<PAGE>
As filed with the Securities and Exchange Commission on May 15, 2000
Registration No. 333-34848
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
AMENDMENT NO. 1
TO
FORM S-4
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 of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
455 W. Maude Avenue, Sunnyvale, California 94086, (408) 212-3400
(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
Telephone: (408) 212-3400
(Name, address, including ZIP code, and telephone number, including area code,
of agent for service)
Copies to:
<TABLE>
<S> <C> <C>
STANLEY F. PIERSON, ESQ. ASHUTOSH ROY THOMAS C. DEFILIPPS, ESQ.
BRADLEY D. KOHN, ESQ. Chief Executive Officer ALISANDE M. ROZYNKO, ESQ.
JEFFREY S. HARRELL, ESQ. eGain Communications Corporation TED S. HOLLIFIELD, ESQ.
LAURA BUHL, ESQ. 455 W. Maude Avenue DAVID P. JEDRZEJEK, ESQ.
Pillsbury Madison & Sutro LLP Sunnyvale, California 94086 Wilson Sonsini Goodrich & Rosati
2550 Hanover Street Telephone: (408) 212-3400 Professional Corporation
Palo Alto, California 94304 Facsimile: (408) 212-3500 650 Page Mill Road
Telephone: (650) 233-4500 Palo Alto, California 94304
Facsimile: (650) 233-4545 Telephone: (650) 493-9300
Facsimile: (650) 493-6811
</TABLE>
--------------
Approximate date of commencement of proposed sale to the public: Upon
consummation of the merger described herein.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement 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. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
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- -------------------------------------------------------------------------------------------------
<CAPTION>
Proposed Maximum
Title of Each Class of Amount to be Aggregate Offering Amount of
Securities To Be Registered Registered Price Registration Fee
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common stock, par value $0.001 per share....... 4,516,817(1) $56,226,818.88(2) $14,844(3)
- -------------------------------------------------------------------------------------------------
</TABLE>
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(1) Represents the maximum number of shares of Registrant common stock
issuable to holders of (a) Class A common stock, $0.01 per share, and (b)
Class B common stock, $0.01 per share, of Inference Corporation pursuant
to an Agreement and Plan of Merger, dated as of March 16, 2000, between
Inference and the Registrant. The number of shares of Registrant common
stock to be registered is based on the number of shares of Inference
common stock the Registrant estimates will be issued and outstanding as of
the closing date of the merger, and assumes 7,889,477 shares of Inference
common stock outstanding and 597,590 vested options to purchase Inference
common stock on the record date, May 5, 2000, at an average share price of
$17.00 (the closing price of eGain common stock on May 11, 2000) and an
exchange ratio of 0.5322.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(1) of the Securities Act, based on the average of
the high and low prices of Inference Class A common stock on May 10, 2000
on Nasdaq, which was $6.625.
(3) A filing fee of $12,732 was previously paid by the Registrant with the
initial filing on this Form S-4 (File No. 333-34848). This fee is being
credited against the registration fee, and accordingly, $2,112 is being
paid in connection with this filing of the registration statement.
--------------
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, as amended, 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>
INFERENCE CORPORATION
100 Rowland Way
Novato, CA 98945
(415) 893-7200
May 22, 2000
Dear Inference Corporation Stockholders:
I am writing to you today to seek your approval for our proposed merger with
eGain Communications Corporation.
In the merger, each share of Inference common stock will be exchanged for a
number of shares of eGain common stock based on an exchange ratio that is
calculated based on the closing price of eGain's common stock for the 20
consecutive trading days ending on the third trading day prior to the closing
date of the merger.
You will be asked to vote upon the merger agreement at a special meeting of
Inference stockholders to be held on June 26, 2000 at 10:00 a.m., local time,
at Hyatt Regency San Francisco Airport, 1333 Bayshore Hwy., Burlingame, CA
94010, (650) 347-1234. For the merger to be approved, the holders of a majority
of the outstanding shares of Inference common stock must adopt the merger
agreement. Only stockholders who hold shares of Inference common stock at the
close of business on May 5, 2000 will be entitled to vote at the special
meeting.
The board of directors of Inference, on March 15, 2000, unanimously approved
the merger agreement and unanimously recommends that you approve and adopt the
merger agreement.
We are excited by the opportunities we envision for the combined company.
The accompanying proxy statement/prospectus provides detailed information about
eGain and the merger. Please give all of this information your careful
attention. In particular, you should carefully consider the discussion in the
section entitled "Risk Factors" on page 8 of the proxy statement/prospectus.
The merger cannot be completed unless the stockholders of Inference approve
the merger agreement. Your vote is very important regardless of the number of
shares you own. To approve the merger agreement, you MUST vote "FOR" the
proposal by following the instructions stated on the enclosed proxy card. If
you do not vote at all, it will, in effect, count as a vote against the merger.
We urge you to vote FOR this proposal.
Sincerely,
/s/ Charles W. Jepson
_____________________________________
Charles W. Jepson
President and Chief Executive
Officer
<PAGE>
[INFERENCE LOGO]
Inference Corporation
100 Rowland Way
Novato, CA 94945
----------------
Notice of Special Meeting of Stockholdersto be held on June 26, 2000
----------------
TO THE STOCKHOLDERS OF INFERENCE CORPORATION:
Notice is hereby given that a special meeting of stockholders of Inference
will be held on June 26, 2000 at 10:00 a.m., local time, at the Hyatt Regency
San Francisco Airport, 1333 Bayshore Hwy., Burlingame, CA 94010, (650) 347-
1234, to consider and vote upon the following proposals:
1. To approve and adopt the Agreement and Plan of Merger dated as of March
16, 2000 among Inference, eGain Communications Corporation and Intrepid
Acquisition Corp., a wholly owned subsidiary of eGain, and to approve the
merger of eGain and Inference. After the merger, Inference will be a wholly
owned subsidiary of eGain. A copy of this Agreement and Plan of Merger, which
is referred to as the merger agreement, is attached as Appendix A to the proxy
statement/prospectus accompanying this notice.
2. To transact such other business as may properly come before the meeting,
including any motion to adjourn to a later time to permit further solicitation
of proxies if necessary to establish a quorum or to obtain additional votes in
favor of the proposal, or before any adjournments or postponements thereof.
The merger agreement, the proposed merger and other related matters are more
fully described in the attached proxy statement/prospectus. Stockholders of
record at the close of business on May 5, 2000 are entitled to notice of, and
to vote at, the meeting and any adjournments or postponements thereof. All
Inference stockholders are cordially invited to attend the meeting in person.
Whether or not you expect to attend, we urge you to sign and date the enclosed
proxy card and return it promptly in the envelope provided.
By Order of the Board of Directors,
/s/ Charles W. Jepson
Charles W. Jepson
President and Chief Executive
Officer
Novato, California
May 22, 2000
To ensure that your shares are represented at the Inference meeting, please
complete, date and sign the enclosed proxy and mail it promptly in the postage-
paid envelope provided, whether or not you plan to attend the Inference
meeting. You can revoke your proxy at any time before it is voted.
The Inference board of directors recommends that you vote in favor of the
proposal to approve the merger.
<PAGE>
PROXY STATEMENT OF
INFERENCE CORPORATION
----------------
PROSPECTUS OF eGAIN COMMUNICATIONS CORPORATION
----------------
The board of directors of Inference has unanimously approved and recommends
to you the merger of eGain and Inference. After the merger, Inference will
operate as a wholly owned subsidiary of eGain.
In the merger, if the average share price of eGain common stock in the
applicable measurement period before the closing of the merger is between
$48.516 and $59.297, eGain will issue to Inference stockholders 0.1865 of a
share of eGain common stock for each share of Inference common stock held by
them, subject to adjustment as set forth below. If the average share price of
eGain common stock in the applicable measurement period is less than $48.516,
the exchange ratio will be increased based on a formula that takes into account
the average share price of eGain common stock. Similarly, if the average share
price of eGain common stock in the applicable measurement period is greater
than $59.297, the exchange ratio will be decreased based on a comparable
formula.
A special meeting is scheduled for the Inference stockholders to vote on the
matters described in this proxy statement/prospectus. Stockholders of Inference
are being asked to approve the merger. You may vote at the special meeting if
you own shares as of the record date, which is the close of business on May 5,
2000. The date, time and place of the special meeting is set forth in the
accompanying notice. YOUR VOTE IS VERY IMPORTANT.
eGain common stock trades on the Nasdaq National Market, which is referred
to as Nasdaq, under the ticker symbol "EGAN." Inference common stock trades on
Nasdaq under the ticker symbol "INFR."
We strongly urge you to read and consider carefully this proxy
statement/prospectus in its entirety, including the matters referred to under
"Risk Factors," beginning on page 8.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the securities to be issued under
this proxy statement/prospectus or passed upon the adequacy or accuracy of
this proxy statement/prospectus. Any representation to the contrary is a
criminal offense.
This proxy statement/prospectus is dated May 22, 2000 and is first being
mailed to Inference stockholders on or about May 22, 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER.................................... 1
SUMMARY................................................................... 3
RISK FACTORS.............................................................. 8
Risks Related to the Merger............................................. 8
Risks Related to the Business and Operations of the Combined Company.... 12
Risks Related to the Industry of the Combined Company................... 19
FORWARD-LOOKING STATEMENTS................................................ 22
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA.......................... 23
eGain's Selected Historical Financial Data.............................. 24
Inference's Selected Historical Financial Data.......................... 25
Selected Unaudited Pro Forma Condensed Combined Financial Data.......... 26
COMPARATIVE PER SHARE DATA................................................ 27
INFERENCE SPECIAL MEETING................................................. 28
When and where will the meeting be held?................................ 28
What will be voted upon?................................................ 28
Which stockholders may vote?............................................ 28
How do Inference stockholders vote?..................................... 28
How do I change my vote?................................................ 29
Vote required to approve the merger..................................... 29
Quorum; abstentions; broker non-votes................................... 29
Solicitation of proxies and expenses of solicitation.................... 30
INFORMATION ABOUT eGAIN................................................... 31
Overview of eGain....................................................... 31
Industry Background..................................................... 31
The eGain Solution...................................................... 32
The eGain Strategy...................................................... 33
Products and Services................................................... 33
eGain Hosted Network.................................................... 34
Professional Services................................................... 35
Sales and Marketing..................................................... 35
Strategic Relationships................................................. 36
Customers............................................................... 37
Competition............................................................. 37
Product Development..................................................... 38
Technology.............................................................. 38
Intellectual Property................................................... 38
Employees............................................................... 39
Legal Proceedings....................................................... 39
Facilities.............................................................. 39
MANAGEMENT................................................................ 40
Directors, Executive Officers and Key Employees......................... 40
Board Committees........................................................ 42
Director Compensation................................................... 42
Executive Compensation.................................................. 43
eGain Option Grants in Last Fiscal Year................................. 44
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End
Option Values.......................................................... 44
Compensation Committee Interlocks and Insider Participation............. 45
1998 Stock Plan......................................................... 45
</TABLE>
i
<PAGE>
TABLE OF CONTENTS--(Continued)
<TABLE>
<S> <C>
Sitebridge 1997 Stock Plan.............................................. 45
Big Science Stock Plan.................................................. 45
1999 Employee Stock Purchase Plan....................................... 46
401(k) Plan............................................................. 46
Employment Agreements and Change in Control Arrangements................ 46
Limitation of Liability and Indemnification Matters..................... 46
CERTAIN TRANSACTIONS...................................................... 48
Transactions with Management and Others................................. 48
Business Relationships.................................................. 48
DESCRIPTION OF eGAIN CAPITAL STOCK........................................ 49
Common Stock............................................................ 49
Preferred Stock......................................................... 49
Warrants................................................................ 49
Registration Rights..................................................... 50
Delaware Anti-Takeover Law and Certain Charter Provisions............... 50
Transfer Agent and Registrar............................................ 51
Listing................................................................. 51
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF eGAIN...................................................... 52
Overview................................................................ 52
Goodwill and Other Non-Cash Charges..................................... 53
Results of Operations................................................... 53
Net Revenue............................................................. 53
Cost of Revenue......................................................... 54
Research and Development Expenses....................................... 54
Sales and Marketing Expenses............................................ 54
General and Administrative Expenses..................................... 54
Amortization of Goodwill................................................ 54
Non-Operating Income (Expense), Net..................................... 55
Liquidity and Capital Resources......................................... 55
THE MERGER AND RELATED TRANSACTIONS....................................... 56
General................................................................. 56
Effective Time of the Merger............................................ 56
Conversion of Inference Securities...................................... 56
Background of the Merger................................................ 58
Inference Board of Directors and Inference's Reasons for the Merger..... 61
Inference Board of Directors Recommendations............................ 63
Opinion of Inference's Financial Advisor................................ 63
Interests of some of Inference's Executive Officers and Directors in the
Merger................................................................. 68
Listing on the Nasdaq National Market of eGain Common Stock to be Issued
in the Merger.......................................................... 68
Regulatory Filings and Approvals Required to Complete the Merger........ 69
No Dissenters' Rights................................................... 69
Accounting Treatment.................................................... 69
</TABLE>
ii
<PAGE>
TABLE OF CONTENTS--(Continued)
<TABLE>
<S> <C>
CERTAIN PROVISIONS OF THE MERGER AGREEMENT................................ 70
Representations and Warranties.......................................... 70
eGain's Representations and Warranties.................................. 70
Inference's Representations and Warranties.............................. 70
eGain's Conduct of Business Before Completion of the Merger............. 71
Inference's Conduct of Business Before Completion of the Merger......... 72
Indemnification and Insurance........................................... 73
No Other Negotiations Involving Inference............................... 73
Certain Corporate Governance Matters.................................... 74
Treatment of Inference Stock Options.................................... 74
Conditions to Completion of the Merger.................................. 74
Termination of the Merger Agreement..................................... 76
Payment of Termination Fee.............................................. 77
Waiver and Amendment of the Merger Agreement............................ 77
RELATED AGREEMENTS........................................................ 78
COMPARATIVE PER SHARE MARKET PRICE DATA................................... 78
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION--eGAIN AND
INFERENCE................................................................ 80
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION--
eGAIN AND INFERENCE...................................................... 84
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION--eGAIN AND
BIG SCIENCE COMPANY...................................................... 86
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION--
eGAIN AND BIG SCIENCE COMPANY............................................ 89
COMPARISON OF STOCKHOLDER RIGHTS.......................................... 91
SHARE OWNERSHIP BY PRINCIPAL STOCKHOLDERS, MANAGEMENT AND DIRECTORS OF
eGAIN.................................................................... 94
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER....... 96
STOCKHOLDER PROPOSALS..................................................... 97
OTHER MATTERS............................................................. 97
LEGAL MATTERS............................................................. 97
EXPERTS................................................................... 98
DOCUMENTS INCORPORATED BY REFERENCE....................................... 98
WHERE YOU CAN FIND MORE INFORMATION....................................... 99
INDEX TO FINANCIAL STATEMENTS............................................. F-1
Appendix A Agreement and Plan of Merger, dated as of March 16, 2000
Appendix B Opinion of Inference's Financial Advisor
</TABLE>
iii
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: When do you expect the merger to be completed?
A: We are working to complete the merger as quickly as possible. We hope to
complete the merger by the end of June 2000. Because the merger is subject to
various conditions, however, we cannot predict the exact timing of the closing
of the merger.
Q: As an Inference stockholder, what will I receive in the merger?
A: It depends on the price of eGain common stock during the time shortly before
the closing of the merger. If the average share price of eGain common stock in
the applicable measurement period before the closing of the merger is between
$48.516 and $59.297, each share of Inference common stock you own will be
exchanged for 0.1865 shares of eGain common stock. For example, if you own
10,000 shares of Inference common stock, you will receive 1,865 shares of eGain
common stock. You will receive only whole shares of eGain common stock. You
will receive cash for any fractional shares.
Q: What if the average share price of eGain common stock during the measurement
period is not between $48.516 and $59.297?
A: If the average share price of eGain common stock in the applicable
measurement period before the closing of the merger is less than $48.516, then
the exchange ratio of 0.1865 will be recalculated to equal (0.1865 x
$48.516)/the average share price. For example, if the average share price in
the applicable measurement period is $20.00, then the new exchange ratio will
be equal to 0.4524 calculated as (0.1865 x $48.516)/$20.00. Similarly, if the
average share price of eGain common stock in the applicable measurement period
before the closing of the merger is greater than $59.297, then the exchange
ratio of 0.1865 will be recalculated to equal (0.1865 x $59.297)/the average
share price. For example, if the average share price in the applicable
measurement period is $65.00, then the new exchange ratio will be equal to
0.1701 calculated as (0.1865 x $59.297)/$65.00.
Q: What is the measurement period used to calculate the average share price
that will be used to calculate the final exchange ratio?
A: The measurement period used to calculate the average share price for use in
the exchange ratio formulas is the 20 consecutive trading days ending on the
third trading day prior to the closing date of the merger. The share price for
each trading day will be the closing price of eGain common stock on the Nasdaq
National Market for that day.
Q: If I am not going to attend the Inference stockholder meeting, should I
return my proxy card instead?
A: Yes. Please fill out and sign your proxy card and return it in the enclosed
envelope as soon as possible. Returning your proxy card ensures that your
shares will be represented at the Inference special meeting.
Q: If my shares of stock are held in "street name" by my broker, will my broker
vote my shares for me?
A: Your broker will only vote your shares if you provide instructions on how to
vote. Without instructions, your shares will not be voted. You should instruct
your broker to vote your shares by following the directions provided by your
broker. If you do not instruct your broker to vote your shares, this will have
the effect of a vote against the merger.
1
<PAGE>
Q: What do I do if I want to change my vote?
A: Send in a later-dated, signed proxy card to Inference's company secretary
before the special meeting or attend the special meeting and vote in person.
Q: Should I send in my stock certificates now?
A: No. After the merger is completed, eGain will send Inference stockholders a
letter of transmittal and written instructions for exchanging their stock
certificates. Inference stockholders should not surrender their Inference stock
certificates until after the merger and until they receive the letter of
transmittal. eGain stockholders should keep their current certificates.
Q: Will the merger be tax-free to me?
A: The merger is intended to qualify as a tax-free reorganization for federal
income tax purposes. In general, Inference stockholders will not recognize gain
or loss on the exchange of their Inference stock for eGain stock, but gain or
loss will be recognized on the receipt of cash in lieu of a fractional share of
eGain stock.
Q: Are there risks I should consider in deciding whether to vote for the
merger?
A: Yes. For example, the number of shares of eGain common stock that Inference
stockholders will receive may change if the market price of eGain common stock
increases or decreases outside of the ranges discussed above before completion
of the merger. WE URGE YOU TO OBTAIN CURRENT MARKET QUOTATIONS OF eGAIN COMMON
STOCK AND INFERENCE COMMON STOCK.
In evaluating the merger, you should carefully consider these and other
factors discussed in the section entitled "Risk Factors" on page 8.
Q: Am I entitled to dissenters' or appraisal rights?
A: Under Delaware law, holders of Inference common stock are not entitled to
dissenters' or appraisal rights in the merger. For more information regarding
dissenters' or appraisal rights under Delaware law, see Section 262 of the
Delaware General Corporation Law.
Q: Who can answer my questions?
A: If you have more questions about the merger, you should contact Investor
Relations, Inference Corporation, 100 Rowland Way, Novato, California 94945,
(415) 893-7200.
2
<PAGE>
SUMMARY
This summary highlights selected information from this document and may not
contain all of the information that is important to you. To understand the
proposed merger fully and for a more complete description of the terms of the
proposed merger, you should carefully read this entire document and the other
documents we have referred you to. See "Where You Can Find More Information"
(page 99). The merger agreement is attached as Appendix A to this document. We
encourage you to read the merger agreement. It is the legal document that
governs the proposed merger.
The Companies
eGain Communications Corporation
455 W. Maude Avenue
Sunnyvale, California 94086
(408) 212-3400
eGain is a leading provider of intelligent customer communications solutions
for companies engaged in ecommerce. eGain's products and services help
businesses deliver a superior customer experience and establish more
profitable, lasting customer relationships. eGain offers licensed and hosted
applications for email management, interactive Web, intelligent self-help
agents and proactive online marketing. eGain's software solutions are built
using a Web-native architecture, thereby providing scalability, global access,
diverse integration and rapid deployment. Over 60% of eGain's current customers
access its applications through the eGain Hosted Network. eGain's customers
include both dedicated Internet companies, such as AOL, CNBC.com and
Monster.com, and traditional companies engaged in ecommerce, such as Mazda USA,
3Com and Home Depot.
Inference Corporation
100 Rowland Way
Novato, CA 94945
(415) 893-7200
Inference develops, markets and supports personalized, one-to-one sales,
service and support solutions over the Web for self-service and for agent-
assisted customer contact centers to improve customer relationships. Inference
offers a complete line of consulting, support and training services from
offices throughout the U.S. and Europe. Inference's e-service and support
product, k-Commerce Support Enterprise, provides conversation-driven searching
of both structured knowledge and unstructured information for solving customer
queries. Inference's k-Commerce Sales e-merchandising software helps e-tailers
know their Web visitors, anticipate their needs and target offers to turn
lookers into buyers.
For more information on Inference, see "Where You Can Find More Information"
on page 99.
Summary of the transaction
The transaction
In the merger, Inference and a wholly owned subsidiary of eGain will merge,
and as a result Inference will become a wholly owned subsidiary of eGain.
The merger agreement is attached to this proxy statement/prospectus as
Appendix A. We encourage you to read the merger agreement carefully. The merger
agreement is more fully discussed beginning on page 71.
3
<PAGE>
Exchange ratio calculation
The exchange ratio of 0.1865 shares of eGain common stock for each share of
Inference common stock may change in limited circumstances. The final exchange
ratio will depend on the price of eGain common stock during the time shortly
before the closing of the merger. If the average share price of eGain common
stock in the applicable measurement period before the closing of the merger is
between $48.516 and $59.297, each share of Inference common stock you own will
be exchanged for 0.1865 shares of eGain common stock. If the average share
price of eGain common stock in the applicable measurement period before the
closing of the merger is less than $48.516, then the exchange ratio of 0.1865
will be recalculated to equal (0.1865 x $48.516)/the average share price.
Similarly, if the average share price of eGain common stock in the applicable
measurement period before the closing of the merger is greater than $59.297,
then the exchange ratio of 0.1865 will be recalculated to equal (0.1865 x
$59.297)/the average share price.
Accordingly, if the average share price of eGain common stock during the
applicable measurement period is between $48.516 and $59.297, each share of
Inference common stock will be exchanged for 0.1865 shares of eGain common
stock. For illustration purposes only, if the average share price in the
applicable measurement period is $20.00, then the new exchange ratio will be
equal to 0.4524, and if the average share price in the applicable measurement
period is $65.00, then the new exchange ratio will be equal to 0.1701. The
applicable measurement period is the 20 consecutive trading days ending on the
third trading day prior to the closing date of the merger. The average share
price for each trading day will be the closing price of eGain common stock on
the Nasdaq National Market for that day.
Reasons for the merger (see page 61)
Inference's board believes that the potential benefits of the merger will
contribute to the success of the combined company compared to Inference
continuing to operate as an independent business. The Inference board believes
that the combined company provides the following: combined products that could
provide a platform for linking business-to-consumer and business-to-business
functions; increased distribution channels for Inference's products and
services; the opportunity for expanded research and development of the combined
product offerings, including potential new product offerings; a critical mass
of talented and highly skilled employees; and a common stock that is a more
valuable currency to finance future acquisitions at a less dilutive price than
Inference could do with its stock alone.
Inference stockholder meeting (see page 28)
The Inference meeting will be held at the Hyatt Regency San Francisco
Airport, 1333 Bayshore Hwy., Burlingame, CA 94010, (650) 347-1234 on June 26,
2000 at 10:00 a.m., local time. At the meeting, Inference will ask its
stockholders to approve the merger agreement and the merger.
Inference stockholders may also consider and vote upon other matters
properly brought before the Inference meeting.
Record date
At the close of business on the record date, May 5, 2000, 7,889,477 shares
of Inference common stock were outstanding and entitled to vote at the
Inference meeting. You will have one vote at the Inference meeting for each
share of Inference common stock you owned as of the record date.
Vote required to approve the merger (see page 29)
The approval of the proposal to approve the merger requires the affirmative
vote of a majority of the outstanding shares of Inference common stock.
4
<PAGE>
Recommendation to Inference stockholders (see page 64)
The Inference board of directors has unanimously approved the merger
agreement and the merger and has determined that the terms of the merger
agreement are fair to, and that the merger is in the best interests of, both
you and Inference. After careful consideration, the Inference board of
directors recommends that you vote for approval of the merger agreement and the
merger.
Where you can find a more detailed description of the merger agreement
For a more detailed description of the terms of the merger agreement, see
pages 70 to 77. A copy of the signed merger agreement is attached as Appendix
A.
What holders of Inference securities will receive in connection with the merger
(see pages 56-57)
Holders of Inference common stock. If the average share price of eGain
common stock in the applicable measurement period before the closing of the
merger is between $48.516 and $59.297, eGain will issue to Inference
stockholders 0.1865 of a share of eGain common stock for each share of
Inference common stock held by them, subject to adjustment as set forth below.
If the average share price of eGain common stock in the applicable measurement
period is less than $48.516, the exchange ratio will be increased based on a
formula that takes into account the average share price of eGain common stock.
Similarly, if the average share price of eGain common stock in the applicable
measurement period is greater than $59.297, the exchange ratio will be
decreased based on a comparable formula.
Holders of Inference options. Options to purchase shares of Inference common
stock issued under Inference's option plans, whether vested or not vested, will
convert into options to purchase the number (rounded down to the nearest whole
number) of shares of eGain common stock determined by multiplying the number of
shares of Inference common stock subject to such options immediately prior to
the consummation of the merger by the applicable exchange ratio, at an adjusted
exercise price equal to the exercise price applicable to such option to
purchase Inference common stock divided by the applicable exchange ratio. eGain
will assume each Inference option in accordance with the terms of the stock
option plan under which such option was issued. The terms and conditions that
will apply to the new options will be substantially the same as the terms and
conditions that apply to the existing options.
At an assumed exchange ratio of 0.1865, based on the capitalization of
Inference on May 5, 2000, eGain would issue an aggregate of approximately
1,471,387 shares of eGain common stock in the merger, excluding shares issuable
upon the exercise of Inference options. In addition, at an assumed exchange
ratio of 0.1865, eGain would be obligated to issue a maximum of approximately
427,450 additional shares of eGain common stock upon exercise, if and when
exercised, of the Inference options converted to eGain options as a result of
the merger.
The exchange ratio is subject to adjustment. For illustration purposes only,
based on the capitalization of Inference on May 5, 2000 and assuming an average
share price for eGain of $17.5313 (the average closing price of eGain common
stock for the 20 consecutive trading days ending May 11, 2000), the exchange
ratio would be 0.5161, and eGain would issue an aggregate of approximately
4,071,759 shares of eGain common stock excluding shares issuable upon the
exercise of Inference options assumed in the merger.
Federal income tax consequences (see page 96)
The merger is intended to qualify as a tax-free reorganization. In general,
Inference, eGain and the stockholders of Inference will not recognize gain or
loss for federal income tax purposes in the merger, except with respect to cash
received by Inference stockholders instead of a fractional share of eGain
stock. It is a condition to the merger that Inference will receive a legal
opinion from tax counsel at the closing of the merger
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to the effect that the merger qualifies as a tax-free reorganization. For more
information, see "Certain United States Federal Income Tax Consequences of the
Merger" beginning on page 96.
Tax matters are very complicated. The tax consequences of the merger to you
will depend on the facts of your own situation. We urge you to consult your own
tax advisors as to the specific tax consequences of the merger to you,
including the application and effect of United States federal, state, local and
other tax laws and the possible effects of changes in United States federal and
other tax laws.
Inference received an opinion from its financial advisor (see pages 63-68)
In deciding to approve the merger, the board of directors of Inference
considered the opinion of its financial advisor, Adams, Harkness & Hill, Inc.,
that the exchange ratio was fair, from a financial point of view, to
Inference's stockholders. More information about this opinion is provided in
the section entitled "The Merger and Related Transactions-Opinion of
Inference's Financial Advisor" beginning on page 64.
The merger is subject to conditions (see page 74)
Whether eGain and Inference complete the merger depends on a number of
conditions in addition to Inference stockholders' approval of the merger and
adoption of the merger agreement. Either eGain or Inference may choose to
complete the merger even though one or more of these conditions has not been
satisfied, as long as the law allows them to do so. eGain and Inference cannot
be certain when, or if, the conditions to the merger will be satisfied or
waived, or that the merger will be completed. The following conditions, among
others, must be satisfied or waived before the merger can be completed:
. the shares of eGain common stock to be issued in exchange for Inference
common stock must be registered with the Securities and Exchange
Commission under the Securities Act, the registration statement must be
effective and the registration statement must not be the subject of any
"stop order" or proceedings seeking a "stop order";
. the representations and warranties of eGain and Inference in the merger
agreement must have been materially true and correct at the date the
merger agreement was signed and must be materially true and correct at
the time of the closing of the merger;
. eGain and Inference must perform and comply in all material respects with
their respective covenants and agreements in the merger agreement;
. no event, change, condition or effect that is materially adverse to
either company shall have occurred;
. all applicable waiting periods under applicable antitrust laws must have
expired or been terminated (the parties have received early termination
of the thirty-day waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act);
. the shares of eGain common stock to be issued in the merger must be
authorized for listing on the Nasdaq National Market; and
. Inference must receive a legal opinion confirming the tax-free nature of
the merger.
See "Certain Provisions of the Merger Agreement--Conditions to Completion of
the Merger" on page 74 for additional information regarding the closing
conditions.
Termination of the merger agreement (see page 76)
The merger agreement may be terminated by either eGain or Inference if:
. both parties consent to such termination;
. the Inference stockholders do not approve the merger at the special
meeting; or
. the merger is not completed by September 30, 2000.
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The merger agreement may also be terminated under those circumstances
described on pages 76 to 77.
Neither eGain or Inference can terminate the merger agreement solely
because eGain's stock price declines.
Termination fees and expenses
We have agreed that we will each pay our own fees and expenses in
connection with the merger, whether or not it is completed. However, we will
share equally all fees and expenses, other than attorneys' fees, in connection
with the printing and filing of this proxy statement/prospectus and the
registration statement of which this proxy statement/prospectus is a part.
Inference has agreed to pay eGain a breakup fee of $3.6 million upon the
termination of the merger agreement as a result of the occurrence of any of
the circumstances that are described on page 77 under "Certain Provisions of
the Merger Agreement--Payment of Termination Fee."
Accounting treatment
eGain intends to account for the merger as a purchase transaction.
Stockholders do not have dissenters' or appraisal rights
Under Delaware law, Inference stockholders are not entitled to dissenters'
or appraisal rights in the merger.
Rights of holders of Inference common stock will be different following the
merger (see page 91)
The rights of Inference's stockholders are currently governed by Delaware
law and by Inference's certificate of incorporation and bylaws. The rights of
eGain's stockholders are governed by Delaware law and by eGain's certificate
of incorporation and bylaws. As of the effective time of the merger, Inference
stockholders will become eGain stockholders. There are important differences
between the rights of stockholders of Inference and stockholders of eGain. In
particular, Inference has a stockholder rights plan that discourages certain
types of change of control transactions, while eGain does not have this type
of plan. For a description of these differences, see "Comparison of
Stockholder Rights," beginning on page 91.
Comparative market price information (see page 78)
Shares of both eGain common stock and Inference common stock are listed on
the Nasdaq National Market. On March 15, 2000, the last full trading day prior
to the public announcement of the proposed merger, eGain's common stock closed
at $51.50 per share, and Inference's common stock closed at $10.25 per share.
On May 11, 2000, eGain's common stock closed at $17.00 per share, and
Inference's common stock closed at $7.00 per share. We urge you to obtain
current market quotations.
eGain's trademarks include eGain, eGain Mail, eGain Live, eGain Commerce
2000, eGain Assistant, eGain Inform, eGain Voice, eGain Campaign, and eGain
Hosted Network. Inference's trademarks include k-Commerce. All other
trademarks appearing in this proxy statement/prospectus are the trademarks of
others.
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RISK FACTORS
By voting to adopt the merger agreement, Inference stockholders will be
choosing to invest in eGain common stock. An investment in eGain common stock
involves a high degree of risk. In addition to the other information contained
in this proxy statement/prospectus, you should carefully consider the following
risk factors in deciding whether to vote for the merger. If any of the
following risks actually occur, the business and prospects of eGain or
Inference may be seriously harmed. In such case, the trading price of eGain
common stock would decline, and you may lose all or part of your investment.
Risks Related to the Merger
Inference stockholders will receive a number of shares of eGain common stock
that may not reflect changes in the market value of eGain common stock and will
not reflect changes in the market value of Inference common stock, and at the
time Inference stockholders vote to approve the merger, they will not know the
value of the eGain common stock they will receive when the merger is completed
Upon the merger's completion, if the average share price of eGain common
stock in the applicable measurement period is between $48.516 and $59.297, each
share of Inference common stock will be exchanged for 0.1865 shares of eGain
common stock. If the average share price of eGain common stock during the
applicable measurement period is outside of the range in the previous sentence,
the adjustment to the exchange ratio of 0.1865 will not reflect a dollar-for-
dollar adjustment based on these changes to the average share price of eGain
common stock, but rather will be based on a formula that calculates the final
exchange ratio based on a fraction dependent on the average share price. As a
result, Inference stockholders will not be fully compensated for decreases in
the market price of eGain common stock that could occur before the merger.
Furthermore, regardless of the fluctuations in the market price of Inference
common stock, there will be no adjustment for changes in the market price of
Inference common stock. See "Summary--Summary of the transaction--Exchange
ratio calculation."
In addition, neither Inference nor eGain may terminate the merger agreement
or "walk away" from the merger solely because of changes in the market price of
eGain common stock or Inference common stock. Accordingly, the dollar value of
eGain common stock that Inference stockholders will receive upon the merger's
completion will depend on the market value of eGain common stock when the
merger is completed, and may decrease from the date you submit your proxy. The
share price of eGain common stock is subject to the general price fluctuations
in the market for publicly traded equity securities and has experienced
significant volatility. eGain urges you to obtain recent market quotations for
eGain common stock and Inference common stock. eGain cannot predict or give any
assurances as to the market price of eGain common stock at any time before or
after the completion of the merger.
eGain and Inference may not achieve the benefits they expect from the merger if
they fail to integrate the operations and business of the two companies
eGain and Inference entered into the merger agreement with the expectation
that the merger will result in significant benefits to the combined company.
Achieving the benefits of the merger depends on the efficient and successful
integration of the two companies' operations, technologies, businesses and
personnel. The difficulties, costs and delays involved in integrating the
companies, which may be substantial, may include:
. inability to successfully integrate product technologies;
. distracting management and other key personnel from the business of the
combined company;
. potential incompatibility of business cultures;
. costs and delays in implementing common systems and procedures,
particularly in integrating different information systems;
. possible negative effects on customer service; and
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. inability to retain and integrate key management, technical, sales and
customer support personnel.
The combined company intends to offer its products and services to the
customers of each of the constituent companies. Although the companies have
jointly sold their products to customers in the past, there can be no assurance
that either company's customers will have any interest in the other company's
products and services in the future. The failure of these cross-marketing
efforts would diminish the benefits expected to be realized by this merger. In
addition, eGain intends after the merger to develop new products and services
that combine the technology of both eGain and Inference. To date, the companies
have not thoroughly investigated the obstacles to developing and marketing
these new products and services in a timely and efficient way. There can be no
assurance that eGain will be able to overcome these obstacles, or that there
will be a market for new products and services developed by eGain after the
merger.
Inference's principal offices are located in Novato, California, while
eGain's principal offices are located in Sunnyvale, California. There are
currently no plans to relocate either of these principal offices. For the
merger to be successful, eGain must successfully integrate Inference's
operations and personnel with eGain's operations and personnel, which may be
difficult because of two separate office locations. Failure to complete the
integration successfully could result in the loss of key personnel or
customers.
The merger could adversely affect the combined financial results of eGain
If the benefits of the merger do not exceed the costs associated with the
merger, including any dilution to eGain's stockholders resulting from the
issuance of shares of eGain common stock in connection with the merger, eGain's
financial results, including earnings per share, could be adversely affected.
In addition, eGain expects to record goodwill and intangible assets of
approximately $73.2 million, which will be amortized over a period of three
years, which will further reduce earnings per share.
The market price of eGain common stock may decline as a result of the merger
The market price of eGain common stock may decline as a result of the merger
if:
. the integration of eGain and Inference is unsuccessful;
. eGain does not achieve the perceived benefits or synergies of the merger
as may be anticipated by financial analysts or investors; or
. the effect of the merger on eGain's financial results is not consistent
with the expectations of financial analysts or investors.
The market price of the eGain common stock could also decline as a result of
factors related to the merger which may currently be unforeseen. A decline in
the market price of the eGain common stock could materially and adversely
affect eGain's operating results.
Inference's officers and directors have conflicts of interest that may
influence them to recommend the adoption of the merger agreement
The directors and officers of Inference participate in arrangements and have
continuing indemnification against liabilities that provide them with interests
in the merger that are different from, or in addition to, yours, including the
following:
. the executive officers of Inference have outstanding stock options to
purchase an aggregate of 1,019,617 shares of Inference common stock as of
May 5, 2000, of which approximately 691,868 are unvested. In the event of
such officers' termination or failure to obtain a comparable position
with eGain following the merger, all such options would be fully vested.
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. in addition, the executive officers and certain other key employees of
Inference have employment agreements under which, in the event of their
termination or failure to obtain a comparable position with eGain as a
result of the merger, they would be entitled to one year's base annual
salary and 50% of their respective annual bonuses.
. certain executive officers of Inference have been offered positions with
eGain. Such offers provide for salaries that are generally consistent
with the Inference salaries such officers have been receiving and provide
for the following: the officers will receive a cash retention bonus
payable over the six month period following the closing of the merger;
each officer's options to purchase Inference common stock that are
assumed in the merger will become fully vested on January 31, 2001,
unless the officer resigns from his position before that date; and the
officers will be granted new options to buy shares of eGain common stock,
vesting over four years beginning on February 1, 2001. In addition, Mr.
Charles W. Jepson, Inference's Chief Executive Officer, has agreed to
accept the position of Senior Vice President with eGain. He will receive
an annual salary of $250,000 and a potential for an additional $250,000
in bonus payments, new options to purchase 7,842 shares of eGain common
stock, and vesting of all unvested Inference options on December 1, 2000,
unless he resigns from his position before that date.
. eGain has agreed to indemnify each present and former Inference officer
and director against liabilities arising out of such person's services as
an officer or director of Inference, as provided for in Inference's
certificate of incorporation, bylaws and indemnification agreements in
effect on the date of the merger agreement. eGain will also cause the
officers' and directors' liability insurance of Inference to be
maintained to cover any such liabilities for the next six years.
For the above reasons, the directors and officers of Inference could be more
likely to vote to adopt the merger agreement than if they did not hold these
interests. Inference stockholders should consider whether these interests may
have influenced these directors and officers to support or recommend adoption
of the merger agreement.
There will be substantial expenses resulting from the merger that could hurt
earnings of the combined company and divert resources from other productive
uses
eGain estimates that the negotiation and implementation of the merger will
result in costs and expenses for both companies of an aggregate of
approximately $3.2 million. These expenses will prevent the combined company
from spending those amounts on other, possibly more productive uses. These
costs will primarily relate to costs associated with combining the operations
of the two companies and the fees of financial advisors, attorneys and
accountants. Although eGain believes that the costs will not exceed the
estimate, the estimate may be incorrect, or unanticipated contingencies may
occur that substantially increase the costs of combining the operations of the
two companies.
Failure to complete the merger could negatively impact Inference's stock price
and future business and operations
If the merger is not completed for any reason, Inference may be subject to a
number of material risks, including the following:
. Inference may be required under limited circumstances to pay eGain a
termination fee of up to $3.6 million;
. the price of Inference common stock may decline to the extent, if any,
that the current market price of Inference common stock reflects an
assumption by investors that the merger will be completed; and
. costs incurred by Inference related to the merger, such as legal and
accounting fees and a portion of financial advisor fees, must be paid
even if the merger is not completed.
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In addition, Inference customers, in response to the announcement of the
merger, may delay or defer decisions concerning Inference. Inference derives a
significant portion of its license revenues each quarter from a small number of
relatively large orders. Any delay or deferral in those decisions by Inference
customers could have a material adverse effect on Inference's business,
regardless of whether the merger is ultimately completed. Similarly, current
Inference employees may experience uncertainty about their future roles with
eGain until eGain's strategies with regard to Inference are announced or
actually effected. This may adversely affect Inference's ability to attract and
retain key management, sales, marketing and technical personnel.
Further, if the merger is terminated and Inference's board of directors
determines to seek another merger or business combination, there can be no
assurance that Inference will be able to find a partner willing to pay an
equivalent or more attractive price than the price to be paid in the merger. In
addition, while the merger agreement is in effect, subject to very narrowly
defined exceptions, Inference is prohibited from soliciting, initiating or
encouraging or entering into certain transactions, such as a merger, sale of
assets or other business combination, with any party other than eGain. These
factors could also adversely affect Inference's common stock price.
The merger may be consummated even though material adverse changes to either
company's business results from the announcement of the merger or changes in
general economic conditions or the companies' industry generally
In general, either party can refuse to complete the merger if there is a
material adverse change affecting the other party between now and the closing.
Certain types of changes will not prevent the merger from going forward,
however, even if they would have a material adverse effect on eGain or
Inference. For example, changes affecting the economy as a whole or changes
affecting the industry in which eGain or Inference operates, and changes
resulting from the announcement of the merger will not allow either party to
walk away from the merger.
If material adverse changes occur, but eGain and Inference are still
required to complete the merger based on the terms of the merger agreement,
eGain's stock price may suffer. This in turn may reduce the value of the merger
to eGain and Inference stockholders. While eGain and Inference might seek to
renegotiate the merger in these circumstances, there can be no assurance that
eGain and Inference would in fact do so or that eGain and Inference would be
successful.
After completion of the merger, eGain will compete against both eGain's and
Inference's current competitors, and may face competition from additional
companies
After the merger, the level of competition encountered by the combined
companies of eGain and Inference may increase. As eGain and Inference combine
and enhance their product lines to offer a more comprehensive ecommerce
customer communications solution, they will increasingly compete with other
providers of customer management and communications solutions. The combined
product line may not be sufficient to successfully compete with the product
offerings available from these and other companies, which could slow the growth
of the combined company and harm its business.
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Risks Related to the Business and Operations of the Combined Company
The merger will combine two companies that have a recent history of losses, and
eGain expects continuing losses and may never achieve profitability, which in
turn may harm its future operating performance and may cause the market price
of eGain common stock to decline
eGain incurred net losses of approximately $11.3 million for the fiscal year
ended June 30, 1999, and approximately $44.2 million for the nine months ended
March 31, 2000. As of March 31, 2000, eGain had an accumulated deficit of
approximately $56.5 million. Similarly, Inference incurred net losses of
approximately $12.7 million for the fiscal year ended January 31, 2000, and had
an accumulated deficit of $34.0 million at that date. eGain expects to continue
to incur net losses for the foreseeable future. If eGain continues to incur net
losses, it may not be able to increase its number of employees or its
investment in capital equipment, sales, marketing, customer support and
research and development programs in accordance with its present plans. eGain
does not know when or if it will become profitable. If eGain does not become
profitable within the timeframe expected by financial analysts or investors,
the market price of eGain common stock will likely decline. If eGain does
achieve profitability, it may not sustain or increase profitability in the
future.
eGain's operating expenses may increase as eGain builds its business, and this
increase may harm its operating results and financial condition
eGain has spent heavily on technology and infrastructure development. eGain
expects to continue to spend substantial financial and other resources on
developing and introducing product and service offerings, and expanding its
sales, marketing and customer support organizations and operating
infrastructure. eGain expects that its operating expenses will continue to
increase in absolute dollars and may increase as a percentage of revenue. If
eGain's revenue does not correspondingly increase, its business and operating
results could suffer.
The merger will combine two companies whose quarterly operating results are
subject to fluctuations caused by many factors, which could cause eGain to not
meet quarterly financial expectations, which could cause eGain's common stock
price to decline
eGain was incorporated in September 1997 and shipped its first product in
September 1998. Because of this limited operating history and other factors,
eGain's quarterly revenue and operating results are difficult to predict. In
addition, due to the emerging nature of the ecommerce customer communications
market and other factors, eGain's quarterly revenue and operating results may
fluctuate from quarter to quarter. It is likely that eGain's operating results
in some quarters will be below the expectations of financial analysts or
investors. In this event, the market price of eGain common stock is likely to
decline.
A number of factors are likely to cause fluctuations in eGain's operating
results, including, but not limited to, the following:
. the growth rate of ecommerce;
. demand for ecommerce customer communications applications;
. eGain's ability to attract and retain customers and maintain customer
satisfaction;
. eGain's ability to upgrade, develop and maintain its systems and
infrastructure;
. the amount and timing of operating costs and capital expenditures
relating to expansion of eGain's business and infrastructure;
. technical difficulties or system outages;
. eGain's ability to attract and retain qualified personnel with software
and Internet industry expertise, particularly sales and marketing
personnel;
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. the announcement or introduction of new or enhanced products and services
by eGain's competitors;
. changes in eGain's pricing policies and those of its competitors;
. litigation relating to proprietary rights;
. seasonal trends in technology purchases;
. timing of large contracts;
. integration of products between Inference and eGain as planned;
. changes in market conditions may limit eGain's ability to raise capital;
. general business conditions in the industry;
. failure to increase eGain's international sales; and
. governmental regulation regarding the Internet and ecommerce in
particular.
eGain bases its expense levels in part on its expectations regarding future
revenue levels. If eGain's revenue for a particular quarter is lower than it
expects, it may be unable to proportionately reduce its operating expenses for
that quarter. For example, eGain's 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 eGain's hosting agreements
give the customer the right to terminate the contract at any time. Period-to-
period comparisons of eGain's operating results are not a good indication of
its future performance.
eGain's business is premised on a novel business model that is largely untested
eGain's business is premised on novel business assumptions that are largely
untested. Customer communications historically have been conducted primarily in
person or over the telephone. eGain's business model assumes that companies
engaged in ecommerce will continue to elect to communicate with customers
mainly through the Internet rather than by telephone. eGain's business model
also assumes that many companies recognize the benefits of a hosted delivery
model and will seek to have their customer communications applications hosted
by eGain. If any of these assumptions is incorrect, eGain's business will be
seriously harmed.
eGain's revenues are currently dependent on sales of the eGain Mail product
To date, eGain has derived substantially all of its revenue from sales of
the eGain Mail product and related services. eGain has recently expanded its
product offerings. eGain expects to continue to derive a majority of its
revenue from sales of the eGain Mail product for at least the next fiscal
quarter. Implementation of eGain's strategy depends upon the eGain Mail
platform being able to solve the customer communications needs of businesses
engaging in ecommerce. If eGain's existing or future customers are not
satisfied with the eGain Mail platform, eGain's business and operating results
will be seriously harmed.
In addition to the Inference acquisition, eGain may engage in future
acquisitions or investments that could dilute eGain's existing stockholders,
cause eGain to incur significant expenses or harm its business
eGain may review acquisition or investment prospects that might complement
its current business or enhance its technological capabilities. Integrating any
newly acquired businesses, like Inference, or their technologies or products
may be expensive and time-consuming. For example, eGain entered into an
agreement to acquire Big Science Company in February 2000, which transaction
closed in March 2000. There can be no assurance that eGain can effectively
integrate Big Science's product, now called eGain Assistant, successfully with
the eGain platform. To finance any acquisitions, it may be necessary for eGain
to raise additional funds through public or private financings. Additional
funds may not be available at all, or on terms that are favorable to eGain and,
in the case of equity financings, may result in dilution to eGain's
stockholders. eGain may not be able to operate any acquired businesses
profitably or otherwise implement its growth strategy successfully. If
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eGain is unable to integrate any newly acquired entities or technologies
effectively, eGain's operating results could suffer. Future acquisitions by
eGain 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 eGain's operating results.
eGain could incur additional non-cash charges associated with stock-based
compensation arrangements
eGain's operating results may be impacted if it incurs significant non-cash
charges associated with stock-based compensation arrangements with employees
and non-employees. eGain has issued options to non-employees which are subject
to various vesting schedules of up to 48 months. For deferred compensation
purposes, non-employee options are required to be remeasured at each vesting
date, which may require eGain to record additional non-cash accounting
expenses. These expenses may result in eGain incurring net losses or increased
net losses for a given period, and this could seriously harm eGain's operating
results and common stock price.
If eGain fails to expand its sales, marketing and customer support activities,
it may be unable to expand its business
If eGain does not successfully expand its sales, marketing and customer
support activities, eGain may not be able to expand its business, and eGain's
common stock price could decline. The complexity of eGain's ecommerce customer
communications platform and related products and services requires it to have
highly trained sales, marketing and customer support personnel, to educate
prospective customers regarding the use and benefits of eGain's services, and
provide effective customer support. With eGain's relatively brief operating
history and its plans for expansion, eGain has considerable need to recruit,
train, and retain qualified staff. Any delays or difficulties eGain encounters
in these staffing efforts could impair its ability to attract new customers and
to enhance its relationships with existing customers. This in turn would
adversely affect the timing and extent of eGain's revenue. Because the majority
of eGain's current sales, marketing and customer support personnel have
recently joined eGain and have limited experience working together, and because
the new Inference employees in these areas will also be new to eGain, the
combined company's sales, marketing and customer support organization may not
be able to compete successfully against bigger and more experienced
organizations of its competitors.
eGain must recruit and retain its key employees to expand its business
eGain's success will depend on the skills, experience and performance of
eGain's senior management, engineering, sales, marketing and other key
personnel, many of whom have worked together for only a short period of time,
as well as the skills, experience and performance of the Inference personnel,
who must be integrated with eGain's employees. Recently, eGain has hired a
number of senior executives. The loss of the services of any of eGain's senior
management or other key personnel, including eGain's Chief Executive Officer
and co-founder, Ashutosh Roy, and eGain's President and co-founder, Gunjan
Sinha, could harm its business. Similarly, the loss of the senior management of
Inference could be harmful to the business of the combined company.
