<PAGE>
As filed with the Securities and Exchange Commission on August 31, 1999
Registration No. 333-83439
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------
AMENDMENT No.1
TO
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
---------------
eGAIN COMMUNICATIONS CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
Delaware 7372 77-0466366
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE> ---------------
455 W. Maude Avenue
Sunnyvale, California 94086
(408) 737-7400
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
---------------
Ashutosh Roy
Chief Executive Officer
eGAIN COMMUNICATIONS CORPORATION
455 W. Maude Avenue
Sunnyvale, California 94086
(408) 737-7400
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
---------------
Copies To:
<TABLE>
<S> <C>
Stanley F. Pierson, Esq. Kenneth L. Guernsey
Davina K. Kaile, Esq. Karyn R. Smith
Jeffrey S. Harrell, Esq. Steve R. Daetz
Pillsbury Madison & Sutro LLP Cooley Godward LLP
2550 Hanover Street One Maritime Plaza, 20th Floor
Palo Alto, CA 94304 San Francisco, CA 94111
</TABLE>
---------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the Registration Statement becomes effective.
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 (the "Securities Act"), check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment 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 Commission, acting pursuant to said
Section 8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell securities, and we are not soliciting offers to buy these +
+securities, in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED AUGUST 31, 1999
5,000,000 Shares
Common Stock
eGain Communications Corporation is offering 5,000,000 shares of its common
stock. This is eGain's initial public offering, and no public market currently
exists for its shares. We have applied for approval for quotation on the Nasdaq
National Market under the symbol "EGAN" for the shares we are offering. We
anticipate that the initial public offering price will be between $9.00 and
$11.00 per share.
---------------
Investing in the common stock involves risks.
See "Risk Factors" beginning on page 6.
---------------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public Offering Price.................................... $ $
Underwriting Discounts and Commissions................... $ $
Proceeds to eGain........................................ $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities, or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
eGain has granted the underwriters a 30-day option to purchase up to an
additional 750,000 shares of common stock to cover over-allotments. BancBoston
Robertson Stephens Inc. expects to deliver the shares of common stock to
purchasers on , 1999.
---------------
BancBoston Robertson Stephens
Donaldson, Lufkin & Jenrette
Volpe Brown Whelan & Company
The date of this prospectus is , 1999.
<PAGE>
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.
----------------
TABLE OF CONTENTS
<TABLE>
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Page
----
<S> <C>
Summary.................................................................. 3
Risk Factors............................................................. 6
Forward Looking Statements............................................... 19
Use of Proceeds.......................................................... 19
Dividend Policy.......................................................... 19
Capitalization........................................................... 20
Dilution................................................................. 21
Selected Consolidated Financial Data..................................... 22
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 23
Business................................................................. 32
Management............................................................... 48
Certain Transactions..................................................... 56
Principal Stockholders................................................... 57
Description of Capital Stock............................................. 59
Shares Eligible for Future Sale.......................................... 63
Underwriting............................................................. 65
Legal Matters............................................................ 68
Experts.................................................................. 68
Where You Can Find More Information...................................... 68
Index to Financial Statements............................................ F-1
</TABLE>
----------------
Until , 1999, all dealers that buy, sell or trade our common
stock, whether or not participating in this offering, may be required to
deliver a prospectus. This requirement is in addition to the dealers'
obligation to deliver a prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.
<PAGE>
[Gatefold]
[Text appears against left margin]
eGain is a leading provider of customer service infrastructure for eCommerce
eGain's Internet-based software products and related services help companies
deliver customer service via email and real-time Web collaboration.
.multi-application platform for Web-based customer service
. highly flexible and scalable Web Component Architecture
. leading provider of hosted customer service solutions
eGain eMail Management Systems (EMS) is a Web-based application that enables
customer service departments to route, track and respond to high volumes of
customer email and Web form inquires.
eGain Web Collaboration System (WCS) enables customer service representatives
to answer customer questions and provide interactive assistance over the Web
using browser sharing, text chat and assisted form-filling technology.
[Graphic depicting the alternative modes of deploying eGain's customer service
solutions]
Installed Software Solution
[Boxes with "eGain EMS" and "eGain WCS"]
Companies can deploy eGain applications by purchasing a license and installing
the applications in-house
[Box with "In-House Customer Service Department or Outsourced Call Center
Provider"]
[Graphic depicting online shopper interacting with an eCommerce Website through
the Internet]
[Graphic depicting the eGain Hosted Network]
Companies can also deploy our applications through the eGain Hosted Network--a
network of eGain-managed operations centers and redundant hosting partners
linked by high-speed Internet connections.
[within eGain Hosted Network graphic are graphics depicting two hosting
partners connected to the Internet and eGain Network Operations Center]
Remote Application Management
Solution Development
System Implementation
customer service infrastructure for eCommerce eGain
<PAGE>
SUMMARY
eGain Communications
We are a leading provider of customer service infrastructure for companies
engaged in electronic commerce. Our software products and related services are
designed to help businesses provide more effective Internet-based customer
service, thereby improving customer satisfaction and converting a higher
percentage of Web site visitors to buyers. We were the first company to offer a
platform for online customer service which companies can access remotely
through the eGain Hosted Network. The eGain Hosted Network allows companies to
access our platform through the Internet while we maintain the software
applications and hardware. Our solution is also available as installed software
for in-house implementation. Approximately 50% of our current customers access
our applications through the eGain Hosted Network. Our customers include both
dedicated Internet companies, such as Go2Net, Snap.com and WebTV, and
traditional companies engaged in eCommerce, such as Mazda USA and FCC
National's Wingspan Bank.
Businesses use our applications to effectively manage high volumes of
customer email as well as live Web-based interaction. Our email management
system helps businesses route, track, analyze and respond to customer emails.
Our Web collaboration system helps businesses provide live online assistance to
visitors on their Web site. Our solutions are built on a scalable, Web-based
architecture designed to meet the growth in Internet-based communications. Our
products are built on technologies that are based on industry standards and are
therefore designed to integrate easily with existing customer databases and
applications.
Superior customer service is critical to businesses competing in the
eCommerce marketplace. Today, most online customer communication takes place
through email. However, according to a recent Jupiter Communications study of
125 top eCommerce sites, 42% of the sites either refused to accept an email,
never responded to an email, or took longer than five days to respond.
Companies that fail to address their online customer service needs risk losing
customers to eager competitors located a mouse click away. Traditional
approaches to online customer service, such as trying to extend front office
software packages that were designed for telephone-based interactions or
developing homegrown solutions, have proved to be inadequate for many
businesses. As a result, businesses are seeking dedicated, scalable
applications to help them deliver superior Internet-based customer service.
International Data Corporation estimates that worldwide license revenues for
eCommerce customer service and support applications will grow from $42 million
in 1998 to $1.6 billion in 2002.
We provide a flexible and scalable Web-based customer service platform for
companies engaged in eCommerce. Our applications for email management and Web
collaboration are designed to provide the following strategic and operating
benefits:
. Strengthen customer relationships. Our applications allow companies to
strengthen customer relationships by providing rapid, personalized and
effective customer service.
. Convert Web site visitors to buyers. Our Web collaboration product
enables live assistance for visitors on a Web site, thereby increasing
the likelihood of converting them into customers.
. Scale to meet growing eCommerce demands. Our architecture allows
companies to scale their customer service infrastructure to meet the
growing volume and complexity of electronic customer communications.
3
<PAGE>
. Rapidly deployable solution. Businesses can quickly deploy customer
service capabilities as an application service through our eGain Hosted
Network. Also, our applications can be rapidly customized through Web-
based interfaces.
. Gain customer insight. Our solution enables companies to capture and
analyze customer communications in order to understand the needs and
preferences of their customers.
. Maximize productivity of customer service organizations. Our email
management and workflow tools make customer service representatives and
managers more efficient.
. Reduce costs and administrative burden. Customers using the eGain Hosted
Network recognize cost efficiencies by eliminating the need to manage and
administer in-house customer service applications.
. Integrate applications to provide comprehensive customer information. Our
applications integrate with existing eCommerce platforms, call center
systems and customer databases, providing customer service
representatives with comprehensive customer information.
Our objective is to be the leading provider of customer service
infrastructure for businesses engaged in eCommerce. To achieve this objective,
we intend to:
. Capitalize on our first mover advantage and extend our brand recognition.
We intend to capitalize on the momentum we have built as the first
company to offer a multi-application platform for Web-based customer
service in a hosted environment and on our early investment in building
our brand.
. Expand the eGain Hosted Network. We intend to expand the eGain Hosted
Network, which we believe offers cost, administrative and performance
benefits, by establishing additional hosting centers that leverage our
partners' physical hosting infrastructure.
. Introduce value-added products. We intend to continue to add products
that complement and enhance our existing online customer service platform
to address the evolving needs of eCommerce businesses.
. Expand strategic relationships. We intend to enter into strategic
relationships that benefit our marketing and distribution efforts to
rapidly capture market share.
. Expand international presence. We intend to continue to expand our
presence internationally into additional markets, including Europe and
Asia.
4
<PAGE>
The Offering
<TABLE>
<C> <S>
Common stock offered by eGain...................... 5,000,000 shares
Common stock to be outstanding after the offering.. 27,815,562 shares
Use of proceeds.................................... For working capital and other general
corporate purposes
Proposed Nasdaq National Market symbol............. EGAN
</TABLE>
The number of shares of common stock to be outstanding after this offering
includes 269,994 shares issuable upon exercise of warrants that will expire
upon completion of this offering and assumes no exercise of the underwriters'
over-allotment option. The number of shares of common stock to be outstanding
after this offering excludes 2,829,431 shares that could be issued upon
exercise of options and warrants outstanding as of August 20, 1999 and
3,318,923 additional shares available for future issuance under our stock
plans.
Summary Consolidated Financial Data
(in thousands, except per share data)
Please see Note 1 of the notes to the consolidated financial statements for
an explanation of the determination of the number of shares used in computing
per share data. The pro forma as adjusted consolidated balance sheet data
summarized below reflects the net proceeds from the sale of shares of common
stock offered by eGain at an assumed initial public offering price of $10.00
per share, after deducting the underwriting discounts and commissions and our
estimated offering expenses.
<TABLE>
<CAPTION>
Period from
September 10, 1997 Year Ended
(Inception) June 30,
to June 30, 1998 1999
------------------ ----------
<S> <C> <C>
Consolidated Statement of Operations Data:
Revenue........................................... $ 2 $ 1,019
Costs and expenses................................ 884 12,319
Loss from operations.............................. (882) (11,300)
----- --------
Net loss.......................................... (938) (11,305)
===== ========
Pro forma net loss per share (unaudited):
Net loss per share--basic and diluted........... $ (0.93)
========
Weighted average shares--basic and diluted...... 12,153
========
</TABLE>
<TABLE>
<CAPTION>
June 30, 1999
--------------------
Pro Forma
Actual as Adjusted
------- -----------
<S> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents ................................. $ 1,265 $52,197
Working capital (deficit).................................. (755) 50,176
Total assets............................................... 23,965 74,702
Notes payable, less current portion........................ 221 221
Stockholders' equity....................................... 20,483 74,415
</TABLE>
Our headquarters are located at 455 W. Maude Avenue, Sunnyvale, California
94086 and our telephone number is (408) 737-7400. Our Web site address is
www.egain.com. The information on our Web site is not a part of this
prospectus.
5
<PAGE>
RISK FACTORS
This offering involves a high degree of risk. You should carefully consider
the risks described below and the other information in this prospectus before
deciding to invest in shares of our common stock. Our business, operating
results and financial condition could be harmed by any of the following risks.
The trading price of our common stock could decline due to any of these risks,
and you could lose all or part of your investment. You should also refer to the
other information in this prospectus, including our financial statements and
the related notes.
Company Risks
We expect continuing losses and may never achieve profitability, which in
turn may harm our future operating performance and may cause the market price
of our stock to decline
We incurred net losses of approximately $938,000 for the period from
September 10, 1997 (inception) through June 30, 1998 and approximately $11.3
million for the year ended June 30, 1999. As of June 30, 1999, we had an
accumulated deficit of approximately $12.2 million. We expect to continue to
incur net losses for the foreseeable future. If we continue to incur net
losses, we may not be able to increase our number of employees or our
investment in capital equipment, sales, marketing, customer support and
research and development programs in accordance with our present plans. We do
not know when or if we will become profitable. If we do not become profitable
within the timeframe expected by securities analysts or investors, the market
price of our stock will likely decline. If we do achieve profitability, we may
not sustain or increase profitability in the future.
Our operating expenses may increase as we build our business and this
increase may harm our operating results and financial condition
We have spent heavily on technology and infrastructure development. We expect
to continue to spend substantial financial and other resources on developing
and introducing product and service offerings, and expanding our sales,
marketing and customer support organizations and operating infrastructure. We
expect that our operating expenses will continue to increase in absolute
dollars and may increase as a percentage of revenue. If our revenue does not
correspondingly increase, our business and operating results could suffer.
We may not meet quarterly financial expectations, which could cause our stock
price to decline
We were incorporated in September 1997 and shipped our first product in
September 1998. Because of this limited operating history and other factors,
our quarterly revenue and operating results are difficult to predict. In
addition, due to the emerging nature of the eCommerce customer service market
and other factors, our quarterly revenue and operating results may fluctuate
from quarter to quarter. It is likely that our operating results in some
quarters will be below the expectations of securities analysts or investors. In
this event, the market price of our common stock is likely to decline.
A number of factors are likely to cause fluctuations in our operating results,
including, but not limited to, the following:
. the growth rate of eCommerce;
. demand for eCommerce customer service applications;
. our ability to attract and retain customers and maintain customer
satisfaction;
. our ability to upgrade, develop and maintain our systems and
infrastructure;
6
<PAGE>
. the amount and timing of operating costs and capital expenditures
relating to expansion of our business and infrastructure;
. technical difficulties or system outages;
. our ability to attract and retain qualified personnel with Internet
industry expertise, particularly sales and marketing personnel;
. the announcement or introduction of new or enhanced products and services
by our competitors;
. changes in our pricing policies and those of our competitors;
. failure to increase our international sales; and
. governmental regulation surrounding the Internet and eCommerce in
particular.
We base our expense levels in part on our expectations regarding future
revenue levels. If our revenue for a particular quarter is lower than we
expect, we may be unable to proportionately reduce our operating expenses for
that quarter. For example, our hosting agreements are typically for a period of
one year and automatically renew unless terminated by either party with 60
days' prior notice. In addition, some of our hosting agreements give the
customer the right to terminate the contract at any time. Period-to-period
comparisons of our operating results are not a good indication of our future
performance.
Our business is premised on a novel business model that is largely untested
Our business is premised on novel business assumptions that are largely
untested. Customer service historically has been provided primarily in person
or over the telephone. Our business model assumes that companies engaged in
eCommerce will continue to elect to provide customer service through the
Internet rather than by telephone. Our business model also assumes that many
companies recognize the benefits of a hosted delivery model and will seek to
have their customer service applications hosted by eGain. If any of these
assumptions is incorrect, our business will be seriously harmed.
Our success will depend on sales of the eGain EMS platform
In fiscal 1999, we derived substantially all of our revenue from sales of the
eGain EMS platform and related services. Although we recently added eGain WCS
to our product offerings, we expect to continue to derive a majority of our
revenue from sales of the eGain EMS platform in the future. Implementation of
our strategy depends upon the eGain EMS platform being able to solve the
customer service needs of businesses engaging in eCommerce. In fiscal 1999, two
of our eGain EMS customers, FCC National and WebTV, accounted for 15.6% and
10.8% of total revenue. If these or other current or future customers are not
satisfied with the eGain EMS platform, our business and operating results will
be seriously harmed.
We face a number of integration risks and significant goodwill costs related
to our recent acquisition of Sitebridge
We will face integration risks and record significant goodwill costs as a
result of our acquisition of Sitebridge in April 1999. We may be unable to
effectively integrate the operations, personnel and systems of Sitebridge with
our other operations in a timely fashion, or at all. In addition, we may not
achieve value from our acquisition of Sitebridge commensurate with the
consideration paid. We have just begun to integrate Sitebridge with our
operations and we expect this integration to place a significant burden on our
management team. If we are unable to effectively integrate Sitebridge into our
operations or to generate sufficient revenue from eGain WCS or our combined
operations, our business and operating results are likely to suffer.
7
<PAGE>
As a result of the Sitebridge acquisition, we have recorded a significant
amount of goodwill that will adversely affect our operating results for the
foreseeable future. As of June 30, 1999, we had goodwill and other purchased
intangible assets of approximately $20.2 million, which we expect to amortize
over three years from the date of the acquisition. If the amount of recorded
goodwill or other intangible assets is increased or we have future losses and
are unable to demonstrate our ability to recover the amount of goodwill, the
amount of amortization could be increased or the period of amortization could
be shortened. This would increase annual amortization charges or result in the
write off of goodwill in a one-time non-cash charge, which could be significant
and would likely harm our operating results.
We may engage in future acquisitions or investments that could dilute our
existing stockholders, cause us to incur significant expenses or harm our
business
We may review acquisition or investment prospects that would complement our
current business or enhance our technological capabilities. Integrating any
newly acquired businesses, technologies or products, may be expensive and time-
consuming. To finance any acquisitions, it may be necessary for us to raise
additional funds through public or private financings. Additional funds may not
be available on terms that are favorable to us and, in the case of equity
financings, may result in dilution to our stockholders. We may not be able to
operate any acquired businesses profitably or otherwise implement our growth
strategy successfully. If we are unable to integrate any newly acquired
entities or technologies effectively, our operating results could suffer.
Future acquisitions by us could also result in large and immediate write-offs,
incurrence of debt and contingent liabilities, or amortization of expenses
related to goodwill and other intangibles, any of which could harm our
operating results.
We could incur additional non-cash charges associated with stock-based
compensation arrangements
Our operating results may be impacted if we incur significant non-cash
charges associated with stock-based compensation arrangements with employees
and non-employees. We have issued options to non-employees which are subject to
various vesting schedules of up to 48 months. For deferred compensation
purposes, these options are required to be remeasured at each vesting date,
which may require us to record additional non-cash accounting expenses. These
expenses may result in us incurring net losses or increased net losses for a
given period and this could seriously harm our operating results and stock
price.
In addition, in connection with our acquisition of Sitebridge, we may face
stock-based compensation charges related to Sitebridge's relationship with
Ambrose, an independent professional employer organization, which formerly
provided payroll and employee benefits for Sitebridge employees. Based on a
recent draft pronouncement by the Financial Accounting Standards Board, we may
be required to recognize additional deferred stock-based compensation estimated
to be approximately $6.0 million related to this relationship.
If we fail to expand our sales, marketing and customer support activities, we
may be unable to expand our business
If we do not successfully expand our sales, marketing and customer support
activities, we cannot expand our business and our stock price could decline.
The complexity of our eCommerce customer service platform and related products
and services requires us to have highly trained sales, marketing and customer
support personnel to educate prospective customers regarding the use and
8
<PAGE>
benefits of our services, and provide effective customer support. With our
relatively brief operating history and our plans for expansion, we have
considerable need to recruit, train, and retain qualified staff. Any delays or
difficulties we encounter in these staffing efforts could impair our ability to
attract new customers and to enhance our relationships with existing customers.
This in turn would adversely impact the timing and extent of our revenue.
Because the majority of our sales, marketing and customer support personnel
have recently joined us and have limited experience working together, our
sales, marketing and customer support organizations may not be able to compete
successfully against bigger and more experienced organizations of our
competitors.
We must recruit and retain our key employees to expand our business
Our success will depend on the skills, experience and performance of our
senior management, engineering, sales, marketing and other key personnel, many
of whom have worked together for only a short period of time. The loss of the
services of any of our senior management or other key personnel, including our
Chief Executive Officer and co-founder, Ashutosh Roy, and our President and co-
founder, Gunjan Sinha, could harm our business. We do not have employment
agreements with, or life insurance policies on, any of our key employees. These
employees may terminate their employment with us at any time. Our success also
will depend on our ability to recruit, retain and motivate other highly skilled
engineering, sales, marketing and other personnel. Competition for these
personnel is intense, especially in the San Francisco Bay Area, and we have had
difficulty hiring employees in the timeframe we desire. In particular, we may
be unable to hire a sufficient number of qualified software engineers. If we
fail to retain and recruit necessary engineering, sales and marketing, customer
support or other personnel, our business and our ability to develop new
products and services and to provide acceptable levels of customer service
could suffer. In addition, companies in the software industry whose employees
accept positions with competitors frequently claim that competitors have
engaged in unfair hiring practices. We could incur substantial costs in
defending ourselves against any of these claims, regardless of the merits of
such claims.
Our failure to expand third-party distribution channels would impede our
revenue growth
To increase our revenue, we must increase the number of our marketing and
distribution partners, including software and hardware vendors and resellers.
Our existing or future marketing and distribution partners may choose to devote
greater resources to marketing and supporting the products of competitors,
which could also harm us.
Failure to expand our relationships with systems integrators would impede
acceptance of our products and growth of our revenue
To increase our revenue and implementation capabilities, we must develop and
expand relationships with systems integrators. We rely on systems integrators
to recommend our products to their customers and to install and support our
products for their customers. Systems integrators may develop, market or
recommend software applications that compete with our products. Moreover, if
these firms fail to implement our products successfully for their customers, we
may not have the resources to implement our products on the schedule required
by our customers.
9
<PAGE>
Unknown software defects could disrupt our products and services, which could
harm our business and reputation
Our product and service offerings depend on complex software, both internally
developed and licensed from third parties. Complex software often contains
defects, particularly when first introduced or when new versions are released.
We may not discover software defects that affect our new or current services or
enhancements until after they are deployed. It is possible that, despite
testing by us, defects may occur in the software. These defects could result
in:
. damage to our reputation;
. lost sales;
. product liability claims;
. delays in or loss of market acceptance of our products;
. product returns; and
. unexpected expenses and diversion of resources to remedy errors.
We may face liability associated with our management of sensitive customer
information
Our applications manage sensitive customer information, and we may be subject
to claims associated with invasion of privacy or inappropriate disclosure, use
or loss of this information. Any imposition of liability, particularly
liability that is not covered by insurance or is in excess of insurance
coverage, could harm our reputation and our business and operating results.
If our system security is breached, our business and reputation could suffer
A fundamental requirement for online communications and transactions is the
secure transmission of confidential information over public networks. Third
parties may attempt to breach our security or that of our customers. We may be
liable to our customers for any breach in our security and any breach could
harm our business and our reputation. Although we have implemented network
security measures, our servers are vulnerable to computer viruses, physical or
electronic break-ins and similar disruptions, which could lead to
interruptions, delays or loss of data. We may be required to expend significant
capital and other resources to license encryption technology and additional
technologies to protect against security breaches or to alleviate problems
caused by any breach.
Due to the lengthy sales cycles of some of our products, the timing of our
sales are difficult to predict and may cause us to miss our revenue
expectations
Our sales cycle for our eCommerce customer service applications can be as
long as three months or more and may vary substantially from customer to
customer. While our customers are evaluating our products and before they may
place an order with us, we may incur substantial sales and marketing expenses
and spend significant management effort. Consequently, if revenue forecasted
from a specific customer for a particular quarter are not realized in that
quarter, we may incur significant expenses that are not offset by corresponding
sales.
If we do not successfully address the risks inherent in the expansion of our
international operations, our business could suffer
We intend to continue to expand into international markets and to spend
significant financial and managerial resources to do so. For example, we have
established a subsidiary in the United
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Kingdom. If our revenue from international operations does not exceed the
expense associated with establishing and maintaining these operations, our
business and operating results will suffer. We have limited experience in
international operations and may not be able to compete effectively in
international markets. We face various risks inherent in conducting business
internationally, such as the following:
. unexpected changes in regulatory requirements;
. difficulties and costs of staffing and managing international operations;
. differing technology standards;
. difficulties in collecting accounts receivable and longer collection
periods;
. political and economic instability;
. fluctuations in currency exchange rates;
. imposition of currency exchange controls;
. potentially adverse tax consequences; and
. reduced protection for intellectual property rights in foreign countries.
Our recent growth has placed a strain on our resources and if we fail to
manage our future growth, our business could suffer
We recently began to expand our operations rapidly and intend to continue
this expansion. The number of our full-time employees increased from 20 at June
30, 1998 to 155 at August 15, 1999. This expansion has placed, and is expected
to continue to place, a significant strain on our managerial, operational and
financial resources. To manage any further growth, we will need to improve or
replace our existing operational, customer support and financial systems,
procedures and controls. Any failure by us to properly manage these system and
procedural transitions could impair our ability to attract and service
customers, and could cause us to incur higher operating costs and delays in the
execution of our business plan. We will also need to continue the expansion of
our operations and employee base. Our management may not be able to hire,
train, retain, motivate and manage required personnel. In addition, our
management may not be able to successfully identify, manage and exploit
existing and potential market opportunities.
We may not be able to upgrade our systems and the eGain Hosted Network to
accommodate growth in eCommerce
We face risks related to ability of the eGain Hosted Network to operate with
higher activity levels while maintaining expected performance. As the volume
and complexity of eCommerce customer communications increases, we will need to
expand our systems and hosted network infrastructure. The expansion and
adaptation of our network infrastructure will require substantial financial,
operational and management resources. Due to the limited deployment of our
products and services to date, our ability to connect and manage a
substantially larger number of customers is unknown.
Customer demand for our products and services could be greatly reduced if we
fail to maintain high capacity data transmission. In addition, as we upgrade
our network infrastructure, we are likely to encounter equipment or software
incompatibility. We may not be able to expand or adapt our hosted network
infrastructure to meet additional demand or our customers' changing
requirements in a timely manner or at all.
11
<PAGE>
Unplanned system interruptions and capacity constraints could reduce our
ability to provide hosting services and could harm our business and our
reputation
Our customers have in the past experienced some interruptions with our hosted
network. We believe that these interruptions will continue to occur from time
to time. These interruptions could be due to hardware and operating system
failures. We expect a substantial portion of our revenue to be derived from
customers who use our hosted network. As a result, our business will suffer if
we experience frequent or long system interruptions that result in the
unavailability or reduced performance of our hosted network or reduce our
ability to provide remote management services. We expect to experience
occasional temporary capacity constraints due to sharply increased traffic,
which may cause unanticipated system disruptions, slower response times,
impaired quality and degradation in levels of customer service. If this were to
continue to happen, our business and reputation could be seriously harmed.
Our success largely depends on the efficient and uninterrupted operation of
our computer and communications hardware and network systems. Substantially all
of our computer and communications systems are located in Santa Clara County,
California. Our systems and operations are vulnerable to damage or interruption
from fire, earthquake, power loss, telecommunications failure and similar
events.
We have entered into service agreements with some of our customers that
require minimum performance standards, including standards regarding the
availability and response time of our remote management services. If we fail to
meet these standards, our customers could terminate their relationships with us
and we could be subject to contractual monetary penalties. Any unplanned
interruption of services may harm our ability to attract and retain customers.
We rely on relationships with, and the system integrity of, hosting partners
for our eGain Hosted Network
Our hosted network consists of virtual data centers co-located in the
physical data centers of our hosting partners. Accordingly, we rely on the
speed and reliability of the systems and networks of these hosting partners. If
our hosting partners experience system interruptions or delays, or if we do not
maintain or develop relationships with hosting partners, our business could
suffer.
Problems arising from use of our products with other vendors' products could
cause us to incur significant costs, divert attention from our product
development efforts and cause customer relations problems
Our customers generally use our products together with products from other
companies. As a result, when problems occur in the network, it may be difficult
to identify the source of the problem. Even when these problems are not caused
by our products, they may cause us to incur significant warranty and repair
costs, divert the attention of our engineering personnel from our product
development efforts and cause significant customer relations problems.
We may be unable to protect our intellectual property and proprietary rights
We regard our copyrights, service marks, trademarks, trade secrets and
similar intellectual property as critical to our success, and rely on trademark
and copyright law, trade secret protection and confidentiality and/or license
agreements with our employees, customers and partners to protect our
proprietary rights. eGain is a registered trademark, and eGain EMS, eGain WCS,
eGain Hosted Network and eGain eCommerce Bridge are trademarks, of eGain.
Despite our efforts to protect our
12
<PAGE>
proprietary rights through confidentiality and license agreements, unauthorized
parties may attempt to copy or otherwise obtain and use our products or
technology. These precautions may not prevent misappropriation or infringement
of our intellectual property.
In addition, the status of United States patent protection in the software
industry is not well defined and will evolve as the U.S. Patent and Trademark
Office grants additional patents. We have one patent application pending in the
United States, and we may seek additional patents in the future. We do not know
if our patent application or any future patent application will result in a
patent being issued with the scope of the claims we seek, if at all, or whether
any patents we may receive will be challenged or invalidated. It is difficult
to monitor unauthorized use of technology, particularly in foreign countries
where the laws may not protect our proprietary rights as fully as in the United
States, and our competitors may independently develop technology similar to
ours.
We may face intellectual property infringement claims that could be costly to
defend
Third parties may infringe or misappropriate our copyrights, trademarks and
similar proprietary rights. In addition, other parties may assert infringement
claims against us. Although we have not received notice of any alleged
infringement, our products may infringe issued patents that may relate to our
products. In addition, because the contents of patent applications in the
United States are not publicly disclosed until the patent is issued,
applications may have been filed which relate to our software products. We may
be subject to legal proceedings and claims from time to time in the ordinary
course of our business, including claims of alleged infringement of the
trademarks and other intellectual property rights of third parties.
Intellectual property litigation is expensive and time-consuming and could
divert management's attention away from running our business. This litigation
could also require us to develop non-infringing technology or enter into
royalty or license agreements. These royalty or license agreements, if
required, may not be available on acceptable terms, if at all, in the event of
a successful claim of infringement. Our failure or inability to develop non-
infringing technology or license the proprietary rights on a timely basis would
harm our business.
We may need to license third-party technologies and may be unable to do so
To the extent we need to license third-party technologies, we may be unable
to do so on commercially reasonable terms or at all. In addition, we may fail
to successfully integrate any licensed technology into our services. Third-
party licenses may expose us to increased risks, including risks with the
integration of new technology, the diversion of resources from the development
of our own proprietary technology, our inability to generate revenue from new
technology sufficient to offset associated acquisition and maintenance costs.
Our inability to obtain any of these licenses could delay product and service
development until equivalent technology can be identified, licensed and
integrated. This in turn would harm our business and operating results.
Industry Risks
We must compete successfully in the eCommerce customer service market
The eCommerce customer service market is new and intensely competitive. There
are no substantial barriers to entry in this market, and established or new
entities may enter this market in
13
<PAGE>
the near future. We compete with companies that develop and maintain internally
developed email management systems. We also compete directly with companies
that provide licensed software products for email management such as:
.Brightware, Inc.,
.Kana Communications, Inc.,
.Mustang Software, Inc. and
.Silknet Software, Inc.,
as well as Web collaboration application companies such as WebLine
Communications Corp. In addition, some of our competitors who currently offer
licensed software products are now beginning to offer hosted approaches. We
also face competition from larger, front office software companies such as:
.Clarify, Inc.,
.Oracle Corporation,
.Siebel Systems, Inc. and
.The Vantive Corporation.
Furthermore, established enterprise software companies, including IBM, Hewlett-
Packard Company, Microsoft Corporation and similar companies may leverage their
existing relationships and capabilities to offer eCommerce customer service
applications.
We believe competition will increase as our current competitors increase the
sophistication of their offerings and as new participants enter the market.
Many of our current and potential competitors have:
. longer operating histories;
. larger customer bases;
. greater brand recognition;
. more diversified lines of products and services; and
. significantly greater financial, marketing and other resources.
These competitors may enter into strategic or commercial relationships with
larger, more established and better-financed companies. These competitors may
be able to:
. undertake more extensive marketing campaigns;
. adopt more aggressive pricing policies; and
. make more attractive offers to businesses to induce them to use their
products or services.
Further, any delays in the general market acceptance of the eCommerce
customer service applications and our hosted delivery model would likely harm
our competitive position. Any delay would allow our competitors additional time
to approve their service or product offerings, and also provide time for new
competitors to develop eCommerce customer service applications and solicit
prospective customers within our target markets. Increased competition could
result in pricing pressures, reduced operating margins and loss of market
share.
14
<PAGE>
We depend on broad market acceptance of Web-based eCommerce customer service
applications
We depend on the widespread acceptance and use of Web-based customer service
applications as an effective solution for businesses seeking to manage high
volumes of customer communication over the Internet. We cannot estimate the
size or growth rate of the potential market for our product and service
offerings, and we do not know whether our products and services will achieve
broad market acceptance. The market for Web-based eCommerce customer service is
new and rapidly evolving, and concerns over the security and reliability of
online transactions, the privacy of users and quality of service or other
issues may inhibit the growth of the Internet and commercial online services.
If the market for eCommerce customer service applications fails to grow or
grows more slowly than we currently anticipate, our business will be seriously
harmed.
We may be unable to develop or enhance products or services that address the
changing needs of the eCommerce customer service market
To be competitive in the eCommerce customer service industry, we must
continually improve the performance, features and reliability of our products
and services, including our existing eCommerce customer service applications,
and develop new products, services, functionality and technology that address
changing industry standards and customer needs. If we cannot adapt or respond
in a cost-effective and timely manner to changing industry standards, market
conditions or customer requirements, our business and operating results will
suffer.
If we do not adequately address Year 2000 issues, we may incur significant
costs and our business could suffer
Many existing computer programs use only two digits to identify a year. These
programs were designed and developed without addressing the impact of the
upcoming change in the century. If not corrected, many computer software
applications could fail or create erroneous results by, at or beyond 2000. As a
result, the networks that incorporate our products and our own internal
networks could fail, leading to disruptions in operations and business
activities. As a result of the year 2000 problem, we believe that we face
potential risks which could harm our business in the following areas:
. disruption in our customer relationships or in our sales efforts because
of failures of our customers' networks which are correctly or incorrectly
attributed to the non-compliance of our products;
. claims from our customers based on alleged breach of warranties
concerning the Year 2000 compliance of our products;
. disruption of our business resulting from failure of systems we use to
run our business;
. disruption of our business resulting from failure of systems used by our
suppliers, customers and potential customers; and
. the potential reduced spending by companies on networking solutions as a
result of significant information systems spending on Year 2000
remediation.
If we, our customers, our providers of hardware and software, or our third-
party network providers fail to remedy any Year 2000 issues, the reasonably
likely worst case scenario would be the interruption of our services, which in
turn could require us to incur material costs or lose revenue. Presently, we
believe we are unable to reasonably estimate the duration and extent of any
such interruption, or quantify the effect it may have on our future revenue.
15
<PAGE>
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Year 2000 Issues."
We will only be able to execute our business plan if Internet usage continues
to grow
Our business will be seriously harmed if Internet usage does not continue to
grow or grows at significantly lower rates compared to current trends. The
continued growth of the Internet depends on various factors, many of which are
outside our control. These factors include the following:
. the Internet infrastructure may be unable to support the demands placed
on it;
. the performance and reliability of the Internet may decline as usage
grows;
. security and authentication concerns with respect to transmission over
the Internet of confidential information, such as credit card numbers,
and attempts by unauthorized computer users, so-called hackers, to
penetrate online security systems; and
. privacy concerns, including those related to the ability of Web sites to
gather user information without the user's knowledge or consent.
Because we provide our customer service applications to companies conducting
business over the Internet, our business could suffer if efficient
transmission of data over the Internet is interrupted
The recent growth in the use of the Internet has caused frequent
interruptions and delays in accessing the Internet and transmitting data over
the Internet. Because we provide Internet-based eCommerce customer service
applications, interruptions or delays in Internet transmissions will harm our
customers' ability to receive and respond to email messages. Therefore, our
market depends on improvements being made to the entire Internet infrastructure
to alleviate overloading and congestion.
Governmental regulation and legal uncertainties could impair the growth of
the Internet and decrease demand for our services or increase our cost of
doing business
Governmental regulation may impair the growth of the Internet or commercial
online services. This could decrease the demand for our products and services,
increase our cost of doing business or otherwise harm our business and
operating results. Although there are currently few laws and regulations
directly applicable to the Internet and the use of the Internet as a commercial
medium, a number of laws have been proposed involving the Internet. These
proposed laws include laws addressing user privacy, pricing, content,
copyrights, distribution, antitrust and characteristics and quality of products
and services. Further, the growth and development of the market for commercial
online transactions may prompt calls for more stringent consumer protection
laws that may impose additional burdens on those companies engaged in
eCommerce. Moreover, the applicability to the Internet of existing laws in
various jurisdictions governing issues such as property ownership, sales and
other taxes, libel and personal privacy is uncertain and may take years to
resolve.
We may be liable for activities of our customers or others using our hosted
network
As a provider of eCommerce customer service applications, we face potential
liability for defamation, negligence, copyright, patent or trademark
infringement and other claims based on the actions of our customers or others
using our hosted network. This liability could result from the nature and
content of the communications transmitted by our customers through our hosted
network. We do not and cannot screen all of the communications generated by our
customers, and we could be exposed to liability with respect to this content.
Furthermore, some foreign governments, such as Germany, have enforced laws and
regulations related to content distributed over the Internet that are more
strict than those currently in place in the United States.
16
<PAGE>
Offering Risks
Our stock price may be volatile, and you may not be able to sell your shares
at or above the offering price
Our common stock has not been publicly traded, and an active trading market
may not develop or be sustained after this offering. You may not be able to
sell your shares at or above the offering price. The price at which our common
stock will trade after this offering is likely to be highly volatile and may
fluctuate substantially due to factors such as the following:
. actual or anticipated fluctuations in our operating results;
. changes in or our failure to meet securities analysts' expectations;
. announcements of technological innovations;
. introduction of new services by us or our competitors;
. developments with respect to intellectual property rights;
. conditions and trends in the Internet and other technology industries;
and
. general market conditions.
We may become involved in securities class action litigation which could
divert management's attention and harm our business
The stock market has from time to time experienced significant price and
volume fluctuations that have affected the market prices for the common stocks
of technology companies, particularly Internet companies. These broad market
fluctuations may cause the market price of our common stock to decline. In the
past, following periods of volatility in the market price of a particular
company's securities, securities class action litigation has often been brought
against that company. We may become involved in this type of litigation in the
future. Litigation is often expensive and diverts management's attention and
resources, which could harm our business and operating results.
After this offering, our directors, executive officers and principal
stockholders will continue to have substantial control over matters requiring
stockholder approval and may not vote in the same manner as our other
stockholders
After this offering, our directors, executive officers and stockholders who
currently own over 5% of our common stock will collectively beneficially own
approximately 48.7% of our outstanding common stock. These stockholders, if
they vote together, will be able to significantly influence all matters
requiring stockholder approval, including the election of directors and
approval of significant corporate transactions. This concentration of ownership
may also delay or prevent a change in control of eGain.
We may need additional capital, and raising additional capital may dilute
existing stockholders
We believe that our existing capital resources, including the anticipated
proceeds of this offering, will enable us to maintain our current and planned
operations for at least the next 12 months. However, we may choose to, or be
required to, raise additional funds due to unforeseen circumstances. If our
capital requirements vary materially from those currently planned, we may
require additional financing sooner than anticipated. This financing may not be
available in sufficient amounts or on terms acceptable to us and may be
dilutive to existing stockholders.
17
<PAGE>
Future sales of our common stock may depress our stock price
Sales of a substantial number of shares of common stock in the public market
after this offering or after the expiration of lockup and holding periods could
cause the market price of our common stock to decline. After this offering, we
will have approximately 27,815,562 shares of common stock outstanding. All the
shares sold in this offering will be freely tradable. The remaining 22,815,562
shares of common stock outstanding after this offering are subject to lock-up
agreements that prohibit the sale of the shares for 180 days after the date of
this prospectus. Immediately after the 180 day lockup period, 16,963,195 shares
which will be outstanding after the offering will become available for sale.
The remaining shares of our common stock will become available at various times
thereafter upon the expiration of one-year holding periods.
Purchasers of our common stock will suffer immediate and substantial dilution
Purchasers of our common stock in this offering will experience immediate
dilution of $8.07 in the pro forma net tangible book value per share of common
stock, based on an assumed public offering price of $10.00 per share.
Purchasers will also experience additional dilution upon the exercise of
outstanding stock options and warrants. The initial public offering price is
expected to be substantially higher than the book value per share of our common
stock. Some elements of our market value do not originate from measurable
transactions. Therefore, there is not a corresponding rise in "book", or
historical accounting, value for our rise in market value, if any. Examples of
these elements include the perceived value associated with our strategic
relationships, perceived growth prospects of our market and our perceived
competitive position within that market.
Our certificate of incorporation and bylaws contain provisions which could
delay or prevent a change in control even if the change in control would be
beneficial to our stockholders
Our certificate of incorporation and bylaws contain provisions that could
delay or prevent a change in control of eGain. These provisions could limit the
price that investors might be willing to pay in the future for shares of our
common stock. Some of these provisions:
. authorize the issuance of preferred stock that can be created and issued
by the board of directors without prior stockholder approval, commonly
referred to as "blank check" preferred stock, with rights senior to those
of common stock; and
. prohibit stockholder action by written consent.
See "Description of Capital Stock" for additional discussion of these
provisions.
If we do not use the proceeds in a manner beneficial to us, our business
could suffer
Our management will have significant flexibility in applying the net proceeds
of this offering. If the proceeds are not used in a manner beneficial to eGain,
our business could suffer and our stock price could decline. We have no current
specific plans for the net proceeds from this offering. We intend generally to
use the net proceeds from this offering for working capital and general
corporate purposes. We have not yet determined the actual expected expenditures
and thus cannot estimate the amounts to be used for each specified purpose. 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 and the market response to the
introduction of any new product and service offerings. Depending on future
developments and circumstances, we may use some of the proceeds for uses other
than those described above.
18
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. These statements relate to our future plans, objectives,
expectations and intentions, and the assumptions underlying or relating to any
of these statements. These statements may be identified by the use of words
such as "expect," "anticipate," "intend," "plan," "will" and similar
expressions. Our actual results could differ materially from those discussed in
these statements. Factors that could contribute to such differences include,
those discussed in "Risk Factors," "Business," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and elsewhere in
this prospectus.
USE OF PROCEEDS
The net proceeds we will receive from the sale of the 5,000,000 shares of
common stock offered by us are estimated to be $45,520,000 after deducting the
underwriting discounts and commissions and the estimated offering expenses
payable by us and assuming an initial public offering price of $10.00 per
share.
The principal purposes of this offering are:
. to obtain additional capital;
. to create a public market for our common stock;
. to increase our visibility and credibility; and
. to facilitate future access to the public equity markets.
We intend to use the net proceeds of this offering for working capital and
other general corporate purposes, including product and services development
and expansion of our hosted network. We have not yet determined the expected
expenditures and thus cannot estimate the amounts to be used for each specified
purpose. 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 and the market
response to the introduction of any new product and service offerings.
In addition, we may use a portion of the net proceeds of this offering to
acquire or invest in businesses, products, services or technologies
complementary to our current business, through mergers, acquisitions, joint
ventures or otherwise. However, we have no specific agreements or commitments
and are not currently engaged in any negotiations with respect to such
transactions. Accordingly, our management will retain broad discretion as to
the allocation of the net proceeds of this offering. We intend to invest the
net proceeds of this offering in short-term, interest-bearing investment grade
securities until they are used.
DIVIDEND POLICY
We have never declared or paid dividends on our capital stock and do not
anticipate paying any dividends in the foreseeable future. We currently intend
to retain our earnings, if any, for the development of our business.
Furthermore, our bank line of credit agreement prohibits the payment of
dividends.
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<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999:
. on an actual basis;
. on a pro forma basis after giving effect to:
-- the sale of 652,000 shares of Series D preferred stock for gross
proceeds of $5,216,000 in July 1999;
-- the assumed exercise of outstanding warrants to purchase an
aggregate of 394,139 shares of common stock; and
-- the conversion of all outstanding shares of preferred stock into
common stock and changes to our authorized capital stock upon
completion of this offering.
. on the same pro forma basis as adjusted to give effect to the sale of
5,000,000 shares of common stock by us at an assumed initial public
offering price of $10.00 per share and after deducting the underwriting
discounts and commissions and estimated offering expenses payable by us.
