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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check Appropriate Box:
[_] Preliminary Proxy Statement [_] Confidential, for use of the
Commission only (as permitted by
[X] Definitive Proxy Statement Rule 14a-6(e)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-12
eGain Communications Corporation
(Name of Registrant as Specified In Its Charter)
----------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
______________________________________________________________________
2) Aggregate number of securities to which transaction applies:
______________________________________________________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
______________________________________________________________________
4) Proposed maximum aggregate value of transaction:
______________________________________________________________________
5) Total fee paid:
______________________________________________________________________
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
______________________________________________________________________
2) Form, Schedule or Registration Statement No.:
______________________________________________________________________
3) Filing Party:
______________________________________________________________________
4) Date Filed:
______________________________________________________________________
<PAGE>
[LOGO OF eGAIN]
eGAIN COMMUNICATIONS
CORPORATION
455 West Maude Avenue
Sunnyvale, California 94086
(408) 212-3400
October 30, 2000
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
eGain Communications Corporation that will be held on November 20, 2000 at
1:00 P.M., at the Sheraton Sunnyvale located at 1100 North Mathilda Avenue,
Sunnyvale, California.
The formal notice of the Annual Meeting and the Proxy Statement have been
made a part of this invitation.
After reading the Proxy Statement, please mark, date, sign and return, at an
early date, the enclosed proxy in the enclosed prepaid envelope, to ensure
that your shares will be represented. YOUR SHARES CANNOT BE VOTED UNLESS YOU
SIGN, DATE AND RETURN THE ENCLOSED PROXY OR ATTEND THE ANNUAL MEETING IN
PERSON.
A copy of the eGain's 2000 Annual Report to Stockholders is also enclosed.
The Board of Directors and management look forward to seeing you at the
meeting.
Sincerely yours,
/s/ Ashutosh Roy
Ashutosh Roy
Chief Executive Officer
<PAGE>
eGAIN COMMUNICATIONS CORPORATION
----------------
Notice of Annual Meeting of Stockholders
to be held November 20, 2000
----------------
To the Stockholders of eGain Communications Corporation:
The Annual Meeting of Stockholders of eGain Communications Corporation, a
Delaware corporation ("eGain"), will be held at the Sheraton Sunnyvale located
at 1100 North Mathilda Avenue, Sunnyvale, California, on Monday, November 20,
2000, at 1:00 P.M., Pacific Time, for the following purposes:
1. To elect directors to serve until the 2001 Annual Meeting of
Stockholders and thereafter until their successors are elected and
qualified;
2. To consider and vote upon a proposal to amend eGain's Amended and
Restated Certificate of Incorporation to increase the number of shares
of common stock authorized for issuance from 50,000,000 shares to
100,000,000 shares;
3. To consider and vote upon a proposal to approve the conversion of Series
B preferred stock into Series A preferred stock;
4. To consider and vote upon a proposal to amend eGain's Amended and
Restated 1998 Stock Plan to increase the number of shares available for
grant thereunder from 6,500,000 shares to 8,500,000 shares;
5. To ratify appointment of Ernst & Young LLP as eGain's independent
auditors; and
6. To transact such other business as may properly come before the Annual
Meeting and any adjournment of the Annual Meeting.
Stockholders of record as of the close of business on September 25, 2000 are
entitled to notice of and to vote at the Annual Meeting and any adjournment
thereof. A complete list of stockholders entitled to vote at the Annual
Meeting will be available at eGain's offices, 455 West Maude Avenue,
Sunnyvale, California, for ten days before the meeting.
It is important that your shares are represented at this meeting. Even if
you plan to attend the meeting, we hope that you will promptly mark, sign,
date and return the enclosed proxy. This will not limit your right to attend
or vote at the meeting.
By Order of the Board of Directors
/s/ STANLEY F. PIERSON
Stanley F. Pierson
Secretary
Sunnyvale, California
October 30, 2000
<PAGE>
eGAIN COMMUNICATIONS CORPORATION
455 West Maude Avenue
Sunnyvale, California 94086
----------------
PROXY STATEMENT
----------------
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of eGain Communications Corporation, a Delaware corporation
("eGain"), of proxies in the accompanying form to be used at the Annual
Meeting of Stockholders of eGain to be held at the Sheraton Sunnyvale located
at 1100 North Mathilda Avenue, Sunnyvale, California, on Monday, November 20,
2000, at 1:00 P.M., Pacific Time, and any postponement or adjournment thereof
(the "Annual Meeting"). The shares represented by the proxies received in
response to this solicitation and not properly revoked will be voted at the
Annual Meeting in accordance with the instructions therein. A stockholder who
has given a proxy may revoke it at any time before it is exercised by filing
with the Secretary of eGain a written revocation or a duly executed proxy
bearing a later date or by voting in person at the Annual Meeting. On the
matters coming before the Annual Meeting for which a choice has been specified
by a stockholder by means of the ballot on the proxy, the shares will be voted
accordingly. If no choice is specified, the shares will be voted "FOR" the
election of the five nominees for director listed in this Proxy Statement and
"FOR" approval of the proposals referred to in Items 2, 3, 4, and 5, in the
Notice of Annual Meeting and described in this Proxy Statement.
Stockholders of record at the close of business on September 25, 2000 (the
"Record Date"), are entitled to vote at the Annual Meeting. As of the close of
business on that date, eGain had 35,702,900 shares of common stock, $0.001 par
value (the "common stock"), outstanding. The presence in person or by proxy of
the holders of a majority of eGain's outstanding shares constitutes a quorum
for the transaction of business at the Annual Meeting. Each holder of common
stock is entitled to one vote for each share held as of the Record Date.
Directors are elected by a plurality vote. The five nominees for director
who receive the most votes cast in their favor will be elected to serve as a
director. Except for Proposal 2, each of the other proposals submitted for
stockholder approval at the Annual Meeting will be decided by the affirmative
vote of the majority of the shares present in person or represented by proxy
at the Annual Meeting and entitled to vote on such proposal. Proposal 2 will
be decided by the affirmative vote of holders of a majority of the outstanding
shares of eGain common stock on the Record Date. Abstentions with respect to
any proposal are treated as shares present or represented and entitled to vote
on that proposal and thus have the same effect as negative votes. If a broker
which is the record holder of shares indicates on a proxy that it does not
have discretionary authority to vote on a particular proposal as to such
shares, or if shares are not voted in other circumstances in which proxy
authority is defective or has been withheld with respect to a particular
proposal, these non-voted shares will be counted for quorum purposes but are
not deemed to be present or represented for purposes of determining whether
stockholder approval of that proposal has been obtained.
The expense of printing, mailing proxy materials and solicitation of proxies
will be borne by eGain. eGain has retained the services of Corporate Investor
Communications, Inc., Carlstadt, New Jersey, to assist in the solicitation of
proxies at a cost of approximately $10,000. No additional compensation will be
paid to such persons for such solicitation. eGain will reimburse brokerage
firms and others for their reasonable expenses in forwarding solicitation
materials to beneficial owners of the common stock.
This Proxy Statement, the accompanying form of proxy and the Annual Report
to Stockholders for the fiscal year ended June 30, 2000, including financial
statements, are being mailed to stockholders on or about October 30, 2000.
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IMPORTANT
Please mark, sign and date the enclosed proxy and return it at your earliest
convenience in the enclosed postage-prepaid return envelope so that, whether
you intend to be present at the Annual Meeting or not, your shares can be
voted. This will not limit your rights to attend or vote at the Annual
Meeting.
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PROPOSAL 1
ELECTION OF DIRECTORS
Nominees
The Board of Directors proposes the election of five directors of eGain to
serve until the next annual meeting of stockholders and thereafter until their
successors are elected and qualified. If any nominee is unable or declines to
serve as director at the time of the Annual Meeting, an event not now
anticipated, proxies will be voted for any nominee designated by the Board of
Directors to fill the vacancy.
Names of the nominees and certain biographical information about them are
set forth below:
Ashutosh Roy, age 34, 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-services
company co-founded by Mr. Roy. From June 1994 to April 1995, Mr. Roy co-
founded Parsec Technologies, a call center company based in New Delhi, India.
From August 1988 to August 1992, Mr. Roy worked as software engineer at
Digital Equipment Corp. Mr. Roy holds a B.S. in Computer Science from the
Indian Institute of Technology, New Delhi, a Masters degree in Computer
Science from Johns Hopkins University and an MBA from Stanford University.
Gunjan Sinha, age 33, co-founded eGain and has served as a director of eGain
since September 1997 and as President of eGain since January 1, 1998. From May
1995 through April 1997, Mr. Sinha served as President of WhoWhere? Inc., an
Internet-services company co-founded by Mr. Sinha. Prior to co-founding
WhoWhere? Inc., Mr. Sinha was a developer of hardware for multiprocessor
servers at Olivetti Advanced Technology Center. In June 1994, Mr. Sinha co-
founded Parsec Technologies. Mr. Sinha holds a degree in Computer Science from
the Indian Institute of Technology, New Delhi, a Masters degree in Computer
Science from UC Santa Cruz, and a Masters degree in Engineering Management
from Stanford University.
Mark A. Wolfson, age 48, has served as a director of eGain since June 1998.
Mr Wolfson has served as a managing partner of Oak Hill Capital Management
since October 1998 and Vice President of Keystone, Inc. since September 1995.
Mr Wolfson has also served as an officer of Oak Hill Venture Partners since
August 1999, and, in addition to eGain, serves on the Boards of Directors of
Investment Technology Group, Financial Engines, DaVinci I, LLC, Integrated
Orthopaedics, Oreck Corp. and Caribbean Restaurants and on the Boards of
Advisors of Oak Hill Strategic Partners and FEP Capital Holdings. Mr Wolfson
has served as a member of the faculty at the Stanford Graduate School of
Business since 1977, where he has held various academic positions, including
Dean Witter Professor of Accounting and Finance and Associate Dean for
Academic Affairs. He has also taught at the Harvard Business School and the
University of Chicago and has been a Visiting Scholar at the Sloan School of
Management at Massachusetts Institute of Technology and the Hoover Institution
at Stanford University. Mr Wolfson has been a Research Associate at The
National Bureau of Economic Research since 1988.
David G. Brown, age 43, has served as a director of eGain since August 2000.
Mr. Brown has been a principal of Arbor Investors, LLC since August 1995 and a
Vice President of Keystone, Inc. since August 1993. Prior to joining Arbor
Investors, LLC, Mr. Brown was a Vice President in the Corporate Finance
Department of Salomon Brothers Inc from August 1985 to July 1993. Mr. Brown
serves on the Board of Directors of Bell & Howell, FEP Holdings, AER Energy
Resources, Emplanet, eScout.com, Lattice Communications, Lightning Finance,
MarketTools, MobileForce Technologies, NavLink, Sitara Networks and
WideOpenWest.
Phiroz P. Darukhanavala, age 52, has served as a member of eGain's Board of
Directors since September 2000. Dr. Darukhanavala has served in various
capacities with BP Amoco p.l.c. and The British Petroleum Company since 1975,
most recently as Vice President and Chief Technology Officer for Group Digital
business. Before assuming his current position, Dr. Darukhanavala was Director
of Global IT Services for the BP Group responsible for the rollout of the
Common Operating Environment project worldwide and IT Functional Chief for BP-
Exploration. Dr. Darukhanavala has also served as Chief Information Officer of
BP-Alaska and Director of BP-Exploration Business Systems. Dr. Darukhanavala
holds a Ph.D. and M.S. degrees in Operations Research from Case Western
Reserve University in Cleveland, Ohio.
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Board Meetings and Committees
The Board of Directors held 13 meetings during fiscal 2000. All directors
attended at least 75% of the aggregate number of meetings of the Board of
Directors and of the committees on which such directors serve.
The Board of Directors has appointed a Compensation Committee, a Stock
Option Committee and an Audit Committee.
The members of the Compensation Committee are Phiroz P. Darukhanavala and
Mark A. Wolfson. Dr. Darukhanavala joined the Compensation Committee in
September 2000 and therefore did not attend any meetings of the Compensation
Committee held in the fiscal year ended June 30, 2000. The Compensation
Committee held one meeting during fiscal 2000. The Compensation Committee's
functions are to assist in the implementation of, and provide recommendations
with respect to, general and specific compensation policies and practices of
eGain.
The members of the Stock Option Committee are Ashutosh Roy and Mr. Wolfson.
The Stock Option committee held four meetings during fiscal 2000. The Stock
Option Committee's functions are to grant options to eGain's employees and
other service providers, consistent with eGain's compensation policies and
practices.
The members of the Audit Committee are David G. Brown, Mr. Darukhanavala and
Mr. Wolfson. Mr. Brown and Mr. Darukhanavala joined the Audit Committee in
September 2000. The Audit Committee held two meetings during fiscal 2000. The
Audit Committee's functions are to review the scope of the annual audit,
monitor the independent auditor's relationship with eGain, advise and assist
the Board of Directors in evaluating the independent auditor's examination,
supervise eGain's financial and accounting organization and financial
reporting, and nominate, for approval of the Board of Directors, a firm of
certified public accountants whose duty it is to audit the financial records
of eGain for the fiscal year for which it is appointed.
Compensation of Directors
Directors of eGain do not currently receive any fees for service on the
Board of Directors. Directors are reimbursed for their expenses for each
meeting attended. Pursuant to the eGain's Amended and Restated 1998 Stock Plan
(the "Stock Plan") in September 1999 Mr. Wolfson received a grant of a fully
vested option to purchase 5,000 shares of common stock at an exercise price of
$12.00 per share. Pursuant to the Stock Plan, each non-employee director will
receive, if re-elected as a director at the Annual Meeting, an additional
option to purchase 5,000 shares of common stock at an exercise price equal to
the fair market value of the common stock on the date of grant. Such options
will vest on the first anniversary of the grant. In addition, Dr.
Darukhanavala received an option to purchase 100,000 shares at a price of
$8.8125 per share in connection with his joining eGain's Board of Directors in
September 2000. This option vests over four years.
The Board of Directors recommends a vote "FOR" election as director of the
nominees set forth above.
4
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PROPOSAL 2
PROPOSAL TO AMEND THE COMPANY'S CERTIFICATE OF INCORPORATION
TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
The Board of Directors has approved the amendment of eGain's Amended and
Restated Certificate of Incorporation (the "Certificate of Incorporation") to
increase the number of authorized shares of common stock from 50,000,000 to
100,000,000. The Board of Directors recommends that eGain's stockholders
approve this amendment.
As of September 25, 2000, eGain had 35,702,900 shares of common stock
outstanding. An additional 9,241,241 shares were reserved for future issuance
under eGain's stock plans, of which 6,955,461 shares were covered by
outstanding options and 2,285,780 shares were available for future grant or
purchase (including 2,000,000 shares subject to stockholder approval pursuant
to Proposal 4, which is described below). In addition, approximately 4,587,476
shares were reserved for conversion of Series A preferred stock and exercise
of warrants issued in connection with the private placement of eGain's
preferred stock in August 2000. In connection with proposed conversion of
Series B preferred stock into Series A preferred stock (subject to stockholder
approval pursuant to Proposal 3 which is described below), eGain intends to
reserve additional shares of common stock issuable upon conversion of such
Series A preferred stock.
The Board of Directors believes that the authorized common stock remaining
available is not sufficient to enable eGain to respond to potential business
opportunities and to pursue important objectives that may be anticipated.
Accordingly, the Board of Directors believes that it is in eGain's best
interests to increase the number of authorized shares of common stock as
described above. The Board of Directors also believes that the availability of
such shares will provide eGain with the flexibility to issue common stock for
proper corporate purposes that may be identified by the Board of Directors
from time to time, such as stock dividends (including stock splits in the form
of stock dividends), financings, acquisitions, or strategic business
relationships. Further, the Board of Directors believes the availability of
additional shares of common stock will enable eGain to attract and retain
talented employees through the grant of stock options and other stock-based
incentives. An important part of eGain's business strategy is to expand its
product offerings, distribution, and technological capabilities, including
through the acquisition of assets and businesses deemed synergistic with
eGain's operations. eGain does not currently have any agreements with respect
to future acquisitions, however, eGain completed two acquisitions during its
most recent fiscal year and may from time to time review other acquisition
opportunities. In addition, upon receipt of certain Indian regulating
approvals, eGain has agreed to acquire Nitman Software Pvt. Ltd., an ecommerce
software development company located in Pune, India. eGain anticipates issuing
23,810 shares of common stock to the stockholders of Nitman in connection with
the acquisition. The issuance of additional shares of common stock may have a
dilutive effect on earnings per share and, for a person who does not purchase
additional shares to maintain his or her pro rata interest, on a stockholder's
percentage voting power.
The authorized shares of common stock in excess of those issued will be
available for issuance at such times and for such corporate purposes as the
Board of Directors may deem advisable without further action by eGain's
stockholders, except as may be required by applicable laws or the rules of any
stock exchange or national securities association trading system on which the
securities may be listed or traded. Upon issuance, such shares will have the
same rights as the outstanding shares of common stock. Holders of common stock
do not have preemptive rights. The Board of Directors does not intend to issue
any common stock except on terms which the Board deems to be in the best
interests of eGain and its then-existing stockholders.
The Board of Directors does not recommend this proposed amendment with the
intent to use the ability to issue additional common stock to discourage
tender offers or takeover attempts. However, the availability of authorized
common stock for issuance could render more difficult or discourage a merger,
tender offer, proxy contest or other attempt to obtain control of eGain. The
proposed amendment is not in response to any effort on the part of any party
to accumulate material amounts of common stock or to acquire control of eGain
by means
5
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of merger, tender offer, proxy contest or otherwise, or to change eGain's
management. In addition, the proposal is not part of any plan by management to
recommend a series of similar amendments to the Board of Directors and the
stockholders.
The approval of the amendment to the Certificate of Incorporation requires
the affirmative vote of holders of a majority of the outstanding shares of
common stock of eGain.
The Board of Directors recommends a vote "FOR" amendment of the Certificate
of Incorporation increasing the number of authorized shares of common stock.
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PROPOSAL 3
PROPOSAL TO APPROVE THE CONVERSION OF
SERIES B PREFERRED STOCK INTO SERIES A PREFERRED STOCK
The Board of Directors recommends a vote "FOR" the proposal to approve the
conversion of Series B preferred stock into Series A preferred stock.
Summary of Transaction
On August 22, 2000, eGain issued pursuant to a Securities Purchase Agreement
dated August 8, 2000 (the "Purchase Agreement") (i) an aggregate of 35.11
shares of its 6.75% Series A Cumulative Convertible Preferred Stock (the
"Series A Preferred Stock") at a price of $100,000 per share along with the
Warrants referred to below, and (ii) an aggregate of 849.89 shares of its of
6.75% Series B Cumulative Convertible Preferred Stock (the "Series B Preferred
Stock") at a price of $100,000 per share along with the Warrants referred to
below, in a private placement to certain investors (the "Investors"). The net
proceeds of the offering, after expenses, were approximately $82.5 million.
eGain intends to use such proceeds primarily for general corporate purposes,
including working capital.
The rights, preferences and privileges of the Series A Preferred Stock and
the Series B Preferred Stock are set forth in the Certificate of Designation
of 6.75% Series A Cumulative Convertible Preferred Stock (the "Series A
Certificate") and the Certificate of Designation of 6.75% Series B Cumulative
Convertible Preferred Stock (the "Series B Certificate"), filed with the
Delaware Secretary of State and attached as Annex A and Annex B, respectively.
Each share of Series A Preferred Stock is convertible into shares of Common
Stock of eGain as further described below in the section entitled "Rights of
the Series A Preferred Stock." By the terms of the Series B Certificate, each
share of Series B Preferred Stock is convertible into shares of Series A
Preferred Stock, if eGain obtains stockholder approval, or into shares of
Series C Cumulative Redeemable Preferred Stock (the "Series C Preferred
Stock"), if eGain does not obtain stockholder approval, as further described
below in the section entitled "Rights of the Series B Preferred Stock." The
rights, preferences and privileges of the Series C Preferred Stock are set
forth in the Certificate of Designation of 6.75% Series C Cumulative
Redeemable Preferred Stock (the "Series C Certificate"), filed with the
Delaware Secretary of State and attached as Annex C.
In addition, Investors received warrants to purchase 3,826,322 shares of
Common Stock (the "Warrants"). The warrants expire on August 22, 2005 and have
an initial exercise price of $9.2517 per share (the "Exercise Price"). The
Exercise Price is subject to adjustment upon the occurrence of certain
dilutive events, including a one time reset on August 22, 2001 if 122% of the
average closing bid price per share of the Common Stock on the twenty (20)
consecutive trading days immediately preceding and including August 22, 2001
is less then the Exercise Price at the time in effect. In such event, the
Exercise Price would be adjusted to the greater of (i) 122% of the average
closing bid price per share of Common Stock on the twenty (20) consecutive
trading days immediately preceding and including August 22, 2001 or (ii)
$5.6875. If the Warrants are exercised eGain intends to use the proceeds
primarily for general corporate purposes, including working capital.
The terms of the Preferred Stock and the Warrants are complex and are
summarized only briefly in this Proxy Statement. Stockholders are referred to
the full description of such securities contained in eGain's Report on Form 8-
K filed with the Securities and Exchange Commission on August 15, 2000, a copy
of which is available without change upon stockholder request to Eric N. Smit,
eGain Communication Corporation, 455 West Maude Avenue, Sunnyvale, California,
94086. eGain has agreed to prepare and file with the Securities and Exchange
Commission a registration statement covering the resale of the shares of
Common Stock issuable upon conversion of the Series A Preferred Stock and upon
exercise of the Warrants and, if this Proposal 3 is not passed, the resale of
the shares of Series C Preferred Stock issuable upon the conversion of the
Series B Preferred Stock. Such registration obligations are set forth in the
Registration Rights Agreement contained in such Report on Form 8-K.
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Summary of Approval Required
Nasdaq Rule 4460 generally requires stockholder approval for the issuance of
securities representing 20% or more of an issuer's outstanding voting
securities at the time of the issuance. Under the terms of the Purchase
Agreement, the Board of Directors is soliciting stockholder approval for the
conversion of the Series B Preferred Stock into Series A Preferred Stock,
since the aggregate number of shares of Common Stock issuable upon conversion
or exercise of the Preferred Stock and the Warrants issued under the agreement
is limited by this rule. If eGain obtains stockholder approval, conversion of
the Series B Preferred Stock into Series A Preferred Stock and the ultimate
issuance of Common Stock upon exercise of the Series A Preferred will no
longer be subject to stockholder approval under Nasdaq Rule 4460. If
stockholder approval is not obtained, eGain may be required to issue shares of
Series C Preferred Stock to the Investors upon conversion of Series B
Preferred Stock into shares of Series C Preferred Stock.