Additionally, the short term services of Charles Jepson, Inference President
and Chief Executive Officer, will be needed during the transition period. eGain
does not have employment agreements with, or life insurance policies on, most
of its key employees. Most of these employees may terminate their employment
with eGain at any time. eGain's success also will depend on its 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 eGain has had difficulty hiring employees in
its desired timeframes. In particular, eGain may be unable to hire a sufficient
number of qualified software engineers and information technology
professionals. If eGain fails to retain and recruit necessary engineering,
sales and marketing, customer support or other personnel, eGain's business and
its 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. eGain could incur
substantial costs in defending itself against any of these claims, regardless
of the merits of such claims.
14
<PAGE>
eGain's failure to expand third-party distribution channels would impede its
revenue growth
To increase eGain's revenue, it must increase the number of its marketing
and distribution partners, including software and hardware vendors and
resellers. eGain's 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 eGain.
Similarly, to increase eGain's revenue and implementation capabilities,
eGain must develop and expand relationships with systems integrators. eGain
relies on systems integrators to recommend eGain's products to their customers
and to install and support eGain's products for their customers. Systems
integrators may develop, market or recommend software applications that compete
with eGain's products. Moreover, if these firms fail to implement eGain's
products successfully for their customers, eGain may not have the resources to
implement its products on the schedule required by its customers.
Unknown software defects could disrupt eGain's products and services, which
could harm eGain's business and reputation
eGain's 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. eGain may not discover software defects that affect its new or
current services or enhancements until after they are deployed. It is possible
that, despite testing by eGain, defects may occur in the software. These
defects could result in damage to eGain's reputation, lost sales, product
liability claims, delays in or loss of market acceptance of eGain's products,
product returns and unexpected expenses and diversion of resources to remedy
errors.
eGain may face liability associated with its management of sensitive customer
information
eGain's applications manage sensitive customer information, and eGain 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 eGain's reputation and its business and
operating results.
If eGain's system security is breached, eGain's 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 eGain's security or that of eGain's customers.
eGain may be liable to its customers for any breach in its security and any
breach could harm its business and reputation. Although eGain has implemented
network security measures, eGain's servers are vulnerable to computer viruses,
physical or electronic break-ins and similar disruptions, which could lead to
interruptions, delays or loss of data. eGain 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 eGain's products, the timing of its
sales is difficult to predict and may cause eGain to miss its revenue
expectations
eGain's sales cycle for its ecommerce customer communications applications
can be as long as three months or more, and varies substantially from customer
to customer. While eGain's potential customers are evaluating eGain's products
and before they place an order with it, eGain may incur substantial sales and
marketing expenses and spend significant management effort. Consequently, if
revenue forecasted from a specific customer for a particular quarter is not
realized in that quarter, eGain may incur significant expenses that are not
offset by corresponding revenue.
15
<PAGE>
If eGain does not successfully address the risks inherent in the expansion of
its international operations, its business could suffer
eGain intends to continue to expand into international markets and to spend
significant financial and managerial resources to do so. For example, eGain has
established subsidiaries in the United Kingdom and Australia. Inference also
has European subsidiaries, including subsidiaries in the United Kingdom and the
Netherlands. If the combined company's revenue from international operations
does not exceed the expense associated with establishing and maintaining these
operations, eGain's business and operating results will suffer. eGain has
limited experience in international operations and may not be able to compete
effectively in international markets. eGain faces various risks inherent in
conducting business internationally, such as the following:
. unexpected changes in international 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;
. reduced protection for intellectual property rights in foreign countries;
. general business conditions; and
. ability to integrate Inference's international operations.
eGain's recent growth has placed a strain on its resources and if eGain fails
to manage its future growth, its business could suffer
eGain recently began to expand its operations rapidly and intends to
continue this expansion. The completed acquisition of Big Science and the
pending acquisition of Inference are two examples of this expansion. This rapid
expansion has placed, and is expected to continue to place, a significant
strain on eGain's managerial, operational and financial resources. To manage
any further growth, eGain will need to improve or replace its existing
operational, customer support and financial systems, procedures and controls.
Any failure by eGain to properly manage these system and procedural transitions
could impair its ability to attract and service customers, and could cause it
to incur higher operating costs and delays in the execution of its business
plan. eGain will also need to continue the expansion of its operations and
employee base. eGain's management may not be able to hire, train, retain,
motivate and manage required personnel. In addition, eGain's management may not
be able to successfully identify, manage and exploit existing and potential
market opportunities.
eGain may not be able to upgrade its systems and the eGain Hosted Network to
accommodate growth in ecommerce
eGain faces risks related to the 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, eGain
will need to expand its systems and hosted network infrastructure. The
expansion and adaptation of eGain's network infrastructure will require
substantial financial, operational and management resources. Due to the limited
deployment of eGain's products and services to date, eGain's ability to connect
and manage a substantially larger number of customers is unknown.
16
<PAGE>
Customer demand for eGain's products and services could be greatly reduced
if eGain fails to maintain high capacity data transmission. In addition, as
eGain upgrades its network, and as it integrates the systems and network of
Inference, eGain is likely to encounter equipment or software incompatibility.
eGain may not be able to expand or adapt the eGain Hosted Network to meet
additional demand or eGain's customers' changing requirements in a timely
manner or at all.
Unplanned system interruptions and capacity constraints could reduce eGain's
ability to provide hosting services and could harm its business and reputation
eGain's customers have in the past experienced some interruptions with the
eGain Hosted Network. eGain believes that these interruptions will continue to
occur from time to time. These interruptions could be due to hardware and
operating system failures. eGain expects a substantial portion of its revenue
to be derived from customers who use the eGain Hosted Network. As a result,
eGain's business will suffer if it experiences frequent or long system
interruptions that result in the unavailability or reduced performance of the
eGain Hosted Network or reduce eGain's ability to provide remote management
services. eGain expects 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, eGain's business and
reputation could be seriously harmed.
eGain's success largely depends on the efficient and uninterrupted operation
of its computer and communications hardware and network systems. Substantially
all of eGain's computer and communications systems are located in Sunnyvale,
California. eGain's systems and operations are vulnerable to damage or
interruption from fire, earthquake, power loss, telecommunications failure and
similar events.
eGain has entered into service agreements with some of its customers that
require minimum performance standards, including standards regarding the
availability and response time of eGain's remote management services. If eGain
fails to meet these standards, eGain's customers could terminate their
relationships with eGain, and eGain could be subject to contractual monetary
penalties. Any unplanned interruption of services may harm eGain's ability to
attract and retain customers.
eGain relies on relationships with, and the system integrity of, hosting
partners for the eGain Hosted Network
The eGain Hosted Network consists of virtual data centers co-located in the
physical data centers of eGain's hosting partners. Accordingly, eGain relies on
the speed and reliability of the systems and networks of these hosting
partners. If eGain's hosting partners experience system interruptions or
delays, or if eGain does not maintain or develop relationships with reliable
hosting partners, eGain's business could suffer.
Problems arising from use of eGain's products with other vendors' products
could cause eGain to incur significant costs, divert attention from eGain's
product development efforts and cause customer relations problems
eGain's customers generally use eGain products together with products from
other companies, such as Inference. 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 eGain's products, they may cause it to incur
significant warranty and repair costs, divert the attention of eGain's
engineering personnel from product development efforts and cause significant
customer relations problems.
eGain may be unable to protect its intellectual property and proprietary rights
eGain regards its copyrights, service marks, trademarks, trade secrets and
similar intellectual property as critical to its success, and relies on
trademark and copyright law, trade secret protection and confidentiality and/or
license agreements with eGain employees, customers and partners to protect its
proprietary rights.
17
<PAGE>
eGain's trademarks include eGain, eGain Mail, eGain Live, eGain Campaign, eGain
Inform, eGain Voice, eGain Commerce 2000, eGain Assistant, eGain Hosted Network
and eGain Commerce Bridge. Despite eGain's efforts to protect its proprietary
rights through confidentiality and license agreements, unauthorized parties may
attempt to copy or otherwise obtain and use eGain's products or technology.
These precautions may not prevent misappropriation or infringement of eGain's
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. eGain has one patent application pending in
the United States, and may seek additional patents in the future. eGain does
not know if its patent application or any future patent application will result
in a patent being issued with the scope of the claims eGain seeks, if at all,
or whether any patents eGain 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 eGain's proprietary rights as fully
as in the United States. Furthermore, eGain's competitors may independently
develop technology similar to eGain's technology.
eGain may face intellectual property infringement claims that could be costly
to defend
Third parties may infringe or misappropriate eGain's copyrights, trademarks
and similar proprietary rights. In addition, other parties may assert
infringement claims against eGain. Although eGain has not received notice of
any alleged infringement, eGain's products may infringe issued patents that may
relate to its 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 eGain's software
products. eGain may be subject to legal proceedings and claims from time to
time in the ordinary course of its 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 eGain's business. This
litigation could also require eGain 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. eGain's failure or inability to develop
non-infringing technology or license the proprietary rights on a timely basis
would harm its business.
eGain may need to license third-party technologies and may be unable to do so
To the extent eGain needs to license third-party technologies, it may be
unable to do so on commercially reasonable terms or at all. In addition, eGain
may fail to successfully integrate any licensed technology into its services.
Third-party licenses may expose eGain to increased risks, including risks
associated with the integration of new technology, the diversion of resources
from the development of eGain's own proprietary technology, and eGain's
inability to generate revenue from new technology sufficient to offset
associated acquisition and maintenance costs. eGain's 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
eGain's business and operating results.
eGain's stock price may be volatile
The price at which eGain common stock will trade has been and will likely
continue to be highly volatile and fluctuate substantially due to factors such
as the following:
. actual or anticipated fluctuations in eGain's operating results;
. changes in or failure to meet securities analysts' expectations;
. announcements of technological innovations;
. introduction of new services by eGain or its competitors;
. developments with respect to intellectual property rights;
18
<PAGE>
. conditions and trends in the Internet and other technology industries;
and
. general market conditions.
eGain may become involved in securities class action litigation which could
divert management's attention and harm its 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 eGain 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. eGain 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 eGain business and operating results.
eGain may need additional capital, and raising additional capital may dilute
existing stockholders
eGain believes that its existing capital resources will enable it to
maintain its current and planned operations for the next 12 months. However,
eGain may choose to, or be required to, raise additional funds due to
unforeseen circumstances. If eGain's capital requirements vary materially from
those currently planned, it 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.
Risks Related to the Industry of the Combined Company
eGain must compete successfully in the ecommerce customer communications market
The ecommerce customer communications market is relatively new, growing
rapidly, and intensely competitive. There are no substantial barriers to entry
in this market, and established or new entities may enter this market in the
near future. eGain competes with companies that develop and maintain internally
developed customer communications software applications. eGain also competes
directly with companies that provide licensed software products to assist in
handling customer communications, including AskJeeves, Inc., Brightware, Inc.,
Kana Communications, Inc., LivePerson, Inc., Primus Knowledge Solutions, Inc.,
Quintus Corp. (which recently agreed to acquire Mustang Software, Inc.),
Servicesoft, Silknet Software, Inc. (which recently agreed to be acquired by
Kana Communications, Inc.) and WebLine Communications Corp. (which was recently
acquired by Cisco Systems, Inc.). In addition, some of eGain's competitors who
currently offer licensed software products are now beginning to offer hosted
approaches. eGain also faces actual or potential competition from larger, front
office software companies such as Clarify, Inc., (recently acquired by Nortel
Networks Corp.), and PeopleSoft, Inc. Furthermore, established enterprise
software companies, including Hewlett-Packard Company, IBM, Microsoft
Corporation and similar companies may seek to leverage their existing
relationships and capabilities to offer ecommerce customer communications
applications.
eGain believes competition will increase as its current competitors increase
the sophistication of their offerings and as new participants enter the market.
Many of eGain's 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.
19
<PAGE>
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 ecommerce customer
communications applications and eGain's hosted delivery model would likely harm
its competitive position. Any delay would allow eGain's competitors additional
time to improve their service or product offerings, and also provide time for
new competitors to develop ecommerce customer communications applications and
solicit prospective customers within eGain's target markets. Increased
competition could result in pricing pressures, reduced operating margins and
loss of market share.
eGain depends on broad market acceptance of Web-based ecommerce customer
communications applications
eGain depends on the widespread acceptance and use of Web-based customer
communications applications as an effective solution for businesses seeking to
manage high volumes of customer communication over the Internet. eGain cannot
estimate the size or growth rate of the potential market for its product and
service offerings, and does not know whether its products and services will
achieve broad market acceptance. The market for Web-based ecommerce customer
communications 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 communications applications
fails to grow or grows more slowly than eGain currently anticipates, its
business will be seriously harmed.
eGain may be unable to develop or enhance products or services that address the
changing needs of the ecommerce customer communications market
To be competitive in the ecommerce customer communications market, eGain
must continually improve the performance, features and reliability of eGain
products and services, including eGain existing ecommerce customer
communications applications, and develop new products, services, functionality
and technology that address changing industry standards and customer needs. For
example, eGain has announced that it intends to introduce three new products,
eGain Campaign, eGain Inform and eGain Voice, during calendar 2000. If eGain
cannot bring these products to market in a timely and effective way, its
business and operating results will suffer. More generally, if eGain cannot
adapt or respond in a cost-effective and timely manner to changing industry
standards, market conditions or customer requirements, eGain's business and
operating results will suffer.
eGain will only be able to execute its business plan if Internet usage
continues to grow
eGain's 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, most
of which are outside eGain's 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.
20
<PAGE>
Because eGain provides its customer communications applications to companies
conducting business over the Internet, eGain's 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 eGain provides Internet-based ecommerce customer
communications applications, interruptions or delays in Internet transmissions
will harm eGain customers' ability to receive and respond to email messages.
Therefore, eGain's 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 eGain's services or increase eGain's cost of
doing business
Governmental regulation may impair the growth of the Internet or commercial
online services. This could decrease the demand for eGain's products and
services, increase its cost of doing business or otherwise harm its 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.
eGain may be liable for activities of its customers or others using the eGain
Hosted Network
As a provider of ecommerce customer communications applications, eGain faces
potential liability for defamation, negligence, copyright, patent or trademark
infringement and other claims based on the actions of eGain customers or others
using the eGain Hosted Network. This liability could result from the nature and
content of the communications transmitted by eGain customers through the eGain
Hosted Network. eGain does not and cannot screen all of the communications
generated by its customers, and eGain could be exposed to liability with
respect to this content. Furthermore, some foreign governments 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.
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<PAGE>
FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus and the documents incorporated in this
document by reference contain forward-looking statements within the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995 with respect
to eGain's financial condition, results of operations and business, and on the
expected impact of the merger on eGain's financial performance. Forward-looking
statements include the information in this document relating to expected
benefits of the merger such as efficiencies, opportunities to gain new
customers and market profile, estimated expenses associated with the merger,
and the competitive ability of the combined company.
The sections of this document that contain forward-looking statements
include: "Questions and Answers About the Merger," "Summary," "Comparative Per
Share Data," "Information About eGain," "The Merger and Related Transactions--
Background of the Merger," "The Merger and Related Transactions--Reasons for
the Merger," "The Merger and Related Transactions--eGain Board Considerations,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of eGain," "The Merger and Related Transactions--Inference Board
Considerations," "The Merger and Related Transactions--Opinion of Inference's
Financial Advisor," and "Unaudited Pro Forma Condensed Combined Financial
Information." eGain's forward-looking statements are also identified by words
such as "believes," "expects," "anticipates," "intends," "estimates" or similar
expressions.
These forward-looking statements are not guarantees of future performance
and are subject to certain risks and uncertainties that could cause actual
results to differ materially from the results contemplated by the forward-
looking statements. These forward-looking statements are based on management's
assumptions, estimates and expectations as of the date of this document. These
risks and uncertainties include:
. the possibility that the value of the eGain common stock to be issued to
Inference stockholders in the merger will decrease prior to completion of
the merger and no corresponding adjustment to the exchange ratio and the
number of shares of eGain common stock to be received by Inference
stockholders will be made;
. the possibility that the merger will not be consummated;
. the possibility that the anticipated benefits from the merger cannot be
fully realized;
. the possibility that costs or difficulties related to the integration of
eGain's businesses will be greater than expected;
. the introduction of new technologies and trends in the customer
communications market;
. the ability of the combined company to develop and market successfully
new products;
. the factors discussed in the section entitled "Risk Factors" immediately
above; and
. other risk factors as may be detailed from time to time in eGain's and
Inference's public announcements and filings with the Securities and
Exchange Commission.
22
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following selected historical financial data of eGain and Inference have
been derived from their respective historical financial statements, and should
be read in conjunction with those financial statements and the related notes.
The selected unaudited pro forma condensed combined financial data of eGain and
Inference are derived from the unaudited pro forma condensed combined financial
information, which gives effect to the transaction as a purchase, and should be
read in conjunction with the unaudited pro forma condensed combined financial
information and related notes, which are included elsewhere in this proxy
statement/prospectus.
For pro forma purposes, eGain's statement of operations for the fiscal year
ended June 30, 1999, after giving effect to the acquisitions of Sitebridge
Corporation and Big Science Company, and Inference's historical statement of
operations for the twelve months ended July 31, 1999 have been combined to give
effect to the merger as if it had occurred on July 1, 1998. eGain's statement
of operations for the nine months ended March 31, 2000, after giving effect to
the acquisition of Big Science, and Inference's historical statement of
operations for the nine months ended January 31, 2000 have been combined to
give effect to the merger as if it had occurred on July 1, 1999.
The unaudited pro forma combined condensed balance sheet data assumes that
the Inference acquisition took place as of March 31, 2000 and combines eGain's
balance sheet at that date, after giving effect to the acquisition of Big
Science, with Inference's historical balance sheet at January 31, 2000.
The total estimated purchase price of the Inference acquisition has been
allocated on a preliminary basis to assets and liabilities based on
management's best estimates of their fair value with the excess costs over the
net assets acquired allocated to goodwill. This allocation is subject to change
pending a final analysis of the total purchase price and the fair value of the
assets acquired and liabilities assumed. The impact of such changes could be
material.
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 occurred if the transaction had
been consummated at the times indicated, nor is it necessarily indicative of
future operating results or financial condition of the combined companies.
23
<PAGE>
eGain's Selected Historical Financial Data
(in thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months
Ended
March 31,
---------------
Period from
September 10,
1997 (Inception) Year Ended
to June 30, 1998 June 30, 1999 2000 1999
---------------- ------------- ------- ------
(unaudited)
<S> <C> <C> <C> <C>
Historical Statement of
Operations Data:
Revenues...................... $ 2 $ 1,019 $ 7,074 $ 400
Loss from operations.......... (882) (11,300) (45,323) (5,559)
Net loss...................... (938) (11,305) (44,234) (5,551)
Per share data:
Basic and diluted net loss per
share........................ $(17.78) $ (2.14) $ (2.03) $(1.09)
Shares used in computing basic
and diluted net loss per
share........................ 53 5,295 21,783 5,100
</TABLE>
<TABLE>
<CAPTION>
June 30,
-------------- March 31,
1998 1999 2000
------ ------- -----------
(unaudited)
<S> <C> <C> <C>
Historical Balance Sheet
Data:
Cash, cash equivalents
and short-term
investments............ $3,831 $ 1,265 $40,395
Working capital
(deficit).............. 3,691 (756) 30,026
Total assets............ 3,990 23,965 102,133
Notes payable less
current portion........ -- 221 1,182
Total stockholders'
equity................. 3,801 20,483 85,797
</TABLE>
24
<PAGE>
Inference's Selected Historical Financial Data
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended January 31,
-------------------------------------------
2000 1999 1998 1997 1996
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Historical Statements of
Operations Data:
Revenues.......................... $ 22,948 $31,094 $28,223 $35,990 $29,395
Income (loss) from operations..... (13,559) (2,985) (4,594) 1,612 3,456
Net income (loss)................. (12,713) (1,920) 627 2,432 3,773
Per share data:
Net income (loss) per common
share:
Basic........................... $ (1.70) $ (0.27) $ 0.08 $ 0.30 $ 0.59
Diluted......................... $ (1.70) $ (0.27) $ 0.08 $ 0.28 $ 0.51
Shares used in computing net
income (loss) per common share:
Basic........................... 7,469 7,146 7,894 8,078 6,344
Diluted......................... 7,469 7,146 8,110 8,702 7,393
</TABLE>
<TABLE>
<CAPTION>
Year Ended January 31,
---------------------------------------
2000 1999 1998 1997 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Historical Balance Sheet Data:
Cash, cash equivalents and short-term
investments.......................... $17,244 $25,761 $28,010 $29,607 $25,933
Working capital....................... 11,778 22,640 26,375 29,504 25,572
Total assets.......................... 25,816 35,375 36,996 42,241 36,895
Total stockholders' equity............ 14,990 24,758 28,656 32,111 27,963
</TABLE>
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<PAGE>
Selected Unaudited Pro Forma
Condensed Combined Financial Data
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
June 30, 1999 March 31, 2000
------------- -----------------
<S> <C> <C>
Unaudited pro forma condensed combined
consolidated statement of operations data:
Revenues...................................... $ 30,216 $23,700
Loss from operations.......................... (59,724) (83,312)
Net loss ..................................... (58,775) (81,631)
Per share data:
Basic and diluted net loss per common share... $ (5.19) $ (3.07)
Shares used in computing basic and diluted net
loss per common share........................ 11,325 26,601
<CAPTION>
As of March 31,
2000
-----------------
(unaudited)
<S> <C> <C>
Unaudited pro forma condensed combined balance
sheet data:
Cash, cash equivalents and short-term
investments.................................. $57,639
Working capital............................... 38,514
Total assets.................................. 200,232
Long-term obligations, net of current
portion...................................... 1,182
Total stockholders' equity.................... 169,780
</TABLE>
For detailed information see "Unaudited Pro Forma Condensed Combined Financial
Information" on pages 80 through 90.
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<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of eGain
and Inference and combined per share data on a pro forma basis. You should read
the information set forth below along with the selected historical financial
data and the pro forma combined financial information included elsewhere in
this proxy statement/prospectus. The pro forma combined financial data are not
necessarily indicative of the operating results that would have been achieved
had the merger been consummated as of the beginning of the periods presented
and you should not construe it as representative of future operations.
<TABLE>
<CAPTION>
Year Ended Nine Months
June 30, Ended March
1999 31, 2000
---------- -----------
<S> <C> <C>
Historical eGain:
Basic and diluted net loss per share................... $(2.14) $ (2.03)
<CAPTION>
Twelve
Months Nine Months
Ended Ended
July 31, January 31,
1999 2000
---------- -----------
<S> <C> <C>
Historical Inference:
Basic and diluted net loss per share................... $(0.48) $ (1.40)
<CAPTION>
Year Ended Nine Months
June 30, Ended March
1999 31, 2000
---------- -----------
<S> <C> <C>
Pro forma combined diluted net loss:
Per eGain share........................................ $(5.19) $(3.07)
Equivalent per Inference share........................... $(2.68) $(1.58)
</TABLE>
The above Inference equivalent pro forma combined diluted net income (loss)
per share amounts are calculated by multiplying the eGain combined pro forma
diluted net income (loss) per share amounts by the exchange ratio of 0.5161
(the assumed exchange ratio based on the average closing price of eGain common
stock for the 20 consecutive trading days ending May 11, 2000).
<TABLE>
<CAPTION>
Year Ended
December 31,
1999
------------
<S> <C>
Book value per share:
Historical eGain at March 31, 2000............................ $1.81
Historical Inference at January 31, 2000...................... $1.80
Pro forma combined per eGain share............................ $1.43
Pro forma combined per Inference share........................ $0.74
</TABLE>
The historical book value per share is computed by dividing stockholders'
equity, less goodwill and other intangible assets, by the number of shares of
common stock outstanding at March 31, 2000 and January 31, 2000 for eGain and
Inference, respectively. The pro forma combined book value per eGain share is
computed by dividing pro forma stockholders' equity by the pro forma number of
shares of common stock of eGain outstanding as of March 31, 2000, assuming the
merger had occurred as of that date. The pro forma combined book value per
Inference share is computed by multiplying the eGain pro forma combined book
value per share by the exchange ratio of 0.5161 (the assumed exchange ratio
based on the average closing price of eGain common stock for the 20 consecutive
trading days ending May 11, 2000).
eGain estimates it will incur direct transaction costs and additional costs
associated with the integration of the two companies of approximately $3.2
million associated with the merger, which will be included as part of the
purchase price to be allocated to Inference assets acquired. The pro forma
combined book value per share data gives effect to the estimated direct
transaction costs as if such costs had been incurred as of the respective
balance sheet date. The direct transaction costs are not included in the pro
forma combined net income per share data. See "Unaudited Pro Forma Condensed
Combined Financial Information" beginning on page 80.
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<PAGE>
INFERENCE SPECIAL MEETING
When and where will the meeting be held?
This proxy statement/prospectus is furnished to the holders of Inference
common stock as part of the solicitation of proxies by the Inference board of
directors for use at the Inference meeting on June 26, 2000 at 10:00 a.m.,
local time, at the Hyatt Regency San Francisco Airport, 1333 Bayshore Hwy.,
Burlingame, California 94010, (650) 347-1234 and at any adjournments or
postponements thereof.
This proxy statement/prospectus, and the accompanying proxy card, are first
being mailed to holders of Inference common stock on or about May 22, 2000.
What will be voted upon?
The purpose of the Inference meeting is to consider and vote upon a proposal
to approve and adopt the merger agreement and to approve the merger. If the
Inference stockholders approve the merger and it is completed, holders of
Inference common stock will receive a fraction of a share of eGain common stock
for each share of Inference common stock they own, with cash paid for the
resulting fractional shares of eGain common stock. In addition, as a result of
the merger, each outstanding Inference stock option will be assumed by eGain
and converted into an option to acquire shares of eGain common stock on the
same terms and conditions as were applicable to such stock option under the
applicable Inference stock option plan in effect prior to the merger.
If the merger is completed, Inference stockholders will no longer hold any
interest in Inference other than through their interest in shares of eGain
common stock. The consummation of the merger is subject to a number of
conditions, including the receipt of required regulatory and stockholder
approvals.
Which stockholders may vote?
Only holders of record of Inference common stock at the close of business on
May 5, 2000, the record date, are entitled to notice of and to vote at the
Inference meeting. At the close of business on the record date, there were
7,889,477 shares of Inference common stock outstanding and entitled to vote,
held of record by 159 stockholders. A majority, or 3,944,739, of these shares,
present in person or represented by proxy, will constitute a quorum for the
transaction of business. Each Inference stockholder is entitled to one vote for
each share of Inference common stock held as of the Inference record date.
How do Inference stockholders vote?
The Inference proxy card accompanying this document is solicited on behalf
of the Inference board of directors for use at the Inference meeting.
Stockholders are requested to complete, date and sign the accompanying proxy
and promptly return it in the accompanying envelope. All proxies that are
properly executed and returned, and that are not revoked, will be voted at the
Inference meeting in accordance with the instructions indicated thereon. If no
choice is indicated on the proxy, the shares will be voted in favor of the
approval and adoption of the merger agreement and approval of the merger (other
than instances of broker non-votes, which shares will not be voted). The
Inference board of directors does not presently intend to bring any other
business before the Inference meeting other than the specific proposals
referred to in this document and specified in the notice of the Inference
meeting. The Inference board of directors knows of no other matters that are to
be brought before the Inference meeting. If any other business properly comes
before the Inference meeting, including the consideration of a motion to
adjourn the Inference meeting for purposes of soliciting additional votes for
approval and adoption of the merger agreement, it is intended that proxies will
be voted in accordance with the judgment of the persons voting such proxies.
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<PAGE>
How do I change my vote?
An Inference stockholder who has given a proxy may revoke it at any time
before it is exercised at the Inference meeting by doing one of the following:
. filing a written notice of revocation with Philip Ranger, Chief Financial
Officer, Inference Corporation, 100 Rowland Way, Novato, California
94945;
. granting a subsequently dated proxy; or
. attending the Inference meeting and voting in person.
Attending the Inference meeting will not, by itself, revoke a proxy. You
must also vote at the meeting.
Vote required to approve the merger
Pursuant to Delaware law, Inference's certificate of incorporation and
bylaws and Nasdaq rules, approval and adoption of the merger agreement
requires the affirmative vote of the holders of at least a majority of the
issued and outstanding shares of Inference common stock. The required vote of
the Inference stockholders is based upon the number of outstanding shares of
Inference common stock and not upon the shares actually voted. Therefore, the
failure of a holder of shares of Inference common stock to submit a proxy or
to vote in person at the Inference meeting, including abstentions and "broker
non-votes," will have the same effect as a vote against approval and adoption
of the merger agreement and approval of the merger.
The matters to be considered at the Inference meeting are of great
importance to the Inference stockholders. Accordingly, stockholders are urged
to read and carefully consider the information presented in this proxy
statement/prospectus and to complete, date, sign and promptly return the
enclosed proxy in the enclosed postage-paid envelope.
The shares owned by directors and executive officers of Inference and their
affiliates represent less than 1% of the total number of shares of Inference
common stock outstanding at the Inference record date. It is expected that any
shares of Inference common stock beneficially owned by Inference's directors
and executive officers will be voted for approval and adoption of the merger
agreement and approval of the merger.
As of the Inference record date, eGain owned no shares of Inference common
stock. As of the Inference record date, directors and executive officers of
eGain together beneficially owned less than 1% of the outstanding shares of
Inference common stock. It is expected that any shares of Inference common
stock beneficially owned by eGain or eGain's directors and executive officers
will be voted for approval and adoption of the merger agreement and approval
of the merger.
Quorum; abstentions; broker non-votes
The presence, in person or by properly executed proxy, of the holders of at
least a majority of the outstanding shares of Inference common stock entitled
to vote at the Inference meeting shall constitute a quorum. If an executed
Inference proxy is returned and the stockholder has specifically abstained
from voting on any matter, the shares represented by that proxy will be
considered present at the Inference meeting for purposes of determining a
quorum. If an executed proxy is returned by a broker holding shares in street
name which indicates that the broker does not have discretionary authority as
to certain shares to vote on one or more matters, the shares represented by
the broker's proxy will be considered present at the meeting for purposes of
determining a quorum. Since the required vote of the Inference stockholders is
based upon the number of outstanding shares of Inference common stock,
abstentions and broker non-votes will have the same effect as a vote against
approval and adoption of the merger agreement.
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<PAGE>
Solicitation of proxies and expenses of solicitation
Inference will bear the cost of the solicitation of proxies in the enclosed
form from its stockholders. In addition to solicitation by mail, the directors,
officers and employees of Inference may solicit proxies from stockholders by
telephone, telegram, letter, facsimile or in person. Following the original
mailing of the proxies and other soliciting materials, Inference may request
that brokers, custodians, nominees and other record holders forward copies of
the proxy and other soliciting materials to persons for whom they hold shares
of Inference common stock and request authority for the exercise of proxies. In
such cases, Inference, upon the request of the record holders, will reimburse
such record holders for their reasonable expenses. Inference has retained
Corporate Investor Communications to assist in solicitation of proxies at a
cost of approximately $5,000.
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<PAGE>
INFORMATION ABOUT eGAIN
Overview of eGain
eGain is a leading provider of intelligent customer communications solutions
for companies engaged in ecommerce. eGain's products and services help
businesses deliver a superior customer experience and establish more
profitable, lasting customer relationships. eGain offers licensed and hosted
applications for email management, interactive Web and voice collaboration,
intelligent self-help agents, and proactive online marketing. eGain's software
solutions are built using a Web-native architecture, thereby providing
scalability, global access, diverse integration, and rapid deployment. Over 60%
of eGain's current customers access its applications through the eGain Hosted
Network. eGain's customers include both dedicated Internet companies, such as
AOL, CNBC.com and Monster.com, and traditional companies engaged in ecommerce,
such as Mazda USA, 3Com and Home Depot.
Industry Background
In a short period of time, the Internet has evolved from primarily an
information source to a new platform for commerce. 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
communications 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 company representative either in person or by phone, customers on the
Internet cannot easily contact companies 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.
Companies that fail to address these customer needs may lose sales to
competitors located a mouse click away. By improving responsiveness to email,
providing real-time customer communication, and giving customers self-service
options that can enhance their shopping experience, companies can convert more
Web site visitors into actual customers. Moreover, by analyzing captured
customer communications, companies can gain insight into customer preferences
to create new revenue opportunities.
The market for online customer communications software applications has
developed mainly because existing approaches to online customer communications
do not adequately address the unique needs of ecommerce companies. Traditional
client-server based customer communications software, designed primarily to
manage telephone call center operations, were not designed to handle email or
Web collaboration communications. In addition, these systems can be expensive
and difficult to deploy and maintain. Recognizing this, many companies engaged
in ecommerce have developed in-house solutions for customer communications (and
especially email) management. These internally developed approaches can also be
both expensive and time-consuming to develop and maintain, and they typically
have difficulty scaling to keep pace with the rapid expansion of ecommerce.
More recently, several vendors have developed point solutions, or software
packages designed to handle online customer communications through a specific
medium, such as email, 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 systems. This lack of integration makes
them expensive to implement and maintain. Furthermore, point solutions do not
meet the demands of customers who want to be able to communicate with ecommerce
companies in a variety of different ways depending on the nature of their
inquiry. As a result, eGain believes there is an increasing need for a multi-
channel, online customer communications platform with applications that can
scale to meet growing Internet-based communication needs and integrate easily
with a company's existing legacy systems.
eGain believes that many companies are recognizing that the hosted delivery
model is an effective way of deploying such an integrated online customer
communications platform. The hosted option allows businesses
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<PAGE>
engaged in ecommerce to deploy a customer communications solution rapidly
without using valuable internal resources. In addition, many companies doing
business over the Internet rely on geographically dispersed customer service
departments to meet their rapidly growing, 24x7 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 communications applications and instead
focus on developing proprietary customer service processes and content.
The eGain Solution
eGain provides its customers with a multi-channel, online customer
communications platform, built on a Web-native architecture, that can be
delivered either as a hosted application service or installed software. eGain's
solutions help companies route, track and respond to high volumes of customer
email and Web form inquiries, allow eGain customers to provide real-time online
assistance to their customers, and provide for customer self-service. eGain's
applications work together with a company's existing customer communications
and database software to provide comprehensive information about each customer.
eGain provides its 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.
The benefits eGain's customers realize from eGain's solutions include the
following:
Strengthen Customer Relationships. eGain's suite of customer communications
software applications allows ecommerce companies to enhance the shopping
experience of their customers. By enabling companies to respond rapidly and
effectively to large volumes of email, communicate over the Web in real-time
with their customers and allow customers to handle their own service needs,
eGain's products improve customer satisfaction and help build lasting customer
relationships.
Convert Web Site Visitors to Buyers. In addition to strengthening existing
customer relationships, eGain's products can also increase the likelihood that
a Web site visitor will become a customer in the first instance. Whereas email
communication may be adequate for certain customer needs, eGain's live Web
collaboration and self-service applications facilitate real-time online
communication between the customer and ecommerce companies. 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 ecommerce companies find that
their current approach to customer communications is unable to handle the
higher volume and complexity of customer communications. eGain's architecture
allows its customers to incrementally add hardware capacity to address
increased transaction volume. Whether provided through the eGain Hosted Network
or deployed in-house, eGain's products provide a customizable solution to the
growing business needs of eGain's customers.
Rapidly Deployable Solution. eGain's platform is designed to allow companies
to quickly deploy customer communications capabilities as an application
service through the eGain Hosted Network. Customers using the eGain Hosted
Network can also take advantage of eGain's system expertise, thereby reducing
the drain on their own information technology resources while receiving the
full benefit of secure and reliable access to eGain's applications.
Gain Customer Insight. eGain's solutions enable 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 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.
Enhance Productivity; Reduce Costs and Administrative Burdens. eGain's
tracking and workload reporting features enable supervisors to monitor service
levels and agent productivity. eGain's customizable workflow capability allows
managers to improve team performance by intelligently distributing workload.
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Customers using the eGain Hosted Network recognize cost efficiencies by
eliminating the need to manage and administer in-house customer communications
applications. Moreover, by increasing productivity, eGain's applications enable
companies to reduce personnel costs associated with their customer service
functions.
The eGain Strategy
eGain's objective is to be the leading provider of customer communications
software and solutions for businesses engaged in ecommerce. The key elements of
eGain's strategy for achieving this objective include:
Maintain Commitment to 100% Web-native Product Architecture. eGain is
committed to building all of its software products and applications on a 100%
Web-native architecture. Web-native architecture means that eGain's software
applications are built with software tools, such as Hypertext Mark-up Language
(HTML), Java script and Java programming language, that are built to take
advantage of the Internet's unique characteristics. Genuinely Web-native
architecture differs from the traditional client/server software applications,
even those with Web interfaces, in that users of Web-native applications can
access the software and use its full functionality from anywhere in the world
through an Internet browser. eGain believes this product architecture provides
improved scalability as customer needs grow, easier integration with existing
customer communications and database software, and lower costs of deployment to
eGain's customers.
Continue to Develop the Leading Intelligent Customer
Communications Platform. eGain's Commerce 2000 is a multi-channel platform
upon which each of eGain's medium-specific applications are built. This
platform contains the underlying knowledge base, artificial intelligence,
routing and workflow rules--all connected to a centralized database--with which
eGain's current and future applications integrate. This platform enables
eGain's customers to handle customer communications through multiple different
media (for example, email, live Web collaborations and telephone) with an
integrated offering, rather than with a patchwork of independent, single-medium
applications.
Provide Customers with Flexible Delivery Model. Another key component of
eGain's business strategy focuses on a commitment to providing customers with a
meaningful choice of how to deploy eGain's software solutions. Customers can
choose to license eGain's applications for in-house deployment at their
facilities, or to have eGain host the applications for them. eGain has the
largest Web-native hosted customer communications network for ecommerce
companies, with over 60% of its over 250 customers having chosen the hosted
solution. Customers choosing to use the eGain Hosted Network can focus on other
aspects of their business, while benefiting from the rapid deployment, 24x7
reliability and support services, scalability on demand, and lower up-front
investment that the hosting approach offers. For eGain, the hosted model
provides a recurring revenue stream.
Continue to Expand Worldwide Distribution Capabilities. eGain intends to
continue to expand its worldwide distribution capabilities. eGain has
aggressively expanded the size of its North American direct sales force. In
addition, eGain will continue to employ strategic channel distribution
relationships to drive market penetration. eGain will also continue to expand
its international distribution network. eGain has a significant marketing,
sales and services organization in the United Kingdom and in Sydney, Australia,
and plans to establish a presence in additional regions worldwide in the
future.
Products and Services
eGain Platform and Suite of Applications
eGain provides customer communication solutions for companies engaged in
ecommerce activities. eGain's solutions are built on a scalable, Web-based
architecture designed to meet the growth in Internet-based communications.
eGain's products are built on technologies that are based on industry standards
and are therefore designed to integrate with a customer's existing databases
and applications. eGain's products are available to its customers both as a
hosted application service and as installed software. Although each product may
be purchased separately, eGain's products are designed to work closely with one
another and to integrate into a customer's existing software architecture.
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<PAGE>
eGain's product offerings are comprised of a software platform and a suite
of customer communication applications. eGain Commerce 2000 is an integrated
platform for online customer communications, built on a Web-component
architecture offering reliability, scalability, flexibility and performance.
This platform contains the underlying knowledge base, artificial intelligence,
routing and workflow rules, all of which are connected to a centralized
database, with which eGain's current applications integrate and future
applications are intended to integrate. The eGain Commerce Bridge is a database
and application linking solution that provides integration with standard
relational databases, ecommerce platforms and call center systems, as well as
any information accessible on the Internet. The eGain Commerce Bridge enables
companies to integrate various information sources and provide customer service
representatives access to information irrespective of where it is stored,
within the company or on the Internet.
Set forth below are eGain's current product offerings:
. eGain Mail. eGain Mail enables companies to route, track and personalize
responses to high volumes of customer emails and Web-form submissions.
eGain Mail provides functionality for each aspect of online service,
sales and marketing operations, from workflow and routing to agent
productivity to management and administration. Furthermore, eGain Mail is
designed to scale to the customer communication needs of any company
engaging in ecommerce.
. eGain Live. eGain Live enables companies to deliver high value,
personalized live (real-time) assistance to online customers and
prospects. In addition to basic Web collaboration capabilities such as
one-to-one text chat and Web page push, eGain Live provides a dynamic
combination of browser sharing, forms collaboration, screen capture and
Web callback technologies, as well as support for multi-participant Web-
based seminars.
. eGain Assistant. eGain Assistant is an online self-service solution that
enables companies to offer their Web visitors a personalized method for
obtaining assistance on their Web site. eGain Assistant is a
conversational virtual customer service representative with whom
customers interact via their keyboard or speech recognition applications.
In addition, eGain has announced that it intends to introduce three other
products, eGain Campaign, eGain Inform and eGain Voice, in calendar 2000.
. eGain Campaign. eGain Campaign is a scalable, outbound email marketing
solution that offers comprehensive tools based on proven one-to-one
marketing techniques for planning, targeting and executing high-volume
direct marketing programs. eGain Campaign enables ecommerce companies to
support a broad range of marketing programs, from basic newsletters to
multi-step promotional and cross-selling campaigns.
. eGain Inform. eGain Inform is an online self-service solution that
enables a company's customers to obtain information from their Web site.
For general inquiries, eGain Inform allows a customer to browse a custom
knowledge base of product, service and/or technical information. For
specific questions, customers can use straightforward searching tools to
quickly obtain answers.
. eGain Voice. eGain Voice is a voice communication solution that enables
companies to blend voice with email and real-time Web collaboration.
eGain Voice is designed to integrate with a company's existing call
center infrastructure, thereby allowing companies to use a single system
to administer, manage and log all email. Web collaboration and telephone
interactions with customers.
eGain Hosted Network
The eGain Hosted Network allows hosted customers to access the full
functionality of eGain's applications through a standard Web browser and
Internet connection. Through a network of eGain service centers and hosting
partners linked by high-speed Internet connections, eGain provides its
customers with multiple redundant paths to access their hosted customer service
applications. eGain remotely manages these applications which reside on server
machines co-located at eGain's hosting partners' facilities. eGain has
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<PAGE>
strategically located eGain service centers in Silicon Valley, London and New
York. The eGain Hosted Network offers value-added services for application
management, database maintenance, mail hosting and anti-virus protection. eGain
has also developed proprietary Web-based hosted service management systems,
enabling eGain service professionals to efficiently administer and manage large
numbers of hosted customer applications.
The eGain Hosted Network offers several key benefits to its customers,
including the following:
. 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.
. Rapidly Deployable Solution. eGain's platform is designed to allow
business to quickly deploy customer communication capabilities as an
application service through the eGain Hosted Network.
. Scale to Meet Growing ecommerce Demands. eGain's architecture allows
eGain to add hardware capacity incrementally to address increased
customer communications volume.
. Reliability, Performance and Security. A team of dedicated professionals
monitors and maintains the customer business applications in a secure
environment.
Professional Services
eGain's operations group provides application management services that offer
a 24x7 application response monitoring service. eGain also provides database
services to maintain and enhance the performance, availability and reliability
of production systems. Finally, eGain offers network security services to
prioritize, assess and address the security concerns of customers at different
levels based on their needs.
eGain's consulting group offers solution development and system integration
services. This group works with its customers to understand their specific
requirements, analyze their business needs and implement integrated solutions
based on the eGain customer communications platform. eGain's consultants
possess the industry expertise necessary to integrate enterprise-wide systems
with eGain's customer communications solutions. eGain provides these services
independently or in partnership with system integrators who have built
consulting expertise on eGain's platform and can implement complete solutions
for eGain's clients.
eGain's installation group offers rapid implementation services designed to
deploy eGain's applications quickly. The installation teams are involved in
needs assessment, software and hardware configuration, training and activation.
eGain's educational services group provides a comprehensive set of training
programs to eGain customers and partners, including end users, business
consultants and developers.
As of March 31, 2000, eGain had 101 professionals dedicated to providing a
wide range of professional services for application management, solution
development, system installation and customer education.
Sales and Marketing
Sales Strategy
eGain sells its customer communications solutions either as a subscription-
based hosted service or as a licensed software product for in-house
installation. eGain's sales strategy is to pursue targeted accounts through a
combination of its direct sales force and strategic alliances. To date, eGain
has targeted its sales efforts at the ecommerce divisions of traditional
companies seeking to take advantage of the commercial opportunities presented
by ecommerce, as well as rapidly growing Internet companies.
eGain's North American direct sales personnel are located throughout the
continental United States and Canada. Internationally, eGain has direct sales
personnel located in the United Kingdom and Australia. Direct
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<PAGE>
sales personnel based in the United Kingdom are primarily responsible for
sales in Europe, while those based in Australia are primarily responsible for
sales in Australia and Asia-Pacific. In addition, sales managers currently
based in the United States handle sales to customers located in other
international regions.
The direct sales force is organized into teams, which include both sales
representatives and systems engineers. eGain's direct sales force is
complemented by telemarketing representatives based at its headquarters in
Sunnyvale, California.
Additionally, eGain further complements its direct sales force with a
series of reseller and sales alliances. Through these alliances, eGain is able
to leverage additional sales, marketing and deployment capabilities. In the
future, eGain intends to expand its distribution capabilities by increasing
the size of its direct sales force, establishing additional sales offices both
domestically and internationally and broadening its alliance activities.
As of March 31, 2000, there were approximately 66 employees engaged in
worldwide sales activities.
Marketing Strategy
eGain's marketing strategy is to build brand awareness as a leading
provider of intelligent customer communication solutions for organizations
engaged in ecommerce. eGain's marketing efforts focus on Global 2000
companies, as well as rapidly growing Internet companies.
eGain employs a range of marketing avenues to deliver its message,
including television, radio, print, outdoor billboard and Internet
advertising, telemarketing, targeted direct mailing, email newsletters and a
variety of trade shows, seminars and interest groups.
eGain's marketing group also provides the sales team with tools, including
product collateral, customer case studies, demos, presentations and
competitive analysis. In addition, eGain's marketing group performs market
analysis and conducts focus group and customer reviews to identify and develop
key partnership opportunities and product requirements.
As of March 31, 2000, there were approximately 28 employees engaged in
worldwide marketing activities.
Strategic Relationships
eGain employs strategic relationships to extend the breadth and depth of
its product offerings as well as drive market penetration and augment its
professional service capabilities. eGain has three types of strategic
relationships: solutions alliances, outsource alliances and market development
alliances. The relationships can be formal or informal agreements with third
parties and are typically not exclusive. These strategic relationships allow
eGain to remain focused on its core competencies.
Solution alliances
These organizations are value added resellers that bundle eGain products
with other applications, deliver implementation and customization services,
and provide technical support. Solution alliances install eGain products at
the customer site or provide off-site hosting resources. Solution alliances
include relationships with Aspect Communications Corp. and Ineto, Inc.
Outsource alliances
Outsource alliances utilize the eGain platform to provide services such as
customer care, Web collaboration, technical support, fulfillment services and
direct marketing services to customers. Outsource alliances include
relationships with Brigade Solutions, Harte-Hanks, Inc. and Sykes Enterprises.
Market development alliances
Market development alliances allow eGain and its partners to provide
referrals for their respective products and services. These partners, which
typically are consulting firms, systems integrators and application vendors,
currently include Andersen Consulting, eLoyalty Corp. and Pandesic Company.
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Customers
eGain has over 250 customers which include both Global 2000 companies and
dedicated Internet companies. The following is a representative list of
companies that have entered into agreements to install one or more eGain
applications:
<TABLE>
<S> <C>
Computer Technology and Networking Financial Services
AOL CNBC.com
3Com Consumer Financial Network
FileMaker Freddie Mac
Real Networks i-Escrow
Transition Networks Nova Information Systems
Quote.com
Consumer e-Retail Suretrade
Chapters.ca
Cooking.com
eTown Services and Other
Home Depot Della.com
KBKids.com Food.com
Petsmart.com Mazda USA
Rubbermaid Monster.com
Tucows MP3.com
Walgreens Peapod.com
USWeb
Waiter.com
Internet Searching and Auctions WebMD
FairMarket WebTV
LookSmart
Winebid.com
Snap.com
Talk City
ONElist
Six Degrees
</TABLE>
Competition
The ecommerce communications market is relatively new, growing rapidly, and
intensively competitive. eGain expects 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 its market. eGain's current principal
competitors for its licensed software products include Ask Jeeves, Inc.,
Brightware, Inc., Kana Communications Inc. (which recently acquired Silknet
Software, Inc.), Primus Knowledge Solutions, Inc., Quintus Corp. (which
recently agreed to acquire Mustang Software, Inc.) and WebLine Communications
Corp. (acquired by Cisco Systems, Inc.).
While eGain was the first company to offer a customer communications
solution platform in a hosted environment, some of its competitors for licensed
software products are now beginning to offer hosted approaches. eGain also
faces actual or potential competition from larger, front office software
companies such as Clarify, Inc. (acquired by Nortel Networks), and Peoplesoft,
Inc.
In the future, eGain may face competition from established software
companies such as Hewlett-Packard Company, IBM, Microsoft Corporation, and
others that may seek to enter the market for ecommerce customer service
solutions.
eGain believes that the principal competitive factors affecting its market
are product features, product quality and performance, including scalability,
flexibility and availability, price, quality of support and service and brand
reputation. eGain believes that its products currently compete favorably with
respect to these factors,
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eGain's market is evolving rapidly, and eGain expects to face increased
competition for its product offerings. Some of eGain's competitors have, and
our future competitors may have, longer operating histories, larger customer
base, greater brand recognition and significantly greater financial, marketing,
technical, support and other resources. Some of eGain's present and future
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.
Product Development
eGain believes that strong product development capabilities are essential to
its strategy of enhancing its technology, developing additional applications
incorporating that technology and maintaining the competitiveness of its
product and service offerings. eGain has invested significant time and
resources in creating a structured process for undertaking all product
development. This process involves several functional groups at all levels
within eGain's organization and is designed to provide a framework for defining
and addressing the activities required in bringing product concepts and
development projects to market successfully.
