As filed with the Securities and Exchange Commission on August 31, 1999
AMENDMENT No.1
TO
FORM S-1
REGISTRATION STATEMENT
Under
Delaware 7372 77-0466366
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification Number)
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455 W. Maude Avenue
Sunnyvale, California 94086
(408) 737-7400
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
455 W. Maude Avenue
Sunnyvale, California 94086
(408) 737-7400
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
Copies To:
Stanley F. Pierson, Esq. Kenneth L. Guernsey
Davina K. Kaile, Esq. Karyn R. Smith
Jeffrey S. Harrell, Esq. Steve R. Daetz
Pillsbury Madison & Sutro LLP Cooley Godward LLP
2550 Hanover Street One Maritime Plaza, 20th Floor
Palo Alto, CA 94304 San Francisco, CA 94111
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Approximate date of commencement of proposed sale to the public:
As soon as practicable after the Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 (the "Securities Act"), check the following box. [_]
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the + +Securities and Exchange Commission is effective. This prospectus is not an + +offer to sell securities, and we are not soliciting offers to buy these + +securities, in any state where the offer or sale is not permitted. + |
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SUBJECT TO COMPLETION, DATED AUGUST 31, 1999
5,000,000 Shares
Common Stock
eGain Communications Corporation is offering 5,000,000 shares of its common stock. This is eGain's initial public offering, and no public market currently exists for its shares. We have applied for approval for quotation on the Nasdaq National Market under the symbol "EGAN" for the shares we are offering. We anticipate that the initial public offering price will be between $9.00 and $11.00 per share.
Investing in the common stock involves risks.
See "Risk Factors" beginning on page 6.
Per Share Total
--------- -----
Public Offering Price.................................... $ $
Underwriting Discounts and Commissions................... $ $
Proceeds to eGain........................................ $ $
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The Securities and Exchange Commission and state securities regulators have not approved or disapproved these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
eGain has granted the underwriters a 30-day option to purchase up to an additional 750,000 shares of common stock to cover over-allotments. BancBoston Robertson Stephens Inc. expects to deliver the shares of common stock to purchasers on , 1999.
BancBoston Robertson Stephens
Donaldson, Lufkin & Jenrette
Volpe Brown Whelan & Company
The date of this prospectus is , 1999.
You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock.
TABLE OF CONTENTS
Page
----
Summary.................................................................. 3
Risk Factors............................................................. 6
Forward Looking Statements............................................... 19
Use of Proceeds.......................................................... 19
Dividend Policy.......................................................... 19
Capitalization........................................................... 20
Dilution................................................................. 21
Selected Consolidated Financial Data..................................... 22
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 23
Business................................................................. 32
Management............................................................... 48
Certain Transactions..................................................... 56
Principal Stockholders................................................... 57
Description of Capital Stock............................................. 59
Shares Eligible for Future Sale.......................................... 63
Underwriting............................................................. 65
Legal Matters............................................................ 68
Experts.................................................................. 68
Where You Can Find More Information...................................... 68
Index to Financial Statements............................................ F-1
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Until , 1999, all dealers that buy, sell or trade our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This requirement is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
[Gatefold]
[Text appears against left margin]
eGain is a leading provider of customer service infrastructure for eCommerce
eGain's Internet-based software products and related services help companies deliver customer service via email and real-time Web collaboration.
.multi-application platform for Web-based customer service
. highly flexible and scalable Web Component Architecture
. leading provider of hosted customer service solutions
eGain eMail Management Systems (EMS) is a Web-based application that enables customer service departments to route, track and respond to high volumes of customer email and Web form inquires.
eGain Web Collaboration System (WCS) enables customer service representatives to answer customer questions and provide interactive assistance over the Web using browser sharing, text chat and assisted form-filling technology.
[Graphic depicting the alternative modes of deploying eGain's customer service solutions]
Installed Software Solution
[Boxes with "eGain EMS" and "eGain WCS"]
Companies can deploy eGain applications by purchasing a license and installing the applications in-house
[Box with "In-House Customer Service Department or Outsourced Call Center Provider"]
[Graphic depicting online shopper interacting with an eCommerce Website through the Internet]
[Graphic depicting the eGain Hosted Network]
Companies can also deploy our applications through the eGain Hosted Network--a network of eGain-managed operations centers and redundant hosting partners linked by high-speed Internet connections.
[within eGain Hosted Network graphic are graphics depicting two hosting partners connected to the Internet and eGain Network Operations Center]
Remote Application Management
Solution Development
System Implementation
customer service infrastructure for eCommerce eGain
SUMMARY
eGain Communications
We are a leading provider of customer service infrastructure for companies engaged in electronic commerce. Our software products and related services are designed to help businesses provide more effective Internet-based customer service, thereby improving customer satisfaction and converting a higher percentage of Web site visitors to buyers. We were the first company to offer a platform for online customer service which companies can access remotely through the eGain Hosted Network. The eGain Hosted Network allows companies to access our platform through the Internet while we maintain the software applications and hardware. Our solution is also available as installed software for in-house implementation. Approximately 50% of our current customers access our applications through the eGain Hosted Network. Our customers include both dedicated Internet companies, such as Go2Net, Snap.com and WebTV, and traditional companies engaged in eCommerce, such as Mazda USA and FCC National's Wingspan Bank.
Businesses use our applications to effectively manage high volumes of customer email as well as live Web-based interaction. Our email management system helps businesses route, track, analyze and respond to customer emails. Our Web collaboration system helps businesses provide live online assistance to visitors on their Web site. Our solutions are built on a scalable, Web-based architecture designed to meet the growth in Internet-based communications. Our products are built on technologies that are based on industry standards and are therefore designed to integrate easily with existing customer databases and applications.
Superior customer service is critical to businesses competing in the eCommerce marketplace. Today, most online customer communication takes place through email. However, according to a recent Jupiter Communications study of 125 top eCommerce sites, 42% of the sites either refused to accept an email, never responded to an email, or took longer than five days to respond. Companies that fail to address their online customer service needs risk losing customers to eager competitors located a mouse click away. Traditional approaches to online customer service, such as trying to extend front office software packages that were designed for telephone-based interactions or developing homegrown solutions, have proved to be inadequate for many businesses. As a result, businesses are seeking dedicated, scalable applications to help them deliver superior Internet-based customer service. International Data Corporation estimates that worldwide license revenues for eCommerce customer service and support applications will grow from $42 million in 1998 to $1.6 billion in 2002.
We provide a flexible and scalable Web-based customer service platform for companies engaged in eCommerce. Our applications for email management and Web collaboration are designed to provide the following strategic and operating benefits:
. Strengthen customer relationships. Our applications allow companies to strengthen customer relationships by providing rapid, personalized and effective customer service.
. Convert Web site visitors to buyers. Our Web collaboration product enables live assistance for visitors on a Web site, thereby increasing the likelihood of converting them into customers.
. Scale to meet growing eCommerce demands. Our architecture allows companies to scale their customer service infrastructure to meet the growing volume and complexity of electronic customer communications.
. Rapidly deployable solution. Businesses can quickly deploy customer service capabilities as an application service through our eGain Hosted Network. Also, our applications can be rapidly customized through Web- based interfaces.
. Gain customer insight. Our solution enables companies to capture and analyze customer communications in order to understand the needs and preferences of their customers.
. Maximize productivity of customer service organizations. Our email management and workflow tools make customer service representatives and managers more efficient.
. Reduce costs and administrative burden. Customers using the eGain Hosted Network recognize cost efficiencies by eliminating the need to manage and administer in-house customer service applications.
. Integrate applications to provide comprehensive customer information. Our applications integrate with existing eCommerce platforms, call center systems and customer databases, providing customer service representatives with comprehensive customer information.
Our objective is to be the leading provider of customer service infrastructure for businesses engaged in eCommerce. To achieve this objective, we intend to:
. Capitalize on our first mover advantage and extend our brand recognition. We intend to capitalize on the momentum we have built as the first company to offer a multi-application platform for Web-based customer service in a hosted environment and on our early investment in building our brand.
. Expand the eGain Hosted Network. We intend to expand the eGain Hosted Network, which we believe offers cost, administrative and performance benefits, by establishing additional hosting centers that leverage our partners' physical hosting infrastructure.
. Introduce value-added products. We intend to continue to add products that complement and enhance our existing online customer service platform to address the evolving needs of eCommerce businesses.
. Expand strategic relationships. We intend to enter into strategic relationships that benefit our marketing and distribution efforts to rapidly capture market share.
. Expand international presence. We intend to continue to expand our presence internationally into additional markets, including Europe and Asia.
The Offering
Common stock offered by eGain...................... 5,000,000 shares
Common stock to be outstanding after the offering.. 27,815,562 shares
Use of proceeds.................................... For working capital and other general
corporate purposes
Proposed Nasdaq National Market symbol............. EGAN
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The number of shares of common stock to be outstanding after this offering includes 269,994 shares issuable upon exercise of warrants that will expire upon completion of this offering and assumes no exercise of the underwriters' over-allotment option. The number of shares of common stock to be outstanding after this offering excludes 2,829,431 shares that could be issued upon exercise of options and warrants outstanding as of August 20, 1999 and 3,318,923 additional shares available for future issuance under our stock plans.
Summary Consolidated Financial Data
(in thousands, except per share data)
Please see Note 1 of the notes to the consolidated financial statements for an explanation of the determination of the number of shares used in computing per share data. The pro forma as adjusted consolidated balance sheet data summarized below reflects the net proceeds from the sale of shares of common stock offered by eGain at an assumed initial public offering price of $10.00 per share, after deducting the underwriting discounts and commissions and our estimated offering expenses.
Period from
September 10, 1997 Year Ended
(Inception) June 30,
to June 30, 1998 1999
------------------ ----------
Consolidated Statement of Operations Data:
Revenue........................................... $ 2 $ 1,019
Costs and expenses................................ 884 12,319
Loss from operations.............................. (882) (11,300)
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Net loss.......................................... (938) (11,305)
===== ========
Pro forma net loss per share (unaudited):
Net loss per share--basic and diluted........... $ (0.93)
========
Weighted average shares--basic and diluted...... 12,153
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June 30, 1999
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Pro Forma
Actual as Adjusted
------- -----------
Consolidated Balance Sheet Data:
Cash and cash equivalents ................................. $ 1,265 $52,197
Working capital (deficit).................................. (755) 50,176
Total assets............................................... 23,965 74,702
Notes payable, less current portion........................ 221 221
Stockholders' equity....................................... 20,483 74,415
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Our headquarters are located at 455 W. Maude Avenue, Sunnyvale, California 94086 and our telephone number is (408) 737-7400. Our Web site address is www.egain.com. The information on our Web site is not a part of this prospectus.
RISK FACTORS
This offering involves a high degree of risk. You should carefully consider the risks described below and the other information in this prospectus before deciding to invest in shares of our common stock. Our business, operating results and financial condition could be harmed by any of the following risks. The trading price of our common stock could decline due to any of these risks, and you could lose all or part of your investment. You should also refer to the other information in this prospectus, including our financial statements and the related notes.
Company Risks
We expect continuing losses and may never achieve profitability, which in turn may harm our future operating performance and may cause the market price of our stock to decline
We incurred net losses of approximately $938,000 for the period from September 10, 1997 (inception) through June 30, 1998 and approximately $11.3 million for the year ended June 30, 1999. As of June 30, 1999, we had an accumulated deficit of approximately $12.2 million. We expect to continue to incur net losses for the foreseeable future. If we continue to incur net losses, we may not be able to increase our number of employees or our investment in capital equipment, sales, marketing, customer support and research and development programs in accordance with our present plans. We do not know when or if we will become profitable. If we do not become profitable within the timeframe expected by securities analysts or investors, the market price of our stock will likely decline. If we do achieve profitability, we may not sustain or increase profitability in the future.
Our operating expenses may increase as we build our business and this increase may harm our operating results and financial condition
We have spent heavily on technology and infrastructure development. We expect to continue to spend substantial financial and other resources on developing and introducing product and service offerings, and expanding our sales, marketing and customer support organizations and operating infrastructure. We expect that our operating expenses will continue to increase in absolute dollars and may increase as a percentage of revenue. If our revenue does not correspondingly increase, our business and operating results could suffer.
We may not meet quarterly financial expectations, which could cause our stock price to decline
We were incorporated in September 1997 and shipped our first product in September 1998. Because of this limited operating history and other factors, our quarterly revenue and operating results are difficult to predict. In addition, due to the emerging nature of the eCommerce customer service market and other factors, our quarterly revenue and operating results may fluctuate from quarter to quarter. It is likely that our operating results in some quarters will be below the expectations of securities analysts or investors. In this event, the market price of our common stock is likely to decline.
A number of factors are likely to cause fluctuations in our operating results, including, but not limited to, the following:
. the growth rate of eCommerce;
. demand for eCommerce customer service applications;
. our ability to attract and retain customers and maintain customer satisfaction;
. our ability to upgrade, develop and maintain our systems and infrastructure;
. the amount and timing of operating costs and capital expenditures relating to expansion of our business and infrastructure;
. technical difficulties or system outages;
. our ability to attract and retain qualified personnel with Internet industry expertise, particularly sales and marketing personnel;
. the announcement or introduction of new or enhanced products and services by our competitors;
. changes in our pricing policies and those of our competitors;
. failure to increase our international sales; and
. governmental regulation surrounding the Internet and eCommerce in particular.
We base our expense levels in part on our expectations regarding future revenue levels. If our revenue for a particular quarter is lower than we expect, we may be unable to proportionately reduce our operating expenses for that quarter. For example, our hosting agreements are typically for a period of one year and automatically renew unless terminated by either party with 60 days' prior notice. In addition, some of our hosting agreements give the customer the right to terminate the contract at any time. Period-to-period comparisons of our operating results are not a good indication of our future performance.
Our business is premised on a novel business model that is largely untested
Our business is premised on novel business assumptions that are largely untested. Customer service historically has been provided primarily in person or over the telephone. Our business model assumes that companies engaged in eCommerce will continue to elect to provide customer service through the Internet rather than by telephone. Our business model also assumes that many companies recognize the benefits of a hosted delivery model and will seek to have their customer service applications hosted by eGain. If any of these assumptions is incorrect, our business will be seriously harmed.
Our success will depend on sales of the eGain EMS platform
In fiscal 1999, we derived substantially all of our revenue from sales of the eGain EMS platform and related services. Although we recently added eGain WCS to our product offerings, we expect to continue to derive a majority of our revenue from sales of the eGain EMS platform in the future. Implementation of our strategy depends upon the eGain EMS platform being able to solve the customer service needs of businesses engaging in eCommerce. In fiscal 1999, two of our eGain EMS customers, FCC National and WebTV, accounted for 15.6% and 10.8% of total revenue. If these or other current or future customers are not satisfied with the eGain EMS platform, our business and operating results will be seriously harmed.
We face a number of integration risks and significant goodwill costs related to our recent acquisition of Sitebridge
We will face integration risks and record significant goodwill costs as a result of our acquisition of Sitebridge in April 1999. We may be unable to effectively integrate the operations, personnel and systems of Sitebridge with our other operations in a timely fashion, or at all. In addition, we may not achieve value from our acquisition of Sitebridge commensurate with the consideration paid. We have just begun to integrate Sitebridge with our operations and we expect this integration to place a significant burden on our management team. If we are unable to effectively integrate Sitebridge into our operations or to generate sufficient revenue from eGain WCS or our combined operations, our business and operating results are likely to suffer.
As a result of the Sitebridge acquisition, we have recorded a significant amount of goodwill that will adversely affect our operating results for the foreseeable future. As of June 30, 1999, we had goodwill and other purchased intangible assets of approximately $20.2 million, which we expect to amortize over three years from the date of the acquisition. If the amount of recorded goodwill or other intangible assets is increased or we have future losses and are unable to demonstrate our ability to recover the amount of goodwill, the amount of amortization could be increased or the period of amortization could be shortened. This would increase annual amortization charges or result in the write off of goodwill in a one-time non-cash charge, which could be significant and would likely harm our operating results.
We may engage in future acquisitions or investments that could dilute our existing stockholders, cause us to incur significant expenses or harm our business
We may review acquisition or investment prospects that would complement our current business or enhance our technological capabilities. Integrating any newly acquired businesses, technologies or products, may be expensive and time- consuming. To finance any acquisitions, it may be necessary for us to raise additional funds through public or private financings. Additional funds may not be available on terms that are favorable to us and, in the case of equity financings, may result in dilution to our stockholders. We may not be able to operate any acquired businesses profitably or otherwise implement our growth strategy successfully. If we are unable to integrate any newly acquired entities or technologies effectively, our operating results could suffer. Future acquisitions by us could also result in large and immediate write-offs, incurrence of debt and contingent liabilities, or amortization of expenses related to goodwill and other intangibles, any of which could harm our operating results.
We could incur additional non-cash charges associated with stock-based compensation arrangements
Our operating results may be impacted if we incur significant non-cash charges associated with stock-based compensation arrangements with employees and non-employees. We have issued options to non-employees which are subject to various vesting schedules of up to 48 months. For deferred compensation purposes, these options are required to be remeasured at each vesting date, which may require us to record additional non-cash accounting expenses. These expenses may result in us incurring net losses or increased net losses for a given period and this could seriously harm our operating results and stock price.
In addition, in connection with our acquisition of Sitebridge, we may face stock-based compensation charges related to Sitebridge's relationship with Ambrose, an independent professional employer organization, which formerly provided payroll and employee benefits for Sitebridge employees. Based on a recent draft pronouncement by the Financial Accounting Standards Board, we may be required to recognize additional deferred stock-based compensation estimated to be approximately $6.0 million related to this relationship.
If we fail to expand our sales, marketing and customer support activities, we may be unable to expand our business
If we do not successfully expand our sales, marketing and customer support activities, we cannot expand our business and our stock price could decline. The complexity of our eCommerce customer service platform and related products and services requires us to have highly trained sales, marketing and customer support personnel to educate prospective customers regarding the use and
benefits of our services, and provide effective customer support. With our relatively brief operating history and our plans for expansion, we have considerable need to recruit, train, and retain qualified staff. Any delays or difficulties we encounter in these staffing efforts could impair our ability to attract new customers and to enhance our relationships with existing customers. This in turn would adversely impact the timing and extent of our revenue. Because the majority of our sales, marketing and customer support personnel have recently joined us and have limited experience working together, our sales, marketing and customer support organizations may not be able to compete successfully against bigger and more experienced organizations of our competitors.
We must recruit and retain our key employees to expand our business
Our success will depend on the skills, experience and performance of our senior management, engineering, sales, marketing and other key personnel, many of whom have worked together for only a short period of time. The loss of the services of any of our senior management or other key personnel, including our Chief Executive Officer and co-founder, Ashutosh Roy, and our President and co- founder, Gunjan Sinha, could harm our business. We do not have employment agreements with, or life insurance policies on, any of our key employees. These employees may terminate their employment with us at any time. Our success also will depend on our ability to recruit, retain and motivate other highly skilled engineering, sales, marketing and other personnel. Competition for these personnel is intense, especially in the San Francisco Bay Area, and we have had difficulty hiring employees in the timeframe we desire. In particular, we may be unable to hire a sufficient number of qualified software engineers. If we fail to retain and recruit necessary engineering, sales and marketing, customer support or other personnel, our business and our ability to develop new products and services and to provide acceptable levels of customer service could suffer. In addition, companies in the software industry whose employees accept positions with competitors frequently claim that competitors have engaged in unfair hiring practices. We could incur substantial costs in defending ourselves against any of these claims, regardless of the merits of such claims.
Our failure to expand third-party distribution channels would impede our revenue growth
To increase our revenue, we must increase the number of our marketing and distribution partners, including software and hardware vendors and resellers. Our existing or future marketing and distribution partners may choose to devote greater resources to marketing and supporting the products of competitors, which could also harm us.
Failure to expand our relationships with systems integrators would impede acceptance of our products and growth of our revenue
To increase our revenue and implementation capabilities, we must develop and expand relationships with systems integrators. We rely on systems integrators to recommend our products to their customers and to install and support our products for their customers. Systems integrators may develop, market or recommend software applications that compete with our products. Moreover, if these firms fail to implement our products successfully for their customers, we may not have the resources to implement our products on the schedule required by our customers.
Unknown software defects could disrupt our products and services, which could harm our business and reputation
Our product and service offerings depend on complex software, both internally developed and licensed from third parties. Complex software often contains defects, particularly when first introduced or when new versions are released. We may not discover software defects that affect our new or current services or enhancements until after they are deployed. It is possible that, despite testing by us, defects may occur in the software. These defects could result in:
. damage to our reputation;
. lost sales;
. product liability claims;
. delays in or loss of market acceptance of our products;
. product returns; and
. unexpected expenses and diversion of resources to remedy errors.
We may face liability associated with our management of sensitive customer information
Our applications manage sensitive customer information, and we may be subject to claims associated with invasion of privacy or inappropriate disclosure, use or loss of this information. Any imposition of liability, particularly liability that is not covered by insurance or is in excess of insurance coverage, could harm our reputation and our business and operating results.
If our system security is breached, our business and reputation could suffer
A fundamental requirement for online communications and transactions is the secure transmission of confidential information over public networks. Third parties may attempt to breach our security or that of our customers. We may be liable to our customers for any breach in our security and any breach could harm our business and our reputation. Although we have implemented network security measures, our servers are vulnerable to computer viruses, physical or electronic break-ins and similar disruptions, which could lead to interruptions, delays or loss of data. We may be required to expend significant capital and other resources to license encryption technology and additional technologies to protect against security breaches or to alleviate problems caused by any breach.
Due to the lengthy sales cycles of some of our products, the timing of our sales are difficult to predict and may cause us to miss our revenue expectations
Our sales cycle for our eCommerce customer service applications can be as long as three months or more and may vary substantially from customer to customer. While our customers are evaluating our products and before they may place an order with us, we may incur substantial sales and marketing expenses and spend significant management effort. Consequently, if revenue forecasted from a specific customer for a particular quarter are not realized in that quarter, we may incur significant expenses that are not offset by corresponding sales.
If we do not successfully address the risks inherent in the expansion of our international operations, our business could suffer
We intend to continue to expand into international markets and to spend significant financial and managerial resources to do so. For example, we have established a subsidiary in the United
Kingdom. If our revenue from international operations does not exceed the expense associated with establishing and maintaining these operations, our business and operating results will suffer. We have limited experience in international operations and may not be able to compete effectively in international markets. We face various risks inherent in conducting business internationally, such as the following:
. unexpected changes in regulatory requirements;
. difficulties and costs of staffing and managing international operations;
. differing technology standards;
. difficulties in collecting accounts receivable and longer collection periods;
. political and economic instability;
. fluctuations in currency exchange rates;
. imposition of currency exchange controls;
. potentially adverse tax consequences; and
. reduced protection for intellectual property rights in foreign countries.
Our recent growth has placed a strain on our resources and if we fail to manage our future growth, our business could suffer
We recently began to expand our operations rapidly and intend to continue this expansion. The number of our full-time employees increased from 20 at June 30, 1998 to 155 at August 15, 1999. This expansion has placed, and is expected to continue to place, a significant strain on our managerial, operational and financial resources. To manage any further growth, we will need to improve or replace our existing operational, customer support and financial systems, procedures and controls. Any failure by us to properly manage these system and procedural transitions could impair our ability to attract and service customers, and could cause us to incur higher operating costs and delays in the execution of our business plan. We will also need to continue the expansion of our operations and employee base. Our management may not be able to hire, train, retain, motivate and manage required personnel. In addition, our management may not be able to successfully identify, manage and exploit existing and potential market opportunities.
We may not be able to upgrade our systems and the eGain Hosted Network to accommodate growth in eCommerce
We face risks related to ability of the eGain Hosted Network to operate with higher activity levels while maintaining expected performance. As the volume and complexity of eCommerce customer communications increases, we will need to expand our systems and hosted network infrastructure. The expansion and adaptation of our network infrastructure will require substantial financial, operational and management resources. Due to the limited deployment of our products and services to date, our ability to connect and manage a substantially larger number of customers is unknown.
Customer demand for our products and services could be greatly reduced if we fail to maintain high capacity data transmission. In addition, as we upgrade our network infrastructure, we are likely to encounter equipment or software incompatibility. We may not be able to expand or adapt our hosted network infrastructure to meet additional demand or our customers' changing requirements in a timely manner or at all.
Unplanned system interruptions and capacity constraints could reduce our ability to provide hosting services and could harm our business and our reputation
Our customers have in the past experienced some interruptions with our hosted network. We believe that these interruptions will continue to occur from time to time. These interruptions could be due to hardware and operating system failures. We expect a substantial portion of our revenue to be derived from customers who use our hosted network. As a result, our business will suffer if we experience frequent or long system interruptions that result in the unavailability or reduced performance of our hosted network or reduce our ability to provide remote management services. We expect to experience occasional temporary capacity constraints due to sharply increased traffic, which may cause unanticipated system disruptions, slower response times, impaired quality and degradation in levels of customer service. If this were to continue to happen, our business and reputation could be seriously harmed.
Our success largely depends on the efficient and uninterrupted operation of our computer and communications hardware and network systems. Substantially all of our computer and communications systems are located in Santa Clara County, California. Our systems and operations are vulnerable to damage or interruption from fire, earthquake, power loss, telecommunications failure and similar events.
We have entered into service agreements with some of our customers that require minimum performance standards, including standards regarding the availability and response time of our remote management services. If we fail to meet these standards, our customers could terminate their relationships with us and we could be subject to contractual monetary penalties. Any unplanned interruption of services may harm our ability to attract and retain customers.
We rely on relationships with, and the system integrity of, hosting partners for our eGain Hosted Network
Our hosted network consists of virtual data centers co-located in the physical data centers of our hosting partners. Accordingly, we rely on the speed and reliability of the systems and networks of these hosting partners. If our hosting partners experience system interruptions or delays, or if we do not maintain or develop relationships with hosting partners, our business could suffer.
Problems arising from use of our products with other vendors' products could cause us to incur significant costs, divert attention from our product development efforts and cause customer relations problems
Our customers generally use our products together with products from other companies. As a result, when problems occur in the network, it may be difficult to identify the source of the problem. Even when these problems are not caused by our products, they may cause us to incur significant warranty and repair costs, divert the attention of our engineering personnel from our product development efforts and cause significant customer relations problems.
We may be unable to protect our intellectual property and proprietary rights
We regard our copyrights, service marks, trademarks, trade secrets and similar intellectual property as critical to our success, and rely on trademark and copyright law, trade secret protection and confidentiality and/or license agreements with our employees, customers and partners to protect our proprietary rights. eGain is a registered trademark, and eGain EMS, eGain WCS, eGain Hosted Network and eGain eCommerce Bridge are trademarks, of eGain. Despite our efforts to protect our
proprietary rights through confidentiality and license agreements, unauthorized parties may attempt to copy or otherwise obtain and use our products or technology. These precautions may not prevent misappropriation or infringement of our intellectual property.
In addition, the status of United States patent protection in the software industry is not well defined and will evolve as the U.S. Patent and Trademark Office grants additional patents. We have one patent application pending in the United States, and we may seek additional patents in the future. We do not know if our patent application or any future patent application will result in a patent being issued with the scope of the claims we seek, if at all, or whether any patents we may receive will be challenged or invalidated. It is difficult to monitor unauthorized use of technology, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the United States, and our competitors may independently develop technology similar to ours.
We may face intellectual property infringement claims that could be costly to defend
Third parties may infringe or misappropriate our copyrights, trademarks and similar proprietary rights. In addition, other parties may assert infringement claims against us. Although we have not received notice of any alleged infringement, our products may infringe issued patents that may relate to our products. In addition, because the contents of patent applications in the United States are not publicly disclosed until the patent is issued, applications may have been filed which relate to our software products. We may be subject to legal proceedings and claims from time to time in the ordinary course of our business, including claims of alleged infringement of the trademarks and other intellectual property rights of third parties. Intellectual property litigation is expensive and time-consuming and could divert management's attention away from running our business. This litigation could also require us to develop non-infringing technology or enter into royalty or license agreements. These royalty or license agreements, if required, may not be available on acceptable terms, if at all, in the event of a successful claim of infringement. Our failure or inability to develop non- infringing technology or license the proprietary rights on a timely basis would harm our business.
We may need to license third-party technologies and may be unable to do so
To the extent we need to license third-party technologies, we may be unable to do so on commercially reasonable terms or at all. In addition, we may fail to successfully integrate any licensed technology into our services. Third- party licenses may expose us to increased risks, including risks with the integration of new technology, the diversion of resources from the development of our own proprietary technology, our inability to generate revenue from new technology sufficient to offset associated acquisition and maintenance costs. Our inability to obtain any of these licenses could delay product and service development until equivalent technology can be identified, licensed and integrated. This in turn would harm our business and operating results.
Industry Risks
We must compete successfully in the eCommerce customer service market
The eCommerce customer service market is new and intensely competitive. There are no substantial barriers to entry in this market, and established or new entities may enter this market in
the near future. We compete with companies that develop and maintain internally developed email management systems. We also compete directly with companies that provide licensed software products for email management such as:
.Brightware, Inc.,
.Kana Communications, Inc.,
.Mustang Software, Inc. and
.Silknet Software, Inc.,
as well as Web collaboration application companies such as WebLine Communications Corp. In addition, some of our competitors who currently offer licensed software products are now beginning to offer hosted approaches. We also face competition from larger, front office software companies such as:
.Clarify, Inc.,
.Oracle Corporation,
.Siebel Systems, Inc. and
.The Vantive Corporation.
Furthermore, established enterprise software companies, including IBM, Hewlett- Packard Company, Microsoft Corporation and similar companies may leverage their existing relationships and capabilities to offer eCommerce customer service applications.
We believe competition will increase as our current competitors increase the sophistication of their offerings and as new participants enter the market. Many of our current and potential competitors have:
. longer operating histories;
. larger customer bases;
. greater brand recognition;
. more diversified lines of products and services; and
. significantly greater financial, marketing and other resources.
These competitors may enter into strategic or commercial relationships with larger, more established and better-financed companies. These competitors may be able to:
. undertake more extensive marketing campaigns;
. adopt more aggressive pricing policies; and
. make more attractive offers to businesses to induce them to use their products or services.
Further, any delays in the general market acceptance of the eCommerce customer service applications and our hosted delivery model would likely harm our competitive position. Any delay would allow our competitors additional time to approve their service or product offerings, and also provide time for new competitors to develop eCommerce customer service applications and solicit prospective customers within our target markets. Increased competition could result in pricing pressures, reduced operating margins and loss of market share.
We depend on broad market acceptance of Web-based eCommerce customer service applications
We depend on the widespread acceptance and use of Web-based customer service applications as an effective solution for businesses seeking to manage high volumes of customer communication over the Internet. We cannot estimate the size or growth rate of the potential market for our product and service offerings, and we do not know whether our products and services will achieve broad market acceptance. The market for Web-based eCommerce customer service is new and rapidly evolving, and concerns over the security and reliability of online transactions, the privacy of users and quality of service or other issues may inhibit the growth of the Internet and commercial online services. If the market for eCommerce customer service applications fails to grow or grows more slowly than we currently anticipate, our business will be seriously harmed.
We may be unable to develop or enhance products or services that address the changing needs of the eCommerce customer service market
To be competitive in the eCommerce customer service industry, we must continually improve the performance, features and reliability of our products and services, including our existing eCommerce customer service applications, and develop new products, services, functionality and technology that address changing industry standards and customer needs. If we cannot adapt or respond in a cost-effective and timely manner to changing industry standards, market conditions or customer requirements, our business and operating results will suffer.
If we do not adequately address Year 2000 issues, we may incur significant costs and our business could suffer
Many existing computer programs use only two digits to identify a year. These programs were designed and developed without addressing the impact of the upcoming change in the century. If not corrected, many computer software applications could fail or create erroneous results by, at or beyond 2000. As a result, the networks that incorporate our products and our own internal networks could fail, leading to disruptions in operations and business activities. As a result of the year 2000 problem, we believe that we face potential risks which could harm our business in the following areas:
. disruption in our customer relationships or in our sales efforts because of failures of our customers' networks which are correctly or incorrectly attributed to the non-compliance of our products;
. claims from our customers based on alleged breach of warranties concerning the Year 2000 compliance of our products;
. disruption of our business resulting from failure of systems we use to run our business;
. disruption of our business resulting from failure of systems used by our suppliers, customers and potential customers; and
. the potential reduced spending by companies on networking solutions as a result of significant information systems spending on Year 2000 remediation.
If we, our customers, our providers of hardware and software, or our third- party network providers fail to remedy any Year 2000 issues, the reasonably likely worst case scenario would be the interruption of our services, which in turn could require us to incur material costs or lose revenue. Presently, we believe we are unable to reasonably estimate the duration and extent of any such interruption, or quantify the effect it may have on our future revenue.
See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Year 2000 Issues."
We will only be able to execute our business plan if Internet usage continues to grow
Our business will be seriously harmed if Internet usage does not continue to grow or grows at significantly lower rates compared to current trends. The continued growth of the Internet depends on various factors, many of which are outside our control. These factors include the following:
. the Internet infrastructure may be unable to support the demands placed on it;
. the performance and reliability of the Internet may decline as usage grows;
. security and authentication concerns with respect to transmission over the Internet of confidential information, such as credit card numbers, and attempts by unauthorized computer users, so-called hackers, to penetrate online security systems; and
. privacy concerns, including those related to the ability of Web sites to gather user information without the user's knowledge or consent.
Because we provide our customer service applications to companies conducting business over the Internet, our business could suffer if efficient transmission of data over the Internet is interrupted
The recent growth in the use of the Internet has caused frequent interruptions and delays in accessing the Internet and transmitting data over the Internet. Because we provide Internet-based eCommerce customer service applications, interruptions or delays in Internet transmissions will harm our customers' ability to receive and respond to email messages. Therefore, our market depends on improvements being made to the entire Internet infrastructure to alleviate overloading and congestion.
Governmental regulation and legal uncertainties could impair the growth of the Internet and decrease demand for our services or increase our cost of doing business
Governmental regulation may impair the growth of the Internet or commercial online services. This could decrease the demand for our products and services, increase our cost of doing business or otherwise harm our business and operating results. Although there are currently few laws and regulations directly applicable to the Internet and the use of the Internet as a commercial medium, a number of laws have been proposed involving the Internet. These proposed laws include laws addressing user privacy, pricing, content, copyrights, distribution, antitrust and characteristics and quality of products and services. Further, the growth and development of the market for commercial online transactions may prompt calls for more stringent consumer protection laws that may impose additional burdens on those companies engaged in eCommerce. Moreover, the applicability to the Internet of existing laws in various jurisdictions governing issues such as property ownership, sales and other taxes, libel and personal privacy is uncertain and may take years to resolve.
We may be liable for activities of our customers or others using our hosted network
As a provider of eCommerce customer service applications, we face potential liability for defamation, negligence, copyright, patent or trademark infringement and other claims based on the actions of our customers or others using our hosted network. This liability could result from the nature and content of the communications transmitted by our customers through our hosted network. We do not and cannot screen all of the communications generated by our customers, and we could be exposed to liability with respect to this content. Furthermore, some foreign governments, such as Germany, have enforced laws and regulations related to content distributed over the Internet that are more strict than those currently in place in the United States.
Offering Risks
Our stock price may be volatile, and you may not be able to sell your shares at or above the offering price
Our common stock has not been publicly traded, and an active trading market may not develop or be sustained after this offering. You may not be able to sell your shares at or above the offering price. The price at which our common stock will trade after this offering is likely to be highly volatile and may fluctuate substantially due to factors such as the following:
. actual or anticipated fluctuations in our operating results;
. changes in or our failure to meet securities analysts' expectations;
. announcements of technological innovations;
. introduction of new services by us or our competitors;
. developments with respect to intellectual property rights;
. conditions and trends in the Internet and other technology industries; and
. general market conditions.
We may become involved in securities class action litigation which could divert management's attention and harm our business
The stock market has from time to time experienced significant price and volume fluctuations that have affected the market prices for the common stocks of technology companies, particularly Internet companies. These broad market fluctuations may cause the market price of our common stock to decline. In the past, following periods of volatility in the market price of a particular company's securities, securities class action litigation has often been brought against that company. We may become involved in this type of litigation in the future. Litigation is often expensive and diverts management's attention and resources, which could harm our business and operating results.
After this offering, our directors, executive officers and principal stockholders will continue to have substantial control over matters requiring stockholder approval and may not vote in the same manner as our other stockholders
After this offering, our directors, executive officers and stockholders who currently own over 5% of our common stock will collectively beneficially own approximately 48.7% of our outstanding common stock. These stockholders, if they vote together, will be able to significantly influence all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This concentration of ownership may also delay or prevent a change in control of eGain.
We may need additional capital, and raising additional capital may dilute existing stockholders
We believe that our existing capital resources, including the anticipated proceeds of this offering, will enable us to maintain our current and planned operations for at least the next 12 months. However, we may choose to, or be required to, raise additional funds due to unforeseen circumstances. If our capital requirements vary materially from those currently planned, we may require additional financing sooner than anticipated. This financing may not be available in sufficient amounts or on terms acceptable to us and may be dilutive to existing stockholders.
Future sales of our common stock may depress our stock price
Sales of a substantial number of shares of common stock in the public market after this offering or after the expiration of lockup and holding periods could cause the market price of our common stock to decline. After this offering, we will have approximately 27,815,562 shares of common stock outstanding. All the shares sold in this offering will be freely tradable. The remaining 22,815,562 shares of common stock outstanding after this offering are subject to lock-up agreements that prohibit the sale of the shares for 180 days after the date of this prospectus. Immediately after the 180 day lockup period, 16,963,195 shares which will be outstanding after the offering will become available for sale. The remaining shares of our common stock will become available at various times thereafter upon the expiration of one-year holding periods.
Purchasers of our common stock will suffer immediate and substantial dilution
Purchasers of our common stock in this offering will experience immediate dilution of $8.07 in the pro forma net tangible book value per share of common stock, based on an assumed public offering price of $10.00 per share. Purchasers will also experience additional dilution upon the exercise of outstanding stock options and warrants. The initial public offering price is expected to be substantially higher than the book value per share of our common stock. Some elements of our market value do not originate from measurable transactions. Therefore, there is not a corresponding rise in "book", or historical accounting, value for our rise in market value, if any. Examples of these elements include the perceived value associated with our strategic relationships, perceived growth prospects of our market and our perceived competitive position within that market.
