, merger, Asset Transfer, dissolution, liquidation or winding up is
expected to become effective, and (C) the date, if any, that is to be fixed as
to when the holders of record of Common Stock (or other securities) shall be
entitled to exchange their shares of Common Stock (or other securities) for
securities or other property deliverable upon such Acquisition, reorganization,
reclassification, transfer, consolidation, merger, Asset Transfer, dissolution,
liquidation or winding up.

(m) AUTOMATIC CONVERSION.

(i) A. Each share of Preferred Stock shall
automatically be converted into shares of Common Stock, based on the
then-effective Conversion Price of each series of Preferred Stock, at any time
upon the affirmative vote of the holders of at least 66-2/3% of the outstanding
shares of the Preferred Stock.

B. Each share of the Series A Preferred, the
Series B Preferred, the Series C Preferred and the Series D Preferred shall
automatically be converted into shares of Common Stock, based on the
then-effective Conversion Price of each such series of Preferred Stock,
immediately upon the closing, at any time not later than December 31, 2000, of a
firmly underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, covering the offer and
sale of Common Stock for the account of the Company in which the per share price
is at least the Original Issue Price of the Series D Preferred and the gross
cash proceeds to the Company (before underwriting discounts, commissions and
fees) are at least $15,000,000. Each share of the Series A Preferred, the Series
B Preferred, the Series C Preferred and the Series D Preferred shall
automatically be converted into shares of Common Stock, based on the
then-effective Conversion Price of each such series of Preferred Stock,
immediately upon the closing, at any time after December 31, 2000, of a firmly
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended, covering the offer and sale of
Common Stock for the account of the Company in which the per share price is at
least 150% of the Original Issue Price of the Series E Preferred and the gross
cash proceeds to the Company (before underwriting discounts, commissions and
fees) are at least $30,000,000.

C. Each share of the Series E Preferred shall
automatically be converted into shares of Common Stock, based on the
then-effective Conversion Price of the Series E Preferred, immediately upon the
closing of a firmly underwritten public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended, covering
the offer and sale of Common Stock for the account of the Company in which the
per share price is at least 150% of the Original Issue Price of the Series E
Preferred and the gross cash proceeds to the Company (before underwriting
discounts, commissions and fees) are at least $30,000,000.

11.

<PAGE> 12
D. Upon any such automatic conversion, any
declared and unpaid dividends on the shares of Preferred Stock being converted
shall be paid in accordance with the provisions of Section 4(d).

(ii) Upon the occurrence of an event specified in any
of subparagraphs (i)A, (i)B or (i)C above, the outstanding shares of Preferred
Stock being converted pursuant to such subparagraph shall be converted
automatically without any further action by the holders of such shares and
whether or not the certificates representing such shares are surrendered to the
Company or its transfer agent; provided, however, that the Company shall not be
obligated to issue certificates evidencing the shares of Common Stock issuable
upon such conversion unless the certificates evidencing such shares of Preferred
Stock are either delivered to the Company or its transfer agent as provided
below, or the holder notifies the Company or its transfer agent that such
certificates have been lost, stolen or destroyed and executes an agreement
satisfactory to the Company to indemnify the Company from any loss incurred by
it in connection with such certificates. Upon the occurrence of such automatic
conversion of Preferred Stock, the holders of Preferred Stock being converted
shall surrender the certificates representing such shares at the office of the
Company or any transfer agent for the Preferred Stock. Thereupon, there shall be
issued and delivered to such holder promptly at such office and in its name as
shown on such surrendered certificate or certificates, a certificate or
certificates for the number of shares of Common Stock into which the shares of
Preferred Stock surrendered were convertible on the date on which such automatic
conversion occurred, and any declared and unpaid dividends shall be paid in
accordance with the provisions of Section 4(d).

(n) FRACTIONAL SHARES. No fractional shares of Common
Stock shall be issued upon conversion of the Preferred Stock. All shares of
Common Stock (including fractions thereof) issuable upon conversion of more than
one share of Preferred Stock by a holder thereof shall be aggregated for
purposes of determining whether the conversion would result in the issuance of
any fractional share. If, after the aforementioned aggregation, the conversion
would result in the issuance of any fractional share, the Company shall, in lieu
of issuing any fractional share, pay cash equal to the product of such fraction
multiplied by the Common Stock's fair market value (as determined by the Board
of Directors) on the date of conversion.

(o) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
Company shall at all times reserve and keep available out of its authorized but
unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of Preferred Stock. If at any time the number of authorized
but unissued shares of Common Stock shall not be sufficient to effect the
conversion of all then outstanding shares of Preferred Stock, the Company will
take such corporate action as may, in the opinion of its counsel, be necessary
to increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.

(p) NOTICES. Any notice required by the provisions of this
Section 4 shall be in writing and shall be deemed effectively given: (i) upon
personal delivery to the party to be notified, (ii) when sent by confirmed telex
or facsimile if sent during normal business hours of the recipient; if not, then
on the next business day, (iii) five days after having been sent by

12.

<PAGE> 13
registered or certified mail, return receipt requested, postage prepaid, or (iv)
one day after deposit with a nationally recognized overnight courier, specifying
next day delivery, with written verification of receipt. All notices shall be
addressed to each holder of record at the address of such holder appearing on
the books of the Company.

(q) PAYMENT OF TAXES. The Company will pay all taxes
(other than taxes based upon income) and other governmental charges that may be
imposed with respect to the issue or delivery of shares of Common Stock upon
conversion of shares of Preferred Stock, excluding any tax or other charge
imposed in connection with any transfer involved in the issue and delivery of
shares of Common Stock in a name other than that in which the shares of
Preferred Stock so converted were registered.

(r) NO DILUTION OR IMPAIRMENT. Without the consent of the
holders of at least 66-2/3% of the then outstanding Preferred Stock, the Company
shall not amend its Restated Certificate of Incorporation or participate in any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, for the purpose of avoiding or
seeking to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but shall at all times in good
faith assist in carrying out all such action as may be reasonably necessary or
appropriate in order to protect the conversion rights of the holders of the
Preferred Stock against dilution or other impairment.

5. REDEMPTION. The Preferred Stock shall not be redeemable by the
Company.

6. NO REISSUANCE OF PREFERRED. No share or shares of the
Preferred Stock acquired by the Company by reason of redemption, purchase,
conversion or otherwise shall be reissued.

7. NO PREEMPTIVE RIGHTS. Stockholders shall have no preemptive
rights except as granted by the Company pursuant to written agreements.

A. ELECTION OF DIRECTORS.

1. Directors shall be elected at each annual meeting of
stockholders to hold office until the next meeting. Each director shall hold
office either until the expiration of the term for which elected or appointed
and until a successor has been elected and qualified, or until such director's
death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.

2. No stockholder entitled to vote at an election for directors
may cumulate votes (i.e., cast for any candidate or candidates a number of votes
greater than the number of votes that such stockholder normally is entitled to
cast) unless (a) at the time of such election, the Company is subject to Section
2115(b) of the California General Corporations Law ("CGCL"), (b) such candidate
or candidates' names have been placed in nomination prior to the voting and (c)
such stockholder has given notice at the meeting prior to the voting of the
stockholder's intention to cumulate the stockholder's votes.

13.

<PAGE> 14
3. If stockholders are entitled to cumulate votes pursuant to
Section A.2. above, then:

(a) Each holder of Preferred Stock may give one candidate
for Preferred Stock Director a number of votes equal to the number of Preferred
Stock Directors to be elected multiplied by the number of shares of Common Stock
issuable upon conversion of the Preferred Stock held by such holder, or
distribute such stockholder's votes on the same principle among as many
candidates for Preferred Stock Director as the stockholder thinks fit. The
candidates for Preferred Stock Director receiving the highest number of
affirmative votes of the shares entitled to be voted for them, up to the number
of Preferred Stock Directors to be elected by such shares, are elected.

(b) Each holder of Common Stock may give one candidate for
Common Stock Director a number of votes equal to the number of Common Stock
Directors to be elected multiplied by the number of shares of Common Stock held
by such holder, or distribute such stockholder's votes on the same principle
among as many candidates for Common Stock Director as the stockholder thinks
fit. The candidates for Common Stock Director receiving the highest number of
affirmative votes of the shares entitled to be voted for them, up to the number
of Common Stock Directors to be elected by such shares, are elected.

(c) Each holder of Common Stock and Preferred Stock may
give one candidate for Remaining Director a number of votes equal to the number
of Remaining Directors to be elected multiplied by the number of shares of
Common Stock held by such holder or issuable upon conversion of the Preferred
Stock held by such holder, or distribute such stockholder's votes on the same
principle among as many candidates for Remaining Director as the stockholder
thinks fit. The candidates for Remaining Director receiving the highest number
of affirmative votes of the shares entitled to be voted for them, up to the
number of Remaining Directors to be elected by such shares, are elected.

B. REMOVAL.

1. During such time or times that the Company is subject to
Section 2115(b) of the CGCL, the Board of Directors or any individual director
may be removed from office at any time without cause by the affirmative vote of
the holders of a majority of the outstanding shares entitled to vote on such
removal pursuant to Article IV., Section G.2.(c) of this Amended and Restated
Certificate of Incorporation; provided, however, that unless the entire Board of
Directors is removed, no individual director may be removed when the votes cast
against such director's removal, or not consenting in writing to such removal,
would be sufficient to elect that director if voted cumulatively pursuant to
Article V, Section A.3. of this Amended and Restated Certificate of
Incorporation at an election at which the same total number of votes were cast
(or, if such action is taken by written consent, all shares entitled to vote
were voted) and the entire number of directors authorized at the time of such
director's most recent election were then being elected.

2. Following any date on which the Company is no longer subject
to Section 2115(b) of the CGCL and subject to any limitations imposed by law,
Section B.1. above shall no longer apply and the Board of Directors or any
director may be removed from office at

14.

<PAGE> 15
any time (i) with cause by the affirmative vote of the holders of a majority of
all then outstanding shares of voting stock of the Company entitled to vote at
an election of directors for such director or (ii) without cause by the
affirmative vote of the holders of a majority of all then outstanding shares of
voting stock of the Company entitled to vote at an election of directors for
such director.

VI.

A. A director of the Company shall not be personally liable to the
Company or its stockholders for monetary damages for any breach of fiduciary
duty as a director, except for liability (1) for any breach of the director's
duty of loyalty to the Company or its stockholders, (2) for acts or omissions
not in good faith or that involve intentional misconduct or a knowing violation
of law, (3) under Section 174 of the Delaware General Corporation Law, or (4)
for any transaction from which the director derived an improper personal
benefit. If the Delaware General Corporation Law is amended after approval by
the stockholders of this Article V to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director shall be eliminated or limited to the fullest extent permitted by
the Delaware General Corporation Law, as so amended.

B. During such time or times that the Company is subject to Section
2115(b) of the CGCL, the Company is authorized to provide indemnification of
agents (as defined in Section 317 of the CGCL) for breach of duty to the Company
and its stockholders through bylaw provisions or through agreements with the
agents, or through stockholder resolutions, or otherwise, in excess of the
indemnification otherwise permitted by Section 317 of the CGCL, subject to the
limits on such excess indemnification set forth in Section 204 of the CGCL.

C. Any repeal or modification of this Article VI shall only be
prospective and shall not effect the rights under this Article VI in effect at
the time of the alleged occurrence of any action or omission to act giving rise
to liability.

VII.

For the management of the business and for the conduct of the affairs of
the Company, and in further definition, limitation and regulation of the powers
of the Company, of its directors and of its stockholders or any class thereof,
as the case may be, it is further provided that:

A. The management of the business and the conduct of the affairs of the
Company shall be vested in its Board of Directors. The number of directors that
shall constitute the whole Board of Directors shall be fixed by the Board of
Directors in the manner provided in the Bylaws and this Amended and Restated
Certificate of Incorporation.

B. The Board of Directors may from time to time make, amend, supplement
or repeal the Bylaws; provided, however, that the stockholders may change or
repeal any Bylaw adopted by the Board of Directors by the affirmative vote of
the holders of a majority of the voting power of all of the then outstanding
shares of the capital stock of the Company; and, provided further, that no
amendment or supplement to the Bylaws adopted by the Board of Directors shall
vary or conflict with any amendment or supplement thus adopted by the
stockholders.

15.

<PAGE> 16
C. The directors of the Company need not be elected by written ballot
unless the Bylaws so provide.

VIII.

Except as set forth in Article IV., Section G.2., the Company reserves
the right to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation, in the manner now or hereafter prescribed by
statute, and all rights conferred upon the stockholders herein are granted
subject to this right."

* * * *

FOUR: This Amended and Restated Certificate of Incorporation has been
duly approved by the Board of Directors of this corporation.

FIVE: This Amended and Restated Certificate of Incorporation has been
duly adopted in accordance with the provisions of Sections 228 and 245 of the
General Corporation Law of the State of Delaware by the Board of Directors and
the stockholders of this corporation. The total number of outstanding shares
entitled to vote or act by written consent was 3,511,888 shares of Common Stock,
1,250,000 shares of Series A Preferred, 1,907,513 shares of Series B Preferred,
1,912,233 shares of Series C Preferred and 2,089,263 shares of Series D
Preferred. A majority of the outstanding shares of Common Stock, Series A
Preferred, Series B Preferred, Series C Preferred and Series D Preferred
approved this Amended and Restated Certificate of Incorporation by written
consent in accordance with Section 228 of the General Corporation Law of the
State of Delaware and written notice of such was given by this corporation in
accordance with said Section 228 and Section 242.

IN WITNESS WHEREOF, Eloquent, Inc. has caused this Amended and Restated
Certificate of Incorporation to be signed by its Chief Executive Officer in San
Mateo, California this 18th day of November, 1999.

ELOQUENT, INC.

By: /s/ Abraham Kleinfeld
-------------------------------
ABRAHAM KLEINFELD
Chief Executive Officer and President

16.

<PAGE> 1
Exhibit 3.04

BYLAWS

ELOQUENT, INC.

(A DELAWARE CORPORATION)

AS AMENDED AND RESTATED ____________, 1999

<PAGE> 2

TABLE OF CONTENTS

PAGE

<S> <C> <C> <C>
Article I Offices......................................................................1
Section 1. Registered Office......................................................1
Section 2. Other Offices..........................................................1

Article II Corporate Seal...............................................................1
Section 3. Corporate Seal.........................................................1

Article III Stockholders' Meetings.......................................................1
Section 4. Place Of Meetings......................................................1
Section 5. Annual Meetings........................................................1
Section 6. Special Meetings.......................................................4
Section 7. Notice Of Meetings.....................................................5
Section 8. Quorum.................................................................5
Section 9. Adjournment And Notice Of Adjourned Meetings...........................5
Section 10. Voting Rights..........................................................6
Section 11. Joint Owners Of Stock..................................................6
Section 12. List Of Stockholders...................................................6
Section 13. Action Without Meeting.................................................6
Section 14. Organization...........................................................7

Article IV Directors....................................................................8
Section 15. Number And Term Of Office..............................................8
Section 16. Powers.................................................................8
Section 17. Classes of Directors...................................................8
Section 18. Vacancies..............................................................9
Section 19. Resignation...........................................................10
Section 20. Removal...............................................................10
Section 21. Meetings..............................................................10
(a) Annual Meetings.....................................................10
(b) Regular Meetings....................................................10
(c) Special Meetings....................................................11
(d) Telephone Meetings..................................................11
(e) Notice Of Meetings..................................................11
</TABLE>

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<TABLE>

TABLE OF CONTENTS
(CONTINUED)
PAGE

<S> <C> <C> <C>
(f) Waiver Of Notice............................................................11
Section 22. Quorum And Voting.....................................................11
Section 23. Action Without Meeting................................................12
Section 24. Fees And Compensation.................................................12
Section 25. Committees............................................................12
(a) Executive Committee.................................................12
(b) Other Committees....................................................12
(c) Term................................................................12
(d) Meetings............................................................13
Section 26. Organization..........................................................13

Article V Officers....................................................................13
Section 27. Officers Designated...................................................13

Section 28. Tenure And Duties Of Officers.........................................14
(a) General.............................................................14
(b) Duties Of Chairman Of The Board Of Directors........................14
(c) Duties Of President.................................................14
(d) Duties Of Vice Presidents...........................................14
(e) Duties Of Secretary.................................................14
(f) Duties Of Chief Financial Officer...................................15
Section 29. Delegation Of Authority...............................................15
Section 30. Resignations..........................................................15
Section 31. Removal...............................................................15

Article VI Execution Of Corporate Instruments And Voting Of Securities Owned By The
Corporation.................................................................15

Section 32. Execution Of Corporate Instruments....................................15
Section 33. Voting Of Securities Owned By The Corporation.........................16

Article VII Shares Of Stock.............................................................16
Section 34. Form And Execution Of Certificates....................................16
Section 35. Lost Certificates.....................................................17
Section 36. Transfers.............................................................17
</TABLE>

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TABLE OF CONTENTS
(CONTINUED)

<S> <C> <C> <C>
Section 37. Fixing Record Dates...................................................17
Section 38. Registered Stockholders...............................................18

Article VIII Other Securities Of The Corporation.........................................18
Section 39. Execution Of Other Securities.........................................18

Article IX Dividends...................................................................19
Section 40. Declaration Of Dividends..............................................19
Section 41. Dividend Reserve......................................................19

Article X Fiscal Year.................................................................19
Section 42. Fiscal Year...........................................................19

Article XI Indemnification.............................................................19
Section 43. Indemnification Of Directors, Officers, Employees And Other Agents....19
(a) Directors And Executive Officers....................................19
(b) Other Officers, Employees And Other Agents..........................20
(c) Expenses............................................................20
(d) Enforcement.........................................................20
(e) Non-Exclusivity Of Rights...........................................21
(f) Survival Of Rights..................................................21
(g) Insurance...........................................................21
(h) Amendments..........................................................21
(i) Saving Clause.......................................................21
(j) Certain Definitions.................................................21

Article XII Notices.....................................................................22
Section 44. Notices...............................................................22

(a) Notice To Stockholders..............................................22
(b) Notice To Directors.................................................22
(c) Address Unknown.....................................................23
(d) Affidavit Of Mailing................................................23
(e) Time Notices Deemed Given...........................................23
(f) Methods Of Notice...................................................23
</TABLE>

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TABLE OF CONTENTS
(CONTINUED)

<S> <C> <C> <C>
(g) Failure To Receive Notice...................................................23
(h) Notice To Person With Whom Communication Is Unlawful........................23
(i) Notice To Person With Undeliverable Address.................................23
Article XIII Amendments..................................................................24
Section 45. Amendments............................................................24

Article XIV Loans To Officers...........................................................24
Section 46. Loans To Officers.....................................................24
</TABLE>

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BYLAWS

ELOQUENT, INC.