Rights of the Series A Preferred Stock
The Series A Preferred Stock has a liquidation preference of $100,000 per
share which increases and cumulates on a daily basis at an annual rate of
6.75% from August 8, 2000 (the "Series A Liquidation Value"), compounded on a
semi-annual basis. The amount by which the Series A Liquidation Value accrues
is the "Series A Accreted Amount". The Series A Preferred Stock is entitled to
cash dividends only when and if declared by the Board of Directors. In the
event of a liquidation, dissolution or winding up of eGain, the holders of
shares of Series A Preferred Stock will be entitled to receive, prior to any
payments made to holders of Common Stock, the greater of (i) the Series A
Liquidation Value plus any declared but unpaid dividends on the Series A
Preferred Stock or (ii) the amount the holders of Series A Preferred Stock
would receive if they had converted their shares into Common Stock immediately
prior to the liquidation, dissolution or winding up. If eGain enters into a
transaction pursuant to which eGain sells or transfers all or substantially
all of its assets or it enters into a merger with another company, then at the
option of the holder of Series A Preferred Stock, (i) each share of Series A
Preferred Stock may be converted into convertible equity securities of the
entity acquiring eGain or (ii) each share of Series A Preferred Stock may
convert into shares of Common Stock based on the Series A Liquidation Value,
calculated as of the later of (x) the Closing Date of the transaction or (y)
August 8, 2003.
Each share of Series A Preferred Stock is convertible at the option of the
holder into a number of shares of Common Stock determined by dividing (i)
Series A Liquidation Value plus any declared but unpaid dividends by (ii) the
conversion price for Series A Preferred Stock then in effect (the "Series A
Conversion Price"). The initial Series A Conversion Price of $9.2517 is
subject to adjustment upon the occurrence of certain dilutive events, and is
subject to a one time reset on August 8, 2001 if 122% of the average closing
bid price per share of the Common Stock on the 20 consecutive trading days
immediately preceding and including August 8, 2001 is less than $9.2517. In
such event, the Series A Conversion Price will be adjusted to the greater of
(i) 122% of the average closing bid price per share of Common Stock on the 20
consecutive trading days immediately preceding and including August 8, 2001
("Average Trading Price") or (ii) $5.6875.
At the current Series A Conversion Price of $9.2517 as of September 25,
2000, 382,890 shares of Common Stock (including the Series A Accreted Amount
through September 25, 2000 of 3,369 shares) would be issuable if all shares of
Series A Preferred Stock were converted into Common Stock. Based upon the
lowest possible one time reset price of $5.6875 (which would result only if
the Average Trading Price were below $4.6619), the maximum number of shares of
Common Stock issuable on August 8, 2001 upon conversion of the Series A
Preferred Stock, including 42,675 shares accreted through such date, would be
660,031 shares. The issuance of the shares of Common Stock upon conversion of
the currently outstanding Series A Preferred Stock does not require
stockholder approval because the issuance would not exceed 20% of eGain's
outstanding shares as of August 8, 2000.
If not sooner converted, eGain has the option to convert the Series A
Preferred Stock into shares of Common Stock after August 8, 2003 if (i) the
closing bid price of the Common Stock on 20 of the 30 consecutive trading days
prior to the day eGain sends a notice requesting conversion is equal to or
greater than 250% of initial
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Series A Conversion Price, (ii) a registration covering the resale of the
Series A Preferred Stock and the Common Stock issuable upon conversion is in
effect and (iii) the stockholder approval sought in this proxy statement is
obtained by November 30, 2000.
If not sooner converted, on August 8, 2005 eGain must either, at its option,
(i) redeem each outstanding share of Series A Preferred Stock, at a redemption
price equal to the Series A Liquidation Value plus any declared but unpaid
dividends or (ii) convert the Series A Preferred Stock into Common Stock at a
price per share equal to 95% of the average closing bid price per share of the
Common Stock on the 20 consecutive trading days immediately prior to the
redemption date.
Rights of the Series B Preferred Stock
The Series B Preferred Stock has a liquidation preference of $100,000 per
share which increases and cumulates on a daily basis at an annual rate of
6.75% from August 8, 2000 (the "Series B Liquidation Value"), compounded on a
semi-annual basis. The amount by which the Series B Liquidation Value accrues
is the "Series B Accreted Amount". In the event of a liquidation, dissolution
or winding up of eGain, the holders of shares of Series B Preferred Stock will
be entitled to receive, prior to any payment made to holders of Common Stock,
the greater of (i) the Series B Liquidation Value or (ii) the amount the
holders of Series B Preferred Stock would receive if they had converted their
shares into Common Stock immediately prior to the liquidation, dissolution or
winding up. If eGain enters into a transaction pursuant to which it sells or
transfers all or substantially all of its assets or it enters into a merger or
consolidation with another company, then at the option of the holder of Series
B Preferred Stock, (i) each share of Series B Preferred Stock may be converted
into convertible equity securities of the entity acquiring eGain or (ii) each
share of Series B Preferred Stock may be converted into Common Stock based on
the Series B Liquidation Value calculated as of the later of (x) the Closing
Date of the transaction or (y) August 8, 2003.
The Series B Certificate provides that each share of the Series B Preferred
Stock will automatically convert into one share of Series A Preferred Stock if
the stockholders approve such conversion. If the stockholders do not approve
of the conversion of Series B Preferred Stock into Series A Preferred Stock on
or prior to November 30, 2000, then by the terms of the Series B Certificate
each share of Series B Preferred Stock becomes convertible at the option of
the holder of Series B Preferred Stock into shares of Series C Preferred Stock
at the Series B Conversion Price then in effect (the "Series B Conversion
Price").
If the Series B Preferred Stock converted into Series A Preferred Stock, at
the current Series A Conversion Price of $9.2517, as of September 25, 2000,
9,267,833 shares of Common Stock (including the Series B Accreted Amount
through September 25, 2000 of 81,544 shares) would be issuable if all shares
of Series B Preferred Stock were converted. Based upon the lowest possible one
time reset price of $5.6875 (which would only result if the Average Trading
Price were below $4.6619), the maximum number of shares of Common Stock
issuable on August 8, 2001 upon conversion of the Series A Preferred into
which the Series B Preferred is convertible (including the Series B Preferred
Accreted Amount through such date of 1,032,952 shares) would be 15,976,036
shares.
If this Proposal 3 is not approved, the Series B Certificate provides that
each share of Series B Preferred Stock is convertible into a number of shares
of Series C Preferred Stock as is determined by dividing (i) the Series B
Liquidation Value plus any declared but unpaid dividends by (ii) the Series B
Conversion Price then in effect. The initial Series B Conversion Price of
$92.517 per share is subject to adjustment upon the occurrence of certain
dilutive events and is subject to a one time price reset on August 8, 2001 if
1220% of the average closing bid price per share of Common Stock on the
20 consecutive trading days immediately preceding and including August 8, 2001
is less than $92.517. In such event, the Series B Conversion Price will be
adjusted to the greater of (i) 1220% of the average closing bid price per
share of Common Stock on the 20 consecutive trading days immediately preceding
and including August 8, 2001 or (ii) $56.875.
If not sooner converted into either shares of Series A Preferred or Series C
Preferred Stock, on August 8, 2005 eGain must either, at its option, (i)
redeem each outstanding share of Series B Preferred Stock, at a
9
<PAGE>
redemption price equal to the Series B Liquidation Value plus any declared but
unpaid dividends or (ii) convert the Series B Preferred Stock into shares of
Series C Preferred Stock at a price equal to 950% of the average closing bid
price per share of Common Stock on the 20 consecutive trading days immediately
prior to the redemption date.
The Series C Preferred Stock's rights, preferences and privileges are as set
forth in the Series C Certificate. The Series C Preferred Stock is entitled to
cumulative dividends at the rate of (i) 12% of (a) the average closing bid
price per share of Common Stock on the 20 consecutive trading days immediately
prior to the issuance of the Series C Preferred Stock multiplied by (b) 10
(the "Series C Stated Value") for a period of 180 days after the initial
issuance of the Series C Preferred Stock, and, (ii) 15% of the Series C Stated
Value thereafter. In addition, the Series C Preferred Stock has a liquidation
preference equal to the Series C Stated Value. In the event of a liquidation,
dissolution or winding up of eGain, the holders of shares of Series C
Preferred Stock will be entitled to receive, prior to any payment made to the
holders of shares of Common Stock, the Series C Stated Value plus an amount
equal to all accrued but unpaid dividends (the "Series C Liquidation Value").
The Series C Preferred is redeemable, at the option of eGain or the holder,
at a redemption price equal to the greater of (i) 101% of the Series C
Liquidation Value then in effect or (ii) the average closing bid price per ten
shares of eGain Common Stock on the 20 consecutive trading days prior to the
redemption date.
The table below summarizes the voting, dividend, liquidation and redemption
rights of the Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock. The table is only a summary and stockholders are referred to
a full description of such securities in the Series A Certificate, Series B
Certificate and Series C Certificate, each attached as Annex A, Annex B and
Annex C, respectively.
<TABLE>
<S> <C>
6.75% Series A 6.75% Series B Series C Cumulative
Cumulative Cumulative Redeemable Preferred
Convertible Convertible Stock
Preferred Stock Preferred Stock ---------------------
--------------------- ---------------------
Voting. No voting rights . No voting rights . No voting rights
Rights except the right except the right except the right
to vote on certain to vote on certain to vote on certain
protective protective protective
provisions provisions provisions
Dividend
Rights
. Dividends payable . Dividends payable . Dividends accrue,
only when and if only when and if whether or not
declared by the declared by the declared, at 12%
Board of Directors Board of Directors per year for 180
days after August
. Entitled to . Entitled to 8, 2000 and
participate with participate with thereafter at 15%
common stock if common stock if per year
dividends are dividends are
declared on common declared on common . Entitled to
stock stock participate with
common stock if
dividends are
declared on common
stock
Liquidation
Rights
. Liquidation . Liquidation . Liquidation
preference of preference of preference equal
$100,000 $100,000 to 10 times the
accumulates on a accumulates on a average trading
daily basis at a daily basis at a price of eGain
rate of 6.75%; rate of 6.75%; common stock for
compounded semi- compounded semi- the 20 consecutive
annually annually trading days
immediately prior
. Upon a liquidation . Upon a liquidation to issuance of the
is entitled to is entitled to Series C Preferred
receive, before receive, before
any junior ranked any junior ranked . Upon a liquidation
securities, the securities, the is entitled to
greater of the greater of the receive, before
liquidation liquidation any junior ranked
preference preference securities, the
(including the (including the liquidation
amount by which amount by which preference of the
the liquidation the liquidation Series C Preferred
preference has preference has (including all
accumulated and accumulated and accumulated but
any declared but any declared but unpaid dividends)
unpaid dividends) unpaid dividends)
or an amount equal or an amount equal
to the amount the to the amount the
Series A Preferred Series B Preferred
would receive if would receive if
converted into converted into
common stock prior common stock prior
to the liquidation to the liquidation
event event
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
6.75% Series A 6.75% Series B Series C Cumulative
Cumulative Cumulative Redeemable Preferred
Convertible Convertible Stock
Preferred Stock Preferred Stock ---------------------
--------------------- ---------------------
Redemption
Rights
. On August 8, 2005, . On August 8, 2005, . eGain can redeem
eGain will be eGain will be the Series C
obligated to obligated to Preferred at any
either redeem each either redeem each time at a price
outstanding share outstanding share equal to the
at a price equal at a price equal greater of (i)
to $100,000 plus to $100,000 plus 101% of the
the amount by the amount by liquidation
which the which the preference,
liquidation liquidation including all
preference has preference has accumulated but
accumulated (and accumulated (and unpaid dividends,
any declared but any declared but or (ii) 10 times
unpaid dividends), unpaid dividends), the average
or convert each or convert each trading price of
share into common share into common eGain common stock
stock at a stock at a for the
conversion price conversion price immediately
equal to 95% of equal to 950% of preceding 20
the average the average consecutive
trading price of trading price of trading days (plus
eGain common stock eGain common stock all accumulated
for the for the but unpaid
immediately immediately dividends)
preceding 20 preceding 20
trading days trading days . Holders of Series
C Preferred may
request a
redemption of
their shares at
any time at a
price equal to the
greater of
(i) 101% of the
liquidation
preference,
including all
accumulated but
unpaid dividends,
or (ii) 10 times
the average
trading price of
eGain common stock
for the
immediately
preceding 20
consecutive
trading days (plus
all of the
accumulated but
unpaid dividends)
</TABLE>
A vote for this Proposal will result in the automatic conversion of all
shares of Series B Preferred Stock into shares of Series A Preferred Stock.
Failure to obtain approval of this Proposal may lead to the conversion of the
shares of Series B Preferred Stock into shares of Series C Preferred Stock, as
holders of the shares of Series B Preferred Stock could then elect to convert.
Attached as Annex D are two sets of unaudited pro forma balance sheets of
eGain as of June 30, 2000, the first of which assumes eGain has obtained
stockholder approval for this Proposal and reflects the conversion of all
Series B Preferred Stock into Series A Preferred Stock, and the second of
which assumes that eGain has not obtained stockholder approval for this
Proposal and assumes that all holders of Series B Preferred Stock have elected
to convert such shares into Series C Preferred Stock.
Application of Nasdaq Rule 4460; Stockholder Approval
Nasdaq Rule 4460, which is applicable to eGain because its Common Stock is
presently listed on the Nasdaq Stock Market, sets forth corporate governance
standards for the Nasdaq Stock Market. Section (i) of Rule 4460 provides:
(i) "Shareholder Approval
(1) Each NNM [Nasdaq National Market] issuer shall require shareholder
approval of a plan or arrangement under subparagraph (A) below or, prior to
the issuance of designated securities under subparagraph (B), (C) or (D)
below:
(D) in connection with a transaction other than a public offering
involving:
(i) the sale or issuance by the issuer of common stock (or securities
convertible into or exercisable for common stock) at a price less
than the greater of book or market value which together with sale by
officers, directors or substantial shareholders of the company
equals 20% or more of common stock or 20% or more of the voting
power outstanding before the issuance; or
(ii) the sale or issuance by the company of common stock (or securities
convertible into or exercisable for common stock) equal to 20% or
more of the common stock or 20% or more of the voting power
outstanding before the issuance for less than the greater of book
or market value of the stock . . .
11
<PAGE>
(6) Where shareholder approval is required, the minimum vote which will
constitute shareholder approval shall be a majority of the total votes cast on
the proposal in person or by proxy."
As of August 8, 2000, eGain had issued and outstanding 36,190,763 shares of
Common Stock. Accordingly, eGain is seeking stockholder approval for the
conversion of the Series B Preferred Stock into Series A Preferred Stock,
which would result in the issuance of preferred stock and warrants that are
convertible into or exercisable for an aggregate of more than 7,238,152 shares
of Common Stock.
The actual number of shares of Common Stock that would be issuable upon
conversion of Series A Preferred Stock issued upon conversion of the
outstanding Series B Preferred Stock is not be determinable until the
conversion(s) take place. However, by way of illustration (i) based on the
current Series A Conversion Price of $9.2517 per share as of September 25,
2000 such shares of Series B Preferred Stock would ultimately convert into an
additional 9,267,833 shares of Common Stock (in addition to the 382,890 shares
of Common Stock which can be issued upon the conversion of the currently
outstanding 35.11 shares of Series A Preferred Stock); and (ii) based on the
lowest possible one-time reset price of $5.6875, on August 8, 2001, a maximum
of 15,976,036 additional shares of Common Stock (in addition to the 660,031
shares of Common Stock which would be issuable upon the conversion of the
current outstanding 35.11 shares of Series A Preferred Stock).
Oak Hill Venture Fund I, L.P., Oak Hill Capital Partners, L.P., FW Investors
V, L.P. and Oak Hill Capital Management Partners, L.P. (collectively the "Oak
Hill Entities") purchased 19.44 shares of Series A Preferred Stock and 470.55
shares of Series B Preferred Stock. Approval of Proposal 3 may result in the
Oak Hill Entities holding a substantial portion of eGain's voting Common
Stock. In this case, the Oak Hill Entities would hold shares of Preferred
Stock convertible into 5,342,640 shares of Common Stock (including the Series
A Accreted Amount and Series B Accreted Amount through September 25, 2000).
Furthermore, as of August 8, 2001, when the Series A Conversion Price is
subject to the one time reset, the Oak Hill Entities could own up to a maximum
of 9,216,381 shares of Common Stock upon conversion of the Series A Preferred
Stock (assuming the lowest possible conversion price of $5.6875 and including
the Series A Accreted Amount and Series B Accreted Amount through August 8,
2001). Assuming conversion of all Preferred Stock into Common Stock but no
additional exercises or redemptions of eGain's voting stock following
September 25, 2000, such 9,216,381 shares of Common Stock would represent
approximately 17.6% of the outstanding voting stock of eGain as of August 8,
2001.
Under the terms of the Purchase Agreement, the Oak Hill Entities may not,
without the approval of eGain's Board of Directors, purchase any additional
voting securities of eGain until the earlier of August 22, 2003, or such time
as the Oak Hill Entities have disposed of all securities acquired under the
Purchase Agreement.
The terms of the Series B Certificate provide that stockholder approval is
required to allow the Shares of Series B Preferred Stock to automatically
convert shares of Series A Preferred Stock. If stockholder approval of this
proposal is not obtained, eGain will be required to convert the shares of
Series B Preferred Stock into shares of Series C Preferred Stock, should the
holders of Series B Preferred Stock require such conversion.
The Board believes it would be in the best interests of eGain to provide
that Common Stock will be issuable to the Investors who have converted their
shares of Series B Preferred Stock into shares of Series A Preferred Stock,
rather than requiring eGain to convert the Series B Preferred Stock into
Series C Preferred Stock. The Board believes that the conversion of the shares
of Series B Preferred Stock into shares of Series C Preferred Stock could
result in a forced dividend payment or redemption at a time when eGain might
not have, and could not raise, the cash necessary to pay the cumulative
dividends set forth in the Series C Certificate or redeem the shares of Series
C Preferred Stock if a redemption is required. The Board also desires to have
the ability to retain cash for the working capital purposes.
12
<PAGE>
Vote Required
The affirmative vote of the holders of a majority of the Common Stock
present or represented and entitled to vote at the meeting is required to
approve the proposal to allow the conversion of the outstanding shares of
Series B Preferred Stock into shares of Series A Preferred Stock. An
abstention from voting by a stockholder present in person or represented by
proxy at the meeting has the same effect as a vote against the matter.
The Board of Directors recommends a vote "FOR" the approval to allow the
conversion of the outstanding shares of Series B Preferred Stock into shares
of Series A Preferred Stock that are convertible into Common Stock.
Transaction Fees
The Oak Hill Entities invested $49.0 million in the August 2000 private
placement and Gunjan Sinha, the President and a director of eGain, invested
$5.0 million. See "Related Party Transactions." In connection with the private
placement, eGain (i) paid to FW Investors V, L.P. and Oak Hill Capital
Management, Inc. transaction fees of $1,203,125 and $1,421,875, respectively;
(ii) paid to FleetBoston Robertson Stephens Inc. a transaction fee of
$2,485,000, and issued a warrant to purchase 101,603 shares of Common Stock
with terms identical to those of the Warrants issued to Investors, in
connection with its services as a placement agent and for providing a
financial evaluation of the transaction; and (iii) paid to Donaldson, Lufkin &
Jenrette as independent advisors to the committee of independent directors, a
fee of $625,000.
13
<PAGE>
PROPOSAL 4
PROPOSAL TO AMEND THE eGAIN COMMUNICATIONS CORPORATION 1998 STOCK PLAN
In July and September 2000, the Board of Directors approved amendments to
eGain's Amended and Restated 1998 Stock Plan (the "1998 Stock Plan"), subject
to the approval of eGain's stockholders at the Annual Meeting. The following
summary of the principal features of the 1998 Stock Plan is qualified by
reference to the terms of the 1998 Stock Plan, a copy of which is available
without charge upon stockholder request to Eric N. Smit, eGain Communications
Corporation, 455 West Maude Avenue, Sunnyvale, California 94086.
Summary of Amendments
The amendments to the 1998 Stock Plan approved by the Board of Directors and
submitted for stockholder approval provide for an increase in the number of
shares of common stock reserved for issuance under the 1998 Stock Plan by an
aggregate of 2,000,000 shares, from 6,500,000 to 8,500,000 shares.
1998 Stock Plan
The 1998 Stock Plan was adopted by the Board of Directors in June 1998 and
approved by eGain's stockholders thereafter. The purpose of the 1998 Stock
Plan is to assist eGain in the recruitment, retention and motivation of
employees and of independent contractors who are in a position to make
material contributions to eGain's progress. The 1998 Stock Plan offers a
significant incentive to the employees and independent contractors of eGain by
enabling such individuals to acquire the common stock, thereby increasing
their proprietary interest in the growth and success of eGain.
The 1998 Stock Plan provides for the direct award or sale of shares of
common stock and for the grant of both incentive stock options ("ISO") to
purchase common stock intended to qualify for preferential tax treatment under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and
nonstatutory stock options ("NSO") to purchase common stock that do not
qualify for such treatment under the Code. All employees (including officers)
of eGain or any subsidiary and any independent contractor who performs
services for eGain or a subsidiary are eligible to purchase shares of common
stock and to receive awards of shares or grants of NSOs. Only employees are
eligible to receive grants of ISOs. As of June 30, 2000, 587 employees were
eligible to be considered for the grant of options under the 1998 Stock Plan.
A total of 8,500,000 shares of common stock (including 2,000,000 shares
subject to stockholder approval at the Annual Meeting) have been reserved for
issuance under the 1998 Stock Plan. If any option granted under the 1998 Stock
Plan expires or terminates for any reason without having been exercised in
full, then the unpurchased shares subject to that option will once again be
available for additional option grants. As of June 30, 2000, eGain had
outstanding options under the 1998 Stock Plan to purchase an aggregate of
3,868,000 shares of common stock at exercise prices ranging from $0.02 to
$47.63 per share, or a weighted average per share exercise price of $13.94. As
of September 25, 2000, a total of 2,259,000 shares of common stock (including
2,000,000 shares subject to stockholder approval at the Annual Meeting) were
available for future issuance under the 1998 Stock Plan.