Our certificate of incorporation and bylaws contain provisions which could delay or prevent a change in control even if the change in control would be beneficial to our stockholders
Our certificate of incorporation and bylaws contain provisions that could delay or prevent a change in control of eGain. These provisions could limit the price that investors might be willing to pay in the future for shares of our common stock. Some of these provisions:
. authorize the issuance of preferred stock that can be created and issued by the board of directors without prior stockholder approval, commonly referred to as "blank check" preferred stock, with rights senior to those of common stock; and
. prohibit stockholder action by written consent.
See "Description of Capital Stock" for additional discussion of these provisions.
If we do not use the proceeds in a manner beneficial to us, our business could suffer
Our management will have significant flexibility in applying the net proceeds of this offering. If the proceeds are not used in a manner beneficial to eGain, our business could suffer and our stock price could decline. We have no current specific plans for the net proceeds from this offering. We intend generally to use the net proceeds from this offering for working capital and general corporate purposes. We have not yet determined the actual expected expenditures and thus cannot estimate the amounts to be used for each specified purpose. The actual amounts and timing of these expenditures will vary significantly depending on a number of factors, including, but not limited to, the amount of cash used in or generated by our operations and the market response to the introduction of any new product and service offerings. Depending on future developments and circumstances, we may use some of the proceeds for uses other than those described above.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and uncertainties. These statements relate to our future plans, objectives, expectations and intentions, and the assumptions underlying or relating to any of these statements. These statements may be identified by the use of words such as "expect," "anticipate," "intend," "plan," "will" and similar expressions. Our actual results could differ materially from those discussed in these statements. Factors that could contribute to such differences include, those discussed in "Risk Factors," "Business," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this prospectus.
USE OF PROCEEDS
The net proceeds we will receive from the sale of the 5,000,000 shares of common stock offered by us are estimated to be $45,520,000 after deducting the underwriting discounts and commissions and the estimated offering expenses payable by us and assuming an initial public offering price of $10.00 per share.
The principal purposes of this offering are:
. to obtain additional capital;
. to create a public market for our common stock;
. to increase our visibility and credibility; and
. to facilitate future access to the public equity markets.
We intend to use the net proceeds of this offering for working capital and other general corporate purposes, including product and services development and expansion of our hosted network. We have not yet determined the expected expenditures and thus cannot estimate the amounts to be used for each specified purpose. The actual amounts and timing of these expenditures will vary significantly depending on a number of factors, including, but not limited to, the amount of cash used in or generated by our operations and the market response to the introduction of any new product and service offerings.
In addition, we may use a portion of the net proceeds of this offering to acquire or invest in businesses, products, services or technologies complementary to our current business, through mergers, acquisitions, joint ventures or otherwise. However, we have no specific agreements or commitments and are not currently engaged in any negotiations with respect to such transactions. Accordingly, our management will retain broad discretion as to the allocation of the net proceeds of this offering. We intend to invest the net proceeds of this offering in short-term, interest-bearing investment grade securities until they are used.
DIVIDEND POLICY
We have never declared or paid dividends on our capital stock and do not anticipate paying any dividends in the foreseeable future. We currently intend to retain our earnings, if any, for the development of our business. Furthermore, our bank line of credit agreement prohibits the payment of dividends.
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999:
. on an actual basis;
. on a pro forma basis after giving effect to:
-- the sale of 652,000 shares of Series D preferred stock for gross proceeds of $5,216,000 in July 1999;
-- the assumed exercise of outstanding warrants to purchase an aggregate of 394,139 shares of common stock; and
-- the conversion of all outstanding shares of preferred stock into common stock and changes to our authorized capital stock upon completion of this offering.
. on the same pro forma basis as adjusted to give effect to the sale of 5,000,000 shares of common stock by us at an assumed initial public offering price of $10.00 per share and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.
This information should be read together with the consolidated financial statements and related notes included elsewhere in this prospectus.
June 30, 1999
--------------------------------
Pro Forma
Actual Pro Forma as Adjusted
-------- --------- -----------
(in thousands except share
data)
Notes payable, excluding current portion....... $ 221 $ 221 $ 221
======== ======== ========
Stockholders' equity:
Convertible preferred stock: $0.001 par value;
10,035,887 shares authorized,
9,566,378 shares issued and outstanding,
actual; 10,035,887 shares authorized, no
shares issued and outstanding, pro forma ..... $ 16,987 $ -- $ --
Preferred stock: $0.001 par value; 5,000,000
shares authorized, no shares issued and
outstanding................................... -- -- --
Common stock: $0.001 par value; 50,000,000
shares authorized, 10,946,661 shares issued
and outstanding, actual; 21,559,178 shares
issued and outstanding,
pro forma; 50,000,000 shares authorized,
26,559,178 shares issued and outstanding, pro
forma as adjusted............................. 7,289 22 27
Additional paid-in capital..................... 17,549 47,215 92,730
Notes receivable from stockholders............. (144) (144) (144)
Deferred stock compensation.................... (8,956) (8,956) (8,956)
Accumulated deficit and accumulated other
comprehensive income.......................... (12,242) (12,242) (12,242)
-------- -------- --------
Total stockholders' equity................... 20,483 25,895 71,415
-------- -------- --------
Total capitalization........................... $ 20,704 $ 26,116 $ 71,636
======== ======== ========
|
DILUTION
Our pro forma net tangible book value as of June 30, 1999 was $5,699,692, or $0.26 per share. Pro forma net tangible book value per share is determined by dividing the amount of our total tangible assets less total liabilities by the number of shares of common stock outstanding at that date, assuming conversion of all outstanding shares of preferred stock. Dilution in net tangible book value per share represents the difference between the amount per share paid by purchasers of common stock in this offering and the net tangible book value per share of common stock immediately after completion of this offering. After giving effect to the sale of the 5,000,000 shares of common stock offered by eGain in this offering (at an assumed initial public offering price of $10.00 per share and after deducting the underwriting discounts and commissions and our estimated offering expenses), our pro forma net tangible book value at June 30, 1999 would have been $51,219,692, or $1.93 per share. This represents an immediate increase in net tangible book value of $1.67 per share to the existing stockholders and an immediate dilution of $8.07 per share to new investors purchasing shares in this offering. If the public offering price is higher or lower, the dilution to the new investors will in turn be greater or less. The following table illustrates this per share dilution:
Assumed initial public offering price per share............... $10.00
Pro forma net tangible book value per share as of June 30,
1999......................................................... $0.26
Increase per share attributable to this offering.............. 1.67
-----
Pro forma net tangible book value per share after this
offering..................................................... 1.93
------
Dilution per share to new investors........................... $ 8.07
======
|
The following table summarizes, on a pro forma basis as of June 30, 1999, the total number of shares of common stock purchased from eGain, the total consideration paid to eGain and the average price per share paid by existing stockholders and by new investors purchasing shares in this offering (based upon an assumed initial public offering price of $10.00 per share and before deducting the underwriting discounts and commissions and our estimated offering expenses):
Shares Purchased Total Consideration
------------------ ------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- -------------
Existing stockholders.. 21,559,178 81% $15,033,880 23% $ 0.70
New investors.......... 5,000,000 19 50,000,000 77 $10.00
---------- --- ----------- ---
Total................ 26,559,178 100% $65,033,880 100%
========== === =========== ===
|
The foregoing table:
. gives effect to the sale of 652,000 shares of Series D preferred stock for gross proceeds of $5,216,000 in July 1999,
. gives effect to the assumed exercise of outstanding warrants to purchase 394,139 shares of common and preferred stock that terminate upon completion of this offering and
. assumes no exercise of outstanding warrants that survive the offering or outstanding stock options. As of June 30, 1999, there were outstanding warrants to purchase an aggregate of 195,517 shares of common stock with a weighted average exercise price of $0.9212 per share that survive the offering and options to purchase an aggregate of 2,463,031 shares of common stock with a weighted average exercise price of $0.24 per share. To the extent any of these warrants or options are exercised, there will be further dilution to new investors.
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated statement of operations data set forth below for the period from inception through June 30, 1998 and for the year ended June 30, 1999 and the selected consolidated balance sheet data as of June 30, 1998 and 1999 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. Our historical results are not necessarily indicative of results to be expected for any future period. The data have been derived from financial statements that have been prepared in accordance with generally accepted accounting principles and should be read together with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and related notes included elsewhere in this prospectus. See Note 1 of notes to the consolidated financial statements for an explanation of the determination of the number of shares used in computing basic and diluted net loss per share. The pro forma information gives effect to the conversion of all outstanding shares of preferred stock as of June 30, 1999 into 9,566,378 shares of common stock upon completion of this offering.
Period from
September 10, 1997 Year Ended
(Inception) to June 30,
June 30, 1998 1999
------------------ ----------
(in thousands except
per share data)
Consolidated Statement of Operations Data:
Revenue:
Hosting....................................... $ -- $ 137
License fees.................................. -- 473
Service....................................... 2 409
------- --------
Total revenue............................... 2 1,019
Costs and expenses:
Cost of revenue............................... 39 1,772
Sales and marketing........................... 231 4,182
Research and development...................... 299 2,096
General and administrative.................... 257 1,235
Amortization of goodwill and other intangible
assets....................................... -- 1,217
Amortization of deferred compensation......... 58 1,817
------- --------
Total costs and expenses.................... 884 12,319
------- --------
Loss from operations............................ (882) (11,300)
Interest and other income (expense), net........ (56) (5)
------- --------
Net loss........................................ $ (938) $(11,305)
======= ========
Basic and diluted net loss per share............ $(17.78) $ (2.14)
======= ========
Shares used in computing basic and diluted net
loss per share................................. 53 5,295
======= ========
Pro forma basic and diluted net loss per share
(unaudited).................................... $ (0.93)
========
Shares used in computing pro forma basic and
diluted net loss per share (unaudited)......... 12,153
========
|
June 30,
--------------
1998 1999
------ -------
(in thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents....................................... $3,831 $ 1,265
Working capital (deficit)....................................... 3,691 (755)
Total assets.................................................... 3,990 23,965
Notes payable less current portion.............................. -- 221
Total stockholders' equity...................................... 3,801 20,483
|
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Our company was founded in September 1997 to provide customer service infrastructure solutions to companies engaged in electronic commerce. From inception to September 1998, our operating activities related primarily to the planning and developing our proprietary technological solution, recruiting personnel, raising capital and purchasing operating assets. In September 1998, we commenced commercial shipment of our eGain Email Management System, or eGain EMS, an application that helps companies route, track and respond to high volumes of customer email and Web form inquiries. On April 30, 1999, we acquired Sitebridge Corporation and added its primary product to our customer service platform. The product, now called eGain Web Collaboration System, or eGain WCS, is an application that allows customer service representatives to interact online with customers on the Web. We began selling eGain WCS in May 1999. Our products and services are designed to enable businesses to deliver effective customer service, improve customer satisfaction and convert Web site visitors to buyers. Our products are designed to be highly scalable and to integrate with a company's existing infrastructure to allow the company to consolidate customer data from other applications in order to have access to comprehensive customer information. We offer our customers the flexibility to access our solution from an external hosted environment or to purchase and implement our solution directly in-house.
Our revenue consists of hosting revenue, license fees and service revenue associated with our eGain EMS and eGain WCS applications.
. Hosting Revenue. We derive hosting revenue when our customers choose to have our applications provided through our eGain Hosted Network, which is a network of service centers and hosting partners linked by high speed Internet connections. Our contracts with hosted customers generally provide for the payment of hosting fees on a monthly basis. Hosting revenue is recognized monthly as the services are performed.
. License Fees. We derive revenue from license fees when our customers choose to license our software for in-house installation. Revenue from license fees is recognized after a license agreement has been executed or a definitive purchase order has been received, the product has been delivered, the license fee has become fixed and determinable and collection of the fee is considered probable.
. Service Revenue. We derive service revenue from support and maintenance contracts on software licenses and professional services and training. Substantially all of our customers that purchase software licenses also purchase annual support and maintenance, which is paid in advance on an annual basis and initially recorded as deferred revenue. Revenue from support and maintenance contracts is recognized ratably over the term of the support and maintenance period. Professional services revenue is primarily related to customer support services and training and installation services and is recognized upon completion of specific contractual milestone events, or based on an estimated percentage of completion as work progresses.
We expect to make significant investments in product development and technology to enhance our current products and services, develop new products and services and further advance our solution offerings. In addition, an important part of our strategy is to expand our operations and employee base and build our sales, marketing, customer support, technical and operational resources.
In particular, we intend to expand our strategic distribution, hosting and solution relationships to add capabilities to our current product offerings and to help market our products to new customers.
We have incurred significant losses since our inception, and as of June 30, 1999, had an accumulated deficit of approximately $12.2 million. We expect to continue to incur substantial operating losses for the foreseeable future. In view of the rapidly evolving nature of our business and our limited operating history, we believe that period-to-period comparisons of our revenue and operating results are not meaningful and should not be relied upon as indications of future performance.
Acquisition of Sitebridge
We acquired Sitebridge effective April 1999. In connection with the acquisition, we issued 1,609,793 shares of Series C convertible preferred stock, 1,455,514 shares of common stock, options and warrants to acquire 1,144,456 shares of common stock and warrants to acquire 121,006 shares of Series C preferred stock in exchange for all the outstanding preferred stock, common stock, and options and warrants to purchase shares of Sitebridge stock. The acquisition was accounted for as a purchase, and accordingly the results of operations of Sitebridge have been included in the consolidated financial statements since the date of acquisition. The fair market value of the securities issued in the acquisition was approximately $20.1 million.
Sitebridge, originally Social Science Incorporated, was founded in 1996 to create tools for live collaboration on Web sites. Sitebridge shipped its first product, NetDiscussion, in 1997. In late 1997, Sitebridge shifted its business focus to developing software applications for sales and service organizations within large- and medium-sized companies. In the second quarter of 1998, Sitebridge shipped the first version of CustomerNow, an application that allows customer service representatives to provide live assistance to customers through real time Web interaction. With our acquisition of Sitebridge, we changed the name of CustomerNow to eGain WCS. eGain EMS and eGain WCS are available today as stand-alone applications or as combined solutions with specific integrated functions.
Goodwill and Other Non-Cash Charges
We recorded goodwill and other purchased intangible assets of approximately $21.4 million associated with our acquisition of Sitebridge. Goodwill and other purchased intangible assets are being amortized on a straight-line basis over the estimated useful lives of three years. We currently expect to record amortization of goodwill and other intangible assets of approximately $7.1 million in fiscal 2000, $7.1 million in fiscal 2001 and $6.0 million in fiscal 2002.
In connection with the grant of stock options to employees and consultants, we recorded deferred stock compensation totaling approximately $234,000 in fiscal 1998 and $10.6 million in fiscal 1999. Deferred compensation for options granted to employees has been determined as the difference between the deemed fair value of our common stock on the date these options were granted and the exercise price. Deferred compensation for options granted to consultants has been determined in accordance with SFAS 123 as the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measured. Deferred compensation for options granted to consultants is periodically remeasured as the underlying options vest. These amounts were initially recorded through stockholders' equity and are being amortized by charges to operations. We recorded amortization of deferred stock compensation of approximately $58,000 in fiscal 1998 and $1.8 million in fiscal 1999. We recorded additional deferred compensation in July
and August 1999 of approximately $8.1 million. We expect to record amortization expense relating to deferred stock compensation approximately as follows: $9.4 million in fiscal 2000, $4.6 million in fiscal 2001, $2.3 million in fiscal 2002 and $870,000 in fiscal 2003. The amortization expense relates to options awarded to employees and consultants in all operating expense categories. See Note 6 of Notes to Financial Statements.
Sitebridge previously outsourced its payroll processing and other aspects of
its employee benefits programs under a co-employment arrangement with Ambrose,
an independent professional employer organization that was terminated effective
July 31, 1999. On March 31, 1999, the Financial Accounting Standards Board
issued an Exposure Draft of an FASB Interpretation, Accounting for Certain
Transactions Involving Stock Compensation, an interpretation of APB Opinion No.
25. This FASB Exposure Draft, if adopted in its current form, could be
interpreted to indicate that employees subject to co-employment arrangements
would not be considered employees for purposes of applying APB No. 25. If
additional clarification regarding the definition of an employee is not
provided in the final FASB pronouncement, we may be required to establish a new
measurement date for stock options granted by Sitebridge after December 15,
1998 to these employees for the purpose of accounting for stock options under
APB No. 25. If a new measurement date is required to be established, we would
recognize the deferred stock-based compensation, which would be amortized over
the remaining vesting periods of the options. We estimate that this charge
would be approximately $6.0 million. This amortization could have a material
adverse effect on our operating results.
Results of Operations
We were incorporated in September 1997 but did not commence significant operations until January 1998. Data for September 1997 through June 30, 1998 (the inception period) are not comparable to those for fiscal 1999 due to the acceleration of our activities and related expenses during fiscal 1999 and the different duration of the periods.
Revenue
Revenue for fiscal 1999 was $1.0 million, 60.7% of which was recognized in the quarter ended June 30, 1999. In fiscal 1999, FCC National accounted for 15.6% of total revenue and WebTV accounted for 10.8% of total revenue. In fiscal 1999, hosting revenue represented 13.5% of total revenue, license fees represented 46.4% of total revenue and service revenue represented 40.1% of total revenue.
Costs and Expenses
Cost of revenue. Cost of revenue consists primarily of costs incurred for customer support, hosting and professional services. Cost of revenue includes depreciation of capital equipment used in our hosted network, personnel costs, cost of third-party products and lease costs paid to remote co-location centers. In fiscal 1999, cost of revenue was $1.8 million. From July 1, 1998 to June 30, 1999, the number of customer support and professional services personnel increased from 2 to 37.
Sales and marketing. Sales and marketing expenses consist primarily of compensation and benefits of our sales, marketing and business development personnel, advertising, trade show and other promotional costs and, to a lesser extent, occupancy costs and related overhead. Sales and marketing expenses were $4.2 million in fiscal 1999. From July 1, 1998 to June 30, 1999, the number of our sales and marketing personnel increased from 6 to 29.
Research and development. Research and development expenses consist primarily of compensation and benefits of our engineering and quality assurance personnel and, to a lesser extent, occupancy costs and related overhead. Research and development expenses are expensed as incurred. Research and development expenses were $2.1 million in fiscal 1999. From July 1, 1998 to June 30, 1999, the number of our research and development personnel increased from 7 to 33.
General and administrative. General and administrative expenses consist primarily of compensation and benefits for our finance, human resources, administrative and legal services personnel, fees for outside professional services and, to a lesser extent, occupancy costs and related overhead. General and administrative expenses were $1.2 million in fiscal 1999. From July 1, 1998 to June 30, 1999, the number of our general and administrative personnel increased from 5 to 15.
Interest income and expense. Interest income consists of interest earned on our cash and cash equivalents. Interest income was $111,000 in fiscal 1999. To date, we have incurred interest expense on a working capital line of credit and notes payable for equipment financing. In fiscal 1999, interest expense was $116,000.
Quarterly Results of Operations
The following table sets forth certain unaudited quarterly statement of operations data for the six quarters ended June 30, 1999. This information has been derived from our unaudited consolidated financial statements, which, in management's opinion, have been prepared on the same basis as the audited financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the information for the quarters presented. This information should be read in conjunction with the audited financial statements and related notes included elsewhere in this prospectus. The operating results for any quarter are not necessarily indicative of the operating results for any future period.
Three Months Ended
--------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30,
1998 1998 1998 1998 1999 1999
-------- -------- --------- -------- -------- --------
(in thousands)
Statement of Operations
Data:
Revenue
Hosting............... $ -- $ -- $ -- $ 3 $ 18 $ 116
License fees.......... -- -- -- 79 201 193
Service............... -- -- -- 65 34 310
----- ----- ------- ------- ------- -------
Total revenue....... -- -- -- 147 253 619
Costs and expenses
Cost of revenue....... 4 46 143 296 460 873
Sales and marketing... 61 176 508 929 1,078 1,667
Research and
development.......... 107 189 214 355 584 943
General and
administrative....... 70 134 225 205 296 509
Amortization of
goodwill and other
intangible assets.... -- -- -- -- -- 1,217
Amortization of
deferred
compensation......... -- 58 89 190 387 1,151
----- ----- ------- ------- ------- -------
Total costs and
expenses........... 242 603 1,179 1,975 2,805 6,360
----- ----- ------- ------- ------- -------
Loss from operations.... (242) (603) (1,179) (1,828) (2,552) (5,741)
Interest income
(expense), net......... (19) (19) 24 2 (18) (13)
----- ----- ------- ------- ------- -------
Net loss................ $(261) $(622) $(1,155) $(1,826) $(2,570) $(5,754)
===== ===== ======= ======= ======= =======
|
Fluctuations in Quarterly Results
Revenue increased substantially in the quarter ended June 30, 1999, primarily due to the increase in the number of hosting customers and an increase in consulting services. Cost of revenue increased each quarter primarily due to the development of the eGain Hosted Network and increased personnel costs. Sales and marketing expenses increased substantially during the quarters ended March 31, 1999 and June 30, 1999 due to marketing programs related to the launch of eGain EMS and the increase in sales personnel costs. The amortization of goodwill and other intangible assets recorded in the quarter ended June 30, 1999 is associated with our acquisition of Sitebridge in April 1999.
We have incurred operating losses since inception, and we may never achieve profitability in the future. We believe that future operating results will be subject to quarterly fluctuations due to a variety of factors, many of which are beyond our control. These factors may include our ability to do the following:
. compete in a highly competitive eCommerce customer service market;
. expand our sales, marketing and customer support activities;
. create and maintain strategic relationships, including relationships with our hosting partners;
. expand our customer base;
. introduce new products and services;
. upgrade our systems and infrastructure;
. reduce service interruptions; and
. recruit and retain key personnel.
Liquidity and Capital Resources
Since our inception in September 1997, we have financed our operations primarily through the private placement of our preferred stock and, to a lesser extent, through bank borrowings and capital equipment lease financing. As of June 30, 1999, we had $1.3 million in cash and cash equivalents and $1.2 million of borrowings available under an equipment financing line of credit. Net cash provided by financing activities was $6.4 million in fiscal 1999 and was primarily attributable to net proceeds from the issuance of stock.
Net cash used in operating activities was $7.8 million in fiscal 1999. Cash used in operating activities was primarily the result of net operating losses (exclusive of non-cash charges) and increases in accounts receivable and prepaid assets, partially offset by increases in accrued expenses and accounts payable.
Net cash used in investing activities was $1.2 million in fiscal 1999. Cash used in investing activities was primarily related to purchases of property and equipment.
As of June 30, 1999, our principal commitments consisted of obligations outstanding under operating leases. Although we have no material commitments for capital expenditures, we anticipate a substantial increase in our capital expenditures and lease commitments consistent with our anticipated growth in operations, infrastructure and personnel.
During fiscal 1999, we obtained a line of credit with a bank for equipment purchases and working capital financing in the amount of $1.0 million and an equipment line of credit with a leasing company in the amount of $1.5 million. As of June 30, 1999, approximately $1.0 million was outstanding under the bank line of credit and approximately $342,000 was outstanding under the equipment credit facility. In addition, in connection with the acquisition of Sitebridge, we assumed two promissory notes in the total principal amount of $380,000.
Our capital requirements depend on numerous factors, including market acceptance of our services, the resources we allocate to our hosted network, sales, marketing and customer support services, and other factors. We have experienced substantial increases in our expenditures since our inception consistent with growth in our operations and personnel, and we anticipate that our expenditures will continue to increase for the foreseeable future.
We believe that the net proceeds from the sale of common stock offered hereby, together with our current cash balances and cash available under our lines of credit, will be sufficient to meet our working capital and capital expenditure requirements for at least the next 12 months. In addition, although there are no present understandings, commitments or agreements with respect to any acquisition of other businesses, products or technologies, we from time to time evaluate potential acquisitions of other businesses, products and technologies and may in the future require additional equity or debt financings to consummate any potential acquisitions. We may also need to raise additional funds, however, in order to fund more rapid expansion, including significant increases in personnel and office facilities, to develop new or enhance existing services or products or respond to competitive pressures. In addition, in order to meet our long term liquidity needs, we may need to raise additional funds, establish a credit facility or seek other financing arrangements. Additional funding may not be available on favorable terms, if at all.
Disclosure About Market Risk
Our exposure to market risk is principally confined to our cash and cash equivalents, which have short maturities and, therefore, minimal market risk.
Year 2000 Issues
Background
The Year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any computer programs or hardware that have date-sensitive software or embedded chips may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in system failures or miscalculations causing disruptions of operations for any company using such computer programs or hardware, including, among other things, a temporary inability to process transactions, send invoices or engage in normal business activities. As a result, many companies' computer systems may need to be upgraded or replaced in order to avoid "Year 2000" issues.
State of Readiness
We initiated a Year 2000 compliance program in April 1999. Our quality assurance group is directing the program for our internally developed products, and our information technology group is directing the program for all other operational areas. We are a comparatively new enterprise, and, accordingly, the software and hardware we use to manage our business has all been purchased or
developed by us within the last 24 months. While this fact pattern does not completely protect us against Year 2000 exposure, we believe we gain some mitigation from the fact that the information technology we use to manage our business is not based upon older hardware and software systems developed when there was less awareness of Year 2000 issues.
Our Product Testing
Our quality assurance team has tested the most current versions of eGain EMS and eGain WCS for Year 2000 compliance. This team, led by a senior eGain Product Manager and staffed by other eGain engineers and programmers, devised and has been executing a Year 2000 compliance plan as follows:
. Phase 1--Inventory: Identify all products and product versions, including eGain EMS, eGain WCS and discrete product modules, that might have Year 2000 related issues. This phase has been completed.
. Phase 2--Devise compliance tests: Devise appropriate and comprehensive tests that would accurately determine whether the inventoried product offerings, including eGain EMS, eGain WCS and discrete product modules, are Year 2000 compliant. This included especially determining which product features contained date data or other code that might be affected by the Year 2000 issue. This phase has been completed.
. Phase 3--Conduct compliance tests: Perform the compliance tests on the inventoried products. For both eGain EMS and eGain WCS, the members of eGain's Year 2000 quality assurance team tested all potentially affected product features to determine whether they could accurately recognize, process, calculate, manipulate, sort, store and transfer date data relating to a number of key dates. In particular, the team tested the core functionality of the identified product features to assess their performance prior to, through and after the following dates:
. December 31, 1999 to January 1, 2000 (millenium transition);
. February 28, 2000 to February 29, 2000 (first leap year transition in the new millenium);
. February 29, 2000 to March 1, 2000 (second leap year transition in the new millenium), and
. December 31, 2010 to January 1, 2011.
This phase has been completed.
. Phase 4--Remediation assessment: Determine, in light of the compliance tests, whether any product-related remediation is necessary to address any Year 2000 related issues. As a result of the compliance tests, our quality assurance team has determined that, when running on Year 2000 compliant hardware and operating systems, the most current versions of eGain EMS and eGain WCS are Year 2000 compliant according to the following definition:
. they can process, calculate, manipulate, sort, store and transfer date data without material error or material performance degradation, while taking into account century boundaries and leap years where required, and
. they can operate between year 1999 and year 2000 without producing date-related errors.
Because our products obtain and process all date information (such as creation dates, modification dates, and time/date stamps) from the underlying operating system being used by our customers, the foregoing statement only applies if:
. the other software, hardware, networks and systems with which our applications interface are themselves Year 2000 compliant according to the above definition, and
. our products are used in accordance with applicable documentation and other operating instructions provided by eGain.
Our quality assurance team has determined that there are a small number of code files relating to search and reporting features in the current version of eGain EMS that may have Year 2000 related problems. These are peripheral product features unrelated to the core email receiving and processing functionality of eGain EMS. Nonetheless, our Products Group has already designed a patch that addresses these performance issues to be installed on all hosted and existing eGain EMS licensed customers. Future eGain EMS customers will receive product versions that do not contain the affected files.
The remediation assessment phase has been completed.
. Phase 5--Deploy remediation: The patch designed to remedy the minor Year 2000 related issues identified in eGain EMS is scheduled to be deployed to all existing customers no later than September 30, 1999.
Our Internal System
The scope of our internal Year 2000 compliance program plan covers all computing and network resources within the eGain enterprise. This internal compliance program is being directed by eGain's Manager of Information Technology and a team of eGain IT professionals. As with our product-related Year 2000 program, our internal program is comprised of a number of phases as follows: inventory all internal hardware, software, and operating systems for year 2000 compliance; devise a testing plan for all identified systems; conduct compliance testing; assess any necessary remediation measures to address any problems discovered through the compliance testing and deploy any necessary remediation measures.
Our Year 2000 internal compliance team has completed all but the final phase of the compliance program. We have obtained Year 2000 certification for substantially all hardware, software and other systems we use, and we require such certification on all new systems we have purchased or will consider purchasing. The only noncompliant systems we have identified relate to certain Microsoft products and software programs, including Microsoft NT 4.0, 95 and 98 operating systems, Microsoft Office 97, Microsoft SQL 6.5 database servers, and Microsoft Exchange 5.5 mail systems. All identified vulnerabilities within deployed Microsoft applications and operating systems have been well- publicized, and Microsoft has devised remediation paths for each affected system. eGain's IT professionals are Microsoft Corporation Systems Engineers certified and trained in the use of Microsoft Year 2000 tools and affected eGain systems no later than September 15, 1999, and we foresee no problem meeting that schedule. At that time, we believe all internal computing and network resources within the eGain enterprise will be Year 2000 compliant.
Budget
We have not incurred any significant expenses to date, and we do not anticipate that any future costs associated with our Year 2000 remediation efforts will exceed $100,000. Expenses associated with our Year 2000 remediation efforts will be funded from available cash reserves. We have not deferred any specific IT projects due to our Year 2000 efforts, and we do not anticipate doing so in the future.
Reasonably Likely Worst Case Scenario
If we, our customers, our providers of hardware and software, or our third- party network providers fail to remedy any Year 2000 issues, the reasonably likely worst case scenario would be the interruption of our services, which in turn could require us to incur material costs or lose revenue. Presently, we believe we are unable to reasonably estimate the duration and extent of any such interruption, or quantify the effect it may have on our future revenue.
Contingency Plans
We expect our Year 2000 compliance program to be substantially completed by September 1999. If we encounter delays or are unable to meet this schedule, we will analyze non-compliant areas and develop a comprehensive contingency plan to address the issues by October 1999.
See "Risk Factors--If we do not adequately address Year 2000 issues, we may incur significant costs and our business could suffer."
Recent Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants issued Statement of Position No. 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." SOP 98-1 requires that entities capitalize certain costs related to internal use software once certain criteria have been met. We are required to adopt SOP No. 98-1 effective July 1, 1999. We do not expect that the adoption of SOP No. 98-1 will have a material impact on our financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Financial Instruments and for Hedging Activities," which provides a comprehensive and consistent standard for the recognition and measurement of derivatives and hedging activities. SFAS 133 is effective for all fiscal quarters for fiscal years beginning after June 15, 2000 and is not anticipated to have a significant impact on our operating results or financial condition when adopted.
BUSINESS
Company Overview
We are a leading provider of customer service infrastructure for companies engaged in eCommerce. Our products and related services are designed to help businesses provide more effective Internet-based customer service, thereby improving customer satisfaction and converting a higher percentage of Web site visitors to buyers. We offer our solutions both as a Web-based hosted application service through our eGain Hosted Network and as installed software for in-house implementation. Approximately 50% of our current customers access our applications through our eGain Hosted Network. Our customers include both dedicated Internet companies, such as Go2Net, Snap.com and WebTV, and traditional companies engaged in eCommerce, such as Mazda USA and FCC National's Wingspan Bank.
Industry Background
Customer Service Is Critical to eCommerce
In a short period of time, the Internet has evolved from primarily an information source to a new platform for commerce. International Data Corporation, or IDC, estimates that the number of customers buying goods and services over the Internet worldwide will grow from approximately 30 million in 1998 to 133 million in 2002, and that the total value of goods and services purchased over the Internet will increase from approximately $50 billion in 1998 to over $734 billion by 2002.
This growth has increased competitive pressures in online markets. To maintain or gain market share, many businesses engaged in eCommerce are focusing on the quality of customer service as a key competitive differentiator. Providing high quality customer service may be even more important on the Internet than it is in the physical world. Unlike a traditional commercial setting where customers can talk to a customer service representative either in person or by phone, customers on the Internet cannot easily contact agents with their inquiries. Whether to ask about product features, check the status of an order or get help with a loan application, online consumers have traditional service needs, and they want to be assured that these needs will be met before conducting a transaction. In the increasingly competitive eCommerce environment, companies that fail to address these customer service needs may lose sales to competitors located a mouse click away.
The Need for eCommerce Customer Service Applications
Today, most online customer communication takes place through email. As email volume is rising, the content within email messages is also becoming more complex. However, many companies have not taken adequate steps to effectively address this increase in email volume and complexity. According to a recent survey by Jupiter Communications of 125 top eCommerce sites, 42% of the sites either refused to accept an email message, never responded to the message or took longer than five days to respond. These survey results suggest that online customers are not receiving the level of service they demand.
Businesses engaged in eCommerce that provide poor customer service risk losing customers. According to a recent survey by Net Effect Systems, two- thirds of all online commercial transactions that are initiated are abandoned before completion. By improving responsiveness to email and providing real-time customer communication, companies can convert more of these potential buyers into actual customers. Moreover, by analyzing captured customer communications, companies can gain insight into customer preferences to create new revenue opportunities.
To help address online customer service shortcomings, companies are beginning to adopt technologies to help them manage email and other forms of online customer communication. The market for these products is growing rapidly. IDC estimates that worldwide license revenues for eCommerce customer service and support applications will grow from $42 million in 1998 to $1.6 billion by 2002.
Existing Customer Service Approaches Are Insufficient
The market for online customer service software applications has developed mainly because existing approaches to online customer service are typically unable to effectively handle large volumes of email. Traditional client-server customer service systems were designed primarily to manage telephone call center operations and are typically expensive and difficult to deploy and maintain. Recognizing this, many companies engaged in eCommerce, particularly companies that came early to the Internet, have developed in-house solutions for customer service email management. These internally developed approaches, while customized to fit a company's needs, can also be expensive and time- consuming to develop and maintain. Furthermore, many in-house systems have difficulty scaling to keep pace with the rapid expansion of eCommerce.
More recently, several vendors have developed point solutions, or software packages to handle specific online customer service needs, such as email management, real-time Web collaboration or self-service. However, these point solutions often do not work well with each other or integrate easily with a company's existing legacy system. This lack of integration makes them expensive to implement and maintain. As a result, there is an increasing need for an online customer service platform that offers applications that can handle multiple channels of communication, scale to meet growing Internet-based communication needs and integrate easily with a company's existing legacy systems.
The Trend Toward Hosted Customer Service Applications
As the number of software business applications grows and their technological complexity increases, many companies are recognizing the benefits of the hosted application service model. Under a typical application hosting arrangement, a company can enjoy the business benefits of an application without having to devote the resources to install, maintain and continually upgrade it. These functions are performed instead by the application hosting provider. The recent evolution of the Internet into a relatively secure and reliable network has increased the demand for hosted applications. Also, there is a new generation of software applications that has been designed specifically to run in a Web- based environment. Finally, the recent emergence of global physical hosting providers has created the connectivity and co-location facilities required to support these applications. The convergence of these trends has led to the growing appeal of the hosted model today. According to a recent Yankee Group study, the market for enterprise applications hosting services, including customer service applications, is projected to grow from $3 billion in 1999 to $11 billion in 2002.
The Web-based application hosted model is appropriate for customer service applications for several reasons. The hosted option allows businesses engaged in eCommerce to deploy a customer service solution rapidly without using valuable internal resources. In addition, many companies doing
business over the Internet rely on geographically dispersed customer service departments to meet their rapidly growing, 24-hours, 7-days a week customer needs. The hosted model provides the network security and ease of maintenance that are crucial to these companies. Finally, many of these companies prefer to outsource the management and maintenance of customer service applications and instead focus on developing proprietary customer service processes and content. For these reasons, we believe that hosting is becoming a preferred delivery model for eCommerce customer service applications.
The eGain Solution
We provide our customers with a Web-based customer service platform that can be delivered either as a hosted application service or as in-house software. Our solution helps companies route, track and respond to high volumes of customer email and Web form inquiries and allows customer service representatives to provide real-time online assistance to these customers. Our applications work together with a company's existing customer service and database software to provide customer service representatives with comprehensive information about each customer. We provide our solutions to businesses seeking to use their customer support capabilities as a competitive tool to convert Web site visitors to buyers, build lasting customer relationships and generate incremental revenue. Our customers realize both strategic and operating benefits of our solution.
Strategic Benefits
Strengthen Customer Relationships. Our eGain Email Management System, or eGain EMS, is a software application that allows our customers to respond rapidly and effectively to large volumes of email. Based on business rules set by our customers, eGain EMS can automatically respond to customer emails or route each inquiry to an appropriate customer service representative for personalized attention. The combination of a timely, automated response and personalized attention improves customer satisfaction and helps build lasting customer relationships.
Convert Web Site Visitors to Buyers. Our eGain Web Collaboration System, or eGain WCS, facilitates real-time online communication between the customer and a company's customer service organization. Online visitors can interact directly with a company's customer service representative and inquire about a potential purchase. This personalized and immediate interaction increases the likelihood that a Web site visitor will complete a purchase.
Scale to Meet Growing eCommerce Demands. Many companies find that their customer service infrastructure is unable to handle the higher volume and complexity of customer communication. Our architecture allows us to incrementally add hardware capacity to address increased customer communication volume. Whether provided through our hosted network or deployed in-house, our products provide a customizable solution to the growing business needs of our customers.
Rapidly Deployable Solution. Our platform is designed to allow business to quickly deploy customer service capabilities as an application service through our eGain Hosted Network. Also, our applications can be rapidly customized through Web-based interfaces.