(A DELAWARE CORPORATION)

AS AMENDED AND RESTATED ____________, 1999

ARTICLE I

OFFICES

SECTION 1. REGISTERED OFFICE. The registered office of the corporation
in the State of Delaware shall be in the City of Wilmington, County of New
Castle. (Del. Code Ann., tit. 8, Section 131)

SECTION 2. OTHER OFFICES. The corporation shall also have and maintain
an office or principal place of business, at such place as may be fixed by the
Board of Directors, and may also have offices at such other places, both within
and without the State of Delaware as the Board of Directors may from time to
time determine or the business of the corporation may require. (Del. Code Ann.,
tit. 8, Section 122(8))

ARTICLE II

CORPORATE SEAL

SECTION 3. CORPORATE SEAL. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate
Seal-Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise. (Del. Code Ann., tit. 8,
Section 122(3))

ARTICLE III

STOCKHOLDERS' MEETINGS

SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof. (Del. Code Ann., tit. 8, Section
211(a))

SECTION 5. ANNUAL MEETINGS.

(a) The annual meeting of the stockholders of the corporation, for
the purpose of election of directors and for such other business as may lawfully
come before it, shall be held

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on such date and at such time as may be designated from time to time by the
Board of Directors. Nominations of persons for election to the Board of
Directors of the corporation and the proposal of business to be considered by
the stockholders may be made at an annual meeting of stockholders: (i) pursuant
to the corporation's notice of meeting of stockholders; (ii) by or at the
direction of the Board of Directors; or (iii) by any stockholder of the
corporation who was a stockholder of record at the time of giving of notice
provided for in the following paragraph, who is entitled to vote at the meeting
and who complied with the notice procedures set forth in Section 5. (Del. Code
Ann., tit. 8, Section 211(b))

(b) At an annual meeting of the stockholders, only such business
shall be conducted as shall have been properly brought before the meeting. For
nominations or other business to be properly brought before an annual meeting by
a stockholder pursuant to clause (c) of Section 5(a) of these Bylaws, (i) the
stockholder must have given timely notice thereof in writing to the Secretary of
the corporation, (ii) such other business must be a proper matter for
stockholder action under the Delaware General Corporation Law ("DGCL"), (iii) if
the stockholder, or the beneficial owner on whose behalf any such proposal or
nomination is made, has provided the corporation with a Solicitation Notice (as
defined in this Section 5(b)), such stockholder or beneficial owner must, in the
case of a proposal, have delivered a proxy statement and form of proxy to
holders of at least the percentage of the corporation's voting shares required
under applicable law to carry any such proposal, or, in the case of a nomination
or nominations, have delivered a proxy statement and form of proxy to holders of
a percentage of the corporation's voting shares reasonably believed by such
stockholder or beneficial owner to be sufficient to elect the nominee or
nominees proposed to be nominated by such stockholder, and must, in either case,
have included in such materials the Solicitation Notice, and (iv) if no
Solicitation Notice relating thereto has been timely provided pursuant to this
section, the stockholder or beneficial owner proposing such business or
nomination must not have solicited a number of proxies sufficient to have
required the delivery of such a Solicitation Notice under this Section 5. To be
timely, a stockholder's notice shall be delivered to the Secretary at the
principal executive offices of the corporation not later than the close of
business on the ninetieth (90th) day nor earlier than the close of business on
the one hundred twentieth (120th) day prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event that the
date of the annual meeting is advanced more than thirty (30) days prior to or
delayed by more than thirty (30) days after the anniversary of the preceding
year's annual meeting, notice by the stockholder to be timely must be so
delivered not earlier than the close of business on the one hundred twentieth
(120th) day prior to such annual meeting and not later than the close of
business on the later of the ninetieth (90th) day prior to such annual meeting
or the tenth (10th) day following the day on which public announcement of the
date of such meeting is first made. In no event shall the public announcement of
an adjournment of an annual meeting commence a new time period for the giving of
a stockholder's notice as described above. Such stockholder's notice shall set
forth: (A) as to each person whom the stockholder proposed to nominate for
election or reelection as a director all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors in an election contest, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "1934 Act") and Rule 14a-11 thereunder (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected); (B) as to any other business that the stockholder proposes
to bring before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting

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such business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (C) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the nomination or proposal is made (i) the name and
address of such stockholder, as they appear on the corporation's books, and of
such beneficial owner, (ii) the class and number of shares of the corporation
which are owned beneficially and of record by such stockholder and such
beneficial owner, and (iii) whether either such stockholder or beneficial owner
intends to deliver a proxy statement and form of proxy to holders of, in the
case of the proposal, at least the percentage of the corporation's voting shares
required under applicable law to carry the proposal or, in the case of a
nomination or nominations, a sufficient number of holders of the corporation's
voting shares to elect such nominee or nominees (an affirmative statement of
such intent, a "Solicitation Notice").

(c) Notwithstanding anything in the second sentence of Section 5(b)
of these Bylaws to the contrary, in the event that the number of directors to be
elected to the Board of Directors of the corporation is increased and there is
no public announcement naming all of the nominees for director or specifying the
size of the increased Board of Directors made by the corporation at least one
hundred (100) days prior to the first anniversary of the preceding year's annual
meeting, a stockholder's notice required by this Section 5 shall also be
considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the corporation not later than the close of
business on the tenth (10th) day following the day on which such public
announcement is first made by the corporation.

(d) Only such persons who are nominated in accordance with the
procedures set forth in this Section 5 shall be eligible to serve as directors
and only such business shall be conducted at a meeting of stockholders as shall
have been brought before the meeting in accordance with the procedures set forth
in this Section 5. Except as otherwise provided by law, the Chairman of the
meeting shall have the power and duty to determine whether a nomination or any
business proposed to be brought before the meeting was made, or proposed, as the
case may be, in accordance with the procedures set forth in these Bylaws and, if
any proposed nomination or business is not in compliance with these Bylaws, to
declare that such defective proposal or nomination shall not be presented for
stockholder action at the meeting and shall be disregarded.

(e) Notwithstanding the foregoing provisions of this Section 5, in
order to include information with respect to a stockholder proposal in the proxy
statement and form of proxy for a stockholder's meeting, stockholders must
provide notice as required by the regulations promulgated under the 1934 Act.
Nothing in these Bylaws shall be deemed to affect any rights of stockholders to
request inclusion of proposals in the corporation proxy statement pursuant to
Rule 14a-8 under the 1934 Act.

(f) For purposes of this Section 5, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the 1934 Act.

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SECTION 6. SPECIAL MEETINGS.

(a) Special meetings of the stockholders of the corporation may be
called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, or (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board of
Directors for adoption). At any time or times that the corporation is subject to
Section 2115(b) of the California General Corporation Law ("CGCL"), stockholders
holding five percent (5%) or more of the outstanding shares shall have the right
to call a special meeting of stockholders only as set forth in Section 18(c)
herein.

(b) If a special meeting is properly called by any person or persons
other than the Board of Directors, the request shall be in writing, specifying
the general nature of the business proposed to be transacted, and shall be
delivered personally or sent by registered mail or by telegraphic or other
facsimile transmission to the Chairman of the Board of Directors, the Chief
Executive Officer, or the Secretary of the corporation. No business may be
transacted at such special meeting otherwise than specified in such notice. The
Board of Directors shall determine the time and place of such special meeting,
which shall be held not less than thirty-five (35) nor more than one hundred
twenty (120) days after the date of the receipt of the request. Upon
determination of the time and place of the meeting, the officer receiving the
request shall cause notice to be given to the stockholders entitled to vote, in
accordance with the provisions of Section 7 of these Bylaws. If the notice is
not given within one hundred (100) days after the receipt of the request, the
person or persons properly requesting the meeting may set the time and place of
the meeting and give the notice. Nothing contained in this paragraph (b) shall
be construed as limiting, fixing, or affecting the time when a meeting of
stockholders called by action of the Board of Directors may be held.

(c) Nominations of persons for election to the Board of Directors
may be made at a special meeting of stockholders at which directors are to be
elected pursuant to the corporation's notice of meeting (i) by or at the
direction of the Board of Directors or (ii) by any stockholder of the
corporation who is a stockholder of record at the time of giving notice provided
for in these Bylaws who shall be entitled to vote at the meeting and who
complies with the notice procedures set forth in this Section 6(c). In the event
the corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be), for election to such
position(s) as specified in the corporation's notice of meeting, if the
stockholder's notice required by Section 5(b) of these Bylaws shall be delivered
to the Secretary at the principal executive offices of the corporation not
earlier than the close of business on the one hundred twentieth (120th) day
prior to such special meeting and not later than the close of business on the
later of the ninetieth (90th) day prior to such meeting or the tenth (10th) day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting. In no event shall the public announcement of an
adjournment of a special meeting commence a new time period for the giving of a
stockholder's notice as described above.

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SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law or
the Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Any stockholder so waiving notice of such meeting shall be
bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given. (Del. Code Ann., tit. 8, Sections 222, 229)

SECTION 8. QUORUM. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. In the absence of a quorum
any meeting of stockholders may be adjourned, from time to time, either by the
chairman of the meeting or by vote of the holders of a majority of the shares
represented thereat, but no other business shall be transacted at such meeting.
The stockholders present at a duly called or convened meeting, at which a quorum
is present, may continue to transact business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum. Except as
otherwise provided by statute, the Certificate of Incorporation or these Bylaws,
in all matters other than the election of directors, the affirmative vote of the
majority of shares present in person or represented by proxy at the meeting and
entitled to vote on the subject matter shall be the act of the stockholders.
Except as otherwise provided by statute, the Certificate of Incorporation or
these Bylaws, directors shall be elected by a plurality of the votes of the
shares present in person or represented by proxy at the meeting and entitled to
vote on the election of directors. Where a separate vote by a class or classes
or series is required, except where otherwise provided by the statute or by the
Certificate of Incorporation or these Bylaws, a majority of the outstanding
shares of such class or classes or series, present in person or represented by
proxy, shall constitute a quorum entitled to take action with respect to that
vote on that matter and, except where otherwise provided by the statute or by
the Certificate of Incorporation or these Bylaws, the affirmative vote of the
majority (plurality, in the case of the election of directors) of the votes cast
by the holders of shares of such class or classes or series shall be the act of
such class or classes or series. (Del. Code Ann., tit. 8, Section 216)

SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of
stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
casting votes. When a meeting is adjourned to another time or place, notice need
not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At the adjourned
meeting the corporation may transact any business which might have been
transacted at the original meeting. If the adjournment is for more than thirty
(30) days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting. (Del. Code Ann., tit. 8,
Section 222(c))

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SECTION 10. VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote shall have the right to do so either in person or by an
agent or agents authorized by a proxy granted in accordance with Delaware law.
An agent so appointed need not be a stockholder. No proxy shall be voted after
three (3) years from its date of creation unless the proxy provides for a longer
period. (Del. Code Ann., tit. 8, Sections 211(e), 212(b))

SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities having
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if two (2) or more persons have the same
fiduciary relationship respecting the same shares, unless the Secretary is given
written notice to the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect: (a) if only
one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the
majority so voting binds all; (c) if more than one (1) votes, but the vote is
evenly split on any particular matter, each faction may vote the securities in
question proportionally, or may apply to the Delaware Court of Chancery for
relief as provided in the DGCL, Section 217(b). If the instrument filed with the
Secretary shows that any such tenancy is held in unequal interests, a majority
or even-split for the purpose of subsection (c) shall be a majority or
even-split in interest. (Del. Code Ann., tit. 8, Section 217(b))

SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and make,
at least ten (10) days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at said meeting, arranged in alphabetical
order, showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held. The list shall be
produced and kept at the time and place of meeting during the whole time
thereof, and may be inspected by any stockholder who is present. (Del. Code
Ann., tit. 8, Section 219(a))

SECTION 13. ACTION WITHOUT MEETING.

(a) Unless otherwise provided in the Certificate of Incorporation,
any action required by statute to be taken at any annual or special meeting of
the stockholders, or any action which may be taken at any annual or special
meeting of the stockholders, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted.

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(b) Every written consent shall bear the date of signature of each
stockholder who signs the consent, and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty (60) days of
the earliest dated consent delivered to the corporation in the manner herein
required, written consents signed by a sufficient number of stockholders to take
action are delivered to the corporation by delivery to its registered office in
the State of Delaware, its principal place of business or an officer or agent of
the corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to a corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
(Del. Code Ann., tit. 8, Section 228)

(c) Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. If the action which is consented
to is such as would have required the filing of a certificate under any section
of the DGCL if such action had been voted on by stockholders at a meeting
thereof, then the certificate filed under such section shall state, in lieu of
any statement required by such section concerning any vote of stockholders, that
written consent has been given in accordance with Section 228 of the DGCL.

(d) Notwithstanding the foregoing, no such action by written consent
may be taken following the closing of the initial public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended
(the "1933 Act"), covering the offer and sale of Common Stock of the corporation
(the "Initial Public Offering").

SECTION 14. ORGANIZATION.

(a) At every meeting of stockholders, the Chairman of the Board of
Directors, or, if a Chairman has not been appointed or is absent, the President,
or, if the President is absent, the most senior Vice President present, or in
the absence of any such officer, a chairman of the meeting chosen by a majority
in interest of the stockholders entitled to vote, present in person or by proxy,
shall act as chairman. The Secretary, or, in his absence, an Assistant Secretary
directed to do so by the President, shall act as secretary of the meeting.

(b) The Board of Directors of the corporation shall be entitled to
make such rules or regulations for the conduct of meetings of stockholders as it
shall deem necessary, appropriate or convenient. Subject to such rules and
regulations of the Board of Directors, if any, the chairman of the meeting shall
have the right and authority to prescribe such rules, regulations and procedures
and to do all such acts as, in the judgment of such chairman, are necessary,
appropriate or convenient for the proper conduct of the meeting, including,
without limitation, establishing an agenda or order of business for the meeting,
rules and procedures for maintaining order at the meeting and the safety of
those present, limitations on participation in such meeting to stockholders of
record of the corporation and their duly authorized and constituted proxies, and
such other persons as the chairman shall permit, restrictions on entry to the
meeting after the time fixed for the commencement thereof, limitations on the
time allotted to questions or comments by participants and regulation of the
opening and closing of the polls for balloting on matters which are to be voted
on by ballot. Unless, and to the extent determined by the Board of Directors or
the chairman of the meeting, meetings of stockholders shall not be required to
be held in accordance with rules of parliamentary procedure.

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ARTICLE IV

DIRECTORS

SECTION 15. NUMBER AND TERM OF OFFICE. The authorized number of
directors of the corporation shall be fixed in accordance with the Certificate
of Incorporation. Directors need not be stockholders unless so required by the
Certificate of Incorporation. If for any cause, the directors shall not have
been elected at an annual meeting, they may be elected as soon thereafter as
convenient at a special meeting of the stockholders called for that purpose in
the manner provided in these Bylaws. (Del. Code Ann., tit. 8, Sections 141(b),
211(b), (c))

SECTION 16. POWERS. The powers of the corporation shall be exercised,
its business conducted and its property controlled by the Board of Directors,
except as may be otherwise provided by statute or by the Certificate of
Incorporation. (Del. Code Ann., tit. 8, Section 141(a))

SECTION 17. CLASSES OF DIRECTORS.

(a) Subject to the rights of the holders of any series of Preferred
Stock to elect additional directors under specified circumstances, following the
closing of the Initial Public Offering, the directors shall be divided into
three classes designated as Class I, Class II and Class III, respectively.
Directors shall be assigned to each class in accordance with a resolution or
resolutions adopted by the Board of Directors. At the first annual meeting of
stockholders following the closing of the Initial Public Offering, the term of
office of the Class I directors shall expire and Class I directors shall be
elected for a full term of three years. At the second annual meeting of
stockholders following the Initial Public Offering, the term of office of the
Class II directors shall expire and Class II directors shall be elected for a
full term of three years. At the third annual meeting of stockholders following
the Initial Public Offering, the term of office of the Class III directors shall
expire and Class III directors shall be elected for a full term of three years.
At each succeeding annual meeting of stockholders, directors shall be elected
for a full term of three years to succeed the directors of the class whose terms
expire at such annual meeting. During such time or times that the corporation is
subject to Section 2115(b) of the CGCL, this Section 17(a) shall become
effective and apply only when the corporation is a "listed" corporation within
the meaning of Section 301.5 of the CGCL.

(b) In the event that the corporation (i) is subject to Section
2115(b) of the CGCL AND (ii) is not a "listed" corporation or ceases to be a
"listed" corporation under Section 301.5 of the CGCL, Section 17(a) of these
Bylaws shall not apply and all directors shall be elected at each annual meeting
of stockholders to hold office until the next annual meeting.

(c) No person entitled to vote at an election for directors may
cumulate votes to which such person is entitled, unless, at the time of such
election, the corporation (i) is subject to Section 2115(b) of the CGCL AND (ii)
is not a "listed" corporation or ceases to be a "listed" corporation under
Section 301.5 of the CGCL. During this time, every stockholder entitled to vote
at an election for directors may cumulate such stockholder's votes and give one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which such stockholder's shares are
otherwise entitled, or distribute the stockholder's votes on the same principle
among as many candidates as such stockholder thinks fit. No stockholder,

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however, shall be entitled to so cumulate such stockholder's votes unless (i)
the names of such candidate or candidates have been placed in nomination prior
to the voting and (ii) the stockholder has given notice at the meeting, prior to
the voting, of such stockholder's intention to cumulate such stockholder's
votes. If any stockholder has given proper notice to cumulate votes, all
stockholders may cumulate their votes for any candidates who have been properly
placed in nomination. Under cumulative voting, the candidates receiving the
highest number of votes, up to the number of directors to be elected, are
elected.

Notwithstanding the foregoing provisions of this section, each director shall
serve until his successor is duly elected and qualified or until his death,
resignation or removal. No decrease in the number of directors constituting the
Board of Directors shall shorten the term of any incumbent director.

SECTION 18. VACANCIES.

(a) Unless otherwise provided in the Certificate of Incorporation,
any vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal or other causes and any newly created directorships
resulting from any increase in the number of directors shall, unless the Board
of Directors determines by resolution that any such vacancies or newly created
directorships shall be filled by stockholders, be filled only by the affirmative
vote of a majority of the directors then in office, even though less than a
quorum of the Board of Directors. Any director elected in accordance with the
preceding sentence shall hold office for the remainder of the full term of the
director for which the vacancy was created or occurred and until such director's
successor shall have been elected and qualified. A vacancy in the Board of
Directors shall be deemed to exist under this Section 18 in the case of the
death, removal or resignation of any director. (Del. Code Ann., tit. 8, Section
223(a), (b))

(b) If at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole board (as constituted immediately prior to any such increase), the
Delaware Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent (10%) of the total number of the
shares at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the directors then
in offices as aforesaid, which election shall be governed by Section 211 of the
DGCL. (Del. Code Ann., tit. 8, Section 223(c)).

