UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Fiscal Year Ended June 30, 2020
or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-35314
eGain Corporation
(Exact name of registrant as specified in its charter)
Securities registered pursuant to Section 12(b) of the Act:
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Common Stock, par value $0.001 per share |
EGAN |
Nasdaq Capital Market |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ◻ No ⌧
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ◻ No ⌧
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes ⌧ No ◻
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ◻
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ◻ No ⌧.
The aggregate market value of the voting and non-voting common equity held by non-affiliates (based on the closing price on the Nasdaq Capital Market) on December 31, 2019, was approximately $163.8 million. For purposes of the foregoing calculation only, the registrant has included in the shares owned by affiliates the beneficial ownership of voting and non-voting common equity of officers and directors, and affiliated entities, of the registrant and members of their families. Such inclusion shall not be construed as an admission that any such person is an affiliate for any other purpose.
There were 30,909,187 shares of the Registrant’s Common Stock par value $0.001 per share, outstanding on September 10, 2020.
DOCUMENTS INCORPORATED BY REFERENCE
Items 10 (as to directors), 11, 12, 13 and 14 of Part III of this Annual Report on Form 10-K incorporate by reference information from the registrant’s proxy statement to be filed with the Securities and Exchange Commission in connection with the solicitation of proxies for the registrant’s 2020 Annual Meeting of Stockholders.
EGAIN CORPORATION
2020 FORM 10-K
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2
ITEM 1. |
This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may be identified by the use of the words such as “anticipates,” “believes,” “continue,” “could,” “would,” “estimates,” “expects,” “intends,” “may,” “might,” “plans,” “potential,” “should,” or “will” and similar expressions or the negative of those terms. The forward-looking statements include, but are not limited to, statements regarding: the impact of the COVID-19 pandemic on our business, employees and customers; our SaaS only business model and our belief that it affords recurring revenue visibility, more predictability and 50% faster time to value to SaaS clients; our belief that SaaS revenue better reflects business momentum; expectations regarding our revenue, including visibility and predictability; our beliefs regarding the value of our platform; the opportunities afforded by automation of contact centers, innovation in cloud and growing API economy; our business strategies; the effect of changes in macroeconomic factors beyond our control; our ability to predict subscription renewals or upgrade rates; our lengthy sales cycles and the difficulty in predicting timing of sales or delays; competition in the markets in which we do business and our competitive advantages; our expectations regarding the composition of our customers and the result of a loss of a significant customer; our beliefs regarding our prospects for our business; the adequacy of our capital resources and our ability to raise additional financing; the development and expansion of our strategic and third party distribution partnerships and relationships with systems integrators; legal liability or the effect of negative publicity for the services provided to consumers through our technology platforms; our ability to compete; the operational integrity and maintenance of our systems; the effect of unauthorized access to a customer’s data or our data or our IT systems and cybersecurity attacks; the uncertainty of demand for our products; our beliefs regarding the attributes and anticipated customer benefits of our products; the actual mix in new business between subscription and license transactions; our ability to increase the profitability of our recurring products and services; our ability to increase revenue as a result of the increased investment in sales and marketing; our ability to hire additional personnel and retain key personnel; our ability to expand and improve our sales performance and marketing activities; our ability to manage our expenditures and estimate future expenses, revenue, and operational requirements; the effect of changes to management judgments and estimates; the impact of any modification to our pricing practices in the future; our beliefs regarding our international operations; our ability to timely adapt and comply with changing European regulatory and political environments; uncertainty relating to the implementation and effect of Brexit; the effect of recent changes in U.S. tax legislation; the effect of compliance with California privacy laws and regulations on our business and our customers; our inability to successfully detect weaknesses or errors in our internal controls; our ability to take adequate precautions against claims or lawsuits made by third parties, including alleged infringement of proprietary rights; the potential impact of foreign currency fluctuations; the impact of accounting pronouncements and our critical accounting policies, judgments, estimates, models and assumptions on our financial results; and our expectations with respect to revenue, cost of revenue, expenses and other financial metrics.
Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expected. These risks and uncertainties include, but are not limited to, those risks discussed in Item 1A “Risk Factors” in this report, as well as the effect of the COVID-19 pandemic on our business; our ability to manage our business plans, strategies and outlooks and any business-related forecasts or projections; our ability to effectively implement and improve our current products; our ability to innovate and respond to rapid technological change and competitive challenges; customer acceptance of our existing and future products; the impact of new legislation or regulations, or of judicial decisions, on our business; legal and regulatory uncertainties and other risks related to protection of our intellectual property assets; our ability to compete against third parties; the success of our partnerships; our ability to obtain capital when needed; the economic environment; our history of operating losses; our ability to manage future growth; the market price of our common stock; and foreign currency fluctuations. These forward looking statements speak only as of the date hereof. We expressly disclaim any obligation or undertaking to update any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.
All references to “eGain”, the “Company”, “our”, “we” or “us” mean eGain Corporation and its subsidiaries, except where it is clear from the context that such terms mean only this parent company and exclude subsidiaries.
eGain and the eGain® are trademarks of eGain Corporation. We also refer to trademarks of other corporations and organizations in this report
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Overview
eGain automates customer engagement with an innovative Software as a service (SaaS) platform, powered by deep digital, Artificial intelligence (AI), and knowledge capabilities. We are headquartered in the United States. We also operate in United Kingdom and India. We sell mostly to large enterprises across financial services, telecommunications, retail, government, healthcare, and utilities. With our mantra of AX + BX + CX = DX™, we guide clients to effortless Digital experience (DX) by holistically optimizing Agent experience (AX), Business experience (BX) and Customer experience (CX). One hundred fifty leading brands use eGain cloud software to improve customer satisfaction, empower agents, reduce service cost and boost sales.
Industry Background
Introduction
Customer relationship management (CRM) tools are not designed to serve as systems of engagement because they are primarily systems of record. They do not offer rich applications to engage customers across digital touch points, nor do they escalate conversations with context across self-service to agent assistance. Furthermore, CRM systems mostly view knowledge management as traditional document management - a big content model that does not work the personalized, media-rich, and content-heavy digital world. Frontline agents, in the CRM worldview, are supposed to have super-human capacity to retain and routinely refresh all relevant knowhow across complex, expanding product portfolios and compliance-heavy processes. Finally, the concept of in-band guidance for customer self-service and agent assistance is foreign to CRM systems. The reality of CRM desktops in contact centers today, we believe, is that agents ignore 90% of the data piled up their application screens—most of which is hidden behind multiple tabs. According to Gartner, 84% of agents surveyed are not satisfied with their desktop tools. It is time to reimagine the Agent Experience.
Digital Economy Demands Modern Software
In a world selling commoditized products to information-rich customers short on time, smart engagement must automate the routine and augment the interesting across agent, business and customer. Therefore, businesses are increasingly seeking digital-first, modern software platforms to layer on top of their traditional systems like CRM, contact centers, and content management. Customer engagement platforms must be designed to be systems of engagement, enabling rapid innovation, delivering quick value and integrating with systems of record across the enterprise. Agile, comprehensive, scalable, and cost-effective, they must demonstrably automate customer self-service, empower agents and easily orchestrate contact center operation in an omnichannel environment.
AI-Knowledge Powered Customer Engagement Automation
Energized by big-data, cloud-computing and open-source technologies in a digital world, AI-Knowledge can deliver transformational value, within a digital-first, omnichannel customer interaction framework. Smart, connected experiences can be automated to successfully resolve majority of customer interactions in most B2C businesses. The pressing challenge for solution buyers, however, is to separate the wheat from the chaff as they look for trusted, innovative and aligned partners. They seek sustained product leadership, at-scale proof points and no-risk trials.
Contact Centers are the Battleground
Contact centers offer a significant opportunity to automate customer engagement. Globally, there are close to 15 million contact center agents. Time-starved customers consuming complex products and grappling with marketing offers generate stubbornly high levels of customer contact. Furthermore, contact centers worldwide are undergoing a technology refresh cycle from on-premise voice-centric models to cloud-based omnichannel platforms. This transition affords businesses the opportunity to reimagine and design new customer contact strategies to drive digital-first automation, fueled by AI-Knowledge.
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Customer Engagement Automation is a Large, Growing Market
Businesses are investing heavily in digital transformation, with customer engagement as a top priority. Ease of innovation in cloud and a growing Application programming interface (API) economy present exciting capability to connect, solve, and optimize. This is both an opportunity and a challenge. As predicted by industry analysts, the number of customer interactions involving emerging technology such as machine-learning applications, chatbots, or mobile messaging is increasing every day. To effectively harness such novel capabilities, businesses are looking toward innovative platform providers with proof at scale to guide them on their automation journey.
The eGain Approach and Benefits
What Customers Want
Technology acceleration notwithstanding, human needs for customer engagement and service change slowly. We believe what customers want is help in three categories: information, transaction, and situational. A given customer contact can morph across these categories as the conversation develops. Therefore, it is critical that an effective solution optimization customer contact across these three categories seamlessly and with context —accounting for machine-human hand-offs, channel switching, multimodal interaction, and conversational pause-and-resume. During these interactions, we believe customers increasingly want to be guided, even anticipated. Siloed solutions like transactional, simplistic chatbots without contextual escalation and supporting knowledge tend to disappoint consumers even more than non-existent self-service options.
The eGain Solution is Comprehensive
eGain offers a comprehensive, unified cloud software solution to automate, augment and orchestrate customer engagement in a digital world. Our feature-rich portfolio of applications empowers businesses to holistically connect, flexibly solve, and continuously optimize the experience for agents, businesses and customers. Our solution experts and partners guide clients by aligning with their strategic priorities and demonstrating quick value across a series of agile sprints.
Digital-First, Omnichannel Desktop Connect
First, our solution offers comprehensive, scalable capabilities for digital-first, omnichannel interaction within a modern, purpose-built desktop. Rich applications, optimized for productivity, proactively guide agents to efficiently interact with customers using messaging, Short message service (SMS), chat, email, social media, phone, video, fax, and letter. Agents do not have to remember complex product details and detailed process steps. Process compliance is built into the solution.
AI and Knowledge Solve
Next, our solution offers powerful AI and knowledge applications for virtual assistance for customers and agents. These applications enable businesses to centralize knowledge, policies, procedures, and best-practices, while delivering guided, personalized solutions to customers and agents. Our AI and knowledge applications deliver compelling value through large-scale self-service automation. Further, these applications ensure that all agents effectively resolve all contact types, regardless of product or procedure. Correct, compliant, and consistent responses across touchpoints - automated and assisted - boost customer satisfaction. First contact resolution surges and agent time to competency drops.
Analytics and Machine Learning Optimize
Our analytics solution enables clients to measure, manage and orchestrate their omnichannel service operations. In addition, our machine learning service led by our digital optimization experts helps clients generate product improvement and customer preference insights from customer conversations and journey events, while spotting opportunities to improve experience and automate processes.
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Open, Secure APIs and Third-Party Connectors Deliver Quick Value
Our open, secure platform APIs enable clients and partners to extend and enhance our solutions and to integrate with enterprise assets to enable a single view of the customer. Our certified integration with platforms such as those from Avaya, Amazon, Cisco, Salesforce, and Microsoft enable clients to leverage existing systems of record and communication.
Compelling Benefits
We believe our solution delivers transformational value. Specifically, we help businesses:
o | Enhance customer experience with digital-first, omnichannel service. |
o | Reduce operating costs through self-service automation, improved first contact resolution, and compressed agent time-to-competence. |
o | Ensure compliance with regulations, policies, procedures, and best practices even as clients expand their product portfolio and serviced customer segments. This benefit is particularly sought after in regulated sectors like financial services and healthcare, as well as government. |
o | Deliver rich, primary insights to enhance products and design new offerings. Analyzing and learning from customer conversations provides a unique tool to quickly respond to customer dissatisfaction or agent challenges, while generating ideas for product innovation and process automation. |
Competitive Strengths
Comprehensive Omnichannel Platform with Rich Apps and Purpose-built APIs
The eGain solution is a comprehensive omnichannel solution for the customer engagement market, with AI and knowledge applications at its core. We unlock the full power of our cloud platform with extensive APIs through a developer portal to enable digital engagement, knowledge management, and decision support capabilities for clients and partners in a way that is unique in the market.
Enterprise-Grade, Secure Cloud Service with Differentiated Offerings
Our cloud offering is secure, scalable and offers unique capabilities. With respect to security and certification, we offer SOC2, PCI, HIPAA, and GDPR certification. Two of the largest federal tax services, one in North America and the other in Europe, use eGain solutions served from the eGain Cloud. Furthermore, we offer an “Always On” capability for businesses who cannot afford to be down at any time, day or night, for scheduled maintenance downtime. Finally, we offer service credits in the event of non-adherence to contracted service levels.
Transformative Value at Scale Across Diversified Customer Base
Our solution delivers transformative value at scale today across a diversified customer base. We believe that our understanding of the customer need and our ability to fulfil it at scale and with enterprise-grade sophistication is unmatched. From over a hundred thousand users at a healthcare client using our solution on a 24x7 basis to a P&C insurer with fifteen thousand contact center advisors and thirty-thousand field agents, we are the preferred choice for large brands looking to automate customer engagement.
Market-leading Innovation with a Risk-free Trail Model
We are consistently seen as product leaders in digital engagement and knowledge management by leading analysts. For over twenty years, we have anticipated technology and market trends. We anticipated the need for AI in customer service early and developed an omnichannel customer engagement hub years ahead of competition. With a relentless focus on the customer engagement automation, we continue to add capabilities to enhance our clients’ investment in eGain. For example, to enable our clients to serve their customers across all channels, our messaging hub out of the box connects with Apple Business Chat, Facebook Messenger, Google Business Messaging, SMS and WhatsApp. Our third-generation
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virtual assistant - powered by AI, machine learning, and knowledge applications - seamlessly layers across our omnichannel platform. Our knowledge and AI solutions lead the market.
Not only do we innovate quicker than others, we stand behind our claim with a unique Innovation in 30 Days™ offer—a 30-day guided production pilot in the eGain Cloud – at no cost and with no strings attached.
Leveraged Go-to-market Strategy with a Growing Partner Ecosystem
We take our solutions to market through a partner-leveraged enterprise sales model. We started our Original equipment manufacturing (OEM) partnership journey with Cisco several years ago. Through Cisco’s partner ecosystem and direct sales network, we also resell cloud-based, eGain-branded solutions.
In fiscal year 2020, we announced our cloud-based OEM partnership with Avaya for our digital connect portfolio. We are now building an active pipeline with Avaya field sales and their partners.
Finally, we partner with Amazon Connect, a disruptive cloud-based contact center solution. Our integrated proposition delivers the best of omnichannel capabilities powered by AI, Knowledge and Analytics.
Customers
We mostly sell to large enterprises, which we define as businesses with over a billion dollars in annual revenue or government organizations. Approximately 90% of our annual recurring cloud revenue for fiscal year 2020 came from such large enterprises.
We focus on the following verticals: financial services, telco, retail, government, health care and utilities. For fiscal year 2020, domestic and international revenue accounted for 62% and 38% of total revenue.
One of our largest customers, who is also a partner, accounted for 18% of total revenue in fiscal year 2020.
Competition
We compete with application software providers, including Genesys Telecommunications, LivePerson, Moxie Software, Verint, Nuance, and Oracle. In addition, we engage in partnerships with some of our competitors, including Salesforce, Microsoft, and ServiceNow.
The market that we compete in is highly competitive and some of our competitors may have longer operating histories, greater economies of scale, greater financial resources, greater engineering and technical resources, greater sales and marketing resources, stronger strategic partnerships and distribution channels, larger user bases, products and services with different functions and feature sets and greater brand recognition than we have. We believe the principal competitive factors in our market include the following:
o | proven track record of customer success; |
o | speed and ease of implementation; |
o | product functionality; |
o | financial stability and viability of the vendor; |
o | product adoption; |
o | ease of use and rates of user adoption; |
o | low total cost of ownership and demonstrable cost-effective benefits for customers; |
o | performance, security, scalability, flexibility and reliability of the service; |
o | whether the software is delivered via the cloud or on-premises; |
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o | ease of integration with existing applications; |
o | quality of customer support; |
o | availability and quality of implementation, consulting and training services; and |
o | vendor reputation and brand awareness. |
Growth Strategy
We are investing in multiple programs to accelerate growth.
Invest in Direct Sales and Marketing
We are enhancing our digital marketing to boost brand awareness, based on client success, product leadership and no-risk trial offers. To complement our marketing investment, we are significantly expanding our field sales team to increase high-touch presence in target accounts.
Develop New Partner Relationships
We are developing new partnerships with complementary platform providers (with large customer bases) to enhance their proposition with our AI Knowledge powered customer engagement capabilities. We have hired a new head of Business Development to lead a team to develop and operationalize such new partnerships.