Gain Customer Insight. Our solution enables companies to capture and analyze customer communications in order to understand the needs and preferences of their customers. This understanding can provide a company with a competitive advantage when targeting customers for
future promotions and cross-selling opportunities. In addition, comprehensive knowledge of a customer's needs and preferences can be used strategically to enhance a company's product offerings.
Operating Benefits
Maximize Productivity of Customer Service Organization. By using the productivity tools on our platform, customer service representatives can respond rapidly to complex customer inquiries. Our tracking and workload reporting features enable supervisors to monitor service levels and agent productivity. Our customizable workflow capability allows managers to improve team performance by intelligently distributing workload.
Reduce Cost and Administrative Burden. Customers using the eGain Hosted Network recognize cost efficiencies by eliminating the need to manage and administer in-house customer service applications. Moreover, by increasing productivity, our applications enable companies to reduce personnel costs associated with their customer service functions.
Integrate Applications to Provide Comprehensive Customer Information. Our applications are based on open standards and can be integrated easily with leading eCommerce platforms, call center systems and customer databases. This integration enables customer service representatives to combine information from multiple applications to provide customer service representatives with comprehensive customer information.
The eGain Strategy
Our objective is to be the leading provider of customer service infrastructure for businesses engaged in eCommerce. Our strategy for achieving this objective includes the following elements:
Capitalize on First Mover Advantage and Extend Brand Recognition. We were the first company to offer a platform for Internet-based customer service both as a hosted application service and as installed software. In addition, we were the first to offer a customer service platform incorporating both email management and Web-based collaboration. Having invested early in advertising our solution and building our brand, we intend to capitalize on our first mover advantage and extend our brand recognition to become the de facto standard for Internet- based customer service solutions.
Expand the eGain Hosted Network. We believe that the benefits of the eGain Hosted Network offer compelling advantages over competing alternatives. These advantages include the ability to leverage eGain's expertise, easy scalability, low up-front costs, fast deployment, system security and 24-hour, 7 days-a-week support. We plan to expand hosting centers in California and add centers in New York, London and other cities to meet customer needs.
Introduce Value-Added Products. We intend to differentiate ourselves in the customer service market by adding new products to our platform. For example, we recently added the eGain WCS, which allows businesses to offer personalized live online assistance to visitors on their Web site. In the future, we intend to enhance our platform by leveraging new technologies, such as voice over Internet Protocol, or voice over IP, which enables voice communications to take place over the Internet.
Expand Strategic Relationships. We intend to enter into strategic relationships that can assist us in marketing and distributing our products. We plan to expand existing and enter into new strategic relationships with external hosting partners, front office software companies, outsourced call center companies and systems integrators focused on eCommerce.
Expand Our International Presence. In addition to expanding our domestic marketing efforts, we intend to expand internationally. We have recently formed a subsidiary in the United Kingdom. We have also commenced product localization efforts for some European and Asian languages. We intend to capture international market share by marketing overseas, establishing additional sales offices and developing strategic relationships.
Products and Services
We provide customer service infrastructure for companies engaged in eCommerce. Our solutions are built on a scalable, Web-based architecture designed to meet the growth in Internet-based communications. Our products are built on technologies that are based on industry standards and are therefore designed to integrate with existing customer databases and applications.
Our two primary Web-based applications, eGain EMS and eGain WCS, are designed to manage the high volume and complexity of online customer communication, including email and live interactions on the Web. Our applications are available to our customers both as a hosted application service and as installed software. Although each application may be purchased separately, our applications are designed to work closely with one another and to integrate into a company's existing software architecture.
Product and Service Offerings
. eGain Email Management System (eGain EMS) -- an application that helps companies route, track and respond to high volumes of customer email and Web form inquiries.
. eGain Web Collaboration System (eGain WCS) -- an application that allows customer service representatives to provide live assistance to customers through real-time Web interaction.
. eGain eCommerce Bridge -- an application-linking module that enables rapid integration of eGain EMS with external eCommerce platforms, call centers and customer databases.
. Professional Services -- includes application management services, security services and customer support services.
Flexible Deployment
. eGain Hosted Network -- a company may access our solution through the eGain Hosted Network, a network of eGain service centers and hosting partners linked by high speed Internet connections designed to host our customer service applications.
. In-house installation -- a company may implement our solution in-house and either maintain the application internally or outsource management of the application to eGain.
The following provides an overview of our products and services:
[A graphic depicting the various components of the eGain product and service offerings appears here. Graphic includes eGain applications, eGain Web Component Architecture, eGain Hosted Network and eGain Commerce Bridge. ]
eGain Application Platform
eGain EMS
eGain EMS is a Web-based application that enables customer service departments to route, track and respond to high volumes of customer email and Web form inquiries. Using eGain EMS, companies can maintain a comprehensive customer communication history and improve customer satisfaction with prompt and effective responses. eGain EMS is designed to scale to the customer service needs of any company engaging in eCommerce, regardless of size.
Companies using eGain EMS receive emails and Web form inquires from their email servers or Web sites. Based on business rules selected by the company, these emails are categorized using a form of artificial intelligence technology called statistical vector analysis. Once categorized, eGain EMS will send an automated response or route the email to the appropriate customer service representative with suggested responses. The customer service representative can use our productivity tools to access relevant customer-related information and prepare an effective response. Supervisors use our Web-based monitoring capability to set performance levels and track service levels. Managers use our flexible, Web-based reporting system to monitor workload, analyze trends in customer communications and forecast resource needs. Finally, businesses can use customer information captured in our system using our direct mail manager, a system that helps create and target personalized mailings based on customer attributes. This proactive, targeted customer communication helps strengthen customer relationships and provides new revenue opportunities.
Feature Description Benefits |
Email Processing . Tracks all inbound and . Maintains complete
and outbound email customer
Categorization . Develops Web forms to link communication history
to email . Increases effectiveness
. Categorizes communications of responses to customer
using inquiries
predetermined instructions
--------------------------------------------------------------------------------
eGain Artificial . Uses statistical vector . Enables routing and
Intelligence analysis, a robust automatic response by
artificial intelligence reading incoming email
technology, to "read" and
determine the substance of
incoming emails
--------------------------------------------------------------------------------
Powerful Workflow. Specifies instructions for . Routes each inquiry to
email routing appropriate CSR
. Pre-built instruction . Enables better workflow
library for various call decisions based on
center functions, including enhanced knowledge about
load-balancing, skill-based customers
routing, shift management
and quality of service
management
--------------------------------------------------------------------------------
Knowledge . Searchable knowledge base . Continually gathers,
Database . Content can be dynamically reviews and disseminates
constructed from foreign knowledge efficiently
data sources . Allows CSRs to use the
. Real-time system-wide most current information
knowledge update to respond to issues
|
Customer Service . Customizable high-speed Web . Increases CSR
Representative interface productivity
(CSR) . Provides suggested . Improves customer
Productivity responses, response satisfaction with prompt
Tools templates, group email and effective responses
reply, multiple-issue
emails, customer search
capability and audit trails
|
System Monitoring. Web-based interface for all . Enables supervisors to
and system monitoring customize, set
Administration and administration performance levels and
. Monitors system load, agent monitor with "point-and-
productivity and service click" ease
levels
--------------------------------------------------------------------------------
Enterprise . Real-time and historical . Allows administrators to
Management reports plan system capacity
Reporting . Preconfigured and using workload reports
customizable reports . Enables company to
. Archived reports for analyze trends in
analysis and forecasting customer communication
. Scheduled report delivery
through email
--------------------------------------------------------------------------------
Direct Mail . Creates personalized content . Enables companies to
Manager and targets email based on conduct targeted
customer attributes promotions, proactively
. Captures responses and links address customer concerns
to mailings to monitor and survey customer
efficacy satisfaction
|
eGain WCS
eGain WCS enables customer service representatives to answer customer questions and provide interactive assistance over the Web using browser sharing, text chat and assisted form-filling technology. Through eGain WCS, a user is able to communicate with a customer service representative by simply clicking a hyperlink on a company's Web site, which in turn prompts a customer service representative to reply. Once connected, the customer service representative and the customer can engage in a real-time online conversation. The agent has access to comprehensive information about the customer's past activity and browsing patterns. eGain WCS integrates with leading eCommerce platforms, call center systems, computer telephony integration software, customer databases and customer relationship management systems. eGain WCS is designed to allow customer service representatives to handle multiple customer interactions simultaneously, thereby reducing costs associated with traditional call centers while delivering personalized service.
Feature Description Benefits
Real-Time . Presents a real-time . Provides valuable
Collaboration interface optimized for the information to help close a
customer's specific platform sale
. CSR console displays the . Enables CSR to escort the
customer's profile along with customer through pre- or post-
a tracking summary of the sales situations
customer's activity on the Web
site
-----------------------------------------------------------------------------------
Queuing and . Tracks customers as they . Queuing helps company route
Profiling interact with specific pages the inquiries to appropriate
. Displays the hyperlinks to CSRs
pages visited by customer . Profiling collects customer
information before a CSR
addresses an inquiry
-----------------------------------------------------------------------------------
Monitoring, . Generates a summary screen . Enables managers to run
Reporting & at the end of a WCS session reports on customers and
Administration . Emails customer a transcript access customer profiles and
of the session, including all session transcripts
text chat and hyperlinks . Enables managers to audit
shared agent performance and
. Stores session information establish effective staffing
into a database policies
-----------------------------------------------------------------------------------
WorksEverywhere . Patent-pending technology . Does not require downloading
that matches customers or installation of software
browsing platforms with
appropriate real-time
interaction method
. Works on browsers and . Offers live customer service
through firewalls and proxy to a broad customer base
servers
|
eGain eCommerce Bridge
The eGain eCommerce Bridge allows eGain EMS to be easily linked with leading eCommerce platforms, call center systems and customer databases. This allows customer service representatives to get a complete profile of the customer by pulling information from other systems, enabling them to formulate an informed, personalized response by drawing on prior interactions with the customer. In addition, the eCommerce Bridge can be used to update existing customer databases with relevant customer information extracted from eGain EMS. We are in the process of enhancing the eGain eCommerce Bridge to interface with eGain WCS. We intend to enable remote application integration by implementing XML- based interfaces. This remote integration capability would allow our hosted customers to access their valuable customer information residing in in-house applications behind corporate firewalls.
We offer several pre-built adaptors that connect into our eCommerce Bridge to link eGain applications with a variety of eCommerce platforms, call center systems and relational databases. These adaptors minimize the need for custom programming to integrate eGain applications with other enterprise software. We currently offer adaptors for Microsoft Site Server (Commerce Edition) and Remedy Action Response System, Siebel Systems Siebel 99, Intershop 3, Oracle relational databases and ODBC-compliant databases. In the future, we intend to continue to develop, as well as enable our partners to develop, adaptors to other leading enterprise applications and call center solutions.
Professional Services
As of August 15, 1999, we had 38 professionals dedicated to providing a wide range of professional services for application management, solution development, system installation and training.
Our operations group provides application management services that offer a 24-hour, 7-days-a-week application response monitoring service. We also provide database services to maintain and enhance the performance, availability and reliability of production systems. Finally, we offer network security services to prioritize, assess and address the security concerns of customers at different levels based on their needs.
Our consulting group offers solution development and system integration services. The team works with our customers to understand their specific requirements, analyze their business needs and implement an integrated solution based on the eGain customer service platform. The eGain eCommerce Bridge and our industry expertise allow us to integrate enterprise-wide systems with our customer service solutions. We provide these services ourselves or in partnership with system integrators who have built consulting expertise on our platform and can implement complete solutions for our clients.
Our installation group offers rapid implementation services designed to have a customer up and running quickly. The installation teams are involved in client engagement, needs assessment, EMS configuration, training and activation.
Flexible Deployment
We offer our customer service solutions both as a Web-based hosted service through our eGain Hosted Network and as a licensed software product that can be implemented and maintained in-house.
eGain Hosted Network
Through a network of eGain service centers and hosting partners linked by high-speed Internet connections, we provide our customers with multiple redundant paths to access their hosted customer service applications. We remotely manage these applications which reside on server machines co-located at our hosting partners' facilities. We believe the eGain Hosted Network provides a compelling alternative for companies engaged in eCommerce that seek to quickly deploy and efficiently scale their customer service capabilities. We have strategically located eGain service centers in Sunnyvale (Silicon Valley), London and New York. We select our co-location partners with a view to providing high bandwidth availability, peering arrangements with other Internet service providers and global presence. As part of our eGain Hosted Network, we offer value-added services for application management, database maintenance, mail hosting and anti-virus protection.
We have invested early to build a scalable hosted network, and have recruited experienced operations personnel to maintain the system effectively. For example, our service centers are linked through dedicated high-speed connections to the co-location centers to provide our customers with multiple redundant paths to access their hosted customer service applications. In the event one of these links fails, user traffic can be quickly rerouted for continued operations. We have also developed proprietary Web-based hosted service management systems, enabling our service professionals to efficiently administer and manage large numbers of hosted customer applications. For example, we have developed Web-based software tools to monitor application response and system health.
[Graphic depicting architecture of the eGain Hosted Network appears here. Graphic depicts the relationships between eGain, its customers and its hosting partners in the eGain Hosted Network.]
Sales and Marketing
Sales Strategy
We sell our customer service solutions either as a subscription-based hosted service or as a licensed software product for installation in-house. We sell primarily through a worldwide direct sales organization and target our sales to companies seeking to improve customer relations and increase their eCommerce activities.
During our sales process, we typically approach the head of customer service of the organization. In smaller companies, our sales personnel, working closely with the sales engineers, make product demonstrations and presentations to address a customer's needs. In larger accounts, we often engage our professional services team, and in some cases, strategic partners to create customer-specific demonstrations, presentations and proposals.
As prospective customers proceed towards selecting our products and services, our professional services team manages the project and may work with outside system integrators to facilitate timely deployment. Our services team delivers customer and partner training through lectures, demonstrations, discussions and hands-on use of our solutions. Following implementation, our account managers work with the customers to identify and serve their ongoing needs, freeing up our sales professionals to focus on new business opportunities.
Marketing Strategy
Our marketing strategy is to continue to build brand awareness of eGain as a leading provider of customer service infrastructure solutions for eCommerce. We focus our marketing efforts on dedicated Internet companies as well as traditional companies seeking to take advantage of the commercial opportunities presented by eCommerce.
We rely on a range of available marketing avenues to pursue our objectives, including print advertisements, email newsletters, Internet advertisements, billboards, telemarketing, targeted direct mailing and a variety of trade shows, seminars and interest groups.
Our marketing group assists our sales team by providing them with product collateral materials, customer case studies, market surveys and customer profiles. In addition, our marketing group helps identify and develop key partnership opportunities and channel distribution relationships.
As of August 15, 1999, we had 40 sales and marketing professionals, including sales engineers, major account representatives and channel/partner salespeople. Our sales personnel are located in New York City, Washington DC, Minneapolis, Toronto, Dallas, Los Angeles, Denver, Seattle and Sunnyvale. We plan to open new sales offices and expand our direct sales force.
Customers
We have over 100 customers, which include both dedicated Internet companies and Fortune 1000 companies that have established a commercial Web site. The following is a representative list of companies that have entered into agreements to install eGain EMS or eGain WCS:
Internet Searching and
Computer Technology and Networking Auctions
Microsoft WebTV DoughNET
RealNetworks eGuard
Transition Networks FairMarket
USWeb/CKS Go2Net
Looksmart
Consumer e-Retail MediaRing.com
Chapters.ca Talk City
Cooking.com ONElist
Digital Chef Six Degrees
HMV Canada Snap.com
Internet Shopping Network Winebid.com
KB Toys
Financial Services
PlanetRx Consumer Financial Network
Shopping.com
Tucows i-Escrow
Nova Information Systems
Customer Service Centers Quote.com
Brigade Solutions
PanAmerican Call Centers Suretrade
Wingspan Bank
Sykes Enterprises
Manufacturing
Mazda USA
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Customer Support
We provide customer support to our hosted customers on a 24-hour, 7-days-a- week basis as part of the basic monthly hosting license fee. In addition, we offer customers that license our applications and deploy them in-house the option of purchasing customer support services for an annual fee. Our customer support professionals refer complex customer issues as needed to our internal technical support group, to diagnose and solve. Our customer support representatives use the eGain EMS applications to manage telephone- and email- based customer inquiries.
Strategic Relationships
We intend to develop strategic relationships which we believe will add capabilities to our current product offering as well as help market our products to new customers. Specifically, we seek to establish relationships with distribution, hosting and solution providers.
Distribution. We intend to continue working with companies, both domestic and international, to help us identify and close new customer opportunities and expand market share. We intend to develop arrangements with call center providers that require assistance in handling email and other Internet-based customer inquiries for their clients. We also intend to distribute our products in partnership with leading systems integrators and front office software companies.
Solution. We have worked with companies such as Inference, Microsoft, Oracle, Remedy Corporation and Siebel Systems to ensure that our products can be integrated easily with the database servers, front office software applications, and other products they provide.
Hosting. The eGain Hosted Network is enabled by relationships with various hosting providers that supply the database and connectivity hardware that supports our applications. We currently have arrangements with AboveNet Communications and Frontier GlobalCenter, two leading providers of managed co- location and Internet connectivity. These hosting partners serve as data centers that, in conjunction with eGain's information systems specialists, guarantee redundant network and server infrastructure for continuous, 24-hour, 7-days-a-week availability of our applications to our hosted customers.
Competition
The market for eCommerce customer service solutions is relatively new and growing rapidly. We expect the level of competition in this evolving market to intensify in the future, as new and existing competitors seek to provide products and services for our market.
Our current principal competitors for our licensed software products include:
.Brightware, Inc.,
.Kana Communications, Inc.,
.Mustang Software, Inc.,
.Silknet Software, Inc. and
.Webline Communications Corp.
While we were the first company to offer a customer service applications platform in a hosted environment, some of our competitors for licensed software products are now beginning to offer hosted approaches.
We also face competition from larger, front office software companies such as:
.Clarify, Inc.,
.Oracle Corporation,
.Siebel Systems, Inc. and
.The Vantive Corporation.
In the future, we may face competition from established software companies such as IBM, Hewlett-Packard, Microsoft and others that may seek to enter the market for eCommerce customer service solutions.
We believe that the principal competitive factors affecting our market are product features; product performance, including scalability, flexibility and availability, price, quality of support and service and brand reputation. We believe that our products currently compete favorably with respect to these factors; however, our market is evolving rapidly, and we expect to face increased competition for our product offerings. Some of our competitors have, and our future competitors may have, longer operating histories, larger customer base, greater brand recognition and significantly
greater financial, marketing, technical, support and other resources. Some of these competitors may be able to devote greater resources to marketing and promotional campaigns, adopt more aggressive pricing policies or devote substantially greater resources to product development.
We may not be able to compete successfully against our current and future competitors. See "Risk Factors--We must compete successfully in the eCommerce customer service market."
Technology
All of our software products are built on a standards-based, scalable architecture designed to address the evolving needs of companies engaged in eCommerce. Specifically, our software is based on our proprietary eGain Web Component Architecture, or eGain WCA, an open, scalable framework for software design that builds upon three industry trends:
. widespread availability of reliable Internet connectivity to businesses, which is enabling the delivery and management of hosted applications over the Internet;
. investment in Internet technologies, which is driving development of new Web applications that natively incorporate powerful and flexible protocols; and
. the success of component-based software development models which provide the tools for developing robust distributed software applications.
Our eGain WCA is a more scalable approach to application design compared to traditional client-server or three-tier architectures. For example, in contrast to client-server or three-tier architectures that require the download and maintenance of dedicated client-side software, our eGain WCA does not require the download of any client software. This allows use of the application from anywhere across the Internet through a standard Web browser. In contrast to traditional monolithic server-side applications where scalability meant buying the fastest server machines with maximum memory, the eGain WCA adopts a divide- and-conquer approach by using distributed processing in a modular hardware environment.
The component-based software model of our eGain WCA makes it more fault- resilient and flexible than traditional architectures. Each component can be diagnosed and monitored independently, and the overall system does not stop if there is a problem with an individual component. Moreover, each independent software component can be readily swapped out or augmented to meet the specific needs of customers.
Our eGain WCA organizes software into logical layers: Presentation, Application, Service, Object and Data. Each layer consists of software components that implement specific tasks, and each component offers a well- defined external programming interface. In addition, each layer includes as an option a management service that oversees the activities of the components within that layer. This modular approach facilitates customization and provides flexibility for future enhancements.
. Presentation Layer. The Presentation Layer localizes the look and feel logic of the user interface so that customization of the user interface can be easily managed. Our user interface can be accessed through standard browsers.
. Application Layer. The design of the Application Layer offers high reliability and scalable performance by balancing and allocating workload across multiple application servers.
. Service Layer. The Service Layer comprises the core set of independent services that receive, parse, route and dispatch emails. The eGain service manager monitors all the service instances in real-time, alerting the system administrator of any performance bottlenecks.
. Object Layer. The Object Layer allows new types of business objects to be added as needed to handle richer customer service models. This layer presents to the Application and Service Layers a logical view to system data in the form of business objects such as a ticket, user, customer and message.
. Data Layer. The Data Layer allows for greater database portability by insulating the objects from vendor specific difference across databases. This layer manages the data access across various data sources and maintains connection pools for efficiency.
Intellectual Property
We regard our copyrights, service marks, trademarks and similar intellectual property as critical to our success. We rely on patent, trademark, copyright, trade secret and other laws to protect the proprietary aspects of our technology and business. We have no patents to date. We presently have one patent pending for our WorkEverywhere technology that matches customers' browsing platform with appropriate real-time interaction method. We also have several trademark applications pending. Our trademarks include:
. eGain,
. eGain EMS,
. eGain WCS,
. eGain Hosted Network and
. eGain eCommerce Bridge.
We will continue to assess appropriate occasions for seeking patent and other intellectual property protections for those aspects of our technology that we believe constitute innovations providing significant competitive advantages. The pending and any future applications may or may not result in the issuance of valid patents and trademarks.
We routinely require our employees, customers, and potential business partners to enter into confidentiality and nondisclosure agreements before we will disclose any sensitive aspects of our products, technology, or business plans. In addition, we require employees to agree to surrender to eGain any proprietary information, inventions or other intellectual property they generate or come to possess while employed by us. Despite our efforts to protect our proprietary rights through confidentiality and license agreements, unauthorized parties may attempt to copy or otherwise obtain and use our products or technology. These precautions may not prevent misappropriation or infringement of our intellectual property.
Third parties may infringe or misappropriate our copyrights, trademarks and similar proprietary rights. In addition, other parties may assert infringement claims against us. Although we have not received notice of any alleged infringement, our products may infringe issued patents that may relate to our products. In addition, because patent applications in the United States are not publicly disclosed until the patent is issued, applications may have been filed which relate to our software products. We may be subject to legal proceedings and claims from time to time in the ordinary course of our business, including claims of alleged infringement of the trademarks and other
intellectual property rights of third parties. Intellectual property litigation is expensive and time-consuming and could divert management's attention away from running our business. This litigation could also require us to develop non-infringing technology or enter into royalty or license agreements. These royalty or license agreements, if required, may not be available on acceptable terms, if at all, in the event of a successful claim of infringement. Our failure or inability to develop non-infringing technology or license the proprietary rights on a timely basis would harm our business.
Employees
As of August 15, 1999, we had 155 full-time employees, including 49 in research and development, 47 in services, 40 in sales and marketing and 19 in general and administrative. None of our employees are covered by collective bargaining agreements. We believe our relations with our employees are good.
Legal Proceedings
We are not a party to any material legal proceeding. We may be subject to various claims and legal actions arising in the ordinary course of business.
Facilities
Our corporate headquarters are located in Sunnyvale, California, where we occupy approximately 46,000 square feet under a lease expiring in September 2001. We also maintain a direct operating presence through offices in New York City and London. We believe our facilities will be adequate to meet our requirements for at least the next 12 months.
MANAGEMENT
Directors, Executive Officers and Key Employees
Our directors, executive officers and key employees and their ages as of August 15, 1999 are as follows:
Name Age Position ---- --- -------- Ashutosh Roy............ 33 Chief Executive Officer and Chairman Gunjan Sinha............ 32 President and Director Harpreet Grewal......... 32 Chief Financial Officer Robert Apollo........... 44 Vice President and General Manager of European Operations Ravinder Grewal......... 37 Vice President of Services Ram Kedlaya............. 40 Vice President of Products Stephen E. Klann........ 55 Senior Vice President of Sales Wendell W. Lansford..... 30 Vice President of New Business Initiatives Prakash Mishra.......... 30 Vice President of Technology Ryan M. Rosenberg....... 38 Vice President of Marketing Eric N. Smit............ 37 Vice President of Finance and Administration A. Michael Spence (1)(2)................. 55 Director Mark A. Wolfson(1)(2)... 46 Director |
(1) Member of audit committee.
(2) Member of compensation committee.
Ashutosh Roy co-founded eGain and has served as Chief Executive Officer and a director of eGain since September 1997. From May 1995 through April 1997, Mr. Roy served as Chairman of WhoWhere? Inc., an Internet-service company co- founded by Mr. Roy. From June 1994 to April 1995, Mr. Roy co-founded Parsec Technologies, a call center company based in New Delhi, India. From August 1988, to August 1992, Mr. Roy worked as Software Engineer at Digital Equipment Corp. Mr. Roy holds a B.S. in Computer Science from the Indian Institute of Technology, New Delhi, a Masters degree in Computer Science from Johns Hopkins University and an MBA from Stanford University.
Gunjan Sinha co-founded eGain and served as a director of eGain since inception in September 1997 and as President of eGain since January 1, 1998. From May 1995 through April 1997, Mr. Sinha served as President of WhoWhere? Inc., an Internet-services company co-founded by Mr. Sinha. Prior to co- founding WhoWhere? Inc., Mr. Sinha was a developer of hardware for multiprocessor servers at Olivetti Advanced Technology Center. In June 1994, Mr. Sinha co-founded Parsec Technologies. Mr. Sinha holds a degree in Computer Science from the Indian Institute of Technology, New Delhi, a Masters degree in Computer Science from UC Santa Cruz, and a Masters degree in Engineering Management from Stanford University.
Harpreet Grewal has served as Chief Financial Officer of eGain since July 1999. From November 1998 to July 1999, Mr. Grewal served as Chief Financial Officer of Pepsi-Cola's North American Fountain Beverage Division. From April 1996 to October 1998, Mr. Grewal held various positions in PepsiCo's Corporate Strategy and Development Group. From August 1995 to March 1996, Mr. Grewal worked for International Equity Partners, a private equity firm. Mr. Grewal holds a Masters degree in International Studies from the Johns Hopkins School of International Studies and a B.A. in Economics from the University of California, Berkeley.
Robert Apollo has served as Vice President and General Manager of European Operations of eGain since June 1999. From July 1998 to May 1999, Mr. Apollo served as Vice President, European Operations of Sterling Commerce, an eCommerce software and services provider. From June 1996 to July 1998, Mr. Apollo served as Vice President and Managing Director, International, of XcelleNet Limited, a remote and mobile systems management vendor. From February 1990 until March 1996, Mr. Apollo held various positions at The Santa Cruz Operation, Inc. and most recently served as Vice President of Marketing for Europe, Middle East and Africa of The Santa Cruz Operation, Inc. Mr. Apollo holds a B.A. in Business Studies from Thames Valley University (formerly known as Ealing College of Higher Education).
Ravinder Grewal has served as Vice President, Worldwide Professional Services since March 1999. From January 1998 to February 1999, Mr. Grewal served as a director of Documentum, an enterprise document management software company. From February 1997 to January 1998, Mr. Grewal served as Vice President, Consulting for Workgroup Management, Inc., a knowledge management consulting firm that was acquired by Documentum in January 1998. From May 1995 to February 1997, Mr. Grewal served as Senior Project Director of MCI Systemhouse, a telecommunications company. From January 1994 to May 1995, Mr. Grewal served as Director of KPMG/Kanbay Resources (HK) Ltd., a management consulting company. Mr. Grewal holds a B.S. in Computer Science from the University of California, Berkeley.
Ram Kedlaya has served as Vice President, Products, of eGain since December 1998. From August 1992 to March 1998, Mr. Kedlaya was a co-founder of NUKO Information Systems, a provider of networking products and solutions for broadband network service providers. Mr. Kedlaya served in several positions at NUKO, most recently as a Vice President, Strategic Planning. Mr. Kedlaya holds an M.S. in Computer Science from the University of Texas, Austin and a B.S. from the Indian Institute of Technology, Madras.
Stephen E. Klann has served as Senior Vice President of Sales of eGain since July 1999. From May 1998 to July 1999, Mr. Klann served as Vice President of Sales of eGain. Prior to joining eGain, Mr. Klann spent 13 years with Honeywell Information Systems and 3 years with Wang Labs in various sales management positions. He then spent 5 years as Vice President of Sales for Interleaf, 3 years as Vice President of Sales and Marketing for Frame Technology and 2 years as President and CEO of IXI Software Corporation. Over the past 5 years and just prior to joining eGain, Mr. Klann has been serving in long-term Vice President capacities as a consultant from State of the Art, Open Text, Thinking Tools and ShareData.
Wendell W. Lansford has served as Vice President of New Business Initiatives of eGain since May 1999. From September 1996 to May 1999, Mr. Lansford served as President and Chief Executive Officer of Sitebridge Corporation, an ECommerce customer service software company which was acquired by eGain. From March 1995 to September 1996, Mr. Lansford served as Director of Technology of CondeNet, the Internet division of Conde Nast Publications. From September 1994 to March 1995, Mr. Lansford served as Partner of Lancomp, a systems integration and consulting firm. From May 1991 to September 1994, Mr. Lansford served as Member of Technical Staff of Bellcore, a telecommunications research firm which was recently renamed Telcordia. Mr. Lansford holds a Masters degree in Information Networking from Carnegie-Mellon University, and a B.S. in Electrical Engineering from the University of Tulsa.
Prakash Mishra has served as Vice President of Technology of eGain since May 1999. From September 1996 to May 1999, Mr. Mishra served as Chief Technology Officer and Executive Vice
President of SiteBridge Corporation, an eCommerce customer service software company. From August 1994 to September 1996, Mr. Mishra served as Associate in Fixed Income Research at Goldman, Sachs & Co. From January 1994 to August 1994, Mr. Mishra served as Principal of Internet Consulting Corporation, a New York- based Internet business consultancy. Mr. Mishra holds a Masters degree in Information Networking from Carnegie-Mellon University, and a B.S. in Computer Engineering from Rensselaer Polytechnic Institute.
Ryan M. Rosenberg has served as Vice President of Marketing of eGain since June 1998. From June 1996 to June 1998, Mr. Rosenberg served as Director of Product Marketing for Symantec Corporation, a business and personal software company. From November 1993 to June 1996, Mr. Rosenberg served as a Product and Senior Product Manager for Symantec. Mr. Rosenberg holds a B.S. in Computer Science from Michigan State University, and an M.B.A. in Marketing from the University of California, Los Angeles.
Eric N. Smit has served as Vice President, Finance and Administration of eGain since June 1999. From June 1998 to June 1999, Mr. Smit served as Director of Finance of eGain. From December 1996 to May 1998, Mr. Smit served as Director of Finance for WhoWhere? Inc., an Internet services company. From April 1993 to November 1996, Mr. Smit served as Vice President of Operations and Chief Financial Officer of Velocity Incorporated, a software game developer and publisher company. Mr. Smit holds a Bachelor of Commerce in Accounting from Rhodes University, South Africa.
A. Michael Spence has served as a director of eGain since July 1999. Since 1990, Dr. Spence has served as Dean of the Graduate School of Business at Stanford University. From 1984 to 1990, Dr. Spence served as Dean of Faculty of Arts and Sciences at Harvard University. Dr. Spence also serves as a director of General Mills, Inc., Nike, Inc., Siebel Systems, Inc., Sun Microsystems, Inc., ITI Education Corporation and Torstar Corporation. Dr. Spence received a B.A. in Philosophy from Princeton University, a B.A. and an M.A. in Mathematics from Oxford University and a Ph.D. in Economics from Harvard University.
Mark A. Wolfson has served as a director of eGain since June 1998. Since October 1998, Mr. Wolfson has served as a managing partner of Oak Hill Capital Management, Inc. Prior to October 1998, Mr. Wolfson served as a principal of Oak Hill Venture Partners, L.L.C. Since 1997, Mr. Wolfson has held the position of professor at the Stanford University Graduate School of Business. Mr. Wolfson holds a Ph.D. and a Masters degree from the University of Texas, Austin and a B.S. from the University of Illinois.
Our Chief Financial Officer, Harpreet Grewal, and our Vice President of Services, Ravinder Grewal, are brothers. There are no other family relationships among any of our directors or executive officers.
Board Committees
Our board of directors has a compensation committee and an audit committee. The compensation committee is responsible for determining salaries, incentives and other forms of compensation for directors, officers and other employees of eGain and administering various incentive compensation and benefit plans. Mark Wolfson and Gunjan Sinha served as the compensation committee throughout the last fiscal year. Mr. Wolfson and Mr. Spence are the current members of the compensation committee. Ashutosh Roy, our chief executive officer, will participate in all discussions and decisions regarding salaries and incentive compensation for all employees and
consultants of eGain, except that he will be excluded from decisions regarding his own salary and incentive compensation.
The audit committee reviews our annual audit and meets with our independent auditors to review our internal controls and financial management practices. Mr. Wolfson and Mr. Roy served as the audit committee throughout the last fiscal year. Mr. Wolfson and Mr. Spence are the current members of the audit committee.
Director Compensation
Except for the grant of stock options, we do not currently compensate our directors for their services as directors. Directors who are employees of eGain are eligible to participate in our 1998 Stock Plan and our 1999 Employee Stock Purchase Plan. In addition, we granted A. Michael Spence, a director of eGain, an option to purchase 25,000 shares of our common stock. We also reimburse each member of our board of directors for out-of-pocket expenses incurred in connection with attending board meetings.
Executive Compensation
The following table provides summary information concerning compensation earned by or paid to our chief executive officer and to each of our four other most highly compensated executive officers whose total annual salary and bonus exceeded $100,000, for services rendered in all capacities to eGain during the fiscal year ended June 30, 1999. These individuals are referred to as the "named executive officers."
Summary Compensation Table
Annual Long-Term
Compensation Compensation
--------------- ------------
Security
Underlying
Name and Principal Position Salary Bonus Options (#)
--------------------------- -------- ------ ------------
Ashutosh Roy...................................... $100,008 $ -- --
Chief Executive Officer and Chairman
Gunjan Sinha...................................... 100,008 -- --
President
Stephen E. Klann.................................. 194,000 8,600 34,271
Senior Vice President of Sales
Ryan M. Rosenberg................................. 135,000 -- 145,000
Vice President of Marketing
Eric N. Smit ..................................... 105,381 -- 125,000
Vice President of Finance and Administration
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Option Grants in Last Fiscal Year
The percentage of total options granted is based on an aggregate of 2,666,101 options granted in fiscal 1999. The exercise price on the date of grant was equal to the fair market value on the date of grant as determined by the board of directors. Options have a maximum term of 10 years subject to earlier termination for specified events related to cessation of employment.
The 5% and 10%, assumed rates of appreciation are mandated by the rules of the Securities and Exchange Commission and do not represent eGain's estimate or projection of the future stock price. The values reflected in the table may never be achieved. The dollar values have been calculated by determining the difference between the fair market value of the securities underlying the options at June 30, 1999 and the exercise prices of the options. Solely for purposes of determining the value of the options at June 30, 1999, we have assumed that the fair market value of shares of common stock issuable upon exercise of options was $10.00 per share, the assumed initial public offering price, since the common stock was not traded in an established market prior to the offering.
All of Mr. Klann's options were immediately vested in full. Both of Mr. Rosenberg's options and Mr. Smit's option for 50,000 shares vest as to 25% of the shares on the first anniversary of the vesting start date and 1/48 of the shares each full month thereafter. Mr. Smit's option for 75,000 shares vests as to 12/45 of the shares on the first anniversary of the vesting start date and 1/45 of the shares each full month thereafter.
Potential Realizable
Value at Assumed
Percentage of Annual Rates of Stock
Total Options Exercise Price Appreciation for
Granted to or Base Option Term
Options Employees in Price Expiration -----------------------
Name Granted Fiscal 1999 ($/Share) Date 5% 10%
---- ------- ------------- --------- ---------- ----------- -----------
Ashutosh Roy............ -- --% $ -- -- $ -- $ --
Gunjan Sinha............ -- -- -- -- -- --
Stephen E. Klann........ 8,671 0.3 .10 10/9/08 139,829 222,654
8,400 0.3 .20 1/29/09 134,091 213,517
3,200 0.1 .20 3/19/09 51,082 81,340
10,400 0.4 .40 5/20/09 162,629 258,959
3,600 0.1 .50 6/18/09 55,708 88,706
Ryan M. Rosenberg....... 125,000 4.7 .10 7/31/08 2,015,757 3,209,756
20,000 0.8 .20 1/29/09 319,263 508,374
Eric N. Smit............ 75,000 2.8 .10 10/9/08 1,209,454 1,925,854
50,000 1.9 .50 6/18/09 773,725 1,232,028
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Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
The following table assumes a per-share fair market value equal to the initial public offering price of $10.00.
Number of Unexercised Value of Unexercised
Options at Fiscal In-the-Money Options at
Shares Year-End Fiscal Year-End
Acquired Value ------------------------- -------------------------
Name on Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
---- ----------- ---------- ------------------------- -------------------------
Ashutosh Roy............ -- $ -- --/-- $ --/--
Gunjan Sinha............ -- -- --/-- --/--
Stephen E. Klann........ 68,271 677,123 14,000/-- 134,040/--
Ryan M. Rosenberg....... 145,000 1,433,500 --/-- --/--
Eric N. Smit............ 86,500 849,425 50,000/-- 475,000/--
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Compensation Committee Interlocks and Insider Participation
The members of our compensation committee are currently Mark Wolfson and A. Michael Spence. No interlocking relationship exists, or has existed in the past, between the board of directors or compensation committee and the board of directors or compensation committee of any other company.