(c) At any time or times that the corporation is subject to Section
2115(b) of the CGCL, if, after the filling of any vacancy, the directors then in
office who have been elected by stockholders shall constitute less than a
majority of the directors then in office, then

(1) Any holder or holders of an aggregate of five percent (5%) or
more of the total number of shares at the time outstanding having the right to
vote for those directors may call a special meeting of stockholders; or

(2) The Superior Court of the proper county shall, upon
application of such stockholder or stockholders, summarily order a special
meeting of stockholders, to be held

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to elect the entire board, all in accordance with Section 305(c) of the CGCL.
The term of office of any director shall terminate upon that election of a
successor.

SECTION 19. RESIGNATION. Any director may resign at any time by
delivering his written resignation to the Secretary, such resignation to specify
whether it will be effective at a particular time, upon receipt by the Secretary
or at the pleasure of the Board of Directors. If no such specification is made,
it shall be deemed effective at the pleasure of the Board of Directors. When one
or more directors shall resign from the Board of Directors, effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each director so chosen shall hold office for the unexpired
portion of the term of the director whose place shall be vacated and until his
successor shall have been duly elected and qualified. (Del. Code Ann., tit. 8,
Sections 141(b), 223(d))

SECTION 20. REMOVAL.

(a) During such time or times that the corporation is subject to
Section 2115(b) of the CGCL, the Board of Directors or any individual director
may be removed from office at any time without cause by the affirmative vote of
the holders of at least a majority of the outstanding shares entitled to vote on
such removal; provided, however, that unless the entire Board is removed, no
individual director may be removed when the votes cast against such director's
removal would be sufficient to elect that director if voted cumulatively at an
election which the same total number of votes were cast (or, if such action is
taken by written consent, all shares entitled to vote were voted) and the entire
number of directors authorized at the time of such director's most recent
election were then being elected.

(b) At any time or times that the corporation is not subject to
Section 2115(b) of the CGCL and subject to any limitations imposed by law,
Section 20(a) above shall no longer apply and the Board of Directors or any
director may be removed from office at any time (i) with cause by the
affirmative vote of the holders of a majority of the voting power of all
then-outstanding shares of voting stock of the corporation, entitled to vote at
an election of directors (the "Voting Stock") or (ii) without cause by the
affirmative vote of the holders of at least sixty-six and two-thirds percent (66
2/3%) of the voting power of all then-outstanding shares of the Voting Stock.

SECTION 21. MEETINGS.

(a) ANNUAL MEETINGS. The annual meeting of the Board of Directors
shall be held immediately before or after the annual meeting of stockholders and
at the place where such meeting is held. No notice of an annual meeting of the
Board of Directors shall be necessary and such meeting shall be held for the
purpose of electing officers and transacting such other business as may lawfully
come before it.

(b) REGULAR MEETINGS. Unless otherwise restricted by the Certificate
of Incorporation, regular meetings of the Board of Directors may be held at any
time or date and at any place within or without the State of Delaware which has
been designated by the Board of

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Directors and publicized among all directors. No formal notice shall be required
for regular meetings of the Board of Directors. (Del. Code Ann., tit. 8, Section
141(g))

(c) SPECIAL MEETINGS. Unless otherwise restricted by the Certificate
of Incorporation, special meetings of the Board of Directors may be held at any
time and place within or without the State of Delaware whenever called by the
Chairman of the Board, the President or any two of the directors (Del. Code
Ann., tit. 8, Section 141(g))

(d) TELEPHONE MEETINGS. Any member of the Board of Directors, or of
any committee thereof, may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
by such means shall constitute presence in person at such meeting. (Del. Code
Ann., tit. 8, Section 141(i))

(e) NOTICE OF MEETINGS. Notice of the time and place of all special
meetings of the Board of Directors shall be orally or in writing, by telephone,
including a voice messaging system or other system or technology designed to
record and communicate messages, facsimile, telegraph or telex, or by electronic
mail or other electronic means, during normal business hours, at least
twenty-four (24) hours before the date and time of the meeting, or sent in
writing to each director by first class mail, charges prepaid, at least three
(3) days before the date of the meeting. Notice of any meeting may be waived in
writing at any time before or after the meeting and will be waived by any
director by attendance thereat, except when the director attends the meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. (Del. Code Ann., tit. 8, Section 229)

(f) WAIVER OF NOTICE. The transaction of all business at any meeting
of the Board of Directors, or any committee thereof, however called or noticed,
or wherever held, shall be as valid as though had at a meeting duly held after
regular call and notice, if a quorum be present and if, either before or after
the meeting, each of the directors not present shall sign a written waiver of
notice. All such waivers shall be filed with the corporate records or made a
part of the minutes of the meeting. (Del. Code Ann., tit. 8, Section 229)

SECTION 22. QUORUM AND VOTING.

(a) Unless the Certificate of Incorporation requires a greater
number and except with respect to indemnification questions arising under
Section 43 hereof, for which a quorum shall be one-third of the exact number of
directors fixed from time to time in accordance with the Certificate of
Incorporation, a quorum of the Board of Directors shall consist of a majority of
the exact number of directors fixed from time to time by the Board of Directors
in accordance with the Certificate of Incorporation; provided, however, at any
meeting whether a quorum be present or otherwise, a majority of the directors
present may adjourn from time to time until the time fixed for the next regular
meeting of the Board of Directors, without notice other than by announcement at
the meeting. (Del. Code Ann., tit. 8, Section 141(b))

(b) At each meeting of the Board of Directors at which a quorum is
present all questions and business shall be determined by the affirmative vote
of a majority of the directors

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present, unless a different vote be required by law, the Certificate of
Incorporation or these Bylaws. (Del. Code Ann., tit. 8, Section 141(b))

SECTION 23. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee. (Del. Code Ann., tit. 8, Section 141(f))

SECTION 24. FEES AND COMPENSATION. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor. (Del. Code
Ann., tit. 8, Section 141(h))

SECTION 25. COMMITTEES.

(a) EXECUTIVE COMMITTEE. The Board of Directors may appoint an
Executive Committee to consist of one (1) or more members of the Board of
Directors. The Executive Committee, to the extent permitted by law and provided
in the resolution of the Board of Directors shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the corporation, and may authorize the seal of the corporation to
be affixed to all papers which may require it; but no such committee shall have
the power or authority in reference to (i) approving or adopting, or
recommending to the stockholders, any action or matter expressly required by the
DGCL to be submitted to stockholders for approval, or (ii) adopting, amending or
repealing any bylaw of the corporation. (Del. Code Ann., tit. 8, Section 141(c))

(b) OTHER COMMITTEES. The Board of Directors may from time to time
appoint such other committees as may be permitted by law. Such other committees
appointed by the Board of Directors shall consist of one (1) or more members of
the Board of Directors, and shall have such powers and perform such duties as
may be prescribed by the resolution or resolutions creating such committees, but
in no event shall such committee have the powers denied to the Executive
Committee in these Bylaws. (Del. Code Ann., tit. 8, Section 141(c))

(c) TERM. Each member of a committee of the Board of Directors shall
serve a term on the committee coexistent with such member's term on the Board of
Directors. The Board of Directors, subject to any requirements of any
outstanding series of preferred Stock and the provisions of subsections (a) or
(b) of this Bylaw, may at any time increase or decrease the number of members

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of a committee or terminate the existence of a committee. The membership of a
committee member shall terminate on the date of his death or voluntary
resignation from the committee or from the Board of Directors. The Board of
Directors may at any time for any reason remove any individual committee member
and the Board of Directors may fill any committee vacancy created by death,
resignation, removal or increase in the number of members of the committee. The
Board of Directors may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting
of the committee, and, in addition, in the absence or disqualification of any
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. (Del. Code Ann.,
tit. 8, Section 141(c))

(d) MEETINGS. Unless the Board of Directors shall otherwise provide,
regular meetings of the Executive Committee or any other committee appointed
pursuant to this Section 25 shall be held at such times and places as are
determined by the Board of Directors, or by any such committee, and when notice
thereof has been given to each member of such committee, no further notice of
such regular meetings need be given thereafter. Special meetings of any such
committee may be held at any place which has been determined from time to time
by such committee, and may be called by any director who is a member of such
committee, upon written notice to the members of such committee of the time and
place of such special meeting given in the manner provided for the giving of
written notice to members of the Board of Directors of the time and place of
special meetings of the Board of Directors. Notice of any special meeting of any
committee may be waived in writing at any time before or after the meeting and
will be waived by any director by attendance thereat, except when the director
attends such special meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. A majority of the authorized number of
members of any such committee shall constitute a quorum for the transaction of
business, and the act of a majority of those present at any meeting at which a
quorum is present shall be the act of such committee. (Del. Code Ann., tit. 8,
Sections 141(c), 229)

SECTION 26. ORGANIZATION. At every meeting of the directors, the
Chairman of the Board of Directors, or, if a Chairman has not been appointed or
is absent, the President (if a director), or if the President is absent, the
most senior Vice President (if a director), or, in the absence of any such
person, a chairman of the meeting chosen by a majority of the directors present,
shall preside over the meeting. The Secretary, or in his absence, any Assistant
Secretary directed to do so by the President, shall act as secretary of the
meeting.

ARTICLE V

OFFICERS

SECTION 27. OFFICERS DESIGNATED. The officers of the corporation shall
include, if and when designated by the Board of Directors, the Chairman of the
Board of Directors, the Chief Executive Officer, the President, one or more Vice
Presidents, the Secretary, the Chief Financial Officer, the Treasurer and the
Controller, all of whom shall be elected at the annual organizational meeting of
the Board of Directors. The Board of Directors may also appoint one or more
Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such
other officers and agents with such powers and duties as it shall deem
necessary. The Board of Directors may assign such additional titles to one or
more of the officers as it shall deem appropriate. Any one person may hold any
number of offices of the corporation at any one time unless specifically

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<PAGE> 19

prohibited therefrom by law. The salaries and other compensation of the officers
of the corporation shall be fixed by or in the manner designated by the Board of
Directors. (Del. Code Ann., tit. 8, Sections 122(5), 142(a), (b))

SECTION 28. TENURE AND DUTIES OF OFFICERS.

(a) GENERAL. All officers shall hold office at the pleasure of the
Board of Directors and until their successors shall have been duly elected and
qualified, unless sooner removed. Any officer elected or appointed by the Board
of Directors may be removed at any time by the Board of Directors. If the office
of any officer becomes vacant for any reason, the vacancy may be filled by the
Board of Directors. (Del. Code Ann., tit. 8, Section 141(b), (e))

(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of
the Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. If there is no President, then the Chairman
of the Board of Directors shall also serve as the Chief Executive Officer of the
corporation and shall have the powers and duties prescribed in paragraph (c) of
this Section 28. (Del. Code Ann., tit. 8, Section 142(a))

(c) DUTIES OF PRESIDENT. The President shall preside at all meetings
of the stockholders and at all meetings of the Board of Directors, unless the
Chairman of the Board of Directors has been appointed and is present. Unless
some other officer has been elected Chief Executive Officer of the corporation,
the President shall be the chief executive officer of the corporation and shall,
subject to the control of the Board of Directors, have general supervision,
direction and control of the business and officers of the corporation. The
President shall perform other duties commonly incident to his office and shall
also perform such other duties and have such other powers as the Board of
Directors shall designate from time to time. (Del. Code Ann., tit. 8, Section
142(a))

(d) DUTIES OF VICE PRESIDENTS. The Vice Presidents, in the order of
their seniority, may assume and perform the duties of the President in the
absence or disability of the President or whenever the office of President is
vacant. The Vice Presidents shall perform other duties commonly incident to
their office and shall also perform such other duties and have such other powers
as the Board of Directors or the President shall designate from time to time.
(Del. Code Ann., tit. 8, Section 142(a))

(e) DUTIES OF SECRETARY. The Secretary shall attend all meetings of
the stockholders and of the Board of Directors, and shall record all acts and
proceedings thereof in the minute book of the corporation. The Secretary shall
give notice in conformity with these Bylaws of all meetings of the stockholders,
and of all meetings of the Board of Directors and any committee thereof
requiring notice. The Secretary shall perform all other duties given him in
these Bylaws and other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. The President may direct any Assistant
Secretary to assume and perform the duties of the Secretary in the absence or
disability of the Secretary, and each Assistant Secretary shall perform

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<PAGE> 20

other duties commonly incident to his office and shall also perform such other
duties and have such other powers as the Board of Directors or the President
shall designate from time to time. (Del. Code Ann., tit. 8, Section 142(a))

(f) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial Officer
shall keep or cause to be kept the books of account of the corporation in a
thorough and proper manner, and shall render statements of the financial affairs
of the corporation in such form and as often as required by the Board of
Directors or the President. The Chief Financial Officer, subject to the order of
the Board of Directors, shall have the custody of all funds and securities of
the corporation. The Chief Financial Officer shall perform other duties commonly
incident to his office and shall also perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time. The President may direct the Treasurer or any Assistant Treasurer,
or the Controller or any Assistant Controller to assume and perform the duties
of the Chief Financial Officer in the absence or disability of the Chief
Financial Officer, and each Treasurer and Assistant Treasurer and each
Controller and Assistant Controller shall perform other duties commonly incident
to his office and shall also perform such other duties and have such other
powers as the Board of Directors or the President shall designate from time to
time. (Del. Code Ann., tit. 8, Section 142(a))

SECTION 29. DELEGATION OF AUTHORITY. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other officer
or agent, notwithstanding any provision hereof.

SECTION 30. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer. (Del. Code Ann., tit. 8, Section 142(b))

SECTION 31. REMOVAL. Any officer may be removed from office at any time,
either with or without cause, by the affirmative vote of a majority of the
directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.

ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING
OF SECURITIES OWNED BY THE CORPORATION

SECTION 32. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors
may, in its discretion, determine the method and designate the signatory officer
or officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document,

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<PAGE> 21

or to sign on behalf of the corporation the corporate name without limitation,
or to enter into contracts on behalf of the corporation, except where otherwise
provided by law or these Bylaws, and such execution or signature shall be
binding upon the corporation. (Del. Code Ann., tit. 8, Sections 103(a), 142(a),
158)

Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, promissory notes, deeds of trust, mortgages and other
evidences of indebtedness of the corporation, and other corporate instruments or
documents requiring the corporate seal, and certificates of shares of stock
owned by the corporation, shall be executed, signed or endorsed by the Chairman
of the Board of Directors, or the President or any Vice President, and by the
Secretary or Chief Financial Officer or Treasurer or any Assistant Secretary or
Assistant Treasurer. All other instruments and documents requiring the corporate
signature, but not requiring the corporate seal, may be executed as aforesaid or
in such other manner as may be directed by the Board of Directors. (Del. Code
Ann., tit. 8, Sections 103(a), 142(a), 158)

All checks and drafts drawn on banks or other depositaries on funds to
the credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.

Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount. (Del. Code
Ann., tit. 8, Sections 103(a), 142(a), 158)

SECTION 33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock and
other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the Chief Executive Officer, the
President, or any Vice President. (Del. Code Ann., tit. 8, Section 123)

ARTICLE VII

SHARES OF STOCK

SECTION 34. FORM AND EXECUTION OF CERTIFICATES. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. Every holder of stock in
the corporation shall be entitled to have a certificate signed by or in the name
of the corporation by the Chairman of the Board of Directors, or the President
or any Vice President and by the Treasurer or Assistant Treasurer or the
Secretary or Assistant Secretary, certifying the number of shares owned by him
in the corporation. Any or all of the signatures on the certificate may be
facsimiles. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate is
issued, it may be issued with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue. Each certificate shall state
upon the face or back thereof, in full or in summary, all of the powers,
designations, preferences, and rights, and the limitations or restrictions of
the shares

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authorized to be issued or shall, except as otherwise required by law, set forth
on the face or back a statement that the corporation will furnish without charge
to each stockholder who so requests the powers, designations, preferences and
relative, participating, optional, or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights. Within a reasonable time after the issuance or
transfer of uncertificated stock, the corporation shall send to the registered
owner thereof a written notice containing the information required to be set
forth or stated on certificates pursuant to this section or otherwise required
by law or with respect to this section a statement that the corporation will
furnish without charge to each stockholder who so requests the powers,
designations, preferences and relative participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights. Except as
otherwise expressly provided by law, the rights and obligations of the holders
of certificates representing stock of the same class and series shall be
identical. (Del. Code Ann., tit. 8, Section 158)

SECTION 35. LOST CERTIFICATES. A new certificate or certificates shall
be issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to agree to indemnify the corporation in such manner as it shall
require or to give the corporation a surety bond in such form and amount as it
may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost, stolen,
or destroyed. (Del. Code Ann., tit. 8, Section 167)

SECTION 36. TRANSFERS.

(a) Transfers of record of shares of stock of the corporation shall
be made only upon its books by the holders thereof, in person or by attorney
duly authorized, and upon the surrender of a properly endorsed certificate or
certificates for a like number of shares. (Del. Code Ann., tit. 8, Section 201,
tit. 6, Section 8-401(1))

(b) The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock of
the corporation to restrict the transfer of shares of stock of the corporation
of any one or more classes owned by such stockholders in any manner not
prohibited by the DGCL. (Del. Code Ann., tit. 8, Section 160 (a))

SECTION 37. FIXING RECORD DATES.

(a) In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix, in advance, a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted by the Board of Directors, and which record date
shall, subject to applicable law, not be more than sixty (60) nor less than ten
(10) days before the date of such meeting. If no record date is fixed by the
Board of Directors, the record date for determining stockholders entitled to
notice of or to vote at a meeting of

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stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.