In addition, eGain continuously analyzes market and customer requirements
and evaluates technology that it believes will further its platform acceptance
in the market. eGain selectively chooses partners with superior technology to
enhance features and functionality of its product offerings.
As of March 31, 2000, there were approximately 75 employees engaged in
product development activities (including 8 consultants under contract).
Technology
All of eGain's software products are built on a standards-based, scalable
architecture designed to address the evolving needs of companies engaged in
ecommerce. Specifically, eGain's Commerce 2000 platform is based on our
proprietary 100% Web-native architecture, 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.
eGain's software architecture is a more scalable approach to application
design than 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, eGain's technology
does not require the download of any client software. This means that users can
access the application from any location through a standard Web browser.
eGain's component-based software model is 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 modified or augmented to meet the specific needs of customers.
Intellectual Property
eGain regards its copyrights, service marks, trademarks and similar
intellectual property as critical to its success. eGain relies on patent,
trademark, copyright, trade secret and other laws to protect the proprietary
aspects of its technology and business. eGain has no patents to date, although
it presently has one patent
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<PAGE>
pending for its WorkEverywhere technology that matches customers' browsing
platform with appropriate real-time interaction method. eGain also has several
United States and international trademark applications pending. eGain's
trademarks include eGain, eGain Mail, eGain Live, eGain Commerce 2000, eGain
Assistant, eGain Inform, eGain Voice, eGain Campaign, and eGain Hosted Network.
eGain is continually assessing the propriety of seeking patent and other
intellectual property protections for those aspects of its technology that it
believes 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.
eGain routinely requires its employees, customers, and potential business
partners to enter into confidentiality and nondisclosure agreements before
eGain will disclose any sensitive aspects of its products, technology, or
business plans. In addition, eGain requires employees to agree to surrender to
eGain any proprietary information, inventions or other intellectual property
they generate or come to possess while employed by eGain. Despite eGain's
efforts to protect its proprietary rights through confidentiality and license
agreements, unauthorized parties may attempt to copy or otherwise obtain and
use its products or technology. These precautions may not prevent
misappropriation or infringement of its intellectual property. In addition,
some of eGain's license agreements with certain customers and partners require
eGain to place the source code for its products into escrow. These agreements
typically provide that some party will have a limited, non-exclusive right to
access and use this code as authorized by the license agreement if there is a
bankruptcy proceeding instituted by or against eGain, or if eGain materially
breaches a contractual commitment to provide support and maintenance the party.
Third parties may infringe or misappropriate eGain's copyrights, trademarks
and similar proprietary rights. In addition, other parties may assert
infringement claims against eGain. Although eGain has not received notice of
any alleged infringement, its products may infringe issued patents that may
relate to its 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 eGain's software products. eGain may be subject
to legal proceedings and claims from time to time in the ordinary course of its
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 eGain's business. This litigation could also require eGain 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. eGain's failure or inability to develop non-infringing technology
or license the proprietary rights on a timely basis would harm its business.
Employees
As of March 31, 2000, eGain had 312 full-time employees including 67 in
research and development, 101 in services, 94 in sales and marketing and 50 in
general and administrative. None of eGain's employees are covered by collective
bargaining agreements. eGain believes its relations with its employees are
good.
Legal Proceedings
eGain is not a party to any material legal proceeding. eGain may be subject
to various claims and legal actions arising in the ordinary course of business.
Facilities
eGain's corporate headquarters are located in Sunnyvale, California, where
it occupies approximately 46,000 square feet under a lease expiring in
September 2001. eGain has recently acquired leases with 5-year terms on
buildings in Sunnyvale which will provide an additional 84,000 square feet.
eGain also maintains a direct operating presence through offices in New York
City, London, and Sydney. eGain believes its facilities will be adequate to
meet its requirements for the next twelve months.
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<PAGE>
MANAGEMENT
Directors, Executive Officers and Key Employees
eGain directors, executive officers and key employees and their ages as of
March 31, 2000 are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Ashutosh Roy(1)............ 33 Chief Executive Officer and Chairman
Gunjan Sinha............... 32 President and Director
Harpreet Grewal............ 32 Chief Financial Officer
Laeeq Ahmed................ 40 Vice President of Professional Services
Ian Duffield............... 43 Chief Information Officer
Joan Gurasich.............. 53 Vice President of Marketing
Ram Kedlaya................ 41 Vice President of International Operations
Wendell Lansford........... 31 Vice President of New Business Initiatives
Prakash Mishra............. 30 Vice President of Products
Veronica O'Shea............ 38 Vice President of North American Sales
Ryan Rosenberg............. 39 Vice President of Product Marketing
Eric Smit.................. 37 Vice President of Finance and Administration
A. Michael Spence(2)(3).... 55 Director
Mark Wolfson(1)(2)(3)...... 46 Director
</TABLE>
- --------
(1) Member of stock option committee.
(2) Member of audit committee.
(3) 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 M.B.A. from Stanford University.
Gunjan Sinha co-founded eGain and has served as a director of eGain since
inception in September 1997 and as President of eGain since January 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 University of California, 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.
Laeeq Ahmed has served as Vice President of Professional Services of eGain
since January 2000. From October 1999 to December 1999, Mr. Ahmed served as
Vice President of Professional Services for IPNet Solutions. From August 1997
to September 1999, Mr. Ahmed served as Senior Practice Director for Oracle
40
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Corporation. From April 1996 to August 1997, Mr. Ahmed served as Senior Manager
for Ernst & Young LLP. From August 1995 to April 1996, Mr. Ahmed served as a
Managing Associate for Cooper & Lybrand, LLP. From November 1993 to July 1995,
Mr. Ahmed served as Practice Manager for Oracle Corporation. Mr. Ahmed holds an
M.B.A. in Finance and Investments from George Washington University and a B.A.
in Economics from the University of Maryland.
Ian Duffield has served as Chief Information Officer of eGain since December
1999. From October 1998 to December 1999, Mr. Duffield served as Chief
Information Officer of Rational Software, a software tools company. From
December 1995 to October 1998, Mr. Duffield served as Chief Information Officer
at Aspen Technology, an enterprise software supplier to the process
manufacturing industry. Mr. Duffield holds a Bachelors degree in Land Surveying
and Geography from the University of Newcastle Upon Tyne, England.
Joan Gurasich has served as Vice President of Marketing of eGain since
December 1999. From September, 1998 to May 1999, Ms. Gurasich served as Vice
President of Product Marketing and Management at Vantive, Corporation, a
customer relationship management software company. From January 1998 to
September 1998, Ms. Gurasich served as Director of Product Marketing at
Decisive Technology, an internet applications company delivering real-time
customer intelligence. From January 1990 to July 1997, Ms. Gurasich served as
Director of Solutions Marketing and Alliances (Call Center and Integrated
Messaging) for Siemens Business Communications, a telecommunications equipment
manufacturer. Ms. Gurasich holds a B.A. in Mathematics from Rice University.
Ram Kedlaya has served as Vice President of International Operations since
February 2000. Mr. Kedlaya has been with eGain since December 1998, serving as
Vice President of Products and Vice President of Professional Services in that
time. 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, India.
Wendell 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 Products of eGain since May
1999. From September 1996 to May 1999, Mr. Mishra served as Chief Technology
Officer and Executive Vice President of Sitebridge Corporation, an ecommerce
customer service software company. From August 1994 to September 1996,
Mr. Mishra served as an 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.
Veronica O'Shea has served as Vice President of North American Sales of
eGain since October 1999. From October 1997 to September 1999, Ms. O'Shea
served as Vice President of Western Region Sales for Vantive Corporation. From
December 1989 to December 1996, Ms. O'Shea served as Regional Sales Vice
President of Oracle Corporation. Ms. O'Shea holds a Bachelors degree in
Economics/Accounting from Boston College.
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Ryan Rosenberg has served as Vice President of Product 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 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
publishing 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 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.
There are no family relationships among any of eGain's directors or
executive officers.
Board Committees
eGain's board of directors has a compensation committee, a stock option
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 A.
Michael Spence are the current members of the compensation committee. Ashutosh
Roy, eGain's Chief Executive Officer, will participate in all discussions and
decisions regarding salaries and incentive compensation for all employees and
consultants of eGain, except that he will be excluded from decisions regarding
his own salary and incentive compensation.
The stock option committee is responsible for administering eGain's stock
option plans. Mr. Wolfson and Mr. Roy are current members of the stock option
committee.
The audit committee reviews eGain's annual audit and meets with eGain's
independent auditors to review eGain's internal controls and financial
management practices. Mr. Wolfson and Mr. Roy served as the audit committee
throughout the last fiscal year. Mr. Wolfson and Dr. Spence are the current
members of the audit committee.
Director Compensation
Except for the grant of stock options, eGain does not currently compensate
its directors for their services as directors. Directors who are employees of
eGain are eligible to participate in eGain's 1998 Stock Plan and eGain's 1999
Employee Stock Purchase Plan. eGain has granted to each of Dr. Spence and Mr.
Wolfson, nonemployee directors of eGain, an option to purchase 25,000 shares of
eGain common stock. eGain also
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<PAGE>
reimburses each member of its 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 eGain's chief executive officer and to each of eGain's
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 Klann(1).................................. 194,000 8,600 34,271
Senior Vice President of Sales
Ryan Rosenberg.................................... 135,000 -- 145,000
Vice President of Marketing
Eric Smit......................................... 105,381 -- 125,000
Vice President of Finance and Administration
</TABLE>
- --------
(1) Mr. Klann resigned from eGain in March 2000.
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<PAGE>
eGain Option Grants in Last Fiscal Year
Set forth below is a table that details option grants by eGain in fiscal
1999. 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 ten 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 $12.00 per share, the initial public offering price,
since the common stock was not traded in an established market prior to the
offering.
All of Mr. Klann's options were immediately vested in full. Mr. Rosenberg's
options and Mr. Smit's option for 50,000 shares vest as to 25% of the shares on
the first anniversary of the vesting start date and 1/48 of the shares each
full month thereafter. Mr. Smit's option for 75,000 shares vests as to 12/45 of
the shares on the first anniversary of the vesting start date and 1/45 of the
shares each full month thereafter.
<TABLE>
<CAPTION>
Potential Realizable Value at
Percentage of Assumed Annual Rates of Stock
Total Options Exercise Price Appreciation for
Granted to or Base Option Term
Options Employees in Price Expiration ------------------------------
Name Granted Fiscal 1999 ($/Share) Date 5% 10%
- ---- ------- ------------- --------- ---------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Ashutosh Roy............ -- --% $ -- -- $ -- $ --
Gunjan Sinha............ -- -- -- -- -- --
Stephen Klann........... 8,671 0.3 0.10 10/9/08 168,077 267,635
8,400 0.3 0.20 1/29/09 161,456 257,092
3,200 0.1 0.20 3/19/09 61,507 97,940
10,400 0.4 0.40 5/20/09 196,510 312,909
3,600 0.1 0.50 6/18/09 67,436 107,381
Ryan Rosenberg.......... 125,000 4.7 0.10 7/31/08 2,422,981 3,858,192
20,000 0.8 0.20 1/29/09 384,419 612,123
Eric Smit............... 75,000 2.8 0.10 10/9/08 1,453,788 2,314,915
50,000 1.9 0.50 6/18/09 936,614 1,491,402
</TABLE>
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 $12.00.
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Options at Fiscal In-the-Money Options at
Shares Year-End Fiscal Year-End
Acquired on Value ------------------------- -------------------------
Name Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ----------- ---------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Ashutosh Roy............ -- $ -- --/-- $ --/--
Gunjan Sinha............ -- -- --/-- --/--
Stephen Klann........... 68,271 677,123 14,000/-- 162,040/--
Ryan Rosenberg.......... 145,000 1,433,500 --/-- --/--
Eric Smit............... 86,500 849,425 50,000/-- 575,000/--
</TABLE>
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<PAGE>
Compensation Committee Interlocks and Insider Participation
The members of eGain's 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 of compensation committee of any other company.
1998 Stock Plan
eGain's 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,
nonemployee directors and consultants. A total of 6,500,000 shares of common
stock has been reserved for issuance under eGain's 1998 Stock Plan.
eGain's 1998 Stock Plan is administered by eGain's compensation committee
and eGain's non-insider option committee. eGain's compensation committee
consists of at least two directors who are "nonemployee directors," as defined
in Rule 16b-3. The board of directors may amend eGain's 1998 Stock Plan as
desired without further action by eGain's stockholders except as required by
applicable law. eGain's 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 eGain's 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.
Generally, options granted under the 1998 Stock 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 Plan, or these options will terminate. Some
options granted to eGain's executive officers provide for partial acceleration
upon a change in control of eGain.
As of March 31, 2000:
. 2,630,429 options to purchase shares of common stock were outstanding;
. 2,591,300 shares of common stock were issued upon the exercise of
options; and
. 1,278,271 shares were available for future awards.
Sitebridge 1997 Stock Plan
Upon the closing of eGain's acquisition of Sitebridge in March 1999, eGain
assumed outstanding options to purchase shares of common stock of Sitebridge
that became exercisable for shares of eGain common stock. As of March 31, 2000,
600,139 shares of eGain common stock have been issued upon the exercise of
options, and options to purchase 480,898 shares of eGain common stock were
outstanding under this plan.
Big Science Stock Plan
Upon the closing of eGain's acquisition of Big Science in March 2000, eGain
assumed outstanding options to purchase shares of common stock of Big Science
that became exercisable for 49,961 shares of eGain common stock. As of March
31, 2000, options to purchase 49,961 shares of eGain common stock were
outstanding under this plan.
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1999 Employee Stock Purchase Plan
The board of directors adopted eGain's 1999 Employee Stock Purchase Plan in
July 1999. A total of 750,000 shares of common stock have been reserved for
issuance under eGain's 1999 Employee Stock Purchase Plan. eGain's 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. eGain's 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 eGain's 1999
Employee Stock Purchase Plan, none of which will exceed six 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 eGain's 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. eGain's 1999
Employee Stock Purchase Plan will terminate in July 2009, unless sooner
terminated by the board of directors.
401(k) Plan
eGain has a tax-qualified employee savings and retirement plan for which
eGain's employees are generally 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 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
eGain does not currently have any employment contracts with any of eGain's
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
eGain's 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.
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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.
eGain's certificate of incorporation and bylaws provide that it will
indemnify eGain's directors and executive officers and may indemnify its other
officers and employees and other agents to the fullest extent permitted by law.
eGain's bylaws also permit it 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.
eGain has entered into agreements to indemnify eGain's directors and
executive officers, in addition to indemnification provided for in eGain's
certificate of incorporation and bylaws. eGain believes that these provisions
and agreements are necessary to attract and retain qualified persons as
directors and executive officers.
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CERTAIN TRANSACTIONS
Since eGain's inception, there has not been any transaction or series of
transactions to which eGain was or is 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 eGain's 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, eGain sold 4,000,000 shares of common stock to each of
Ashutosh Roy, a founder and eGain's Chief Executive Officer, and Gunjan Sinha,
a founder and eGain's President, at a purchase price of $0.005 per share.
Between June 1998 and July 1999, eGain sold and issued 8,608,585 shares of
eGain's preferred stock for an aggregate consideration of $14,671,004. eGain
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. Each
share of Series A preferred stock, Series B preferred stock and Series D
preferred stock was converted into one share of common stock upon eGain's
public offering on September 23, 1999.
The following table summarizes purchases, valued in excess of $60,000, of
shares of preferred stock by eGain's directors, executive officers and eGain's
5% stockholder:
<TABLE>
<CAPTION>
Number of Shares
-------------------------
Series Series
Series A B D
--------- ------- -------
Directors and executive officers
- --------------------------------
<S> <C> <C> <C>
Ashutosh Roy.......................................... -- 750,000 191,375
Gunjan Sinha.......................................... -- 750,000 191,375
<CAPTION>
5% Stockholder
- --------------
<S> <C> <C> <C>
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, eGain 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 eGain's 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 eGain, 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 eGain's current policy that all transactions between eGain and its
officers, directors, 5% stockholders and eGain's 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 eGain than could be obtained from
unaffiliated parties and are reasonably expected to benefit eGain.
For information concerning indemnification of directors and officers, see
"Management--Limitation of Liability and Indemnification Matters."
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DESCRIPTION OF eGAIN CAPITAL STOCK
After giving effect to the conversion of all outstanding preferred stock
into common stock and the amendment of eGain's certificate of incorporation,
eGain's 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 March 31, 2000, there were 29,596,566 shares of common stock
outstanding, held by approximately 258 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.
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 the merger will be, 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. eGain has no current plans to issue any shares of
preferred stock.
Warrants
In May 1999, eGain assumed warrants exercisable for the Series A preferred
stock of Sitebridge in connection with eGain's acquisition of Sitebridge. These
warrants became exercisable for an aggregate of 121,006 shares of eGain's
Series C preferred stock at an exercise price of $0.9916 per share. Upon the
completion of the public offering on September 23, 1999, all of eGain's
warrants to purchase preferred stock converted into the right to purchase the
equivalent number of shares of common stock at the same exercise price per
share.
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Registration Rights
The holders of approximately 11.3 million shares of common stock have the
right to cause eGain to register these shares under the Securities Act as
follows:
. Demand Registration Rights. The holders of a majority of the shares of
eGain common stock that were issued upon conversion of eGain's Series A,
B, C, and D Preferred Stock at the time of eGain's initial public
offering may request that eGain 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 eGain files a
registration statement to register any of eGain's securities for eGain's
own account or for the account of others.
. S-3 Registration Rights. The holders of at least 30% of registrable
securities have the right to request registrations on Form S-3 if eGain
is eligible to use Form S-3, have not already effected such an S-3
registration within the past six months, and if the aggregate proceeds
are at least $1,000,000.
Holders of an additional approximately 7.1 million 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.
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.
Delaware Anti-Takeover Law and Certain Charter Provisions
Delaware Takeover Statute
eGain is 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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Section 203 defines business combination to include:
. any merger or consolidation involving the corporation and the interested
stockholder;
. any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation involving the interested stockholder;
. subject to certain exceptions, any transaction that results in the
issuance or transfer by the corporation of any stock of the corporation
to the interested stockholder;
. any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or series of
the corporation beneficially owned by the interested stockholder; or
. the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
In general, Section 203 defines an interested stockholder as any entity or
person 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 eGain's 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:
. delay, defer or prevent a change in control of eGain;
. discourage bids for the common stock at a premium over the market price
of eGain's common stock;
. adversely affect the voting and other rights of the holders of eGain's
common stock; and
. discourage acquisition proposals or tender offers for eGain's shares and,
as a consequence, inhibit fluctuations in the market price of eGain's
shares that could result from actual or rumored takeover attempts.
eGain's 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 eGain's common stock is Boston
EquiServe.
Listing
eGain is quoted on the Nasdaq National Market under the symbol "EGAN."
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF eGAIN
Overview
eGain is a leading provider of intelligent customer communications solutions
for companies engaged in ecommerce. eGain's products and services help
businesses deliver a superior customer experience and establish more
profitable, lasting customer relationships. eGain offers licensed and hosted
applications for email management, interactive Web and voice collaboration,
intelligent self-help agents, and proactive online marketing. eGain's software
solutions are built using a Web-native architecture, thereby providing
scalability, global access, diverse integration, and rapid deployment. Over 60%
of eGain's current customers access its applications through the eGain Hosted
Network. eGain's customers include both dedicated Internet companies, such as
AOL, CNBC.com and Monster.com, and traditional companies engaged in ecommerce,
such as Mazda USA, 3Com and Home Depot.
eGain was incorporated in September 1997. From inception to September 1998,
eGain's operating activities related primarily to planning and developing
eGain's proprietary technological solutions, recruiting personnel, raising
capital and purchasing operating assets. In September 1998, eGain commenced
commercial shipment of eGain Mail, and established the eGain Hosted Network.
On April 30, 1999, eGain acquired Sitebridge Corporation and added its real-
time Web collaboration product to eGain's platform. The product, eGain Live, is
an application that allows ecommerce companies to interact in real-time with
visitors to their Web sites.
In November 1999, eGain announced the eGain Commerce 2000 platform, which
integrates its suite of customer communications solutions. The eGain Commerce
2000 platform enables companies to integrate their customer communications
solutions around common databases and processes and across all points of
customer contact. eGain intends to release three products for general sale and
distribution in calendar 2000, eGain Campaign, eGain Inform and eGain Voice,
which will further build on the eGain Commerce 2000 platform.
On March 7, 2000, eGain acquired Big Science Company and added its Web-
native self-service product to eGain's platform. The product, eGain Assistant,
enables personalized customer assistance on Web sites through virtual service
agents. Customers interact in natural language dialogue with a life-like
character, which answers questions and leads customers through problem
resolution and sales situations.
On March 16, 2000 eGain announced a definitive agreement under which it will
acquire Inference Corporation in exchange for eGain common stock. The
acquisition brings together eGain's strength in Web- native, multi-channel
customer communications with Inference's powerful customer profiling and
contact center support capabilities. It will also significantly expand eGain's
European business, and add critical new product and technology components to
the eGain Commerce 2000 platform. The merger will be accounted for as a
purchase transaction.
eGain expects to make significant investments in product development and
technology to enhance its current products and services, develop new products
and services and further advance its solution offerings. In addition, an
important part of eGain's strategy is to expand its operations and employee
base and build sales, marketing, customer support, technical and operational
resources. eGain also intends to expand its strategic distribution, hosting and
solution relationships to add capabilities to its current product offerings and
to help market products to new customers. eGain has incurred significant losses
since its inception, and as of March 31, 2000, had an accumulated deficit of
approximately $56.5 million. eGain has not achieved profitability on a
quarterly or annual basis. eGain expects to continue to incur substantial
operating losses for the foreseeable future. In view of the rapidly evolving
nature of eGain's business and limited operating history, eGain believes that
period-to-period comparisons of its revenue and operating results are not
meaningful and should not be relied upon as indications of future performance.
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Goodwill and Other Non-Cash Charges
eGain recorded goodwill and other purchased intangible assets of
approximately $21.4 million associated with its acquisition of Sitebridge.
eGain expects to record goodwill and other purchased intangible assets of
approximately $34.5 million and $73.2 million associated with its acquisitions
of Big Science and Inference, respectively. Goodwill and other purchased
intangible assets are being amortized on a straight-line basis over the
estimated useful lives of three years. eGain currently expects to record
amortization of goodwill and other intangible assets of approximately $11.2
million in fiscal 2000, $44.0 million in fiscal 2001 and $42.8 million in
fiscal 2002.
In connection with the grant of stock options to employees and consultants,
eGain recorded deferred stock compensation totaling approximately $234,000 in
fiscal 1998, $10.6 million in fiscal 1999 and $8.3 million in the nine months
ended March 31, 2000. Deferred compensation for options granted to employees
has been determined as the difference between the deemed fair value of eGain's
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. eGain recorded amortization of deferred stock
compensation of approximately $58,000 in fiscal 1998, $1.8 million in fiscal
1999 and $8.9 million in the nine months ended March 31, 2000. eGain expects to
record amortization expense relating to deferred stock compensation
approximately as follows: $11.3 million in fiscal 2000, $5.7 million in fiscal
2001, $2.9 million in fiscal 2002 and $1.0 million in fiscal 2003. The
amortization expense relates to options awarded to employees and consultants in
all operating expense categories.
Results of Operations
Net Revenue
Net revenue was $7.1 million for the nine months ended March 31, 2000, an
increase of $6.7 million over the nine months ended March 31, 1999. This
increase was primarily due to the increase in eGain's customer base. Factors
that contributed to the increase include expanded direct sales and marketing
efforts both domestically and internationally, expanded channel partnerships,
and the introductions of new products. For the nine months ended March 31,
2000, no single customer contributed more than 10% of net revenue. Although
revenues have increased in prior periods, eGain cannot be certain that its
revenues will grow in future periods or that it will grow at similar rates as
in the past.
Revenue from application hosting for the nine months ended March 31, 2000
was $1.93 million, an increase of $1.91 million over the nine months ended
March 31, 1999. The increase was primarily attributable to the increase in the
number of hosted customers. As of March 31, 2000, over 60% of eGain's customers
were using the eGain Hosted Network.
Revenue from software license fees for the nine months ended March 31, 2000
was $2.5 million, an increase of $2.2 million over the nine months ended March
31, 1999. The increase was primarily attributable to the increase in sales of
software licenses.
Revenue from consulting and support services for the nine months ended March
31, 2000 was $2.7 million, an increase of $2.6 million over the nine months
ended March 31, 1999. Consulting and support revenue increased primarily due to
the increase in the customer base and their need for eGain's professional
services.
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 the total revenue and WebTV accounted for 10.8%
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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.
Cost of Revenue
Cost of revenue for the nine months ended March 31, 2000 was $9.4 million,
an increase of $8.5 million over the nine months ended March 31, 1999. The
increase is primarily attributable to a significant increase in headcount and
expansion of the eGain Hosted Network. In fiscal 1999, cost of revenue was $1.8
million. Cost of revenue includes personnel costs for eGain's hosting services,
consulting services and customer support, and also includes depreciation of
capital equipment used in the eGain Hosted Network, cost of third party
products and lease costs paid to remote co-location centers. Costs associated
with the eGain Hosted Network support the following services: performance
monitoring, database backup/restore and disaster recovery solutions, 24x7
network and operations support, high reliability and scalability, metrics and
business process re-engineering. eGain expects cost of revenues to increase in
absolute dollars in future periods as eGain continues to expand its business
operations.
Research and Development Expenses
Research and development expenses for the nine months ended March 31, 2000
were $7.1 million, an increase of $5.9 million over the nine months ended March
31, 1999. The increase was primarily attributable to a significant increase in
headcount and related personnel costs. Research and development expenses were
$2.1 million in fiscal 1999. 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. eGain expects
research and development expenses to increase in absolute dollars in future
periods.
Sales and Marketing Expenses
Sales and marketing expenses for the nine months ending March 31, 2000 were
$16.0 million, an increase of $13.5 million over the nine months ended March
31, 1999. The increase was due primarily to an increase in headcount and
related personnel costs, increased spending on marketing programs, European
sales and marketing operations and the launch of operations in Australia. eGain
expects to continue hiring sales and marketing personnel and to increase
marketing program spending. Sales and marketing expenses were $4.2 million in
fiscal 1999. 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. eGain expects sales and marketing
expenses to increase in absolute dollars in future periods.
General and Administrative Expenses
General and administrative expenses for the nine months ending March 31,
2000 were $4.8 million, an increase of $4.1 million over the nine months ended
March 31, 1999. The increase was due primarily to an increase in headcount and
the related personnel costs and fees for outside professional services. General
and administrative expenses were $1.2 million in fiscal 1999, and 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. eGain
expects general and administrative expenses to increase in absolute dollars in
future periods as a result of the growth of the Company.
Amortization of Goodwill
For the nine months ended March 31, 2000, eGain amortized goodwill totaling
$6.3 million. No goodwill was amortized during the comparable nine months ended
March 31, 1999. In fiscal 1999, eGain amortized goodwill totaling $1.2 million.
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. As of March 31, 2000, goodwill and other purchased intangible
assets related to eGain's April 1999 acquisition of Sitebridge totaled
approximately $21.4 million, and goodwill and other purchased intangible assets
related to eGain's March 2000 acquisition of Big Science Company totaled
approximately $34.5 million.
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Non-Operating Income (Expense), Net
For the nine months ending March 31, 2000 non-operating income was $1.09
million, an increase of
$1.08 milion over the nine months ended March 31, 1999. Non-operating income
includes realized gains on cash and short-term investments and interest income
partially offset by expense on financing obligations and use-tax expense. The
increase was primarily attributable to interest earned on eGain's cash balances
on hand as a result of its public offering in September 1999. Non-operating
loss was $5,000 in fiscal 1999.
Liquidity and Capital Resources
Prior to eGain's initial public offering, it financed operations primarily
through the private placement of convertible preferred stock, a bank line of
credit, and financing for capital purchases. On September 28, 1999, eGain
completed its initial public offering of common stock, in which it sold
5,750,000 shares of common stock (including exercise of an over-allotment
option in October 1999), at a price of $12.00 per share. Proceeds to eGain from
the offering, before offering expenses, were approximately $69.0 million.
At March 31, 2000, eGain had cash and cash equivalents of $25.5 million.
eGain regularly invests excess funds in short-term money market funds,
commercial paper, and short-term notes. At March 31, 2000 eGain had short-term
investments held as available for sale of $14.9 million.
Net cash used in operating activities for the nine months ended March 31,
2000 and 1999 was $22.3 million and $4.6 million, respectively. Cash used in
operating activities in each period was primarily the result of net losses and
an increase in accounts receivable, partially offset by the increase in
deferred revenues, accrued liabilities and increases in non-cash charges.
Net cash used in investing activities for the nine months ended March 31,
2000 was $21.8 million, and was approximately $810,000 in the nine months ended
March 31, 1999. Cash used in investing activities in the nine months ended
March 31, 2000 was due to the purchase of short-term available-for-sale
investments, the purchase of fixed assets and leasehold improvements and the
expenses incurred in connection with the purchase of Big Science Company in
March 2000.
Net cash provided by financing activities for the nine months ended March
31, 2000 and 1999 was
$68.3 million and $6.4 million, respectively. Cash provided by financing
activities in the nine months ended March 31, 2000 was due to proceeds from
loans offset by loan payments, and the issuance of preferred stock and common
stock, including net proceeds of $63.0 million from the initial public
offering. Cash provided by financing activities in the nine months ended March
31, 1999 was primarily due to proceeds from a bank line of credit and the
issuance of common stock.
eGain expects to devote substantial capital resources to expand the eGain
Hosted Network, to hire and expand the research and development organization,
to hire and expand the sales, marketing and general and administrative
organizations, to expand marketing programs, to establish additional facilities
worldwide and for other general corporate activities. Although eGain believes
that current cash balances will be sufficient to fund operations for the next
12 months, there can be no assurance that it will not require additional
financing within this time frame or that such additional funding, if needed,
will be available on acceptable terms, if at all.
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THE MERGER AND RELATED TRANSACTIONS
This section of the proxy statement/prospectus summarizes material aspects
of the proposed merger. A copy of the merger agreement is attached as Appendix
A. All holders of Inference common stock are urged to read the merger agreement
and any other appendices in their entirety.
General
The merger agreement provides for the merger of Inference with and into a
wholly owned subsidiary of eGain, with Inference surviving as a wholly owned
subsidiary of eGain. The certificate of incorporation and bylaws of eGain's
merger subsidiary will become the certificate of incorporation and bylaws of
the surviving corporation in the merger, but the name of the surviving
corporation will be "Inference Corporation." The directors and executive
officers of eGain's merger subsidiary will be the initial directors and
executive officers of the surviving corporation.
If the merger is completed, holders of Inference common stock will no longer
hold any interest in Inference other than through their interest in shares of
eGain common stock. The stockholders of Inference will become stockholders of
eGain, and their rights will be governed by eGain's Amended and Restated
Certificate of Incorporation and eGain's bylaws.
Effective Time of the Merger
The merger will become effective upon the filing of a certificate of merger
with the Secretary of State of the State of Delaware. The merger agreement
provides that the parties thereto will cause the certificate of merger to be
filed as soon as practicable after:
. the Inference stockholders have approved the merger;
. all required regulatory approvals and actions have been obtained or
taken;
. all other conditions to the consummation of the merger have been
satisfied or waived.
See "--Regulatory Filings and Approvals Required to Complete the Merger" and
"Certain Provisions of the Merger Agreement--Conditions to Completion of the
Merger." There can be no assurance that the conditions to the merger will be
satisfied. Moreover, the merger agreement may be terminated by either eGain or
Inference under various conditions as specified in the merger agreement. See
"--Termination of the Merger Agreement" on page 76. Therefore, there can be no
assurance as to whether or when the merger will become effective.
Conversion of Inference Securities
Inference common stock
Upon the consummation of the merger, each outstanding share of Inference
common stock will automatically be converted into the right to receive a
fraction of a share of eGain common stock, equal to the applicable exchange
ratio. If the average share price of eGain common stock in the applicable
measurement period before the closing of the merger is between $48.516 and
$59.297, eGain will issue to Inference stockholders 0.1865 of a share of eGain
common stock for each share of Inference common stock held by them, subject to
adjustment as set forth below. If the average share price of eGain common stock
in the applicable measurement period is less than $48.516, the exchange ratio
will be increased based on a formula that takes into account the average share
price of eGain common stock. Similarly, if the average share price of eGain
common stock in the applicable measurement period is greater than $59.297, the
exchange ratio will be decreased based on a comparable formula. No fractional
shares of eGain common stock will be issued in the merger. Instead, any
Inference stockholder who would otherwise be entitled to receive a fraction of
a share will receive from eGain cash equal to the per share market value of
eGain common stock of the fractional share. The value of any fractional shares
will be calculated based on the per share closing price of eGain common stock
as reported on Nasdaq on the trading day immediately prior to the closing date
of the merger.
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At an assumed exchange ratio of 0.1865, based on the capitalization of
Inference on May 5, 2000, eGain would issue an aggregate of approximately
1,471,387 shares of eGain common stock in the merger, excluding shares issuable
upon the exercise of Inference options. In addition, at an assumed exchange
ratio of 0.1865, eGain would be obligated to issue a maximum of approximately
427,450 additional shares of eGain common stock upon exercise, if and when
exercised, of the Inference options converted to eGain options as a result of
the merger.
The exchange ratio is subject to adjustment. For illustration purposes only,
based on the capitalization of Inference on May 5, 2000 and assuming an average
share price for eGain of $17.5313 (the average closing price of eGain common
stock for the 20 consecutive trading days ending May 11, 2000), the exchange
ratio would be 0.5161, and eGain would issue an aggregate of approximately
4,071,759 shares of eGain common stock excluding shares issuable upon the
exercise of Inference options assumed in the merger.
Because the exchange ratio is fixed at 0.1865 shares of eGain common stock
for each share of Inference common stock if the average share price of eGain
common stock in the applicable measurement period is between $48.516 and
$59.297, the exchange ratio will not necessarily be adjusted to compensate
Inference stockholders for a decrease in the average market price of eGain
common stock that could occur before the merger becomes effective. Moreover, in
the event that the average share price of eGain common stock in the applicable
measurement period is greater than $59.297, the exchange ratio will be adjusted
downward, thereby reducing the number of shares of eGain common stock issuable
in exchange for shares of Inference common stock. Similarly, in the event that
the average share price of eGain common stock in the applicable measurement
period is less than $48.516, the exchange ratio will be adjusted upward, but
not on a one-for-one basis. As a result of the foregoing calculations of the
exchange ratio, in the event that the market price of eGain common stock
decreases or increases prior to the effective time of the merger, the value at
such time of eGain common stock to be received by Inference stockholders in the
merger would correspondingly increase or decrease.
Inference cannot terminate the merger agreement solely because the eGain
common stock price declines. The market prices of eGain common stock and
Inference common stock as of a recent date are set forth herein under
"Comparative Per Share Market Price Data." Inference stockholders are advised
to obtain recent market quotations for eGain common stock and Inference common
stock. We cannot predict the market prices of eGain common stock or Inference
common stock at any time before the effective time or as to the market price of
eGain common stock at any time thereafter.
Inference Options
Upon consummation of the merger, each outstanding Inference stock option,
whether vested or not vested, will be assumed by eGain and converted into an
option to acquire shares of eGain common stock on the same terms and conditions
(including any provisions for acceleration) as were applicable to such stock
option under the applicable Inference stock option plan in effect prior to the
merger (in accordance with the past practice of Inference with respect to the
interpretation and application of the terms and conditions of such stock option
plan). Each outstanding Inference stock option will be converted into an option
to acquire the number (rounded down to the nearest whole number) of shares of
eGain common stock determined by multiplying (x) the number of shares of
Inference common stock subject to such option immediately prior to the
effective time of the merger by (y) the applicable exchange ratio, at an
exercise price per share of eGain common stock (rounded up to the nearest whole
cent) equal to (a) the exercise price per share of Inference common stock
otherwise purchasable under the applicable Inference stock option plan divided
by (b) the applicable exchange ratio.
Based upon the number of Inference stock options outstanding at May 5, 2000,
assuming an exchange ratio of 0.1865, approximately 427,450 additional shares
of eGain common stock would be reserved for issuance to holders of Inference
options in connection with eGain's assumption of Inference's outstanding
options. As soon as possible after the effective time, eGain will file a
registration statement on Form S-8 with the Securities and Exchange Commission
with respect to the shares of eGain common stock subject to all assumed
Inference options.
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Background of the Merger
As a regular part of their business plans, eGain and Inference have from
time to time each considered opportunities for expanding and strengthening
their technology, products, research and development capabilities and
distribution channels, including strategic acquisitions, business combinations,
investments, licensing and development agreements and joint ventures.
In February 1999, eGain and Inference entered into a nonexclusive value
added reseller agreement, under which eGain granted Inference a license to
manufacture, distribute, market and sublicense the eGain Mail product, which
would be bundled with Inference's software for sale by Inference. The agreement
had an initial term of two years.
Representatives from eGain and Inference met to discuss aspects of the
companies' reseller agreement in May 1999, and again in July 1999, when they
reviewed architecture issues and discussed the timing of Inference's next
product release. Concurrently, from June 1999 through October 1999, Adams,
Harkness & Hill, financial advisor to Inference, had numerous discussions with
Inference management regarding Inference's efforts to improve its financial
performance, in addition to discussions about Inference's strategic
alternatives. In September 1999, as part of the discussions of strategic
alternatives, Adams, Harkness & Hill and Inference developed a list of 26
potential strategic partners that it was believed would have some degree of
interest in partnering with Inference, whether by entering into joint marketing
or similar commercial agreements, by making an equity investment, by acquiring
one of Inference's product lines, or by combining with Inference. While not yet
formally engaged by Inference, Adams, Harkness & Hill agreed, after an October
13, 1999 conference call with Charles W. Jepson, Chief Executive Officer of
Inference, and Mark Wolf, then Chief Financial Officer of Inference, to contact
four of the companies. It was also agreed that Inference would continue its
discussion of strategic partnering alternatives with a number of other
companies, including eGain. On November 14, 1999, Inference and Adams, Harkness
& Hill entered into an agreement detailing the terms of Adams, Harkness &
Hill's engagement as financial advisor to Inference. From October 1999 until
the signing of an exclusivity agreement with eGain on March 4, 2000, Inference
and Adams, Harkness & Hill aggressively pursued strategic partnering
discussions including acquisition discussions, with many of the 26 companies
identified.
On October 14, 1999, Mr. Jepson of Inference met with Gunjan Sinha, eGain's
President, at eGain's offices in Sunnyvale, California to discuss the
companies' existing business relationship. Mr. Jepson and Mr. Sinha discussed
sales of eGain Mail by Inference under the reseller agreement and related
issues, including joint customers, the AOL relationship, product announcements,
sales efforts, training and customer support, and products under development
that might be sold collaboratively in the future.
Mr. Jepson and Mr. Sinha met on November 11, 1999 to discuss further the
companies' business relationship and the possibility of expanding that
relationship. A possible combination of the two companies was discussed at the
meeting, as were other possible means of collaborating more closely with
respect to integration of future products.
As a result of the meeting on November 11, 1999, Mr. Jepson, Mr. Sinha, and
representatives from their respective companies, met on November 23, 1999 to
review Inference products and to conduct technical due diligence. The parties
discussed how Inference's k-Commerce Support Enterprise product could be
integrated with eGain's platform and considered possible competitive advantages
associated with Inference's k-Commerce Sales product. The parties also
conducted preliminary business due diligence with respect to management and
customers of the companies. On December 10, 1999, Mr. Sinha advised Mr. Jepson
that eGain did not desire to pursue a business combination at that time, but
did desire to expand the partnership between the two companies. Eric Imparato,
Vice President of Channels of eGain, and Ross Hunt, Director of Channels of
Inference, were asked to explore further possible ways of strengthening the
partnership between the two companies.
During January 2000, joint selling activity by Inference and eGain increased
substantially, particularly sales activity internationally. On January 24,
2000, Mr. Jepson and Mr. Sinha met at eGain's offices to discuss
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ways of expanding the two companies' partnership under the reseller agreement.
During and subsequent to this meeting, representatives of eGain, principally
through Mr. Imparato, and representatives of Inference, principally through Mr.
Hunt, discussed product integration issues and establishment of an expanded OEM
agreement that would cover multiple products.
On January 31, 2000, eGain and Inference entered into an amendment to the
reseller agreement that authorized Inference to sell the eGain Live product to
certain end users.
On February 11, 2000, Ashutosh Roy, Chief Executive Officer, and Harpreet
Grewal, Chief Financial Officer of eGain met in Boston, Massachusetts, with
James Simms, Managing Director and Group Head of Mergers & Acquisitions and
Mike Murphy, Associate in the Internet / Software Group of Adams, Harkness &
Hill. The parties addressed the status of discussions between eGain and
Inference, including a possible combination of the companies. On February 17,
2000, Mr. Murphy met with Mr. Grewal at eGain's offices in Sunnyvale,
California and discussed a possible combination.
Mr. Jepson and Mr. Sinha met at eGain's offices the following day. At this
meeting, Mr. Sinha conveyed eGain's interest in acquiring Inference and
expressed his view that such a combination would benefit the customers,
employees and shareholders of both companies. Mr. Roy later joined the meeting
and discussed perceived synergies that could result from a combination of the
two companies.
On February 23, 2000, Messrs. Sinha and Roy discussed further with Mr.
Jepson eGain's interest in pursuing an acquisition of Inference by eGain. The
following morning, February 24, 2000, Mr. Roy conveyed to Mr. Jepson a proposal
to acquire all of the outstanding stock and other securities of Inference in
exchange for shares of eGain common stock valued at $75 million, based on the
closing price of $47.125 per share of eGain stock on February 23, 2000 and
subject to adjustment prior to execution of a definitive agreement. The
Inference board of directors reviewed and discussed the proposal at its
previously scheduled meeting of the board of directors held on February 24,
2000. Messrs. Simms and Murphy of Adams, Harkness & Hill presented to the
Inference board of directors a preliminary analysis of the potential benefits
and risks associated with an acquisition of Inference by eGain. They also
reviewed Inference's concurrent efforts to solicit interest from third parties
in either an acquisition of Inference or a strategic partnership, none of which
had proven successful to date. Adams, Harkness & Hill expressed to the board of
directors its belief that the opportunity with eGain represented Inference's
most attractive strategic alternative available to Inference at that time.
Because eGain had requested a period of exclusivity during which Inference
would be prohibited from soliciting or pursuing other possible strategic
partners, the Inference board of directors instructed Adams, Harkness & Hill to
immediately seek a definitive level of interest from parties other than eGain
with whom acquisition or strategic partnering discussions were ongoing. The
Inference board of directors recommended seeking improved economic terms that
included but were not limited to seeking a higher value for the transaction,
continuing pursuit of alternative buyers, and excluding the k-Commerce Sales
division from the business sold to eGain. The board authorized proceeding with
an exclusivity agreement subject to management's pursuit of the foregoing
recommendations. Subsequently, Mr. Jepson and other members of Inference senior
management met extensively with the two companies, other than eGain, that had
previously expressed the most interest in pursuing a substantive relationship
with Inference.
On February 26, 2000, Messrs. Roy and Sinha of eGain had telephone
conferences with Mr. Jepson of Inference and Messrs. Simms and Murphy of Adams,
Harkness & Hill concerning the possible combination. Mr. Jepson expressed the
directives of the Inference board of directors and sought to continue
discussions with the aim of realizing improved economic terms for Inference
stockholders.
On the evening of March 2, 2000, Mr. Jepson met with Messrs. Sinha and Roy
at eGain's offices to discuss the combination. Later that evening the Inference
board of directors met via a telephone conference call to consider the
transaction. All members of the board were present, as were Philip Ranger,
Chief Financial Officer of Inference, Messrs. Murphy and Simms of Adams,
Harkness and Hill, and Thomas C. DeFilipps of Wilson Sonsini Goodrich & Rosati,
outside counsel to Inference. Mr. DeFilipps reminded the directors of their
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duty in connection with the consideration of the proposed transaction with
eGain. Mr. Jepson reviewed the status of recent discussions with potential
acquirors, including eGain and the two other companies with whom Inference had
held extensive discussions. The Board also reviewed its alternatives to a
transaction with such companies, including the possible separate sale of the k-
Commerce Sales business. Following these discussions the Board authorized the
signing of an exclusivity agreement with eGain based upon the current financial
terms proposed by eGain.
Throughout the day on Saturday, March 4, 2000, the parties conducted due
diligence with respect to one another's business. On March 4, 2000, Messrs. Roy
and Sinha of eGain met at eGain's offices with Messrs. Jepson and Ranger of
Inference and Messrs. Simms and Murphy of Adams, Harkness & Hill to discuss
considerations relating to the proposed combination. At the conclusion of the
meeting, the parties agreed to continue their respective due diligence and to
proceed to negotiate the terms of a definitive agreement providing for the
acquisition by eGain of all outstanding Inference common stock and options to
purchase Inference common stock at an exchange ratio of 0.146, subject to
adjustment (a "pricing collar") based on the closing price of eGain common
stock prior to the closing of the acquisition. In consideration for eGain's
agreement to continue its due diligence and to prepare and seek to negotiate
the definitive agreement, Inference agreed that for a period of 30 days, it
would not enter into any agreement concerning a sale or merger of Inference
with any other party.
During the week of March 5, 2000, the parties conducted further technical
due diligence, commenced legal due diligence and commenced preparation of the
draft agreement and plan of merger. A series of meetings were held by senior
management of Inference and eGain from Monday, March 13, through Wednesday
March 15, 2000. The parties discussed technical issues, conducted further due
diligence and negotiated the terms of the proposed agreement and plan of
merger. Comparing the closing share prices from March 3, 2000 to March 15,
2000, eGain's stock price had decreased from $68.50 to $51.50 and Inference's
stock price had risen from $7.875 to $10.125. These stock price movements
caused the terms discussed on March 4, 2000 to be less favorable to Inference
than those originally proposed. On March 15, 2000, Messrs. Simms and Murphy
transmitted a revised proposal to eGain and, following negotiations with Mr.
Jepson of Inference and Mr. Roy of eGain, negotiated an increase in the
proposed exchange ratio to 0.1865 and a revised pricing collar.
During the afternoon of March 15, 2000, the board of directors of Inference
met via telephonic conference to consider the proposed merger. All members of
the board were present, as were Mr. Ranger of Inference, Messrs. Simms and
Murphy of Adams, Harkness & Hill and Mr. DeFilipps of Wilson Sonsini Goodrich &
Rosati. Mr. DeFilipps reminded the Board of its duty in reviewing and acting
upon the proposed acquisition proposal from eGain. Mr. Jepson and Mr. Ranger,
together with Inference's legal and financial advisors, reviewed with the
board, among other things, the background of the proposed transaction, the
potential benefits and risks of the transaction, including the strategic and
financial rationale, analysis of the transaction and the terms of the agreement
and plan of merger. Messrs. Simms and Murphy gave a detailed presentation of
the terms of the merger and the proposed combined operations of the two
companies. As a part of this presentation, they restated the view of Adams,
Harkness & Hill that, based on its thorough, but unsuccessful, exploration of
possible strategic partnerships with numerous parties, the proposed merger
represented the most attractive strategic alternative available to Inference.
The Inference board of directors and the representatives of Adams, Harkness &
Hill discussed extensively the exchange ratio and the fact that the implied per
share valuation represented a slight discount to Inference's current market
price per share. It was noted and discussed that representatives of Inference
and Adams, Harkness & Hill had negotiated a higher exchange ratio than the
exchange ratio originally proposed and that eGain had stated it would not
consider any further increase in the exchange ratio, regardless of the recent
marked increase in Inference's share price and decrease in eGain's share price.
Adams, Harkness & Hill confirmed that, notwithstanding the current market
prices of each company's stock, the exchange ratio proposed was fair, from a
financial point of view, to the stockholders of Inference. At the conclusion of
the presentation, Adams, Harkness & Hill presented to and discussed with the
board its signed fairness opinion. The Inference board of directors also
discussed its conclusion that the proposed merger with eGain was superior to
any proposal from any other party and to the alternatives available
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to Inference. After further discussion of the proposed transaction, the board
of directors of Inference determined that it was in the best interests of
Inference and its stockholders to enter into the proposed merger. The Inference
board of directors voted unanimously to approve the execution of the agreement
and plan of merger.
During the evening of March 15, 2000, the board of directors of eGain met by
telephone conference call to consider the proposed transaction. All directors
of eGain were in attendance, as were Mr. Grewal, Eric Smit, Vice President of
Finance and Administration, William McGrath, Director of Legal Affairs, and
Stanley Pierson of Pillsbury Madison & Sutro LLP, outside counsel to eGain.
After discussion of the proposed transaction, the board of directors of eGain
voted unanimously to approve the execution of the agreement and plan of merger.
Following the meetings of each company's board of directors, representatives
of each company and their counsel concluded final negotiation of the merger
agreement, and the agreement was executed by Inference and by eGain in the
early morning of March 16, 2000. The agreement was announced on Thursday, March
16, 2000, by the issuance of a joint press release.
Inference Board of Directors and Inference's Reasons for the Merger
The Inference board of directors unanimously concluded that the merger
agreement and the merger are fair to, and in the best interests of, Inference
and its stockholders, and determined to recommend that the stockholders approve
and adopt the merger agreement. This decision was based upon several potential
benefits of the merger that Inference's board believes will contribute to the
success of the combined company compared to Inference continuing to operate as
an independent business. The Inference board believes that the combined company
provides the following:
. a combination of products that can provide a stronger platform for
linking business-to-consumer and business-to-business functions for
ecommerce companies;
. increased distribution channels for Inference's products and services
through eGain's base of customers and partners;
. increased product diversification and penetration of each company's
customer base allowing greater cross selling of Inference's and eGain's
products and services into one another's existing customer base than
either party could achieve as an independent company;
. the opportunity for expanded research and development of combined product
offerings, including potential new product offerings;
. a critical mass of talented and highly skilled employees with proven
capabilities that each company individually might otherwise have greater
difficulty achieving in a tight labor market; and
. a common stock that is a more valuable currency to finance future
acquisitions at a less dilutive price than Inference could do with its
stock alone.