1998 Stock Plan
Our 1998 Stock Plan was adopted by the board of directors in June 1998 and
will be amended and restated effective upon completion of this offering. Our
1998 Stock Plan provides for the grant of incentive stock options as defined in
Section 422 of the Internal Revenue Code to employees and the grant of
nonstatutory stock options and stock purchase rights to employees, non-employee
directors and consultants. A total of 3,500,000 shares of common stock has been
reserved for issuance under our 1998 Stock Plan as of June 30, 1999. In July
1999 an additional 3,000,000 shares of common stock were reserved for issuance
under our 1998 Stock Plan.
Our 1998 Stock Plan is administered by our compensation committee and our non-insider option committee. Our compensation committee consists of at least two directors who are "non-employee directors," as defined in Rule 16b-3. The board of directors may amend our 1998 Stock Plan as desired without further action by eGain's stockholders except as required by applicable law. Our 1998 Stock Plan will continue in effect until terminated by the board or for a term of 10 years from its amendment and restatement date, whichever is earlier.
The consideration for each award under our 1998 Stock Plan will be established by the compensation committee, but in no event will the option price for incentive stock options be less than 100% of the fair market value of the stock on the date of grant. Awards will have such terms and be exercisable in such manner and at such times as the compensation committee may determine. However, each incentive stock option must expire within a period of not more than 10 years from the date of grant.
Generally, options granted under the 1998 Stock Option Plan vest over four years, and are nontransferable other than by will or the laws of descent and distribution. In the event of specified changes in control of eGain, the acquiring or successor corporation may assume or substitute for options outstanding under the 1998 Stock Option Plan, or these options will terminate. Some options granted to our executive officers provide for partial acceleration upon a change in control of eGain.
As of August 20, 1999,
. 2,386,896 shares of common stock have been issued upon the exercise of options; and
. 2,499,350 shares were available for future awards.
Sitebridge 1997 Stock Plan
Upon the closing of our acquisition of Sitebridge, we assumed outstanding options to purchase shares of common stock of Sitebridge that became exercisable for 1,114,456 shares of eGain common stock. As of August 20, 1999, options to purchase 675,166 shares of common stock were outstanding under this plan.
1999 Employee Stock Purchase Plan
The board of directors adopted our 1999 Employee Stock Purchase Plan in July 1999, to be effective upon completion of this offering. A total of 750,000 shares of common stock have been reserved for issuance under our employee stock purchase plan. Our 1999 Employee Stock Purchase Plan, which is intended to qualify under Section 423 of the Internal Revenue Code, is administered by the board of directors or by a committee appointed by the board. Employees (including officers and employee directors of eGain but excluding 5% or greater stockholders) are eligible to participate if they are customarily employed for more than 20 hours per week and for at least five months in any calendar year. Our 1999 Employee Stock Purchase Plan permits eligible employees to purchase common stock through payroll deductions, which may not exceed 15% of an employee's compensation.
The board of directors will establish participation periods for our 1999 Employee Stock Purchase Plan, none of which will exceed 6 months. During each participation period, payroll deductions will accumulate, without interest. On the purchase dates set by the board of directors for each participation period, accumulated payroll deductions will be used to purchase common stock. The purchase price will be equal to 85% of the fair market value per share of common stock on either the first day of the participation period or on the purchase date, whichever is less. Employees may withdraw their accumulated payroll deductions at any time. Participation in our 1999 Employee Stock Purchase Plan ends automatically on termination of employment with eGain. Immediately prior to the effective time of a corporate reorganization, the participation period then in progress shall terminate and stock will be purchased with the accumulated payroll deductions, unless the 1999 Employee Stock Purchase Plan is assumed by the surviving corporation or its parent corporation pursuant to the plan of merger or consolidation. Our 1999 Employee Stock Purchase Plan will terminate in July 2009, unless sooner terminated by the board of directors.
401(k) Plan
We intend to establish a tax-qualified employee savings and retirement plan for which eGain's employees will generally be eligible. Pursuant to the 401(k) Plan, employees may elect to reduce their current compensation and have the amount of such reduction contributed to the 401(k) Plan. To
date, eGain has made no matching contributions. The 401(k) Plan is intended to qualify under Section 401 of the Internal Revenue Code of 1986, as amended, so that contributions to the 401(k) Plan, and income earned on plan contributions, are not taxable to employees until withdrawn from the 401(k) Plan, and so that contributions by eGain, if any, will be deductible by eGain when made.
Employment Agreements and Change in Control Arrangements
We do not currently have any employment contracts with any of our named executive officers. The shares of common stock issued to Ashutosh Roy and Gunjan Sinha vest over a period of time, which vesting is accelerated in the event of a change of control of eGain.
Limitation of Liability and Indemnification Matters
Our certificate of incorporation limits the liability of directors to the maximum extent permitted by Delaware law. Delaware law provides that directors of a corporation will not be personally liable for monetary damages for breach of their fiduciary duties as directors, except liability for:
. any breach of their duty of loyalty to the corporation or its stockholders;
. acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;
. unlawful payments of dividends or unlawful stock repurchases or redemption; or
. any transaction from which the director derived an improper personal benefit.
This limitation of liability does not apply to liabilities arising under the federal securities laws and does not affect the availability of equitable remedies such as injunctive relief or rescission.
Our certificate of incorporation and bylaws provide that we will indemnify our directors and executive officers and may indemnify its other officers and employees and other agents to the fullest extent permitted by law. Our bylaws also permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in such capacity, regardless of whether the bylaws would permit indemnification.
We are entering into agreements to indemnify our directors and executive officers, in addition to indemnification provided for in our certificate of incorporation and bylaws. We believe that these provisions and agreements are necessary to attract and retain qualified persons as directors and executive officers.
CERTAIN TRANSACTIONS
Since our inception, there has not been any transaction or series of transactions to which we were or are a party in which the amount involved exceeded or exceeds $60,000 and in which any director, executive officer, holder of more than 5% of any class of our voting securities or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest, other than the transactions described below.
Transactions with Management and Others
In December 1997, we sold 4,000,000 shares of common stock to each of Ashutosh Roy, a founder and our Chief Executive Officer, and Gunjan Sinha, a founder and our President, at a purchase price of $0.005 per share.
Between June 1998 and July 1999, we sold and issued 8,608,585 shares of our preferred stock for an aggregate consideration of $14,671,004. We sold 5,406,585 shares of Series A preferred stock in June 1998 at a price of $0.8055 per share, 2,550,000 shares of Series B preferred stock between December 1998 and March 1999 at a price of $2.00 per share and 652,000 shares of Series D preferred stock in July 1999 at a price of $8.00 per share. Upon completion of this offering, each share of Series A preferred stock, Series B preferred stock and Series D preferred stock will convert into one share of common stock.
The following table summarizes purchases, valued in excess of $60,000, of shares of preferred stock by our directors, executive officers and our 5% stockholder:
Number of Shares
---------------------------
Series A Series B Series D
--------- -------- --------
Directors and Executive Officers
Ashutosh Roy........................................ -- 750,000 191,375
Gunjan Sinha........................................ -- 750,000 191,375
5% Stockholder
FW Ventures I, L.P.................................. 3,103,663 574,052 163,875
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These affiliates purchased the securities described above at the same price and on the same terms and conditions as the unaffiliated investors in the private financings. Messrs. Roy and Sinha were affiliates of eGain at the time they purchased the above securities. FW Ventures I, L.P. became an affiliate of eGain in connection with the Series A preferred stock financing.
In August 1999, A. Michael Spence, a director of eGain, exercised an option to purchase 25,000 shares of common stock at a purchase price of $6.40 per share by payment of $25 and execution of a five-year, full recourse promissory note in the amount of $159,975. The note does not bear interest.
Business Relationships
In May 1999, we issued FW Ventures I, L.P. a warrant to purchase 175,000 shares of common stock at a price of $0.20 per share in connection with financial advisory services rendered in connection with our acquisition of Sitebridge. Mark Wolfson, a director of eGain, is a limited partner of FW Ventures I, L.P. The transaction with FW Ventures I, L.P. was negotiated with the unaffiliated directors of eGain and approved by the disinterested directors of the Registrant and eGain believes that the services provided by FW Ventures I, L.P. were provided on terms no less favorable to eGain than would have been obtained from unaffiliated third parties.
It is our current policy that all transactions between us and our officers, directors, 5% stockholders and their affiliates will be entered into only if these transactions are approved by a majority of the disinterested directors, are on terms no less favorable to us than could be obtained from unaffiliated parties and are reasonably expected to benefit us.
For information concerning indemnification of directors and officers, see "Management--Limitation of Liability and Indemnification Matters."
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding beneficial ownership of common stock as of August 20, 1999, and as adjusted to reflect the sale of 5,000,000 shares of common stock in this offering, by:
. each person or entity known to us to own beneficially more than 5% of our common stock;
. each of our directors;
. each of the named executive officers; and
. all executive officers and directors as a group.
The following table assumes no exercise of the underwriters' over-allotment option. Applicable percentage ownership is based on 22,545,568 shares of common stock outstanding as of August 20, 1999 and 27,815,562 shares outstanding immediately after completion of this offering.
Beneficial ownership is determined in accordance with the rules and regulations of the Securities and Exchange Commission. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock subject to options held by that person that are currently exercisable or exercisable within 60 days of August 20, 1999 are deemed outstanding. These shares, however, are not deemed outstanding for the purposes of computing the percentage ownership of any other person. Except as indicated in the footnotes to this table and pursuant to applicable community property laws, each stockholder named in the table has sole voting and investment power with respect to the shares set forth opposite such stockholder's name.
Unless otherwise indicated, the address for the following stockholders is c/o eGain Communications Corporation, 455 W. Maude Avenue, Sunnyvale, California 94086.
Percentage Owned
Total Shares ------------------------------
Name and Address of Beneficial Beneficially
Owner Owned Before Offering After Offering
------------------------------ ------------ --------------- --------------
5% Stockholder:
FW Ventures I, L.P.(1)............ 4,016,590 17.7% 14.4%
201 Main Street, Suite 2600
Ft. Worth, TX 76011
Directors and Executive Officers:
Ashutosh Roy...................... 4,496,931 19.9% 16.2%
Gunjan Sinha...................... 4,496,931 19.9% 16.2%
Stephen E. Klann(2)............... 196,225 * *
Ryan M. Rosenberg(3).............. 150,000 * *
Eric N. Smit(4)................... 136,500 * *
A. Michael Spence(5).............. 25,000 *
Mark A. Wolfson(6)................ -- *
All directors and executive
officers as a group
(8 persons)(6)(7)................ 9,621,587 42.2% 34.3%
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* Less than 1%.
(1) Includes a warrant currently exercisable for 175,000 shares. J. Taylor Crandall is a general partner of Group 31, Inc., which is the general partner of FW Ventures I, L.P. and, as such, Mr. Crandall is the ultimate natural person with voting or dispositive powers over the shares held by FW Ventures I, L.P.
(2) Includes 117,554 shares issuable under immediately exercisable options, of which 96,000 shares are subject to eGain's right of repurchase.
(3) Includes 126,337 shares of common stock subject to eGain's right of repurchase and 5,000 shares issuable under immediately exercisable options and subject to eGain's right of repurchase.
(4) Includes 125,000 shares of common stock subject to eGain's right of repurchase.
(5) Includes 25,000 shares subject to eGain's right of repurchase.
(6) Excludes 4,016,590 shares beneficially owned by FW Ventures I, L.P., of which Mr. Wolfson is a limited partner.
(7) Includes 276,337 shares of common stock subject to eGain's right of repurchase and 122,554 shares issuable under immediately exercisable options, of which 101,000 shares are subject to eGain's right of repurchase.
DESCRIPTION OF CAPITAL STOCK
Upon completion of this offering, and after giving effect to the conversion of all outstanding preferred stock into common stock and the amendment of our certificate of incorporation, our authorized capital stock will consist of 50,000,000 shares of common stock, $.001 par value, and 5,000,000 shares of preferred stock, $.001 par value.
Common Stock
As of August 20, 1999, there were 22,545,568 shares of common stock outstanding, held by approximately 130 stockholders of record.
Subject to preferences that may be applicable to any preferred stock outstanding at the time, the holders of common stock are entitled to the following:
Dividends. Holders of common stock are entitled to receive dividends out of assets legally available for the payment of dividends at the times and in the amounts as the board of directors from time to time may determine.
Voting. Holders of common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders, including the election of directors, and will not have cumulative voting rights unless eGain is subject to Section 2115 of the California Corporations Code. Cumulative voting for the election of directors is not authorized by our certificate of incorporation, which means that the holders of a majority of the shares voted can elect all of the directors then standing for election.
Preemptive rights, conversion and redemption. The common stock is not entitled to preemptive rights and is not subject to conversion or redemption.
Liquidation, dissolution and winding-up. Upon liquidation, dissolution or winding-up of eGain, the holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities and the liquidation of any preferred stock.
Each outstanding share of common stock is, and all shares of common stock to be outstanding upon completion of this offering will be, upon payment therefore, duly and validly issued, fully paid and nonassessable.
Preferred Stock
The board of directors is authorized, without action by the stockholders, to designate and issue up to 5,000,000 shares of preferred stock in one or more series. The board of directors can fix the rights, preferences and privileges of the shares of each series and any qualifications, limitations or restrictions on these shares.
The board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of common stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes could have the effect of delaying, deferring or preventing a change in control of eGain. We have no current plans to issue any shares of preferred stock.
Warrants
In August 1998 and October 1998, we issued warrants to purchase an aggregate of 74,511 shares of our Series A preferred stock at an exercise price of $0.8055 per share. These warrants expire between August 2005 and five years after completion of this offering. In May 1999, we assumed warrants exercisable for the Series A preferred stock of Sitebridge in connection with our acquisition of Sitebridge. These warrants became exercisable for an aggregate of 121,006 shares of our Series C preferred stock at an exercise price of $0.9916 per share. Upon completion of this offering, all of our warrants to purchase preferred stock will convert into the right to purchase the equivalent number of shares of common stock at the same exercise price per share.
In 1998, we also issued warrants to purchase 188,699 shares of Series A preferred stock at an exercise price of $0.8055 per share. In April 1999, we assumed a warrant to purchase common stock of Sitebridge that is exercisable for 30,440 shares of our common stock at an exercise price of $0.2754 per share. In June 1999, we issued a warrant to FW Ventures I, L.P. to purchase 175,000 shares of common stock at an exercise price of $0.20 per share. Each of these warrants will expire upon completion of this offering.
Registration Rights
Upon completion of this offering, the holders of 10,602,594 shares of common stock issuable upon conversion of the Series A, B, C and D preferred stock and upon the exercise of warrants have the right to cause us to register these shares under the Securities Act as follows:
. Demand Registration Rights. Six months after this offering, the holders of a majority of the common stock issued upon conversion of Series A, B, C or D preferred stock may request that we register their shares with respect to all or part of their registrable securities having aggregate proceeds of at least $10,000,000.
. Piggyback Registration Rights. The holders of registrable securities may request to have their shares registered anytime we file a registration statement to register any of our securities for our own account or for the account of others.
. S-3 Registration Rights. The holders of at least thirty percent (30%) of registrable securities have the right to request registrations on Form S-3 if we are eligible to use Form S-3, have not already effected such an S-3 registration within the past six (6) months, and if the aggregate proceeds are at least $1,000,000.
Holders of an additional 7,111,112 shares of common stock have the piggyback registration rights and S-3 registration rights described above.
Registration of shares of common stock pursuant to the exercise of demand registration rights, piggyback registration rights or S-3 registration rights under the Securities Act would result in these shares becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of such registration. See "Shares Eligible for Future Sale" and "Certain Transactions."
eGain will pay all registration expenses, other underwriting discounts and commissions in connection with any registration. The registration rights terminate five years following completion of this offering, or, with respect to each holder of registrable securities, when the holder can sell all of the holder's shares in any 90-day period under Rule 144 under the Securities Act.
We are currently subject to Section 2115 of the California General
Corporation Law. Section 2115 provides that, regardless of a company's legal
domicile, certain provisions of California corporate law will apply to that
company if more than 50% of its outstanding voting securities are held of
record by persons having addresses in California and the majority of the
company's operations occur in California. For example, while we are subject to
Section 2115, stockholders may cumulate votes in electing directors. This means
that each stockholder may vote the number of votes equal to the number of
candidates multiplied by the number of votes to which the stockholder's shares
are normally entitled in favor of one candidate. This potentially allows
minority stockholders to elect some members of the board of directors. When we
are no longer subject to Section 2115, cumulative voting will not be allowed
and a holder of 50% or more of our voting stock will be able to control the
election of all directors. In addition to this difference, Section 2115 has the
following additional effects:
. enables removal of directors with or without cause with majority stockholder approval;
. places limitations on the distribution of dividends;
. extends additional rights to dissenting stockholders in any reorganization, including a merger, sale of assets or exchange of shares; and
. provides for information rights and required filings in the event we effect a sale of assets or complete a merger.
We anticipate that our common stock will be qualified for trading as a national market security on the Nasdaq National Market and that we will have at least 800 stockholders of record by the record date for our 2000 annual meeting of stockholders. If these two conditions occur, then we will no longer be subject to Section 2115 as of the record date for our 2000 annual meeting of stockholders.
Delaware Anti-Takeover Law and Certain Charter Provisions
Delaware Takeover Statute
We are subject to Section 203 of the Delaware General Corporation Law, which, subject to some exceptions, prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years following the date that such stockholder became an interested stockholder, unless:
. prior to this date, the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder;
. upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned (x) by persons who are directors and also officers and (y) by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or
. on or subsequent to such date, the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock that is not owned by the interested stockholder.
. subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder;
. any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the interested stockholder; or
. the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation.
In general, Section 203 defines an interested stockholder as any entity or person who, together with affiliates and associates owns, or within three years, did own beneficially 15% or more of the outstanding voting stock of the corporation.
Certificate of Incorporation and Bylaws
Under our certificate of incorporation, the board of directors has the power to authorize the issuance of up to 5,000,000 shares of preferred stock and to determine the price, rights, preferences, privileges and restrictions, including voting rights, of those shares without further vote or action by the stockholders. The issuance of preferred stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, may:
Section 203 defines business combination to include:
. any merger or consolidation involving the corporation and the interested stockholder;
. any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation involving the interested stockholder;
. delay, defer or prevent a change in control of eGain;
. discourage bids for the common stock at a premium over the market price of our common stock;
. adversely affect the voting and other rights of the holders of our common stock; and
. discourage acquisition proposals or tender offers for our shares and, as a consequence, inhibit fluctuations in the market price of our shares that could result from actual or rumored takeover attempts.
Our bylaws provide that:
. all stockholder action be taken at a stockholders' meeting; and
. special meetings of stockholders may only be called by the chairman of the board, the chief executive officer or the board of directors.
The provisions described above, together with the ability of the board of directors to issue preferred stock may have the effect of deterring a hostile takeover or delaying a change in control or management of eGain.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Boston EquiServe.
Listing
We have applied to have our common stock quoted on the Nasdaq National Market under the symbol "EGAN."
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering there has been no public market for our common stock, and we cannot predict the effect, if any, that market sales of shares or the availability of shares for sale will have on the market price prevailing from time to time. As described below, only a limited number of shares will be available for sale shortly after this offering due to contractual and legal restrictions on resale. Nevertheless, sales of substantial amounts of our common stock in the public market after the restrictions lapse could cause the market price of our common stock to decline.
When this offering is completed, we will have a total of 27,815,562 shares of common stock outstanding, assuming no exercise of outstanding options. The 5,000,000 shares offered by this prospectus will be freely tradable unless they are purchased by our "affiliates," as defined in Rule 144 under the Securities Act of 1933. The remaining 22,815,562 shares are "restricted," which means they were originally sold in offerings that were not subject to a registration statement filed with the Securities and Exchange Commission. These restricted shares may be resold only through registration under the Securities Act of 1933 or under an available exemption from registration, such as provided through Rule 144.
Lock-up Agreements
The holders of 22,815,562 shares of common stock have agreed to a 180-day "lock-up" with respect to these shares. This generally means that they cannot sell these shares during the 180 days following the date of this prospectus. After the 180-day lock-up period, these shares may be sold in accordance with Rule 144.
Rule 144
In general, under Rule 144, a person or persons whose shares are aggregated, who has beneficially owned restricted securities for at least one year, including the holding period of any holder who is not an affiliate, is entitled to sell within any three month period a number of our shares of common stock that does not exceed the greater of:
. 1% of the then outstanding shares of our common stock, which will equal approximately 278,156 shares upon completion of this offering; or
. the average weekly trading volume of our common stock on the Nasdaq National Market during the four calendar weeks preceding the date on which notice of sale is filed with the Securities and Exchange Commission.
Sales under Rule 144 are subject to restrictions relating to manner of sale, notice and the availability of current public information about us. Under Rule 144 and subject to volume limitations, 16,963,195 of the restricted shares will be eligible for sale beginning 180 days after the date of the final prospectus, and the remaining restricted shares will become salable at various times thereafter.
Rule 144(k)
A person who is not deemed an affiliate of ours at any time during the 90 days preceding a sale and who has beneficially owned shares for at least two years, including the holding period of any prior owner who is not an affiliate, would be entitled to sell shares following this offering under Rule 144(k) without regard to the volume limitations, manner of sale provisions, public information or notice requirements of Rule 144.
Rule 701 and Options
Rule 701 permits resales of shares in reliance upon Rule 144 but without compliance with some restrictions, including the holding period requirement, of Rule 144. Any employee, officer or director or consultant who purchased his or her shares pursuant to a written compensatory plan or contract may be entitled to rely on the resale provisions of Rule 701. Rule 701 permits affiliates to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. Rule 701 further provides that non-affiliates may sell such shares in reliance on Rule 144 without having to comply with the holding period, public information, volume limitation or notice provisions of Rule 144. All holders of Rule 701 shares are required to wait 90 days after the date of this prospectus before selling such shares. However, all shares issued by us pursuant to Rule 701 are subject to lock-up provisions and will only become eligible for sale upon the expiration of 180 days after the date of this prospectus.
Registration
Following this offering, we intend to file a registration statement under the Securities Act covering shares of common stock subject to outstanding options or issued or issuable under our 1997 Stock Option Plan, 1998 Stock Plan and our 1999 Employee Stock Purchase Plan. Based on the number of shares subject to outstanding options at August 20, 1999, and currently reserved for issuance under these plans, this registration statement would cover approximately 5,682,843 shares. This registration statement will automatically become effective upon filing. Accordingly, shares registered under this registration statement will, subject to Rule 144 volume limitations applicable to our affiliates, be available for sale in the open market immediately after the expiration of the 180-day lock-up agreements. In addition, holders of 10,602,594 shares of common stock will be entitled to registration rights. See "Description of Capital Stock--Registration Rights."
UNDERWRITING
The underwriters named below, acting through their representatives, BancBoston Robertson Stephens Inc., Donaldson, Lufkin & Jenrette Securities Corporation and Volpe Brown Whelan & Company, LLC, have severally agreed with us, subject to the terms and conditions of the underwriting agreement, to purchase from us the number of shares of common stock set forth opposite their names below. The underwriters are committed to purchase and pay for all such shares if any are purchased.
Number of
Underwriter Shares
----------- ---------
BancBoston Robertson Stephens Inc................................
Donaldson, Lufkin & Jenrette Securities Corporation..............
Volpe Brown Whelan & Company, LLC................................
---------
Total.......................................................... 5,000,000
=========
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We have been advised by the representatives that the underwriters propose to offer the shares of common stock to the public at the initial public offering price set forth on the cover page of this prospectus and to certain dealers at such price less a concession of not more than $ per share, of which $ may be reallowed to other dealers. After the initial public offering, the public offering price, concession and reallowance to dealers may be reduced by the representatives. No such reduction shall change the amount of proceeds to be received by us as set forth on the cover page of this prospectus. The common stock is offered by the underwriters as stated herein, subject to receipt and acceptance by them and subject to their right to reject any order in whole or in part.
The underwriters do not intend to confirm sales to any accounts over which they exercise discretionary authority.
Over-allotment Option. We have granted to the underwriters an option, exercisable during the 30-day period after the date of this prospectus, to purchase up to 750,000 additional shares of common stock at the initial public offering price per share as we will receive for the 5,000,000 shares that the underwriters have agreed to purchase. To the extent that the underwriters exercise this option, each of the underwriters will have a firm commitment to purchase approximately the same percentage of these additional shares that the number of shares of common stock to be purchased by it shown in the above table represents as a percentage of the shares offered hereby. If purchased, these additional shares will be sold by the underwriters on the same terms as those on which the 5,000,000 shares are being sold. We will be obligated, pursuant to the option, to sell shares to the extent the option is exercised. The underwriters may exercise this option only to cover over- allotments made in connection with the sale of the shares of common stock offered in this offering. If this option is exercised in full, the total public offering price, underwriting discounts and commissions and proceeds to us will be $ , $ and $ , respectively.
The following table summarizes the compensation to be paid to the underwriters by us:
Total
-------------------
Without With
Per Over- Over-
Share allotment allotment
----- --------- ---------
Underwriting discounts and commissions payable
by us.......................................... $ $ $
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We estimate that expenses payable by us in connection with this offering, other than the underwriting discounts and commissions referred to above, will be approximately $980,000.
Indemnity. The underwriting agreement contains covenants of indemnity among the underwriters and us against certain civil liabilities, including liabilities under the Securities Act and liabilities arising from breaches of representations and warranties contained in the underwriting agreement.
Lock-up Agreements. Each of our officers, directors and stockholders has agreed, for a period of 180 days after the date of this prospectus, that, subject to exceptions, they will not offer to sell, contract to sell, or otherwise sell, dispose of, loan, pledge or grant any rights with respect to any shares of common stock, any options or warrants to purchase any shares of common stock, or any securities convertible into or exchangeable for shares of common stock owned as of the date of this prospectus or, with certain exceptions, thereafter acquired directly by such holders or with respect to which they have or hereafter acquire the power of disposition, without the prior written consent of BancBoston Robertson Stephens Inc. However, BancBoston Robertson Stephens Inc. may, in its sole discretion and at any time without notice, release all or any portion of the securities subject to the lock-up agreements. There are no agreements between the representatives and any of our stockholders providing consent by the representatives to the sale of shares prior to the expiration of the lock-up period.
Future Sales. In addition, we have agreed that until 180 days after the date of this prospectus, we will not, subject to certain exceptions, without the prior written consent of BancBoston Robertson Stephens Inc.:
. consent to the disposition of any shares held by stockholders prior to the expiration of the lock-up period or
. issue, sell, contract to sell or otherwise dispose of any shares of common stock, any options or warrants to purchase any shares of common stock or any securities convertible into, exercisable for or exchangeable for shares of common stock other than (1) the sale of shares in this offering, (2) the issuance of common stock upon the exercise of outstanding warrants and options, and (3) the issuance of options under existing stock option and incentive plans. See "Shares Eligible for Future Sale."
Listing. We have applied for quotation on the Nasdaq National Market under the symbol "EGAN."
No Prior Public Market. Prior to this offering, there has been no public market for our common stock. Consequently, the initial public offering price for the common stock offered hereby will be determined through negotiations between us and the representatives. Among the factors to be considered in such negotiations are prevailing market conditions, certain of our financial information, market valuations of other companies that we and the representatives believe to be comparable to us,
estimates of our business potential, our present state of development and other factors deemed relevant.
Stabilization. The representatives have advised us that, pursuant to Regulation M under the Securities Act, certain persons participating in this offering may engage in transactions, including stabilizing bids, syndicate covering transactions or the imposition of penalty bids, that may have the effect of stabilizing or maintaining the market price of the common stock at a level above that which might otherwise prevail in the open market. A "stabilizing bid" is a bid for or the purchase of the common stock on behalf of the underwriters for the purpose of fixing or maintaining the price of the common stock. A "syndicate covering transaction" is the bid for or the purchase of the common stock on behalf of the underwriters to reduce a short position incurred by the underwriters in connection with this offering. A "penalty bid" is an arrangement permitting the representatives to reclaim the selling concession otherwise accruing to an underwriter or syndicate member in connection with this offering if the common stock originally sold by such underwriter or syndicate member is purchased by the representatives in a syndicate covering transaction and has therefore not been effectively placed by such underwriter or syndicate member. The representatives have advised us that these transactions may be effected on the Nasdaq National Market or otherwise and, if commenced, may be discontinued at any time.
Directed Share Program. At our request, the underwriters have reserved up to 250,000 shares of common stock to be issued by us and offered hereby for sale, at the initial public offering price, to directors, officers, employees, business associates and related persons of eGain. The number of shares of common stock available for sale to the general public will be reduced to the extent such individuals purchase such reserved shares. Any reserved shares that are not so purchased will be offered by the underwriters to the general public on the same basis as the other shares offered hereby.
LEGAL MATTERS
Selected legal matters with respect to the validity of the common stock offered by this prospectus are being passed upon for eGain by Pillsbury Madison & Sutro LLP, Palo Alto, California. Certain partners of Pillsbury Madison & Sutro LLP beneficially own an aggregate of 51,490 shares of eGain common stock. Legal matters in connection with this offering will be passed upon for the underwriters by Cooley Godward LLP, San Francisco, California.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated financial statements at June 30, 1998 and 1999, for the period from September 30, 1997 (inception) through June 30, 1998, and for the year ended June 30, 1999 as set forth in their report. We have included our consolidated financial statements in the prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLP's report, given upon the authority of such firm as experts in accounting and auditing.
Ernst & Young LLP, independent auditors, have audited the financial statements of Sitebridge Corporation (a development stage company) at December 31, 1997 and 1998, for the period from September 10, 1996 (inception) through December 31, 1997 and for the year ended December 31, 1998 and for the period from September 10, 1996 (inception) through December 31, 1998 as set forth in their report. The financial statements of Sitebridge Corporation (a development stage company) are included in the prospectus in reliance on Ernst & Young LLP's report, given upon the authority of such firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the common stock offered hereby. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement or the exhibits and schedules which are part of the registration statement. For further information with respect to eGain and the common stock offered by this prospectus, we refer you to the registration statement and the exhibits and schedules filed as part of the registration statement. You may read and copy any document we file at the SEC's public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Our SEC filings are also available to the public from the SEC's Web site at http://www.sec.gov.
Upon completion of this offering, we will become subject to the information and periodic reporting requirements of the Securities and Exchange Act, as amended, and, in accordance therewith, will file periodic reports, proxy statements and other information with the SEC. These periodic reports, proxy statements and other information will be available for inspection and copying at the SEC's public reference rooms and the Web site of the SEC referred to above.
eGAIN COMMUNICATIONS CORPORATION
INDEX TO FINANCIAL STATEMENTS
AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF eGAIN COMMUNICATIONS CORPORATION
Page
----
Report of Ernst & Young LLP, Independent Auditors.......................... F-2
|
Consolidated Balance Sheets................................................. F-3 Consolidated Statements of Operations....................................... F-4 Consolidated Statement of Stockholders' Equity.............................. F-5 Consolidated Statements of Cash Flows....................................... F-6 Notes to Consolidated Financial Statements.................................. F-7 |
AUDITED FINANCIAL STATEMENTS OF SITEBRIDGE CORPORATION
Report of Ernst & Young LLP, Independent Auditors.......................... F-21 Balance Sheets............................................................. F-22 Statements of Operations................................................... F-23 Statement of Stockholders' Equity (Net Capital Deficiency)................. F-24 Statements of Cash Flows................................................... F-25 Notes to Financial Statements.............................................. F-26 |
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS OF eGAIN COMMUNICATIONS CORPORATION AND SITEBRIDGE CORPORATION..................... F-33 |
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders eGain Communications Corporation
We have audited the accompanying consolidated balance sheets of eGain Communications Corporation as of June 30, 1998 and 1999, and the related consolidated statements of operations, stockholders' equity, and cash flows for the period from inception (September 10, 1997) to June 30, 1998 and for the year ended June 30, 1999. These financial statements are the responsibility of eGain Communications Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of eGain Communications Corporation at June 30, 1998 and 1999, and the consolidated results of its operations and its cash flows for the period from inception (September 10, 1997) to June 30, 1998 and for the year ended June 30, 1999, in conformity with generally accepted accounting principles.
/s/ Ernst & Young llp
Palo Alto, California
July 16, 1999
|
eGAIN COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
Pro forma
stockholders'
June 30, equity at
------------------------ June 30,
1998 1999 1999
---------- ------------ -------------
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents............ $3,830,692 $ 1,265,147
Accounts receivable.................. -- 705,488
Prepaid and other current assets..... 49,164 512,896
---------- ------------
Total current assets............... 3,879,856 2,483,531
Property and equipment, net............ 110,134 1,132,651
Goodwill and other purchased intangible
assets, net........................... -- 20,194,972
Other assets........................... -- 153,884
---------- ------------
$3,989,990 $ 23,965,038
========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank borrowings--line of credit...... $ -- $ 1,000,000
Accounts payable..................... 188,651 683,761
Accrued compensation................. -- 343,471
Accrued liabilities.................. -- 474,757
Deferred revenue..................... -- 302,119
Current portion of notes payable..... -- 434,762
---------- ------------
Total current liabilities.......... 188,651 3,238,870
Notes payable, net of current portion.. -- 221,093
Other long-term liabilities............ -- 21,791
Commitments
Stockholders' Equity:
Convertible preferred stock, $0.001
par value, 10,035,887 shares
authorized, issuable in series:
5,406,585 and 9,566,378 shares
issued and outstanding at June 30,
1998 and 1999; no shares issued, or
outstanding pro forma (aggregate
liquidation preference of $7,172,056
at June 30, 1999)................... 4,329,264 16,986,961 $ --
Preferred stock: $0.001 par value;
5,000,000 shares authorized, no
shares issued and outstanding....... -- -- --
Common stock, $0.001 par value,
50,000,000 shares authorized,
8,000,000 and 10,946,661 shares
issued and outstanding at June 30,
1998 and 1999; 20,513,039 shares
issued and outstanding pro forma.... 295,000 7,288,859 20,513
Additional paid-in capital........... 291,287 17,549,416 41,804,723
Notes receivable from stockholders... -- (143,653) (143,653)
Deferred stock compensation.......... (175,774) (8,956,117) (8,956,117)
Accumulated other comprehensive
income.............................. -- 757 757
Accumulated deficit.................. (938,438) (12,242,939) (12,242,939)
---------- ------------ ------------
Total stockholders' equity......... 3,801,339 20,483,284 $ 20,483,284
---------- ------------ ============
$3,989,990 $ 23,965,038
========== ============
|
See accompanying notes.
eGAIN COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Period from
inception
(September 10,
1997) to Year ended
June 30, June 30,
1998 1999
-------------- ------------
Revenue:
Hosting........................................ $ -- $ 137,385
License fees................................... -- 473,450
Service........................................ 2,000 408,508
--------- ------------
Total revenue................................ 2,000 1,019,343
Costs and expenses:
Cost of revenue................................ 52,481 1,772,159
Sales and marketing............................ 245,553 4,181,816
Research and development....................... 313,894 2,095,784
General and administrative..................... 214,052 1,234,865
Amortization of goodwill and other intangible
assets........................................ -- 1,217,057
Amortization of deferred compensation.......... 58,258 1,817,266
--------- ------------
Total costs and expenses..................... 884,238 12,318,947
--------- ------------
Loss from operations............................. (882,238) (11,299,604)
Interest income.................................. 1,509 111,360
Interest and other expenses...................... (57,709) (116,257)
--------- ------------
Net loss......................................... $(938,438) $(11,304,501)
========= ============
Basic and diluted net loss per share............. $ (17.78) $ (2.14)
========= ============
Shares used in computing basic and diluted net
loss per share.................................. 52,778 5,294,736
========= ============
Proforma basic and diluted net loss per share
(unaudited)..................................... $ (0.93)
============
Shares used in computing proforma basic and
diluted net loss per share (unaudited).......... 12,153,444
============
|
See accompanying notes.
eGAIN COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Convertible Notes Accumulated
Preferred Stock Common Stock Additional Receivable Deferred Other
--------------------- --------------------- Paid-In From Stock Comprehensive Accumulated
Shares Amount Shares Amount Capital Stockholders Compensation Income Deficit
--------- ----------- ---------- ---------- ----------- ------------ ------------ ------------- ------------
Issuance of
common stock to
founders........ -- $ -- 8,000,000 $ 295,000 -- $ -- $ -- $ -- $ --
Issuance of
Series A
convertible
preferred stock
for cash and
conversion of
notes, net of
issuance costs
of $25,740...... 5,406,585 4,329,264 -- -- -- -- -- -- --
Issuance of
warrant......... -- -- -- -- 57,255 -- -- -- --
Deferred stock
compensation.... -- -- -- -- 234,032 -- (234,032) -- --
Amortization of
deferred stock
compensation.... -- -- -- -- -- -- 58,258 -- --
Net loss........ -- -- -- -- -- -- -- -- (938,438)
--------- ----------- ---------- ---------- ----------- --------- ------------ ---- ------------
BALANCE AT JUNE
30, 1998........ 5,406,585 4,329,264 8,000,000 295,000 291,287 -- (175,774) -- (938,438)
Issuance of
Series B
convertible
preferred stock
for cash, net of
issuance costs
of $24,494...... 2,550,000 5,075,506 -- -- -- -- -- -- --
Issuance of
common stock
upon exercise of
employee stock
options and
other issuances
under the 1998
Stock Plan...... -- -- 1,491,147 167,500 -- (143,653) -- -- --
Issuance of
Series C
preferred and
common stock in
exchange for
SiteBridge
preferred and
common stock.... 1,609,793 7,582,191 1,455,514 6,826,359 6,603,225 -- -- -- --
Issuance of
warrants........ -- -- -- -- 36,000 -- -- -- --
Deferred stock
compensation.... -- -- -- -- 10,618,904 -- (10,618,904) -- --
Amortization of
deferred stock
compensation.... -- -- -- -- -- -- 1,838,561 -- --
Comprehensive
loss:
Net loss........ -- -- -- -- -- -- -- -- (11,304,501)
Foreign currency
translation
adjustment...... -- -- -- -- -- -- -- 757 --
Total
comprehensive
loss............ -- -- -- -- -- -- -- -- --
--------- ----------- ---------- ---------- ----------- --------- ------------ ---- ------------
BALANCE AT JUNE
30, 1999........ 9,566,378 $16,986,961 10,946,661 $7,288,859 $17,549,416 $(143,653) $ (8,956,117) $757 $(12,242,939)
========= =========== ========== ========== =========== ========= ============ ==== ============
Stockholders'
Equity
--------------
Issuance of
common stock to
founders........ $ 295,000
Issuance of
Series A
convertible
preferred stock
for cash and
conversion of
notes, net of
issuance costs
of $25,740...... 4,329,264
Issuance of
warrant......... 57,255
Deferred stock
compensation.... --
Amortization of
deferred stock
compensation.... 58,258
Net loss........ (938,438)
--------------
BALANCE AT JUNE
30, 1998........ 3,801,339
Issuance of
Series B
convertible
preferred stock
for cash, net of
issuance costs
of $24,494...... 5,075,506
Issuance of
common stock
upon exercise of
employee stock
options and
other issuances
under the 1998
Stock Plan...... 23,847
Issuance of
Series C
preferred and
common stock in
exchange for
SiteBridge
preferred and
common stock.... 21,011,775
Issuance of
warrants........ 36,000
Deferred stock
compensation.... --
Amortization of
deferred stock
compensation.... 1,838,561
Comprehensive
loss:
Net loss........ (11,304,501)
Foreign currency
translation
adjustment...... 757
--------------
Total
comprehensive
loss............ (11,303,744)
--------------
BALANCE AT JUNE
30, 1999........ $ 20,483,284
==============
|
See accompanying notes.
eGAIN COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Period from
inception
(September 10,
1997) to Year ended
June 30, June 30,
1998 1999
-------------- ------------
Operating activities
Net loss....................................... $ (938,438) $(11,304,501)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation................................. 7,000 279,400
Amortization of goodwill and other intangible
assets...................................... -- 1,217,057
Amortization of deferred compensation........ 58,258 1,838,561
Amortization of loan discount associated with
warrants.................................... 57,255 14,000
Changes in operating assets and liabilities:
Accounts receivable........................ -- (653,988)
Prepaid and other current assets........... (49,164) (456,307)
Other assets............................... -- (136,384)
Accounts payable........................... 187,982 417,894
Accrued compensation....................... 670 267,800
Other accrued liabilities.................. -- 409,645
Deferred revenue........................... -- 302,119
Other liabilities.......................... -- 21,791
---------- ------------
Net cash used in operating activities.... (676,437) (7,782,913)
---------- ------------
Investing activities
Purchases of property and equipment............ (117,134) (1,258,162)
Cash assumed in Sitebridge acquisition......... -- 78,321
---------- ------------
Net cash used in investing activities.... (117,134) (1,179,841)
---------- ------------
Financing activities
Proceeds from loans............................ -- 1,297,855
Net proceeds from issuance of preferred stock.. 4,329,263 5,075,507
Proceeds from issuance of common stock ........ 295,000 23,847
---------- ------------
Net cash provided by financing
activities.............................. 4,624,263 6,397,209
---------- ------------
Net increase (decrease) in cash and cash
equivalents..................................... 3,830,692 (2,565,545)
Cash and cash equivalents at beginning of
period.......................................... -- 3,830,692
---------- ------------
Cash and cash equivalents at end of period....... $3,830,692 $ 1,265,147
========== ============
Supplemental disclosure of cash flow information
Interest paid.................................. $ -- $ 111,146
========== ============
Conversion of promissory notes to preferred
stock........................................... $ 800,000 $ --
========== ============
Issuance of warrants in exchange for services in
connection with the Sitebridge acquisition...... $ -- $ 789,250
========== ============
|
See accompanying notes.
eGAIN COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Business
eGain Communications Corporation ("eGain"), formerly known as Parsec Communications Corporation, is a developer of customer service infrastructure solutions for companies engaged in eCommerce. Businesses use eGain's applications to effectively manage high volumes of customer email as well as live Web-based interaction. eGain's email management system helps businesses route, track, analyze and respond to customer emails. eGain was incorporated in Delaware on September 10, 1997.