(b) In order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than sixty (60)
days prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto. (Del. Code Ann., tit. 8, Section 213)

SECTION 38. REGISTERED STOCKHOLDERS. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of Delaware.
(Del. Code Ann., tit. 8, Sections 213(a), 219)

ARTICLE VIII

OTHER SECURITIES OF THE CORPORATION

SECTION 39. EXECUTION OF OTHER SECURITIES. All bonds, debentures and
other corporate securities of the corporation, other than stock certificates
(covered in Section 33), may be signed by the Chairman of the Board of
Directors, the President or any Vice President, or such other person as may be
authorized by the Board of Directors, and the corporate seal impressed thereon
or a facsimile of such seal imprinted thereon and attested by the signature of
the Secretary or an Assistant Secretary, or the Chief Financial Officer or
Treasurer or an Assistant Treasurer; provided, however, that where any such
bond, debenture or other corporate security shall be authenticated by the manual
signature, or where permissible facsimile signature, of a trustee under an
indenture pursuant to which such bond, debenture or other corporate security
shall be issued, the signatures of the persons signing and attesting the
corporate seal on such bond, debenture or other corporate security may be the
imprinted facsimile of the signatures of such persons. Interest coupons
appertaining to any such bond, debenture or other corporate security,
authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an
Assistant Treasurer of the corporation or such other person as may be authorized
by the Board of Directors, or bear imprinted thereon the facsimile signature of
such person. In case any officer who shall have signed or attested any bond,
debenture or other corporate security, or whose facsimile signature shall appear
thereon or on any such interest coupon, shall have ceased to be such officer
before the bond, debenture or other corporate security so signed or attested
shall have been delivered, such bond, debenture or other corporate security
nevertheless may be adopted by the corporation and issued and delivered as
though the person who signed the same

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<PAGE> 24

or whose facsimile signature shall have been used thereon had not ceased to be
such officer of the corporation.

ARTICLE IX

DIVIDENDS

SECTION 40. DECLARATION OF DIVIDENDS. Dividends upon the capital stock
of the corporation, subject to the provisions of the Certificate of
Incorporation and applicable law, if any, may be declared by the Board of
Directors pursuant to law at any regular or special meeting. Dividends may be
paid in cash, in property, or in shares of the capital stock, subject to the
provisions of the Certificate of Incorporation and applicable law. (Del. Code
Ann., tit. 8, Sections 170, 173)

SECTION 41. DIVIDEND RESERVE. Before payment of any dividend, there may
be set aside out of any funds of the corporation available for dividends such
sum or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created. (Del.
Code Ann., tit. 8, Section 171)

ARTICLE X

FISCAL YEAR

SECTION 42. FISCAL YEAR. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.

ARTICLE XI

INDEMNIFICATION

SECTION 43. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER
AGENTS.

(a) DIRECTORS AND EXECUTIVE OFFICERS. The corporation shall
indemnify its directors and executive officers (for the purposes of this Article
XI, "executive officers" shall have the meaning defined in Rule 3b-7 promulgated
under the 1934 Act) to the fullest extent not prohibited by the DGCL; provided,
however, that the corporation may modify the extent of such indemnification by
individual contracts with its directors and executive officers; and, provided,
further, that the corporation shall not be required to indemnify any director or
executive officer in connection with any proceeding (or part thereof) initiated
by such person unless (i) such indemnification is expressly required to be made
by law, (ii) the proceeding was authorized by the Board of Directors of the
corporation, (iii) such indemnification is provided by the corporation, in its
sole discretion, pursuant to the powers vested in the corporation under the DGCL
or any other applicable law or (iv) such indemnification is required to be made
under subsection (d).

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<PAGE> 25

(b) OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS. The corporation
shall have power to indemnify its other officers, employees and other agents as
set forth in the DGCL or any other applicable law. The Board of Directors shall
have the power to delegate the determination of whether indemnification shall be
given to any such person to such officers or other persons as the Board of
Directors shall determine.

(c) EXPENSES. The corporation shall advance to any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director or executive
officer, of the corporation, or is or was serving at the request of the
corporation as a director or executive officer of another corporation,
partnership, joint venture, trust or other enterprise, prior to the final
disposition of the proceeding, promptly following request therefor, all expenses
incurred by any director or executive officer in connection with such proceeding
upon receipt of an undertaking by or on behalf of such person to repay said
amounts if it should be determined ultimately that such person is not entitled
to be indemnified under this Section 43 or otherwise.

Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (e) of this Section 43, no advance shall be made by the corporation to
an executive officer of the corporation (except by reason of the fact that such
executive officer is or was a director of the corporation in which event this
paragraph shall not apply) in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, if a determination is reasonably and
promptly made (i) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to the proceeding, or (ii) if such
quorum is not obtainable, or, even if obtainable, a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion, that
the facts known to the decision-making party at the time such determination is
made demonstrate clearly and convincingly that such person acted in bad faith or
in a manner that such person did not believe to be in or not opposed to the best
interests of the corporation.

(d) ENFORCEMENT. Without the necessity of entering into an express
contract, all rights to indemnification and advances to directors and executive
officers under this Bylaw shall be deemed to be contractual rights and be
effective to the same extent and as if provided for in a contract between the
corporation and the director or executive officer. Any right to indemnification
or advances granted by this Bylaw to a director or executive officer shall be
enforceable by or on behalf of the person holding such right in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. The claimant in such enforcement action,
if successful in whole or in part, shall be entitled to be paid also the expense
of prosecuting his claim. In connection with any claim for indemnification, the
corporation shall be entitled to raise as a defense to any such action that the
claimant has not met the standards of conduct that make it permissible under the
DGCL or any other applicable law for the corporation to indemnify the claimant
for the amount claimed. Neither the failure of the corporation (including its
Board of Directors, independent legal counsel or its stockholders) to have made
a determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he has met the applicable
standard of conduct set forth in the DGCL or any other applicable law, nor an
actual determination by the corporation (including its Board of Directors,
independent legal counsel or its stockholders) that the claimant

20
<PAGE> 26

has not met such applicable standard of conduct, shall be a defense to the
action or create a presumption that claimant has not met the applicable standard
of conduct.

(e) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person by
this Bylaw shall not be exclusive of any other right which such person may have
or hereafter acquire under any applicable statute, provision of the Certificate
of Incorporation, Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office. The corporation is specifically
authorized to enter into individual contracts with any or all of its directors,
officers, employees or agents respecting indemnification and advances, to the
fullest extent not prohibited by the DGCL, or by any other applicable law.

(f) SURVIVAL OF RIGHTS. The rights conferred on any person by this
Bylaw shall continue as to a person who has ceased to be a director, officer,
employee or other agent and shall inure to the benefit of the heirs, executors
and administrators of such a person.

(g) INSURANCE. To the fullest extent permitted by the DGCL or any
other applicable law, the corporation, upon approval by the Board of Directors,
may purchase insurance on behalf of any person required or permitted to be
indemnified pursuant to this Section 43.

(h) AMENDMENTS. Any repeal or modification of this Section 43 shall
only be prospective and shall not affect the rights under this Bylaw in effect
at the time of the alleged occurrence of any action or omission to act that is
the cause of any proceeding against any agent of the corporation.

(i) SAVING CLAUSE. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and executive officer to
the full extent not prohibited by any applicable portion of this Bylaw that
shall not have been invalidated, or by any other applicable law. If this Section
43 shall be invalid due to the application of the indemnification provisions of
another jurisdiction, then the corporation shall indemnify each director and
executive officer to the full extent under any other applicable law.

(j) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the
following definitions shall apply:

(1) The term "PROCEEDING" shall be broadly construed and shall
include, without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of testimony in,
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative.

(2) The term "EXPENSES" shall be broadly construed and shall
include, without limitation, court costs, attorneys' fees, witness fees, fines,
amounts paid in settlement or judgment and any other costs and expenses of any
nature or kind incurred in connection with any proceeding.

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<PAGE> 27

(3) The term the "CORPORATION" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent of
a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under the provisions
of this Bylaw with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence had
continued.

(4) References to a "DIRECTOR," "EXECUTIVE OFFICER," "OFFICER,"
"EMPLOYEE," or "AGENT" of the corporation shall include, without limitation,
situations where such person is serving at the request of the corporation as,
respectively, a director, executive officer, officer, employee, trustee or agent
of another corporation, partnership, joint venture, trust or other enterprise.

(5) References to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes assessed on
a person with respect to an employee benefit plan; and references to "serving at
the request of the corporation" shall include any service as a director,
officer, employee or agent of the corporation which imposes duties on, or
involves services by, such director, officer, employee, or agent with respect to
an employee benefit plan, its participants, or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in the interest
of the participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this Section 43.

ARTICLE XII

NOTICES

SECTION 44. NOTICES.

(a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of these
Bylaws, notice is required to be given to any stockholder, it shall be given in
writing, timely and duly deposited in the United States mail, postage prepaid,
and addressed to his last known post office address as shown by the stock record
of the corporation or its transfer agent. (Del. Code Ann., tit. 8, Section 222)

(b) NOTICE TO DIRECTORS. Any notice required to be given to any
director may be given by the method stated in subsection (a), or by overnight
delivery service, facsimile, telex or telegram, except that such notice other
than one which is delivered personally shall be sent to such address as such
director shall have filed in writing with the Secretary, or, in the absence of
such filing, to the last known post office address of such director.

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<PAGE> 28

(c) ADDRESS UNKNOWN. If no address of a stockholder or director be
known, notice may be sent to the office of the corporation required to be
maintained pursuant to Section 2 hereof.

(d) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by a
duly authorized and competent employee of the corporation or its transfer agent
appointed with respect to the class of stock affected, specifying the name and
address or the names and addresses of the stockholder or stockholders, or
director or directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall in the absence of fraud, be prima
facie evidence of the facts therein contained. (Del. Code Ann., tit. 8, Section
222)

(e) TIME NOTICES DEEMED GIVEN. All notices given by mail or by
overnight delivery service, as above provided, shall be deemed to have been
given as at the time of mailing and all notices given by facsimile, telex or
telegram shall be deemed to have been given as of the sending time recorded at
time of transmission.

(f) METHODS OF NOTICE. It shall not be necessary that the same
method of giving notice be employed in respect of all directors, but one
permissible method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or others.

(g) FAILURE TO RECEIVE NOTICE. The period or limitation of time
within which any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be required to act, or within which any director may
exercise any power or right, or enjoy any privilege, pursuant to any notice sent
him in the manner above provided, shall not be affected or extended in any
manner by the failure of such stockholder or such director to receive such
notice.

(h) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL. Whenever
notice is required to be given, under any provision of law or of the Certificate
of Incorporation or Bylaws of the corporation, to any person with whom
communication is unlawful, the giving of such notice to such person shall not be
required and there shall be no duty to apply to any governmental authority or
agency for a license or permit to give such notice to such person. Any action or
meeting which shall be taken or held without notice to any such person with whom
communication is unlawful shall have the same force and effect as if such notice
had been duly given. In the event that the action taken by the corporation is
such as to require the filing of a certificate under any provision of the DGCL,
the certificate shall state, if such is the fact and if notice is required, that
notice was given to all persons entitled to receive notice except such persons
with whom communication is unlawful.

(i) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever notice is
required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of the
taking of action by written consent without a meeting to such person during the
period between such two consecutive annual meetings, or (ii) all, and at least
two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve-month period, have been mailed addressed to such
person at his address as shown on the records of the corporation and have been
returned undeliverable, the giving of such notice to such person

23
<PAGE> 29

shall not be required. Any action or meeting which shall be taken or held
without notice to such person shall have the same force and effect as if such
notice had been duly given. If any such person shall deliver to the corporation
a written notice setting forth his then current address, the requirement that
notice be given to such person shall be reinstated. In the event that the action
taken by the corporation is such as to require the filing of a certificate under
any provision of the DGCL, the certificate need not state that notice was not
given to persons to whom notice was not required to be given pursuant to this
paragraph. (Del. Code Ann, tit. 8, Section 230)

ARTICLE XIII

AMENDMENTS

SECTION 45. AMENDMENTS. Subject to paragraph (h) of Section 43 of these
Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the
affirmative vote of at least sixty-six and two-thirds percent (66-2/3) of the
voting power of all the then-outstanding shares of the Voting Stock. The Board
of Directors shall also have the power to adopt, amend, or repeal Bylaws. (Del.
Code Ann., tit. 8, Sections 109(a), 122(6))

ARTICLE XIV

LOANS TO OFFICERS

SECTION 46. LOANS TO OFFICERS. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other assistance may
be with or without interest and may be unsecured, or secured in such manner as
the Board of Directors shall approve, including, without limitation, a pledge of
shares of stock of the corporation. Nothing in these Bylaws shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute. (Del. Code Ann., tit. 8, Section 143)

<PAGE> 1
EXHIBIT 10.02

ELOQUENT, INC.

EQUITY INCENTIVE PLAN

ADOPTED DECEMBER 14, 1995

AMENDED ON NOVEMBER 17, 1999

1. PURPOSES.

(a) The purpose of the Plan is to provide a means by which selected
Employees and Directors of, and Consultants to, the Company and its Affiliates
may be given an opportunity to benefit from increases in value of the stock of
the Company through the granting of (i) Incentive Stock Options, (ii)
Nonstatutory Stock Options, (iii) stock bonuses, and (iv) rights to purchase
restricted stock, all as defined below.

(b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees or Directors of, or Consultants to, the Company or
its Affiliates, to secure and retain the services of new Employees, Directors
and Consultants, and to provide incentives for such persons to exert maximum
efforts for the success of the Company and its Affiliates.

(c) The Company intends that the Stock Awards issued under the Plan
shall, in the discretion of the Board or any Committee to which responsibility
for administration of the Plan has been delegated pursuant to subsection 3(c),
be either (i) Options granted pursuant to Section 6 hereof, including Incentive
Stock Options and Nonstatutory Stock Options, or (ii) stock bonuses or rights to
purchase restricted stock granted pursuant to Section 7 hereof. All Options
shall be separately designated Incentive Stock Options or Nonstatutory Stock
Options at the time of grant, and in such form as issued pursuant to Section 6,
and a separate certificate or certificates will be issued for shares purchased
on exercise of each type of Option.

2. DEFINITIONS.

(a) "AFFILIATE" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f) respectively, of the Code.

(b) "BOARD" means the Board of Directors of the Company.

(d) "COMMITTEE" means a Committee appointed by the Board in accordance
with subsection 3(c) of the Plan.

(e) "COMPANY" means Eloquent, Inc., a Delaware corporation.

(f) "CONSULTANT" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting services and who is compensated for
such services, provided

<PAGE> 2

that the term "Consultant" shall not include Directors who are paid only a
director's fee by the Company or who are not compensated by the Company for
their services as Directors.

(g) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means
the employment or relationship as a Director or Consultant is not interrupted or
terminated. The Board, in its sole discretion, may determine whether Continuous
Status as an Employee, Director or Consultant shall be considered interrupted in
the case of: (i) any leave of absence approved by the Board, including sick
leave, military leave, or any other personal leave; or (ii) transfers between
locations of the Company or between the Company, Affiliates or their successors.

(h) "DIRECTOR" means a member of the Board.

(i) "DISINTERESTED PERSON" means a Director: who either (i) was not
during the one year prior to service as an administrator of the Plan granted or
awarded equity securities pursuant to the Plan or any other plan of the Company
or any affiliate entitling the participants therein to acquire equity securities
of the Company or any affiliate except as permitted by Rule 16b-3(c)(2)(i); or
(ii) is otherwise considered to be a "disinterested person" in accordance with
Rule 16b-3(c)(2)(i), or any other applicable rules, regulations or
interpretations of the Securities and Exchange Commission.

(j) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.

(k) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.

(l) "FAIR MARKET VALUE" means, as of any date, the value of the common
stock of the Company determined as follows and in each case in a manner
consistent with Section 260.140.50 of Title 10 of the California Code of
Regulations:

(1) If the common stock is listed on any established stock exchange
or a national market system, including without limitation the National Market
System of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, the Fair Market Value of a share of common stock
shall be the closing sales price for such stock (or the closing bid, if no sales
were reported) as quoted on such system or exchange (or the exchange with the
greatest volume of trading in common stock) on the last market trading day prior
to the day of determination, as reported in the Wall Street Journal or such
other source as the Board deems reliable;

(2) If the common stock is quoted on the NASDAQ System (but not on
the National Market System thereof) or is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a share of common stock shall be the mean of the bid and asked prices for the
common stock on the last market trading day prior to the day of determination,
as reported in the Wall Street Journal or such other source as the Board deems
reliable;

(3) In the absence of an established market for the common stock,
the Fair Market Value shall be determined in good faith by the Board.

2
<PAGE> 3

(m) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.

(n) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an Incentive Stock Option.

(o) "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.

(p) "OPTION" means a stock option granted pursuant to the Plan.

(q) "OPTION AGREEMENT" means a written agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.

(r) "OPTIONEE" means any person who holds an outstanding Option.

(s) "PLAN" means this Eloquent, Inc. Equity Incentive Plan.

(t) "RULE 16B-3" means Rule 16b-3 of the Exchange Act or any successor
to Rule 16b-3, as in effect when discretion is being exercised with respect to
the Plan.

(u) "STOCK AWARD" means any right granted under the Plan, including any
Option, any stock bonus, and any right to purchase restricted stock.

(v) "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.

3. ADMINISTRATION.

(a) The Plan shall be administered by the Board unless and until the
Board delegates administration to a Committee, as provided in subsection 3(c).

(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:

(1) To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how each Stock Award
shall be granted; whether a Stock Award will be an Incentive Stock Option, a
Nonstatutory Stock Option, a stock bonus, a right to purchase restricted stock,
or a combination of the foregoing; the provisions of each Stock Award granted
(which need not be identical), including the time or times when a person shall
be permitted to receive stock pursuant to a Stock Award; and the number of
shares with respect to which a Stock Award shall be granted to each such person.

(2) To construe and interpret the Plan and Stock Awards granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the

3
<PAGE> 4

exercise of this power, may correct any defect, omission or inconsistency in the
Plan or in any Stock Award Agreement, in a manner and to the extent it shall
deem necessary or expedient to make the Plan fully effective.

(3) To amend the Plan or a Stock Award as provided in Section 13.

(c) The Board may delegate administration of the Plan to a committee
composed of not fewer than two (2) members (the "Committee"), all of the members
of which Committee shall be Disinterested Persons. If administration is
delegated to a Committee, the Committee shall have, in connection with the
administration of the Plan, the powers theretofore possessed by the Board (and
references in this Plan to the Board shall thereafter be to the Committee),
subject, however, to such resolutions, not inconsistent with the provisions of
the Plan, as may be adopted from time to time by the Board. The Board may
abolish the Committee at any time and revest in the Board the administration of
the Plan. Additionally, prior to the date of the first registration of an equity
security of the Company under Section 12 of the Exchange Act, and
notwithstanding anything to the contrary contained herein, the Board may
delegate administration of the Plan to any person or persons and the term
"Committee" shall apply to any person or persons to whom such authority has been
delegated. Notwithstanding anything in this Section 3 to the contrary, at any
time the Board or the Committee may delegate to a committee of one or more
members of the Board the authority to grant Stock Awards to eligible persons who
are not then subject to Section 16 of the Exchange Act.