Inference's board of directors consulted with Inference's senior management,
as well as its legal counsel, independent accountants and financial advisors,
in reaching its decision to approve the merger. In its evaluation of the
merger, the Inference board reviewed several factors, including, but not
limited to, the following:
. the possibility of continuing to operate Inference as an independent
entity, including the impact on such operation of recent industry
consolidation and the prospect of market penetration gains by
competitors;
. the possible strategic alternatives to the merger, including the
possibility of forming strategic alliances with third parties;
. the potential for other third parties to acquire Inference;
. Inference management's view of the financial condition, results of
operations and businesses of Inference and eGain before and after giving
effect to the merger;
. the complementary nature of the technology, products, services and
customer base of Inference and eGain;
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. the belief that the terms of the merger agreement are reasonable;
. the exchange ratio for the merger in light of comparable transactions;
. the opinion of Adams, Harkness & Hill to the effect that, as of the date
of such opinion and based on and subject to the matters described in such
opinion, the exchange ratio was fair, from a financial point of view, to
the holders of Inference common stock;
. the impact of the merger on Inference's customers and employees; and
. reports from management, legal and financial advisors as to the results
of the due diligence investigation of eGain.
In assessing the transaction, Inference's board of directors considered a
variety of information, including the following:
. historical information concerning the business operations, positions and
results of operations, technology and management style, competitive
position, industry trends and prospects of Inference and eGain;
. information contained in Securities and Exchange Commission filings by
eGain;
. current and historical market prices, volatility and trading data for the
two companies;
. information and advice based on due diligence investigations by members
of Inference's board of directors and management and Inference's legal,
financial and accounting advisors concerning the business, technology,
services, operations, properties, assets, financial condition, operating
results and prospects of eGain, trends in eGain's business and financial
results and capabilities of eGain's management team; and
. reports from Adams, Harkness & Hill on companies comparable to eGain and
other financial analyses performed by Adams, Harkness & Hill.
The Inference board of directors also identified and considered a variety of
potentially negative factors in its deliberations concerning the merger,
including the risks that, despite the intentions and efforts of Inference and
eGain, the benefits sought to be achieved through the merger will not be
achieved. The Inference board of directors also considered the following
factors, among others:
. the risk that the potential benefits of the merger may not be realized;
. the possibility that the merger may not be consummated, even if approved
by Inference's stockholders;
. the effect of the public announcement of the merger on Inference's sales;
. the risk of management and employee disruption associated with the
merger, including the risk that despite the efforts of the combined
company, key technical, sales and management personnel might not remain
employed by the combined company;
. the risk that the merger could adversely affect Inference's relationship
with certain of its customers and strategic partners; and
. other applicable risks described in this proxy statement/prospectus under
"Risk Factors."
In the opinion of the Inference board of directors, the above factors
represented the material potential negative factors associated with the merger.
In considering the merger, the Inference board of directors considered the
impact of these factors on Inference's existing stockholders. In the opinion of
the Inference board of directors, however, these potential negative factors
were outweighed by the potential positive factors considered by the Inference
board of directors that are described above. Accordingly, the Inference board
of directors unanimously concluded that the merger is fair to, and in the best
interest of, Inference and its stockholders, and voted to approve and adopt the
merger agreement and approve the merger. In view of the wide variety of factors
considered in connection with its evaluation of the merger, the Inference board
of directors did not find it possible to, and did not, quantify or otherwise
attempt to assign relative weights to the specific factors considered in
reaching its determination.
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Inference Board of Directors Recommendations
The Inference board of directors has unanimously approved the merger
agreement and the transactions contemplated by the merger agreement and has
determined that the merger is fair to, and in the best interests of, both you
and Inference. The Inference board of directors recommends that you vote for
approval and adoption of the merger agreement and the merger.
Opinion of Inference's Financial Advisor
Inference retained Adams, Harkness & Hill to render an opinion as to the
fairness, from a financial point of view, to Inference and its stockholders of
the exchange ratio. At the March 15, 2000 meeting of the Inference board and
later confirmed in writing, Adams, Harkness & Hill delivered to the Inference
board its opinion that, based on matters described therein and as of that date,
the exchange ratio is fair, from a financial point of view, to Inference and
its stockholders. The complete text of the opinion delivered by Adams, Harkness
& Hill, dated March 15, 2000, setting forth the assumptions made, procedures
followed, matters considered and scope of the review undertaken by Adams,
Harkness & Hill in rendering its opinion, is attached hereto as Appendix B. The
opinion of Adams, Harkness & Hill was presented to the Inference board to
assist it in its consideration of the merger agreement and the transactions
contemplated thereby. Adams, Harkness & Hill was not requested to update, has
not updated and does not intend to update its opinion for any period subsequent
to March 15, 2000, including to take into account any subsequent filings or
other events since March 15, 2000. Stockholders are urged to read the opinion
in its entirety.
No limitations were imposed by the Inference board on Adams, Harkness & Hill
with respect to the investigations made or procedures followed by Adams,
Harkness & Hill in rendering its opinion. Adams, Harkness & Hill did not
recommend to the Inference board that any specific amount of consideration
constituted the appropriate consideration for the merger. The opinion addresses
only the fairness from a financial point of view of the exchange ratio to
Inference and its stockholders and does not constitute a recommendation to any
holder of Inference common stock as to how such stockholder should vote at the
Inference stockholder meeting. Adams, Harkness & Hill expressed no opinion as
to the tax consequences of the merger, and the opinion delivered by Adams,
Harkness & Hill does not take into account the particular tax status or
position of any holder of Inference common stock. In addition to rendering its
opinion, Adams, Harkness & Hill was engaged as a financial advisor to and an
agent for Inference in assessing Inference's strategic alternatives, inclusive
of the proposed merger with eGain. The summary of the opinion delivered by
Adams, Harkness & Hill set forth in this proxy statement/prospectus is
qualified in its entirety by reference to the full text of such opinion.
In developing its opinion, Adams, Harkness & Hill has, among other things:
(i) reviewed Inference's Annual Reports, Forms 10-K and related financial
information for the three fiscal years ended January 31, 1999, and Inference's
Form 10-Q and the related unaudited financial information for the nine month
period ending October 31, 1999; (ii) reviewed eGain's Prospectus on Form 424B4
dated September 23, 1999, and eGain's Form 10-Q reflecting financial
performance and related unaudited financial information for the six month
period ended December 31, 1999; (iii) analyzed certain internal financial
statements and other financial and operating data concerning Inference prepared
by the management of Inference; (iv) analyzed certain internal financial
statements and other financial and operating data concerning eGain prepared by
the management of eGain; (v) reviewed certain information relating to prior
periods concerning the business, earnings and assets of Inference and eGain
furnished by Inference and eGain; (vi) assessed the competitive position and
prospects of Inference's products, including k-Commerce Support and k-Commerce
Sales; (vii) assessed the competitive position and prospects of the eGain's
products, including its eGain Commerce 2000 platform; (viii) analyzed the
potential pro forma financial effects of the merger on Inference and eGain and
compared the relative financial contributions of Inference and eGain to the
combined company following consummation of the merger, based on both publicly
available estimates from third party research analysts of the future financial
performance of eGain and internal forecasts of such future performance prepared
by management of Inference; (ix) conducted due diligence discussions with
members of senior management of
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Inference and eGain and discussed with members of senior management of
Inference and eGain their views regarding future business, financial and
operating benefits arising from the merger; (x) reviewed the historical market
prices and trading activity for Inference common stock and eGain common stock
and compared them with that of certain publicly traded companies it deemed to
be relevant and comparable to Inference and eGain, respectively; (xi) compared
the results of operations of Inference and eGain with that of certain companies
it deemed to be relevant and comparable to Inference and eGain, respectively;
(xii) compared the financial terms of the merger with the financial terms of
certain other mergers and acquisitions it deemed to be relevant and comparable
to the merger; (xiii) participated in certain discussions among representatives
of Inference and eGain and their legal advisors; (xiv) reviewed the draft
merger agreement dated March 15, 2000; and (xv) reviewed such other financial
studies and analyses and performed such other investigations and took into
account such other matters as it deemed necessary, including its assessment of
general economic, market and monetary conditions.
The following paragraphs, while not a complete description of the analyses
performed by Adams, Harkness & Hill, summarize the material analyses performed
by Adams, Harkness & Hill in arriving at its opinion and reviewed with the
Inference board in connection therewith.
Peer Group Analysis
Adams, Harkness & Hill analyzed, as of March 15, 2000, historical financial
performance data for the last twelve months ("LTM") and projected financial
performance data for the calendar years 2000 and 2001 for Inference, eGain and
a Peer Group made up of companies conducting business in what is referred to as
electronic customer relationship management ("eCRM"). The companies making up
the Peer Group were: Accrue Software, Inc., AskJeeves, Inc., Broadbase
Software, Inc., Calico Commerce, Inc., E.Piphany, Inc., eShare Technologies,
Inc., Exchange Applications, Inc., Kana Communications, Inc., Mustang Software,
Inc., Net Perceptions, Inc., Pegasystems, Inc., Primus Knowledge Systems, Inc.,
Quintus Corporation, Siebel Systems, Inc., and Silknet Software, Inc. Adams,
Harkness & Hill compared ratios and multiples derived from this financial
performance data and selected stock market data for Inference to similar ratios
and multiples for eGain and the Peer Group. Financial performance data compared
included enterprise value (i.e., equity value, less cash and cash equivalents,
plus funded debt), historical and projected revenue and net income and
historical growth rates as published by Adams, Harkness & Hill or third
parties. Multiples compared included enterprise value to revenue, and growth
rates compared included third quarter 1999 to fourth quarter 1999 revenue
growth rates and fourth quarter 1998 to fourth quarter 1999 revenue growth
rates. Adams, Harkness & Hill noted that, when Inference, eGain and the
companies of the Peer Group were compared by historical and projected financial
performance data, as well as these ratios and multiples, Inference
underperformed both eGain and the companies of the Peer Group. Adams, Harkness
& Hill attributed this discount in relative valuation to both eGain and the
companies of the Peer Group largely to Inference's 1999 restructuring, the
associated decline during 1999 of product revenue and the uncertainty
surrounding the introduction of Inference's two new product suites.
Contribution Analysis
Adams, Harkness & Hill compared the contribution of Inference and eGain to
historical and projected pro forma combined total revenue, operating income,
pre-tax income, and net income for calendar year 1999 (noting a January
quarter/year end for Inference) and fiscal year 2001 (year ending in June 2001
for eGain). Historical comparisons were based on actual financial results of
Inference and eGain as publicly reported by Inference and eGain. Pro forma
comparisons for fiscal year 2001 were based on projected financial results for
Inference provided by Inference management, adjusted for the calendar year, and
projected financial results for eGain provided by eGain and third party
published research reports. For such periods and based on such pro forma
comparisons, Adams, Harkness & Hill noted that Inference would contribute a
declining percentage of pro forma combined total revenue, specifically 83.6%
and 49.3% of pro forma combined total revenue for the respective historical and
projected periods. Adams, Harkness & Hill also stated that substantially all of
Inference's revenue used in the historical pro forma comparison was associated
with the sale of products
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phased out at Inference's product offering during 1999. Adams, Harkness & Hill
also noted that both Inference and eGain would have losses in earnings before
income and taxes ("EBIT"), pre-tax income, and net income in both periods.
Adams, Harkness & Hill compared these historical and projected contribution
percentages to 5.5%, the pro forma ownership calculated using fully diluted
Inference and eGain shares, as implied by the exchange ratio, of the combined
company by holders of eGain common stock. Adams, Harkness & Hill noted
Inference's restructuring activities and product returns during 1999, which
were evidenced by a 38% revenue decline from the fourth quarter of 1998 to the
fourth quarter of 1999 and 0.4% sequential revenue growth from the third
quarter of 1999 to the fourth quarter of 1999. Adams, Harkness & Hill compared
these growth rates to that of eGain for similar periods which were 1,521% and
72%, respectively. In addition, Adams, Harkness & Hill compared Inference's
revenue growth rates with that of the Peer Group, 215% and 36%, respectively,
for the periods. While noting that eGain and selected members of the Peer Group
were growing relatively smaller revenue bases, Adams, Harkness & Hill noted
that eGain and the Peer Group had historical and projected revenue growth rates
that were substantially greater than that of Inference. Therefore, because of
the respective trends in revenue, Adams, Harkness & Hill noted that
contribution analyses were less effective, in this instance, in evaluating the
fairness of this transaction.
Stock Price Analysis
Adams, Harkness & Hill reviewed the trading activity, including closing
share price and trading volume, of Inference common stock and eGain common
stock for the one-year period ended March 15, 2000 for Inference and since
eGain's initial public offering on September 23, 1999 to March 15, 2000 for
eGain. Adams, Harkness & Hill noted that the closing share prices on March 15,
2000 of Inference common stock and eGain common stock were $10.25 and $51.50,
respectively. Adams, Harkness & Hill also noted that, for the one year period:
(i) the daily closing share prices of Inference common stock ranged from a high
of $11.0625 on March 10, 2000 to a low of $2.3125 on October 22, 1999; and (ii)
the average closing share price, without consideration for volume weighting,
for Inference common stock was $4.882. Adams, Harkness & Hill noted that, for
the period from eGain's initial public offering on September 23, 1999 to March
15, 2000: (i) the daily closing share prices of eGain common stock ranged from
a high of $68.50 on March 3, 2000 to a low of $18.25 on September 29, 1999; and
(ii) the average closing share price, without consideration for volume
weighting, for eGain common stock was $37.8090. Adams, Harkness & Hill also
noted, for the prior 20 day period from March 15, 2000, that the average
closing price for Inference common stock was $7.909 and for eGain common stock
was $53.906. Adams, Harkness & Hill calculated that, based on the March 15,
2000, closing share prices of Inference common stock and eGain common stock,
the exchange ratio implied by division of the closing share price of eGain
common stock by that of Inference common stock was 0.1990. Adams, Harkness &
Hill also calculated that, based on the average closing share prices for the 20
day period of Inference common stock and eGain common stock, without
consideration for volume weighting, the exchange ratio implied by division of
the average closing price of eGain common stock by that of Inference common
stock was 0.1467. The following table sets forth average closing prices of
Inference common stock and eGain common stock, without consideration for volume
weighting, and the exchange ratio implied by division of the respective average
closing prices of eGain common stock by those of Inference common stock for the
10 trading days, 20 trading days and 30 trading days up to and including March
15, 2000:
<TABLE>
<CAPTION>
Inference eGain Implied Actual
Common Common Exchange Exchange
Stock Stock Ratio(a) Ratio
--------- ------- -------- --------
<S> <C> <C> <C> <C>
Average Closing Price:
10 Trading Days
(March 2, 2000-March 15, 2000)......... $9.456 $57.713 0.1639 0.1865
20 Trading Days
(February 16, 2000-March 15, 2000)..... $7.909 $53.906 0.1467 0.1865
30 Trading Days
(February 2, 2000-March 15, 2000)...... $7.169 $49.683 0.1443 0.1865
</TABLE>
- --------
(a) Figures shown represent the fractional number of shares of eGain common
stock per share of Inference common stock.
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Adams, Harkness & Hill compared these implied exchange ratios to the
exchange ratio and calculated implied premiums of 13.8%, 27.1% and 29.2%,
respectively, for the 10 trading day, 20 trading day and 30 trading day
averages.
In addition, Adams, Harkness & Hill compared the share price performance of
Inference common stock for the period from September 23, 1999 up to and
including March 15, 2000 to eGain common stock, and a composite index made up
of the Peer Group companies. Adams, Harkness & Hill noted that the share price
appreciation of Inference common stock and eGain common stock, at 343.2% and
145.2%, respectively, had outperformed for the 100 day period the indexed price
performance of the Peer Group, at 92.2%. Adams, Harkness & Hill also noted that
the 100 day stock appreciation before its first presentation to the Inference
board of directors on February 24, 2000 regarding the eGain proposal was 128.9%
and 107.7%, respectively. Adams, Harkness & Hill compared that to the stock
price appreciation after this initial presentation and noted that since
February 25, 2000 the per share value of Inference common stock had increased
90.7% compared to the per share value of eGain and the indexed price
performance of the Peer Group, which decreased 4.1% and 8.5%, respectively.
Based on its analysis of Inference's historical absolute and relative trading
patterns, Adams, Harkness & Hill concluded, in the context of the appreciation
of the Inference share price in the weeks prior to the announcement of the
merger, that the period up to February 24, 2000 represents an appropriate
period for consideration in its analysis.
Precedent Mergers & Acquisitions Analysis
Adams, Harkness & Hill analyzed publicly available information for 18
selected completed or pending mergers or acquisitions since 1997 within the
eCRM segment and wider commercial software industry, including: Carleton
Corporation-Oracle Corporation; NetGravity, Inc.-DoubleClick, Inc.; Prism
Solutions, Inc.-Ardent Software, Inc.; XL Connect Solutions, Inc.-Xerox
Corporation; OnTrak Systems, Inc.-Lam Research Corporation; Epic Design
Technology, Inc.-Synopsys, Inc.; Exactis.com, Inc.-24/7 Media, Inc.; Mustang
Software, Inc.-Quintus Corporation; Silknet Software, Inc.-Kana Communications,
Inc.; Clarify, Inc.-Nortel Network Corporation; Vantive Corporation-PeopleSoft,
Inc.; Genesys Telecommunications Laboratories, Inc.-Alcatel Alsthom S.A.;
Periphonics Corporation-Nortel Networks Corporation; Forte Software, Inc.-Sun
Microsystems, Inc.; IEX Corporation-Tekelec; GeoTel Communications, Inc.-Cisco
Systems, Inc.; Mosaix, Inc.-Lucent Technologies, Inc.; and Scopus Technology,
Inc.-Siebel Systems, Inc. Adams, Harkness & Hill evaluated the transactions
through filings with the Securities and Exchange Commission, when available,
and other publicly available information regarding the transactions. In
examining these transactions, Adams, Harkness & Hill analyzed financial
performance data and assessed certain financial characteristics of the acquired
companies relative to the consideration offered and derived relevant ratios and
multiples from this data. Adams, Harkness & Hill then compared these ratios and
multiples to historical and projected financial performance data for Inference
to derive a range of implied equity value.
Based on multiples of aggregate enterprise value, defined as consideration
for all common shares and options adjusted for cash and funded debt, to LTM
revenue for the Precedent Mergers and Acquisitions, Adams, Harkness & Hill
estimated Inference's implied equity value (based on Inference's revenue for
the fiscal year ended January 31, 2000 and adjusted as necessary for
Inference's net cash and cash equivalents of $17.2 million), to broadly range
from approximately $29 million to approximately $894 million, based on
Enterprise Value to LTM revenue multiples in a stripped range, taking out low
and high outlying values, from 2.0 to 39.7x. Based on its analysis of the
financial performance and comparative characteristics of the companies involved
in the precedent mergers and acquisitions, as well as its understanding of the
financial performance and comparative characteristics of Inference and eGain,
Adams, Harkness & Hill concluded that the implied relative equity value of
Inference, based on these characteristics, would be in the lower quartile of
this range, representing a range of approximately $29 million to approximately
$216 million.
Adams, Harkness & Hill compared these ranges of implied aggregate equity
value for Inference to the aggregate equity value implied by the exchange ratio
of approximately $104 million, including consideration for all common shares
and options.
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Premiums Paid Analysis
Adams, Harkness & Hill analyzed the premiums paid by the acquiring company
relative to the closing price of the acquired company's shares as of one
trading day, one week (i.e., five trading days), four weeks (i.e., 20 trading
days), and 20 trading day average prior to the announcement of the transaction.
Adams, Harkness & Hill noted six transactions in which the exchange ratio
reflected in the transaction represented a discount to the exchange ratio
implied by one trading day prior to the announcement with an average one day
discount of 9.6% of this group compared to the 6.3% discount implied by the
exchange ratio based on March 15, 2000 closing prices of Inference and eGain.
Adams, Harkness & Hill also noted that since February 25, 2000 the value of
Inference common stock had risen 90.7%.
For the transactions examined, taking out low and high outlying values, the
premiums paid one week prior to the transaction's announcement ranged from
approximately 6% to approximately 60%; premiums paid one month prior to the
transaction's announcement ranged from approximately 17% to approximately 78%;
premiums paid based on the 20 day average closing price ranged from
approximately 15% to approximately 67%.
Adams, Harkness & Hill compared these premiums to the premiums implied by
the exchange ratio and the trading activity of Inference and eGain prior to the
announcement of the merger, respectively, 0.4%, 39.7% and 27.1%, for the week,
month and average of 20 trading days prior to the announcement of the merger.
In connection with rendering its opinion and in carrying out its broader
advisory engagement, Adams, Harkness & Hill assessed the primary business unit
of Inference: k-Commerce Support, which was being repositioned as an
enterprise-wide customer support solution and from which most of Inference's
historical revenues were derived; and k-Commerce Sales, a newer, Internet-
focused business unit with products moving from beta testing to general sales
release. Adams, Harkness & Hill also assessed Infind.com, an internally
developed "meta-search engine" technology that Inference had announced its
intention to spin-off as a separate subsidiary for which it would provide
nominal funding and seek third-party funding. After discussions with Inference
management regarding Infind.com's early stage of development and relative
prospects, Adams, Harkness & Hill concluded that the valuation of Infind.com as
a separate entity was not material to its analysis.
The preparation of the opinion delivered by Adams, Harkness & Hill involved
various determinations as to the most appropriate and relevant quantitative and
qualitative methods of financial analyses and the application of those methods
to the particular circumstances. Accordingly, such opinion is not readily
described in summary. In arriving at its opinion, Adams, Harkness & Hill did
not attribute any particular weight to any analysis or factor considered by it,
but rather made qualitative judgments as to the significance and relevance of
each analysis and factor. Accordingly, Adams, Harkness & Hill believes its
analyses must be considered as a whole and that considering any portion of such
analyses and current factors could create a misleading or incomplete view of
the process underlying the preparation of its opinion. In its analyses, Adams,
Harkness & Hill made numerous assumptions with respect to industry performance,
general business and other conditions and matters, many of which are beyond the
control of Inference and eGain. Any estimates contained in these analyses are
not necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than as set forth
therein. In addition, analyses relating to the value of businesses do not
purport to be appraisals or to reflect the prices at which businesses actually
may be sold.
Based on past activities, Adams, Harkness & Hill has a substantial degree of
familiarity with Inference. In addition, in the course of its advisory
engagement, Adams, Harkness & Hill conducted further investigation of Inference
and eGain. In arriving at its opinion, however, Adams, Harkness & Hill did not
independently verify any of the foregoing information and relied on all such
information being complete and accurate in all material respects. Furthermore,
Adams, Harkness & Hill did not obtain nor make any independent evaluation or
appraisal of the properties, assets or liabilities of Inference or eGain, nor
was Adams, Harkness & Hill furnished any such evaluation or appraisal. With
respect to the financial and operating forecasts (and the assumptions and bases
therefor) that Adams, Harkness & Hill reviewed, Adams, Harkness & Hill assumed
that such forecasts were reasonably prepared in good faith on the basis of
reasonable assumptions and represent the
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best available estimates and judgments of the managements of Inference and
eGain as to the likely future financial performance of such companies. Adams,
Harkness & Hill noted, among other things, that its opinion is necessarily
based upon market, economic and other conditions existing as of the date of the
opinion and information available to Adams, Harkness & Hill as of the date
thereof.
Adams, Harkness & Hill was retained by Inference based on the experience of
Adams, Harkness & Hill as a financial advisor in connection with mergers and
acquisitions and in securities valuations generally.
Inference engaged Adams, Harkness & Hill in connection with the merger by
means of an engagement letter, dated November 19, 1999. Such letter provides
that, for rendering of its opinion, Adams, Harkness & Hill is to be paid a cash
fee totaling $200,000, plus reasonable expenses, payable upon rendering the
opinion. Inference also agreed to pay Adams, Harkness & Hill 2.0% of the
aggregate transaction value of the merger for advisory services rendered as
part of the merger. Inference has also agreed to indemnify Adams, Harkness &
Hill for certain liabilities relating to or arising out of its rendering of its
opinion and advisory services.
Interests of some of Inference's Executive Officers and Directors in the Merger
In considering the recommendation of the board of directors of Inference
with respect to the merger, holders of Inference common stock should be aware
that certain members of Inference's management, some of whom are members of the
Inference board of directors, and the members of the Inference board of
directors have certain interests in the merger, in addition to those of
Inference's stockholders generally. The board of directors of Inference was
aware of these interests when it considered and approved the merger and the
merger agreement.
The executive officers of Inference have outstanding stock options to
purchase an aggregate of 1,019,617 shares of Inference common stock as of May
5, 2000, of which approximately 691,868 are unvested. In the event of such
officers' termination or failure to obtain a comparable position following the
merger, all such options would immediately vest in full. Additionally, the
Inference executive officers and certain other key employees of Inference have
employment agreements under which, in the event of their termination or failure
to obtain a comparable position as a result of the merger, they would be
entitled to one years' base annual salary and 50% of their respective annual
bonuses.
Certain executive officers of Inference have been offered positions with
eGain. These offers provide for salaries that are generally consistent with the
Inference salaries such officers have been receiving and provide for the
following: the officers will receive a cash retention bonus payable over the
six-month period following the closing of the merger; each officer's options to
purchase Inference stock that are assumed in the merger will become fully
vested on January 31, 2001, unless the officer resigns from his position before
that date; and the officers will be granted new options to buy shares of eGain
common stock vesting over four years beginning on January 31, 2001. Mr. Charles
W. Jepson, Inference's Chief Executive Officer, has agreed to accept the
position of Senior Vice President with eGain. He will receive an annual salary
of $250,000 and a potential for an additional $250,000 in bonus payments, new
options to purchase 7,842 shares of eGain common stock, and vesting of all
unvested Inference options on December 1, 2000, unless he resigns from his
position before that date.
eGain has agreed to indemnify each present and former Inference officer and
director against liabilities arising out of such person's services as an
officer or director of Inference, as provided for in Inference's certificate of
incorporation, bylaws and indemnification agreements in effect on the date of
the merger agreement. eGain will also cause the officers' and directors'
liability insurance of Inference to be maintained to cover any such liabilities
for the next six years.
Listing on the Nasdaq National Market of eGain Common Stock to be Issued in the
Merger
It is a condition to the closing of the merger that the shares of eGain
common stock to be issued in the merger be approved for listing on the Nasdaq
National Market, subject to official notice of issuance.
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Regulatory Filings and Approvals Required to Complete the Merger
The merger is subject to the requirements of the Hart-Scott-Rodino Antitrust
Improvements Act, which prevents certain transactions from being completed
until required information and materials are furnished to the Antitrust
Division of the Department of Justice and the Federal Trade Commission and the
appropriate waiting periods end or expire. The companies have filed the
required information and materials with the Department of Justice and the
Federal Trade Commission and have received early termination of the thirty-day
waiting period.
The Antitrust Division of the Department of Justice or the Federal Trade
Commission may challenge the merger on antitrust grounds either before or after
expiration of the waiting period. Accordingly, at any time before or after the
completion of the merger, either the Antitrust Division of the Department of
Justice or the Federal Trade Commission could take action under the antitrust
laws. Certain other persons could take action under the antitrust laws,
including seeking to enjoin the merger. Additionally, at any time before or
after the completion of the merger, notwithstanding that the applicable waiting
period expired or ended, any state could take action under the antitrust laws.
A challenge to the merger could be made and if a challenge is made, we may not
prevail.
Neither of us is aware of any other material governmental or regulatory
approval required for completion of the merger, other than the effectiveness of
the registration statement of which this proxy statement/ prospectus is a part,
and compliance with applicable corporation law of Delaware.
No Dissenters' Rights
Holders of Inference common stock do not have dissenters' rights of
appraisal with respect to the merger under the Delaware General Corporation Law
because Inference common stock is listed on the Nasdaq National Market.
Accounting Treatment
eGain intends to account for the merger as a purchase transaction for
financial reporting and accounting purposes, under generally accepted
accounting principles. After the merger, the results of operations of Inference
will be included in the consolidated financial statements of eGain. The
purchase price will be allocated based on the fair values of the assets
acquired and the liabilities assumed in the transaction. Any excess of cost
over fair value of the net tangible assets of Inference acquired will be
recorded as goodwill and other intangible assets and will be amortized by
charges to operations under generally accepted accounting principles. These
allocations will be made based upon valuations and other studies that have not
yet been finalized.
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CERTAIN PROVISIONS OF THE MERGER AGREEMENT
This section of the proxy statement/prospectus describes the merger
agreement. While we believe that the description covers the material terms of
the merger agreement, this summary may not contain all of the information that
is important to you. The merger agreement is attached to this proxy
statement/prospectus as Appendix A, and we urge you to read it carefully.
Representations and Warranties
We each made a number of representations and warranties in the merger
agreement regarding aspects of eGain's respective businesses, financial
condition, structure and other facts pertinent to the merger.
eGain's Representations and Warranties
eGain's representations and warranties include representations as to:
. eGain's corporate organization and its qualification to do business
. eGain's capitalization
. authorization of the merger agreement by eGain and eGain's merger
subsidiary
. governmental authorization and regulatory approvals for eGain to complete
the merger
. compliance with eGain's certificate of incorporation and bylaws
. eGain's filings and reports with the Securities and Exchange Commission
. information supplied by eGain in this proxy statement/prospectus and the
related registration statement filed by eGain
. eGain's employee benefit plans
. litigation involving eGain or any of its subsidiaries
. eGain's compliance with applicable laws and regulations
. eGain's financial advisors
. eGain's taxes
. eGain's vote required to approve the merger
. absence of certain changes since December 31, 1999
. eGain's liabilities
. eGain's financial statements
. eGain's insurance
Inference's Representations and Warranties
Inference's representations and warranties include representations as to:
. Inference's corporate organization and its qualification to do business
. Inference's capitalization
. authorization of the merger agreement by Inference
. governmental authorization and regulatory approvals for Inference to
complete the merger
. compliance with Inference's certificate of incorporation and bylaws
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. Inference's subsidiaries
. Inference's filings and reports with the Securities and Exchange
Commission
. Inference's financial statements
. information supplied by Inference in this proxy statement/prospectus and
the related registration statement filed by eGain
. changes in Inference's business since the Balance Sheet Date (as defined
in the merger agreement)
. Inference's liabilities
. litigation involving Inference or any of its subsidiaries
. Inference's taxes
. Inference's employee benefit plans
. Inference's compliance with applicable laws and regulations
. Inference's financial advisors
. environmental matters involving Inference or any of its subsidiaries
. labor matters involving Inference or any of its subsidiaries
. Inference's title to the property it owns or leases
. Inference's leaseholds
. Inference's payments to management and accelerated vesting
. Inference's insurance
. intellectual property used by Inference
. Inference's year 2000 compliance
. the fairness opinion received by Inference
. the tax treatment of the merger
. applicable takeover statutes
The representations and warranties in the merger agreement are complicated
and not easily summarized. You are urged to read carefully the articles of the
merger agreement entitled "Representations and Warranties of the Company" and
"Representations and Warranties of Acquirer."
eGain's Conduct of Business Before Completion of the Merger
eGain agreed that until the completion of the merger or the termination of
the merger agreement or unless Inference consents in writing, each of eGain and
its subsidiaries will use commercially reasonable efforts to:
. allow Inference reasonable access to all facilities, personnel and
operations of eGain
. cause its consultants and advisors to hold in confidence all documents
furnished by Inference in connection with the merger
. prepare and file this proxy statement/prospectus
. file the Notification and Report Forms under the Hart-Scott-Rodino Act
with the Federal Trade Commission and the Department of Justice
. consult with Inference prior to making any public announcements regarding
the merger
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. notify Inference of any breach or alleged of the merger agreement and any
notice by a third party that such party's consent is required to
consummate the merger
. take all reasonable actions necessary to cause the merger to qualify as a
reorganization under Section 368(a) of the Internal Revenue Code of 1986,
as amended
. preserve intact its present business organization
. keep available the services of its present officers and employees
. maintain satisfactory relationships with suppliers, distributors,
customers and others with which it has business relationships
. take no action that would materially and adversely affect the parties'
ability to consummate the merger
. indemnify the present and former officers, directors, employees and
agents against losses arising out of actions or omissions occurring at or
prior to the effective time of the merger and on the same terms and
conditions as provided in eGain's certificate of incorporation and bylaws
. promptly submit a listing application to the Nasdaq Stock Market covering
the shares of eGain stock to be received by the Inference stockholders
. allow eligible Inference employees to participate in the benefits
programs offered by eGain after the merger
The agreements related to the conduct of eGain's business in the merger
agreement are complicated and not easily summarized. You are urged to read
carefully the sections of the merger agreement entitled "Covenants of
Acquirer."
Inference's Conduct of Business Before Completion of the Merger
Inference agreed that until the completion of the merger or the termination
of the merger agreement or unless eGain consents in writing, each of Inference
and its subsidiaries will conduct its operations according to its ordinary
course of business consistent with past practice and will use commercially
reasonable efforts to:
. preserve intact its present business organization
. keep available the services of its present officers and employees
. maintain satisfactory relationships with suppliers, distributors,
customers and others with which it has business relationships
. take no action that would materially and adversely affect the parties'
ability to consummate the merger
Inference also agreed that until the completion of the merger or the
termination of the merger agreement or unless eGain consents in writing, each
of Inference and its subsidiaries will conduct its business in compliance with
certain specific restrictions relating to the following:
. amendment of Inference's certificate of incorporation or bylaws
. issue, sell, deliver or grant options to purchase any shares of any class
of Inference capital stock or a security convertible into Inference
capital stock
. the issuance, split, reclassification, purchase and redemption of
securities
. the issuance of dividends or other distributions
. the incurrence of indebtedness
. capital expenditures or contributions and the making of loans
. increases in compensation paid to directors, officers or other employees
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. employees and employee benefits
. entrance into or modification of material contracts
. the acquisition of assets or other entities
. the liquidation or dissolution of Inference
. the disposition of Inference's assets
The agreements related to the conduct of Inference's business in the merger
agreement are complicated and not easily summarized. You are urged to read
carefully the sections of the merger agreement entitled "Covenants of the
Company."
Indemnification and Insurance
Pursuant to the merger agreement, at all times after the effective time,
eGain shall indemnify each present and former Inference officer and director
against liabilities arising out of such person's services as an officer or
director. eGain will cause the surviving corporation to maintain officers' and
directors' liability insurance to cover any such liabilities for the next six
years.
No Other Negotiations Involving Inference
Until the merger is completed or the merger agreement is terminated,
Inference has agreed not to directly or indirectly take any of the following
actions:
. initiate, solicit or otherwise induce any inquiries or the making of a
Company Acquisition Proposal (as defined below)
. participate in any discussions or negotiations or provide any
confidential information or data to any party relating to a Company
Acquisition Proposal
. take any other action to facilitate any effort or attempt to make or
implement a Company Acquisition Proposal
However, Inference may make disclosures to its stockholders regarding a
Company Acquisition Proposal if, in the good faith judgment of its board of
directors, the failure so to disclose would be inconsistent with its
obligations under applicable law. Furthermore, Inference may negotiate with or
furnish information to any party that has made a bona fide written Company
Acquisition Proposal that did not result from Inference's breach of any of the
prohibitions set forth above relating to Company Acquisition Proposals. Under
either of those two scenarios, the Inference board may recommend the Company
Acquisition Proposal to its stockholders if such Company Acquisition Proposal
is a Superior Proposal (as defined below).
A Company Acquisition Proposal is any offer or proposal relating to any
Company Acquisition Transaction, other than an offer or proposal from eGain.
A Company Acquisition Transaction is any transaction involving any of the
following:
. the acquisition or purchase of more than a 5% interest in the total
outstanding voting securities of Inference
. any sale, lease (other than in the ordinary course of business),
exchange, transfer, license (other than in the ordinary course of
business), acquisition or disposition of more than 5% of the assets of
Inference
. any liquidation or dissolution of Inference
A Superior Proposal is an unsolicited, bona fide Company Acquisition
Proposal for or in respect of at least a majority of the outstanding Inference
common stock on terms that the Inference board determines, in its good faith
judgment (based on consultation with its financial advisors) to be more
favorable to Inference's
73
<PAGE>
stockholders than the terms of the merger with eGain, that is not subject to a
financing condition, does not contain a right of first refusal or a right of
first offer with respect to any counter proposal that eGain might make and is
from a party that, in the reasonable judgment of the Inference board (based on
advice from a nationally recognized investment bank), is financially capable of
consummating such proposal.
Certain Corporate Governance Matters
Inference board of directors. Upon the closing of the merger, the Inference
board of directors will consist of the directors of eGain's merger subsidiary.
Inference officers. The officers of Inference after the merger will be the
officers of eGain's merger subsidiary.
Treatment of Inference Stock Options
Inference options. Upon consummation of the merger, each outstanding
Inference stock option, whether vested or not vested, will be assumed by eGain
and converted into an option to acquire shares of eGain common stock on the
same terms and conditions (including any provisions for acceleration) as were
applicable to such stock option under the applicable Inference stock option
plan in effect prior to the merger (in accordance with the past practice of
Inference with respect to the interpretation and application of the terms and
conditions of such stock option plan). Each outstanding Inference stock option
will be converted into an option to acquire the number (rounded down to the
nearest whole number) of shares of eGain common stock determined by multiplying
(x) the number of shares of Inference common stock subject to such option
immediately prior to the effective time of the merger by (y) the exchange
ratio, at an exercise price per share of eGain common stock (rounded up to the
nearest whole cent) equal to (a) the exercise price per share of Inference
common stock otherwise purchasable under the applicable Inference stock option
plan divided by (b) the exchange ratio.
As soon as possible after the effective time, eGain will file a registration
statement on Form S-8 with the Securities and Exchange Commission with respect
to the shares of eGain common stock subject to all assumed Inference options.
Conditions to Completion of the Merger
eGain's respective obligations to complete the merger and the other
transactions contemplated by the merger agreement are subject to the
satisfaction or waiver of each of the following conditions before completion of
the merger:
. the merger agreement must be approved and adopted and the merger must be
approved by the holders of a majority of the outstanding shares of
Inference common stock,
. eGain's registration statement on Form S-4 must be effective, no stop
order suspending its effectiveness will be in effect and no proceedings
for suspension of its effectiveness will be pending before or threatened
by the Securities and Exchange Commission,
. the shares of eGain common stock to be issued in the merger must be
authorized for listing on the Nasdaq National Market, subject to notice
of issuance,
. all applicable waiting periods under applicable antitrust laws must have
expired or been terminated early,
. no law, regulation or order has been enacted or issued that has the
effect of making the merger illegal or otherwise prohibits completion of
the merger, and
. each of the parties must have received all required approvals and third
party consents listed on a certain schedule to the merger agreement.
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<PAGE>
eGain's obligations and those of its merger subsidiary to complete the
merger and the other transactions contemplated by the merger agreement are
subject to the satisfaction or waiver of each of the following additional
conditions before completion of the merger:
. Inference must perform or comply in all material respects with all of its
agreements and covenants required by the merger agreement to be performed
or complied with by Inference at or before completion of the merger,
. Inference's representations and warranties must be true and correct (as
certified by the chief executive officer of Inference) as of the date the
merger is to be completed as if made as of such time except:
. to the extent Inference's representations and warranties address
matters only as of a particular date, they must be true and correct as
of that date,
. if any of these representations and warranties are not true and correct
but the effect in each case, or in the aggregate, of the inaccuracies
of these representations and breaches of these warranties is not and
does not have a material adverse effect on Inference, then this
condition will be deemed satisfied, and
. changes contemplated by the merger agreement.
. no governmental authority or agency shall have instituted any action
seeking to prohibit or restrain the operations of eGain of all or any
portion of Inference's business or to compel eGain to divest any portion
of Inference's assets or the shares of Inference capital stock, seeking
to impose limitations on the right of eGain with respect to the ownership
of Inference shares,
. no statute rule or regulation shall have been entered or deemed
applicable to the merger by any court or governmental authority, and
. no event or events shall have occurred which, individually or in the
aggregate, has had or would reasonably be expected to have a material
adverse effect on Inference.
Inference's obligations to complete the merger and the other transactions
contemplated by the merger agreement are subject to the satisfaction or waiver
of each of the following additional conditions before completion of the merger:
. eGain must perform or comply in all material respects with all of its
agreements and covenants required by the merger agreement to be performed
or complied with by eGain at or before completion of the merger,
. eGain's representations and warranties must be true and correct (as
certified by the chief executive officer of eGain) as of the date the
merger is to be completed as if made as of such time except:
. to the extent eGain's representations and warranties address matters
only as of a particular date, they must be true and correct as of that
date,
. if any of these representations and warranties are not true and correct
but the effect in each case, or in the aggregate, of the inaccuracies
of these representations and breaches of these warranties is not and
does not have a material adverse effect on eGain, then this condition
will be deemed satisfied, and
. changes contemplated by the merger agreement.
. Inference must have received an opinion of Wilson Sonsini Goodrich &
Rosati, P.C., to the effect that the merger will be treated for federal
income tax purposes as a reorganization qualifying under the provisions
of Section 368(a) of the Internal Revenue Code and that each of eGain,
eGain's merger subsidiary and Inference will be a party to the
reorganization within the meaning of Section 368(b) of the Internal
Revenue Code.
. no event or events shall have occurred which, individually or in the
aggregate, has had or would reasonably be expected to have a material
adverse effect on eGain.
A material adverse effect is any change, violation, inaccuracy, circumstance
or effect that is materially adverse to the business, properties, assets
(including intangible assets), liabilities, capitalization or financial
75
<PAGE>
condition of either eGain or Inference and its subsidiaries, taken as a whole,
as the case may be, except to the extent that any such change, violation,
inaccuracy, circumstance or effect results from the following:
. any occurrences relating to the economy of the United States in general
or the industry in which such party operates and not specifically
relating to such party, and
. the direct effect of the announcement of this merger agreement or the
pendency of the merger.
Termination of the Merger Agreement
The merger agreement may be terminated at any time prior to completion of
the merger, whether before or after approval and adoption of the merger
agreement and approval of the merger by Inference stockholders:
. by mutual consent of eGain and Inference,
. by eGain or Inference:
. if the merger is not completed on or before September 30, 2000, except
that the right to terminate the merger agreement is not available to
any party that is in material breach of the merger agreement,
. if there is any order (other than a temporary restraining order),
decree or ruling of a court or governmental authority having
jurisdiction over either of us enjoining, restraining or prohibiting
the completion of the merger, and such order, decree or ruling has
become final and nonappealable, or
. if the merger agreement fails to receive the requisite vote for
approval and adoption by the stockholders of Inference at the Inference
meeting, except that the right to terminate the merger agreement
pursuant to this provision by Inference is not available to Inference
where the failure to obtain Inference stockholder approval was caused
by the action or failure to act by Inference and such action or failure
to act constitutes a material breach of the merger agreement.
. by eGain:
. if Inference fails to comply in any material respect with any of the
covenants or agreements contained in certain provisions of the merger
agreement required to be complied with or performed by Inference at or
prior to such date of termination, except that if such failure to
comply is capable of being cured prior to the effective time of the
merger, such failure shall not have been cured within 10 days of
delivery to Inference of written notice of such failure, or
. if there exists a breach or breaches of any representation or warranty
of Inference contained in the merger agreement, such that a closing
condition would not be satisfied, except that if such breach or
breaches are capable of being cured prior to the effective time of the
merger, such breach or breaches shall not have been cured within 10
days of delivery to Inference of written notice of such breach or
breaches.
. by Inference:
. if eGain fails to comply in any material respect with any of the
covenants or agreements contained in certain provisions of the merger
agreement required to be complied with or performed by eGain at or
prior to such date of termination, except that if such failure to
comply is capable of being cured prior to the effective time of the
merger, such failure shall not have been cured within 10 days of
delivery to eGain of written notice of such failure,
. if there exists a breach or breaches of any representation or warranty
of eGain contained in the merger agreement, such that a closing
condition would not be satisfied, except that if such breach or
breaches are capable of being cured prior to the effective time of the
merger, such breach or breaches shall not have been cured within 15
days of delivery to eGain of written notice of such breach or breaches,
or
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<PAGE>
. if the Inference board authorizes Inference, subject to complying with
the terms of the merger agreement, to enter into a binding written
agreement concerning a transaction that constitutes a Superior Proposal
and Inference notifies eGain in writing in accordance with the terms of
the merger agreement that it intends to enter into such agreement,
attaching the most current version of such agreement to such notice,
and Inference upon such termination pays to eGain the termination fee
required by the merger agreement (see below).
Payment of Termination Fee
We have agreed that we will each pay our own fees and expenses in connection
with the merger, whether or not it is completed. However, we will share equally
all fees and expenses, other than attorneys' fees, in connection with the
printing and filing of this proxy statement/prospectus and the registration
statement of which this proxy statement/prospectus is a part.
Inference has agreed to pay eGain a breakup fee of $3.6 million upon the
termination of the merger agreement as a result of the occurrence of any of the
following events:
. Inference accepts a Superior Proposal;
. The Inference board withdraws its recommendation for the adoption and
approval of the merger agreement or the approval of the merger or
adversely amends or modifies such recommendation; or
. The stockholders of Inference fail to approve the merger and a third
party makes a proposal to acquire Inference through a transaction that
(a) leaves the Inference stockholders prior to such transaction with less
than 50% of the equity interest in the resulting entity, (b) involves a
sale or other disposition by Inference of assets representing over 50% of
Inference's fair market value prior to such sale or disposition or (c)
results in the acquisition by any party of beneficial ownership of shares
representing over 50% of the voting power of Inference's outstanding
common stock, and that proposal is made prior to the Inference meeting
and is consummated or agreed to by Inference within one year after the
termination of the merger agreement.
Waiver and Amendment of the Merger Agreement
We may amend the merger agreement or waive certain provisions of the merger
agreement before completion of the merger provided that such amendment or
waiver is in writing and signed, in the case of an amendment, by eGain, eGain's
merger subsidiary and Inference, or in the case of a waiver, by the party
against whom the waiver is to be effective. After the adoption of the merger
agreement by the stockholders of Inference, however, no amendment or waiver
shall, without the further approval of such stockholders, alter or change (a)
the amount or kind of consideration to be received in exchange for any shares
of capital stock of Inference, (b) any term of the certificate of incorporation
of the company surviving the merger or (c) any of the terms or conditions of
the merger agreement if such alteration or change would adversely affect the
holders of any shares of capital stock of Inference.
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<PAGE>
RELATED AGREEMENTS
In February 1999, eGain and Inference entered into a nonexclusive value
added reseller agreement, pursuant to which eGain granted Inference a worldwide
nonexclusive license to manufacture, distribute, promote, market and sublicense
eGain Mail bundled with Inference's software. The agreement has an initial term
of two years, and otherwise contains provisions that are standard in software
channel distribution agreements. In January 2000, eGain and Inference entered
into an amendment to the agreement authorizing Inference to sell eGain Live to
certain specified end users.
COMPARATIVE PER SHARE MARKET PRICE DATA
Inference Class A common stock has been traded on the Nasdaq National Market
under the symbol "INFR" since June 1995, the date of Inference's initial public
offering. eGain common stock has been traded on the Nasdaq National Market
under the symbol "EGAN" since September 1999, the date of eGain's initial
public offering.
The following table sets forth, for the calendar quarters indicated, the
high and low sale prices per share of eGain common stock and Inference common
stock as reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
eGain Inference
Common Stock Common Stock
---------------- ------------
High Low High Low
------ ------ ------ -----
<S> <C> <C> <C> <C>
Year Ended December 31, 1998:
First Quarter............................ N/A N/A $ 5.56 $3.19
Second Quarter........................... N/A N/A $ 5.00 $3.44
Third Quarter............................ N/A N/A $ 4.50 $2.75
Fourth Quarter........................... N/A N/A $ 9.19 $3.50
Year Ended December 31, 1999:
First Quarter............................ N/A N/A $ 8.50 $5.38
Second Quarter........................... N/A N/A $ 9.50 $4.00
Third Quarter............................ $38.00(1) $17.00(1) $ 6.38 $2.63
Fourth Quarter........................... $63.44 $18.56 $ 7.13 $2.25
Year Ending December 31, 2000:
First Quarter............................ $74.00 $25.00 $11.69 $4.00
Second Quarter (through May 11, 2000).... $38.00 $12.31 $ 7.50 $4.22
</TABLE>
- --------
(1)Period of September 23, 1999 to September 30, 1999.
78
<PAGE>
The following table sets forth the closing prices per share of eGain common
stock and Inference common stock as reported on the Nasdaq National Market on
March 15, 2000, the business day preceding public announcement that eGain and
Inference had entered into the merger agreement, and May 11, 2000, the last
full trading day for which closing prices were available at the time of the
printing of this proxy statement/prospectus.
This table also sets forth the equivalent price per share of Inference
common stock on March 15, 2000 and May 11, 2000, assuming that the average
share price of eGain common stock for the applicable measurement period was
equal to the closing price of eGain common stock on such dates. The equivalent
price per share is equal to the closing price of the fractional share of eGain
common stock to be issued in exchange for each share of Inference common stock
based on the exchange ratio. Based on such assumption, the exchange ratio on
March 15, 2000 would be 0.1865 and the exchange ratio on May 11, 2000 would be
0.5322.
<TABLE>
<CAPTION>
eGain Inference Equivalent
Common Common Price Per
Stock Stock Share
------ --------- ----------
<S> <C> <C> <C>
March 15, 2000................................... $51.50 $10.25 $9.60
May 11, 2000..................................... $17.00 $ 7.00 $9.05
</TABLE>
eGain and Inference believe that Inference common stock presently trades on
the basis of the value of eGain common stock expected to be issued in exchange
for the Inference common stock in the merger, discounted primarily for the
uncertainties associated with the merger. Apart from the publicly disclosed
information concerning eGain that is included and incorporated by reference in
this proxy statement/prospectus, eGain cannot state with certainty what factors
account for changes in the market price of eGain common stock.