The Stock Option Committee has not made any determination with respect to
future awards under the 1998 Stock Plan, and any allocation of such awards
will be made only in accordance with the provisions of the 1998 Stock Plan,
including the additional shares of stock that the stockholders are being asked
to approve. eGain believes that the granting of options is necessary to
attract the highest quality personnel as well as to reward and thereby retain
existing key personnel. Moreover, the attraction and retention of such
personnel is essential to the continued progress of eGain which ultimately is
in the interests of eGain's stockholders.
As of June 30, 2000, the following persons or groups had in total, received
options to purchase shares of common stock under the 1998 Stock Plan as
follows: (i) the Chief Executive Officer and the other executive officers
named in the Summary Compensation Table: Mr. Roy, no shares, Mr. Sinha, no
shares, Ms. O'Shea,
14
<PAGE>
165,000 shares, Mr. Kedlaya, 250,000 shares, Mr. Klann, 136,225 shares, and
Mr. Rosenberg, 150,000 shares; (ii) all current executive officers of eGain as
a group: 1,681,192 shares; (iii) all current directors who are not executive
officers as a group: 5,000 shares; (iv) each nominee for director (other than
the two directors listed in (i) above): Mr. Brown, no shares, Dr.
Darukhanavala, no shares and Mr. Wolfson, 5,000 shares; and (v) all employees
of eGain, including all current officers who are not executive officers, as a
group: 5,342,788 shares.
Administration
The 1998 Stock Plan is administered by the Board of Directors and the Stock
Option Committee. Subject to the limitations set forth in the 1998 Stock Plan,
the Stock Option Committee has the authority to determine, among other things,
to whom options will be granted and shares will be sold, the number of shares,
the term during which an option may be exercised and the rate at which the
options may be exercised and the shares may vest.
Terms of Options and of Shares Offered for Sale
The maximum term of each option that may be granted under the 1998 Stock
Plan is 10 years. Stock options granted under the 1998 Stock Plan must be
exercised by the optionee before the earlier of the expiration of such option
or the date 90 days after termination of the optionee's employment, except
that the period may be extended on certain events including death and
termination of employment due to disability.
The exercise price under each option will be established by the Stock Option
Committee; however, the exercise price of an ISO cannot be lower than the fair
market value of the common stock on the date of grant and the exercise price
of a NSO may not be less than the par value per share of the common stock. On
September 25, 2000, the closing sale price per share for the common stock on
the Nasdaq National Market was $8.8125. The exercise price must be paid in
full at the time of exercise. Under the 1998 Stock Plan, the exercise price is
payable in cash or, in certain circumstances, common stock or by promissory
note. The 1998 Stock Plan also allows an optionee to pay the exercise price by
giving "exercise/sale" or "exercise/pledge" directions. If exercise/sale
directions are given, a number of option shares sufficient to pay the exercise
price and any withholding taxes is issued to a securities broker selected by
eGain, who, in turn, sells the shares in the open market. The broker remits
the exercise price and any withholding taxes to eGain from the proceeds of the
sale, and the optionee receives any remaining shares or cash. If
exercise/pledge directions are given, the option shares are issued directly to
a securities broker or other lender selected by eGain. The broker or other
lender will hold the shares as security and will extend credit for up to 50%
of their market value. The loan proceeds will be paid to eGain to the extent
necessary to pay the exercise price and any withholding taxes. Any excess loan
proceeds may be paid to the optionee. If the loan proceeds are insufficient to
cover the exercise price and withholding taxes, the optionee will be required
to pay the deficiency to eGain at the time of exercise.
The terms of any sale of shares of common stock under the 1998 Stock Plan
will be set forth in a common stock purchase agreement to be entered into
between eGain and each purchaser. The Stock Option Committee will determine
the terms and conditions of such stock purchase agreements, which need not be
identical. The purchase price for shares of common stock sold under the 1998
Stock Plan may not be less than the par value of such shares. The purchase
price may be paid, at the Stock Option Committee's discretion, with a full-
recourse promissory note secured by the shares, except that the par value of
the shares must be paid in cash. Shares may also be awarded under the 1998
Stock Plan in consideration of services rendered prior to the award, without a
cash payment by the recipient.
Options may have such terms and be exercisable in such manner and at such
times as the Stock Option Committee may determine. Common stock transferred
pursuant to the 1998 Stock Plan (including shares acquired upon the exercise
of certain options) may be subject to repurchase by eGain in the event that
any applicable vesting conditions are not satisfied. A holder of shares
transferred under the 1998 Stock Plan has the same voting, dividend and other
rights as eGain's other stockholders.
15
<PAGE>
Amendment and Termination
The 1998 Stock Plan may be amended or terminated at any time by the Board of
Directors, subject to applicable laws.
Effect of Certain Corporate Events
In the event of a subdivision of the outstanding common stock or a
combination or consolidation of the outstanding common stock (by
reclassification or otherwise) into a lesser number of shares, a spin-off or a
similar occurrence, or declaration of a dividend payable in common stock, in
cash, the Stock Option Committee will make adjustments in the number and/or
exercise price of options and/or the number of shares available under the 1998
Stock Plan, as appropriate.
In the event of a merger or other reorganization, outstanding options will
be subject to the agreement of merger or reorganization. Such agreement will
provide for the assumption of outstanding options by the surviving corporation
or its parent, for their continuation by eGain (if eGain is the surviving
corporation), for payment of a cash settlement equal to the difference between
the amount to be paid for one share under the agreement of merger or
reorganization and the exercise price for each option, or for the acceleration
of the exercisability of each option followed by the cancellation of options
not exercised, in all cases without the optionees' consent.
Certain Federal Income Tax Consequences of Options Under the 1998 Stock Plan
Neither the optionee nor eGain will incur any federal tax consequences as a
result of the grant of an option. The optionee will have no taxable income
upon exercising an ISO (except that the alternative minimum tax may apply),
and eGain will receive no deduction when an ISO is exercised. Upon exercising
a NSO, the optionee generally must recognize ordinary income equal to the
"spread" between the exercise price and the fair market value of common stock
on the date of exercise and eGain will be entitled to a deduction for the same
amount. In the case of an employee, the option spread at the time a NSO is
exercised is subject to income tax withholding, but the optionee generally may
elect to satisfy the withholding tax obligation by having shares of common
stock withheld from those purchased under the NSO. The tax treatment of a
disposition of option shares acquired under the 1998 Stock Plan depends on how
long the shares have been held and on whether such shares were acquired by
exercising an ISO or by exercising a NSO. eGain will not be entitled to a
deduction in connection with a disposition of option shares, except in the
case of a disposition of shares acquired under an ISO before the applicable
ISO holding periods have been satisfied.
The above description of tax consequences is based upon federal tax laws and
regulations and does not purport to be a complete description of the federal
income tax aspects of the 1998 Stock Plan.
2000 Non-Management Plan
In July 2000 eGain's Board of Directors adopted the 2000 Non-Management Plan
(the "Non-Management Plan") which provides for the grant of nonstatutory stock
options and stock purchase rights to employees of eGain. A total of 2,000,000
shares of common stock has been reserved for issuance under the Non-Management
Plan. The Non-Management Plan is administered by the Stock Option Committee of
the Board of Directors.
The Board of Directors recommends a vote "FOR" amendment of eGain's 1998
Stock Plan.
16
<PAGE>
PROPOSAL 5
RATIFICATION OF INDEPENDENT AUDITORS
Upon the recommendation of the Audit Committee, the Board of Directors has
appointed the firm of Ernst & Young LLP as eGain's independent auditors for
the fiscal year ending June 30, 2001, subject to ratification by the
stockholders. Ernst & Young LLP has audited eGain's financial statements since
eGain's inception in 1997. Representatives of Ernst & Young LLP are expected
to be present at eGain's Annual Meeting. They will have an opportunity to make
a statement, if they desire to do so, and will be available to respond to
appropriate questions.
Ratification will require the affirmative vote of a majority of the shares
present and voting at the meeting in person or by proxy. In the event
ratification is not provided, the Board of Directors will review its future
selection of eGain's independent auditors.
The Board of Directors recommends a vote "FOR" ratification of Ernst & Young
LLP as eGain's independent auditors.
17
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information concerning the beneficial
ownership of common stock of eGain as of September 25, 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 four other most highly compensated executive officers during the
fiscal year ended June 30, 2000
. 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 percentage ownership is based on 35,702,900 shares of eGain common stock
outstanding as of September 25, 2000. All shares subject to options and
warrants exercisable within 60 days after September 25, 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.
<TABLE>
<CAPTION>
Shares Percentage
Beneficially Beneficially
Owned(1) Owned(1)
------------ ------------
<S> <C> <C>
5% Stockholder:
Robert M. Bass................................... 2,833,154 7.9%
201 Main Street, Suite 3100
Ft. Worth, TX 76102
Directors and Executive Officers:
Ashutosh Roy..................................... 4,596,951 12.9
Gunjan Sinha(2).................................. 4,813,107 13.4
Veronica O'Shea(3)............................... 51,563 *
Ram Kedlaya(4)................................... 251,075 *
Stephen E. Klann................................. 136,225 *
Ryan M. Rosenberg(5)............................. 146,161 *
Mark A. Wolfson(6)............................... 166,664 *
David G. Brown(7)................................ 161,664 *
Phiroz P. Darukhanavala.......................... -- *
All executive officers and directors as a group
(16 persons)(8)................................. 10,810,193 29.7%
</TABLE>
--------
* Indicates less than one percent.
(1) To eGain's knowledge, the persons named in the table have sole voting and
investment power with respect to all shares of common stock shown as
beneficially owned by them, subject to community property laws where
applicable and the information contained in the notes to this table.
(2) Includes 216,176 shares of common stock issuable under an immediately
exercisable warrant.
(3) Includes 51,563 shares of common stock issuable under immediately
exercisable options.
(4) Includes 143,958 shares of common stock subject to eGain's right of
repurchase.
(5) Includes 62,917 shares of common stock subject to eGain's right of
repurchase.
(6) Represents 161,664 shares of common stock that are beneficially owned as a
result of the distribution by FW Ventures I, L.P. and 5,000 shares of
common stock that would be beneficially owned upon exercise of director
options held by Mr. Wolfson.
(7) Represents 161,664 shares of common stock that are beneficially owned as a
result of the distribution by FW Ventures I, L.P.
(8) Includes 318,750 shares of common stock subject to eGain's right of
repurchase and 635,541 shares issuable under immediately exercisable
options and warrants to purchase common stock.
18
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table summarizes information concerning compensation paid to
eGain's Chief Executive Officer, its President and each of eGain's other four
most highly compensated executive officers whose total annual salary and bonus
exceeded $100,000, for services rendered in all capacities to eGain during for
the fiscal years ended June 30, 2000 and 1999. These individuals are referred
to as the "named executive officers."
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual ------------
Compensation Security
Fiscal ----------------- Underlying
Name and Principal Position Year Salary Bonus Options (#)
--------------------------- ------ -------- -------- ------------
<S> <C> <C> <C> <C>
Ashutosh Roy............................. 2000 $100,008 $ -- --
Chief Executive Officer and Chairman 1999 100,008 -- --
Gunjan Sinha............................. 2000 100,008 -- --
President 1999 100,008 -- --
Veronica O'Shea(1)....................... 2000 127,019 138,044 165,000
Vice President of Sales, Americas 1999 -- -- --
Ram Kedlaya(1)........................... 2000 135,000 18,000 --
Senior Vice President of International 1999 70,615 -- 250,000
Operations
Stephen E. Klann(2)...................... 2000 152,947 -- 53,954
Senior Vice President of Sales 1999 194,000 8,600 34,271
Ryan M. Rosenberg(1)..................... 2000 145,000 -- 5,000
Vice President of Marketing 1999 135,000 -- 145,000
</TABLE>
--------
(1) Ms. O'Shea's grant of an option to purchase 165,000 shares, Mr. Kedlaya's
grants of options to purchase 140,000 and 110,000 shares, and
Mr. Rosenberg's grants of options to purchase 125,000, 20,000 and 5,000
shares vest, so long as such option holder remains a service provider to
eGain, as to 25% of the shares on the first anniversary of such option's
vesting start date and 1/48 of the shares each full month thereafter.
(2) Mr. Klann's grants of options to purchase 8,671, 8,400, 3,200, 10,400,
3,600 and 17,954 shares were immediately vested in full. Mr. Klann's grant
of an option to purchase 96,000 shares (60,000 of which were cancelled
following Mr. Klann's resignation from eGain in March 2000) vested monthly
over 24 months.
19
<PAGE>
Recent Option Grants
The following tables set forth certain information as of June 30, 2000 and
for the fiscal year then ended with respect to stock options granted to and
exercised by the individuals named in the Summary Compensation Table above.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Percentage of Annual Rates of Stock
Total Options Exercise Price Appreciation
Granted to or Base for Option Term
Options Employees in Price Expiration ---------------------
Name Granted Fiscal 2000 ($/Share) Date 5% 10%
---- ------- ------------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Ashutosh Roy............ -- --% $ -- -- $ -- $ --
Gunjan Sinha............ -- -- -- -- -- --
Veronica O'Shea......... 165,000 3.9 7.50 8/06/09 1,243,050 1,979,350
Ram Kedlaya............. -- -- -- -- -- --
Stephen E. Klann(1)..... 36,000 2.3 1.00 7/14/09 652,372 1,038,794
17,954 0.4 1.00 7/14/09 325,353 518,070
Ryan M. Rosenberg....... 5,000 0.1 7.50 8/16/09 37,668 59,980
</TABLE>
--------
(1) Mr. Klann was granted an option to purchase 96,000 shares of eGain common
stock in fiscal 2000, of which options to purchase 60,000 shares were
cancelled upon Mr. Klann's resignation from eGain in March 2000.
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the Money Options at
Shares Options at June 30, 2000 June 30, 2000(2)
Acquired on Value ------------------------- -------------------------
Name Exercise Realized ($)(1) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- --------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Ashutosh Roy............ -- $ -- -- -- $ -- $ --
Gunjan Sinha............ -- -- -- -- -- --
Veronica O'Shea......... -- -- -- 165,000 -- 763,125
Ram Kedlaya............. 250,000 111,000 -- -- -- --
Stephen E. Klann........ 67,954 2,776,879 -- -- -- --
Ryan M. Rosenberg....... -- -- -- 5,000 -- 23,125
</TABLE>
--------
(1) Calculated on the basis of the fair market value of the underlying
securities at the exercise date minus the exercise price.
(2) Calculated on the basis of the fair market value of the underlying
securities at June 30, 2000 ($12.125 per share) minus the exercise price.
20
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
The following report on executive compensation is provided by the
Compensation Committee (the "Compensation Committee") of the Board of
Directors to assist stockholders in understanding the committee's objectives
and procedures in establishing the compensation of eGain's executive officers
and describes the bases on which it made fiscal 2000 compensation
determinations. The Compensation Committee is currently comprised of two non-
employee directors. In making its determinations, the Compensation Committee
relied, in part, on independent surveys and public disclosures of compensation
of management of companies in the ecommerce software industry.
Compensation Objectives
The Compensation Committee believes that compensation of eGain's executive
officers should:
. encourage creation of stockholder value and achievement of strategic
corporate objectives;
. provide a competitive total compensation package that enables eGain to
attract and retain, on a long-term basis, high caliber personnel;
. integrate compensation with eGain's annual and long-term corporate
objectives and focus executive behavior on the fulfillment of those
objectives;
. align the interests of management and stockholders and enhance
stockholder value by providing management with longer term incentives
through equity ownership by management;
. provide total compensation opportunity that is competitive with
companies in eGain's industry, taking into account relative company
size, performance and geographic location as well as individual
responsibilities and performance; and
. provide fair compensation consistent with internal compensation
programs.
Key Elements of Executive Compensation
The compensation of executive officers is based upon eGain's financial
performance as well as an evaluation of eGain's progress in the achievement of
certain business objectives, including the execution of corporate and
collaborative agreements, the expansion of eGain's business and the attainment
of certain operational and research and development milestones in eGain's
technology development programs, as well as the achievement of individual
business objectives by each executive officer. eGain's existing compensation
structure for executive officers generally includes a combination of salary
and stock options and may include cash bonuses for performance determined to
be deserving of such bonuses by the Compensation Committee.
Salary. Salary levels are largely determined through comparisons with
companies of similar headcount and market capitalizations or complexity in the
ecommerce software industry. Actual salaries are based on individual
performance contributions within a competitive salary range for each position
that is established through job evaluation of responsibilities and market
comparisons. The Compensation Committee, on the basis of its knowledge of
executive compensation in the industry, believes that eGain's salary levels
for the executive officers are at a level that the Compensation Committee, at
the time such salary determinations were made, considered to be reasonable and
necessary given eGain's financial resources and the stage of its development.
The Compensation Committee reviews salaries on an annual basis. At such time,
the Compensation Committee may change each executive officer's salary based on
the individual's contributions and responsibilities over the prior 12 months
and changes in median comparable company pay levels.
Stock Options. The Compensation Committee believes that by providing those
persons who have substantial responsibility for the management and growth of
eGain with an opportunity to increase their
21
<PAGE>
ownership of eGain stock through stock option grants, the interests of
stockholders and executive officers will be closely aligned. Therefore,
executive officers are eligible to receive stock options when the Compensation
Committee performs its annual salary review; although the Stock Option
Committee, at its discretion, may grant options at other times in recognition
of exceptional achievements. The number of shares underlying stock options
granted to executive officers is based on competitive practices in the
industry as determined by independent surveys and the Compensation Committee's
knowledge of industry practice.
Chief Executive Officer Compensation
Ashutosh Roy is the eGain's Chief Executive Officer. For the year ended June
30, 2000, the Compensation Committee set Mr. Roy's annual salary at $100,008.
The Compensation Committee established Mr. Roy's salary for fiscal 2000 in
recognition of his performance in advancing the development and growth of
eGain and eGain's achievement of specific corporate objectives, which included
the following: the achievement of additional collaborations; the financial
performance of eGain; the consummation of eGain's initial public offering; and
the compensation of eGain's management relative to industry norms.
eGain's policy is generally to qualify compensation paid to executive
officers for deductibility under Section 162(m) of the Internal Revenue Code.
However, eGain reserves the discretion to pay compensation to its executive
officers that may not be deductible.
Mr. Roy is a member of the Board of Directors, but did not participate in
matters involving the evaluation of his own performance or the setting of his
own compensation.
Compensation Committee
Mark A. Wolfson
Phiroz P. Darukhanavala
22
<PAGE>
STOCK PRICE PERFORMANCE GRAPH
The following graph illustrates a comparison of the cumulative total
stockholder return (change in stock price plus reinvested dividends) of
eGain's common stock with the Robertson Stephens eBricks Index (the "eBricks
Index") and the CRSP Total Return Index for the Nasdaq U.S. and Foreign Stocks
(the "Nasdaq Composite Index"), assuming an investment of $100 in each on
September 23, 1999. eGain's common stock is traded on the Nasdaq National
Market. The comparisons in the table are required by the Securities and
Exchange Commission and are not intended to forecast or be indicative of
possible future performance of eGain's common stock.
[GRAPH OF TOTAL RETURN TO STOCKHOLDERS APPEARS HERE]
Total Return Analysis
23-Sep-99 30-Jun-00
--------- ---------
eGain $100.00 $ 52.72
NASDAQ $100.00 $144.23
Robertson Stephens eBricks Index $100.00 $160.52
23
<PAGE>
RELATED PARTY TRANSACTIONS
Since July 1, 1999, 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 July 1999, Ashutosh Roy, Gunjan Sinha and FW Ventures I, L.P. purchased
191,375, 191,375 and 163,875 shares of eGain's Series D preferred stock,
respectively, at a price of $8.00 per share. eGain's Series D preferred stock
automatically converted to common stock in connection with eGain's initial
public offering of common stock in September 1999. Mark Wolfson, a director of
eGain, is a limited partner of FW Ventures I, L.P.
In August 2000, Mr. Sinha and Oak Hill Venture Fund I, L.P., Oak Hill
Capital Partners, L.P., FW Investors V, L.P. and Oak Hill Capital Management
Partners, L.P. (collectively the "Oak Hill Entities") purchased an aggregate
of 1.98 and 19.44 shares of eGain's Series A preferred stock, and 48.02 and
470.55 shares of eGain's Series B preferred stock, respectively. The price of
each of the Series A preferred stock and Series B preferred stock was $100,000
per share along with the warrants referred to below. In connection with this
financing, each investor received a warrant to purchase eGain's common stock.
Mr. Sinha and the Oak Hill Entities received warrants to purchase an aggregate
of 216,176 and 2,118,530 shares, respectively, of eGain's common stock at an
initial exercise price of $9.2517 per share. This exercise price is subject to
adjustment upon the occurrence of certain dilutive events and depending upon
the average closing price of eGain's common stock during the twenty trading
days preceding and including August 8, 2001. Mr. Wolfson has a direct or
indirect passive limited partnership interest in the Oak Hill Entities.
In the past, eGain has granted options to purchase common stock to its
directors and executive officers. eGain intends to grant such options to its
directors and executive officers in the future. See "Proposal One--
Compensation of Directors" and "EXECUTIVE COMPENSATION--Recent Option Grants."
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.
Business Relationships
In connection with eGain's private placement of securities in August 2000,
FW Investors V, L.P. and Oak Hill Capital Management, Inc. received
transaction fees of $1,203,125 and $1,421,875, respectively. Mr. Wolfson is a
limited partner of FW Investors V, L.P. and is a Vice President of Oak Hill
Capital Management, Inc. Due to the interests of Messrs. Wolfson and Sinha in
the transaction, a committee consisting of A. Michael Spence and Ashutosh Roy
was created to review the merits of the transaction together with Harpreet
Grewal, eGain's Chief Financial Officer. In connection with such review, eGain
engaged Donaldson, Lufkin & Jenrette as independent advisors to the committee.