This information should be read together with the consolidated financial
statements and related notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
June 30, 1999
--------------------------------
Pro Forma
Actual Pro Forma as Adjusted
-------- --------- -----------
(in thousands except share
data)
<S> <C> <C> <C>
Notes payable, excluding current portion....... $ 221 $ 221 $ 221
======== ======== ========
Stockholders' equity:
Convertible preferred stock: $0.001 par value;
10,035,887 shares authorized,
9,566,378 shares issued and outstanding,
actual; 10,035,887 shares authorized, no
shares issued and outstanding, pro forma ..... $ 16,987 $ -- $ --
Preferred stock: $0.001 par value; 5,000,000
shares authorized, no shares issued and
outstanding................................... -- -- --
Common stock: $0.001 par value; 50,000,000
shares authorized, 10,946,661 shares issued
and outstanding, actual; 21,559,178 shares
issued and outstanding,
pro forma; 50,000,000 shares authorized,
26,559,178 shares issued and outstanding, pro
forma as adjusted............................. 7,289 22 27
Additional paid-in capital..................... 17,549 47,215 92,730
Notes receivable from stockholders............. (144) (144) (144)
Deferred stock compensation.................... (8,956) (8,956) (8,956)
Accumulated deficit and accumulated other
comprehensive income.......................... (12,242) (12,242) (12,242)
-------- -------- --------
Total stockholders' equity................... 20,483 25,895 71,415
-------- -------- --------
Total capitalization........................... $ 20,704 $ 26,116 $ 71,636
======== ======== ========
</TABLE>
20
<PAGE>
DILUTION
Our pro forma net tangible book value as of June 30, 1999 was $5,699,692, or
$0.26 per share. Pro forma net tangible book value per share is determined by
dividing the amount of our total tangible assets less total liabilities by the
number of shares of common stock outstanding at that date, assuming conversion
of all outstanding shares of preferred stock. Dilution in net tangible book
value per share represents the difference between the amount per share paid by
purchasers of common stock in this offering and the net tangible book value per
share of common stock immediately after completion of this offering. After
giving effect to the sale of the 5,000,000 shares of common stock offered by
eGain in this offering (at an assumed initial public offering price of $10.00
per share and after deducting the underwriting discounts and commissions and
our estimated offering expenses), our pro forma net tangible book value at June
30, 1999 would have been $51,219,692, or $1.93 per share. This represents an
immediate increase in net tangible book value of $1.67 per share to the
existing stockholders and an immediate dilution of $8.07 per share to new
investors purchasing shares in this offering. If the public offering price is
higher or lower, the dilution to the new investors will in turn be greater or
less. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $10.00
Pro forma net tangible book value per share as of June 30,
1999......................................................... $0.26
Increase per share attributable to this offering.............. 1.67
-----
Pro forma net tangible book value per share after this
offering..................................................... 1.93
------
Dilution per share to new investors........................... $ 8.07
======
</TABLE>
The following table summarizes, on a pro forma basis as of June 30, 1999, the
total number of shares of common stock purchased from eGain, the total
consideration paid to eGain and the average price per share paid by existing
stockholders and by new investors purchasing shares in this offering (based
upon an assumed initial public offering price of $10.00 per share and before
deducting the underwriting discounts and commissions and our estimated offering
expenses):
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ ------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.. 21,559,178 81% $15,033,880 23% $ 0.70
New investors.......... 5,000,000 19 50,000,000 77 $10.00
---------- --- ----------- ---
Total................ 26,559,178 100% $65,033,880 100%
========== === =========== ===
</TABLE>
The foregoing table:
. gives effect to the sale of 652,000 shares of Series D preferred stock
for gross proceeds of $5,216,000 in July 1999,
. gives effect to the assumed exercise of outstanding warrants to purchase
394,139 shares of common and preferred stock that terminate upon
completion of this offering and
. assumes no exercise of outstanding warrants that survive the offering or
outstanding stock options. As of June 30, 1999, there were outstanding
warrants to purchase an aggregate of 195,517 shares of common stock with
a weighted average exercise price of $0.9212 per share that survive the
offering and options to purchase an aggregate of 2,463,031 shares of
common stock with a weighted average exercise price of $0.24 per share.
To the extent any of these warrants or options are exercised, there will
be further dilution to new investors.
21
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated statement of operations data set forth below for
the period from inception through June 30, 1998 and for the year ended June 30,
1999 and the selected consolidated balance sheet data as of June 30, 1998 and
1999 have been derived from our audited consolidated financial statements
included elsewhere in this prospectus. Our historical results are not
necessarily indicative of results to be expected for any future period. The
data have been derived from financial statements that have been prepared in
accordance with generally accepted accounting principles and should be read
together with "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the consolidated financial statements and related
notes included elsewhere in this prospectus. See Note 1 of notes to the
consolidated financial statements for an explanation of the determination of
the number of shares used in computing basic and diluted net loss per share.
The pro forma information gives effect to the conversion of all outstanding
shares of preferred stock as of June 30, 1999 into 9,566,378 shares of common
stock upon completion of this offering.
<TABLE>
<CAPTION>
Period from
September 10, 1997 Year Ended
(Inception) to June 30,
June 30, 1998 1999
------------------ ----------
<S> <C> <C>
(in thousands except
per share data)
Consolidated Statement of Operations Data:
Revenue:
Hosting....................................... $ -- $ 137
License fees.................................. -- 473
Service....................................... 2 409
------- --------
Total revenue............................... 2 1,019
Costs and expenses:
Cost of revenue............................... 39 1,772
Sales and marketing........................... 231 4,182
Research and development...................... 299 2,096
General and administrative.................... 257 1,235
Amortization of goodwill and other intangible
assets....................................... -- 1,217
Amortization of deferred compensation......... 58 1,817
------- --------
Total costs and expenses.................... 884 12,319
------- --------
Loss from operations............................ (882) (11,300)
Interest and other income (expense), net........ (56) (5)
------- --------
Net loss........................................ $ (938) $(11,305)
======= ========
Basic and diluted net loss per share............ $(17.78) $ (2.14)
======= ========
Shares used in computing basic and diluted net
loss per share................................. 53 5,295
======= ========
Pro forma basic and diluted net loss per share
(unaudited).................................... $ (0.93)
========
Shares used in computing pro forma basic and
diluted net loss per share (unaudited)......... 12,153
========
</TABLE>
<TABLE>
<CAPTION>
June 30,
--------------
1998 1999
------ -------
<S> <C> <C>
(in thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents....................................... $3,831 $ 1,265
Working capital (deficit)....................................... 3,691 (755)
Total assets.................................................... 3,990 23,965
Notes payable less current portion.............................. -- 221
Total stockholders' equity...................................... 3,801 20,483
</TABLE>
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Our company was founded in September 1997 to provide customer service
infrastructure solutions to companies engaged in electronic commerce. From
inception to September 1998, our operating activities related primarily to the
planning and developing our proprietary technological solution, recruiting
personnel, raising capital and purchasing operating assets. In September 1998,
we commenced commercial shipment of our eGain Email Management System, or eGain
EMS, an application that helps companies route, track and respond to high
volumes of customer email and Web form inquiries. On April 30, 1999, we
acquired Sitebridge Corporation and added its primary product to our customer
service platform. The product, now called eGain Web Collaboration System, or
eGain WCS, is an application that allows customer service representatives to
interact online with customers on the Web. We began selling eGain WCS in May
1999. Our products and services are designed to enable businesses to deliver
effective customer service, improve customer satisfaction and convert Web site
visitors to buyers. Our products are designed to be highly scalable and to
integrate with a company's existing infrastructure to allow the company to
consolidate customer data from other applications in order to have access to
comprehensive customer information. We offer our customers the flexibility to
access our solution from an external hosted environment or to purchase and
implement our solution directly in-house.
Our revenue consists of hosting revenue, license fees and service revenue
associated with our eGain EMS and eGain WCS applications.
. Hosting Revenue. We derive hosting revenue when our customers choose to
have our applications provided through our eGain Hosted Network, which is
a network of service centers and hosting partners linked by high speed
Internet connections. Our contracts with hosted customers generally
provide for the payment of hosting fees on a monthly basis. Hosting
revenue is recognized monthly as the services are performed.
. License Fees. We derive revenue from license fees when our customers
choose to license our software for in-house installation. Revenue from
license fees is recognized after a license agreement has been executed or
a definitive purchase order has been received, the product has been
delivered, the license fee has become fixed and determinable and
collection of the fee is considered probable.
. Service Revenue. We derive service revenue from support and maintenance
contracts on software licenses and professional services and training.
Substantially all of our customers that purchase software licenses also
purchase annual support and maintenance, which is paid in advance on an
annual basis and initially recorded as deferred revenue. Revenue from
support and maintenance contracts is recognized ratably over the term of
the support and maintenance period. Professional services revenue is
primarily related to customer support services and training and
installation services and is recognized upon completion of specific
contractual milestone events, or based on an estimated percentage of
completion as work progresses.
We expect to make significant investments in product development and
technology to enhance our current products and services, develop new products
and services and further advance our solution offerings. In addition, an
important part of our strategy is to expand our operations and employee base
and build our sales, marketing, customer support, technical and operational
resources.
23
<PAGE>
In particular, we intend to expand our strategic distribution, hosting and
solution relationships to add capabilities to our current product offerings and
to help market our products to new customers.
We have incurred significant losses since our inception, and as of June 30,
1999, had an accumulated deficit of approximately $12.2 million. We expect to
continue to incur substantial operating losses for the foreseeable future. In
view of the rapidly evolving nature of our business and our limited operating
history, we believe that period-to-period comparisons of our revenue and
operating results are not meaningful and should not be relied upon as
indications of future performance.
Acquisition of Sitebridge
We acquired Sitebridge effective April 1999. In connection with the
acquisition, we issued 1,609,793 shares of Series C convertible preferred
stock, 1,455,514 shares of common stock, options and warrants to acquire
1,144,456 shares of common stock and warrants to acquire 121,006 shares of
Series C preferred stock in exchange for all the outstanding preferred stock,
common stock, and options and warrants to purchase shares of Sitebridge stock.
The acquisition was accounted for as a purchase, and accordingly the results of
operations of Sitebridge have been included in the consolidated financial
statements since the date of acquisition. The fair market value of the
securities issued in the acquisition was approximately $20.1 million.
Sitebridge, originally Social Science Incorporated, was founded in 1996 to
create tools for live collaboration on Web sites. Sitebridge shipped its first
product, NetDiscussion, in 1997. In late 1997, Sitebridge shifted its business
focus to developing software applications for sales and service organizations
within large- and medium-sized companies. In the second quarter of 1998,
Sitebridge shipped the first version of CustomerNow, an application that allows
customer service representatives to provide live assistance to customers
through real time Web interaction. With our acquisition of Sitebridge, we
changed the name of CustomerNow to eGain WCS. eGain EMS and eGain WCS are
available today as stand-alone applications or as combined solutions with
specific integrated functions.
Goodwill and Other Non-Cash Charges
We recorded goodwill and other purchased intangible assets of approximately
$21.4 million associated with our acquisition of Sitebridge. Goodwill and other
purchased intangible assets are being amortized on a straight-line basis over
the estimated useful lives of three years. We currently expect to record
amortization of goodwill and other intangible assets of approximately
$7.1 million in fiscal 2000, $7.1 million in fiscal 2001 and $6.0 million in
fiscal 2002.
In connection with the grant of stock options to employees and consultants,
we recorded deferred stock compensation totaling approximately $234,000 in
fiscal 1998 and $10.6 million in fiscal 1999. Deferred compensation for options
granted to employees has been determined as the difference between the deemed
fair value of our common stock on the date these options were granted and the
exercise price. Deferred compensation for options granted to consultants has
been determined in accordance with SFAS 123 as the fair value of the
consideration received or the fair value of the equity instruments issued,
whichever is more reliably measured. Deferred compensation for options granted
to consultants is periodically remeasured as the underlying options vest. These
amounts were initially recorded through stockholders' equity and are being
amortized by charges to operations. We recorded amortization of deferred stock
compensation of approximately $58,000 in fiscal 1998 and $1.8 million in fiscal
1999. We recorded additional deferred compensation in July
24
<PAGE>
and August 1999 of approximately $8.1 million. We expect to record amortization
expense relating to deferred stock compensation approximately as follows: $9.4
million in fiscal 2000, $4.6 million in fiscal 2001, $2.3 million in fiscal
2002 and $870,000 in fiscal 2003. The amortization expense relates to options
awarded to employees and consultants in all operating expense categories. See
Note 6 of Notes to Financial Statements.
Sitebridge previously outsourced its payroll processing and other aspects of
its employee benefits programs under a co-employment arrangement with Ambrose,
an independent professional employer organization that was terminated effective
July 31, 1999. On March 31, 1999, the Financial Accounting Standards Board
issued an Exposure Draft of an FASB Interpretation, Accounting for Certain
Transactions Involving Stock Compensation, an interpretation of APB Opinion No.
25. This FASB Exposure Draft, if adopted in its current form, could be
interpreted to indicate that employees subject to co-employment arrangements
would not be considered employees for purposes of applying APB No. 25. If
additional clarification regarding the definition of an employee is not
provided in the final FASB pronouncement, we may be required to establish a new
measurement date for stock options granted by Sitebridge after December 15,
1998 to these employees for the purpose of accounting for stock options under
APB No. 25. If a new measurement date is required to be established, we would
recognize the deferred stock-based compensation, which would be amortized over
the remaining vesting periods of the options. We estimate that this charge
would be approximately $6.0 million. This amortization could have a material
adverse effect on our operating results.
Results of Operations
We were incorporated in September 1997 but did not commence significant
operations until January 1998. Data for September 1997 through June 30, 1998
(the inception period) are not comparable to those for fiscal 1999 due to the
acceleration of our activities and related expenses during fiscal 1999 and the
different duration of the periods.
Revenue
Revenue for fiscal 1999 was $1.0 million, 60.7% of which was recognized in
the quarter ended June 30, 1999. In fiscal 1999, FCC National accounted for
15.6% of total revenue and WebTV accounted for 10.8% of total revenue. In
fiscal 1999, hosting revenue represented 13.5% of total revenue, license fees
represented 46.4% of total revenue and service revenue represented 40.1% of
total revenue.
Costs and Expenses
Cost of revenue. Cost of revenue consists primarily of costs incurred for
customer support, hosting and professional services. Cost of revenue includes
depreciation of capital equipment used in our hosted network, personnel costs,
cost of third-party products and lease costs paid to remote co-location
centers. In fiscal 1999, cost of revenue was $1.8 million. From July 1, 1998 to
June 30, 1999, the number of customer support and professional services
personnel increased from 2 to 37.
Sales and marketing. Sales and marketing expenses consist primarily of
compensation and benefits of our sales, marketing and business development
personnel, advertising, trade show and other promotional costs and, to a lesser
extent, occupancy costs and related overhead. Sales and marketing expenses were
$4.2 million in fiscal 1999. From July 1, 1998 to June 30, 1999, the number of
our sales and marketing personnel increased from 6 to 29.
25
<PAGE>
Research and development. Research and development expenses consist primarily
of compensation and benefits of our engineering and quality assurance personnel
and, to a lesser extent, occupancy costs and related overhead. Research and
development expenses are expensed as incurred. Research and development
expenses were $2.1 million in fiscal 1999. From July 1, 1998 to June 30, 1999,
the number of our research and development personnel increased from 7 to 33.
General and administrative. General and administrative expenses consist
primarily of compensation and benefits for our finance, human resources,
administrative and legal services personnel, fees for outside professional
services and, to a lesser extent, occupancy costs and related overhead. General
and administrative expenses were $1.2 million in fiscal 1999. From July 1, 1998
to June 30, 1999, the number of our general and administrative personnel
increased from 5 to 15.
Interest income and expense. Interest income consists of interest earned on
our cash and cash equivalents. Interest income was $111,000 in fiscal 1999. To
date, we have incurred interest expense on a working capital line of credit and
notes payable for equipment financing. In fiscal 1999, interest expense was
$116,000.
Quarterly Results of Operations
The following table sets forth certain unaudited quarterly statement of
operations data for the six quarters ended June 30, 1999. This information has
been derived from our unaudited consolidated financial statements, which, in
management's opinion, have been prepared on the same basis as the audited
financial statements and include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the information for
the quarters presented. This information should be read in conjunction with the
audited financial statements and related notes included elsewhere in this
prospectus. The operating results for any quarter are not necessarily
indicative of the operating results for any future period.
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30,
1998 1998 1998 1998 1999 1999
-------- -------- --------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue
Hosting............... $ -- $ -- $ -- $ 3 $ 18 $ 116
License fees.......... -- -- -- 79 201 193
Service............... -- -- -- 65 34 310
----- ----- ------- ------- ------- -------
Total revenue....... -- -- -- 147 253 619
Costs and expenses
Cost of revenue....... 4 46 143 296 460 873
Sales and marketing... 61 176 508 929 1,078 1,667
Research and
development.......... 107 189 214 355 584 943
General and
administrative....... 70 134 225 205 296 509
Amortization of
goodwill and other
intangible assets.... -- -- -- -- -- 1,217
Amortization of
deferred
compensation......... -- 58 89 190 387 1,151
----- ----- ------- ------- ------- -------
Total costs and
expenses........... 242 603 1,179 1,975 2,805 6,360
----- ----- ------- ------- ------- -------
Loss from operations.... (242) (603) (1,179) (1,828) (2,552) (5,741)
Interest income
(expense), net......... (19) (19) 24 2 (18) (13)
----- ----- ------- ------- ------- -------
Net loss................ $(261) $(622) $(1,155) $(1,826) $(2,570) $(5,754)
===== ===== ======= ======= ======= =======
</TABLE>
26
<PAGE>
Fluctuations in Quarterly Results
Revenue increased substantially in the quarter ended June 30, 1999, primarily
due to the increase in the number of hosting customers and an increase in
consulting services. Cost of revenue increased each quarter primarily due to
the development of the eGain Hosted Network and increased personnel costs.
Sales and marketing expenses increased substantially during the quarters ended
March 31, 1999 and June 30, 1999 due to marketing programs related to the
launch of eGain EMS and the increase in sales personnel costs. The amortization
of goodwill and other intangible assets recorded in the quarter ended June 30,
1999 is associated with our acquisition of Sitebridge in April 1999.
We have incurred operating losses since inception, and we may never achieve
profitability in the future. We believe that future operating results will be
subject to quarterly fluctuations due to a variety of factors, many of which
are beyond our control. These factors may include our ability to do the
following:
. compete in a highly competitive eCommerce customer service market;
. expand our sales, marketing and customer support activities;
. create and maintain strategic relationships, including relationships with
our hosting partners;
. expand our customer base;
. introduce new products and services;
. upgrade our systems and infrastructure;
. reduce service interruptions; and
. recruit and retain key personnel.
Liquidity and Capital Resources
Since our inception in September 1997, we have financed our operations
primarily through the private placement of our preferred stock and, to a lesser
extent, through bank borrowings and capital equipment lease financing. As of
June 30, 1999, we had $1.3 million in cash and cash equivalents and $1.2
million of borrowings available under an equipment financing line of credit.
Net cash provided by financing activities was $6.4 million in fiscal 1999 and
was primarily attributable to net proceeds from the issuance of stock.
Net cash used in operating activities was $7.8 million in fiscal 1999. Cash
used in operating activities was primarily the result of net operating losses
(exclusive of non-cash charges) and increases in accounts receivable and
prepaid assets, partially offset by increases in accrued expenses and accounts
payable.
Net cash used in investing activities was $1.2 million in fiscal 1999. Cash
used in investing activities was primarily related to purchases of property and
equipment.
As of June 30, 1999, our principal commitments consisted of obligations
outstanding under operating leases. Although we have no material commitments
for capital expenditures, we anticipate a substantial increase in our capital
expenditures and lease commitments consistent with our anticipated growth in
operations, infrastructure and personnel.
27
<PAGE>
During fiscal 1999, we obtained a line of credit with a bank for equipment
purchases and working capital financing in the amount of $1.0 million and an
equipment line of credit with a leasing company in the amount of $1.5 million.
As of June 30, 1999, approximately $1.0 million was outstanding under the bank
line of credit and approximately $342,000 was outstanding under the equipment
credit facility. In addition, in connection with the acquisition of Sitebridge,
we assumed two promissory notes in the total principal amount of $380,000.
Our capital requirements depend on numerous factors, including market
acceptance of our services, the resources we allocate to our hosted network,
sales, marketing and customer support services, and other factors. We have
experienced substantial increases in our expenditures since our inception
consistent with growth in our operations and personnel, and we anticipate that
our expenditures will continue to increase for the foreseeable future.
We believe that the net proceeds from the sale of common stock offered
hereby, together with our current cash balances and cash available under our
lines of credit, will be sufficient to meet our working capital and capital
expenditure requirements for at least the next 12 months. In addition, although
there are no present understandings, commitments or agreements with respect to
any acquisition of other businesses, products or technologies, we from time to
time evaluate potential acquisitions of other businesses, products and
technologies and may in the future require additional equity or debt financings
to consummate any potential acquisitions. We may also need to raise additional
funds, however, in order to fund more rapid expansion, including significant
increases in personnel and office facilities, to develop new or enhance
existing services or products or respond to competitive pressures. In addition,
in order to meet our long term liquidity needs, we may need to raise additional
funds, establish a credit facility or seek other financing arrangements.
Additional funding may not be available on favorable terms, if at all.
Disclosure About Market Risk
Our exposure to market risk is principally confined to our cash and cash
equivalents, which have short maturities and, therefore, minimal market risk.
Year 2000 Issues
Background
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any computer
programs or hardware that have date-sensitive software or embedded chips may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in system failures or miscalculations causing disruptions of
operations for any company using such computer programs or hardware, including,
among other things, a temporary inability to process transactions, send
invoices or engage in normal business activities. As a result, many companies'
computer systems may need to be upgraded or replaced in order to avoid "Year
2000" issues.
State of Readiness
We initiated a Year 2000 compliance program in April 1999. Our quality
assurance group is directing the program for our internally developed products,
and our information technology group is directing the program for all other
operational areas. We are a comparatively new enterprise, and, accordingly, the
software and hardware we use to manage our business has all been purchased or
28
<PAGE>
developed by us within the last 24 months. While this fact pattern does not
completely protect us against Year 2000 exposure, we believe we gain some
mitigation from the fact that the information technology we use to manage our
business is not based upon older hardware and software systems developed when
there was less awareness of Year 2000 issues.
Our Product Testing
Our quality assurance team has tested the most current versions of eGain EMS
and eGain WCS for Year 2000 compliance. This team, led by a senior eGain
Product Manager and staffed by other eGain engineers and programmers, devised
and has been executing a Year 2000 compliance plan as follows:
. Phase 1--Inventory: Identify all products and product versions, including
eGain EMS, eGain WCS and discrete product modules, that might have Year
2000 related issues. This phase has been completed.
. Phase 2--Devise compliance tests: Devise appropriate and comprehensive
tests that would accurately determine whether the inventoried product
offerings, including eGain EMS, eGain WCS and discrete product modules,
are Year 2000 compliant. This included especially determining which
product features contained date data or other code that might be affected
by the Year 2000 issue. This phase has been completed.
. Phase 3--Conduct compliance tests: Perform the compliance tests on the
inventoried products. For both eGain EMS and eGain WCS, the members of
eGain's Year 2000 quality assurance team tested all potentially affected
product features to determine whether they could accurately recognize,
process, calculate, manipulate, sort, store and transfer date data
relating to a number of key dates. In particular, the team tested the
core functionality of the identified product features to assess their
performance prior to, through and after the following dates:
. December 31, 1999 to January 1, 2000 (millenium transition);
. February 28, 2000 to February 29, 2000 (first leap year transition in
the new millenium);
. February 29, 2000 to March 1, 2000 (second leap year transition in the
new millenium), and
. December 31, 2010 to January 1, 2011.
This phase has been completed.
. Phase 4--Remediation assessment: Determine, in light of the compliance
tests, whether any product-related remediation is necessary to address
any Year 2000 related issues. As a result of the compliance tests, our
quality assurance team has determined that, when running on Year 2000
compliant hardware and operating systems, the most current versions of
eGain EMS and eGain WCS are Year 2000 compliant according to the
following definition:
. they can process, calculate, manipulate, sort, store and transfer date
data without material error or material performance degradation, while
taking into account century boundaries and leap years where required,
and
. they can operate between year 1999 and year 2000 without producing
date-related errors.
29
<PAGE>
Because our products obtain and process all date information (such as
creation dates, modification dates, and time/date stamps) from the
underlying operating system being used by our customers, the foregoing
statement only applies if:
. the other software, hardware, networks and systems with which our
applications interface are themselves Year 2000 compliant according to
the above definition, and
. our products are used in accordance with applicable documentation and
other operating instructions provided by eGain.
Our quality assurance team has determined that there are a small number of
code files relating to search and reporting features in the current version
of eGain EMS that may have Year 2000 related problems. These are peripheral
product features unrelated to the core email receiving and processing
functionality of eGain EMS. Nonetheless, our Products Group has already
designed a patch that addresses these performance issues to be installed on
all hosted and existing eGain EMS licensed customers. Future eGain EMS
customers will receive product versions that do not contain the affected
files.
The remediation assessment phase has been completed.
. Phase 5--Deploy remediation: The patch designed to remedy the minor Year
2000 related issues identified in eGain EMS is scheduled to be deployed
to all existing customers no later than September 30, 1999.
Our Internal System
The scope of our internal Year 2000 compliance program plan covers all
computing and network resources within the eGain enterprise. This internal
compliance program is being directed by eGain's Manager of Information
Technology and a team of eGain IT professionals. As with our product-related
Year 2000 program, our internal program is comprised of a number of phases as
follows: inventory all internal hardware, software, and operating systems for
year 2000 compliance; devise a testing plan for all identified systems; conduct
compliance testing; assess any necessary remediation measures to address any
problems discovered through the compliance testing and deploy any necessary
remediation measures.
Our Year 2000 internal compliance team has completed all but the final phase
of the compliance program. We have obtained Year 2000 certification for
substantially all hardware, software and other systems we use, and we require
such certification on all new systems we have purchased or will consider
purchasing. The only noncompliant systems we have identified relate to certain
Microsoft products and software programs, including Microsoft NT 4.0, 95 and 98
operating systems, Microsoft Office 97, Microsoft SQL 6.5 database servers, and
Microsoft Exchange 5.5 mail systems. All identified vulnerabilities within
deployed Microsoft applications and operating systems have been well-
publicized, and Microsoft has devised remediation paths for each affected
system. eGain's IT professionals are Microsoft Corporation Systems Engineers
certified and trained in the use of Microsoft Year 2000 tools and affected
eGain systems no later than September 15, 1999, and we foresee no problem
meeting that schedule. At that time, we believe all internal computing and
network resources within the eGain enterprise will be Year 2000 compliant.
30
<PAGE>
Budget
We have not incurred any significant expenses to date, and we do not
anticipate that any future costs associated with our Year 2000 remediation
efforts will exceed $100,000. Expenses associated with our Year 2000
remediation efforts will be funded from available cash reserves. We have not
deferred any specific IT projects due to our Year 2000 efforts, and we do not
anticipate doing so in the future.
Reasonably Likely Worst Case Scenario
If we, our customers, our providers of hardware and software, or our third-
party network providers fail to remedy any Year 2000 issues, the reasonably
likely worst case scenario would be the interruption of our services, which in
turn could require us to incur material costs or lose revenue. Presently, we
believe we are unable to reasonably estimate the duration and extent of any
such interruption, or quantify the effect it may have on our future revenue.
Contingency Plans
We expect our Year 2000 compliance program to be substantially completed by
September 1999. If we encounter delays or are unable to meet this schedule, we
will analyze non-compliant areas and develop a comprehensive contingency plan
to address the issues by October 1999.
See "Risk Factors--If we do not adequately address Year 2000 issues, we may
incur significant costs and our business could suffer."
Recent Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position No. 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." SOP 98-1 requires that entities
capitalize certain costs related to internal use software once certain criteria
have been met. We are required to adopt SOP No. 98-1 effective July 1, 1999. We
do not expect that the adoption of SOP No. 98-1 will have a material impact on
our financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Financial
Instruments and for Hedging Activities," which provides a comprehensive and
consistent standard for the recognition and measurement of derivatives and
hedging activities. SFAS 133 is effective for all fiscal quarters for fiscal
years beginning after June 15, 2000 and is not anticipated to have a
significant impact on our operating results or financial condition when
adopted.
31
<PAGE>
BUSINESS
Company Overview
We are a leading provider of customer service infrastructure for companies
engaged in eCommerce. Our products and related services are designed to help
businesses provide more effective Internet-based customer service, thereby
improving customer satisfaction and converting a higher percentage of Web site
visitors to buyers. We offer our solutions both as a Web-based hosted
application service through our eGain Hosted Network and as installed software
for in-house implementation. Approximately 50% of our current customers access
our applications through our eGain Hosted Network. Our customers include both
dedicated Internet companies, such as Go2Net, Snap.com and WebTV, and
traditional companies engaged in eCommerce, such as Mazda USA and FCC
National's Wingspan Bank.
Industry Background
Customer Service Is Critical to eCommerce
In a short period of time, the Internet has evolved from primarily an
information source to a new platform for commerce. International Data
Corporation, or IDC, estimates that the number of customers buying goods and
services over the Internet worldwide will grow from approximately 30 million in
1998 to 133 million in 2002, and that the total value of goods and services
purchased over the Internet will increase from approximately $50 billion in
1998 to over $734 billion by 2002.
This growth has increased competitive pressures in online markets. To
maintain or gain market share, many businesses engaged in eCommerce are
focusing on the quality of customer service as a key competitive
differentiator. Providing high quality customer service may be even more
important on the Internet than it is in the physical world. Unlike a
traditional commercial setting where customers can talk to a customer service
representative either in person or by phone, customers on the Internet cannot
easily contact agents with their inquiries. Whether to ask about product
features, check the status of an order or get help with a loan application,
online consumers have traditional service needs, and they want to be assured
that these needs will be met before conducting a transaction. In the
increasingly competitive eCommerce environment, companies that fail to address
these customer service needs may lose sales to competitors located a mouse
click away.
The Need for eCommerce Customer Service Applications
Today, most online customer communication takes place through email. As email
volume is rising, the content within email messages is also becoming more
complex. However, many companies have not taken adequate steps to effectively
address this increase in email volume and complexity. According to a recent
survey by Jupiter Communications of 125 top eCommerce sites, 42% of the sites
either refused to accept an email message, never responded to the message or
took longer than five days to respond. These survey results suggest that online
customers are not receiving the level of service they demand.
Businesses engaged in eCommerce that provide poor customer service risk
losing customers. According to a recent survey by Net Effect Systems, two-
thirds of all online commercial transactions that are initiated are abandoned
before completion. By improving responsiveness to email and providing real-time
customer communication, companies can convert more of these potential buyers
into actual customers. Moreover, by analyzing captured customer communications,
companies can gain insight into customer preferences to create new revenue
opportunities.
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<PAGE>
To help address online customer service shortcomings, companies are beginning
to adopt technologies to help them manage email and other forms of online
customer communication. The market for these products is growing rapidly. IDC
estimates that worldwide license revenues for eCommerce customer service and
support applications will grow from $42 million in 1998 to $1.6 billion by
2002.
Existing Customer Service Approaches Are Insufficient
The market for online customer service software applications has developed
mainly because existing approaches to online customer service are typically
unable to effectively handle large volumes of email. Traditional client-server
customer service systems were designed primarily to manage telephone call
center operations and are typically expensive and difficult to deploy and
maintain. Recognizing this, many companies engaged in eCommerce, particularly
companies that came early to the Internet, have developed in-house solutions
for customer service email management. These internally developed approaches,
while customized to fit a company's needs, can also be expensive and time-
consuming to develop and maintain. Furthermore, many in-house systems have
difficulty scaling to keep pace with the rapid expansion of eCommerce.
More recently, several vendors have developed point solutions, or software
packages to handle specific online customer service needs, such as email
management, real-time Web collaboration or self-service. However, these point
solutions often do not work well with each other or integrate easily with a
company's existing legacy system. This lack of integration makes them expensive
to implement and maintain. As a result, there is an increasing need for an
online customer service platform that offers applications that can handle
multiple channels of communication, scale to meet growing Internet-based
communication needs and integrate easily with a company's existing legacy
systems.
The Trend Toward Hosted Customer Service Applications
As the number of software business applications grows and their technological
complexity increases, many companies are recognizing the benefits of the hosted
application service model. Under a typical application hosting arrangement, a
company can enjoy the business benefits of an application without having to
devote the resources to install, maintain and continually upgrade it. These
functions are performed instead by the application hosting provider. The recent
evolution of the Internet into a relatively secure and reliable network has
increased the demand for hosted applications. Also, there is a new generation
of software applications that has been designed specifically to run in a Web-
based environment. Finally, the recent emergence of global physical hosting
providers has created the connectivity and co-location facilities required to
support these applications. The convergence of these trends has led to the
growing appeal of the hosted model today. According to a recent Yankee Group
study, the market for enterprise applications hosting services, including
customer service applications, is projected to grow from $3 billion in 1999 to
$11 billion in 2002.
The Web-based application hosted model is appropriate for customer service
applications for several reasons. The hosted option allows businesses engaged
in eCommerce to deploy a customer service solution rapidly without using
valuable internal resources. In addition, many companies doing
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business over the Internet rely on geographically dispersed customer service
departments to meet their rapidly growing, 24-hours, 7-days a week customer
needs. The hosted model provides the network security and ease of maintenance
that are crucial to these companies. Finally, many of these companies prefer to
outsource the management and maintenance of customer service applications and
instead focus on developing proprietary customer service processes and content.
For these reasons, we believe that hosting is becoming a preferred delivery
model for eCommerce customer service applications.
The eGain Solution
We provide our customers with a Web-based customer service platform that can
be delivered either as a hosted application service or as in-house software.
Our solution helps companies route, track and respond to high volumes of
customer email and Web form inquiries and allows customer service
representatives to provide real-time online assistance to these customers. Our
applications work together with a company's existing customer service and
database software to provide customer service representatives with
comprehensive information about each customer. We provide our solutions to
businesses seeking to use their customer support capabilities as a competitive
tool to convert Web site visitors to buyers, build lasting customer
relationships and generate incremental revenue. Our customers realize both
strategic and operating benefits of our solution.
Strategic Benefits
Strengthen Customer Relationships. Our eGain Email Management System, or
eGain EMS, is a software application that allows our customers to respond
rapidly and effectively to large volumes of email. Based on business rules set
by our customers, eGain EMS can automatically respond to customer emails or
route each inquiry to an appropriate customer service representative for
personalized attention. The combination of a timely, automated response and
personalized attention improves customer satisfaction and helps build lasting
customer relationships.
Convert Web Site Visitors to Buyers. Our eGain Web Collaboration System, or
eGain WCS, facilitates real-time online communication between the customer and
a company's customer service organization. Online visitors can interact
directly with a company's customer service representative and inquire about a
potential purchase. This personalized and immediate interaction increases the
likelihood that a Web site visitor will complete a purchase.
Scale to Meet Growing eCommerce Demands. Many companies find that their
customer service infrastructure is unable to handle the higher volume and
complexity of customer communication. Our architecture allows us to
incrementally add hardware capacity to address increased customer communication
volume. Whether provided through our hosted network or deployed in-house, our
products provide a customizable solution to the growing business needs of our
customers.
Rapidly Deployable Solution. Our platform is designed to allow business to
quickly deploy customer service capabilities as an application service through
our eGain Hosted Network. Also, our applications can be rapidly customized
through Web-based interfaces.
Gain Customer Insight. Our solution enables companies to capture and analyze
customer communications in order to understand the needs and preferences of
their customers. This understanding can provide a company with a competitive
advantage when targeting customers for
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future promotions and cross-selling opportunities. In addition, comprehensive
knowledge of a customer's needs and preferences can be used strategically to
enhance a company's product offerings.
Operating Benefits
Maximize Productivity of Customer Service Organization. By using the
productivity tools on our platform, customer service representatives can
respond rapidly to complex customer inquiries. Our tracking and workload
reporting features enable supervisors to monitor service levels and agent
productivity. Our customizable workflow capability allows managers to improve
team performance by intelligently distributing workload.
Reduce Cost and Administrative Burden. Customers using the eGain Hosted
Network recognize cost efficiencies by eliminating the need to manage and
administer in-house customer service applications. Moreover, by increasing
productivity, our applications enable companies to reduce personnel costs
associated with their customer service functions.
Integrate Applications to Provide Comprehensive Customer Information. Our
applications are based on open standards and can be integrated easily with
leading eCommerce platforms, call center systems and customer databases. This
integration enables customer service representatives to combine information
from multiple applications to provide customer service representatives with
comprehensive customer information.
The eGain Strategy
Our objective is to be the leading provider of customer service
infrastructure for businesses engaged in eCommerce. Our strategy for achieving
this objective includes the following elements:
Capitalize on First Mover Advantage and Extend Brand Recognition. We were the
first company to offer a platform for Internet-based customer service both as a
hosted application service and as installed software. In addition, we were the
first to offer a customer service platform incorporating both email management
and Web-based collaboration. Having invested early in advertising our solution
and building our brand, we intend to capitalize on our first mover advantage
and extend our brand recognition to become the de facto standard for Internet-
based customer service solutions.
Expand the eGain Hosted Network. We believe that the benefits of the eGain
Hosted Network offer compelling advantages over competing alternatives. These
advantages include the ability to leverage eGain's expertise, easy scalability,
low up-front costs, fast deployment, system security and 24-hour, 7 days-a-week
support. We plan to expand hosting centers in California and add centers in New
York, London and other cities to meet customer needs.
Introduce Value-Added Products. We intend to differentiate ourselves in the
customer service market by adding new products to our platform. For example, we
recently added the eGain WCS, which allows businesses to offer personalized
live online assistance to visitors on their Web site. In the future, we intend
to enhance our platform by leveraging new technologies, such as voice over
Internet Protocol, or voice over IP, which enables voice communications to take
place over the Internet.
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Expand Strategic Relationships. We intend to enter into strategic
relationships that can assist us in marketing and distributing our products.
We plan to expand existing and enter into new strategic relationships with
external hosting partners, front office software companies, outsourced call
center companies and systems integrators focused on eCommerce.
Expand Our International Presence. In addition to expanding our domestic
marketing efforts, we intend to expand internationally. We have recently
formed a subsidiary in the United Kingdom. We have also commenced product
localization efforts for some European and Asian languages. We intend to
capture international market share by marketing overseas, establishing
additional sales offices and developing strategic relationships.
Products and Services
We provide customer service infrastructure for companies engaged in
eCommerce. Our solutions are built on a scalable, Web-based architecture
designed to meet the growth in Internet-based communications. Our products are
built on technologies that are based on industry standards and are therefore
designed to integrate with existing customer databases and applications.
Our two primary Web-based applications, eGain EMS and eGain WCS, are
designed to manage the high volume and complexity of online customer
communication, including email and live interactions on the Web. Our
applications are available to our customers both as a hosted application
service and as installed software. Although each application may be purchased
separately, our applications are designed to work closely with one another and
to integrate into a company's existing software architecture.
Product and Service Offerings
. eGain Email Management System (eGain EMS) -- an application that helps
companies route, track and respond to high volumes of customer email and
Web form inquiries.
. eGain Web Collaboration System (eGain WCS) -- an application that allows
customer service representatives to provide live assistance to customers
through real-time Web interaction.
. eGain eCommerce Bridge -- an application-linking module that enables
rapid integration of eGain EMS with external eCommerce platforms, call
centers and customer databases.
. Professional Services -- includes application management services,
security services and customer support services.
Flexible Deployment
. eGain Hosted Network -- a company may access our solution through the
eGain Hosted Network, a network of eGain service centers and hosting
partners linked by high speed Internet connections designed to host our
customer service applications.
. In-house installation -- a company may implement our solution in-house
and either maintain the application internally or outsource management of
the application to eGain.
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The following provides an overview of our products and services:
[A graphic depicting the various components of the eGain product
and service offerings appears here. Graphic includes eGain
applications, eGain Web Component Architecture, eGain Hosted Network
and eGain Commerce Bridge. ]
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eGain Application Platform
eGain EMS
eGain EMS is a Web-based application that enables customer service
departments to route, track and respond to high volumes of customer email and
Web form inquiries. Using eGain EMS, companies can maintain a comprehensive
customer communication history and improve customer satisfaction with prompt
and effective responses. eGain EMS is designed to scale to the customer service
needs of any company engaging in eCommerce, regardless of size.
Companies using eGain EMS receive emails and Web form inquires from their
email servers or Web sites. Based on business rules selected by the company,
these emails are categorized using a form of artificial intelligence technology
called statistical vector analysis. Once categorized, eGain EMS will send an
automated response or route the email to the appropriate customer service
representative with suggested responses. The customer service representative
can use our productivity tools to access relevant customer-related information
and prepare an effective response. Supervisors use our Web-based monitoring
capability to set performance levels and track service levels. Managers use our
flexible, Web-based reporting system to monitor workload, analyze trends in
customer communications and forecast resource needs. Finally, businesses can
use customer information captured in our system using our direct mail manager,
a system that helps create and target personalized mailings based on customer
attributes. This proactive, targeted customer communication helps strengthen
customer relationships and provides new revenue opportunities.
<TABLE>
<S> <C> <C>
Feature Description Benefits
</TABLE>
Email Processing . Tracks all inbound and . Maintains complete
and outbound email customer
Categorization . Develops Web forms to link communication history
to email . Increases effectiveness
. Categorizes communications of responses to customer
using inquiries
predetermined instructions
- --------------------------------------------------------------------------------
eGain Artificial . Uses statistical vector . Enables routing and
Intelligence analysis, a robust automatic response by
artificial intelligence reading incoming email
technology, to "read" and
determine the substance of
incoming emails
- --------------------------------------------------------------------------------
Powerful Workflow. Specifies instructions for . Routes each inquiry to
email routing appropriate CSR
. Pre-built instruction . Enables better workflow
library for various call decisions based on
center functions, including enhanced knowledge about
load-balancing, skill-based customers
routing, shift management
and quality of service
management
- --------------------------------------------------------------------------------
Knowledge . Searchable knowledge base . Continually gathers,
Database . Content can be dynamically reviews and disseminates
constructed from foreign knowledge efficiently
data sources . Allows CSRs to use the
. Real-time system-wide most current information
knowledge update to respond to issues
- --------------------------------------------------------------------------------
Customer Service . Customizable high-speed Web . Increases CSR
Representative interface productivity
(CSR) . Provides suggested . Improves customer
Productivity responses, response satisfaction with prompt
Tools templates, group email and effective responses
reply, multiple-issue
emails, customer search
capability and audit trails
- --------------------------------------------------------------------------------
System Monitoring. Web-based interface for all . Enables supervisors to
and system monitoring customize, set
Administration and administration performance levels and
. Monitors system load, agent monitor with "point-and-
productivity and service click" ease
levels
- --------------------------------------------------------------------------------
Enterprise . Real-time and historical . Allows administrators to
Management reports plan system capacity
Reporting . Preconfigured and using workload reports
customizable reports . Enables company to
. Archived reports for analyze trends in
analysis and forecasting customer communication
. Scheduled report delivery
through email
- --------------------------------------------------------------------------------
Direct Mail . Creates personalized content . Enables companies to
Manager and targets email based on conduct targeted
customer attributes promotions, proactively
. Captures responses and links address customer concerns
to mailings to monitor and survey customer
efficacy satisfaction
- --------------------------------------------------------------------------------
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eGain WCS
eGain WCS enables customer service representatives to answer customer
questions and provide interactive assistance over the Web using browser
sharing, text chat and assisted form-filling technology. Through eGain WCS, a
user is able to communicate with a customer service representative by simply
clicking a hyperlink on a company's Web site, which in turn prompts a customer
service representative to reply. Once connected, the customer service
representative and the customer can engage in a real-time online conversation.
The agent has access to comprehensive information about the customer's past
activity and browsing patterns. eGain WCS integrates with leading eCommerce
platforms, call center systems, computer telephony integration software,
customer databases and customer relationship management systems. eGain WCS is
designed to allow customer service representatives to handle multiple customer
interactions simultaneously, thereby reducing costs associated with traditional
call centers while delivering personalized service.
<TABLE>
<CAPTION>
Feature Description Benefits
<S> <C> <C>
Real-Time . Presents a real-time . Provides valuable
Collaboration interface optimized for the information to help close a
customer's specific platform sale
. CSR console displays the . Enables CSR to escort the
customer's profile along with customer through pre- or post-
a tracking summary of the sales situations
customer's activity on the Web
site
- -----------------------------------------------------------------------------------
Queuing and . Tracks customers as they . Queuing helps company route
Profiling interact with specific pages the inquiries to appropriate
. Displays the hyperlinks to CSRs
pages visited by customer . Profiling collects customer
information before a CSR
addresses an inquiry
- -----------------------------------------------------------------------------------
Monitoring, . Generates a summary screen . Enables managers to run
Reporting & at the end of a WCS session reports on customers and
Administration . Emails customer a transcript access customer profiles and
of the session, including all session transcripts
text chat and hyperlinks . Enables managers to audit
shared agent performance and
. Stores session information establish effective staffing
into a database policies
- -----------------------------------------------------------------------------------
WorksEverywhere . Patent-pending technology . Does not require downloading
that matches customers or installation of software
browsing platforms with
appropriate real-time
interaction method
. Works on browsers and . Offers live customer service
through firewalls and proxy to a broad customer base
servers
</TABLE>
eGain eCommerce Bridge
The eGain eCommerce Bridge allows eGain EMS to be easily linked with leading
eCommerce platforms, call center systems and customer databases. This allows
customer service representatives to get a complete profile of the customer by
pulling information from other systems, enabling them to formulate an informed,
personalized response by drawing on prior interactions with the customer. In
addition, the eCommerce Bridge can be used to update existing customer
databases with relevant customer information extracted from eGain EMS. We are
in the process of enhancing the eGain eCommerce Bridge to interface with eGain
WCS. We intend to enable remote application integration by implementing XML-
based interfaces. This remote integration capability would allow our hosted
customers to access their valuable customer information residing in in-house
applications behind corporate firewalls.
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We offer several pre-built adaptors that connect into our eCommerce Bridge to
link eGain applications with a variety of eCommerce platforms, call center
systems and relational databases. These adaptors minimize the need for custom
programming to integrate eGain applications with other enterprise software. We
currently offer adaptors for Microsoft Site Server (Commerce Edition) and
Remedy Action Response System, Siebel Systems Siebel 99, Intershop 3, Oracle
relational databases and ODBC-compliant databases. In the future, we intend to
continue to develop, as well as enable our partners to develop, adaptors to
other leading enterprise applications and call center solutions.
Professional Services
As of August 15, 1999, we had 38 professionals dedicated to providing a wide
range of professional services for application management, solution
development, system installation and training.