Land and Expand in the Enterprise
With the sustained progress we have made in customer success, we see a replicable pattern emerging: land enterprise logos with a limited footprint in one business unit, demonstrate business value, and then expand in the enterprise. We are increasing the value of investment in eGain for our clients by deeply integrating our capabilities via our enhanced APIs with enterprise assets like enterprise collaboration platforms, CRM systems, transaction and billing, and content sources.
Migrate Our Remaining Legacy Customers to eGain Cloud
We offer an attractive proposition to our remaining on-premise customers to move to the eGain Cloud where we subsidize the migration service cost in exchange for their multi-year commitment to the eGain Cloud. We expect to substantially migrate most remaining on-premise clients to the eGain Cloud by the end of fiscal year 2021.
Maintain Platform Innovation Leadership
Innovation is in our DNA. We are developing vertical solutions on our platform to better acquire and serve customers. We continue to enhance our core capabilities to improve usability and personalization.
Selectively Pursue Acquisitions
From time to time, we pursue inorganic strategies to strengthen our product portfolio. In 2014 we acquired Exony Limited, a provider of advanced contact center analytics software. Moving forward, we will look for strategic acquisitions that we believe will deliver compelling value faster than organic options.
8
Sales and Marketing
Sales Strategy
Our sales strategy is to pursue targeted accounts, mostly B2C enterprises, through a combination of our direct sales force and partners. These enterprises typically have thousands of customer service agents in their contact centers and, in the aggregate, communicate with billions of customers each year. We utilize thought leadership and other marketing events to demonstrate our leadership position in the customer engagement software market and highlight our customer successes.
Our direct sales force is organized into teams that include field sales representatives and sales consultants. Our direct sales force is complemented by lead generation representatives and sales development representatives.
We also complement our direct effort with sales alliances.
Marketing and Partner Strategy
Our marketing strategy is to build our brand around innovative and robust products trusted by leading enterprises. We accomplish this via public relations, analyst relations, marketing communications and demand generation. We employ a wide range of marketing avenues to deliver our message, including print and digital, targeted electronic and postal mailing, email newsletters, and a variety of trade shows, seminars, webinars, and interest groups.
Our marketing group produces sales tools, including product collateral, customer case studies, demonstrations, and presentations. In addition, the group performs market analyses and customer reviews to identify and develop key partnership opportunities and product capabilities.
We believe that our partners help extend the breadth and depth of our product offerings, drive market penetration, and augment our professional service capabilities. We believe these relationships are important to delivering successful, integrated products and services to our customers. Our partner portal, eGain Econet™, provides comprehensive sales, support and services information for channel partners.
Subscription Services
Our subscription services provide customers with access to our software on a cloud-based platform that we manage and offer on a subscription basis. These subscription services allow our customers to easily consume our product innovation without dealing with infrastructure, installation and ongoing administration. We generally offer these services through a 36-month contract, with pricing based on the number of agents or self-service sessions.
Professional Services
Our worldwide professional services organization provides consulting, implementation and training services to deliver business value, drive customer success and build customer loyalty.
o | Consulting and Implementation Services. Our offering includes rapid implementation services, platform-based solution extension, and systems integration services. Our consultants work with customers to understand their requirements, analyze their business needs, and implement effective solutions. We provide these services independently or in partnership with systems integrators who have developed expertise on our platform. |
o | Training Services. We provide comprehensive training options to customers and partners. Training programs are offered either online (remote training) or in-person at the customer site. We also offer complementary e-learning through our eGain University education portal to our customers and partners. |
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Customer Support
We offer 24 x 7 customer support via online and phone channels worldwide under support agreements. Our customer support centers are in California, United Kingdom, and India.
Research and Development
The market for our products changes rapidly and is characterized by evolving industry standards, swift changes in customer requirements, and frequent product introductions.
We continuously analyze market and customer requirements and evaluate external technology that we believe will enhance our competitiveness, increase our lifetime customer value and expand our target market. Our product roadmap effectively combines build, partner and buy options. [The last company we acquired was Exony Limited, a UK-based leader in enterprise contact center analytics software, in August 2014.]
Intellectual Property
We regard our intellectual property as critical to our success. We rely on intellectual property and other laws, in addition to confidentiality procedures and licensing arrangements, to protect the proprietary aspects of our technology and business.
As of June 30, 2020, we had 11 issued patents in the United States. In addition, we have a number of pending patent applications in the United States, including one provisional filing and several non-provisional filings. Our issued U.S. patents expire at various times between 2029 and 2035.
We continually assess the strength of our intellectual property protection for those aspects of our technology that we believe constitute innovations providing significant competitive advantages. Future applications may or may not receive the issuance of valid patents or registered trademarks.
We routinely require our employees, customers, and potential business partners to enter into confidentiality and nondisclosure agreements before we disclose any sensitive aspects of our products, technology, or business plans. In addition, we require employees to agree to surrender to us 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. In addition, some of our license agreements with certain customers and partners require us to place the source code for our products into escrow. These agreements typically provide that some party will have a limited, non-exclusive right to access and use this code as authorized by the license agreement if there is a bankruptcy proceeding instituted by or against us, or if we materially breach a contractual commitment to provide support and maintenance to the party.
Employees
As of June 30, 2020, we had 522 full-time employees, of which 179 were in product development, 197 in services and support, 89 in sales and marketing, and 57 in finance and administration.
None of our employees are covered by collective bargaining agreements. While we believe our relations with our employees are good, our future performance depends largely upon the continued service of our key technical, sales and marketing, and senior management personnel, none of whom are bound by employment agreements requiring service for a defined period of time.
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Available Information
We were incorporated in Delaware in September 1997, and our website is located at www.egain.com. We make available free of charge on our website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, as soon as reasonably practicable after we electronically file or furnish such materials to the Securities and Exchange Commission. Our website and the information contained therein or connected thereto are not intended to be incorporated into this Annual Report on Form 10-K.
Information About Our Executive Officers
The following table sets forth information regarding eGain’s executive officers as of September 11, 2020:
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Age |
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Position |
Ashutosh Roy |
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54 |
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Chief Executive Officer and Chairman |
Eric Smit |
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58 |
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Chief Financial Officer |
Promod Narang |
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62 |
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Senior Vice President of Products and Engineering |
Todd Woodstra |
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58 |
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Senior Vice President of Global Sales |
Ashutosh Roy co-founded eGain and has served as Chief Executive Officer and a Director of eGain since September 1997 and as President since October 1, 2003. From May 1995 through April 1997, Mr. Roy served as Chairman of WhoWhere? Inc., an Internet-services company co-founded by Mr. Roy. From June 1994 to April 1995, Mr. Roy worked at Parsec Technologies, a call center company based in New Delhi, India, which he co-founded. From August 1988 to August 1992, Mr. Roy worked as a software engineer at Digital Equipment Corporation. Mr. Roy holds a B.S. in Computer Science from the Indian Institute of Technology, New Delhi, a Master’s degree in Computer Science from Johns Hopkins University and a M.B.A. from Stanford University. Mr. Roy’s qualifications to serve on our Board of Directors include his industry experience and deep knowledge of eGain from his position as a founder of our Company and as our Chief Executive Officer for over 20 years.
Eric Smit has served as Chief Financial Officer since August 2002. Prior to that, Mr. Smit served in a variety of roles at eGain, including Vice President, Operations from April 2001 to July 2002, Vice President, Finance and Administration from June 1999 to April 2001, and Director of Finance from June 1998 to June 1999. From December 1996 to May 1998, Mr. Smit served as Director of Finance for WhoWhere? Inc., an Internet services company. From April 1993 to November 1996, Mr. Smit served as Vice President of Operations and Chief Financial Officer of Velocity Incorporated, a software game developer and publishing company. Mr. Smit holds a Bachelor of Commerce in Accounting from Rhodes University, South Africa.
Promod Narang has served as Senior Vice President of Products and Engineering since March 2000. Mr. Narang joined eGain in October 1998, and served as Director of Engineering prior to assuming his current position. Prior to joining eGain, Mr. Narang served as President of VMpro, a system software consulting company, from September 1987 to October 1998. Mr. Narang holds a Bachelor of Science in Computer Science from Wayne State University.
Todd Woodstra has served as Senior Vice President of Global Sales since August 2017. Prior to joining eGain, Mr. Woodstra was the Senior Vice President of Enterprise/Channels at Sparks Compass, a real time data analytics platform company, and the Senior Vice President of Enterprise Sales for Interactions LLC from January 2015 to February 2017, where he led enterprise customer sales focused on virtual assistant solutions. From November 2009 to July 2014, Mr. Woodstra was Vice President of Global Channel and Partner Alliances for Nuance Communications where he managed and executed business in channels and commercial enterprise, self-service, mobile, collaboration, unified communications, natural language speech recognition, voice biometrics, gesture technologies, inbound/outbound notification and voice-to-text transcription. Mr. Woodstra holds a Bachelor of Arts in Business Administration, Management Information Systems from California State University, San Bernardino
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The risks and uncertainties described below are not the only ones facing us. Other events that we do not currently anticipate or that we currently deem immaterial also may affect our results of operations, cash flows and financial condition.
Risks Related to Our Business and Strategy
Our business is influenced by a range of factors that are beyond our control and that we have no comparative advantage in forecasting.
● | general economic and business conditions; |
● | currency exchange rate fluctuations; |
● | the overall demand for enterprise software and services; |
● | customer acceptance of cloud-based solutions; |
● | governmental budgetary constraints or shifts in government spending priorities; and |
● | general political developments. |
The global economic climate continues to influence our business. This includes items such as a general tightening in the credit markets, lower levels of liquidity, increases in the rates of default and bankruptcy, and extreme volatility in credit, equity and fixed income markets. These macroeconomic developments negatively affected, and could continue to negatively affect, our business, operating results or financial condition which, in turn, could adversely affect our stock price. A general weakening of, and related declining corporate confidence in, the global economy or the curtailment in government or corporate spending could cause current or potential customers to reduce their technology budgets or be unable to fund software or services purchases, which could cause customers to delay, decrease or cancel purchases of our products and services or cause customers to not pay us or to delay paying us for previously purchased products and services.
We face risks related to health epidemic, including the COVID-19 pandemic, which could have a material adverse effect on our business, financial condition and results of operations.
We face various risks, related to public health issues, including epidemics, pandemics, and other outbreaks, including the recent pandemics of respiratory illness caused by a novel coronavirus known as COVID-19, which the World Health Organization characterized as a pandemic in March 2020. The impact of COVID-19, including changes in consumer and business behavior, pandemic fears and market downturns and restrictions on business and individual activities, has created significant volatility in the global economy and led to reduced economic activity.
The pandemic has resulted in government authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter-in-place or stay-at-home orders, and business shutdowns. For example, employees at our headquarters located in Sunnyvale, California, are currently subject to a shelter-in-place order from the local government. Our offices in India and United Kingdom have also been impacted by COVID-19 and have been subject to various measures implemented by local government to reduce the spread of COVID-19. These measures may adversely impact our employees and operations and the operations of our customers and third-party distribution partners, and may negatively impact our sales and marketing activities. These measures by government authorities may remain in place for a significant period of time and they are likely to continue to adversely affect our sales and marketing activities and our business, financial condition and results of operations.
The spread of COVID-19 has caused us to modify our business practices (including employee travel, mandating that all non-essential personnel in our headquarters work from home, temporary closures of our offices, and cancellation of physical participation in sales activities, meetings, events and conferences), and we may take further actions as may be required by government authorities, or that we determine are in the best interests of our employees and customers. There is no certainty that such actions will be sufficient to mitigate the risks posed by the virus or otherwise be satisfactory to government authorities. In addition, we face additional risks and challenges related to having a portion of our workforce working from home, including added pressure on our IT systems and the security of our network, and new challenges as
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our team adjust to online collaboration. If significant portions of our workforce are unable to work effectively, including due to illness, quarantines, social distancing, government actions or other restrictions in connection with the COVID-19 pandemic, our operations will be impacted.
The extent to which the COVID-19 pandemic impacts our business, prospects and results of operations will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the pandemic, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating activities can resume. The COVID-19 pandemic could cause fluctuations in foreign currency markets, impact the availability of future borrowings and our ability to access capital, increase the cost of borrowings, increase credit risks of our customers, negatively affect our liquidity and the liquidity and stability of markets of our securities. Even after the COVID-19 pandemic has subsided, we may continue to experience an adverse impact to our business and the value of our securities as a result of its global economic impact, including any recession that has occurred or may occur in the future.
There are no comparable recent events which may provide guidance as to the effect of the spread of COVID-19 and a pandemic, and, as a result, the ultimate impact of COVID-19 pandemic or a similar health epidemic is highly uncertain and subject to change. We do not yet know the full extent of COVID-19’s impact on our business, our operations, or the global economy as a whole. However, the effects could have a material impact on our results of operations, and we will continue to monitor the situation closely.
Our revenue and operating results have fluctuated in the past and are likely to fluctuate in the future, and because we recognize revenue from subscriptions over a period of time, downturns in revenue may not be immediately reflected in our operating results.
Because we recognize revenue when we have satisfied performance obligations to customers in connection with our sales contracts, most of our revenue each quarter results from recognition of deferred revenue related to agreements entered into during previous quarters. Consequently, declines in new or renewed subscription agreements and maintenance agreements that occur in one quarter will largely be felt in future quarters, both because we may be unable to generate sufficient new revenue to offset the decline and because we may be unable to adjust our operating costs and capital expenditures to align with the changes in revenue. In addition, our subscription model makes it more difficult for us to increase our revenue rapidly in any period, because revenue from new customers must be recognized over the applicable subscription term. It is difficult to forecast the expediency of the transition of our license customers to our cloud delivery model. Accordingly, we believe that period-to-period comparisons of our results of operations should not be relied upon as definitive indicators of future performance.
Other factors that may cause our revenue and operating results to fluctuate include:
● | timing of customer budget cycles; |
● | the priority our customers place on our products compared to other business investments; |
● | size, timing and contract terms of new customer contracts, and unpredictable and often lengthy sales cycles; |
● | reduced renewals; |
● | competitive factors, including new product introductions, upgrades and discounted pricing or special payment terms offered by our competitors, as well as strategic actions by us or our competitors, such as acquisitions, divestitures, spin-offs, joint ventures, strategic investments or changes in business strategy; |
● | technical difficulties, errors or service interruptions in our solutions that may cause customer dissatisfaction with our solutions; |
● | consolidation among our customers, which may alter their buying patterns, or business failures that may reduce demand for our solutions; |
● | operating expenses associated with expansion of our sales force or business, and our product development efforts; |
● | cost, timing and management efforts related to the introduction of new features to our solutions; |
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● | our ability to obtain, maintain and protect our intellectual property rights and adequately safeguard the information imported to our solutions or otherwise provided to us by our customers; and |
● | extraordinary expenses such as impairment charges, litigation or other payments related to settlement of disputes. |
Any of these developments may adversely affect our revenue, operating results and financial condition. Furthermore, we maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. In such cases, we may be required to defer revenue recognition on sales to affected customers. In the future, we may have to record additional reserves or write-offs, or defer revenue on sales transactions, which could negatively impact our financial results.
We cannot accurately predict subscription renewal rates and the impact these rates may have on our future revenue and operating results.
Even though our subscription contracts are typically structured for auto-renewals, we do allow our customers to elect not to renew their subscriptions for our service after the expiration of their initial subscription period, which is typically 12 to 36 months, and some customers have elected not to renew. In addition, our customers may choose to renew for fewer subscriptions (in quantity or products) or renew for shorter contract lengths. We cannot accurately predict renewal rates given our varied customer base of enterprise and small and medium size business customers and the number of multiyear subscription contracts. Our renewal rates may decline or fluctuate as a result of a number of factors, including customer dissatisfaction with our service, decreases in customers’ spending levels, decreases in the number of users at our customers, pricing changes and general economic conditions. If our customers do not renew their subscriptions for our service or reduce the number of paying subscriptions at the time of renewal, our revenue will decline, and our business will suffer.
Our future success also depends in part on our ability to sell additional features and services, more subscriptions or enhanced editions of our service to our current customers. This may also require increasingly sophisticated and costly sales efforts that are targeted at senior management. Similarly, the rate at which our customers purchase new or enhanced services depends on a number of factors, including general economic conditions and our customers’ reactions to price changes related to these additional features and services. If our efforts to upsell to our customers are not successful and negative reaction occurs, our business may suffer.
Our lengthy sales cycles and the difficulty in predicting timing of sales or delays may impair our operating results.
The long sales cycle for our products may cause license and subscription revenue and operating results to vary significantly from period to period. The sales cycle for our products can be six months or more and varies substantially from customer to customer. Because we sell complex and deeply integrated solutions, it can take many months of customer education to secure sales. Since our potential customers may evaluate our products before, if ever, executing definitive agreements, we may incur substantial expenses and spend significant management and legal effort in connection with a potential customer.