During fiscal 1999, eGain commenced shipment of its principal products and emerged from the development stage. Although eGain is no longer in the development stage, eGain continues to be subject to many of the risks and challenges associated with companies in a comparable stage of development, including dependence on key individuals, competition from substitute products and from larger companies, successful marketing of its products and acceptance of its technology, successful development of product enhancements on a continuing basis and the need for adequate financing to support anticipated future growth.
eGain has incurred cumulative losses totaling approximately $12,243,000 since its incorporation and expects to incur additional losses for the foreseeable future. eGain's current operating plan shows that eGain will continue to require additional capital to fund its operations and market its products. To date, eGain has financed its operations with the net proceeds from private sales of convertible preferred stock, bank borrowings and capital equipment financing. eGain plans to seek additional funding through public or private financing or other arrangements with third parties. If the financing arrangements contemplated by management are not consummated, eGain may have to seek other sources of capital or adjust its operating plan to delay or reduce the Company's expenditures and the scope of its operations.
Principles of Consolidation
The consolidated financial statements include the accounts of eGain and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ materially from these estimates.
Revenue Recognition
Revenue from hosting services is recognized ratably over the period of the agreement as services are provided. Hosting agreements are typically for a period of one year and automatically renew unless either party cancels the agreement.
eGAIN COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Revenue from license fees and from sales of software products is recognized when persuasive evidence of an agreement exists, delivery of the product has occurred, no significant eGain obligations remain, the fee is fixed or determinable, and collectibility is probable. If an arrangement includes multiple elements, the fee is allocated to the various elements based on vendor-specific objective evidence of fair value, regardless of any separate prices stated within the contract for each element. If sufficient vendor- specific objective evidence does not exist for the allocation of revenue to the various elements of the arrangement, all revenue from the arrangement is deferred until the earlier of the point at which (a) such sufficient vendor- specific objective evidence does exist or (b) all elements of the arrangement have been delivered.
Service revenue is primarily comprised of revenue from consulting fees, maintenance agreements, and training. Service revenue from consulting and training billed on a time and materials basis is recognized as performed. Service revenue on fixed price service arrangements is recognized upon completion of specific contractual milestone events, or based on an estimated percentage of completion as work progresses. Maintenance agreements include the right to software updates on an if-and-when-available basis. Maintenance revenue is deferred and recognized on a straight-line basis as service revenue over the life of the related agreement, which is typically one year.
Customer advances and billed amounts due from customers in excess of revenue recognized are recorded as deferred revenue.
eGain has adopted Statement of Position 97-2, "Software Revenue Recognition" ("SOP 97- 2"), and Statement of Position 98-4, "Deferral of the Effective Date of a Provision of SOP 97-2, Software Revenue Recognition" ("SOP 98-4"). SOP 97- 2 and SOP 98-4 provide guidance for recognizing revenue on software transactions and supersedes SOP 91-1. The adoption of SOP 97-2 and SOP 98-4 did not have a material impact on eGain's financial results.
In December 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-9, "Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions" ("SOP 98-9"). SOP 98-9 amends SOP 98-4 to extend the deferral of the application of certain passages of SOP 97-2 provided by SOP 98-4 through fiscal years beginning on or before March 15, 1999. All other provisions of SOP 98-9 are effective for transactions entered into in fiscal years beginning after March 15, 1999. eGain believes that the adoption of SOP 98-9 will not have a material effect on results of operations or financial condition.
Cash and Cash Equivalents
eGain considers all highly liquid investments with a maturity from date of purchase of three months or less to be cash equivalents. Cash equivalents consist primarily of money market accounts.
Concentration of Credit Risk and Significant Customers
Financial instruments that subject eGain to concentrations of credit risk consist principally of cash investments and trade accounts receivable. eGain invests cash which is not required for immediate operating needs principally in money market funds, which bear minimal risk.
eGain's customers are currently concentrated in the United States. eGain performs ongoing credit evaluations and generally does not require collateral.
eGAIN COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For the year ended June 30, 1999, two customers accounted for 15.6% and 10.8% of revenue. One customer represented all of the revenue for the period from inception (September 10, 1997) to June 30, 1998.
Property and Equipment
Property and equipment are stated at cost, net of accumulated amortization and depreciation. Property and equipment are depreciated on a straight-line basis over the estimated useful lives of the assets, typically three years.
Goodwill and Purchased Intangible Assets
Goodwill represents the excess of the purchase price over the estimated fair market value of tangible and intangible net assets acquired in a business combination. Goodwill and other purchased intangible assets related to the acquisition of Sitebridge Corporation are amortized on a straight-line basis over three years from the date of acquisition.
We will regularly perform reviews to determine if the carrying value of the assets is impaired. The reviews look for the existence of facts or circumstances, either internal or external, which indicate the carrying value of the asset cannot be recovered. Such indicators would include a lack of successful further development and integration of the acquired company's technology into eGain's operations, lack of the market acceptance of the products and lower than expected cash flows from operations. No impairment has been indicated to date. If there is an indication of impairment in the future, eGain will measure the amount of the loss based on discounted expected future cash flows from the impaired assets. The cash flow calculations would be based on management's best estimates, using appropriate assumptions and projections at the time.
Advertising Costs
Advertising costs are accounted for as expenses in the period in which they are incurred. Advertising expense for the period from inception (September 10, 1997) to June 30, 1998 and the year ended June 30, 1999 were approximately zero and $210,000, respectively.
Software Development Costs
Software development costs are included in research and development and are expensed as incurred until the technological feasibility of the product is achieved. To date, the period between achieving technological feasibility and general availability of software has been short and software development costs qualifying for capitalization have been insignificant. Accordingly, eGain has not capitalized any software development costs.
Stock-Based Compensation
eGain accounts for its stock-based compensation arrangements with employees using the intrinsic value method. Deferred stock-based compensation is recorded on the date of grant when the deemed fair value of the underlying common stock exceeds the exercise price for stock options.
In accordance with the Statement of Financial Accounting Standards No. 123 "Accounting for Stock Based Compensation. ("SFAS 123"), stock options and warrants issued to non-employees are
eGAIN COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
accounted for based on the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measured.
Comprehensive Loss
eGain adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"), at June 30, 1999. Under SFAS 130, eGain is required to display comprehensive income and its components as part of the financial statements. Other comprehensive income includes certain changes in equity that are excluded from net income (loss). Total comprehensive loss (including foreign currency translation effects) is shown in the statement of stockholders' equity.
Segment Information
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and Related Information" ("SFAS 131"), effective for financial statements for periods beginning after December 15, 1997. SFAS 131 establishes standards for the way that public business enterprises report financial and descriptive information about reportable operating segments in annual financial statements and interim financial reports issued to stockholders. eGain adopted SFAS 131 effective July 1, 1998. eGain operates in one segment. Operating losses generated by the foreign operations of eGain and their corresponding identifiable assets were not material in any period presented. eGain's export revenue has not been material in any period presented.
Net Loss Per Share
Basic and diluted net loss per share are presented in accordance with SFAS No. 128, "Earnings per Share" ("SFAS 128"), for all periods presented. Pursuant to the Securities and Exchange Commission Staff Accounting Bulletin No. 98, ordinary shares and convertible preferred shares issued or granted for nominal consideration prior to the anticipated effective date of eGain's initial public offering must be included in the calculation of basic and diluted net loss per share as if they had been outstanding for all periods presented. To date, eGain has not had any issuances or grants for nominal consideration.
Basic and diluted net loss per share has been computed using the weighted- average number of shares of common stock outstanding during the period. Had eGain been in a net income position, diluted earnings per share would have included the shares used in the computation of basic net loss per share as well as the impact of common shares outstanding subject to repurchase and outstanding options and warrants to purchase an additional 699,699 and 2,833,548 shares, prior to the application of the treasury stock method, for the period from inception (September 10, 1997) to June 30, 1998 and the year ended June 30, 1999. Such shares have been excluded because they are antidilutive for all periods presented. Shares of convertible preferred stock have been excluded from the computation.
Pro Forma Net Loss Per Share (Unaudited)
Pro forma net loss per share is computed using the weighted-average number of shares of common stock outstanding, including the pro forma effects of the automatic conversion of eGain's convertible preferred stock into shares of common stock, effective upon the closing of eGain's initial public offering as if such conversion occurred at the date of original issuance.
eGAIN COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A reconciliation of shares used in the calculation of basic and diluted and pro forma net loss per share follows:
Period from
inception
(September 10, Year ended
1997) to June 30,
June 30, 1998 1999
-------------- ------------
Net loss.......................................... $(938,438) $(11,304,501)
--------- ------------
Basic and diluted:
Weighted-average shares of common stock
outstanding.................................... 153,846 8,757,398
Less weighted-average shares subject to
repurchase..................................... (101,068) (3,462,662)
--------- ------------
Shares used in computing basic and diluted net
loss per share................................. 52,778 5,294,736
========= ============
Basic and diluted net loss per share.............. $ (17.78) $ (2.14)
========= ============
Pro forma:
Shares used above............................... 5,294,736
Pro forma adjustment to reflect weighted effect
of assumed conversion of convertible preferred
stock (unaudited).............................. 6,858,708
------------
Shares used in computing pro forma basic and
diluted net loss per share (unaudited)......... 12,153,444
============
Pro forma basic and diluted net loss per share
(unaudited).................................... $ (0.93)
============
|
Recent Accounting Pronouncements
In June 1998, the FASB issued Statement of Financial Accounting Standard No.
133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging
Activities," which will be effective for the year ending June 30, 2001. This
statement establishes accounting and reporting standards requiring that every
derivative instrument, including certain derivative instruments embedded in
other contracts, be recorded in the balance sheet as either an asset or
liability measured at its fair value. The statement also requires that changes
in the derivative's fair value be recognized in earnings unless specific hedge
accounting criteria are met. eGain believes the adoption of SFAS 133 will not
have a material effect on the financial statements, since it currently does not
invest in derivative instruments and engage in hedging activities.
In March 1998, the American Institute of Certified Public Accounts issued Statement of Position ("SOP") No. 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." SOP 98-1 requires that entities capitalize certain costs related to internal use software once certain criteria have been met. eGain is required to adopt SOP No. 98-1 effective July 1, 1999. eGain believes that the adoption of SOP No. 98-1 will not have a material impact on its financial statements.
2. ACQUISITION OF SITEBRIDGE CORPORATION
Effective April 30, 1999, eGain acquired Sitebridge Corporation ("Sitebridge"). The acquisition was accounted for as a purchase and, accordingly, the results of operations of Sitebridge have been included in the consolidated financial statements since the date of acquisition. In connection with the
eGAIN COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
acquisition eGain issued the following equity securities in exchange for all the outstanding common and preferred stock, and options and warrants to purchase shares of Sitebridge common and preferred stock:
No. of
Securities Per Share Aggregate
eGain Securities Issued Issued Value Value
----------------------- ---------- ----------- --------------
(in thousands)
Series C convertible preferred stock.... 1,609,793 $4.71 $ 7,582
Common Stock............................ 1,455,514 $4.69 6,826
Warrants to acquire Series C preferred
stock.................................. 121,006 $3.85 466
Warrants to acquire common stock........ 30,440 $4.57 139
Options to acquire common stock......... 1,114,016 $4.57-$4.67 5,135
-------
Total value of securities issued in the
acquisition of Sitebridge.............. 20,148
Transaction Costs....................... 864
-------
Total purchase price.................... $21,012
=======
|
The fair market value of the eGain securities issued to Sitebridge were based on an independent appraisal that used a standard options-based methodology that incorporated the estimated value range for eGain, the liquidation preference and conversion features of eGain's preferred stock. Each security was split into a number of call options, which were valued using the Black-Scholes option pricing model. Principal assumptions used in the Black-Scholes model were volatility of 100 percent, risk free interest rate of 4.5 percent, term of 9 months and the stock price was estimated as the indicated range of equity value concluded through the market capitalization approach.
The purchase price was allocated to the assets acquired based on their estimated fair values. The excess of the purchase price over the fair value of the net tangible and intangible assets acquired (goodwill) was approximately $20,457,000. Goodwill and other intangible assets related to the acquisition of Sitebridge Corporation are being amortized on a straight-line basis over three years.
In connection with the acquisition, net assets acquired were as follows (in thousands):
Purchased intangible assets (including goodwill).................... $21,412
Cash, receivables, and other assets................................. 155
Property and equipment.............................................. 43
Liabilities assumed................................................. (598)
-------
Net assets acquired............................................... $21,012
=======
|
Goodwill and purchased intangible assets include the following (in thousands):
1999
-------
Goodwill............................................................ $19,962
Developed technology................................................ 1,050
Workforce........................................................... 350
Customer base....................................................... 50
-------
21,412
Less accumulated amortization....................................... (1,217)
-------
$20,195
=======
|
eGAIN COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table presents the unaudited pro forma results assuming that eGain had merged with Sitebridge at the beginning of fiscal 1999. These unaudited pro forma results have been prepared for comparative purposes only and include certain adjustments, such as additional amortization expense as a result of goodwill. They do not purport to be indicative of the results of operations that actually would have resulted had the combination occurred on July 1, 1998, or of future results of operations of the consolidated entities.
Year ended
June 30,
1999
-----------
Revenue........................................................ $ 1,076,877
Net loss....................................................... $19,126,753
Basic and diluted net loss per share........................... $ (3.07)
|
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
June 30,
--------------------
1998 1999
-------- ----------
Computers and equipment................................ $107,850 $1,215,244
Furniture and fixtures................................. 9,284 188,807
Leasehold improvements................................. -- 15,000
-------- ----------
117,134 1,419,051
Less accumulated depreciation.......................... (7,000) (286,400)
-------- ----------
Property and equipment, net............................ $110,134 $1,132,651
======== ==========
|
4. NOTES PAYABLE
In August 1998, eGain obtained a $1,000,000 line of credit from a bank for equipment purchases and working capital financing. Borrowings under the line of credit are collateralized by all of eGain's assets and bear interest at the bank's prime rate plus 0.25%. At June 30, 1999, $1,000,000 was outstanding under this agreement. The entire balance is due on February 6, 2000.
In October 1998, eGain obtained a $1,500,000 credit facility with a leasing company for equipment purchases. Borrowings under the credit facility are collateralized by certain fixed assets and bear an imputed interest rate of 13.68%. At June 30, 1999, eGain had borrowed approximately $342,000 under the credit facility, of which $297,855 was outstanding. Monthly payments of approximately $9,400 are due under existing borrowings through July 2002.
In conjunction with the line of credit and equipment credit facilities, eGain issued warrants to purchase 74,511 shares of its Series A preferred stock at $0.8055 per share (see Note 6).
In connection with the acquisition of Sitebridge, eGain assumed two promissory notes for a total amount of $380,000. The notes accrue interest at 5% per year and are payable on December 31, 2000.
eGAIN COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Long-term debt repayments are due as follows (in thousands):
2000................................................................ $434,762
2001................................................................ 110,547
2002................................................................ 110,546
--------
$655,855
========
|
5. COMMITMENTS
Operating Lease Commitments
eGain leases its facilities under noncancelable operating leases expiring in September 2003. Rent expense for facilities under operating leases was approximately $80,000 and $362,000 for the period from inception (September 10, 1997) to June 30, 1998 and the year ended June 30, 1999. Future minimal rental commitments under operating leases at June 30, 1999 are as follows:
2000.............................................................. $1,049,578
2001.............................................................. 1,360,782
2002.............................................................. 647,197
2003.............................................................. 397,252
2004.............................................................. 85,244
----------
$3,540,053
==========
|
6. STOCKHOLDERS' EQUITY
Convertible Preferred Stock
Convertible preferred stock as of June 30, 1999 consisted of the following:
Noncumulative Liquidation
Shares Shares Dividend Preference
Authorized Outstanding Per Share Per Share
---------- ----------- ------------- -----------
Series A.................... 5,707,043 5,406,585 $0.06 $0.8055
Series B.................... 2,600,000 2,550,000 $0.16 $2.00
Series C.................... 1,728,844 1,609,793 $0.08 $1.00
---------- ---------
10,035,887 9,566,378
========== =========
|
Each share of Series A, B, and C preferred stock is convertible, at the option of the holder, into a share of common stock, on a one-for-one basis, subject to adjustments for dilution, if any, resulting from future stock issuances. Additionally, the preferred shares automatically convert into common stock concurrent with the closing of an underwritten public offering of common stock under the Securities Act of 1933 in which eGain receives at least $10,000,000 in gross proceeds and the price per share is at least $5.00 (subject to adjustment for a recapitalization or certain other stock adjustments). Each share of Series A, B, and C preferred stock has voting rights equal to one share common stock on an as-if-converted basis.
No dividends have been declared or paid through June 30, 1999. Under the terms of the bank line of credit, eGain is prohibited from paying a dividend.
eGAIN COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Series A, B, and C preferred stockholders are entitled to receive, upon liquidation, a distribution of $0.8055, $2.00, and $1.00 per share (subject to adjustment for a recapitalization) plus all declared but unpaid dividends. The Series A and B stockholders are entitled to receive liquidation preferences prior to any distribution to the Series C stockholders. Thereafter, the remaining assets and funds, if any, shall be distributed ratably on a per-share basis among the common stockholders and the Series A, B, and C preferred stockholders until the Series A, B, and C preferred stockholders have received an aggregate amount of $2.81925, $6.00, and $2.00 per share.
Common Stock
eGain has issued shares of common stock to founders which are subject to eGain's right to repurchase upon termination of employment. The repurchase rights lapse ratably over a period of two years from the date of issuance. At June 30, 1998 and 1999, 5,333,334 and 2,666,666 shares were subject to repurchase.
At June 30, 1999, common stock was reserved for issuance as follows:
Conversion of preferred stock................................... 9,566,378
Exercise of outstanding stock options........................... 2,524,928
Shares of common stock available for grant under the 1998 Stock
Plan........................................................... 567,004
Exercise of preferred and common stock warrants outstanding..... 591,471
----------
13,249,781
==========
|
Certain option holders have exercised options to purchase shares of restricted common stock in exchange for five-year, full recourse promissory notes. The notes bear interest ranging from 4.5% to 5.5% and expire at various dates through June 2004. eGain has the right to repurchase all unvested shares at the original exercise price upon employee termination. The number of shares subject to this repurchase right decreases as the shares vest under the original option terms, generally four years. As of June 30, 1999, there were shares 1,149,813 subject to repurchase.
eGain effected a two-for-one stock split of its common stock on June 23, 1998. All share and per share amounts have been adjusted to reflect the stock split.
Warrants
Warrants to purchase 188,699 shares of Series A preferred stock for a price of $0.8055 per share were issued in connection with the issuance of convertible promissory notes in fiscal year 1998. The convertible promissory notes were subsequently converted into Series A preferred stock. The warrants expire within two to three years from the date of issuance or upon the closing of a public offering by eGain. The fair value was appraised at the date of issuance and additional interest expense of approximately $57,000 was recorded.
Warrants to purchase 74,511 shares of Series A preferred stock for a price of $0.8055 per share were issued in connection with the line of credit and equipment credit facilities entered into during fiscal year 1999. The warrants expire at the earlier of seven years from the date of issuance or five years after completion of an initial public offering. The warrants were appraised at the date of issuance and additional interest expense of $36,000 is being amortized to interest expense over the term of the loans. During the year ended June 30, 1999, $14,000 of the additional interest expense was amortized.
eGAIN COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A warrant to purchase 175,000 shares of common stock at a price of $0.20 per share was issued to FW Ventures I, L.P. in connection with financial advisory services rendered in connection with the acquisition of Sitebridge. Mark Wolfson, a director of eGain, is a limited partner of FW Ventures I, L.P. The warrant expires in July 2002 and is exercisable at any time prior to the closing of a public offering by eGain. The fair value was appraised at the date of issuance as $789,250 and has been included in the acquisition costs (see Note 2).
Warrants to purchase 121,006 shares of Series C preferred stock for a price of $0.9916 per share and 30,440 shares of common stock for a price of $0.2754 per share were assumed by eGain in connection with its acquisition of Sitebridge. The warrants expire at various dates through May 2003. The fair value of the warrants was appraised at the date of issuance and an amount of $1,100,000 was included as part of the purchase consideration for Sitebridge (see Note 2).
1998 Stock Plan
In June 1998, the board of directors adopted the 1998 Stock Plan (the "Plan"), which provides for issuance to purchase options of common stock to eligible participants. Options granted under the Plan may be either incentive stock options or nonstatutory stock options. Incentive stock options may be granted to employees with exercise prices of no less than the fair value and nonstatutory options may be granted to eligible participants at exercise prices of no less than 85% of the fair value of the common stock on the grant date as determined by the board of directors. Options are generally exercisable upon grant, subject to repurchase rights by eGain until vested.
Pro forma information regarding net loss is required by SFAS 123, and has been determined as if eGain had accounted for its employee stock options under the fair value method as specified by SFAS 123. The fair value of these options was estimated at the date of grant using the minimum value method with the following weighted-average assumptions: no dividends; an expected life of 3.5 years; and a risk-free interest rate of approximately 5.65% and 5.72% for the periods ended June 30, 1998 and 1999.
Options generally vest ratably over a period of four years. Options may be granted with different vesting terms at the discretion of the board of directors. Options are generally exercisable for a term of ten years after the date of grant.
The effect of applying the FASB statement's minimum value method to eGain's stock options granted did not result in pro forma net loss amounts that are materially different from the reported historical amounts. Therefore, such pro forma information is not separately presented herein. Future pro forma net income (loss) results may be materially different from actual amounts reported.
eGAIN COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A summary of activity under eGain's stock option plan was as follows:
Weighted-
Shares Average
Available Exercise
for Grant Options Price
---------- ---------- ---------
Shares authorized for issuance................ 2,000,000
Options granted............................. (511,000) 511,000 $0.05
---------- ----------
Balance at June 30, 1998...................... 1,489,000 511,000 $0.05
Additional authorization.................... 1,500,000 --
Options granted............................. (2,666,101) 2,666,101 $0.24
Options exercised........................... -- (1,447,396) $0.12
Options cancellations....................... 249,105 (249,105) $0.08
Repurchases................................. 75,000 --
---------- ----------
Balance at June 30, 1999...................... 647,004 1,480,600 $0.24
========== ==========
|
In connection with the acquisition of Sitebridge, eGain assumed options to purchase 1,114,016 shares of common stock, of which 982,431 are outstanding at June 30, 1999.
Options Outstanding Options Exercisable
----------------------------------------- ---------------------------
Weighted-
Average Weighted- Options Weighted-
Remaining Average Exercisable Average
Exercise At June Contractual Exercise at June 30, Exercise
Price Range 30, 1999 Life Price 1999 Price
----------- --------- ----------- --------- ----------- ---------
(In years)
$0.02-$0.05 246,544 8.04 $0.02 116,877 $0.02
$0.10-$0.20 1,371,237 8.47 $0.14 590,809 $0.14
$0.25-$0.50 845,250 9.94 $0.46 23,167 $0.45
--------- -------
2,463,031 8.92 $0.24 730,853 $0.23
========= =======
|
The weighted-average fair value of options granted during the period from inception (September 10, 1997) to June 30, 1998 was $0.01. It was $0.06 per share for options granted during the fiscal year ended June 30, 1999.
Stock Compensation
The Company recorded deferred compensation of $168,932 and $8,295,974 during the periods ended June 30, 1998 and 1999, respectively. These amounts represent the difference between the exercise price and the deemed fair value of certain stock options granted to employees by eGain in these periods. During the periods ended June 30, 1998 and 1999, the Company also recorded deferred compensation with respect to stock options granted to consultants totaling $65,100 and $2,322,930 respectively. Options granted to consultants are periodically valued as they vest in accordance with SFAS 123 and EITF 96-18 using a Black-Scholes model and the following weighted average assumptions for fiscal 1998 and 1999: volatility of 0.5, risk-free interest rate of approximately 5.7%, no dividend yield; and an expected life of the option equal to the full term, generally 10 years from the date of grant. Deferred compensation is being amortized by charges to
eGAIN COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
operations on a graded vesting method over the vesting periods of the individual stock options. Such amortization amounted to $58,258 and $1,838,561 for the periods ended June 30, 1998 and 1999, respectively.
7. INCOME TAXES
Due to operating losses and the inability to recognize the benefits from the resulting net operating losses, there is no provision for income taxes for the period from inception (September 10, 1997) to June 30, 1998 or for the year ended June 30, 1999.
As of June 30, 1999, eGain had federal net operating loss carryforwards of approximately $11,000,000. eGain also had federal research and development credit carryforwards of approximately $100,000. The net operating loss and credit carryforwards will expire at various dates beginning in 2011 through 2019, if not utilized.
Utilization of the net operating losses and credits may be subject to a substantial limitation due to the "change in ownership" provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization.
Deferred tax assets and liabilities reflect the net tax effects of net operating loss and credit carryforwards and of temporary differences between the carrying amounts of assets and liabilities for financial reporting and the amounts used for income tax purposes. Significant components of eGain's deferred tax assets and liabilities for federal and state income taxes are as follows (in thousands):
As of June 30,
----------------
1998 1999
------- --------
Deferred tax assets:
Net operating loss carryforwards......................... $ 300 $ 4,300
Research credits......................................... -- 100
Deferred compensation.................................... -- 900
Other individually immaterial items...................... -- 100
------ --------
Total deferred tax assets.............................. 300 5,400
Valuation allowance for deferred tax assets............ (300) (4,900)
------ --------
Net deferred tax assets.................................... $ -- $ 500
Deferred tax liabilities:
Other intangibles.......................................... -- (500)
------ --------
$ -- $ --
====== ========
|
SFAS 109 provides for the recognition of deferred tax assets if realization of such assets is more likely than not. Based upon the weight of available evidence, which includes eGain's historical operating performance and the reported cumulative net losses through June 30, 1999, eGain has provided a full valuation allowance against its net deferred tax assets.
The net valuation allowance increased by $300,000 during the year ended June 30, 1998.
eGAIN COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. SUBSEQUENT EVENTS (UNAUDITED)
Series D Preferred Stock Financing
In July 1999, the Company issued 652,000 shares of Series D convertible preferred stock at a price of $8.00 per share for total consideration of $5,216,000.
Each share of Series D preferred stock is convertible into one share of common stock (subject to antidilution adjustment) at any time at the option of the holder. The Series D preferred stock will automatically convert into common stock upon (i) the consummation of an underwritten public offering ("IPO") with a price per share of at least $12.00 and aggregate proceeds in excess of $20,000,000 or (ii) the election of holders of a majority of the outstanding Series D preferred stock.
Each holder of Series D preferred stock is entitled to receive, when and if declared by the Company's board, non cumulative dividends at an annual rate of $0.64 which is equal to 8% of the purchase price per share. For any other dividends or distributions, preferred stock participates with common stock on an as-converted basis.
In the event of any liquidation or winding up of the Company, the holders of Series D preferred will be entitled to receive in preference to the holders of common stock and Series C preferred stock and pari passu with the holders of the Series A preferred stock and Series B preferred stock an amount equal to the Purchase Price plus any declared and unpaid dividends on the preferred stock. Thereafter, any remaining assets will be distributed ratably to the holders of the preferred stock and common stock on an as-converted basis until the holders of the Series A preferred stock shall have received an aggregate of $2.81925 per share, the holders of the Series B preferred stock shall have received an aggregate of $7.00 per share, the holders of the Series C preferred stock shall have received $2.00 and the holders of Series D preferred stock shall have received an aggregate of $16.00. Thereafter, the remaining assets of the Company will be distributed ratably to the holders of common stock.
A merger, reorganization or similar transaction in which control of the Company is transferred will be treated as a liquidation for purposes of the above preferences.
Initial Public Offering
In July 1999, the board of directors authorized the filing of a registration statement with the Securities and Exchange Commission to register shares of its common stock in connection with a proposed Initial Public Offering ("IPO"). If the offering is consummated under the terms presently anticipated, all of the currently outstanding convertible preferred stock and the Series D preferred stock issued in July 1999 will convert to shares of common stock upon the closing of the IPO on a one-for-one basis. The effect of this conversion has been reflected as unaudited pro forma stockholders' equity in the accompanying consolidated balance sheet at June 30, 1999.
In July 1999, the board of directors also authorized 5,000,000 shares of undesignated preferred stock, for which the board of directors is authorized to fix the designation, powers, preferences and rights and an increase in the authorized number of shares of common stock to 50,000,000 shares.
eGAIN COMMUNICATIONS CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
1999 Employee Stock Purchase Plan
The Company's 1999 Employee Stock Purchase Plan was adopted by the Board of Directors and approved by the stockholders in July 1999 to be effective upon the completion of the Company's initial public offering of its common stock. The Company has reserved a total of 750,000 shares of common stock for issuance under the plan. Eligible employees may purchase common stock at 85% of the lesser of the fair market value of the Company's common stock on the first and last days of the applicable six month offering period.
Increase in Option Pool
In July 1999, the board of directors authorized and the stockholders approved an increase of 3,000,000 shares for issuance under eGain's stock option plan and granted approximately 773,000 options to purchase common stock to employees and consultants.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Sitebridge Corporation
We have audited the accompanying balance sheets of Sitebridge Corporation (a development stage company) as of December 31, 1997 and 1998, and the related statements of operations, stockholders' equity (net capital deficiency), and cash flows for the period from inception (September 10, 1996) to December 31, 1997, the year ended December 31, 1998, and the period from inception (September 10, 1996) to December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Sitebridge Corporation (a development stage company) at December 31, 1997 and 1998, and the results of its operations and its cash flows for the period from inception (September 10, 1996) to December 31, 1997, the year ended December 31, 1998, and the period from inception (September 10, 1996) to December 31, 1998, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Palo Alto, California
July 16, 1999
|
SITEBRIDGE CORPORATION
(a development stage company)
BALANCE SHEETS
December 31,
----------------------
1997 1998
--------- -----------
Assets
Current assets:
Cash and cash equivalents............................ $ 71,695 $ 141,191
Accounts receivable.................................. -- 26,122
Other current assets................................. 1,500 22,547
--------- -----------
Total current assets................................... 73,195 189,860
Property and equipment, net............................ 5,040 47,354
Other long-term assets................................. -- 10,500
--------- -----------
$ 78,235 $ 247,714
========= ===========
Liabilities and stockholders' equity (net capital
deficiency)
Current liabilities:
Accounts payable and accrued liabilities............. $ 9,824 $ 33,112
Deferred revenue..................................... -- 37,045
Payable to stockholder............................... 10,500 --
--------- -----------
Total current liabilities.............................. 20,324 70,157
Notes payable.......................................... 348,305 430,000
Commitments
Stockholders' equity (net capital deficiency):
Convertible preferred stock, $0.001 par value,
1,200,000 shares authorized, issuable in series;
822,600 shares issued and outstanding at December
31, 1998 (aggregate liquidation preference of
$1,480,680 at December 31, 1998).................... -- 1,456,573
Common stock, $0.001 par value, 4,000,000 shares
authorized, 777,900 and 801,900 shares issued and
outstanding at December 31, 1997 and 1998........... 15,195 21,195
Additional paid-in capital........................... -- 60,000
Accumulated deficit.................................. (305,589) (1,790,211)
--------- -----------
Stockholders' equity (net capital deficiency).......... (290,394) (252,443)
--------- -----------
$ 78,235 $ 247,714
========= ===========
|
See accompanying notes.
SITEBRIDGE CORPORATION
(a development stage company)
STATEMENTS OF OPERATIONS
Period from inception Period from inception
(September 10, 1996) Year ended (September 10, 1996)
to December 31, December 31, to December 31,
1997 1998 1998
--------------------- ------------ ---------------------
Revenue:
License............... $ -- $ 59,800 $ 59,800
Service............... -- 50,612 50,612
--------- ----------- -----------
Total revenue....... -- 110,412 110,412
--------- ----------- -----------
Costs and expenses:
Cost of revenues...... -- 144,073 144,073
Research and
development.......... 181,994 792,404 974,398
Sales, general and
administrative....... 113,175 588,463 701,638
--------- ----------- -----------
Total costs and
expenses........... 295,169 1,524,940 (1,820,109)
--------- ----------- -----------
Loss from operations.... (295,169) (1,414,528) (1,709,697)
Interest and other
expense, net........... (10,420) (70,094) (80,514)
--------- ----------- -----------
Net loss................ $(305,589) $(1,484,622) $(1,790,211)
========= =========== ===========
Basic and diluted net
loss per share......... $ (1.06) $ (1.88)
========= ===========
Weighted-average shares
outstanding............ 289,168 788,701
========= ===========
|
See accompanying notes.
SITEBRIDGE CORPORATION
(a development stage company)
STATEMENT OF STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
Total
Stockholders'
Convertible Preferred Stock Common Stock Additional Equity (Net
--------------------------- --------------- Paid-In Accumulated Capital
Shares Amount Shares Amount Capital Deficit Deficiency)
--------------------------- ------- ------- ---------- ------------ -------------
Issuance of common stock
to founders for
technology and cash in
October 1996............ -- $ -- 720,000 $ 6,000 $ -- $ -- $ 6,000
Issuance of common stock
for cash in January
through October 1997 at
per share prices of
$0.03 and $0.25......... -- -- 57,900 9,195 -- -- 9,195
Net loss and
comprehensive loss...... -- -- -- -- -- (305,589) (305,589)
----------- --------------- ------- ------- ------- ------------ ----------
Balance at December 31,
1997.................... -- -- 777,900 15,195 -- (305,589) (290,394)
Issuance of Series A
preferred stock at $1.80
per share in May 1998,
net of issuance costs of
$24,131................. 510,831 895,389 -- -- -- -- 895,389
Issuance of Series A
preferred stock at $1.80
per share in May 1998
upon conversion of
promissory notes and
accrued interest........ 311,769 561,184 -- -- -- -- 561,184
Issuance of warrant in
May 1998................ -- -- -- -- 60,000 -- 60,000
Issuance of common stock
for cash in January
through June 1998 at per
share price of $0.25.... -- -- 24,000 6,000 -- -- 6,000
Net loss and
comprehensive loss...... -- -- -- -- -- (1,484,622) (1,484,622)
----------- --------------- ------- ------- ------- ------------ ----------
Balance at December 31,
1998.................... 822,600 $ 1,456,573 801,900 $21,195 $60,000 $ (1,790,211) $ (252,443)
=========== =============== ======= ======= ======= ============ ==========
|
See accompanying notes.