Our operations group provides application management services that offer a
24-hour, 7-days-a-week application response monitoring service. We also provide
database services to maintain and enhance the performance, availability and
reliability of production systems. Finally, we offer network security services
to prioritize, assess and address the security concerns of customers at
different levels based on their needs.
Our consulting group offers solution development and system integration
services. The team works with our customers to understand their specific
requirements, analyze their business needs and implement an integrated solution
based on the eGain customer service platform. The eGain eCommerce Bridge and
our industry expertise allow us to integrate enterprise-wide systems with our
customer service solutions. We provide these services ourselves or in
partnership with system integrators who have built consulting expertise on our
platform and can implement complete solutions for our clients.
Our installation group offers rapid implementation services designed to have
a customer up and running quickly. The installation teams are involved in
client engagement, needs assessment, EMS configuration, training and
activation.
Flexible Deployment
We offer our customer service solutions both as a Web-based hosted service
through our eGain Hosted Network and as a licensed software product that can be
implemented and maintained in-house.
eGain Hosted Network
Through a network of eGain service centers and hosting partners linked by
high-speed Internet connections, we provide our customers with multiple
redundant paths to access their hosted customer service applications. We
remotely manage these applications which reside on server machines co-located
at our hosting partners' facilities. We believe the eGain Hosted Network
provides a compelling alternative for companies engaged in eCommerce that seek
to quickly deploy and efficiently scale their customer service capabilities. We
have strategically located eGain service centers in Sunnyvale (Silicon Valley),
London and New York. We select our co-location partners with a view to
providing high bandwidth availability, peering arrangements with other Internet
service providers and global presence. As part of our eGain Hosted Network, we
offer value-added services for application management, database maintenance,
mail hosting and anti-virus protection.
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We have invested early to build a scalable hosted network, and have recruited
experienced operations personnel to maintain the system effectively. For
example, our service centers are linked through dedicated high-speed
connections to the co-location centers to provide our customers with multiple
redundant paths to access their hosted customer service applications. In the
event one of these links fails, user traffic can be quickly rerouted for
continued operations. We have also developed proprietary Web-based hosted
service management systems, enabling our service professionals to efficiently
administer and manage large numbers of hosted customer applications. For
example, we have developed Web-based software tools to monitor application
response and system health.
[Graphic depicting architecture of the eGain Hosted Network appears
here. Graphic depicts the relationships between eGain, its customers
and its hosting partners in the eGain Hosted Network.]
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Sales and Marketing
Sales Strategy
We sell our customer service solutions either as a subscription-based hosted
service or as a licensed software product for installation in-house. We sell
primarily through a worldwide direct sales organization and target our sales to
companies seeking to improve customer relations and increase their eCommerce
activities.
During our sales process, we typically approach the head of customer service
of the organization. In smaller companies, our sales personnel, working closely
with the sales engineers, make product demonstrations and presentations to
address a customer's needs. In larger accounts, we often engage our
professional services team, and in some cases, strategic partners to create
customer-specific demonstrations, presentations and proposals.
As prospective customers proceed towards selecting our products and services,
our professional services team manages the project and may work with outside
system integrators to facilitate timely deployment. Our services team delivers
customer and partner training through lectures, demonstrations, discussions and
hands-on use of our solutions. Following implementation, our account managers
work with the customers to identify and serve their ongoing needs, freeing up
our sales professionals to focus on new business opportunities.
Marketing Strategy
Our marketing strategy is to continue to build brand awareness of eGain as a
leading provider of customer service infrastructure solutions for eCommerce. We
focus our marketing efforts on dedicated Internet companies as well as
traditional companies seeking to take advantage of the commercial opportunities
presented by eCommerce.
We rely on a range of available marketing avenues to pursue our objectives,
including print advertisements, email newsletters, Internet advertisements,
billboards, telemarketing, targeted direct mailing and a variety of trade
shows, seminars and interest groups.
Our marketing group assists our sales team by providing them with product
collateral materials, customer case studies, market surveys and customer
profiles. In addition, our marketing group helps identify and develop key
partnership opportunities and channel distribution relationships.
As of August 15, 1999, we had 40 sales and marketing professionals, including
sales engineers, major account representatives and channel/partner salespeople.
Our sales personnel are located in New York City, Washington DC, Minneapolis,
Toronto, Dallas, Los Angeles, Denver, Seattle and Sunnyvale. We plan to open
new sales offices and expand our direct sales force.
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Customers
We have over 100 customers, which include both dedicated Internet companies
and Fortune 1000 companies that have established a commercial Web site. The
following is a representative list of companies that have entered into
agreements to install eGain EMS or eGain WCS:
Internet Searching and
Computer Technology and Networking Auctions
Microsoft WebTV DoughNET
RealNetworks eGuard
Transition Networks FairMarket
USWeb/CKS Go2Net
Looksmart
Consumer e-Retail MediaRing.com
Chapters.ca Talk City
Cooking.com ONElist
Digital Chef Six Degrees
HMV Canada Snap.com
Internet Shopping Network Winebid.com
KB Toys
Financial Services
PlanetRx Consumer Financial Network
Shopping.com
Tucows i-Escrow
Nova Information Systems
Customer Service Centers Quote.com
Brigade Solutions
PanAmerican Call Centers Suretrade
Wingspan Bank
Sykes Enterprises
Manufacturing
Mazda USA
Customer Support
We provide customer support to our hosted customers on a 24-hour, 7-days-a-
week basis as part of the basic monthly hosting license fee. In addition, we
offer customers that license our applications and deploy them in-house the
option of purchasing customer support services for an annual fee. Our customer
support professionals refer complex customer issues as needed to our internal
technical support group, to diagnose and solve. Our customer support
representatives use the eGain EMS applications to manage telephone- and email-
based customer inquiries.
Strategic Relationships
We intend to develop strategic relationships which we believe will add
capabilities to our current product offering as well as help market our
products to new customers. Specifically, we seek to establish relationships
with distribution, hosting and solution providers.
Distribution. We intend to continue working with companies, both domestic and
international, to help us identify and close new customer opportunities and
expand market share. We intend to develop arrangements with call center
providers that require assistance in handling email and other Internet-based
customer inquiries for their clients. We also intend to distribute our products
in partnership with leading systems integrators and front office software
companies.
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Solution. We have worked with companies such as Inference, Microsoft, Oracle,
Remedy Corporation and Siebel Systems to ensure that our products can be
integrated easily with the database servers, front office software
applications, and other products they provide.
Hosting. The eGain Hosted Network is enabled by relationships with various
hosting providers that supply the database and connectivity hardware that
supports our applications. We currently have arrangements with AboveNet
Communications and Frontier GlobalCenter, two leading providers of managed co-
location and Internet connectivity. These hosting partners serve as data
centers that, in conjunction with eGain's information systems specialists,
guarantee redundant network and server infrastructure for continuous, 24-hour,
7-days-a-week availability of our applications to our hosted customers.
Competition
The market for eCommerce customer service solutions is relatively new and
growing rapidly. We expect the level of competition in this evolving market to
intensify in the future, as new and existing competitors seek to provide
products and services for our market.
Our current principal competitors for our licensed software products include:
.Brightware, Inc.,
.Kana Communications, Inc.,
.Mustang Software, Inc.,
.Silknet Software, Inc. and
.Webline Communications Corp.
While we were the first company to offer a customer service applications
platform in a hosted environment, some of our competitors for licensed software
products are now beginning to offer hosted approaches.
We also face competition from larger, front office software companies such
as:
.Clarify, Inc.,
.Oracle Corporation,
.Siebel Systems, Inc. and
.The Vantive Corporation.
In the future, we may face competition from established software companies such
as IBM, Hewlett-Packard, Microsoft and others that may seek to enter the market
for eCommerce customer service solutions.
We believe that the principal competitive factors affecting our market are
product features; product performance, including scalability, flexibility and
availability, price, quality of support and service and brand reputation. We
believe that our products currently compete favorably with respect to these
factors; however, our market is evolving rapidly, and we expect to face
increased competition for our product offerings. Some of our competitors have,
and our future competitors may have, longer operating histories, larger
customer base, greater brand recognition and significantly
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greater financial, marketing, technical, support and other resources. Some of
these competitors may be able to devote greater resources to marketing and
promotional campaigns, adopt more aggressive pricing policies or devote
substantially greater resources to product development.
We may not be able to compete successfully against our current and future
competitors. See "Risk Factors--We must compete successfully in the eCommerce
customer service market."
Technology
All of our software products are built on a standards-based, scalable
architecture designed to address the evolving needs of companies engaged in
eCommerce. Specifically, our software is based on our proprietary eGain Web
Component Architecture, or eGain WCA, an open, scalable framework for software
design that builds upon three industry trends:
. widespread availability of reliable Internet connectivity to businesses,
which is enabling the delivery and management of hosted applications over
the Internet;
. investment in Internet technologies, which is driving development of new
Web applications that natively incorporate powerful and flexible
protocols; and
. the success of component-based software development models which provide
the tools for developing robust distributed software applications.
Our eGain WCA is a more scalable approach to application design compared to
traditional client-server or three-tier architectures. For example, in contrast
to client-server or three-tier architectures that require the download and
maintenance of dedicated client-side software, our eGain WCA does not require
the download of any client software. This allows use of the application from
anywhere across the Internet through a standard Web browser. In contrast to
traditional monolithic server-side applications where scalability meant buying
the fastest server machines with maximum memory, the eGain WCA adopts a divide-
and-conquer approach by using distributed processing in a modular hardware
environment.
The component-based software model of our eGain WCA makes it more fault-
resilient and flexible than traditional architectures. Each component can be
diagnosed and monitored independently, and the overall system does not stop if
there is a problem with an individual component. Moreover, each independent
software component can be readily swapped out or augmented to meet the specific
needs of customers.
Our eGain WCA organizes software into logical layers: Presentation,
Application, Service, Object and Data. Each layer consists of software
components that implement specific tasks, and each component offers a well-
defined external programming interface. In addition, each layer includes as an
option a management service that oversees the activities of the components
within that layer. This modular approach facilitates customization and provides
flexibility for future enhancements.
. Presentation Layer. The Presentation Layer localizes the look and feel
logic of the user interface so that customization of the user interface
can be easily managed. Our user interface can be accessed through
standard browsers.
. Application Layer. The design of the Application Layer offers high
reliability and scalable performance by balancing and allocating workload
across multiple application servers.
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. Service Layer. The Service Layer comprises the core set of independent
services that receive, parse, route and dispatch emails. The eGain
service manager monitors all the service instances in real-time, alerting
the system administrator of any performance bottlenecks.
. Object Layer. The Object Layer allows new types of business objects to be
added as needed to handle richer customer service models. This layer
presents to the Application and Service Layers a logical view to system
data in the form of business objects such as a ticket, user, customer and
message.
. Data Layer. The Data Layer allows for greater database portability by
insulating the objects from vendor specific difference across databases.
This layer manages the data access across various data sources and
maintains connection pools for efficiency.
Intellectual Property
We regard our copyrights, service marks, trademarks and similar intellectual
property as critical to our success. We rely on patent, trademark, copyright,
trade secret and other laws to protect the proprietary aspects of our
technology and business. We have no patents to date. We presently have one
patent pending for our WorkEverywhere technology that matches customers'
browsing platform with appropriate real-time interaction method. We also have
several trademark applications pending. Our trademarks include:
. eGain,
. eGain EMS,
. eGain WCS,
. eGain Hosted Network and
. eGain eCommerce Bridge.
We will continue to assess appropriate occasions for seeking patent and other
intellectual property protections for those aspects of our technology that we
believe constitute innovations providing significant competitive advantages.
The pending and any future applications may or may not result in the issuance
of valid patents and trademarks.
We routinely require our employees, customers, and potential business
partners to enter into confidentiality and nondisclosure agreements before we
will disclose any sensitive aspects of our products, technology, or business
plans. In addition, we require employees to agree to surrender to eGain any
proprietary information, inventions or other intellectual property they
generate or come to possess while employed by us. Despite our efforts to
protect our proprietary rights through confidentiality and license agreements,
unauthorized parties may attempt to copy or otherwise obtain and use our
products or technology. These precautions may not prevent misappropriation or
infringement of our intellectual property.
Third parties may infringe or misappropriate our copyrights, trademarks and
similar proprietary rights. In addition, other parties may assert infringement
claims against us. Although we have not received notice of any alleged
infringement, our products may infringe issued patents that may relate to our
products. In addition, because patent applications in the United States are not
publicly disclosed until the patent is issued, applications may have been filed
which relate to our software products. We may be subject to legal proceedings
and claims from time to time in the ordinary course of our business, including
claims of alleged infringement of the trademarks and other
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intellectual property rights of third parties. Intellectual property litigation
is expensive and time-consuming and could divert management's attention away
from running our business. This litigation could also require us to develop
non-infringing technology or enter into royalty or license agreements. These
royalty or license agreements, if required, may not be available on acceptable
terms, if at all, in the event of a successful claim of infringement. Our
failure or inability to develop non-infringing technology or license the
proprietary rights on a timely basis would harm our business.
Employees
As of August 15, 1999, we had 155 full-time employees, including 49 in
research and development, 47 in services, 40 in sales and marketing and 19 in
general and administrative. None of our employees are covered by collective
bargaining agreements. We believe our relations with our employees are good.
Legal Proceedings
We are not a party to any material legal proceeding. We may be subject to
various claims and legal actions arising in the ordinary course of business.
Facilities
Our corporate headquarters are located in Sunnyvale, California, where we
occupy approximately 46,000 square feet under a lease expiring in September
2001. We also maintain a direct operating presence through offices in New York
City and London. We believe our facilities will be adequate to meet our
requirements for at least the next 12 months.
47
<PAGE>
MANAGEMENT
Directors, Executive Officers and Key Employees
Our directors, executive officers and key employees and their ages as of
August 15, 1999 are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Ashutosh Roy............ 33 Chief Executive Officer and Chairman
Gunjan Sinha............ 32 President and Director
Harpreet Grewal......... 32 Chief Financial Officer
Robert Apollo........... 44 Vice President and General Manager of European Operations
Ravinder Grewal......... 37 Vice President of Services
Ram Kedlaya............. 40 Vice President of Products
Stephen E. Klann........ 55 Senior Vice President of Sales
Wendell W. Lansford..... 30 Vice President of New Business Initiatives
Prakash Mishra.......... 30 Vice President of Technology
Ryan M. Rosenberg....... 38 Vice President of Marketing
Eric N. Smit............ 37 Vice President of Finance and Administration
A. Michael Spence
(1)(2)................. 55 Director
Mark A. Wolfson(1)(2)... 46 Director
</TABLE>
- --------
(1) Member of audit committee.
(2) Member of compensation committee.
Ashutosh Roy co-founded eGain and has served as Chief Executive Officer and a
director of eGain since September 1997. From May 1995 through April 1997, Mr.
Roy served as Chairman of WhoWhere? Inc., an Internet-service company co-
founded by Mr. Roy. From June 1994 to April 1995, Mr. Roy co-founded Parsec
Technologies, a call center company based in New Delhi, India. From August
1988, to August 1992, Mr. Roy worked as Software Engineer at Digital Equipment
Corp. Mr. Roy holds a B.S. in Computer Science from the Indian Institute of
Technology, New Delhi, a Masters degree in Computer Science from Johns Hopkins
University and an MBA from Stanford University.
Gunjan Sinha co-founded eGain and served as a director of eGain since
inception in September 1997 and as President of eGain since January 1, 1998.
From May 1995 through April 1997, Mr. Sinha served as President of WhoWhere?
Inc., an Internet-services company co-founded by Mr. Sinha. Prior to co-
founding WhoWhere? Inc., Mr. Sinha was a developer of hardware for
multiprocessor servers at Olivetti Advanced Technology Center. In June 1994,
Mr. Sinha co-founded Parsec Technologies. Mr. Sinha holds a degree in Computer
Science from the Indian Institute of Technology, New Delhi, a Masters degree in
Computer Science from UC Santa Cruz, and a Masters degree in Engineering
Management from Stanford University.
Harpreet Grewal has served as Chief Financial Officer of eGain since July
1999. From November 1998 to July 1999, Mr. Grewal served as Chief Financial
Officer of Pepsi-Cola's North American Fountain Beverage Division. From April
1996 to October 1998, Mr. Grewal held various positions in PepsiCo's Corporate
Strategy and Development Group. From August 1995 to March 1996, Mr. Grewal
worked for International Equity Partners, a private equity firm. Mr. Grewal
holds a Masters degree in International Studies from the Johns Hopkins School
of International Studies and a B.A. in Economics from the University of
California, Berkeley.
48
<PAGE>
Robert Apollo has served as Vice President and General Manager of European
Operations of eGain since June 1999. From July 1998 to May 1999, Mr. Apollo
served as Vice President, European Operations of Sterling Commerce, an
eCommerce software and services provider. From June 1996 to July 1998, Mr.
Apollo served as Vice President and Managing Director, International, of
XcelleNet Limited, a remote and mobile systems management vendor. From February
1990 until March 1996, Mr. Apollo held various positions at The Santa Cruz
Operation, Inc. and most recently served as Vice President of Marketing for
Europe, Middle East and Africa of The Santa Cruz Operation, Inc. Mr. Apollo
holds a B.A. in Business Studies from Thames Valley University (formerly known
as Ealing College of Higher Education).
Ravinder Grewal has served as Vice President, Worldwide Professional Services
since March 1999. From January 1998 to February 1999, Mr. Grewal served as a
director of Documentum, an enterprise document management software company.
From February 1997 to January 1998, Mr. Grewal served as Vice President,
Consulting for Workgroup Management, Inc., a knowledge management consulting
firm that was acquired by Documentum in January 1998. From May 1995 to February
1997, Mr. Grewal served as Senior Project Director of MCI Systemhouse, a
telecommunications company. From January 1994 to May 1995, Mr. Grewal served as
Director of KPMG/Kanbay Resources (HK) Ltd., a management consulting company.
Mr. Grewal holds a B.S. in Computer Science from the University of California,
Berkeley.
Ram Kedlaya has served as Vice President, Products, of eGain since December
1998. From August 1992 to March 1998, Mr. Kedlaya was a co-founder of NUKO
Information Systems, a provider of networking products and solutions for
broadband network service providers. Mr. Kedlaya served in several positions at
NUKO, most recently as a Vice President, Strategic Planning. Mr. Kedlaya holds
an M.S. in Computer Science from the University of Texas, Austin and a B.S.
from the Indian Institute of Technology, Madras.
Stephen E. Klann has served as Senior Vice President of Sales of eGain since
July 1999. From May 1998 to July 1999, Mr. Klann served as Vice President of
Sales of eGain. Prior to joining eGain, Mr. Klann spent 13 years with Honeywell
Information Systems and 3 years with Wang Labs in various sales management
positions. He then spent 5 years as Vice President of Sales for Interleaf, 3
years as Vice President of Sales and Marketing for Frame Technology and 2 years
as President and CEO of IXI Software Corporation. Over the past 5 years and
just prior to joining eGain, Mr. Klann has been serving in long-term Vice
President capacities as a consultant from State of the Art, Open Text, Thinking
Tools and ShareData.
Wendell W. Lansford has served as Vice President of New Business Initiatives
of eGain since May 1999. From September 1996 to May 1999, Mr. Lansford served
as President and Chief Executive Officer of Sitebridge Corporation, an
ECommerce customer service software company which was acquired by eGain. From
March 1995 to September 1996, Mr. Lansford served as Director of Technology of
CondeNet, the Internet division of Conde Nast Publications. From September 1994
to March 1995, Mr. Lansford served as Partner of Lancomp, a systems integration
and consulting firm. From May 1991 to September 1994, Mr. Lansford served as
Member of Technical Staff of Bellcore, a telecommunications research firm which
was recently renamed Telcordia. Mr. Lansford holds a Masters degree in
Information Networking from Carnegie-Mellon University, and a B.S. in
Electrical Engineering from the University of Tulsa.
Prakash Mishra has served as Vice President of Technology of eGain since May
1999. From September 1996 to May 1999, Mr. Mishra served as Chief Technology
Officer and Executive Vice
49
<PAGE>
President of SiteBridge Corporation, an eCommerce customer service software
company. From August 1994 to September 1996, Mr. Mishra served as Associate in
Fixed Income Research at Goldman, Sachs & Co. From January 1994 to August 1994,
Mr. Mishra served as Principal of Internet Consulting Corporation, a New York-
based Internet business consultancy. Mr. Mishra holds a Masters degree in
Information Networking from Carnegie-Mellon University, and a B.S. in Computer
Engineering from Rensselaer Polytechnic Institute.
Ryan M. Rosenberg has served as Vice President of Marketing of eGain since
June 1998. From June 1996 to June 1998, Mr. Rosenberg served as Director of
Product Marketing for Symantec Corporation, a business and personal software
company. From November 1993 to June 1996, Mr. Rosenberg served as a Product and
Senior Product Manager for Symantec. Mr. Rosenberg holds a B.S. in Computer
Science from Michigan State University, and an M.B.A. in Marketing from the
University of California, Los Angeles.
Eric N. Smit has served as Vice President, Finance and Administration of
eGain since June 1999. From June 1998 to June 1999, Mr. Smit served as Director
of Finance of eGain. From December 1996 to May 1998, Mr. Smit served as
Director of Finance for WhoWhere? Inc., an Internet services company. From
April 1993 to November 1996, Mr. Smit served as Vice President of Operations
and Chief Financial Officer of Velocity Incorporated, a software game developer
and publisher company. Mr. Smit holds a Bachelor of Commerce in Accounting from
Rhodes University, South Africa.
A. Michael Spence has served as a director of eGain since July 1999. Since
1990, Dr. Spence has served as Dean of the Graduate School of Business at
Stanford University. From 1984 to 1990, Dr. Spence served as Dean of Faculty of
Arts and Sciences at Harvard University. Dr. Spence also serves as a director
of General Mills, Inc., Nike, Inc., Siebel Systems, Inc., Sun Microsystems,
Inc., ITI Education Corporation and Torstar Corporation. Dr. Spence received a
B.A. in Philosophy from Princeton University, a B.A. and an M.A. in Mathematics
from Oxford University and a Ph.D. in Economics from Harvard University.
Mark A. Wolfson has served as a director of eGain since June 1998. Since
October 1998, Mr. Wolfson has served as a managing partner of Oak Hill Capital
Management, Inc. Prior to October 1998, Mr. Wolfson served as a principal of
Oak Hill Venture Partners, L.L.C. Since 1997, Mr. Wolfson has held the position
of professor at the Stanford University Graduate School of Business. Mr.
Wolfson holds a Ph.D. and a Masters degree from the University of Texas, Austin
and a B.S. from the University of Illinois.
Our Chief Financial Officer, Harpreet Grewal, and our Vice President of
Services, Ravinder Grewal, are brothers. There are no other family
relationships among any of our directors or executive officers.
Board Committees
Our board of directors has a compensation committee and an audit committee.
The compensation committee is responsible for determining salaries, incentives
and other forms of compensation for directors, officers and other employees of
eGain and administering various incentive compensation and benefit plans. Mark
Wolfson and Gunjan Sinha served as the compensation committee throughout the
last fiscal year. Mr. Wolfson and Mr. Spence are the current members of the
compensation committee. Ashutosh Roy, our chief executive officer, will
participate in all discussions and decisions regarding salaries and incentive
compensation for all employees and
50
<PAGE>
consultants of eGain, except that he will be excluded from decisions regarding
his own salary and incentive compensation.
The audit committee reviews our annual audit and meets with our independent
auditors to review our internal controls and financial management practices.
Mr. Wolfson and Mr. Roy served as the audit committee throughout the last
fiscal year. Mr. Wolfson and Mr. Spence are the current members of the audit
committee.
Director Compensation
Except for the grant of stock options, we do not currently compensate our
directors for their services as directors. Directors who are employees of eGain
are eligible to participate in our 1998 Stock Plan and our 1999 Employee Stock
Purchase Plan. In addition, we granted A. Michael Spence, a director of eGain,
an option to purchase 25,000 shares of our common stock. We also reimburse each
member of our board of directors for out-of-pocket expenses incurred in
connection with attending board meetings.
Executive Compensation
The following table provides summary information concerning compensation
earned by or paid to our chief executive officer and to each of our four other
most highly compensated executive officers whose total annual salary and bonus
exceeded $100,000, for services rendered in all capacities to eGain during the
fiscal year ended June 30, 1999. These individuals are referred to as the
"named executive officers."
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation
--------------- ------------
Security
Underlying
Name and Principal Position Salary Bonus Options (#)
- --------------------------- -------- ------ ------------
<S> <C> <C> <C>
Ashutosh Roy...................................... $100,008 $ -- --
Chief Executive Officer and Chairman
Gunjan Sinha...................................... 100,008 -- --
President
Stephen E. Klann.................................. 194,000 8,600 34,271
Senior Vice President of Sales
Ryan M. Rosenberg................................. 135,000 -- 145,000
Vice President of Marketing
Eric N. Smit ..................................... 105,381 -- 125,000
Vice President of Finance and Administration
</TABLE>
51
<PAGE>
Option Grants in Last Fiscal Year
The percentage of total options granted is based on an aggregate of 2,666,101
options granted in fiscal 1999. The exercise price on the date of grant was
equal to the fair market value on the date of grant as determined by the board
of directors. Options have a maximum term of 10 years subject to earlier
termination for specified events related to cessation of employment.
The 5% and 10%, assumed rates of appreciation are mandated by the rules of
the Securities and Exchange Commission and do not represent eGain's estimate or
projection of the future stock price. The values reflected in the table may
never be achieved. The dollar values have been calculated by determining the
difference between the fair market value of the securities underlying the
options at June 30, 1999 and the exercise prices of the options. Solely for
purposes of determining the value of the options at June 30, 1999, we have
assumed that the fair market value of shares of common stock issuable upon
exercise of options was $10.00 per share, the assumed initial public offering
price, since the common stock was not traded in an established market prior to
the offering.
All of Mr. Klann's options were immediately vested in full. Both of Mr.
Rosenberg's options and Mr. Smit's option for 50,000 shares vest as to 25% of
the shares on the first anniversary of the vesting start date and 1/48 of the
shares each full month thereafter. Mr. Smit's option for 75,000 shares vests as
to 12/45 of the shares on the first anniversary of the vesting start date and
1/45 of the shares each full month thereafter.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Percentage of Annual Rates of Stock
Total Options Exercise Price Appreciation for
Granted to or Base Option Term
Options Employees in Price Expiration -----------------------
Name Granted Fiscal 1999 ($/Share) Date 5% 10%
- ---- ------- ------------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Ashutosh Roy............ -- --% $ -- -- $ -- $ --
Gunjan Sinha............ -- -- -- -- -- --
Stephen E. Klann........ 8,671 0.3 .10 10/9/08 139,829 222,654
8,400 0.3 .20 1/29/09 134,091 213,517
3,200 0.1 .20 3/19/09 51,082 81,340
10,400 0.4 .40 5/20/09 162,629 258,959
3,600 0.1 .50 6/18/09 55,708 88,706
Ryan M. Rosenberg....... 125,000 4.7 .10 7/31/08 2,015,757 3,209,756
20,000 0.8 .20 1/29/09 319,263 508,374
Eric N. Smit............ 75,000 2.8 .10 10/9/08 1,209,454 1,925,854
50,000 1.9 .50 6/18/09 773,725 1,232,028
</TABLE>
52
<PAGE>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table assumes a per-share fair market value equal to the
initial public offering price of $10.00.
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Options at Fiscal In-the-Money Options at
Shares Year-End Fiscal Year-End
Acquired Value ------------------------- -------------------------
Name on Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
---- ----------- ---------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Ashutosh Roy............ -- $ -- --/-- $ --/--
Gunjan Sinha............ -- -- --/-- --/--
Stephen E. Klann........ 68,271 677,123 14,000/-- 134,040/--
Ryan M. Rosenberg....... 145,000 1,433,500 --/-- --/--
Eric N. Smit............ 86,500 849,425 50,000/-- 475,000/--
</TABLE>
Compensation Committee Interlocks and Insider Participation
The members of our compensation committee are currently Mark Wolfson and A.
Michael Spence. No interlocking relationship exists, or has existed in the
past, between the board of directors or compensation committee and the board of
directors or compensation committee of any other company.
1998 Stock Plan
Our 1998 Stock Plan was adopted by the board of directors in June 1998 and
will be amended and restated effective upon completion of this offering. Our
1998 Stock Plan provides for the grant of incentive stock options as defined in
Section 422 of the Internal Revenue Code to employees and the grant of
nonstatutory stock options and stock purchase rights to employees, non-employee
directors and consultants. A total of 3,500,000 shares of common stock has been
reserved for issuance under our 1998 Stock Plan as of June 30, 1999. In July
1999 an additional 3,000,000 shares of common stock were reserved for issuance
under our 1998 Stock Plan.
Our 1998 Stock Plan is administered by our compensation committee and our
non-insider option committee. Our compensation committee consists of at least
two directors who are "non-employee directors," as defined in Rule 16b-3. The
board of directors may amend our 1998 Stock Plan as desired without further
action by eGain's stockholders except as required by applicable law. Our 1998
Stock Plan will continue in effect until terminated by the board or for a term
of 10 years from its amendment and restatement date, whichever is earlier.
The consideration for each award under our 1998 Stock Plan will be
established by the compensation committee, but in no event will the option
price for incentive stock options be less than 100% of the fair market value of
the stock on the date of grant. Awards will have such terms and be exercisable
in such manner and at such times as the compensation committee may determine.
However, each incentive stock option must expire within a period of not more
than 10 years from the date of grant.
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<PAGE>
Generally, options granted under the 1998 Stock Option Plan vest over four
years, and are nontransferable other than by will or the laws of descent and
distribution. In the event of specified changes in control of eGain, the
acquiring or successor corporation may assume or substitute for options
outstanding under the 1998 Stock Option Plan, or these options will terminate.
Some options granted to our executive officers provide for partial acceleration
upon a change in control of eGain.
As of August 20, 1999,
. 2,386,896 shares of common stock have been issued upon the exercise of
options; and
. 2,499,350 shares were available for future awards.
Sitebridge 1997 Stock Plan
Upon the closing of our acquisition of Sitebridge, we assumed outstanding
options to purchase shares of common stock of Sitebridge that became
exercisable for 1,114,456 shares of eGain common stock. As of August 20, 1999,
options to purchase 675,166 shares of common stock were outstanding under this
plan.
1999 Employee Stock Purchase Plan
The board of directors adopted our 1999 Employee Stock Purchase Plan in July
1999, to be effective upon completion of this offering. A total of 750,000
shares of common stock have been reserved for issuance under our employee stock
purchase plan. Our 1999 Employee Stock Purchase Plan, which is intended to
qualify under Section 423 of the Internal Revenue Code, is administered by the
board of directors or by a committee appointed by the board. Employees
(including officers and employee directors of eGain but excluding 5% or greater
stockholders) are eligible to participate if they are customarily employed for
more than 20 hours per week and for at least five months in any calendar year.
Our 1999 Employee Stock Purchase Plan permits eligible employees to purchase
common stock through payroll deductions, which may not exceed 15% of an
employee's compensation.
The board of directors will establish participation periods for our 1999
Employee Stock Purchase Plan, none of which will exceed 6 months. During each
participation period, payroll deductions will accumulate, without interest. On
the purchase dates set by the board of directors for each participation period,
accumulated payroll deductions will be used to purchase common stock. The
purchase price will be equal to 85% of the fair market value per share of
common stock on either the first day of the participation period or on the
purchase date, whichever is less. Employees may withdraw their accumulated
payroll deductions at any time. Participation in our 1999 Employee Stock
Purchase Plan ends automatically on termination of employment with eGain.
Immediately prior to the effective time of a corporate reorganization, the
participation period then in progress shall terminate and stock will be
purchased with the accumulated payroll deductions, unless the 1999 Employee
Stock Purchase Plan is assumed by the surviving corporation or its parent
corporation pursuant to the plan of merger or consolidation. Our 1999 Employee
Stock Purchase Plan will terminate in July 2009, unless sooner terminated by
the board of directors.
401(k) Plan
We intend to establish a tax-qualified employee savings and retirement plan
for which eGain's employees will generally be eligible. Pursuant to the 401(k)
Plan, employees may elect to reduce their current compensation and have the
amount of such reduction contributed to the 401(k) Plan. To
54
<PAGE>
date, eGain has made no matching contributions. The 401(k) Plan is intended to
qualify under Section 401 of the Internal Revenue Code of 1986, as amended, so
that contributions to the 401(k) Plan, and income earned on plan contributions,
are not taxable to employees until withdrawn from the 401(k) Plan, and so that
contributions by eGain, if any, will be deductible by eGain when made.
Employment Agreements and Change in Control Arrangements
We do not currently have any employment contracts with any of our named
executive officers. The shares of common stock issued to Ashutosh Roy and
Gunjan Sinha vest over a period of time, which vesting is accelerated in the
event of a change of control of eGain.
Limitation of Liability and Indemnification Matters
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for:
. any breach of their duty of loyalty to the corporation or its
stockholders;
. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. unlawful payments of dividends or unlawful stock repurchases or
redemption; or
. any transaction from which the director derived an improper personal
benefit.
This limitation of liability does not apply to liabilities arising under the
federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.
Our certificate of incorporation and bylaws provide that we will indemnify
our directors and executive officers and may indemnify its other officers and
employees and other agents to the fullest extent permitted by law. Our bylaws
also permit us to secure insurance on behalf of any officer, director, employee
or other agent for any liability arising out of his or her actions in such
capacity, regardless of whether the bylaws would permit indemnification.
We are entering into agreements to indemnify our directors and executive
officers, in addition to indemnification provided for in our certificate of
incorporation and bylaws. We believe that these provisions and agreements are
necessary to attract and retain qualified persons as directors and executive
officers.
55
<PAGE>
CERTAIN TRANSACTIONS
Since our inception, there has not been any transaction or series of
transactions to which we were or are a party in which the amount involved
exceeded or exceeds $60,000 and in which any director, executive officer,
holder of more than 5% of any class of our voting securities or any member of
the immediate family of any of the foregoing persons had or will have a direct
or indirect material interest, other than the transactions described below.
Transactions with Management and Others
In December 1997, we sold 4,000,000 shares of common stock to each of
Ashutosh Roy, a founder and our Chief Executive Officer, and Gunjan Sinha, a
founder and our President, at a purchase price of $0.005 per share.
Between June 1998 and July 1999, we sold and issued 8,608,585 shares of our
preferred stock for an aggregate consideration of $14,671,004. We sold
5,406,585 shares of Series A preferred stock in June 1998 at a price of $0.8055
per share, 2,550,000 shares of Series B preferred stock between December 1998
and March 1999 at a price of $2.00 per share and 652,000 shares of Series D
preferred stock in July 1999 at a price of $8.00 per share. Upon completion of
this offering, each share of Series A preferred stock, Series B preferred stock
and Series D preferred stock will convert into one share of common stock.
The following table summarizes purchases, valued in excess of $60,000, of
shares of preferred stock by our directors, executive officers and our 5%
stockholder:
<TABLE>
<CAPTION>
Number of Shares
---------------------------
Series A Series B Series D
--------- -------- --------
<S> <C> <C> <C>
Directors and Executive Officers
Ashutosh Roy........................................ -- 750,000 191,375
Gunjan Sinha........................................ -- 750,000 191,375
5% Stockholder
FW Ventures I, L.P.................................. 3,103,663 574,052 163,875
</TABLE>
These affiliates purchased the securities described above at the same price
and on the same terms and conditions as the unaffiliated investors in the
private financings. Messrs. Roy and Sinha were affiliates of eGain at the time
they purchased the above securities. FW Ventures I, L.P. became an affiliate of
eGain in connection with the Series A preferred stock financing.
In August 1999, A. Michael Spence, a director of eGain, exercised an option
to purchase 25,000 shares of common stock at a purchase price of $6.40 per
share by payment of $25 and execution of a five-year, full recourse promissory
note in the amount of $159,975. The note does not bear interest.
Business Relationships
In May 1999, we issued FW Ventures I, L.P. a warrant to purchase 175,000
shares of common stock at a price of $0.20 per share in connection with
financial advisory services rendered in connection with our acquisition of
Sitebridge. Mark Wolfson, a director of eGain, is a limited partner of FW
Ventures I, L.P. The transaction with FW Ventures I, L.P. was negotiated with
the unaffiliated directors of eGain and approved by the disinterested directors
of the Registrant and eGain believes that the services provided by FW Ventures
I, L.P. were provided on terms no less favorable to eGain than would have been
obtained from unaffiliated third parties.
It is our current policy that all transactions between us and our officers,
directors, 5% stockholders and their affiliates will be entered into only if
these transactions are approved by a majority of the disinterested directors,
are on terms no less favorable to us than could be obtained from unaffiliated
parties and are reasonably expected to benefit us.
For information concerning indemnification of directors and officers, see
"Management--Limitation of Liability and Indemnification Matters."
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding beneficial ownership of
common stock as of August 20, 1999, and as adjusted to reflect the sale of
5,000,000 shares of common stock in this offering, by:
. each person or entity known to us to own beneficially more than 5% of
our common stock;
. each of our directors;
. each of the named executive officers; and
. all executive officers and directors as a group.
The following table assumes no exercise of the underwriters' over-allotment
option. Applicable percentage ownership is based on 22,545,568 shares of common
stock outstanding as of August 20, 1999 and 27,815,562 shares outstanding
immediately after completion of this offering.
Beneficial ownership is determined in accordance with the rules and
regulations of the Securities and Exchange Commission. In computing the number
of shares beneficially owned by a person and the percentage ownership of that
person, shares of common stock subject to options held by that person that are
currently exercisable or exercisable within 60 days of August 20, 1999 are
deemed outstanding. These shares, however, are not deemed outstanding for the
purposes of computing the percentage ownership of any other person. Except as
indicated in the footnotes to this table and pursuant to applicable community
property laws, each stockholder named in the table has sole voting and
investment power with respect to the shares set forth opposite such
stockholder's name.
Unless otherwise indicated, the address for the following stockholders is c/o
eGain Communications Corporation, 455 W. Maude Avenue, Sunnyvale, California
94086.
<TABLE>
<CAPTION>
Percentage Owned
Total Shares ------------------------------
Name and Address of Beneficial Beneficially
Owner Owned Before Offering After Offering
- ------------------------------ ------------ --------------- --------------
<S> <C> <C> <C>
5% Stockholder:
FW Ventures I, L.P.(1)............ 4,016,590 17.7% 14.4%
201 Main Street, Suite 2600
Ft. Worth, TX 76011
Directors and Executive Officers:
Ashutosh Roy...................... 4,496,931 19.9% 16.2%
Gunjan Sinha...................... 4,496,931 19.9% 16.2%
Stephen E. Klann(2)............... 196,225 * *
Ryan M. Rosenberg(3).............. 150,000 * *
Eric N. Smit(4)................... 136,500 * *
A. Michael Spence(5).............. 25,000 *
Mark A. Wolfson(6)................ -- *
All directors and executive
officers as a group
(8 persons)(6)(7)................ 9,621,587 42.2% 34.3%
</TABLE>
- --------
* Less than 1%.
(1) Includes a warrant currently exercisable for 175,000 shares. J. Taylor
Crandall is a general partner of Group 31, Inc., which is the general
partner of FW Ventures I, L.P. and, as such, Mr. Crandall is the ultimate
natural person with voting or dispositive powers over the shares held by FW
Ventures I, L.P.
57
<PAGE>
(2) Includes 117,554 shares issuable under immediately exercisable options, of
which 96,000 shares are subject to eGain's right of repurchase.
(3) Includes 126,337 shares of common stock subject to eGain's right of
repurchase and 5,000 shares issuable under immediately exercisable options
and subject to eGain's right of repurchase.
(4) Includes 125,000 shares of common stock subject to eGain's right of
repurchase.
(5) Includes 25,000 shares subject to eGain's right of repurchase.
(6) Excludes 4,016,590 shares beneficially owned by FW Ventures I, L.P., of
which Mr. Wolfson is a limited partner.
(7) Includes 276,337 shares of common stock subject to eGain's right of
repurchase and 122,554 shares issuable under immediately exercisable
options, of which 101,000 shares are subject to eGain's right of
repurchase.
58
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon completion of this offering, and after giving effect to the conversion
of all outstanding preferred stock into common stock and the amendment of our
certificate of incorporation, our authorized capital stock will consist of
50,000,000 shares of common stock, $.001 par value, and 5,000,000 shares of
preferred stock, $.001 par value.
Common Stock
As of August 20, 1999, there were 22,545,568 shares of common stock
outstanding, held by approximately 130 stockholders of record.
Subject to preferences that may be applicable to any preferred stock
outstanding at the time, the holders of common stock are entitled to the
following:
Dividends. Holders of common stock are entitled to receive dividends out of
assets legally available for the payment of dividends at the times and in the
amounts as the board of directors from time to time may determine.
Voting. Holders of common stock are entitled to one vote for each share held
on all matters submitted to a vote of stockholders, including the election of
directors, and will not have cumulative voting rights unless eGain is subject
to Section 2115 of the California Corporations Code. Cumulative voting for the
election of directors is not authorized by our certificate of incorporation,
which means that the holders of a majority of the shares voted can elect all of
the directors then standing for election.
Preemptive rights, conversion and redemption. The common stock is not
entitled to preemptive rights and is not subject to conversion or redemption.
Liquidation, dissolution and winding-up. Upon liquidation, dissolution or
winding-up of eGain, the holders of common stock are entitled to share ratably
in all assets remaining after payment of liabilities and the liquidation of any
preferred stock.
Each outstanding share of common stock is, and all shares of common stock to
be outstanding upon completion of this offering will be, upon payment
therefore, duly and validly issued, fully paid and nonassessable.
Preferred Stock
The board of directors is authorized, without action by the stockholders, to
designate and issue up to 5,000,000 shares of preferred stock in one or more
series. The board of directors can fix the rights, preferences and privileges
of the shares of each series and any qualifications, limitations or
restrictions on these shares.
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 common stock. The issuance of preferred stock,
while providing flexibility in connection with possible acquisitions and other
corporate purposes could have the effect of delaying, deferring or preventing a
change in control of eGain. We have no current plans to issue any shares of
preferred stock.
59
<PAGE>
Warrants
In August 1998 and October 1998, we issued warrants to purchase an aggregate
of 74,511 shares of our Series A preferred stock at an exercise price of
$0.8055 per share. These warrants expire between August 2005 and five years
after completion of this offering. In May 1999, we assumed warrants exercisable
for the Series A preferred stock of Sitebridge in connection with our
acquisition of Sitebridge. These warrants became exercisable for an aggregate
of 121,006 shares of our Series C preferred stock at an exercise price of
$0.9916 per share. Upon completion of this offering, all of our warrants to
purchase preferred stock will convert into the right to purchase the equivalent
number of shares of common stock at the same exercise price per share.
In 1998, we also issued warrants to purchase 188,699 shares of Series A
preferred stock at an exercise price of $0.8055 per share. In April 1999, we
assumed a warrant to purchase common stock of Sitebridge that is exercisable
for 30,440 shares of our common stock at an exercise price of $0.2754 per
share. In June 1999, we issued a warrant to FW Ventures I, L.P. to purchase
175,000 shares of common stock at an exercise price of $0.20 per share. Each of
these warrants will expire upon completion of this offering.
Registration Rights
Upon completion of this offering, the holders of 10,602,594 shares of common
stock issuable upon conversion of the Series A, B, C and D preferred stock and
upon the exercise of warrants have the right to cause us to register these
shares under the Securities Act as follows:
. Demand Registration Rights. Six months after this offering, the holders
of a majority of the common stock issued upon conversion of Series A, B,
C or D preferred stock may request that we register their shares with
respect to all or part of their registrable securities having aggregate
proceeds of at least $10,000,000.
. Piggyback Registration Rights. The holders of registrable securities may
request to have their shares registered anytime we file a registration
statement to register any of our securities for our own account or for
the account of others.
. S-3 Registration Rights. The holders of at least thirty percent (30%) of
registrable securities have the right to request registrations on Form
S-3 if we are eligible to use Form S-3, have not already effected such
an S-3 registration within the past six (6) months, and if the aggregate
proceeds are at least $1,000,000.
Holders of an additional 7,111,112 shares of common stock have the piggyback
registration rights and S-3 registration rights described above.
Registration of shares of common stock pursuant to the exercise of demand
registration rights, piggyback registration rights or S-3 registration rights
under the Securities Act would result in these shares becoming freely tradable
without restriction under the Securities Act immediately upon the effectiveness
of such registration. See "Shares Eligible for Future Sale" and "Certain
Transactions."
eGain will pay all registration expenses, other underwriting discounts and
commissions in connection with any registration. The registration rights
terminate five years following completion of this offering, or, with respect to
each holder of registrable securities, when the holder can sell all of the
holder's shares in any 90-day period under Rule 144 under the Securities Act.
60
<PAGE>
We are currently subject to Section 2115 of the California General
Corporation Law. Section 2115 provides that, regardless of a company's legal
domicile, 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.
Delaware Anti-Takeover Law and Certain Charter Provisions
Delaware Takeover Statute
We are subject to Section 203 of the Delaware General Corporation Law, which,
subject to some exceptions, prohibits a Delaware corporation from engaging in
any business combination with any interested stockholder for a period of three
years following the date that such stockholder became an interested
stockholder, unless:
. prior to this 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
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned (x) by persons who are
directors and also officers and (y) by employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or
. on or subsequent to such date, the business combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least 66 2/3% of the outstanding voting stock that is not owned by the
interested stockholder.