Our multi-product offering and the increasingly complex needs of our customers contribute to a longer and unpredictable sales cycle. Consequently, we often face difficulty predicting the quarter in which expected sales will actually occur. This contributes to the uncertainty and fluctuations in our future operating results. In particular, the corporate decision-making and approval process of our customers and potential customers has become more complicated. This has caused our average sales cycle to further increase and, in some cases, has prevented the closure of sales that we believed were likely to close.
Because we depend on a relatively small number of customers for a substantial portion of our revenue, the loss of any of these customers or our failure to attract new significant customers could adversely impact our revenue and harm our business.
We have in the past and expect in the future to derive a substantial portion of our revenue from sales to a relatively small number of customers. The composition of these customers has varied in the past, and we expect that it will continue to vary over time. The loss of any significant customer or a decline in business with any significant customer would materially and adversely affect our financial condition and results of operations.
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The market for customer engagement software is intensely competitive, and our business will be adversely affected if we are unable to successfully compete.
The market for customer engagement software is intensely competitive. Other than product innovation and existing customer relationships, there are no substantial barriers to entry in this market, and established or new entities may enter this market in the future. While software internally developed by enterprises represents indirect competition, we also compete directly with packaged application software vendors, including Genesys Telecommunications, LivePerson, Inc., and Moxie Software, Inc. In addition, we face actual or potential competition from larger software companies such as Microsoft Corporation, Oracle Corporation, and similar companies that may attempt to sell customer engagement software to their installed base.
We believe competition will continue to be fierce as 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, broader brand recognition, and significantly greater financial, marketing and other resources. With more established and better-financed competitors, these companies 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. If we are unable to compete successfully, our business will be adversely affected.
If we fail to expand and improve our sales performance and marketing activities, or retain our sales and marketing personnel, we may be unable to grow our business, which could negatively impact our operating results and financial condition.
Expansion and growth of our business is dependent on our ability to expand our sales force and on the ability of our sales force to increase sales. If we are not able to effectively develop and maintain awareness of our products in a cost-effective manner, we may not achieve widespread acceptance of our existing and future products. This may result in a failure to expand and attract new customers and enhance relationships with existing customers. This may impede our efforts to improve operations in our other areas and may result in declines in the market price of our common stock.
Due to the complexity of our customer engagement hub platform and related products and services, we must utilize highly trained sales personnel to educate prospective customers regarding the use and benefits of our products and services as well as provide effective customer support. If we have turnover in our sales and marketing teams, we may not be able to successfully compete with our competitors, and our results of operations and financial condition may be harmed.
Our failure to maintain, develop or expand strategic and third-party distribution channels would impede our revenue growth.
Our success and future growth depend in part upon the skills, experience, performance and continued service of our distribution partners, including software and hardware vendors and resellers. Our distribution partners engage with us in a number of ways, including assisting us to identify prospective customers, distributing our products and services in geographies where we do not have a physical presence and distributing our products and services where they are considered complementary to other products of the partner or third-party products distributed by the partner. We believe that our future success depends in part upon our ability to develop, maintain and expand strategic, long-term and profitable partnerships and reseller relationships. If we are unable to do so for any reason, including as a result of any change in the leadership of our distribution partners, or if any existing or future distribution partners fail to successfully market, resell, implement or support our products for their customers, or if distribution partners represent multiple providers and devote greater resources to market, resell, implement and support competing products and services, our future revenue growth could be impeded. Our failure to develop, maintain and expand relationships with systems integrators could harm our business.
We sometimes rely on systems integrators to recommend our products to their customers and to install and support our products for their customers. We likewise depend on broad market acceptance by these system integrators of our product and service offerings. Our agreements generally do not prohibit competitive offerings and 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 their customers. To the extent we devote resources to these relationships and the partnerships do not proceed
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as anticipated or provide revenue or other results as anticipated, our business may be harmed. Once partnerships are forged, there can be no guarantee that such relationships will be renewed in the future or available on acceptable terms. If we lose strategic third-party relationships, fail to renew or develop new relationships, or fail to fully exploit revenue opportunities within such relationships, our results of operations and future growth may suffer.
Difficulties and delays in customers implementing our products could harm our revenue and margins.
We generally recognize revenue upon the transfer of control of promised services to our customers in the amount that is commensurate with the consideration that we expect to receive in exchange for those services. If an arrangement requires significant customization or implementation services from us, recognition of the associated license or subscription and service revenue could be delayed. The timing of the commencement and completion of these services is subject to factors that may be beyond our control, as this process may require access to the customer’s facilities and coordination with the customer’s personnel after delivery of the software. In addition, customers could cancel or delay product implementations. Implementation typically involves working with sophisticated software, computing and communications systems. If we experience difficulties with implementation or do not meet project milestones in a timely manner, we could be obligated to devote more customer support, engineering and other resources to a particular project. Some customers may also require us to develop customized features or capabilities. If new or existing customers cancel or have difficulty deploying our products or require significant amounts of our professional services, support, or customized features, revenue recognition could be cancelled or further delayed and our costs could increase, causing increased variability in our operating results.
We conduct a significant portion of our business and operations outside of the United States, which exposes us to additional risks that may not exist in the United States. These risks in turn could cause our operating results and financial condition to suffer.
We derived 38% and 44% of our revenue from international sales during the fiscal years ended June 30, 2020 and 2019, respectively. In addition to those discussed elsewhere in this section, our international sales operations are subject to a number of specific risks, such as:
● | general economic conditions in each country or region in which we do or plan to do business; |
● | foreign currency fluctuations and imposition of exchange controls; |
● | changes in data privacy laws including GDPR; |
● | difficulty and costs in staffing and managing our international operations; |
● | difficulties in collecting accounts receivable and longer collection periods; |
● | health or similar issues, such as a pandemic or epidemic; |
● | various trade restrictions and tax consequences; |
● | hostilities in various parts of the world; and |
● | reduced intellectual property protections in some countries. |
As of June 30, 2020 approximately 48% of our workforce was employed in India. Of our employees in India, 47% are allocated to research and development. Although the movement of certain operations internationally was principally motivated by cost cutting, the continued management of these remote operations requires significant management attention and financial resources that could adversely affect our operating performance. In addition, with the significant increase in the numbers of foreign businesses that have established operations in India, the competition to attract and retain employees there has increased significantly. As a result of the increased competition for skilled workers, we experienced increased compensation costs and expect these costs to increase in the future. Our reliance on our workforce in India makes us particularly susceptible to disruptions in the business environment in that region. In particular, sophisticated telecommunications links, high-speed data communications with other eGain offices and customers, and overall consistency and stability of our business infrastructure are vital to our day-to-day operations, and any impairment of such
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infrastructure will cause our financial condition and results to suffer. In addition, the maintenance of stable political relations between the United States, the European Union and India are also of great importance to our operations.
Any of these risks could have a significant impact on our product development, customer support, or professional services. To the extent the benefit of maintaining these operations abroad does not exceed the expense of establishing and maintaining such activities, our operating results and financial condition will suffer.
Unplanned system interruptions and capacity constraints and failure to effect efficient transmission of customer communications and data over the Internet could harm our business and reputation.
Our customers have in the past experienced some interruptions with eGain cloud operations. We believe that these interruptions will continue to occur from time to time. These interruptions could be due to hardware and operating system failures. 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 operations or reduce our ability to provide remote management services. We expect to experience occasional temporary capacity constraints due to sharply increased traffic or other Internet-wide disruptions, 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.
The growth in the use of the Internet has caused interruptions and delays in accessing the Internet and transmitting data over the Internet. Interruptions also occur due to systems burdens brought on by unsolicited bulk email or “Spam,” malicious service attacks, denial of service attacks and hacking into operating systems, viruses, worms and a “Trojan” horse, the proliferation of which is beyond our control and may seriously impact our and our customers’ businesses.
Because we provide cloud-based software, interruptions or delays in Internet transmissions will harm our customers’ ability to receive and respond to online interactions. Therefore, our market depends on ongoing improvements being made to the entire Internet infrastructure to alleviate overloading and congestion.
Our success largely depends on the efficient and uninterrupted operation of our computer and communications hardware and network systems. A significant amount of our computer and communications systems are located in Sunnyvale, California. Due to our location, our systems and operations are vulnerable to damage or interruption from fire, earthquake, power loss, telecommunications failure and similar events. Customer data that we store in third party data centers may also be vulnerable to damage or interruption from floods, fires, earthquake, power loss, telecommunications failures and similar events. Any damage to, or failure of, our systems generally could result in interruptions in our service. Interruptions in our service may reduce our revenue, cause us to issue credits or pay penalties, cause customers to terminate their subscriptions and adversely affect our renewal rate and our ability to attract new customers.
We maintain a business continuity plan for our customers in the event of an outage. We maintain other co-locations for the purpose of disaster recovery as well as maintaining backups of our customer’s information. We provide premium disaster recovery and standard disaster recovery to our customers. If a customer opts not to pay for premium disaster recovery, we will only assure that their data is available within 72 hours. This delay could cause severe disruptions to our customers’ customers and may result in customer termination of our solutions. Our premium disaster recovery service provides for an alternative data center and a return to operations within one business day.
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 refunds and service credits to, and exposure to claims for losses by, customers. Any unplanned interruption of services may harm our ability to attract and retain customers.
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Software errors could be costly and time-consuming for us to correct, and could harm our reputation and impair our ability to sell our solutions.
Our solutions are based on complex software that may contain errors, or “bugs,” that could be costly to correct, harm our reputation and impair our ability to sell our solutions to new customers. Moreover, customers relying on our solutions may be more sensitive to such errors, and potential security vulnerabilities and business interruptions for these applications. If we incur substantial costs to correct any errors of this nature, our operating margins could be adversely affected. Because our customers depend on our solutions for critical business functions, any service interruptions could result in lost or delayed market acceptance and lost sales, higher service-level credits and warranty costs, diversion of development resources and product liability suits.
The terms we agree to in our Service Level Agreements or other contracts may result in increased costs or liabilities, which would in turn affect our results of operations.
Our Service Level Agreements provide for service credits for system unavailability, and in some cases, indemnities for loss, damage or costs resulting from use of our system. If we were required to provide any of these in a material way, our results of operations would suffer.
If we are unable to increase the profitability of subscription revenue, if we experience significant customer attrition, or if we are required to delay recognition of revenue, our operating results could be adversely affected.
We have invested, and expect to continue to invest, substantial resources to expand, market, implement and refine our cloud offerings. Our subscription services have generally generated much lower short-term gross margins than our traditional perpetual license sales. If we are unable to increase the volume of our subscription business to offset the lower margins, we may not be able to achieve sustained profitability.
Factors that could harm our ability to improve our gross margins, which may affect our operating profitability, include:
● | increased costs to license and maintain third party software embedded in our software applications or the cost to create or substitute such third-party software if it can no longer be licensed on commercially reasonable terms; |
● | our inability to maintain or increase the prices customers pay for our products and services based on competitive pricing pressures and general economic conditions limiting customer demand; |
● | increased cost of third-party services providers, including data centers for our cloud operations and professional services contractors performing implementation and technical support services to cloud customers; |
● | customer contractual requirements that delay revenue recognition until customer implementations commence production operations or customer-specific requirements are met; |
● | significant attrition as customers decide for their own economic or other reasons to not renew their subscription contracts when they are up for renewal negatively impacting the efficiency of our data centers and leading to the costs being spread over fewer customers negatively impacting gross margin; and |
● | the inability to implement, or delays in implementing, technology-based efficiencies and efforts to streamline and consolidate processes to reduce operating costs. |
We depend on broad market acceptance of our applications and of our business model. If our expectations regarding the market for our applications are not met, our business could be seriously harmed.
We depend on the widespread acceptance and use of our applications as an effective solution for businesses seeking to manage high volumes of customer interactions across multiple channels, including Web, phone, email, print and in-person. While we believe the potential to be very large, we cannot accurately estimate the size or growth rate of the potential market for such product and service offerings generally, and we do not know whether our products and services in particular will achieve broad market acceptance. The market for customer engagement software is 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 our applications fails to grow or grows more slowly than we currently anticipate, our business will be seriously harmed.
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Furthermore, our business model is premised on business assumptions that are still evolving. Our business model assumes that both customers and companies will increasingly elect to communicate through multiple channels, as well as demand integration of the online channels into the traditional telephone-based call center. If any of these assumptions is incorrect or if customers and companies do not adopt digital technology in a timely manner, our business will be seriously harmed and our stock price will decline.
We may be unable to respond to the rapid technological change and changing customer preferences in the online sales, marketing, customer service, and/or online consumer services industries and this may cause our business to suffer.
If we are unable, for technological, legal, financial or other reasons, to adapt in a timely manner to changing market conditions in the online sales, marketing, customer service and/or e-commerce industry or our customers’ or Internet users’ requirements or preferences, our business, results of operations and financial condition would be materially and adversely affected. Business on the Internet is characterized by rapid technological change. In addition, the market for online sales, marketing, customer service and expert advice solutions is relatively new. Changes in customer and Internet user requirements and preferences, frequent new product and service introductions embodying new technologies and the emergence of new industry standards and practices such as but not limited to security standards could render our services and our proprietary technology and systems obsolete. The rapid evolution of these products and services will require that we continually improve the performance, features and reliability of our services. Our success will depend, in part, on our ability to:
● | enhance the features and performance of our services; |
● | develop and offer new services that are valuable to companies doing business online as well as Internet users; and |
● | respond to technological advances and emerging industry standards and practices in a cost-effective and timely manner. |
If any of our new services, including upgrades to our current services, do not meet our customers’ or Internet users’ expectations, our business may be harmed. Updating our technology may require significant additional capital expenditures and could materially and adversely affect our business, results of operations and financial condition.
If new services require us to grow rapidly, this could place a significant strain on our managerial, operational, technical and financial resources. In order to manage our growth, we could be required to implement new or upgraded operating and financial systems, procedures and controls. Our failure to expand our operations in an efficient manner could cause our expenses to grow, our revenue to decline or grow more slowly than expected and could otherwise have a material adverse effect on our business, results of operations and financial condition.
We may need to license third-party technologies and may be unable to do so on commercially reasonable terms or in a timely manner.
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 products or services. Third-party licenses may expose us to increased risks, including risks associated with the integration of new technology, the diversion of resources from the development of our own proprietary technology, and our inability to generate revenue from new technology sufficient to offset associated acquisition and maintenance costs. Our inability to obtain and successfully integrate 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.
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We may be unable to respond to the rapid technological change and changing customer preferences in the online sales, marketing, customer service, and/or online consumer services industries and this may cause our business to suffer.
If we are unable, for technological, legal, financial or other reasons, to adapt in a timely manner to changing market conditions in the online sales, marketing, customer service and/or e-commerce industry or our customers’ or Internet users’ requirements or preferences, our business, results of operations and financial condition would be materially and adversely affected. Business on the Internet is characterized by rapid technological change. In addition, the market for online sales, marketing, customer service and expert advice solutions is relatively new. Changes in customer and Internet user requirements and preferences, frequent new product and service introductions embodying new technologies and the emergence of new industry standards and practices such as but not limited to security standards could render our services and our proprietary technology and systems obsolete. The rapid evolution of these products and services will require that we continually improve the performance, features and reliability of our services. Our success will depend, in part, on our ability to:
● | enhance the features and performance of our services; |
● | develop and offer new services that are valuable to companies doing business online as well as Internet users; and |
● | respond to technological advances and emerging industry standards and practices in a cost-effective and timely manner. |
If any of our new services, including upgrades to our current services, do not meet our customers’ or Internet users’ expectations, our business may be harmed. Updating our technology may require significant additional capital expenditures and could materially and adversely affect our business, results of operations and financial condition.
If new services require us to grow rapidly, this could place a significant strain on our managerial, operational, technical and financial resources. In order to manage our growth, we could be required to implement new or upgraded operating and financial systems, procedures and controls. Our failure to expand our operations in an efficient manner could cause our expenses to grow, our revenue to decline or grow more slowly than expected and could otherwise have a material adverse effect on our business, results of operations and financial condition.
Our offshore product development, support and professional services may prove difficult to manage or may not allow us to realize our cost reduction goals, produce effective new solutions and provide professional services to drive growth.
We use offshore resources to perform new product and services development and provide support and professional consulting efforts, which requires detailed technical and logistical coordination. We must ensure that our international resources and personnel are aware of and understand development specifications and customer support, as well as implementation and configuration requirements and that they can meet applicable timelines. If we are unable to maintain acceptable standards of quality in support, product development and professional services, our attempts to reduce costs and drive growth through new products and margin improvements in technical support and professional services may be negatively impacted, which would adversely affect our results of operations. Outsourcing services to offshore providers may expose us to misappropriation of our intellectual property or that of our customers, or make it more difficult to defend intellectual property rights in our technology.
If we are unable to hire and retain key personnel, our business and results of operations would be negatively affected.