(d) Any requirement that an administrator of the Plan be a
Disinterested Person shall not apply (i) prior to the date of the first
registration of an equity security of the Company under Section 12 of the
Exchange Act, or (ii) if the Board or the Committee expressly declares that such
requirement shall not apply. Any Disinterested Person shall otherwise comply
with the requirements of Rule 16b-3.

4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 12 relating to adjustments
upon changes in stock, the stock that may be issued pursuant to Stock Awards
shall not exceed in the aggregate One Million Seventy Thousand (1,070,000)
shares of the Company's common stock. If any Stock Award shall for any reason
expire or otherwise terminate, in whole or in part, without having been
exercised in full, the stock not acquired under such Stock Award shall revert to
and again become available for issuance under the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.

5. ELIGIBILITY.

(a) Incentive Stock Options may be granted only to Employees. Stock
Awards other than Incentive Stock Options may be granted only to Employees,
Directors or Consultants.

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<PAGE> 5

Awards granted to the Director: (i) the Board has delegated its discretionary
authority over the Plan to a Committee which consists solely of Disinterested
Persons; or (ii) the Plan otherwise complies with the requirements of Rule
16b-3. The Board shall otherwise comply with the requirements of Rule 16b-3.
This subsection 5(b) shall not apply (i) prior to the date of the first
registration of an equity security of the Company under Section 12 of the
Exchange Act, or (ii) if the Board or Committee expressly declares that it shall
not apply.

(c) No person shall be eligible for the grant of an Option or an award
to purchase restricted stock if, at the time of grant, such person owns (or is
deemed to own pursuant to Section 424(d) of the Code) stock possessing more than
ten percent (10%) of the total combined voting power of all classes of stock of
the Company or of any of its Affiliates unless the exercise price of such Option
is at least one hundred ten percent (110%) of the Fair Market Value of such
stock at the date of grant and the Option is not exercisable after the
expiration of five (5) years from the date of grant, or in the case of a
restricted stock purchase award, the purchase price is at least one hundred
percent (100%) of the Fair Market Value of such stock at the date of grant.

6. OPTION PROVISIONS.

Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:

(a) TERM. No Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.

(b) PRICE. The exercise price of each Incentive Stock Option shall be
not less than one hundred percent (100%) of the Fair Market Value of the stock
subject to the Option on the date the Option is granted; the exercise price of
each Nonstatutory Stock Option shall be not less than eighty-five percent (85%)
of the Fair Market Value of the stock subject to the Option on the date the
Option is granted. Notwithstanding the foregoing, an Option (whether an
Incentive Stock Option or a Nonstatutory Stock Option) may be granted with an
exercise price lower than that set forth in the preceding sentence if such
Option is granted in substitution for another option in a manner satisfying the
provisions of Section 424(a) of the Code.

(c) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii) at
the discretion of the Board or the Committee, (A) by delivery to the Company of
other common stock of the Company, (B) according to a deferred payment or other
arrangement (which may include, without limiting the generality of the
foregoing, the use of other common stock of the Company) with the person to whom
the Option is granted or to whom the Option is transferred pursuant to
subsection 6(d), or (C) in any other form of legal consideration that may be
acceptable to the Board.

In the case of any deferred payment arrangement, interest shall be
payable at least annually and shall be charged at the minimum rate of interest
necessary to avoid the treatment as

5
<PAGE> 6

interest, under any applicable provisions of the Code, of any amounts other than
amounts stated to be interest under the deferred payment arrangement.

(d) TRANSFERABILITY.

(1) TRANSFERABILITY OF AN INCENTIVE STOCK OPTION. An Incentive
Stock Option shall not be transferable except by will or by the laws of descent
and distribution, and shall be exercisable during the lifetime of the person to
whom the Option is granted only by such person. Notwithstanding the foregoing,
the person to whom the Option is granted may, by delivering written notice to
the Company, in a form satisfactory to the Company, designate a third party who,
in the event of the death of the Optionee, shall thereafter be entitled to
exercise the Option.

(2) TRANSFERABILITY OF A NONSTATUTORY STOCK OPTION. A Nonstatutory
Stock Option shall not be transferable except by will or by the laws of descent
and distribution and, to the extent provided in the Option Agreement, to such
further extent as permitted by Section 260.140.41(d) of Title 10 of the
California Code of Regulations at the time of the grant of the Option, and,
except in the case of a permitted transfer, shall be exercisable during the
lifetime of the person to whom the Option is granted only by such person. If the
Nonstatutory Stock Option does not provide for transferability, then the
Nonstatutory Stock Option shall not be transferable except by will or by the
laws of descent and distribution and shall be exercisable during the lifetime of
the person to whom the Option is granted only by such person. Notwithstanding
the foregoing, the person to whom the Option is granted may, by delivering
written notice to the Company, in a form satisfactory to the Company, designate
a third party who, in the event of the death of the Optionee, shall thereafter
be entitled to exercise the Option.

(e) VESTING. The total number of shares of stock subject to an Option
may, but need not, be allotted in periodic installments (which may, but need
not, be equal). The Option Agreement may provide that from time to time during
each of such installment periods, the Option may become exercisable ("vest")
with respect to some or all of the shares allotted to that period, and may be
exercised with respect to some or all of the shares allotted to such period
and/or any prior period as to which the Option became vested but was not fully
exercised. The Option may be subject to such other terms and conditions on the
time or times when it may be exercised (which may be based on performance or
other criteria) as the Board may deem appropriate. The vesting provisions of
individual Options may vary but, for California employees, will provide for
vesting of at least twenty percent (20%) per year of the total number of shares
subject to the Option. The provisions of this subsection 6(e) are subject to any
Option provisions governing the minimum number of shares as to which an Option
may be exercised.

(f) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event an Optionee's Continuous Status as an Employee,
Director or Consultant terminates (other than upon the Optionee's death or
disability), the Optionee may exercise his or her Option (to the extent that the
Optionee was entitled to exercise it at the date of termination) but only within
such period of time ending on the earlier of (i) the date three (3) months after
the termination of the Optionee's Continuous Status as an Employee, Director or
Consultant (or such longer or shorter period, which in no event shall be less
than thirty (30) days, specified in the Option Agreement), or (ii) the
expiration of the term of the Option as set forth in the Option Agreement. If,
after termination, the Optionee does not exercise his or her Option within the
time specified in the Option Agreement, the Option shall terminate, and the
shares covered by such Option shall revert to and again become available for
issuance under the Plan.

An Optionee's Option Agreement may also provide that if the exercise of
the Option following the termination of the Optionee's Continuous Status as an
Employee, Director, or Consultant (other than upon the Optionee's death or
disability) would result in liability under Section 16(b) of the Exchange Act,
then the Option shall terminate on the earlier of (i) the expiration of the term
of the Option set forth in the Option Agreement, or (ii) the tenth (10th) day
after the last date on which such exercise would result in such liability under
Section 16(b) of the Exchange Act. Finally, an Optionee's Option Agreement may
also provide that if the exercise of the Option following the termination of the
Optionee's Continuous Status as an Employee, Director or Consultant (other than
upon the Optionee's death or disability) would be prohibited at any time solely
because the issuance of shares would violate the registration requirements under
the Act, then the Option shall terminate on the earlier of (i) the expiration of
the term of the Option set forth in the first paragraph of this subsection 6(f),
or (ii) the expiration of a period

6
<PAGE> 7

of three (3) months after the termination of the Optionee's Continuous Status as
an Employee, Director or Consultant during which the exercise of the Option
would not be in violation of such registration requirements.

(g) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous
Status as an Employee, Director or Consultant terminates as a result of the
Optionee's disability, the Optionee may exercise his or her Option (to the
extent that the Optionee was entitled to exercise it at the date of
termination), but only within such period of time ending on the earlier of (i)
the date twelve (12) months following such termination (or such longer or
shorter period, which in no event shall be less than six (6) months, specified
in the Option Agreement), or (ii) the expiration of the term of the Option as
set forth in the Option Agreement. If, at the date of termination, the Optionee
is not entitled to exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to and again become available
for issuance under the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the shares covered by such Option shall revert to and again
become available for issuance under the Plan.

(h) DEATH OF OPTIONEE. In the event of the death of an Optionee during,
or within a period specified in the Option after the termination of, the
Optionee's Continuous Status as an Employee, Director or Consultant, the Option
may be exercised (to the extent the Optionee was entitled to exercise the Option
at the date of death) by the Optionee's estate, by a person who acquired the
right to exercise the Option by bequest or inheritance or by a person designated
to exercise the option upon the Optionee's death pursuant to subsection 6(d),
but only within the period ending on the earlier of (i) the date eighteen (18)
months following the date of death (or such longer or shorter period, which in
no event shall be less than six (6) months, specified in the Option Agreement),
or (ii) the expiration of the term of such Option as set forth in the Option
Agreement. If, at the time of death, the Optionee was not entitled to exercise
his or her entire Option, the shares covered by the unexercisable portion of the
Option shall revert to and again become available for issuance under the Plan.
If, after death, the Option is not exercised within the time specified herein,
the Option shall terminate, and the shares covered by such Option shall revert
to and again become available for issuance under the Plan.

(i) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionee may elect at any time while an Employee, Director or
Consultant to exercise the Option as to any part or all of the shares subject to
the Option prior to the full vesting of the Option. Any unvested shares so
purchased shall be subject to a repurchase right in favor of the Company, with
the repurchase price to be equal to the original purchase price of the stock, or
to any other restriction the Board determines to be appropriate; provided,
however, that (i) the right to repurchase at the original purchase price shall
lapse at a minimum rate of twenty percent (20%) per year over five (5) years
from the date the Option was granted, (ii) such right shall be exercisable only
within (A) the ninety (90) day period following the termination of employment or
the relationship as a Director or Consultant, or (B) such longer period as may
be agreed to by the Company and the Optionee (for example, for purposes of
satisfying the requirements of Section 1202(c)(3) of the Code (regarding
"qualified small business stock")), (iii) such right shall be exercisable only
for cash or cancellation of purchase money indebtedness for the shares, and (iv)
if the Company exercises such right, it must purchase all of the shares subject
to the Option unless the Optionee consents otherwise. Should the right of
repurchase be assigned by the

7
<PAGE> 8

Company, the assignee shall pay the Company cash equal to the difference between
the original purchase price and the stock's Fair Market Value if the original
purchase price is less than the stock's Fair Market Value.

(j) RIGHT OF REPURCHASE. The Option may, but need not, include a
provision whereby the Company may elect, prior to the date of the first
registration of an equity security of the Company under Section 12 of the
Exchange Act, to repurchase all of the vested shares exercised pursuant to the
Option; provided, however, that (i) with the consent of the Optionee or his
personal representative, as the case may be, the Company may repurchase less
than all of such vested shares; (ii) such repurchase right shall be exercisable
only within (A) the ninety (90) day period following the termination of
employment or the relationship as a Director or Consultant, or (B) such longer
period as may be agreed to by the Company and the Optionee (for example, for
purposes of satisfying the requirements of Section 1202(c)(3) of the Code
(regarding "qualified small business stock")), and (iii) such right shall be
exercisable only for cash or cancellation of purchase money indebtedness for the
shares at a repurchase price equal to the greater of (A) the stock's Fair Market
Value at the time of such termination, or (B) the original purchase price paid
for such shares by the Optionee.

(k) RIGHT OF FIRST REFUSAL. The Option may, but need not, include a
provision whereby the Company may elect, prior to the date of the first
registration of an equity security of the Company under Section 12 of the
Exchange Act, to exercise a right of first refusal following receipt of notice
from the Optionee of the intent to transfer all or any part of the shares
exercised pursuant to the Option.

(l) RE-LOAD OPTIONS. Without in any way limiting the authority of the
Board or Committee to make or not to make grants of Options hereunder, the Board
or Committee shall have the authority (but not an obligation) to include as part
of any Option Agreement a provision entitling the Optionee to a further Option
(a "Re-Load Option") in the event the Optionee exercises the Option evidenced by
the Option agreement, in whole or in part, by surrendering other shares of
Common Stock in accordance with this Plan and the terms and conditions of the
Option Agreement. Any such Re-Load Option (i) shall be for a number of shares
equal to the number of shares surrendered as part or all of the exercise price
of such Option; (ii) shall have an expiration date which is the same as the
expiration date of the Option the exercise of which gave rise to such Re-Load
Option; and (iii) shall have an exercise price which is equal to one hundred
percent (100%) of the Fair Market Value of the Common Stock subject to the
Re-Load Option on the date of exercise of the original Option. Notwithstanding
the foregoing, a Re-Load Option that is granted to a 10% stockholder (as
described in subsection 5(c)), shall have an exercise price which is equal to
one hundred ten percent (110%) of the Fair Market Value of the stock subject to
the Re-Load Option on the date of exercise of the original Option and shall have
a term which is no longer than five (5) years.

8
<PAGE> 9

shall be subject to the availability of sufficient shares under subsection 4(a)
and shall be subject to such other terms and conditions as the Board or
Committee may determine which are not inconsistent with the express provisions
of the Plan regarding the terms of Options.

7. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK.

Each stock bonus or restricted stock purchase agreement shall be in
such form and shall contain such terms and conditions as the Board or the
Committee shall deem appropriate. The terms and conditions of stock bonus or
restricted stock purchase agreements may change from time to time, and the terms
and conditions of separate agreements need not be identical, but each stock
bonus or restricted stock purchase agreement shall include (through
incorporation of provisions hereof by reference in the agreement or otherwise)
the substance of each of the following provisions as appropriate:

(a) PURCHASE PRICE. The purchase price under each restricted stock
purchase agreement shall be such amount as the Board or Committee shall
determine and designate in such agreement, but in no event shall the purchase
price be less than eighty-five percent (85%) of the stock's Fair Market Value on
the date such award is made. Notwithstanding the foregoing, the Board or the
Committee may determine that eligible participants in the Plan may be awarded
stock pursuant to a stock bonus agreement in consideration for past services
actually rendered to the Company or for its benefit.

(b) TRANSFERABILITY. No rights under a stock bonus or restricted stock
purchase agreement shall be transferable except by will or the laws of descent
and distribution or pursuant to a qualified domestic relations order satisfying
the requirements of Rule 16b-3 and any administrative interpretations or
pronouncements thereunder, so long as stock awarded under such agreement remains
subject to the terms of the agreement.

(c) CONSIDERATION. The purchase price of stock acquired pursuant to a
stock purchase agreement shall be paid either: (i) in cash at the time of
purchase; (ii) at the discretion of the Board or the Committee, according to a
deferred payment or other arrangement with the person to whom the stock is sold;
or (iii) in any other form of legal consideration that may be acceptable to the
Board or the Committee in its discretion. Notwithstanding the foregoing, the
Board or the Committee to which administration of the Plan has been delegated
may award stock pursuant to a stock bonus agreement in consideration for past
services actually rendered to the Company or for its benefit.

(d) VESTING. Shares of stock sold or awarded under the Plan may, but
need not, be subject to a repurchase option in favor of the Company in
accordance with a vesting schedule to be determined by the Board or the
Committee; provided, however, that (i) the right to repurchase at the original
purchase price shall lapse at a minimum rate of twenty percent (20%) per year
over five (5) years from the date the Stock Award was granted, and (ii) such
right shall be exercisable only (A) within the ninety (90) day period following
the termination of employment or the relationship as a Director or Consultant,
or (B) such longer period as may be agreed to by the Company and the holder of
the Stock Award (for example, for purposes of satisfying the requirements of
Section 1202(c)(3) of the Code (regarding "qualified small business stock")),
and (iii) such right shall be exercisable only for cash or cancellation of
purchase money

9
<PAGE> 10

indebtedness for the shares. Should the right of repurchase be assigned by the
Company, the assignee shall pay the Company cash equal to the difference between
the original purchase price and the stock's Fair Market Value if the original
purchase price is less than the stock's Fair Market Value.

(e) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event a Participant's Continuous Status as an Employee,
Director or Consultant terminates, the Company may repurchase or otherwise
reacquire, subject to the limitations described in subsection 7(d), all of the
shares of stock held by that person that have not vested as of the date of
termination under the terms of the stock bonus or restricted stock purchase
agreement between the Company and such person; provided, however, that with the
consent of such person or his personal representative, as the case may be, the
Company may repurchase or otherwise reacquire less than all of such stock.

8. CANCELLATION AND RE-GRANT OF OPTIONS.

The Board or the Committee shall have the authority to effect, at any
time and from time to time, (i) the repricing of any outstanding Options and/or
(ii) with the consent of the affected holders of Options, the cancellation of
any outstanding Options under the Plan and the grant in substitution therefor of
new Options under the Plan covering the same or different numbers of shares of
stock, but having an exercise price per share not less than eighty-five percent
(85%) of the Fair Market Value (one hundred percent (100%) of the Fair Market
Value in the case of an Incentive Stock Option) or, in the case of a 10%
stockholder (as described in subsection 5(c)), not less than one hundred ten
percent (110%) of the Fair Market Value) per share of stock on the new grant
date. Notwithstanding the foregoing, the Board or the Committee may grant an
Option with an exercise price lower than that set forth above if such Option is
granted as part of a transaction to which section 424(a) of the Code applies.

9. COVENANTS OF THE COMPANY.

(a) During the terms of the Stock Awards, the Company shall keep
available at all times the number of shares of stock required to satisfy such
Stock Awards.

(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the Stock Award; provided,
however, that this undertaking shall not require the Company to register under
the Securities Act of 1933, as amended (the "Securities Act") either the Plan,
any Stock Award or any stock issued or issuable pursuant to any such Stock
Award. If, after reasonable efforts, the Company is unable to obtain from any
such regulatory commission or agency the authority that counsel for the Company
deems necessary for the lawful issuance and sale of stock under the Plan, the
Company shall be relieved from any liability for failure to issue and sell stock
upon exercise of such Stock Awards unless and until such authority is obtained.

10. USE OF PROCEEDS FROM STOCK.

Proceeds from the sale of stock pursuant to Stock Awards shall
constitute general funds of the Company.

10
<PAGE> 11

11. MISCELLANEOUS.

(a) Neither an Employee, Director or Consultant nor any person to whom
a Stock Award is transferred under subsection 6(d) or 7(b) shall be deemed to be
the holder of, or to have any of the rights of a holder with respect to, any
shares subject to such Stock Award unless and until such person has satisfied
all requirements for exercise of the Stock Award pursuant to its terms.

(b) Throughout the term of any Stock Award, the Company shall deliver
to the holder of such Stock Award, not later than one hundred twenty (120) days
after the close of each of the Company's fiscal years during the term of such
Stock Award, a balance sheet and an income statement. This section shall not
apply when issuance is limited to key employees whose duties in connection with
the Company assure them access to equivalent information.