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<PAGE>
. subject to certain exceptions, any transaction that results in the
issuance or transfer by the corporation of any stock of the corporation
to the interested stockholder;
. any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or series
of the corporation beneficially owned by the interested stockholder; or
. the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
In general, Section 203 defines an interested stockholder as any entity or
person who, together with affiliates and associates owns, or within three
years, did own beneficially 15% or more of the outstanding voting stock of the
corporation.
Certificate of Incorporation and Bylaws
Under our certificate of incorporation, the board of directors has the power
to authorize the issuance of up to 5,000,000 shares of preferred stock and to
determine the price, rights, preferences, privileges and restrictions,
including voting rights, of those shares without further vote or action by the
stockholders. The issuance of preferred stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, may:
Section 203 defines business combination to include:
. any merger or consolidation involving the corporation and the interested
stockholder;
. any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation involving the interested stockholder;
. delay, defer or prevent a change in control of eGain;
. discourage bids for the common stock at a premium over the market price
of our common stock;
. adversely affect the voting and other rights of the holders of our
common stock; and
. discourage acquisition proposals or tender offers for our shares and, as
a consequence, inhibit fluctuations in the market price of our shares
that could result from actual or rumored takeover attempts.
Our bylaws provide that:
. all stockholder action be taken at a stockholders' meeting; and
. special meetings of stockholders may only be called by the chairman of
the board, the chief executive officer or the board of directors.
The provisions described above, together with the ability of the board of
directors to issue preferred stock may have the effect of deterring a hostile
takeover or delaying a change in control or management of eGain.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Boston EquiServe.
Listing
We have applied to have our common stock quoted on the Nasdaq National Market
under the symbol "EGAN."
62
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering there has been no public market for our common stock,
and we cannot predict the effect, if any, that market sales of shares or the
availability of shares for sale will have on the market price prevailing from
time to time. As described below, only a limited number of shares will be
available for sale shortly after this offering due to contractual and legal
restrictions on resale. Nevertheless, sales of substantial amounts of our
common stock in the public market after the restrictions lapse could cause the
market price of our common stock to decline.
When this offering is completed, we will have a total of 27,815,562 shares of
common stock outstanding, assuming no exercise of outstanding options. The
5,000,000 shares offered by this prospectus will be freely tradable unless they
are purchased by our "affiliates," as defined in Rule 144 under the Securities
Act of 1933. The remaining 22,815,562 shares are "restricted," which means they
were originally sold in offerings that were not subject to a registration
statement filed with the Securities and Exchange Commission. These restricted
shares may be resold only through registration under the Securities Act of 1933
or under an available exemption from registration, such as provided through
Rule 144.
Lock-up Agreements
The holders of 22,815,562 shares of common stock have agreed to a 180-day
"lock-up" with respect to these shares. This generally means that they cannot
sell these shares during the 180 days following the date of this prospectus.
After the 180-day lock-up period, these shares may be sold in accordance with
Rule 144.
Rule 144
In general, under Rule 144, a person or persons whose shares are aggregated,
who has beneficially owned restricted securities for at least one year,
including the holding period of any holder who is not an affiliate, is entitled
to sell within any three month period a number of our shares of common stock
that does not exceed the greater of:
. 1% of the then outstanding shares of our common stock, which will equal
approximately 278,156 shares upon completion of this offering; or
. the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks preceding the date on
which notice of sale is filed with the Securities and Exchange
Commission.
Sales under Rule 144 are subject to restrictions relating to manner of sale,
notice and the availability of current public information about us. Under Rule
144 and subject to volume limitations, 16,963,195 of the restricted shares will
be eligible for sale beginning 180 days after the date of the final prospectus,
and the remaining restricted shares will become salable at various times
thereafter.
Rule 144(k)
A person who is not deemed an affiliate of ours at any time during the 90
days preceding a sale and who has beneficially owned shares for at least two
years, including the holding period of any prior owner who is not an affiliate,
would be entitled to sell shares following this offering under Rule 144(k)
without regard to the volume limitations, manner of sale provisions, public
information or notice requirements of Rule 144.
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<PAGE>
Rule 701 and Options
Rule 701 permits resales of shares in reliance upon Rule 144 but without
compliance with some restrictions, including the holding period requirement, of
Rule 144. Any employee, officer or director or consultant who purchased his or
her shares pursuant to a written compensatory plan or contract may be entitled
to rely on the resale provisions of Rule 701. Rule 701 permits affiliates to
sell their Rule 701 shares under Rule 144 without complying with the holding
period requirements of Rule 144. Rule 701 further provides that 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. All holders of Rule 701 shares are required to wait 90 days after the
date of this prospectus before selling such shares. However, all shares issued
by us pursuant to Rule 701 are subject to lock-up provisions and will only
become eligible for sale upon the expiration of 180 days after the date of this
prospectus.
Registration
Following this offering, we intend to file a registration statement under the
Securities Act covering shares of common stock subject to outstanding options
or issued or issuable under our 1997 Stock Option Plan, 1998 Stock Plan and our
1999 Employee Stock Purchase Plan. Based on the number of shares subject to
outstanding options at August 20, 1999, and currently reserved for issuance
under these plans, this registration statement would cover approximately
5,682,843 shares. This registration statement will automatically become
effective upon filing. Accordingly, shares registered under this registration
statement will, subject to Rule 144 volume limitations applicable to our
affiliates, be available for sale in the open market immediately after the
expiration of the 180-day lock-up agreements. In addition, holders of
10,602,594 shares of common stock will be entitled to registration rights. See
"Description of Capital Stock--Registration Rights."
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<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives,
BancBoston Robertson Stephens Inc., Donaldson, Lufkin & Jenrette Securities
Corporation and Volpe Brown Whelan & Company, LLC, have severally agreed with
us, subject to the terms and conditions of the underwriting agreement, to
purchase from us the number of shares of common stock set forth opposite their
names below. The underwriters are committed to purchase and pay for all such
shares if any are purchased.
<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- ---------
<S> <C>
BancBoston Robertson Stephens Inc................................
Donaldson, Lufkin & Jenrette Securities Corporation..............
Volpe Brown Whelan & Company, LLC................................
---------
Total.......................................................... 5,000,000
=========
</TABLE>
We have been advised by the representatives that the underwriters propose to
offer the shares of common stock to the public at the initial public offering
price set forth on the cover page of this prospectus and to certain dealers at
such price less a concession of not more than $ per share, of which $
may be reallowed to other dealers. After the initial public offering, the
public offering price, concession and reallowance to dealers may be reduced by
the representatives. No such reduction shall change the amount of proceeds to
be received by us as set forth on the cover page of this prospectus. The common
stock is offered by the underwriters as stated herein, subject to receipt and
acceptance by them and subject to their right to reject any order in whole or
in part.
The underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.
Over-allotment Option. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to 750,000 additional shares of common stock at the initial public
offering price per share as we will receive for the 5,000,000 shares that the
underwriters have agreed to purchase. To the extent that the underwriters
exercise this option, each of the underwriters will have a firm commitment to
purchase approximately the same percentage of these additional shares that the
number of shares of common stock to be purchased by it shown in the above table
represents as a percentage of the shares offered hereby. If purchased, these
additional shares will be sold by the underwriters on the same terms as those
on which the 5,000,000 shares are being sold. We will be obligated, pursuant to
the option, to sell shares to the extent the option is exercised. The
underwriters may exercise this option only to cover over- allotments made in
connection with the sale of the shares of common stock offered in this
offering. If this option is exercised in full, the total public offering price,
underwriting discounts and commissions and proceeds to us will be
$ , $ and $ , respectively.
65
<PAGE>
The following table summarizes the compensation to be paid to the
underwriters by us:
<TABLE>
<CAPTION>
Total
-------------------
Without With
Per Over- Over-
Share allotment allotment
----- --------- ---------
<S> <C> <C> <C>
Underwriting discounts and commissions payable
by us.......................................... $ $ $
</TABLE>
We estimate that expenses payable by us in connection with this offering,
other than the underwriting discounts and commissions referred to above, will
be approximately $980,000.
Indemnity. The underwriting agreement contains covenants of indemnity among
the underwriters and us against certain civil liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.
Lock-up Agreements. Each of our officers, directors and stockholders has
agreed, for a period of 180 days after the date of this prospectus, that,
subject to exceptions, they will not offer to sell, contract to sell, or
otherwise sell, dispose of, loan, pledge or grant any rights with respect to
any shares of common stock, any options or warrants to purchase any shares of
common stock, or any securities convertible into or exchangeable for shares of
common stock owned as of the date of this prospectus or, with certain
exceptions, thereafter acquired directly by such holders or with respect to
which they have or hereafter acquire the power of disposition, without the
prior written consent of BancBoston Robertson Stephens Inc. However, BancBoston
Robertson Stephens Inc. may, in its sole discretion and at any time without
notice, release all or any portion of the securities subject to the lock-up
agreements. There are no agreements between the representatives and any of our
stockholders providing consent by the representatives to the sale of shares
prior to the expiration of the lock-up period.
Future Sales. In addition, we have agreed that until 180 days after the date
of this prospectus, we will not, subject to certain exceptions, without the
prior written consent of BancBoston Robertson Stephens Inc.:
. consent to the disposition of any shares held by stockholders prior to
the expiration of the lock-up period or
. issue, sell, contract to sell or otherwise dispose of any shares of
common stock, any options or warrants to purchase any shares of common
stock or any securities convertible into, exercisable for or exchangeable
for shares of common stock other than (1) the sale of shares in this
offering, (2) the issuance of common stock upon the exercise of
outstanding warrants and options, and (3) the issuance of options under
existing stock option and incentive plans. See "Shares Eligible for
Future Sale."
Listing. We have applied for quotation on the Nasdaq National Market under
the symbol "EGAN."
No Prior Public Market. Prior to this offering, there has been no public
market for our common stock. Consequently, the initial public offering price
for the common stock offered hereby will be determined through negotiations
between us and the representatives. Among the factors to be considered in such
negotiations are prevailing market conditions, certain of our financial
information, market valuations of other companies that we and the
representatives believe to be comparable to us,
66
<PAGE>
estimates of our business potential, our present state of development and
other factors deemed relevant.
Stabilization. The representatives have advised us that, pursuant to
Regulation M under the Securities Act, certain persons participating in this
offering may engage in transactions, including stabilizing bids, syndicate
covering transactions or the imposition of penalty bids, that may have the
effect of stabilizing or maintaining the market price of the common stock at a
level above that which might otherwise prevail in the open market. A
"stabilizing bid" is a bid for or the purchase of the common stock on behalf
of the underwriters for the purpose of fixing or maintaining the price of the
common stock. A "syndicate covering transaction" is the bid for or the
purchase of the common stock on behalf of the underwriters to reduce a short
position incurred by the underwriters in connection with this offering. A
"penalty bid" is an arrangement permitting the representatives to reclaim the
selling concession otherwise accruing to an underwriter or syndicate member in
connection with this offering if the common stock originally sold by such
underwriter or syndicate member is purchased by the representatives in a
syndicate covering transaction and has therefore not been effectively placed
by such underwriter or syndicate member. The representatives have advised us
that these transactions may be effected on the Nasdaq National Market or
otherwise and, if commenced, may be discontinued at any time.
Directed Share Program. At our request, the underwriters have reserved up to
250,000 shares of common stock to be issued by us and offered hereby for sale,
at the initial public offering price, to directors, officers, employees,
business associates and related persons of eGain. The number of shares of
common stock available for sale to the general public will be reduced to the
extent such individuals purchase such reserved shares. Any reserved shares
that are not so purchased will be offered by the underwriters to the general
public on the same basis as the other shares offered hereby.
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<PAGE>
LEGAL MATTERS
Selected legal matters with respect to the validity of the common stock
offered by this prospectus are being passed upon for eGain by Pillsbury Madison
& Sutro LLP, Palo Alto, California. Certain partners of Pillsbury Madison &
Sutro LLP beneficially own an aggregate of 51,490 shares of eGain common stock.
Legal matters in connection with this offering will be passed upon for the
underwriters by Cooley Godward LLP, San Francisco, California.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements at June 30, 1998 and 1999, for the period from September
30, 1997 (inception) through June 30, 1998, and for the year ended June 30,
1999 as set forth in their report. We have included our consolidated financial
statements in the prospectus and elsewhere in the registration statement in
reliance on Ernst & Young LLP's report, given upon the authority of such firm
as experts in accounting and auditing.
Ernst & Young LLP, independent auditors, have audited the financial
statements of Sitebridge Corporation (a development stage company) at December
31, 1997 and 1998, for the period from September 10, 1996 (inception) through
December 31, 1997 and for the year ended December 31, 1998 and for the period
from September 10, 1996 (inception) through December 31, 1998 as set forth in
their report. The financial statements of Sitebridge Corporation (a development
stage company) are included in the prospectus in reliance on Ernst & Young
LLP's report, given upon the authority of such firm as experts in accounting
and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to the common stock offered hereby. This
prospectus, which constitutes a part of the registration statement, does not
contain all of the information set forth in the registration statement or the
exhibits and schedules which are part of the registration statement. For
further information with respect to eGain and the common stock offered by this
prospectus, we refer you to the registration statement and the exhibits and
schedules filed as part of the registration statement. You may read and copy
any document we file at the SEC's public reference room at 450 Fifth Street,
N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. Our SEC filings are also available
to the public from the SEC's Web site at http://www.sec.gov.
Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities and Exchange Act, as
amended, and, in accordance therewith, will file periodic reports, proxy
statements and other information with the SEC. These periodic reports, proxy
statements and other information will be available for inspection and copying
at the SEC's public reference rooms and the Web site of the SEC referred to
above.
68
<PAGE>
eGAIN COMMUNICATIONS CORPORATION
INDEX TO FINANCIAL STATEMENTS
AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF eGAIN COMMUNICATIONS CORPORATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors.......................... F-2
</TABLE>
<TABLE>
<S> <C>
Consolidated Balance Sheets................................................. F-3
Consolidated Statements of Operations....................................... F-4
Consolidated Statement of Stockholders' Equity.............................. F-5
Consolidated Statements of Cash Flows....................................... F-6
Notes to Consolidated Financial Statements.................................. F-7
</TABLE>
AUDITED FINANCIAL STATEMENTS OF SITEBRIDGE CORPORATION
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors.......................... F-21
Balance Sheets............................................................. F-22
Statements of Operations................................................... F-23
Statement of Stockholders' Equity (Net Capital Deficiency)................. F-24
Statements of Cash Flows................................................... F-25
Notes to Financial Statements.............................................. F-26
</TABLE>
<TABLE>
<S> <C>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS OF eGAIN
COMMUNICATIONS CORPORATION AND SITEBRIDGE CORPORATION..................... F-33
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders eGain Communications Corporation
We have audited the accompanying consolidated balance sheets of eGain
Communications Corporation as of June 30, 1998 and 1999, and the related
consolidated statements of operations, stockholders' equity, and cash flows
for the period from inception (September 10, 1997) to June 30, 1998 and for
the year ended June 30, 1999. These financial statements are the
responsibility of eGain Communications Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of eGain
Communications Corporation at June 30, 1998 and 1999, and the consolidated
results of its operations and its cash flows for the period from inception
(September 10, 1997) to June 30, 1998 and for the year ended June 30, 1999, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young llp
Palo Alto, California
July 16, 1999
F-2
<PAGE>
eGAIN COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Pro forma
stockholders'
June 30, equity at
------------------------ June 30,
1998 1999 1999
---------- ------------ -------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............ $3,830,692 $ 1,265,147
Accounts receivable.................. -- 705,488
Prepaid and other current assets..... 49,164 512,896
---------- ------------
Total current assets............... 3,879,856 2,483,531
Property and equipment, net............ 110,134 1,132,651
Goodwill and other purchased intangible
assets, net........................... -- 20,194,972
Other assets........................... -- 153,884
---------- ------------
$3,989,990 $ 23,965,038
========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank borrowings--line of credit...... $ -- $ 1,000,000
Accounts payable..................... 188,651 683,761
Accrued compensation................. -- 343,471
Accrued liabilities.................. -- 474,757
Deferred revenue..................... -- 302,119
Current portion of notes payable..... -- 434,762
---------- ------------
Total current liabilities.......... 188,651 3,238,870
Notes payable, net of current portion.. -- 221,093
Other long-term liabilities............ -- 21,791
Commitments
Stockholders' Equity:
Convertible preferred stock, $0.001
par value, 10,035,887 shares
authorized, issuable in series:
5,406,585 and 9,566,378 shares
issued and outstanding at June 30,
1998 and 1999; no shares issued, or
outstanding pro forma (aggregate
liquidation preference of $7,172,056
at June 30, 1999)................... 4,329,264 16,986,961 $ --
Preferred stock: $0.001 par value;
5,000,000 shares authorized, no
shares issued and outstanding....... -- -- --
Common stock, $0.001 par value,
50,000,000 shares authorized,
8,000,000 and 10,946,661 shares
issued and outstanding at June 30,
1998 and 1999; 20,513,039 shares
issued and outstanding pro forma.... 295,000 7,288,859 20,513
Additional paid-in capital........... 291,287 17,549,416 41,804,723
Notes receivable from stockholders... -- (143,653) (143,653)
Deferred stock compensation.......... (175,774) (8,956,117) (8,956,117)
Accumulated other comprehensive
income.............................. -- 757 757
Accumulated deficit.................. (938,438) (12,242,939) (12,242,939)
---------- ------------ ------------
Total stockholders' equity......... 3,801,339 20,483,284 $ 20,483,284
---------- ------------ ============
$3,989,990 $ 23,965,038
========== ============
</TABLE>
See accompanying notes.
F-3
<PAGE>
eGAIN COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from
inception
(September 10,
1997) to Year ended
June 30, June 30,
1998 1999
-------------- ------------
<S> <C> <C>
Revenue:
Hosting........................................ $ -- $ 137,385
License fees................................... -- 473,450
Service........................................ 2,000 408,508
--------- ------------
Total revenue................................ 2,000 1,019,343
Costs and expenses:
Cost of revenue................................ 52,481 1,772,159
Sales and marketing............................ 245,553 4,181,816
Research and development....................... 313,894 2,095,784
General and administrative..................... 214,052 1,234,865
Amortization of goodwill and other intangible
assets........................................ -- 1,217,057
Amortization of deferred compensation.......... 58,258 1,817,266
--------- ------------
Total costs and expenses..................... 884,238 12,318,947
--------- ------------
Loss from operations............................. (882,238) (11,299,604)
Interest income.................................. 1,509 111,360
Interest and other expenses...................... (57,709) (116,257)
--------- ------------
Net loss......................................... $(938,438) $(11,304,501)
========= ============
Basic and diluted net loss per share............. $ (17.78) $ (2.14)
========= ============
Shares used in computing basic and diluted net
loss per share.................................. 52,778 5,294,736
========= ============
Proforma basic and diluted net loss per share
(unaudited)..................................... $ (0.93)
============
Shares used in computing proforma basic and
diluted net loss per share (unaudited).......... 12,153,444
============
</TABLE>
See accompanying notes.
F-4
<PAGE>
eGAIN COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Convertible Notes Accumulated
Preferred Stock Common Stock Additional Receivable Deferred Other
--------------------- --------------------- Paid-In From Stock Comprehensive Accumulated
Shares Amount Shares Amount Capital Stockholders Compensation Income Deficit
--------- ----------- ---------- ---------- ----------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of
common stock to
founders........ -- $ -- 8,000,000 $ 295,000 -- $ -- $ -- $ -- $ --
Issuance of
Series A
convertible
preferred stock
for cash and
conversion of
notes, net of
issuance costs
of $25,740...... 5,406,585 4,329,264 -- -- -- -- -- -- --
Issuance of
warrant......... -- -- -- -- 57,255 -- -- -- --
Deferred stock
compensation.... -- -- -- -- 234,032 -- (234,032) -- --
Amortization of
deferred stock
compensation.... -- -- -- -- -- -- 58,258 -- --
Net loss........ -- -- -- -- -- -- -- -- (938,438)
--------- ----------- ---------- ---------- ----------- --------- ------------ ---- ------------
BALANCE AT JUNE
30, 1998........ 5,406,585 4,329,264 8,000,000 295,000 291,287 -- (175,774) -- (938,438)
Issuance of
Series B
convertible
preferred stock
for cash, net of
issuance costs
of $24,494...... 2,550,000 5,075,506 -- -- -- -- -- -- --
Issuance of
common stock
upon exercise of
employee stock
options and
other issuances
under the 1998
Stock Plan...... -- -- 1,491,147 167,500 -- (143,653) -- -- --
Issuance of
Series C
preferred and
common stock in
exchange for
SiteBridge
preferred and
common stock.... 1,609,793 7,582,191 1,455,514 6,826,359 6,603,225 -- -- -- --
Issuance of
warrants........ -- -- -- -- 36,000 -- -- -- --
Deferred stock
compensation.... -- -- -- -- 10,618,904 -- (10,618,904) -- --
Amortization of
deferred stock
compensation.... -- -- -- -- -- -- 1,838,561 -- --
Comprehensive
loss:
Net loss........ -- -- -- -- -- -- -- -- (11,304,501)
Foreign currency
translation
adjustment...... -- -- -- -- -- -- -- 757 --
Total
comprehensive
loss............ -- -- -- -- -- -- -- -- --
--------- ----------- ---------- ---------- ----------- --------- ------------ ---- ------------
BALANCE AT JUNE
30, 1999........ 9,566,378 $16,986,961 10,946,661 $7,288,859 $17,549,416 $(143,653) $ (8,956,117) $757 $(12,242,939)
========= =========== ========== ========== =========== ========= ============ ==== ============
<CAPTION>
Stockholders'
Equity
--------------
<S> <C>
Issuance of
common stock to
founders........ $ 295,000
Issuance of
Series A
convertible
preferred stock
for cash and
conversion of
notes, net of
issuance costs
of $25,740...... 4,329,264
Issuance of
warrant......... 57,255
Deferred stock
compensation.... --
Amortization of
deferred stock
compensation.... 58,258
Net loss........ (938,438)
--------------
BALANCE AT JUNE
30, 1998........ 3,801,339
Issuance of
Series B
convertible
preferred stock
for cash, net of
issuance costs
of $24,494...... 5,075,506
Issuance of
common stock
upon exercise of
employee stock
options and
other issuances
under the 1998
Stock Plan...... 23,847
Issuance of
Series C
preferred and
common stock in
exchange for
SiteBridge
preferred and
common stock.... 21,011,775
Issuance of
warrants........ 36,000
Deferred stock
compensation.... --
Amortization of
deferred stock
compensation.... 1,838,561
Comprehensive
loss:
Net loss........ (11,304,501)
Foreign currency
translation
adjustment...... 757
--------------
Total
comprehensive
loss............ (11,303,744)
--------------
BALANCE AT JUNE
30, 1999........ $ 20,483,284
==============
</TABLE>
See accompanying notes.
F-5
<PAGE>
eGAIN COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
inception
(September 10,
1997) to Year ended
June 30, June 30,
1998 1999
-------------- ------------
<S> <C> <C>
Operating activities
Net loss....................................... $ (938,438) $(11,304,501)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation................................. 7,000 279,400
Amortization of goodwill and other intangible
assets...................................... -- 1,217,057
Amortization of deferred compensation........ 58,258 1,838,561
Amortization of loan discount associated with
warrants.................................... 57,255 14,000
Changes in operating assets and liabilities:
Accounts receivable........................ -- (653,988)
Prepaid and other current assets........... (49,164) (456,307)
Other assets............................... -- (136,384)
Accounts payable........................... 187,982 417,894
Accrued compensation....................... 670 267,800
Other accrued liabilities.................. -- 409,645
Deferred revenue........................... -- 302,119
Other liabilities.......................... -- 21,791
---------- ------------
Net cash used in operating activities.... (676,437) (7,782,913)
---------- ------------
Investing activities
Purchases of property and equipment............ (117,134) (1,258,162)
Cash assumed in Sitebridge acquisition......... -- 78,321
---------- ------------
Net cash used in investing activities.... (117,134) (1,179,841)
---------- ------------
Financing activities
Proceeds from loans............................ -- 1,297,855
Net proceeds from issuance of preferred stock.. 4,329,263 5,075,507
Proceeds from issuance of common stock ........ 295,000 23,847
---------- ------------
Net cash provided by financing
activities.............................. 4,624,263 6,397,209
---------- ------------
Net increase (decrease) in cash and cash
equivalents..................................... 3,830,692 (2,565,545)
Cash and cash equivalents at beginning of
period.......................................... -- 3,830,692
---------- ------------
Cash and cash equivalents at end of period....... $3,830,692 $ 1,265,147
========== ============
Supplemental disclosure of cash flow information
Interest paid.................................. $ -- $ 111,146
========== ============
Conversion of promissory notes to preferred
stock........................................... $ 800,000 $ --
========== ============
Issuance of warrants in exchange for services in
connection with the Sitebridge acquisition...... $ -- $ 789,250
========== ============
</TABLE>
See accompanying notes.
F-6
<PAGE>
eGAIN COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Business
eGain Communications Corporation ("eGain"), formerly known as Parsec
Communications Corporation, is a developer of customer service infrastructure
solutions for companies engaged in eCommerce. Businesses use eGain's
applications to effectively manage high volumes of customer email as well as
live Web-based interaction. eGain's email management system helps businesses
route, track, analyze and respond to customer emails. eGain was incorporated in
Delaware on September 10, 1997.
During fiscal 1999, eGain commenced shipment of its principal products and
emerged from the development stage. Although eGain is no longer in the
development stage, eGain continues to be subject to many of the risks and
challenges associated with companies in a comparable stage of development,
including dependence on key individuals, competition from substitute products
and from larger companies, successful marketing of its products and acceptance
of its technology, successful development of product enhancements on a
continuing basis and the need for adequate financing to support anticipated
future growth.
eGain has incurred cumulative losses totaling approximately $12,243,000 since
its incorporation and expects to incur additional losses for the foreseeable
future. eGain's current operating plan shows that eGain will continue to
require additional capital to fund its operations and market its products. To
date, eGain has financed its operations with the net proceeds from private
sales of convertible preferred stock, bank borrowings and capital equipment
financing. eGain plans to seek additional funding through public or private
financing or other arrangements with third parties. If the financing
arrangements contemplated by management are not consummated, eGain may have to
seek other sources of capital or adjust its operating plan to delay or reduce
the Company's expenditures and the scope of its operations.
Principles of Consolidation
The consolidated financial statements include the accounts of eGain and its
wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.
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 amounts reported in the financial statements and the
accompanying notes. Actual results could differ materially from these
estimates.
Revenue Recognition
Revenue from hosting services is recognized ratably over the period of the
agreement as services are provided. Hosting agreements are typically for a
period of one year and automatically renew unless either party cancels the
agreement.
F-7
<PAGE>
eGAIN COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Revenue from license fees and from sales of software products is recognized
when persuasive evidence of an agreement exists, delivery of the product has
occurred, no significant eGain obligations remain, the fee is fixed or
determinable, and collectibility is probable. If an arrangement includes
multiple elements, the fee is allocated to the various elements based on
vendor-specific objective evidence of fair value, regardless of any separate
prices stated within the contract for each element. If sufficient vendor-
specific objective evidence does not exist for the allocation of revenue to the
various elements of the arrangement, all revenue from the arrangement is
deferred until the earlier of the point at which (a) such sufficient vendor-
specific objective evidence does exist or (b) all elements of the arrangement
have been delivered.
Service revenue is primarily comprised of revenue from consulting fees,
maintenance agreements, and training. Service revenue from consulting and
training billed on a time and materials basis is recognized as performed.
Service revenue on fixed price service arrangements is recognized upon
completion of specific contractual milestone events, or based on an estimated
percentage of completion as work progresses. Maintenance agreements include the
right to software updates on an if-and-when-available basis. Maintenance
revenue is deferred and recognized on a straight-line basis as service revenue
over the life of the related agreement, which is typically one year.
Customer advances and billed amounts due from customers in excess of revenue
recognized are recorded as deferred revenue.
eGain has adopted Statement of Position 97-2, "Software Revenue Recognition"
("SOP 97- 2"), and Statement of Position 98-4, "Deferral of the Effective Date
of a Provision of SOP 97-2, Software Revenue Recognition" ("SOP 98-4"). SOP 97-
2 and SOP 98-4 provide guidance for recognizing revenue on software
transactions and supersedes SOP 91-1. The adoption of SOP 97-2 and SOP 98-4 did
not have a material impact on eGain's financial results.
In December 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-9, "Modification of SOP 97-2, Software Revenue
Recognition, With Respect to Certain Transactions" ("SOP 98-9"). SOP 98-9
amends SOP 98-4 to extend the deferral of the application of certain passages
of SOP 97-2 provided by SOP 98-4 through fiscal years beginning on or before
March 15, 1999. All other provisions of SOP 98-9 are effective for transactions
entered into in fiscal years beginning after March 15, 1999. eGain believes
that the adoption of SOP 98-9 will not have a material effect on results of
operations or financial condition.
Cash and Cash Equivalents
eGain considers all highly liquid investments with a maturity from date of
purchase of three months or less to be cash equivalents. Cash equivalents
consist primarily of money market accounts.
Concentration of Credit Risk and Significant Customers
Financial instruments that subject eGain to concentrations of credit risk
consist principally of cash investments and trade accounts receivable. eGain
invests cash which is not required for immediate operating needs principally in
money market funds, which bear minimal risk.
eGain's customers are currently concentrated in the United States. eGain
performs ongoing credit evaluations and generally does not require collateral.
F-8
<PAGE>
eGAIN COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For the year ended June 30, 1999, two customers accounted for 15.6% and 10.8%
of revenue. One customer represented all of the revenue for the period from
inception (September 10, 1997) to June 30, 1998.
Property and Equipment
Property and equipment are stated at cost, net of accumulated amortization
and depreciation. Property and equipment are depreciated on a straight-line
basis over the estimated useful lives of the assets, typically three years.
Goodwill and Purchased Intangible Assets
Goodwill represents the excess of the purchase price over the estimated fair
market value of tangible and intangible net assets acquired in a business
combination. Goodwill and other purchased intangible assets related to the
acquisition of Sitebridge Corporation are amortized on a straight-line basis
over three years from the date of acquisition.
We will regularly perform reviews to determine if the carrying value of the
assets is impaired. The reviews look for the existence of facts or
circumstances, either internal or external, which indicate the carrying value
of the asset cannot be recovered. Such indicators would include a lack of
successful further development and integration of the acquired company's
technology into eGain's operations, lack of the market acceptance of the
products and lower than expected cash flows from operations. No impairment has
been indicated to date. If there is an indication of impairment in the future,
eGain will measure the amount of the loss based on discounted expected future
cash flows from the impaired assets. The cash flow calculations would be based
on management's best estimates, using appropriate assumptions and projections
at the time.
Advertising Costs
Advertising costs are accounted for as expenses in the period in which they
are incurred. Advertising expense for the period from inception (September 10,
1997) to June 30, 1998 and the year ended June 30, 1999 were approximately zero
and $210,000, respectively.
Software Development Costs
Software development costs are included in research and development and are
expensed as incurred until the technological feasibility of the product is
achieved. To date, the period between achieving technological feasibility and
general availability of software has been short and software development costs
qualifying for capitalization have been insignificant. Accordingly, eGain has
not capitalized any software development costs.
Stock-Based Compensation
eGain accounts for its stock-based compensation arrangements with employees
using the intrinsic value method. Deferred stock-based compensation is recorded
on the date of grant when the deemed fair value of the underlying common stock
exceeds the exercise price for stock options.
In accordance with the Statement of Financial Accounting Standards No. 123
"Accounting for Stock Based Compensation. ("SFAS 123"), stock options and
warrants issued to non-employees are
F-9
<PAGE>
eGAIN COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
accounted for based on the fair value of the consideration received or the fair
value of the equity instruments issued, whichever is more reliably measured.
Comprehensive Loss
eGain adopted Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130"), at June 30, 1999. Under SFAS 130, eGain is
required to display comprehensive income and its components as part of the
financial statements. Other comprehensive income includes certain changes in
equity that are excluded from net income (loss). Total comprehensive loss
(including foreign currency translation effects) is shown in the statement of
stockholders' equity.
Segment Information
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 131, "Disclosures About
Segments of an Enterprise and Related Information" ("SFAS 131"), effective for
financial statements for periods beginning after December 15, 1997. SFAS 131
establishes standards for the way that public business enterprises report
financial and descriptive information about reportable operating segments in
annual financial statements and interim financial reports issued to
stockholders. eGain adopted SFAS 131 effective July 1, 1998. eGain operates in
one segment. Operating losses generated by the foreign operations of eGain and
their corresponding identifiable assets were not material in any period
presented. eGain's export revenue has not been material in any period
presented.
Net Loss Per Share
Basic and diluted net loss per share are presented in accordance with SFAS
No. 128, "Earnings per Share" ("SFAS 128"), for all periods presented. Pursuant
to the Securities and Exchange Commission Staff Accounting Bulletin No. 98,
ordinary shares and convertible preferred shares issued or granted for nominal
consideration prior to the anticipated effective date of eGain's initial public
offering must be included in the calculation of basic and diluted net loss per
share as if they had been outstanding for all periods presented. To date, eGain
has not had any issuances or grants for nominal consideration.
Basic and diluted net loss per share has been computed using the weighted-
average number of shares of common stock outstanding during the period. Had
eGain been in a net income position, diluted earnings per share would have
included the shares used in the computation of basic net loss per share as well
as the impact of common shares outstanding subject to repurchase and
outstanding options and warrants to purchase an additional 699,699 and
2,833,548 shares, prior to the application of the treasury stock method, for
the period from inception (September 10, 1997) to June 30, 1998 and the year
ended June 30, 1999. Such shares have been excluded because they are
antidilutive for all periods presented. Shares of convertible preferred stock
have been excluded from the computation.
Pro Forma Net Loss Per Share (Unaudited)
Pro forma net loss per share is computed using the weighted-average number of
shares of common stock outstanding, including the pro forma effects of the
automatic conversion of eGain's convertible preferred stock into shares of
common stock, effective upon the closing of eGain's initial public offering as
if such conversion occurred at the date of original issuance.
F-10
<PAGE>
eGAIN COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A reconciliation of shares used in the calculation of basic and diluted and
pro forma net loss per share follows:
<TABLE>
<CAPTION>
Period from
inception
(September 10, Year ended
1997) to June 30,
June 30, 1998 1999
-------------- ------------
<S> <C> <C>
Net loss.......................................... $(938,438) $(11,304,501)
--------- ------------
Basic and diluted:
Weighted-average shares of common stock
outstanding.................................... 153,846 8,757,398
Less weighted-average shares subject to
repurchase..................................... (101,068) (3,462,662)
--------- ------------
Shares used in computing basic and diluted net
loss per share................................. 52,778 5,294,736
========= ============
Basic and diluted net loss per share.............. $ (17.78) $ (2.14)
========= ============
Pro forma:
Shares used above............................... 5,294,736
Pro forma adjustment to reflect weighted effect
of assumed conversion of convertible preferred
stock (unaudited).............................. 6,858,708
------------
Shares used in computing pro forma basic and
diluted net loss per share (unaudited)......... 12,153,444
============
Pro forma basic and diluted net loss per share
(unaudited).................................... $ (0.93)
============
</TABLE>
Recent Accounting Pronouncements
In June 1998, the FASB issued Statement of Financial Accounting Standard No.
133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging
Activities," which will be effective for the year ending June 30, 2001. This
statement establishes accounting and reporting standards requiring that every
derivative instrument, including certain derivative instruments embedded in
other contracts, be recorded in the balance sheet as either an asset or
liability measured at its fair value. The statement also requires that changes
in the derivative's fair value be recognized in earnings unless specific hedge
accounting criteria are met. eGain believes the adoption of SFAS 133 will not
have a material effect on the financial statements, since it currently does not
invest in derivative instruments and engage in hedging activities.
In March 1998, the American Institute of Certified Public Accounts issued
Statement of Position ("SOP") No. 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 requires that
entities capitalize certain costs related to internal use software once certain
criteria have been met. eGain is required to adopt SOP No. 98-1 effective July
1, 1999. eGain believes that the adoption of SOP No. 98-1 will not have a
material impact on its financial statements.
2. ACQUISITION OF SITEBRIDGE CORPORATION
Effective April 30, 1999, eGain acquired Sitebridge Corporation
("Sitebridge"). The acquisition was accounted for as a purchase and,
accordingly, the results of operations of Sitebridge have been included in the
consolidated financial statements since the date of acquisition. In connection
with the
F-11
<PAGE>
eGAIN COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
acquisition eGain issued the following equity securities in exchange for all
the outstanding common and preferred stock, and options and warrants to
purchase shares of Sitebridge common and preferred stock:
<TABLE>
<CAPTION>
No. of
Securities Per Share Aggregate
eGain Securities Issued Issued Value Value
----------------------- ---------- ----------- --------------
(in thousands)
<S> <C> <C> <C>
Series C convertible preferred stock.... 1,609,793 $4.71 $ 7,582
Common Stock............................ 1,455,514 $4.69 6,826
Warrants to acquire Series C preferred
stock.................................. 121,006 $3.85 466
Warrants to acquire common stock........ 30,440 $4.57 139
Options to acquire common stock......... 1,114,016 $4.57-$4.67 5,135
-------
Total value of securities issued in the
acquisition of Sitebridge.............. 20,148
Transaction Costs....................... 864
-------
Total purchase price.................... $21,012
=======
</TABLE>
The fair market value of the eGain securities issued to Sitebridge were based
on an independent appraisal that used a standard options-based methodology that
incorporated the estimated value range for eGain, the liquidation preference
and conversion features of eGain's preferred stock. Each security was split
into a number of call options, which were valued using the Black-Scholes option
pricing model. Principal assumptions used in the Black-Scholes model were
volatility of 100 percent, risk free interest rate of 4.5 percent, term of 9
months and the stock price was estimated as the indicated range of equity value
concluded through the market capitalization approach.
The purchase price was allocated to the assets acquired based on their
estimated fair values. The excess of the purchase price over the fair value of
the net tangible and intangible assets acquired (goodwill) was approximately
$20,457,000. Goodwill and other intangible assets related to the acquisition of
Sitebridge Corporation are being amortized on a straight-line basis over three
years.
In connection with the acquisition, net assets acquired were as follows (in
thousands):
<TABLE>
<S> <C>
Purchased intangible assets (including goodwill).................... $21,412
Cash, receivables, and other assets................................. 155
Property and equipment.............................................. 43
Liabilities assumed................................................. (598)
-------
Net assets acquired............................................... $21,012
=======
</TABLE>
Goodwill and purchased intangible assets include the following (in
thousands):
<TABLE>
<CAPTION>
1999
-------
<S> <C>
Goodwill............................................................ $19,962
Developed technology................................................ 1,050
Workforce........................................................... 350
Customer base....................................................... 50
-------
21,412
Less accumulated amortization....................................... (1,217)
-------
$20,195
=======
</TABLE>
F-12
<PAGE>
eGAIN COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table presents the unaudited pro forma results assuming that
eGain had merged with Sitebridge at the beginning of fiscal 1999. These
unaudited pro forma results have been prepared for comparative purposes only
and include certain adjustments, such as additional amortization expense as a
result of goodwill. They do not purport to be indicative of the results of
operations that actually would have resulted had the combination occurred on
July 1, 1998, or of future results of operations of the consolidated entities.
<TABLE>
<CAPTION>
Year ended
June 30,
1999
-----------
<S> <C>
Revenue........................................................ $ 1,076,877
Net loss....................................................... $19,126,753
Basic and diluted net loss per share........................... $ (3.07)
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
June 30,
--------------------
1998 1999
-------- ----------
<S> <C> <C>
Computers and equipment................................ $107,850 $1,215,244
Furniture and fixtures................................. 9,284 188,807
Leasehold improvements................................. -- 15,000
-------- ----------
117,134 1,419,051
Less accumulated depreciation.......................... (7,000) (286,400)
-------- ----------
Property and equipment, net............................ $110,134 $1,132,651
======== ==========
</TABLE>
4. NOTES PAYABLE
In August 1998, eGain obtained a $1,000,000 line of credit from a bank for
equipment purchases and working capital financing. Borrowings under the line of
credit are collateralized by all of eGain's assets and bear interest at the
bank's prime rate plus 0.25%. At June 30, 1999, $1,000,000 was outstanding
under this agreement. The entire balance is due on February 6, 2000.
In October 1998, eGain obtained a $1,500,000 credit facility with a leasing
company for equipment purchases. Borrowings under the credit facility are
collateralized by certain fixed assets and bear an imputed interest rate of
13.68%. At June 30, 1999, eGain had borrowed approximately $342,000 under the
credit facility, of which $297,855 was outstanding. Monthly payments of
approximately $9,400 are due under existing borrowings through July 2002.
In conjunction with the line of credit and equipment credit facilities, eGain
issued warrants to purchase 74,511 shares of its Series A preferred stock at
$0.8055 per share (see Note 6).
In connection with the acquisition of Sitebridge, eGain assumed two
promissory notes for a total amount of $380,000. The notes accrue interest at
5% per year and are payable on December 31, 2000.
F-13
<PAGE>
eGAIN COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Long-term debt repayments are due as follows (in thousands):
<TABLE>
<S> <C>
2000................................................................ $434,762
2001................................................................ 110,547
2002................................................................ 110,546
--------
$655,855
========
</TABLE>
5. COMMITMENTS
Operating Lease Commitments
eGain leases its facilities under noncancelable operating leases expiring in
September 2003. Rent expense for facilities under operating leases was
approximately $80,000 and $362,000 for the period from inception (September 10,
1997) to June 30, 1998 and the year ended June 30, 1999. Future minimal rental
commitments under operating leases at June 30, 1999 are as follows:
<TABLE>
<S> <C>
2000.............................................................. $1,049,578
2001.............................................................. 1,360,782
2002.............................................................. 647,197
2003.............................................................. 397,252
2004.............................................................. 85,244
----------
$3,540,053
==========
</TABLE>
6. STOCKHOLDERS' EQUITY
Convertible Preferred Stock
Convertible preferred stock as of June 30, 1999 consisted of the following:
<TABLE>
<CAPTION>
Noncumulative Liquidation
Shares Shares Dividend Preference
Authorized Outstanding Per Share Per Share
---------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Series A.................... 5,707,043 5,406,585 $0.06 $0.8055
Series B.................... 2,600,000 2,550,000 $0.16 $2.00
Series C.................... 1,728,844 1,609,793 $0.08 $1.00
---------- ---------
10,035,887 9,566,378
========== =========
</TABLE>
Each share of Series A, B, and C preferred stock is convertible, at the
option of the holder, into a share of common stock, on a one-for-one basis,
subject to adjustments for dilution, if any, resulting from future stock
issuances. Additionally, the preferred shares automatically convert into common
stock concurrent with the closing of an underwritten public offering of common
stock under the Securities Act of 1933 in which eGain receives at least
$10,000,000 in gross proceeds and the price per share is at least $5.00
(subject to adjustment for a recapitalization or certain other stock
adjustments). Each share of Series A, B, and C preferred stock has voting
rights equal to one share common stock on an as-if-converted basis.
No dividends have been declared or paid through June 30, 1999. Under the
terms of the bank line of credit, eGain is prohibited from paying a dividend.
F-14
<PAGE>
eGAIN COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Series A, B, and C preferred stockholders are entitled to receive, upon
liquidation, a distribution of $0.8055, $2.00, and $1.00 per share (subject to
adjustment for a recapitalization) plus all declared but unpaid dividends. The
Series A and B stockholders are entitled to receive liquidation preferences
prior to any distribution to the Series C stockholders. Thereafter, the
remaining assets and funds, if any, shall be distributed ratably on a per-share
basis among the common stockholders and the Series A, B, and C preferred
stockholders until the Series A, B, and C preferred stockholders have received
an aggregate amount of $2.81925, $6.00, and $2.00 per share.
Common Stock
eGain has issued shares of common stock to founders which are subject to
eGain's right to repurchase upon termination of employment. The repurchase
rights lapse ratably over a period of two years from the date of issuance. At
June 30, 1998 and 1999, 5,333,334 and 2,666,666 shares were subject to
repurchase.
At June 30, 1999, common stock was reserved for issuance as follows:
<TABLE>
<S> <C>
Conversion of preferred stock................................... 9,566,378
Exercise of outstanding stock options........................... 2,524,928
Shares of common stock available for grant under the 1998 Stock
Plan........................................................... 567,004
Exercise of preferred and common stock warrants outstanding..... 591,471
----------
13,249,781
==========
</TABLE>
Certain option holders have exercised options to purchase shares of
restricted common stock in exchange for five-year, full recourse promissory
notes. The notes bear interest ranging from 4.5% to 5.5% and expire at various
dates through June 2004. eGain has the right to repurchase all unvested shares
at the original exercise price upon employee termination. The number of shares
subject to this repurchase right decreases as the shares vest under the
original option terms, generally four years. As of June 30, 1999, there were
shares 1,149,813 subject to repurchase.
eGain effected a two-for-one stock split of its common stock on June 23,
1998. All share and per share amounts have been adjusted to reflect the stock
split.
Warrants
Warrants to purchase 188,699 shares of Series A preferred stock for a price
of $0.8055 per share were issued in connection with the issuance of convertible
promissory notes in fiscal year 1998. The convertible promissory notes were
subsequently converted into Series A preferred stock. The warrants expire
within two to three years from the date of issuance or upon the closing of a
public offering by eGain. The fair value was appraised at the date of issuance
and additional interest expense of approximately $57,000 was recorded.