Mr. Roy and Mr. Spence have indirect passive limited partnership interests in
certain entities affiliated with the Oak Hill Entities; however Mr. Roy and
Mr. Spence have waived rights to any participation, including participation in
any profits, derived by the Oak Hill Entities in connection with eGain's
private placement. Messrs. Wolfson and Sinha abstained from the director vote
which approved the transaction.
eGain has entered into indemnification agreements with each of its directors
and executive officers. Such agreements require eGain to indemnify such
individuals to the fullest extent permitted under Delaware law.
eGain believes that the foregoing transactions were in its best interests.
It is eGain's current policy that all transactions between eGain and its
officers, directors, 5% stockholders and their affiliates will be entered into
only if these transactions are approved by a majority of the disinterested
directors, are on terms no less favorable to eGain than could be obtained from
unaffiliated parties and are reasonably expected to benefit eGain.
24
<PAGE>
STOCKHOLDER PROPOSALS FOR THE 2001 ANNUAL MEETING
Proposals of stockholders of eGain that are intended to be presented by such
stockholders at eGain's 2001 Annual Meeting must be received by the Secretary
of eGain no later than September 28, 2001 in order that they may be included
in eGain's proxy statement and form of proxy relating to that meeting.
A stockholder proposal not included in eGain's proxy statement for the 2001
Annual Meeting will be ineligible for presentation at the meeting unless the
stockholder gives timely notice of the proposal in writing to the Secretary of
eGain at the principal executive offices of eGain and otherwise complies with
the provisions of eGain's Bylaws. To be timely, eGain's Bylaws provide that
eGain must have received the stockholder's notice not less than 50 days nor
more than 75 days prior to the scheduled date of such meeting. However, if
notice or prior public disclosure of the date of the annual meeting is given
or made to stockholders less than 65 days prior to the meeting date, eGain
must receive the stockholder's notice by the close of business on the 15th day
after the earlier of the day eGain mailed notice of the annual meeting date or
provided such public disclosure of the meeting date.
OTHER MATTERS
eGain knows of no other business that will be presented at the Annual
Meeting. If any other business is properly brought before the Annual Meeting,
it is intended that proxies in the enclosed form will be voted in accordance
with the judgment of the persons voting the proxies.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the securities laws of the United States, eGain's directors, executive
officers and any persons holding more than 10% of eGain's common stock are
required to report their initial ownership of eGain's common stock and any
subsequent changes in that ownership to the Securities and Exchange
Commission. Specific due dates for these reports have been established and
eGain is required to identify in this Proxy Statement those persons who failed
to timely file these reports. All of the filing requirements were satisfied
for fiscal 2000.
ANNUAL REPORT ON FORM 10-K
A copy of eGain's combined annual report to stockholders and Annual Report
on Form 10-K for the year ended June 30, 2000 accompanies this proxy
statement. An additional copy will be furnished without charge to beneficial
stockholders or stockholders of record upon request to Eric N. Smit, eGain
Communication Corporation, 455 West Maude Avenue, Sunnyvale, California,
94086.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
eGain's Annual Report on Form 10-K for the fiscal year ended June 30, 2000
was filed with the Securities and Exchange Commission on September 28, 2000.
The following portions of the Annual Report are incorporated in this proxy
statement by reference:
. Report of Independent Auditors
. Consolidated Balance Sheets
. Consolidated Statements of Operations
. Consolidated Statements of Stockholders' Equity
. Consolidated Statements of Cash Flow
25
<PAGE>
. Notes to Consolidated Financial Statements
. Selected Consolidated Financial Data
. Management's Discussion and Analysis of Financial Condition and Results
of Operation
. Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure
. Quantitative and Qualitative Disclosure About Market Risk
Whether you intend to be present at the Annual Meeting or not, we urge you
to return your signed proxy promptly.
By order of the Board of Directors.
/s/ Ashutosh Roy
Ashutosh Roy
Chief Executive Officer
October 30, 2000
26
<PAGE>
ANNEX A
CERTIFICATE OF DESIGNATION OF 6.75% SERIES A
CUMULATIVE CONVERTIBLE PREFERRED STOCK
OF
eGAIN COMMUNICATIONS CORPORATION
Pursuant to Section 151 of the General Corporation
Law of the State of Delaware
eGAIN COMMUNICATIONS CORPORATION, a corporation organized under the laws of
the State of Delaware (the "Corporation"), certifies that, pursuant to the
authority contained in its Amended and Restated Certificate of Incorporation,
and in accordance with the provisions of Section 151 of the General
Corporation Law of the State of Delaware, its Board of Directors has adopted
the following resolution creating a series of its Preferred Stock, $.001 par
value per share, designated 6.75% Series A Cumulative Convertible Preferred
Stock:
RESOLVED, that the series of authorized Preferred Stock, par value $.001 per
share, designated 6.75% Series A Cumulative Convertible Preferred Stock of the
Corporation be hereby created, and that the designations and amounts thereof
and the voting powers, preferences and relative, participating, optional and
other special rights of the shares of such series, and the qualifications,
limitations and restrictions thereof, are as follows:
A. Capitalized terms used herein and not otherwise defined shall have the
meanings set forth in Section E; and
B. The Corporation shall have authority to issue 890 shares of 6.75% of
Series A Cumulative Convertible Preferred Stock, $.001 par value per share
(the "Convertible Preferred Stock").
C. The voting powers, preferences and relative, participating, optional and
other special rights of the shares of the Convertible Preferred Stock, and the
qualifications, limitations and restrictions thereof are as follows:
1. Ranking. The Convertible Preferred Stock shall, with respect to dividend
rights and rights on liquidation, dissolution or winding up, rank pari passu
with the Corporation's Series B Cumulative Convertible Preferred Stock (the
"Series B Preferred Stock"), and rank senior to all other equity securities of
the Corporation, and any other series or class of the Corporation's preferred
stock, common stock or other capital stock, now or hereafter authorized.
2. Accretion of Liquidation Value; Dividends and Distributions. The
Liquidation Value of the Convertible Preferred Stock shall increase, and the
holders of shares of Convertible Preferred Stock shall be entitled to receive
dividends, as, when and if declared by the Board of Directors out of funds
legally available therefor ("Legally Available Funds"), as follows:
(a) Accretion of Liquidation Value. The Liquidation Value of each share
of Convertible Preferred Stock shall increase and accumulate on a daily
basis (whether or not declared) from the Agreement Date at an annual rate
equal to 6.75% of the Stated Value thereof, from the Agreement Date to the
first Compounding Date (as defined below), and thereafter of the
Liquidation Value as of the most recent Compounding Date, calculated on the
basis of a 365-day year, and shall compound on a semi-annual basis on June
30 and December 31 of each year (each, a "Compounding Date"), whether or
not declared. The cumulative amount by which the Liquidation Value is
increased pursuant to this Section C(2)(a) shall be referred to as the
"Accreted Amount."
(b) Participating Dividends. If the Board of Directors of the Corporation
shall declare a dividend or make any other distribution (including in cash
or other property or assets), to holders of shares of Common Stock, other
than a dividend payable solely in shares of Common Stock, then the holders
of each share of
A-1
<PAGE>
Convertible Preferred Stock shall be entitled to receive, out of Legally
Available Funds, a dividend or distribution in an amount equal to the
amount of such dividend or distribution received by a holder of the number
of shares of Common Stock for which such share of Convertible Preferred
Stock is convertible on the record date for such dividend or distribution.
Any such amount shall be paid to the holders of shares of Convertible
Preferred Stock at the same time such dividend or distribution is made to
holders of Common Stock. Dividends payable pursuant to this Section C(2)(b)
shall be payable in the same form paid to the holders of the Common Stock.
The Board of Directors may fix a record date for the determination of
holders of shares of Convertible Preferred Stock entitled to receive
payment of any dividends payable pursuant to this Section C(2)(b), which
record date shall not be more than 60 days nor less than 10 days prior to
the applicable dividend payment date. Upon the occurrence of either (i) a
consolidation, merger or other business combination or recapitalization or
refinancing of the Corporation resulting in the holders of the issued and
outstanding voting securities of the Corporation immediately prior to such
transaction owning or controlling less than a majority of the voting
securities of the continuing or surviving entity immediately following such
transaction, or (ii) a sale, lease, exchange, transfer or other disposition
(including by merger, consolidation or otherwise) of assets constituting
all or substantially all of the assets of the Corporation and its
Subsidiaries, taken as a whole, to a Person or group of Persons, all unpaid
accrued or accumulated dividends on Convertible Preferred Stock shall be
immediately due and payable.
(c) Dividends Pro Rata. All dividends paid with respect to shares of
Convertible Preferred Stock shall be paid pro rata to the holders entitled
thereto. If the Legally Available Funds shall be insufficient for the
payment of the entire amount of cash dividends payable at any dividend
payment date, such funds shall be allocated pro rata for the payment of
dividends with respect to the shares of Convertible Preferred Stock based
upon the aggregate Liquidation Value of the outstanding shares of
Convertible Preferred Stock.
3. Voting Rights. Except as required by law or by this Section C(3), the
holders of the Convertible Preferred Stock shall not be entitled to vote on
any matter voted on by the Stockholders of the Corporation. None of the
following actions may be taken, directly or indirectly, by the Corporation or
any of its Subsidiaries, without the approval of the holders of at least 66%
of all issued and outstanding shares of Convertible Preferred Stock, voting in
person or by proxy, at a special or annual meeting called for the purpose or
by written consent:
(a) The adoption of an amendment, restatement or modification of the
Amended and Restated Certificate of Incorporation, By-laws, certificates of
designation or other governance documents which would change or otherwise
adversely affect the rights of the holders of the Convertible Preferred
Stock;
(b) The authorization, creation or issuance of any shares of capital
stock or other equity or equity-linked securities which are ranked prior
to, or are pari passu with, the Convertible Preferred Stock (except for up
to 850 shares of Series B Preferred Stock); and
(c) The issuance of Equity Equivalents prior to the Requisite Shareholder
Approval, if such issuance, but for the Conversion Price limitation set
forth in Section C(5)(c)(iii), would cause the Conversion Price to be
reduced to an amount less than $5.6875 (as adjusted for stock dividends,
stock splits, combinations and the like pursuant to Section 5(c)(ii)).
So long as there is a Majority Shareholder, any of the actions set forth in
Section C(3) must also be approved by a majority of the issued and outstanding
shares of Convertible Preferred Stock, excluding the shares and vote of the
Majority Shareholder, voting in person or by proxy at a special or annual
meeting called for the purpose or by written consent.
4. Liquidation, Dissolution or Winding Up.
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, either voluntary or involuntary, before any distribution or
payment to holders of Common Stock or of any other capital stock ranking in
any such event junior to the Convertible Preferred Stock, the holders of
shares of Convertible Preferred Stock shall be entitled to be paid the
greater of: (i) the Liquidation Value, or (ii) an amount equal to the
amount that the holders of shares of Convertible Preferred Stock would be
entitled to receive in
A-2
<PAGE>
connection with such liquidation, dissolution or winding up if all of the
holders of Convertible Preferred Stock had converted their shares into
Common Stock immediately prior to any relevant record date or payment in
connection with such liquidation, dissolution or winding up.
(b) If, upon any liquidation, dissolution or winding up of the
Corporation, the assets of the Corporation available for distribution to
the holders of Convertible Preferred Stock shall be insufficient to permit
payment in full to such holders of the sums which such holders are entitled
to receive in such case, then all of the assets available for distribution
to holders of the Convertible Preferred Stock shall be distributed among
and paid to such holders ratably in proportion to the amounts that would be
payable to such holders if such assets were sufficient to permit payment in
full.
(c) A consolidation, merger or other business combination of the
Corporation resulting in the holders of the issued and outstanding voting
securities of the Corporation immediately prior to such transaction owning
or controlling a majority of the voting securities of the continuing or
surviving entity immediately following such transaction shall not be deemed
to be a liquidation, dissolution or winding up of the Corporation for
purposes of this Section C(4) (unless in connection therewith the
liquidation of the Corporation is specifically approved).
5. Conversion.
(a) Stockholders Right to Convert. Each share of the Convertible
Preferred Stock shall be convertible at any time, at the option of the
holder thereof, into validly issued, fully paid and non-assessable shares
of the Common Stock ("Conversion Shares") at the Conversion Price,
determined as hereinafter provided, in effect at the time of conversion.
The Conversion Price shall be initially $9.2517 per share. The number of
Conversion Shares issuable upon conversion of a share of Convertible
Preferred Stock is determined by dividing the Liquidation Value (inclusive
of any accrued and unpaid dividends) of a share of Convertible Preferred
Stock by the Conversion Price in effect on the Conversion Date (as
hereinafter defined) and rounding the result to the nearest 1/100th of a
share. The Conversion Price shall be subject to adjustment as provided in
Section C(5)(c) below. If a holder converts more than one share of
Convertible Preferred Stock at the same time, the number of Conversion
Shares issuable upon the conversion shall be based upon the total number of
shares of Convertible Preferred Stock converted.
(b) Conversion Process. In order to convert shares of the Convertible
Preferred Stock into Conversion Shares, the holder thereof shall surrender
at the office of any transfer agent for the Convertible Preferred Stock (or
in the absence of any transfer agent, the Corporation) the certificate or
certificates therefor, duly endorsed to the Corporation or in blank, and
give written notice to the Corporation at said office that he or she elects
to convert such shares. Shares of the Convertible Preferred Stock shall be
deemed to have been converted immediately prior to the close of business on
the date of surrender of such shares for conversion in accordance with the
foregoing provisions (the "Conversion Date"), and the person or persons
entitled to receive Conversion Shares issuable upon such conversion shall
be treated for all purposes as the record holder or holders of such
Conversion Shares at such time. As promptly as practicable after the
Conversion Date, but in any event within five (5) Business Days after the
Conversion Date, the Corporation shall issue and deliver at said office the
certificate or certificates for the number of full Conversion Shares
issuable upon such conversion, together with a cash payment in lieu of any
fraction of a Conversion Share, as hereinafter provided, to the person or
persons entitled to receive the same or to the nominee or nominees of such
person or persons.
(c) Conversion Price Adjustments. The Conversion Price shall be subject
to adjustment as follows:
(i) If 122% of the average closing bid price per share of Common
Stock quoted on NASDAQ or, if not then traded on NASDAQ, such other
exchange, market or system on which the Common Stock is then listed or
traded, on the twenty (20) consecutive trading days immediately
preceding and including the first anniversary of the Agreement Date
(the "Market Value") is less than the Conversion Price, the Conversion
Price shall be adjusted to the greater of (x) 122% of the Market Value,
and (y) $5.6875 (as adjusted below).
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(ii) In case the Corporation shall (1) pay a dividend in shares of
Common Stock to holders of Common Stock, (2) make a distribution in
shares of any class of its capital stock to all holders of Common
Stock, (3) subdivide any of its outstanding Common Stock into a greater
number of shares, or (4) combine any of its outstanding Common Stock
into a smaller number of shares, the Conversion Price in effect
immediately prior thereto shall be adjusted so that the holder of any
shares of Convertible Preferred Stock thereafter surrendered for
conversion shall be entitled to receive that number of Conversion
Shares representing the percentage of all outstanding shares of Common
Stock which the holder of the Convertible Preferred Stock would have
owned had such Convertible Preferred Stock been converted immediately
prior to the happening of such event and the Conversion Price shall be
adjusted accordingly. An adjustment made pursuant to this subsection
(ii) shall become effective immediately after the record date in the
case of a dividend in shares or distribution and shall become effective
immediately after the effective date in the case of subdivision or
combination.
(iii) In case the Corporation shall issue Common Stock, rights,
warrants, options or other convertible securities representing the
right to acquire Common Stock (collectively, including the Common
Stock, "Equity Equivalents") to all or substantially all holders of any
class of its Common Stock or to any other person entitling such person
or persons to subscribe for, purchase or otherwise acquire shares of
Common Stock (or securities in any manner representing the right to
acquire Common Stock) at a price per share that is less than the then
Current Market Price per share of Common Stock (as determined in
accordance with subsection (v) below), at the record date for the
determination of shareholders entitled to receive such Equity
Equivalents on the date of issuance thereof or, with respect to
issuances to persons other than holders of Convertible Preferred Stock,
on the issue date, as applicable, the Conversion Price in effect
immediately prior thereto shall be adjusted so that the same shall
equal the price determined by multiplying the Conversion Price in
effect immediately prior to such record date or issue date, as
applicable, by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding on such record date or issue date,
as applicable, plus the number of additional shares of Common Stock
which the aggregate offering price of the total number of shares of
Common Stock so to be offered (or the aggregate conversion price of the
convertible securities so to be offered) would purchase at such Current
Market Price (as defined in subsection (v) below), and of which the
denominator shall be the number of shares of Common Stock outstanding
on such record date or issue date, as applicable, plus the number of
additional shares of Common Stock to be offered for subscription or
purchase (or into which the convertible securities so to be offered are
convertible). Such adjustment shall be made successively whenever any
Equity Equivalents are issued, and shall become effective immediately
after such record date or such sale date, as applicable.
Notwithstanding the foregoing, unless the Requisite Shareholder
Approval has previously been obtained, the Conversion Price may not be
adjusted pursuant to this Section C(5)(iii) to an amount less than
$5.6875 per share (adjusted for stock dividends, stock splits,
combinations and the like pursuant to subsection (ii) above). In case
the price for subscription or purchase may be paid in a consideration
part or all of which shall be in a form other than cash, the value of
such consideration shall be determined in good faith by the Board of
Directors of the Corporation and shall be that value which is agreed
upon by at least 66% of the members thereof; provided, that if the
holders of a majority of the shares of Convertible Preferred Stock
object to such valuation as determined by the Board of Directors within
fifteen (15) days of receipt of written notice of such valuation or, if
such percentage of the members of the Board of Directors of the
Corporation are unable to agree upon the value of such consideration,
the value thereof shall be determined by an independent investment bank
of nationally recognized stature that is selected by a majority of the
members of the Board of Directors. If at the end of the period during
which such Equity Equivalents are exercisable not all such Equity
Equivalents shall have been exercised, the adjusted Conversion Price
shall be readjusted to what it would have been based upon the number of
additional shares of Common Stock actually issued (or the number of
shares of Common Stock issuable upon conversion of convertible
securities actually issued).
(iv) In case the Corporation shall distribute to all or substantially
all holders of any class of Common Stock any shares of capital stock of
the Corporation (other than Common Stock), evidences of indebtedness or
other non-cash assets (including securities of any company other than
the Corporation), or shall distribute to all or substantially all
holders of any class of Common Stock rights
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or warrants to subscribe for or purchase any of its securities
(excluding those referred to in subsection (iii) above), then in each
such case for the purpose of this subsection (iv), the holders of the
Convertible Preferred Stock shall be entitled to a proportionate share
of any such distribution as though they were the holders of the number
of shares of Common Stock of the Corporation into which their shares of
Convertible Preferred Stock are convertible as of the record date fixed
for the determination of the holders of Common Stock entitled to
receive such distribution.
(v) For the purpose of any computation under subsection (iii) of this
Section C(5)(c), the current market price (the "Current Market Price")
with respect to shares of Common Stock on any date shall be deemed to
be equal to the average of the closing bid prices per share of the
Common Stock on NASDAQ or, if not then listed or traded on NASDAQ, such
other exchange, market or system that the Common Stock is then listed
or traded on, for the 20 consecutive trading days immediately prior to
and including the record date or date of issuance with respect to
distributions, issuances or other events requiring such computation
under subsection (iii) above. If on any such date the shares of such
Common Stock are not listed or admitted for trading on any national
securities exchange or quoted on NASDAQ or a similar service, the
Current Market Price for such shares shall be the fair market value of
such shares on such date as determined in good faith by the Board of
Directors of the Corporation and shall be the value which is agreed
upon by at least 66% of the members thereof, or if such percentage of
the members of the Board of Directors of the Corporation are unable to
agree upon the value of such consideration, the value thereof shall be
determined by an independent investment bank of a nationally recognized
stature that is selected by the holders of a majority of the
outstanding shares of Convertible Preferred Stock and the Corporation.
(vi) Certain Exceptions to Anti-Dilution Provisions. There shall be
no adjustment of the Conversion Price pursuant to Section C(5)(c)(iii)
in the case of Common Stock or securities convertible into or
exchangeable for Common Stock to be issued (1) to an employee,
consultant, officer or director of the Corporation pursuant to any
stock-based incentive plan that has been duly approved by the
Corporation's Board of Directors (including the Employee Stock Purchase
Plan), (2) as part of any arm's length commercial agreement approved by
the Board of Directors, so long as such issuance (on an as converted
basis) is no greater than 1% of the issued and outstanding (non-
diluted) shares of Common Stock, and all such issuances in the
aggregate are no greater than 5% of the issued and outstanding (non-
diluted) shares of Common Stock, each as in effect immediately prior to
such issuance, (3) as part of an underwritten public offering or (4)
upon conversion of the Convertible Preferred Stock or upon exercise of
the Warrants.
(vii) Amendment/Modification to Other Securities. Not withstanding
any provision in Section C(5)(c) to the contrary and without limitation
to any other provision contained in Section C(5)(c), in the event any
securities of the Corporation (other than the Convertible Preferred
Stock, and those securities set forth as exceptions in Section
C(5)(c)(vi)(1)) (collectively, the "Subject Securities"), are amended
or otherwise modified by operation of their terms or otherwise
(including by operation of such Subject Securities' anti-dilution
provisions) in any manner that results in (i) the reduction of the
exercise, conversion or exchange price of such Subject Securities
payable upon the exercise for, or conversion or exchange into, Common
Stock or other securities exercisable for, or convertible or
exchangeable into, Common Stock and/or (ii) such Subject Securities
becoming exercisable for, or convertible or exchangeable into (A) more
shares or dollar amount of such Subject Securities which are, in turn
exercisable for, or convertible or exchangeable into, Common Stock, or
(B) more shares of Common Stock, then such amendment or modification
shall be treated for purposes of Section C(5)(c) as if the Subject
Securities which have been amended or modified have been terminated and
new securities have been issued with the amended or modified terms. The
Corporation shall make all necessary adjustments (including successive
adjustments if required) to the Conversion Price in accordance with
Section C(5)(c), but in no event shall the Conversion Price be greater
than it was immediately prior to the application of this Subsection to
the transaction in question. On the expiration or termination of any
such amended or modified Subject Securities for which adjustment has
been
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made pursuant to the operation of the provisions of this Subsection
under Section C(5)(c)(iii), without such Subject Securities having been
exercised, converted or exchanged in full pursuant to their terms, the
Conversion Price shall be appropriately readjusted in the manner
specified in such Section.