(c) Nothing in the Plan or any instrument executed or Stock Award
granted pursuant thereto shall confer upon any Employee, Director, Consultant or
other holder of Stock Awards any right to continue in the employ of the Company
or any Affiliate (or to continue acting as a Director or Consultant) or shall
affect the right of the Company or any Affiliate to terminate the employment of
any Employee with or without cause the right of the Company's Board of Directors
and/or the Company's shareholders to remove any Director pursuant to the terms
of the Company's By-Laws and the provisions of the Delaware General Corporation
Law or the right to terminate the relationship of any Consultant pursuant to the
terms of such Consultant's agreement with the Company or Affiliate.

(d) To the extent that the aggregate Fair Market Value (determined at
the time of grant) of stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year under
all plans of the Company and its Affiliates exceeds one hundred thousand dollars
($100,000), the Options or portions thereof which exceed such limit (according
to the order in which they were granted) shall be treated as Nonstatutory Stock
Options.

(e) The Company may require any person to whom a Stock Award is
granted, or any person to whom a Stock Award is transferred pursuant to
subsection 6(d) or 7(b), as a condition of exercising or acquiring stock under
any Stock Award, (1) to give written assurances satisfactory to the Company as
to such person's knowledge and experience in financial and business matters
and/or to employ a purchaser representative reasonably satisfactory to the
Company who is knowledgeable and experienced in financial and business matters,
and that he or she is capable of evaluating, alone or together with the
purchaser representative, the merits and risks of exercising the Stock Award;
and (2) to give written assurances satisfactory to the Company stating that such
person is acquiring the stock subject to the Stock Award for such person's own
account and not with any present intention of selling or otherwise distributing
the stock. The foregoing requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (i) the issuance of the shares upon the
exercise or acquisition of stock under the Stock Award has been registered under
a then currently effective registration statement under the Securities Act, or
(ii) as to any particular requirement, a determination is made by counsel for
the Company that such requirement need not be met in the circumstances under the
then applicable securities laws. The Company may, upon advice of counsel to the
Company,

11
<PAGE> 12

place legends on stock certificates issued under the Plan as such counsel deems
necessary or appropriate in order to comply with applicable securities laws,
including, but not limited to, legends restricting the transfer of the stock.

(f) To the extent provided by the terms of a Stock Award Agreement, the
person to whom a Stock Award is granted may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of stock
under a Stock Award by any of the following means or by a combination of such
means: (1) tendering a cash payment; (2) authorizing the Company to withhold
shares from the shares of the common stock otherwise issuable to the participant
as a result of the exercise or acquisition of stock under the Stock Award; or
(3) delivering to the Company owned and unencumbered shares of the common stock
of the Company.

12. ADJUSTMENTS UPON CHANGES IN STOCK.

(a) If any change is made in the stock subject to the Plan, or subject
to any Stock Award, without the receipt of consideration by the Company (through
merger, consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
Company), the Plan will be appropriately adjusted in the class(es) and maximum
number of shares subject to the Plan pursuant to subsection 4(a) and the
outstanding Stock Awards will be appropriately adjusted in the class(es) and
number of shares and price per share of stock subject to such outstanding Stock
Awards. Such adjustments shall be made by the Board or the Committee, the
determination of which shall be final, binding and conclusive. (The conversion
of any convertible securities of the Company shall not be treated as a
"transaction not involving the receipt of consideration by the Company.")

(b) In the event of: (1) a merger or consolidation in which the Company
is not the surviving corporation or (2) a reverse merger in which the Company is
the surviving corporation but the shares of the Company's common stock
outstanding immediately preceding the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash or otherwise
then to the extent permitted by applicable law: (i) any surviving corporation or
an Affiliate of such surviving corporation shall assume any Stock Awards
outstanding under the Plan or shall substitute similar Stock Awards for those
outstanding under the Plan, or (ii) such Stock Awards shall continue in full
force and effect. In the event any surviving corporation and its Affiliates
refuse to assume or continue such Stock Awards, or to substitute similar Stock
Awards for those outstanding under the Plan, then such Stock Awards shall be
terminated if not exercised prior to such event. In the event of a dissolution
or liquidation of the Company, any Stock Awards outstanding under the Plan shall
terminate if not exercised prior to such event.

13. AMENDMENT OF THE PLAN AND STOCK AWARDS.

(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 12 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company within twelve (12) months before or after the adoption of the
amendment, where the amendment will:

12
<PAGE> 13

(i) Increase the number of shares reserved for Stock Awards under
the Plan;

(ii) Modify the requirements as to eligibility for participation
in the Plan (to the extent such modification requires stockholder approval in
order for the Plan to satisfy the requirements of Section 422 of the Code); or

(iii) Modify the Plan in any other way if such modification
requires stockholder approval in order for the Plan to satisfy the requirements
of Section 422 of the Code or to comply with the requirements of Rule 16b-3.

(b) The Board may in its sole discretion submit any other amendment to
the Plan for stockholder approval, including, but not limited to, amendments to
the Plan intended to satisfy the requirements of Section 162(m) of the Code and
the regulations promulgated thereunder regarding the exclusion of
performance-based compensation from the limit on corporate deductibility of
compensation paid to certain executive officers.

(c) It is expressly contemplated that the Board may amend the Plan in
any respect the Board deems necessary or advisable to provide eligible
Employees, Directors or Consultants with the maximum benefits provided or to be
provided under the provisions of the Code and the regulations promulgated
thereunder relating to Incentive Stock Options and/or to bring the Plan and/or
Incentive Stock Options granted under it into compliance therewith.

(d) Rights and obligations under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the person to whom the Stock Award was
granted and (ii) such person consents in writing.

(e) The Board at any time, and from time to time, may amend the terms
of any one or more Stock Award; provided, however, that the rights and
obligations under any Stock Award shall not be impaired by any such amendment
unless (i) the Company requests the consent of the person to whom the Stock
Award was granted and (ii) such person consents in writing.

14. TERMINATION OR SUSPENSION OF THE PLAN.

(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on December 13, 2005, which shall be
within ten (10) years from the date the Plan is adopted by the Board or approved
by the stockholders of the Company, whichever is earlier. No Stock Awards may be
granted under the Plan while the Plan is suspended or after it is terminated.

(b) Rights and obligations under any Stock Award granted while the Plan
is in effect shall not be impaired by suspension or termination of the Plan,
except with the consent of the person to whom the Stock Award was granted.

15. EFFECTIVE DATE OF PLAN.

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<PAGE> 14

The Plan shall become effective as determined by the Board, but no
Stock Awards granted under the Plan shall be exercised unless and until the Plan
has been approved by the stockholders of the Company, which approval shall be
within twelve (12) months before or after the date the Plan is adopted by the
Board, and, if required, an appropriate permit has been issued by the
Commissioner of Corporations of the State of California.

<PAGE> 1
EXHIBIT 10.04

ELOQUENT, INC.

1997 EQUITY INCENTIVE PLAN

ADOPTED ON JULY 18, 1997
AMENDED ON JANUARY 20, 1999 AND NOVEMBER 17, 1999

1. PURPOSES.

2. DEFINITIONS.

(a) "AFFILIATE" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f) respectively, of the Code.

(b) "BOARD" means the Board of Directors of the Company.

(d) "COMMITTEE" means a Committee appointed by the Board in accordance
with subsection 3(c) of the Plan.

(e) "COMPANY" means Eloquent, Inc., a Delaware corporation.

1.
<PAGE> 2

(f) "CONSULTANT" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting services and who is compensated for
such services, provided that the term "Consultant" shall not include Directors
who are paid only a director's fee by the Company or who are not compensated by
the Company for their services as Directors.

(h) "DIRECTOR" means a member of the Board.

(k) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.

2.
<PAGE> 3

day of determination, as reported in the Wall Street Journal or such other
source as the Board deems reliable;

(3) In the absence of an established market for the common stock,
the Fair Market Value shall be determined in good faith by the Board.

(m) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.

(n) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an Incentive Stock Option.

(o) "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.

(p) "OPTION" means a stock option granted pursuant to the Plan.

(r) "OPTIONEE" means any person who holds an outstanding Option.

(s) "PLAN" means this Eloquent, Inc. Equity Incentive Plan.

(t) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any successor
to Rule 16b-3, as in effect when discretion is being exercised with respect to
the Plan.

(u) "STOCK AWARD" means any right granted under the Plan, including any
Option, any stock bonus, and any right to purchase restricted stock.

3. ADMINISTRATION.

(a) The Plan shall be administered by the Board unless and until the
Board delegates administration to a Committee, as provided in subsection 3(c).

(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:

3.
<PAGE> 4

right to purchase restricted stock, or a combination of the foregoing; the
provisions of each Stock Award granted (which need not be identical), including
the time or times when a person shall be permitted to receive stock pursuant to
a Stock Award; and the number of shares with respect to which a Stock Award
shall be granted to each such person.

(2) To construe and interpret the Plan and Stock Awards granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.

(3) To amend the Plan or a Stock Award as provided in Section 13.

4. SHARES SUBJECT TO THE PLAN.

(a) Subject to the provisions of Section 12 relating to adjustments
upon changes in stock, the stock that may be issued pursuant to Stock Awards
shall not exceed in the aggregate four million nine hundred thirty-four thousand
five hundred (4,934,500) shares of the Company's common stock. If any Stock
Award shall for any reason expire or otherwise terminate, in whole or in part,
without having been exercised in full, the stock not acquired under such Stock
Award shall revert to and again become available for issuance under the Plan.

(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.

4.
<PAGE> 5

5. ELIGIBILITY.

(a) Incentive Stock Options may be granted only to Employees. Stock
Awards other than Incentive Stock Options may be granted only to Employees,
Directors or Consultants.

(b) A Director shall in no event be eligible for the benefits of the
Plan unless at the time discretion is exercised in the selection of the Director
as a person to whom Stock Awards may be granted, or in the determination of the
number of shares which may be covered by Stock Awards granted to the Director:
(i) the Board has delegated its discretionary authority over the Plan to a
Committee which consists solely of Disinterested Persons; or (ii) the Plan
otherwise complies with the requirements of Rule 16b-3. The Board shall
otherwise comply with the requirements of Rule 16b-3. This subsection 5(b) shall
not apply (i) prior to the date of the first registration of an equity security
of the Company under Section 12 of the Exchange Act, or (ii) if the Board or
Committee expressly declares that it shall not apply.

6. OPTION PROVISIONS.

(a) TERM. No Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.

5.
<PAGE> 6

delivery to the Company of other common stock of the Company, (B) according to a
deferred payment or other arrangement (which may include, without limiting the
generality of the foregoing, the use of other common stock of the Company) with
the person to whom the Option is granted or to whom the Option is transferred
pursuant to subsection 6(d), or (C) in any other form of legal consideration
that may be acceptable to the Board.

In the case of any deferred payment arrangement, interest shall be
payable at least annually and shall be charged at the minimum rate of interest
necessary to avoid the treatment as interest, under any applicable provisions of
the Code, of any amounts other than amounts stated to be interest under the
deferred payment arrangement.

(d) TRANSFERABILITY.

(1) TRANSFERABILITY OF AN INCENTIVE STOCK OPTION. An Incentive
Stock Option shall not be transferable except by will or by the laws of descent
and distribution, and shall be exercisable during the lifetime of the person to
whom the Option is granted only by such person. Notwithstanding the foregoing,
the person to whom the Option is granted may, by delivering written notice to
the Company, in a form satisfactory to the Company, designate a third party
who, in the event of the death of the Optionee, shall thereafter be entitled to
exercise the Option.

(2) TRANSFERABILITY OF A NONSTATUTORY STOCK OPTION. A Nonstatutory
Stock Option shall not be transferable except by will or by the laws of descent
and distribution and, to the extent provided in the Option Agreement, to such
further extent as permitted by Section 260.140.41(d) of Title 10 of the
California Code of Regulations at the time of the grant of the Option, and,
except in the case of a permitted transfer, shall be exercisable during the
lifetime of the person to whom the Option is granted only by such person. If
the Nonstatutory Stock Option does not provide for transferability, then the
Nonstatutory Stock Option shall not be transferable except by will or by the
laws of descent and distribution and shall be exercisable during the lifetime
of the person to whom the Option is granted only by such person.
Notwithstanding the foregoing, the person to whom the Option is granted may, by
delivering written notice to the Company, in a form satisfactory to the
Company, designate a third party who, in the event of the death of the
Optionee, shall thereafter be entitled to exercise the Option.

An Optionee's Option Agreement may also provide that if the exercise of
the Option following the termination of the Optionee's Continuous Status as an
Employee, Director, or

6.
<PAGE> 7

Consultant (other than upon the Optionee's death or disability) would result in
liability under Section 16(b) of the Exchange Act, then the Option shall
terminate on the earlier of (i) the expiration of the term of the Option set
forth in the Option Agreement, or (ii) the tenth (10th) day after the last date
on which such exercise would result in such liability under Section 16(b) of the
Exchange Act. Finally, an Optionee's Option Agreement may also provide that if
the exercise of the Option following the termination of the Optionee's
Continuous Status as an Employee, Director or Consultant (other than upon the
Optionee's death or disability) would be prohibited at any time solely because
the issuance of shares would violate the registration requirements under the
Act, then the Option shall terminate on the earlier of (i) the expiration of the
term of the Option set forth in the first paragraph of this subsection 6(f), or
(ii) the expiration of a period of three (3) months after the termination of the
Optionee's Continuous Status as an Employee, Director or Consultant during which
the exercise of the Option would not be in violation of such registration
requirements.

7.
<PAGE> 8

Any unvested shares so purchased shall be subject to a repurchase right in favor
of the Company, with the repurchase price to be equal to the original purchase
price of the stock, or to any other restriction the Board determines to be
appropriate; provided, however, that (i) the right to repurchase at the original
purchase price shall lapse at a minimum rate of twenty percent (20%) per year
over five (5) years from the date the Option was granted, (ii) such right shall
be exercisable only within (A) the ninety (90) day period following the
termination of employment or the relationship as a Director or Consultant, or
(B) such longer period as may be agreed to by the Company and the Optionee (for
example, for purposes of satisfying the requirements of Section 1202(c)(3) of
the Code (regarding "qualified small business stock")), (iii) such right shall
be exercisable only for cash or cancellation of purchase money indebtedness for
the shares, and (iv) if the Company exercises such right, it must purchase all
of the shares subject to the Option unless the Optionee consents otherwise.
Should the right of repurchase be assigned by the Company, the assignee shall
pay the Company cash equal to the difference between the original purchase price
and the stock's Fair Market Value if the original purchase price is less than
the stock's Fair Market Value.

8.
<PAGE> 9

rise to such Re-Load Option; and (iii) shall have an exercise price which is
equal to one hundred percent (100%) of the Fair Market Value of the Common Stock
subject to the Re-Load Option on the date of exercise of the original Option.
Notwithstanding the foregoing, a Re-Load Option that is granted to a 10%
stockholder (as described in subsection 5(c)), shall have an exercise price
which is equal to one hundred ten percent (110%) of the Fair Market Value of the
stock subject to the Re-Load Option on the date of exercise of the original
Option and shall have a term which is no longer than five (5) years.

Any such Re-Load Option may be an Incentive Stock Option or a
Nonstatutory Stock Option, as the Board or Committee may designate at the time
of the grant of the original Option; provided, however, that the designation of
any Re-Load Option as an Incentive Stock Option shall be subject to the one
hundred thousand dollar ($100,000) annual limitation on exercisability of
Incentive Stock Options described in subsection 12(e) of the Plan and in Section
422(d) of the Code. There shall be no Re-Load Options on a Re-Load Option. Any
such Re-Load Option shall be subject to the availability of sufficient shares
under subsection 4(a) and shall be subject to such other terms and conditions as
the Board or Committee may determine which are not inconsistent with the express
provisions of the Plan regarding the terms of Options.

7. TERMS OF STOCK BONUSES AND PURCHASES OF RESTRICTED STOCK.

9.
<PAGE> 10

acceptable to the Board or the Committee in its discretion. Notwithstanding the
foregoing, the Board or the Committee to which administration of the Plan has
been delegated may award stock pursuant to a stock bonus agreement in
consideration for past services actually rendered to the Company or for its
benefit.

8. CANCELLATION AND RE-GRANT OF OPTIONS.

9. COVENANTS OF THE COMPANY.

10.
<PAGE> 11

(a) During the terms of the Stock Awards, the Company shall keep
available at all times the number of shares of stock required to satisfy such
Stock Awards.

10. USE OF PROCEEDS FROM STOCK.

Proceeds from the sale of stock pursuant to Stock Awards shall
constitute general funds of the Company.

11. MISCELLANEOUS.

11.
<PAGE> 12

one hundred thousand dollars ($100,000), the Options or portions thereof which
exceed such limit (according to the order in which they were granted) shall be
treated as Nonstatutory Stock Options.

12. ADJUSTMENTS UPON CHANGES IN STOCK.

12.
<PAGE> 13

of any convertible securities of the Company shall not be treated as a
"transaction not involving the receipt of consideration by the Company.")

13. AMENDMENT OF THE PLAN AND STOCK AWARDS.

(i) Increase the number of shares reserved for Stock Awards under
the Plan;

13.
<PAGE> 14

14. TERMINATION OR SUSPENSION OF THE PLAN.

(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on July 17, 2007, which shall be
within ten (10) years from the date the Plan is adopted by the Board or approved
by the stockholders of the Company, whichever is earlier. No Stock Awards may be
granted under the Plan while the Plan is suspended or after it is terminated.

15. EFFECTIVE DATE OF PLAN.

14.

<PAGE> 1
Exhibit 10.06

ELOQUENT, INC.

1999 EQUITY INCENTIVE PLAN

ADOPTED OCTOBER 21, 1999
APPROVED BY STOCKHOLDERS NOVEMBER 19, 1999
TERMINATION DATE: OCTOBER ___, 2009

1. PURPOSES.

(A) ELIGIBLE STOCK AWARD RECIPIENTS. The persons eligible to receive
Stock Awards are the Employees, Directors and Consultants of the Company and its
Affiliates.

(B) AVAILABLE STOCK AWARDS. The purpose of the Plan is to provide a
means by which eligible recipients of Stock Awards may be given an opportunity
to benefit from increases in value of the Common Stock through the granting of
the following Stock Awards: (i) Incentive Stock Options, (ii) Nonstatutory Stock
Options, (iii) stock bonuses and (iv) rights to acquire restricted stock. The
Plan also provides for non-discretionary grants of Nonstatutory Stock Options to
Non-Employee Directors of the Company.

(C) GENERAL PURPOSE. The Company, by means of the Plan, seeks to retain
the services of the group of persons eligible to receive Stock Awards, to secure
and retain the services of new members of this group and to provide incentives
for such persons to exert maximum efforts for the success of the Company and its
Affiliates.