Inference stockholders are advised to obtain current market quotations for
eGain common stock and Inference common stock. No assurance can be given as to
the market prices of eGain common stock or Inference common stock at any time
before the consummation of the merger or as to the market price of eGain common
stock at any time after the merger. The exchange ratio of 0.1865 shares of
eGain common stock for each share of Inference common stock will be adjusted
upward if the average share price of eGain common stock in the applicable
measurement period is less than $48.516. The exchange ratio will be adjusted
downward if the average price of eGain common stock in the applicable
measurement period is greater than $59.297. See "Summary--Summary of the
transaction--Exchange ratio calculation on page 4."
eGain and Inference have never paid cash dividends on their respective
shares of capital stock. Pursuant to the merger agreement, Inference has agreed
not to pay cash dividends pending the consummation of the merger, without the
written consent of eGain. If the merger is not consummated, the Inference board
presently intends that it would continue its policy of retaining all earnings
to finance the expansion of its business. The eGain board presently intends to
retain all earnings for use in its business and has no present intention to pay
cash dividends before or after the merger.
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<PAGE>
eGAIN AND INFERENCE
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial information
for eGain consists of the Unaudited Pro Forma Condensed Combined Statement of
Operations for the year ended June 30, 1999, the nine months ended March 31,
2000, and the Unaudited Pro Forma Condensed Combined Balance Sheet as of March
31, 2000.
On March 16, 2000, eGain entered into a merger agreement to acquire
Inference in exchange for 4,071,759 shares of eGain's common stock, assuming an
exchange ratio of 0.5161 and based on the number of shares of Inference common
stock outstanding as of May 5, 2000. The Unaudited Pro Forma Condensed Combined
Statement of Operations for the year ended June 30, 1999 and the nine months
ended March 31, 2000 gives effect to the Inference acquisition as if it had
taken place on July 1, 1998. The Unaudited Pro Forma Condensed Combined Balance
Sheet gives effect to the Inference acquisition as if it had taken place on
March 31, 2000.
The Unaudited Pro Forma Condensed Combined Balance Sheet combines eGain's
financial position at March 31, 2000, after giving effect to the acquisition of
Big Science Company in March 2000, with Inference's historical financial
position at January 31, 2000. The Unaudited Pro Forma Condensed Combined
Statement of Operations combines eGain's results of operations for the year
ended June 30, 1999 and the nine months ended March 31, 2000, after giving
effect to the acquisitions of Big Science in March 2000 and Sitebridge
Corporation in April 1999, with Inference's historical results for the year
ended July 31, 1999 and the nine months ended January 31, 2000. The pro forma
financial information is not necessarily indicative of what the actual
financial results would have been had the transaction taken place on July 1,
1998 or March 31, 2000 and does not purport to indicate the results of future
operations.
The Inference acquisition will be accounted for using the purchase method of
accounting. The pro forma financial information has been prepared on the basis
of assumptions described in the notes.
The pro forma financial information should be read in conjunction with the
related notes included in this document and the audited financial statements
and notes of eGain, Big Science and Sitebridge included elsewhere in this
document, and the audited financial statements and notes of Inference, which
are incorporated herein by reference.
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 occurred if the transaction had
been consummated at the dates indicated, nor is it necessarily indicative of
future operating results or financial position of the combined companies.
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<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF MARCH 31, 2000
(in thousands)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
eGain Inference Adjustments Combined
-------- --------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
------
Current assets:
Cash, cash equivalents and short-
term investments................ $ 40,395 $ 17,244 $ -- $ 57,639
Accounts receivable.............. 1,926 4,299 -- 6,225
Prepaid and other current
assets.......................... 2,859 1,061 -- 3,920
-------- -------- ------- --------
Total current assets............... 45,180 22,604 -- 67,784
Property and equipment, net........ 6,679 1,858 -- 8,537
Goodwill and other intangibles,
net............................... 48,580 884 73,167 (2) 121,747
(884)(2)
Other assets....................... 1,694 470 -- 2,164
-------- -------- ------- --------
Total assets..................... $102,133 $25,816 $72,283 $200,232
======== ======== ======= ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Bank borrowings--line of credit.. $ 1,000 $ -- $ -- 1,000
Accounts payable................. 3,286 1,134 -- 4,420
Accrued compensation............. 4,616 2,289 -- 6,905
Accrued expenses................. 3,220 2,384 3,290 (1) 8,894
Deferred revenue................. 2,324 5,019 -- 7,343
Current portion of notes payable
and capital leases.............. 708 -- -- 708
-------- -------- ------- --------
Total current liabilities.......... 15,154 10,826 3,290 29,270
Non-current portion of notes
payable and capital leases...... 1,182 -- 1,182
Stockholders' equity:
Common stock..................... 30 78 (74)(3) 34
Paid in capital.................. 153,258 49,308 83,979 (1) 237,237
(49,308)(3)
Notes receivable from
stockholders.................... (482) -- -- (482)
Deferred stock compensation...... (10,325) -- -- (10,325)
Accumulated deficit.............. (56,684) (34,396) 34,396 (3) (56,684)
-------- -------- ------- --------
Total stockholders' equity......... 85,797 14,990 68,993 (3) 169,780
-------- -------- ------- --------
Total liabilities and
stockholders' equity............ $102,133 $ 25,816 $72,283 $200,232
======== ======== ======= ========
</TABLE>
See notes to unaudited pro forma condensed combined financial information.
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<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1999
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Gain
-----------------------------------
Pro Forma Pro Forma Pro Forma Pro Forma
Historical Adjustments(a) Combined Inference Adjustments Combined
---------- -------------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Hosting............... $ 137 $ -- $ 137 $ -- $ -- $ 137
License fees.......... 473 64 537 15,664 -- 16,201
Service............... 409 -- 409 13,469 -- 13,878
-------- -------- -------- ------- -------- --------
Total revenue....... 1,019 64 1,083 29,133 -- 30,216
Cost of revenue....... 1,772 126 1,898 7,494 -- 9,392
-------- -------- -------- ------- -------- --------
Gross profit........ (753) (62) (815) 21,639 -- 20,824
Operating expenses:
Research and
development.......... 2,096 1,106 3,202 6,132 -- 9,334
Sales and marketing... 4,182 257 4,439 15,383 -- 19,822
General and
administrative....... 1,235 829 2,064 3,467 -- 5,531
Amortization of
intangibles.......... 1,217 17,418 18,635 61 24,389(4) 43,085
Amortization of
deferred
compensation......... 1,817 -- 1,817 -- -- 1,817
Acquisition related... -- -- -- 677 -- 677
Restructuring......... -- -- -- 282 -- 282
-------- -------- -------- ------- -------- --------
Total operating
expenses........... 10,547 19,610 30,157 26,002 24,389 80,548
-------- -------- -------- ------- -------- --------
Loss from
operations......... (11,300) (19,672) (30,972) (4,363) (24,389) (59,724)
Non-operating income
(expense), net......... (5) (8) (13) 962 949
-------- -------- -------- ------- -------- --------
Net loss............ $(11,305) $(19,680) $(30,985) $(3,401) $(24,389) $(58,775)
======== ======== ======== ======= ======== ========
Net loss per share:
Basic and diluted..... $ (2.14) $ (4.27) $ (0.48) $ (5.19)
======== ======== ======= ========
Weighted-average shares
outstanding used in per
share calculation:
Basic and diluted..... 5,295 7,253 7,099 11,325(5)
======== ======== ======= ========
</TABLE>
- --------
(a) Reflects the acquisitions by eGain of Big Science Company in March 2000 and
Sitebridge Corporation in April 1999.
See notes to unaudited pro forma condensed combined financial information.
82
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED MARCH 31, 2000
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
eGain
-----------------------------------
Pro Pro
Pro Forma Forma Pro Forma Forma
Historical Adjustments (a) Combined Inference Adjustments Combined
---------- -------------- -------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Hosting............... $ 1,930 $ -- $ 1,930 $ -- $ -- $ 1,930
License fees.......... 2,487 72 2,559 6,780 -- 9,339
Service............... 2,657 -- 2,657 9,774 -- 12,431
-------- ------- -------- -------- -------- --------
Total revenue....... 7,074 72 7,146 16,554 -- 23,700
Cost of revenue....... 9,447 -- 9,447 5,702 -- 15,149
-------- ------- -------- -------- -------- --------
Gross profit.......... (2,373) 72 (2,301) 10,852 -- 8,551
Operating expenses:
Research and
development.......... 7,051 90 7,141 6,002 -- 13,143
Sales and marketing... 15,998 301 16,299 12,243 -- 28,542
General and
administrative....... 4,785 299 5,084 2,988 -- 8,072
Amortization of
intangibles.......... 6,265 7,843 14,108 183 18,292(4) 32,583
Amortization of
deferred
compensation......... 8,851 -- 8,851 -- -- 8,851
Acquisition related... -- -- -- -- -- --
Restructuring......... -- -- -- 672 -- 672
-------- ------- -------- -------- -------- --------
Total operating
expenses........... 42,950 8,533 51,483 22,088 18,292 91,863
-------- ------- -------- -------- -------- --------
Loss from
operations......... (45,323) (8,461) (53,784) (11,236) (18,292) (83,312)
Non-operating income
(expense), net......... 1,089 15 1,104 577 -- 1,681
-------- ------- -------- -------- -------- --------
Net loss............ $(44,234) $(8,446) $(52,680) $(10,659) $(18,292) $(81,631)
======== ======= ======== ======== ======== ========
Net loss per share:
Basic and diluted..... $ (2.03) $ (2.34) $ (1.40) $ (3.07)
======== ======== ======== ========
Weighted-average shares
outstanding used in per
share calculation:
Basic and diluted..... 21,783 22,529 7,602 26,601
======== ======== ======== ========
</TABLE>
- --------
(a) Reflects the acquisition by eGain of Big Science Company in March 2000.
See notes to unaudited pro forma condensed combined financial information.
83
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eGAIN AND INFERENCE
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The pro forma information gives effect to eGain's acquisition of Inference
through a merger and exchange of shares. The Unaudited Pro Forma Condensed
Combined Statements of Operations for the year ended June 30, 1999 and the nine
months ended March 31, 2000 reflects this transaction as if it had taken place
on July 1, 1998. The Unaudited Pro Forma Condensed Combined Balance Sheet
reflects this transaction as if it had taken place on March 31, 2000.
The Inference acquisition will be accounted for using the purchase method of
accounting. The pro forma financial information has been prepared on the basis
of assumptions described in the following notes and includes assumptions
relating to the allocation of the consideration paid for the assets and
liabilities of Inference based on preliminary estimates of their fair value.
The actual allocation of such consideration may differ from that reflected in
the pro forma financial information after valuations and other procedures to be
performed after the closing of the Inference acquisition. eGain does not expect
that the final allocation of the purchase price will differ materially from the
preliminary allocations. In the opinion of eGain's management, all adjustments
necessary to present fairly such pro forma financial information have been
based on the proposed terms and structure of the Inference merger.
The pro forma financial information is not necessarily indicative of what
the actual financial results would have been had this transaction taken place
on July 1, 1998 or March 31, 2000, and does not purport to indicate the results
of future operations.
The pro forma financial information gives effect to the following pro forma
adjustments:
Note 1. In accordance with the merger agreement for the Inference merger:
The Inference merger will be accounted for using the purchase method of
accounting. The purchase price was based on $17.53 per share, which is the
twenty day average share price of eGain common stock for the period ended May
11, 2000.
The purchase price was determined as follows:
<TABLE>
<CAPTION>
Inference eGain
Shares Shares Fair Value
---------- --------- --------------
(in thousands)
<S> <C> <C> <C>
Shares................................... 7,889,477 4,071,759 $71,383
Stock options............................ 2,297,012 1,185,477 12,699
Transaction costs........................ -- -- 3,190
Totals................................. 10,186,489 5,257,236 $87,272
</TABLE>
The Inference shares were converted to eGain equivalent shares by taking the
number of Inference shares multiplied by the exchange ratio of approximately
0.5161 eGain shares for each Inference share.
The fair value of shares in the table above was calculated by taking the
fair value of the stock ($49.79 per share) multiplied by the number of eGain
shares to be exchanged.
With respect to stock options exchanged as part of the Inference merger, all
vested and unvested Inference options exchanged for eGain options are included
as part of the purchase price based on their fair value.
The estimated fair value of the options to be assumed is based on the Black-
Scholes model using the following assumptions:
. Expected life of 1 year
. Expected volatility factor of 1.0
84
<PAGE>
eGAIN COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
. Risk-free interest rate of 6%
. Expected dividend rate of 0%
The purchase price may be increased or decreased based upon the average
closing price of eGain's common stock for the 20 day period ending on the third
business day prior to the closing date, if that average stock price is higher
than $58.297 or below $48.516.
The pro forma financial information has been prepared on the basis of
assumptions described in these notes and include assumptions relating to the
allocation of the consideration paid for the assets and liabilities of
Inference based on preliminary estimates of their fair value. The actual
allocation of such consideration may differ from that reflected in the pro
forma financial information after valuations and other procedures to be
performed after the closing of the Inference acquisition. Below is a table of
the estimated acquisition cost, purchase price allocation and annual
amortization of the intangible assets acquired (in thousands):
<TABLE>
<CAPTION>
Annual
Amortization Amortization
Life of Intangibles
------------ --------------
<S> <C> <C> <C>
Estimated Acquisition Cost:
Estimated purchase price.............. $87,272
-------
Purchase Price Allocation:
Estimated fair value of net tangible
assets of Inference at January 31,
2000................................. $14,106
Intangible assets acquired:
Goodwill and other intangible assets.. 73,166 3 $24,389
-------
$87,272
=======
</TABLE>
Tangible assets of Inference acquired in the Inference merger principally
include cash, accounts receivable and fixed assets. Liabilities of Inference
assumed in the Inference merger principally include accounts payable, accrued
payroll, deferred revenue and other current liabilities.
Note 2. Pro forma adjustment is for goodwill and other intangible assets
allocation of $73.2 million and elimination of intangible assets on the balance
sheet of Inference as of the acquisition date.
Note 3. The pro forma adjustment to stockholders' equity reflects the
elimination of Inference's stockholders' equity and the impact of the issuance
of eGain's common stock in connection with the Inference merger.
Note 4. The pro forma adjustment is for amortization of goodwill and other
intangible assets. Currently, management does not anticipate that any
significant value will be attributed to purchased in-process research and
development.
Note 5. Basic and diluted net loss per share has been adjusted to reflect
the issuance of approximately 4.1 million shares of eGain's common stock, as if
the shares had been outstanding for the entire periods presented. The effect of
stock options assumed in the merger has not been included as their inclusion
would be anti-dilutive.
85
<PAGE>
eGAIN AND BIG SCIENCE COMPANY
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial information
for eGain consists of the Unaudited Pro Forma Condensed Combined Statement of
Operations for the fiscal year ended June 30, 1999, and the nine months ended
March 31, 2000.
On March 7, 2000, eGain acquired all the assets and liabilities of Big
Science in exchange for 739,583 shares of eGain's common stock. The Unaudited
Pro Forma Condensed Combined Statement of Operations for the year ended June
30, 1999 and the nine months ended March 31, 2000 gives effect to the Big
Science acquisition as if it had taken place on July 1, 1998.
The Unaudited Pro Forma Condensed Combined Statement of Operations combines
eGain's results of operations for the year ended June 30, 1999 and the nine
months ended March 31, 2000, after giving effect to the acquisition of
Sitebridge in April 1999, with Big Science's historical results for the year
ended June 30, 1999 and the period from July 1, 1998 to the purchase date
(March 7, 2000). The pro forma financial information is not necessarily
indicative of what the actual financial results would have been had the
transaction taken place on July 1, 1998 and does not purport to indicate the
results of future operations.
The Big Science acquisition has been accounted for using the purchase method
of accounting. The pro forma financial information has been prepared on the
basis of assumptions described in the notes.
The pro forma financial information should be read in conjunction with the
related notes included in this document and the audited financial statements
and notes of eGain and Sitebridge included elsewhere in this document, and the
audited financial statements and notes of Big Science, which are included in
another section of this document.
The unaudited pro forma condensed combined information is presented for
illustrative purposes only and is not necessarily indicative of the operating
results that would have occurred if the transaction had been consummated at the
dates indicated, nor is it necessarily indicative of future operating results
of the combined companies.
86
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1999
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Sitebridge Big Science
Big Pro Forma Pro Forma Pro Forma
eGain Sitebridge Science Adjustments(a) Adjustments Combined
-------- ---------- ------- -------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenue
Hosting............... $ 137 $ -- $ -- $ -- $ -- $ 137
License fees.......... 473 58 6 -- -- 537
Service............... 409 -- -- -- -- 409
-------- ------- ----- ------- -------- --------
Total revenue....... 1,019 58 6 -- -- 1,083
Cost of revenue....... 1,772 126 -- -- -- 1,898
-------- ------- ----- ------- -------- --------
Gross profit........ (753) (68) 6 -- -- (815)
Operating expenses
Research and
development.......... 2,096 983 123 -- -- 3,202
Sales and marketing... 4,182 -- 257 -- -- 4,439
General and
administrative....... 1,235 678 151 -- -- 2,064
Amortization of
intangibles.......... 1,217 -- -- 5,920 (2) 11,508 (2) 18,645
Amortization of
deferred
compensation......... 1,817 -- -- -- -- 1,817
-------- ------- ----- ------- -------- --------
Total operating
expenses........... 10,547 1,661 531 5,920 11,508 30,157
-------- ------- ----- ------- -------- --------
Loss from
operations......... (11,300) (1,729) (525) (5,920) (11,508) (30,982)
Non-operating income
(expense), net......... (5) (8) -- -- -- (13)
-------- ------- ----- ------- -------- --------
Net loss............ $(11,305) $(1,737) $(525) $(5,920) $(11,508) $(30,995)
======== ======= ===== ======= ======== ========
Net loss per share
Basic and diluted..... $ (2.14) $ (4.27)
======== ========
Weighted-average shares
outstanding used in per
share calculation
Basic and diluted..... 5,295 7,253(3),(4)
======== ========
</TABLE>
- --------
(a) Reflects the acquisition by eGain of Sitebridge as of April 30, 1999 and
all pro forma adjustments associated with the acquisition.
See notes to unaudited pro forma condensed combined financial information.
87
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED MARCH 31, 2000
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Big Pro Forma Pro Forma
eGain Science Adjustments Combined
-------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Revenue:
Hosting.......................... $ 1,930 $ 72 $ -- $ 1,930
License fees..................... 2,487 -- -- 2,559
Service.......................... 2,657 -- -- 2,657
-------- ----- ------- --------
Total revenue.................. 7,074 72 -- 7,146
Cost of revenue.................. 9,447 -- -- 9,447
-------- ----- ------- --------
Gross profit................... (2,373) 72 -- (2,301)
Operating expenses:
Research and development......... 7,051 90 -- 7,141
Sales and marketing.............. 15,998 301 -- 16,299
General and administrative....... 4,785 299 -- 5,084
Amortization of intangibles...... 6,265 -- 7,843(2) 14,108
Amortization of deferred
compensation.................... 8,851 -- -- 8,851
-------- ----- ------- --------
Total operating expenses....... 42,950 690 7,843 51,483
-------- ----- ------- --------
Loss from operations........... (45,323) (618) (7,843) (53,784)
Non-operating income (expense),
net............................... 1,089 15 -- 1,104
-------- ----- ------- --------
Net loss....................... $(44,234) $(603) $(7,843) $(52,680)
======== ===== ======= ========
Net loss per share:
Basic and diluted................ $ (2.03) $ (2.34)
======== ========
Weighted-average shares outstanding
used in per share calculation:
Basic and diluted................ 21,783 22,529(3)
======== ========
</TABLE>
See notes to unaudited pro forma condensed combined financial information.
88
<PAGE>
eGAIN AND BIG SCIENCE COMPANY
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
The pro forma information gives effect to eGain's acquisition of Big Science
through a merger and exchange of shares. The Unaudited Pro Forma Condensed
Combined Statements of Operations for the year ended June 30, 1999 and the nine
months ended March 31, 2000 reflects this transaction as if it had taken place
on July 1, 1998.
The Big Science acquisition has been accounted for using the purchase method
of accounting. The pro forma financial information has been prepared on the
basis of assumptions described in the following notes and includes assumptions
relating to the allocation of the consideration paid for the assets and
liabilities of Big Science based on preliminary estimates of their fair value.
The actual allocation of such consideration may differ from that reflected in
the pro forma financial information after valuations and other procedures are
performed. eGain does not expect that the final allocation of the purchase
price will differ materially from the preliminary allocations. In the opinion
of eGain's management, all adjustments necessary to present fairly such pro
forma financial information have been based on the proposed terms and structure
of the Big Science merger.
The pro forma financial information is not necessarily indicative of what
the actual financial results would have been had this transaction taken place
on July 1, 1998 and does not purport to indicate the results of future
operations.
The pro forma financial information gives effect to the following pro forma
adjustments:
Note 1. In accordance with the merger agreement for the Big Science merger:
The Big Science merger has been accounted for using the purchase method of
accounting. The purchase price was based on $41.23 per share, which is the ten
day average share price of eGain common stock taken five days before and five
days after the announcement, including the day of the announcement which was
February 9, 2000.
The purchase price was determined as follows:
<TABLE>
<CAPTION>
Big Science Shares eGain Shares Fair Value
------------------ ------------ -------------
(in thousands)
<S> <C> <C> <C>
Shares........................ 34,254,962 739,583 $30,496
Stock options................. 2,314,052 49,961 1,790
Cash consideration............ -- -- 681
Transaction costs............. -- 5,917 1,194
---------- ------- -------
Totals...................... 36,569,014 795,461 $34,161
========== ======= =======
</TABLE>
The Big Science shares were converted to eGain equivalent shares by taking
the number of Big Science shares multiplied by the exchange ratio of
approximately 0.0216 eGain shares for each Big Science share.
The fair value of shares in the table above was calculated by taking the
fair value of the stock ($41.23 per share) multiplied by the number of eGain
shares to be exchanged.
With respect to stock options exchanged as part of the Big Science merger,
all vested and unvested Big Science options exchanged for eGain options are
included as part of the purchase price based on their fair value.
89
<PAGE>
eGAIN AND BIG SCIENCE COMPANY
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION--(Continued)
The estimated fair value of the options to be assumed is based on the Black-
Scholes model using the following assumptions:
. Expected life of 2.5 years
. Expected volatility factor of 1.0
. Risk-free interest rate of 6%
. Expected dividend rate of 0%
The pro forma financial information has been prepared on the basis of
assumptions described in these notes and include assumptions relating to the
allocation of the consideration paid for the assets and liabilities of Big
Science based on preliminary estimates of their fair value. The actual
allocation of such consideration may differ from that reflected in the pro
forma financial information after valuations and other procedures to be
performed after the closing of the Big Science acquisition. Below is a table of
the estimated acquisition cost, purchase price allocation and annual
amortization of the intangible assets acquired (in thousands):
<TABLE>
<CAPTION>
Annual
Amortization Amortization
Life of Intangibles
------------ --------------
<S> <C> <C>
Estimated Acquisition Cost:
Estimated purchase price....................... $34,161
=======
Purchase Price Allocation:
Net tangible assets (liabilities) of Big
Science at the acquisition date............... $ (362)
Intangible assets acquired:
Goodwill and other intangible assets......... 34,523 $11,508
-------
$34,161
=======
</TABLE>
Tangible assets of Big Science acquired in the Big Science merger
principally include cash and fixed assets. Liabilities of Big Science assumed
in the Big Science merger principally include accounts payable, accrued payroll
and deferred revenue.
Note 2. The pro forma adjustment is for amortization of goodwill and other
intangible assets. Currently, management does not anticipate that any
significant value will be attributed to purchased in-process research and
development.
Note 3. Basic and diluted net loss per share has been adjusted to reflect
the issuance of approximately 740,000 shares of eGain's common stock related to
the acquisition of Big Science, as if the shares had been outstanding for the
entire periods presented.
Note 4. Basic and diluted net loss per share has been adjusted to reflect
the issuance of approximately 1.5 million shares of eGain's common stock
related to the acquisition of Sitebridge, as if the shares had been outstanding
for the entire periods presented.
90
<PAGE>
COMPARISON OF STOCKHOLDER RIGHTS
This section of the proxy statement/prospectus describes certain differences
between Inference common stock and eGain common stock. While we believe that
the description covers the material differences between the two, this summary
may not contain all of the information that is important to you, including the
certificates of incorporation and bylaws of each company. You should read this
entire document and the other documents we refer to carefully for a more
complete understanding of the differences between Inference common stock and
eGain common stock. You may obtain the information incorporated by reference
into this proxy statement/prospectus without charge by following the
instructions in the section entitled "Where you can find more information" on
page 99.
After the merger, the holders of Inference common stock who receive eGain
common stock will become stockholders of eGain. Because Inference and eGain are
both Delaware corporations, the Delaware General Corporation Law will continue
to govern the rights of Inference stockholders. The Inference certificate of
incorporation and the Inference bylaws currently govern the rights of the
stockholders of Inference. As stockholders of eGain, the eGain certificate of
incorporation, as amended and restated, and the eGain bylaws, as amended and
restated, will instead govern their rights following the merger. The following
paragraphs summarize certain differences between the rights of eGain
stockholders and Inference stockholders under the certificates of incorporation
and bylaws of eGain and Inference, as applicable.
Number of Directors
Inference. The bylaws of Inference provide that the number of directors
shall be not less than five nor more than eleven.
eGain. The bylaws of eGain provide that the number of directors shall not be
less than three nor more than five, and the actual number of directors shall be
set by resolution of the board. The eGain board currently consists of four
members.
Board Vacancies
Inference. Vacancies may be filled by a majority of remaining directors,
even if less than a quorum, or by a sole remaining director.
eGain. When vacancies or newly created directorships result, such positions
may be filled by a majority of the directors then in office, though less than a
quorum.
Timeliness of Notice to Bring Material Before Annual Meetings of Stockholders
Inference. To be timely, a stockholder's notice must be delivered not less
than 30 days prior to the meeting; provided however, that in the event that
less than 40 days' notice of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be received not later
than the close of business on the tenth day following the day on which such
notice of the date of the meeting was mailed or such public disclosure was
made.
eGain. A stockholder's notice must be received by the Secretary of the
corporation, not less than 50 days or more than 75 days prior to the meeting;
provided, however, that in the event that less than sixty-five days' notice or
prior public disclosure of the date of the scheduled meeting is given or made
to stockholders, notice by the stockholder to be timely must be received not
later than the close of business on the 15th day following the day on which
such notice of the date of the annual meeting was mailed or such public
disclosure was made.
91
<PAGE>
Special Meetings of Stockholders
Inference. A special meeting of stockholders may be called at any time by a
majority of the entire board, chairman or the president. A request in writing
for persons other than board of directors must be delivered to the chairman of
the board, the president and vice president or secretary. Notice will then be
given to the stockholders entitled to vote not less than 35 days nor more than
60 days after receipt of the request. If the notice is not given within 20 days
after the receipt of the request, the person or persons requesting the meeting
may give notice.
eGain. Special meetings of the stockholders may be called only by the
chairman of the board, the chief executive officer of the corporation or by
resolution adopted by the majority of the board of directors.
Stockholder Action by Written Consent
Inference. The Inference certificate of incorporation provides that any
action required or permitted to be taken by the stockholders must be effected
at a duly called annual or special meeting of the stockholders and not by
written consent.
eGain. The eGain bylaws provide that any action required or permitted to be
taken by the stockholders must be effected at a duly called annual or special
meeting of stockholders and not by written consent.
Amendment of Charter and Bylaws
Inference. The Inference charter provides that the affirmative vote of the
holders of not less than 80% of the outstanding shares entitled to vote shall
be required to amend certain provisions of the Inference charter relating to
the board of directors, stockholder meetings and director liability and
indemnification.
The Inference bylaws may be amended by a majority of the board of directors
or by the stockholders.
eGain. Generally, the eGain charter may be amended by the affirmative vote
of a majority of the outstanding stock entitled to vote thereon at the
stockholders meeting.
The eGain charter provides that the eGain bylaws may be amended by the
affirmative vote of a majority holders of the voting power of all of the then
issued and outstanding shares of stock entitled to vote generally, voting
together as a single class. The eGain bylaws may also be amended by the
affirmative vote a majority of the total number of authorized directors.
Stockholder Rights Plans
Inference. Inference does have a stockholder rights plan which is described
below.
eGain. eGain does not have stockholder rights plan.
Inference Shareholder Rights Plan
In November 1996, the Inference board of directors adopted a Shareholder
Rights Plan which authorized the distribution of one right to purchase one one-
hundredth share of Inference Junior Participating Preferred Stock at the rate
of one right for each share of Inference common stock held by stockholders of
record as of December 10, 1996. The Rights Plan was adopted to provide
protection to stockholders in the event of an unsolicited attempt to acquire
Inference.
Rights are not exercisable until the earlier of (i) ten business days
following a public announcement that a person or group has acquired beneficial
ownership of 20% or more of our general voting power or (ii) ten business days
(or such later date as may be determined by action of the board of directors)
following the
92
<PAGE>
commencement of, or announcement of an intention to make, a tender offer which
would result in a person or group obtaining beneficial ownership of 20% or
more of our general voting power, subject to certain exceptions (the earlier
of such dates being called the Distribution Date). The rights are initially
exercisable for one one-hundredth of a share of Inference Junior Participating
Preferred Stock at a price of $40.00, subject to adjustment. However, if (i)
after the Distribution Date Inference is acquired in certain types of
transactions, or (ii) any person or group (with certain exceptions) acquires
beneficial ownership of 20% of Inference common stock, then holders of rights
(other than the 20% holder) will be entitled to receive, upon exercise of the
right, common stock (or common stock equivalents) of Inference (or in the case
of acquisition of Inference, common stock of the acquirer) having a market
value of two times the exercise price of the right.
Inference is entitled to redeem the rights for $0.001 per right, at the
discretion of the board of directors. The rights expire in November 2006.
Inference's board of directors has passed a resolution making the Rights
Plan inapplicable to the merger.
93
<PAGE>
SHARE OWNERSHIP BY PRINCIPAL STOCKHOLDERS,
MANAGEMENT AND DIRECTORS OF eGAIN
The following table sets forth information concerning the beneficial
ownership of common stock of eGain as of March 31, 2000 for the following:
. each person or entity who is known by eGain to own beneficially more than
5% of the outstanding shares of eGain's common stock
. each of eGain's current directors
. eGain's five other most highly compensated executive officers during the
fiscal year ended June 30, 1999
. all directors and executive officers of eGain as a group
Unless otherwise noted, the address of each named beneficial owner is that of
eGain.
The pre-merger percentage ownership is based on 29,596,566 shares of eGain
common stock outstanding as of March 31, 2000. The post-merger percentage
ownership includes 1,468,407 shares of eGain common stock that would be issued
to Inference stockholders, assuming an exchange ratio of 0.1865, based on
7,873,501 shares of Inference common stock outstanding as of March 31, 2000.
All shares subject to options and warrants exercisable within 60 days after
March 31, 2000 are deemed to be beneficially owned by the person or entity
holding such options or warrants and to be outstanding solely for calculating
such person's or entity's percentage ownership. Unless otherwise indicated
below, the persons and entities named in the table have sole voting and sole
investment power with respect to all shares beneficially owned, subject to
community property laws where applicable. This table includes percentage
ownership data reflecting ownership both before and after consummation of the
merger with Inference, and reflects information contained in the most recent
publicly available filings for each person and entity.
<TABLE>
<CAPTION>
Pre-Merger Post Merger
------------ ------------
Percentage Percentage
Number of of of
Shares of eGain eGain Common eGain Common
Common Stock Stock Stock
Beneficially Beneficially Beneficially
Owned Owned Owned
--------------- ------------ ------------
<S> <C> <C> <C>
5% Stockholder:
FW Ventures I, L.P.(1).............. 4,041,590 13.7% 13.0%
201 Main Street, Suite 2600
Ft. Worth, TX 76011
Directors and Executive Officers:
Ashutosh Roy........................ 4,596,951 15.5 14.8
Gunjan Sinha........................ 4,596,931 15.5 14.8
Stephen Klann....................... 136,225 * *
Ryan Rosenberg(2)................... 150,440 * *
Eric Smit(3)........................ 136,500 * *
A. Michael Spence(4)................ 25,000 * *
Mark Wolfson(5)..................... 5,000 * *
All executive officers and directors
as a group (14 persons)(5)(6)...... 10,867,078 36.7% 35.0%
</TABLE>
- --------
* Indicates less than one percent.
(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.
94
<PAGE>
(2) Includes 78,438 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.
(3) Includes 91,666 shares of common stock subject to eGain's right of
repurchase.
(4) Includes 25,000 shares subject to eGain's right of repurchase.
(5) Includes 5,000 shares subject to eGain's right of repurchase; excludes
4,041,590 shares beneficially owned by FW Ventures I, L.P. of which Mr.
Wolfson is a limited partner.
(6) Includes 370,524 shares of common stock subject to eGain's right of
repurchase.
95
<PAGE>
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion summarizes the material federal income tax
considerations of the merger that are generally applicable to Inference
stockholders exchanging their Inference common stock for eGain common stock.
Inference stockholders should be aware that the following discussion does not
deal with all federal income tax considerations that may be relevant to
Inference stockholders in light of their particular circumstances, such as
stockholders who are dealers in securities, who are foreign persons or who
acquired their Inference stock through stock option or stock purchase programs
or in other compensatory transactions. In addition, the following discussion
does not address the tax consequences of the merger under foreign, state or
local tax laws. Finally, the following discussion does not address the tax
consequences of transactions occurring prior to or after the merger (whether or
not such transactions are in connection with the merger) including, without
limitation, the exercise of options or rights to purchase Inference common
stock in anticipation of the merger. Accordingly, Inference stockholders are
urged to consult their own tax advisors as to the specific tax consequences to
them of the merger, including the applicable federal, state, local and foreign
tax consequences to them of the merger.
The following discussion is based on the Internal Revenue Code of 1986, as
amended, applicable Treasury Regulations, judicial authority and administrative
rulings and practice, all as of the date hereof. The IRS could adopt a contrary
position. In addition, future legislative, judicial or administrative changes
or interpretations could adversely affect the accuracy of the statements and
conclusions set forth herein. Any such changes or interpretations could be
applied retroactively and could affect the tax consequences of the merger to
eGain, eGain's merger subsidiary, Inference and/or their respective
stockholders.
The merger is intended to qualify as a reorganization under section 368(a)
of the Internal Revenue Code. Assuming the merger does qualify as a
reorganization, subject to the limitations and qualifications referred to
herein, the following tax consequences will result:
. The Inference stockholders will recognize no gain or loss upon the
receipt of eGain common stock solely in exchange for their Inference
common stock in the merger, except with respect to cash received in lieu
of fractional shares of eGain common stock.
. The aggregate tax basis of the eGain common stock received by the
Inference stockholders in the merger will be the same as the aggregate
tax basis of the Inference common stock surrendered in exchange therefor
(reduced by any basis allocable to fractional shares for which cash is
received).
. The holding period of the eGain common stock received by each Inference
stockholder in the merger will include the holding period of the
Inference common stock surrendered in exchange therefor, provided that
the Inference common stock surrendered is held as a capital asset at the
time of the merger.
. An Inference stockholder receiving cash in the merger in lieu of a
fractional interest in eGain common stock will be treated as if such
holder actually received such fractional share interest which was
subsequently redeemed by eGain. An Inference stockholder should recognize
gain or loss with respect to a cash payment in lieu of a fractional share
measured by the difference, if any, between the amount of cash received
and the basis in such fractional share.
. None of eGain, eGain's merger subsidiary or Inference will recognize gain
or loss solely as a result of the merger.
Neither eGain nor Inference has requested a ruling from the IRS in
connection with the merger. It is a condition to the consummation of the merger
that Inference receive an opinion from its counsel, Wilson Sonsini Goodrich &
Rosati, P.C., that the merger will be treated for federal income tax purposes
as a reorganization qualifying under the provisions of section 368(a) of the
Internal Revenue Code, and that each of eGain, eGain's merger subsidiary and
Inference will be a party to the reorganization within the meaning of section
368(b) of the Internal Revenue Code. The tax opinion neither binds the IRS nor
precludes the IRS from adopting a
96
<PAGE>
contrary position. The tax opinion is subject to certain assumptions and
qualifications and is based in part on the truth and accuracy of certain
representations of eGain, eGain's merger subsidiary and Inference.
A successful IRS challenge to the reorganization status of the merger would
result in Inference stockholders recognizing a gain or loss. The amount of gain
or loss for each share of Inference common stock surrendered would equal the
difference between the stockholder's basis in each share and the fair market
value, as of the time of the merger, of the eGain common stock and any other
consideration received in exchange. Inference stockholders' aggregate basis in
the eGain common stock so received would equal its fair market value, and the
stockholders' holding period for such stock would begin the day after the
merger. However, even in that event, neither eGain, eGain's merger subsidiary
nor Inference would recognize gain or loss solely as a result of the merger.
Even if the merger qualifies as a reorganization, Inference stockholders
receiving shares of eGain common stock will recognize gain to the extent that
such shares were received in exchange for services or property (other than
solely Inference common stock). All or a portion of such gain may be taxable as
ordinary income. Gain would also have to be recognized to the extent that an
Inference stockholder was treated as receiving consideration other than eGain
common stock in exchange for Inference common stock.
THE PRECEDING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF CERTAIN UNITED
STATES INCOME TAX CONSEQUENCES OF THE MERGER AND DOES NOT PURPORT TO BE A
COMPLETE ANALYSIS OR DISCUSSION OF ALL POTENTIAL TAX EFFECTS RELEVANT THERETO.
THUS, INFERENCE STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO
THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING TAX RETURN
REPORTING REQUIREMENTS, THE APPLICABILITY AND EFFECT OF FOREIGN, FEDERAL,
STATE, LOCAL, AND OTHER APPLICABLE TAX LAWS AND THE EFFECT OF ANY PROPOSED
CHANGES IN THE TAX LAWS.
STOCKHOLDER PROPOSALS
Proposals of stockholders of Inference that are intended to be presented by
such stockholders at Inference's 2000 Annual Meeting of Stockholders, in the
event that the merger has not been consummated before then, should have been
received by the Secretary of Inference no later than January 29, 2000 in order
that they could have been included in Inference's proxy statement and form of
proxy relating to that meeting.
OTHER MATTERS
Inference knows of no other business that will be presented at the Inference
meeting. If any other business is properly brought before the Inference
meeting, it is intended that proxies in the enclosed form will be voted in
accordance with the judgment of the persons voting the proxies, unless
otherwise instructed.
LEGAL MATTERS
The validity of the eGain common stock issuable pursuant to the merger and
certain other legal matters relating thereto will be passed upon for eGain by
Pillsbury Madison & Sutro LLP, Palo Alto, California. Certain tax matters will
be passed upon for Inference by Wilson Sonsini Goodrich & Rosati, P.C., Palo
Alto, California, Inference's outside legal counsel.
97
<PAGE>
EXPERTS
Ernst & Young LLP, independent auditors, have audited eGain's consolidated
financial statements for the year ended June 30, 1999, as set forth in their
report, which is included in this proxy statement/prospectus. eGain's
consolidated financial statements are included in reliance on Ernst & Young
LLP's report, given on their authority as experts in accounting and auditing.
Ernst & Young LLP, independent auditors, have audited Inference's
consolidated financial statements included in Inference's annual report on Form
10-K for the year ended January 31, 2000, as set forth in their report, which
is incorporated by reference in this proxy statement/prospectus. Inference's
consolidated financial statements are incorporated by reference in reliance on
Ernst & Young LLP's report, given on their authority 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 this proxy statement/prospectus in reliance on
Ernst & Young LLP's report, given on their authority as experts in accounting
and auditing.
The financial statements of Big Science Company as of December 31, 1999 and
1998 and for each of the years then ended included in this prospectus have been
so included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
DOCUMENTS INCORPORATED BY REFERENCE
This proxy statement/prospectus incorporates documents of Inference by
reference that are not presented in or delivered with this document.
All documents filed by Inference under Section 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act, after the date hereof and before the date of the
Inference meeting are incorporated by reference into and to be a part of this
proxy statement/prospectus from the date of filing of those documents.
You should rely only on the information contained in this document, or that
we have referred you to. We have not authorized anyone to provide you with
information that is different.
The following documents that were filed by Inference with the Securities and
Exchange Commission are incorporated by reference into this proxy
statement/prospectus:
. Inference's annual report on Form 10-K for the fiscal year ended January
31, 2000 filed on April 5, 2000
Any statement contained in a document incorporated or deemed to be
incorporated in this document by reference will be deemed to be modified or
superseded for purposes of this proxy statement/prospectus to the extent that a
statement contained in this document or any other subsequently filed document
that is deemed to be incorporated in this document by reference modifies or
supersedes the statement. Any statement so modified or superseded will not be
deemed, except as so modified or superseded, to constitute a part of this proxy
statement/prospectus.
98
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
The documents incorporated by reference into this proxy statement/prospectus
are available from Inference upon request. Inference will provide a copy of any
and all of the information that is incorporated by reference in this proxy
statement/prospectus not including exhibits, unless those exhibits are
specifically incorporated by reference into this proxy statement/prospectus, to
you, without charge, upon written or oral request. You should make any request
for documents by June 19, 2000 to ensure timely delivery of the documents.
Each of eGain and Inference file reports, proxy statements and other
information with the Securities and Exchange Commission. Copies of eGain's or
Inference's reports, proxy statements and other information may be inspected
and copied at the public reference facilities maintained by the Securities and
Exchange Commission:
<TABLE>
<S> <C> <C>
Judiciary Plaza Citicorp Center Seven World Trade Center
Room 1024 500 West Madison Street 13th Floor
450 Fifth Street, N.W. Suite 1400 New York, New York 10048
Washington, D.C. 20549 Chicago, Illinois 60661
</TABLE>
Copies of these materials can also be obtained by mail at prescribed rates
from the Public Reference Section of the Securities and Exchange Commission,
450 Fifth Street, N.W., Washington, D.C. 20549 or by calling the Securities and
Exchange Commission at 1-800-SEC-0330. The Securities and Exchange Commission
maintains a website that contains reports, proxy statements and other
information regarding each of us. The address of the Securities and Exchange
Commission website is www.sec.gov.
<TABLE>
<S> <C>
Requests for documents
relating to eGain
should be Requests for documents relating to Inference should be
directed to: directed to:
eGain Communications
Corporation Inference Corporation
455 W. Maude Avenue 100 Rowland Way
Sunnyvale, California
94086 Novato, California 94945
(408) 212-3400 (415) 893-7200
Attn: Investor Relations Attn: Investor Relations
</TABLE>
eGain has filed a registration statement under the Securities Act with the
Securities and Exchange Commission with respect to eGain's common stock to be
issued to Inference stockholders in the merger. This proxy statement/prospectus
constitutes the prospectus of eGain filed as part of the registration
statement. This proxy statement/prospectus does not contain all of the
information set forth in the registration statement because certain parts of
the registration statement are omitted as provided by the rules and regulations
of the Securities and Exchange Commission. You may inspect and copy the
registration statement at any of the addresses listed above.
eGain's world wide web home page is located at www.eGain.com. Inference's
world wide web home page is located at www.Inference.com. Information contained
in either eGain's or Inference's website does not constitute, and shall not be
deemed to constitute, part of this proxy statement/prospectus.
This document does not constitute an offer to sell, or a solicitation of an
offer to purchase, the eGain common stock or the solicitation of a proxy, in
any jurisdiction to or from any person to whom or from whom it is unlawful to
make the offer, solicitation of an offer or proxy solicitation in that
jurisdiction. Neither the delivery of this proxy statement/prospectus nor any
distribution of securities means, under any circumstances, that there has been
no change in the information set forth or incorporated in this document by
reference or in eGain's affairs since the date of this proxy
statement/prospectus.
The information contained in this document with respect to Inference and its
subsidiaries was provided by Inference and the information contained in this
document with respect to eGain was provided by eGain. Neither Inference nor
eGain warrants the accuracy or completeness of information relating to the
other.
99
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF
eGAIN COMMUNICATIONS CORPORATION
Report of Ernst & Young LLP, Independent Auditors........................ F-2
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
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF
eGAIN COMMUNICATIONS CORPORATION
Condensed Consolidated Balance Sheets as of March 31, 2000 .............. F-20
Condensed Consolidated Statements of Operations for the Nine Months Ended
March 31, 2000 and 1999................................................. F-21
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
March 31, 2000 and 1999................................................. F-22
Notes to Condensed Consolidated Financial Statements..................... F-23
AUDITED FINANCIAL STATEMENTS OF BIG SCIENCE COMPANY
Report of PricewaterhouseCoopers LLP, Independent Accountants............ F-27
Balance Sheet............................................................ F-28
Statement of Operations.................................................. F-29
Statement of Changes in Shareholders' Deficit............................ F-30
Statement of Cash Flows.................................................. F-31
Notes to Financial Statements............................................ F-32
AUDITED FINANCIAL STATEMENTS OF SITEBRIDGE CORPORATION
Report of Ernst & Young LLP, Independent Auditors........................ F-35
Balance Sheets........................................................... F-36
Statements of Operations................................................. F-37
Statement of Stockholders' Equity (Net Capital Deficiency)............... F-38
Statements of Cash Flows................................................. F-39
Notes to Financial Statements............................................ F-40
</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 auditing standards generally
accepted in the United States. 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 accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Palo Alto, California
July 16, 1999
F-2
<PAGE>
eGAIN COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
------------------------
1998 1999
---------- ------------
<S> <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
Additional paid-in capital......................... 291,287 17,549,416
Notes receivable from stockholders................. -- (143,653)
Deferred stock compensation........................ (175,774) (8,956,117)
Accumulated other comprehensive income............. -- 757
Accumulated deficit................................ (938,438) (12,242,939)
---------- ------------
Total stockholders' equity....................... 3,801,339 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.
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.
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. License fee revenue in multiple
element contracts is recognized using the residual method when there is vendor
specific appropriate evidence of the fair value of all undelivered elements in
an arrangement but vendor specific appropriate evidence of fair value does not
exist for one or more of the delivered elements in an arrangement. Under the
residual method, the total fair value of the undelivered elements, as indicated
by vendor specific objective evidence, is deferred and the difference between
the total arrangement fee and the amount deferred for the undelivered elements
is recognized as revenue related to the delivered elements, regardless of any
separate prices stated within the contract for each element. If sufficient
vendor-specific objective evidence does not exist for undelivered elements in
an 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
F-7
<PAGE>
eGAIN COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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.
F-8
<PAGE>
eGAIN COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Under Statement of Financial Accounting Standards No. 121 "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of
("SFAS No. 121"), the carrying values of long-term assets and intangibles other
than developed technology ("other intangibles") will be regularly reviewed 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, and undiscounted expected future cash flows are less
than the carrying amount of the assets, 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.
In addition, eGain will assess the impairment of goodwill not included in
the scope of SFAS 121 under Accounting Principles Board Opinion No. 17,
"Intangible Assets", (APB 17). Write-offs and write-downs to net realizable
value of goodwill not included in the scope of SFAS 121 will typically be made
only when the Company has effectively abandoned and stopped selling virtually
all of the products acquired in an acquisition. No impairment has been
indicated to date.
Purchased developed technology is amortized based on the greater of the
straight-line basis over the estimated useful life or the ratio of current
revenues to the total of current and anticipated future revenues. The
recoverability of the carrying value of purchased developed technology and
associated goodwill is reviewed periodically. The carrying value of developed
technology is compared to the estimated future gross revenues from that product
reduced by the estimated future costs of completing and disposing of that
product, including the costs of performing maintenance and customer support
(net undiscounted cash flows) and to the extent that the carrying value exceeds
the undiscounted cash flows the difference will be written off. No write-off
has been recorded to date.
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 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.
F-9
<PAGE>
eGAIN COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
F-11
<PAGE>
eGAIN COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 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>
F-12
<PAGE>
eGAIN COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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>
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.
F-13
<PAGE>
eGAIN COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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.
F-14
<PAGE>
eGAIN COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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 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.
F-17
<PAGE>
eGAIN COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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.
F-18
<PAGE>
eGAIN COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 September 1999, the Company completed an initial public offering in which
the Company sold 5,750,000 shares of its common stock for net proceeds to the
Company of $63.0 million. Upon the closing of the initial public offering, each
outstanding share of the Company's preferred stock was automatically converted
into one share of common stock of the Company resulting in the issuance of
10,218,378 shares of common stock.
In July 1999, the board of directors 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.
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-19
<PAGE>
eGAIN COMMUNICATIONS CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
March 31,
2000
---------
<S> <C>
ASSETS
------
Current Assets:
Cash and cash equivalents.......................................... $ 25,459
Short-term investments, held as available for sale................. 14,936
Accounts receivable................................................ 1,926
Prepaid and other current assets................................... 2,859
--------
Total Current Assets............................................. 45,180
Property and equipment, net.......................................... 6,679
Goodwill and other intangibles, net.................................. 48,580
Other assets......................................................... 1,694
--------
Total Assets..................................................... $102,133
========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Bank borrowings--line of credit.................................... $ 1,000
Accounts payable................................................... 3,286
Accrued compensation............................................... 4,616
Accrued liabilities................................................ 3,220
Deferred revenue................................................... 2,324
Current portion of notes payable and capital leases................ 708
--------
Total Current Liabilities........................................ 15,154
Non-current portion of notes payable and capital leases............ 1,182
Stockholders' Equity
Preferred stock.................................................... --
Common stock....................................................... 30
Paid in capital.................................................... 153,258
Notes receivable from stockholders................................. (482)
Deferred stock compensation........................................ (10,325)
Accumulated other comprehensive income (loss)...................... (207)
Accumulated deficit................................................ (56,477)
--------
Total stockholders' equity....................................... 85,797
--------
Total liabilities and stockholders' equity....................... $102,133
========
</TABLE>
See accompanying notes.