(d) De Minimis Adjustments. No adjustment of the Conversion Price shall
be made if the amount of such adjustment would result in a change in the
Conversion Price per share of less than $.01, but in such case any
adjustment that would otherwise be required to be made shall be carried
forward and shall be made at the time of and together with the next
subsequent adjustment, which together with any adjustment so carried
forward, would result in a change in the Conversion Price of $.01 or more
per share. Notwithstanding the provisions of the first sentence of this
Section C(5)(d), any adjustment postponed pursuant to this Section C(5)(d)
shall be made no later than the earlier of (i) three years from the date of
the transaction that would, but for the provisions of the first sentence of
this Section C(5)(d), have required such adjustment and (ii) immediately
prior to the date of any conversion of shares of Convertible Preferred
Stock.
(e) Fractional Shares. Notwithstanding any other provision of the
Certificate of Incorporation (including this Certificate of Designation),
the Corporation shall not be required to issue fractions of shares of
Common Stock upon conversion of any shares of Convertible Preferred Stock
or to distribute certificates which evidence fractional shares of Common
Stock. In lieu of fractional shares, the Corporation may pay therefor, at
the time of any conversion of shares of Convertible Preferred Stock as
herein provided, an amount in cash equal to such fraction multiplied by the
Current Market Price of a share of Common Stock.
(f) Reorganization, Reclassification, Merger and Sale of Assets
Adjustment. If there occurs any capital reorganization or any
reclassification of the Common Stock (other than a change for which an
adjustment is provided in Section C(5)(c)(ii), (iii) or (iv) above), the
consolidation or merger of the Corporation with or into another Person
(other than a merger or consolidation of the Corporation in which the
Corporation is the continuing corporation and which does not result in any
reclassification or change of outstanding shares of Common Stock) or the
sale, transfer or other disposition of all or substantially all of the
assets of the Corporation to another Person (each an "Extraordinary
Transaction"), then, at the option of the holder of the Convertible
Preferred Stock, either:
(i) each share of Convertible Preferred Stock shall thereafter be
convertible into the same kind and amounts of securities (including
shares of stock) or other assets, or both, which were issuable or
distributable to the holders of outstanding Common Stock upon such
reorganization, reclassification, consolidation, merger, sale or
transfer, in respect of that number of shares of Common Stock into
which such share of Convertible Preferred Stock might have been
converted immediately prior to such reorganization, reclassification,
consolidation, merger, sale or transfer; and, in any such case,
appropriate adjustments (as determined in good faith by the Board of
Directors of the Corporation) shall be made to assure that the
provisions set forth herein shall thereafter be applicable, as nearly
as reasonably may be practicable, in relation to any securities or
other assets thereafter deliverable upon the conversion of the
Convertible Preferred Stock. If, in the case of any such consolidation,
merger, sale or transfer, the stock or other securities and property
(including cash) receivable thereupon by a holder of Convertible
Preferred Stock include shares of stock or other securities and
property of a corporation other than the successor or purchasing
corporation, as the case may be, in such consolidation, merger, sale or
transfer, then effective provision shall also be made in the
certificate of incorporation of such other corporation or otherwise of
such additional antidilution provisions as are necessary to protect the
interests of the holders of the Convertible Preferred Stock by reason
of the foregoing; or
(ii) each holder of the Convertible Preferred Stock may convert its
Convertible Preferred Stock into validly issued, fully paid and non-
assessable shares of Common Stock immediately prior to the closing of
such consolidation, merger, sale or conveyance (the "Transaction
Closing Date") such conversion to be calculated by dividing the
Liquidation Value as of the later of (x) the Transaction Closing Date
or (y) the third anniversary of the Agreement Date, by the applicable
Conversion Price.
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The provisions of Section C(5)(f)(i) shall similarly apply to successive
consolidations, mergers, sales or transfers.
(g) Certificate as to Adjustments. Whenever the number of shares of
Common Stock issuable, or the securities or other property deliverable upon
the conversion of the Convertible Preferred Stock, shall be adjusted
pursuant to the provisions hereof, the Corporation shall promptly give
written notice thereof to each holder of shares of Convertible Preferred
Stock at such holder's address as it appears on the transfer books of the
Corporation and shall forthwith file, at its principal executive office and
with any transfer agent or agents for the Convertible Preferred Stock and
the Common Stock, a certificate, signed by the President or one of the Vice
Presidents of the Corporation, and by its Chief Financial Officer, its
Treasurer or one of its Assistant Treasurers, stating the number of shares
of Common Stock issuable, or the securities or other property deliverable,
per share of Convertible Preferred Stock converted, calculated to the
nearest cent or to the nearest one one-hundredth of a share and setting
forth in reasonable detail the method of calculation and the facts
requiring such adjustment and upon which such calculation is based. Each
adjustment shall remain in effect until a subsequent adjustment hereunder
is required.
(h) Reservation of Common Stock. The Corporation shall at all times
reserve and keep available for issuance upon the conversion of the shares
of Convertible Preferred Stock the maximum number of each of its authorized
but unissued shares of Common Stock as is reasonably anticipated to be
sufficient to permit the conversion of all outstanding shares of
Convertible Preferred Stock into Common Stock and shall take all action
required to increase the authorized number of shares of Common Stock if at
any time there shall be insufficient authorized but unissued shares of
Common Stock to permit such reservation or to permit the conversion of all
outstanding shares of Convertible Preferred Stock.
(i) No Conversion Charge or Tax. The issuance and delivery of
certificates for shares of Common Stock upon the conversion of shares of
Convertible Preferred Stock shall be made without charge to the holder of
shares of Convertible Preferred Stock for any issue or transfer tax, or
other incidental expense in respect of the issuance or delivery of such
certificates or the securities represented thereby, all of which taxes and
expenses shall be paid by the Corporation.
(j) No Amendment of Certificate of Incorporation. The Corporation will
not, by amendment of its Amended and Restated Certificate of Incorporation
or through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other action, avoid or seek
to avoid the observance or performance of any term of the Amended and
Restated Certificate of Incorporation, but will at all times in good faith
assist in carrying out of all such terms and in taking of all such action
as may be necessary or appropriate in order to protect the rights of the
holders of Convertible Preferred Stock against dilution or other
impairment. Without limiting the generality of the foregoing, the
Corporation (a) will not increase the par value of any shares of stock
receivable on the conversion of the Convertible Preferred Stock, (b) will
at all times reserve and keep available the maximum number of its
authorized shares of Common Stock, free from all preemptive rights therein,
which will be sufficient to permit the full conversion of the outstanding
Convertible Preferred Stock, and (c) will take such action as may be
necessary or appropriate in order that all shares of Common Stock as may be
issued pursuant to the conversion of the Convertible Preferred Stock will,
upon issuance, be duly and validly issued, fully paid and nonassessable,
and free from all taxes, liens and charges with respect to the issue
thereof.
(k) Notice of Certain Events. In case at any time prior to the conversion
of all of the Convertible Preferred Stock:
(i) the Corporation shall authorize the granting to all the holders
of Common Stock of rights to subscribe for or purchase any shares of
stock of any class or of any other rights; or
(ii) there shall be any reclassification of the Common Stock of the
Corporation (other than a subdivision or combination of its outstanding
Common Stock); or
(iii) there shall be any capital reorganization by the Corporation;
or
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(iv) the Corporation consolidates or merges with, or transfers all or
substantially all of its assets to, another corporation and
shareholders of the Corporation must approve the transaction; or
(v) there shall be voluntary or involuntary dissolution, liquidation
and winding up by the Corporation or dividend or distribution to
holders of Common Stock; or
(vi) any other event described in Section C(5)(c);
then in any one or more of said cases, the Corporation shall cause to be
delivered to the holders of Convertible Preferred Stock, at the earliest
practicable time (and, in any event, not less than twenty (20) days before any
record date or the date set for definitive action), written notice of the date
on which the books of the Corporation shall close or a record shall be taken
for such dividend, distribution or subscription rights or such reorganization,
sale, consolidation, merger, dissolution, liquidation or winding up or other
transaction shall take place, as the case may be. Such notice shall also set
forth such facts as shall indicate the effect of such action (to the extent
such effect may be known at the date of such notice) on the Conversion Price
and the kind and amount of the shares of stock and other securities and
property deliverable upon conversion of the Convertible Preferred Stock. Such
notice shall also specify the date, if known, as of which the holders of
record of the Common Stock shall participate in said dividend, distribution or
subscription rights or shall be entitled to exchange their shares of the
Common Stock for securities or other property (including cash) deliverable
upon such reorganization, sale, consolidation, merger, dissolution,
liquidation or winding up or other transaction, as the case may be.
6. Conversion at the Option of the Corporation.
(a) Subject to the conditions set forth below, any or all of the
Convertible Preferred Stock shall be convertible, at the option of the
Corporation, into validly issued, fully paid and non-assessable shares of
Common Stock, converted in accordance with Section C(5) mutatis mutandis,
at any time following the third anniversary of the Agreement Date, if (but
only if):
(1) the closing bid price per share of Common Stock on NASDAQ, or if
not then listed on NASDAQ, such other exchange or market that the
Common Stock is listed or traded on, on twenty (20) of the thirty (30)
consecutive trading days prior to the day on which the Required
Conversion Notice (as defined below) is sent to holders of the
Convertible Preferred Stock equals or is greater than 250% of the
initial Conversion Price (as adjusted pursuant to Section C(5)(c)(ii)--
(vii)); and
(2) a registration statement covering the resale of the Convertible
Preferred Stock and the Conversion Shares is effective and has been
effective for a minimum of three months; and
(3) the Common Stock has been listed on a national market or exchange
since the effective date of such registration statement, and delisting
or suspension has not been threatened; and
(4) from the Agreement Date through the date on which the Corporation
exercises its option to require the conversion of the Convertible
Preferred Stock (the "Required Conversion Date"), there has not been a
public announcement of a pending Extraordinary Transaction; and
(5) the Corporation has at all times complied with the terms of this
Certificate of Designation and timely delivered Common Stock upon
conversion of the Convertible Preferred Stock and exercise of the
related Warrants from the Agreement Date through the Required
Conversion Date; and
(6) on or before November 30, 2000, the Corporation obtained all
stockholder approval required pursuant to any state or federal law and
the Requisite Shareholder Approval.
(b) In order to exercise its right to require conversion, the Corporation
shall send a notice to the holders of the Convertible Preferred Stock in
accordance with Section D(1), stating the number of shares of Convertible
Preferred Stock to be converted and the exercise date (the "Required
Conversion Exercise Date") of such conversion (the "Required Conversion
Notice"), the notice to be sent a minimum of twenty (20) Business Days
prior to such exercise date.
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(c) On the Required Conversion Exercise Date, (i) the Corporation shall
issue and deliver to the office of the transfer agent for its Convertible
Preferred Stock the certificate or certificates for the number of full
shares of Common Stock issuable upon such conversion together with a cash
payment in lieu of any fraction in a Common Stock share for the benefit of
the person or persons entitled to receive the same or to the nominee or
nominees of such person; and (ii) each holder of the Convertible Preferred
Stock shall surrender at said office the certificate or certificates
representing the shares of the Convertible Preferred Stock that were the
subject of the Required Conversion Notice duly endorsed to the Corporation
or in blank.
(d) If the Corporation chooses to convert only part of the issued and
outstanding shares of Convertible Preferred Stock, then a pro rata portion
of each holders shares of Convertible Preferred Stock shall be converted,
such pro rata portion to be determined in accordance with the following
formula:
<TABLE>
<C> <S>
Number of shares of......................... Total number of shares of
Convertible Preferred Stock to
be converted
Convertible Preferred Stock held by holder.. Total number of issued and
outstanding shares of
Convertible Preferred Stock
</TABLE>
7. Redemption.
(a) Mandatory Redemption. On the fifth anniversary of the Agreement Date
(the "Mandatory Redemption Date"), the Corporation shall either (i) redeem
each outstanding share of Convertible Preferred Stock, at a redemption
price per share equal to the Liquidation Value or, at its option (but only
to the extent it is not prohibited from converting the Convertible
Preferred Stock pursuant to this Section (7)(a)), (ii) convert each
outstanding share of Convertible Preferred Stock into validly issued, fully
paid and non-assessable shares of Common Stock at a Conversion Price equal
to 95% of the average closing bid price per share of Common Stock quoted on
NASDAQ or, if not then listed on NASDAQ, such other exchange, market or
system on which the Common Stock is then listed or traded, on the twenty
(20) consecutive trading days immediately preceding and including the
Mandatory Redemption Date (the "Redemption Conversion Price") in accordance
with Section C(5)(a) mutatis mutandis (applying the Redemption Conversion
Price). The total sum payable or the total number of Common Stock shares to
be received, as applicable, per share of Convertible Preferred Stock to be
redeemed or converted, as applicable (the "Redeemed Shares"), on the
Mandatory Redemption Date is hereinafter referred to as the "Redemption
Price," and the payment to be made or the Common Stock to be received as
applicable, on the Mandatory Redemption Date for the Redeemed Shares is
hereinafter referred to as the "Redemption Payment." Upon written notice
from the Corporation, to be provided at least twenty (20) Business Days
prior to the Mandatory Redemption Date and to specify whether the
Corporation is redeeming the shares in accordance with Section C(7)(a)(i)
or converting the shares in accordance with Section C(7)(a)(ii), and
payment in full of the Redemption Payment, each holder of Convertible
Preferred Stock so redeemed or converted, as applicable, shall promptly
surrender to the Corporation, at any place where the Corporation shall
maintain a transfer agent for its Convertible Preferred Stock, certificates
representing the shares so redeemed or converted, duly endorsed in blank or
accompanied by proper instruments of transfer. On the Mandatory Redemption
Date, the Corporation shall deliver to the office of said transfer agent
the Redemption Price in full (i) in cash if the Corporation redeems the
Convertible Preferred Stock in accordance with Section C(7)(a)(i), or (ii)
if the Corporation converts the Convertible Preferred Stock in accordance
with Section C(7)(a)(ii), in stock certificates of full shares of Common
Stock issuable upon such conversion, together with a cash payment in lieu
of any fractions of Common Stock, on behalf of the person or persons
entitled to receive the same or to the nominee or nominees of such person.
The provisions of this Section C(7)(a) shall only apply to shares of
Convertible Preferred Stock not converted into Common Stock prior to the
Mandatory Redemption Date, and nothing herein shall prohibit a holder of
Convertible Preferred Stock from converting its shares at any time prior to
the Mandatory Redemption Date. Notwithstanding the foregoing, unless the
Requisite Shareholder Approval has previously been obtained, the
Corporation shall not issue any shares of Common Stock pursuant to this
Section C(7)(a), and the Convertible Preferred Stock may not be redeemed
for Common Stock (and instead such shares shall be redeemed for cash) if
and to the
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extent that the Redemption Conversion Price is less than $5.6875 (as
adjusted for stock dividends, stock splits, combinations and the like
pursuant to Section C(5)(c)(ii)).
(b) Termination of Rights. Except as otherwise set forth herein, on and
after the Mandatory Redemption Date all rights of any holder of Convertible
Preferred Stock as a holder of Redeemed Shares shall cease and terminate;
and such Redeemed Shares shall no longer be deemed to be outstanding,
whether or not the certificates representing such shares have been received
by the Corporation; except that, if the Corporation defaults in the payment
of the Redemption Payment for any reason, the rights, preferences and
privileges of the holders of Convertible Preferred Stock shall continue to
inure to the benefit of the holders of Convertible Preferred Stock until
the Corporation cures such default.
8. Status on Conversion or Redemption. Upon any conversion or redemption of
shares of the Convertible Preferred Stock and payment in full of the
Redemption Price or Conversion Shares, as applicable, the shares of
Convertible Preferred Stock so converted or redeemed shall be canceled.
D. General Provisions.
1. Notices. Except as otherwise expressly provided, whenever notices or
other communications are required to be made, delivered or otherwise given to
holders of shares of the Convertible Preferred Stock, the notice or other
communication shall be made in writing and shall be by registered or certified
first class mail, return receipt requested, telecopier, courier service or
personal delivery, addressed to the Persons shown on the books of the
Corporation as such holders at the addresses as they appear in the books of
the Corporation, as of a record date or dates determined in accordance with
the Corporation's Amended and Restated Certificate of Incorporation and By-
laws and applicable law, as in effect from time to time. All such notices and
communications shall be deemed to have been duly given: when delivered by
hand, if personally delivered; when delivered by courier, if delivered by
commercial overnight courier service; five (5) Business Days after being
deposited in the U.S. mail, postage prepaid, if mailed; and when receipt is
acknowledged verbally or in writing (but not mechanically), if telecopied.
2. HSR Act. If a holder of shares of Convertible Preferred Stock is required
to make a filing pursuant to the HSR Act (an "HSR Filing" and such holder an
"HSR Filing Holder") prior to the conversion of its share of Convertible
Preferred Stock into Common Stock, the exercise shall be deemed to have
occurred as of the date such holder files the HSR Filing; provided, however,
that the surrender of the certificates representing the shares of Convertible
Preferred Stock to the Company, the issuance of the Conversion Shares and any
changes in the transfer ledgers of the Company pursuant to such conversion,
shall be subject to, and shall take place on the Business Day following, the
expiration or termination of the applicable waiting period under the HSR Act.
The HSR Filing Holder shall deliver written notice (the "HSR Notice") of its
intent to convert its shares of Convertible Preferred Stock and to make an HSR
Filing no later than one (1) Business Day prior to the date of such filing and
the Company shall be required to file its HSR Filing in connection with such
conversion no later than five (5) Business Days following the receipt of the
HSR Notice.
3. Certain Remedies. Any registered holder of shares of Convertible
Preferred Stock shall be entitled to an injunction or injunctions to prevent
violations of the provisions of this Certificate of Designation and to enforce
specifically the terms and provisions of this Certificate of Designation in
any court of the United States or any state thereof having jurisdiction, this
being in addition to any other remedy to which such holder may be entitled at
law or in equity. Notwithstanding the foregoing, the observance of any term of
this Certificate of Designation which benefits only the holders of the
Convertible Preferred Stock may be waived by holders of at least 66% of all
issued and outstanding Convertible Preferred Stock provided that, so long as
there is a Majority Shareholder, any such waiver must also be approved by a
majority of the issued and outstanding shares of Convertible Preferred Stock
excluding the shares and approval of the Majority Shareholder (either
generally or in a particular instance and either retroactively or
prospectively).
4. Invalidity. If any right, preference or limitation of the Convertible
Preferred Stock set forth herein (as amended from time to time) is invalid,
unlawful or incapable of being enforced by reason of any rule or law or
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public policy, all other rights, preferences and limitations set forth in this
Section 2 (as so amended) which can be given effect without the invalid,
unlawful or unenforceable right, preference or limitation herein set forth
shall not be deemed dependant upon any other such right, preference or
limitation unless so expressed herein.
E. Definitions. For the purposes of this Certificate of Designation, the
following terms shall have the meanings indicated:
"Agreement Date" means August 8, 2000.
"Affiliate" means any Person who is an "affiliate" as defined in Rule 12b-2
of the General Rules and Regulations under the Exchange Act.
"Amended and Restated Certificate of Incorporation" means the Amended and
Restated Certificate of Incorporation, as amended from time to time
(including, without limitation, by any certificate of amendment or certificate
of designation), of the Corporation and/or its Subsidiaries, as the context
may require.
"Business Day" means any day except a Saturday, a Sunday, or other day on
which commercial banks in the State of New York are authorized or required by
law or executive order to close.
"By Laws" means the by-laws, as amended, of the Corporation and/or its
Subsidiaries, as the context may require.
"Commission" means the Securities and Exchange Commission or any similar
agency then having jurisdiction to enforce the Securities Act.
"Common Stock" means the Corporation's Common Stock, par value $.001 per
share.
"Governmental Authority" means the government of any nation, state, city,
locality or other political subdivision of any thereof, any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, and any corporation or other entity owned or
controlled, through stock or capital ownership or otherwise, by any of the
foregoing.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations promulgated thereunder.
"including," when followed by one or more items, means including but not
limited to such items, unless the context clearly requires otherwise.
"Liquidation Value" means, with respect to each share of Convertible
Preferred Stock, an amount equal to the Stated Value per share of Convertible
Preferred Stock plus (x) the Accreted Amount as of such date and (y) an amount
equal to any dividends accrued but not yet not paid under Section C(2)(b).
"Majority Shareholder" means the Oak Hill Entities (as defined in the
Securities Purchase Agreement) and their Affiliates, so long as they
collectively own at least 33% of the outstanding shares of the Convertible
Preferred Stock, and any transferee of the Oak Hill Entities and their
Affiliates if such transferee and its Affiliates (x) purchase over 50% of the
outstanding shares of Convertible Preferred Stock from the Oak Hill Entities
and their Affiliates and (y) continue to collectively own at least 33% of the
outstanding shares of Convertible Preferred Stock.
"NASDAQ" means the National Association of Securities Dealers, Inc.
Automated Quotation System.
"Person" means any individual, firm, corporation, limited liability company,
partnership, trust, incorporated or unincorporated association, joint venture,
joint stock company, Governmental Authority or other entity of any kind, and
shall include any successor (by merger or otherwise) of any such entity.
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"Requisite Shareholder Approval" means the approval by the stockholders of
the Corporation (i) required by the NASDAQ to permit the conversion of the
Series B Preferred Stock into Convertible Preferred Stock and any adjustments
in the number of shares of Common Stock issuable upon conversion or redemption
thereof pursuant to the provisions of this Certificate of Designations and
(ii) to permit the increase of the authorized capital of the Corporation to
allow conversion of all authorized shares of the Convertible Preferred Stock
and the exercise of the Warrants.
"Securities Act" means the Securities Act of 1933, as amended, and the rules
and regulations of the Commission thereunder.
"Securities Purchase Agreement" means the Securities Purchase Agreement
dated as of August 8, 2000, among the Corporation and the initial holders of
the Convertible Preferred Stock.
"Stated Value" means $100,000 per share for each of the then outstanding
shares of Convertible Preferred Stock.