SITEBRIDGE CORPORATION
(a development stage company)
STATEMENTS OF CASH FLOWS
Period from Period from
inception inception
(September 10, (September 10,
1996) to Year ended 1996) to
December 31, December 31, December 31,
1997 1998 1998
-------------- ------------ --------------
Operating activities:
Net loss.......................... $ (305,589) $ (1,484,622) $ (1,790,211)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation.................... 3,960 7,630 11,590
Accrued interest converted to
preferred stock................ -- 19,602 19,602
Warrant amortization............ -- 60,000 60,000
Changes in operating assets and
liabilities:
Accounts receivable........... -- (26,122) (26,122)
Other assets.................. (1,500) (31,547) (33,047)
Accounts payable and accrued
liabilities.................. 9,824 23,288 33,112
Deferred revenue.............. -- 37,045 37,045
---------- ------------ ------------
Net cash used in operating
activities................. (293,305) (1,394,726) (1,688,031)
---------- ------------ ------------
Investing activities:
Purchases of property and
equipment...................... (9,000) (49,944) (58,944)
---------- ------------ ------------
Net cash used in investing
activities................. (9,000) (49,944) (58,944)
---------- ------------ ------------
Financing activities:
Proceeds from issuance of
preferred stock................ -- 895,389 895,389
Proceeds from issuance of common
stock.......................... 15,195 6,000 21,195
Proceeds from issuance of notes
payable........................ 348,305 623,277 971,582
Loan from stockholder........... 10,500 (10,500) --
---------- ------------ ------------
Net cash provided by
financing activities....... 374,000 1,514,166 1,888,166
---------- ------------ ------------
Net increase in cash and cash
equivalents...................... 71,695 69,496 141,191
Cash and cash equivalents at
beginning of period.............. -- 71,695 --
---------- ------------ ------------
Cash and cash equivalents at end
of period........................ $ 71,695 $ 141,191 $ 141,191
========== ============ ============
Supplemental disclosure of cash
flow information
Promissory notes and accrued
interest converted into preferred
stock............................ $ -- $ 561,184 $ 561,184
========== ============ ============
Issuance of warrant............... $ -- $ 60,000 $ 60,000
========== ============ ============
|
See accompanying notes.
SITEBRIDGE CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Business
Sitebridge Corporation ("Sitebridge"), formerly known as Social Science, Inc., develops and deploys mission-critical, Internet-based, front-office applications for sales and service organizations and was incorporated in Delaware on September 10, 1996. The operating results for the period from inception to December 31, 1996 were not material. Sitebridge conducts its business within one industry segment and all operations through December 31, 1998 were based in the United States.
Since inception, Sitebridge has been engaged primarily in research and development activities in connection with the development of its products. Other activities have included raising capital, recruiting managerial and technical personnel, and establishment of business development and marketing organizations. Accordingly, Sitebridge was classified as a development stage enterprise at December 31, 1998.
On April 30, 1999, eGain Communications Corporation ("eGain"), acquired Sitebridge (see Note 5). To date, Sitebridge has financed its operations with the net proceeds from private placements of its equity securities. Additional financing through eGain will be required to fund Sitebridge's operations and market its products.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ materially from these estimates.
Cash and Cash Equivalents
Sitebridge considers all highly liquid investments with a maturity from date of purchase of three months or less to be cash equivalents.
Concentration of Credit Risk and Significant Customers
Financial instruments that subject Sitebridge to concentrations of credit risk consist principally of cash investments and accounts receivable. Sitebridge invests cash which is not required for immediate operating needs principally in money market funds, which bear minimal risk.
At December 31, 1998, 3 customers represented 84% of the total balance of accounts receivable. For the year ended December 31, 1998, 3 customers accounted for 27%, 15%, and 9% of total revenue.
SITEBRIDGE CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Property and Equipment
Property and equipment are stated at cost, net of accumulated amortization and depreciation. Property and equipment are depreciated on a straight-line basis over the estimated useful lives of the assets, typically three to five years. Leasehold improvements are amortized using the straight-line method over the shorter of the estimated life of the asset or the remaining term of the lease.
Revenue Recognition
Revenue from license fees and from sales of software products is recognized when persuasive evidence of an agreement exists, delivery of the product has occurred, no significant Sitebridge obligations with regard to implementation remain, the fee is fixed or determinable, and collectibility is probable. Revenue is deferred in cases where the license arrangement calls for future delivery of products or services for which Sitebridge does not have vendor- specific objective evidence to allocate a portion of the total fee to the undelivered element. In such cases, revenue is recognized when the undelivered elements are delivered or vendor-specific objective evidence of the undelivered elements becomes available.
Service revenue consists of consulting services, training, and maintenance, which includes product updates and technical support. Consulting service and training revenue is generally recognized as services are performed. Maintenance revenue is recognized ratably over the term of the agreement. In instances where software license agreements include a combination of consulting services, training, and maintenance, these separate elements are unbundled from the arrangement based on the element's relative fair value.
Software Development Costs
Software development costs are included in research and development and are expensed as incurred until technological feasibility is achieved. To date, the period between achieving technological feasibility and general availability of software has been short and software development costs qualifying for capitalization have been insignificant. Accordingly, Sitebridge has not capitalized any software development costs.
Stock-Based Compensation
Sitebridge accounts for its stock-based compensation arrangements with employees using the intrinsic value method. Deferred stock-based compensation is recorded on the date of grant when the deemed fair value of the underlying common stock exceeds the exercise price for stock options.
Comprehensive Loss
SiteBridge has no material components of other comprehensive loss and, accordingly, the comprehensive loss is the same as net loss for all periods presented.
Net Loss Per Share
Basic and diluted net loss per share has been computed using the weighted- average number of shares of common stock outstanding during the period. Had Sitebridge been in a net income
SITEBRIDGE CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
position, diluted earnings per share would have included the shares used in the computation of basic net loss per share as well as the impact of outstanding options and warrants to purchase an additional 291,035 and 586,806 shares, prior to the application of the treasury stock method, for the period from inception (September 10, 1996) to December 31, 1997 and the year ended December 31, 1998. Such shares have been excluded because they are antidilutive for all periods presented. Shares of convertible preferred stock have been excluded from the computation.
A reconciliation of shares used in the calculation of basic and diluted net loss per share follows:
Period from
inception
(September 10,
1996) to Year ended
December 31, December 31,
1997 1998
-------------- ------------
Net loss....................................... $(305,589) $(1,484,622)
--------- -----------
Basic and diluted:
Weighted-average shares of common stock
outstanding................................. 851,668 1,171,201
Less weighted-average shares subject to
repurchase.................................. (562,500) (382,500)
--------- -----------
Shares used in computing basic and diluted
net loss per share.......................... 289,168 788,701
========= ===========
Basic and diluted net loss per share........... $ (1.06) $ (1.88)
========= ===========
|
Recent Accounting Pronouncements
In June 1998, the FASB issued Statement of Financial Accounting Standard No.
133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging
Activities," which will be effective for the year ending December 31, 2000.
This statement establishes accounting and reporting standards requiring that
every derivative instrument, including certain derivative instruments embedded
in other contracts, be recorded in the balance sheet as either an asset or
liability measured at its fair value. The statement also requires that changes
in the derivative's fair value be recognized in earnings unless specific hedge
accounting criteria are met. Sitebridge believes the adoption of SFAS 133 will
not have a material effect on the financial statements, since it currently does
not invest in derivative instruments and engage in hedging activities.
In March 1998, the American Institute of Certified Public Accountants issued SOP 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 requires that entities capitalize certain costs related to internal use software once certain criteria have been met. Sitebridge is required to implement SOP 98-1 for the year ending December 31, 2000. Adoption of SOP 98-1 is expected to have no material impact on SiteBridge's financial condition or results of operations.
SITEBRIDGE CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
December 31,
--------------
1997 1998
------ -------
Furniture and equipment...................................... $9,000 $43,944
Leasehold improvements....................................... -- 15,000
------ -------
9,000 58,944
Less accumulated depreciation................................ 3,960 11,590
------ -------
Property and equipment, net.................................. $5,040 $47,354
====== =======
|
3. CONVERTIBLE BRIDGE NOTES
In 1997 and 1998, Sitebridge issued convertible bridge notes to investors. The convertible notes accrued interest at a rate of 5.63% per year and were convertible into preferred stock at the Company's option. In May 1998, convertible notes in the amount of $541,582 plus accrued interest of $19,602 were exchanged for 311,769 shares of Series A convertible preferred stock at a price of $1.80 per share.
In October 1998, Sitebridge issued a convertible bridge note in the amount of $250,000 which was outstanding at December 31, 1998. The convertible note accrued interest at 5.06% per year and was convertible into preferred stock at a price of $4.00 per share. The principle and accrued interest related to the note was converted into 64,302 shares of Series A convertible preferred stock in April 1999.
In December 1998, Sitebridge issued a promissory note in the amount of $180,000 which was outstanding at December 31, 1998. The note accrues interest at 5.0% per year and is payable on January 31, 2000, as amended.
In connection with the issuance of the convertible notes, Sitebridge issued warrants to purchase both preferred and common stock (see Note 5).
4. COMMITMENTS
Operating Lease Commitments
Sitebridge leases its facilities under noncancelable operating leases expiring in March 2003. Rent expense for facilities under operating leases was $13,859 and $45,660 for the period from inception (September 10, 1996) to December 31, 1997 and the year ended December 31, 1998. Future minimal rental commitments under operating leases at December 31, 1998 are as follows:
1999................................................................ $ 67,500
2000................................................................ 70,500
2001................................................................ 76,500
2002................................................................ 78,000
2003................................................................ 19,500
--------
$312,000
========
|
SITEBRIDGE CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
5. STOCKHOLDERS' EQUITY
Convertible Preferred Stock
Sitebridge's Certificate of Incorporation provides for the issuance of up to 1,200,000 shares of convertible preferred stock, 889,667 shares of which have been designated as Series A.
Each share of Series A preferred stock is convertible, at the option of the holder, into a share of common stock, on a one-for-one basis, subject to certain adjustments for dilution, if any, resulting from future stock issuances. Additionally, the preferred shares automatically convert into common stock concurrent with the closing of an underwritten public offering of common stock under the Securities Act of 1933 in which Sitebridge receives at least $15,000,000 in net proceeds and the price per share is at least $1.80 (subject to adjustment for a recapitalization or certain other stock adjustments).
Series A preferred stockholders are entitled to annual noncumulative dividends, before and in preference to any dividends paid on common stock, when and as declared by the board of directors. No dividends have been declared through December 31, 1998.
The Series A preferred stockholders are entitled to receive, upon liquidation or merger, a distribution of $1.80 per share (subject to adjustment for a recapitalization) plus all declared but unpaid dividends. Thereafter, the remaining assets and funds, if any, shall be distributed ratably on a per-share basis among the common stockholders and the Series A preferred stockholders.
The Series A preferred stockholders have voting rights equal to the common shares they would own upon conversion.
As of December 31, 1998, Sitebridge has reserved 960,102 shares of common stock for issuance upon conversion of its Series A preferred stock.
Common Stock
In October 1996, Sitebridge issued 720,000 shares of common stock to founders for technology and cash. The common stock is subject to repurchase upon termination of employment. Sitebridge's repurchase right lapses ratably over four years with respect to such shares. At December 31, 1998, approximately 315,000 shares were subject to repurchase.
Warrants
Sitebridge had the following warrants to purchase shares of preferred and common stock outstanding at December 31, 1998:
Number of Exercise Price Expiration of Shares Stock Type Per Share Date Issued Warrants --------- ------------------------ -------------- ------------ ------------- 66,667 Series A preferred stock $1.80 May 1998 May 2003 16,771 Common stock $0.50 October 1998 October 2001 |
SITEBRIDGE CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Outstanding warrants are exercisable immediately prior to the close of business on the date of its surrender. The warrants were appraised at the date of issuance or the date when all terms were fixed, and additional interest expense of $60,000 was recorded during 1998.
Warrants to purchase 36,109 shares of Series A preferred stock were exercised in 1998 as part of the Series A preferred stock financing.
1997 Stock Plan
In May 1997, the board of directors adopted the 1997 Stock Plan (the "Plan") for issuance of options of common stock to eligible participants. Options granted may be either incentive stock options or nonstatutory stock options. Incentive stock options may be granted to employees with exercise prices of no less than the fair value and nonstatutory options may be granted to eligible participants at exercise prices as determined by the plan administrator. Options generally vest at the rate of 25% after one year from the date of grant, with the remaining balance vesting monthly over the next four years with a term of 10 years. Sitebridge has reserved 650,000 shares of common stock for the grant of options under the Plan.
Pro forma information regarding net loss is required by SFAS 123, and has been determined as if Sitebridge had accounted for its employee stock options under the fair value method as specified by SFAS 123. The fair value of these options was estimated at the date of grant using the minimum value method with the following weighted-average assumptions: no dividends; an expected life of five years; and a risk-free interest rate of approximately 5.5% for the periods ended December 31, 1997 and 1998.
The effect of applying the FASB statement's minimum value method to Sitebridge's stock options granted did not result in pro forma net loss amounts that are materially different from the reported historical amounts. Therefore, such pro forma information is not separately presented herein. Future pro forma net income (loss) results may be materially different from actual amounts reported.
A summary of activity under Sitebridge's stock plan was as follows:
Weighted-
Shares Available Average
for Grant Options Exercise Price
---------------- ------- --------------
Shares authorized for issuance.... 220,000 --
Additional authorization........ 150,000 --
Options granted................. (296,035) 296,035 $0.17
Options canceled................ 5,000 (5,000) $0.25
-------- -------
Balance at December 31, 1997...... 78,965 291,035 $0.17
Additional authorization........ 280,000 --
Options granted................. (347,597) 347,597 $0.25
Options canceled................ 68,542 (68,542) $0.25
-------- -------
Balance at December 31, 1998...... 79,910 570,090 $0.21
======== =======
|
SITEBRIDGE CORPORATION
(a development stage company)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Options Outstanding
-------------------------------- Weighted-
Options Average Options
Exercise Outstanding at Remaining Exercisable at
Price December 31, Contractual December 31,
Range 1998 Life 1998
-------- -------------- ----------- --------------
(In years)
$0.03 102,774 7.62 --
$0.25 467,316 9.19 63,170
|
The weighted-average fair value of options granted during the period ended December 31, 1997 was $0.03. It was $0.04 per share for options granted during the year ended December 31, 1998.
6. INCOME TAXES
As of December 31, 1998, Sitebridge had federal net operating loss carryforwards of approximately $1,700,000. The net operating loss and credit carryforwards will expire at various dates beginning in 2011 through 2018, if not utilized.
Utilization of the net operating losses may be subject to a substantial annual limitation due to the "change in ownership" provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization.
As of December 31, 1997 and 1998, Sitebridge had deferred tax assets of approximately $100,000 and $900,000. The net deferred tax assets have been fully offset by a valuation allowance. The net valuation allowance increased by $800,000 during the year ended December 31, 1998. Deferred tax assets relate primarily to net operating loss carryforwards, and deferred compensation not currently deductible.
SFAS 109 provides for the recognition of deferred tax assets if realization of such assets is more likely than not. Based upon the weight of available evidence, which includes Sitebridge's historical operating performance and the reported cumulative net losses through December 31, 1998, Sitebridge has provided a full valuation allowance against its net deferred tax assets.
7. SUBSEQUENT EVENTS (UNAUDITED)
Borrowings
During 1999, Sitebridge issued a promissory note in the amount of $200,000, which accrues interest at 5% per year and is payable on January 31, 2000.
Acquisition
On April 30, 1999, eGain acquired all the outstanding shares of Sitebridge's common and preferred stock. Outstanding options and warrants to purchase Sitebridge's common and preferred stock have been assumed by eGain.
eGAIN COMMUNICATIONS CORPORATION AND SITEBRIDGE CORPORATION
UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL INFORMATION
On April 30, 1999, eGain Communications Corporation ("eGain") completed the acquisition of Sitebridge Corporation ("Sitebridge"). The acquisition of Sitebridge has been accounted for as a purchase. Accordingly, the results of operations of Sitebridge have been included in the consolidated statement of operations of eGain commencing on the date of acquisition.
The accompanying pro forma condensed combined statement of operations for eGain's year ended June 30, 1999 assumes that the acquisition took place as of the beginning of fiscal 1999 and combined Sitebridge's statement of operations for the ten months ended April 30, 1999 with eGain's consolidated statement of operations for the fiscal year ended June 30, 1999.
The unaudited pro forma condensed combined information is presented for illustrative purposes only and is not necessarily indicative of the operating results or financial position that would have actually occurred if the acquisition had been consummated as of the date indicated, nor is it necessarily indicative of future operating results or financial position. The pro forma adjustments are based on the information available at the time of the printing of this prospectus.
eGAIN COMMUNICATIONS CORPORATION AND SITEBRIDGE CORPORATION
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
Year Ended Ten Months
June 30, Ended
1999 April 30, 1999
------------ --------------
Pro Forma Pro Forma
eGain Sitebridge Adjustments Combined
------------ -------------- ----------- ------------
Revenue................. $ 1,019,343 $ 57,534 $ -- $ 1,076,877
Costs and expenses:
Cost of revenue........ 1,772,159 126,060 -- 1,898,219
Research and
development........... 2,095,784 982,549 -- 3,078,333
Sales, general and
administrative........ 5,416,681 678,006 -- 6,094,687
Amortization........... 3,034,323 -- 5,920,276 (A) 8,954,599
------------ ----------- ----------- ------------
Total costs and
expenses............. 12,318,947 1,786,615 5,920,276 20,025,838
------------ ----------- ----------- ------------
Loss from operations.. (11,299,604) (1,729,081) (5,920,276) (18,948,961)
Interest and other
expenses, net......... (4,897) (7,885) -- (12,782)
------------ ----------- ----------- ------------
Net loss.............. $(11,304,501) $(1,736,966) $(5,920,276) $(18,961,743)
============ =========== =========== ============
Basic and diluted net
loss per share......... $ (2.14) $ (3.04)(B)
============ ============
Shares used in computing
basic and diluted net
loss per share......... 5,294,736 6,239,366 (B)
============ ============
|
See accompanying notes
Notes to the Unaudited Pro Forma Condensed Combined Financial Information
The total estimated purchase price of the acquisition has been allocated to acquired assets and liabilities based on estimates of their fair values. The excess of the purchase price over the fair value of the tangible and intangible net assets acquired has been allocated to goodwill.
The adjustments to the unaudited pro forma condensed combined statement of operations for the year ended June 30, 1999, assume the acquisition occurred as of July 1, 1998 and are as follows:
(A) To reflect the amortization of goodwill and other intangible assets resulting from the acquisition. The goodwill and other intangible assets are being amortized over three years.
(B) Basic and diluted net loss per share excludes the preferred shares of eGain issued in the acquisition as their inclusion would be antidilutive.
In connection with the acquisition, eGain issued Series C convertible preferred stock, common stock, and options and warrants to purchase preferred and common stock in exchange for all of the outstanding preferred stock, common stock and options and warrants to purchase preferred and common stock of Sitebridge. The acquisition was accounted for as a purchase and, accordingly, the results of operations for Sitebridge have been included in the consolidated financial statements commencing on the date of acquisition. The fair market value of the equity securities issued in the acquisition was approximately $20.1 million. Goodwill and purchased intangible assets of approximately $21.4 million were recorded and are being amortized on a straight-line basis over the useful lives of three years.
[LOGO OF eGAIN APPEARS HERE]
customer service infrastructure for eCommerce
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the various expenses expected to be incurred by the Registrant in connection with the sale and distribution of the securities being registered hereby, other than underwriting discounts and commissions. All amounts are estimated except the Securities and Exchange Commission registration fee, the National Association of Securities Dealers, Inc. filing fee and the Nasdaq National Market listing fee.
Amount
--------
SEC registration fee............................................... $ 16,680
National Association of Securities Dealers, Inc. filing fee ....... 6,500
Nasdaq National Marketing listing fee.............................. 95,000
Blue Sky fees and expenses......................................... 5,000
Accounting fees and expenses....................................... 400,000
Legal fees and expenses............................................ 275,000
Printing and engraving expenses.................................... 150,000
Registrar and Transfer Agent fees.................................. 15,000
Miscellaneous fees and expenses.................................... 16,820
--------
Total............................................................ $980,000
========
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Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law provides for the indemnification of officers, directors, and other corporate agents in terms sufficiently broad to indemnify such persons under certain circumstances for liabilities (including reimbursement for expenses incurred) arising under the Securities Act of 1933, as amended (the "Act"). Article VI of the Registrant's Amended and Restated Certificate of Incorporation (Exhibit 3.2 hereto) and Article XII of the Registrant's Amended and Restated Bylaws (Exhibit 3.4 hereto) provide for indemnification of the Registrant's directors, officers, employees and other agents to the extent and under the circumstances permitted by the Delaware General Corporation Law. The Registrant has also entered into agreements with its directors and officers that will require the Registrant, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers to the fullest extent not prohibited by law.
The Underwriting Agreement (Exhibit 1.1) provides for indemnification by the Underwriters of the Registrant, its directors and officers, and by the Registrant of the Underwriters, for certain liabilities, including liabilities arising under the Act, and affords certain rights of contribution with respect thereto.
Item 15. Recent Sales of Unregistered Securities
Since inception in September 1997, we have issued and sold the following unregistered securities:
1. From September 1997 to June 30, 1999, the Registrant issued and sold 8,558,508 shares of common stock to employees, directors and consultants at prices ranging from $0.005 to $0.50 per share.
II-1
2. From April 1998 to June 1998, the Registrant issued warrants that became exercisable for an aggregate of 188,699 shares of Registrant's Series A preferred stock at a purchase price of $0.8055 per share, in connection with certain loans made to the Registrant.
3. In June 1998, the Registrant issued and sold 5,406,585 shares of Series A preferred stock to 11 investors for an aggregate purchase price of $4,355,004.21.
4. From August 1998 to October 1998, the Registrant issued warrants to purchase an aggregate of 74,511 shares of Registrant's Series A preferred stock at a purchase price between $0.8050 and $0.8055 per share, in connection with certain equipment financing.
5. From December 1998 to February 1999, the Registrant issued and sold 2,550,000 shares of Series B preferred stock to a total of 14 investors for an aggregate purchase price of $5,100,000.00.
6. In May 1999, the Registrant issued an aggregate of 1,455,514 shares of common stock and 1,609,793 shares of Series C preferred stock to 28 holders of capital stock of Sitebridge Corporation in connection with the Registrant's acquisition of Sitebridge Corporation. The Registrant also assumed (a) warrants to purchase the capital stock of Sitebridge Corporation which became exercisable for 121,006 shares of the Registrant's Series C preferred stock at a purchase price per share of $0.9916 and 30,440 shares of the Registrant's common stock at a purchase price per share of $0.2754 and (b) options to purchase common stock of Sitebridge Corporation, which became exercisable for 1,114,016 shares of the Registrant's common stock.
7. In June 1999, the Registrant issued a warrant to purchase an aggregate of 175,000 shares of Registrant's common stock at a purchase price of $0.20 per share in connection with certain financial advisory services rendered to Registrant.
8. In July 1999, the Registrant issued and sold 652,000 shares of Series D preferred stock to 6 investors for an aggregate purchase price of $5,216,000.00.
The issuances of the above securities were deemed to be exempt from registration under the Securities Act in reliance on section 4(2) of such Securities Act as transactions by an issuer not involving any public offering. In addition, certain issuances were deemed exempt from registration under the Securities Act in reliance upon Rule 701 promulgated under the Securities Act. The recipients of securities in each such transaction represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the share certificates and warrants issued in such transactions. All recipients had adequate access, through their relationships with us, to information about us.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
See exhibits listed on the Exhibit Index following the signature page of this Form S-1, which is incorporated herein by reference.
(b) Financial Statement Schedules
Schedules have been omitted because they are not applicable or not required or because the information is included elsewhere in the Financial Statements or the notes thereto.
II-2
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the "Act"), may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, as amended, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of 1933, as amended, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) The Registrant will provide to the underwriters at the closing(s) specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Sunnyvale, State of California, on the 31st day of August, 1999.
eGAIN COMMUNICATIONS CORPORATION
/s/ Ashutosh Roy
By: _________________________________
Ashutosh Roy
Chief Executive Officer
|
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Ashutosh Roy, Gunjan Sinha, William McGrath and Eric Smit, and each of them, his true and lawful attorneys-in-fact and agents, each with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments, including post-effective amendments, to this Registration Statement, and any registration statement relating to the offering covered by this Registration Statement and filed pursuant to Rule 462(b) under the Securities Act of 1933 and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that each of said attorneys-in-fact and agents or their substitute or substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
Name Title Date
---- ----- ----
/s/ Ashutosh Roy Chief Executive Officer and August 31, 1999
______________________________________ Director (Principal Executive
Ashutosh Roy Officer)
* President and Director August 31, 1999
______________________________________
Gunjan Sinha
/s/ Harpreet Grewal Chief Financial Officer August 31, 1999
______________________________________
Harpreet Grewal
* Vice President--Finance and August 31, 1999
______________________________________ Administration (Principal
Eric N. Smit Financial and Accounting
Officer)
/s/ A. Michael Spence Director August 31, 1999
______________________________________
A. Michael Spence
* Director August 31, 1999
______________________________________
Mark A. Wolfson
|
Ashutosh Roy
*By: /s/
------------------------------
Ashutosh Roy
Attorney-in-Fact
|
II-4
EXHIBIT INDEX
Exhibit
Number Description of Document
------- -----------------------
1.1** Form of Underwriting Agreement.
2.1*+ Agreement and Plan of Reorganization among Registrant, Sitebridge
Corporation, ECC Acquisition Corporation, Wendell Lansford, Prakash
Mishra and Chelsea M.C. LLC.
3.1 Restated Certificate of Incorporation, as amended.
3.2* Form of Amended and Restated Certificate of Incorporation to be
effective upon completion of this offering.
3.3* Bylaws of the Registrant, as amended.
3.4* Form of Amended and Restated Bylaws of the Registrant to be effective
upon completion of this offering.
4.1 Form of Common Stock Certificate.
4.2 Amended and Restated Investors' Rights Agreement dated as of July 21,
1999.
4.3* Warrant to purchase Common stock dated as of August 7, 1998 issued by
the Registrant to Imperial Bank.
4.4* Warrant to purchase shares of Series A preferred stock dated as of
October 15, 1998 issued to Phoenix Leasing Incorporated.
4.5* Warrant to purchase Series A Convertible Preferred Stock of Sitebridge
Corporation dated as of May 5, 1998 issued to Chelsea Capital Partners
LLC (assumed by Registrant in connection with Sitebridge acquisition).
4.6* Warrant to purchase Series A Convertible Preferred Stock of Sitebridge
Corporation dated as of May 5, 1998 issued to Amir Bahhtiar (assumed
by Registrant in connection with Sitebridge acquisition).
5.1 Opinion of Pillsbury Madison & Sutro LLP.
10.1* Form of Indemnification Agreement.
10.2* Social Science, Inc. 1997 Stock Option Plan (assumed by registrant in
connection with Sitebridge acquisition).
10.3* Amended and Restated 1998 Stock Plan and forms of stock option
agreements thereunder.
10.4* 1999 Employee Stock Purchase Plan.
10.5* Golden Gate Commercial Lease Agreement dated as of July 21, 1998
between Registrant and Golden Gate Commercial Company.
10.6* Starter Kit Loan and Security Agreement dated as of August 7, 1998
between Registrant and Imperial Bank.
10.7* Senior Loan and Security Agreement No. 6194 dated as of October 15,
1998 between Registrant and Phoenix Leasing Incorporated.
10.8* Amendment to Common Stock Purchase Agreement dated as of June 24, 1998
between Registrant and Ashutosh Roy.
10.9* Amendment to Common Stock Purchase Agreement dated as of June 24, 1998
between Registrant and Gunjan Sinha.
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Exhibit
Number Description of Document
------- -----------------------
10.10 Sub-sublease dated as of June 1999 by and between Cadence Design
Systems Inc. and eGain Communications Corporation.
10.11 Promissory Note of A. Michael Spence dated August 6, 1999.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Pillsbury Madison & Sutro LLP (included in Exhibit 5.1).
24.1 Power of Attorney (see Page II-4).
27.1* Financial Data Schedule.
99.1 Consent of Jupiter Communications.
99.2 Consent of International Data Corporation.
|
*Previously filed.
**To be filed by amendment.
+ Schedules and similar attachments to this exhibit have been omitted as
permitted by Item 601(b)(2) of Regulation S-K. Schedules or attachments
omitted will be furnished supplementally to the Commission upon request.
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
eGAIN COMMUNICATIONS CORPORATION
eGAIN COMMUNICATIONS CORPORATION, a corporation organized and existing
under the General Corporation Law of the State of Delaware (the "Corporation"),
DOES HEREBY CERTIFY:
FIRST: The original Certificate of Incorporation of the Corporation was filed with the Secretary of State of Delaware on September 10, 1997.
SECOND: A Restated Certificate of Incorporation was filed with the Secretary of State of Delaware on December 23, 1998, February 8, 1999 and May 13, 1999.
THIRD: The Restated Certificate of Incorporation of the Corporation in the form attached hereto as Exhibit A has been duly adopted in accordance with the provisions of sections 245 and 242 of the General Corporation Law of the State of Delaware by the directors and stockholders of the Corporation.
FOURTH: The Restated Certificate of Incorporation so adopted reads in full as set forth in Exhibit A attached hereto and is hereby incorporated herein by this reference.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be signed by the Chief Executive Officer and the Secretary this 27 day of July, 1999.
eGAIN COMMUNICATIONS CORPORATION
By /s/ Ashutosh Roy
------------------------------
Ashutosh Roy
Chief Executive Officer
ATTEST:
By /s/ Stanley F. Pierson
--------------------------
Stanley F. Pierson
Secretary
|
RESTATED CERTIFICATE OF INCORPORATION
OF
eGAIN COMMUNICATIONS CORPORATION
FIRST: The name of the corporation (hereinafter called the "Corporation")
is eGAIN COMMUNICATIONS CORPORATION.
SECOND: The address of the registered office of the Corporation in the State of Delaware is 30 Old Rudnick Lane, City of Dover, County of Kent, and the name of the registered agent of the Corporation in the State of Delaware at such address is CorpAmerica, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware.
FOURTH:
A. This Corporation is authorized to issue two classes of shares to be designated respectively Preferred Stock ("Preferred Stock") and Common Stock ("Common Stock"). The total number of shares of capital stock that the Corporation is authorized to issue is forty million two hundred eighty-seven thousand eight hundred forty-two (40,287,842). The total number of shares of Preferred Stock this Corporation shall have authority to issue is eleven million two hundred eighty-seven thousand eight hundred forty-two (11,287,842). The total number of shares of Common Stock this Corporation shall have authority to issue is twenty-nine million (29,000,000). The Preferred Stock shall have a par value of $.001 per share and the Common Stock shall have a par value of $.001 per share.
B. The Preferred Stock shall be divided into series. The first series shall consist of 5,707,043 shares and is designated "Series A Preferred Stock." The second series shall consist of 2,600,000 shares and is designated "Series B Preferred Stock." The third series shall consist of 1,728,844 1,730,799 shares and is designated "Series C Preferred Stock." The fourth series shall consist of 1,250,000 and is designated "Series D Preferred Stock."
C. The powers, preferences, rights, restrictions, and other matters relating to the Preferred Stock are as follows:
(a) The holders of the Series A Preferred Stock shall be entitled to receive dividends at the rate of $0.06444 per share of Series A Preferred Stock (as adjusted for any stock dividends, combinations or splits with respect to such shares) per annum (the "Series A Dividend") payable out of funds legally available therefor. The holders of the Series B Preferred Stock shall be entitled to receive dividends at the rate of $0.16 per share of Series B Preferred Stock (as adjusted for any stock dividends, combinations or splits with respect to such shares) per annum (the "Series B Dividend") payable out of funds legally available therefore. The holders of the
Series C Preferred Stock shall be entitled to receive dividends at the rate of $0.08 per share of Series C Preferred Stock (as adjusted for any stock dividends, combinations or splits with respect to such shares) per annum (the "Series C Dividend") payable out of funds legally available therefore. The holders of the Series D Preferred Stock shall be entitled to receive dividends at the rate of $0.64 per share of Series D Preferred Stock (as adjusted for any stock dividends, combinations or splits with respect to such shares) per annum (the "Series D Dividend") payable out of funds legally available therefore. Dividends on Preferred Stock shall be payable only when, as, and if declared by the Board of Directors and shall be noncumulative and shall be paid pari passu with respect to each series of Preferred Stock.
(b) No dividends (other than those payable solely in the Common Stock of the Corporation) shall be paid on any Common Stock of the Corporation during any fiscal year of the Corporation until dividends in the total amount of the Series A Dividend per share on the Series A Preferred Stock, the Series B Dividend per share on the Series B Preferred Stock, and the Series C Dividend per share on the Series C Preferred Stock and the Series D Dividend per share on the Series D Preferred Stock shall have been paid or declared and set apart during that fiscal year, and no dividends shall be paid on any share of Common Stock unless a dividend (including the amount of any dividends paid pursuant to the above provisions of this Section C.1) is paid with respect to all outstanding shares of Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock and the Series D Preferred Stock in an amount for each such share of Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock and Series D Preferred Stock equal to or greater than the aggregate amount of such dividends for all shares of Common Stock into which each such share of Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred Stock and the Series D Preferred Stock could then be converted.
(a) In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary (i) the holders of the Series A Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of the Common Stock by reason of their ownership thereof, the amount of $0.8055 per share, adjusted for any stock dividends, combinations or splits with respect to such shares (the "Original Series A Issue Price"), plus all declared but unpaid dividends on each such share then held by them, and (ii) the holders of the Series B Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of the Common Stock by reason of their ownership thereof, the amount of $2.00 per share, adjusted for any stock dividends, combinations or splits with respect to such shares (the "Original Series B Issue Price"), plus all declared but unpaid dividends on each such share then held by them and (iii) the holders of Series D Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of Common Stock by reason of their ownership thereof, the amount of $8.00 per share, adjusted for any stock dividends, combinations or splits with respect to such shares (the "Original Series D Issue Price"), plus all declared but unpaid dividends on each such share then held by them. If upon the occurrence of such event, the assets and funds thus distributed among the holders of the Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amount, then the entire assets and funds of the Corporation legally available for distribution shall be
distributed ratably among the holders of the Preferred Stock in proportion to the preferential amount each such holder is otherwise entitled to receive.
(b) After payment to the holders of the Series A Preferred Stock, Series B Preferred Stock and Series D Preferred Stock of the amounts set forth in Section C.2(a) above, the holders of the Series C Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of the Common Stock and any further distribution of any of the assets or surplus funds of the Corporation to the holders of the Series A Preferred Stock, Series B Preferred Stock or Series D Preferred Stock, by reason of their ownership thereof, the amount of $1.00 per share, adjusted for any stock dividends, combinations or splits with respect to such shares (the "Original Series C Issue Price"), plus all declared but unpaid dividends on each such share then held by them.
(c) After payment to the holders of the Preferred Stock of the amounts set
forth in Sections C.2(a) and C.2(b) above, the entire remaining assets and funds
of the Corporation legally available for distribution, if any, shall be
distributed ratably among the holders of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and the
Common Stock in proportion to the shares of Common Stock then held by each
(assuming conversion of all such Series A Preferred Stock, and Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock) until
(i) the holders of the Series A Preferred Stock shall have received an aggregate
amount of $2.81925 per share, adjusted for any stock dividends, combinations or
splits with respect to such shares (including amounts paid pursuant to Section
2(a) above), (ii) the holders of the Series B Preferred Stock shall have
received an aggregate amount of $6.00 per share, adjusted for any stock
dividends, combinations or splits with respect to such shares (including amounts
paid pursuant to Section 2(a) above), and (iii) the holders of the Series C
Preferred Stock shall have received an aggregate amount of $2.00 per share,
adjusted for any stock dividends, combinations or splits with respect to such
shares (including amounts paid pursuant to Section 2(a) above) and (iv) the
holders of the Series D Preferred Stock shall have received an aggregate amount
of $16.00 per share, adjusted for any stock dividends, combinations or splits
with respect to such shares (including amounts paid pursuant to Section 2(a)
above); thereafter, if assets remain in the Corporation, the holders of the
Common Stock of the Corporation shall receive all of the remaining assets of the
Corporation based on the number of shares of Common Stock held.
(d) For purposes of this Section C.2, (i) any acquisition of the
Corporation by means of merger or other form of corporate reorganization in
which outstanding shares of the Corporation are exchanged for securities or
other consideration issued, or caused to be issued, by the acquiring corporation
or its subsidiary (other than a merger effected primarily for the purpose of
changing the domicile of the corporation) that results in the transfer of fifty
percent (50%) or more of the outstanding voting power of the Corporation; or
(ii) a sale of all or substantially all of the assets of the Corporation, shall
be treated as a liquidation, dissolution or winding up of the Corporation and
shall entitle the holders of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and Common Stock to receive
at the closing in cash, securities or other property (valued as provided in
Section C.2(e) below) amounts as specified in Sections C.2(a), C.2(b) and C.2(c)
above.
(e) In any of the events specified in (d) above, if the consideration received by the Corporation is other than cash, its value will be deemed its fair market value. Any securities shall be valued as follows:
(i) Securities not subject to investment letter or other similar restrictions on free marketability:
(A) If traded on a securities exchange or the Nasdaq National Market, the value shall be deemed to be the average of the closing prices of the securities on such exchange over the thirty (30) day period ending three (3) days prior to the closing;
(B) If actively traded over-the-counter but not on the Nasdaq
National Market, the value shall be deemed to be the average of the
closing bid or sale prices (whichever is applicable) over the thirty
(30) day period ending three (3) days prior to the closing; and
(C) If there is no active public market, the value shall be the fair market value thereof, as mutually determined in good faith by the Board of Directors of the Corporation and the holders of at least a majority of all then outstanding shares of Preferred Stock.