Warrants to purchase 74,511 shares of Series A preferred stock for a price of
$0.8055 per share were issued in connection with the line of credit and
equipment credit facilities entered into during fiscal year 1999. The warrants
expire at the earlier of seven years from the date of issuance or five years
after completion of an initial public offering. The warrants were appraised at
the date of issuance and additional interest expense of $36,000 is being
amortized to interest expense over the term of the loans. During the year ended
June 30, 1999, $14,000 of the additional interest expense was amortized.
F-15
<PAGE>
eGAIN COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A warrant to purchase 175,000 shares of common stock at a price of $0.20 per
share was issued to FW Ventures I, L.P. in connection with financial advisory
services rendered in connection with the acquisition of Sitebridge. Mark
Wolfson, a director of eGain, is a limited partner of FW Ventures I, L.P. The
warrant expires in July 2002 and is exercisable at any time prior to the
closing of a public offering by eGain. The fair value was appraised at the date
of issuance as $789,250 and has been included in the acquisition costs (see
Note 2).
Warrants to purchase 121,006 shares of Series C preferred stock for a price
of $0.9916 per share and 30,440 shares of common stock for a price of $0.2754
per share were assumed by eGain in connection with its acquisition of
Sitebridge. The warrants expire at various dates through May 2003. The fair
value of the warrants was appraised at the date of issuance and an amount of
$1,100,000 was included as part of the purchase consideration for Sitebridge
(see Note 2).
1998 Stock Plan
In June 1998, the board of directors adopted the 1998 Stock Plan (the
"Plan"), which provides for issuance to purchase options of common stock to
eligible participants. Options granted under the Plan may be either incentive
stock options or nonstatutory stock options. Incentive stock options may be
granted to employees with exercise prices of no less than the fair value and
nonstatutory options may be granted to eligible participants at exercise prices
of no less than 85% of the fair value of the common stock on the grant date as
determined by the board of directors. Options are generally exercisable upon
grant, subject to repurchase rights by eGain until vested.
Pro forma information regarding net loss is required by SFAS 123, and has
been determined as if eGain had accounted for its employee stock options under
the fair value method as specified by SFAS 123. The fair value of these options
was estimated at the date of grant using the minimum value method with the
following weighted-average assumptions: no dividends; an expected life of 3.5
years; and a risk-free interest rate of approximately 5.65% and 5.72% for the
periods ended June 30, 1998 and 1999.
Options generally vest ratably over a period of four years. Options may be
granted with different vesting terms at the discretion of the board of
directors. Options are generally exercisable for a term of ten years after the
date of grant.
The effect of applying the FASB statement's minimum value method to eGain's
stock options granted did not result in pro forma net loss amounts that are
materially different from the reported historical amounts. Therefore, such pro
forma information is not separately presented herein. Future pro forma net
income (loss) results may be materially different from actual amounts reported.
F-16
<PAGE>
eGAIN COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A summary of activity under eGain's stock option plan was as follows:
<TABLE>
<CAPTION>
Weighted-
Shares Average
Available Exercise
for Grant Options Price
---------- ---------- ---------
<S> <C> <C> <C>
Shares authorized for issuance................ 2,000,000
Options granted............................. (511,000) 511,000 $0.05
---------- ----------
Balance at June 30, 1998...................... 1,489,000 511,000 $0.05
Additional authorization.................... 1,500,000 --
Options granted............................. (2,666,101) 2,666,101 $0.24
Options exercised........................... -- (1,447,396) $0.12
Options cancellations....................... 249,105 (249,105) $0.08
Repurchases................................. 75,000 --
---------- ----------
Balance at June 30, 1999...................... 647,004 1,480,600 $0.24
========== ==========
</TABLE>
In connection with the acquisition of Sitebridge, eGain assumed options to
purchase 1,114,016 shares of common stock, of which 982,431 are outstanding at
June 30, 1999.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------- ---------------------------
Weighted-
Average Weighted- Options Weighted-
Remaining Average Exercisable Average
Exercise At June Contractual Exercise at June 30, Exercise
Price Range 30, 1999 Life Price 1999 Price
- ----------- --------- ----------- --------- ----------- ---------
(In years)
<S> <C> <C> <C> <C> <C>
$0.02-$0.05 246,544 8.04 $0.02 116,877 $0.02
$0.10-$0.20 1,371,237 8.47 $0.14 590,809 $0.14
$0.25-$0.50 845,250 9.94 $0.46 23,167 $0.45
--------- -------
2,463,031 8.92 $0.24 730,853 $0.23
========= =======
</TABLE>
The weighted-average fair value of options granted during the period from
inception (September 10, 1997) to June 30, 1998 was $0.01. It was $0.06 per
share for options granted during the fiscal year ended June 30, 1999.
Stock Compensation
The Company recorded deferred compensation of $168,932 and $8,295,974 during
the periods ended June 30, 1998 and 1999, respectively. These amounts represent
the difference between the exercise price and the deemed fair value of certain
stock options granted to employees by eGain in these periods. During the
periods ended June 30, 1998 and 1999, the Company also recorded deferred
compensation with respect to stock options granted to consultants totaling
$65,100 and $2,322,930 respectively. Options granted to consultants are
periodically valued as they vest in accordance with SFAS 123 and EITF 96-18
using a Black-Scholes model and the following weighted average assumptions for
fiscal 1998 and 1999: volatility of 0.5, risk-free interest rate of
approximately 5.7%, no dividend yield; and an expected life of the option equal
to the full term, generally 10 years from the date of grant. Deferred
compensation is being amortized by charges to
F-17
<PAGE>
eGAIN COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
operations on a graded vesting method over the vesting periods of the
individual stock options. Such amortization amounted to $58,258 and $1,838,561
for the periods ended June 30, 1998 and 1999, respectively.
7. INCOME TAXES
Due to operating losses and the inability to recognize the benefits from the
resulting net operating losses, there is no provision for income taxes for the
period from inception (September 10, 1997) to June 30, 1998 or for the year
ended June 30, 1999.
As of June 30, 1999, eGain had federal net operating loss carryforwards of
approximately $11,000,000. eGain also had federal research and development
credit carryforwards of approximately $100,000. The net operating loss and
credit carryforwards will expire at various dates beginning in 2011 through
2019, if not utilized.
Utilization of the net operating losses and credits may be subject to a
substantial limitation due to the "change in ownership" provisions of the
Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in the expiration of net operating losses and credits
before utilization.
Deferred tax assets and liabilities reflect the net tax effects of net
operating loss and credit carryforwards and of temporary differences between
the carrying amounts of assets and liabilities for financial reporting and the
amounts used for income tax purposes. Significant components of eGain's
deferred tax assets and liabilities for federal and state income taxes are as
follows (in thousands):
<TABLE>
<CAPTION>
As of June 30,
----------------
1998 1999
------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards......................... $ 300 $ 4,300
Research credits......................................... -- 100
Deferred compensation.................................... -- 900
Other individually immaterial items...................... -- 100
------ --------
Total deferred tax assets.............................. 300 5,400
Valuation allowance for deferred tax assets............ (300) (4,900)
------ --------
Net deferred tax assets.................................... $ -- $ 500
Deferred tax liabilities:
Other intangibles.......................................... -- (500)
------ --------
$ -- $ --
====== ========
</TABLE>
SFAS 109 provides for the recognition of deferred tax assets if realization
of such assets is more likely than not. Based upon the weight of available
evidence, which includes eGain's historical operating performance and the
reported cumulative net losses through June 30, 1999, eGain has provided a full
valuation allowance against its net deferred tax assets.
The net valuation allowance increased by $300,000 during the year ended June
30, 1998.
F-18
<PAGE>
eGAIN COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. SUBSEQUENT EVENTS (UNAUDITED)
Series D Preferred Stock Financing
In July 1999, the Company issued 652,000 shares of Series D convertible
preferred stock at a price of $8.00 per share for total consideration of
$5,216,000.
Each share of Series D preferred stock is convertible into one share of
common stock (subject to antidilution adjustment) at any time at the option of
the holder. The Series D preferred stock will automatically convert into common
stock upon (i) the consummation of an underwritten public offering ("IPO") with
a price per share of at least $12.00 and aggregate proceeds in excess of
$20,000,000 or (ii) the election of holders of a majority of the outstanding
Series D preferred stock.
Each holder of Series D preferred stock is entitled to receive, when and if
declared by the Company's board, non cumulative dividends at an annual rate of
$0.64 which is equal to 8% of the purchase price per share. For any other
dividends or distributions, preferred stock participates with common stock on
an as-converted basis.
In the event of any liquidation or winding up of the Company, the holders of
Series D preferred will be entitled to receive in preference to the holders of
common stock and Series C preferred stock and pari passu with the holders of
the Series A preferred stock and Series B preferred stock an amount equal to
the Purchase Price plus any declared and unpaid dividends on the preferred
stock. Thereafter, any remaining assets will be distributed ratably to the
holders of the preferred stock and common stock on an as-converted basis until
the holders of the Series A preferred stock shall have received an aggregate of
$2.81925 per share, the holders of the Series B preferred stock shall have
received an aggregate of $7.00 per share, the holders of the Series C preferred
stock shall have received $2.00 and the holders of Series D preferred stock
shall have received an aggregate of $16.00. Thereafter, the remaining assets of
the Company will be distributed ratably to the holders of common stock.
A merger, reorganization or similar transaction in which control of the
Company is transferred will be treated as a liquidation for purposes of the
above preferences.
Initial Public Offering
In July 1999, the board of directors authorized the filing of a registration
statement with the Securities and Exchange Commission to register shares of its
common stock in connection with a proposed Initial Public Offering ("IPO"). If
the offering is consummated under the terms presently anticipated, all of the
currently outstanding convertible preferred stock and the Series D preferred
stock issued in July 1999 will convert to shares of common stock upon the
closing of the IPO on a one-for-one basis. The effect of this conversion has
been reflected as unaudited pro forma stockholders' equity in the accompanying
consolidated balance sheet at June 30, 1999.
In July 1999, the board of directors also authorized 5,000,000 shares of
undesignated preferred stock, for which the board of directors is authorized to
fix the designation, powers, preferences and rights and an increase in the
authorized number of shares of common stock to 50,000,000 shares.
F-19
<PAGE>
eGAIN COMMUNICATIONS CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
1999 Employee Stock Purchase Plan
The Company's 1999 Employee Stock Purchase Plan was adopted by the Board of
Directors and approved by the stockholders in July 1999 to be effective upon
the completion of the Company's initial public offering of its common stock.
The Company has reserved a total of 750,000 shares of common stock for issuance
under the plan. Eligible employees may purchase common stock at 85% of the
lesser of the fair market value of the Company's common stock on the first and
last days of the applicable six month offering period.
Increase in Option Pool
In July 1999, the board of directors authorized and the stockholders approved
an increase of 3,000,000 shares for issuance under eGain's stock option plan
and granted approximately 773,000 options to purchase common stock to employees
and consultants.
F-20
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Sitebridge Corporation
We have audited the accompanying balance sheets of Sitebridge Corporation (a
development stage company) as of December 31, 1997 and 1998, and the related
statements of operations, stockholders' equity (net capital deficiency), and
cash flows for the period from inception (September 10, 1996) to December 31,
1997, the year ended December 31, 1998, and the period from inception
(September 10, 1996) to December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Sitebridge Corporation (a
development stage company) at December 31, 1997 and 1998, and the results of
its operations and its cash flows for the period from inception (September 10,
1996) to December 31, 1997, the year ended December 31, 1998, and the period
from inception (September 10, 1996) to December 31, 1998, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Palo Alto, California
July 16, 1999
F-21
<PAGE>
SITEBRIDGE CORPORATION
(a development stage company)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------
1997 1998
--------- -----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents............................ $ 71,695 $ 141,191
Accounts receivable.................................. -- 26,122
Other current assets................................. 1,500 22,547
--------- -----------
Total current assets................................... 73,195 189,860
Property and equipment, net............................ 5,040 47,354
Other long-term assets................................. -- 10,500
--------- -----------
$ 78,235 $ 247,714
========= ===========
Liabilities and stockholders' equity (net capital
deficiency)
Current liabilities:
Accounts payable and accrued liabilities............. $ 9,824 $ 33,112
Deferred revenue..................................... -- 37,045
Payable to stockholder............................... 10,500 --
--------- -----------
Total current liabilities.............................. 20,324 70,157
Notes payable.......................................... 348,305 430,000
Commitments
Stockholders' equity (net capital deficiency):
Convertible preferred stock, $0.001 par value,
1,200,000 shares authorized, issuable in series;
822,600 shares issued and outstanding at December
31, 1998 (aggregate liquidation preference of
$1,480,680 at December 31, 1998).................... -- 1,456,573
Common stock, $0.001 par value, 4,000,000 shares
authorized, 777,900 and 801,900 shares issued and
outstanding at December 31, 1997 and 1998........... 15,195 21,195
Additional paid-in capital........................... -- 60,000
Accumulated deficit.................................. (305,589) (1,790,211)
--------- -----------
Stockholders' equity (net capital deficiency).......... (290,394) (252,443)
--------- -----------
$ 78,235 $ 247,714
========= ===========
</TABLE>
See accompanying notes.
F-22
<PAGE>
SITEBRIDGE CORPORATION
(a development stage company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from inception Period from inception
(September 10, 1996) Year ended (September 10, 1996)
to December 31, December 31, to December 31,
1997 1998 1998
--------------------- ------------ ---------------------
<S> <C> <C> <C>
Revenue:
License............... $ -- $ 59,800 $ 59,800
Service............... -- 50,612 50,612
--------- ----------- -----------
Total revenue....... -- 110,412 110,412
--------- ----------- -----------
Costs and expenses:
Cost of revenues...... -- 144,073 144,073
Research and
development.......... 181,994 792,404 974,398
Sales, general and
administrative....... 113,175 588,463 701,638
--------- ----------- -----------
Total costs and
expenses........... 295,169 1,524,940 (1,820,109)
--------- ----------- -----------
Loss from operations.... (295,169) (1,414,528) (1,709,697)
Interest and other
expense, net........... (10,420) (70,094) (80,514)
--------- ----------- -----------
Net loss................ $(305,589) $(1,484,622) $(1,790,211)
========= =========== ===========
Basic and diluted net
loss per share......... $ (1.06) $ (1.88)
========= ===========
Weighted-average shares
outstanding............ 289,168 788,701
========= ===========
</TABLE>
See accompanying notes.
F-23
<PAGE>
SITEBRIDGE CORPORATION
(a development stage company)
STATEMENT OF STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
<TABLE>
<CAPTION>
Total
Stockholders'
Convertible Preferred Stock Common Stock Additional Equity (Net
--------------------------- --------------- Paid-In Accumulated Capital
Shares Amount Shares Amount Capital Deficit Deficiency)
--------------------------- ------- ------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock
to founders for
technology and cash in
October 1996............ -- $ -- 720,000 $ 6,000 $ -- $ -- $ 6,000
Issuance of common stock
for cash in January
through October 1997 at
per share prices of
$0.03 and $0.25......... -- -- 57,900 9,195 -- -- 9,195
Net loss and
comprehensive loss...... -- -- -- -- -- (305,589) (305,589)
----------- --------------- ------- ------- ------- ------------ ----------
Balance at December 31,
1997.................... -- -- 777,900 15,195 -- (305,589) (290,394)
Issuance of Series A
preferred stock at $1.80
per share in May 1998,
net of issuance costs of
$24,131................. 510,831 895,389 -- -- -- -- 895,389
Issuance of Series A
preferred stock at $1.80
per share in May 1998
upon conversion of
promissory notes and
accrued interest........ 311,769 561,184 -- -- -- -- 561,184
Issuance of warrant in
May 1998................ -- -- -- -- 60,000 -- 60,000
Issuance of common stock
for cash in January
through June 1998 at per
share price of $0.25.... -- -- 24,000 6,000 -- -- 6,000
Net loss and
comprehensive loss...... -- -- -- -- -- (1,484,622) (1,484,622)
----------- --------------- ------- ------- ------- ------------ ----------
Balance at December 31,
1998.................... 822,600 $ 1,456,573 801,900 $21,195 $60,000 $ (1,790,211) $ (252,443)
=========== =============== ======= ======= ======= ============ ==========
</TABLE>
See accompanying notes.
F-24
<PAGE>
SITEBRIDGE CORPORATION
(a development stage company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from Period from
inception inception
(September 10, (September 10,
1996) to Year ended 1996) to
December 31, December 31, December 31,
1997 1998 1998
-------------- ------------ --------------
<S> <C> <C> <C>
Operating activities:
Net loss.......................... $ (305,589) $ (1,484,622) $ (1,790,211)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation.................... 3,960 7,630 11,590
Accrued interest converted to
preferred stock................ -- 19,602 19,602
Warrant amortization............ -- 60,000 60,000
Changes in operating assets and
liabilities:
Accounts receivable........... -- (26,122) (26,122)
Other assets.................. (1,500) (31,547) (33,047)
Accounts payable and accrued
liabilities.................. 9,824 23,288 33,112
Deferred revenue.............. -- 37,045 37,045
---------- ------------ ------------
Net cash used in operating
activities................. (293,305) (1,394,726) (1,688,031)
---------- ------------ ------------
Investing activities:
Purchases of property and
equipment...................... (9,000) (49,944) (58,944)
---------- ------------ ------------
Net cash used in investing
activities................. (9,000) (49,944) (58,944)
---------- ------------ ------------
Financing activities:
Proceeds from issuance of
preferred stock................ -- 895,389 895,389
Proceeds from issuance of common
stock.......................... 15,195 6,000 21,195
Proceeds from issuance of notes
payable........................ 348,305 623,277 971,582
Loan from stockholder........... 10,500 (10,500) --
---------- ------------ ------------
Net cash provided by
financing activities....... 374,000 1,514,166 1,888,166
---------- ------------ ------------
Net increase in cash and cash
equivalents...................... 71,695 69,496 141,191
Cash and cash equivalents at
beginning of period.............. -- 71,695 --
---------- ------------ ------------
Cash and cash equivalents at end
of period........................ $ 71,695 $ 141,191 $ 141,191
========== ============ ============
Supplemental disclosure of cash
flow information
Promissory notes and accrued
interest converted into preferred
stock............................ $ -- $ 561,184 $ 561,184
========== ============ ============
Issuance of warrant............... $ -- $ 60,000 $ 60,000
========== ============ ============
</TABLE>
See accompanying notes.
F-25
<PAGE>
SITEBRIDGE CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Business
Sitebridge Corporation ("Sitebridge"), formerly known as Social Science,
Inc., develops and deploys mission-critical, Internet-based, front-office
applications for sales and service organizations and was incorporated in
Delaware on September 10, 1996. The operating results for the period from
inception to December 31, 1996 were not material. Sitebridge conducts its
business within one industry segment and all operations through December 31,
1998 were based in the United States.
Since inception, Sitebridge has been engaged primarily in research and
development activities in connection with the development of its products.
Other activities have included raising capital, recruiting managerial and
technical personnel, and establishment of business development and marketing
organizations. Accordingly, Sitebridge was classified as a development stage
enterprise at December 31, 1998.
On April 30, 1999, eGain Communications Corporation ("eGain"), acquired
Sitebridge (see Note 5). To date, Sitebridge has financed its operations with
the net proceeds from private placements of its equity securities. Additional
financing through eGain will be required to fund Sitebridge's operations and
market its products.
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 amounts reported in the financial statements and the
accompanying notes. Actual results could differ materially from these
estimates.
Cash and Cash Equivalents
Sitebridge considers all highly liquid investments with a maturity from date
of purchase of three months or less to be cash equivalents.
Concentration of Credit Risk and Significant Customers
Financial instruments that subject Sitebridge to concentrations of credit
risk consist principally of cash investments and accounts receivable.
Sitebridge invests cash which is not required for immediate operating needs
principally in money market funds, which bear minimal risk.
At December 31, 1998, 3 customers represented 84% of the total balance of
accounts receivable. For the year ended December 31, 1998, 3 customers
accounted for 27%, 15%, and 9% of total revenue.
F-26
<PAGE>
SITEBRIDGE CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Property and Equipment
Property and equipment are stated at cost, net of accumulated amortization
and depreciation. Property and equipment are depreciated on a straight-line
basis over the estimated useful lives of the assets, typically three to five
years. Leasehold improvements are amortized using the straight-line method over
the shorter of the estimated life of the asset or the remaining term of the
lease.
Revenue Recognition
Revenue from license fees and from sales of software products is recognized
when persuasive evidence of an agreement exists, delivery of the product has
occurred, no significant Sitebridge obligations with regard to implementation
remain, the fee is fixed or determinable, and collectibility is probable.
Revenue is deferred in cases where the license arrangement calls for future
delivery of products or services for which Sitebridge does not have vendor-
specific objective evidence to allocate a portion of the total fee to the
undelivered element. In such cases, revenue is recognized when the undelivered
elements are delivered or vendor-specific objective evidence of the undelivered
elements becomes available.
Service revenue consists of consulting services, training, and maintenance,
which includes product updates and technical support. Consulting service and
training revenue is generally recognized as services are performed. Maintenance
revenue is recognized ratably over the term of the agreement. In instances
where software license agreements include a combination of consulting services,
training, and maintenance, these separate elements are unbundled from the
arrangement based on the element's relative fair value.
Software Development Costs
Software development costs are included in research and development and are
expensed as incurred until technological feasibility is achieved. To date, the
period between achieving technological feasibility and general availability of
software has been short and software development costs qualifying for
capitalization have been insignificant. Accordingly, Sitebridge has not
capitalized any software development costs.
Stock-Based Compensation
Sitebridge accounts for its stock-based compensation arrangements with
employees using the intrinsic value method. Deferred stock-based compensation
is recorded on the date of grant when the deemed fair value of the underlying
common stock exceeds the exercise price for stock options.
Comprehensive Loss
SiteBridge has no material components of other comprehensive loss and,
accordingly, the comprehensive loss is the same as net loss for all periods
presented.
Net Loss Per Share
Basic and diluted net loss per share has been computed using the weighted-
average number of shares of common stock outstanding during the period. Had
Sitebridge been in a net income
F-27
<PAGE>
SITEBRIDGE CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
position, diluted earnings per share would have included the shares used in the
computation of basic net loss per share as well as the impact of outstanding
options and warrants to purchase an additional 291,035 and 586,806 shares,
prior to the application of the treasury stock method, for the period from
inception (September 10, 1996) to December 31, 1997 and the year ended December
31, 1998. Such shares have been excluded because they are antidilutive for all
periods presented. Shares of convertible preferred stock have been excluded
from the computation.
A reconciliation of shares used in the calculation of basic and diluted net
loss per share follows:
<TABLE>
<CAPTION>
Period from
inception
(September 10,
1996) to Year ended
December 31, December 31,
1997 1998
-------------- ------------
<S> <C> <C>
Net loss....................................... $(305,589) $(1,484,622)
--------- -----------
Basic and diluted:
Weighted-average shares of common stock
outstanding................................. 851,668 1,171,201
Less weighted-average shares subject to
repurchase.................................. (562,500) (382,500)
--------- -----------
Shares used in computing basic and diluted
net loss per share.......................... 289,168 788,701
========= ===========
Basic and diluted net loss per share........... $ (1.06) $ (1.88)
========= ===========
</TABLE>
Recent Accounting Pronouncements
In June 1998, the FASB issued Statement of Financial Accounting Standard No.
133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging
Activities," which will be effective for the year ending December 31, 2000.
This statement establishes accounting and reporting standards requiring that
every derivative instrument, including certain derivative instruments embedded
in other contracts, be recorded in the balance sheet as either an asset or
liability measured at its fair value. The statement also requires that changes
in the derivative's fair value be recognized in earnings unless specific hedge
accounting criteria are met. Sitebridge believes the adoption of SFAS 133 will
not have a material effect on the financial statements, since it currently does
not invest in derivative instruments and engage in hedging activities.
In March 1998, the American Institute of Certified Public Accountants issued
SOP 98-1, "Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use" ("SOP 98-1"). SOP 98-1 requires that entities capitalize
certain costs related to internal use software once certain criteria have been
met. Sitebridge is required to implement SOP 98-1 for the year ending December
31, 2000. Adoption of SOP 98-1 is expected to have no material impact on
SiteBridge's financial condition or results of operations.
F-28
<PAGE>
SITEBRIDGE CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
--------------
1997 1998
------ -------
<S> <C> <C>
Furniture and equipment...................................... $9,000 $43,944
Leasehold improvements....................................... -- 15,000
------ -------
9,000 58,944
Less accumulated depreciation................................ 3,960 11,590
------ -------
Property and equipment, net.................................. $5,040 $47,354
====== =======
</TABLE>
3. CONVERTIBLE BRIDGE NOTES
In 1997 and 1998, Sitebridge issued convertible bridge notes to investors.
The convertible notes accrued interest at a rate of 5.63% per year and were
convertible into preferred stock at the Company's option. In May 1998,
convertible notes in the amount of $541,582 plus accrued interest of $19,602
were exchanged for 311,769 shares of Series A convertible preferred stock at a
price of $1.80 per share.
In October 1998, Sitebridge issued a convertible bridge note in the amount of
$250,000 which was outstanding at December 31, 1998. The convertible note
accrued interest at 5.06% per year and was convertible into preferred stock at
a price of $4.00 per share. The principle and accrued interest related to the
note was converted into 64,302 shares of Series A convertible preferred stock
in April 1999.
In December 1998, Sitebridge issued a promissory note in the amount of
$180,000 which was outstanding at December 31, 1998. The note accrues interest
at 5.0% per year and is payable on January 31, 2000, as amended.
In connection with the issuance of the convertible notes, Sitebridge issued
warrants to purchase both preferred and common stock (see Note 5).
4. COMMITMENTS
Operating Lease Commitments
Sitebridge leases its facilities under noncancelable operating leases
expiring in March 2003. Rent expense for facilities under operating leases was
$13,859 and $45,660 for the period from inception (September 10, 1996) to
December 31, 1997 and the year ended December 31, 1998. Future minimal rental
commitments under operating leases at December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999................................................................ $ 67,500
2000................................................................ 70,500
2001................................................................ 76,500
2002................................................................ 78,000
2003................................................................ 19,500
--------
$312,000
========
</TABLE>
F-29
<PAGE>
SITEBRIDGE CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
5. STOCKHOLDERS' EQUITY
Convertible Preferred Stock
Sitebridge's Certificate of Incorporation provides for the issuance of up to
1,200,000 shares of convertible preferred stock, 889,667 shares of which have
been designated as Series A.
Each share of Series A preferred stock is convertible, at the option of the
holder, into a share of common stock, on a one-for-one basis, subject to
certain adjustments for dilution, if any, resulting from future stock
issuances. Additionally, the preferred shares automatically convert into common
stock concurrent with the closing of an underwritten public offering of common
stock under the Securities Act of 1933 in which Sitebridge receives at least
$15,000,000 in net proceeds and the price per share is at least $1.80 (subject
to adjustment for a recapitalization or certain other stock adjustments).
Series A preferred stockholders are entitled to annual noncumulative
dividends, before and in preference to any dividends paid on common stock, when
and as declared by the board of directors. No dividends have been declared
through December 31, 1998.
The Series A preferred stockholders are entitled to receive, upon liquidation
or merger, a distribution of $1.80 per share (subject to adjustment for a
recapitalization) plus all declared but unpaid dividends. Thereafter, the
remaining assets and funds, if any, shall be distributed ratably on a per-share
basis among the common stockholders and the Series A preferred stockholders.
The Series A preferred stockholders have voting rights equal to the common
shares they would own upon conversion.
As of December 31, 1998, Sitebridge has reserved 960,102 shares of common
stock for issuance upon conversion of its Series A preferred stock.
Common Stock
In October 1996, Sitebridge issued 720,000 shares of common stock to founders
for technology and cash. The common stock is subject to repurchase upon
termination of employment. Sitebridge's repurchase right lapses ratably over
four years with respect to such shares. At December 31, 1998, approximately
315,000 shares were subject to repurchase.
Warrants
Sitebridge had the following warrants to purchase shares of preferred and
common stock outstanding at December 31, 1998:
<TABLE>
<CAPTION>
Number of Exercise Price Expiration of
Shares Stock Type Per Share Date Issued Warrants
- --------- ------------------------ -------------- ------------ -------------
<S> <C> <C> <C> <C>
66,667 Series A preferred stock $1.80 May 1998 May 2003
16,771 Common stock $0.50 October 1998 October 2001
</TABLE>
F-30
<PAGE>
SITEBRIDGE CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Outstanding warrants are exercisable immediately prior to the close of
business on the date of its surrender. The warrants were appraised at the date
of issuance or the date when all terms were fixed, and additional interest
expense of $60,000 was recorded during 1998.
Warrants to purchase 36,109 shares of Series A preferred stock were exercised
in 1998 as part of the Series A preferred stock financing.
1997 Stock Plan
In May 1997, the board of directors adopted the 1997 Stock Plan (the "Plan")
for issuance of options of common stock to eligible participants. Options
granted may be either incentive stock options or nonstatutory stock options.
Incentive stock options may be granted to employees with exercise prices of no
less than the fair value and nonstatutory options may be granted to eligible
participants at exercise prices as determined by the plan administrator.
Options generally vest at the rate of 25% after one year from the date of
grant, with the remaining balance vesting monthly over the next four years with
a term of 10 years. Sitebridge has reserved 650,000 shares of common stock for
the grant of options under the Plan.
Pro forma information regarding net loss is required by SFAS 123, and has
been determined as if Sitebridge had accounted for its employee stock options
under the fair value method as specified by SFAS 123. The fair value of these
options was estimated at the date of grant using the minimum value method with
the following weighted-average assumptions: no dividends; an expected life of
five years; and a risk-free interest rate of approximately 5.5% for the periods
ended December 31, 1997 and 1998.
The effect of applying the FASB statement's minimum value method to
Sitebridge's stock options granted did not result in pro forma net loss amounts
that are materially different from the reported historical amounts. Therefore,
such pro forma information is not separately presented herein. Future pro forma
net income (loss) results may be materially different from actual amounts
reported.
A summary of activity under Sitebridge's stock plan was as follows:
<TABLE>
<CAPTION>
Weighted-
Shares Available Average
for Grant Options Exercise Price
---------------- ------- --------------
<S> <C> <C> <C>
Shares authorized for issuance.... 220,000 --
Additional authorization........ 150,000 --
Options granted................. (296,035) 296,035 $0.17
Options canceled................ 5,000 (5,000) $0.25
-------- -------
Balance at December 31, 1997...... 78,965 291,035 $0.17
Additional authorization........ 280,000 --
Options granted................. (347,597) 347,597 $0.25
Options canceled................ 68,542 (68,542) $0.25
-------- -------
Balance at December 31, 1998...... 79,910 570,090 $0.21
======== =======
</TABLE>
F-31
<PAGE>
SITEBRIDGE CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Options Outstanding
-------------------------------- Weighted-
Options Average Options
Exercise Outstanding at Remaining Exercisable at
Price December 31, Contractual December 31,
Range 1998 Life 1998
-------- -------------- ----------- --------------
(In years)
<S> <C> <C> <C>
$0.03 102,774 7.62 --
$0.25 467,316 9.19 63,170
</TABLE>
The weighted-average fair value of options granted during the period ended
December 31, 1997 was $0.03. It was $0.04 per share for options granted during
the year ended December 31, 1998.
6. INCOME TAXES
As of December 31, 1998, Sitebridge had federal net operating loss
carryforwards of approximately $1,700,000. The net operating loss and credit
carryforwards will expire at various dates beginning in 2011 through 2018, if
not utilized.
Utilization of the net operating losses may be subject to a substantial
annual limitation due to the "change in ownership" provisions of the Internal
Revenue Code of 1986 and similar state provisions. The annual limitation may
result in the expiration of net operating losses and credits before
utilization.
As of December 31, 1997 and 1998, Sitebridge had deferred tax assets of
approximately $100,000 and $900,000. The net deferred tax assets have been
fully offset by a valuation allowance. The net valuation allowance increased by
$800,000 during the year ended December 31, 1998. Deferred tax assets relate
primarily to net operating loss carryforwards, and deferred compensation not
currently deductible.
SFAS 109 provides for the recognition of deferred tax assets if realization
of such assets is more likely than not. Based upon the weight of available
evidence, which includes Sitebridge's historical operating performance and the
reported cumulative net losses through December 31, 1998, Sitebridge has
provided a full valuation allowance against its net deferred tax assets.
7. SUBSEQUENT EVENTS (UNAUDITED)
Borrowings
During 1999, Sitebridge issued a promissory note in the amount of $200,000,
which accrues interest at 5% per year and is payable on January 31, 2000.
Acquisition
On April 30, 1999, eGain acquired all the outstanding shares of Sitebridge's
common and preferred stock. Outstanding options and warrants to purchase
Sitebridge's common and preferred stock have been assumed by eGain.
F-32
<PAGE>
eGAIN COMMUNICATIONS CORPORATION AND SITEBRIDGE CORPORATION
UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL INFORMATION
On April 30, 1999, eGain Communications Corporation ("eGain") completed the
acquisition of Sitebridge Corporation ("Sitebridge"). The acquisition of
Sitebridge has been accounted for as a purchase. Accordingly, the results of
operations of Sitebridge have been included in the consolidated statement of
operations of eGain commencing on the date of acquisition.
The accompanying pro forma condensed combined statement of operations for
eGain's year ended June 30, 1999 assumes that the acquisition took place as of
the beginning of fiscal 1999 and combined Sitebridge's statement of operations
for the ten months ended April 30, 1999 with eGain's consolidated statement of
operations for the fiscal year ended June 30, 1999.
The unaudited pro forma condensed combined information is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have actually occurred if the
acquisition had been consummated as of the date indicated, nor is it
necessarily indicative of future operating results or financial position. The
pro forma adjustments are based on the information available at the time of the
printing of this prospectus.
F-33
<PAGE>
eGAIN COMMUNICATIONS CORPORATION AND SITEBRIDGE CORPORATION
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended Ten Months
June 30, Ended
1999 April 30, 1999
------------ --------------
Pro Forma Pro Forma
eGain Sitebridge Adjustments Combined
------------ -------------- ----------- ------------
<S> <C> <C> <C> <C>
Revenue................. $ 1,019,343 $ 57,534 $ -- $ 1,076,877
Costs and expenses:
Cost of revenue........ 1,772,159 126,060 -- 1,898,219
Research and
development........... 2,095,784 982,549 -- 3,078,333
Sales, general and
administrative........ 5,416,681 678,006 -- 6,094,687
Amortization........... 3,034,323 -- 5,920,276 (A) 8,954,599
------------ ----------- ----------- ------------
Total costs and
expenses............. 12,318,947 1,786,615 5,920,276 20,025,838
------------ ----------- ----------- ------------
Loss from operations.. (11,299,604) (1,729,081) (5,920,276) (18,948,961)
Interest and other
expenses, net......... (4,897) (7,885) -- (12,782)
------------ ----------- ----------- ------------
Net loss.............. $(11,304,501) $(1,736,966) $(5,920,276) $(18,961,743)
============ =========== =========== ============
Basic and diluted net
loss per share......... $ (2.14) $ (3.04)(B)
============ ============
Shares used in computing
basic and diluted net
loss per share......... 5,294,736 6,239,366 (B)
============ ============
</TABLE>
See accompanying notes
F-34
<PAGE>
Notes to the Unaudited Pro Forma Condensed
Combined Financial Information
The total estimated purchase price of the acquisition has been allocated to
acquired assets and liabilities based on estimates of their fair values. The
excess of the purchase price over the fair value of the tangible and intangible
net assets acquired has been allocated to goodwill.
The adjustments to the unaudited pro forma condensed combined statement of
operations for the year ended June 30, 1999, assume the acquisition occurred as
of July 1, 1998 and are as follows:
(A) To reflect the amortization of goodwill and other intangible assets
resulting from the acquisition. The goodwill and other intangible assets
are being amortized over three years.
(B) Basic and diluted net loss per share excludes the preferred shares of eGain
issued in the acquisition as their inclusion would be antidilutive.
In connection with the acquisition, eGain issued Series C convertible
preferred stock, common stock, and options and warrants to purchase preferred
and common stock in exchange for all of the outstanding preferred stock, common
stock and options and warrants to purchase preferred and common stock of
Sitebridge. The acquisition was accounted for as a purchase and, accordingly,
the results of operations for Sitebridge have been included in the consolidated
financial statements commencing on the date of acquisition. The fair market
value of the equity securities issued in the acquisition was approximately
$20.1 million. Goodwill and purchased intangible assets of approximately $21.4
million were recorded and are being amortized on a straight-line basis over the
useful lives of three years.
F-35
<PAGE>
[LOGO OF eGAIN APPEARS HERE]
customer service infrastructure for eCommerce
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the various expenses expected to be incurred
by the Registrant in connection with the sale and distribution of the
securities being registered hereby, other than underwriting discounts and
commissions. All amounts are estimated except the Securities and Exchange
Commission registration fee, the National Association of Securities Dealers,
Inc. filing fee and the Nasdaq National Market listing fee.
<TABLE>
<CAPTION>
Amount
--------
<S> <C>
SEC registration fee............................................... $ 16,680
National Association of Securities Dealers, Inc. filing fee ....... 6,500
Nasdaq National Marketing listing fee.............................. 95,000
Blue Sky fees and expenses......................................... 5,000
Accounting fees and expenses....................................... 400,000
Legal fees and expenses............................................ 275,000
Printing and engraving expenses.................................... 150,000
Registrar and Transfer Agent fees.................................. 15,000
Miscellaneous fees and expenses.................................... 16,820
--------
Total............................................................ $980,000
========
</TABLE>
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law provides for the
indemnification of officers, directors, and other corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act of 1933, as amended (the "Act"). Article VI of the Registrant's
Amended and Restated Certificate of Incorporation (Exhibit 3.2 hereto) and
Article XII of the Registrant's Amended and Restated Bylaws (Exhibit 3.4
hereto) provide for indemnification of the Registrant's directors, officers,
employees and other agents to the extent and under the circumstances permitted
by the Delaware General Corporation Law. The Registrant has also entered into
agreements with its directors and officers that will require the Registrant,
among other things, to indemnify them against certain liabilities that may
arise by reason of their status or service as directors or officers to the
fullest extent not prohibited by law.
The Underwriting Agreement (Exhibit 1.1) provides for indemnification by the
Underwriters of the Registrant, its directors and officers, and by the
Registrant of the Underwriters, for certain liabilities, including liabilities
arising under the Act, and affords certain rights of contribution with respect
thereto.
Item 15. Recent Sales of Unregistered Securities
Since inception in September 1997, we have issued and sold the following
unregistered securities:
1. From September 1997 to June 30, 1999, the Registrant issued and sold
8,558,508 shares of common stock to employees, directors and consultants at
prices ranging from $0.005 to $0.50 per share.
II-1
<PAGE>
2. From April 1998 to June 1998, the Registrant issued warrants that became
exercisable for an aggregate of 188,699 shares of Registrant's Series A
preferred stock at a purchase price of $0.8055 per share, in connection with
certain loans made to the Registrant.
3. In June 1998, the Registrant issued and sold 5,406,585 shares of Series A
preferred stock to 11 investors for an aggregate purchase price of
$4,355,004.21.
4. From August 1998 to October 1998, the Registrant issued warrants to
purchase an aggregate of 74,511 shares of Registrant's Series A preferred
stock at a purchase price between $0.8050 and $0.8055 per share, in connection
with certain equipment financing.
5. From December 1998 to February 1999, the Registrant issued and sold
2,550,000 shares of Series B preferred stock to a total of 14 investors for an
aggregate purchase price of $5,100,000.00.
6. In May 1999, the Registrant issued an aggregate of 1,455,514 shares of
common stock and 1,609,793 shares of Series C preferred stock to 28 holders of
capital stock of Sitebridge Corporation in connection with the Registrant's
acquisition of Sitebridge Corporation. The Registrant also assumed (a)
warrants to purchase the capital stock of Sitebridge Corporation which became
exercisable for 121,006 shares of the Registrant's Series C preferred stock at
a purchase price per share of $0.9916 and 30,440 shares of the Registrant's
common stock at a purchase price per share of $0.2754 and (b) options to
purchase common stock of Sitebridge Corporation, which became exercisable for
1,114,016 shares of the Registrant's common stock.
7. In June 1999, the Registrant issued a warrant to purchase an aggregate of
175,000 shares of Registrant's common stock at a purchase price of $0.20 per
share in connection with certain financial advisory services rendered to
Registrant.
8. In July 1999, the Registrant issued and sold 652,000 shares of Series D
preferred stock to 6 investors for an aggregate purchase price of
$5,216,000.00.
The issuances of the above securities were deemed to be exempt from
registration under the Securities Act in reliance on section 4(2) of such
Securities Act as transactions by an issuer not involving any public offering.
In addition, certain issuances were deemed exempt from registration under the
Securities Act in reliance upon Rule 701 promulgated under the Securities Act.
The recipients of securities in each such transaction represented their
intentions to acquire the securities for investment only and not with a view
to or for sale in connection with any distribution thereof and appropriate
legends were affixed to the share certificates and warrants issued in such
transactions. All recipients had adequate access, through their relationships
with us, to information about us.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
See exhibits listed on the Exhibit Index following the signature page of
this Form S-1, which is incorporated herein by reference.
(b) Financial Statement Schedules
Schedules have been omitted because they are not applicable or not required
or because the information is included elsewhere in the Financial Statements
or the notes thereto.
II-2
<PAGE>
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, 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 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 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 of
1933, as amended, 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 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 of
1933, as amended, 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.
(3) The Registrant will provide to the underwriters at the closing(s)
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.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Sunnyvale, State of California, on the 31st day of August, 1999.
eGAIN COMMUNICATIONS CORPORATION
/s/ Ashutosh Roy
By: _________________________________
Ashutosh Roy
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Ashutosh Roy, Gunjan Sinha, William McGrath and
Eric Smit, and each of them, his true and lawful attorneys-in-fact and agents,
each with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all
amendments, including post-effective amendments, to this Registration
Statement, and any registration statement relating to the offering covered by
this Registration Statement and filed pursuant to Rule 462(b) under the
Securities Act of 1933 and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that each of
said attorneys-in-fact and agents or their substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Ashutosh Roy Chief Executive Officer and August 31, 1999
______________________________________ Director (Principal Executive
Ashutosh Roy Officer)
* President and Director August 31, 1999
______________________________________
Gunjan Sinha
/s/ Harpreet Grewal Chief Financial Officer August 31, 1999
______________________________________
Harpreet Grewal
* Vice President--Finance and August 31, 1999
______________________________________ Administration (Principal
Eric N. Smit Financial and Accounting
Officer)
/s/ A. Michael Spence Director August 31, 1999
______________________________________
A. Michael Spence
* Director August 31, 1999
______________________________________
Mark A. Wolfson
</TABLE>
Ashutosh Roy
*By: /s/
------------------------------
Ashutosh Roy
Attorney-in-Fact
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
1.1** Form of Underwriting Agreement.
2.1*+ Agreement and Plan of Reorganization among Registrant, Sitebridge
Corporation, ECC Acquisition Corporation, Wendell Lansford, Prakash
Mishra and Chelsea M.C. LLC.
3.1 Restated Certificate of Incorporation, as amended.
3.2* Form of Amended and Restated Certificate of Incorporation to be
effective upon completion of this offering.
3.3* Bylaws of the Registrant, as amended.
3.4* Form of Amended and Restated Bylaws of the Registrant to be effective
upon completion of this offering.
4.1 Form of Common Stock Certificate.
4.2 Amended and Restated Investors' Rights Agreement dated as of July 21,
1999.
4.3* Warrant to purchase Common stock dated as of August 7, 1998 issued by
the Registrant to Imperial Bank.
4.4* Warrant to purchase shares of Series A preferred stock dated as of
October 15, 1998 issued to Phoenix Leasing Incorporated.
4.5* Warrant to purchase Series A Convertible Preferred Stock of Sitebridge
Corporation dated as of May 5, 1998 issued to Chelsea Capital Partners
LLC (assumed by Registrant in connection with Sitebridge acquisition).
4.6* Warrant to purchase Series A Convertible Preferred Stock of Sitebridge
Corporation dated as of May 5, 1998 issued to Amir Bahhtiar (assumed
by Registrant in connection with Sitebridge acquisition).
5.1 Opinion of Pillsbury Madison & Sutro LLP.
10.1* Form of Indemnification Agreement.
10.2* Social Science, Inc. 1997 Stock Option Plan (assumed by registrant in
connection with Sitebridge acquisition).
10.3* Amended and Restated 1998 Stock Plan and forms of stock option
agreements thereunder.
10.4* 1999 Employee Stock Purchase Plan.
10.5* Golden Gate Commercial Lease Agreement dated as of July 21, 1998
between Registrant and Golden Gate Commercial Company.
10.6* Starter Kit Loan and Security Agreement dated as of August 7, 1998
between Registrant and Imperial Bank.
10.7* Senior Loan and Security Agreement No. 6194 dated as of October 15,
1998 between Registrant and Phoenix Leasing Incorporated.
10.8* Amendment to Common Stock Purchase Agreement dated as of June 24, 1998
between Registrant and Ashutosh Roy.
10.9* Amendment to Common Stock Purchase Agreement dated as of June 24, 1998
between Registrant and Gunjan Sinha.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
10.10 Sub-sublease dated as of June 1999 by and between Cadence Design
Systems Inc. and eGain Communications Corporation.
10.11 Promissory Note of A. Michael Spence dated August 6, 1999.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Pillsbury Madison & Sutro LLP (included in Exhibit 5.1).
24.1 Power of Attorney (see Page II-4).
27.1* Financial Data Schedule.
99.1 Consent of Jupiter Communications.
99.2 Consent of International Data Corporation.
</TABLE>
- --------
*Previously filed.