Our success will depend in large part on the skills, experience and performance of our senior management, engineering, sales, marketing and other key personnel. 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, could harm our business. Additionally, attrition in the Indian workforce on which we rely for research and development could have significant negative effects on us and our results of operations. If we cannot hire and retain qualified personnel, our ability to expand our business would be impaired and our results of operations would suffer.
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We may not be able to realize the benefits of offering the limited, free “Innovation in 30 days” version of our service.
We offer a limited version of our subscription service to customers or potential customers free of charge (known as “Innovation in 30 days”) in order to promote usage, brand and product awareness, and adoption, and we invest time and resources for such initial engagements without compensation from the customers. Some customers never enter into a definitive contract for our paid subscription service despite the time and effort we may have expended on such initiatives. To the extent that these customers do not become paying customers, we will not realize the intended benefits of this marketing effort, and our ability to grow our business and revenue may be harmed.
We may not be able to raise additional capital on acceptable terms, if at all, or without dilution to our stockholders which could limit our ability to grow our business and expand our operations.
Our working capital requirements in the foreseeable future are subject to numerous risks and will depend on a variety of factors. We may seek additional funding to finance our operations or should we make acquisitions. We may also need to secure additional financing due to unforeseen or unanticipated market conditions. We may try to raise additional funds through public or private financings, strategic relationships, or other arrangements. Such financing may be difficult to obtain on terms acceptable to us, if at all. If we raise additional funds through the issuance of equity or convertible securities, then the issuance could result in substantial dilution to existing stockholders. If we raise additional funds through the issuance of debt securities or preferred stock, these new securities would have rights, preferences, and privileges senior to those of the holders of our common stock. In addition, the terms of these securities could impose restrictions on our operations. If we are not able to raise additional funds on terms acceptable to us, if and when needed, our ability to fund our operations, take advantage of opportunities, and develop or expand our business could be significantly limited.
Our reserves may be insufficient to cover receivables we are unable to collect.
We assume a certain level of credit risk with our customers in order to do business. Conditions affecting any of our customers could cause them to become unable or unwilling to pay us in a timely manner, or at all, for products or services we have already provided them. In the past, we have experienced collection delays from certain customers, and we cannot predict whether we will continue to experience similar or more severe delays in the future. Although we have established reserves to cover losses due to delays or inability to pay, there can be no assurance that such reserves will be sufficient to cover our losses. If losses due to delays or inability to pay are greater than our reserves, it could harm our business, operating results and financial condition.
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If we acquire companies or technologies, we may not realize the expected business benefits, the acquisitions could prove difficult to integrate, disrupt our business and adversely affect our operations.
As part of our business strategy, we periodically make investments in, or acquisitions of, complementary businesses, joint ventures, services and technologies and intellectual property rights, and we expect that we will continue to make such investments and acquisitions in the future. Acquisitions and investments involve numerous risks, including:
● | the potential failure to achieve the expected benefits of the combination or acquisition; |
● | difficulties in and the cost of integrating operations, technologies, services and personnel; |
● | diversion of financial and managerial resources from existing operations; |
● | risks of entering new markets in which we have little or no experience or where competitors may have stronger market positions; |
● | potential write-offs of acquired assets or investments, and potential financial and credit risks associated with acquired customers; |
● | potential loss of key employees; |
● | inability to generate sufficient revenue to offset acquisition or investment costs; |
● | the inability to maintain relationships with customers and partners of the acquired business; |
● | the difficulty of transitioning the acquired technology onto our existing platforms and maintaining the security standards consistent with our other services for such technology; |
● | potential unknown liabilities associated with the acquired businesses; |
● | unanticipated expenses related to acquired technology and its integration into existing technology; |
● | negative impact to our results of operations because of the depreciation and amortization of amounts related to acquired intangible assets, fixed assets and deferred compensation, and the loss of acquired deferred revenue and unbilled deferred revenue; |
● | delays in customer purchases due to uncertainty related to any acquisition; |
● | the need to implement controls, procedures and policies at the acquired company; |
● | challenges caused by distance, language and cultural differences; |
● | in the case of foreign acquisitions, the challenges associated with integrating operations across different cultures and languages and any currency and regulatory risks associated with specific countries; and |
● | the tax effects of any such acquisitions. |
We may be subject to legal liability and/or negative publicity for the services provided to consumers through our technology platforms.
Our technology platforms enable representatives of our customers as well as individual service providers to communicate with consumers and other persons seeking information or advice on the Internet. The law relating to the liability of online platform providers such as us for the activities of users of their online platforms is often challenged in the U.S. and internationally. We may be unable to prevent users of our technology platforms from providing negligent, unlawful or inappropriate advice, information or content through our technology platforms, or from behaving in an unlawful manner, and we may be subject to allegations of civil or criminal liability for negligent, fraudulent, unlawful or inappropriate activities carried out by users of our technology platforms.
Claims could be made against online services companies under both U.S. and foreign law such as fraud, defamation, libel, invasion of privacy, negligence, copyright or trademark infringement, or other theories based on the nature and content of the materials disseminated by users of our technology platforms. In addition, domestic and foreign legislation has been proposed that could prohibit or impose liability for the transmission over the Internet of certain types of information. Our
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defense of any of these actions could be costly and involve significant time and attention of our management and other resources.
The Digital Millennium Copyright Act (DMCA) is intended, among other things, to reduce the liability of online service providers for listing or linking to third-party web properties that include materials that infringe copyrights or rights of others. Additionally, portions of The Communications Decency Act (CDA) are intended to provide statutory protections to online service providers who distribute third party content. A safe harbor for copyright infringement is also available under the DMCA to certain online service providers that provide specific services, if the providers take certain affirmative steps as set forth in the DMCA. Certain questions regarding the safe harbor under the DMCA and the CDA have yet to be litigated, and we cannot guarantee that we will meet the safe harbor requirements of the DMCA or of the CDA. If we are not covered by a safe harbor, for any reason, we could be exposed to claims, which could be costly and time-consuming to defend.
If our cybersecurity systems or the systems of our vendors, partners and suppliers are breached and unauthorized access is obtained to a customer’s data or our data or IT systems, our service may be perceived as not being secure, customers may curtail or stop using our service and we may incur significant legal and financial exposure and liabilities.
Our service involves the storage and transmission of customers’ proprietary information, and security breaches could expose us to a risk of loss of this information, loss of access, litigation and possible liability. These security measures may be breached as a result of third-party action, including intentional misconduct by computer hackers (which may involve nation states and individuals sponsored by them), employee error, malfeasance or otherwise and result in someone obtaining unauthorized access to our customers’ data or our data, including our intellectual property and other confidential business information, or our IT systems. Additionally, third parties may attempt to fraudulently induce employees or customers into disclosing sensitive information such as user names, passwords or other information in order to gain access to our customers’ data or our data or IT systems.
Employees or contractors have introduced vulnerabilities in, and enabled the exploitation of, our IT environments in the past and may do so in the future. These cybersecurity attacks threaten to misappropriate our proprietary information, cause interruptions of our IT services and commit fraud. Because the techniques used to obtain unauthorized access, or to sabotage systems, change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. Further, if unauthorized access or sabotage remains undetected for an extended period of time, the effects of such breach could be exacerbated.
In addition, our customers may authorize third party access to their customer data located in our cloud environment. Because we do not control the transmissions between customer authorized third parties, or the processing of such data by customer authorized third parties, we cannot ensure the integrity or security of such transmissions or processing.
Cybersecurity attacks could require significant expenditures of our capital and diversion of our resources. If these attacks are successful, they could result in the theft of proprietary, personally identifiable, confidential and sensitive information of ours, our employees, our customers and our business partners, and could materially disrupt business for us, our customers and our business partners. A successful cybersecurity attack involving our data center, network or software products could also negatively impact the market perception of the effectiveness of our products or lead to contractual disputes, litigation or government regulatory action against us, any of which could materially adversely affect our business, reputation and resulting operations.
Changes in the European regulatory environment regarding privacy and data protection regulations, such as the European Union’s General Data Protection Regulation (GDPR), could expose us to risks of noncompliance and costs associated with compliance.
We have in the past relied on adherence to the U.S. Department of Commerce’s Safe Harbor Privacy Principles and compliance with the U.S.-European Union (EU) and U.S. - Swiss Safe Harbor Frameworks as agreed to and set forth by the U.S. Department of Commerce, and the EU and Switzerland, which established a means for legitimating the transfer of personally identifiable information (PII) by U.S. companies doing business in Europe from the European Economic Area (EEA) to the U.S. As a result of the October 6, 2015 EU Court of Justice (ECJ), opinion in Case C-362/14 (Schrems
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v. Data Protection Commissioner) regarding the adequacy of the U.S.-EU Safe Harbor Framework, the U.S. – EU Safe Harbor Framework is no longer deemed to be a valid method of compliance with restrictions set forth in European law regarding the transfer of data outside of the EEA requiring us to rely on alternative mechanisms permitted under European law, such as consent and EU-specified standard contractual clauses. The U.S. - EU Safe Harbor was replaced with the EU-U.S. Privacy Shield (Privacy Shield) in July 2016 and, starting on August 1, 2016, the Privacy Shield was made available to companies for self-certification. We have self-certified with the Privacy Shield. Nevertheless, some of the mechanisms permitting transfer of data from the EU to the U.S. have been subject to challenges, whose outcomes remain uncertain.
Furthermore, on May 25, 2018, the EU’s GDPR became enforceable, imposing new obligations directly on us as both a data controller and a data processor, as well as on many of our customers. It is possible that these new laws may be interpreted or applied in a manner that is adverse to us, unforeseen, or otherwise inconsistent with our practices or that we may not adequately adapt our internal policies and/or procedures to evolving regulations, any of which could result in litigation, regulatory investigations and potential legal liability (including potential liability exposure through higher potential penalties for non-compliance), require us to make changes to our services to enable us and/or our customers to meet the new legal requirements, in case we have to change locations of data centers to meet privacy laws, increased requirements for customers to buy add-ons to meet additional requirements imposed by new laws, require us to change our practices in a manner adverse to our business or limit access to our products and services in certain countries. Compliance with existing, proposed and recently enacted laws (including implementation of the privacy and process enhancements called for under GDPR) and regulations can be costly; any failure to comply with these regulatory standards could subject us to legal and reputational risks.
We may be unsuccessful in establishing legitimate means of transferring data from the EEA, we may experience hesitancy, reluctance, or refusal by European or multi-national customers to continue to use our services due to the potential risk exposure to such customers as a result of the ECJ ruling or the implementation of GDPR, and we and our customers are at risk of enforcement actions taken by an EU data protection authority until such point in time that we ensure that all data transfers to us from the EEA are legitimized. We may find it necessary to establish systems to maintain EU-origin data in the EEA, which may involve substantial expense and distraction from other aspects of our business. We publicly post our privacy policies and practices concerning our processing, use and disclosure of PII. Our publication of our privacy policy and other statements we publish that provide promises and assurances about privacy and security can subject us to potential governmental action if they are found to be deceptive or misrepresentative of our practices. Further, the costs of compliance with, and other burdens imposed by, such laws, regulations and policies that are applicable to us may limit the use and adoption of our products and solutions and could have a material adverse impact on our results of operations.
Privacy concerns and laws, evolving regulation of cloud computing, cross-border data transfer restrictions and other domestic or foreign regulations may limit the use and adoption of our solutions and adversely affect our business.
Regulation related to the provision of services on the Internet is increasing, as federal, state and foreign governments continue to adopt new laws and regulations addressing data privacy and the collection, processing, storage and use of personal information. Further, laws are increasingly aimed at the use of personal information for marketing purposes, such as the EU’s e-Privacy Directive (which is set to be replaced in the coming months by a new EU e-Privacy Regulation which will have a “direct effect” in each EU Member State), and the country-specific regulations that implement that directive. A recent decision by the European Court of Justice invalidated the US-EU Privacy Shield program as a protection for cross-border data transfers out of the European Union. Such laws, decisions, and regulations are subject to differing interpretations and may be inconsistent among jurisdictions. These and other requirements could reduce demand for our solutions or restrict our ability to store and process data or, in some cases, impact our ability to offer our services and solutions in certain locations.
In the U.S., California enacted the California Consumer Privacy Act (CCPA) on June 28, 2018, which went into effect on January 1, 2020. The CCPA gives California residents expanded rights to access and delete their personal information, opt out of certain personal information sharing and receive detailed information about how their personal information is used. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation. New York enacted the Stop Hacks and Improve Electronic Data Security Act (SHIELD Act), which became effective March 2020 and requires companies with data relating to New Yorkers to adopt
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comprehensive cybersecurity programs. These statutes may increase our compliance costs and potential liability. Some observers have noted that the CCPA and the SHIELD Act could mark the beginning of a trend toward more stringent privacy legislation in the U.S., which could increase our potential liability and adversely affect our business.
In addition to government activity, privacy advocacy and other industry groups have established or may establish new self-regulatory standards that may place additional burdens on us. Our customers expect us to meet voluntary certification or other standards established by third parties, such as TRUSTe. If we are unable to maintain these certifications or meet these standards, it could adversely affect our ability to provide our solutions to certain customers and could harm our business.
The costs of compliance with and other burdens imposed by laws, regulations and standards may limit the use and adoption of our service and reduce overall demand for it, or lead to significant fines, penalties or liabilities for any noncompliance.
Furthermore, concerns regarding data privacy may cause our customers’ customers to resist providing the data necessary to allow our customers to use our service effectively. Even the perception that the privacy of personal information is not satisfactorily protected or does not meet regulatory requirements could inhibit sales of our products or services, and could limit adoption of our subscription solution.
Industry-specific regulation is evolving and unfavorable industry-specific laws, regulations or interpretive positions could limit our ability to provide services and harm our business.
Our customers and potential customers conduct business in a variety of industries, including financial services, the public sector, healthcare and telecommunications. Regulators in certain industries have adopted and may in the future adopt regulations or interpretive positions regarding the use of cloud computing and other outsourced services. The costs of compliance with, and other burdens imposed by, industry-specific laws, regulations and interpretive positions may limit customers’ use and adoption of our services and reduce overall demand for our services. For example, some financial services regulators have imposed guidelines for use of cloud computing services that mandate specific controls or require financial services enterprises to obtain regulatory approval prior to outsourcing certain functions. If we are unable to comply with these guidelines or controls, or if our customers are unable to obtain regulatory approval to use our service where required, our business may be harmed. In addition, an inability to satisfy the standards of certain voluntary third-party certification bodies that our customers may expect, such as an attestation of compliance with the PCI Data Security Standards, may have an adverse impact on our business. If we are unable to achieve or maintain these industry-specific certifications or other requirements or standards relevant to our customers, it could adversely affect our ability to provide our services to certain customers and harm our business.
In some cases, industry-specific laws, regulations or interpretive positions may also apply directly to us as a service provider. Any failure or perceived failure by us to comply with such requirements could have an adverse impact on our business.
Changes to current accounting policies could have a significant effect on our reported financial results or the way in which we conduct our business.
Generally accepted accounting principles and the related accounting pronouncements, implementation guidelines and interpretations for some of our significant accounting policies are highly complex and require subjective judgments and assumptions. Some of our more significant accounting policies that could be affected by changes in the accounting rules and the related implementation guidelines and interpretations include:
● | recognition of revenue; |
● | contingencies and litigation; and |
● | accounting for income taxes. |
Changes in these or other rules, or scrutiny of our current accounting practices, or a determination that our judgments or assumptions in the application of these accounting principles were incorrect, could have a significant adverse effect on our reported operating results or the way in which we conduct our business.
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Continued uncertainty surrounding the implementation and effect of Brexit may cause increased economic volatility, affecting our operations and business.
In March 2017, the UK served notice to the European Council under Article 50 of the Treaty of Lisbon to withdraw membership from the EU. Such exit (Brexit) could cause disruptions to, and create uncertainty surrounding, our business in the UK and EU, including affecting our relationships with our existing and future customers, suppliers, and employees. As a result, Brexit could have an adverse effect on our future business, financial results, and operations. The UK formally left the EU on January 31, 2020, and is now in a transition period through December 31, 2020. Although the UK will remain in the EU single market and customs union during the transition period, the long-term nature of the UK’s relationship with the EU is unclear and there is considerable uncertainty about whether any agreement will be reached and implemented. The political and economic instability created by Brexit has caused and may continue to cause significant volatility in global financial markets and uncertainty regarding the regulation of data protection in the UK. In particular, although the UK enacted a Data Protection Act in May 2018 that is consistent with the EU General Data Protection Regulation, uncertainty remains regarding how data transfers to and from the UK will be regulated. Brexit could also have the effect of disrupting the free movement of goods, services, and people between the UK, the EU, and elsewhere. Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the UK determines which EU laws to replace or replicate. Further, uncertainty around these and related issues could lead to adverse effects on the economy of the UK and the other economies in which we operate. There can be no assurance that any or all of these events will not have a material adverse effect on our business operations, results of operations and financial condition.