(ii) The method of valuation of securities subject to investment letter or other restrictions on free marketability (other than restrictions arising solely by virtue of a shareholder's status as an affiliate or former affiliate) shall be to make an appropriate discount from the market value determined as above in (i) (A), (B) or (C) to reflect the approximate fair market value thereof, as mutually determined in good faith by the Board of Directors of the Corporation and the holders of at least a majority of all then outstanding shares of Preferred Stock.
(g) In the event the requirements of Section 2(d), (e) and (f) are not complied with, the Corporation shall forthwith either:
(i) cause such closing to be postponed until such time as the requirements of this Section 2 have been complied with; or
(ii) cancel such transaction, in which event the rights, preferences and privileges of the holders of the Preferred Stock shall revert to and be the same as such rights, preferences and privileges existing immediately prior to the date of the first notice referred to in Section 2(f) hereof.
other than a registration relating solely to a transaction under Rule 145 under such Act (or any successor thereto) or to an employee benefit plan of the Corporation, at a public offering price (prior to underwriters' discounts and expenses) of at least $12.00 per share of Common Stock, (as adjusted for any stock dividends, combinations or splits with respect to such shares) and aggregate gross proceeds to the Corporation and/or any selling stockholders (prior to deduction for underwriters' discounts and expenses) of at least $20,000,000.
(i) Before any holder of Preferred Stock shall be entitled voluntarily to convert the same into shares of Common Stock, such holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for such stock, and shall give written notice to the Corporation at such office of election to convert the same and shall state therein the number of shares to be converted and the name or names in which the certificate or certificates for shares of Common Stock are to be issued. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Preferred Stock, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of surrender of the shares of Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date.
(ii) If the conversion is in connection with an underwritten offering of securities pursuant to the Securities Act, the conversion may, at the option of any holder tendering shares of Preferred Stock for conversion, be conditioned upon the closing with the underwriters of the sale of securities pursuant to such offering, in which event the person(s) entitled to receive the Common Stock upon conversion of the Preferred Stock shall not be deemed to have converted such Preferred Stock until immediately prior to the closing of such sale of securities.
(A) "Options" shall mean rights, options, or warrants to subscribe for, purchase or otherwise acquire either Common Stock or Convertible Securities (defined below).
(B) "Original Issue Date" shall mean the date on which a share of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock, as applicable, was first issued.
(C) "Convertible Securities" shall mean any evidences of indebtedness, shares (other than Common Stock, Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock) or other securities convertible into or exchangeable for Common Stock.
(D) "Additional Shares of Common Stock" shall mean all shares of Common Stock issued (or, pursuant to Section C.4(d)(iii), deemed to be issued) by the Corporation after the Original Issue Date, other than shares of Common Stock issued or issuable:
(1) upon conversion of shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock;
(2) To employees, directors, consultants or advisors under stock option, stock bonus or stock purchase plans or agreements or similar plans or agreements approved by the Board of Directors or an authorized committee thereof;
(3) as a dividend or distribution on Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock; or
(4) for which adjustment of the Series A Conversion Price, Series B Conversion Price, Series C Conversion Price or Series D Conversion Price is made pursuant to Section C.4(e).
record date, provided that in any such case in which Additional Shares of Common Stock are deemed to be issued:
(A) no further adjustments in the Conversion Price of a series of Preferred Stock shall be made upon the subsequent issue of Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities;
(B) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase or decrease in the consideration payable to the Corporation, or decrease or increase in the number of shares of Common Stock issuable, upon the exercise, conversion or exchange thereof, the Conversion Price of each of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities (provided, however, that no such adjustment of the Conversion Price of a series of Preferred Stock shall affect Common Stock previously issued upon conversion of such Preferred Stock);
(C) upon the expiration of any such Options or any rights of conversion or exchange under such Convertible Securities which shall not have been exercised, the Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon such expiration, be recomputed as if:
(1) in the case of Convertible Securities or Options for Common Stock the only Additional Shares of Common Stock issued were the shares of Common Stock, if any, actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities and the consideration received therefor was the consideration actually received by the Corporation for the issue of all such Options, whether or not exercised, plus the consideration actually received by the Corporation upon such exercise, or for the issue of all such Convertible Securities which were actually converted or exchanged, plus the additional consideration, if any, actually received by the Corporation upon such conversion or exchange and
(2) in the case of Options for Convertible Securities only the Convertible Securities, if any, actually issued upon the exercise thereof were issued at the time of issue of such Options, and the consideration received by the Corporation for the Additional Shares of Common Stock deemed to have been then issued was the consideration actually received by the Corporation for the issue of all such Options, whether or not exercised, plus the consideration deemed to have been received by the
Corporation (determined pursuant to Section C.4(d)) upon the issue of the Convertible Securities with respect to which such Options were actually exercised;
(D) no readjustment pursuant to clause (B) or (C) above shall have the effect of increasing the Conversion Price for a series of Preferred Stock to an amount which exceeds the lower of (a) the Conversion Price for such series of Preferred Stock on the original adjustment date, or (b) the Conversion Price for such series of Preferred Stock that would have resulted from any issuance of Additional Shares of Common Stock between the original adjustment date and such readjustment date.
(E) in the case of any Options which expire by their terms not more than thirty (30) days after the date of issue thereof, no adjustment of the Conversion Price shall be made until the expiration or exercise of all such Options, whereupon such adjustment shall be made in the same manner provided in clause (C) above.
(A) In the event the Corporation shall issue, at any time after the Original Issue Date for the Series D Preferred Stock and prior to the earlier of (1) July 31, 2000 or (2) the consummation of a private placement of equity securities resulting in gross cash proceeds to the Corporation of at least $10,000,000 (the "Financing Date"), Additional Shares of Common Stock deemed to be issued pursuant to Section C.4(d)(iii) but subject to the limitations of Section C.4(d)(i)(D)(1)-(4)) without consideration or for a consideration per share less than the Conversion Price for the Series D Preferred Stock in effect on the date of and immediately prior to such issue, then and in such event the applicable Conversion Price for the Series D Preferred Stock shall be reduced, concurrently with such issue, to a Conversion Price equal to the consideration per share received by the Corporation for such issue. No adjustment of the Conversion Price for the Series D Preferred Stock shall be made pursuant to this Section C.4(d)(v) in respect of an issue of Additional Shares of Common Stock on or after the earlier of (1) July 31, 2000 or (2) the Financing Date.
(B) If upon the closing of the sale of the Corporation's Common Stock in a firm commitment, underwritten public offering registered under the Securities Act (the "Public Offering") resulting in gross cash proceeds to the Corporation of at least $10,000,000 prior to July 31, 2000 the consideration per share is less than the Conversion Price of the Series D Preferred Stock in effect immediately prior to the closing of the Public Offering, then upon such closing the Conversion Price of the Series D Preferred Stock shall be reduced to an amount equal to the price at which the Corporation's Common Stock was sold in the Public Offering.
(1) insofar as it consists of cash, be computed at the aggregate amount of cash received by the Corporation excluding amounts paid or payable for accrued interest or accrued dividends;
(2) insofar as it consists of property other than cash, be computed at the fair value thereof at the time of such issue, as mutually determined in good faith by the Board and the holders of at least a majority of all then outstanding shares of Preferred Stock; and
(3) in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (1) and (2) above, as
mutually determined in good faith by the Board and the holders of at least a majority of all then outstanding shares of Preferred Stock.
(1) the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein designed to protect against dilution) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities by
(2) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein designed to protect against the dilution) issuable upon the exercise of such Options or conversion or exchange of such Convertible Securities.
or otherwise (other than a subdivision or combination of shares provided for in
Section C.4(f) above or a merger or other reorganization referred to in Section
C.2(d) above), the Conversion Price for such series then in effect shall,
concurrently with the effectiveness of such reorganization or reclassification,
be proportionately adjusted so that the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall
be convertible into, in lieu of the number of shares of Common Stock which the
holders would otherwise have been entitled to receive, a number of shares of
such other class or classes of stock equivalent to the number of shares of
Common Stock that would have been subject to receipt by the holders upon
conversion of the Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and Series D Preferred Stock immediately before that change.
(A) at least twenty (20) days' prior written notice of the date on which a record shall be taken for such dividend, distribution or subscription rights (and specifying the date on which the holders of Common Stock shall be entitled
thereto) or for determining rights to vote, if any, in respect of the matters referred to in (iii) and (iv) above; and
(B) in the case of the matters referred to in (iii) and (iv) above, at least twenty (20) days' prior written notice of the date when the same shall take place (and specifying the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon the occurrence of such event).
(a) So long as at least 1,000,000 shares of Preferred Stock remain outstanding, the Corporation shall not, without first obtaining the approval by vote or written consent, in the manner provided by law, of the holders of at least sixty-six and two-thirds percent (66 2/3%) of the shares of Preferred Stock outstanding, voting as a class:
(i) redeem, purchase or otherwise acquire (or pay into or set aside for a sinking fund for such purpose) any Preferred Stock or Common Stock; provided, however, that this restriction shall not apply to the repurchase of shares of Common Stock from employees, officers, directors, consultants or other persons performing services for the Corporation or any subsidiary pursuant to agreements under which the Corporation has the option to repurchase such shares upon the occurrence of certain events, such as the termination of employment;
(ii) sell, convey or otherwise dispose of all or substantially all of the Corporation's property or business or merge into or consolidate with any other corporation (other than a wholly-owned subsidiary corporation) or effect any similar transaction or series of related transactions that results in the transfer or disposition of more than fifty percent (50%) of the outstanding voting power of the Corporation;
(iii) pay any dividend on the Common Stock;
(iv) authorize or issue, or obligate itself to issue, any other equity security, including any other security convertible into or exercisable for any equity security, having a preference over, or on a parity with, the Preferred Stock with respect to dividends, liquidation, conversion, redemption or voting; or
(v) dissolve, liquidate or wind up the Corporation.
(b) So long as any shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock remain outstanding, the Corporation shall not, without first obtaining the approval by vote or written consent, in the manner provided by law, of at least a majority of the holders of the shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock outstanding, as applicable, voting separately as a class:
(i) amend or repeal any provision of, or add any provision to, the Corporation's Certificate of Incorporation or Bylaws, if such action would alter or change materially and adversely the preferences, rights, privileges or powers of, or the restrictions provided for the benefit of, such series of Preferred Stock; or
(ii) increase or decrease the authorized number of shares of such series of Preferred Stock.
shall be reissued, and all such shares shall be canceled, retired and eliminated from the shares which the Corporation shall be authorized to issue.
FIFTH: In furtherance and not in limitation of the powers conferred by statute, the Board of Directors shall have the power, subject to the provisions of Section C.5 of Article FOURTH both before and after receipt of any payment for any of the Corporation's capital stock, to adopt, amend, repeal or otherwise alter the Bylaws of the Corporation without any action on the part of the stockholders; provided, however, that the grant of such power to the Board of Directors shall not divest the stockholders of nor limit their power, subject to the provisions of Section C.5 of Article FOURTH, to adopt, amend, repeal or otherwise alter the Bylaws.
SIXTH: Elections of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide.
SEVENTH: Subject to the provisions of Section C.5 of Article FOURTH, the Corporation reserves the right to adopt, repeal, rescind or amend in any respect any provisions contained in this Restated Certificate of Incorporation in the manner now or hereafter prescribed by applicable law, and all rights conferred on stockholders herein are granted subject to this reservation; provided, however, that the grant of such power to the Board of Directors shall not divest the stockholders of nor limit their power.
EIGHTH: A director of the Corporation shall, to the full extent permitted by the Delaware General Corporation Law as it now exists or as it may hereafter be amended, not be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. Neither any amendment nor repeal of this Article EIGHTH nor the adoption of any provision of this Restated Certificate of Incorporation inconsistent with this Article EIGHTH, shall eliminate or reduce the effect of this Article EIGHTH in respect of any matter occurring, or any cause of action, suit or claim that, but for this Article EIGHTH, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision.
EXHIBIT 4.1
FRONT
EGN
INCORPORATED UNDER THE LAWS
OF THE STATE OF DELAWARE
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP 28225C 10 3
This Certifies that is the record holder of
eGain Communications Corporation
transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney upon surrender of this certificate properly endorsed. This certificate is not valid until countersigned by the Transfer Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers.
Dated:
SECRETARY PRESIDENT
BACK
eGain Communications Corporation
A statement of the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights as established, from time to time, by the Certificate of Incorporation of the Corporation and by any certificate of designation, the number of shares constituting each class and series, and the designations thereof, may be obtained by the holder hereof upon request and without charge from the Secretary of the Corporation at the principal office of the Corporation.
The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations:
TEN COM __ as tenants in common
TEN ENT __ as tenants by the entireties
JT TEN __ as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT __ ......................... Custodian
......................... (Cust)
(Minor)
|
under Uniform Gifts to Minors Act ..................................
(State)
UNIF TRF MIN ACT __ ........................ Custodian (until
age ................) (Cust)
............................ under Uniform Transfers to Minors Act ...........
(Minor) (State)
|
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED,
hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
X
X
NOTICE:
THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
EXHIBIT 4.2
eGAIN COMMUNICATIONS CORPORATION
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
Page
----
Section 1 Registration Rights...................................... 1
1.1 Certain Definitions................................... 1
1.2 Requested Registration................................ 3
1.3 Company Registration.................................. 5
1.4 Expenses of Registration.............................. 7
1.5 Registration on Form S-3.............................. 7
1.6 Registration Procedures............................... 8
1.7 Indemnification....................................... 9
1.8 Information by Holder................................. 11
1.9 Limitations on Registration of Issues of Securities... 11
1.10 Rule 144 Reporting.................................... 11
1.11 Transfer or Assignment of Registration Rights......... 12
1.12 "Market Stand-Off" Agreement.......................... 12
1.13 Delay of Registration................................. 13
1.14 Termination of Registration Rights.................... 13
Section 2 Covenants of the Company................................. 13
2.1 Financial Information................................. 13
2.2 Inspection............................................ 14
2.3 Right of First Offer.................................. 14
2.4 Chief Executive Officer............................... 16
2.5 Termination of Covenants.............................. 16
2.6 Stock Plan............................................ 16
2.7 Protective Provisions................................. 16
Section 3 Miscellaneous............................................ 17
3.1 Governing Law......................................... 17
3.2 Successors and Assigns................................ 17
3.3 Entire Agreement; Amendment; Waiver................... 17
3.4 Notices, etc.......................................... 17
3.5 Delays or Omissions................................... 17
3.6 Rights; Separability.................................. 18
3.7 Waiver of Right of First Offer........................ 18
3.8 Information Confidential.............................. 18
3.9 Titles and Subtitles.................................. 18
3.10 Counterparts.......................................... 18
3.11 Amendment of Investors' Rights Agreement.............. 18
3.12 Aggregation of Stock.................................. 18
*Exhibit A - List of Investors
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eGAIN COMMUNICATIONS CORPORATION
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AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
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AND GUNJAN SINHA (the "Founders").
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RECITALS:
A. The Company has granted the holders of its Series A Preferred Stock and warrants to purchase Series A Preferred Stock (the "Series A Holders"), Series B Preferred Stock (the "Series B Holders"), Series C Preferred Stock (the "Series C Holders") and Founders registration rights and certain other rights under that certain Amended and Restated Investors' Rights Agreement dated April 30, 1999 (the "Investors' Rights Agreement").
B. The Company proposes to issue shares of its Series D Preferred Stock to certain Investors (the "Series D Investors") pursuant to a Series D Preferred Stock Purchase Agreement entered into on July 21, 1999 (the "Purchase Agreement").
C. The Company, the Founders, the Series A Holders, the Series B Holders and the Series C Holders intend that this Agreement replace and supercede the Investors' Rights Agreement; provided, however, that the provisions of Section 1.12 thereof ("Market Standoff") shall survive the termination of the Investors' Rights Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein, the parties hereto agree as follows:
(a) "Closing" shall mean the date of the issuance of shares of the Company's Series D Preferred Stock, pursuant to the Purchase Agreement.
(b) "Commission" shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act.
(c) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, or any similar successor federal statute and the rules and regulations thereunder, all as the same shall be in effect from time to time.
(d) "Holder" shall mean any person or entity who holds Registrable
Securities and any holder of Registrable Securities to whom the registration
rights conferred by this Agreement have been transferred in compliance with
Section 1.11 hereof.
(e) "Initiating Holders" shall mean any Holder or Holders who in the aggregate hold at least fifty percent (50%) of the outstanding Registrable Securities.
(f) "Major Investor" shall mean a person or entity which, together with its affiliates holds at least 120,000 shares (subject to appropriate adjustments for stock splits, stock dividends, combinations and other recapitalizations) of Series A Preferred Stock, Series B Preferred Stock and/or Series D Preferred Stock (including shares issuable upon conversion thereof). A Major Investor includes any general partners and affiliates of a Major Investor (including in the case of a venture capital fund, partners and funds affiliated with such fund).
(g) "Registrable Securities" shall mean (i) shares of Common Stock issued to Investors or issued or issuable pursuant to the conversion of the Shares; (ii) any Common Stock issued as a dividend or other distribution with respect to or in exchange for or in replacement of the shares referenced in (i) above, provided, however, that Registrable Securities shall not include any shares of Common Stock which have previously been registered or which have been sold to the public; and (iii) shares of Common Stock of the Company held by the Founders ("Founders Stock"); provided, however, that such Founders Stock shall not be deemed "Registrable Securities" for purposes of Section 1.2 hereof.
(h) The terms "register," "registered" and "registration" shall refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act and applicable rules and regulations thereunder, and the declaration or ordering of the effectiveness of such registration statement.
(i) "Registration Expenses" shall mean all expenses incurred in effecting any registration pursuant to this Agreement, including, without limitation, all registration, qualification, and filing fees, printing expenses, escrow fees, fees and disbursements of counsel for the Company, fees and disbursements of one special counsel for the selling Holders, blue sky fees and expenses, accounting fees and expenses of any regular or special audits incident to or required by any such registration, but shall not include Selling Expenses and fees and disbursements of additional counsel for the Holders. Registration expenses do not include the compensation of regular employees of the Company, which shall be paid in any event by the Company.
(j) "Rule 144" shall mean Rule 144 as promulgated by the Commission under the Securities Act, as such Rule may be amended from time to time, or any similar successor rule that may be promulgated by the Commission.
(k) "Rule 145" shall mean Rule 145 as promulgated by the Commission under the Securities Act, as such Rule may be amended from time to time, or any similar successor rule that may be promulgated by the Commission.
(l) "Securities Act" shall mean the Securities Act of 1933, as amended, or any similar successor federal statute and the rules and regulations thereunder, all as the same shall be in effect from time to time.
(m) "Selling Expenses" shall mean all underwriting discounts and selling commissions applicable to the sale of Registrable Securities and fees and disbursements of counsel for any Holder (other than the fees and disbursements of counsel included in Registration Expenses).
(n) "Shares" shall mean the Company's Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock.
(i) promptly give written notice of the proposed registration to all other Holders; and
(ii) as soon as practicable, use its best efforts to effect such registration (including, without limitation, filing post-effective amendments, appropriate qualifications under applicable blue sky or other state securities laws, and appropriate compliance with the Securities Act) and as would permit or facilitate the sale and distribution of all or such portion of such Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any Holder or Holders joining in such request as are specified in a written request received by the Company within twenty (20) days after such written notice from the Company is mailed or delivered.
The Company shall not be obligated to effect, or to take any action to effect, any such registration pursuant to this Section 1.2:
(A) In any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification, or compliance, unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act;
(B) After the Company has initiated two such registrations pursuant to this Section 1.2(a) (counting for these purposes only registrations which have
been declared or ordered effective and pursuant to which securities have been sold and registrations which have been withdrawn by the Holders as to which the Holders have not elected to bear the Registration Expenses pursuant to Section 1.4 hereof and would, absent such election, have been required to bear such expenses); provided, however, that if at the time of such withdrawal, the Investors have learned of a material adverse change in the condition, business, or prospects of the Company from that known to the Investors at the time of their request and have withdrawn the request with reasonable promptness following disclosure by the Company of such material adverse change, then the Investors shall not be required to pay any of such expenses and shall retain their rights pursuant to Section 1.2.
(C) During the period starting with the date sixty (60) days prior
to the Company's good faith estimate of the date of filing of, and ending
on a date one hundred eighty (180) days after the effective date of, a
Company-initiated registration; provided that (i) the Company is actively
employing in good faith all reasonable efforts to cause such registration
statement to become effective and (ii) that such initial delay of
registration relating to a request of Initiating Holders pursuant to
Section 1.2 shall be deemed the one time delay allowed per demand
registration as set forth in Section 1.2(b);
(D) If the Initiating Holders propose to dispose of shares of Registrable Securities which may be immediately registered on Form S-3 pursuant to a request made under Section 1.5 hereof;
(b) Subject to the foregoing clauses (A) through (D) (except in the case of a request that is subject to Section 1.5(b), in which case (B) and (D) above shall not apply), the Company shall file a registration statement covering the Registrable Securities so requested to be registered as soon as practicable after receipt of the request or requests of the Initiating Holders; provided, however, that if (i) in the good faith judgment of the Board of Directors of the Company, such registration would be seriously detrimental to the Company and the Board of Directors of the Company concludes, as a result, that it is essential to defer the filing of such registration statement at such time, and (ii) the Company shall furnish to such Holders a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company for such registration statement to be filed in the near future and that it is, therefore, essential to defer the filing of such registration statement, then the Company shall have the right to defer such filing for the period during which such disclosure would be seriously detrimental, provided that (except as provided in clause (C) above) the Company may not defer the filing for a period of more than one hundred eighty (180) days after receipt of the request of the Initiating Holders, and, provided further, that the Company shall not defer its obligation in this manner more than once in any twelve (12) month period.
The registration statement filed pursuant to the request of the Initiating Holders may, subject to the provisions of Section 1.2(d) hereof, include other securities of the Company, with respect to which registration rights have been granted, and may include securities of the Company being sold for the account of the Company.
If a person who has requested inclusion in such registration as provided above does not agree to the terms of any such underwriting, such person shall be excluded therefrom by written notice from the Company, the underwriter or the Initiating Holders. The securities so excluded shall also be withdrawn from registration. Any Registrable Securities or other securities excluded shall also be withdrawn from such registration. If shares are so withdrawn from the registration and if the number of shares to be included in such registration was previously reduced as a result of marketing factors pursuant to this Section 1.2(d), then the Company shall offer to all holders who have retained rights to include securities in the registration the right to include additional securities in the registration in an aggregate amount equal to the number of shares so withdrawn.
(a) If the Company shall determine to register any of its securities
either for its own account or the account of a security holder or holders
exercising their respective demand registration rights (other than pursuant to
Section 1.2 or 1.5 hereof), other than a registration relating solely to
employee benefit plans, or a registration relating solely to a Rule 145
transaction, or a registration on any registration form that does not permit secondary sales, the Company will:
(i) promptly give to each Holder written notice thereof; and
(ii) use its best efforts to include in such registration (and any related qualification under blue sky laws or other compliance), except as set forth in Section 1.3(b) below, and in any underwriting involved therein, all the Registrable Securities specified in a written request or requests, made by any Holder and received by the Company within twenty (20) days after the written notice from the Company described in clause (i) above is mailed or delivered by the Company. Such written request may specify all or a part of a Holder's Registrable Securities.
Notwithstanding any other provision of this Section 1.3, if the representative of the underwriters advises the Company in writing that marketing factors require a limitation on the number of shares to be underwritten, the representative may (subject to the limitations set forth below) exclude all Registrable Securities from, or limit the number of Registrable Securities to be included in, the registration and underwriting, provided that the number of Registrable Securities to be included in such underwriting shall not be reduced unless all other securities proposed to be registered by shareholders of the Company are first entirely excluded from the underwriting. If the registration is the first Company-initiated registered offering of the Company's securities to the general public, the Company may limit, to the extent so advised by the underwriters, the amount of securities (including Registrable Securities) to be included in the registration by the Company's shareholders (including the Holders), and such securities shall be apportioned pro rata among the selling shareholders according to the total amount of securities entitled to be included therein owned by each selling stockholder, or the Company may exclude, to the extent so advised by the underwriters, such underwritten securities entirely from such registration; provided, however, that the number of Registrable Securities to be included in such registration shall not be reduced unless all other securities proposed to be registered are first excluded from the underwriting. If such registration is the second or any subsequent Company- initiated registered offering of the Company's securities to the general public, the Company may limit, to the extent so advised by the underwriters, the amount of securities to be included in the registration by the Company's shareholders (including the Holders); provided, however, that the aggregate value of Registrable Securities to be included in such registration may not be so reduced to less than twenty-five percent (25%) of the total value of all securities included in such
registration, to be apportioned pro rata among the holders of Registrable Securities according to the total amount of securities entitled to be included therein owned by each holder of Registrable Securities; provided, however, that the number of Registrable Securities to be included in such registration shall not be reduced unless all other securities proposed to be registered are first excluded from the underwriting. If any person does not agree to the terms of any such underwriting, he shall be excluded therefrom by written notice from the Company or the underwriter. Any Registrable Securities or other securities excluded or withdrawn from such underwriting shall be withdrawn from such registration.
If shares are so withdrawn from the registration or if the number of shares of Registrable Securities to be included in such registration was previously reduced as a result of marketing factors, the Company shall then offer to all persons who have retained the right to include securities in the registration the right to include additional securities in the registration in an aggregate amount equal to the number of shares so withdrawn.
(a) After its initial public offering, the Company shall use its best
efforts to qualify for registration on Form S-3 or any comparable or successor
form or forms. After the Company has qualified for the use of Form S-3, in
addition to the rights contained in the foregoing provisions of this Section 1,
the holders of at least thirty percent (30%) of Registrable Securities shall
have the right to request registrations on Form S-3 (such requests shall be in
writing and shall state the number of shares of Registrable Securities to be
disposed of and the intended methods of disposition of such shares by such
Holder or Holders), provided, however, that the Company shall not be obligated
to effect any such registration if (i) the Holders, together with the holders of
any other securities of the Company entitled to inclusion in such registration,
propose to sell Registrable Securities and such other securities (if any) on
Form S-3 at an aggregate price to the public of less than $1,000,000, or (ii) in
the event the Company shall furnish the certification described in paragraph
1.2(b)(ii) (but subject to the limitations set forth therein), or (iii) the
Company has, within the six (6) month period preceding the date of such request
already effected one registration on Form S-3 for the Holders pursuant to this
Section 1.5.
(b) If a request complying with the requirements of Section 1.5(a) hereof
is delivered to the Company, the provisions of Sections 1.2(a)(i) and (ii) and
Section 1.2(b) hereof shall apply to such registration. If the registration is
for an underwritten offering, the provisions of Sections 1.2(c) and 1.2(d)
hereof shall apply to such registration. Notwithstanding the foregoing
provisions of this Section 1.5, Registrable Securities held by the Founders shall not be counted for purposes of requesting a registration on Form S-3; however, if such a registration is requested all Registrable Securities, including those held by Founders, are entitled to inclusion in such registration and provided further that any limitation or cutback in the number of shares proposed to be registered shall be applied to shares of Registrable Securities held by Founders prior to any limitation or cutback on shares of Registrable Securities held by other Holders.
(a) Keep such registration effective for a period of one hundred twenty
(120) days or until the Holder or Holders have completed the distribution
described in the registration statement relating thereto, whichever first
occurs; provided, however, that (i) such one hundred twenty (120) day period
shall be extended for a period of time equal to the period the Holder refrains
from selling any securities included in such registration at the request of an
underwriter of Common Stock (or other securities) of the Company; and (ii) in
the case of any registration of Registrable Securities on Form S-3 which are
intended to be offered on a continuous or delayed basis, such one hundred twenty
(120) day period shall be extended, if necessary, to keep the registration
statement effective until all such Registrable Securities are sold, provided
that Rule 415, or any successor rule under the Securities Act, permits an
offering on a continuous or delayed basis, and provided further that applicable
rules under the Securities Act governing the obligation to file a post-effective
amendment permit, in lieu of filing a post-effective amendment that (A) includes
any prospectus required by section 10(a)(3) of the Securities Act or (B)
reflects facts or events representing a material or fundamental change in the
information set forth in the registration statement, the incorporation by
reference of information required to be included in (A) and (B) above to be
contained in periodic reports filed pursuant to section 13 or 15(d) of the
Exchange Act in the registration statement;
(b) Prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement;
(c) Furnish such number of prospectuses and other documents incident thereto, including any amendment of or supplement to the prospectus, as a Holder from time to time may reasonably request;
(d) Notify each seller of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading or incomplete in the light of the circumstances then existing, and at the request of any such seller, prepare and furnish to such seller a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such shares, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading or incomplete in the light of the circumstances then existing;
(e) Cause all such Registrable Securities registered pursuant hereunder to be listed on each securities exchange on which similar securities issued by the Company are then listed;
(f) Provide a transfer agent and registrar for all Registrable Securities registered pursuant to such registration statement and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration; and
(g) In connection with any underwritten offering pursuant to a registration statement filed pursuant to Section 1.2 hereof, the Company will enter into an underwriting agreement reasonably necessary to effect the offer and sale of Common Stock, provided such underwriting agreement contains customary underwriting provisions and provided further that if the underwriter so requests the underwriting agreement will contain customary contribution provisions.
(a) The Company will indemnify each Holder, each of its officers, directors and partners, legal counsel, and accountants and each person controlling such Holder within the meaning of section 15 of the Securities Act, with respect to which registration, qualification, or compliance has been effected pursuant to this Section 1, and each underwriter, if any, and each person who controls within the meaning of section 15 of the Securities Act any underwriter, against all expenses, claims, losses, damages, and liabilities (or actions, proceedings, or settlements in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any prospectus, offering circular, or other document (including any related registration statement, notification, or the like) incident to any such registration, qualification, or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by the Company of the Securities Act or any rule or regulation thereunder applicable to the Company and relating to action or inaction required of the Company in connection with any such registration, qualification, or compliance, and will reimburse each such Holder, each of its officers, directors, partners, legal counsel, and accountants and each person controlling such Holder, each such underwriter, and each person who controls any such underwriter, as incurred, for any legal and any other expenses reasonably incurred in connection with investigating and defending or settling any such claim, loss, damage, liability, or action, provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability, or expense arises out of or is based on any untrue statement or omission based upon written information furnished to the Company by such Holder or underwriter and stated to be specifically for use therein. It is agreed that the indemnity agreement contained in this Section 1.7(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of the Company (which consent has not been unreasonably withheld).
(b) Each Holder will, if Registrable Securities held by him are included in the securities as to which such registration, qualification, or compliance is being effected, indemnify, to the extent of the net proceeds from the sale of Registrable Securities by such Holder in the registration, qualification or compliance (provided that such limitation shall not apply in the case of fraud or gross negligence by the Holder in providing information to the Company for use by the Company in the preparation of such registration, qualification or compliance) the Company, each of its directors, officers, partners, legal counsel, and accountants and each underwriter, if any, of the Company's securities covered by such a registration statement, each person who controls the Company or such underwriter within the meaning of section 15 of the Securities Act, and each other such Holder, and each of their officers, directors, and partners, and each person controlling such Holder, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular, or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company and such Holders, directors, officers, partners, legal counsel, and accountants, persons, underwriters, or control persons, as incurred, for any legal and any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability, or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular, or other document in reliance upon and in conformity with written information furnished to the Company by such Holder and stated to be specifically for use therein provided, however, that the obligations of such Holder hereunder shall not apply to amounts paid in settlement of any such claims, losses, damages, or liabilities (or actions in respect thereof) if such settlement is effected without the consent of such Holder (which consent shall not be unreasonably withheld).
(c) Each party entitled to indemnification under this Section 1.7 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense at such party's expense, and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 1, to the extent such failure is not prejudicial. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. Each Indemnified Party shall furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with defense of such claim and litigation resulting therefrom.
(d) If the indemnification provided for in this Section 1.7 is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any loss, liability, claim, damage, or expense referred to therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party hereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and of the Indemnified Party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage, or expense as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and of the Indemnified Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the Indemnifying Party or by the Indemnified Party and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control.
(a) Make and keep public information regarding the Company available as those terms are understood and defined in Rule 144 under the Securities Act, at all times from and after ninety (90) days following the effective date of the first registration under the Securities Act filed by the Company for an offering of its securities to the general public;
(b) File with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act at any time after it has become subject to such reporting requirements;
(c) So long as a Holder owns any Restricted Securities, furnish to the Holder forthwith upon written request a written statement by the Company as to its compliance with the reporting requirements of Rule 144 (at any time from and after ninety (90) days following the
effective date of the first registration statement filed by the Company for an offering of its securities to the general public), and of the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), a copy of the most recent annual or quarterly report of the Company, and such other reports and documents so filed as a Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing a Holder to sell any such securities without registration;
(d) Take such action, including the voluntary registration of its Common Stock under section 12 of the Exchange Act, as is necessary to enable the Holders to utilize Form S-3 for the sale of their Registrable Securities, such action to be taken as soon as practicable after the end of the fiscal year in which the first registration statement filed by the Company for the offering of its securities to the general public is declared effective.
(a) such one hundred eighty (180) day "market stand-off" agreement shall only apply to the first such registration statement of the Company, including securities to be sold on its behalf to the public in an underwritten offering; and
(b) all officers and directors of the Company enter into similar agreements.
The obligations described in this Section 1.12 shall not apply to a registration relating solely to employee benefit plans on Form S-1 or Form S-8 or similar forms that may be promulgated in the future, or a registration relating solely to a Commission Rule 145 transaction
on Form S-4 or similar forms that may be promulgated in the future. The Company may impose stop-transfer instructions with respect to the shares (or securities) subject to the foregoing restriction until the end of such applicable one hundred eighty (180) or one hundred twenty (120) day period.
The Company hereby covenants and agrees, so long as any Holder owns any Registrable Shares, as follows:
(a) The Company will furnish the following reports to each Holder:
As soon as practicable after the end of each fiscal year of the Company, and in any event within one hundred twenty (120) days thereafter, an audited consolidated balance sheet of the Company and its subsidiaries, if any, as at the end of such fiscal year, and audited consolidated statements of income and cash flows of the Company and its subsidiaries, if any, for such year, prepared in accordance with generally accepted accounting principles consistently applied and setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail and certified by independent public accountants of recognized national standing selected by the Company.
(b) The Company shall deliver to each Major Investor and to each Holder of at least 120,000 shares of Series C Preferred Stock (including shares of Common Stock issued upon conversion thereof) as soon as practicable after the end of the first, second, and third quarterly accounting periods in each fiscal year of the Company, and in any event within forty-five (45) days thereafter, an unaudited consolidated balance sheet of the Company and its subsidiaries, if any, as of the end of each such quarterly period, and unaudited consolidated statements of income of the Company and its subsidiaries for such period and for the current fiscal year to date, prepared in accordance with generally accepted accounting principles consistently applied, subject to changes resulting from normal year-end audit adjustments, all in reasonable detail and certified by the principal financial or accounting officer of the Company, except that such
financial statements need not contain the notes required by generally accepted accounting principles.
(c) The Company shall deliver to each Major Investor within thirty (30) days of the end of each month, an unaudited income statement and balance sheet for and as of the end of such month, in reasonable detail.
(a) "New Securities" shall mean any capital stock (including Common Stock
and/or Preferred Stock) of the Company whether now authorized or not, and
rights, options or warrants to purchase such capital stock, and securities of
any type whatsoever that are, or may become, convertible into capital stock;
provided that the term "New Securities" does not include (i) securities
purchased under the Series A Preferred Stock Purchase Agreement dated as of June
25, 1998 or Series B Preferred Stock Purchase Agreement dated as of December 24,
1998 and amended as of February 18, 1999; (ii) securities issued pursuant to the
Reorganization Agreement; (iii) securities issued upon conversion of the Shares;
(iii) securities issued pursuant to the acquisition of another business entity
or business segment of any such entity by the Company by merger, purchase of
substantially all the assets or other reorganization whereby the Company will
own more than fifty percent (50%) of the voting power of such business entity or
business segment of any such entity; (iv) any borrowings, direct or indirect,
from financial institutions or other persons by the Company, whether or not
presently authorized, including any type of loan or payment evidenced by any
type of debt instrument, provided such borrowings do not have any equity
features including warrants, options or other rights to purchase capital stock
and are not convertible into capital stock of the Company; (v) securities issued
to employees, consultants, officers or directors of the Company pursuant to any
stock option, stock purchase or stock bonus plan, agreement or arrangement
approved by the Board of Directors; (vi) securities issued to a corporate
partner or to lessors, vendors, customers, suppliers, original equipment
manufacturers or other persons in similar commercial situations with the Company
if such
issuance is approved by the Board of Directors; (vii) securities issued to financial institutions in connection with obtaining lease or loan financing, whether issued to a lessor, guarantor or other person; (viii) securities issued in a public offering pursuant to a registration under the Securities Act which would trigger an automatic conversion of the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock into Common Stock pursuant to the Company's Amended and Restated Certificate of Incorporation; (ix) securities issued in connection with any stock split, stock dividend or recapitalization of the Company; and (x) any right, option or warrant to acquire any security convertible into the securities excluded from the definition of New Securities pursuant to subsections (i) through (ix) above.
(b) In the event the Company proposes to undertake an issuance of New Securities, it shall give each Major Investor written notice of its intention, describing the type of New Securities, and their price and the general terms upon which the Company proposes to issue the same. Each Major Investor shall have fifteen (15) days after any such notice is mailed or delivered to agree to purchase such Major Investor's pro rata share of such New Securities for the price and upon the terms specified in the notice by giving written notice to the Company and stating therein the quantity of New Securities to be purchased.