**To be filed by amendment.
+ Schedules and similar attachments to this exhibit have been omitted as
permitted by Item 601(b)(2) of Regulation S-K. Schedules or attachments
omitted will be furnished supplementally to the Commission upon request.
<PAGE>
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
eGAIN COMMUNICATIONS CORPORATION
eGAIN COMMUNICATIONS CORPORATION, a corporation organized and existing
under the General Corporation Law of the State of Delaware (the "Corporation"),
DOES HEREBY CERTIFY:
FIRST: The original Certificate of Incorporation of the Corporation was
filed with the Secretary of State of Delaware on September 10, 1997.
SECOND: A Restated Certificate of Incorporation was filed with the
Secretary of State of Delaware on December 23, 1998, February 8, 1999 and May
13, 1999.
THIRD: The Restated Certificate of Incorporation of the Corporation in the
form attached hereto as Exhibit A has been duly adopted in accordance with the
provisions of sections 245 and 242 of the General Corporation Law of the State
of Delaware by the directors and stockholders of the Corporation.
FOURTH: The Restated Certificate of Incorporation so adopted reads in full
as set forth in Exhibit A attached hereto and is hereby incorporated herein by
this reference.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by the Chief Executive Officer and the Secretary this 27 day of July,
1999.
eGAIN COMMUNICATIONS CORPORATION
By /s/ Ashutosh Roy
------------------------------
Ashutosh Roy
Chief Executive Officer
ATTEST:
By /s/ Stanley F. Pierson
--------------------------
Stanley F. Pierson
Secretary
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
eGAIN COMMUNICATIONS CORPORATION
FIRST: The name of the corporation (hereinafter called the "Corporation")
is eGAIN COMMUNICATIONS CORPORATION.
SECOND: The address of the registered office of the Corporation in the
State of Delaware is 30 Old Rudnick Lane, City of Dover, County of Kent, and the
name of the registered agent of the Corporation in the State of Delaware at such
address is CorpAmerica, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH:
A. This Corporation is authorized to issue two classes of shares to be
designated respectively Preferred Stock ("Preferred Stock") and Common Stock
("Common Stock"). The total number of shares of capital stock that the
Corporation is authorized to issue is forty million two hundred eighty-seven
thousand eight hundred forty-two (40,287,842). The total number of shares of
Preferred Stock this Corporation shall have authority to issue is eleven million
two hundred eighty-seven thousand eight hundred forty-two (11,287,842). The
total number of shares of Common Stock this Corporation shall have authority to
issue is twenty-nine million (29,000,000). 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. The Preferred Stock shall be divided into series. The first series
shall consist of 5,707,043 shares and is designated "Series A Preferred Stock."
The second series shall consist of 2,600,000 shares and is designated "Series B
Preferred Stock." The third series shall consist of 1,728,844 1,730,799 shares
and is designated "Series C Preferred Stock." The fourth series shall consist
of 1,250,000 and is designated "Series D Preferred Stock."
C. The powers, preferences, rights, restrictions, and other matters
relating to the Preferred Stock are as follows:
1. Dividends.
---------
(a) The holders of the Series A Preferred Stock shall be entitled to
receive dividends at the rate of $0.06444 per share of Series A Preferred Stock
(as adjusted for any stock dividends, combinations or splits with respect to
such shares) per annum (the "Series A Dividend") payable out of funds legally
available therefor. The holders of the Series B Preferred Stock shall be
entitled to receive dividends at the rate of $0.16 per share of Series B
Preferred Stock (as adjusted for any stock dividends, combinations or splits
with respect to such shares) per annum (the "Series B Dividend") payable out of
funds legally available therefore. The holders of the
-1-
<PAGE>
Series C Preferred Stock shall be entitled to receive dividends at the rate of
$0.08 per share of Series C Preferred Stock (as adjusted for any stock
dividends, combinations or splits with respect to such shares) per annum (the
"Series C Dividend") payable out of funds legally available therefore. The
holders of the Series D Preferred Stock shall be entitled to receive dividends
at the rate of $0.64 per share of Series D Preferred Stock (as adjusted for any
stock dividends, combinations or splits with respect to such shares) per annum
(the "Series D Dividend") payable out of funds legally available therefore.
Dividends on Preferred Stock shall be payable only when, as, and if declared by
the Board of Directors and shall be noncumulative and shall be paid pari passu
with respect to each series of Preferred Stock.
(b) No dividends (other than those payable solely in the Common Stock of
the Corporation) shall be paid on any Common Stock of the Corporation during any
fiscal year of the Corporation until dividends in the total amount of the Series
A Dividend per share on the Series A Preferred Stock, the Series B Dividend per
share on the Series B Preferred Stock, and the Series C Dividend per share on
the Series C Preferred Stock and the Series D Dividend per share on the Series D
Preferred Stock shall have been paid or declared and set apart during that
fiscal year, and no dividends shall be paid on any share of Common Stock unless
a dividend (including the amount of any dividends paid pursuant to the above
provisions of this Section C.1) is paid with respect to all outstanding shares
of Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred
Stock and the Series D Preferred Stock in an amount for each such share of
Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock
and Series D Preferred Stock equal to or greater than the aggregate amount of
such dividends for all shares of Common Stock into which each such share of
Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock
and the Series D Preferred Stock could then be converted.
2. Liquidation Preference.
----------------------
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary (i) the holders of the Series A
Preferred Stock shall be entitled to receive, prior and in preference to any
distribution of any of the assets or surplus funds of the Corporation to the
holders of the Common Stock by reason of their ownership thereof, the amount of
$0.8055 per share, adjusted for any stock dividends, combinations or splits with
respect to such shares (the "Original Series A Issue Price"), plus all declared
but unpaid dividends on each such share then held by them, and (ii) the holders
of the Series B Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets or surplus funds of the
Corporation to the holders of the Common Stock by reason of their ownership
thereof, the amount of $2.00 per share, adjusted for any stock dividends,
combinations or splits with respect to such shares (the "Original Series B Issue
Price"), plus all declared but unpaid dividends on each such share then held by
them and (iii) the holders of Series D Preferred Stock shall be entitled to
receive, prior and in preference to any distribution of any of the assets or
surplus funds of the Corporation to the holders of Common Stock by reason of
their ownership thereof, the amount of $8.00 per share, adjusted for any stock
dividends, combinations or splits with respect to such shares (the "Original
Series D Issue Price"), plus all declared but unpaid dividends on each such
share then held by them. If upon the occurrence of such event, the assets and
funds thus distributed among the holders of the Preferred Stock shall be
insufficient to permit the payment to such holders of the full aforesaid
preferential amount, then the entire assets and funds of the Corporation legally
available for distribution shall be
-2-
<PAGE>
distributed ratably among the holders of the Preferred Stock in proportion to
the preferential amount each such holder is otherwise entitled to receive.
(b) After payment to the holders of the Series A Preferred Stock,
Series B Preferred Stock and Series D Preferred Stock of the amounts set forth
in Section C.2(a) above, the holders of the Series C Preferred Stock shall be
entitled to receive, prior and in preference to any distribution of any of the
assets or surplus funds of the Corporation to the holders of the Common Stock
and any further distribution of any of the assets or surplus funds of the
Corporation to the holders of the Series A Preferred Stock, Series B Preferred
Stock or Series D Preferred Stock, by reason of their ownership thereof, the
amount of $1.00 per share, adjusted for any stock dividends, combinations or
splits with respect to such shares (the "Original Series C Issue Price"), plus
all declared but unpaid dividends on each such share then held by them.
(c) After payment to the holders of the Preferred Stock of the amounts set
forth in Sections C.2(a) and C.2(b) above, the entire remaining assets and funds
of the Corporation legally available for distribution, if any, shall be
distributed ratably among the holders of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and the
Common Stock in proportion to the shares of Common Stock then held by each
(assuming conversion of all such Series A Preferred Stock, and Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock) until
(i) the holders of the Series A Preferred Stock shall have received an aggregate
amount of $2.81925 per share, adjusted for any stock dividends, combinations or
splits with respect to such shares (including amounts paid pursuant to Section
2(a) above), (ii) the holders of the Series B Preferred Stock shall have
received an aggregate amount of $6.00 per share, adjusted for any stock
dividends, combinations or splits with respect to such shares (including amounts
paid pursuant to Section 2(a) above), and (iii) the holders of the Series C
Preferred Stock shall have received an aggregate amount of $2.00 per share,
adjusted for any stock dividends, combinations or splits with respect to such
shares (including amounts paid pursuant to Section 2(a) above) and (iv) the
holders of the Series D Preferred Stock shall have received an aggregate amount
of $16.00 per share, adjusted for any stock dividends, combinations or splits
with respect to such shares (including amounts paid pursuant to Section 2(a)
above); thereafter, if assets remain in the Corporation, the holders of the
Common Stock of the Corporation shall receive all of the remaining assets of the
Corporation based on the number of shares of Common Stock held.
(d) For purposes of this Section C.2, (i) any acquisition of the
Corporation by means of merger or other form of corporate reorganization in
which outstanding shares of the Corporation are exchanged for securities or
other consideration issued, or caused to be issued, by the acquiring corporation
or its subsidiary (other than a merger effected primarily for the purpose of
changing the domicile of the corporation) that results in the transfer of fifty
percent (50%) or more of the outstanding voting power of the Corporation; or
(ii) a sale of all or substantially all of the assets of the Corporation, shall
be treated as a liquidation, dissolution or winding up of the Corporation and
shall entitle the holders of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and Common Stock to receive
at the closing in cash, securities or other property (valued as provided in
Section C.2(e) below) amounts as specified in Sections C.2(a), C.2(b) and C.2(c)
above.
-3-
<PAGE>
(e) In any of the events specified in (d) above, if the consideration
received by the Corporation is other than cash, its value will be deemed its
fair market value. Any securities shall be valued as follows:
(i) Securities not subject to investment letter or other similar
restrictions on free marketability:
(A) If traded on a securities exchange or the Nasdaq National
Market, the value shall be deemed to be the average of the closing
prices of the securities on such exchange over the thirty (30) day
period ending three (3) days prior to the closing;
(B) If actively traded over-the-counter but not on the Nasdaq
National Market, the value shall be deemed to be the average of the
closing bid or sale prices (whichever is applicable) over the thirty
(30) day period ending three (3) days prior to the closing; and
(C) If there is no active public market, the value shall be the
fair market value thereof, as mutually determined in good faith by the
Board of Directors of the Corporation and the holders of at least a
majority of all then outstanding shares of Preferred Stock.
(ii) The method of valuation of securities subject to investment
letter or other restrictions on free marketability (other than restrictions
arising solely by virtue of a shareholder's status as an affiliate or
former affiliate) shall be to make an appropriate discount from the market
value determined as above in (i) (A), (B) or (C) to reflect the approximate
fair market value thereof, as mutually determined in good faith by the
Board of Directors of the Corporation and the holders of at least a
majority of all then outstanding shares of Preferred Stock.
(f) Notice of Transaction. The Corporation shall give each holder of
---------------------
record of Series A Preferred Stock, Series B Preferred Stock, and Series C
Preferred Stock and Series D Preferred Stock written notice of such impending
transaction not later than ten (10) days prior to the stockholders' meeting
called to approve such transaction, or ten (10) days prior to the closing of
such transaction, whichever is earlier, and shall also notify such holders in
writing of the final approval of such transaction. The first of such notices
shall describe the material terms and conditions of the impending transaction
and the provisions of this Section 2, and the Corporation shall thereafter give
such holders prompt notice of any material changes. The transaction shall in no
event take place sooner than ten (10) days after the Corporation has given the
first notice provided for herein or sooner than ten (10) days after the
Corporation has given notice of any material changes provided for herein;
provided, however, that such periods may be shortened upon the written consent
of the holders of Preferred Stock that are entitled to such notice rights or
similar notice rights and that represent at least a majority of the voting power
of all then outstanding shares of such Preferred Stock.
(g) In the event the requirements of Section 2(d), (e) and (f) are not
complied with, the Corporation shall forthwith either:
-4-
<PAGE>
(i) cause such closing to be postponed until such time as the
requirements of this Section 2 have been complied with; or
(ii) cancel such transaction, in which event the rights, preferences
and privileges of the holders of the Preferred Stock shall revert to and be
the same as such rights, preferences and privileges existing immediately
prior to the date of the first notice referred to in Section 2(f) hereof.
3. Voting Rights; Directors.
------------------------
(a) Voting. Each holder of shares of Preferred Stock shall be entitled to
------
the number of votes equal to the number of shares of Common Stock into which
such shares of Preferred Stock could be converted and shall have voting rights
and powers equal to the voting rights and powers of the Common Stock (except as
otherwise expressly provided herein or as required by law, voting together with
the Common Stock as a single class) and shall be entitled to notice of any
stockholders' meeting in accordance with the Bylaws of the Corporation.
Fractional votes shall not, however, be permitted and any fractional voting
rights resulting from the above formula (after aggregating all shares into which
shares of Preferred Stock held by each holder could be converted) shall be
rounded to the nearest whole number (with one-half being rounded upward). Each
holder of Common Stock shall be entitled to one (1) vote for each share of
Common Stock held.
(b) Election of Directors. With respect to the election of members of the
---------------------
Board of Directors of the Corporation, so long as at least 1,000,000 shares of
Series A Preferred Stock shall remain outstanding, (i) the holders of Series A
Preferred Stock, voting as a separate class, shall have the right to elect one
member of the Board of Directors (the "Series A Director"); (ii) the holders of
Common Stock, voting separate as a class, shall have the right to elect two (2)
members of the Board of Directors (the "Common Directors"); and (iii) all
remaining member(s) of the Board of Directors shall be elected by the holders of
a majority of the Common Stock, Series A Preferred Stock, Series B Preferred
Stock, and Series C Preferred Stock and Series D Preferred Stock, voting
together as a single class on an as-converted basis (the "Joint Director(s)").
(c) Removal of Directors. The Series A Director may be removed from the
--------------------
Board of Directors, either with or without cause, only by the affirmative vote
of the holders of a majority of the outstanding Series A Preferred Stock, voting
as a single class. The Common Directors may be removed from the Board of
Directors, either with or without cause, only by the affirmative vote of the
holders of a majority of the outstanding Common Stock. The Joint Director(s)
may be removed from the Board of Directors, either with or without cause, only
by the affirmative vote of the holders of a majority of the Series A Preferred
Stock, the Series B Preferred Stock, Series C Preferred Stock, Series D
Preferred Stock and the Common Stock, voting together as a single class and on
an as-converted basis; provided, however, that no director may be removed
(unless the entire board is removed) when the votes cast against removal, or not
consenting in writing to the removal, would be sufficient to elect the director
if voted cumulatively at an election at which the same total number of votes
were cast (or, if the action is taken by written consent, all shares entitled to
vote were voted) and the entire number of directors authorized at the time of
the director's most recent election were then being elected.
-5-
<PAGE>
(d) Vacancy. If a vacancy on the Board of Directors is to be filled by
-------
the Board of Directors, only a director or directors elected by the same class
of stockholders as those who would be entitled to vote to fill such vacancy, if
any, shall vote to fill such vacancy. If there are no such directors, such
vacancy shall be filled by the affirmative vote of the holders of a majority of
the shares of that class.
4. Conversion. The holders of the Series A Preferred Stock, Series B
----------
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall
have conversion rights as follows (the "Conversion Rights"):
(a) Right To Convert. Each share of Preferred Stock shall be convertible,
----------------
at the option of the holder thereof, at any time after the date of issuance of
such share, at the office of the Corporation or any transfer agent for such
stock, into such number of fully paid and nonassessable shares of Common Stock
as is determined by dividing the Original Series A Issue Price for the Series A
Preferred Stock, the Original Series B Issue Price for the Series B Preferred
Stock, the Original Series C Issue Price for the Series C Preferred Stock and
the Original Series D Issue Price for the Series D Preferred Stock by the
Conversion Price applicable to such series of Preferred Stock, determined as
hereinafter provided, in effect on the date the certificate is surrendered for
conversion. The initial Conversion Price per share of the Series A Preferred
Stock (the "Series A Conversion Price") shall be the Original Series A Issue
Price, the initial Conversion Price per share of Series B Preferred Stock (the
"Series B Conversion Price") shall be the Original Series B Issue Price, the
initial Conversion Price per share of Series C Preferred Stock (the "Series C
Conversion Price") shall be the Original Series C Issue Price and the initial
Conversion Price per share of Series D Preferred Stock (the "Series D Conversion
Price") shall be the Original Series D Issue Price; provided, however, that the
Conversion Price for each series of Preferred Stock shall be subject to
adjustment as hereinafter provided.
(b) Automatic Conversion. Each share of Series A Preferred Stock,
--------------------
Series B Preferred Stock and Series C Preferred Stock shall automatically be
converted into shares of Common Stock at the Conversion Price then in effect for
the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock, respectively, upon the earlier of (i) the date specified by vote or
written consent or agreement of holders of at least a majority of the shares of
Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock,
as the case may be, then outstanding, or (ii) immediately upon the closing of
the sale of the Corporation's Common Stock in a firm commitment, underwritten
public offering registered under the Securities Act of 1933, as amended (the
"Securities Act"), other than a registration relating solely to a transaction
under Rule 145 under such Act (or any successor thereto) or to an employee
benefit plan of the Corporation, at a public offering price (prior to
underwriters' discounts and expenses) of at least $6.00 per share of Common
Stock, (as adjusted for any stock dividends, combinations or splits with respect
to such shares) and aggregate gross proceeds to the Corporation and/or any
selling stockholders (prior to deduction for underwriters' discounts and
expenses) of at least $10,000,000. Each share of Series D Preferred Stock shall
automatically be converted into shares of Common Stock at the Conversion Price
then in effect for the Series D Preferred Stock upon the earlier of (i) the date
specified by vote or written consent or agreement of holders of at least a
majority of the shares of Series D Preferred Stock then outstanding, or (ii)
immediately upon the closing of the sale of the Corporation's Common Stock in a
firm commitment, underwritten public offering registered under the Securities
Act,
-6-
<PAGE>
other than a registration relating solely to a transaction under Rule 145 under
such Act (or any successor thereto) or to an employee benefit plan of the
Corporation, at a public offering price (prior to underwriters' discounts and
expenses) of at least $12.00 per share of Common Stock, (as adjusted for any
stock dividends, combinations or splits with respect to such shares) and
aggregate gross proceeds to the Corporation and/or any selling stockholders
(prior to deduction for underwriters' discounts and expenses) of at least
$20,000,000.
(c) Mechanics of Conversion.
-----------------------
(i) Before any holder of Preferred Stock shall be entitled voluntarily to
convert the same into shares of Common Stock, such holder shall surrender the
certificate or certificates therefor, duly endorsed, at the office of the
Corporation or of any transfer agent for such stock, and shall give written
notice to the Corporation at such office of election to convert the same and
shall state therein the number of shares to be converted and the name or names
in which the certificate or certificates for shares of Common Stock are to be
issued. The Corporation shall, as soon as practicable thereafter, issue and
deliver at such office to such holder of Preferred Stock, a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled. Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of surrender of the shares of
Preferred Stock to be converted, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock on
such date.
(ii) If the conversion is in connection with an underwritten offering of
securities pursuant to the Securities Act, the conversion may, at the option of
any holder tendering shares of Preferred Stock for conversion, be conditioned
upon the closing with the underwriters of the sale of securities pursuant to
such offering, in which event the person(s) entitled to receive the Common Stock
upon conversion of the Preferred Stock shall not be deemed to have converted
such Preferred Stock until immediately prior to the closing of such sale of
securities.
(d) Adjustments to Series A, Series B, Series C and Series D Conversion
-------------------------------------------------------------------
Price for Certain Diluting Issues.
- ----------------------------------
(i) Special Definitions. For purposes of this Section C.4(d), the
-------------------
following definitions apply:
(A) "Options" shall mean rights, options, or warrants to subscribe
for, purchase or otherwise acquire either Common Stock or Convertible
Securities (defined below).
(B) "Original Issue Date" shall mean the date on which a share of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock or Series D Preferred Stock, as applicable, was first issued.
(C) "Convertible Securities" shall mean any evidences of
indebtedness, shares (other than Common Stock, Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and Series D Preferred
Stock) or other securities convertible into or exchangeable for Common
Stock.
-7-
<PAGE>
(D) "Additional Shares of Common Stock" shall mean all shares of
Common Stock issued (or, pursuant to Section C.4(d)(iii), deemed to be
issued) by the Corporation after the Original Issue Date, other than shares
of Common Stock issued or issuable:
(1) upon conversion of shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock or Series D
Preferred Stock;
(2) To employees, directors, consultants or advisors under stock
option, stock bonus or stock purchase plans or agreements or similar
plans or agreements approved by the Board of Directors or an
authorized committee thereof;
(3) as a dividend or distribution on Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock or Series D
Preferred Stock; or
(4) for which adjustment of the Series A Conversion Price,
Series B Conversion Price, Series C Conversion Price or Series D
Conversion Price is made pursuant to Section C.4(e).
(ii) No Adjustment of Conversion Price. Any provision herein to the
---------------------------------
contrary notwithstanding, no adjustment in the Series A Conversion Price, Series
B Conversion Price, Series C Conversion Price or Series D Conversion Price shall
be made in respect of the issuance of Additional Shares of Common Stock unless
the consideration per share (determined pursuant to Section C.4(d)(v) hereof)
for an Additional Share of Common Stock issued or deemed to be issued by the
Corporation is less than the Series A Conversion Price, Series B Conversion
Price, Series C Preferred Stock Conversion Price or Series D Conversion Price,
as the case may be, in effect on the date of, and immediately prior to, such
issue. No adjustment to the Series A Conversion Price or Series B Conversion
Price shall occur by reason of the Corporation's issuance of Series C Preferred
Stock or Common Stock pursuant to transactions contemplated by that certain
Agreement and Plan of Reorganization by and among the Corporation, Sitebridge
Corporation, ECC Acquisition Corporation, Wendell Lansford, Prakash Mishra and
Chelsea Capital Partners LLC.
(iii) Deemed Issue of Additional Shares of Common Stock. In the event the
-------------------------------------------------
Corporation at any time or from time to time after the Original Issue Date for
the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock
or Series D Preferred Stock, as applicable, shall issue any Options or
Convertible Securities or shall fix a record date for the determination of
holders of any class of securities then entitled to receive any such Options or
Convertible Securities, then the maximum number of shares (as set forth in the
instrument relating thereto without regard to any provisions contained therein
designed to protect against dilution) of Common Stock issuable upon the exercise
of such Options or, in the case of Convertible Securities and Options therefor,
the conversion or exchange of such Convertible Securities, shall be deemed to be
Additional Shares of Common Stock issued as of the time of such issue or, in
case such a record date shall have been fixed, as of the close of business on
such
-8-
<PAGE>
record date, provided that in any such case in which Additional Shares of Common
Stock are deemed to be issued:
(A) no further adjustments in the Conversion Price of a series of
Preferred Stock shall be made upon the subsequent issue of Convertible
Securities or shares of Common Stock upon the exercise of such Options or
conversion or exchange of such Convertible Securities;
(B) if such Options or Convertible Securities by their terms provide, with
the passage of time or otherwise, for any increase or decrease in the
consideration payable to the Corporation, or decrease or increase in the number
of shares of Common Stock issuable, upon the exercise, conversion or exchange
thereof, the Conversion Price of each of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock computed
upon the original issue thereof (or upon the occurrence of a record date with
respect thereto), and any subsequent adjustments based thereon, shall, upon any
such increase or decrease becoming effective, be recomputed to reflect such
increase or decrease insofar as it affects such Options or the rights of
conversion or exchange under such Convertible Securities (provided, however,
that no such adjustment of the Conversion Price of a series of Preferred Stock
shall affect Common Stock previously issued upon conversion of such Preferred
Stock);
(C) upon the expiration of any such Options or any rights of conversion or
exchange under such Convertible Securities which shall not have been exercised,
the Conversion Price computed upon the original issue thereof (or upon the
occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon such expiration, be recomputed as if:
(1) in the case of Convertible Securities or Options for Common Stock
the only Additional Shares of Common Stock issued were the shares of Common
Stock, if any, actually issued upon the exercise of such Options or the
conversion or exchange of such Convertible Securities and the consideration
received therefor was the consideration actually received by the
Corporation for the issue of all such Options, whether or not exercised,
plus the consideration actually received by the Corporation upon such
exercise, or for the issue of all such Convertible Securities which were
actually converted or exchanged, plus the additional consideration, if any,
actually received by the Corporation upon such conversion or exchange and
(2) in the case of Options for Convertible Securities only the
Convertible Securities, if any, actually issued upon the exercise thereof
were issued at the time of issue of such Options, and the consideration
received by the Corporation for the Additional Shares of Common Stock
deemed to have been then issued was the consideration actually received by
the Corporation for the issue of all such Options, whether or not
exercised, plus the consideration deemed to have been received by the
-9-
<PAGE>
Corporation (determined pursuant to Section C.4(d)) upon the issue of
the Convertible Securities with respect to which such Options were
actually exercised;
(D) no readjustment pursuant to clause (B) or (C) above shall have
the effect of increasing the Conversion Price for a series of Preferred
Stock to an amount which exceeds the lower of (a) the Conversion Price for
such series of Preferred Stock on the original adjustment date, or (b) the
Conversion Price for such series of Preferred Stock that would have
resulted from any issuance of Additional Shares of Common Stock between the
original adjustment date and such readjustment date.
(E) in the case of any Options which expire by their terms not more
than thirty (30) days after the date of issue thereof, no adjustment of the
Conversion Price shall be made until the expiration or exercise of all such
Options, whereupon such adjustment shall be made in the same manner
provided in clause (C) above.
(iv) Adjustment of Conversion Price Upon Issuance of Additional Shares of
--------------------------------------------------------------------
Common Stock. In the event this Corporation, at any time after the Original
- ------------
Issue Date shall issue Additional Shares of Common Stock (including Additional
Shares of Common Stock deemed to be issued pursuant to Section C.4(d)(iii))
without consideration or for a consideration per share less than the Conversion
Price for such series in effect on the date of and immediately prior to such
issue, then and in such event, the Conversion Price for such series shall be
reduced, concurrently with such issue, to a price (calculated to the nearest
cent) determined by multiplying such Conversion Price for such series by a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issue plus the number of shares of Common
Stock which the aggregate consideration received by the Corporation for the
total number of Additional Shares of Common Stock so issued would purchase at
the Conversion Price for such series in effect immediately prior to such
issuance, and the denominator of which shall be the number of shares of Common
Stock outstanding immediately prior to such issue plus the number of such
Additional Shares of Common Stock so issued. For the purpose of the above
calculation, the number of shares of Common Stock outstanding immediately prior
to such issue shall be calculated on a fully diluted basis, as if all shares of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and all Convertible Securities had been fully converted
into shares of Common Stock immediately prior to such issuance and any
outstanding warrants, options or other rights for the purchase of shares of
stock or convertible securities had been fully exercised immediately prior to
such issuance (and the resulting securities fully converted into shares of
Common Stock, if so convertible) as of such date, but not including in such
calculation any additional shares of Common Stock issuable with respect to
shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Series D Preferred Stock, Convertible Securities, or outstanding options,
warrants or other rights for the purchase of shares of stock or convertible
securities, solely as a result of the adjustment of the Conversion Price for
such series (or other conversion ratios) resulting from the issuance of
Additional Shares of Common Stock causing such adjustment.
-10-
<PAGE>
(v) Adjustment of Series D Conversion Price Upon Issuance of Additional
-------------------------------------------------------------------
Shares of Common Stock.
- ----------------------
(A) In the event the Corporation shall issue, at any time after the
Original Issue Date for the Series D Preferred Stock and prior to the
earlier of (1) July 31, 2000 or (2) the consummation of a private placement
of equity securities resulting in gross cash proceeds to the Corporation of
at least $10,000,000 (the "Financing Date"), Additional Shares of Common
Stock deemed to be issued pursuant to Section C.4(d)(iii) but subject to
the limitations of Section C.4(d)(i)(D)(1)-(4)) without consideration or
for a consideration per share less than the Conversion Price for the Series
D Preferred Stock in effect on the date of and immediately prior to such
issue, then and in such event the applicable Conversion Price for the
Series D Preferred Stock shall be reduced, concurrently with such issue, to
a Conversion Price equal to the consideration per share received by the
Corporation for such issue. No adjustment of the Conversion Price for the
Series D Preferred Stock shall be made pursuant to this Section C.4(d)(v)
in respect of an issue of Additional Shares of Common Stock on or after the
earlier of (1) July 31, 2000 or (2) the Financing Date.
(B) If upon the closing of the sale of the Corporation's Common Stock
in a firm commitment, underwritten public offering registered under the
Securities Act (the "Public Offering") resulting in gross cash proceeds to
the Corporation of at least $10,000,000 prior to July 31, 2000 the
consideration per share is less than the Conversion Price of the Series D
Preferred Stock in effect immediately prior to the closing of the Public
Offering, then upon such closing the Conversion Price of the Series D
Preferred Stock shall be reduced to an amount equal to the price at which
the Corporation's Common Stock was sold in the Public Offering.
(vi) Determination of Consideration. For purposes of this Section C.4(d),
------------------------------
the consideration received by the Corporation for the issue of any Additional
Shares of Common Stock shall be computed as follows:
(A) Cash and Property. Such consideration shall:
-----------------
(1) insofar as it consists of cash, be computed at the aggregate
amount of cash received by the Corporation excluding amounts paid or
payable for accrued interest or accrued dividends;
(2) insofar as it consists of property other than cash, be
computed at the fair value thereof at the time of such issue, as
mutually determined in good faith by the Board and the holders of at
least a majority of all then outstanding shares of Preferred Stock;
and
(3) in the event Additional Shares of Common Stock are issued
together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of
such consideration so received, computed as provided in clauses (1)
and (2) above, as
-11-
<PAGE>
mutually determined in good faith by the Board and the holders of at
least a majority of all then outstanding shares of Preferred Stock.
(B) Options and Convertible Securities. The consideration per share
----------------------------------
received by the Corporation for Additional Shares of Common Stock deemed to
have been issued pursuant to Section C.4(d)(iii), relating to Options and
Convertible Securities shall be determined by dividing:
(1) the total amount, if any, received or receivable by the
Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of
additional consideration (as set forth in the instruments relating
thereto, without regard to any provision contained therein designed to
protect against dilution) payable to the Corporation upon the exercise
of such Options or the conversion or exchange of such Convertible
Securities, or in the case of Options for Convertible Securities, the
exercise of such Options for Convertible Securities and the conversion
or exchange of such Convertible Securities by
(2) the maximum number of shares of Common Stock (as set forth
in the instruments relating thereto, without regard to any provision
contained therein designed to protect against the dilution) issuable
upon the exercise of such Options or conversion or exchange of such
Convertible Securities.
(e) Adjustments to Conversion Prices for Stock Dividends and for
------------------------------------------------------------
Combinations or Subdivisions of Common Stock. In the event that this
- --------------------------------------------
Corporation at any time or from time to time after the Original Issue Date for
the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock
or Series D Preferred Stock, as applicable, shall declare or pay, without
consideration, any dividend on the Common Stock payable in Common Stock or in
any right to acquire Common Stock for no consideration, or shall effect a
subdivision of the outstanding shares of Common Stock into a greater number of
shares of Common Stock (by stock split, reclassification or otherwise than by
payment of a dividend in Common Stock or in any right to acquire Common Stock),
or in the event the outstanding shares of Common Stock shall be combined or
consolidated, by reclassification or otherwise, into a lesser number of shares
of Common Stock, then the Conversion Price for a series of Preferred Stock in
effect immediately prior to such event shall, concurrently with the
effectiveness of such event, be proportionately decreased or increased, as
appropriate. In the event that this Corporation shall declare or pay, without
consideration, any dividend on the Common Stock payable in any right to acquire
Common Stock for no consideration, then the Corporation shall be deemed to have
made a dividend payable in Common Stock in an amount of shares equal to the
maximum number of shares issuable upon exercise of such rights to acquire Common
Stock.
(f) Adjustments for Reclassification and Reorganization. If the Common
---------------------------------------------------
Stock issuable upon conversion of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock or Series D Preferred Stock shall be
changed into the same or a different number of shares of any other class or
classes of stock, whether by capital reorganization, reclassification
-12-
<PAGE>
or otherwise (other than a subdivision or combination of shares provided for in
Section C.4(f) above or a merger or other reorganization referred to in Section
C.2(d) above), the Conversion Price for such series then in effect shall,
concurrently with the effectiveness of such reorganization or reclassification,
be proportionately adjusted so that the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall
be convertible into, in lieu of the number of shares of Common Stock which the
holders would otherwise have been entitled to receive, a number of shares of
such other class or classes of stock equivalent to the number of shares of
Common Stock that would have been subject to receipt by the holders upon
conversion of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock immediately before that change.
(g) No Impairment. The Corporation will not, by amendment of its
-------------
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section C.4 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Preferred Stock against impairment.
(h) Certificates as to Adjustments. Upon the occurrence of each
------------------------------
adjustment or readjustment of the Conversion Price for such series of Preferred
Stock pursuant to this Section C.4, the Corporation at its expense shall
promptly compute such adjustment or readjustment in accordance with the terms
hereof and prepare and furnish to each holder of Preferred Stock a certificate
executed by the Corporation's President or Chief Financial Officer setting forth
such adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Preferred Stock, furnish or cause to be
furnished to such holder a like certificate setting forth (i) such adjustments
and readjustments, (ii) the Conversion Price for such series of Preferred Stock
at the time in effect, and (iii) the number of shares of Common Stock and the
amount, if any, of other property which at the time would be received upon the
conversion of the Preferred Stock.
(i) Notices of Record Date. In the event that the Corporation shall
----------------------
propose at any time: (i) to declare any dividend or distribution upon its
Common Stock, whether in cash, property, stock or other securities, whether or
not a regular cash dividend and whether or not out of earnings or earned
surplus; (ii) to offer for subscription pro rata to the holders of any class or
series of its stock any additional shares of stock of any class or series or
other rights; (iii) to effect any reclassification or recapitalization of its
Common Stock outstanding involving a change in the Common Stock; or (iv) to
merge or consolidate with or into any other corporation, or sell, lease or
convey all or substantially all of its assets, or to liquidate, dissolve or wind
up; then, in connection with each such event, the Corporation shall send to the
holders of Preferred Stock:
(A) at least twenty (20) days' prior written notice of the date on
which a record shall be taken for such dividend, distribution or
subscription rights (and specifying the date on which the holders of Common
Stock shall be entitled
-13-
<PAGE>
thereto) or for determining rights to vote, if any, in respect of the
matters referred to in (iii) and (iv) above; and
(B) in the case of the matters referred to in (iii) and (iv) above,
at least twenty (20) days' prior written notice of the date when the same
shall take place (and specifying the date on which the holders of Common
Stock shall be entitled to exchange their Common Stock for securities or
other property deliverable upon the occurrence of such event).
(j) Issue Taxes. The Corporation shall pay any and all issue and other
-----------
taxes that may be payable in respect of any issue or delivery of shares of
Common Stock on conversion of Preferred Stock pursuant hereto; provided,
however, that the Corporation shall not be obligated to pay any transfer taxes
resulting from any transfer requested by any holder in connection with any such
conversion.
(k) Reservation of Stock Issuable Upon Conversion. The Corporation 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 the Series A Preferred Stock, Series B Preferred Stock, and Series
C Preferred Stock and Series D 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 the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock; and 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 the Series
A Preferred Stock, Series B Preferred Stock, the Series C Preferred Stock
and Series D Preferred Stock, the Corporation 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, including, without limitation, engaging in best efforts to
obtain the requisite stockholder approval of any necessary amendment to this
Certificate.
(l) Fractional Shares. No fractional share shall be issued upon the
-----------------
conversion of any share or shares of 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 a fraction of a share of Common Stock, the
Corporation shall, in lieu of issuing any fractional share, pay the holder
otherwise entitled to such fraction a sum in cash equal to the fair market value
of such fraction on the date of conversion (as determined in good faith by the
Board of Directors).
(m) Notices. Any notice required by the provisions of this Section C.4 to
-------
be given to the holders of shares of Preferred Stock shall be deemed given if
deposited in the United States mail, postage prepaid, and addressed to each
holder of record at his or her address appearing on the books of the
Corporation.
-14-
<PAGE>
5. Protective Provisions.
---------------------
(a) So long as at least 1,000,000 shares of Preferred Stock remain
outstanding, the Corporation shall not, without first obtaining the approval by
vote or written consent, in the manner provided by law, of the holders of at
least sixty-six and two-thirds percent (66 2/3%) of the shares of Preferred
Stock outstanding, voting as a class:
(i) redeem, purchase or otherwise acquire (or pay into or set aside
for a sinking fund for such purpose) any Preferred Stock or Common Stock;
provided, however, that this restriction shall not apply to the repurchase
of shares of Common Stock from employees, officers, directors, consultants
or other persons performing services for the Corporation or any subsidiary
pursuant to agreements under which the Corporation has the option to
repurchase such shares upon the occurrence of certain events, such as the
termination of employment;
(ii) sell, convey or otherwise dispose of all or substantially all of
the Corporation's property or business or merge into or consolidate with
any other corporation (other than a wholly-owned subsidiary corporation) or
effect any similar transaction or series of related transactions that
results in the transfer or disposition of more than fifty percent (50%) of
the outstanding voting power of the Corporation;
(iii) pay any dividend on the Common Stock;
(iv) authorize or issue, or obligate itself to issue, any other
equity security, including any other security convertible into or
exercisable for any equity security, having a preference over, or on a
parity with, the Preferred Stock with respect to dividends, liquidation,
conversion, redemption or voting; or
(v) dissolve, liquidate or wind up the Corporation.
(b) So long as any shares of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock remain
outstanding, the Corporation shall not, without first obtaining the approval
by vote or written consent, in the manner provided by law, of at least a
majority of the holders of the shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock
outstanding, as applicable, voting separately as a class:
(i) amend or repeal any provision of, or add any provision to, the
Corporation's Certificate of Incorporation or Bylaws, if such action would
alter or change materially and adversely the preferences, rights,
privileges or powers of, or the restrictions provided for the benefit of,
such series of Preferred Stock; or
(ii) increase or decrease the authorized number of shares of such
series of Preferred Stock.
6. No Reissuance of Preferred Stock. No share or shares of Preferred
--------------------------------
Stock acquired by the Corporation by reason of redemption, purchase, conversion
or otherwise
-15-
<PAGE>
shall be reissued, and all such shares shall be canceled, retired and eliminated
from the shares which the Corporation shall be authorized to issue.
D. Common Stock.
------------
1. Dividend Rights. Subject to the prior rights of holders of all
---------------
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any assets of the Corporation legally
available therefor such dividends as may be declared from time to time by the
Board of Directors.
2. Liquidation Rights. Upon the liquidation, dissolution or winding up
------------------
of the Corporation, the assets of the corporation shall be distributed as
provided in Article FOURTH, Section C.2 hereof.
3. Voting Rights. The holder of each share of Common Stock shall have
-------------
the right to one vote, and shall be entitled to notice of any stockholders'
meeting in accordance with the Bylaws of this corporation, and shall be entitled
to vote upon such matters and in such manner as may be provided by law.
FIFTH: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors shall have the power, subject to the provisions
of Section C.5 of Article FOURTH both before and after receipt of any payment
for any of the Corporation's capital stock, to adopt, amend, repeal or otherwise
alter the Bylaws of the Corporation without any action on the part of the
stockholders; provided, however, that the grant of such power to the Board of
Directors shall not divest the stockholders of nor limit their power, subject to
the provisions of Section C.5 of Article FOURTH, to adopt, amend, repeal or
otherwise alter the Bylaws.
SIXTH: Elections of directors need not be by written ballot unless the
Bylaws of the Corporation shall so provide.
SEVENTH: Subject to the provisions of Section C.5 of Article FOURTH, the
Corporation reserves the right to adopt, repeal, rescind or amend in any respect
any provisions contained in this Restated Certificate of Incorporation in the
manner now or hereafter prescribed by applicable law, and all rights conferred
on stockholders herein are granted subject to this reservation; provided,
however, that the grant of such power to the Board of Directors shall not divest
the stockholders of nor limit their power.
EIGHTH: A director of the Corporation shall, to the full extent permitted
by the Delaware General Corporation Law as it now exists or as it may hereafter
be amended, not be liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director. Neither any amendment nor
repeal of this Article EIGHTH nor the adoption of any provision of this Restated
Certificate of Incorporation inconsistent with this Article EIGHTH, shall
eliminate or reduce the effect of this Article EIGHTH in respect of any matter
occurring, or any cause of action, suit or claim that, but for this Article
EIGHTH, would accrue or arise, prior to such amendment, repeal or adoption of an
inconsistent provision.
-16-
<PAGE>
EXHIBIT 4.1
FRONT
EGN
INCORPORATED UNDER THE LAWS
OF THE STATE OF DELAWARE
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP 28225C 10 3
This Certifies that is the record holder of
eGain Communications Corporation
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this certificate properly
endorsed. This certificate is not valid until countersigned by the Transfer
Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
SECRETARY PRESIDENT
BACK
eGain Communications Corporation
A statement of 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 as established, from time to time, by the
Certificate of Incorporation of the Corporation and by any certificate of
designation, the number of shares constituting each class and series, and the
designations thereof, may be obtained by the holder hereof upon request and
without charge from the Secretary of the Corporation at the principal office
of the Corporation.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM __ as tenants in common
TEN ENT __ as tenants by the entireties
JT TEN __ as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT __ ......................... Custodian
......................... (Cust)
(Minor)
<PAGE>
under Uniform Gifts to Minors Act ..................................
(State)
UNIF TRF MIN ACT __ ........................ Custodian (until
age ................) (Cust)
............................ under Uniform Transfers to Minors Act ...........
(Minor) (State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED,
hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
X
X
NOTICE:
THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
<PAGE>
EXHIBIT 4.2
eGAIN COMMUNICATIONS CORPORATION
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
Section 1 Registration Rights...................................... 1
1.1 Certain Definitions................................... 1
1.2 Requested Registration................................ 3
1.3 Company Registration.................................. 5
1.4 Expenses of Registration.............................. 7
1.5 Registration on Form S-3.............................. 7
1.6 Registration Procedures............................... 8
1.7 Indemnification....................................... 9
1.8 Information by Holder................................. 11
1.9 Limitations on Registration of Issues of Securities... 11
1.10 Rule 144 Reporting.................................... 11
1.11 Transfer or Assignment of Registration Rights......... 12
1.12 "Market Stand-Off" Agreement.......................... 12
1.13 Delay of Registration................................. 13
1.14 Termination of Registration Rights.................... 13
Section 2 Covenants of the Company................................. 13
2.1 Financial Information................................. 13
2.2 Inspection............................................ 14
2.3 Right of First Offer.................................. 14
2.4 Chief Executive Officer............................... 16
2.5 Termination of Covenants.............................. 16
2.6 Stock Plan............................................ 16
2.7 Protective Provisions................................. 16
Section 3 Miscellaneous............................................ 17
3.1 Governing Law......................................... 17
3.2 Successors and Assigns................................ 17
3.3 Entire Agreement; Amendment; Waiver................... 17
3.4 Notices, etc.......................................... 17
3.5 Delays or Omissions................................... 17
3.6 Rights; Separability.................................. 18
3.7 Waiver of Right of First Offer........................ 18
3.8 Information Confidential.............................. 18
3.9 Titles and Subtitles.................................. 18
3.10 Counterparts.......................................... 18
3.11 Amendment of Investors' Rights Agreement.............. 18
3.12 Aggregation of Stock.................................. 18
*Exhibit A - List of Investors
-i-
<PAGE>
eGAIN COMMUNICATIONS CORPORATION
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
THIS AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT (this "Agreement"),
is made and entered into as of July 21, 1999, by and among eGAIN COMMUNICATIONS
--------------------
CORPORATION, a Delaware corporation (the "Company"), those investors in the
- -----------
Company listed on Exhibit A attached hereto (the "Investors"), and ASHUTOSH ROY
--------- ------------
AND GUNJAN SINHA (the "Founders").
------------
RECITALS:
A. The Company has granted the holders of its Series A Preferred Stock
and warrants to purchase Series A Preferred Stock (the "Series A Holders"),
Series B Preferred Stock (the "Series B Holders"), Series C Preferred Stock (the
"Series C Holders") and Founders registration rights and certain other rights
under that certain Amended and Restated Investors' Rights Agreement dated April
30, 1999 (the "Investors' Rights Agreement").
B. The Company proposes to issue shares of its Series D Preferred Stock
to certain Investors (the "Series D Investors") pursuant to a Series D Preferred
Stock Purchase Agreement entered into on July 21, 1999 (the "Purchase
Agreement").
C. The Company, the Founders, the Series A Holders, the Series B
Holders and the Series C Holders intend that this Agreement replace and
supercede the Investors' Rights Agreement; provided, however, that the
provisions of Section 1.12 thereof ("Market Standoff") shall survive the
termination of the Investors' Rights Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the parties hereto agree as follows:
Section
---------
Registration Rights
-------------------
1.1 Certain Definitions. As used in this Agreement, the following terms
-------------------
shall have the meanings set forth below:
(a) "Closing" shall mean the date of the issuance of shares of the
Company's Series D Preferred Stock, pursuant to the Purchase Agreement.
(b) "Commission" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act.
(c) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar successor federal statute and the rules and regulations
thereunder, all as the same shall be in effect from time to time.
-1-
<PAGE>
(d) "Holder" shall mean any person or entity who holds Registrable
Securities and any holder of Registrable Securities to whom the registration
rights conferred by this Agreement have been transferred in compliance with
Section 1.11 hereof.