Risks Related to Intellectual Property
We have been and may in the future be sued by third parties for various claims including alleged infringement of proprietary rights that can be time-consuming, incur substantial costs and divert the attention of management, which could adversely affect our operations and cash flow.
We are involved in various legal matters arising from the normal course of business activities. These may include claims, suits, and other proceedings involving alleged infringement of third-party patents and other intellectual property rights, and commercial, labor and employment, and other matters.
The software and Internet industries are characterized by the existence of a large number of patents, trademarks and copyrights and by frequent litigation based on allegations of infringement or other violations of intellectual property rights. We have received and may receive in the future communications from third parties claiming that we or our customers have infringed the intellectual property rights of others. In addition we have been, and may in the future be, sued by third parties for alleged infringement of their claimed proprietary rights. Our technologies and those of our customers may be subject to injunction if they are found to infringe the rights of a third party or we may be required to pay damages, or both. Many of our agreements require us to indemnify our customers for third-party intellectual property infringement claims, which would increase the cost to us of an adverse ruling on such a claim.
The outcome of any litigation, regardless of its merits, is inherently uncertain. Any claims and lawsuits, and the disposition of such claims and lawsuits, could be time-consuming and expensive to resolve, divert management attention from executing our business plan, lead to attempts on the part of other parties to pursue similar claims and, in the case of intellectual property claims, require us to change our technology, change our business practices or pay monetary damages, or enter into short- or long-term royalty or licensing agreements.
Any adverse determination related to intellectual property claims or other litigation could prevent us from offering our service to customers, could be material to our financial condition or cash flows, or both, or could otherwise adversely affect our operating results. In addition, depending on the nature and timing of any such dispute, a resolution of a legal matter could materially affect our future results of operation or cash flows or both.
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We rely on trademark, copyright, trade secret laws, contractual restrictions and patent rights to protect our intellectual property and proprietary rights and, if these rights are impaired, then our ability to generate revenue will be harmed.
If we fail to protect our intellectual property rights adequately, our competitors might gain access to our technology, and our business might be harmed. In addition, defending our intellectual property rights might entail significant expense. Any of our trademarks or other intellectual property rights may be challenged by others or invalidated through administrative process or litigation. While we have some U.S. patents and pending U.S. patent applications, we may be unable to obtain patent protection for the technology covered in our patent applications. In addition, our existing patents and any patents issued in the future may not provide us with competitive advantages, or may be successfully challenged by third parties. Furthermore, legal standards relating to the validity, enforceability and scope of protection of intellectual property rights are uncertain. Effective patent, trademark, copyright and trade secret protection may not be available to us in every country in which our service is available. The laws of some foreign countries may not be as protective of intellectual property rights as those in the U.S., and mechanisms for enforcement of intellectual property rights may be inadequate. Accordingly, despite our efforts, we may be unable to prevent third parties from infringing upon or misappropriating our intellectual property.
We might be required to spend significant resources to monitor and protect our intellectual property rights. We may initiate claims or litigation against third parties for infringement of our proprietary rights or to establish the validity of our proprietary rights. Any litigation, whether or not it is resolved in our favor, could result in significant expense to us and divert the efforts of our technical and management personnel.
Our failure or inability to develop non-infringing technology or license proprietary rights on a timely basis would harm our business.
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 patents and other intellectual property rights of third parties. Our products may infringe issued patents that may relate to our products because patent applications in the United States are not publicly disclosed until the patent is issued, and hence applications may have been filed which relate to our software products. Intellectual property litigation is expensive, time consuming, and could divert management’s attention away from running our business. 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.
Risks Related to Our Common Stock
Our stock price has demonstrated volatility and continued market conditions may cause declines or fluctuations.
The price at which our common stock trades has been and will likely continue to be highly volatile and show wide fluctuations due to factors such as the following:
● | transition to a subscription revenue model; |
● | concerns related to liquidity of our stock; |
● | actual or anticipated fluctuations in our operating results, our ability to meet announced or anticipated profitability goals and changes in or failure to meet securities analysts’ expectations; |
● | announcements of technological innovations and/or the introduction of new services by us or our competitors; |
● | developments with respect to intellectual property rights and litigation, regulatory scrutiny and new legislation; |
● | conditions and trends in the Internet and other technology industries; and |
● | general market and economic conditions. |
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Furthermore, the stock market has experienced significant price and volume fluctuations that have affected the market prices for the common stock of technology companies, regardless of the specific operating performance of the affected company. These broad market fluctuations may cause the market price of our common stock to decline.
Our insiders who are significant stockholders have the ability to exercise significant control over matters requiring stockholder approval, including the election of our board of directors, and may have interests that conflict with those of other stockholders.
Our directors and executive officers, together with their affiliates and members of their immediate families, beneficially owned, in the aggregate, approximately 32% of our outstanding capital stock as of June 30, 2020, of which our Chief Executive Officer, Ashutosh Roy, beneficially owned approximately 28% as of such date. As a result of these concentrated holdings, Mr. Roy individually or together with this group has the ability to exercise significant control over most matters requiring our stockholders’ approval, including the election and removal of directors and the approval of significant corporate transactions, such as a merger or sale of our company or its assets.
UNRESOLVED STAFF COMMENTS |
None.
PROPERTIES |
We lease all facilities used in our business as of June 30, 2020. The following table summarizes our principal properties:
In the ordinary course of business, we are involved in various legal proceedings and claims related to alleged infringement of third-party patents and other intellectual property rights, commercial, corporate and securities, labor and employment, wage and hour, and other claims. We have been, and may in the future be, put on notice and/or sued by third parties for alleged infringement of their proprietary rights, including patent infringement.
We evaluate all claims and lawsuits with respect to their potential merits, our potential defenses and counterclaims, settlement or litigation potential and the expected effect on us. Our technologies may be subject to injunction if they are found to infringe the rights of a third party. In addition, our agreements require us to indemnify our customers for third-party intellectual property infringement claims, which could increase the cost to us of an adverse ruling on such a claim.
Not applicable.
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MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Market Information
Our common stock is traded on the Nasdaq Capital Market under the symbol “EGAN”.
Holders
As of September 10, 2020, there were approximately 143 stockholders of record.
Dividends
We have never declared or paid any cash dividends on our common stock. We currently anticipate that we will retain all available funds for use in the operation of our business and do not intend to pay any cash dividends in the foreseeable future.
Stock Performance Graph
The following shall not be deemed incorporated by reference into any of our other filings under the Securities Exchange Act of 1934, as amended, or the Securities Act of 1933, as amended.
The graph below compares the cumulative total stockholder return on our common stock with the cumulative total return on the Standard & Poor’s 500 Index and the Nasdaq Composite Total Return Index for each of the last five fiscal years ended June 30, 2020, assuming an initial investment of $100. Data for the Standard & Poor’s 500 Index and the Nasdaq Composite Total Return Index assume no dividends.
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The comparisons in the graph below are based upon historical data and are not indicative of, nor intended to forecast, future performance of our common stock.
Equity Compensation Plan Information
See Item 12 of Part III of this Annual Report regarding information about securities authorized for issuance under our equity compensation plan.
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SELECTED FINANCIAL DATA |
The selected consolidated financial data should be read in conjunction with the information under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” our consolidated financial statements and the related notes which are included in “Item 8. Financial Statements and Supplementary Data.”
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ITEM 7. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion of eGain’s financial condition and results of operations should be read together with the consolidated financial statements and related notes in this Annual Report on Form 10-K. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. These risks and uncertainties may cause actual results to differ materially from those discussed in the forward-looking statements.
Overview
eGain automates customer engagement with an innovative Software as a service (SaaS) platform, powered by deep digital, Artificial intelligence (AI), and knowledge capabilities. We are headquartered in the United States. We also operate in United Kingdom and India. We sell mostly to large enterprises across financial services, telecommunications, retail, government, healthcare, and utilities. With our mantra of AX + BX + CX = DX™, we guide clients to effortless Digital experience (DX) by holistically optimizing Agent experience (AX), Business experience (BX) and Customer experience (CX). One hundred fifty leading brands use eGain cloud software to improve customer satisfaction, empower agents, reduce service cost and boost sales.
We have transitioned from a hybrid model, where we sold both SaaS and perpetual license solutions, to a SaaS only business model. Today, we only sell SaaS to new clients and are actively migrating our remaining perpetual license clients to SaaS. As we continue to migrate our legacy perpetual license clients to SaaS, we expect our legacy revenue, primarily comprising annual maintenance and support fees for legacy perpetual license clients to continue to decline.
We believe our go-forward SaaS business model affords us recurring revenue visibility and more predictability. Fiscal year 2019 affirmed our view that SaaS clients adopt our product innovation much faster than the perpetual license model and get better service levels. We believe SaaS clients enjoy up to 50% faster time to value from their eGain investment.
COVID-19
In December 2019, a novel strain of coronavirus (COVID-19) was first reported in Wuhan, China. In March 2020, the World Health Organization characterized the outbreak of COVID-19 as a global pandemic, and the virus continues to spread in areas where we operate and sell our products and services. Several public health organizations have recommended, and many local governments have implemented, certain measures to slow and limit the transmission of COVID-19, including shelter-in-place and social distancing orders, which has resulted in a significant deterioration of economic conditions in the countries in which we operate.
The impact of COVID-19 and the related disruptions caused to the global economy and our business did not have a material adverse impact on our business during the quarter ended June 30, 2020. However, the spread of the COVID-19 virus caused us to modify our business practices, including implementing work-from-home policies and restricting travel by our employees, among other things.
In response to the outbreak of COVID-19, we have taken the following measures to date:
● | Implemented work-from-home and social distancing policies throughout our organization; |
● | Suspended all employee travel; |
● | Cancelled certain sales and marketing events; and |
● | Looked to our customer’s needs to best support their operations during this crisis. |
The effect of the COVID-19 pandemic, may not be fully reflective in our results of operations and overall financial performance until further periods, if at all. The impact, if any, of operational changes we may implement is uncertain, but changes we have implemented as of the filing date have not affected and are not expected to affect our ability to maintain operations. We will continuously monitor the situation to determine what actions may be necessary or appropriate to address the impact of the COVID-19 pandemic, which may include actions mandated or recommended by
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federal, state or local government authorities. See our “Risk Factors” for further discussion of the possible impact of the COVID-19 pandemic on or business.
Key Financial Measures
We monitor the key financial performance measures set forth below as well as cash and cash equivalents and available debt capacity, which are discussed in Liquidity and Capital Resources, to help us evaluate trends, establish budgets, measure the effectiveness of our sales and marketing efforts and assess operational effectiveness and efficiencies.
SaaS Revenues
With our transition to a SaaS only business model, we believe SaaS revenue better reflects our business momentum and to analyze progress and thus, we disaggregate our subscription revenue growth between:
● | SaaS revenue, which is defined as revenue from cloud delivery arrangements, term licenses and embedded OEM royalties and associated support; and |
● | Legacy revenue, which is defined as revenue from license, maintenance and support contracts on perpetual license arrangements that we no longer sell. |
The following table presents a break out of subscription revenue between SaaS and legacy revenues for each of the following periods:
As we continue to migrate our legacy perpetual license clients to SaaS, we expect our legacy revenue to continue to decline.
SaaS and Professional Services Revenue
As we continue to shift to a SaaS only business model, substantially all of professional services revenue is now generated from our SaaS customer base. We believe the combination of SaaS and professional services revenue is a useful measure to value our business on a forward-looking basis.
The following table presents total SaaS and professional services revenue for each of the following periods:
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Non-GAAP Operating Income
Non-GAAP operating income is defined as operating income, adjusted for the impact of stock-based compensation expense and amortization of acquired intangible assets.
Management believes that it is useful to exclude certain non-cash charges and non-core operational charges from non-GAAP operating income because (i) the amount of such expenses in any specific period may not directly correlate to the underlying performance of our business operations; and (ii) such expenses can vary significantly between periods as a result of the timing of new stock-based awards and acquisitions. The presentation of the non-GAAP financial measures is not intended to be considered in isolation, or as a substitute for, or superior to, the financial information prepared and presented in accordance with generally accepted accounting principles in the United States of America (GAAP).
The following table presents a reconciliation of GAAP income from operations to non-GAAP income from operations for each of the following periods:
Critical Accounting Policies and Estimates
Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.
We believe that the assumptions and estimates associated with revenue recognition, stock-based compensation, allowance for doubtful accounts, the valuation of goodwill and intangible assets, the valuation of deferred tax allowance, and legal contingencies have the greatest potential impact on our consolidated financial statements. We evaluate these estimates on an ongoing basis. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Sources of Revenues
Our revenue is comprised of two categories, subscription and professional services. Subscription includes SaaS revenue and legacy revenue. SaaS revenue includes revenue from cloud delivery arrangements, term licenses and embedded OEM royalties and associated support. Legacy revenue is associated with license, maintenance and support contracts on perpetual license arrangements that we no longer sell. Professional services include consulting, implementation and training.
Subscription Revenue
For our cloud delivery arrangements, our maintenance and support arrangements and our term license subscriptions that incorporate substantial cloud functionality, the combined performance obligation is recognized ratably over the contract term as the obligation is delivered. For contracts involving distinct software licenses, the license performance obligation is satisfied at a point in time when control is transferred to the customer.
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We typically invoice our customers in advance upon execution of the contract or subsequent renewals. Invoiced amounts are recorded in accounts receivable, deferred revenue or revenue, depending on when control is transferred to our customers based on each arrangement.
The Company has a royalty revenue agreement with a customer related to the Company’s embedded intellectual property. Under the terms of the agreement, the customer is to provide a combined fixed fee, per agent, for each software license sold containing the embedded software to the Company. These embedded OEM royalties are included as subscription revenue. Under Topic 606-10-55-65 revenue guidance (Topic 606), since these arrangements are for sales-based licenses of intellectual property, the Company recognizes revenue only as the subsequent sale occurs. However, since such sales are reported by the customer with a quarter in arrears, such revenue is recognized at the time it is reported and paid by the customer given that any estimated variable consideration would have to be fully constrained due to the unpredictability of such estimate and the unavoidable risk that it may lead to significant revenue reversals.
Professional Services Revenue
Professional services revenue includes system implementation, consulting and training. The transaction price is allocated to various performance obligations based on their stand-alone selling prices. Revenue allocated to each performance obligation is recognized as work is performed. Our consulting and implementation service contracts are bid either on a time-and-materials basis or on a fixed-fee basis. Fixed fees are generally paid on milestone billing at pre-determined points in the contract. Amounts that have been invoiced are recorded in accounts receivable and in deferred revenue or revenue, depending on whether transfer of control to customers has occurred.
Training revenue that meets the criteria to be accounted for separately is recognized when training is provided.
Remaining Performance Obligations
Remaining performance obligations represent contracted revenues that have not yet been recognized, and include billed deferred revenues, consisting of amounts invoiced to customers whether collected or uncollected which have not been recognized as revenues, as well as unbilled amounts that will be invoiced and recognized as revenues in future periods. The transaction price allocated to the remaining performance obligations are influenced by a variety of factors, including seasonality, timing of renewals, average contract terms and foreign currency rates. As of June 30, 2020, our remaining performance obligations were $68.6 million of which we expect to recognize $47.3 million and $21.3 million as revenue within one year and beyond one year, respectively.
We expect our remaining performance obligations to change quarterly for several reasons including the timing of new contracts and renewals, duration and size of our subscription and support arrangements, variable billing cycles and foreign exchange rate fluctuation. We typically issue renewal invoices in advance of the renewal service period. Depending on timing, the initial invoice and subsequent renewal invoices may occur in different quarters. This may result in an increase or decrease to our accounts receivable and deferred revenue.
Costs Capitalized to Obtain Revenue Contracts
Under Topic 606, we capitalize incremental costs to obtain non-cancelable subscription and maintenance and support revenue contracts with amortization periods that may extend longer than the non-cancelable subscription and maintenance and support revenue contract terms.
We capitalize incremental costs of obtaining a non-cancelable subscription and maintenance and support revenue contract with amortization periods of one year or more. The capitalized amounts consist primarily of sales commissions paid to our direct sales force. Capitalized amounts also include (i) amounts paid to employees other than the direct sales force who earn incentive payouts under annual compensation plans that are tied to the value of contracts acquired and (ii) the associated payroll taxes and fringe benefit costs associated with the payments to our employees.
Costs capitalized related to new revenue contracts are generally deferred and amortized on a straight-line basis over a period of benefit that we estimate to be five years. We determine the period of benefit by taking into consideration the
35
period from initial contract through renewal, which constitutes the length of our customer relationship or customer life. Amortization of costs capitalized related to new revenue contracts is included as a component of sales and marketing expense in our operating results. Under Topic 605, we capitalized only commissions earned on initial software and support sales which were amortized ratably over the initial contract period averaging two years.