"Subsidiary" means, with respect to any Person, a corporation or other
entity of which more than 50% of the voting power of the voting equity
securities or equity interest is owned, directly or indirectly, by such
Person. Unless otherwise qualified, all references to a "Subsidiary" or to
"Subsidiaries" in this Certificate of Designation shall refer to a Subsidiary
or Subsidiaries of the Corporation.
"Warrants" means the warrants to purchase common stock of the Corporation
issued pursuant to the Securities Purchase Agreement.
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IN WITNESS WHEREOF, said eGAIN COMMUNICATIONS CORPORATION has caused this
Certificate of Designation of Convertible Preferred Stock to be duly executed
by its duly authorized officer, this 21st day of August, 2000.
eGAIN COMMUNICATIONS CORPORATION
/s/ Harpreet Grewal
By: _________________________________
Name: Harpreet Grewal
Title: CFO
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ANNEX B
CERTIFICATE OF DESIGNATION OF 6.75% SERIES B
CUMULATIVE CONVERTIBLE PREFERRED STOCK
OF
eGAIN COMMUNICATIONS CORPORATION
Pursuant to Section 151 of the General Corporation
Law of the State of Delaware
eGAIN COMMUNICATIONS CORPORATION, a corporation organized under the laws of
the State of Delaware (the "Corporation"), certifies that, pursuant to the
authority contained in its Amended and Restated Certificate of Incorporation,
and in accordance with the provisions of Section 151 of the General
Corporation Law of the State of Delaware, its Board of Directors has adopted
the following resolution creating a series of its Preferred Stock, $.001 par
value per share, designated 6.75% Series B Cumulative Convertible Preferred
Stock:
RESOLVED, that the series of authorized Preferred Stock, par value $.001 per
share, designated 6.75% Series B Cumulative Convertible Preferred Stock of the
Corporation be hereby created, and that the designations and amounts thereof
and the voting powers, preferences and relative, participating, optional and
other special rights of the shares of such series, and the qualifications,
limitations and restrictions thereof, are as follows:
A. Capitalized terms used herein and not otherwise defined shall have the
meanings set forth in Section E; and
B. The Corporation shall have authority to issue 850 shares of 6.75% of
Series B Cumulative Convertible Preferred Stock, $.001 par value per share
(the "Convertible Preferred Stock").
C. The voting powers, preferences and relative, participating, optional and
other special rights of the shares of the Convertible Preferred Stock, and the
qualifications, limitations and restrictions thereof are as follows:
1. Ranking. The Convertible Preferred Stock shall, with respect to dividend
rights and rights on liquidation, dissolution or winding up, rank pari passu
with the Corporation's Series A Cumulative Convertible Preferred Stock (the
"Series A Preferred Stock"), and rank senior to all other equity securities of
the Corporation, and any other series or class of the Corporation's preferred
stock, common stock or other capital stock, now or hereafter authorized.
2. Accretion of Liquidation Value; Dividends and Distributions. The
Liquidation Value of the Convertible Preferred Stock shall increase, and the
holders of shares of Convertible Preferred Stock shall be entitled to receive
dividends as, when and if declared by the Board of Directors, out of funds
legally available therefor ("Legally Available Funds"), as follows:
(a) Accretion of Liquidation Value. The Liquidation Value of each share
of Convertible Preferred Stock shall increase and accumulate on a daily
basis (whether or not declared) from the Agreement Date at an annual rate
equal to 6.75% of the Stated Value thereof, from the Agreement Date to the
first Compounding Date (as defined below), and thereafter of the
Liquidation Value as of the most recent Compounding Date, calculated on the
basis of a 365-day year, and shall compound on a semi-annual basis on June
30 and December 31 of each year (each, a "Compounding Date"), whether or
not declared. The cumulative amount by which the Liquidation Value is
increased pursuant to this Section C(2)(a) shall be referred to as the
"Accreted Amount."
(b) Participating Dividends. If the Board of Directors of the Corporation
shall declare a dividend or make any other distribution (including in cash
or other property or assets), to holders of shares of Common Stock, other
than a dividend payable solely in shares of Common Stock, then the holders
of each share of Convertible Preferred Stock shall be entitled to receive,
out of Legally Available Funds, a dividend or
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distribution in an amount equal to the amount of such dividend or
distribution received by a holder of the number of shares of Common Stock
for which such share of Convertible Preferred Stock is convertible on the
record date for such dividend or distribution. Any such amount shall be
paid to the holders of shares of Convertible Preferred Stock at the same
time such dividend or distribution is made to holders of Common Stock.
Dividends payable pursuant to this Section C(2)(b) shall be payable in the
same form paid to the holders of the Common Stock. The Board of Directors
may fix a record date for the determination of holders of shares of
Convertible Preferred Stock entitled to receive payment of any dividends
payable pursuant to this Section C(2)(b), which record date shall not be
more than 60 days nor less than 10 days prior to the applicable dividend
payment date. Upon the occurrence of either (i) a consolidation, merger or
other business combination or recapitalization or refinancing of the
Corporation resulting in the holders of the issued and outstanding voting
securities of the Corporation immediately prior to such transaction owning
or controlling less than a majority of the voting securities of the
continuing or surviving entity immediately following such transaction, or
(ii) a sale, lease, exchange, transfer or other disposition (including by
merger, consolidation or otherwise) of assets constituting all or
substantially all of the assets of the Corporation and its Subsidiaries,
taken as a whole, to a Person or group of Persons, all unpaid accrued or
accumulated dividends on Convertible Preferred Stock shall be immediately
due and payable.
(c) Dividends Pro Rata. All dividends paid with respect to shares of
Convertible Preferred Stock shall be paid pro rata to the holders entitled
thereto. If the Legally Available Funds shall be insufficient for the
payment of the entire amount of cash dividends payable at any dividend
payment date, such funds shall be allocated pro rata for the payment of
dividends with respect to the shares of Convertible Preferred Stock based
upon the aggregate Liquidation Value of the outstanding shares of
Convertible Preferred Stock.
3. Voting Rights. Except as required by law or by this Section C(3), the
holders of the Convertible Preferred Stock shall not be entitled to vote on
any matter voted on by the Stockholders of the Corporation. None of the
following actions may be taken, directly or indirectly, by the Corporation or
any of its Subsidiaries, without the approval of the holders of at least 66
2/3% of all issued and outstanding shares of Convertible Preferred Stock,
voting in person or by proxy, at a special or annual meeting called for the
purpose or by written consent:
(a) The adoption of an amendment, restatement or modification of the
Amended and Restated Certificate of Incorporation, By-laws, certificates of
designation or other governance documents which would change or otherwise
adversely affect the rights of the holders of the Convertible Preferred
Stock; and
(b) The authorization, creation or issuance of any shares of capital
stock or other equity or equity-linked securities which are ranked prior
to, or are pari passu with, the Convertible Preferred Stock (except for
36 shares of Series A Preferred Stock and additional shares thereof issued
upon conversion hereof).
So long as there is a Majority Shareholder, any of the actions set forth in
Section C(3) must also be approved by a majority of the issued and outstanding
shares of Convertible Preferred Stock, excluding the shares and vote of the
Majority Shareholder, voting in person or by proxy at a special or annual
meeting called for the purpose or by written consent.
4. Liquidation, Dissolution or Winding Up.
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, either voluntary or involuntary, before any distribution or
payment to holders of Common Stock or of any other capital stock ranking in
any such event junior to the Convertible Preferred Stock, the holders of
shares of Convertible Preferred Stock shall be entitled to be paid the
greater of: (i) the Liquidation Value, or (ii) an amount equal to the
amount that the holders of shares of Convertible Preferred Stock would be
entitled to receive in connection with such liquidation, dissolution or
winding up if all of the holders of Convertible Preferred Stock had
converted their shares into Common Stock immediately prior to any relevant
record date or payment in connection with such liquidation, dissolution or
winding up.
(b) If, upon any liquidation, dissolution or winding up of the
Corporation, the assets of the Corporation available for distribution to
the holders of Convertible Preferred Stock shall be insufficient to permit
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payment in full to such holders of the sums which such holders are entitled
to receive in such case, then all of the assets available for distribution
to holders of the Convertible Preferred Stock shall be distributed among
and paid to such holders ratably in proportion to the amounts that would be
payable to such holders if such assets were sufficient to permit payment in
full.
(c) A consolidation, merger or other business combination of the
Corporation resulting in the holders of the issued and outstanding voting
securities of the Corporation immediately prior to such transaction owning
or controlling a majority of the voting securities of the continuing or
surviving entity immediately following such transaction shall not be deemed
to be a liquidation, dissolution or winding up of the Corporation for
purposes of this Section C(4) (unless in connection therewith the
liquidation of the Corporation is specifically approved).
5. Conversion.
(a) Automatic Conversion Upon Shareholder Approval. Each share of the
Convertible Preferred Stock shall, upon the Requisite Shareholder Approval,
immediately, automatically and without any further action by or notice to
or by the Corporation, any holder thereof or any other Person, convert into
one share of the Corporation's Series A Preferred Stock. Following such
automatic conversion, each certificate that had previously represented
outstanding shares of the Convertible Preferred Stock shall represent
shares of the Series A Preferred Stock. The Corporation shall, following
such automatic conversion, upon submission by any holder of a certificate
that formerly represented shares of Convertible Preferred Stock, exchange
such certificate for a new certificate that represents an equal number of
shares of the Series A Preferred Stock, without any cost or expense to such
holder.
(b) Stockholders Right to Convert. If the Requisite Shareholder Approval
has not been obtained, each share of the Convertible Preferred Stock shall
be convertible at any time on or after the earlier of a Special Liquidity
Event (as defined below) or November 30, 2000, at the option of the holder
thereof, into validly issued, fully paid and non-assessable shares of the
Corporation's Series C Cumulative Redeemable Preferred Stock (the
"Conversion Shares") at the Conversion Price, determined as hereinafter
provided, in effect at the time of conversion. The Conversion Price shall
be initially $92.517 per share. The number of Conversion Shares issuable
upon conversion of a share of Convertible Preferred Stock is determined by
dividing the Liquidation Value (inclusive of any accrued and unpaid
dividends) of a share of Convertible Preferred Stock by the Conversion
Price in effect on the Conversion Date (as hereinafter defined) and
rounding the result to the nearest 1/100th of a share. The Conversion Price
shall be subject to adjustment as provided in Section C(5)(d) below. If a
holder converts more than one share of Convertible Preferred Stock at the
same time, the number of Conversion Shares issuable upon the conversion
shall be based upon the total number of shares of Convertible Preferred
Stock converted.
(c) Conversion Process. In order to convert shares of the Convertible
Preferred Stock into Conversion Shares, the holder thereof shall surrender
at the office of any transfer agent for the Convertible Preferred Stock (or
in the absence of any transfer agent, the Corporation) the certificate or
certificates therefor, duly endorsed to the Corporation or in blank, and
give written notice to the Corporation at said office that he or she elects
to convert such shares. Shares of the Convertible Preferred Stock shall be
deemed to have been converted immediately prior to the close of business on
the date of surrender of such shares for conversion in accordance with the
foregoing provisions (the "Conversion Date"), and the person or persons
entitled to receive Conversion Shares issuable upon such conversion shall
be treated for all purposes as the record holder or holders of such
Conversion Shares at such time. As promptly as practicable after the
Conversion Date, but in any event within five (5) Business Days after the
Conversion Date, the Corporation shall issue and deliver at said office the
certificate or certificates for the number of full Conversion Shares
issuable upon such conversion, together with a cash payment in lieu of any
fraction of a Conversion Share, as hereinafter provided, to the person or
persons entitled to receive the same or to the nominee or nominees of such
person or persons.
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(d) Conversion Price Adjustments. The Conversion Price shall be subject
to adjustment as follows:
(i) If 1220% of the average closing bid price per share of Common
Stock quoted on NASDAQ or, if not then traded on NASDAQ, such other
exchange, market or system on which the Common Stock is then listed or
traded, on the twenty (20) consecutive trading days immediately
preceding and including the first anniversary of the Agreement Date
(the "Market Value") is less than the Conversion Price, the Conversion
Price shall be adjusted to the greater of (x) 1220% of the Market Value
on the first anniversary of the Agreement Date, and (y) $56.875, (as
adjusted below).
(ii) In case the Corporation shall (1) pay a dividend in shares of
Common Stock to holders of Common Stock, (2) make a distribution in
shares of any class of its capital stock to all holders of Common
Stock, (3) subdivide any of its outstanding Common Stock into a greater
number of shares, or (4) combine any of its outstanding Common Stock
into a smaller number of shares, the Conversion Price in effect
immediately prior thereto shall be adjusted so that the holder of any
shares of Convertible Preferred Stock thereafter surrendered for
conversion shall be entitled to receive that number of Conversion
Shares representing the percentage of all outstanding shares of Common
Stock which the holder of the Convertible Preferred Stock would have
owned had each share of Convertible Preferred Stock been convertible
into ten (10) shares of Common Stock in lieu of the Conversion Shares,
and such conversion into Common Stock took place immediately prior to
the happening of such event and the Conversion Price shall be adjusted
accordingly. An adjustment made pursuant to this subsection (ii) shall
become effective immediately after the record date in the case of a
dividend in shares or distribution and shall become effective
immediately after the effective date in the case of subdivision or
combination.
(iii) In case the Corporation shall issue Common Stock, rights,
warrants, options or other convertible securities representing the
right to acquire Common Stock (collectively, including the Common
Stock, "Equity Equivalents") to all or substantially all holders of any
class of its Common Stock or to any other person entitling such person
or persons to subscribe for, purchase or otherwise acquire shares of
Common Stock (or securities in any manner representing the right to
acquire Common Stock) at a price per share that is less than the then
Current Market Price per share of Common Stock (as determined in
accordance with subsection (v) below), at the record date for the
determination of shareholders entitled to receive such Equity
Equivalents on the date of issuance thereof or, with respect to
issuances to persons other than holders of Convertible Preferred Stock,
on the issue date, as applicable, the Conversion Price in effect
immediately prior thereto shall be adjusted so that the same shall
equal the price determined by multiplying the Conversion Price in
effect immediately prior to such record date or issue date, as
applicable, by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding on such record date or issue date,
as applicable, plus the number of additional shares of Common Stock
which the aggregate offering price of the total number of shares of
Common Stock so to be offered (or the aggregate conversion price of the
convertible securities so to be offered) would purchase at such Current
Market Price (as defined in subsection (v) below), and of which the
denominator shall be the number of shares of Common Stock outstanding
on such record date or issue date, as applicable, plus the number of
additional shares of Common Stock to be offered for subscription or
purchase (or into which the convertible securities so to be offered are
convertible). Such adjustment shall be made successively whenever any
Equity Equivalents are issued, and shall become effective immediately
after such record date or such sale date, as applicable. In case such
price for subscription or purchase may be paid in a consideration part
or all of which shall be in a form other than cash, the value of such
consideration shall be determined in good faith by the Board of
Directors of the Corporation and shall be that value which is agreed
upon by at least 66 % of the members thereof; provided, that if the
holders of a majority of the shares of Convertible Preferred Stock
object to such valuation as determined by the Board of Directors within
fifteen (15) days of receipt of written notice of such valuation or, if
such percentage of the members of the Board of Directors of the
Corporation are unable to agree upon the value of such consideration,
the value thereof shall be determined by an independent investment bank
of nationally recognized stature that is selected by a majority of the
members of the Board of Directors. If at the end of the period
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during which such Equity Equivalents are exercisable not all such
Equity Equivalents shall have been exercised, the adjusted Conversion
Price shall be readjusted to what it would have been based upon the
number of additional shares of Common Stock actually issued (or the
number of shares of Common Stock issuable upon conversion of
convertible securities actually issued).
(iv) In case the Corporation shall distribute to all or substantially
all holders of any class of Common Stock any shares of capital stock of
the Corporation (other than Common Stock), evidences of indebtedness or
other non-cash assets (including securities of any company other than
the Corporation), or shall distribute to all or substantially all
holders of any class of Common Stock rights or warrants to subscribe
for or purchase any of its securities (excluding those referred to in
subsection (iii) above), then in each such case for the purpose of this
subsection (iv), the holders of the Convertible Preferred Stock shall
be entitled to a proportionate share of any such distribution as though
they were the holders of the number of shares of Common Stock of the
Corporation into which their shares of Convertible Preferred Stock
would be convertible as of the record date fixed for the determination
of the holders of Common Stock entitled to receive such distribution if
each share of Convertible Preferred Stock would be convertible into ten
shares of Common Stock in lieu of each Conversion Share.
(v) For the purpose of any computation under subsection (iii) of this
Section C(5)(d), the current market price (the "Current Market Price")
with respect to shares of Common Stock on any date shall be deemed to
be equal to the average of the closing bid prices per share of the
Common Stock on NASDAQ or, if not then listed or traded on NASDAQ, such
other exchange, market or system that the Common Stock is then listed
or traded on, for the 20 consecutive trading days immediately prior to
and including the record date or date of issuance with respect to
distributions, issuances or other events requiring such computation
under subsection (iii) above. If on any such date the shares of such
Common Stock are not listed or admitted for trading on any national
securities exchange or quoted on NASDAQ or a similar service, the
Current Market Price for such shares shall be the fair market value of
such shares on such date as determined in good faith by the Board of
Directors of the Corporation and shall be the value which is agreed
upon by at least 66 % of the members thereof, or if such percentage of
the members of the Board of Directors of the Corporation are unable to
agree upon the value of such consideration, the value thereof shall be
determined by an independent investment bank of a nationally recognized
stature that is selected by the holders of a majority of the
outstanding shares of Convertible Preferred Stock and the Corporation.
(vi) Certain Exceptions to Anti-Dilution Provisions. There shall be
no adjustment of the Conversion Price pursuant to Section C(5)(d)(iii)
in the case of Common Stock or securities convertible into or
exchangeable for Common Stock to be issued (1) to an employee,
consultant, officer or director of the Corporation pursuant to any
stock-based incentive plan that has been duly approved by the
Corporation's Board of Directors (including the Employee Stock Purchase
Plan), (2) as part of any arm's length commercial agreement approved by
the Board of Directors, so long as such issuance (on an as converted
basis) is no greater than 1% of the issued and outstanding (non-
diluted) shares of Common Stock, and all such issuances in the
aggregate are no greater than 5% of the issued and outstanding (non-
diluted) shares of Common Stock, each as in effect immediately prior to
such issuance, (3) as part of an underwritten public offering or (4)
upon conversion of the Convertible Preferred Stock or upon exercise of
the Warrants.
(vii) Amendment/Modification to Other Securities. Notwithstanding any
provision in Section C(5)(d) to the contrary and without limitation to
any other provision contained in Section C(5)(d), in the event any
securities of the Corporation (other than the Convertible Preferred
Stock and those securities set forth as exceptions in Section
C(5)(d)(vi)(1)) (collectively, the "Subject Securities"), are amended
or otherwise modified by operation of their terms or otherwise
(including by operation of such Subject Securities' anti-dilution
provisions) in any manner that results in (i) the reduction of the
exercise, conversion or exchange price of such Subject Securities
payable upon the exercise for, or conversion or exchange into, Common
Stock or other securities exercisable for, or
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convertible or exchangeable into, Common Stock and/or (ii) such Subject
Securities becoming exercisable for, or convertible or exchangeable
into (A) more shares or dollar amount of such Subject Securities which
are, in turn exercisable for, or convertible or exchangeable into,
Common Stock, or (B) more shares of Common Stock, then such amendment
or modification shall be treated for purposes of Section C(5)(d) as if
the Subject Securities which have been amended or modified have been
terminated and new securities have been issued with the amended or
modified terms. The Corporation shall make all necessary adjustments
(including successive adjustments if required) to the Conversion Price
in accordance with Section C(5)(d), but in no event shall the
Conversion Price be greater than it was immediately prior to the
application of this Subsection to the transaction in question. On the
expiration or termination of any such amended or modified Subject
Securities for which adjustment has been made pursuant to the operation
of the provisions of this Subsection under Section C(5)(d)(iii),
without such Subject Securities having been exercised, converted or
exchanged in full pursuant to their terms, the Conversion Price shall
be appropriately readjusted in the manner specified in such Section.
(e) De Minimis Adjustments. No adjustment of the Conversion Price shall
be made if the amount of such adjustment would result in a change in the
Conversion Price per share of less than $.01, but in such case any
adjustment that would otherwise be required to be made shall be carried
forward and shall be made at the time of and together with the next
subsequent adjustment, which together with any adjustment so carried
forward, would result in a change in the Conversion Price of $.01 or more
per share. Notwithstanding the provisions of the first sentence of this
Section C(5)(e), any adjustment postponed pursuant to this Section C(5)(e)
shall be made no later than the earlier of (i) three years from the date of
the transaction that would, but for the provisions of the first sentence of
this Section C(5)(e), have required such adjustment and (ii) immediately
prior to the date of any conversion of shares of Convertible Preferred
Stock.
(f) Fractional Shares. The Corporation shall be required to issue
fractions of Conversion Shares upon conversion of any shares of Convertible
Preferred Stock and to distribute certificates which evidence fractional
shares of Conversion Shares, rounded to the nearest 1/1000 of a share.
(g) Reorganization, Reclassification, Merger and Sale of Assets
Adjustment. If there occurs any capital reorganization or any
reclassification of the Common Stock (other than a change for which an
adjustment is provided in Section C(5)(d)(ii), (iii) or (iv) above), the
consolidation or merger of the Corporation with or into another Person
(other than a merger or consolidation of the Corporation in which the
Corporation is the continuing corporation and which does not result in any
reclassification or change of outstanding shares of Common Stock) or the
sale, transfer or other disposition of all or substantially all of the
assets of the Corporation to another Person (each an "Extraordinary
Transaction"), then, at the option of the holder of the Convertible
Preferred Stock, either:
(i) each share of Convertible Preferred Stock shall thereafter be
convertible into the same kind and amounts of securities (including
shares of stock) or other assets, or both, which were issuable or
distributable to the holders of outstanding Common Stock upon such
reorganization, reclassification, consolidation, merger, sale or
transfer, in respect of that number of shares of Common Stock into
which such share of Convertible Preferred Stock might have been
converted immediately prior to such reorganization, reclassification,
consolidation, merger, sale or transfer if each share of Convertible
Preferred Stock would be convertible into ten shares of Common Stock in
lieu of each Conversion Share; and, in any such case, appropriate
adjustments (as determined in good faith by the Board of Directors of
the Corporation) shall be made to assure that the provisions set forth
herein shall thereafter be applicable, as nearly as reasonably may be
practicable, in relation to any securities or other assets thereafter
deliverable upon the conversion of the Convertible Preferred Stock. If,
in the case of any such consolidation, merger, sale or transfer, the
stock or other securities and property (including cash) receivable
thereupon by a holder of Convertible Preferred Stock include shares of
stock or other securities and property of a corporation other than the
successor or purchasing corporation, as the case may be, in such
consolidation, merger, sale or transfer, then effective provision shall
also be made in the certificate of incorporation of such other
corporation or otherwise of such additional antidilution
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provisions as are necessary to protect the interests of the holders of
the Convertible Preferred Stock by reason of the foregoing; or
(ii) each holder of the Convertible Preferred Stock may convert its
Convertible Preferred Stock into validly issued, fully paid and non-
assessable Conversion Shares immediately prior to the closing of such
consolidation, merger, sale or conveyance (the "Transaction Closing
Date"), such conversion to be calculated by dividing the Liquidation
Value, as of the later of (x) the Transaction Closing Date or (y) the
third anniversary of the Agreement Date, by the applicable Conversion
Price.