F-20
<PAGE>
eGAIN COMMUNICATIONS CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Nine Months
Ended March 31,
-----------------
2000 1999
-------- -------
<S> <C> <C>
Revenue
Hosting.................................................. $ 1,930 $ 21
License fees............................................. 2,487 280
Service.................................................. 2,657 99
-------- -------
Total Revenue.......................................... 7,074 400
Cost of revenue.......................................... 9,447 899
-------- -------
Gross profit........................................... (2,373) (499)
Operating Expenses
Research and development................................. 7,051 1,153
Sales and marketing...................................... 15,998 2,515
General and administrative............................... 4,785 726
Amortization of goodwill................................. 6,265 --
Amortization of deferred compensation.................... 8,851 666
-------- -------
Total Operating Expenses............................... 42,950 5,060
-------- -------
Loss from operations................................... (45,323) (5,559)
Non-operating income (expense), net...................... 1,089 8
-------- -------
Net Loss............................................... $(44,234) $(5,551)
======== =======
Net loss per share
Pro forma basic and diluted(i)........................... $ (1.77) $ (0.49)
======== =======
Basic and diluted........................................ $ (2.03) $ (1.09)
======== =======
Weighted-average shares outstanding used in per share
calculation
Pro forma(i)............................................. 25,047 11,233
======== =======
Basic.................................................... 21,783 5,100
======== =======
</TABLE>
- --------
(i) Pro forma basic and diluted shares outstanding include convertible stock
using the if-converted method from the original date of issuance.
See accompanying notes.
F-21
<PAGE>
eGAIN COMMUNICATIONS CORPORATION AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Nine Months
Ended March 31,
-----------------
2000 1999
-------- -------
<S> <C> <C>
Operating Activities
Net loss................................................... $(44,234) $(5,551)
Adjustments to reconcile net loss to net cash from
operating activities:
Depreciation............................................. 1,084 133
Amortization............................................. 15,132 682
Other.................................................... 2 --
Changes in operating assets and liabilities:
Accounts receivable...................................... (1,170) (231)
Prepaid expenses and other current assets................ (2,346) (160)
Other non-current assets................................. (1,540) (84)
Accounts payable......................................... 2,534 190
Accrued compensation..................................... 4,088 146
Other current liabilities................................ 2,183 139
Deferred revenues........................................ 1,922 138
Other.................................................... 37 20
-------- -------
Net cash used in operating expenses.................... (22,308) (4,578)
-------- -------
Investing Activities
Purchases of property and equipment........................ (5,358) (810)
Cash paid net of cash assumed in acquisition of Big Science
Company................................................... (1,320) --
Purchases of short-term investments........................ (26,546) --
Proceeds from sales of investments......................... 11,400 --
-------- -------
Net cash used in investing activities.................. (21,824) (810)
-------- -------
Financing Activities
Proceeds from loans........................................ 408 1,357
Payments on notes payable and capital leases............... (601) (42)
Net proceeds from issuance of common stock................. 63,367 7
Net proceeds from issuance of preferred stock.............. 5,152 5,076
-------- -------
Net cash provided by financing activities.............. 68,326 6,398
-------- -------
Net increase in cash and cash equivalents.................. 24,194 1,010
Cash and cash equivalents at beginning of period........... 1,265 3,831
-------- -------
Cash and cash equivalents at end of period................. $ 25,459 $ 4,841
======== =======
Non-Cash Information:
Equipment acquired under capital lease obligations......... $ 1,360 $ --
Issuance of stock in acquisition of Big Science Company.... 31,704 --
</TABLE>
See accompanying notes.
F-22
<PAGE>
eGAIN COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The condensed consolidated financial statements have been prepared by eGain
Communications Corporation pursuant to the rules and regulations of the
Securities and Exchange Commission and include the accounts of eGain
Communications Corporation and its wholly-owned subsidiaries (collectively, the
"Company" or "eGain"). All significant intercompany balances and transactions
have been eliminated.
Certain information and footnote disclosures, normally included in financial
statements prepared in accordance with generally accepted accounting
principles, have been condensed or omitted pursuant to such rules and
regulations. While in the opinion of the Company, the unaudited financial
statements reflect all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the financial position at
March 31, 2000 and the operating results and cash flows for the nine months
ended March 31, 2000 and 1999, these financial statements and notes should be
read in conjunction with the Company's audited consolidated financial
statements and notes thereto, included in the Company's Registration Statement
on Form S-1 filed with the Securities and Exchange Commission. The results of
operations for the nine months ended March 31, 2000 are not necessarily
indicative of results that may be expected for any other interim period or for
the full fiscal year ending June 30, 2000.
Note 2. Summary of Significant Accounting Policies
Cash, Cash Equivalents, and Short-term Investments
eGain considers all highly liquid investment securities with maturities from
date of purchase of three months or less to be cash equivalents. Cash
equivalents consist primarily of money market accounts and commercial paper
with maturities less than 90 days. Realized gains have been recorded in
interest income.
Short-term investments are securities with maturities of more than 90 days
but less than one year. Management determines the appropriate classification of
debt and equity securities at the time of purchase and evaluates such
designation as of each balance sheet date. To date, all debt securities have
been classified as available-for-sale and are carried at fair value with
material unrealized gains and losses, if any, included in stockholders' equity.
Unrealized losses were approximately $84,000 for the nine months ended March
31, 2000. Realized gains and losses and declines in value of securities judged
to be other than temporary are included in interest income. Interest and
dividends on all securities are included in interest income.
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.
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. License fee revenue in multiple
element contracts is recognized using the residual method when there is vendor
specific appropriate evidence of the fair value of all undelivered elements in
an arrangement but vendor specific appropriate evidence of fair value does not
exist for one or more of the delivered elements in an arrangement. Under the
residual method, the total fair value of the undelivered elements, as indicated
by vendor specific objective evidence, is deferred and the difference between
the total arrangement fee and the amount deferred for the undelivered elements
is recognized as revenue related to the delivered elements, regardless of any
separate prices stated within the contract for each element. If
F-23
<PAGE>
eGAIN COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
sufficient vendor-specific objective evidence does not exist for undelivered
elements in an 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.
Net Loss Per Share
In accordance with FAS 128, basic and diluted net loss per share has been
computed using the weighted-average number of shares of common stock
outstanding during the period, less the weighted-average number of shares of
common that are subject to repurchase. The pro forma basic and diluted net loss
per share has been computed using the weighted-average number of shares of
common stock outstanding during the period which includes convertible stock
using the if-converted method from the original date of issuance, less the
weighted-average number of shares of common that are subject to repurchase.
The following table presents the calculation of basic and diluted net loss
per share (in thousands, except per share data):
<TABLE>
<CAPTION>
Nine Months Ended
--------------------
March 31, March 31,
2000 1999
--------- ---------
<S> <C> <C>
Net Loss................................................ $(44,234) $(5,551)
-------- -------
Basic and diluted:
Weighted-average shares of common stock outstanding... 23,295 8,356
Less: weighted-average shares subject to repurchase... (1,512) (3,256)
-------- -------
Weighted-average shares used in computing basic and
diluted net loss per share........................... 21,783 5,100
-------- -------
Basic and diluted net loss per share.................... $ (2.03) $ (1.09)
Pro forma:
Shares used above..................................... 21,783 5,100
Pro forma adjustment to reflect weighted effect of
assumed conversion of convertible preferred stock.... 3,264 6,133
-------- -------
Shares used in computing pro forma basic and diluted
net loss per share................................... 25,047 11,233
Pro forma basic and diluted net loss per share........ $ (1.77) $ (0.49)
</TABLE>
- --------
Note: Pro forma basic and diluted shares outstanding include convertible stock
using the if-converted method from the original date of issuance
F-24
<PAGE>
eGAIN COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Segment Information
eGain operates in one segment. Operating losses generated by the foreign
operations of eGain were approximately $2.3 million for the nine months ended
March 31, 2000, and their corresponding identifiable assets were not material
in any period presented. eGain's export revenue was $393,000 for the nine
months ended March 31, 2000.
Comprehensive Income
Comprehensive loss for the nine months ended March 31, 2000 was
approximately $44.4 million and was not materially different from net loss as
reported in the income statement.
Recent Accounting Pronouncements
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Recognition in Financial Statements", or SAB 101,
which summarizes certain of the SEC Staff's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
The Company is currently evaluating the impact of SAB 101. The Company believes
their current practices comply with SAB 101; however, should the Company
determine that a change in a accounting policy is necessary such a change will
be made July 1, 2000 and would result in a charge to results of operations for
the cumulative effect of the change. This amount, if recognized, would be
recorded as deferred revenue and recognized as revenue in future periods.
Financial statements for prior periods would not be restated.
Note 3. Initial Public Offering
On September 28, 1999, the Company completed an initial public offering in
which it sold 5,000,000 shares of Common Stock at $12.00 per share for net
proceeds of $54.7 million. Upon the closing of the offering, all the Company's
Preferred Stock converted to Common Stock. After the offering, the Company's
authorized capital consisted of 50,000,000 shares of Common Stock of which
approximately 27,977,000 shares were outstanding at September 30, 1999 and
5,000,000 shares of preferred stock, none of which were issued or outstanding
at September 30, 1999. In October 1999, the underwriters exercised an over-
allotment option of 750,000 shares resulting in net proceeds of $8.3 million.
Note 4. Deferred Stock-Based Compensation
The Company uses the intrinsic value method of accounting for its employee
stock-based compensation plans. Accordingly, no compensation cost is recognized
for any of its stock options when the exercise price exceeds the fair value of
the underlying common stock as of the grant date. With respect to the stock
options granted to employees since inception through March 31, 2000, the
Company recorded deferred stock-based compensation of $14.7 million for the
difference at the grant date between the exercise price and the deemed fair
value of the common stock underlying the options. This amount is being
amortized in accordance with Financial Accounting Standards Board (FASB)
Interpretation No. 28 over the vesting period of the individual options,
generally 4 years.
In accordance with the Statement of Financial Accounting Standards No. 123
"Accounting for Stock Based Compensation." ("SFAS 123"), stock options issued
to non-employees are 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. With respect to the stock options granted to non-employees
since inception through March 31, 2000, the Company recorded deferred stock-
based compensation of $5.2 million for the fair value of the common stock
options.
F-25
<PAGE>
eGAIN COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Notes 5. Business Acquisition
Business Combination
On March 7, 2000, eGain acquired all the assets and liabilities of Big
Science Company (Big Science), a developer of software designed to improve the
internet customer experience through pre-sales and post-sales assistance, for
approximately $34.2 million. The results of Big Science's operations have been
combined with those of eGain since the date of acquisition.
The Big Science merger has been accounted for using the purchase method of
accounting. The purchase price was determined as follows:
<TABLE>
<CAPTION>
Big
Science eGain Fair Value
Shares Shares (in thousands)
---------- ------- --------------
<S> <C> <C> <C>
Shares..................................... 34,254,962 739,583 $ 30,496
Options.................................... 2,314,052 49,961 1,790
Cash consideration......................... -- -- 681
Transaction costs.......................... -- 5,917 1,194
---------- ------- --------
Totals..................................... 36,569,014 795,461 $ 34,161
========== ======= ========
</TABLE>
Certain items affecting the purchase price allocation are preliminary. The
actual allocation of such consideration may differ after valuations and other
procedures are performed. eGain does not expect that the final allocation of
the purchase price will differ materially from the preliminary allocations.
The total amount allocated to goodwill is being amortized on a straight-line
basis over a period of three years from the date of acquisition. Below is a
table of the estimated acquisition cost, purchase price allocation and annual
amortization of the intangible assets acquired (in thousands):
<TABLE>
<CAPTION>
Annual
Amortization Amortization
Life of Intangibles
------------ --------------
<S> <C> <C>
Purchase price................................. $34,161
=======
Purchase Price Allocation:
Net tangible assets (liabilities) of Big
Science at March 7, 2000.................... $ (362)
Intangible Assets Acquired:
Goodwill and other intangible assets......... 34,523 $11,508
-------
$34,161
=======
</TABLE>
For the three months ended March 31, 2000, a total of $788,205 was amortized
as goodwill.
Unaudited pro forma combined results of operations for the nine months ended
March 31, 2000 and 1999 have been prepared as if the acquisition occurred at
the beginning of each period.
<TABLE>
<CAPTION>
Nine Months Ended
March 31
(in thousands
except per share
amounts)
-------------------
2000 1999
--------- ---------
<S> <C> <C>
Total Revenue........................................... $ 7,147 $ 611
========= =========
Net loss................................................ $(53,389) $(20,893)
========= =========
Basic and diluted net loss per share.................... $ (2.37) $ (2.96)
========= =========
</TABLE>
F-26
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of
Big Science Company
In our opinion, the accompanying balance sheet and the related statements of
operations, changes in shareholders' deficit and of cash flows present fairly,
in all material respects, the financial position of Big Science Company, a
development stage enterprise, at December 31, 1999 and 1998, and the results of
its operations and its cash flows for the years ended December 31, 1999, 1998
and the period from July 26, 1997 (inception) through December 31, 1999 in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these statements in accordance with
auditing standards generally accepted in the United States which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
As described in Note 6, the Company was acquired by eGain Communications
Corporation.
PricewaterhouseCoopers LLP
Atlanta, Georgia
February 21, 2000, except as to Note 6
which is as of March 7, 2000
F-27
<PAGE>
BIG SCIENCE COMPANY
(A Development Stage Enterprise)
BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
----------------------
1999 1998
----------- ---------
<S> <C> <C>
ASSETS
------
Current assets
Cash................................................. $ 44,307 $ 913
Deferred project costs............................... 84,026 --
----------- ---------
Total current assets............................... 128,333 913
Software and equipment, net............................ 16,385 933
Software development costs, net........................ 40,000 --
----------- ---------
Total assets....................................... $ 184,718 $ 1,846
=========== =========
LIABILITIES AND SHAREHOLDERS' DEFICIT
-------------------------------------
Current liabilities Accounts payable................... $ 41,766 $ 46,662
Accrued payroll and related expenses................. 185,873 --
Deferred revenue..................................... 99,605 --
Short-term borrowings................................ 22 4,405
Note payable to shareholder.......................... -- 2,500
----------- ---------
Total current liabilities.......................... 327,266 53,567
----------- ---------
Convertible note payable............................... 100,000 --
----------- ---------
Commitments............................................ -- --
Shareholders' deficit
Preferred stock, par value $.001 per share; 1,000,000
shares authorized; none outstanding................. -- --
Common stock, no par value; 40,000,000 shares
authorized; 33,962,500 and 300,000 issued and
outstanding, respectively........................... -- 300
Additional paid in capital........................... 978,000 352,700
Deficit accumulated during development stage......... (1,220,548) (404,721)
----------- ---------
Total shareholders' deficit........................ (242,548) (51,721)
----------- ---------
Total liabilities and shareholders' deficit........ $ 184,718 $ 1,846
=========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE>
BIG SCIENCE COMPANY
(A Development Stage Enterprise)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the period
from
July 26, 1997
For the years ended (inception)
December 31, through
-------------------- December 31,
1999 1998 1999
--------- --------- --------------
<S> <C> <C> <C>
Revenues................................... $ 7,500 $ 32,000 $ 39,500
--------- --------- -----------
Costs and expenses
Product development...................... 110,184 156,817 267,365
Sales and marketing...................... 400,262 111,494 511,756
General and administrative............... 311,216 115,112 479,185
--------- --------- -----------
Total costs and expenses............... 821,662 383,423 1,258,306
--------- --------- -----------
Operating loss........................... (814,162) (351,423) (1,218,806)
Interest expense......................... 1,665 70 1,742
--------- --------- -----------
Net loss................................... $(815,827) $(351,493) $(1,220,548)
========= ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE>
BIG SCIENCE COMPANY
(A Development Stage Enterprise)
STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Common Stock Additional
----------------- Paid-in Subscription Accumulated
Shares Amount Capital Receivable Deficit Total
---------- ------ ---------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Issued at inception..... 1,000 $ 100 $ 900 $ 1,000
Stock split............. 99,000 --
Common stock issued..... 200,000 200 1,800 $(2,000) --
Contributed capital from
services............... 50,000 50,000
Net loss................ $ (53,228) (53,228)
---------- ----- -------- ------- ----------- ---------
Balance at December 31,
1997................... 300,000 300 52,700 (2,000) (53,228) (2,228)
Payment of subscription
receivable............. 2,000 2,000
Contributed capital from
services............... 300,000 300,000
Net loss................ (351,493) (351,493)
---------- ----- -------- ------- ----------- ---------
Balance at December 31,
1998................... 300,000 300 352,700 -- (404,721) (51,721)
Sales of common stock... 30,000 400,000 400,000
Stock split............. 32,670,000 (300) 300 --
Sales of common stock... 962,500 175,000 175,000
Contributed capital from
services............... 50,000 50,000
Net loss................ (815,827) (815,827)
---------- ----- -------- ------- ----------- ---------
Balance at December 31,
1999................... 33,962,500 $ -- $978,000 $ -- $(1,220,548) $(242,548)
========== ===== ======== ======= =========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
BIG SCIENCE COMPANY
(A Development Stage Enterprise)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the
period from
July 26,
1997
For the years ended (inception)
December 31, through
-------------------- December
1999 1998 31, 1999
--------- --------- -----------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss.................................. $(815,827) $(351,493) $(1,220,548)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation and amortization........... 3,358 311 3,758
Contributed capital from services....... 50,000 300,000 400,000
Changes in operating assets and
liabilities
Deferred project costs................ (84,026) (84,026)
Accounts payable...................... (4,892) 46,648 41,766
Other assets.......................... -- 318 --
Deferred revenue...................... 99,605 99,605
Accrued payroll and related expenses.. 185,873 185,873
--------- --------- -----------
Net cash used in operating
activities......................... (565,909) (4,216) (573,572)
--------- --------- -----------
Cash flows from investing activities
Purchases of software and equipment....... (18,810) (798) (20,143)
Software development costs................ (40,000) (40,000)
--------- --------- -----------
Net cash used in investing
activities......................... (58,810) (798) (60,143)
--------- --------- -----------
Cash flows from financing activities
Proceeds from issuance of convertible note
payable.................................. 100,000 100,000
Proceeds from borrowings, net............. (6,883) 3,534 22
Proceeds from related party note.......... 56,000 56,000
Repayments of related party note.......... (56,000) (56,000)
Issuances of common stock................. 575,000 2,000 578,000
--------- --------- -----------
Net cash provided by financing
activities......................... 668,113 5,534 678,022
--------- --------- -----------
Net increase in cash................ 43,394 520 44,307
Cash, beginning of period................... 913 393 --
--------- --------- -----------
Cash, end of period......................... $ 44,307 $ 913 $ 44,307
========= ========= ===========
Supplemental disclosure of cash flow
information
Cash paid during the period for interest.. $ 1,315 $ 70 $ 77
========= ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE>
BIG SCIENCE COMPANY
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
1. Nature of Business and Summary of Significant Accounting Policies
Nature of business and basis of presentation
Big Science Company (the "Company") is a Georgia corporation, formed July
26, 1997 as a C corporation. The Company has developed a software designed to
improve the internet customer experience through pre-sales and post-sales
assistance. KLONE(TM) Server is an application software whose web interface is
a simulated, lifelike agent or character that interacts with customers in text
or voice using plain English.
Although the Company has commenced its principal operations, the Company is
classified as a development stage enterprise as it has not yet generated
significant or sustainable revenues and has a net capital deficiency and has
experienced losses since its inception.
Significant accounting policies
Revenue recognition
Revenue recognized since inception was derived in 1998 from licensing fees
for use of a test version of the Company's software and in 1999 from a fee
related to a demonstration of the Company's software. These licenses were for
periods of six months or less and were not subject to refund.
The Company provides application development services to its customers that
are essential to the use of the Company's family of KLONE(TM) Server software
products. Such services are subject to client specific acceptance criteria. At
the completion of these services, the Company typically enters into a software
license and maintenance arrangement with the customer. Due to the short
duration of the service period (typically less than three months), the Company
utilizes the completed contract method for revenue recognition as prescribed by
the American Institute of Certified Public Accountants Statement of Position
97-2, Software Revenue Recognition. As of December 31, 1999, all of the
Company's application development service arrangements were in various stages
of completion. As a result, the related amounts billed under those arrangements
(principally development fees), and the related development costs, are
deferred. The Company has received a single license fee payment of $30,000 that
is also deferred subject to the final completion of the development project.
Deferred revenues and deferred project costs
Deferred revenues represent amounts billed to customers under the terms of
their specific application development service arrangements as well as software
license fees paid by customers in advance of delivery of the software. Deferred
project costs represent the Company's costs incurred under these service
arrangements.
Software and equipment
Software and equipment consist of computers and software which are recorded
at cost, less accumulated depreciation and amortization. Depreciation and
amortization expense is provided on the straight-line method over the estimated
useful life of 3 to 5 years. The accumulated depreciation for the year ended
December 31, 1999 is $3,758.
Software development costs
Capitalized software development costs consist principally of salaries and
certain other costs related to the development of software products capitalized
in accordance with the provisions of FAS 86, "Accounting for
F-32
<PAGE>
BIG SCIENCE COMPANY
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS--(Continued)
the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed". All
costs incurred to establish technological feasibility are expensed as incurred
and are classified as product development in the accompanying Statement of
Operations.
The Company released version 1.0 of its KLONE Server product in August 1999.
Costs incurred to develop enhancements and additional functionality related to
the software were capitalized during the remainder of 1999.
Income taxes
The Company accounts for income taxes utilizing the asset and liability
approach. Deferred taxes are determined based on the estimated future tax
effects of differences between financial reporting and the income tax basis of
assets and liabilities given the provisions of the enacted tax laws. A
valuation allowance is established against all deferred tax assets until the
Company believes it is more likely than not that the benefit will be realized.
Fair value of financial instruments
The carrying amounts of financial instruments including cash, accounts
payable and accrued expenses approximate fair value. The carrying amounts of
borrowings approximate fair value based on current rates of interest available
to the Company for loans of similar maturities.
Comprehensive income
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," requires entities to report comprehensive income, which
represents the change in equity during a period from non-owner sources. The
Company has not incurred any such activity other than the net loss for all
periods presented.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses during the reporting period. Actual results could differ from
those estimates and could materially affect the reported amounts of assets,
liabilities and future operating results.
2. Shareholders' Deficit
The Company has authorized 1,000,000 shares of $.001 par value preferred
stock. No shares of preferred stock have been issued.
In July 1999, the Company declared a 99-for-one stock split of its common
stock and eliminated its par value. In December 1997, the Company declared a
99-for-one stock split of its common stock and decreased the par value from
$.10 to $.001. Also in December 1997, the Company entered into a stock
subscription agreement with two of its founders whereby the Company issued the
founders 200,000 post-split common shares for $2,000 ($.01 per share). These
individuals vest in 20,000 shares upon execution of the agreement and vest the
remaining shares over the next 4 years provided they remain in the employ of
the Company. In the event these individuals cease being employed by the
Company, the Company will repurchase the non-vested shares from the founders at
$.01.
F-33
<PAGE>
BIG SCIENCE COMPANY
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Since inception and for the years ended December 31, 1999 and 1998, certain
shareholders performed services for the Company without receiving cash
compensation. The estimated fair value of these services of $50,000 and
$300,000 for the years ended December 31, 1999 and 1998, respectively, and
$400,000 since inception is reflected as contributed capital and payroll
expense in the accompanying financial statements.
3. Borrowings
Short-term borrowings represent unsecured amounts advanced to the Company by
commercial banks. These borrowings accrue interest at an annual rate of 16% and
are due on demand.
On December 15, 1999, the Company issued a convertible note payable to a
private investor. The note accrues interest at 8% and is convertible upon the
issuance of preferred stock, common stock or in the event of an acquisition of
the Company. Pursuant to the terms of the instrument, the Company will convert
the note into approximately 225,000 shares of common stock as a result of the
acquisition of the Company (see Note 6).
4. Income Taxes
At December 31, 1999, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $777,000. The carryforwards expire
principally in 2019. A valuation allowance has been established against the
benefit of the net operating loss carryforwards and other deferred tax assets
which the Company does not believe are more likely than not to be realized.
Under the Tax Reform Act of 1986, the benefit from federal net operating losses
is limited when there are cumulative ownership changes of more than 50% over a
three-year period, such as the acquisition of the Company as discussed in Note
6.
5. Related Party Transactions
Since its inception, the Company has paid approximately $20,000 for computer
rental and web hosting services to a company owned by the spouse of the
Company's president.
During 1999, the Company borrowed $26,000 from a director and $30,000 from
the spouse of the Company's president. Both notes were repaid on December 30,
1999.
During 1999, the Company paid consulting fees of $70,000 to an individual
related to a shareholder of the Company.
6. Subsequent Events
On March 7, 2000, the Company was acquired by eGain Communications
Corporation.
F-34
<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 auditing standards generally
accepted in the United States. 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
accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Palo Alto, California
July 16, 1999
F-35
<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-36
<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-37
<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-38
<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-39
<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.
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.
F-40
<PAGE>
SITEBRIDGE CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
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 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.
F-41
<PAGE>
SITEBRIDGE CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
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.
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>
F-42
<PAGE>
SITEBRIDGE CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
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>
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).
F-43
<PAGE>
SITEBRIDGE CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
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>
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.
F-44
<PAGE>
SITEBRIDGE CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
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>
<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
F-45
<PAGE>
SITEBRIDGE CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
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-46
<PAGE>
APPENDIX A
AGREEMENT AND PLAN
OF MERGER
AMONG
INFERENCE CORPORATION,
EGAIN COMMUNICATIONS CORPORATION
AND
INTREPID ACQUISITION CORP.
Dated as of March 16, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE I The Merger.................................................... A-1
Section 1.1 The Merger............................................. A-1
Section 1.2 Conversion of Shares................................... A-2
Section 1.3 Surrender and Payment.................................. A-3
Section 1.4 Stock Options.......................................... A-4
Section 1.5 Adjustments............................................ A-5
Section 1.6 Fractional Shares...................................... A-5
Section 1.7 Withholding Rights..................................... A-5
Section 1.8 Lost Certificates...................................... A-5
ARTICLE II Certain Governance Matters................................... A-6
Certificate of Incorporation of the Surviving
Section 2.1 Corporation............................................ A-6
Section 2.2 Bylaws of the Surviving Corporation.................... A-6
Section 2.3 Directors and Officers of the Surviving Corporation.... A-6
ARTICLE III Representations and Warranties of the Company............... A-6
Section 3.1 Organization and Qualification......................... A-6
Section 3.2 Capitalization......................................... A-6
Section 3.3 Authority.............................................. A-7
Section 3.4 Governmental Authorization............................. A-7
Section 3.5 Non-Contravention...................................... A-7
Section 3.6 Subsidiaries........................................... A-8
Section 3.7 SEC Filings............................................ A-8
Section 3.8 Financial Statements................................... A-9
Section 3.9 Disclosure Documents................................... A-9
Section 3.10 Absence of Certain Changes............................. A-9
Section 3.11 No Undisclosed Material Liabilities.................... A-10
Section 3.12 Litigation............................................. A-10
Section 3.13 Taxes.................................................. A-10
Section 3.14 Employee Benefit Plans................................. A-11
Section 3.15 Compliance with Laws................................... A-12
Section 3.16 Finders' or Advisors' Fees............................. A-12
Section 3.17 Environmental Matters.................................. A-12
Section 3.18 Labor Matters.......................................... A-12
Section 3.19 Title to Property...................................... A-13
Section 3.20 Real Property.......................................... A-13
Section 3.21 Management Payments; Vesting........................... A-14
Section 3.22 Insurance.............................................. A-14
Section 3.23 Intellectual Property.................................. A-14
Section 3.24 Year 2000 Compliance................................... A-15
Section 3.25 Opinion of Financial Advisor........................... A-15
</TABLE>
i
<PAGE>
TABLE OF CONTENTS--(Continued)
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
Section 3.26 Tax Treatment............................................ A-15
Section 3.27 Takeover Statutes........................................ A-15
ARTICLE IV Representations and Warranties of Acquirer and Merger
Subsidiary............................................................... A-15
Section 4.1 Organization and Qualification........................... A-15
Section 4.2 Capitalization........................................... A-15
Section 4.3 Authority................................................ A-16
Section 4.4 Governmental Authorization............................... A-16
Section 4.5 Non-Contravention........................................ A-16
</TABLE>
<TABLE>
<C> <S> <C>
Section 4.6 SEC Filings.............................................. A-16
Section 4.7 Disclosure Documents..................................... A-17
Section 4.8 Litigation............................................... A-17
Section 4.9 Employee Benefit Plans................................... A-17
Section 4.10 Compliance with Laws..................................... A-18
Section 4.11 Finders' or Advisors' Fees............................... A-18
Section 4.12 Tax Treatment............................................ A-18
Section 4.13 Vote Required............................................ A-18
Section 4.14 Absence of Certain Changes............................... A-18
Section 4.15 No Undisclosed Material Liabilities...................... A-18
Section 4.16 Litigation............................................... A-19
Section 4.17 Insurance................................................ A-19
ARTICLE V Covenants of the Company........................................ A-19
Section 5.1 Conduct of Business of the Company....................... A-19
Section 5.2 No Solicitation.......................................... A-20
Section 5.3 Stockholders' Meetings................................... A-21
ARTICLE VI Covenants of Acquirer.......................................... A-22
Section 6.1 Conduct of Business of Acquirer.......................... A-22
Section 6.2 Indemnification.......................................... A-22
Section 6.3 NNM Listings............................................. A-22
Section 6.4 Employee Matters......................................... A-22
ARTICLE VII Covenants of Acquirer and the Company......................... A-23
Section 7.1 Access to Information.................................... A-23
Section 7.2 Registration Statement and Proxy Statement............... A-23
Section 7.3 Reasonable Efforts; Other Actions........................ A-24
Section 7.4 Public Announcements..................................... A-24
Section 7.5 Notification of Certain Matters.......................... A-24
Section 7.6 Expenses................................................. A-24
Section 7.7 Affiliates............................................... A-24
Section 7.8 Tax-Free Reorganization Treatment........................ A-24
</TABLE>
ii
<PAGE>
TABLE OF CONTENTS--(Continued)
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE VIII Conditions to the Merger................................... A-25
Section 8.1 Conditions to the Obligations of Each Party............ A-25
Conditions to the Obligations of Acquirer and Merger
Section 8.2 Subsidiary............................................. A-25
Section 8.3 Conditions to the Obligations of the Company........... A-26
ARTICLE IX Termination.................................................. A-27
Section 9.1 Termination............................................ A-27
Section 9.2 Termination by Acquirer................................ A-27
Section 9.3 Termination by the Company............................. A-27
Section 9.4 Procedure for Termination.............................. A-28
Section 9.5 Effect of Termination.................................. A-28
ARTICLE X Miscellaneous................................................. A-29
Section 10.1 Notices................................................ A-29
Section 10.2 Non-Survival of Representations and Warranties......... A-29
Section 10.3 Amendments; No Waivers................................. A-29
Section 10.4 Successors and Assigns................................. A-30
Section 10.5 Governing Law.......................................... A-30
Section 10.6 Jurisdiction........................................... A-30
</TABLE>
<TABLE>
<C> <S> <C>
Section 10.7 Waiver of Jury Trial.................................... A-30
Section 10.8 Counterparts; Effectiveness............................. A-30
Section 10.9 Entire Agreement........................................ A-30
Section 10.10 Captions................................................ A-30
Section 10.11 Severability............................................ A-30
SCHEDULES
1.4 Company Stock Option Plans
3.5 Non-Contravention (Company)
3.6 Subsidiaries
3.10 Changes (Company)
3.11(c) Undisclosed Liabilities (Company)
3.13 Taxes
3.14 Company Employee Benefit Plans
3.20 Real Property
3.21 Management Payments
3.22 Insurance
4.5 Non-Contravention (Acquirer)
4.9 Acquirer Employee Benefit Plans
4.14 Changes (Acquirer)
4.15(c) Undisclosed Liabilities (Acquirer)
8.1(d) Third Party Approvals
EXHIBITS
</TABLE>
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of March 16, 2000 (the
"Agreement"), is by and among INFERENCE CORPORATION, a Delaware corporation
(the "Company"), EGAIN COMMUNICATIONS CORPORATION, a Delaware corporation
("Acquirer"), and INTREPID ACQUISITION CORP., a newly formed Delaware
corporation and wholly owned subsidiary of Acquirer. Acquirer and the Company
are hereinafter sometimes collectively referred to as the "Constituent
Corporations."
RECITALS:
A. The respective Boards of Directors of Acquirer, Merger Subsidiary, and
the Company have approved this Agreement, and deem it advisable and in the best
interests of each corporation and its respective stockholders to consummate the
merger of Merger Subsidiary with and into the Company upon the terms and
subject to the conditions of this Agreement; and
B. It is intended that the Merger qualify as a tax-free reorganization
within the meaning of section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code") and be accounted for as a purchase; and
C. Each of the parties hereto desire to make certain representations,
warranties, covenants and agreements in connection with the transactions
contemplated hereby:
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties, covenants, agreements and conditions contained
herein, the parties hereto agree as follows:
ARTICLE I
The Merger
Section 1.1 The Merger.
(a) In accordance with the provisions of this Agreement and the General
Corporation Law of the State of Delaware (the "Delaware Law"), at the Effective
Time, Merger Subsidiary shall be merged (the "Merger") with and into the
Company, whereupon the separate existence of Merger Subsidiary shall cease and
the Company shall be the surviving corporation (hereinafter sometimes called
the "Surviving Corporation") in the Merger.
(b) As soon as practicable after satisfaction or, to the extent permitted
hereunder, waiver of all conditions to the Merger, the Company and Merger
Subsidiary shall file a certificate of merger with the Secretary of State of
the State of Delaware and make all other filings or recordings required by
Delaware Law in connection with the Merger. The Merger shall become effective
at such time as the certificate of merger is duly filed with the Secretary of
State of the State of Delaware or at such later time as is specified in the
certificate of merger (the "Effective Time").
(c) From and after the Effective Time, the Surviving Corporation shall
possess all the rights, privileges, powers and franchises and be subject to all
of the restrictions, disabilities and duties of the Company and Merger
Subsidiary, all as provided under the Delaware Law.
(d) The closing of the Merger (the "Closing") shall take place at the
offices of Pillsbury Madison & Sutro LLP, 2550 Hanover Street, Palo Alto,
California as soon as practicable, but in any event within three (3) business
days after the day on which the last to be fulfilled or waived of the
conditions set forth in Article VIII (other than those conditions that by their
nature are to be fulfilled at the Closing, but subject to the fulfillment or
waiver of such conditions) shall be fulfilled or waived in accordance with this
Agreement or at such other time, place and date as is mutually agreed to in
writing by the parties hereto. The date of the Closing is referred to in this
Agreement as the "Closing Date."
A-1
<PAGE>
Section 1.2 Conversion of Shares.
(a) As of the Effective Time, by virtue of the Merger and without any action
on the part of the holders thereof:
(i) Each share of common stock of Merger Subsidiary outstanding
immediately prior to the Effective Time shall be converted into and become
one fully paid and nonassessable share of common stock, par value $.001 per
share, of the Surviving Corporation with the same rights, powers and
privileges as the shares so converted, and such shares shall constitute the
only outstanding shares of capital stock of the Surviving Corporation.
(ii) Each share of Class A Common Stock, par value $0.01 per share, and
Class B Common Stock, par value $0.01 per share, of the Company (each a
"Company Share") held by the Company as treasury stock or owned by Acquirer
or any subsidiary of Acquirer shall be cancelled, and no payment shall be
made with respect thereto.
(iii) Each Company Share outstanding immediately prior to the Effective
Time shall, except as otherwise provided in Section 1.2(a)(ii), by virtue
of the Merger and without any action on the part of the holder thereof, be
converted into the right to receive 0.1865 (the "Exchange Ratio") shares of
fully paid and nonassessable common stock, par value $.001 per share, of
Acquirer ("Acquirer Common Stock"), subject to adjustment as provided
below.
(iv) If, the Average Share Price (as defined herein) is greater than
fifty-nine dollars twenty-nine and seven tenths cents ($59.297) per share,
then the Exchange Ratio shall be adjusted to equal:
[(0.1865) X (59.297)]
---------------
Average Share Price
(rounded to four decimal places)
(v) If, the Average Share Price is less than forty-eight dollars fifty-
one and six tenths cents ($48.516) per share, then the Exchange Ratio shall
be adjusted to equal:
[(0.1865) X (48.516)]
---------------
Average Share Price
(rounded to four decimal places)
The "Average Share Price" shall be equal to the average closing price of
Acquirer's Common Stock listed on the Nasdaq National Market for the twenty
(20) consecutive trading days ending on the third trading day prior to the
Closing Date.
(b) From and after the Effective Time, all Company Shares converted in
accordance with Section 1.2(a)(iii) shall no longer be outstanding and shall
automatically be cancelled and retired and shall cease to exist, and each
holder of a certificate representing any such Company Shares shall cease to
have any rights with respect thereto, except the right to receive the Merger
Consideration (as defined below), as applicable, and any dividends payable
pursuant to Section 1.3(f). From and after the Effective Time, all certificates
representing the common stock of Merger Subsidiary shall be deemed for all
purposes to represent the number of shares of common stock of the Surviving
Corporation into which they were converted in accordance with
Section 1.2(a)(i).
(c) The Acquirer Common Stock to be received as consideration pursuant to
the Merger by each holder of Company Shares (together with cash in lieu of
fractional shares of Acquirer Common Stock as specified below) is referred to
herein as the "Merger Consideration."
(d) For purposes of this Agreement, the word "Subsidiary" when used with
respect to any Person means any other Person, whether incorporated or
unincorporated, of which (i) more than fifty percent of the securities or other
ownership interests or (ii) securities or other interests having by their terms
ordinary voting power to
A-2
<PAGE>
elect more than fifty percent of the board of directors or others performing
similar functions with respect to such corporation or other organization, is
directly owned or controlled by such Person or by any one or more of its
Subsidiaries. For purposes of this Agreement, "Person" means an individual, a
corporation, a limited liability company, a partnership, an association, a
trust or any other entity or organization, including a government or political
subdivision or any agency or instrumentality thereof.
Section 1.3 Surrender and Payment.
(a) Prior to the Effective Time, Acquirer shall appoint an agent reasonably
acceptable to the Company (the "Exchange Agent") for the purpose of exchanging
certificates representing Company Shares (the "Certificates") for the Merger
Consideration. Acquirer will make available to the Exchange Agent, as needed,
the Merger Consideration to be paid in respect of the Company Shares. Promptly
after the Effective Time, Acquirer will send, or will cause the Exchange Agent
to send, to each holder of record at the Effective Time of Company Shares a
letter of transmittal for use in such exchange (which shall specify that the
delivery shall be effected, and risk of loss and title shall pass, only upon
proper delivery of the Certificates to the
Exchange Agent) in such form as the Company and Acquirer may reasonably agree,
for use in effecting delivery of Company Shares to the Exchange Agent.
(b) Each holder of Company Shares that have been converted into a right to
receive the Merger Consideration, upon surrender to the Exchange Agent of a
Certificate, together with a properly completed letter of transmittal, will be
entitled to receive the Merger Consideration in respect of the Company Shares
represented by such Certificate. Until so surrendered, each such Certificate
shall, after the Effective Time, represent for all purposes only the right to
receive such Merger Consideration.
(c) If any portion of the Merger Consideration is to be paid to a Person
other than the Person in whose name the Certificate is registered, it shall be
a condition to such payment that the Certificate so surrendered shall be
properly endorsed or otherwise be in proper form for transfer and that the
Person requesting such payment shall pay to the Exchange Agent any transfer or
other taxes required as a result of such payment to a Person other than the
registered holder of such Certificate or establish to the satisfaction of the
Exchange Agent that such tax has been paid or is not payable.
(d) After the Effective Time, there shall be no further registration of
transfers of Company Shares. If, after the Effective Time, Certificates are
presented to the Surviving Corporation, they shall be cancelled and exchanged
for the consideration provided for, and in accordance with the procedures set
forth, in this Article I.
(e) Any portion of the Merger Consideration made available to the Exchange
Agent pursuant to Section 1.3(a) that remains unclaimed by the holders of
Company Shares one year after the Effective Time shall be returned to Acquirer,
upon demand, and any such holder who has not exchanged such holder's Company
Shares for the Merger Consideration in accordance with this Section 1.3 prior
to that time shall thereafter look only to Acquirer for payment of the Merger
Consideration in respect of such holder's Company Shares. Notwithstanding the
foregoing, Acquirer shall not be liable to any holder of Company Shares for any
amount paid to a public official pursuant to applicable abandoned property,
escheat or similar laws. Any amounts remaining unclaimed by holders of Company
Shares three years after the Effective Time (or such earlier date immediately
prior to such time as such amounts would otherwise escheat to or become
property of any governmental entity) shall, to the extent permitted by
applicable law, become the property of Acquirer free and clear of any claims or
interest of any Person previously entitled thereto.
(f) No dividends or other distributions with respect to Acquirer Common
Stock issued in the Merger shall be paid to the holder of any unsurrendered
Certificates until such Certificates are surrendered as provided in this
Section 1.3. Subject to the effect of applicable laws, following such
surrender, there shall be paid, without interest, to the record holder of the
Acquirer Common Stock issued in exchange therefor (i) at the time of such
surrender, all dividends and other distributions payable in respect of such
Acquirer Common Stock with a record date on or after the Effective Time and a
payment date on or prior to the date of such surrender and not previously paid
and (ii) at the appropriate payment date, the dividends or other distributions
payable in respect
A-3
<PAGE>
of such Acquirer Common Stock with a record date on or after the Effective Time
but with a payment date subsequent to such surrender. For purposes of dividends
or other distributions in respect of Acquirer Common Stock, all Acquirer Common
Stock to be issued pursuant to the Merger (but not options therefor issued
pursuant to Section 1.4 unless actually exercised at the Effective Time) shall
be entitled to dividends pursuant to the immediately preceding sentence as if
issued and outstanding as of the Effective Time.
Section 1.4 Stock Options.
(a) At the Effective Time, each outstanding option to purchase Company
Shares (a "Company Stock Option") granted under the Company's plans identified
in Schedule 1.4 as being the only compensation or benefit plans or agreements
pursuant to which Company Shares may be issued (collectively, the "Company
Stock Option Plans"), whether vested or not vested, shall be deemed assumed by
Acquirer and shall thereafter be deemed to constitute an option to acquire, on
the same terms and conditions (including any provisions for acceleration) as
were applicable under such Company Stock Option prior to the Effective Time (in
accordance with the past practice of the Company with respect to interpretation
and application of such terms and conditions), the number (rounded down to the
nearest whole number) of shares of Acquirer Common Stock determined by
multiplying (x) the number of Company Shares subject to such Company Stock
Option immediately prior to the Effective Time by (y) the Exchange Ratio, at a
price per share of Acquirer Common Stock (rounded up to the nearest whole cent)
equal to (A) the exercise price per Company Share otherwise purchasable
pursuant to such Company Stock Option divided by (B) the Exchange Ratio. The
parties intend that the conversion of the Company Stock Options hereunder will
meet the requirements of section 424(a) of the Code and this Section 1.4(a)
shall be interpreted consistent with such intention. Subject to the terms of
the Company Options and the documents governing such Company Stock Options, the
Merger will not terminate or accelerate any Company Stock Option or any right
of exercise, vesting or repurchase relating thereto with respect to Acquirer
Common Stock acquired upon exercise of such assumed Company Stock Option.
Holders of Company Stock Options will not be entitled to acquire Company Shares
after the Merger. In addition, prior to the Effective Time, the Company will
make any amendments to the terms of such stock option or compensation plans or
arrangements that are necessary to give effect to the transactions contemplated
by this Section 1.4. The Company represents that no consents are necessary to
give effect to the transactions contemplated by this Section 1.4.
(b) Acquirer shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Acquirer Common Stock for delivery
pursuant to the terms set forth in this Section 1.4.
(c) At the Effective Time, each award or account (including restricted
stock, stock equivalents and stock units, but excluding Company Stock Options)
outstanding as of the date hereof ("Company Award") that has been established,
made or granted under any employee incentive or benefit plans, programs or
arrangements and non-employee director plans maintained by the Company on or
prior to the date hereof which provide for grants of equity-based awards or
equity-based accounts shall be amended or converted into a similar instrument
of Acquirer, in each case with such adjustments to the terms and conditions of
such Company Awards as are appropriate to preserve the value inherent in such
Company Awards with no detrimental effects on the holders thereof. The other
terms and conditions of each Company Award, and the plans or agreements under
which they were issued, shall continue to apply in accordance with their terms
and conditions, including any provisions for acceleration (as such terms and
conditions have been interpreted and applied by the Company in accordance with
its past practice). The Company represents that (i) there are no Company Awards
or Company Stock Options other than those reflected in Section 3.2 and (ii) all
employee incentive or benefit plans, programs or arrangements and non-employee
director plans under which any Company Award has been established, made or
granted and all Company Stock Option Plans are disclosed in Schedule 1.4.
(d) At the Effective Time, Acquirer shall file with the Securities and
Exchange Commission (the "SEC") a registration statement on an appropriate form
or a post-effective amendment to a previously filed registration
A-4
<PAGE>
statement under the Securities Act of 1933, as amended (the "1933 Act"), with
respect to the Acquirer Common Stock subject to options and other equity-based
awards issued pursuant to this Section 1.4, and shall use its reasonable
efforts to maintain the current status of the prospectus contained therein, as
well as comply with any applicable state securities or "blue sky" laws, for so
long as such options or other equity-based awards remain outstanding.
Section 1.5 Adjustments. If at any time during the period between the date
of this Agreement and the Effective Time, any change in the outstanding shares
of capital stock of Acquirer or the Company (other than as contemplated in
Section 3.2 or Section 4.2 or permitted under this Agreement) shall occur,
including, without limitation, by reason of any reclassification,
recapitalization, stock split or combination, exchange or readjustment of
shares, or any stock dividend thereon with a record date during such period,
the Merger Consideration shall be appropriately adjusted.
Section 1.6 Fractional Shares.
(a) No fractional shares of Acquirer Common Stock shall be issued in the
Merger. All fractional shares of Acquirer Common Stock that a holder of Company
Shares would otherwise be entitled to receive as a result of the Merger shall
be aggregated and if a fractional share results from such aggregation, such
holder shall be entitled to receive from the Exchange Agent, in lieu thereof,
an amount in cash determined by multiplying the closing price of one share of
Acquirer Common Stock on the Nasdaq National Market ("NNM") on the trading day
immediately prior to the Closing Date by the fraction of a share of Acquirer
Common Stock to which such holder would otherwise have been entitled. The
parties acknowledge that payment of the cash consideration in lieu of issuing
fractional shares was not separately bargained for consideration but merely
represents a mechanical rounding off for purposes of simplifying the corporate
and accounting problems that would otherwise be caused by the issuance of
fractional shares. As promptly as practicable after the determination of the
amount of cash, if any, to be paid to holders of fractional interests, the
Exchange Agent shall so notify Acquirer, and Acquirer shall deposit or cause to
be deposited with the Exchange Agent such amount and shall cause the Exchange
Agent to make available such amounts to such holders of fractional interests
without interest.
Section 1.7 Withholding Rights. Each of the Surviving Corporation and
Acquirer shall be entitled to deduct and withhold from the consideration
otherwise payable to any person pursuant to this Article I such amounts as it
is required to deduct and withhold with respect to the
making of such payment under any provision of federal, state, local or foreign
tax law. To the extent that amounts are so withheld by the Surviving
Corporation or Acquirer, as the case may be, such withheld amounts shall be
treated for all purposes of this Agreement as having been paid to the holder of
the Company Shares in respect of which such deduction and withholding was made
by the Surviving Corporation or Acquirer, as the case may be.
Section 1.8 Lost Certificates. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Exchange Agent, the posting by such person of a bond, in such reasonable
amount as the Exchange Agent may direct, as indemnity against any claim that
may be made against it with respect to such Certificate, the Exchange Agent
will issue in exchange for such lost, stolen or destroyed Certificate the
Merger Consideration to be paid in respect of the Company Shares represented by
such Certificate as contemplated by this Article I.
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ARTICLE II
Certain Governance Matters
Section 2.1 Certificate of Incorporation of the Surviving Corporation. The
certificate of incorporation of Merger Subsidiary in effect at the Effective
Time shall be the certificate of incorporation of the Surviving Corporation
until amended in accordance with applicable law.
Section 2.2 Bylaws of the Surviving Corporation. The bylaws of Merger
Subsidiary in effect at the Effective Time shall be the bylaws of the Surviving
Corporation until amended in accordance with applicable law.
Section 2.3 Directors and Officers of the Surviving Corporation. From and
after the Effective Time, until successors are duly elected or appointed and
qualified in accordance with applicable law, (a) the directors of Merger
Subsidiary at the Effective Time shall be the directors of the Surviving
Corporation, and (b) the officers of Merger Sub at the Effective Time shall be
the officers of the Surviving Corporation.
ARTICLE III
Representations and Warranties of the Company
Except as disclosed in a letter delivered by the Company to Acquirer
immediately prior to the execution of this Agreement and signed by a duly
authorized officer of the Company (the "Company Disclosure Letter"), the
Company represents and warrants, to and for the benefit of, Acquirer as
follows:
Section 3.1 Organization and Qualification. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to own,
lease and operate its respective properties and to carry on its business as now
being conducted.
The Company is qualified to do business as a foreign corporation and is in
good standing under the laws of each state or other jurisdiction in which the
nature of its business requires such qualification, except where the failure to
be so qualified or in good standing which, taken together with all other such
failures, would not have a Material Adverse Effect on the Company.
For purposes of this Agreement, the term "Material Adverse Effect" with respect
to any Person means a material adverse effect on the business, financial
condition, properties, assets, liabilities, or results of operations of such
Person and its Subsidiaries, taken as a whole, except to the extent that any
such change or effect results from (i) changes in general economic conditions
or changes affecting the industry generally in which such Person operates or
(ii) the direct effect of the public announcement or pendency of the
transactions contemplated hereby.
The Company has delivered or made available to Acquirer true and complete
copies of the Company's certificate of incorporation and bylaws, as amended to
the date hereof.