Stock-Based Compensation
We account for stock-based compensation in accordance with Accounting Standards Codification (ASC) 718, Compensation — Stock Compensation. Under the fair value recognition provisions of ASC 718, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as an expense over the vesting period. Determining the fair value of the stock-based awards at the grant date requires significant judgment and the use of estimates, particularly surrounding Black-Scholes valuation assumptions such as stock price volatility and expected option lives. We determine the appropriate measure of expected volatility by reviewing historic volatility in the share price of our common stock, as adjusted for certain events that management deems to be non-recurring and non-indicative of future events. We base our estimate of expected life on the historical exercise behavior, cancellations of all past option grants made by us during the time period in which our common stock has been publicly traded, the contractual term, the vesting period and the expected remaining term of the option. Based on our historical experience of option pre-vesting cancellations, we have assumed an annualized 11.77% forfeiture rate for our options. We record additional expense if the actual forfeiture rate is lower than we estimated and record a recovery of prior expense if the actual forfeiture rate is higher than what we estimated.
Goodwill and Other Intangible Assets
We review goodwill annually for impairment or sooner whenever events or changes in circumstances indicate that it may be impaired. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit. In addition, we evaluate purchased intangible assets to determine that all such assets have determinable lives. We operate under a single reporting unit and accordingly, all of our goodwill is associated with the entire company. We had no impairment for fiscal years ended June 30, 2020 and 2019.
Accounts Receivable and Allowance for Doubtful Accounts
We extend unsecured credit to customers on a regular basis. Our accounts receivable is derived from revenue earned from customers and are not interest bearing. We also maintain an allowance for doubtful accounts to reserve for potential uncollectible trade receivables. We review our trade receivables by aging category to identify specific customers with known disputes or collectability issues. We exercise judgment when determining the adequacy of these reserves as we evaluate historical bad debt trends, general economic conditions in the U.S. and internationally, and changes in customer financial conditions. If we make different judgments or utilize different estimates, then material differences may result in additional reserves for trade receivables, which would be reflected by charges in general and administrative expenses for any period presented. We write-off a receivable after all collection efforts have been exhausted and the amount is deemed uncollectible.
As described in Note 1 of Notes to Consolidated Financial Statements included in Item 8 Financial Statements and Supplementary Data of this Annual Report, certain Company contracts have contractual billings which do not coincide with revenue recognized on the contract. Unbilled accounts receivables are recorded when revenue recognized on the contract exceeds billings, pursuant to contract provisions, and become billable at contractually specified dates.
Tax Legislation
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (Tax Act). The Tax Act revised the taxation of U.S. and multinational corporations which significantly reduced the statutory corporate U.S. federal income tax rate from 35% to 21%, imposed limitations on the ability of corporations to deduct interest expense and made taxation changes on U.S. multinational corporation’s foreign operations. The provisions of the Tax Act are complex and likely will be subject to regulatory and administrative guidance. The Tax Act includes a provision to tax global intangible low-taxed income (GILTI) of foreign subsidiaries and a base erosion anti-
36
abuse tax (BEAT) measure that taxes certain payments between a U.S. corporation and its foreign subsidiaries. For the fiscal year ended June 30, 2020, we have $3.2 million of GILTI income inclusion and used our net operating losses to offset our taxable income. For the fiscal year ended June 30, 2020, we did not incur any BEAT tax.
Fiscal Year 2020 Compared with Fiscal Year 2019
Our effective tax rate for fiscal years 2020 and 2019 was a tax provision rate of 9.7% and 16.7%, respectively. The change in our effective tax rate for fiscal year 2020 as compared to fiscal year 2019 was primarily due to the expiration of tax attributes, the change in valuation allowance, foreign rate differential, stock-based compensation and the research and development tax credit.
The income before income tax provision between the U.S. and foreign countries impacted our effective tax rate as a result of the geographic distribution and customer demand related to our products and services. In fiscal year 2020, our U.S. and foreign income before our income tax provision was $5.3 million and $2.7 million, respectively. In fiscal year 2019, our U.S. and foreign income before our income tax provision was $2.9 million and $2.1 million, respectively.
Deferred Tax Valuation Allowance
When we prepare our consolidated financial statements, we estimate our income tax liability for each of the various jurisdictions where we conduct business. This requires us to estimate our actual current tax exposure and to assess temporary differences that result from differing treatment of certain items for tax and accounting purposes. The net deferred tax assets are reduced by a valuation allowance if, based upon weighted available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. We make significant judgments to determine our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance to be recorded against our net deferred tax assets. As of June 30, 2020, we had a valuation allowance of approximately $48.7 million of which approximately $42.6 million was attributable to U.S. and state net operating losses and domestic research and development credit carryforwards.
We apply ASC 740, Income Taxes, in determining any uncertain tax positions. The guidance seeks to reduce the diversity in practice associated with certain aspects of measurement and recognition in accounting for income taxes and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position that an entity takes or expects to take in a tax return. Additionally, ASC 740 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Under ASC 740, an entity may only recognize or continue to recognize tax positions that meet a “more likely than not” threshold. In accordance with our accounting policy, we recognize accrued interest and penalties related to unrecognized tax benefits as a component of other income (expense), net in the consolidated statements of operations.
We consider the earnings of certain non-U.S. subsidiaries to be indefinitely invested outside the United States, on the basis of estimates, that future domestic cash generation will be sufficient to meet future domestic cash needs and our specific plans for reinvestments of those subsidiary earnings. We have not recorded a deferred tax liability related to the U.S. state income taxes and foreign withholding taxes on approximately $17.1 million of undistributed earnings of foreign subsidiaries indefinitely invested outside the United States. If we decide to repatriate the foreign earnings, we would need to adjust our income tax provision in the period we determined that the earnings will no longer be indefinitely invested outside the United States.
Fair Value of Financial Instruments
Our financial instruments consist of cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued liabilities. We do not have any derivative financial instruments. We believe the reported carrying amounts of these financial instruments approximate fair value, based upon their short-term nature and comparable market information available at the respective balance sheet dates.
37
Results of Operations
The following table sets forth certain items reflected in our consolidated statements of operations expressed as a percent of total revenue for the periods indicated:
Revenue
We classify our revenue into two categories; subscription and professional services revenue. We further break down subscription revenue into SaaS revenue and legacy revenue, with SaaS revenue being a key metric.
The following table presents our subscription and professional services revenue during the fiscal years indicated:
Total Revenue
Total revenue increased $5.5 million during the fiscal year ended June 30, 2020, from the comparable period in 2019, largely due to increased revenues from SaaS of $12 million in fiscal year 2020. This increase was partially offset by a decline in our legacy revenue as we continue to migrate legacy perpetual license customers to our SaaS model and a decline in professional service revenue as we continue to see a reduction in time required for an average implementation project, as a result of the improvements to our product deployment process.
Our revenue was impacted by foreign exchange rate fluctuation between the U.S. Dollar, Euro, and British Pound. We recalculate our current period results using the comparable prior period exchange rates to exclude the impact of foreign exchange rate fluctuation. Foreign exchange rate fluctuation resulted in a decrease of $722,000 and a decrease of $1.2 million in total revenue during the fiscal years ended June 30, 2020 and 2019, respectively.
38
Subscription Revenue
SaaS Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30, |
|
|
|
|
|
||||
|
|
2020 |
|
2019 |
|
Change |
|
||||
Revenue |
|
(in thousands, except percentages) |
|||||||||
SaaS revenue |
|
$ |
56,793 |
|
$ |
44,788 |
|
$ |
12,005 |
27 |
% |
Percentage of total revenue |
|
|
78 |
% |
|
67 |
% |
|
|
|
|
SaaS revenue includes revenue from cloud delivery arrangements, term licenses and embedded OEM royalties and associated support. Revenues from SaaS increased by $12 million during the fiscal year ended June 30, 2020, as compared to the comparable period in 2019.
SaaS revenue was $56.8 million and $44.8 million during the fiscal years ended June 30, 2020 and 2019, respectively, which represented an increase of 27% or $12 million. SaaS revenue represents 78% and 67% of total revenue for the fiscal years ended June 30, 2020 and 2019, respectively.
Excluding a decrease of $493,000 due to foreign exchange rate fluctuation, SaaS revenue increased by $12.5 million during the fiscal year ended June 30, 2020, as compared to the comparable period in 2019. In connection with our SaaS transition, we are actively migrating our remaining perpetual license clients to SaaS and continue to sell SaaS to new customers. We expect our SaaS revenue to increase in future periods.
Legacy Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30, |
|
|
|
|
|
||||
|
|
2020 |
|
2019 |
|
Change |
|
||||
Revenue |
|
(in thousands, except percentages) |
|||||||||
Legacy revenue |
|
$ |
9,336 |
|
$ |
15,225 |
|
$ |
(5,889) |
(39) |
% |
Percentage of total revenue |
|
|
13 |
% |
|
23 |
% |
|
|
|
|
Legacy revenue is associated with license, maintenance and support contracts on perpetual license arrangements that we no longer sell. We experienced a decrease of $5.9 million for the fiscal year ended June 30, 2020. This decrease was primarily due to our focus on migrating our legacy customers to SaaS. We expect these legacy fees to continue to decline in future periods.
Legacy revenue was $9.3 million and $15.2 million during the fiscal years ended June 30, 2020 and 2019, respectively, which represented a decrease of 39% or $5.9 million. Legacy revenue represents 13% and 23% of total revenue for the fiscal years ended June 30, 2020 and 2019, respectively.
Excluding a decrease of $153,000 due to foreign exchange rate fluctuation, legacy revenue decreased by $5.7 million during the fiscal year ended June 30, 2020, as compared to the comparable period in 2019.
Professional Services Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30, |
|
|
|
|
|
||||
|
|
2020 |
|
2019 |
|
Change |
|
||||
Revenue |
|
(in thousands, except percentages) |
|||||||||
Professional services revenue |
|
$ |
6,600 |
|
$ |
7,219 |
|
$ |
(619) |
(9) |
% |
Percentage of total revenue |
|
|
9 |
% |
|
11 |
% |
|
|
|
|
39
Professional services revenue includes consulting, implementation and training. Revenues from professional services decreased by $619,000 during the fiscal year ended June 30, 2020. These decreases were primarily due to continued improvements in our product deployment process resulting in a reduction in the time required for an average implementation project. As we continue to onboard new customers and migrate legacy customers to SaaS, we expect the time required for product deployment and implementation projects to decrease further.
Professional services revenue was $6.6 million during the fiscal year ended June 30, 2020, which represented a decrease of 9% or $619,000 from the comparable period in 2019. Professional services revenue represents 9% and 11% of total revenue for the fiscal years ended June 30, 2020 and 2019, respectively.
Excluding a decrease of $76,000 due to foreign exchange rate fluctuation, professional services revenues decreased by $543,000 during the fiscal year ended June 30, 2020, as compared to the comparable period in 2019.
Revenue by Geography
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30, |
|
|
|
|
|
||||
|
|
2020 |
|
2019 |
|
Change |
|
||||
Revenue |
|
(in thousands, except percentages) |
|||||||||
Domestic |
|
$ |
44,813 |
|
$ |
37,435 |
|
$ |
7,378 |
20 |
% |
International |
|
|
27,916 |
|
|
29,797 |
|
|
(1,881) |
(6) |
% |
Total revenue |
|
$ |
72,729 |
|
$ |
67,232 |
|
$ |
5,497 |
|
|
Revenue from domestic sales increased by 20% from $37.4 million during the fiscal year ended June 30, 2019 to $44.8 million during the fiscal year ended June 30, 2020 due to increases of (i) $11.6 million in SaaS revenue and (ii) $136,000 in professional services; offset by a decrease of $4.4 million in legacy revenue.
Revenue from international sales decreased by 6% from $29.8 million during the fiscal year ended June 30, 2019 to $27.9 million during the fiscal year ended June 30, 2020 due to decreases of (i) $1.5 million in legacy revenue and (ii) $756,000 in professional services revenue; offset by an increase of $381,000 in SaaS revenue.
Cost of Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30, |
|
|
|
|
|
||||
|
|
2020 |
|
2019 |
|
Change |
|
||||
Cost of revenue |
|
(in thousands, except percentages) |
|||||||||
Subscription |
|
$ |
14,398 |
|
$ |
14,976 |
|
$ |
(578) |
(4) |
% |
Professional services |
|
|
6,683 |
|
|
6,865 |
|
|
(182) |
(3) |
% |
Total cost of revenue |
|
$ |
21,081 |
|
$ |
21,841 |
|
$ |
(760) |
|
|
Percentage of total revenue |
|
|
29 |
% |
|
32 |
% |
|
|
|
|
Gross margin |
|
|
71 |
% |
|
68 |
% |
|
|
|
|
Subscription
Cost of subscription revenues consist primarily of expenses related to our cloud services and support provided to customers. These expenses are comprised of cloud computing costs, personnel-related costs directly associated with cloud operations, and customer support, including salaries, benefits, bonuses and stock-based compensation and allocated overhead.
Cost of subscription revenues decreased by $578,000 during the fiscal year ended June 30, 2020. The decrease is primarily due to a decrease in personnel related costs of $1.1 million during the fiscal year ended June 30, 2020, from the comparable period in 2019, partially offset by an increase in cloud computing costs of $576,000 during the fiscal year ended June 30, 2020.
40
Excluding a decrease of $106,000 due to foreign exchange rate fluctuation, cost of subscription revenues decreased by $472,000 during the fiscal year ended June 30, 2020, from the comparable period in 2019. Excluding any future foreign exchange rate fluctuation, we expect our cost of subscription revenue to increase in absolute dollar terms as revenues increase but expect subscription revenue gross margins to improve or remain relatively consistent.
Professional Services
Cost of professional services consists primarily of personnel-related costs directly associated with our professional services and training departments, including salaries, benefits, bonuses, and stock-based compensation and allocated overhead.
Cost of professional services decreased $182,000 during the fiscal year ended June 30, 2020 from the comparable period in 2019. This decrease is primarily due to a decrease in outside consulting costs of $196,000 for the fiscal year ended June 30, 2020, partially offset by an increase in personnel-related costs of $101,000 during the fiscal year ended June 30, 2020.
Excluding a decrease of $86,000 due to foreign exchange rate fluctuation, cost of professional services revenue decreased by $96,000 for the fiscal year ended June 30, 2020, from the comparable period in 2019.
Operating Expenses
Research and Development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30, |
|
|
|
|
|
||||
|
|
2020 |
|
2019 |
|
Change |
|
||||
|
|
(in thousands, except percentages) |
|||||||||
Research and development |
|
$ |
16,638 |
|
$ |
14,369 |
|
$ |
2,269 |
16 |
% |
Percentage of total revenue |
|
|
23 |
% |
|
21 |
% |
|
|
|
|
Research and development expense primarily consists of personnel-related expenses directly associated with our engineering, product management and development, and quality assurance staff. Included in these costs are salaries, benefits, bonuses, stock-based compensation and allocated overhead. Research and development expense also includes outside consulting services contracted for research and development, and amortization of intangible assets.
Research and development expense increased 16% to $16.6 million during the fiscal year ended June 30, 2020, from $14.4 million in the comparable period in 2019. Excluding a decrease of $160,000 due to foreign exchange rate fluctuation between the U.S. Dollar, Euro, British Pound and Indian Rupee, research and development expense increased primarily due to increases of (i) $2.5 million in personnel-related costs and (ii) $69,000 in outside consulting costs; principally offset by a decrease of $170,000 from intangible asset amortization.
Excluding any future foreign exchange rate fluctuation, we expect our research and development expense to increase in future periods based on our product development plans.
Sales and Marketing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30, |
|
|
|
|
|
||||
|
|
2020 |
|
2019 |
|
Change |
|
||||
|
|
(in thousands, except percentages) |
|||||||||
Sales and marketing |
|
$ |
19,623 |
|
$ |
17,302 |
|
$ |
2,321 |
13 |
% |
Percentage of total revenue |
|
|
27 |
% |
|
26 |
% |
|
|
|
|
Sales and marketing expense primarily consists of personnel-related expenses directly associated with our sales, marketing and business development staff. Included in these costs are salaries, benefits, bonuses, and stock-based compensation and allocated overhead. Sales and marketing expenses also include amortization of commissions paid to our sales staff, lead generation activities, advertising, trade show and other promotional costs and, to a lesser extent, occupancy costs and related overhead.
41
Sales and marketing expenses increased 13% to $19.6 million during the fiscal year ended June 30, 2020, from $17.3 million in the comparable period in 2019. Excluding a decrease of $171,000 due to foreign exchange rate fluctuation between the U.S. Dollar, Euro, British Pound and Indian Rupee, sales and marketing expense increased primarily due to increases of (i) $2.5 million in personnel-related costs and (ii) $205,000 outside consulting services; partially offset by a decrease of $179,000 in marketing program costs.
Excluding any future foreign exchange rate fluctuation, we expect our sales and marketing expense to increase as a percentage of total revenue in future quarters based on our current business plan.