The provisions of Section C(5)(g)(i) shall similarly apply to successive
consolidations, mergers, sales or transfers.
(h) Certificate as to Adjustments. Whenever the Conversion Price, or the
securities or other property deliverable upon the conversion of the
Convertible Preferred Stock, shall be adjusted pursuant to the provisions
hereof, the Corporation shall promptly give written notice thereof to each
holder of shares of Convertible Preferred Stock at such holder's address as
it appears on the transfer books of the Corporation and shall forthwith
file, at its principal executive office and with any transfer agent or
agents for the Convertible Preferred Stock and the Series C Cumulative
Redeemable Preferred Stock, a certificate, signed by the President or one
of the Vice Presidents of the Corporation, and by its Chief Financial
Officer, its Treasurer or one of its Assistant Treasurers, stating the
number of Conversion Shares, or the securities or other property
deliverable, per share of Convertible Preferred Stock converted, calculated
to the nearest cent or to the nearest one one-hundredth of a share and
setting forth in reasonable detail the method of calculation and the facts
requiring such adjustment and upon which such calculation is based. Each
adjustment shall remain in effect until a subsequent adjustment hereunder
is required.
(i) Reservation of Conversion Shares. The Corporation shall at all times
reserve and keep available for issuance upon the conversion of the shares
of Convertible Preferred Stock the maximum number of each of its authorized
but unissued shares of Series C Cumulative Redeemable Preferred Stock as is
reasonably anticipated to be sufficient to permit the conversion of all
outstanding shares of Convertible Preferred Stock into Conversion Shares
and shall take all action required to increase the authorized number of
shares of Series C Cumulative Redeemable Preferred Stock if at any time
there shall be insufficient authorized but unissued shares of Series C
Cumulative Redeemable Preferred Stock to permit such reservation or to
permit the conversion of all outstanding shares of Convertible Preferred
Stock.
(j) No Conversion Charge or Tax. The issuance and delivery of
certificates for shares of Common Stock upon the conversion of shares of
Convertible Preferred Stock shall be made without charge to the holder of
shares of Convertible Preferred Stock for any issue or transfer tax, or
other incidental expense in respect of the issuance or delivery of such
certificates or the securities represented thereby, all of which taxes and
expenses shall be paid by the Corporation.
(k) No Amendment of Certificate of Incorporation. The Corporation will
not, by amendment of its Amended and Restated Certificate of Incorporation
or through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other action, avoid or seek
to avoid the observance or performance of any term of the Amended and
Restated Certificate of Incorporation, but will at all times in good faith
assist in carrying out of all such terms and in taking of all such action
as may be necessary or appropriate in order to protect the rights of the
holders of Convertible Preferred Stock against dilution or other
impairment. Without limiting the generality of the foregoing, the
Corporation (i) will not increase the par value of any shares of stock
receivable on the conversion of the Convertible Preferred Stock, (ii) will
at all times reserve and keep available the maximum number of its
authorized shares of Series C Cumulative Redeemable Preferred Stock, free
from all preemptive rights therein, which will be sufficient to permit the
full conversion of the Convertible Preferred Stock, and (iii) will take
such action as may be necessary or appropriate in order that all Conversion
Shares as may be issued pursuant to the conversion of the Convertible
Preferred Stock will, upon issuance, be duly and validly issued, fully paid
and nonassessable, and free from all taxes, liens and charges with respect
to the issue thereof.
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(l) Notice of Certain Events. In case at any time prior to the conversion
of all of the Convertible Preferred Stock:
(i) the Corporation shall authorize the granting to all the holders
of Common Stock of rights to subscribe for or purchase any shares of
stock of any class or of any other rights; or
(ii) there shall be any reclassification of the Common Stock of the
Corporation (other than a subdivision or combination of its outstanding
Common Stock); or
(iii) there shall be any capital reorganization by the Corporation;
or
(iv) the Corporation consolidates or merges with, or transfers all or
substantially all of its assets to, another corporation and
shareholders of the Corporation must approve the transaction; or
(v) there shall be voluntary or involuntary dissolution, liquidation
and winding up by the Corporation or dividend or distribution to
holders of Common Stock; or
(vi) any other event described in Section C(5)(d);
then in any one or more of said cases, the Corporation shall cause to be
delivered to the holders of Convertible Preferred Stock, at the earliest
practicable time (and, in any event, not less than twenty (20) days before any
record date or the date set for definitive action), written notice of the date
on which the books of the Corporation shall close or a record shall be taken
for such dividend, distribution or subscription rights or such reorganization,
sale, consolidation, merger, dissolution, liquidation or winding up or other
transaction shall take place, as the case may be. Such notice shall also set
forth such facts as shall indicate the effect of such action (to the extent
such effect may be known at the date of such notice) on the Conversion Price
and the kind and amount of the shares of stock and other securities and
property deliverable upon conversion of the Convertible Preferred Stock. Such
notice shall also specify the date, if known, as of which the holders of
record of the Common Stock shall participate in said dividend, distribution or
subscription rights or shall be entitled to exchange their shares of the
Common Stock for securities or other property (including cash) deliverable
upon such reorganization, sale, consolidation, merger, dissolution,
liquidation or winding up or other transaction, as the case may be.
6. Redemption.
(a) Mandatory Redemption. On the fifth anniversary of the Agreement Date
(the "Mandatory Redemption Date"), the Corporation shall either (i) redeem
each outstanding share of Convertible Preferred Stock, at a redemption
price per share equal to the Liquidation Value, or, at its option, (ii)
convert each outstanding share of Convertible Preferred Stock into validly
issued, fully paid and non-assessable shares of Series C Cumulative
Redeemable Preferred Stock at a Conversion Price equal to 950% of the
average closing bid price per share of Common Stock quoted on NASDAQ or, if
not then listed on NASDAQ, such other exchange, market or system on which
the Common Stock is then listed or traded, on the twenty (20) consecutive
trading days immediately preceding and including the Mandatory Redemption
Date (the "Redemption Conversion Price") in accordance with Section C(5)(b)
mutatis mutandis (applying the Redemption Conversion Price). The total sum
payable or the total number of Series C Cumulative Redeemable Preferred
Stock shares to be received, as applicable, per share of Convertible
Preferred Stock to be redeemed or converted, as applicable (the "Redeemed
Shares"), on the Mandatory Redemption Date is hereinafter referred to as
the "Redemption Price," and the payment to be made or the Conversion Shares
to be received as applicable, on the Mandatory Redemption Date for the
Redeemed Shares is hereinafter referred to as the "Redemption Payment."
Upon written notice from the Corporation, to be provided at least twenty
(20) Business Days prior to the Mandatory Redemption Date and to specify
whether the Corporation is redeeming the shares in accordance with Section
C(6)(a)(i) or converting the shares in accordance with Section C(6)(a)(ii),
and payment in full of the Redemption Payment, each holder of Convertible
Preferred Stock so redeemed or converted, as applicable, shall promptly
surrender to the Corporation, at any place where the Corporation shall
maintain a transfer agent for its Convertible Preferred Stock, certificates
representing the shares so redeemed or converted, duly endorsed in blank or
accompanied by proper instruments of transfer. On the Mandatory Redemption
Date, the Corporation shall deliver to the office of
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said transfer agent the Redemption Price in full (i) in cash if the
Corporation redeems the Convertible Preferred Stock in accordance with
Section C(7)(a)(i), or (ii) if the Corporation converts the Convertible
Preferred Stock in accordance with Section C(7)(a)(ii), in stock
certificates representing shares of Series C Cumulative Redeemable
Preferred Stock issuable upon such conversion on behalf of the person or
persons entitled to receive the same or to the nominee or nominees of such
person. This Section C(6)(a) shall only apply to shares of Convertible
Preferred Stock not converted into Conversion Shares prior to the Mandatory
Redemption Date, and nothing herein shall prohibit a holder of Convertible
Preferred Stock from converting its shares at any time prior to the
Mandatory Redemption Date.
(b) Termination of Rights. Except as otherwise set forth herein, on and
after the Mandatory Redemption Date all rights of any holder of Convertible
Preferred Stock as a holder of Redeemed Shares shall cease and terminate;
and such Redeemed Shares shall no longer be deemed to be outstanding,
whether or not the certificates representing such shares have been received
by the Corporation; except that, if the Corporation defaults in the payment
of the Redemption Payment for any reason, the rights, preferences and
privileges of the holders of Convertible Preferred Stock shall continue to
inure to the benefit of the holders of Convertible Preferred Stock until
the Corporation cures such default.
7. Status on Conversion or Redemption. Upon any conversion or redemption of
shares of the Convertible Preferred Stock and payment in full of the
Redemption Price or Conversion Shares, as applicable, the shares of
Convertible Preferred Stock so converted or redeemed shall be canceled.
D. General Provisions.
1. Notices. Except as otherwise expressly provided, whenever notices or
other communications are required to be made, delivered or otherwise given to
holders of shares of the Convertible Preferred Stock, the notice or other
communication shall be made in writing and shall be by registered or certified
first class mail, return receipt requested, telecopier, courier service or
personal delivery, addressed to the Persons shown on the books of the
Corporation as such holders at the addresses as they appear in the books of
the Corporation, as of a record date or dates determined in accordance with
the Corporation's Amended and Restated Certificate of Incorporation and By-
laws and applicable law, as in effect from time to time. All such notices and
communications shall be deemed to have been duly given: when delivered by
hand, if personally delivered; when delivered by courier, if delivered by
commercial overnight courier service; five Business Days after being deposited
in the U.S. mail, postage prepaid, if mailed; and when receipt is acknowledged
verbally or in writing (but not mechanically), if telecopied.
2. Certain Remedies. Any registered holder of shares of Convertible
Preferred Stock shall be entitled to an injunction or injunctions to prevent
violations of the provisions of this Certificate of Designation and to enforce
specifically the terms and provisions of this Certificate of Designation in
any court of the United States or any state thereof having jurisdiction, this
being in addition to any other remedy to which such holder may be entitled at
law or in equity. Notwithstanding the foregoing, the observance of any term of
this Certificate of Designation which benefits only the holders of the
Convertible Preferred Stock may be waived by holders of at least 66 % of all
issued and outstanding Convertible Preferred Stock, so long as there is a
Majority Shareholder, any such waiver must also be approved by a majority of
the issued and outstanding shares of Convertible Preferred Stock excluding the
shares and approval of the Majority Shareholder (either generally or in a
particular instance and either retroactively or prospectively).
3. Invalidity. If any right, preference or limitation of the Convertible
Preferred Stock set forth herein (as amended from time to time) is invalid,
unlawful or incapable of being enforced by reason of any rule or law or public
policy, all other rights, preferences and limitations set forth in this
Section 3 (as so amended) which can be given effect without the invalid,
unlawful or unenforceable right, preference or limitation herein set forth
shall not be deemed dependant upon any other such right, preference or
limitation unless so expressed herein.
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<PAGE>
E. Definitions. For the purposes of this Certificate of Designation, the
following terms shall have the meanings indicated:
"Affiliate" means any Person who is an "affiliate" as defined in Rule 12b-2
of the General Rules and Regulations under the Exchange Act.
"Agreement Date" means August 8, 2000.
"Amended and Restated Certificate of Incorporation" means the Amended and
Restated Certificate of Incorporation, as amended from time to time
(including, without limitation, by any certificate of amendment or certificate
of designation), of the Corporation and/or its Subsidiaries, as the context
may require.
"Business Day" means any day except a Saturday, a Sunday, or other day on
which commercial banks in the State of New York are authorized or required by
law or executive order to close.
"By Laws" means the by-laws, as amended, of the Corporation and/or its
Subsidiaries, as the context may require.
"Commission" means the Securities and Exchange Commission or any similar
agency then having jurisdiction to enforce the Securities Act.
"Common Stock" means the Corporation's Common Stock, par value $.001 per
share.
"Governmental Authority" means the government of any nation, state, city,
locality or other political subdivision of any thereof, any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, and any corporation or other entity owned or
controlled, through stock or capital ownership or otherwise, by any of the
foregoing.
"including," when followed by one or more items, means including but not
limited to such items, unless the context clearly requires otherwise.
"Liquidation Value" means, with respect to each share of Convertible
Preferred Stock, an amount equal to the Stated Value per share of Convertible
Preferred Stock plus (x) the Accreted Amount as of such date and (y) an amount
equal to any dividends accrued but not yet paid under Section C(2)(b).
"Majority Shareholder" means the Oak Hill Entities (as defined in the
Securities Purchase Agreement) and their Affiliates, so long as they
collectively own at least 33% of the outstanding shares of the Convertible
Preferred Stock, and any transferee of the Oak Hill Entities and their
Affiliates if such transferee and its Affiliates (x) purchase over 50% of the
outstanding shares of Convertible Preferred Stock from the Oak Hill Entities
and their Affiliates and (y) continue to collectively own at least 33% of the
outstanding shares of Convertible Preferred Stock.
"NASDAQ" means the National Association of Securities Dealers, Inc.
Automated Quotation System.
"Person" means any individual, firm, corporation, limited liability company,
partnership, trust, incorporated or unincorporated association, joint venture,
joint stock company, Governmental Authority or other entity of any kind, and
shall include any successor (by merger or otherwise) of any such entity.
"Requisite Shareholder Approval" means the approval by the stockholders of
the Corporation required by the NASDAQ to permit the conversion of the
Convertible Preferred Stock pursuant to Section C(5)(a) and any adjustments in
the number of shares of Common Stock issuable upon conversion or redemption
thereof pursuant to the provisions of this Certificate of Designations and the
Series A Preferred Stock Certificate of Designations and (ii) to permit the
increase of the authorized capital of the Corporation to allow conversion of
all authorized shares of the Series A Preferred Stock and the exercise of the
Warrants.
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<PAGE>
"Securities Act" means the Securities Act of 1933, as amended, and the rules
and regulations of the Commission thereunder.
"Securities Purchase Agreement" means the Securities Purchase Agreement
dated as of August 8, 2000, among the Corporation and the initial holders of
the Convertible Preferred Stock.
"Special Liquidity Event" means the earlier of (i) an announcement by the
Corporation that it has entered into an agreement relating to an Extraordinary
Transaction or (ii) the commencement of a tender offer or exchange offer for
at least 10% of the outstanding shares of Common Stock.
"Stated Value" means $100,000 per share for each of the then outstanding
shares of Convertible Preferred Stock.
"Subsidiary" means, with respect to any Person, a corporation or other
entity of which more than 50% of the voting power of the voting equity
securities or equity interest is owned, directly or indirectly, by such
Person. Unless otherwise qualified, all references to a "Subsidiary" or to
"Subsidiaries" in this Certificate of Designation shall refer to a Subsidiary
or Subsidiaries of the Corporation.
"Warrants" means the warrants to purchase common stock of the Corporation
issued pursuant to the Securities Purchase Agreement.
IN WITNESS WHEREOF, said eGAIN COMMUNICATIONS CORPORATION has caused this
Certificate of Designation of Convertible Preferred Stock to be duly executed
by its duly authorized officer, this 21st day of August, 2000.
eGAIN COMMUNICATIONS CORPORATION
/s/ Harpreet Grewal
By:___________________________________________
Name: Harpreet Grewal
Title: CFO
[SIGNATURE PAGE TO CERTIFICATE OF DESIGNATION]
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<PAGE>
ANNEX C
CERTIFICATE OF DESIGNATION OF SERIES C
CUMULATIVE REDEEMABLE PREFERRED STOCK
OF
eGAIN COMMUNICATIONS CORPORATION
Pursuant to Section 151 of the General Corporation
Law of the State of Delaware
eGAIN COMMUNICATIONS CORPORATION, a corporation organized under the laws of
the State of Delaware (the "Corporation"), certifies that, pursuant to the
authority contained in its Amended and Restated Certificate of Incorporation,
and in accordance with the provisions of Section 151 of the General
Corporation Law of the State of Delaware, its Board of Directors has adopted
the following resolution creating a series of its Preferred Stock, $.001 par
value per share, designated Series C Cumulative Redeemable Preferred Stock:
RESOLVED, that the series of authorized Preferred Stock, par value $.001 per
share, designated Series C Cumulative Redeemable Preferred Stock of the
Corporation be hereby created, and that the designations and amounts thereof
and the voting powers, preferences and relative, participating, optional and
other special rights of the shares of such series, and the qualifications,
limitations and restrictions thereof, are as follows:
A. Capitalized terms used herein and not otherwise defined shall have the
meanings set forth in Section E; and
B. The Corporation shall have authority to issue 2,083,000 shares of Series
C Cumulative Redeemable Preferred Stock, $.001 par value per share (the
"Redeemable Preferred Stock").
C. The voting powers, preferences and relative, participating, optional and
other special rights of the shares of the Redeemable Preferred Stock, and the
qualifications, limitations and restrictions thereof are as follows:
1. Ranking. The Redeemable Preferred Stock shall, with respect to dividend
rights and rights on liquidation, dissolution or winding up, rank junior to
the Series A Cumulative Convertible Preferred Stock (the "Series A Preferred
Stock") and the Series B Cumulative Convertible Preferred Stock (the "Series B
Preferred Stock") of the Corporation, and rank senior to all other equity
securities of the Corporation, and any other series or class of the
Corporation's preferred stock, common stock or other capital stock, now or
hereafter authorized.
2. Dividends and Distributions. The holders of shares of Redeemable
Preferred Stock shall be entitled to receive dividends, as, when and if
declared by the Board of Directors, of funds legally available therefor
("Legally Available Funds"), as follows:
(a) Dividends. Dividends on each share of the Redeemable Preferred Stock
shall begin to accrue and accumulate on a daily basis (whether or not
declared) from the date such share is issued (the "Issuance Date") at the
following rates per annum: (i) 12% of the Stated Value of such share, from
the Issuance Date to 180 days after the Issuance Date, and (ii) thereafter,
15% of the Stated Value of such share, in each case calculated on the basis
of a 365-day year, and shall cumulate if not declared and paid as provided
below.
(b) Participating Dividends. Under no circumstances shall the Corporation
pay any dividend or other distribution to holders of shares of Common Stock
at any time when there is any arrears in the payment of accrued and
accumulated dividends on the Redeemable Preferred Stock. If the Board of
Directors of the Corporation shall in any calendar year declare a dividend
or make any other distribution (including in cash or other property or
assets) to holders of shares of Common Stock, other than a dividend payable
solely in shares of Common Stock, then the holders of shares of Redeemable
Preferred Stock shall be entitled to receive, out of Legally Available
Funds, an additional dividend or distribution in respect of each share of
Redeemable Preferred Stock equal to the excess, if any, of the amount of
such dividend or distribution
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<PAGE>
payable to the holder of ten shares of Common Stock over the amount of
dividends payable in respect of one share of Redeemable Preferred Stock in
such calendar year. The calculation of the participating dividends pursuant
to this Section C(2)(b) shall be appropriately adjusted for any Adjusting
Event.
(c) Payment; Record Date. Dividends on Redeemable Preferred Stock payable
pursuant to Section C(2)(a) shall be payable in cash on June 30 and
December 31 of each year and, if not paid on such dates, shall compound on
such dates. Dividends payable pursuant to Section C(2)(b) shall be payable
in the same form and at the same time as such dividend or distribution is
made to holders of the Common Stock. Upon the occurrence of either (a) a
consolidation, merger or other business combination or recapitalization or
refinancing of the Corporation resulting in the holders of the issued and
outstanding voting securities of the Corporation immediately prior to such
transaction owning or controlling less than a majority of the voting
securities of the continuing or surviving entity immediately following such
transaction, or (b) a sale, lease, exchange, transfer or other disposition
(including by merger, consolidation or otherwise) of assets constituting
all or substantially all of the assets of the Corporation and its
Subsidiaries, taken as a whole, to a Person or group of Persons, all unpaid
accrued or accumulated dividends on Redeemable Preferred Stock shall be
immediately due and payable. The Board of Directors may fix a record date
for the determination of holders of shares of Redeemable Preferred Stock
entitled to receive payment of any dividends payable pursuant to Section
C(2), which record date shall not be more than 60 days nor less than 10
days prior to the applicable dividend payment date.
(d) Dividends Pro Rata. All dividends paid with respect to shares of
Redeemable Preferred Stock shall be paid pro rata to the holders entitled
thereto. If the Legally Available Funds shall be insufficient for the
payment of the entire amount of cash dividends payable at any dividend
payment date, such funds shall be allocated pro rata for the payment of
dividends with respect to the shares of Redeemable Preferred Stock based
upon the aggregate Liquidation Value of the outstanding shares of
Redeemable Preferred Stock.
3. Voting Rights. Except as required by law or by this Section C(3), the
holders of the Redeemable Preferred Stock shall not be entitled to vote on any
matter voted on by the stockholders of the Corporation. None of the following
actions may be taken, directly or indirectly, by the Corporation or any of its
Subsidiaries, without the approval of the holders of at least 66 2/3% of the
Aggregate Interest, voting in person or by proxy, at a special or annual
meeting called for the purpose or by written consent:
(a) The adoption of an amendment, restatement or modification of the
Amended and Restated Certificate of Incorporation, By-laws, certificates of
designation or other governance documents which would change or otherwise
adversely affect the rights of the holders of the Redeemable Preferred
Stock; and
(b) The authorization, creation or issuance of any shares of capital
stock or other equity or equity-linked securities which are ranked prior
to, or are pari passu with, the Redeemable Preferred Stock (other than the
Series A and Series B Cumulative Convertible Preferred Stock).