Section 3.2 Capitalization. The authorized capital stock of the Company
consists of 25,000,000 shares of Class A Common Stock, par value $0.01 per
share, 2,000,000 shares of Class B Common Stock, par value $0.01 per share, and
2,000,000 shares of undesignated Preferred Stock, par value $0.01 per share. As
of March 15, 2000, (i) 7,864,737 shares of Class A Common stock were issued and
outstanding, (ii) 0 shares of Class B Common Stock were issued and outstanding,
no shares of Preferred Stock were issued and outstanding, (iii) no Company
Shares were held in the treasury of the Company or any of its Subsidiaries, and
(iv) 3,321,616 Company Shares are reserved for issuance pursuant to the Company
Option Plans, of which employee stock options to purchase 2,443,222 Company
Shares are outstanding and 433,003 are available for future grant (of which
options to purchase an aggregate of 604,067 shares were exercisable). As of
March 15,
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2000, 500,000 Company Shares were reserved under the Company's Employee Stock
Purchase Plan, of which 318,810 shares have been granted. All the outstanding
shares of the Company's capital stock are, and all Company Shares that may be
issued pursuant to the exercise of outstanding employee stock options will be,
when issued in accordance with the terms thereof, duly authorized, validly
issued, fully paid and non-assessable. Except as disclosed in this Section 3.2
and except for changes since the close of business on March 15, 2000 resulting
from the exercise of employee stock options outstanding on such date or options
granted as permitted by Section 5.1, there are outstanding (x) no shares of
capital stock or other voting securities of the Company, (y) no securities of
the Company convertible into or exchangeable for shares of capital stock or
voting securities of the Company, and (z) no options, warrants or other rights
to acquire from the Company, and no preemptive or similar rights, subscription
or other rights, convertible securities, agreements, arrangements or
commitments of any character, relating to the capital stock of the Company,
obligating the Company to issue, transfer or sell, any capital stock, voting
securities or securities convertible into or exchangeable for capital stock or
voting securities of the Company or obligating the Company to grant, extend or
enter into any such option, warrant, subscription or other right, convertible
security, agreement, arrangement or commitment (the items in clauses (x), (y)
and (z) being referred to collectively as the "Company Securities"). There are
no outstanding obligations of the Company or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any Company Securities. There are not
as of the date hereof and there will not be at the Effective Time any
stockholder agreements, voting trusts or other agreements or understandings to
which the Company or any of its Subsidiaries is a party or by which it is bound
relating to the voting of any shares of the capital stock of the Company or any
agreements, arrangements, or other understandings to which the Company or any
of its Subsidiaries is a party or by which it is bound that will limit in any
way the solicitation of proxies by or on behalf of the Company from, or the
casting of votes by, the stockholders of the Company with respect to the
Merger.
Section 3.3 Authority. The Company has full corporate power and authority to
execute and deliver this Agreement and, subject to the requisite approval of
its stockholders, to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized and
approved by the Company's Board of Directors, and other than the requisite
approval by its stockholders, no other corporate proceedings are necessary to
authorize this Agreement or the consummation of the transactions contemplated
hereby. This Agreement has been duly and validly executed and delivered by the
Company and, assuming this Agreement constitutes a legal, valid and binding
agreement of the other parties hereto, it constitutes a legal, valid and
binding agreement of the Company, enforceable against it in accordance with its
terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors' rights generally and (ii) as limited by laws relating
to the availability of specific performance, injunctive relief or other
equitable remedies.
Section 3.4 Governmental Authorization. The execution, delivery and
performance by the Company of this Agreement and the consummation of the Merger
by the Company require no action by or in respect of, or filing with, any
governmental body, agency, official or authority other than (a) the filing of a
certificate of merger in accordance with Delaware Law, (b) compliance with any
applicable requirements of the Hart-Scott-Rodino Antitrust Improvements Act of
1976 (the "HSR Act"), (c) compliance with any applicable requirements of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder (the "Exchange Act"), (d) compliance with any applicable
requirements of the 1933 Act and state securities laws, and (e) other actions
or filings which if not taken or made would not, individually or in the
aggregate, have a Material Adverse Effect on the Company.
Section 3.5 Non-Contravention. The execution, delivery and performance by
the Company of this Agreement and the consummation by the Company of the
transactions contemplated hereby do not and will not (a) assuming compliance
with the matters referred to in Section 3.3, contravene or conflict with the
certificate of incorporation or bylaws of the Company, (b) assuming compliance
with the matters referred to in Section 3.4, contravene or conflict with or
constitute a violation of any provision of any law, regulation, judgment,
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injunction, order or decree binding upon or applicable to the Company or any of
its Subsidiaries, (c) constitute a default under or give rise to a right of
termination, cancellation or acceleration of any right or obligation of the
Company or any of its Subsidiaries or to a loss of any benefit to which the
Company or any of its Subsidiaries is entitled under any provision of any
agreement, contract or other instrument binding upon the Company or any of its
Subsidiaries or any license, franchise, permit or other similar authorization
held by the Company or any of its Subsidiaries, or (d) result in the creation
or imposition of any Lien on any asset of the Company or any of its
Subsidiaries, except for such contraventions, conflicts or violations referred
to in clause (b) or defaults, rights of termination, cancellation or
acceleration, or losses or Liens referred to in clause (c) or (d) that would
not, individually or in the aggregate, have a Material Adverse Effect on the
Company. For purposes of this Agreement, "Lien" means, with respect to any
asset, any mortgage, lien, pledge, charge, security interest or encumbrance of
any kind in respect of such asset other than any such mortgage, lien, pledge,
charge, security interest or encumbrance (i) for Taxes (as defined in Section
3.13) not yet due or being contested in good faith (and for which adequate
accruals or reserves have been established on the Company Balance Sheet (as
such term is defined in Section 3.8), as the case may be) or (ii) which is a
carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like
lien arising in the ordinary course of business. Except as disclosed in
Schedule 3.5, neither the Company nor any Subsidiary of the Company is a party
to any agreement that expressly limits the ability of the Company or any
Subsidiary of the Company, or would limit Acquirer or any Subsidiary of
Acquirer after the Effective Time, to compete in or conduct any line of
business or compete with any Person or in any geographic area or during any
period of time except to the extent that any such limitation, individually or
in the aggregate, would not be reasonably likely to have a Material Adverse
Effect on Acquirer after the Effective Time.
Section 3.6 Subsidiaries. Each of the Company's Subsidiaries is a
corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation and has all requisite power and
authority (corporate and other) to own, lease and operate its properties and to
carry on its business as it is now being conducted. Each of the Subsidiaries is
duly qualified as a foreign corporation to do business, and is in good
standing, in each jurisdiction where the character of its properties owned or
leased or the nature of its activities makes such qualification necessary,
except where the failure to be so qualified or in good standing would not have
a Material Adverse Effect on the Company. Exhibit 21 to the Company's Annual
Report on Form 10-K for the fiscal year ended January 31, 1999 (the "1999 10-
K"), as filed with the Commission, lists the only Subsidiaries of the Company
at January 31, 1999, and all Subsidiaries of the Company thereafter formed or
acquired are listed in Schedule 3.6. All of the outstanding shares of capital
stock of the Subsidiaries are validly issued, fully paid and nonassessable and,
other than directors' qualifying shares in the case of foreign Subsidiaries,
are owned by the Company or by a wholly owned Subsidiary of the Company free
and clear of all material liens, claims, charges or encumbrances, and there are
no irrevocable proxies with respect to such shares. Except as set forth in the
Schedule 3.6 and except for the capital stock of its Subsidiaries, the Company
does not own, directly or indirectly, any capital stock or other ownership
interest in any corporation, partnership, joint venture, limited liability
company or other entity which is material to the business of the Company and
its Subsidiaries, taken as a whole. There are no restrictions on the Company to
vote the stock of any of its Subsidiaries.
Section 3.7 SEC Filings.
(a) The Company has made available to Acquirer (i) its annual reports on
Form 10-K for its fiscal years ended January 31, 1997, 1998 and 1999, (ii) its
quarterly reports on Form 10-Q for its quarters ended April 30, July 31 and
October 31, 1999, (iii) its proxy or information statements relating to
meetings of, or actions taken without a meeting by, the stockholders of the
Company held since December 31, 1998, and (iv) all of its other reports,
statements, schedules and registration statements filed with the SEC since
December 31, 1998 (the documents referred to in this Section 3.7(a) being
referred to collectively as the "Company SEC Documents"). The Company's
quarterly report on Form 10-Q for its fiscal quarter ended October 31, 1999 is
referred to herein as the "Company 10-Q."
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(b) As of its filing date (or, if amended or superseded by a filing prior to
the date of this Agreement, then on the date of such filing), each Company SEC
Document complied as to form in all material respects with the applicable
requirements of the Exchange Act and the 1933 Act.
(c) As of its filing date (or, if amended or superseded by a filing prior to
the date of this Agreement, then on the date of such filing), each Company SEC
Document filed pursuant to the Exchange Act did not contain any untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading.
(d) Each such registration statement, as amended or supplemented, if
applicable, filed pursuant to the 1933 Act as of the date such statement or
amendment became effective did not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.
Section 3.8 Financial Statements. The audited consolidated financial
statements and unaudited consolidated interim financial statements of the
Company (including any related notes and schedules) included in its annual
reports on Form 10-K and the quarterly report on Form 10-Q referred to in
Section 3.7 fairly present in all material respects, in conformity with
generally accepted accounting principles ("GAAP") applied on a consistent basis
(except as may be indicated in the notes thereto), the consolidated financial
position of the Company and its consolidated Subsidiaries as of the dates
thereof and their consolidated results of operations and changes in financial
position for the periods then ended (subject to normal year-end adjustments and
the absence of notes in the case of any unaudited interim financial
statements). For purposes of this Agreement, "Company Balance Sheet" means the
consolidated balance sheet of the Company as of October 31, 1999 set forth in
the Company 10-Q and "Company Balance Sheet Date" means October 31, 1999.
Section 3.9 Disclosure Documents.
(a) The proxy statement of the Company relating to the meeting of
stockholders of the Company contemplated by Section 7.2 and prospectus of
Acquirer relating to the shares of Acquirer Common Stock to be issued in
connection with the Merger (the "Proxy Statement/Prospectus") to be filed with
the SEC in connection with the Merger and the registration statement on Form S-
4 of Acquirer (the "Form S-4") to be filed under the 1933 Act relating to the
issuance of Acquirer Common Stock in the Merger, and any amendments or
supplements thereto, will, when filed, subject to the last sentence of Section
3.9(b), comply as to form in all material respects with the requirements of the
Exchange Act and the 1933 Act.
(b) Neither the Proxy Statement/Prospectus to be filed with the SEC, nor any
amendment or supplement thereto, will, at the date the Proxy
Statement/Prospectus or any such amendment or supplement is first mailed to
stockholders of Company or at the time such stockholders vote on the adoption
and approval of this Agreement and the transactions contemplated hereby,
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. Neither the Form S-4
nor any amendment or supplement thereto will at the time it becomes effective
under the 1933 Act or at the Effective Time contain any 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. No representation or
warranty is made by the Company in this Section 3.9 with respect to statements
made or incorporated by reference therein based on information supplied by
Acquirer for inclusion or incorporation by reference in the Proxy
Statement/Prospectus or the Form S-4.
Section 3.10 Absence of Certain Changes. Except as set forth in Schedule
3.10, since the Company Balance Sheet Date, the Company and its Subsidiaries
have conducted their business in the ordinary course consistent with past
practice and there has not been:
(a) any event, occurrence or development of a state of circumstances or
facts which has had or reasonably would be expected to have, individually or in
the aggregate, a Material Adverse Effect on the Company;
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(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of the Company or any
repurchase, redemption or other acquisition by the Company or any of its
Subsidiaries of any outstanding shares of capital stock or other securities of,
or other ownership interests in, the Company or any of its Subsidiaries (except
in connection with the repurchase at cost of unvested shares of employees or
consultants upon the termination of their employment or consultancy with the
Company);
(c) any amendment of any material term of any outstanding security of the
Company or any of its Subsidiaries;
(d) any transaction or commitment made, or any contract, agreement or
settlement entered into, by (or judgment, order or decree affecting) the
Company or any of its Subsidiaries relating to its assets or business
(including the acquisition or disposition of any assets) or any relinquishment
by the Company or any of its Subsidiaries of any contract or other right, in
either case, material to the Company and its Subsidiaries taken as a whole,
other than transactions, commitments, contracts, agreements or settlements
(including without limitation settlements of litigation and tax proceedings) in
the ordinary course of business consistent with past practice, those
contemplated by this Agreement, or as agreed to in writing by Acquirer;
(e) any change in any method of accounting or accounting practice (other
than any change for tax purposes) by the Company or any of its Subsidiaries,
except for any such change which is not significant or which is required by
reason of a concurrent change in GAAP; or
(f) any (i) grant of any severance or termination pay to (or amendment to
any such existing arrangement with) any director, officer or employee of the
Company or any of its Subsidiaries, (ii) entering into of any employment,
deferred compensation or other similar agreement (or any amendment to any such
existing agreement) with any director, officer or employee of the Company or
any of its Subsidiaries, (iii) increase in benefits payable under any existing
severance or termination pay policies or employment agreements or (iv) increase
in (or amendments to the terms of) compensation, bonus or other benefits
payable to directors, officers or employees of the Company or any of its
Subsidiaries, other than in the ordinary course of business consistent with
past practice, as permitted by this Agreement, or as agreed to in writing by
Acquirer.
Section 3.11 No Undisclosed Material Liabilities. There are no liabilities
of the Company or any Subsidiary of the Company of any kind whatsoever, whether
accrued, contingent, absolute, determined, determinable or otherwise, other
than:
(a) liabilities disclosed or provided for in the Company Balance Sheet or in
the notes thereto;
(b) liabilities which in the aggregate would not reasonably be expected to
have a Material Adverse Effect on the Company;
(c) liabilities disclosed in the Company SEC Documents filed prior to the
date hereof or set forth in Schedule 3.11(c); and
(d) liabilities under this Agreement.
Section 3.12 Litigation. Except as disclosed in the Company SEC Documents
filed prior to the date hereof, there is no action, suit, investigation or
proceeding pending against, or to the knowledge of the Company threatened
against or affecting, the Company or any of its Subsidiaries or any of their
respective properties before any court or arbitrator or any governmental body,
agency or official which would reasonably be expected to have a Material
Adverse Effect on the Company.
Section 3.13 Taxes. Except as set forth in or reserved on the Company
Balance Sheet (including the notes thereto) or as otherwise set forth in
Schedule 3.13 and except as would not, individually or in the aggregate, have a
Material Adverse Effect on the Company, (a) all Company Tax Returns required to
be filed with any taxing authority by, or with respect to, the Company and its
Subsidiaries have been filed in accordance with all applicable laws; (b) the
Company and its Subsidiaries have timely paid all Taxes shown as
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due and payable on the Company Tax Returns that have been so filed, and, as of
the time of filing, the Company Tax Returns correctly reflected the facts
regarding the income, business, assets, operations, activities and the status
of the Company and its Subsidiaries (other than Taxes which are being contested
in good faith and for which adequate reserves are reflected on the Company
Balance Sheet); (c) the Company and its Subsidiaries have made provision for
all Taxes payable by the Company and its Subsidiaries for which no Company Tax
Return has yet been filed; (d) the charges, accruals and reserves for Taxes
with respect to the Company and its Subsidiaries reflected on the Company
Balance Sheet are adequate under GAAP to cover the Tax liabilities accruing
through the date thereof; (e) there is no action, suit, proceeding, audit or
claim now proposed or pending against or with respect to the Company or any of
its Subsidiaries in respect of any Tax; and (f) to the best of the Company's
knowledge and belief, neither the Company nor any of its Subsidiaries is liable
for any Tax imposed on any entity other than such Person, except as the result
of the application of Treas. Reg. section 1.1502-6 (and any comparable
provision of the tax laws of any state, local or foreign jurisdiction) to the
affiliated group of which the Company is the common parent. For purposes of
this Agreement, "Taxes" shall mean any and all taxes, charges, fees, levies or
other assessments, including, without limitation, all net income, gross income,
gross receipts, excise, stamp, real or personal property, ad valorem,
withholding, social security (or similar), unemployment, occupation, use,
service, service use, license, net worth, payroll, franchise, severance,
transfer, recording, employment, premium, windfall profits, environmental
(including taxes under section 59A of the Code), customs duties, capital stock,
profits, disability, sales, registration, value added, alternative or add-on
minimum, estimated or other taxes, assessments or charges imposed by any
federal, state, local or foreign governmental entity and any interest,
penalties, or additions to tax attributable thereto. For purposes of this
Agreement, "Tax Returns" shall mean any return, report, form or similar
statement required to be filed with respect to any Tax (including any attached
schedules), including, without limitation, any information return, claim for
refund, amended return or declaration of estimated Tax.
Section 3.14 Employee Benefit Plans.
(a) Prior to the date hereof, the Company has provided Acquirer with a list
(set forth on Schedule 3.14) identifying each material "employee benefit plan,"
as defined in section 3(3) of the Employee Retirement Income Security Act of
1974 ("ERISA"), each material employment, severance or similar contract, plan,
arrangement or policy applicable to any director, former director, employee or
former employee of the Company and each material plan or arrangement (written
or oral), providing for compensation, bonuses, profit-sharing, stock option or
other stock related rights or other forms of incentive or deferred
compensation, vacation benefits, insurance coverage (including any self-insured
arrangements), health or medical benefits, disability benefits, workers'
compensation, supplemental unemployment benefits, severance benefits and post-
employment or retirement benefits (including compensation, pension, health,
medical or life insurance benefits) which is maintained, administered or
contributed to by the Company and covers any employee or director or former
employee or director of the Company, or under which the Company has any
liability. Such material plans (excluding any such plan that is a
"multiemployer plan", as defined in section 3(37) of ERISA) are referred to
collectively herein as the "Company Employee Plans."
(b) Each Company Employee Plan has been maintained in compliance with its
terms and with the requirements prescribed by any and all statutes, orders,
rules and regulations (including but not limited to ERISA and the Code) which
are applicable to such Plan, except where failure to so comply would not,
individually or in the aggregate, have a Material Adverse Effect on the
Company.
(c) Neither the Company nor any affiliate of the Company has incurred a
liability under Title IV of ERISA that has not been satisfied in full, and no
condition exists that presents a material risk to the Company or any affiliate
of the Company of incurring any such liability other than liability for
premiums due the Pension Benefit Guaranty Corporation (which premiums have been
paid when due).
(d) Each Company Employee Plan which is intended to be qualified under
section 401(a) of the Code is, to the knowledge of the Company, so qualified
and has been so qualified during the period from its adoption to
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date, and each trust forming a part thereof is, to the knowledge of the
Company, exempt from federal income tax pursuant to section 501(a) of the Code.
(e) Except as set forth in Schedule 3.14, no director or officer or other
employee of the Company or any of its Subsidiaries will become entitled to any
retirement, severance or similar benefit or enhanced or accelerated benefit
(including any acceleration of vesting or lapse of repurchase rights or
obligations with respect to any employee stock option or other benefit under
any stock option plan or compensation plan or arrangement of the Company)
solely as a result of the transactions contemplated hereby.
(f) No Company Employee Plan provides post-retirement health and medical,
life or other insurance benefits for retired employees of the Company or any of
its Subsidiaries other than as required by law.
(g) Except as set forth on Schedule 3.14, there has been no amendment to,
written interpretation or announcement (whether or not written) by the Company
or any of its affiliates relating to, or change in employee participation or
coverage under, any Company Employee Plan which would increase materially the
expense of maintaining such Company Employee Plan above the level of the
expense incurred in respect thereof for the 12 months ended on the Company
Balance Sheet Date.
Section 3.15 Compliance with Laws. Neither the Company nor any of its
Subsidiaries is in violation of, or has since January 1, 1999 violated, any
applicable provisions of any laws, statutes, ordinances or regulations except
for any violations that, individually or in the aggregate, would not reasonably
be expected to have a Material Adverse Effect on the Company.
Section 3.16 Finders' or Advisors' Fees. Except for Adams, Harkness & Hill,
a copy of whose engagement agreement has been provided to Acquirer, there is no
investment banker, broker, finder or other intermediary which has been retained
by or is authorized to act on behalf of the Company or any of its Subsidiaries
who might be entitled to any fee or commission in connection with the
transactions contemplated by this Agreement.
Section 3.17 Environmental Matters.
(a) Except with such exceptions as, individually or in the aggregate, have
not had, and would not reasonably be expected to have, a Material Adverse
Effect on the Company, (i) no notice, notification, demand, request for
information, citation, summons, complaint or order has been received by, and no
investigation, action, claim, suit, proceeding or review is pending or, to the
knowledge of the Company or any of its Subsidiaries, threatened by any Person
against, the Company or any of its Subsidiaries, and no penalty has been
assessed against the Company or any of its Subsidiaries, in each case, with
respect to any matters relating to or arising out of any Environmental Law;
(ii) the Company and its Subsidiaries are and have been in compliance with all
Environmental Laws; (iii) there are no liabilities of or relating to the
Company or any of its Subsidiaries relating to or arising out of any
Environmental Law of any kind whatsoever, whether accrued, contingent,
absolute, determined, determinable or otherwise, and there is no existing
condition, situation or set of circumstances which could reasonably be expected
to result in such a liability; and (iv) there has been no environmental
investigation, study, audit, test, review or other analysis conducted of which
the Company has knowledge in relation to the current or prior business of the
Company or any of its Subsidiaries or any property or facility now or
previously owned, leased or operated by the Company or any of its Subsidiaries
which has not been delivered to Acquirer at least five (5) days prior to the
date hereof.
(b) For purposes of this Section 3.17, the term "Environmental Laws" means
any federal, state, local and foreign statutes, laws (including, without
limitation, common law), judicial decisions, regulations, ordinances, rules,
judgments, orders, codes, injunctions, permits, governmental agreements or
governmental restrictions relating to human health and safety, the environment
or to pollutants, contaminants, wastes, or chemicals.
Section 3.18 Labor Matters. There are no controversies pending or, to the
knowledge of each of the Company and its respective Subsidiaries, threatened,
between the Company or any of its Subsidiaries and any
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of their respective employees, which controversies have or could reasonably be
expected to have a Material Adverse Effect on the Company. As of the date of
this Agreement, neither the Company nor any of its Subsidiaries is a party to
any collective bargaining agreement or other labor union contract applicable to
persons employed by the Company or its Subsidiaries nor does the Company or its
Subsidiaries know of any activities or proceedings of any labor union to
organize any such employees (i) as of the date of this Agreement and (ii)
which, as of the Closing Date, have or could reasonably be expected to have a
Material Adverse Effect on the Company and its Subsidiaries. As of the date of
this Agreement, neither the Company nor any of its Subsidiaries has any
knowledge of any strikes, slowdowns, work stoppages or lockouts, or threats
thereof, by or with respect to any employees of the Company or any of its
Subsidiaries (x) as of the date of this Agreement and (y) which, as of the
Closing Date, have or could reasonably be expected to have a Material Adverse
Effect on the Company and its Subsidiaries.
Section 3.19 Title to Property. The Company and each of its Subsidiaries has
good and marketable title to all of its properties and assets, free and clear
of all Liens, except for liens for taxes not yet due and payable and such liens
or other imperfections of title, if any, as do not materially detract from the
value of or interfere with the present use of the property affected thereby or
which, individually or in the aggregate, would not have a Material Adverse
Effect on the Company.
Section 3.20 Real Property.
(a) Schedule 3.20 sets forth a list of all leasehold interests in real
property of the Company and the Subsidiaries of the Company, which collectively
constitute the "Specified Real Estate."
(b) Neither the Company nor any of its Subsidiaries has given or received
notice of any material default under any material lease under which the Company
or any of its Subsidiaries is the lessee of real property (each a "Lease" and
collectively the "Leases") and, to the knowledge of the Company, neither the
Company nor any of its Subsidiaries nor any other party thereto is in default
in any material respect under any of the Leases. Schedule 3.20 contains a
complete list of all leases (including all amendments, modifications, waivers,
supplements and other agreements relating thereto) under which the Company or
any of its Subsidiaries is the lessee of the real property. Except as set forth
in Schedule 3.20, none of the Leases has been modified in any material respect
and such Leases are in full force and effect. Except as set forth in Schedule
3.20, neither the Company nor any of its Subsidiaries has leased, subleased,
licensed or assigned, as the case may be, all or any portion of its fee or
leasehold interest in any Specified Real Estate to any person and the Company
or one or more of its Subsidiaries is in sole and exclusive possession of and
has the right to use all of the Specified Real Estate. Except as set forth in
Schedule 3.20, to the knowledge of the Company no person other than the Company
or one or more of its Subsidiaries has any option or right to purchase, lease
or use any portion of the Specified Real Estate. Schedule 3.20 sets forth all
rights of the Company and its Subsidiaries to purchase the Specified Real
Estate leased by the Company or its Subsidiaries under any Lease.
(c) Except as disclosed in Schedule 3.20, the buildings and improvements on
the Specified Real Estate (including all fixtures, roofs, plumbing systems,
fire protection systems, electrical systems, equipment, elevators and all
structural components) in all material respects are in operating condition and
in a state of good and working maintenance and repair, ordinary wear and tear
excepted, are adequate and suitable for the purposes for which they are
presently being used, and to the knowledge of the Company, there are no
condemnation or expropriation proceedings pending or threatened against any of
such Specified Real Estate.
(d) To the knowledge of the Company, no part of any Specified Real Estate is
subject to any building or use restriction that materially restricts or
prevents the present use and operation of such property. To the knowledge of
the Company, none of the Specified Real Estate nor the use thereof by the
Company or any of its Subsidiaries constitutes a nonconforming use or legal
non-conforming use.
(e) The Company or one or more of its Subsidiaries is in possession of and
has good title to, or has valid leasehold interests in or valid rights under
contract to use, all tangible personal property used in the business of
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the Company and its Subsidiaries or reflected in the audited financial
statements of the Company and its consolidated subsidiaries dated as of January
31, 1999, except for personal property disposed of in the ordinary course since
the date thereof.
(f) No labor has been performed or material furnished for any portion of any
property owned by the Company or any of its Subsidiaries for which a Lien in
excess of $50,000 in value can be claimed against any such property. All of the
Specified Real Estate is served by water, sewer, sanitary sewer, telephone,
electric, gas and other public utilities necessary or desirable for the current
use thereof by the Company and its Subsidiaries.
Section 3.21 Management Payments; Vesting. Other than as set forth in
Schedule 3.21, no employee or former employee of the Company will be entitled
to additional compensation or to the early vesting or acceleration of payment
of any compensation that arises out of or are related to the consummation of
the Merger and the transactions contemplated thereby.
Section 3.22 Insurance. Schedule 3.22 lists all of the Company's insurance
policies. The Company believes that such insurance carried by the Company and
its Subsidiaries is in such types and amounts and covering such risks as are
consistent with customary practices and standards of companies engaged in
businesses and operations similar to those of the Company and its Subsidiaries.
Except as would not have a Material Adverse Effect on the Company, all such
insurance is in full force and effect and none of the Company nor any of its
Subsidiaries is in default thereunder. Except as would not have a Material
Adverse Effect on the Company, all claims thereunder have been filed in a due
and timely fashion. Except as would not have a Material Adverse Effect on the
Company, neither the Company nor any of its Subsidiaries has been notified in
writing of a refusal of any material insurance coverage relating to products
liability (including renewals of any such products liability coverage) by any
insurance carrier to which it has applied for insurance during the past three
years.
Section 3.23 Intellectual Property. The Company or its Subsidiaries owns
each of the patents and patent applications referred to in the Company SEC
Documents except as otherwise
set forth herein or therein and, except as set forth in the Company SEC
Documents, (i) each of the Company and its Subsidiaries owns or possesses, or
could obtain ownership or possession of (on terms not materially adverse to the
consolidated financial position, stockholders' equity, or results of operations
of the Company and its Subsidiaries taken as a whole) adequate and enforceable
rights to use all other Intellectual Property (as defined below) necessary for
the conduct of their business, (ii) no claims have been asserted or, to the
knowledge of the Company, threatened that the Company or any Subsidiary is
infringing or otherwise violating the rights of any Person with regard to any
Intellectual Property that, if the subject of an unfavorable decision, ruling
or finding, could reasonably be expected to (or, with respect to any pending
patent litigation, the Company does not believe will) have a Material Adverse
Effect and the Company knows of no basis therefor, and (iii) to the knowledge
of the Company, no person is infringing on or otherwise violating any right of
the Company or any Subsidiary with respect to any Intellectual Property owned
by or licensed to the Company or any Subsidiary. Except as set forth in the
Company SEC Documents, the Company has received no notice of potential
indemnity claims from customers based upon a notice of infringement any such
customer has received from a patent owner relating to an assertion of
infringement of a patent other than potential indemnity claims that
individually or in the aggregate would not reasonably be expected to have a
Material Adverse Effect. The Company's policy is to require that its employees
execute agreements assigning to the Company all rights such employees otherwise
would have an Intellectual Property developed by such employees while in the
employ of the Company.
For purposes of this Agreement, "Intellectual Property" shall mean, with
respect a Person, patents, pending applications for patents, copyrights,
trademarks (registered and unregistered), service marks, brand names, trade
names, and registrations in any jurisdiction of, and applications in any
jurisdiction to register, the foregoing, technology, know-how, software, and
tangible or intangible proprietary information or materials and any other trade
secrets related thereto.
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Section 3.24 Year 2000 Compliance. Except as would not reasonably be
expected to have a Material Adverse Effect on the Company, all of the Company's
Information Technology (as defined below) effectively addresses the Year 2000
issues. For purposes of this Agreement, the term "Information Technology" shall
mean and include all software, hardware, firmware, telecommunications systems,
network systems, embedded systems and other systems, components and/or services
that are owned or used by the Company in the conduct of its business, or
purchased by the Company from third party suppliers.
Section 3.25 Opinion of Financial Advisor. The Company has received the
opinion of Adams, Harkness & Hill to the effect that, as of the date of such
opinion, the Exchange Ratio is fair from a financial point of view to the
holders of Company Shares (other than Acquirer or any of its Subsidiaries or
affiliates), and, as of the date hereof, such opinion has not been withdrawn.
Section 3.26 Tax Treatment. Neither the Company nor any of its affiliates
has taken or agreed to take any action or is aware of any fact or circumstance
that would prevent the Merger from qualifying as a reorganization within the
meaning of section 368 of the Code (a "368 Reorganization").
Section 3.27 Takeover Statutes. The Board of Directors of the Company has
taken the necessary action to make inapplicable the application of section 203
of the Delaware Law and any other applicable antitakeover or similar statute or
regulation to this Agreement and the transactions contemplated hereby.
ARTICLE IV
Representations and Warranties of Acquirer and Merger Subsidiary
Except as disclosed in a letter delivered by Acquirer to the Company
immediately prior to the execution of this Agreement and signed by a duly
authorized officer of Acquirer (the "Acquirer Disclosure Letter"), Acquirer and
Merger Subsidiary represents and warrants, to and for the benefit of, the
Company as follows:
Section 4.1 Organization and Qualification. Each of Acquirer and Merger
Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has all requisite
corporate power and authority to own, lease and operate its respective
properties and to carry on its business as now being conducted.
Each of Acquirer and Merger Subsidiary is qualified to do business as a
foreign corporation and is in good standing under the laws of each state or
other jurisdiction in which the nature of its business requires such
qualification, except where the failure to be so qualified or in good standing
which, taken together with all other such failures, would not have a Material
Adverse Effect on Acquirer.
Since the date of its incorporation, Merger Subsidiary has not engaged in
any activities other than in connection with or as contemplated by this
Agreement. Acquirer has delivered or made available to the Company true and
complete copies of Acquirer's and Merger Subsidiary's certificate of
incorporation and bylaws, as amended to the date hereof.
Section 4.2 Capitalization. The authorized capital stock of Acquirer
consists of: (i) 50,000,000 shares of Common Stock, par value $.001 per share,
of which 28,836,694 shares have been issued and are outstanding as of February
7, 2000; and (ii) 5,000,000 shares of Preferred Stock, par value $.001 per
share, none of which is outstanding as of the date of this Agreement. An
aggregate of 6,500,000 shares of Acquirer Common Stock are reserved for
issuance under Acquirer's 1998 Stock Plan, of which options to purchase
3,982,113 shares were outstanding as of February 7, 2000. As of February 7,
2000 options to purchase an additional 713,196 shares of Acquirer Common Stock
were outstanding under the Sitebridge 1997 Stock Plan assumed by Acquirer in
1999; an aggregate of 750,000 shares of Acquirer Common Stock were reserved for
issuance under Acquirer's 1999 Employee Stock Purchase Plan; and an additional
159,554 shares of Acquirer Common Stock were reserved for issuance upon
exercise of outstanding warrants. On March 7, 2000 in connection with the
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acquisition of Big Science Company, a Georgia corporation ("BSC"), Acquirer
issued 739,588 shares of Common Stock and options to purchase an additional
49,962 shares of Common Stock in exchange for all of the outstanding capital
stock and options to purchase capital stock of BSC. Except as set forth above,
there is no: (i) outstanding subscription, option, call, warrant or right
(whether or not currently exercisable) to acquire any shares of the capital
stock or other securities of Acquirer; (ii) outstanding security, instrument or
obligation that is or may become convertible into or exchangeable for any
shares of the capital stock or other securities of Acquirer; or (iii) Contract
under which Acquirer is or may become obligated to sell or otherwise issue any
shares of capital stock or any other securities of Acquirer.
Section 4.3 Authority. Each of Acquirer and Merger Subsidiary has full
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby
have been duly and validly authorized and approved by the respective Boards of
Directors of Acquirer and Merger Subsidiary, and no other corporate proceedings
are necessary to authorize this Agreement or the consummation of the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by Acquirer and Merger Subsidiary and, assuming this
Agreement constitutes a legal, valid and binding agreement of the other parties
hereto, it constitutes a legal, valid and binding agreement of Acquirer,
enforceable against it in accordance with its terms.
Section 4.4 Governmental Authorization. The execution, delivery and
performance by Acquirer and Merger Subsidiary of this Agreement and the
consummation of the Merger by Acquirer and Merger Subsidiary require no action
by or in respect of, or filing with, any governmental body, agency, official or
authority other than (a) the filing of a certificate of merger in accordance
with Delaware Law, (b) compliance with any applicable requirements of the HSR
Act, (c) compliance with any applicable requirements of the Exchange Act, (d)
compliance with any applicable requirements of the 1933 Act, and (e) other
actions or filings which if not taken or made would not, individually or in the
aggregate, have a Material Adverse Effect on Acquirer.
Section 4.5 Non-Contravention. The execution, delivery and performance by
Acquirer and Merger Subsidiary of this Agreement and the consummation by
Acquirer and Merger Subsidiary of the transactions contemplated hereby do not
and will not (a) assuming compliance with the matters referred to in Section
4.3, contravene or conflict with the certificate of incorporation or bylaws of
Acquirer or Merger Subsidiary, (b) assuming compliance with the matters
referred to in Section 4.4, contravene or conflict with or constitute a
violation of any provision of any law, regulation, judgment, injunction, order
or decree binding upon or applicable to Acquirer or any of its Subsidiaries,
(c) constitute a default under or give rise to a right of termination,
cancellation or acceleration of any right or obligation of Acquirer or any of
its Subsidiaries or to a loss of any benefit to which Acquirer or any of its
Subsidiaries is entitled under any provision of any agreement, contract or
other instrument binding upon Acquirer or any of its Subsidiaries or any
license, franchise, permit or other similar authorization held by Acquirer or
any of its Subsidiaries, or (d) result in the creation or imposition of any
Lien on any asset of Acquirer or any of its Subsidiaries, except for such
contraventions, conflicts or violations referred to in clause (b) or defaults,
rights of termination, cancellation or acceleration, or losses or Liens
referred to in clause (c) or (d) that would not, individually or in the
aggregate, have a Material Adverse Effect on Acquirer. Except as disclosed in
Schedule 4.5, neither Acquirer nor any Subsidiary of Acquirer is a party to any
agreement that expressly limits the ability of Acquirer or any Subsidiary of
Acquirer to compete in or conduct any line of business or compete with any
Person or in any geographic area or during any period of time except to the
extent that any such limitation, individually or in the aggregate, would not be
reasonably likely to have a Material Adverse Effect on Acquirer after the
Effective Time.
Section 4.6 SEC Filings.
(a) Each report, registration statement (on a form other than Form S-8) and
definitive proxy statement filed by Acquirer with the SEC between September 23,
1999 and the date of this Agreement (the "Acquirer SEC Documents") is publicly
available from the SEC and Acquirer will deliver to the Company accurate and
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complete copies (excluding copies of exhibits) of each Acquirer SEC Document
prior to the Closing. As of the time it was filed with the SEC (or, if amended
or superseded by a filing prior to the date of this Agreement, then on the date
of such filing): (i) each of the Acquirer SEC Documents complied in all
material respects with the applicable requirements of the Securities Act or the
Exchange Act (as the case may be); and (ii) none of the Acquirer SEC Documents
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(b) The consolidated financial statements contained in the Acquirer SEC
Documents: (i) complied as to form in all material respects with the published
rules and regulations of the SEC applicable thereto; (ii) were prepared in
accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods covered, except as may be indicated in
the notes to such consolidated financial statements and (in the case of
unaudited statements) as permitted by Form 10-Q of the SEC, and except that the
unaudited financial statements may not contain footnotes and are subject to
year-end audit adjustments; and (iii) fairly present the consolidated financial
position of Acquirer as of the respective dates thereof and the consolidated
results of operations of Acquirer for the periods covered thereby.
Section 4.7 Disclosure Documents.
(a) The Proxy Statement/Prospectus to be filed with the SEC in connection
with the Merger and the Form S-4 to be filed under the 1933 Act relating to the
issuance of Acquirer Common Stock in the Merger, and any amendments or
supplements thereto, will, when filed, subject to the last sentence of Section
4.7(b), comply as to form in all material respects with the requirements of the
Exchange Act and the 1933 Act.
(b) Neither the Proxy Statement/Prospectus to be filed with the SEC, nor any
amendment or supplement thereto, will, at the date the Proxy
Statement/Prospectus or any such amendment or supplement is first mailed to
stockholders of the Company or at the time such stockholders vote on the
adoption and approval of this Agreement and the transactions contemplated
hereby, contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading. Neither the
Form S-4 nor any amendment or supplement thereto will at the time it becomes
effective under the 1933 Act or at the Effective Time contain any 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. No
representation or warranty is made by Acquirer in this Section 4.7 with respect
to statements made or incorporated by reference therein based on information
supplied by the Company for inclusion or incorporation by reference in the
Proxy Statement/Prospectus or the Form S-4.
Section 4.8 Litigation. Except as disclosed in Acquirer SEC Documents filed
prior to the date hereof, there is no action, suit, investigation or proceeding
pending against, or to the knowledge of Acquirer threatened against or
affecting, Acquirer or any of its Subsidiaries or any of their respective
properties before any court or arbitrator or any governmental body, agency or
official which would reasonably be expected to have a Material Adverse Effect
on Acquirer.
Section 4.9 Employee Benefit Plans.
(a) Prior to the date hereof, Acquirer has provided the Company with a list
(set forth on Schedule 4.9) identifying each material "employee benefit plan,"
as defined in section 3(3) of ERISA, each material employment, severance or
similar contract, plan, arrangement or policy applicable to any director,
former director, employee or former employee of Acquirer and each material plan
or arrangement (written or oral), providing for compensation, bonuses, profit-
sharing, stock option or other stock related rights or other forms of incentive
or deferred compensation, vacation benefits, insurance coverage (including any
self-insured arrangements), health or medical benefits, disability benefits,
workers' compensation, supplemental unemployment benefits, severance benefits
and post-employment or retirement benefits (including compensation, pension,
health, medical or life insurance benefits) which is maintained, administered
or
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contributed to by Acquirer and covers any employee or director or former
employee or director of Acquirer, or under which Acquirer has any liability.
Such material plans (excluding any such plan that is a "multiemployer plan", as
defined in section 3(37) of ERISA) are referred to collectively herein as the
"Acquirer Employee Plans."
(b) Each Acquirer Employee Plan has been maintained in compliance with its
terms and with the requirements prescribed by any and all statutes, orders,
rules and regulations (including but not limited to ERISA and the Code) which
are applicable to such Plan, except where failure to so comply would not,
individually or in the aggregate, have a Material Adverse Effect on Acquirer.
Section 4.10 Compliance with Laws. Neither Acquirer nor any of its
Subsidiaries is in violation of, or has since January 1, 1999 violated, any
applicable provisions of any laws, statutes, ordinances or regulations except
for any violations that, individually or in the aggregate, would not reasonably
be expected to have a Material Adverse Effect on Acquirer.
Section 4.11 Finders' or Advisors' Fees. There is no investment banker,
broker, finder or other intermediary which has been retained by or is
authorized to act on behalf of Acquirer or any of its Subsidiaries who might be
entitled to any fee or commission in connection with the transactions
contemplated by this Agreement.
Section 4.12 Tax Treatment. Neither Acquirer nor any of its affiliates has
taken or agreed to take any action or is aware of any fact or circumstance that
would prevent the Merger from qualifying as a 368 Reorganization.
Section 4.13 Vote Required. No vote of the holders of any class or series of
Acquirer capital stock is required to approve the Merger and adopt this
Agreement. Acquirer, as the sole shareholder of Merger Sub, will promptly vote
to approve the Merger and adopt this Agreement.
Section 4.14 Absence of Certain Changes. Except as set forth in Schedule
4.14, since December 31, 1999, Acquirer and its Subsidiaries have conducted
their business in the ordinary course consistent with past practice and there
has not been:
(a) any event, occurrence or development of a state of circumstances or
facts which has had or reasonably would be expected to have, individually or in
the aggregate, a Material Adverse Effect on Acquirer;
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of Acquirer or any
repurchase, redemption or other acquisition by Acquirer or any of its
Subsidiaries of any outstanding shares of capital stock or other securities of,
or other ownership interests in, Acquirer or any of its Subsidiaries; or
(c) any change in any method of accounting or accounting practice (other
than any change for tax purposes) by Acquirer or any of its Subsidiaries,
except for any such change which is not significant or which is required by
reason of a concurrent change in GAAP.
Section 4.15 No Undisclosed Material Liabilities. There are no liabilities
of Acquirer or any Subsidiary of Acquirer of any kind whatsoever, whether
accrued, contingent, absolute, determined, determinable or otherwise, other
than:
(a) liabilities disclosed or provided for in the Acquirer SEC Documents or
in the notes thereto;
(b) liabilities which in the aggregate would not reasonably be expected to
have a Material Adverse Effect on Acquirer;
(c) liabilities disclosed in Acquirer SEC Documents filed prior to the date
hereof or set forth in Schedule 4.15(c); and
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(d) liabilities under this Agreement.
Section 4.16 Litigation. Except as set forth in the Acquirer SEC Documents,
there is no claim, action, suit, litigation, proceeding or arbitration of any
kind, at law or in equity (including actions or proceedings seeking injunctive
relief), pending or, to Acquirer's knowledge, threatened against Acquirer or
any of its Subsidiaries or any assets or rights of Acquirer or its Subsidiaries
that would reasonably be expected, individually or in the aggregate, to have a
Material Adverse Effect on Acquirer. Neither Acquirer nor any of its
Subsidiaries is subject to any continuing order of, consent decree, settlement
agreement or other similar written agreement with, or, to Acquirer's knowledge,
any continuing investigation by, any governmental entity, or any judgment,
order, writ, injunction, decree or award of any government entity or
arbitrator, including, without limitation, cease-and-desist or other orders
that could prevent, enjoin or materially alter or delay any of the transactions
contemplated by this Agreement or that would reasonably be expected to have a
Material Adverse Effect on Acquirer.
Section 4.17 Insurance. To the knowledge of Acquirer the insurance carried
by Acquirer and its Subsidiaries is in such types and amounts and covering such
risks as are consistent with customary practices and standards of companies
engaged in businesses and operations similar to those of Acquirer and its
Subsidiaries. Except as would not have a Material Adverse Effect on Acquirer,
all such insurance is in full force and effect and none of Acquirer nor any of
its Subsidiaries is in default thereunder. Except as would not have a Material
Adverse Effect on Acquirer, all claims thereunder have been filed in a due and
timely fashion. Except as would not have a Material Adverse Effect on Acquirer,
neither Acquirer nor any of its Subsidiaries has been notified in writing of a
refusal of any material insurance coverage relating to products liability
(including renewals of any such products liability coverage) by any insurance
carrier to which it has applied for insurance during the past three (3) years.
ARTICLE V
Covenants of the Company
Section 5.1 Conduct of Business of the Company. Except as contemplated by
this Agreement or as expressly agreed to in writing by Acquirer, during the
period from the date of this Agreement to the earlier of the termination of
this Agreement in accordance with Article IX (the "Termination Date") and the
Effective Time, each of the Company and its Subsidiaries will conduct its
operations according to its ordinary course of business consistent with past
practice, and will use all commercially reasonable efforts to preserve intact
its business organization, to keep available the services of its officers and
employees and to maintain satisfactory relationships with suppliers,
distributors, customers and others having business relationships with it and
will take no action which would materially adversely affect the ability of the
parties to consummate the transactions contemplated by this Agreement. Without
limiting the generality of the foregoing, and except as otherwise expressly
provided in this Agreement, prior to the earlier of the Termination Date and
the Effective Time, the Company will not nor will it permit any of its
Subsidiaries to, without the prior written consent of Acquirer:
(a) amend its certificate of incorporation or bylaws;
(b) authorize for issuance, issue, sell, deliver, grant any options for, or
otherwise agree or commit to issue, sell or deliver any shares of any class of
its capital stock or any securities convertible into shares of any class of its
capital stock, except (i) pursuant to and in accordance with the terms of
currently outstanding convertible securities and options, and (ii) options
granted under the Company Stock Option Plans, in the ordinary course of
business consistent with past practice (but in no event shall options be
granted covering more than 75,000 Company Shares per individual or 300,000
Company Shares in the aggregate);
(c) split, combine or reclassify any shares of its capital stock, declare,
set aside or pay any dividend or other distribution (whether in cash, stock or
property or any combination thereof) in respect of its capital stock or
purchase, redeem or otherwise acquire any shares of its own capital stock or
any of its Subsidiaries, other
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than the repurchase at cost of shares of employees and consultants upon
termination of their employment or consultancy with the Company or its
Subsidiaries;
(d) except in the ordinary course of business, consistent with past practice
(i) create, incur, assume, maintain or permit to exist any long-term debt or
any short-term debt for borrowed money other than under existing lines of
credit; (ii) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the
obligations of any other person except its wholly owned subsidiaries in the
ordinary course of business and consistent with past practices; or (iii) make
any loans, advances or capital contributions to, or investments in, any other
person;
(e) except as otherwise expressly contemplated by this Agreement or in the
ordinary course of business, consistent with past practice, (i) increase in any
manner the compensation of any of its directors, officers or other employees;
(ii) pay or agree to pay any pension, retirement allowance or other employee
benefit not required, or enter into or agree to enter into any agreement or
arrangement with such director, officer or employee, whether past or present,
relating to any such pension, retirement allowance or other employee benefit,
except as required under currently existing agreements, plans or arrangements;
(iii) grant any severance or termination pay to except as required under
currently existing agreements, plans or arrangements, or enter into any
employment or severance agreement with any of its directors, officers or other
employees; or (iv) except as may be required to comply with applicable law,
become obligated (other than pursuant to any new or renewed collective
bargaining agreement) under any new pension plan, welfare plan, multiemployer
plan, employee benefit plan, benefit arrangement, or similar plan or
arrangement, which was not in existence on the date hereof, including any
bonus, incentive, deferred compensation, stock purchase, stock option, stock
appreciation right, group insurance, severance pay, retirement or other benefit
plan, agreement or arrangement, or employment or consulting agreement with or
for the benefit of any person, and to amend any of such plans or any of such
agreements in existence on the date hereof;
(f) except as otherwise expressly contemplated by this Agreement, enter into
any other agreements, commitments or contracts, except agreements, commitments
or contracts for the purchase, sale or lease of goods or services in the
ordinary course of business, consistent with past practice;
(g) except in the ordinary course of business, consistent with past
practice, or as contemplated by this Agreement authorize, recommend, propose or
announce an intention to authorize, recommend or propose, or enter into any
agreement in principle or an agreement with respect to, any plan of liquidation
or dissolution, any acquisition of a material amount of assets or securities,
any sale, transfer, lease, license, pledge, mortgage, or other disposition or
encumbrance of a material amount of assets or securities or any material change
in its capitalization, or any entry into a material contract or any amendment
or modification of any material contract or any release or relinquishment of
any material contract rights; or
(h) agree to do any of the foregoing.