General and Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30, |
|
|
|
|
|
||||
|
|
2020 |
|
2019 |
|
Change |
|
||||
|
|
(in thousands, except percentages) |
|||||||||
General and administrative |
|
$ |
7,981 |
|
$ |
8,198 |
|
$ |
(217) |
(3) |
% |
Percentage of total revenue |
|
|
11 |
% |
|
13 |
% |
|
|
|
|
General and administrative expense primarily consists of personnel-related expenses directly associated with our finance, human resources, administrative and legal personnel. Included in these costs are salaries, benefits, bonuses, and stock-based compensation and allocated overhead. General and administrative expenses also include fees for professional services, provision for doubtful accounts and, to a lesser extent, occupancy costs and related overhead.
General and administrative expense decreased 3% to $8 million during the fiscal year ended June 30, 2020, from $8.2 million in the comparable period in 2019. Excluding a decrease of $61,000 due to foreign exchange rate fluctuation between the U.S. Dollar, Euro, British Pound and Indian Rupee, general and administrative expense decreased primarily due to decreases of (i) $290,000 in legal expenses; (ii) $131,000 in accounting, audit, and administrative expenses; and (iii) $31,000 in outside consulting costs; partially offset by increases of (a) $224,000 in personnel-related expenses; and (b) $70,000 in bad debt expenses.
Excluding any future foreign exchange rate fluctuation, we expect our general and administrative expense to increase or remain relatively consistent as a percentage of total revenue in future periods based on our current business plan.
Stock-Based Compensation
Stock-based compensation expense is accounted for in accordance with the provisions of the accounting guidance which requires the measurement and recognition of compensation expense for all equity-based payment awards made to employees, members of our board of directors and consultants, based upon the grant-date fair value of those awards. We value our share-based payments under ASC 718, and record compensation expense for all share-based payments made to employees based on the fair value at the date of the grant.
The effect of recording stock-based compensation for fiscal year 2020 and 2019 is as follows:
Determining the fair value of the equity-based payment awards at the grant date required significant judgment and the use of estimates, particularly surrounding the Black-Scholes valuation assumptions such as stock price volatility and expected option term.
42
Below is a summary of stock-based compensation included in the cost and expenses:
The increase in our stock-based compensation expense in fiscal year 2020 compared to fiscal year 2019 was primarily due to an increase in option grant activity.
We expect our stock-based compensation expense to increase or remain relatively constant in fiscal year 2021.
Income from Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30, |
|
|
|
|
|
||||
|
|
2020 |
|
2019 |
|
Change |
|
|
|||
|
|
(in thousands, except percentages) |
|||||||||
Income from operations |
|
$ |
7,406 |
|
$ |
5,522 |
|
$ |
1,884 |
|
|
Operating margin |
|
|
10 |
% |
|
8 |
% |
|
|
|
|
Results from operations was income of $7.4 million in fiscal year 2020, compared to $5.5 million in fiscal year 2019. We recorded a positive operating margin of 10% in fiscal year 2020, and 8% in fiscal year 2019.
The increase in operating income in fiscal year 2020 was primarily due to the growth of our cloud delivery business and the decline of costs associated with professional services, as we focused to reduce the time involved in implementation projects. During the fiscal year ended June 30, 2020, SaaS revenue increased by $12 million to $56.8 million compared to $44.8 million in fiscal year 2019.
Excluding a decrease from foreign exchange fluctuation of $584,000 the increase in total costs and operating expenses in fiscal year 2020 was primarily due to increases of (i) $4.3 million in personnel-related expenses; (ii) $576,000 in cloud computing costs; (iii) $70,000 in bad debt expenses; and (iv) $54,000 in outside consulting costs; partially offset by a decrease of (a) $290,000 in legal expenses; (b) $179,000 in marketing program costs; (c) $170,000 in intangible asset amortization; and (d) $131,000 in accounting, audit and administrative services.
Interest Income (Expense), Net
Interest income (expense), net consists primarily of interest earned on money market funds. Interest income (expense), net was income of $395,000 and expense of $319,000 in the fiscal years ended June 30, 2020 and 2019, respectively. In fiscal year 2020 we recognized interest income primarily due to interest earned on money market funds invested from our follow-on public offering from fiscal year 2019. We expect interest income to remain relatively constant in future periods.
Other Income (Expense), Net
Other income (expense), net was income of $185,000 and expense of $202,000 for the fiscal years ended June 30, 2020 and 2019, respectively. Other income (expense), net primarily included foreign exchange rate fluctuations on international trade receivables.
43
Income Tax Provision
Provision for income taxes consists of federal, state and foreign income taxes. Due to the current economic state of the U.S. economy, expiring tax attributes and uncertainty of future profitability, we maintain a valuation allowance against U.S. deferred tax assets as of June 30, 2020. We consider all available evidence, both positive and negative, including but not limited to earnings history, projected future outcomes, industry and market trends and the nature of each of the deferred tax assets. We recorded an income tax provision of $778,000 and $833,000 in the fiscal years ended June 30, 2020 and 2019, respectively, due to income taxes in profitable jurisdictions outside of the United States.
New Accounting Pronouncements
For information with respect to recent accounting pronouncements and the impact of these pronouncements on our consolidated financial statements, see Note 1 of Notes to Consolidated Financial Statements included in Item 8 Financial Statements and Supplementary Data of this Annual Report.
Liquidity and Capital Resources
Overview
At June 30, 2020, our principal sources of liquidity were cash and cash equivalents, and accounts receivable totaling $69.3 million. Our cash, cash equivalents and restricted cash were $46.6 million and $31.9 million as of June 30, 2020 and 2019, respectively.
Our working capital was $21.4 million as of June 30, 2020 compared to $13.9 million as of June 30, 2019. As of June 30, 2020, our deferred revenue was $41.5 million as compared to $36.5 million as of June 30, 2019.
In 2019, we sold 2.1 million shares of our common stock in a follow-on public offering. Shares were offered at a public offering price of $11.00 per share and we raised an aggregate $23.6 million before underwriter’s commission and expenses of $1.9 million.
Based upon our current business plan, we believe that existing capital resources will enable us to maintain current and planned operations for at least the next 12 months. From time to time, however, we may consider opportunities for raising additional capital. We can make no assurances that such opportunities will be available to us on economic terms we consider favorable, if at all.
Our expectations as to our future cash flows and our future cash balances are subject to a number of assumptions, including assumptions regarding anticipated increases in our revenue, our ability to retain existing customers and customer purchasing and payment patterns, many of which are beyond our control.
Cash Flows
For the fiscal years ended June 30, 2020 and 2019, our cash flows were as follows (in thousands):
|
|
|
|
|
|
|
Fiscal Year Ended June 30, |
||||
|
2020 |
|
2019 |
||
Net cash provided by operating activities |
$ |
14,058 |
|
$ |
6,954 |
Net cash used in investing activities |
|
(514) |
|
|
(398) |
Net cash provided by financing activities |
|
1,410 |
|
|
13,773 |
Cash provided by operating activities mainly consists of net income adjusted for non-cash expense items such as depreciation and amortization, expense associated with stock-based awards, the timing of employee related costs including costs capitalized to obtain revenue contracts, amortization of right-of-use assets, and changes in operating assets and liabilities during the year.
44
Cash provided by operating activities increased by $7.1 million during the fiscal year ended June 30, 2020, driven primarily by the timing of prepayments received from customers for new cloud arrangements and the renewal of existing cloud and support arrangements, which is our largest source of operating cash flows, as well as higher net income.
Net cash used in investing activities increased by $116,000 during the fiscal year ended June 30, 2020, driven primarily by activities related to the purchase of equipment for new employees and facility expenditures. Historically, cash used in investing activities has been used to purchase equipment and software to support our business and growth.
Net cash provided by financing activities decreased by $12.4 million during the fiscal year ended June 30, 2020, driven primarily by net proceeds received from the sale of our common stock in a follow-on public offering in fiscal year 2019; partially offset by an increase in bank borrowing payments in fiscal year 2019. Cash provided by financing activities in fiscal year 2020 principally consisted of proceeds from employee stock plans.
Commitments
Our principal commitments consist of obligations under leases for office space. Lease agreements are evaluated to determine whether an arrangement is or contains a lease in accordance with ASC 842, Leases.
The following table summarizes our contractual obligations as of June 30, 2020 and the effect such obligations are expected to have on its liquidity and cash flow in future periods (in thousands):
Off-Balance Sheet Arrangements
As of June 30, 2020, we had no significant off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.
45
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Foreign Currency Exchange Risk
We develop products in the United States and India and sell these products in the United States and internationally. Generally, international sales are made in local currency. As a result, our financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets. Identifiable assets denominated in foreign currency as of June 30, 2020 and 2019 totaled approximately $17.7 million and $14.2 million. A 10% increase in the value of the dollar relative to other currencies would decrease the value of these assets by $1.8 million and $1.4 million respectively, as of June 30, 2020 and 2019. We do not currently use derivative instruments to hedge against foreign exchange risk. As such we are exposed to market risk from fluctuations in foreign currency exchange rates, principally from the exchange rate between the U.S. dollar and the Euro, the British pound and the Indian rupee. An unfavorable change in the foreign currency exchange rates may cause an adverse effect on our financial position or results of operations.
Interest Rate Risk
Our exposure to market risk for changes in interest rates relates primarily to interest earned on our cash and cash equivalents. The primary objective of our investment activities is to preserve our capital to fund operations. We also seek to maximize income from our investments without assuming significant risk. Our investment policy provides for investments in short-term, low-risk, investment-grade debt instruments. These investments are subject to interest rate risk and will decrease in value if market interest rates increase.
We currently do not hedge interest rate exposure, and we do not have any foreign currency or other derivative financial instruments. To date, we have not experienced a loss of principal on any of our investments. Although we currently expect that our ability to access or liquidate these investments as needed to support our business activities will continue, we cannot ensure that this will not change. We believe that, if market interest rates were to change immediately and uniformly by 10% from levels as of June 30, 2020 and 2019, the impact on the fair value of these securities or our cash flows or income would not be material.
46
ITEM 8. |
eGain Corporation
Consolidated Financial Statements
As of June 30, 2020 and 2019 and for the years ended June 30, 2020 and 2019
Index to Consolidated Financial Statements
|
|
|
|
---|---|---|---|
|
|
Page
|
|
Report of BPM LLP, Independent Registered Public Accounting Firm |
|
48 |
|
Consolidated Financial Statements: |
|
|
|
|
49 |
|
|
Consolidated Statements of Operations for the years ended June 30, 2020 and 2019 |
|
50 |
|
Consolidated Statements of Comprehensive Income for the years ended June 30, 2020 and 2019 |
|
51 |
|
Consolidated Statements of Stockholders’ Equity for the years ended June 30, 2020 and 2019 |
|
52 |
|
Consolidated Statements of Cash Flows for the years ended June 30, 2020 and 2019 |
|
53 |
|
|
54 |
|
47
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
eGain Corporation
Sunnyvale, California
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of eGain Corporation and subsidiaries (the “Company”) as of June 30, 2020 and 2019, and the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the two years in the period ended June 30, 2020 and the related notes and financial statement schedule listed in the index to this Annual Report on Form 10-K at Part IV Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of June 30, 2020 and 2019, and the consolidated results of its operations and its cash flows for each of the two years in the period ended June 30, 2020, in conformity with accounting principles generally accepted in the United States of America.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for leases in fiscal year ended June 30, 2020 due to the adoption of the new lease standard.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ BPM LLP
We have served as the Company’s auditor since 2008.
San Jose, California
September 11, 2020
48
(in thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
June 30, |
||||
|
|
2020 |
|
2019 |
||
ASSETS |
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
46,609 |
|
$ |
31,860 |
Restricted cash |
|
|
6 |
|
|
7 |
Accounts receivable, less allowance for doubtful accounts of $384 and $320 as of June 30, 2020 and 2019, respectively |
|
|
22,708 |
|
|
20,411 |
Costs capitalized to obtain revenue contracts, net |
|
|
1,066 |
|
|
740 |
Prepaid expenses |
|
|
2,514 |
|
|
2,517 |
Other current assets |
|
|
617 |
|
|
1,054 |
Total current assets |
|
|
73,520 |
|
|
56,589 |
Property and equipment, net |
|
|
713 |
|
|
525 |
Operating lease right-of-use assets (Note 8) |
|
|
2,962 |
|
|
— |
Costs capitalized to obtain revenue contracts, net of current portion |
|
|
2,380 |
|
|
1,777 |
Intangible assets, net |
|
|
26 |
|
|
294 |
Goodwill |
|
|
13,186 |
|
|
13,186 |
Other assets |
|
|
918 |
|
|
1,383 |
Total assets |
|
$ |
93,705 |
|
$ |
73,754 |
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
Accounts payable |
|
$ |
2,429 |
|
$ |
4,173 |
Accrued compensation |
|
|
7,916 |
|
|
5,480 |
Accrued liabilities |
|
|
3,423 |
|
|
2,353 |
Operating lease liabilities (Note 8) |
|
|
1,753 |
|
|
— |
Deferred revenue |
|
|
36,644 |
|
|
30,688 |
Total current liabilities |
|
|
52,165 |
|
|
42,694 |
Deferred revenue, net of current portion |
|
|
4,826 |
|
|
5,801 |
Operating lease liabilities, net of current portion (Note 8) |
|
|
1,385 |
|
|
— |
Other long-term liabilities |
|
|
688 |
|
|
952 |
Total liabilities |
|
|
59,064 |
|
|
49,447 |
Commitments and contingencies (Note 9) |
|
|
|
|
|
|
Stockholders' equity: |
|
|
|
|
|
|
Common stock, $0.001 par value - authorized: 50,000 shares; outstanding: 30,821 and 30,478 shares as of June 30, 2020 and 2019, respectively |
|
|
31 |
|
|
31 |
Additional paid-in capital |
|
|
374,399 |
|
|
371,099 |
Notes receivable from stockholders |
|
|
(90) |
|
|
(88) |
Accumulated other comprehensive loss |
|
|
(1,631) |
|
|
(1,459) |
Accumulated deficit |
|
|
(338,068) |
|
|
(345,276) |
Total stockholders' equity |
|
|
34,641 |
|
|
24,307 |
Total liabilities and stockholders' equity |
|
$ |
93,705 |
|
$ |
73,754 |
The accompanying notes are an integral part of these consolidated financial statements.
49
EGAIN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share information)
|
|
|
|
|
|
|
|
|
Years Ended June 30, |
||||
|
|
2020 |
|
2019 |
||
Revenue: |
|
|
|
|
|
|
Subscription |
|
$ |
66,129 |
|
$ |
60,013 |
Professional services |
|
|
6,600 |
|
|
7,219 |
Total revenue |
|
|
72,729 |
|
|
67,232 |
Cost of revenue: |
|
|
|
|
|
|
Cost of subscription |
|
|
14,398 |
|
|
14,976 |
Cost of professional services |
|
|
6,683 |
|
|
6,865 |
Total cost of revenue |
|
|
21,081 |
|
|
21,841 |
Gross profit |
|
|
51,648 |
|
|
45,391 |
Operating expenses: |
|
|
|
|
|
|
Sales and marketing |
|
|
19,623 |
|
|
17,302 |
Research and development |
|
|
16,638 |
|
|
14,369 |
General and administrative |
|
|
7,981 |
|
|
8,198 |
Total operating expenses |
|
|
44,242 |
|
|
39,869 |
Income from operations |
|
|
7,406 |
|
|
5,522 |
Interest income (expense), net |
|
|
395 |
|
|
(319) |
Other income (expense), net |
|
|
185 |
|
|
(202) |
Income before income tax provision |
|
|
7,986 |
|
|
5,001 |
Income tax provision |
|
|
(778) |
|
|
(833) |
Net income |
|
$ |
7,208 |
|
$ |
4,168 |
Per share information: |
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
Basic |
|
$ |
0.24 |
|
$ |
0.15 |
Diluted |
|
$ |
0.23 |
|
$ |
0.14 |
Weighted-average shares used in computation: |
|
|
|
|
|
|
Basic |
|
$ |
30,620 |
|
$ |
28,579 |
Diluted |
|
$ |
31,956 |
|
$ |
30,363 |
Below is a summary of stock-based compensation included in the costs and expenses above: |
|
|
|
|
|
|
Cost of revenue |
|
$ |
205 |
|
$ |
323 |
Research and development |
|
$ |
706 |
|
$ |
519 |
Sales and marketing |
|
$ |
551 |
|
$ |
313 |
General and administrative |
|
$ |
399 |
|
$ |
468 |
The accompanying notes are an integral part of these consolidated financial statements.