(c) In the event the Major Investors fail to exercise fully the right of
first refusal within such fifteen (15) day period, the Company shall have ninety
(90) days thereafter to sell or enter into an agreement (pursuant to which the
sale of New Securities covered thereby shall be closed, if at all, within sixty
(60) days from the date of such agreement) to sell the New Securities respecting
which the Major Investors' right of first refusal option set forth in this
Section 2.3 was not exercised, at a price and upon terms no more favorable to
the purchasers thereof than specified in the Company's notice to Major Investors
pursuant to Section 2.3(b). In the event the Company has not sold within such
ninety (90) day period or entered into an agreement to sell the New Securities
in accordance with the foregoing within sixty (60) days from the date of such
agreement, the Company shall not thereafter issue or sell any New Securities,
without first again offering such securities to the Holders in the manner
provided in Section 2.3(b) above.
(d) The right of first offer granted under this Agreement shall expire upon, and shall not be applicable to, the first sale of Common Stock of the Company to the public effected pursuant to a registration statement filed with, and declared effective by, the Securities and Exchange Commission (the "Commission") under the Securities Act, which such registration would trigger an automatic conversion of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock into Common Stock pursuant to the Company's Amended and Restated Certificate of Incorporation.
(e) The right of first refusal set forth in this Section 2.3 may not be assigned or transferred, except that (i) such right is assignable by each Major Investor to any wholly owned subsidiary or parent of, or to any corporation or entity, or any partner, former partner, general partner, limited partner, or related partnership that is, within the meaning of the Securities Act, controlling, controlled by or under common control with, any such Major Investor, and (ii) such right is assignable between and among any of the Major Investors.
(a) the Company will not issue shares or options to purchase shares of Common Stock beyond the 6,500,000 shares of Common Stock reserved for issuance under the Company's 1998 Stock Plan;
(b) such shares will vest at the rate of twenty-five percent (25%) of the shares after one (1) year from the first anniversary of the vesting commencement date and 1/48 of the shares shall vest each month thereafter;
(c) such shares issued under the Stock Plan may not be transferred prior to vesting, and the Company shall have a right of first refusal prior to an Initial Public Offering with respect to the sale of all such shares that have vested (subject to customary exclusions for transfers to trusts and family members);
(d) in the event that an employee is terminated by the Company, the Company shall have a right to repurchase at cost any unvested shares of Common Stock issued under the Stock Plan held by such employee; and
(e) such shares issued under the Stock Plan shall not be transferable for one hundred eighty (180) days following the effective date of an Initial Public Offering.
(a) amend or repeal any provisions of, or add any provision to, the Company's Certificate of Incorporation or Bylaws, if such action would alter or change materially and adversely the preferences, rights, privileges or powers of, or the restrictions provided for the benefit of, the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock; or
(b) increase or decrease the authorized number of shares of Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock.
conditions of this Agreement must be made in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any Holder, shall be cumulative and not alternative.
IN WITNESS WHEREOF, the parties hereto have executed this Investors' Rights Agreement effective as of the day and year first above written.
eGAIN COMMUNICATIONS CORPORATION
By /s/ Ashutosh Roy
--------------------------------
Ashutosh Roy
Chief Executive Officer
|
FW VENTURES I, L.P.
By /s/ Dave Brown
--------------------------------
Title Vice President, GP
------------------------------
|
CHARTER VENTURES III, LLC
By /s/ A. Barr Dolan
--------------------------------
A. Barr Dolan
|
FAYEZ SAROFIM INVESTMENT
PARTNERSHIP NO. 5 L.P.
By /s/ Ray G. White
--------------------------------
Ray G. White
|
Counterpart Signature Page to eGain Communication Corporation Investors Rights Agreement
RICHARD P. & AMY C. MAGNUSON,
TRUSTEES OF THE MAGNUSON REVOCABLE
TRUST DATED JANUARY 14, 1994
PM&S VENTURE FUND II, LLC
Counterpart Signature Page to eGain Communication Corporation Investors Rights Agreement
IMPERIAL BANK
PHOENIX LEASING INCORPORATED
Counterpart Signature Page to eGain Communication Corporation Investors Rights Agreement
Counterpart Signature Page to eGain Communication Corporation Investors Rights Agreement
Counterpart Signature Page to eGain Communication Corporation Investors Rights Agreement
/s/ Ashutosh Roy ----------------------------------- Ashutosh Roy /s/ Gunjan Sinha ----------------------------------- Gunjan Sinha |
Counterpart Signature Page to eGain Communication Corporation Investors Rights Agreement
Exhibit 5.1
PILLSBURY MADISON & SUTRO LLP
2550 Hanover Street
Palo Alto, CA 94304-1115
Tel: (650) 233-4500
Fax: (650) 233-4545
August 31, 1999
eGain Communications Corporation
624 East Evelyn Avenue
Sunnyvale, CA 94086
Re: Registration Statement on Form S-1
Ladies and Gentlemen:
We are acting as counsel for eGain Communications Corporation, a Delaware corporation (the "Company"), in connection with the registration under the Securities Act of 1933, as amended, of 5,750,000 shares of Common Stock, par value $.001 per share (the "Common Stock"), of the Company (including 750,000 shares subject to the underwriters' over-allotment option) to be offered and sold by the Company. In this regard we have participated in the preparation of a Registration Statement on Form S-1 relating to such 5,750,000 shares of Common Stock. (Such Registration Statement, as amended, and including any registration statement related thereto and filed pursuant to Rule 462(b) under the Securities Act (a "Rule 462(b) registration statement") is herein referred to as the "Registration Statement.")
We are of the opinion that the shares of Common Stock to be offered and sold by the Company have been duly authorized and, when issued and sold by the Company in the manner described in the Registration Statement and in accordance with the resolutions adopted by the Board of Directors of the Company, will be legally issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the Registration Statement and to the use of our name under the caption "Legal Matters" in the Registration Statement and in the Prospectus included therein.
Very truly yours,
/s/ Pillsbury Madison & Sutro LLP |
EXHIBIT 10.10
THIS SUB-SUBLEASE ("Sub-sublease"), dated June , 1999 (the "Execution Date"), for reference purposes only, is entered into by and between Cadence Design Systems, Inc. a Delaware corporation ("Sub-sublandlord"), and eGain Communications Corporation, a Delaware corporation ("Sub-subtenant").
RECITALS
A. Sub-sublandlord subleases certain premises consisting of approximately 46,000 square feet of rentable area (the "Premises") which is the entire building located at 455 West Maude Avenue in Sunnyvale, California (the "Building"), pursuant to that certain Sublease Agreement, dated June 3, 1996 (the "Master Sublease"), between Sub-sublandlord, as tenant, and Cisco Systems, Inc., as successor-in-interest to Combinet, Inc., a California corporation, as sublandlord ("Sublandlord").
B. Sublandlord subleases the Premises pursuant to that certain Lease Agreement, dated May 1995 (the "Master Lease"), between Sublandlord, as the lessee thereunder, and J.P, DiNapoli Companies, Inc. a _________________ corporation, as successor-in-interest to Sunnyvale Research Plaza Associates, a California limited partnership, as the lessor thereunder ("Landlord").
C. Capitalized terms herein not otherwise defined herein shall have the same meanings as provided in the Master Sublease.
D. Sub-sublandlord desires to lease the Premises to Sub-subtenant, and Sub-subtenant desires to lease the Premises from Sub-sublandlord, upon the terms and conditions provided for herein.
NOW, THEREFORE, in consideration of the mutual covenants and conditions contained herein, Sub-sublandlord and Sub-subtenant covenant and agree as follows:
AGREEMENT
(a) The term of this Sub-sublease shall commence on the date (the "Commencement Date") which is the later of (i) July 15, 1999, and (ii) fourteen (14) days after the date on which consent to this Sub-sublease is given by Sublandlord and Landlord.
(b) Notwithstanding Paragraph 2(a) above, if for any reason Sub- sublandlord cannot deliver possession of the Premises to Sub-subtenant on the Commencement Date, Sub-sublandlord shall not be subject to any liability therefor, nor shall such failure affect the validity of this Sub-sublease or the obligations of Sub-subtenant hereunder or extend the term hereof, but in such case Sub-subtenant shall
not be obligated to pay Rent until possession of the Premises is tendered to Sub-subtenant.
(c) The term of this Sub-sublease shall end on September 14, 2001; provided, however, that, subject to Paragraph 12 of this Sub-sublease, the term of this Sub-sublease shall terminate earlier in the event of the earlier termination of the Master Sublease for any cause whatsoever.
(a) From the Commencement Date until the first anniversary of the Commencement Date, or if such date is not the first day of a calendar month, until the first day of the calendar month in which such date occurs, Sub- subtenant shall pay to Sub-sublandlord in advance, on or before the first day of each month, without deduction or offset, monthly Basic Rent in the amount of $75,900.00 per month.
(b) From the first anniversary of the Commencement Date, or if such date is not the first day of a calendar month, from the first day of the calendar month in which such date occurs, until the termination of this Sublease, Sub-subtenant shall pay to Sub-sublandlord in advance, on or before the first day of each month, without deduction or offset, monthly Basic Rent in the amount of $80,500.00 per month.
(c) Sub-subtenant also shall pay, as Additional Rent, all additional rental amounts and such other charges as may be imposed by Sublandlord upon Sub-sublandlord under the Master Sublease.
(d) To the extent that Additional Rent due under the Master Sublease is on a monthly basis, such Additional Rent shall be paid to Sub-sublandlord as en Basic Rent is paid. All Rent shall be paid to Sub-sublandlord at the address specified for Sub-sublandlord below, or to such other person or to such other place as Sub-sublandlord may from time to time designate in writing. To the extent that Additional Rent is payable on an estimated basis pursuant to the Master Sublease, the Additional Rent due hereunder shall be adjusted between the parties (with appropriate reimbursements or additional payments) within twenty (20) days after the actual Additional Rent due under the Master Sublease has been determined and notice thereof has been delivered to Sub-subtenant.
(e) Sub-sublandlord shall pay all "Rent" and other monetary amounts required to be paid under the Master Sublease (collectively, "Underlying Rent") on or before the date such amounts become due and payable thereunder. If Sub-sublandlord fails to make any payment of Underlying Rent as and when required under the Master Sublease, Sub-subtenant shall have the right, but not the obligation, to make such payments on behalf of Sub-sublandlord, in which event Sub-subtenant shall have the right to offset any amounts so paid against Rent payable under this Sub-sublease.
(f) In the event of any casualty or condemnation affecting the Premises, Rent payable by Sub-subtenant shall be proportionately abated, but only as to the portion of the Premises damaged or taken; and only to the extent that Underlying Rent payable under the Master Sublease is abated. Sub- subtenant shall have no right to terminate the Sub-sublease in connection with any casualty or condemnation except
to the extent that the Master Sublease is also terminated as to the Premises or any portion thereof.
(a) Subject to the exclusions, limitations and modifications set forth in this Sub-sublease, the terms, covenants and conditions of the Master Sublease are incorporated in this Sub-sublease by reference so that, except to the extent that they are excluded, limited or otherwise modified by the provisions of this Sub-sublease for the purpose of incorporation by reference, each and every term, covenant and condition of the Master Sublease, including all obligations incorporated therein from the Master Lease, which bind or inure to the benefit of the Sublandlord under the terms of the Master Sublease shall, in respect of this Sub-sublease, bind or inure to the benefit of Sub- sublandlord. Further, subject to the exclusions, limitations and modifications set forth in this Sub-sublease, the terms, covenants and conditions of the Master Sublease
are incorporated in this Sub-sublease by reference so that, except to the extent that they are excluded, limited or otherwise modified by the provisions of this Sub-sublease for the purpose of incorporation by reference, each and every term, covenant and condition of the Master Sublease, including all obligations incorporated therein from the Master Lease, which bind or inure to the benefit of the Subtenant under the terms of the Master Sublease shall, in respect of this Sub-sublease, bind or inure to the benefit of Sub-subtenant. Such incorporation shall have the same force and effect as if such terms, covenants and conditions were completely set forth in this Sub-sublease, and as if the words "Sublessor" and "Sublessee," or words of similar import, wherever the same appear in the Master Sublease, were construed to mean respectively, "Sub-sublandlord" and "Sub-subtenant" in this Sub-sublease, and as if the Word "Sublease," or words of similar import, wherever the same appear in the Master Sublease, were construed to mean this "Sub-sublease." Sub-subtenant represents that it has examined, read and is familiar with the terms, covenants and conditions of the Master Sublease and the Master Lease to the extent the Master Lease is incorporated into the Master Sublease. Sub-subtenant accepts those terms, covenants and conditions and obligations thereof which have been incorporated herein.
(b) The following sections of the Master Sublease are not incorporated
as a part of this Sub-sublease and are expressly excluded herefrom (except
insofar as the same may be referenced elsewhere in this Sub-sublease for
purposes of identification or definition of certain matters): Article 1
(Sublease); Article 2 (Term); Section 3.1 (Base Rent); Section 3.4 (Security
Deposit); Section 16.3 (Master Landlord's Consent); Section 16.6 (Broker);
Section 16.8 (Sublessor's Representations).
(c) The following limitations shall apply to the interpretation and enforcement of the incorporated terms, covenants and conditions of the Master Sublease:
(i) Except with respect to the time for payment of Rent, the time limits contained in the Master Sublease for the giving of notices, making of demands or performing of any act, condition or covenant on the part of the Sub-sublandlord, as subtenant thereunder, or for the exercise by the Sub- sublandlord, as subtenant thereunder of any right, remedy or option, are changed for the purposes of incorporation herein by reference by shortening the same in each instance by two (2) business days, so that in each instance Sub-subtenant shall have two (2) business days less time to observe or perform hereunder than Sub-sublandlord has as the subtenant under the Master Sublease.
(ii) Any non-liability, release, indemnity or hold harmless provision, and any provisions pertaining to waiver of subrogation rights and or the naming of a party under an insurance policy, in the Master Sublease for the benefit of the Sublandlord which is incorporated herein by reference, shall be deemed to inure to the benefit of Sub-sublandlord and Sublandlord, for the purpose of incorporation by reference in this Sub-sublease.
(iii) Any right of the Sublandlord for access or inspection and any right of the Sublandlord under the Master Sublease to do work in the Premises, and any right of the Sublandlord in respect of rules and regulations, shall be deemed to inure to the benefit of Sub-sublandlord and the Sublandlord, for the purpose of incorporation by reference in this Sub- sublease.
(iv) if any of the express provisions of this Sub-sublease shall conflict with any of the provisions incorporated by reference, such conflict shall be
resolved in every instance in favor of the express provisions of this Sub- sublease. If any incorporated provision of the Master Sublease cross- references a provision of the Master Sublease which is not incorporated in this Sub-sublease, such cross-referenced Master Sublease provision shall be disregarded except to the extent required for a fair and equitable interpretation of the incorporated Master Sublease provision.
(v) Any obligation of Sub-sublandlord which is contained in this Sub-sublease by the incorporation by reference of the provisions of the Master Sublease shall be observed or performed by Sub-sublandlord using reasonable good faith efforts to cause the Sublandlord under the Master Sublease to observe and/or perform the same, and Sub-sublandlord shall have a reasonable time do so after written notice from Sub-subtenant specifying with reasonable particularity the deficiency in Sublandlord's performance under the Master Sublease. Sub-sublandlord shall not be required to furnish, supply, install, maintain or repair anything under any provision of the Master Sublease. Sub- subtenant shall not in any event have any rights in respect of the Premises greater than Sub-sublandlord's rights under the Master Sublease, and notwithstanding any provision to the contrary, as to obligations that pertain to the Premises and Common Area, and are part of this Sub-sublease by the incorporation by reference of provisions of the Master Sublease, Sub- sublandlord shall not be required to make any payment or to perform any obligation, and Sub-sublandlord shall have no liability to Sub-subtenant for any matter whatsoever, except for Sub-sublandlord's obligation to pay the Underlying Rent and to use reasonable good faith efforts, upon request of Sub- subtenant, to cause the Sublandlord to observe and/or perform Sublandlord's obligations under the Master Sublease. Sub-sublandlord shall not be responsible for any failure or interruption, for any reason whatsoever, of the services or facilities that may be appurtenant to or supplied at the Building by Landlord. Sub-subtenant hereby expressly waives the provisions of any statute, ordinance or judicial decision which would give Sub-subtenant rights to make repairs at the expense of Sub-sublandlord.
(vi) With respect to any approval or consent required to be obtained from Sublandlord under the Master Sublease, such approval or consent must be obtained from Landlord, Sublandlord, and Sub-sublandlord. Any approval or consent required of Sub-sublandlord conclusively shall be deemed reasonably withheld if approval or consent also is required of the Sublandlord or Landlord, and Sublandlord or Landlord withholds approval or consent.
(d) Sub-subtenant shall fully perform all of the Assumed Obligations and shall indemnify, defend, protect, and hold harmless Sub-sublandlord from any and all liability, damages, liabilities, claims proceedings, actions, demands and costs (including reasonable attorneys' fees) resulting, directly or indirectly, from Sub-subtenant's failure to perform the Assumed Obligations unless such failure is caused in whole or in part by Sub-sublandlord's gross negligence or willful misconduct.
(e) Without limiting the generality of the foregoing, for purposes of incorporating the terms, covenants and conditions of the Master Sublease into this Sub-sublease, the following provisions of the Master Sublease are amended as follows:
(i) Under Article 3 of the Master Sublease, Sub-sublandlord shall be entitled to rely on any statement or estimate from Landlord regarding the calculation and payment of Additional Rent and shall be under no duty to verify the same.
(ii) Under Article 7 of the Master Sublease, Sub-sublandlord shall only be required, after written request by Sub-subtenant, to use commercially reasonable good faith efforts to cause Sublandlord to fulfill its obligations under the Master Sublease.
(iii) Under Article 15 of the Master Sublease, upon surrender of the Premises at the expiration or earlier termination of this Sub-sublease, Sub-subtenant shall return the Premises to Sub-sublandlord in the same condition as existed upon delivery of the Premises to Sub-subtenant, prior to the construction of any alterations or improvements as may be made by Sub- subtenant reasonable wear and tear excepted; provided, however, that Sub- subtenant shall not be required to remove such alterations or improvements if Landlord shall agree in writing to waive its right to require Sub-sublandlord to remove such alterations or improvements upon surrender of the Premises to Landlord.
the Master Lease grants Sub-sublandlord any discretionary right to terminate the Master Lease, whether due to casualty, condemnation, or otherwise, Sub- sublandlord shall be entitled to exercise or not exercise such right in its sole and absolute discretion.
IN WITNESS WHEREOF, the parties have executed this Sub-sublease as of the date first written above.
Address: SUB-SUBLANDLORD:
Cadence Design Systems, Inc. CADENCE DESIGN SYSTEMS, INC., a Delaware
2655 Seely Road corporation
Bldg. 5, MS 5A1
San Jose, CA 95134 /s/ John H. Lucus
Attn: Director, Facilities and ---------------------------------------
Real Estate By: John H. Lucus
------------------------------------
Its: Director Real Estate
-----------------------------------
By:
-----------------------------------
Its:
-----------------------------------
-8-
|
Address: SUB-SUBTENANT:
_______________________________ eGAIN COMMUNICATION CORPORATION,
_______________________________ a Delaware corporation
_______________________________
_______________________________ /s/ Ashutosh Roy
---------------------------------------
|
By: Ashutosh Roy Its: Chief Executive Officer
AGREED AND APPROVED:
SUBLANDLORD:
CISCO SYSTEMS, INC., a California corporation
/s/ Ellen E. Jamason
---------------------------------------
By: Ellen E. Jamason
Its: Director
Worldwide Real Estate
|
LANDLORD:
J.P. DiNAPOLI COMPANIES INC., a ________
THIS AGREEMENT ("Agreement") is made as of August 9, 1999 by and among Sequoia M&M LLC, a California limited liability company and Laurel Osgood LLC, a California limited liability company (collectively, "Landlord"), Cisco Systems, Inc., a California corporation ("Tenant"), Cadence Design Systems, Inc., a Delaware corporation ("Subtenant") and eGain Communications Corporation, a Delaware corporation ("Sub-Subtenant"), with reference to the following facts:
A. Landlord, as successor-in-interest to Sunnyvale Research Plaza Associates, a California limited partnership, and Tenant entered into that certain Standard Form Leak (Industrial; Single-Tenant; Net) dated May __, 1995, ("Master Lease"), relating to certain premises more particularly described in the Master Lease ("Premises").
B. Tenant, as successor-in-interest to Combinet, Inc., a California corporation, and Subtenant entered into a Sublease dated June 3, 1996 ("Sublease"). By the terms of the Sublease, Tenant subleased to Subtenant and Subtenant subleased from Tenant, all of the Premises consisting of approximately 46,000 square feet of space located at 455 West Maude Avenue, Sunnyvale, California, as more particularly described in the Sublease (the "Sublease Premises").
C. Subtenant and Sub-Subtenant have entered into a Sub-Sublease dated June __, 1999 ("Sub-sublease") by the terms of which Subtenant will sublease to Sub- Subtenant and Sub-Subtenant will Sub-sublease from Subtenant all of the Sublease Premises, as more particularly described the Sub-Sublease.
D. Tenant has requested that Landlord consent to Subtenant sub-subletting the Sublease Premises to Sub-Subtenant pursuant to the Sub-Sublease. Landlord has agreed to consent to such subletting on the following terms and conditions.
NOW, THEREFORE, in consideration of the foregoing, and in consideration of the mutual agreements and covenants hereinafter set forth, Landlord, Tenant, Subtenant and Sub-Subtenant agree as follows:
2.1 Tenant, Subtenant and Sub-Subtenant acknowledge and agree that the "Landlord" identified in the Sub-Sublease is incorrect and the correct name of the Landlord is identified in this Agreement. The Sublease and Sub-Sublease are and shall be at all times subject and subordinate to all of the terms and conditions of the Master Lease. In case of any conflict between the provisions of the Master Lease and the provisions of the Sublease, as between Tenant and Landlord, the provisions of the Master Lease shall prevail unaffected by the Sublease or Sub-Sublease. Sub-Subtenant shall not violate any of the terms and conditions of the Master Lease to the extent applicable to the use and occupancy of the Sublease Premises. Any breach of the Master Lease or Sublease by Tenant, any breach of the Sublease, Sub-sublease or Master Lease by Subtenant or any breach of the Sub-Sublease, Sublease or Master Lease by Sub-Subtenant which results in a breach of the Master Lease shall entitle Landlord to all the rights and remedies provided in the Master Lease,
2.2 Subtenant and Sub-Subtenant acknowledge and agree that the term of the Sub Sublease shall automatically terminate upon the termination of the Master Lease for any reason whatsoever, including, without limitation, the termination of the Master Lease prior to the expiration of the term thereof pursuant to a written agreement by and between Landlord and Tenant. Notwithstanding any provision to the contrary in the Sublease, Sub-Sublease or in any other agreement, Subtenant and Sub-Subtenant acknowledge that neither of them shall have any right and there shall not be vested in either of them any right to exercise rights of first refusal, option, or other similar preferential rights, if any, given to Tenant under the Master Lease.
4.1 Sub-Subtenant shall, at Sub-Subtenant's expense, with respect to the Sublease Premises, secure and keep in force during the term of the Sub- Sublease such insurance as is required of Tenant under the Master Lease. Such policy or policies of insurance shall name Landlord and its lenders, if any, as additional insured(s). A certificate evidencing such insurance shall be delivered to Landlord promptly after the date hereof.
4.2 Landlord, by giving Landlord's consent to the Sub-Sublease, Sub- Subtenant and Subtenant hereby mutually waive their respective rights of recovery against one another for any loss of, or damage to, any of such parties' property to the extent that such loss or damage is insured by an insurance policy required to be in effect at the time of such loss or damage. Each party shall obtain any special endorsements, if required by its insurer, whereby the insurer waives its rights of subrogation against the other party. This provision is intended to waive fully, and for the benefit of the parties hereto, any rights and/or claims which might give rise to a right of subrogation in favor of any insurance carrier. The coverage obtained by Sub- Subtenant shall include, without limitation, a waiver of subrogation endorsement attached to the certificate of insurance.
6.1 Subtenant and Sub-Subtenant agree not to amend, modify, supplement, or otherwise change in any respect the Sub-Sublease except with the prior written consent of Landlord, which consent shall not be unreasonably withheld. This Agreement shall not create in Sub-Subtenant, as a third party beneficiary or otherwise, any rights except as set forth in this Agreement.
6.2 Copies of any notices of default sent by Tenant, Subtenant and/or Sub-Subtenant under the Master Lease, Sublease or Sub-Sublease, as applicable, shall be delivered to Landlord at the address set forth in the Master Lease at the same time such notices are sent to any other party.
6.3 This Agreement, together with the provisions of the Master Lease relating to subletting or assigning, contains the entire agreement between the parties hereto regarding the matters which are the subject of this Agreement. In the event of a permitted assignment under the Master Lease by Landlord or Tenant of its interest in the Master Lease, then the assignee of either Landlord or Tenant, as appropriate, shall automatically be deemed to be the assignee of Landlord or Tenant under this Agreement, and shall assume their respective obligations. No other assignments of this Agreement shall be permitted, except with the written consent of all parties hereto. Any attempted assignment in violation of this section shall be void. The terms, covenants and conditions of this Agreement shall apply to and bind the heirs, successors, the executors and administrators and permitted assigns of all the parties hereto. The parties acknowledge and agree that no rule or construction, to the effect that any ambiguities are to be resolved against the drafting party, shall be employed in the interpretation of this Agreement. If any provision of this Agreement is determined to be illegal or unenforceable, such determination shall not affect any other provisions of this Agreement, and all such other provisions shall remain in full force and effect.
6.4 If any party hereto fails to perform any of its obligations under this Agreement or if any dispute arises between the parties hereto concerning the meaning or interpretation of any provision of this Agreement, then the defaulting party or the party not prevailing in such dispute, as the case may be, shall pay any and all costs and expenses incurred by the other parties on account of such default and/or in enforcing or establishing its rights hereunder, including, without limitation, court costs and reasonable attorneys' fees and disbursements. Any such attorneys' fees and other expenses incurred by any party in
enforcing a judgment in its favor under this Agreement shall be recoverable separately from and in addition to any other amount included in such judgment, and such attorneys' fees obligation is intended to be severable from the other provisions of this Agreement and to survive and not be merged into any such judgment.
6.5 This Agreement may be executed in any number of counterparts, provided each of the parties hereto executes at least one counterpart hereof shall be deemed to be an original instrument, but all such counterparts together shall constitute but one agreement. The parties agree that the delivery of an executed copy of this Agreement by facsimile shall be legal and binding and shall have the same full force and effect as if an original of this Agreement had been delivered. Facsimile signatures shall be binding upon the parties.
6.6 Tenant, Subtenant and Sub-Subtenant covenant and agree that under no circumstances shall Landlord be liable for any brokerage commission or other charge or expense in connection with the Sub-Sublease or this Agreement and Tenant, Subtenant and Sub-Subtenant agree to protect, defend, indemnify and hold Landlord harmless from the same and from any cost or expense (including but not limited to attorneys' fees) incurred by Landlord in resisting any claim for any such brokerage commission.
6.7 The terms and provisions of this Agreement shall be construed in accordance with and governed by the laws of the State of California.
6.8 Tenant, Subtenant and Sub-Subtenant agree that the liability of Landlord hereunder and any recourse by Tenant, Subtenant or Sub-Subtenant against Landlord shall be subject to the limitations on liability set forth in the Master Lease. In addition, neither Landlord, nor any of its constituent members, partners, subpartners, or agents, shall have any personal liability to Tenant, Subtenant and/or Sub-Subtenant.
IN WITNESS WHEREOF, Landlord, Tenant, Subtenant and Sub-Subtenant have executed this Agreement as of the day and year first hereinabove written.
LANDLORD:
Sequoia M&M LLC, a California limited liability company
By: JP DiNapoli Companies Inc.,
a California corporation
By: /s/ JP DiNapoli
------------------------------------------
JP DiNapoli, President
|
Laurel Osgood LLC,
a California limited liability company
By: /s/ J. Philip DiNapoli
----------------------------------------------
J. Philip DiNapoli, Manager
|
Landlord's Address for Notices:
c/o The DiNapoli Companies
99 Almaden Boulevard, Suite 565
San Jose, California, 95113
TENANT:
Cisco Systems, Inc.
a California corporation
By: /s/ Ellen Jameson
------------------------------------
Ellen Jameson
Director
Worldwide Real Estate
|
SUBTENANT:
Cadence Design Systems, Inc.
a Delaware corporation
By: /s/ John Lucus
------------------------------------
Its:
--------------------------------
|
SUB-SUBTENANT:
eGain Communication Corporation, a
Delaware Corporation
By: /s/ Eric Smit
------------------------------------
Its: VP Finance
--------------------------------
|
EXHIBIT 10.11
PROMISSORY NOTE
$159,975.00 Stanford, California Dated as of August 6, 1999
FOR VALUE RECEIVED, the undersigned, A. MICHAEL SPENCE, promises to pay to
the order of eGain Communications Corporation, a Delaware corporation (the
"Company"), the principal sum of One Hundred Fifty-Nine Thousand Nine Hundred
Seventy-Five Dollars ($159,975.00). This note shall not bear interest. The
entire unpaid principal balance of this note shall be payable on the earlier of
(i) five (5) years from the date hereof or (ii) ninety (90) days following the
termination of the undersigned's Service to the Company.
If payment is not made when due, and if action is instituted on this note, the undersigned agrees to pay the Company reasonable attorneys' fees and costs of suit, as fixed by court.
The undersigned shall have the right to prepay all or any part of the unpaid principal amount of this note, without premium, at any time prior to the maturity hereof on ten (10) days' prior written notice.
This note is a full-recourse note originally secured by a pledge of Common Stock of the Company pursuant to a Security Agreement of even date herewith, which is on file with the Secretary of the Company.
This note shall be governed by and construed in accordance with the laws of the State of California.
IN WITNESS WHEREOF, the undersigned has signed, dated and delivered this note as of the date and year first above written.
/s/ A. Michael Spence
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A. Michael Spence
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SECURITY AGREEMENT
W I T N E S S E T H:
WHEREAS, the Purchaser has purchased from the Company 25,000 shares of the Company's Common Stock; and
WHEREAS, the Company has loaned to the Purchaser the sum of $159,975.00 which the Purchaser has used to pay the purchase price of the Common Stock; and
WHEREAS, the Purchaser has executed and delivered to the Company a full-recourse promissory note evidencing such loan (the "Note") and has agreed to pledge all of the Common Stock to the Company as security for the payment of the Note:
NOW, THEREFORE, it is agreed as follows:
1. The Purchaser hereby delivers to the Company one or more certificates representing the Common Stock, together with an Assignment Separate From Certificate signed by the Purchaser. The Purchaser hereby pledges and grants a security interest in the Common Stock, including any shares into which the Common Stock may be converted and all proceeds of the Common Stock, as security for the timely payment of all of the Purchaser's obligations under the Note and for the Purchaser's performance of all of its obligations under this Agreement. In the event of a default in payment of the Note, the Purchaser hereby appoints the Company as his true and lawful attorney to take such action as may be necessary or appropriate to cause the Common Stock to be transferred into the name of the Company or any assignee of the Company and to take any other action on behalf of the Purchaser permitted hereunder or under applicable law.
2. The Company agrees to hold the Common Stock as security for the timely payment of all of the Purchaser's obligations under the Note and for the Purchaser's performance of all of its obligations under this Agreement, as provided herein. At no time shall the Company dispose of or encumber the Common Stock, except as otherwise provided in this Agreement.
3. At all times while the Company is holding the Common Stock as security under this Agreement, the Company shall:
(a) Collect any dividends that may be declared on the Common Stock and credit such dividends against any unpaid principal under the Note, as part payment;
(b) Collect and hold any shares that may be issued upon conversion of the Common Stock; and
(c) Collect and hold any other securities or other property that may be distributed with respect to the Common Stock.
Such shares and other securities or property shall be subject to the security interest granted in Section 1 of this Agreement and shall be held by the Company under this Agreement.
4. While the Company holds the Common Stock as security under this Agreement, the Purchaser shall have the right to vote the Common Stock at all meetings of the Company's shareholders; provided that the Purchaser is not in default in the performance of any term of this Agreement or in any payment due under the Note. In the event of such a default, the Company shall have the right to the extent permitted by law to vote and to give consents, ratifications and waivers and take any other action with respect to the Common Stock with the same force and effect as if the Company were the absolute and sole owner of the Common Stock.
5. Upon payment in full of the outstanding principal balance of the Note and all other charges due under the Note, the Company shall release from pledge and redeliver to the Purchaser the certificate(s) representing the Common Stock and the Assignment Separate From Certificate forms.
6. In the event that the Purchaser fails to perform any term of this Agreement or fails to make any payment when due under the Note, the Company shall have all of the rights and remedies of a creditor and secured party at law and in equity, including (without limitation) the rights and remedies provided under the California Uniform Commercial Code. Without limiting the foregoing, the Company may, after giving ten (10) days' prior written notice to the Purchaser by certified mail at his residence or business address, sell any or all of the Common Stock in such manner and for such price as the Company may determine, including (without limitation) through a public or private sale or at any broker's board or on any securities exchange, for cash, upon credit or for future delivery. The Company is authorized at any such sale, if it deems it advisable to do so, to restrict the prospective bidders or purchasers of any of the Common Stock to persons who will represent and agree that they are purchasing for their own account for investment, and not with a view to the distribution or sale of any of the Common Stock, to restrict the prospective bidders or purchasers and the use any purchaser may make of the Common Stock and impose any other restriction or condition that the Company deems necessary or advisable under the federal and state securities laws. Upon any such sale the Company shall have the right to deliver, assign and transfer to the purchaser thereof the Common Stock so sold. Each purchaser at any such sale shall hold the Common Stock so sold absolute, free from any claim or right of any kind. In case of any sale of any or all of the Common Stock on credit or for future delivery, the Common Stock so sold may be retained by the Company until the selling price is paid by the purchaser thereof, but the Company shall not incur any liability in case of the failure of such purchaser to take up and pay for the Common Stock so sold and, in case of any such failure, such Common Stock may again be sold under the terms of this section. The Purchaser hereby agrees that any disposition of any or all of the Common Stock by way of a private placement or other method which in the opinion of the
Company is required or advisable under Federal and state securities laws is commercially reasonable. At any public sale, the Company may (if it is the highest bidder) purchase all or any part of the Common Stock at such price as the Company deems proper. Out of the proceeds of any sale, the Company may retain an amount sufficient to pay all amounts then due under the Note, together with the expenses of the sale and reasonable attorneys' fees. The Company shall pay the balance of such proceeds, if any, to the Purchaser. The Purchaser shall be liable for any deficiency that remains after the Company has exercised its rights under this Agreement.
7. This Agreement shall be governed by and construed in accordance with the laws of the State of California. This Agreement shall inure to the benefit of, and be binding upon, the Company and its successors and assigns and be binding upon the purchaser and the Purchaser's legal representative, heirs, legatees, distributees, assigns and transferees by operation of law. This Agreement contains the entire security agreement between the Company and the Purchaser. The Purchaser will execute any additional agreements, assignments or documents or take any other actions reasonably required by the Company to preserve and perfect the security interest in the Common Stock granted to the Company herein and otherwise to effectuate this Agreement.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed on its behalf by its duly authorized officer, and the Purchaser has personally executed this Agreement.
eGAIN COMMUNICATIONS CORPORATION
By /s/ Ashutosh Roy
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Chief Executive Officer
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Title _______________________________
/s/ A. Michael Spence
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A. Michael Spence
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ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Agreement dated as of August 6, 1999, the undersigned hereby sells, assigns and transfers unto ______________________________ (__________) shares of the Common Stock of eGain Communications Corporation, a Delaware corporation, standing in the undersigned's name on the books of said corporation represented by certificate No. ____ herewith, and does hereby irrevocably constitute and appoint attorney- in-fact to transfer the said stock on the books of the said corporation with full power of substitution in the premises.
Dated: __________, 19__.
A. MICHAEL SPENCE
___________________ (Purchaser's spouse) indicates by the execution of this Assignment his or her consent to be bound by the terms herein as to his or her interests, whether as community property or otherwise, if any, in the Shares.
REQUIRING ADDITIONAL SIGNATURES ON THE PART OF PURCHASER.
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the caption "Experts" and to the use of our reports pertaining to eGain Communications Corporation dated July 16, 1999 and pertaining to Sitebridge Corporation dated July 16, 1999 included in Amendment No. 1 to the Registration Statement (Form S-1) and related Prospectus of eGain Communications Corporation for the registration of its common stock.
/s/ Ernst & Young LLP
Palo Alto, California
August 27, 1999
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Exhibit 99.1 August 26, 1999
Jupiter Communications
Dear eGain Communications Corporation:
Per our discussion, you have approval of Jupiter Communications to use the following information as stated below (in bold).
From the eGain Communications Corporation Registration Statement on Form S-1, sections entitled "Summary" and "Business--Industry Background";
"However, according to a recent Jupiter Communications study of 125 top eCommerce sites, 42% of the sites either refused to accept an email, never responded to an email, or took longer than five days to respond."
"According to a recent survey by Jupiter Communications of 125 top eCommerce sites, 42% of the sites either refused to accept an email message, never responded to the message or took longer than five days to respond."
Sincerely,
/s/ Isabel Marsh ----------------------- (name) Isabel Marsh (title) Director of Client Services Jupiter Communications |
EXHIBIT 99.2
August 30, 1999
International Data Corporation
Dear eGain Communications Corporation:
Per our discussion, you have approval of International Data Corporation to use the following information as stated below (in bold).
From the eGain Communications Corporation Registration Statement on Form S-1, sections entitled "Summary" and "Business - Industry Background":
"International Data Corporation estimates that worldwide license revenues for eCommerce customer service and support applications will grow from $42 million in 1998 to $1.6 billion in 2002."
"International Data Corporation, or IDC, estimates that the number of customers buying goods and services over the Internet worldwide will grow from approximately 30 million in 1998 to 133 million in 2002, and that the total value of goods and services purchased over the Internet will increase from approximately $50 billion in 1998 to over $734 billion by 2002."
"IDC estimates that worldwide license revenues for eCommerce customer service and support applications will grow from $42 million in 1998 to $1.6 billion in 2002."
Sincerely,
/s/ Alexa McCloughan ----------------------------- International Data Corporation |