So long as there is a Majority Shareholder, any of the actions set forth in
Section C(3) must also be approved by a majority of the Aggregate Interest,
excluding the shares and vote of the Majority Shareholder, voting in person or
by proxy at a special or annual meeting called for the purpose or by written
consent.
4. Liquidation, Dissolution or Winding Up.
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, either voluntary or involuntary, before any distribution or
payment to holders of Common Stock or of any other capital stock ranking in
any such event junior to the Redeemable Preferred Stock, the holders of
shares of Redeemable Preferred Stock shall be entitled to be paid the
Liquidation Value.
(b) If, upon any liquidation, dissolution or winding up of the
Corporation, the assets of the Corporation available for distribution to
the holders of Redeemable Preferred Stock shall be insufficient to permit
payment in full to such holders of the sums which such holders are entitled
to receive in such case, then all
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<PAGE>
of the assets available for distribution to holders of the Redeemable
Preferred Stock shall be distributed among and paid to such holders ratably
in proportion to the amounts that would be payable to such holders if such
assets were sufficient to permit payment in full.
(c) A consolidation, merger or other business combination of the
Corporation resulting in the holders of the issued and outstanding voting
securities of the Corporation immediately prior to such transaction owning
or controlling a majority of the voting securities of the continuing or
surviving entity immediately following such transaction shall not be deemed
to be a liquidation, dissolution or winding up of the Corporation for
purposes of this Section C(4) (unless in connection therewith the
liquidation of the Corporation is specifically approved).
5. Redemption at the Option of the Corporation.
(a) Subject to the conditions set forth below, any or all of the
Redeemable Preferred Stock shall be redeemable, at the option of the
Corporation, at a redemption price per share (the "Redemption Price") equal
to the greater of (i) 101% of the applicable Liquidation Value and (ii) an
amount per share equal to the average Adjusted Market Price per ten (10)
shares of Common Stock on the twenty (20) consecutive trading days prior to
the date of redemption plus any accrued and unpaid dividends on such share
of Redeemable Preferred Stock on such date of redemption (the "Market
Redemption Price").
(b) In order to exercise its redemption right, the Corporation shall send
a notice to the holders of the Redeemable Preferred Stock in accordance
with Section D(1), stating the aggregate number of shares of Redeemable
Preferred Stock to be redeemed, the number of shares of Redeemable
Preferred Stock held by each holder that the Corporation intends to redeem
and the date (the "Corporation Redemption Date") of such redemption (the
"Redemption Notice"), the notice to be sent a minimum of twenty (20)
Business Days prior to such redemption date.
(c) On the Corporation Redemption Date (i) the full Redemption Price for
every share redeemed shall be payable in cash by the Corporation to the
person or persons entitled to receive the same or to the nominee or
nominees of such person; and (ii) each holder of the Redeemable Preferred
Stock shall surrender to the Corporation the certificate or certificates
representing the shares of the Redeemable Preferred Stock that were the
subject of the Redemption Notice, duly endorsed to the Corporation or in
blank, and each surrendered certificate shall be canceled and retired. In
the event that less than all of the shares represented by any such
certificate are redeemed, a new certificate shall be issued by the
Corporation, at its expense, representing the unredeemed shares.
(d) If the Corporation chooses to redeemed only part of the issued and
outstanding shares of Redeemable Preferred Stock, the Corporation shall
effect such redemption pro rata according to the number of shares of
Redeemable Preferred Stock held by each holder.
6. Redemption at the Option of the Holders.
(a) Subject to the conditions set forth below, any or all of the
Redeemable Preferred Stock shall be redeemable, at the option of the holder
thereof, at a Redemption Price equal to the greater of (i) 101% of the
applicable Liquidation Value or (ii) the Market Redemption Price.
(b) In order to exercise its redemption right, the holder of the
Redeemable Preferred Stock shall send a notice to the Chief Financial
Officer of the Corporation, stating the number of shares of Redeemable
Preferred Stock to be redeemed, the aggregate number of shares of
Redeemable Preferred Stock held by such holder and the date (the "Holder
Redemption Date") on or before which such redemption shall occur (the
"Holder Redemption Notice"). The Holder Redemption Notice must be sent not
less than 120 days prior to such Holder Redemption Date, except that a
Holder Redemption Notice sent between December 1, 2000 and January 31, 2001
or sent between August 1, 2005 and September 30, 2005 may be sent not less
than thirty (30) days prior to such Holder Redemption Date. The Holder
Redemption Notice may be sent contemporaneously with the notice to convert
the Series B Preferred Stock into Redeemable Preferred Stock or at any time
thereafter, provided that the notice complies with this Section C(6)(b).
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<PAGE>
(c) On or before the Holder Redemption Date (i) the full Redemption Price
for every share redeemed shall be payable in cash by the Corporation to the
person or persons entitled to receive the same or to the nominee or
nominees of such person; and (ii) each holder of the Redeemable Preferred
Stock shall surrender to the Corporation the certificate or certificates
representing the shares of the Redeemable Preferred Stock that were the
subject of the Holder Redemption Notice, duly endorsed to the Corporation
or in blank, and each surrendered certificate shall be canceled and
retired. In the event that less than all of the shares represented by any
such certificate are redeemed, a new certificate shall be issued by the
Corporation, at its expense, representing the unredeemed shares.
7. Termination of Rights. Except as otherwise set forth herein, on and after
a Corporation Redemption Date or a Holder Redemption Date, all rights of any
holder of Redeemable Preferred Stock as a holder of the shares redeemed on
such date shall cease and terminate, and such redeemed shares shall be
canceled and no longer be deemed to be outstanding, whether or not the
certificates representing such shares have been received by the Corporation;
except that, if the Corporation defaults in the payment of the Redemption
Price in full for any reason, the rights, preferences and privileges of the
holders of Redeemable Preferred Stock (including the accretion and payment of
dividends) shall continue to inure to the benefit of the holders of Redeemable
Preferred Stock until the Corporation cures such default.
8. Reorganization, Reclassification, Merger and Sale of Assets
Adjustment. If there occurs any capital reorganization or any reclassification
of the Common Stock, the consolidation or merger of the Corporation with or
into another Person (other than a merger or consolidation of the Corporation
in which the Corporation is the continuing corporation and which does not
result in any reclassification or change of outstanding shares of Common
Stock) or the sale, transfer or other disposition of all or substantially all
of the assets of the Corporation to another Person (each an "Extraordinary
Transaction"), then, in addition to other rights set forth herein, each share
of Convertible Preferred Stock shall be entitled to receive the same kind and
amounts of securities (including shares of stock) or other assets, or both,
which were issuable or distributable to the holders of outstanding Common
Stock upon such reorganization, reclassification, consolidation, merger, sale
or transfer, in respect of that number of shares of Common Stock determined by
dividing (x) the greater of (i) 101% of the Liquidation Value and (ii) the
Market Redemption Price by (y) the average Adjusted Market Price per ten
(10) shares of Common Stock on the twenty (20) consecutive trading days
immediately prior to such reorganization, reclassification, consolidation,
merger, sale or transfer.
D. General Provisions.
1. Notices. Except as otherwise expressly provided, whenever notices or
other communications are required to be made, delivered or otherwise given to
holders of shares of the Redeemable Preferred Stock, the notice or other
communication shall be made in writing and shall be by registered or certified
first class mail, return receipt requested, telecopier, courier service or
personal delivery, addressed to the Persons shown on the books of the
Corporation as such holders at the addresses as they appear in the books of
the Corporation, as of a record date or dates determined in accordance with
the Corporation's Amended and Restated Certificate of Incorporation and By-
laws and applicable law, as in effect from time to time. All such notices and
communications shall be deemed to have been duly given: when delivered by
hand, if personally delivered; when delivered by courier, if delivered by
commercial overnight courier service; five Business Days after being deposited
in the U.S. mail, postage prepaid, if mailed; and when receipt is acknowledged
verbally or in writing (but not mechanically), if telecopied.
2. Certain Remedies. Any registered holder of shares of Redeemable Preferred
Stock shall be entitled to an injunction or injunctions to prevent violations
of the provisions of this Certificate of Designation and to enforce
specifically the terms and provisions of this Certificate of Designation in
any court of the United States or any state thereof having jurisdiction, this
being in addition to any other remedy to which such holder may be entitled at
law or in equity. Notwithstanding the foregoing, the observance of any term of
this Certificate of Designation which benefits only the holders of the
Redeemable Preferred Stock may be waived by holders of at
C-4
<PAGE>
least 66 2/3% of the Aggregate Interest, provided that, so long as there is a
Majority Shareholder, any such waiver must also be approved by holders of a
majority of the Aggregate Interest excluding the shares and vote of the
Majority Shareholder (either generally or in a particular instance and either
retroactively or prospectively).
3. Invalidity. If any right, preference or limitation of the Redeemable
Preferred Stock set forth herein (as amended from time to time) is invalid,
unlawful or incapable of being enforced by reason of any rule or law or public
policy, all other rights, preferences and limitations set forth in this
Section 2 (as so amended) which can be given effect without the invalid,
unlawful or unenforceable right, preference or limitation herein set forth
shall not be deemed dependant upon any other such right, preference or
limitation unless so expressed herein.
E. Definitions. For the purposes of this Certificate of Designation, the
following terms shall have the meanings indicated:
"Adjusting Event" means any case in which the Corporation shall (1) pay a
dividend in shares of Common Stock to holders of Common Stock, (2) make a
distribution in shares of any class of its capital stock to all holders of
Common Stock, (3) subdivide any of its outstanding Common Stock into a greater
number of shares, or (4) combine any of its outstanding Common Stock into a
smaller number of shares.
"Adjusted Market Price" means the Market Price adjusted (upwards only) as
follows: in case an Adjusting Event occurs, the Market Price shall be adjusted
to represent the percentage of all outstanding shares of Common Stock which
the holder of the Redeemable Preferred Stock would have owned had each share
of Redeemable Preferred Stock been converted into ten shares of Common Stock
immediately prior to the happening of such event.
"Affiliate" means any Person who is an "affiliate" as defined in Rule 12b-2
of the General Rules and Regulations under the Exchange Act.
"Aggregate Interest" means the aggregate interest of all issued and
outstanding Redeemable Preferred Stock and Series B Preferred Stock, such
interest to be calculated in accordance with the Liquidation Value of each of
the Redeemable Preferred Stock and the Series B Preferred Stock, each as
defined in their respective certificates of designations.
"Business Day" means any day except a Saturday, a Sunday, or other day on
which commercial banks in the State of New York are authorized or required by
law or executive order to close.
"Common Stock" means the Corporation's Common Stock, par value $.001 per
share.
"including," when followed by one or more items, means including but not
limited to such items, unless the context clearly requires otherwise.
"Liquidation Value" means, with respect to each share of Redeemable
Preferred Stock as of any date, an amount equal to the Stated Value per share
of Redeemable Preferred Stock plus an amount equal to all dividends accrued
but not yet paid under Section C(2).
"Majority Shareholder" means the Oak Hill Entities (as defined in the
Securities Purchase Agreement) and their Affiliates, so long as they
collectively own at least 33% of the Aggregate Interest, and any transferee of
the Oak Hill Entities and their Affiliates if such transferee and its
Affiliates (x) purchase over 50% of the Aggregate Interest from the Oak Hill
Entities and their Affiliates and (y) continue to collectively own at least
33% of the Aggregate Interest.
"Market Price" on any date shall mean the closing bid price per share of the
Common Stock on NASDAQ or, if not then listed or traded on NASDAQ, such other
exchange, market or system that the Common Stock is then listed or traded on.
If on any such date the shares of such Common Stock are not listed or admitted
for trading on any national securities exchange or quoted on NASDAQ or a
similar service, the Market Price for
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<PAGE>
such shares shall be the fair market value of such shares on such date as
determined in good faith by the Board of Directors of the Company and shall be
the value which is agreed upon by at least 66 2/3% of the members thereof, or
if such percentage of the members of the Board of Directors are unable to
agree upon the value of such consideration, the value thereof shall be
determined by an independent investment bank of a nationally recognized
stature that is selected by the holders of a majority of the outstanding
shares of Redeemable Preferred Stock and the Corporation.
"NASDAQ" means the National Association of Securities Dealers, Inc.
Automated Quotation System.
"Person" means any individual, firm, corporation, limited liability company,
partnership, trust, incorporated or unincorporated association, joint venture,
joint stock company, Governmental Authority or other entity of any kind, and
shall include any successor (by merger or otherwise) of any such entity.
"Securities Purchase Agreement" means the Securities Purchase Agreement,
dated as of August 8, 2000, among the Corporation and the initial holders of
the Series B Preferred Stock.
"Stated Value" means, with respect to each share of Redeemable Preferred
Stock, the average Market Price on the twenty (20) consecutive trading days
immediately prior to the issuance of such share of Redeemable Preferred Stock
multiplied by ten (10).
IN WITNESS WHEREOF, said eGAIN COMMUNICATIONS CORPORATION has caused this
Certificate of Designation of Redeemable Preferred Stock to be duly executed
by its duly authorized officer, this 21st day of August, 2000.
eGAIN COMMUNICATIONS CORPORATION
/s/ Harpreet Grewal
By: _________________________________
Name: Harpreet Grewal
Title: CFO
C-6
<PAGE>
ANNEX D
UNAUDITED PRO FORMA FINANCIAL INFORMATION
In August 2000, eGain raised $88.5 million through a private placement of
convertible preferred stock and warrants. The net proceeds from the offering,
after expenses, were approximately $82.5 million. The transaction included the
issuance of (i) 35.11 shares of its 6.75% Series A cumulative convertible
preferred stock at a price of $100,000 per share, and (ii) 849.89 shares of
its 6.75% Series B cumulative convertible preferred stock at a price of
$100,000 per share. The Series A preferred stock is convertible into common
stock of eGain and the Series B preferred stock may be convertible into Series
A preferred stock or Series C cumulative redeemable preferred stock, depending
on whether eGain obtains stockholder approval of the conversion of the Series
B preferred stock into Series A preferred stock.
The Unaudited Pro Forma Balance Sheets reflect eGain's historical financial
position at June 30, 2000, adjusted as if the sale of preferred stock had
occurred on June 30, 2000. The first pro forma Balance Sheet gives effect to
the transaction as if stockholder approval is obtained. The second pro forma
Balance Sheet gives effect to the transaction as if stockholder approval is
not obtained. The pro forma financial information is not necessarily
indicative of what the actual financial position would have been had the
transaction taken place on June 30, 2000.
The pro forma financial information should be read in conjunction with the
audited financial statements and notes of eGain which are incorporated herein
by reference.
<PAGE>
eGain Communications Corporation
Pro Forma Balance Sheet
(in thousands)
<TABLE>
<CAPTION>
June 30, 2000
-----------------------------------
Pro Forma Pro Forma
Actual Adjustments As Adjusted
-------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents................. $ 27,201 $88,500 (1) $115,701
Short-term investments.................... 2,991 2,991
Accounts receivable....................... 8,589 8,589
Prepaids and other current assets......... 4,456 4,456
-------- ------- --------
Total current assets.................... 43,237 88,500 131,737
Property and equipment, net............... 11,690 11,690
Net intangible assets..................... 119,629 119,629
Other assets.............................. 1,344 1,344
-------- ------- --------
TOTAL ASSETS.......................... $175,900 $88,500 $264,400
======== ======= ========
LIABILITIES & STOCKHOLDERS' EQUITY
Bank borrowings -- line of credit......... 1,000 1,000
Accounts payable.......................... 5,305 5,305
Accrued compensation...................... 8,509 8,509
Accrued liabilities....................... 4,434 6,000 (2) 10,434
Accrued acquisition-related costs......... 3,496 3,496
Deferred revenue.......................... 7,286 7,286
Current portion of capital lease
obligations.............................. 1,116 1,116
Current portion of notes payable.......... 182 182
-------- ------- --------
Total current liabilities............... 31,328 6,000 37,328
Capital lease obligations, net of current
portion.................................. 729 729
Notes payable, net of current portion..... 343 343
Other long-term liabilities............... 129 129
Commitments
Stockholders' Equity
Series A convertible preferred stock...... -- 82,500 (3) 82,500
Common stock.............................. 36 36
Additional paid-in capital................ 231,475 19,300 (4) 231,475
(19,300)(4)
Notes receivable from stockholders........ (475) (475)
Deferred stock compensation............... (6,798) (6,798)
Accumulated other comprehensive loss...... (193) (193)
Accumulated Deficit....................... (80,674) (80,674)
-------- ------- --------
Total Equity............................ 143,371 82,500 225,871
-------- ------- --------
TOTAL LIABILITIES & EQUITY............ $175,900 $88,500 $264,400
======== ======= ========
</TABLE>
--------
(1) gross proceeds from sale of preferred stock
(2) accrued issuance costs related to sale of preferred stock
(3) net proceeds from sale of preferred stock
(4) beneficial conversion feature from issuance of preferred stock and
warrants at a discount which is included in net loss applicable to common
stockholders
<PAGE>
eGain Communications Corporation
Pro Forma Balance Sheet
(in thousands)
<TABLE>
<CAPTION>
June 30, 2000
-----------------------------------
Pro Forma Pro Forma
Actual Adjustments As Adjusted
-------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents................. $ 27,201 $88,500 (1) $115,701
Short-term investments.................... 2,991 2,991
Accounts receivable....................... 8,589 8,589
Prepaids and other current assets......... 4,456 4,456
-------- ------- --------
Total current assets.................... 43,237 88,500 131,737
Intercompany
Property and equipment, net............... 11,690 11,690
Net intangible assets..................... 119,629 119,629
Other assets.............................. 1,344 1,344
-------- ------- --------
TOTAL ASSETS.......................... $175,900 $88,500 $264,400
======== ======= ========
LIABILITIES & STOCKHOLDERS' EQUITY
Bank borrowings -- line of credit......... 1,000 1,000
Mandatorily redeemable preferred stock.... -- 79,227 (2) 84,989
5,762 (5)
Accounts payable.......................... 5,305 5,305
Accrued compensation...................... 8,509 8,509
Accrued liabilities....................... 4,434 6,000 (3) 10,434
Accrued acquisition-related costs......... 3,496 3,496
Deferred revenue.......................... 7,286 7,286
Current portion of capital lease
obligations.............................. 1,116 1,116
Current portion of notes payable.......... 182 182
-------- ------- --------
Total current liabilities............... 31,328 90,989 122,317
Capital lease obligations, net of current
portion.................................. 729 729
Notes payable, net of current portion..... 343 343
Other long-term liabilities............... 129 129
Commitments
Stockholders' Equity
Series A convertible preferred stock...... -- 3,273 (4) 3,273
Common stock.............................. 36 36
Additional paid-in capital................ 231,475 (5,762)(5) 225,713
25,055 (6)
(25,055)(6)
Notes receivable from stockholders........ (475) (475)
Deferred stock compensation............... (6,798) (6,798)
Accumulated other comprehensive loss...... (193) (193)
Accumulated Deficit....................... (80,674) (80,674)
-------- ------- --------
Total Equity............................ 143,371 (2,489) 140,882
-------- ------- --------
TOTAL LIABILITIES & EQUITY............ $175,900 $88,500 $264,400
======== ======= ========
</TABLE>
--------
(1) gross proceeds from sale of preferred stock
(2) portion of the net proceeds related to Series B preferred stock which is
convertible into Series C mandatorily redeemable preferred stock
(3) accrued issuance costs related to sale of preferred stock
(4) portion of the net proceeds related to Series A preferred stock
(5) accretion of mandatorily redeemable preferred stock to redemption value
which is included in net loss applicable to common stockholders
(6) value of warrants and beneficial conversion feature related to issuance
of preferred stock and warrants at a discount which is included in net
loss applicable to common stockholders
<PAGE>
1926-PS-00
<PAGE>
--------------------------------------------------------------------------------
DETACH HERE
PROXY
eGain Communications Corporation
Proxy Solicited by the Board of Directors
for the Annual Meeting of Stockholders, November 20, 2000
(see Proxy Statement for discussion of items)
The undersigned hereby appoints Ashutosh Roy, Gunjan Sinha and Eric Smit as
proxies, with power of substitution, to vote all shares of eGain Communications
Corporation Common Stock which the undersigned is entitled to vote on all
matters which may properly come before the 2000 Annual Meeting of Stockholders
of eGain Communications Corporation, or any adjournment thereof.
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
------------- -------------
<PAGE>
eGain Communications Corporation
c/o EquiServe
P.O. Box 9398
Boston, MA 02205-9398
--------------------------------------------------------------------------------
DETACH HERE
Please mark
X votes as in
this example.
--------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2, 3, 4 AND 5.
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
1. Re-election of five directors to serve for the ensuing year until their
successors are duly elected and qualified or until earlier death or
resignation.
Nominees: (01) Ashutosh Roy, (02) Gunjan Sinha, (03) Mark A. Wolfson,
(04) David G. Brown and (05) Phiroz P. Darukhanavala
FOR WITHHELD
THE [ ] [ ] FROM THE
NOMINEES NOMINEES
[ ] _______________________________________________
For all nominees except as noted above
FOR AGAINST ABSTAIN
2. The Amendment of the Certificate of Incorporation. [ ] [ ] [ ]
3. The Conversion of Series B Preferred Stock into Series A Preferred Stock. [ ] [ ] [ ]
4. The Amendment of the Stock Plan. [ ] [ ] [ ]
5. The Appointment of Ernst & Young LLP as Independent Auditors. [ ] [ ] [ ]
The shares represented by this Proxy Card will be voted as specified above,
but if no specification is made they will be voted FOR Items 1, 2, 3, 4 and
5 and at the discretion of the proxies on any other matter that may properly
come before the meeting.
MARK HERE MARK HERE
FOR ADDRESS [ ] IF YOU PLAN [ ]
CHANGE AND TO ATTEND
NOTE AT LEFT THE MEETING
NOTE: Please sign exactly as name appears hereon. Joint owners should
each sign. When signing as attorney, executor, administrator, trustee or
guardian, give full name and title as such.
Please sign, date and return promptly in the accompanying envelope.
Signature: _______________________________________ Date: ____________
</TABLE>