Section 5.2 No Solicitation. The Company agrees that from and after the date
of this Agreement until the earlier of the Termination Date and the Effective
Time, neither it nor any of its Subsidiaries nor any of the officers or
directors of it or its Subsidiaries, nor its employees, investment bankers,
attorneys, accountants, financial advisors, agents or other representatives
(collectively, "Representatives"), shall directly or indirectly, initiate or
solicit any inquiries or the making of a Company Acquisition Proposal. For
purposes of this Agreement, "Company Acquisition Proposal" shall mean any offer
or proposal (other than an offer or proposal by Acquirer) relating to any
transaction or series of related transactions involving: (A) any purchase from
the Company or acquisition by any Person or "group" (as defined under section
13(d) of the Exchange Act and the rules and regulations thereunder) of more
than a 5% interest in the total outstanding voting securities of the Company or
any of its subsidiaries or any tender offer or exchange offer that if
consummated would result in any person or "group" (as defined under section
13(d) of the Exchange Act and the rules and regulations thereunder)
beneficially owning 5% or more of the total outstanding voting securities of
the Company or any of
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its Subsidiaries or any merger, consolidation, business combination or similar
transaction involving the Company; (B) any sale, lease (other than in the
ordinary course of business), exchange, transfer, license (other than in the
ordinary course of business), acquisition or disposition of more than 5% of the
assets of the Company (excluding the assets of the Company constituting the
Infind Business); or (C) any liquidation or dissolution of the Company. The
Company further agrees that neither it nor any of its Subsidiaries nor any of
its or its Subsidiaries' officers or directors shall, and that it shall direct
and use its best reasonable efforts to cause its Representatives not to,
directly or indirectly, have any discussions with or provide any confidential
information or data to any Person relating to a Company Acquisition Proposal or
engage in any negotiations concerning a Company Acquisition Proposal; provided,
however, that if the Board of Directors of the Company determines in good
faith, based on such matters as it deems relevant, acting only after
consultation with WSGR (or other legal counsel of nationally recognized
standing) that the failure to do so would be a breach of its fiduciary duties
to the Company's stockholders under the DGCL, the Company may, in response to a
Company Acquisition Proposal that was not solicited and that the Board of
Directors of the Company determines, based upon the advice of Adams, Harkness &
Hill (or another financial advisor of nationally recognized standing), is from
a Person or group other than Acquirer or its affiliates that is capable of
consummating a Superior Proposal and only for so long as the Board of Directors
so determines that its actions are likely to lead to a Superior Proposal, (i)
furnish information to any such Person or group only pursuant to a
confidentiality agreement substantially in the same form as was executed by
Acquirer prior to the execution of this Agreement and only if copies of such
information are concurrently provided to Acquirer, (ii) participate in
discussions and negotiations regarding such proposal or offer, (iii) make any
disclosure to its stockholders if, in the good faith judgment of its board of
directors, failure so to disclose would be inconsistent with its obligations
under applicable Delaware Law; or (iv) recommend such Company Acquisition
Proposal to its stockholders, if and only to the extent that, in the case of an
action referred to in clause (iv), such Company Acquisition Proposal is a
Superior Proposal (as defined below). For purposes of this Agreement, a
"Superior Proposal" means, in respect of the Company, any Company Acquisition
Proposal by a third party on terms which the board of directors of the Company
determines in its reasonable good faith judgment, based on such matters it
deems relevant, including in the case of clauses (i) and (ii) below the advice
of the Company's financial advisor, (i) provides greater benefits to the
Company's stockholders than those provided pursuant to this Agreement,
(ii) provides that any financing required to consummate the transaction
contemplated by the offer is either in the possession of the Person making such
Acquisition Proposal or is likely to be obtained by such Person on a timely
basis, and (iii) does not contain a "right of first refusal" or "right of first
offer" with respect to any counter-proposal that Acquirer might make; provided,
further, that the Board of Directors of the Company by a majority vote
determines in its good faith judgment that such Acquisition Proposal is
reasonably capable of being completed (taking into account all legal,
financial, regulatory and other aspects of the proposal and the person making
the proposal). Nothing contained in this Section 5.2 shall prohibit the Company
or the Company's Board of Directors from taking and disclosing to the Company's
stockholders a position with respect to a tender or exchange offer by a third
party pursuant to Rules 14d-9 and 14e-2(a) promulgated under the Exchange Act
or from making any disclosure required by applicable law.
Section 5.3 Stockholders' Meetings. The Company shall in accordance with
applicable law and the Certificate of Incorporation and Bylaws of the Company
duly call, convene and hold a special meeting of its stockholders as promptly
as practicable after the date hereof for the purpose of voting upon the
adoption of this Agreement and the transactions contemplated hereby.
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ARTICLE VI
Covenants of Acquirer
Section 6.1 Conduct of Business of Acquirer. During the period from the date
of this Agreement to the earlier of the termination of this Agreement in
accordance with Article IX (the "Termination Date") and the Effective Time,
Acquirer will use all commercially reasonable efforts to preserve intact its
business organization, to keep available the services of its officers and
employees and to maintain satisfactory relationships with suppliers,
distributors, customers and others having business relationships with it and
will take no action which would materially adversely affect the ability of the
parties to consummate the transactions contemplated by this Agreement or that
would cause a Material Adverse Effect with respect to Acquirer.
Section 6.2 Indemnification.
(a) Acquirer shall indemnify, defend and hold harmless the present and
former officers, directors, employees and agents of the Company and its
Subsidiaries against all losses, claims, damages, expenses or liabilities
arising out of actions or omissions or alleged actions or omissions occurring
at or prior to the Effective Time to the same extent and on the same terms and
conditions (including with respect to advancement of expenses) provided for in
the Company's certificate of incorporation and bylaws and agreements in effect
at the date hereof (to the extent consistent with applicable law).
(b) For a period of six (6) years after the Effective Time, Acquirer shall
cause to be maintained in effect the current policies of directors' and
officers' liability insurance maintained by the Company (provided that Acquirer
may substitute therefor policies of at least the same coverage and amounts
containing terms and conditions which are no less advantageous) with respect to
claims arising from facts or events which occurred before the Effective Time;
provided, however, that Acquirer shall not be obligated to make annual premium
payments for such insurance to the extent such premiums exceed 200% of the
premiums paid as of the date hereof by the Company for such insurance.
(c) The provisions of this Section 6.2 are intended to be for the benefit
of, and shall be enforceable by each indemnified party hereunder, his or her
heirs and his or her representatives. The obligations of Acquirer under this
Section 6.2 shall not be terminated or modified in such a manner as to
adversely affect any Indemnitee to whom this Section 6.2 applies without the
consent of such affected Indemnitee (it being expressly agreed that the
Indemnitees to whom this Section 6.2 applies shall be third party beneficiaries
of this Section 6.2).
Section 6.3 NNM Listings. Acquirer shall promptly prepare and submit to The
Nasdaq Stock Market a listing application covering the shares of Acquirer
Common Stock (and associated Acquirer Rights) issuable in the Merger and upon
exercise of the Company Stock Options, and shall use all commercially
reasonable efforts to obtain, prior to the Effective Time, approval for the
listing of such Acquirer Common Stock (and associated Acquirer Rights), subject
to official notice of issuance.
Section 6.4 Employee Matters.
(a) Acquirer shall take such reasonable actions as are necessary to allow
eligible employees of the Company to participate in the benefit programs of
Acquirer, or alternative benefits programs substantially comparable to those
applicable to employees of Acquirer on similar terms, as soon as practicable
after the Effective Time. Without limiting the generality of the foregoing, (i)
to the extent that any employee of the Company becomes eligible to participate
in any employee benefit plan of Acquirer after the Effective Time, Acquirer and
Merger Subsidiary shall credit such employee's service with the Company, to the
same extent as such service was credited under the similar employee benefit
plans of the Company immediately prior to the Effective Time, for purposes of
determining eligibility to participate in and vesting under, and for purposes
of calculating benefits under, such employee benefit plan of Acquirer, and (ii)
to the extent permitted by such employee benefit plan of Acquirer and
applicable law, Acquirer and Merger Subsidiary shall waive any
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pre-existing condition limitations, waiting periods or similar limitations
under such employee benefit plan of Acquirer.
(b) Acquirer shall, and shall cause the Surviving Corporation and Acquirer's
Subsidiaries to, honor in accordance with their terms all agreements,
contracts, arrangements, commitments and understandings described in Schedule
3.14 of the Company Disclosure Schedule as to the employees of the Company at
the Effective Time who continue to be employed by the Company as of the
Effective Time, except as may be modified by express agreements with such
individual employees.
ARTICLE VII
Covenants of Acquirer and the Company
Section 7.1 Access to Information.
(a) From the date of this Agreement until the earlier of the Termination
Date and the Effective Time, each of the Company and Acquirer will give the
other party and their authorized representatives (including counsel,
environmental and other consultants, accountants and auditors) access during
normal business hours to all facilities, personnel and operations and to all
books and records of it and its Subsidiaries, will permit the other party to
make such inspections as it may reasonably require and will cause its officers
and those of its Subsidiaries to furnish the other party with such financial
and operating data and other information with respect to its business and
properties as such party may from time to time reasonably request.
(b) Each of the parties hereto will hold and will cause its consultants and
advisors to hold in strict confidence pursuant to the Confidentiality Agreement
dated February 20, 2000 between the parties (the "Confidentiality Agreement")
all documents and information furnished
to the other in connection with the transactions contemplated by this Agreement
as if each such consultant or advisor was a party thereto.
Section 7.2 Registration Statement and Proxy Statement.
(a) Acquirer and the Company shall file with the SEC as soon as is
reasonably practicable after the date hereof the Proxy Statement/Prospectus and
Acquirer shall file the Registration Statement in which the Proxy
Statement/Prospectus shall be included. Acquirer and the Company shall use all
commercially reasonable efforts to have the Registration Statement declared
effective by the SEC as promptly as practicable. Acquirer shall also take any
action required to be taken under applicable state blue sky or securities laws
in connection with the issuance of shares of Acquirer Common Stock pursuant to
this Agreement. Acquirer and the Company shall promptly furnish to each other
all information, and take such other actions, as may reasonably be requested in
connection with any action by any of them in connection with this Section
7.2(a).
(b) If at any time prior to the Effective Time any event shall occur which
is required to be described in the Proxy Statement/Prospectus or Form S-4, such
event shall be so described, and an amendment or supplement shall be promptly
filed with the SEC and, as required by law, disseminated to the stockholders of
the Company; provided that no amendment or supplement to the Proxy
Statement/Prospectus or the Form S-4 will be made by Acquirer or the Company
without the approval of the other party. To the extent applicable, each of
Acquirer and the Company will advise the other, promptly after it receives
notice thereof, of the time when the Form S-4 has become effective or any
supplement or amendment has been filed, the issuance of any stop order, the
suspension of the qualification of the shares of Acquirer Common Stock issuable
in connection with the Merger for offering or sale in any jurisdiction, or any
request by the SEC for amendment of the Proxy Statement/Prospectus or the Form
S-4 or comments thereon and responses thereto or requests by the SEC for
additional information. All filings by Acquirer and the Company with the SEC in
connection with the transactions contemplated hereby, including the Proxy
Statement, the Form S-4 and any amendment or supplement thereto, shall be
subject to the prior review of the other, and all mailings to the Company's
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stockholders in connection with the transactions contemplated by this Agreement
shall be subject to the prior review of the other party.
(c) Acquirer and the Company shall each use all commercially reasonable
efforts to cause to be delivered to the other a comfort letter of its
independent auditors, dated a date within two (2) business days of the
effective date of the Form S-4, in form reasonably satisfactory to the other
party and customary in scope and substance for such letters in connection with
similar registration statements.
Section 7.3 Reasonable Efforts; Other Actions. Subject to the terms and
conditions herein provided and applicable law, the Company and Acquirer shall
use all commercially reasonable efforts promptly to take, or cause to be taken,
all other actions and do, or cause to be done, all other things necessary,
proper or appropriate under applicable laws and regulations to consummate and
make effective the transactions contemplated by this Agreement, including,
without limitation, (i) the filing of Notification and Report Forms under the
HSR Act with the Federal Trade Commission (the "FTC") and the Antitrust
Division of the Department of Justice
(the "Antitrust Division") and using their reasonable best efforts to respond
as promptly as practicable to all inquiries received from the FTC or the
Antitrust Division for additional information or documentation, (ii) the taking
of any actions required to qualify the Merger as a 368 Reorganization, (iii)
the obtaining of all necessary consents, approvals or waivers under its
material contracts, and (iv) the lifting of any legal bar to the Merger.
Section 7.4 Public Announcements. Before issuing any press release or
otherwise making any public statements with respect to the Merger, Acquirer and
the Company will consult with each other as to its form and substance and shall
not issue any such press release or make any such public statement prior to
such consultation, except as may be required by law or by any listing agreement
with, or the policies of, a national securities exchange in which circumstance
reasonable efforts to consult will still be required to the extent practicable.
Section 7.5 Notification of Certain Matters. Each of the Company and
Acquirer shall give prompt notice to the other party of (i) any notice of, or
other communication relating to, a breach of this Agreement or event which,
with notice or lapse of time or both, would become a breach, received by it or
any of its Subsidiaries subsequent to the date of this Agreement and prior to
the Effective Time, under any contract to which it or any of its Subsidiaries
is a party or it, any of its Subsidiaries or any of its or their respective
properties is subject, which breach would be reasonably likely to have a
Material Adverse Effect on it, or (ii) any notice or other communication from
any third party alleging that the consent of such third party is or may be
required in connection with the transactions contemplated by this Agreement.
Section 7.6 Expenses. Except as set forth in Section 9.5, Acquirer, and the
Company, shall bear their respective expenses incurred in connection with the
Merger, including, without limitation, the preparation, execution and
performance of this Agreement and the transactions contemplated hereby, and all
fees and expenses of investment bankers, finders, brokers, agents,
representatives, counsel and accountants, except that expenses incurred in
printing, mailing and filing (including without limitation, SEC filing fees and
stock exchange listing application fees) Form S-4 and the Proxy
Statement/Prospectus shall be shared equally by the Company and Acquirer.
Section 7.7 Affiliates. Each of the Company and Acquirer shall deliver to
the other a letter identifying all persons who, as of the date hereof, may be
deemed to be "affiliates" thereof for purposes of Rule 145 under the Securities
Act (the "Affiliates") and shall advise the other in writing of any persons who
become an Affiliate prior to the Effective Time. The Company shall cause each
person who is so identified as an Affiliate to deliver to Acquirer, no later
than the earlier of the date hereof or the date such person becomes an
Affiliate, a written agreement substantially in the form of Exhibit 7.7 hereto.
Section 7.8 Tax-Free Reorganization Treatment. Each of Acquirer and the
Company shall take all reasonable actions necessary to cause the Merger to
qualify as a reorganization under the provisions of section 368(a) of the Code
and to obtain the opinion of counsel referred to in Section 8.2(b) hereof, and
neither party will take any action inconsistent therewith.
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ARTICLE VIII
Conditions to the Merger
Section 8.1 Conditions to the Obligations of Each Party. The obligations of
the Company, Acquirer and Merger Subsidiary to consummate the Merger are
subject to the satisfaction (or, to the extent legally permissible, waiver) of
the following conditions:
(a) this Agreement shall have been adopted and the Merger approved by the
stockholders of the Company in accordance with Delaware Law;
(b) any applicable waiting period under the HSR Act relating to the Merger
shall have expired or terminated;
(c) no provision of any applicable law or regulation and no judgment,
injunction, order or decree shall prohibit or enjoin the consummation of the
Merger;
(d) the parties shall have received all required approvals and third party
consents listed on Schedule 8.1(d);
(e) the Form S-4 shall have been declared effective under the 1933 Act and
no stop order suspending the effectiveness of the Form S-4 shall be in effect
and no proceedings for such purpose shall be pending before or threatened by
the SEC; and
(f) the shares of Acquirer Common Stock to be issued in the Merger shall
have been approved for listing on the NNM, subject to official notice of
issuance.
Section 8.2 Conditions to the Obligations of Acquirer and Merger
Subsidiary. The obligations of Acquirer and Merger Subsidiary to consummate the
Merger are subject to the satisfaction (or, to the extent legally permissible,
waiver) of the following further conditions:
(a) (i) the Company shall have performed in all material respects all of its
obligations hereunder required to be performed by it at or prior to the
Effective Time, (ii) except to the extent expressly permitted under this
Agreement, the representations and warranties of the Company contained in this
Agreement and in any certificate or other writing delivered by the Company
pursuant hereto (x) that are qualified by materiality or Material Adverse
Effect shall be true at and as of the Effective Time as if made at and as of
such time, and (y) that are not qualified by materiality or Material Adverse
Effect shall be true in all material respects at and as of the Effective Time
as if made at and as of such time and (iii) Acquirer shall have received a
certificate signed by the chief executive officer of the Company to the
foregoing effect;
(b) there shall not be instituted or pending any action or proceeding by any
governmental authority (whether domestic, foreign or supranational) before any
court or governmental authority or agency, domestic, foreign or supranational,
(i) seeking to restrain, prohibit or otherwise interfere with the ownership or
operation by Acquirer or any Subsidiary of Acquirer of all or any portion of
the business of the Company or any of its Subsidiaries or of Acquirer or any of
its Subsidiaries or to compel Acquirer or any Subsidiary of Acquirer to dispose
of or hold separate all or any portion of the business or assets of the Company
or any of its Subsidiaries or of Acquirer or any of its Subsidiaries, (ii)
seeking to impose or confirm limitations on the ability of Acquirer or any
Subsidiary of Acquirer effectively to exercise full rights of ownership of the
Company Shares (or shares of the Surviving Corporation) including, without
limitation, the right to vote any Company Shares (or shares of the Surviving
Corporation) on any matters properly presented to stockholders or (iii) seeking
to require divestiture by Acquirer or any Subsidiary of Acquirer of any Company
Shares (or shares of the Surviving Corporation) if any such matter referred to
in clause (i), (ii) or (iii) hereof could reasonably be expected to result in a
substantial detriment to Acquirer and its Subsidiaries (including the Company
and its Subsidiaries), taken as a whole (any such substantial detriment being
referred to in this Agreement as a "Substantial Detriment");
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(c) there shall not be any statute, rule, regulation, injunction, order or
decree, enacted, enforced, promulgated, entered, issued or deemed applicable to
the Merger and the other transactions contemplated hereby (or in the case of
any statute, rule or regulation, awaiting signature or reasonably expected to
become law), by any court, government or governmental authority or agency or
legislative body, domestic, foreign or supranational, that is reasonably
likely, directly or indirectly, to result in a Substantial Detriment;
(d) (i) all required approvals or consents of any governmental authority
(whether domestic, foreign or supranational) in connection with the Merger and
the consummation of the other transactions contemplated hereby shall have been
obtained (and all relevant statutory, regulatory or other governmental waiting
periods, whether domestic, foreign or supranational, shall have expired) unless
the failure to receive any such approval or consent would not be reasonably
likely, directly or indirectly, to result in a Substantial Detriment and (ii)
all such approvals and consents which have been obtained shall be on terms that
are not reasonably likely, directly or indirectly, to result in a Substantial
Detriment; and
(e) since the date of this Agreement, there shall not have been any event,
occurrence, development or state of circumstances which, individually or in the
aggregate, has had or would reasonably be expected to have a Material Adverse
Effect on the Company.
Section 8.3 Conditions to the Obligations of the Company. The obligation of
the Company to consummate the Merger is subject to the satisfaction (or, to the
extent legally permissible, waiver) of the following further conditions:
(a) (i) Acquirer shall have performed in all material respects all of its
obligations hereunder required to be performed by it at or prior to the
Effective Time, (ii) except to the extent expressly permitted under this
Agreement, the representations and warranties of Acquirer contained in this
Agreement and in any certificate or other writing delivered by Acquirer
pursuant hereto (x) that are qualified by materiality or Material Adverse
Effect shall be true at and as of the Effective Time as if made at and as of
such time, and (y) that are not qualified by materiality or Material Adverse
Effect shall be true in all material respects at and as of the Effective Time
as if made at and as of such time and (iii) Acquirer shall have received a
certificate signed by the chief executive officer of Acquirer to the foregoing
effect;
(b) the Company shall have received an opinion of Wilson Sonsini Goodrich &
Rosati, Professional Corporation, in form and substance reasonably satisfactory
to the Company, on the basis of certain facts, representations and assumptions
set forth in such opinion, dated the Effective Time, to the effect that the
Merger will be treated for federal income tax purposes as a reorganization
qualifying under the provisions of section 368(a) of the Code and that each of
the Company, Merger Subsidiary and Acquirer will be a party to the
reorganization within the meaning of section 368(b) of the Code. In rendering
such opinion, such counsel shall be entitled to rely upon certain
representations of officers of the Company and Acquirer reasonably requested by
counsel; and
(c) since the date of this Agreement, there shall not have been any event,
occurrence, development or state of circumstances which, individually or in the
aggregate, has had or would reasonably be expected to have a Material Adverse
Effect on Acquirer.
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ARTICLE IX
Termination
Section 9.1 Termination. This Agreement may be terminated at any time prior
to the Effective Time, whether before or after approval by the stockholders of
the Company or Acquirer:
(a) by mutual consent of the Boards of Directors of Acquirer and the
Company;
(b) by either Acquirer or the Company if the Merger shall not have been
consummated on or before September 30, 2000, which date may be extended by
mutual written consent of the parties hereto; provided, that the party seeking
to terminate this Agreement pursuant to this Section 9.1(b) shall not have
breached in any material respect its obligations under this Agreement;
(c) by either Acquirer or the Company, if any court of competent
jurisdiction in the United States or other governmental body in the United
States shall have issued an order (other than a temporary restraining order),
decree or ruling or taken any other action restraining, enjoining or otherwise
prohibiting the Merger, and such order, decree, ruling or other action shall
have become final and nonappealable; provided that the party seeking to
terminate this Agreement shall have used all commercially reasonable efforts to
avoid, remove or lift such order, decree or ruling; or
(d) by either Acquirer or the Company, if the requisite stockholder
approvals of the stockholders of the Company are not obtained at the meeting of
stockholders duly called and held therefor; provided, however, that the right
to terminate this Agreement under this Section 9.1(d) shall not be available to
the Company where the failure to obtain stockholder approval of the Company
shall have been caused by the action or failure to act of the Company and such
action or failure to act constitutes a material breach by the Company of this
Agreement.
Section 9.2 Termination by Acquirer. This Agreement may be terminated by
action of the Board of Directors of Acquirer, at any time prior to the
Effective Time, before or after the approval by the stockholders of the
Company, if (a) the Company shall have failed to comply in any material respect
with any of the covenants or agreements contained in Articles I, II, V and VII
of this Agreement to be complied with or performed by the Company at or prior
to such date of termination; provided, however, that such failure to comply
shall be continuing for a period of ten (10) days after delivery to the Company
of written notice of such failure, (b) there exists a breach or breaches of any
representation or warranty of the Company contained in this Agreement such that
the closing condition set forth in Section 8.2(a) would not be satisfied;
provided, however, that if such breach or breaches are capable of being cured
prior to the Effective Time, such breaches shall not have been cured within ten
(10) days of delivery to the Company of written notice of such breach or
breaches, (c) the Board of Directors of the Company shall have failed to
recommend or withdrawn, modified or changed in a manner adverse to Acquirer its
recommendation of this Agreement or the Merger or shall have recommended any
proposal in respect of a Company Acquisition Transaction (or shall have
resolved to do any of the foregoing).
Section 9.3 Termination by the Company. This Agreement may be terminated at
any time prior to the Effective Time, before or after the approval by the
stockholders of the Company, by action of the Board of the Directors of the
Company, if (a) Acquirer shall have failed to comply in any material respect
with any of the covenants or agreements contained in Articles I, II, VI and VII
of this Agreement to be complied with or performed by Acquirer at or prior to
such date of termination; provided, however, that such failure to comply shall
be continuing for a period of ten (10) days after delivery to Acquirer of
written notice of such failure, (b) there exists a breach or breaches of any
representation or warranty of Acquirer contained in this Agreement such that
the closing condition set forth in Section 8.3(a) would not be satisfied;
provided, however, that if such breach or breaches are capable of being cured
prior to the Effective Time, such breaches shall not have been cured within
fifteen (15) days of delivery to Acquirer of written notice of such breach or
breaches, (c)(i) the Board of Directors of the Company authorizes the Company,
subject to complying with the terms of this Agreement, to enter into a binding
written agreement concerning a transaction that constitutes a Superior
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Proposal and the Company notifies Acquirer in writing that it intends to enter
into such an agreement, attaching the most current version of such agreement
(or a description of all material terms and conditions thereof) to such notice,
(ii) Acquirer does not make, within three (3) business days of receipt of the
Company's written notification of its intention to enter into a binding
agreement for a Superior Proposal, an offer that the Board of Directors of the
Company determines, in good faith after consultation with its financial
advisors, is at least as favorable to the stockholders of the Company as the
Superior Proposal, it being understood that the Company shall not enter into
any such binding agreement during such three (3) day period, and (iii) the
Company prior to such termination pursuant to this clause (c) pays to Acquirer
in immediately available funds the fees required to be paid pursuant to Section
9.5. The Company agrees to notify Acquirer promptly if its intention to enter
into a written agreement referred to in its notification pursuant to clause (c)
above shall change at any time after giving such notification.
Section 9.4 Procedure for Termination. In the event of termination by
Acquirer or the Company pursuant to this Article IX, written notice thereof
shall forthwith be given to the other.
Section 9.5 Effect of Termination.
(a) In the event of termination of this Agreement pursuant to this Article
IX, no party hereto (or any of its directors or officers) shall have any
liability or further obligation to any other party to this Agreement, except as
provided in this Section 9.5 and Section 7.1(b) hereof.
(b) If,
(i) the Company shall terminate this Agreement pursuant to Section
9.3(c);
(ii) Acquirer shall terminate this Agreement pursuant to Section 9.2(c),
unless at the time of such failure to recommend, withdrawal or adverse
modification or change, failure to call the Company Stockholder Meeting or
recommendation of a Superior Proposal, any of the conditions set forth in
Section 8.3(a) or 8.3(c) would not have been satisfied as of such date and
would not be reasonably capable of being satisfied; or
(iii) either the Company or Acquirer shall terminate this Agreement
pursuant to Section 9.1(d) in circumstances where the Company Stockholder
Approval has not been obtained and prior to the Company Stockholder Meeting
a Company Acquisition Proposal is made and not withdrawn by any Person and
within twelve (12) months after termination of this Agreement the Company
consummates such Company Acquisition or enters into a definitive agreement
providing for such Company Acquisition;
then in any case as described in clause (i), (ii) or (iii) the Company shall
pay to Acquirer (by wire transfer of immediately available funds not later than
the date of termination of this Agreement or, in the case of clause (iii), the
date of such definitive agreement) an amount equal to $3,600,000. The fees
provided for in this Section 9.5(b) are intended to be liquidated damages and,
as such, the sole and exclusive remedy for any and all claims on any theory
that might be asserted with respect to any of the matters discussed in this
Article IX, and no party hereto shall seek any additional damages or remedies
at law or in equity as a result or consequence of any such matter. Acceptance
by Acquirer of the payment referred to in the foregoing sentence shall
constitute conclusive evidence that this Agreement has been validly terminated
and upon acceptance of payment of such amount the Company shall be fully
released and discharged from any liability or obligation resulting from or
under this Agreement. For purposes of this Agreement, the term "Company
Acquisition" shall mean (i) a merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving the
Company pursuant to which the stockholders of the Company immediately preceding
such transaction hold less than fifty percent (50%) of the aggregate equity
interests in the surviving or resulting entity of such transaction, (ii) a sale
or other disposition by the Company of assets representing in excess of fifty
percent (50%) of the aggregate fair market value of the Company's business
immediately prior to such sale, or (iii) the acquisition by any person or group
(including by way of a tender offer or an exchange offer or
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issuance by the Company), directly or indirectly, of beneficial ownership or a
right to acquire beneficial ownership of shares representing in excess of fifty
percent (50%) of the voting power of the then outstanding shares of capital
stock of the Company.
ARTICLE X
Miscellaneous
Section 10.1 Notices. Any notice, request, instruction or other document to
be given hereunder by any party to the other shall be in writing and delivered
personally or sent by certified mail, postage prepaid, by telecopy (with
receipt confirmed and promptly confirmed by personal delivery, U.S. first class
mail, or courier), or by courier service, as follows:
(a) If to Acquirer or Merger Subsidiary to:
eGain Communications Corporation
455 West Maude Avenue
Sunnyvale, CA 94086
Attn: Chief Executive Officer
Fax: (408) 212-3500
with a copy to:
Pillsbury Madison & Sutro LLP
2550 Hanover Street
Palo Alto, CA 94304
Attn: Stanley F. Pierson
Fax: (650) 233-4545
(b) If to the Company to:
Inference Corporation
100 Rowland Way
Novato, CA 94945
Attention: Chief Executive Officer
Fax:
with a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94306
Attn: Thomas C. DeFilipps
Fax: (650) 493-6811
Section 10.2 Non-Survival of Representations and Warranties. The
representations and warranties contained herein and in any certificate or other
writing delivered pursuant hereto shall not survive the Effective Time or the
termination of this Agreement.
Section 10.3 Amendments; No Waivers.
(a) Any provision of this Agreement (including the Exhibits and Schedules
hereto) may be amended or waived prior to the Effective Time if, and only if,
such amendment or waiver is in writing and signed, in the case of an amendment,
by the Company, Acquirer and Merger Subsidiary, or in the case of a waiver, by
the party against whom the waiver is to be effective; provided that after the
adoption of this Agreement by the stockholders of the Company, no such
amendment or waiver shall, without the further approval of such stockholders,
alter or change (i) the amount or kind of consideration to be received in
exchange for any shares
A-29
<PAGE>
of capital stock of the Company, (ii) any term of the certificate of
incorporation of the Surviving Corporation or (iii) any of the terms or
conditions of this Agreement if such alteration or change would adversely
affect the holders of any shares of capital stock of the Company.
(b) No failure or delay by any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
Section 10.4 Successors and Assigns. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of the other parties hereto except that Merger Subsidiary
may transfer or assign, in whole or from time to time in part, to one or more
of its affiliates, its rights under this Agreement, but any such transfer or
assignment will not relieve Merger Subsidiary of its obligations hereunder.
Section 10.5 Governing Law. This Agreement shall be construed in accordance
with and governed by the law of the State of Delaware, without regard to
principles of conflicts of law.
Section 10.6 Jurisdiction. Any suit, action or proceeding seeking to enforce
any provision of, or based on any matter arising out of or in connection with,
this Agreement or the transactions contemplated hereby shall be brought
exclusively in the Court of Chancery of the State of Delaware, and each of the
parties hereby consents to the jurisdiction of such court (and of the
appropriate appellate courts therefrom) in any such suit, action or proceeding
and irrevocably waives, to the fullest extent permitted by law, any objection
which it may now or hereafter have to the laying of the venue of any such suit,
action or proceeding in any such court or that any such suit, action or
proceeding which is brought in any such court has been brought in an
inconvenient forum. Process in any such suit, action or proceeding may be
served on any party anywhere in the world, whether within or without the
jurisdiction of any such court. Without limiting the foregoing, each party
agrees that service of process on such party as provided in Section 10.1 shall
be deemed effective service of process on such party.
Section 10.7 Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
Section 10.8 Counterparts; Effectiveness. This Agreement may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the
signatures thereto and hereto were upon the same instrument. This Agreement
shall become effective when each party hereto shall have received counterparts
hereof signed by all of the other parties hereto.
Section 10.9 Entire Agreement. This Agreement (including the Exhibits and
Schedules hereto) and the Confidentiality Agreement constitute the entire
agreement between the parties with respect to the subject matter of this
Agreement and supersede all prior agreements and understandings, both oral and
written, between the parties with respect to the subject matter hereof and
thereof. Except as provided in Section 6.3(c), no provision of this Agreement
or any other agreement contemplated hereby is intended to confer on any Person
other than the parties hereto any rights or remedies.
Section 10.10 Captions. The captions herein are included for convenience of
reference only and shall be ignored in the construction or interpretation
hereof.
Section 10.11 Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void or unenforceable, the remainder of the
A-30
<PAGE>
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated
so long as the economic or legal substance of the transactions contemplated
hereby is not affected in any manner materially adverse to any party. Upon such
a determination, the parties shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner in order that the transactions contemplated
hereby be consummated as originally contemplated to the fullest extent
possible.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed,
all as of the date first above written.
EGAIN COMMUNICATIONS CORPORATION
/s/ Harpreet Grewal
By __________________________________
CFO
Title _______________________________
INTREPID ACQUISITION CORP.
/s/ Harpreet Grewal
By __________________________________
CFO
Title _______________________________
INFERENCE CORPORATION
/s/ Charles W. Jepson
By __________________________________
Charles W. Jepson
Chief Executive Officer
A-31
<PAGE>
APPENDIX B
March 15, 2000
Board of Directors
Inference Corporation
100 Rowland Way
Novato, California 94945
Members of the Board:
You have requested our opinion (the "Fairness Opinion"), as investment
bankers, as to the fairness, from a financial point of view, to the
shareholders of Inference Corporation (the "Company") of the exchange ratio to
be employed in connection with the proposed merger (the "Merger") of the
Company with and into a wholly owned subsidiary (the "Merger Sub") of eGain
Communications, Inc. (the "Purchaser"), pursuant to the Agreement and Plan of
Merger dated as of March 16, 2000 (the "Merger Agreement"), among the
Purchaser, the Merger Sub and the Company. Adams, Harkness & Hill, Inc., as
part of its investment banking activities, is continually engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes.
In the Merger, each share of Class A Common Stock, par value $0.01 per
share, and Class B Common Stock, par value $0.01 per share, of the Company
(each a "Company Share") outstanding immediately prior to the closing of the
Merger shall be converted into the right to receive 0.1865 (the "Exchange
Ratio") shares of fully paid and nonassessable common stock, par value $.001
per share, of the Purchaser ("Purchaser Common Stock"), subject to adjustment
three days prior to closing of the Merger as follows: (i) if, the Average Share
Price (as defined below) is greater than $59.297 per share (the "Upper
Collar"), then the Exchange Ratio shall be adjusted to equal the quotient of
(a) the product of the Exchange Ratio and the Upper Collar divided by (b) the
Average Share Price (as defined below), or (ii) if, the Average Share Price is
less than $48.516 per share (the "Lower Collar"), then the Exchange Ratio shall
be adjusted to equal the quotient of (a) the product of the Exchange Ratio and
the Lower Collar divided by (b) the Average Share Price. The "Average Share
Price" shall be equal to the average closing price of the Purchaser's Common
Stock listed on the NASDAQ National Market System for the 20 consecutive
trading days ending on the third trading day prior to the closing of the
Merger. Outstanding options and other rights to acquire Company stock shall be
assumed by the Purchaser and converted at the Exchange Ratio into rights to
acquire Purchaser stock.
We are expressing no opinion as to what the value of Purchaser Common Stock
will be when issued to the stockholders of Company pursuant to the Merger, or
the prices at which Purchaser Common Stock will actually trade at any time. Our
Fairness Opinion as expressed herein is limited to the fairness, from a
financial point of view, of the Exchange Ratio to the stockholders of the
Company and does not address the Company's underlying business decision to
engage in the Merger. Our Fairness Opinion does not constitute a recommendation
to any shareholder of the Company as to how such shareholder should vote on the
proposed Merger.
In developing our Fairness Opinion, we have, among other things: (i)
reviewed the Company's Annual Reports, Forms 10-K and related financial
information for the three fiscal years ended January 31, 1999, and the
Company's Form 10-Q and the related unaudited financial information for the
nine month period ending October 31, 1999; (ii) reviewed Purchaser's Prospectus
on Form 424B4 dated September 23, 1999, and Purchaser's Form 10-Q reflecting
financial performance and related unaudited financial information for the
six month period ended December 31, 1999; (iii) analyzed certain internal
financial statements and other financial and operating data concerning the
Company prepared by the management of the Company; (iv) analyzed certain
internal financial statements and other financial and operating data concerning
Purchaser prepared by the management of Purchaser; (v) reviewed certain
information relating to prior periods concerning the business, earnings and
assets of the Company and Purchaser furnished to us by the Company and
B-1
<PAGE>
Purchaser; (vi) assessed the competitive position and prospects of the
Company's products, including K-Commerce: Support and K-Commerce: Sales; (vii)
assessed the competitive position and prospects of the Purchaser's products,
including its eGain Commerce 2000 platform; (viii) analyzed the potential pro
forma financial effects of the Merger on the Company and Purchaser and compared
the relative financial contributions of the Company and Purchaser to the
combined company following consummation of the Merger, each based on both
publicly available estimates from third party research analysts of the future
financial performance of Company and the Purchaser and internal forecasts of
such future performance prepared by management of the Company; (ix) conducted
due diligence discussions with members of senior management of the Company and
Purchaser and discussed with members of senior management of the Company and
Purchaser their views regarding future business, financial and operating
benefits arising from the Merger; (x) reviewed the historical market prices and
trading activity for the Company Common Stock and Purchaser Common Stock and
compared them with that of certain publicly traded companies we deemed to be
relevant and comparable to the Company and Purchaser, respectively; (xi)
compared the results of operations of the Company and Purchaser with that of
certain companies we deemed to be relevant and comparable to the Company and
Purchaser, respectively; (xii) compared the financial terms of the Merger with
the financial terms of certain other mergers and acquisitions we deemed to be
relevant and comparable to the Merger; (xiii) participated in certain
discussions among representatives of the Company and Purchaser and their
financial and legal advisors; (xiv) reviewed the draft Merger Agreement dated
March 15, 2000; and (xv) reviewed such other financial studies and analyses and
performed such other investigations and took into account such other matters as
we deemed necessary, including our assessment of general economic, market and
monetary conditions.
In connection with our review and arriving at our Fairness Opinion, we have
not independently verified any information received from the Company, have
relied on such information, and have assumed that all such information is
complete and accurate in all material respects. With respect to any internal
forecasts reviewed relating to the prospects of the Company and Purchaser, we
have assumed that they have been reasonably prepared on bases reflecting the
best currently available estimates and judgments of the Company's and
Purchaser's management as to the future financial performance of the Company
and Purchaser. Our Fairness Opinion is rendered on the basis of securities
market conditions prevailing as of the date hereof and on the conditions and
prospects, financial and otherwise, of the Company and Purchaser as known to us
on the date hereof. We have not conducted, nor have we received copies of, any
independent valuation or appraisal of any of the assets of the Company and
Purchaser. In addition, we have assumed, with your consent: (i) the Merger will
be accounted for under the purchase method in accordance with generally
accepted accounting principles as described in Accounting Principles Board
Opinion Number 16; (ii) the Merger will constitute a tax-free reorganization
under (S) 368 of the Internal Revenue Code of 1986, as amended; (iii) the terms
set forth in the executed Merger Agreement will not differ materially from the
proposed terms provided to us in the draft Merger Agreement dated March 15,
2000; and (iv) any material liabilities (contingent or otherwise, known or
unknown) of the Company and Purchaser are as set forth in the consolidated
financial statements of the Company and Purchaser, respectively.
It is understood that this letter is for the information of the Board of
Directors of the Company and may not be used for any other purpose without our
prior written consent, except that this opinion may be included in its entirety
in any filing made by the Company with the Securities and Exchange Commission
with respect to the transactions contemplated by the Merger Agreement.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Exchange Ratio is fair, from a financial point of view, to the
Company's shareholders.
Sincerely,
ADAMS, HARKNESS & HILL, INC.
By: /s/ Adams, Harkness & Hill, Inc.
-----------------------------------
James A. Simms
Managing Director
B-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. 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 VII of the Registrant's
Amended and Restated Certificate of Incorporation and Article V of the
Registrant's Bylaws 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.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits.
See Exhibit Index for the list of exhibits at page II-4 of this registration
statement, which is incorporated herein by reference.
(b) Financial Statement Schedules.
Schedule II--Valuation and Qualifying Accounts
eGain Communications Corporation
Schedule II--Valuation and Qualifying Accounts
(In thousands)
<TABLE>
<CAPTION>
Nine Months
Ended
March 31, 2000
--------------
<S> <C>
Allowance for Doubtful Accounts:
Balance, beginning of period............................ $ 25
Additions, charged to expense........................... 338
Deductions.............................................. (23)
----
Balance, end of period................................ $340
====
</TABLE>
Item 22. Undertakings
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Exchange Act that is incorporated by reference in this registration statement
shall be deemed to be a new registration statement relating to the securities
offered herein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
II-1
<PAGE>
The registrant undertakes that every prospectus (1) that is filed pursuant
to the paragraph immediately preceding, or (2) that purports to meet the
requirements of section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415 of the Securities
Act, will be filed as a part of an amendment to the registration statement and
will not be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act, each such post-effective
amendment 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.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the 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 Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The registrant hereby undertakes to respond to requests for information that
is incorporated by reference into the proxy statement/prospectus which forms a
part of this registration statement pursuant to Items 4, 10(b), 11, or 13 of
this registration statement, within one business day of receipt of such
request, and to send the incorporated documents by first-class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of this registration statement through the
date of responding to the request.
The registrant hereby undertakes to supply by means of a post-effective
amendment all information concerning a transaction, and the company being
acquired involved therein, that was not the subject of and included in this
registration statement when it became effective.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Sunnyvale, State of
California, on May 12, 2000.
eGAIN COMMUNICATIONS CORPORATION
By /s/ Ashutosh Roy
---------------------------------
Ashutosh Roy
Chairman of the Board and
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.
Principal Executive Officers and Directors
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Ashutosh Roy Chairman of the Board and May 12, 2000
____________________________________ Chief Executive Officer
Ashutosh Roy (Principal Executive
Officer)
/s/ Gunjan Sinha President and Director May 12, 2000
____________________________________
Gunjan Sinha
/s/ Harpreet Grewal Chief Financial Officer May 12, 2000
____________________________________ (Principal Financial
Harpreet Grewal Officer)
/s/ Eric Smit Vice President of Finance May 12, 2000
____________________________________ and Administration
Eric Smit (Principal Accounting
Officer)
____________________________________ Director May , 2000
A. Michael Spence
/s/ Mark Wolfson Director May 12, 2000
____________________________________
Mark Wolfson
</TABLE>
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description of Exhibits
------- -----------------------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of March 16, 1999, between
Inference Corporation, Intrepid Acquisition Corp. and eGain
Communications Corporation, a copy of which is included as Appendix A
to the joint proxy statement/prospectus which forms a part of this
Registration Statement
5.1 Opinion of Pillsbury Madison & Sutro LLP regarding the legality of the
securities being offered
8.1 Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation,
regarding tax matters
23.1 Consent of Pillsbury Madison & Sutro LLP, included in the opinion
filed as Exhibit 5.1 to this registration statement
23.2 Consent of Ernst & Young LLP, Independent Auditors (Palo Alto,
California)
23.3 Consent of Ernst & Young LLP, Independent Auditors (Sacramento,
California)
23.4 Consent of PricewaterhouseCoopers LLP, Independent Accountants
99.1 Form of Inference Corporation proxy
</TABLE>
- --------
II-4
<PAGE>
EXHIBIT 5.1
OPINION OF PILLSBURY MADISON & SUTRO LLP
_______, 2000
eGain Communications Corporation
455 W. Maude Avenue
Sunnyvale, CA 94806
RE: REGISTRATION STATEMENT ON FORM S-4
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 the _______ shares of common stock, par
value $0.001 per share, of the Company (the "Shares"), to be delivered to
holders of common stock, par value $0.01 per share, of Inference Corporation, a
Delaware corporation ("Inference"), pursuant to an Agreement and Plan of Merger,
dated as of March 16, 2000 (the "Merger Agreement"), by and between the Company,
Inference and Intrepid Acquisition Corp. In this regard we have participated in
the preparation of a Registration Statement on Form S-4 relating to such shares
of Common Stock (the "Registration Statement").
We are of the opinion that the Shares have been duly authorized and, when
delivered pursuant to the terms of the Merger Agreement, 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 Proxy Statement/Prospectus
included therein.
Very truly yours,
<PAGE>
EXHIBIT 8.1
Form of WSGR Tax Opinion
May __, 2000
Inference Corporation
100 Rowland Way
Novato, CA 94945
Ladies and Gentlemen:
We have acted as counsel to Inference Corporation, a Delaware corporation
("Inference") in connection with the proposed merger (the "Merger") by and among
Inference, eGain Communications Corporation, a Delaware corporation ("eGain"),
and Intrepid Acquisition Corp., a newly formed Delaware corporation and wholly-
owned subsidiary of eGain ("Merger Sub"), pursuant to the Agreement and Plan of
Merger dated as of March 16, 2000 (the "Merger Agreement"). The Merger and
certain proposed transactions incident thereto are described in the Registration
Statement on Form S-4 (the "Registration Statement") of eGain which includes the
Proxy Statement/Prospectus of Inference and eGain (the "Proxy
Statement/Prospectus"). This opinion is being rendered pursuant to the
requirements of Item 21(a) of Form S-4 under the Securities Act of 1933, as
amended. Unless otherwise indicated, any capitalized terms used herein and not
otherwise defined have the meaning ascribed to them in the Proxy
Statement/Prospectus.
In connection with this opinion, we have examined and are familiar with the
Merger Agreement, the Registration Statement, and such other presently existing
documents, records and matters of law as we have deemed necessary or appropriate
for purposes of our opinion. In addition, we have assumed (i) that the Merger
will be consummated in the manner contemplated by the Proxy Statement/Prospectus
and in accordance with the provisions of the Merger Agreement, (ii) the truth
and accuracy of the representations and warranties made by Inference and eGain
in the Merger Agreement, and (iii) the truth and accuracy of the certificates of
representations to be provided to us by Inference, eGain and Merger Sub.
Based upon and subject to the foregoing, in our opinion, the discussion
contained in the Registration Statement under the caption "Certain United States
Federal Income Tax Consequences of the Merger," subject to the limitations and
qualifications described therein, sets forth the material federal income tax
considerations generally applicable to the Merger. Because this opinion is
being delivered prior to the Effective Time of the Merger, it must be considered
prospective and dependent on future events. There can be no assurance that
changes in the law will not take place which could affect the United States
federal income tax consequences of the Merger or that contrary positions may
not be taken by the Internal Revenue Service.
No opinion is expressed as to any federal income tax consequences of
the Merger except as specifically set forth herein, and this opinion may not be
relied upon except with respect to the consequences specifically discussed
herein.
This opinion is furnished to you solely for use in connection with the
Registration Statement. We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement. We also consent to the reference to our
firm name wherever appearing in the Registration Statement with respect to the
discussion of the material federal income tax consequences of the Merger,
including the Proxy Statement/Prospectus constituting a part thereof, and any
amendment thereto. In giving this consent, we do not thereby admit that we are
in the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder, nor do we thereby admit that we
are experts with respect to any part of such Registration Statement within the
meaning of the term "experts" as used in the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission
thereunder.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
<PAGE>
EXHIBIT 23.2
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 the proxy statement/prospectus of eGain Communications Corporation
that is made a part of Amendment No. 1 to the Registration Statement (Form S-4
No. 333-34848) and related prospectus of eGain Communications Corporation for
the registration of shares of its common stock.
/s/ Ernst & Young LLP
Palo Alto, California
May 11, 2000
<PAGE>
EXHIBIT 23.3
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
proxy statement/prospectus of eGain Communications Corporation that is made a
part of Amendment No. 1 to the Registration Statement (Form S-4, No. 333-34848)
and related prospectus of eGain Communications Corporation for the registration
of shares of its common stock, and to the incorporation by reference therein of
our report dated February 18, 2000 (except for Note 12, as to which the date is
March 16, 2000), with respect to the consolidated financial statements of
Inference Corporation included in its Annual Report (Form 10-K) for the year
ended January 31, 2000, filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Sacramento, California
May 11, 2000
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-4/A of
eGain Communications Corporation of our report dated February 21, 2000, except
as to Note 6 which is as of March 7, 2000, relating to the financial statements
of Big Science Company, which appears in such Registration Statement. We also
consent to the references to us under the heading "Experts" in such
Registration Statement.
/s/ PricewaterhouseCoopers LLP
Atlanta, Georgia
May 12, 2000
<PAGE>
Exhibit 99.1
- --------------------------------------------------------------------------------
PROXY INFERENCE CORPORATION PROXY
CLASS A COMMON STOCK
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF STOCKHOLDERS JUNE 26, 2000
The undersigned hereby appoints Charles W. Jepson and Phillip Ranger, and
each of them, with full power of substitution, as proxies to represent the
undersigned and vote all shares of stock which the undersigned is entitled to
vote at the Special Meeting of Stockholders of Inference Corporation to be held
on June 26, 2000, at the Hyatt Regency San Francisco Airport, 1333 Bayshore Hwy,
Burlingame, California at 10:00 a.m. local time, and at any postponements or
adjournments thereof, as specified below, and to vote in accordance with their
best judgment on such other business as may properly come before the Special
Meeting including any motion to postpone or adjourn the meeting and at any
postponements or adjournments thereof.
UNLESS OTHERWISE SPECIFIED BY THE UNDERSIGNED, THIS PROXY WILL BE VOTED FOR
THE PROPOSAL AND WILL BE VOTED BY THE PROXY HOLDERS IN ACCORDANCE WITH THEIR
BEST JUDGMENT ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING,
INCLUDING ANY MOTION TO ADJOURN TO PERMIT FURTHER SOLICITATION OF PROXIES, IF
NECESSARY, TO ESTABLISH A QUORUM OR TO OBTAIN ADDITIONAL VOTES IN FAVOR OF THE
MERGER AND THE AGREEMENT AND PLAN OF MERGER, AND AT ANY POSTPONEMENTS OR
ADJOURNMENTS THEREOF. TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS'
RECOMMENDATIONS JUST SIGN ON THE REVERSE SIDE, NO BOXES NEED TO BE CHECKED.
New Address: ____________________________
_________________________________________
_________________________________________
(Continued and to be signed on reverse side.)
- --------------------------------------------------------------------------------
<PAGE>
INFERENCE CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY [X]
1. Proposal to approve the acquisition of Inference For Against Abstain
Corporation, a Delaware corporation ("Inference"), [_] [_] [_]
by eGain Communications Corporation, a Delaware
corporation ("eGain"), and adopt the Agreement and
Plan of Merger dated March 16, 2000 (the "Merger
Agreement") by and among Inference, eGain and
Intrepid Acquisition Corp., a newly formed Delaware
corporation and wholly owned subsidiary of eGain
("Merger Sub"), pursuant to which, among other things
(a) Merger Sub will be merged with and into Inference
(the "Merger") and Inference will become a wholly
owned subsidiary of eGain and (b) each holder of
capital stock of Inference will become entitled to
receive the consideration set forth in the Merger
Agreement.
Check here for address change and write your new address in
the space provided on the reverse side. [_]
Signature(s) ____________________________
_________________________________________
Please sign exactly as your name appears
- ------------------------------------ hereon, and return promptly in the
enclosed envelope. Joint owners should
THIS SPACE RESERVED FOR ADDRESSING each sign personally. Where applicable,
(key lines do not print) indicate your official position or
representation capacity.
- ------------------------------------
- --------------------------------------------------------------------------------
/\ FOLD AND DETACH HERE /\
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY FORM
PROMPTLY USING THE ENCLOSED ENVELOPE
VOTE BY INTERNET
Dear Shareholder:
We are pleased to announce that you can now vote your shares over the Internet.
We encourage you to take advantage of this new feature which eliminates the need
to return the proxy card. Your Internet vote is quick, convenient and your vote
is immediately submitted. Just follow these easy steps:
1. Read the accompanying Proxy Statements
2. Go to the website www.harrisbank.com/wproxy
3. Enter the 6-digit Control Number located above
4. Follow the simple instructions on the screen
Your Internet vote authorizes the named proxies to vote your shares to the same
extent as if you marked, signed, dated and returned the proxy card. Please note
that all votes cast by Internet must be submitted prior to 10:00 a.m Central
Time, June 22, 2000.
If you vote by Internet, please do not return your proxy by mail.
THANK YOU FOR YOUR VOTE.