(e) "Initiating Holders" shall mean any Holder or Holders who in the
aggregate hold at least fifty percent (50%) of the outstanding Registrable
Securities.
(f) "Major Investor" shall mean a person or entity which, together with
its affiliates holds at least 120,000 shares (subject to appropriate adjustments
for stock splits, stock dividends, combinations and other recapitalizations) of
Series A Preferred Stock, Series B Preferred Stock and/or Series D Preferred
Stock (including shares issuable upon conversion thereof). A Major Investor
includes any general partners and affiliates of a Major Investor (including in
the case of a venture capital fund, partners and funds affiliated with such
fund).
(g) "Registrable Securities" shall mean (i) shares of Common Stock
issued to Investors or issued or issuable pursuant to the conversion of the
Shares; (ii) any Common Stock issued as a dividend or other distribution with
respect to or in exchange for or in replacement of the shares referenced in (i)
above, provided, however, that Registrable Securities shall not include any
shares of Common Stock which have previously been registered or which have been
sold to the public; and (iii) shares of Common Stock of the Company held by the
Founders ("Founders Stock"); provided, however, that such Founders Stock shall
not be deemed "Registrable Securities" for purposes of Section 1.2 hereof.
(h) The terms "register," "registered" and "registration" shall refer to
a registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
(i) "Registration Expenses" shall mean all expenses incurred in
effecting any registration pursuant to this Agreement, including, without
limitation, all registration, qualification, and filing fees, printing expenses,
escrow fees, fees and disbursements of counsel for the Company, fees and
disbursements of one special counsel for the selling Holders, blue sky fees and
expenses, accounting fees and expenses of any regular or special audits incident
to or required by any such registration, but shall not include Selling Expenses
and fees and disbursements of additional counsel for the Holders. Registration
expenses do not include the compensation of regular employees of the Company,
which shall be paid in any event by the Company.
(j) "Rule 144" shall mean Rule 144 as promulgated by the Commission
under the Securities Act, as such Rule may be amended from time to time, or any
similar successor rule that may be promulgated by the Commission.
(k) "Rule 145" shall mean Rule 145 as promulgated by the Commission
under the Securities Act, as such Rule may be amended from time to time, or any
similar successor rule that may be promulgated by the Commission.
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<PAGE>
(l) "Securities Act" shall mean the Securities Act of 1933, as amended,
or any similar successor federal statute and the rules and regulations
thereunder, all as the same shall be in effect from time to time.
(m) "Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities and fees and
disbursements of counsel for any Holder (other than the fees and disbursements
of counsel included in Registration Expenses).
(n) "Shares" shall mean the Company's Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock.
1.2 Requested Registration.
----------------------
(a) Request for Registration. If the Company shall receive from
------------------------
Initiating Holders at any time or times not earlier than the earlier of (i) June
1, 2003 or (ii) six (6) months after the effective date of the first
registration statement filed by the Company covering an underwritten offering of
any of its securities to the general public, a written request that the Company
effect any registration with respect to all or a part of the Registrable
Securities having an aggregate offering price, net of underwriting discounts and
expenses, the aggregate gross proceeds of which (prior to deduction for
underwriter's discounts and expenses related to the issuance) exceed $10,000,000
the Company will:
(i) promptly give written notice of the proposed registration to
all other Holders; and
(ii) as soon as practicable, use its best efforts to effect such
registration (including, without limitation, filing post-effective
amendments, appropriate qualifications under applicable blue sky or other
state securities laws, and appropriate compliance with the Securities Act)
and as would permit or facilitate the sale and distribution of all or such
portion of such Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any
Holder or Holders joining in such request as are specified in a written
request received by the Company within twenty (20) days after such written
notice from the Company is mailed or delivered.
The Company shall not be obligated to effect, or to take any action to
effect, any such registration pursuant to this Section 1.2:
(A) In any particular jurisdiction in which the Company would be
required to execute a general consent to service of process in effecting
such registration, qualification, or compliance, unless the Company is
already subject to service in such jurisdiction and except as may be
required by the Securities Act;
(B) After the Company has initiated two such registrations pursuant
to this Section 1.2(a) (counting for these purposes only registrations
which have
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been declared or ordered effective and pursuant to which securities have
been sold and registrations which have been withdrawn by the Holders as to
which the Holders have not elected to bear the Registration Expenses
pursuant to Section 1.4 hereof and would, absent such election, have been
required to bear such expenses); provided, however, that if at the time of
such withdrawal, the Investors have learned of a material adverse change in
the condition, business, or prospects of the Company from that known to the
Investors at the time of their request and have withdrawn the request with
reasonable promptness following disclosure by the Company of such material
adverse change, then the Investors shall not be required to pay any of such
expenses and shall retain their rights pursuant to Section 1.2.
(C) During the period starting with the date sixty (60) days prior
to the Company's good faith estimate of the date of filing of, and ending
on a date one hundred eighty (180) days after the effective date of, a
Company-initiated registration; provided that (i) the Company is actively
employing in good faith all reasonable efforts to cause such registration
statement to become effective and (ii) that such initial delay of
registration relating to a request of Initiating Holders pursuant to
Section 1.2 shall be deemed the one time delay allowed per demand
registration as set forth in Section 1.2(b);
(D) If the Initiating Holders propose to dispose of shares of
Registrable Securities which may be immediately registered on Form S-3
pursuant to a request made under Section 1.5 hereof;
(b) Subject to the foregoing clauses (A) through (D) (except in the case
of a request that is subject to Section 1.5(b), in which case (B) and (D) above
shall not apply), the Company shall file a registration statement covering the
Registrable Securities so requested to be registered as soon as practicable
after receipt of the request or requests of the Initiating Holders; provided,
however, that if (i) in the good faith judgment of the Board of Directors of the
Company, such registration would be seriously detrimental to the Company and the
Board of Directors of the Company concludes, as a result, that it is essential
to defer the filing of such registration statement at such time, and (ii) the
Company shall furnish to such Holders a certificate signed by the President of
the Company stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company for such
registration statement to be filed in the near future and that it is, therefore,
essential to defer the filing of such registration statement, then the Company
shall have the right to defer such filing for the period during which such
disclosure would be seriously detrimental, provided that (except as provided in
clause (C) above) the Company may not defer the filing for a period of more than
one hundred eighty (180) days after receipt of the request of the Initiating
Holders, and, provided further, that the Company shall not defer its obligation
in this manner more than once in any twelve (12) month period.
The registration statement filed pursuant to the request of the Initiating
Holders may, subject to the provisions of Section 1.2(d) hereof, include other
securities of the Company, with respect to which registration rights have been
granted, and may include securities of the Company being sold for the account of
the Company.
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<PAGE>
(c) Underwriting. The right of any Holder to registration pursuant to
------------
Section 1.2 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in interest of the
Initiating Holders and such Holder with respect to such participation and
inclusion) to the extent provided herein. A Holder may elect to include in such
underwriting all or a part of the Registrable Securities he holds.
(d) Procedures. If the Company shall request inclusion in any
----------
registration pursuant to Section 1.2 of securities being sold for its own
account, or if other persons shall request inclusion in any registration
pursuant to Section 1.2, the Initiating Holders shall, on behalf of all Holders,
offer to include such securities in the underwriting and may condition such
offer on their acceptance of the further applicable provisions of this Section 1
(including Section 1.12). The Company shall (together with all Holders and other
persons proposing to distribute their securities through such underwriting)
enter into an underwriting agreement in customary form with the representative
of the underwriter or underwriters selected for such underwriting by a majority
in interest of the Initiating Holders, which underwriters are reasonably
acceptable to the Company. Notwithstanding any other provision of this Section
1.2, if the representative of the underwriters advises the Initiating Holders in
writing that marketing factors require a limitation on the number of shares to
be underwritten, then the Initiating Holders shall so advise all Holders of
Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares of Registrable Securities that may be included in the
underwriting shall be allocated among all Holders thereof, including the
Initiating Holders, in proportion (as nearly as practicable) to the amount of
Registrable Securities of the Company owned by each Holder; provided, however,
that any such limitation or cut back shall first be applied to all shares
proposed to be sold in such underwriting other than for the account of the
Company which are not Registrable Securities and provided further that the
shares of Founders Stock or other securities, if any, proposed to be registered
shall be reduced prior to the exclusion of any other Registrable Securities in
such offering.
If a person who has requested inclusion in such registration as provided
above does not agree to the terms of any such underwriting, such person shall be
excluded therefrom by written notice from the Company, the underwriter or the
Initiating Holders. The securities so excluded shall also be withdrawn from
registration. Any Registrable Securities or other securities excluded shall
also be withdrawn from such registration. If shares are so withdrawn from the
registration and if the number of shares to be included in such registration was
previously reduced as a result of marketing factors pursuant to this Section
1.2(d), then the Company shall offer to all holders who have retained rights to
include securities in the registration the right to include additional
securities in the registration in an aggregate amount equal to the number of
shares so withdrawn.
1.3 Company Registration.
--------------------
(a) If the Company shall determine to register any of its securities
either for its own account or the account of a security holder or holders
exercising their respective demand registration rights (other than pursuant to
Section 1.2 or 1.5 hereof), other than a registration relating solely to
employee benefit plans, or a registration relating solely to a Rule 145
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<PAGE>
transaction, or a registration on any registration form that does not permit
secondary sales, the Company will:
(i) promptly give to each Holder written notice thereof; and
(ii) use its best efforts to include in such registration (and any
related qualification under blue sky laws or other compliance), except as
set forth in Section 1.3(b) below, and in any underwriting involved
therein, all the Registrable Securities specified in a written request or
requests, made by any Holder and received by the Company within twenty (20)
days after the written notice from the Company described in clause (i)
above is mailed or delivered by the Company. Such written request may
specify all or a part of a Holder's Registrable Securities.
(b) Underwriting. If the registration of which the Company gives notice
------------
is for a registered public offering involving an underwriting, the Company shall
so advise the Holders as a part of the written notice given pursuant to Section
1.3(a)(i). In such event, the right of any Holder to registration pursuant to
this Section 1.3 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to distribute
their securities through such underwriting shall (together with the Company and
the other holders of securities of the Company with registration rights to
participate therein distributing their securities through such underwriting)
enter into an underwriting agreement in customary form with the representative
of the underwriter or underwriters selected by the Company.
Notwithstanding any other provision of this Section 1.3, if the
representative of the underwriters advises the Company in writing that marketing
factors require a limitation on the number of shares to be underwritten, the
representative may (subject to the limitations set forth below) exclude all
Registrable Securities from, or limit the number of Registrable Securities to be
included in, the registration and underwriting, provided that the number of
Registrable Securities to be included in such underwriting shall not be reduced
unless all other securities proposed to be registered by shareholders of the
Company are first entirely excluded from the underwriting. If the registration
is the first Company-initiated registered offering of the Company's securities
to the general public, the Company may limit, to the extent so advised by the
underwriters, the amount of securities (including Registrable Securities) to be
included in the registration by the Company's shareholders (including the
Holders), and such securities shall be apportioned pro rata among the selling
shareholders according to the total amount of securities entitled to be included
therein owned by each selling stockholder, or the Company may exclude, to the
extent so advised by the underwriters, such underwritten securities entirely
from such registration; provided, however, that the number of Registrable
Securities to be included in such registration shall not be reduced unless all
other securities proposed to be registered are first excluded from the
underwriting. If such registration is the second or any subsequent Company-
initiated registered offering of the Company's securities to the general public,
the Company may limit, to the extent so advised by the underwriters, the amount
of securities to be included in the registration by the Company's shareholders
(including the Holders); provided, however, that the aggregate value of
Registrable Securities to be included in such registration may not be so reduced
to less than twenty-five percent (25%) of the total value of all securities
included in such
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<PAGE>
registration, to be apportioned pro rata among the holders of Registrable
Securities according to the total amount of securities entitled to be included
therein owned by each holder of Registrable Securities; provided, however, that
the number of Registrable Securities to be included in such registration shall
not be reduced unless all other securities proposed to be registered are first
excluded from the underwriting. If any person does not agree to the terms of any
such underwriting, he shall be excluded therefrom by written notice from the
Company or the underwriter. Any Registrable Securities or other securities
excluded or withdrawn from such underwriting shall be withdrawn from such
registration.
If shares are so withdrawn from the registration or if the number of shares
of Registrable Securities to be included in such registration was previously
reduced as a result of marketing factors, the Company shall then offer to all
persons who have retained the right to include securities in the registration
the right to include additional securities in the registration in an aggregate
amount equal to the number of shares so withdrawn.
1.4 Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with any registration, qualification or compliance pursuant to
Sections 1.3 and 1.5 hereof, and the two registrations pursuant to Section 1.2
hereof and reasonable fees of one counsel for the selling shareholders shall be
borne by the Company; provided, however, that if the Holders bear the
Registration Expenses for any registration proceeding begun pursuant to Section
1.2 and subsequently withdrawn by the Holders registering shares therein, such
registration proceeding shall not be counted as a requested registration
pursuant to Section 1.2 hereof. All Selling Expenses relating to securities so
registered shall be borne by the holders of such securities pro rata on the
basis of the number of shares of securities so registered on their behalf.
1.5 Registration on Form S-3.
------------------------
(a) After its initial public offering, the Company shall use its best
efforts to qualify for registration on Form S-3 or any comparable or successor
form or forms. After the Company has qualified for the use of Form S-3, in
addition to the rights contained in the foregoing provisions of this Section 1,
the holders of at least thirty percent (30%) of Registrable Securities shall
have the right to request registrations on Form S-3 (such requests shall be in
writing and shall state the number of shares of Registrable Securities to be
disposed of and the intended methods of disposition of such shares by such
Holder or Holders), provided, however, that the Company shall not be obligated
to effect any such registration if (i) the Holders, together with the holders of
any other securities of the Company entitled to inclusion in such registration,
propose to sell Registrable Securities and such other securities (if any) on
Form S-3 at an aggregate price to the public of less than $1,000,000, or (ii) in
the event the Company shall furnish the certification described in paragraph
1.2(b)(ii) (but subject to the limitations set forth therein), or (iii) the
Company has, within the six (6) month period preceding the date of such request
already effected one registration on Form S-3 for the Holders pursuant to this
Section 1.5.
(b) If a request complying with the requirements of Section 1.5(a) hereof
is delivered to the Company, the provisions of Sections 1.2(a)(i) and (ii) and
Section 1.2(b) hereof shall apply to such registration. If the registration is
for an underwritten offering, the provisions of Sections 1.2(c) and 1.2(d)
hereof shall apply to such registration. Notwithstanding the foregoing
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<PAGE>
provisions of this Section 1.5, Registrable Securities held by the Founders
shall not be counted for purposes of requesting a registration on Form S-3;
however, if such a registration is requested all Registrable Securities,
including those held by Founders, are entitled to inclusion in such registration
and provided further that any limitation or cutback in the number of shares
proposed to be registered shall be applied to shares of Registrable Securities
held by Founders prior to any limitation or cutback on shares of Registrable
Securities held by other Holders.
1.6 Registration Procedures. In the case of each registration effected by
-----------------------
the Company pursuant to Section 1, the Company will keep each Holder advised in
writing as to the initiation of each registration and as to the completion
thereof. At its expense, the Company will use its best efforts to:
(a) Keep such registration effective for a period of one hundred twenty
(120) days or until the Holder or Holders have completed the distribution
described in the registration statement relating thereto, whichever first
occurs; provided, however, that (i) such one hundred twenty (120) day period
shall be extended for a period of time equal to the period the Holder refrains
from selling any securities included in such registration at the request of an
underwriter of Common Stock (or other securities) of the Company; and (ii) in
the case of any registration of Registrable Securities on Form S-3 which are
intended to be offered on a continuous or delayed basis, such one hundred twenty
(120) day period shall be extended, if necessary, to keep the registration
statement effective until all such Registrable Securities are sold, provided
that Rule 415, or any successor rule under the Securities Act, permits an
offering on a continuous or delayed basis, and provided further that applicable
rules under the Securities Act governing the obligation to file a post-effective
amendment permit, in lieu of filing a post-effective amendment that (A) includes
any prospectus required by section 10(a)(3) of the Securities Act or (B)
reflects facts or events representing a material or fundamental change in the
information set forth in the registration statement, the incorporation by
reference of information required to be included in (A) and (B) above to be
contained in periodic reports filed pursuant to section 13 or 15(d) of the
Exchange Act in the registration statement;
(b) Prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement;
(c) Furnish such number of prospectuses and other documents incident
thereto, including any amendment of or supplement to the prospectus, as a Holder
from time to time may reasonably request;
(d) Notify each seller of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading or incomplete in the light of the
circumstances then existing, and at the request of any such seller, prepare and
furnish to such seller a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the
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<PAGE>
purchasers of such shares, such prospectus shall not include an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or incomplete
in the light of the circumstances then existing;
(e) Cause all such Registrable Securities registered pursuant hereunder to
be listed on each securities exchange on which similar securities issued by the
Company are then listed;
(f) Provide a transfer agent and registrar for all Registrable Securities
registered pursuant to such registration statement and a CUSIP number for all
such Registrable Securities, in each case not later than the effective date of
such registration; and
(g) In connection with any underwritten offering pursuant to a
registration statement filed pursuant to Section 1.2 hereof, the Company will
enter into an underwriting agreement reasonably necessary to effect the offer
and sale of Common Stock, provided such underwriting agreement contains
customary underwriting provisions and provided further that if the underwriter
so requests the underwriting agreement will contain customary contribution
provisions.
1.7 Indemnification.
---------------
(a) The Company will indemnify each Holder, each of its officers,
directors and partners, legal counsel, and accountants and each person
controlling such Holder within the meaning of section 15 of the Securities Act,
with respect to which registration, qualification, or compliance has been
effected pursuant to this Section 1, and each underwriter, if any, and each
person who controls within the meaning of section 15 of the Securities Act any
underwriter, against all expenses, claims, losses, damages, and liabilities (or
actions, proceedings, or settlements in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any prospectus, offering circular, or other document (including any
related registration statement, notification, or the like) incident to any such
registration, qualification, or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by the
Company of the Securities Act or any rule or regulation thereunder applicable to
the Company and relating to action or inaction required of the Company in
connection with any such registration, qualification, or compliance, and will
reimburse each such Holder, each of its officers, directors, partners, legal
counsel, and accountants and each person controlling such Holder, each such
underwriter, and each person who controls any such underwriter, as incurred, for
any legal and any other expenses reasonably incurred in connection with
investigating and defending or settling any such claim, loss, damage, liability,
or action, provided that the Company will not be liable in any such case to the
extent that any such claim, loss, damage, liability, or expense arises out of or
is based on any untrue statement or omission based upon written information
furnished to the Company by such Holder or underwriter and stated to be
specifically for use therein. It is agreed that the indemnity agreement
contained in this Section 1.7(a) shall not apply to amounts paid in settlement
of any such loss, claim, damage, liability, or action if such settlement is
effected without the consent of the Company (which consent has not been
unreasonably withheld).
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<PAGE>
(b) Each Holder will, if Registrable Securities held by him are included
in the securities as to which such registration, qualification, or compliance is
being effected, indemnify, to the extent of the net proceeds from the sale of
Registrable Securities by such Holder in the registration, qualification or
compliance (provided that such limitation shall not apply in the case of fraud
or gross negligence by the Holder in providing information to the Company for
use by the Company in the preparation of such registration, qualification or
compliance) the Company, each of its directors, officers, partners, legal
counsel, and accountants and each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who controls
the Company or such underwriter within the meaning of section 15 of the
Securities Act, and each other such Holder, and each of their officers,
directors, and partners, and each person controlling such Holder, against all
claims, losses, damages and liabilities (or actions in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any such registration statement, prospectus, offering
circular, or other document, or any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Company and such
Holders, directors, officers, partners, legal counsel, and accountants, persons,
underwriters, or control persons, as incurred, for any legal and any other
expenses reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability, or action, in each case to the extent, but
only to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular, or other document in reliance upon and in
conformity with written information furnished to the Company by such Holder and
stated to be specifically for use therein provided, however, that the
obligations of such Holder hereunder shall not apply to amounts paid in
settlement of any such claims, losses, damages, or liabilities (or actions in
respect thereof) if such settlement is effected without the consent of such
Holder (which consent shall not be unreasonably withheld).
(c) Each party entitled to indemnification under this Section 1.7 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 1, to the extent such
failure is not prejudicial. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement that does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect to such
claim or litigation. Each Indemnified Party shall furnish such information
regarding itself or the claim in question as an Indemnifying Party may
reasonably request in writing and as shall be reasonably required in connection
with defense of such claim and litigation resulting therefrom.
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<PAGE>
(d) If the indemnification provided for in this Section 1.7 is held by a
court of competent jurisdiction to be unavailable to an Indemnified Party with
respect to any loss, liability, claim, damage, or expense referred to therein,
then the Indemnifying Party, in lieu of indemnifying such Indemnified Party
hereunder, shall contribute to the amount paid or payable by such Indemnified
Party as a result of such loss, liability, claim, damage, or expense in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party on the one hand and of the Indemnified Party on the other in connection
with the statements or omissions that resulted in such loss, liability, claim,
damage, or expense as well as any other relevant equitable considerations. The
relative fault of the Indemnifying Party and of the Indemnified Party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the Indemnifying Party or by the Indemnified
Party and the parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that the provisions on
indemnification and contribution contained in the underwriting agreement
entered into in connection with the underwritten public offering are in
conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
1.8 Information by Holder. Each Holder of Registrable Securities shall
---------------------
furnish to the Company such information regarding such Holder and the
distribution proposed by such Holder as the Company may reasonably request in
writing and as shall be reasonably required in connection with any registration,
qualification, or compliance referred to in this Section 1.
1.9 Limitations on Registration of Issues of Securities. From and after
---------------------------------------------------
the date of this Agreement, the Company shall not, without the prior written
consent of a majority in interest of the Holders, enter into any agreement with
any holder or prospective holder of any securities of the Company giving such
holder or prospective holder any registration rights the terms of which are more
favorable than the registration rights granted to the Holders hereunder.
1.10 Rule 144 Reporting. With a view to making available the benefits of
------------------
certain rules and regulations of the Commission that may permit the sale of the
Restricted Securities to the public without registration, the Company agrees to
use its best efforts to:
(a) Make and keep public information regarding the Company available as
those terms are understood and defined in Rule 144 under the Securities Act, at
all times from and after ninety (90) days following the effective date of the
first registration under the Securities Act filed by the Company for an offering
of its securities to the general public;
(b) File with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act
at any time after it has become subject to such reporting requirements;
(c) So long as a Holder owns any Restricted Securities, furnish to the
Holder forthwith upon written request a written statement by the Company as to
its compliance with the reporting requirements of Rule 144 (at any time from and
after ninety (90) days following the
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<PAGE>
effective date of the first registration statement filed by the Company for an
offering of its securities to the general public), and of the Securities Act and
the Exchange Act (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed as a Holder may
reasonably request in availing itself of any rule or regulation of the
Commission allowing a Holder to sell any such securities without registration;
(d) Take such action, including the voluntary registration of its Common
Stock under section 12 of the Exchange Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities, such
action to be taken as soon as practicable after the end of the fiscal year in
which the first registration statement filed by the Company for the offering of
its securities to the general public is declared effective.
1.11 Transfer or Assignment of Registration Rights. The rights to cause
---------------------------------------------
the Company to register securities granted to a Holder by the Company under this
Section 1 may be transferred or assigned by a Holder only to a transferee or
assignee of not less than 100,000 shares of Registrable Securities or all
Registrable Securities held by such transferor if the amount is less than
100,000 shares of Registrable Securities (as presently constituted and subject
to subsequent adjustments for stock splits, stock dividends, reverse stock
splits, and the like), provided that the Company is given written notice at the
time of or within a reasonable time after such transfer or assignment, stating
the name and address of the transferee or assignee and identifying the
securities with respect to which such registration rights are being transferred
or assigned, and, provided further, that the transferee or assignee of such
rights assumes the obligations of such Holder under this Section 1. The
foregoing 100,000 share limitation shall not apply, however, to transfers by a
Holder to shareholders, partners, retired partners or affiliates (including in
the case of a venture capital fund partners and funds affiliated with such fund)
of the transferring Holder (including spouses and ancestors, lineal descendants,
and siblings of such partners or spouses who acquire Registrable Securities by
gift, will or intestate succession) if all such transferees or assignees appoint
a single representative as their attorney in fact for the purpose of receiving
any notices and exercising their rights under this Section 1.
1.12 "Market Stand-Off" Agreement. If requested by the Company and an
----------------------------
underwriter of Common Stock (or other securities) of the Company, a Holder shall
not sell (including, without limitation, any short sale) or otherwise transfer
or dispose of any Common Stock (or other securities) of the Company held by such
Holder (other than those included in the registration) during the one hundred
eighty (180) day period following the effective date of a registration statement
of the Company filed under the Securities Act, provided that:
(a) such one hundred eighty (180) day "market stand-off" agreement shall
only apply to the first such registration statement of the Company, including
securities to be sold on its behalf to the public in an underwritten offering;
and
(b) all officers and directors of the Company enter into similar
agreements.
The obligations described in this Section 1.12 shall not apply to a
registration relating solely to employee benefit plans on Form S-1 or Form S-8
or similar forms that may be promulgated in the future, or a registration
relating solely to a Commission Rule 145 transaction
-12-
<PAGE>
on Form S-4 or similar forms that may be promulgated in the future. The Company
may impose stop-transfer instructions with respect to the shares (or securities)
subject to the foregoing restriction until the end of such applicable one
hundred eighty (180) or one hundred twenty (120) day period.
1.13 Delay of Registration. No Holder shall have any right to take any
---------------------
action to restrain, enjoin, or otherwise delay any registration as the result of
any controversy that might arise with respect to the interpretation or
implementation of this Section 1.
1.14 Termination of Registration Rights. The right of any Holder to
----------------------------------
request registration or inclusion in any registration pursuant to Section 1.2,
1.3 or 1.5 shall terminate after the earlier of (i) five (5) years following the
closing of the first Company-initiated registered public offering of Common
Stock of the Company, or (ii) such time as Rule 144 or another similar exemption
under the Securities Act is available for the sale of all of such Holder's
shares during any ninety (90) day period.
Section 2
---------
Covenants of the Company
------------------------
The Company hereby covenants and agrees, so long as any Holder owns any
Registrable Shares, as follows:
2.1 Financial Information.
---------------------
(a) The Company will furnish the following reports to each Holder:
As soon as practicable after the end of each fiscal year of the Company,
and in any event within one hundred twenty (120) days thereafter, an audited
consolidated balance sheet of the Company and its subsidiaries, if any, as at
the end of such fiscal year, and audited consolidated statements of income and
cash flows of the Company and its subsidiaries, if any, for such year, prepared
in accordance with generally accepted accounting principles consistently applied
and setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail and certified by independent public
accountants of recognized national standing selected by the Company.
(b) The Company shall deliver to each Major Investor and to each Holder of
at least 120,000 shares of Series C Preferred Stock (including shares of Common
Stock issued upon conversion thereof) as soon as practicable after the end of
the first, second, and third quarterly accounting periods in each fiscal year of
the Company, and in any event within forty-five (45) days thereafter, an
unaudited consolidated balance sheet of the Company and its subsidiaries, if
any, as of the end of each such quarterly period, and unaudited consolidated
statements of income of the Company and its subsidiaries for such period and for
the current fiscal year to date, prepared in accordance with generally accepted
accounting principles consistently applied, subject to changes resulting from
normal year-end audit adjustments, all in reasonable detail and certified by the
principal financial or accounting officer of the Company, except that such
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financial statements need not contain the notes required by generally accepted
accounting principles.
(c) The Company shall deliver to each Major Investor within thirty (30)
days of the end of each month, an unaudited income statement and balance sheet
for and as of the end of such month, in reasonable detail.
2.2 Inspection. The Company shall permit each Major Investor, at such
----------
Investor's expense, to visit and inspect the Company's properties, to examine
its books of account and records and to discuss the Company's affairs, finances
and accounts with its officers, all at such reasonable times as may be requested
by such Major Investor; provided, however, that the Company shall not be
obligated pursuant to this Section 2.2 to provide access to any information
which it reasonably considers to be a trade secret or similar confidential
information, unless such Major Investor enters into a confidentiality agreement
in form and substance satisfactory to the Company.
2.3 Right of First Offer. The Company hereby grants to each Major
--------------------
Investor and to each Founder the right of first offer to purchase a pro rata
share of New Securities (as defined in this Section 2.3) which the Company may,
from time to time, propose to sell and issue. A Major Investor's pro rata share,
for purposes of this right of first offer, is the ratio of the number of shares
of Common Stock owned by such Major Investor immediately prior to the issuance
of New Securities, assuming full conversion of the Shares and exercise of any
option or warrant held by such Major Investor to the total number of shares of
Common Stock outstanding immediately prior to the issuance of New Securities,
assuming full conversion of the Shares and exercise of all outstanding rights,
options and warrants to acquire Common Stock of the Company. This right of first
offer shall be subject to the following provisions:
(a) "New Securities" shall mean any capital stock (including Common Stock
and/or Preferred Stock) of the Company whether now authorized or not, and
rights, options or warrants to purchase such capital stock, and securities of
any type whatsoever that are, or may become, convertible into capital stock;
provided that the term "New Securities" does not include (i) securities
purchased under the Series A Preferred Stock Purchase Agreement dated as of June
25, 1998 or Series B Preferred Stock Purchase Agreement dated as of December 24,
1998 and amended as of February 18, 1999; (ii) securities issued pursuant to the
Reorganization Agreement; (iii) securities issued upon conversion of the Shares;
(iii) securities issued pursuant to the acquisition of another business entity
or business segment of any such entity by the Company by merger, purchase of
substantially all the assets or other reorganization whereby the Company will
own more than fifty percent (50%) of the voting power of such business entity or
business segment of any such entity; (iv) any borrowings, direct or indirect,
from financial institutions or other persons by the Company, whether or not
presently authorized, including any type of loan or payment evidenced by any
type of debt instrument, provided such borrowings do not have any equity
features including warrants, options or other rights to purchase capital stock
and are not convertible into capital stock of the Company; (v) securities issued
to employees, consultants, officers or directors of the Company pursuant to any
stock option, stock purchase or stock bonus plan, agreement or arrangement
approved by the Board of Directors; (vi) securities issued to a corporate
partner or to lessors, vendors, customers, suppliers, original equipment
manufacturers or other persons in similar commercial situations with the Company
if such
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<PAGE>
issuance is approved by the Board of Directors; (vii) securities issued to
financial institutions in connection with obtaining lease or loan financing,
whether issued to a lessor, guarantor or other person; (viii) securities issued
in a public offering pursuant to a registration under the Securities Act which
would trigger an automatic conversion of the Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock into Common Stock pursuant to the
Company's Amended and Restated Certificate of Incorporation; (ix) securities
issued in connection with any stock split, stock dividend or recapitalization of
the Company; and (x) any right, option or warrant to acquire any security
convertible into the securities excluded from the definition of New Securities
pursuant to subsections (i) through (ix) above.
(b) In the event the Company proposes to undertake an issuance of New
Securities, it shall give each Major Investor written notice of its intention,
describing the type of New Securities, and their price and the general terms
upon which the Company proposes to issue the same. Each Major Investor shall
have fifteen (15) days after any such notice is mailed or delivered to agree to
purchase such Major Investor's pro rata share of such New Securities for the
price and upon the terms specified in the notice by giving written notice to the
Company and stating therein the quantity of New Securities to be purchased.
(c) In the event the Major Investors fail to exercise fully the right of
first refusal within such fifteen (15) day period, the Company shall have ninety
(90) days thereafter to sell or enter into an agreement (pursuant to which the
sale of New Securities covered thereby shall be closed, if at all, within sixty
(60) days from the date of such agreement) to sell the New Securities respecting
which the Major Investors' right of first refusal option set forth in this
Section 2.3 was not exercised, at a price and upon terms no more favorable to
the purchasers thereof than specified in the Company's notice to Major Investors
pursuant to Section 2.3(b). In the event the Company has not sold within such
ninety (90) day period or entered into an agreement to sell the New Securities
in accordance with the foregoing within sixty (60) days from the date of such
agreement, the Company shall not thereafter issue or sell any New Securities,
without first again offering such securities to the Holders in the manner
provided in Section 2.3(b) above.
(d) The right of first offer granted under this Agreement shall expire
upon, and shall not be applicable to, the first sale of Common Stock of the
Company to the public effected pursuant to a registration statement filed with,
and declared effective by, the Securities and Exchange Commission (the
"Commission") under the Securities Act, which such registration would trigger an
automatic conversion of the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and Series D Preferred Stock into Common Stock pursuant
to the Company's Amended and Restated Certificate of Incorporation.
(e) The right of first refusal set forth in this Section 2.3 may not be
assigned or transferred, except that (i) such right is assignable by each Major
Investor to any wholly owned subsidiary or parent of, or to any corporation or
entity, or any partner, former partner, general partner, limited partner, or
related partnership that is, within the meaning of the Securities Act,
controlling, controlled by or under common control with, any such Major
Investor, and (ii) such right is assignable between and among any of the Major
Investors.
-15-
<PAGE>
2.4 Chief Executive Officer. The appointment of a new Chief Executive
-----------------------
Officer of the Company at any time after the date of this Agreement, in addition
to requiring the approval of the Company's Board of Directors, shall require the
approval of the director selected by the holders of the Company's Series A
Preferred Stock pursuant to the Company's Amended and Restated Certificate of
Incorporation.
2.5 Termination of Covenants. The covenants set forth in Sections 2.1,
------------------------
2.2, 2.4, 2.6 and 2.7 shall terminate and be of no further force or effect when
the sale of securities pursuant to a registration statement filed by the Company
under the Securities Act in connection with the firm commitment underwritten
offering of its securities to the general public is consummated or when the
Company first becomes subject to the periodic reporting requirements of section
13 or 15(d) of the Exchange Act, whichever event shall first occur.
2.6 Stock Plan. Except (i) as otherwise determined by the consent of the
----------
Board of Directors including the director elected by the holders of the Series A
Preferred Stock pursuant to the Amended and Restated Certificate of
Incorporation and (ii) with respect to those options which were originally
options to purchase the capital stock of Sitebridge Corporation and assumed by
the Company pursuant to the Reorganization Agreement:
(a) the Company will not issue shares or options to purchase shares of
Common Stock beyond the 6,500,000 shares of Common Stock reserved for issuance
under the Company's 1998 Stock Plan;
(b) such shares will vest at the rate of twenty-five percent (25%) of the
shares after one (1) year from the first anniversary of the vesting commencement
date and 1/48 of the shares shall vest each month thereafter;
(c) such shares issued under the Stock Plan may not be transferred prior
to vesting, and the Company shall have a right of first refusal prior to an
Initial Public Offering with respect to the sale of all such shares that have
vested (subject to customary exclusions for transfers to trusts and family
members);
(d) in the event that an employee is terminated by the Company, the
Company shall have a right to repurchase at cost any unvested shares of Common
Stock issued under the Stock Plan held by such employee; and
(e) such shares issued under the Stock Plan shall not be transferable for
one hundred eighty (180) days following the effective date of an Initial Public
Offering.
2.7 Protective Provisions. Without the unanimous consent of the Board of
---------------------
Directors, the Company shall not:
(a) amend or repeal any provisions of, or add any provision to, the
Company's Certificate of Incorporation or Bylaws, if such action would alter or
change materially and adversely the preferences, rights, privileges or powers
of, or the restrictions provided for the benefit of, the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred
Stock; or
-16-
<PAGE>
(b) increase or decrease the authorized number of shares of Series A
Preferred Stock, Series B Preferred Stock or Series C Preferred Stock.
Section 3
---------
Miscellaneous
-------------
3.1 Governing Law. This Agreement shall be governed in all respects by
-------------
the laws of the State of California, as if entered into by and between
California residents exclusively for performance entirely within California.
3.2 Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
3.3 Entire Agreement; Amendment; Waiver. This Agreement (including the
-----------------------------------
Exhibits hereto) constitutes the full and entire understanding and agreement
between the parties with regard to the subjects hereof and thereof. Neither this
Agreement nor any term hereof may be amended, waived, discharged or terminated,
except by a written instrument signed by the Company and the holders of at least
a majority of the Shares (including Common Stock issued upon conversion of the
Shares) not resold to the public in a registered offering under the Securities
Act and any such amendment, waiver, discharge or termination shall be binding on
all the Holders, but in no event shall the obligation of any Holder hereunder be
materially increased, except upon the written consent of such Holder.
3.4 Notices, etc. Any notice required or permitted to be given to a party
-------------
pursuant to the provisions of this Agreement shall be in writing and shall be
effective and deemed given to such party under this Agreement on the earliest of
the following: (i) the date of personal delivery; (ii) two (2) business days
after transmission by facsimile, addressed to the other party at its facsimile
number, with confirmation of transmission; (iii) four (4) business days after
deposit with a return receipt express courier for United States deliveries; or
(iv) three (3) business days after deposit in the United States mail by
registered or certified mail (return receipt requested) for United States
deliveries. All notices not delivered personally or by facsimile will be sent
with postage and/or other charges prepaid and properly addressed to the party to
be notified at the address on file with the Company or, in the case of the
Company, at 624 East Evelyn Avenue, Sunnyvale, California 94086, or at such
other address as such other party may designate by ten (10) days advance written
notice to the other parties hereto. Notices to the Company will be marked
"Attention: President."
3.5 Delays or Omissions. No delay or omission to exercise any right,
-------------------
power or remedy accruing to any Holder, upon any breach or default of the
Company under this Agreement shall impair any such right, power or remedy of
such Holder nor shall it be construed to be a waiver of any such breach or
default, or an acquiescence therein, or of or in any similar breach or default
thereafter occurring; nor shall any waiver of any single breach or default be
deemed a waiver of any other breach or default therefore or thereafter
occurring. Any waiver, permit, consent or approval of any kind or character on
the part of any Holder of any breach or default under this Agreement or any
waiver on the part of any Holder of any provisions or
-17-
<PAGE>
conditions of this Agreement must be made in writing and shall be effective only
to the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to any Holder, shall be
cumulative and not alternative.
3.6 Rights; Separability. Unless otherwise expressly provided herein,
--------------------
each Holder's rights hereunder are several rights, not rights jointly held with
any of the other Holders. In case any provision of this Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
3.7 Waiver of Right of First Offer. Each Investor holding a right of
------------------------------
first offer to purchase new securities of the Company pursuant to Section 2.3 of
the Investors' Rights Agreement, by its execution of this Agreement, hereby
waives any rights it may have pursuant to such section to purchase shares of
Series C Preferred Stock by reason of the Company's issuance of 1,728,844 shares
of Series C Preferred Stock pursuant to the Reorganization Agreement.
3.8 Information Confidential. Each Holder acknowledges that the
------------------------
information received by them pursuant hereto may be confidential and for its use
only, and it will not use such confidential information in violation of the
Exchange Act or reproduce, disclose or disseminate such information to any other
person (other than its employees or agents having a need to know the contents of
such information, and its attorneys), except in connection with the exercise of
rights under this Agreement, unless the Company has made such information
available to the public generally or such Holder is required to disclose such
information by a governmental body.
3.9 Titles and Subtitles. The titles of the paragraphs and subparagraphs
--------------------
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
3.10 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
3.11 Amendment of Investors' Rights Agreement. Upon the Closing, all of
----------------------------------------
the provisions of the Investors' Rights Agreement shall be null and void and
superseded by the rights and obligations set forth in this Agreement. This
Agreement constitutes the full and entire understanding and agreement between
the parties with regard to the subject matter hereof, and no party shall be
liable or bound to any other party in any manner by any warranties,
representations or covenants relating to such subject matter, except as
specifically set forth herein.
3.12 Aggregation of Stock. All shares of the Preferred Stock held or
--------------------
acquired by affiliated entities or persons shall be aggregated together for the
purpose of determining the availability of any rights under this Agreement.
-18-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Investors' Rights
Agreement effective as of the day and year first above written.
COMPANY
-------
eGAIN COMMUNICATIONS CORPORATION
By /s/ Ashutosh Roy
--------------------------------
Ashutosh Roy
Chief Executive Officer
INVESTORS
---------
FW VENTURES I, L.P.
By /s/ Dave Brown
--------------------------------
Title Vice President, GP
------------------------------
CHARTER VENTURES III, LLC
By /s/ A. Barr Dolan
--------------------------------
A. Barr Dolan
Title Manager
------------------------------
FAYEZ SAROFIM INVESTMENT
PARTNERSHIP NO. 5 L.P.
By /s/ Ray G. White
--------------------------------
Ray G. White
Title Executive Vice President
------------------------------
of the Managing General Partner,
------------------------------
FSI No.2 Corporation
------------------------------
Counterpart Signature Page to eGain Communication Corporation Investors Rights
Agreement
-19-
<PAGE>
--------------------------------
Steve Goldsworthy
RICHARD P. & AMY C. MAGNUSON,
TRUSTEES OF THE MAGNUSON REVOCABLE
TRUST DATED JANUARY 14, 1994
By
--------------------------------
Richard P. Magnuson, Trustee
By
--------------------------------
Amy C. Magnuson, Trustee
--------------------------------
Frederick K. Fluegel
--------------------------------
William Miller
--------------------------------
Mike Volpi
PM&S VENTURE FUND II, LLC
By
--------------------------------
Title
------------------------------
--------------------------------
Stanley F. Pierson
Counterpart Signature Page to eGain Communication Corporation Investors Rights
Agreement
-20-
<PAGE>
--------------------------------
Jorge del Calvo
IMPERIAL BANK
By
--------------------------------
Title
------------------------------
PHOENIX LEASING INCORPORATED
By
--------------------------------
Title
------------------------------
--------------------------------
Benjamin Diesbach
--------------------------------
David Lowenfeld
--------------------------------
John Wilson
--------------------------------
Chris McGuire
Counterpart Signature Page to eGain Communication Corporation Investors Rights
Agreement
-21-
<PAGE>
--------------------------------
Harry Bott
--------------------------------
Brian Trager
--------------------------------
Brian Parker
--------------------------------
Rebecca Parker
--------------------------------
David Villeger
--------------------------------
Bill Hoffman
--------------------------------
Kenneth Hoffman
--------------------------------
Chris Starace
--------------------------------
Key Compton
Counterpart Signature Page to eGain Communication Corporation Investors Rights
Agreement
-22-
<PAGE>
--------------------------------
Bev Compton
--------------------------------
Clay Enos
--------------------------------
John Borthwick
--------------------------------
Scott Gietler
--------------------------------
Deanna Brown
--------------------------------
Robin Neustein
WINDCREST PARTNERS
------------------
By
--------------------------------
Its
--------------------------------
--------------------------------
Stephen Friedman
Counterpart Signature Page to eGain Communication Corporation Investors Rights
Agreement
-23-
<PAGE>
INCENTIVE INVESTMENT
--------------------
By
--------------------------------
Its
--------------------------------
LINKS VENTURES, LLC
-------------------
By
--------------------------------
Its
--------------------------------
--------------------------------
Peter Bermont
--------------------------------
Vincent Hubner
WW READE STREET CORP.
---------------------
By
--------------------------------
Its
--------------------------------
Founders
--------
/s/ Ashutosh Roy
-----------------------------------
Ashutosh Roy
/s/ Gunjan Sinha
-----------------------------------
Gunjan Sinha
Counterpart Signature Page to eGain Communication Corporation Investors Rights
Agreement
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<PAGE>
Exhibit 5.1
PILLSBURY MADISON & SUTRO LLP
2550 Hanover Street
Palo Alto, CA 94304-1115
Tel: (650) 233-4500
Fax: (650) 233-4545
August 31, 1999
eGain Communications Corporation
624 East Evelyn Avenue
Sunnyvale, CA 94086
Re: Registration Statement on Form S-1
Ladies and Gentlemen:
We are acting as counsel for eGain Communications Corporation, a Delaware
corporation (the "Company"), in connection with the registration under the
Securities Act of 1933, as amended, of 5,750,000 shares of Common Stock, par
value $.001 per share (the "Common Stock"), of the Company (including 750,000
shares subject to the underwriters' over-allotment option) to be offered and
sold by the Company. In this regard we have participated in the preparation of
a Registration Statement on Form S-1 relating to such 5,750,000 shares of
Common Stock. (Such Registration Statement, as amended, and including any
registration statement related thereto and filed pursuant to Rule 462(b) under
the Securities Act (a "Rule 462(b) registration statement") is herein referred
to as the "Registration Statement.")
We are of the opinion that the shares of Common Stock to be offered and
sold by the Company have been duly authorized and, when issued and sold by the
Company in the manner described in the Registration Statement and in accordance
with the resolutions adopted by the Board of Directors of the Company, will be
legally issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the use of our name under the caption "Legal
Matters" in the Registration Statement and in the Prospectus included therein.
Very truly yours,
/s/ Pillsbury Madison & Sutro LLP
<PAGE>
EXHIBIT 10.10
SUB-SUBLEASE
------------
THIS SUB-SUBLEASE ("Sub-sublease"), dated June , 1999 (the "Execution Date"),
for reference purposes only, is entered into by and between Cadence Design
Systems, Inc. a Delaware corporation ("Sub-sublandlord"), and eGain
Communications Corporation, a Delaware corporation ("Sub-subtenant").
RECITALS
A. Sub-sublandlord subleases certain premises consisting of approximately
46,000 square feet of rentable area (the "Premises") which is the entire
building located at 455 West Maude Avenue in Sunnyvale, California (the
"Building"), pursuant to that certain Sublease Agreement, dated June 3, 1996
(the "Master Sublease"), between Sub-sublandlord, as tenant, and Cisco Systems,
Inc., as successor-in-interest to Combinet, Inc., a California corporation, as
sublandlord ("Sublandlord").