2. DEFINITIONS.

(A) "AFFILIATE" means any parent corporation or subsidiary corporation
of the Company, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.

(B) "BOARD" means the Board of Directors of the Company.

(D) "COMMITTEE" means a committee of one or more members of the Board
appointed by the Board in accordance with subsection 3(c).

(E) "COMMON STOCK" means the common stock of the Company.

(F) "COMPANY" means Eloquent, Inc., a Delaware corporation.

(G) "CONSULTANT" means any person, including an advisor, (i) engaged by
the Company or an Affiliate to render consulting or advisory services and who is
compensated for such services or (ii) who is a member of the Board of Directors
of an Affiliate. However, the term "Consultant" shall not include either
Directors who are not compensated by the Company

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<PAGE> 2

for their services as Directors or Directors who are merely paid a director's
fee by the Company for their services as Directors.

(H) "CONTINUOUS SERVICE" means that the Participant's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. The Participant's Continuous Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Participant renders service to the Company or an Affiliate as an Employee,
Consultant or Director or a change in the entity for which the Participant
renders such service, provided that there is no interruption or termination of
the Participant's Continuous Service. For example, a change in status from an
Employee of the Company to a Consultant of an Affiliate or a Director will not
constitute an interruption of Continuous Service. The Board or the chief
executive officer of the Company, in that party's sole discretion, may determine
whether Continuous Service shall be considered interrupted in the case of any
leave of absence approved by that party, including sick leave, military leave or
any other personal leave.

(I) "COVERED EMPLOYEE" means the chief executive officer and the four
(4) other highest compensated officers of the Company for whom total
compensation is required to be reported to stockholders under the Exchange Act,
as determined for purposes of Section 162(m) of the Code.

(J) "DIRECTOR" means a member of the Board of Directors of the Company.

(K) "DISABILITY" means the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.

(L) "EMPLOYEE" means any person employed by the Company or an Affiliate.
Mere service as a Director or payment of a director's fee by the Company or an
Affiliate shall not be sufficient to constitute "employment" by the Company or
an Affiliate.

(M) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.

(N) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock determined as follows:

(I) If the Common Stock is listed on any established stock exchange
or traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair
Market Value of a share of Common Stock shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or market (or the exchange or market with the greatest volume of
trading in the Common Stock) on the day of determination, as reported in The
Wall Street Journal or such other source as the Board deems reliable.

(II) In the absence of such markets for the Common Stock, the Fair
Market Value shall be determined in good faith by the Board.

(O) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.

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<PAGE> 3

(P) "IPO DATE" means the effective date of the initial public offering
of the Company's Common Stock.

(Q) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or a subsidiary, does
not receive compensation (directly or indirectly) from the Company or its parent
or a subsidiary for services rendered as a consultant or in any capacity other
than as a Director (except for an amount as to which disclosure would not be
required under Item 404(a) of Regulation S-K promulgated pursuant to the
Securities Act ("Regulation S-K")), does not possess an interest in any other
transaction as to which disclosure would be required under Item 404(a) of
Regulation S-K and is not engaged in a business relationship as to which
disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is
otherwise considered a "non-employee director" for purposes of Rule 16b-3.

(R) "NON-EMPLOYEE DIRECTOR OPTION" means a Non-Statutory Stock Option
granted pursuant to Section 7 hereof.

(S) "NON-EMPLOYEE DIRECTOR OPTION AGREEMENT" means a written agreement
between the Company and a Non-Employee Director evidencing the terms and
conditions of a Non-Employee Director Option grant. Each Non-Employee Director
Option Agreement shall be subject to the terms and conditions of the Plan.

(T) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an Incentive Stock Option.

(U) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.

(V) "OPTION" means an Incentive Stock Option or a Nonstatutory Stock
Option granted pursuant to the Plan.

(W) "OPTION AGREEMENT" means a written agreement between the Company and
an Optionholder evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.

(X) "OPTIONHOLDER" means a person to whom an Option is granted pursuant
to the Plan or, if applicable, such other person who holds an outstanding
Option.

(Y) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
Treasury Regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.

(Z) "PARTICIPANT" means a person to whom a Stock Award is granted
pursuant to the Plan or, if applicable, such other person who holds an
outstanding Stock Award.

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<PAGE> 4

(AA) "PLAN" means this Eloquent, Inc. 1999 Equity Incentive Plan.

(BB) "RULE 16B-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3, as in effect from time to time.

(CC) "SECURITIES ACT" means the Securities Act of 1933, as amended.

(DD) "STOCK AWARD" means any right granted under the Plan, including an
Option, a stock bonus and a right to acquire restricted stock.

(EE) "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.

(FF) "TEN PERCENT STOCKHOLDER" means a person who owns (or is deemed to
own pursuant to Section 424(d) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or of any of its Affiliates.

3. ADMINISTRATION.

(A) ADMINISTRATION BY BOARD. The Board shall administer the Plan unless
and until the Board delegates administration to a Committee, as provided in
subsection 3(c). Any interpretation of the Plan by the Board and any decision by
the Board under the Plan shall be final and binding on all persons.

(B) POWERS OF BOARD. The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:

(I) To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how each Stock Award
shall be granted; what type or combination of types of Stock Award shall be
granted; the provisions of each Stock Award granted (which need not be
identical), including the time or times when a person shall be permitted to
receive Common Stock pursuant to a Stock Award; and the number of shares of
Common Stock with respect to which a Stock Award shall be granted to each such
person.

(II) To construe and interpret the Plan and Stock Awards granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.

(III) To amend the Plan or a Stock Award as provided in Section 13.

(IV) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.

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<PAGE> 5

(I) GENERAL. The Board may delegate administration of the Plan to a
Committee or Committees of one (1) or more members of the Board, and the term
"Committee" shall apply to any person or persons to whom such authority has been
delegated. If administration is delegated to a Committee, the Committee shall
have, in connection with the administration of the Plan, the powers theretofore
possessed by the Board, including the power to delegate to a subcommittee any of
the administrative powers the Committee is authorized to exercise (and
references in this Plan to the Board shall thereafter be to the Committee or
subcommittee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.

(II) COMMITTEE COMPOSITION WHEN COMMON STOCK IS PUBLICLY TRADED. At
such time as the Common Stock is publicly traded, in the discretion of the
Board, a Committee may consist solely of two or more Outside Directors, in
accordance with Section 162(m) of the Code, and/or solely of two or more
Non-Employee Directors, in accordance with Rule 16b-3. Within the scope of such
authority, the Board or the Committee may (1) delegate to a committee of one or
more members of the Board who are not Outside Directors, the authority to grant
Stock Awards to eligible persons who are either (a) not then Covered Employees
and are not expected to be Covered Employees at the time of recognition of
income resulting from such Stock Award or (b) not persons with respect to whom
the Company wishes to comply with Section 162(m) of the Code and/or (2) delegate
to a committee of one or more members of the Board who are not Non-Employee
Directors the authority to grant Stock Awards to eligible persons who are not
then subject to Section 16 of the Exchange Act.

4. SHARES SUBJECT TO THE PLAN.

(A) SHARE RESERVE. Subject to the provisions of Section 12 relating to
adjustments upon changes in Common Stock, the Common Stock that may be issued
pursuant to Stock Awards shall not exceed in the aggregate the initial reserve
amount set forth below (the "Initial Reserve Amount"), plus an annual increase
to be added each January 1, beginning January 1, 2001, equal to four percent
(4.0%) of the total number of shares of Common Stock outstanding on such January
1. Notwithstanding the foregoing, the Board may designate a smaller number of
shares of Common Stock to be added to the share reserve as of a particular
January 1. The Initial Reserve Amount shall be equal to that number of shares of
Common Stock that, as of the IPO Date, is reserved under the Company's 1995
Equity Incentive Plan and 1997 Equity Incentive Plan and has not been reserved
for outstanding stock awards under such plans or issued under such plans. For
purposes of complying with the requirements of Section 422 of the Code, the
maximum aggregate number of shares of Common Stock that may be issued pursuant
to Incentive Stock Options under this Plan shall be two hundred fifty thousand
(250,000) shares multiplied by the number of years of the term of this Plan, or
an aggregate of two million five hundred thousand (2,500,000) shares.
Notwithstanding the foregoing, the Company shall have no obligation to grant any
Incentive Stock Options under the Plan.

(B) REVERSION OF SHARES TO THE SHARE RESERVE. If any Stock Award shall
for any reason expire or otherwise terminate, in whole or in part, without
having been exercised in full, the shares of Common Stock not acquired under
such Stock Award shall revert to and again become available for issuance under
the Plan. In addition, if any stock award issued under the Company's 1995 Equity
Incentive Plan and 1997 Equity Incentive Plan shall for any reason expire or
otherwise terminate, in whole or in part, without having been exercised in full,
the shares of Common Stock not acquired under such stock award shall revert to
and again become available for issuance under this Plan.

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<PAGE> 6

(C) SOURCE OF SHARES. The shares of Common Stock subject to the Plan may
be unissued shares or reacquired shares, bought on the market or otherwise.

5. ELIGIBILITY.

(A) ELIGIBILITY FOR SPECIFIC STOCK AWARDS. Incentive Stock Options may
be granted only to Employees. Stock Awards other than Incentive Stock Options
may be granted to Employees, Directors and Consultants.

(B) TEN PERCENT STOCKHOLDERS. A Ten Percent Stockholder shall not be
granted an Incentive Stock Option unless the exercise price of such Option is at
least one hundred ten percent (110%) of the Fair Market Value of the Common
Stock at the date of grant and the Option is not exercisable after the
expiration of five (5) years from the date of grant.

(C) SECTION 162(m) LIMITATION. Subject to the provisions of Section 12
relating to adjustments upon changes in the shares of Common Stock, no Employee
shall be eligible to be granted Options covering more than two million five
hundred thousand (2,500,000) shares of the Common Stock during any calendar
year.

(D) CONSULTANTS. A Consultant shall not be eligible for the grant of a
Stock Award if, at the time of grant, a Form S-8 Registration Statement under
the Securities Act ("Form S-8") is not available to register either the offer or
the sale of the Company's securities to such Consultant because of the nature of
the services that the Consultant is providing to the Company, or because the
Consultant is not a natural person, or as otherwise provided by the rules
governing the use of Form S-8, unless the Company determines both (i) that such
grant (A) shall be registered in another manner under the Securities Act (e.g.,
on a Form S-3 Registration Statement) or (B) does not require registration under
the Securities Act in order to comply with the requirements of the Securities
Act, if applicable, and (ii) that such grant complies with the securities laws
of all other relevant jurisdictions.

6. OPTION PROVISIONS.

Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. All Options shall be separately
designated Incentive Stock Options or Nonstatutory Stock Options at the time of
grant, and, if certificates are issued, a separate certificate or certificates
will be issued for shares of Common Stock purchased on exercise of each type of
Option. The provisions of separate Options need not be identical, but each
Option shall include (through incorporation of provisions hereof by reference in
the Option or otherwise) the substance of each of the following provisions:

(A) TERM. Subject to the provisions of subsection 5(b) regarding Ten
Percent Stockholders, no Incentive Stock Option shall be exercisable after the
expiration of ten (10) years from the date it was granted.

(B) EXERCISE PRICE OF AN INCENTIVE STOCK OPTION. Subject to the
provisions of subsection 5(b) regarding Ten Percent Stockholders, the exercise
price of each Incentive Stock Option shall be not less than one hundred percent
(100%) of the Fair Market Value of the Common Stock subject to the Option on the
date the Option is granted. Notwithstanding the

6
<PAGE> 7

foregoing, an Incentive Stock Option may be granted with an exercise price lower
than that set forth in the preceding sentence if such Option is granted pursuant
to an assumption or substitution for another option in a manner satisfying the
provisions of Section 424(a) of the Code.

(C) EXERCISE PRICE OF A NONSTATUTORY STOCK OPTION. The exercise price of
each Nonstatutory Stock Option shall be not less than eighty-five percent (85%)
of the Fair Market Value of the Common Stock subject to the Option on the date
the Option is granted. Notwithstanding the foregoing, a Nonstatutory Stock
Option may be granted with an exercise price lower than that set forth in the
preceding sentence if such Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of Section
424(a) of the Code.

(D) CONSIDERATION. The purchase price of Common Stock acquired pursuant
to an Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised or (ii) at
the discretion of the Board at the time of the grant of the Option (or
subsequently in the case of a Nonstatutory Stock Option) (1) by delivery to the
Company of other Common Stock, (2) according to a deferred payment or other
similar arrangement with the Optionholder or (3) in any other form of legal
consideration that may be acceptable to the Board; provided, however, that at
any time that the Company is incorporated in Delaware, payment of the Common
Stock's "par value," as defined in the Delaware General Corporation Law, shall
not be made by deferred payment.

In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.

(E) TRANSFERABILITY OF AN INCENTIVE STOCK OPTION. An Incentive Stock
Option shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the Optionholder
only by the Optionholder. Notwithstanding the foregoing, the Optionholder may,
by delivering written notice to the Company, in a form satisfactory to the
Company, designate a third party who, in the event of the death of the
Optionholder, shall thereafter be entitled to exercise the Option.

(F) TRANSFERABILITY OF A NONSTATUTORY STOCK OPTION. A Nonstatutory Stock
Option shall be transferable to the extent provided in the Option Agreement. If
the Nonstatutory Stock Option does not provide for transferability, then the
Nonstatutory Stock Option shall not be transferable except by will or by the
laws of descent and distribution and shall be exercisable during the lifetime of
the Optionholder only by the Optionholder. Notwithstanding the foregoing, the
Optionholder may, by delivering written notice to the Company, in a form
satisfactory to the Company, designate a third party who, in the event of the
death of the Optionholder, shall thereafter be entitled to exercise the Option.

(G) VESTING GENERALLY. The total number of shares of Common Stock
subject to an Option may, but need not, vest and therefore become exercisable in
periodic installments that may, but need not, be equal. The Option may be
subject to such other terms and conditions on

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<PAGE> 8

the time or times when it may be exercised (which may be based on performance or
other criteria) as the Board may deem appropriate. The vesting provisions of
individual Options may vary. The provisions of this subsection 6(g) are subject
to any Option provisions governing the minimum number of shares of Common Stock
as to which an Option may be exercised.

(H) TERMINATION OF CONTINUOUS SERVICE. In the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's death or
Disability), the Optionholder may exercise his or her Option (to the extent that
the Optionholder was entitled to exercise such Option as of the date of
termination) but only within such period of time ending on the earlier of (i)
the date three (3) months following the termination of the Optionholder's
Continuous Service (or such longer or shorter period specified in the Option
Agreement), or (ii) the expiration of the term of the Option as set forth in the
Option Agreement. If, after termination, the Optionholder does not exercise his
or her Option within the time specified in the Option Agreement, the Option
shall terminate.

(I) EXTENSION OF TERMINATION DATE. An Optionholder's Option Agreement
may also provide that if the exercise of the Option following the termination of
the Optionholder's Continuous Service (other than upon the Optionholder's death
or Disability) would be prohibited at any time solely because the issuance of
shares of Common Stock would violate the registration requirements under the
Securities Act, then the Option shall terminate on the earlier of (i) the
expiration of the term of the Option set forth in subsection 6(a) or (ii) the
expiration of a period of three (3) months after the termination of the
Optionholder's Continuous Service during which the exercise of the Option would
not be in violation of such registration requirements.

(J) DISABILITY OF OPTIONHOLDER. In the event that an Optionholder's
Continuous Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise such Option as of the date of termination), but only
within such period of time ending on the earlier of (i) the date twelve (12)
months following such termination (or such longer or shorter period specified in
the Option Agreement) or (ii) the expiration of the term of the Option as set
forth in the Option Agreement. If, after termination, the Optionholder does not
exercise his or her Option within the time specified herein, the Option shall
terminate.

(K) DEATH OF OPTIONHOLDER. In the event (i) an Optionholder's Continuous
Service terminates as a result of the Optionholder's death or (ii) the
Optionholder dies within the period (if any) specified in the Option Agreement
after the termination of the Optionholder's Continuous Service for a reason
other than death, then the Option may be exercised (to the extent the
Optionholder was entitled to exercise such Option as of the date of death) by
the Optionholder's estate, by a person who acquired the right to exercise the
Option by bequest or inheritance or by a person designated to exercise the
option upon the Optionholder's death pursuant to subsection 6(e) or 6(f), but
only within the period ending on the earlier of (1) the date eighteen (18)
months following the date of death (or such longer or shorter period specified
in the Option Agreement) or (2) the expiration of the term of such Option as set
forth in the Option Agreement. If, after death, the Option is not exercised
within the time specified herein, the Option shall terminate.

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<PAGE> 9

(L) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionholder may elect at any time before the Optionholder's
Continuous Service terminates to exercise the Option as to any part or all of
the shares of Common Stock subject to the Option prior to the full vesting of
the Option. Any unvested shares of Common Stock so purchased may be subject to a
repurchase option in favor of the Company or to any other restriction the Board
determines to be appropriate.

(M) RE-LOAD OPTIONS. Without in any way limiting the authority of the
Board to make or not to make grants of Options hereunder, the Board shall have
the authority (but not an obligation) to include as part of any Option Agreement
a provision entitling the Optionholder to a further Option (a "Re-Load Option")
in the event the Optionholder exercises the Option evidenced by the Option
Agreement, in whole or in part, by surrendering other shares of Common Stock in
accordance with this Plan and the terms and conditions of the Option Agreement.
Any such Re-Load Option shall (i) provide for a number of shares of Common Stock
equal to the number of shares of Common Stock surrendered as part or all of the
exercise price of such Option; (ii) have an expiration date which is the same as
the expiration date of the Option the exercise of which gave rise to such
Re-Load Option; and (iii) have an exercise price which is equal to one hundred
percent (100%) of the Fair Market Value of the Common Stock subject to the
Re-Load Option on the date of exercise of the original Option. Notwithstanding
the foregoing, a Re-Load Option shall be subject to the same exercise price and
term provisions heretofore described for Options under the Plan.

Any such Re-Load Option may be an Incentive Stock Option or a
Nonstatutory Stock Option, as the Board may designate at the time of the grant
of the original Option; provided, however, that the designation of any Re-Load
Option as an Incentive Stock Option shall be subject to the one hundred thousand
dollar ($100,000) annual limitation on the exercisability of Incentive Stock
Options described in subsection 11(d) and in Section 422(d) of the Code. There
shall be no Re-Load Options on a Re-Load Option. Any such Re-Load Option shall
be subject to the availability of sufficient shares of Common Stock under
subsection 4(a) and the "Section 162(m) Limitation" on the grants of Options
under subsection 5(c) and shall be subject to such other terms and conditions as
the Board may determine which are not inconsistent with the express provisions
of the Plan regarding the terms of Options.