B. Sublandlord subleases the Premises pursuant to that certain Lease
Agreement, dated May 1995 (the "Master Lease"), between Sublandlord, as the
lessee thereunder, and J.P, DiNapoli Companies, Inc. a _________________
corporation, as successor-in-interest to Sunnyvale Research Plaza Associates,
a California limited partnership, as the lessor thereunder ("Landlord").
C. Capitalized terms herein not otherwise defined herein shall have the
same meanings as provided in the Master Sublease.
D. Sub-sublandlord desires to lease the Premises to Sub-subtenant, and
Sub-subtenant desires to lease the Premises from Sub-sublandlord, upon the terms
and conditions provided for herein.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, Sub-sublandlord and Sub-subtenant covenant and agree as
follows:
AGREEMENT
1. Premises. Upon and subject to the terms and conditions set forth
--------
herein, Sub-sublandlord leases the Premises to Sub-subtenant, and Sub-
subtenant hereby leases the Premises from Sub-sublandlord.
2. Term.
----
(a) The term of this Sub-sublease shall commence on the date (the
"Commencement Date") which is the later of (i) July 15, 1999, and (ii)
fourteen (14) days after the date on which consent to this Sub-sublease is
given by Sublandlord and Landlord.
(b) Notwithstanding Paragraph 2(a) above, if for any reason Sub-
sublandlord cannot deliver possession of the Premises to Sub-subtenant on the
Commencement Date, Sub-sublandlord shall not be subject to any liability
therefor, nor shall such failure affect the validity of this Sub-sublease or
the obligations of Sub-subtenant hereunder or extend the term hereof, but in
such case Sub-subtenant shall
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<PAGE>
not be obligated to pay Rent until possession of the Premises is tendered to
Sub-subtenant.
(c) The term of this Sub-sublease shall end on September 14, 2001;
provided, however, that, subject to Paragraph 12 of this Sub-sublease, the
term of this Sub-sublease shall terminate earlier in the event of the earlier
termination of the Master Sublease for any cause whatsoever.
3. Rent. The rent payable by Sub-subtenant for the Premises shall
----
consist of basic rental ("Basic Rent") plus certain additional rental
("Additional Rent"), all as provided below. Basic Rent, Additional Rent, and
any other charges due under this Sub-sublease are hereinafter referred to
collectively as "Rent."
(a) From the Commencement Date until the first anniversary of the
Commencement Date, or if such date is not the first day of a calendar month,
until the first day of the calendar month in which such date occurs, Sub-
subtenant shall pay to Sub-sublandlord in advance, on or before the first day
of each month, without deduction or offset, monthly Basic Rent in the amount
of $75,900.00 per month.
(b) From the first anniversary of the Commencement Date, or if such
date is not the first day of a calendar month, from the first day of the
calendar month in which such date occurs, until the termination of this
Sublease, Sub-subtenant shall pay to Sub-sublandlord in advance, on or before
the first day of each month, without deduction or offset, monthly Basic Rent
in the amount of $80,500.00 per month.
(c) Sub-subtenant also shall pay, as Additional Rent, all additional
rental amounts and such other charges as may be imposed by Sublandlord upon
Sub-sublandlord under the Master Sublease.
(d) To the extent that Additional Rent due under the Master Sublease
is on a monthly basis, such Additional Rent shall be paid to Sub-sublandlord
as en Basic Rent is paid. All Rent shall be paid to Sub-sublandlord at the
address specified for Sub-sublandlord below, or to such other person or to
such other place as Sub-sublandlord may from time to time designate in
writing. To the extent that Additional Rent is payable on an estimated basis
pursuant to the Master Sublease, the Additional Rent due hereunder shall be
adjusted between the parties (with appropriate reimbursements or additional
payments) within twenty (20) days after the actual Additional Rent due under
the Master Sublease has been determined and notice thereof has been delivered
to Sub-subtenant.
(e) Sub-sublandlord shall pay all "Rent" and other monetary amounts
required to be paid under the Master Sublease (collectively, "Underlying
Rent") on or before the date such amounts become due and payable thereunder.
If Sub-sublandlord fails to make any payment of Underlying Rent as and when
required under the Master Sublease, Sub-subtenant shall have the right, but
not the obligation, to make such payments on behalf of Sub-sublandlord, in
which event Sub-subtenant shall have the right to offset any amounts so paid
against Rent payable under this Sub-sublease.
(f) In the event of any casualty or condemnation affecting the
Premises, Rent payable by Sub-subtenant shall be proportionately abated, but
only as to the portion of the Premises damaged or taken; and only to the
extent that Underlying Rent payable under the Master Sublease is abated. Sub-
subtenant shall have no right to terminate the Sub-sublease in connection with
any casualty or condemnation except
-2-
<PAGE>
to the extent that the Master Sublease is also terminated as to the Premises
or any portion thereof.
4. Pre-Paid Rent. On the Execution Date, Sub-subtenant shall prepay the
-------------
first full month's Basic Rent; provided that in the event that the
Commencement Date does not occur, such amount shall be refunded to Sub-
subtenant.
5. Security Deposit. On the Execution Date, Sub-subtenant shall pay
----------------
cash to Sub-sublandlord in the amount of $80,500.00 (the "Security Deposit"),
as security for the full and faithful performance of Sub-subtenant's
obligations under this Sub-sublease. If Sub-subtenant defaults on its
obligations hereunder, Sub-sublandlord may use any or all of the Security
Deposit to cure the default or compensate the Sub-sublandlord for its damages
and expenses resulting from the default, in which event, Sub-subtenant shall
promptly deposit with Sub-sublandlord the sum necessary to restore the
Security Deposit to the full amount set forth above. Upon termination of this
Sub-sublease, Sub-sublandlord shall return the balance of the Security Deposit
to Sub-subtenant. Sub-sublandlord shall be entitled to commingle the Security
Deposit with its general funds. Sub-subtenant shall have no right to interest
on the Security Deposit.
6. Condition of Premises. Except as otherwise expressly provided herein,
---------------------
Sub-sublandlord subleases the Premises to Sub-subtenant strictly in their
present "as-is" and "with all faults" condition. Upon delivery the Premises
shall be broom clean, all mechanical systems shall be in working order and Sub-
sublandlord shall have removed the security system and the telephone switch
from the Premises. By its acceptance of possession of the Promises Sub-
subtenant acknowledges that the Premises are in tenantable condition and that
all mechanical systems are in good working order as of the Commencement Date.
7. Master Sublease. This Sub-sublease shall be subject and subordinate
---------------
to all of the terms, covenants and conditions of the Master Sublease, and
Sublandlord shall have all rights in respect of the Master Sublease and the
Premises as set forth therein. Sub-subtenant acknowledges that the Master
Sublease Is subject and subordinate to all of the terms, covenants and
conditions of the Master Lease, and Landlord shall have all rights in respect
of the Master Lease and the Premises as set forth therein. Except for payments
and rent under Article 3 of the Master Sublease (which payments shall be made
by Sub-sublandlord), and, except as otherwise provided in Paragraph 8 hereof,
Sub-subtenant hereby assumes and agrees to perform for Sub-sublandlord's
benefit, during the term of this Sub-sublease, all of Su b-sublandlord's
obligations under the Master Sublease, including all obligations incorporated
therein from the Master Lease (the "Assumed Obligations"), which accrue during
the term of this Sub-sublease.
8. Incorporation of Master Sublease.
--------------------------------
(a) Subject to the exclusions, limitations and modifications set forth
in this Sub-sublease, the terms, covenants and conditions of the Master
Sublease are incorporated in this Sub-sublease by reference so that, except to
the extent that they are excluded, limited or otherwise modified by the
provisions of this Sub-sublease for the purpose of incorporation by reference,
each and every term, covenant and condition of the Master Sublease, including
all obligations incorporated therein from the Master Lease, which bind or
inure to the benefit of the Sublandlord under the terms of the Master Sublease
shall, in respect of this Sub-sublease, bind or inure to the benefit of Sub-
sublandlord. Further, subject to the exclusions, limitations and modifications
set forth in this Sub-sublease, the terms, covenants and conditions of the
Master Sublease
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<PAGE>
are incorporated in this Sub-sublease by reference so that, except to the
extent that they are excluded, limited or otherwise modified by the provisions
of this Sub-sublease for the purpose of incorporation by reference, each and
every term, covenant and condition of the Master Sublease, including all
obligations incorporated therein from the Master Lease, which bind or inure to
the benefit of the Subtenant under the terms of the Master Sublease shall, in
respect of this Sub-sublease, bind or inure to the benefit of Sub-subtenant.
Such incorporation shall have the same force and effect as if such terms,
covenants and conditions were completely set forth in this Sub-sublease, and as
if the words "Sublessor" and "Sublessee," or words of similar import, wherever
the same appear in the Master Sublease, were construed to mean respectively,
"Sub-sublandlord" and "Sub-subtenant" in this Sub-sublease, and as if the Word
"Sublease," or words of similar import, wherever the same appear in the Master
Sublease, were construed to mean this "Sub-sublease." Sub-subtenant represents
that it has examined, read and is familiar with the terms, covenants and
conditions of the Master Sublease and the Master Lease to the extent the Master
Lease is incorporated into the Master Sublease. Sub-subtenant accepts those
terms, covenants and conditions and obligations thereof which have been
incorporated herein.
(b) The following sections of the Master Sublease are not incorporated
as a part of this Sub-sublease and are expressly excluded herefrom (except
insofar as the same may be referenced elsewhere in this Sub-sublease for
purposes of identification or definition of certain matters): Article 1
(Sublease); Article 2 (Term); Section 3.1 (Base Rent); Section 3.4 (Security
Deposit); Section 16.3 (Master Landlord's Consent); Section 16.6 (Broker);
Section 16.8 (Sublessor's Representations).
(c) The following limitations shall apply to the interpretation and
enforcement of the incorporated terms, covenants and conditions of the Master
Sublease:
(i) Except with respect to the time for payment of Rent, the
time limits contained in the Master Sublease for the giving of notices, making
of demands or performing of any act, condition or covenant on the part of the
Sub-sublandlord, as subtenant thereunder, or for the exercise by the Sub-
sublandlord, as subtenant thereunder of any right, remedy or option, are
changed for the purposes of incorporation herein by reference by shortening
the same in each instance by two (2) business days, so that in each instance
Sub-subtenant shall have two (2) business days less time to observe or perform
hereunder than Sub-sublandlord has as the subtenant under the Master Sublease.
(ii) Any non-liability, release, indemnity or hold harmless
provision, and any provisions pertaining to waiver of subrogation rights and
or the naming of a party under an insurance policy, in the Master Sublease for
the benefit of the Sublandlord which is incorporated herein by reference,
shall be deemed to inure to the benefit of Sub-sublandlord and Sublandlord,
for the purpose of incorporation by reference in this Sub-sublease.
(iii) Any right of the Sublandlord for access or inspection and
any right of the Sublandlord under the Master Sublease to do work in the
Premises, and any right of the Sublandlord in respect of rules and
regulations, shall be deemed to inure to the benefit of Sub-sublandlord and
the Sublandlord, for the purpose of incorporation by reference in this Sub-
sublease.
(iv) if any of the express provisions of this Sub-sublease shall
conflict with any of the provisions incorporated by reference, such conflict
shall be
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<PAGE>
resolved in every instance in favor of the express provisions of this Sub-
sublease. If any incorporated provision of the Master Sublease cross-
references a provision of the Master Sublease which is not incorporated in
this Sub-sublease, such cross-referenced Master Sublease provision shall be
disregarded except to the extent required for a fair and equitable
interpretation of the incorporated Master Sublease provision.
(v) Any obligation of Sub-sublandlord which is contained in this
Sub-sublease by the incorporation by reference of the provisions of the Master
Sublease shall be observed or performed by Sub-sublandlord using reasonable
good faith efforts to cause the Sublandlord under the Master Sublease to
observe and/or perform the same, and Sub-sublandlord shall have a reasonable
time do so after written notice from Sub-subtenant specifying with reasonable
particularity the deficiency in Sublandlord's performance under the Master
Sublease. Sub-sublandlord shall not be required to furnish, supply, install,
maintain or repair anything under any provision of the Master Sublease. Sub-
subtenant shall not in any event have any rights in respect of the Premises
greater than Sub-sublandlord's rights under the Master Sublease, and
notwithstanding any provision to the contrary, as to obligations that pertain
to the Premises and Common Area, and are part of this Sub-sublease by the
incorporation by reference of provisions of the Master Sublease, Sub-
sublandlord shall not be required to make any payment or to perform any
obligation, and Sub-sublandlord shall have no liability to Sub-subtenant for
any matter whatsoever, except for Sub-sublandlord's obligation to pay the
Underlying Rent and to use reasonable good faith efforts, upon request of Sub-
subtenant, to cause the Sublandlord to observe and/or perform Sublandlord's
obligations under the Master Sublease. Sub-sublandlord shall not be
responsible for any failure or interruption, for any reason whatsoever, of the
services or facilities that may be appurtenant to or supplied at the Building
by Landlord. Sub-subtenant hereby expressly waives the provisions of any
statute, ordinance or judicial decision which would give Sub-subtenant rights
to make repairs at the expense of Sub-sublandlord.
(vi) With respect to any approval or consent required to be
obtained from Sublandlord under the Master Sublease, such approval or consent
must be obtained from Landlord, Sublandlord, and Sub-sublandlord. Any approval
or consent required of Sub-sublandlord conclusively shall be deemed reasonably
withheld if approval or consent also is required of the Sublandlord or
Landlord, and Sublandlord or Landlord withholds approval or consent.
(d) Sub-subtenant shall fully perform all of the Assumed Obligations
and shall indemnify, defend, protect, and hold harmless Sub-sublandlord from
any and all liability, damages, liabilities, claims proceedings, actions,
demands and costs (including reasonable attorneys' fees) resulting, directly
or indirectly, from Sub-subtenant's failure to perform the Assumed Obligations
unless such failure is caused in whole or in part by Sub-sublandlord's gross
negligence or willful misconduct.
(e) Without limiting the generality of the foregoing, for purposes of
incorporating the terms, covenants and conditions of the Master Sublease into
this Sub-sublease, the following provisions of the Master Sublease are amended
as follows:
(i) Under Article 3 of the Master Sublease, Sub-sublandlord
shall be entitled to rely on any statement or estimate from Landlord regarding
the calculation and payment of Additional Rent and shall be under no duty to
verify the same.
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<PAGE>
(ii) Under Article 7 of the Master Sublease, Sub-sublandlord
shall only be required, after written request by Sub-subtenant, to use
commercially reasonable good faith efforts to cause Sublandlord to fulfill its
obligations under the Master Sublease.
(iii) Under Article 15 of the Master Sublease, upon surrender of
the Premises at the expiration or earlier termination of this Sub-sublease,
Sub-subtenant shall return the Premises to Sub-sublandlord in the same
condition as existed upon delivery of the Premises to Sub-subtenant, prior to
the construction of any alterations or improvements as may be made by Sub-
subtenant reasonable wear and tear excepted; provided, however, that Sub-
subtenant shall not be required to remove such alterations or improvements if
Landlord shall agree in writing to waive its right to require Sub-sublandlord
to remove such alterations or improvements upon surrender of the Premises to
Landlord.
9. Notice. Any notice required hereunder to be given to Sub-sublandlord
------
shall be to the address as provided adjacent to Sub-sublandlord's signature
below, or at such other address as Sub-sublandlord may from time to time
designate in writing; and Sub-subtenant's notice address shall be as provided
adjacent to Sub-subtenant's signature below, provided that after Sub-subtenant
takes occupancy of the Premises, notices shall be sent to Sub-subtenant at the
address of the Promises. Any notice required or permitted under this Sub-
sublease shall be deemed to have been delivered upon actual receipt or upon
refusal of delivery. Notices under this Sub-sublease shall be permitted to be
transmitted by overnight courier service or by facsimile, in addition to the
other methods permitted under the Master Sublease. Notices sent by facsimile
shall be followed by a mailed copy to the recipient's notice address and shall
be effective (a) on the date received if transmission is made on a business
day and received before 5:00 p.m. that same day, or (b) in all other cases, on
the business day next following receipt of the facsimile transmission.
10. Assignment and Sub-subletting. Except as expressly permitted under the
-----------------------------
Master Sublease and Master Lease, Sub-subtenant shall not assign this Sub-
sublease or sublet all or any part of the Premises, or hypothecate or otherwise
encumber its interest under this Sub-sublease, or allow any other person or
entity to use or occupy all or any part of the Premises. Notwithstanding the
foregoing, Sub-sublandlord will not unreasonably withhold its consent to a
further assignment or Sublease of all or a portion of the Premises as permitted
by the Master Lease and the Master Sublease.
11. Brokerage. Each party warrants and represents to the other that
---------
such party has not retained the services of any real estate broker, finder or
any other person whose services would form the basis for any claim for an
commission or fee in connection with this Sub-sublease or the transactions
contemplated hereby. Each party agrees to save, defend, indemnify and hold the
other party free and harmless from any breach of its warranty and
representation as set forth in the preceding sentence, including the other
party's attorneys' fees.
12. Sub-sublandlord's Obligations. Except as expressly otherwise provided
-----------------------------
herein, Sub-sublandlord shall have no obligations to Sub-subtenant with
respect to the Premises or the performance by Landlord of any obligations of
Landlord under the Master Lease.
13. Early Termination of Master Lease. If, without the fault of Sub-
---------------------------------
sublandlord hereunder the Master Lease should terminate prior to the
expiration of this Sub-sublease, Sub-sublandlord shall have no liability to
Sub-subtenant. To the extent that
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<PAGE>
the Master Lease grants Sub-sublandlord any discretionary right to terminate
the Master Lease, whether due to casualty, condemnation, or otherwise, Sub-
sublandlord shall be entitled to exercise or not exercise such right in its
sole and absolute discretion.
14. Holdover. Rent payable during any holdover after termination of this
--------
Sublease without the consent of Sub-sublandlord shall be one hundred fifty
percent (150%) of the Underlying Rent for such period under the Master
Sublease.
15. Consent of Landlord. If Sub-sublease desires to take any action which
-------------------
requires the consent of Landlord pursuant to the terms of the Master Lease,
including, without imitation, the making of any alterations, then,
notwithstanding anything to the contrary herein, (a) Sub-sublandlord,
independently, shall have the same rights of approval or disapproval as Landlord
has under the Master Lease, (b) Sub-subtenant shall not take any such action
until it obtains the consent of both Sub-sublandlord (whose consent shall not be
unreasonably withheld) and Landlord, and (c) Sub-subtenant shall request that
Sub-sublandlord obtain Landlord's consent on Sub-subtenant's behalf and Sub-
sublandlord shall use commercially reasonable efforts to obtain such consent,
unless Sub-sublandlord and Landlord agree that Sub-subtenant may contact
Landlord directly with respect to the specific action for which Landlord's
consent is required.
16. No Third Party Rights. Except as otherwise expressly provided herein,
---------------------
the benefit of the provisions of this Sub-sublease is limited to Sub-
sublandlord and Sub-subtenant and to their successors and assigns. No third
party shall be construed to have any rights as a third party beneficiary with
respect to any of the provisions of this Sub-sublease; provided, however, that
Landlord shall be entitled to the benefit of (a) Sub-subtenant's assumption of
the Assumed Obligations pursuant to Paragraph 7 above, (b) Sub-subtenant's
indemnities under this Sub-sublease and (c) Sub-subtenant's waivers and
covenants to hold harmless under this Sub-sublease.
17. Sublandlord and Landlord Consent. This Sub-sublease is subject to the
--------------------------------
consent of the Sublandlord and Landlord. Sub-sublandlord agrees to use
commercially reasonable efforts to obtain the consent of Sublandlord and
Landlord to this Sub-sublease as soon as reasonably possible following execution
of this Sub-sublease by Sub-subtenant and Sub-sublandlord, and shall provide
Sub-subtenant with notice of Sub-sublandlord's submittal of this Sub-sublease to
Sublandlord and Landlord for approval. In the event that Sublandlord's or
Landlord's consent is not obtained within ten (10) days following the submittal
of this Sub-sublease by Sub-sublandlord to Sublandlord and Landlord for consent,
each of Sub-sublandlord and Sub-subtenant shall have the right to terminate this
Sub-sublease by providing written notice of termination to the other party
within five (5) days after the expiration of such ten (10) day period. Unless
exercised prior thereto, this right of termination hereunder shall expire upon
the delivery to Sub-subtenant of Sublandlord's and Landlord's consent. For
purposes of this paragraph, Sublandlord's and Landlord's consent shall be deemed
to have been given as of the date when Sublandlord's and Landlord's
unconditional consent to this Sub-sublease has been obtained, or, in the event
such consent is conditional, the date upon which such conditions have been fully
satisfied or waived by Sublandlord and Landlord.
18. Counterparts. This Sub-sublease may be executed in any number of
------------
counterparts, each of which counterparts shall be deemed to be an original, and
all of which together shall constitute one and the same instrument.
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<PAGE>
19. Status of Sublease. Sub-sublandlord hereby represents and warrants
------------------
to Sub-subtenant that (i) the Master Sublease attached hereto as Exhibit A
(with the Master Lease as an exhibit thereto) has been executed and delivered
by Sublandlord and Sub-sublandlord and constitutes the entire agreement of the
parties thereto relating to the lease of the Premises, (ii) no default or
breach by Sub-sublandlord or, to the best of Sub-sublandlord's knowledge, by
Sublandlord, exists under the Master Sublease, (iii) no event has occurred
that, with the passage of time, the giving of notice, or both, would
constitute a default or breach by Sub-sublandlord or, to the best of Sub-
sublandlord's knowledge, by Sublandlord under the Master Sublease, and (iv)
subject to receipt of Sublandlord s and Landlord's written consent hereto, Sub-
sublandlord has the right and power to execute and deliver this Sub-sublease
and to perform its obligations hereunder. Sub-sublandlord shall not modify the
Master Sublease in such a manner as to increase the obligations of Sub-
subtenant hereunder or under the Master Sublease, without the prior written
consent of Sub-subtenant, which shall not be unreasonably withheld or delayed.
IN WITNESS WHEREOF, the parties have executed this Sub-sublease as of the
date first written above.
Address: SUB-SUBLANDLORD:
Cadence Design Systems, Inc. CADENCE DESIGN SYSTEMS, INC., a Delaware
2655 Seely Road corporation
Bldg. 5, MS 5A1
San Jose, CA 95134 /s/ John H. Lucus
Attn: Director, Facilities and ---------------------------------------
Real Estate By: John H. Lucus
------------------------------------
Its: Director Real Estate
-----------------------------------
By:
-----------------------------------
Its:
-----------------------------------
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<PAGE>
Address: SUB-SUBTENANT:
_______________________________ eGAIN COMMUNICATION CORPORATION,
_______________________________ a Delaware corporation
_______________________________
_______________________________ /s/ Ashutosh Roy
---------------------------------------
By: Ashutosh Roy
Its: Chief Executive Officer
---------------------------------------
By:
------------------------------------
Its:
-----------------------------------
AGREED AND APPROVED:
SUBLANDLORD:
CISCO SYSTEMS, INC., a California corporation
/s/ Ellen E. Jamason
- ---------------------------------------
By: Ellen E. Jamason
Its: Director
Worldwide Real Estate
LANDLORD:
J.P. DiNAPOLI COMPANIES INC., a ________
- ----------------------------------------
By:
-------------------------------------
Its:
------------------------------------
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<PAGE>
CONSENT TO SUB-SUBLETTING
-------------------------
THIS AGREEMENT ("Agreement") is made as of August 9, 1999 by and among Sequoia
M&M LLC, a California limited liability company and Laurel Osgood LLC, a
California limited liability company (collectively, "Landlord"), Cisco Systems,
Inc., a California corporation ("Tenant"), Cadence Design Systems, Inc., a
Delaware corporation ("Subtenant") and eGain Communications Corporation, a
Delaware corporation ("Sub-Subtenant"), with reference to the following facts:
A. Landlord, as successor-in-interest to Sunnyvale Research Plaza
Associates, a California limited partnership, and Tenant entered into that
certain Standard Form Leak (Industrial; Single-Tenant; Net) dated May __, 1995,
("Master Lease"), relating to certain premises more particularly described in
the Master Lease ("Premises").
B. Tenant, as successor-in-interest to Combinet, Inc., a California
corporation, and Subtenant entered into a Sublease dated June 3, 1996
("Sublease"). By the terms of the Sublease, Tenant subleased to Subtenant and
Subtenant subleased from Tenant, all of the Premises consisting of approximately
46,000 square feet of space located at 455 West Maude Avenue, Sunnyvale,
California, as more particularly described in the Sublease (the "Sublease
Premises").
C. Subtenant and Sub-Subtenant have entered into a Sub-Sublease dated June
__, 1999 ("Sub-sublease") by the terms of which Subtenant will sublease to Sub-
Subtenant and Sub-Subtenant will Sub-sublease from Subtenant all of the Sublease
Premises, as more particularly described the Sub-Sublease.
D. Tenant has requested that Landlord consent to Subtenant sub-subletting
the Sublease Premises to Sub-Subtenant pursuant to the Sub-Sublease. Landlord
has agreed to consent to such subletting on the following terms and conditions.
NOW, THEREFORE, in consideration of the foregoing, and in consideration of
the mutual agreements and covenants hereinafter set forth, Landlord, Tenant,
Subtenant and Sub-Subtenant agree as follows:
1. Definitions. Unless otherwise defined in this Agreement, all defined
-----------
terms used in this Agreement shall have the meaning and definition given them
in the Master Lease.
2. Master Lease.
-------------
2.1 Tenant, Subtenant and Sub-Subtenant acknowledge and agree that the
"Landlord" identified in the Sub-Sublease is incorrect and the correct name of
the Landlord is identified in this Agreement. The Sublease and Sub-Sublease are
and shall be at all times subject and subordinate to all of the terms and
conditions of the Master Lease. In case of any conflict between the provisions
of the Master Lease and the provisions of the Sublease, as between Tenant and
Landlord, the provisions of the Master Lease shall prevail unaffected by the
Sublease or Sub-Sublease. Sub-Subtenant shall not violate any of the terms and
conditions of the Master Lease to the extent applicable to the use and occupancy
of the Sublease Premises. Any breach of the Master Lease or Sublease by Tenant,
any breach of the Sublease, Sub-sublease or Master Lease by Subtenant or any
breach of the Sub-Sublease, Sublease or Master Lease by Sub-Subtenant which
results in a breach of the Master Lease shall entitle Landlord to all the rights
and remedies provided in the Master Lease,
2.2 Subtenant and Sub-Subtenant acknowledge and agree that the term of the
Sub Sublease shall automatically terminate upon the termination of the Master
Lease for any reason whatsoever, including, without limitation, the
termination of the Master Lease prior to the expiration of the term thereof
pursuant to a written agreement by and between Landlord and Tenant.
Notwithstanding any provision to the contrary in the Sublease, Sub-Sublease or
in any other agreement, Subtenant and Sub-Subtenant acknowledge that neither
of them shall have any right and there shall not be vested in either of them
any right to exercise rights of first refusal, option, or other similar
preferential rights, if any, given to Tenant under the Master Lease.
2.3 Subtenant and Sub-Subtenant represent and warrant to Landlord that
there are no additional payments of rent or consideration of any type payable
by Sub-Subtenant to Subtenant with regard to the Sublease Premises other than
as disclosed in the Sub-Sublease, a true and complete copy of which is
attached hereto as Exhibit A and incorporated herein by this reference.
---------
1
<PAGE>
3. Consent of Landlord. Landlord hereby consents to the sub-subletting
-------------------
of the Sublease Premises to Sub-Subtenant pursuant to the terms of the Sub-
Sublease. Landlord's consent shall not release or discharge Tenant of any of
its obligations under the Master Lease or release, discharge or alter the
primary liability of Tenant to pay rent and all other sums due under the
Master Lease and to perform. and comply with all other obligations of Tenant
under the Master Lease. As between Landlord and Tenant, the Sub-Sublease shall
not alter, amend or otherwise modify the provisions of the Master Lease.
Landlord shall have no obligations to any party in connection with the
Sublease Premises other than those obligations set forth in the Master Lease.
Landlord shall not be bound or estopped in any way by the provisions of the
Sub-sublease.
4. Insurance.
---------
4.1 Sub-Subtenant shall, at Sub-Subtenant's expense, with respect to
the Sublease Premises, secure and keep in force during the term of the Sub-
Sublease such insurance as is required of Tenant under the Master Lease. Such
policy or policies of insurance shall name Landlord and its lenders, if any,
as additional insured(s). A certificate evidencing such insurance shall be
delivered to Landlord promptly after the date hereof.
4.2 Landlord, by giving Landlord's consent to the Sub-Sublease, Sub-
Subtenant and Subtenant hereby mutually waive their respective rights of
recovery against one another for any loss of, or damage to, any of such
parties' property to the extent that such loss or damage is insured by an
insurance policy required to be in effect at the time of such loss or damage.
Each party shall obtain any special endorsements, if required by its insurer,
whereby the insurer waives its rights of subrogation against the other party.
This provision is intended to waive fully, and for the benefit of the parties
hereto, any rights and/or claims which might give rise to a right of
subrogation in favor of any insurance carrier. The coverage obtained by Sub-
Subtenant shall include, without limitation, a waiver of subrogation
endorsement attached to the certificate of insurance.
5. Assignment and Sub-Subletting. Sub-Subtenant shall not voluntarily or
-----------------------------
by operation of law, (1) mortgage, pledge, hypothecate or encumber the Sub-
Sublease or any interest therein, (2) assign or transfer the Sub-Sublease or
any interest therein, sub-sublet the Sublease Premises or any part thereof,
without first obtaining the written consent of Landlord.
6. Miscellaneous Provisions.
------------------------
6.1 Subtenant and Sub-Subtenant agree not to amend, modify,
supplement, or otherwise change in any respect the Sub-Sublease except with
the prior written consent of Landlord, which consent shall not be unreasonably
withheld. This Agreement shall not create in Sub-Subtenant, as a third party
beneficiary or otherwise, any rights except as set forth in this Agreement.
6.2 Copies of any notices of default sent by Tenant, Subtenant and/or
Sub-Subtenant under the Master Lease, Sublease or Sub-Sublease, as applicable,
shall be delivered to Landlord at the address set forth in the Master Lease at
the same time such notices are sent to any other party.
6.3 This Agreement, together with the provisions of the Master Lease
relating to subletting or assigning, contains the entire agreement between the
parties hereto regarding the matters which are the subject of this Agreement.
In the event of a permitted assignment under the Master Lease by Landlord or
Tenant of its interest in the Master Lease, then the assignee of either
Landlord or Tenant, as appropriate, shall automatically be deemed to be the
assignee of Landlord or Tenant under this Agreement, and shall assume their
respective obligations. No other assignments of this Agreement shall be
permitted, except with the written consent of all parties hereto. Any
attempted assignment in violation of this section shall be void. The terms,
covenants and conditions of this Agreement shall apply to and bind the heirs,
successors, the executors and administrators and permitted assigns of all the
parties hereto. The parties acknowledge and agree that no rule or
construction, to the effect that any ambiguities are to be resolved against
the drafting party, shall be employed in the interpretation of this Agreement.
If any provision of this Agreement is determined to be illegal or
unenforceable, such determination shall not affect any other provisions of
this Agreement, and all such other provisions shall remain in full force and
effect.
6.4 If any party hereto fails to perform any of its obligations under
this Agreement or if any dispute arises between the parties hereto concerning
the meaning or interpretation of any provision of this Agreement, then the
defaulting party or the party not prevailing in such dispute, as the case may
be, shall pay any and all costs and expenses incurred by the other parties on
account of such default and/or in enforcing or establishing its rights
hereunder, including, without limitation, court costs and reasonable
attorneys' fees and disbursements. Any such attorneys' fees and other expenses
incurred by any party in
2
<PAGE>
enforcing a judgment in its favor under this Agreement shall be recoverable
separately from and in addition to any other amount included in such judgment,
and such attorneys' fees obligation is intended to be severable from the other
provisions of this Agreement and to survive and not be merged into any such
judgment.
6.5 This Agreement may be executed in any number of counterparts,
provided each of the parties hereto executes at least one counterpart hereof
shall be deemed to be an original instrument, but all such counterparts
together shall constitute but one agreement. The parties agree that the
delivery of an executed copy of this Agreement by facsimile shall be legal and
binding and shall have the same full force and effect as if an original of
this Agreement had been delivered. Facsimile signatures shall be binding upon
the parties.
6.6 Tenant, Subtenant and Sub-Subtenant covenant and agree that under
no circumstances shall Landlord be liable for any brokerage commission or
other charge or expense in connection with the Sub-Sublease or this Agreement
and Tenant, Subtenant and Sub-Subtenant agree to protect, defend, indemnify
and hold Landlord harmless from the same and from any cost or expense
(including but not limited to attorneys' fees) incurred by Landlord in
resisting any claim for any such brokerage commission.
6.7 The terms and provisions of this Agreement shall be construed in
accordance with and governed by the laws of the State of California.
6.8 Tenant, Subtenant and Sub-Subtenant agree that the liability of
Landlord hereunder and any recourse by Tenant, Subtenant or Sub-Subtenant
against Landlord shall be subject to the limitations on liability set forth in
the Master Lease. In addition, neither Landlord, nor any of its constituent
members, partners, subpartners, or agents, shall have any personal liability
to Tenant, Subtenant and/or Sub-Subtenant.
IN WITNESS WHEREOF, Landlord, Tenant, Subtenant and Sub-Subtenant have
executed this Agreement as of the day and year first hereinabove written.
LANDLORD:
Sequoia M&M LLC, a California limited liability company
By: JP DiNapoli Companies Inc.,
a California corporation
By: /s/ JP DiNapoli
------------------------------------------
JP DiNapoli, President
Laurel Osgood LLC,
a California limited liability company
By: /s/ J. Philip DiNapoli
----------------------------------------------
J. Philip DiNapoli, Manager
3
<PAGE>
Landlord's Address for Notices:
c/o The DiNapoli Companies
99 Almaden Boulevard, Suite 565
San Jose, California, 95113
TENANT:
Cisco Systems, Inc.
a California corporation
By: /s/ Ellen Jameson
------------------------------------
Ellen Jameson
Director
Worldwide Real Estate
SUBTENANT:
Cadence Design Systems, Inc.
a Delaware corporation
By: /s/ John Lucus
------------------------------------
Its:
--------------------------------
By:
------------------------------------
Its:
--------------------------------
SUB-SUBTENANT:
eGain Communication Corporation, a
Delaware Corporation
By: /s/ Eric Smit
------------------------------------
Its: VP Finance
--------------------------------
By:
------------------------------------
Its:
--------------------------------
4
<PAGE>
EXHIBIT 10.11
PROMISSORY NOTE
$159,975.00 Stanford, California
Dated as of August 6, 1999
FOR VALUE RECEIVED, the undersigned, A. MICHAEL SPENCE, promises to pay to
the order of eGain Communications Corporation, a Delaware corporation (the
"Company"), the principal sum of One Hundred Fifty-Nine Thousand Nine Hundred
Seventy-Five Dollars ($159,975.00). This note shall not bear interest. The
entire unpaid principal balance of this note shall be payable on the earlier of
(i) five (5) years from the date hereof or (ii) ninety (90) days following the
termination of the undersigned's Service to the Company.
If payment is not made when due, and if action is instituted on this note,
the undersigned agrees to pay the Company reasonable attorneys' fees and costs
of suit, as fixed by court.
The undersigned shall have the right to prepay all or any part of the
unpaid principal amount of this note, without premium, at any time prior to the
maturity hereof on ten (10) days' prior written notice.
This note is a full-recourse note originally secured by a pledge of Common
Stock of the Company pursuant to a Security Agreement of even date herewith,
which is on file with the Secretary of the Company.
This note shall be governed by and construed in accordance with the laws of
the State of California.
IN WITNESS WHEREOF, the undersigned has signed, dated and delivered this
note as of the date and year first above written.
/s/ A. Michael Spence
--------------------------------
A. Michael Spence
<PAGE>
SECURITY AGREEMENT
THIS SECURITY AGREEMENT, entered into as of August 6, 1999, between eGAIN
-----
COMMUNICATIONS CORPORATION, a Delaware corporation (the "Company"), and A.
- --------------------------
MICHAEL SPENCE (the "Purchaser"),
W I T N E S S E T H:
WHEREAS, the Purchaser has purchased from the Company 25,000 shares of the
Company's Common Stock; and
WHEREAS, the Company has loaned to the Purchaser the sum of $159,975.00
which the Purchaser has used to pay the purchase price of the Common Stock; and
WHEREAS, the Purchaser has executed and delivered to the Company a
full-recourse promissory note evidencing such loan (the "Note") and has agreed
to pledge all of the Common Stock to the Company as security for the payment of
the Note:
NOW, THEREFORE, it is agreed as follows:
1. The Purchaser hereby delivers to the Company one or more certificates
representing the Common Stock, together with an Assignment Separate From
Certificate signed by the Purchaser. The Purchaser hereby pledges and grants a
security interest in the Common Stock, including any shares into which the
Common Stock may be converted and all proceeds of the Common Stock, as security
for the timely payment of all of the Purchaser's obligations under the Note and
for the Purchaser's performance of all of its obligations under this Agreement.
In the event of a default in payment of the Note, the Purchaser hereby appoints
the Company as his true and lawful attorney to take such action as may be
necessary or appropriate to cause the Common Stock to be transferred into the
name of the Company or any assignee of the Company and to take any other action
on behalf of the Purchaser permitted hereunder or under applicable law.
2. The Company agrees to hold the Common Stock as security for the timely
payment of all of the Purchaser's obligations under the Note and for the
Purchaser's performance of all of its obligations under this Agreement, as
provided herein. At no time shall the Company dispose of or encumber the Common
Stock, except as otherwise provided in this Agreement.
3. At all times while the Company is holding the Common Stock as security
under this Agreement, the Company shall:
(a) Collect any dividends that may be declared on the Common Stock
and credit such dividends against any unpaid principal under the Note, as
part payment;
-1-
<PAGE>
(b) Collect and hold any shares that may be issued upon
conversion of the Common Stock; and
(c) Collect and hold any other securities or other property that may
be distributed with respect to the Common Stock.
Such shares and other securities or property shall be subject to the security
interest granted in Section 1 of this Agreement and shall be held by the Company
under this Agreement.
4. While the Company holds the Common Stock as security under this
Agreement, the Purchaser shall have the right to vote the Common Stock at all
meetings of the Company's shareholders; provided that the Purchaser is not in
default in the performance of any term of this Agreement or in any payment due
under the Note. In the event of such a default, the Company shall have the right
to the extent permitted by law to vote and to give consents, ratifications and
waivers and take any other action with respect to the Common Stock with the same
force and effect as if the Company were the absolute and sole owner of the
Common Stock.
5. Upon payment in full of the outstanding principal balance of the Note
and all other charges due under the Note, the Company shall release from pledge
and redeliver to the Purchaser the certificate(s) representing the Common Stock
and the Assignment Separate From Certificate forms.
6. In the event that the Purchaser fails to perform any term of this
Agreement or fails to make any payment when due under the Note, the Company
shall have all of the rights and remedies of a creditor and secured party at law
and in equity, including (without limitation) the rights and remedies provided
under the California Uniform Commercial Code. Without limiting the foregoing,
the Company may, after giving ten (10) days' prior written notice to the
Purchaser by certified mail at his residence or business address, sell any or
all of the Common Stock in such manner and for such price as the Company may
determine, including (without limitation) through a public or private sale or at
any broker's board or on any securities exchange, for cash, upon credit or for
future delivery. The Company is authorized at any such sale, if it deems it
advisable to do so, to restrict the prospective bidders or purchasers of any of
the Common Stock to persons who will represent and agree that they are
purchasing for their own account for investment, and not with a view to the
distribution or sale of any of the Common Stock, to restrict the prospective
bidders or purchasers and the use any purchaser may make of the Common Stock and
impose any other restriction or condition that the Company deems necessary or
advisable under the federal and state securities laws. Upon any such sale the
Company shall have the right to deliver, assign and transfer to the purchaser
thereof the Common Stock so sold. Each purchaser at any such sale shall hold the
Common Stock so sold absolute, free from any claim or right of any kind. In case
of any sale of any or all of the Common Stock on credit or for future delivery,
the Common Stock so sold may be retained by the Company until the selling price
is paid by the purchaser thereof, but the Company shall not incur any liability
in case of the failure of such purchaser to take up and pay for the Common Stock
so sold and, in case of any such failure, such Common Stock may again be sold
under the terms of this section. The Purchaser hereby agrees that any
disposition of any or all of the Common Stock by way of a private placement or
other method which in the opinion of the
-2-
<PAGE>
Company is required or advisable under Federal and state securities laws is
commercially reasonable. At any public sale, the Company may (if it is the
highest bidder) purchase all or any part of the Common Stock at such price as
the Company deems proper. Out of the proceeds of any sale, the Company may
retain an amount sufficient to pay all amounts then due under the Note, together
with the expenses of the sale and reasonable attorneys' fees. The Company shall
pay the balance of such proceeds, if any, to the Purchaser. The Purchaser shall
be liable for any deficiency that remains after the Company has exercised its
rights under this Agreement.
7. This Agreement shall be governed by and construed in accordance with the
laws of the State of California. This Agreement shall inure to the benefit of,
and be binding upon, the Company and its successors and assigns and be binding
upon the purchaser and the Purchaser's legal representative, heirs, legatees,
distributees, assigns and transferees by operation of law. This Agreement
contains the entire security agreement between the Company and the Purchaser.
The Purchaser will execute any additional agreements, assignments or documents
or take any other actions reasonably required by the Company to preserve and
perfect the security interest in the Common Stock granted to the Company herein
and otherwise to effectuate this Agreement.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed on
its behalf by its duly authorized officer, and the Purchaser has personally
executed this Agreement.
eGAIN COMMUNICATIONS CORPORATION
By /s/ Ashutosh Roy
----------------------------------
Chief Executive Officer
Title _______________________________
/s/ A. Michael Spence
----------------------------------
A. Michael Spence
-3-
<PAGE>
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Agreement dated as of
August 6, 1999, the undersigned hereby sells, assigns and transfers unto
______________________________ (__________) shares of the Common Stock of eGain
Communications Corporation, a Delaware corporation, standing in the
undersigned's name on the books of said corporation represented by certificate
No. ____ herewith, and does hereby irrevocably constitute and appoint attorney-
in-fact to transfer the said stock on the books of the said corporation with
full power of substitution in the premises.
Dated: __________, 19__.
A. MICHAEL SPENCE
__________________________________
Signature
Spousal Consent (if applicable)
-------------------------------
___________________ (Purchaser's spouse) indicates by the execution of this
Assignment his or her consent to be bound by the terms herein as to his or her
interests, whether as community property or otherwise, if any, in the Shares.
__________________________________
Signature
INSTRUCTIONS: PLEASE DO NOT FILL IN ANY BLANKS OTHER THAN THE SIGNATURE
------------
LINE. THE PURPOSE OF THIS ASSIGNMENT IS TO ENABLE THE COMPANY TO EXERCISE
ITS "REPURCHASE OPTION" SET FORTH IN THE STOCK PURCHASE AGREEMENT WITHOUT
REQUIRING ADDITIONAL SIGNATURES ON THE PART OF PURCHASER.
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the caption "Experts" and to
the use of our reports pertaining to eGain Communications Corporation dated
July 16, 1999 and pertaining to Sitebridge Corporation dated July 16, 1999
included in Amendment No. 1 to the Registration Statement (Form S-1) and
related Prospectus of eGain Communications Corporation for the registration of
its common stock.
/s/ Ernst & Young LLP
Palo Alto, California
August 27, 1999
<PAGE>
Exhibit 99.1
August 26, 1999
Jupiter Communications
Dear eGain Communications Corporation:
Per our discussion, you have approval of Jupiter Communications to use the
following information as stated below (in bold).
From the eGain Communications Corporation Registration Statement on Form S-1,
sections entitled "Summary" and "Business--Industry Background";
"However, according to a recent Jupiter Communications study of 125 top
eCommerce sites, 42% of the sites either refused to accept an email, never
responded to an email, or took longer than five days to respond."
"According to a recent survey by Jupiter Communications of 125 top eCommerce
sites, 42% of the sites either refused to accept an email message, never
responded to the message or took longer than five days to respond."
Sincerely,
/s/ Isabel Marsh
-----------------------
(name) Isabel Marsh
(title) Director of Client Services
Jupiter Communications
<PAGE>
EXHIBIT 99.2
August 30, 1999
International Data Corporation
Dear eGain Communications Corporation:
Per our discussion, you have approval of International Data Corporation to use
the following information as stated below (in bold).
From the eGain Communications Corporation Registration Statement on Form S-1,
sections entitled "Summary" and "Business - Industry Background":
"International Data Corporation estimates that worldwide license revenues for
eCommerce customer service and support applications will grow from $42 million
in 1998 to $1.6 billion in 2002."
"International Data Corporation, or IDC, estimates that the number of customers
buying goods and services over the Internet worldwide will grow from
approximately 30 million in 1998 to 133 million in 2002, and that the total
value of goods and services purchased over the Internet will increase from
approximately $50 billion in 1998 to over $734 billion by 2002."
"IDC estimates that worldwide license revenues for eCommerce customer service
and support applications will grow from $42 million in 1998 to $1.6 billion in
2002."
Sincerely,
/s/ Alexa McCloughan
-----------------------------
International Data Corporation