7. NON-EMPLOYEE DIRECTOR STOCK OPTIONS.

Without any further action of the Board, each Non-Employee Director
shall be granted Nonstatutory Stock Options as described in subsections 7(a) and
7(b) (collectively, "Non-Employee Director Options"). Each Non-Employee Director
Option shall include the substance of the terms set forth in subsections 7(c)
through 7(k).

(A) INITIAL GRANTS. After the IPO Date, each person who is elected or
appointed for the first time to be a Non-Employee Director automatically shall,
upon the date of his or her initial election or appointment to be a Non-Employee
Director by the Board or stockholders of the Company, be granted an Initial
Grant to purchase twenty-five thousand (25,000) shares of Common Stock on the
terms and conditions set forth herein. For purposes of the foregoing sentence,
on the IPO Date, each person then serving as a Non-Employee Director and who has
not previously been granted options to acquire Common Stock shall be deemed to
have been initially elected as a Non-Employee Director on such date.

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<PAGE> 10

(B) ANNUAL GRANTS. After the IPO Date, each person who is a Non-Employee
Director on the Board on the day after the annual stockholders' meeting, shall,
on that date, be granted an Annual Grant to purchase five thousand (5,000)
shares of Common Stock on the terms and conditions set forth herein.
Notwithstanding the foregoing, the number of shares of Common Stock subject to
an Annual Grant to a Non-Employee Director that has not served in that capacity
for the entire period since the preceding annual stockholders' meeting shall be
reduced, pro rata, for each full quarter the person did not serve during such
period.

(D) EXERCISE PRICE. The exercise price of each Non-Employee Director
Option shall be one hundred percent (100%) of the Fair Market Value of the stock
subject to the Non-Employee Director Option on the date of grant.
Notwithstanding the foregoing, a Non-Employee Director Option may be granted
with an exercise price lower than that set forth in the preceding sentence if
such Non-Employee Director Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of Section
424(a) of the Code.

(E) VESTING. Each Initial Grant shall vest one-third (1/3) per year from
the date on which it is granted. Each Annual Grant shall vest one year from the
date on which it is granted.

(F) CONSIDERATION. The purchase price of stock acquired pursuant to a
Non-Employee Director Option may be paid, to the extent permitted by applicable
statutes and regulations, in any combination of (i) cash or check, (ii) delivery
to the Company of other Common Stock, (ii) deferred payment or (iv) any other
form of legal consideration that may be acceptable to the Board and provided in
the Non-Employee Director Option Agreement; provided, however, that at any time
that the Company is incorporated in Delaware, payment of the Common Stock's "par
value," as defined in the Delaware General Corporation Law, shall not be made by
deferred payment. In the case of any deferred payment arrangement, interest
shall be compounded at least annually and shall be charged at the minimum rate
of interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.

(G) TRANSFERABILITY. A Non-Employee Director Option shall not be
transferable except by will or by the laws of descent and distribution and shall
be exercisable during the lifetime of the Non-Employee Director only by the
Non-Employee Director. Notwithstanding the foregoing, the Non-Employee Director
may, by delivering written notice to the Company, in a form satisfactory to the
Company, designate a third party who, in the event of the death of the
Non-Employee Director, shall thereafter be entitled to exercise the Non-Employee
Director Option.

(H) TERMINATION OF CONTINUOUS SERVICE. In the event a Non-Employee
Director's Continuous Service terminates (other than upon the Non-Employee
Director's death or Disability), the Non-Employee Director may exercise his or
her Non-Employee Director Option (to the extent that the Non-Employee Director
was entitled to exercise it as of the date of termination) but only within such
period of time ending on the earlier of (i) the date three (3) months following
the termination of the Non-Employee Director's Continuous Service, or (ii) the
expiration of the term of the Non-Employee Director Option as set forth in the
Non-Employee Director Option Agreement. If, after termination, the Non-Employee
Director does not exercise his or her Non-Employee Director Option within the
time specified in the Non-Employee Director Option Agreement, the Non-Employee
Director Option shall terminate.

(I) EXTENSION OF TERMINATION DATE. If the exercise of the Non-Employee
Director Option following the termination of the Non-Employee Director's
Continuous Service (other

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<PAGE> 11

than upon the Non-Employee Director's death or Disability) would be prohibited
at any time solely because the issuance of shares would violate the registration
requirements under the Securities Act, then the Non-Employee Director Option
shall terminate on the earlier of (i) the expiration of the term of the
Non-Employee Director Option set forth in subsection 7(c) or (ii) the expiration
of a period of three (3) months after the termination of the Non-Employee
Director's Continuous Service during which the exercise of the Non-Employee
Director Option would not violate such registration requirements.

(J) DISABILITY OF NON-EMPLOYEE DIRECTOR. In the event a Non-Employee
Director's Continuous Service terminates as a result of the Non-Employee
Director's Disability, the Non-Employee Director may exercise his or her
Non-Employee Director Option (to the extent that the Non-Employee Director was
entitled to exercise it as of the date of termination), but only within such
period of time ending on the earlier of (i) the date twelve (12) months
following such termination or (ii) the expiration of the term of the
Non-Employee Director Option as set forth in the Non-Employee Director Option
Agreement. If, after termination, the Non-Employee Director does not exercise
his or her Non-Employee Director Option within the time specified herein, the
Non-Employee Director Option shall terminate.

(K) DEATH OF NON-EMPLOYEE DIRECTOR. In the event (i) a Non-Employee
Director's Continuous Service terminates as a result of the Non-Employee
Director's death or (ii) the Non-Employee Director dies within the three-month
period after the termination of the Non-Employee Director's Continuous Service
for a reason other than death, then the Non-Employee Director Option may be
exercised (to the extent the Non-Employee Director was entitled to exercise the
Non-Employee Director Option as of the date of death) by the Non-Employee
Director's estate, by a person who acquired the right to exercise the
Non-Employee Director Option by bequest or inheritance or by a person designated
to exercise the Non-Employee Director Option upon the Non-Employee Director's
death, but only within the period ending on the earlier of (1) the date eighteen
(18) months following the date of death or (2) the expiration of the term of
such Non-Employee Director Option as set forth in the Non-Employee Director
Option Agreement. If, after death, the Non-Employee Director Option is not
exercised within the time specified herein, the Non-Employee Director Option
shall terminate.

8. PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS.

(A) STOCK BONUS AWARDS. Each stock bonus agreement shall be in such form
and shall contain such terms and conditions as the Board shall deem appropriate.
The terms and conditions of stock bonus agreements may change from time to time,
and the terms and conditions of separate stock bonus agreements need not be
identical, but each stock bonus agreement shall include (through incorporation
of provisions hereof by reference in the agreement or otherwise) the substance
of each of the following provisions:

(I) CONSIDERATION. A stock bonus may be awarded in consideration for
past services actually rendered to the Company or an Affiliate for its benefit.

(II) VESTING. Shares of Common Stock awarded under the stock bonus
agreement may, but need not, be subject to a share repurchase option in favor of
the Company in accordance with a vesting schedule to be determined by the Board.

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<PAGE> 12

(III) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. In the event
a Participant's Continuous Service terminates, the Company may reacquire any or
all of the shares of Common Stock held by the Participant which have not vested
as of the date of termination under the terms of the stock bonus agreement.

(IV) TRANSFERABILITY. Rights to acquire shares under the stock bonus
agreement shall be transferable by the Participant only upon such terms and
conditions as are set forth in the stock bonus agreement, as the Board shall
determine in its discretion, so long as Common Stock awarded under the stock
bonus agreement remains subject to the terms of the stock bonus agreement.

(B) RESTRICTED STOCK AWARDS. Each restricted stock purchase agreement
shall be in such form and shall contain such terms and conditions as the Board
shall deem appropriate. The terms and conditions of the restricted stock
purchase agreements may change from time to time, and the terms and conditions
of separate restricted stock purchase agreements need not be identical, but each
restricted stock purchase agreement shall include (through incorporation of
provisions hereof by reference in the agreement or otherwise) the substance of
each of the following provisions:

(I) PURCHASE PRICE. The purchase price under each restricted stock
purchase agreement shall be such amount as the Board shall determine and
designate in such restricted stock purchase agreement. The purchase price shall
not be less than eighty-five percent (85%) of the Common Stock's Fair Market
Value on the date such award is made or at the time the purchase is consummated.

(II) CONSIDERATION. The purchase price of Common Stock acquired
pursuant to the restricted stock purchase agreement shall be paid either: (i) in
cash at the time of purchase; (ii) at the discretion of the Board, according to
a deferred payment or other similar arrangement with the Participant; or (iii)
in any other form of legal consideration that may be acceptable to the Board in
its discretion; provided, however, that at any time that the Company is
incorporated in Delaware, then payment of the Common Stock's "par value," as
defined in the Delaware General Corporation Law, shall not be made by deferred
payment.

(III) VESTING. Shares of Common Stock acquired under the restricted
stock purchase agreement may, but need not, be subject to a share repurchase
option in favor of the Company in accordance with a vesting schedule to be
determined by the Board.

(IV) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. In the event a
Participant's Continuous Service terminates, the Company may repurchase or
otherwise reacquire any or all of the shares of Common Stock held by the
Participant which have not vested as of the date of termination under the terms
of the restricted stock purchase agreement.

(V) TRANSFERABILITY. Rights to acquire shares under the restricted
stock purchase agreement shall be transferable by the Participant only upon such
terms and conditions as are set forth in the restricted stock purchase
agreement, as the Board shall determine in its discretion, so long as Common
Stock awarded under the restricted stock purchase agreement remains subject to
the terms of the restricted stock purchase agreement.

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9. COVENANTS OF THE COMPANY.

(A) AVAILABILITY OF SHARES. During the terms of the Stock Awards, the
Company shall keep available at all times the number of shares of Common Stock
required to satisfy such Stock Awards.

(B) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from
each regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to grant Stock Awards and to issue and sell shares
of Common Stock upon exercise of the Stock Awards; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
the Plan, any Stock Award or any Common Stock issued or issuable pursuant to any
such Stock Award. If, after reasonable efforts, the Company is unable to obtain
from any such regulatory commission or agency the authority which counsel for
the Company deems necessary for the lawful issuance and sale of Common Stock
under the Plan, the Company shall be relieved from any liability for failure to
issue and sell Common Stock upon exercise of such Stock Awards unless and until
such authority is obtained.

10. USE OF PROCEEDS FROM STOCK.

Proceeds from the sale of Common Stock pursuant to Stock Awards shall
constitute general funds of the Company.

11. MISCELLANEOUS.

(A) ACCELERATION OF EXERCISABILITY AND VESTING. The Board shall have the
power to accelerate the time at which a Stock Award may first be exercised or
the time during which a Stock Award or any part thereof will vest in accordance
with the Plan, notwithstanding the provisions in the Stock Award stating the
time at which it may first be exercised or the time during which it will vest.

(B) STOCKHOLDER RIGHTS. No Participant shall be deemed to be the holder
of, or to have any of the rights of a holder with respect to, any shares of
Common Stock subject to such Stock Award unless and until such Participant has
satisfied all requirements for exercise of the Stock Award pursuant to its
terms.

(C) NO EMPLOYMENT OR OTHER SERVICE RIGHTS. Nothing in the Plan or any
instrument executed or Stock Award granted pursuant thereto shall confer upon
any Participant any right to continue to serve the Company or an Affiliate in
the capacity in effect at the time the Stock Award was granted or shall affect
the right of the Company or an Affiliate to terminate (i) the employment of an
Employee with or without notice and with or without cause, (ii) the service of a
Consultant pursuant to the terms of such Consultant's agreement with the Company
or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the
Company or an Affiliate, and any applicable provisions of the corporate law of
the state in which the Company or the Affiliate is incorporated, as the case may
be.

(D) INCENTIVE STOCK OPTION $100,000 LIMITATION. To the extent that the
aggregate Fair Market Value (determined at the time of grant) of Common Stock
with respect to which Incentive Stock Options are exercisable for the first time
by Participant during any calendar year

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<PAGE> 14

(under all plans of the Company and its Affiliates) exceeds one hundred thousand
dollars ($100,000), the Options or portions thereof which exceed such limit
(according to the order in which they were granted) shall be treated as
Nonstatutory Stock Options.

(E) INVESTMENT ASSURANCES. The Company may require a Participant, as a
condition of exercising or acquiring Common Stock under any Stock Award, (i) to
give written assurances satisfactory to the Company as to the Participant's
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Stock Award; and (ii) to
give written assurances satisfactory to the Company stating that the Participant
is acquiring Common Stock subject to the Stock Award for the Participant's own
account and not with any present intention of selling or otherwise distributing
the Common Stock. The foregoing requirements, and any assurances given pursuant
to such requirements, shall be inoperative if (iii) the issuance of the shares
of Common Stock upon the exercise or acquisition of Common Stock under the Stock
Award has been registered under a then currently effective registration
statement under the Securities Act or (iv) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws. The
Company may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including, but
not limited to, legends restricting the transfer of the Common Stock.

(F) WITHHOLDING OBLIGATIONS. To the extent provided by the terms of a
Stock Award Agreement, the Participant may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of Common
Stock under a Stock Award by any of the following means (in addition to the
Company's right to withhold from any compensation paid to the Participant by the
Company) or by a combination of such means: (i) tendering a cash payment; (ii)
authorizing the Company to withhold shares of Common Stock from the shares of
Common Stock otherwise issuable to the Participant as a result of the exercise
or acquisition of Common Stock under the Stock Award; or (iii) delivering to the
Company owned and unencumbered shares of the Common Stock. Notwithstanding the
foregoing, the Company shall not be authorized to withhold shares of Common
Stock at rates in excess of the minimum statutory withholding rates for federal
and state tax purposes, including payroll taxes.

12. ADJUSTMENTS UPON CHANGES IN STOCK.

(A) CAPITALIZATION ADJUSTMENTS. If any change is made in the Common
Stock subject to the Plan, or subject to any Stock Award, without the receipt of
consideration by the Company (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan will be appropriately
adjusted in the class(es) and maximum number of securities subject to the Plan
pursuant to subsection 4(a) and the maximum number of securities subject to
award to any person pursuant to subsection 5(c), and the outstanding Stock
Awards will be appropriately adjusted in the class(es) and number of

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<PAGE> 15

securities and price per share of Common Stock subject to such outstanding Stock
Awards. The Board shall make such adjustments, and its determination shall be
final, binding and conclusive. (The conversion of any convertible securities of
the Company shall not be treated as a transaction "without receipt of
consideration" by the Company.)

(B) CHANGE IN CONTROL. In the event of (i) a dissolution, liquidation or
sale of substantially all of the assets of the Company, (ii) a merger or
consolidation in which the Company is not the surviving corporation or (iii) a
reverse merger in which the Company is the surviving corporation but the shares
of Common Stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise, then, to the extent permitted by applicable law: (i) any
surviving corporation shall assume any Stock Awards outstanding under the Plan
or shall substitute similar stock awards (including an award to acquire the same
consideration paid to the stockholders in the transaction described in this
subsection 12(b)) for those outstanding under the Plan, or (ii) such Stock
Awards shall continue in full force and effect. In the event any surviving
corporation refuses to assume or continue such Stock Awards, or to substitute
similar stock awards for those outstanding under the Plan, then with respect to
Stock Awards held by Participants whose Continuous Service has not terminated,
the time during which such Stock Awards may be exercised shall be accelerated,
and the Stock Awards terminated if not exercised prior to such event.

13. AMENDMENT OF THE PLAN AND STOCK AWARDS.

(A) AMENDMENT OF PLAN. The Board at any time, and from time to time, may
amend the Plan. However, except as provided in Section 12 relating to
adjustments upon changes in Common Stock, no amendment shall be effective unless
approved by the stockholders of the Company to the extent stockholder approval
is necessary to satisfy the requirements of Section 422 of the Code, Rule 16b-3
or any Nasdaq or securities exchange listing requirements.

(B) STOCKHOLDER APPROVAL. The Board may, in its sole discretion, submit
any other amendment to the Plan for stockholder approval, including, but not
limited to, amendments to the Plan intended to satisfy the requirements of
Section 162(m) of the Code and the regulations thereunder regarding the
exclusion of performance-based compensation from the limit on corporate
deductibility of compensation paid to certain executive officers.

(C) CONTEMPLATED AMENDMENTS. It is expressly contemplated that the Board
may amend the Plan in any respect the Board deems necessary or advisable to
provide eligible Employees with the maximum benefits provided or to be provided
under the provisions of the Code and the regulations promulgated thereunder
relating to Incentive Stock Options and/or to bring the Plan and/or Incentive
Stock Options granted under it into compliance therewith.

(D) NO IMPAIRMENT OF RIGHTS. Rights under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the Participant and (ii) the Participant
consents in writing.

(E) AMENDMENT OF STOCK AWARDS. The Board at any time, and from time to
time, may amend the terms of any one or more Stock Awards; provided, however,
that the rights under

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<PAGE> 16

any Stock Award shall not be impaired by any such amendment unless (i) the
Company requests the consent of the Participant and (ii) the Participant
consents in writing.

14. TERMINATION OR SUSPENSION OF THE PLAN.

(A) PLAN TERM. The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on the day before the tenth
(10th) anniversary of the date the Plan is adopted by the Board or approved by
the stockholders of the Company, whichever is earlier. No Stock Awards may be
granted under the Plan while the Plan is suspended or after it is terminated.

(B) NO IMPAIRMENT OF RIGHTS. Suspension or termination of the Plan shall
not impair rights and obligations under any Stock Award granted while the Plan
is in effect, except with the written consent of the Participant.

15. EFFECTIVE DATE OF PLAN.

The Plan shall become effective on the date on which it is adopted by
the Board, but no Stock Award shall be exercised (or, in the case of a stock
bonus, shall be granted) unless and until the Plan has been approved by the
stockholders of the Company, which approval shall be within twelve (12) months
before or after the date the Plan is adopted by the Board.

16. CHOICE OF LAW.

The law of the State of Delaware shall govern all questions concerning
the construction, validity and interpretation of this Plan, without regard to
such state's conflict of laws rules.

<PAGE> 1
EXHIBIT 23.02

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in this Amendment No. 1 to the Registration
Statement on Form S-1 of our reports dated August 30, 1999, except as to
subsequent events described in Note 11 which is as of October 21, 1999, relating
to the financial statements and financial statement schedules of Eloquent, Inc.,
which appear in such Registration Statement. We also consent to the reference to
us under the headings "Selected Financial Data" and "Experts" in such
Registration Statement.

PricewaterhouseCoopers LLP

San Jose, California
December 1, 1999