50
EGAIN CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
|
|
|
|
|
|
|
|
|
Years Ended June 30, |
||||
|
|
2020 |
|
2019 |
||
Net income |
|
$ |
7,208 |
|
$ |
4,168 |
Other comprehensive income, net of taxes: |
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
(172) |
|
|
159 |
Total comprehensive income |
|
$ |
7,036 |
|
$ |
4,327 |
The accompanying notes are an integral part of these consolidated financial statements.
51
EGAIN CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes |
|
Accumulated |
|
|
|
|
|
Total |
|||
|
|
|
|
|
|
|
Additional |
|
Receivable |
|
Other |
|
|
|
|
Stockholders' |
|||||
|
|
Common Stock |
|
Paid-in |
|
From |
|
Comprehensive |
|
Accumulated |
|
Equity |
|||||||||
|
|
Shares |
|
Amount |
|
Capital |
|
Stockholders |
|
Loss |
|
Deficit |
|
(Deficit) |
|||||||
BALANCES AS OF JULY 1, 2018 |
|
27,667 |
|
|
28 |
|
|
346,222 |
|
|
(85) |
|
|
(1,618) |
|
|
(353,260) |
|
|
(8,713) |
|
Cumulative-effect adjustment upon the modified retrospective adoption of ASU No. 2014-09 |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
3,816 |
|
|
3,816 |
|
Interest on stockholder notes |
|
— |
|
|
— |
|
|
— |
|
|
(3) |
|
|
— |
|
|
— |
|
|
(3) |
|
Issuance of common stock upon exercise of stock options |
|
592 |
|
|
1 |
|
|
1,114 |
|
|
— |
|
|
— |
|
|
— |
|
|
1,115 |
|
Issuance of common stock in connection with employee purchase plans |
|
70 |
|
|
— |
|
|
422 |
|
|
— |
|
|
— |
|
|
— |
|
|
422 |
|
Issuance of common stock from public offering, net of issuance costs |
|
2,149 |
|
|
2 |
|
|
21,718 |
|
|
— |
|
|
— |
|
|
— |
|
|
21,720 |
|
Stock-based compensation |
|
— |
|
|
— |
|
|
1,623 |
|
|
— |
|
|
— |
|
|
— |
|
|
1,623 |
|
Foreign currency translation adjustments |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
159 |
|
|
— |
|
|
159 |
|
Net Income |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
4,168 |
|
|
4,168 |
|
BALANCES AS OF JUNE 30, 2019 |
|
30,478 |
|
|
31 |
|
|
371,099 |
|
|
(88) |
|
|
(1,459) |
|
|
(345,276) |
|
|
24,307 |
|
Interest on stockholder notes |
|
— |
|
|
— |
|
|
— |
|
|
(2) |
|
|
— |
|
|
— |
|
|
(2) |
|
Issuance of common stock upon exercise of stock options |
|
210 |
|
|
— |
|
|
543 |
|
|
— |
|
|
— |
|
|
— |
|
|
543 |
|
Issuance of common stock in connection with employee stock purchase plan |
|
133 |
|
|
— |
|
|
867 |
|
|
— |
|
|
— |
|
|
— |
|
|
867 |
|
True-up of issuance costs related to public offering |
|
— |
|
|
— |
|
|
29 |
|
|
— |
|
|
— |
|
|
— |
|
|
29 |
|
Stock-based compensation |
|
— |
|
|
— |
|
|
1,861 |
|
|
— |
|
|
— |
|
|
— |
|
|
1,861 |
|
Foreign currency translation adjustments |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(172) |
|
|
— |
|
|
(172) |
|
Net income |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
7,208 |
|
|
7,208 |
|
BALANCES AS OF JUNE 30, 2020 |
|
30,821 |
|
$ |
31 |
|
$ |
374,399 |
|
$ |
(90) |
|
$ |
(1,631) |
|
$ |
(338,068) |
|
$ |
34,641 |
The accompanying notes are an integral part of these consolidated financial statements.
52
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
|
|
|
|
|
|
|
Years Ended June 30, |
||||
|
|
2020 |
|
2019 |
||
Cash flows from operating activities: |
|
|
|
|
|
|
Net income |
|
$ |
7,208 |
|
$ |
4,168 |
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
Amortization of intangible assets |
|
|
268 |
|
|
438 |
Amortization of costs capitalized to obtain revenue contracts |
|
|
842 |
|
|
663 |
Amortization of deferred financing costs |
|
|
— |
|
|
241 |
Amortization of right-of-use assets |
|
|
1,540 |
|
|
— |
Depreciation and amortization |
|
|
304 |
|
|
362 |
Provision for doubtful accounts |
|
|
317 |
|
|
253 |
Deferred income taxes |
|
|
261 |
|
|
357 |
Stock-based compensation |
|
|
1,861 |
|
|
1,623 |
(Gain) loss on disposal of property and equipment |
|
|
(1) |
|
|
51 |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
Accounts receivable |
|
|
(2,882) |
|
|
(13,270) |
Costs capitalized to obtain revenue contracts |
|
|
(1,812) |
|
|
(809) |
Prepaid expenses |
|
|
(122) |
|
|
(156) |
Other current assets |
|
|
401 |
|
|
(774) |
Other non-current assets |
|
|
175 |
|
|
(31) |
Accounts payable |
|
|
(1,740) |
|
|
278 |
Accrued compensation |
|
|
2,525 |
|
|
159 |
Accrued liabilities |
|
|
1,105 |
|
|
(240) |
Deferred revenue |
|
|
5,272 |
|
|
13,673 |
Operating lease liabilities |
|
|
(1,640) |
|
|
— |
Other long-term liabilities |
|
|
176 |
|
|
(32) |
Net cash provided by operating activities |
|
|
14,058 |
|
|
6,954 |
Cash flows from investing activities: |
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(514) |
|
|
(398) |
Net cash used in investing activities |
|
|
(514) |
|
|
(398) |
Cash flows from financing activities: |
|
|
|
|
|
|
Payments on bank borrowings |
|
|
(31) |
|
|
(16,901) |
Proceeds from bank borrowings |
|
|
31 |
|
|
7,459 |
Payments on capital lease obligations |
|
|
— |
|
|
(42) |
Proceeds from exercise of stock options |
|
|
543 |
|
|
1,115 |
Proceeds from employee stock purchase plan |
|
|
867 |
|
|
422 |
Proceeds from follow-on public offering, net of issuance costs |
|
|
— |
|
|
21,720 |
Net cash provided by financing activities |
|
|
1,410 |
|
|
13,773 |
Effect of exchange rate differences on cash and cash equivalents |
|
|
(206) |
|
|
34 |
Net increase in cash, cash equivalents and restricted cash |
|
|
14,748 |
|
|
20,363 |
Cash, cash equivalents and restricted cash at beginning of year |
|
|
31,867 |
|
|
11,504 |
Cash, cash equivalents and restricted cash at end of year |
|
$ |
46,615 |
|
$ |
31,867 |
|
|
|
|
|
|
|
Supplemental cash flow disclosures: |
|
|
|
|
|
|
Cash paid for interest |
|
$ |
2 |
|
$ |
230 |
Cash paid for taxes |
|
$ |
374 |
|
$ |
237 |
Non-cash items: |
|
|
|
|
|
|
Purchases of equipment through trade accounts payable |
|
$ |
10 |
|
$ |
4 |
The accompanying notes are an integral part of these consolidated financial statements.
53
EGAIN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Business
eGain Corporation (“eGain”, the “Company”, “our”, “we” or “us”) is a leading provider of cloud-based customer engagement software with operations in the United States, United Kingdom and India. We help B2C brands operationalize digital customer engagement strategy. Our suite includes rich applications for digital interaction, knowledge management, and AI-based process guidance. We also provide advanced, integrated analytics for contact centers and digital properties to holistically measure, manage and optimize resources. We believe the benefits of our products include reduced customer effort, customer satisfaction, connected service processes, converted upsell opportunities, and improved compliance—across mobile, social, web, and phone. Hundreds of global enterprises rely on eGain to transform fragmented customer service systems into unified Customer Engagement Hubs.
Principles of Consolidation
The consolidated financial statements include the accounts of eGain and our wholly-owned subsidiaries, eGain Communications Ltd., Exony Limited (Exony), eGain Communications Pvt. Ltd., eGain Communications (SA), eGain France S.A.R.L, Netherlands (eGain Communications B.V.) and eGain Deutschland GmbH. All significant intercompany balances and transactions have been eliminated.
Follow-On Public Offering
In March 2019, we completed a follow-on public offering, in which we issued 2.0 million shares of our common stock at a public offering price of $11.00 per share. In April 2019, the underwriters exercised an over-allotment option to purchase 149,000 additional shares of our common stock. As of June 30, 2019, we received net proceeds of $21.7 million after deducting underwriting discounts and commissions of $1.6 million and other offering expenses of $282,000.
Business Combinations
Business combinations are accounted for at fair value under the purchase method of accounting. Acquisition costs are expensed as incurred and recorded in general and administrative expenses and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date affect income tax expense. The accounting for business combinations requires estimates and judgment as to expectations for future cash flows of the acquired business, and the allocation of those cash flows to identifiable intangible assets, in determining the estimated fair value for assets acquired and liabilities assumed. The fair values assigned to tangible and intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. If the actual results differ from the estimates and judgments used in these estimates, the amounts recorded in the consolidated financial statements could result in a possible impairment of the intangible assets and goodwill, or require acceleration of the amortization expense of finite-lived intangible assets.
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Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. The estimates are based upon information available as of the date of the consolidated financial statements. Actual results could differ from those estimates.
We evaluate our significant estimates, including those related to revenue recognition, provision for doubtful accounts, valuation of stock-based compensation, valuation of long-lived assets, valuation of deferred tax assets, and litigation, among others. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We refer to accounting estimates of this type as “critical accounting estimates.”
Foreign Currency
The functional currency of each of our international subsidiaries is the local currency of the country in which it operates. Assets and liabilities of our foreign subsidiaries are translated at month-end exchange rates, and revenue and expenses are translated at the average monthly exchange rates. The resulting cumulative translation adjustments are recorded as a component of accumulated other comprehensive income. Foreign currency transaction gains and losses are included in “other income (expense), net” in the consolidated statements of operations, and resulted in a loss of $172,000 and $149,000, in fiscal years 2020 and 2019, respectively.
Cash and Cash Equivalents, Restricted Cash and Investments
We consider all highly liquid investments with an original purchase to maturity date of three months or less to be cash equivalents. Time deposits held for investments that are not debt securities are included in short-term investments in the consolidated balance sheets. Investments in time deposits with original maturities of more than three months but remaining maturities of less than one year are considered short-term investments. Investments held with the intent to reinvest or hold for longer than a year, or with remaining maturities of one year or more, are considered long-term investments. As of June 30, 2020 and 2019 we did not have any short-term or long-term investments.
Cash earmarked for a specific purpose and therefore not available for immediate and general use by the Company is considered restricted cash. Expected usage of restricted cash within one year is classified as a current asset; expected usage more than a year is considered a non-current asset. As of June 30, 2020 and 2019, our restricted cash was nominal.
Fair Value of Financial Instruments
Our financial instruments consist of cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued liabilities. We do not have any derivative financial instruments. We believe the reported carrying amounts of these financial instruments approximate fair value, based upon their short-term nature and comparable market information available at the respective balance sheet dates.
Concentration of Credit Risk
Financial instruments that subject us to concentrations of credit risk consist principally of cash and cash equivalents and trade accounts receivable. Cash and cash equivalents and investments are deposited with high credit quality institutions. We are exposed to credit risk in the event of default by these institutions to the extent of the amount recorded on the balance sheet. We invest excess cash primarily in money market funds, which are highly liquid securities that bear minimal risk. In addition, we have investment policies and procedures that are reviewed periodically to minimize credit risk. Our cash, cash equivalents and restricted cash were $46.6 million as of June 30, 2020 and exceeded the FDIC (Federal Deposit Insurance Corporation) limits.
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Our customer base extends across many different industries and geographic regions. Revenue is allocated to individual countries and geographic region by customer, based on where the product is shipped to and location of services performed. Cisco Systems, Inc. accounted for 18% and 17% of total revenue in fiscal years 2020 and 2019, respectively.
We perform ongoing credit evaluations of our customers with outstanding receivables and generally do not require collateral. In addition, we established an allowance for doubtful accounts based upon factors surrounding the credit risk of customers, historical trends and other information. One partner and customer accounted for 23% and 18% of accounts receivable as of June 30, 2020, respectively. Three customers accounted for 18%, 16%, and 15% of accounts receivable as of June 30, 2019.
Accounts Receivable and Allowance for Doubtful Accounts
We extend unsecured credit to our customers on a regular basis. Our accounts receivable are derived from revenue earned from customers and are not interest bearing. We also maintain an allowance for doubtful accounts to reserve for potential uncollectible trade receivables. We review our trade receivables by aging category to identify specific customers with known disputes or collectibility issues. We exercise judgment when determining the adequacy of these reserves as we evaluate historical bad debt trends, general economic conditions in the U.S. and internationally, and changes in customer financial conditions. If we made different judgments or utilized different estimates, material differences may result in additional reserves for trade receivables, which would be reflected by charges in general and administrative expenses for any period presented. We write off a receivable after all collection efforts have been exhausted and the amount is deemed uncollectible.
In certain Company contracts, contractual billings do not coincide with revenue recognized on the contract. Unbilled accounts receivables are recorded when revenue recognized on the contract exceeds billings, pursuant to contract provisions, and become billable upon certain criteria being met. Unbilled accounts receivables, for which the Company has the unconditional right to consideration, totaled $1.7 million and $1.4 million as of June 30, 2020 and 2019, respectively, and are included in the accounts receivable balance.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful life of the respective assets, which typically is between three or five years. Leasehold improvements and leased equipment are depreciated on a straight-line basis over the shorter of the lease term or useful life of the asset, which is typically three to five years.
Goodwill and Other Intangible Assets
We review goodwill annually for impairment or sooner whenever events or changes in circumstances indicate that it may be impaired. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit. In addition, we evaluate purchased intangible assets to determine that all such assets have determinable lives. We operate under a single reporting unit and accordingly, all of our goodwill is associated with the entire company. We had no impairment for fiscal years ended June 30, 2020 and 2019.
Impairment of Long-Lived Assets
We review long-lived assets for impairment, including property and equipment, whenever events or changes in business circumstances indicate that the carrying amounts of the assets may not be fully recoverable. An impairment loss is recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount. During fiscal years 2020 and 2019, we did not have any such losses.
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Deferred Revenue
Deferred revenue primarily consists of payments received in advance of revenue recognition from cloud, term and ratable licenses, and maintenance and support services and is recognized as the revenue recognition criteria are met. We generally invoice customers in annual or quarterly installments. The deferred revenue balance does not represent the total contract value of annual or multi-year, non-cancelable cloud or maintenance and support agreements. Deferred revenue is influenced by several factors, including seasonality, the compounding effects of renewals, invoice duration, invoice timing and new business linearity within the quarter.
Deferred revenue that will be recognized during the succeeding twelve-month period is recorded as current deferred revenue and the remaining portion is recorded as noncurrent.
Cost Capitalized to Obtain Revenue Contracts
Under Topic 606, we capitalize incremental costs of obtaining non-cancelable subscription and support revenue contracts. The capitalized amounts consist primarily of sales commissions paid to our direct sales force. Capitalized amounts also include (i) amounts paid to employees other than the direct sales force who earn incentive payouts under annual compensation plans that are tied to the value of contracts acquired and (ii) the associated payroll taxes and fringe benefit costs associated with the payments to our employees.
Costs capitalized related to new revenue contracts are generally deferred and amortized on a straight-line basis over a period of benefit that we estimate to be five years. We determine the period of benefit by taking into consideration the historical and expected durations of our customer contracts, the expected useful lives of our technologies, and other factors. Commissions for renewal contracts relating to our cloud-based arrangements are expensed when incurred, as we do not consider renewal contracts to be commensurate with initial customer contracts. Historically, any commission associated with renewals have been immaterial. Amortization of costs to obtain revenue contracts is included as a component of sales and marketing expenses in our consolidated statements of operations.
During the fiscal year ended June 30, 2020 and 2019, we capitalized $1.8 million and $809,000 of costs to obtain revenue contracts, respectively, and amortized $842,000 and $663,000 to sales and marketing expense, respectively. Capitalized costs to obtain revenue contracts, net were $3.4 million and $2.5 million as of June 30, 2020 and June 30, 2019, respectively.
Deferred Financing Costs
Costs relating to obtaining the credit agreement (as amended from time to time, Credit Agreement) with Wells Fargo Bank, National Association, as administrative agent (Wells Fargo) were capitalized and amortized over the term of the related debt using the effective interest method. We capitalized deferred financing costs of $981,000 in connection with our term loan that has since been fully amortized. As of June 30, 2020, all financing costs have been charged to operations as interest expense in the prior fiscal year, in connection with the repayment of the term loan. No amortization of deferred financing costs was recorded to interest expense in fiscal year 2020. Amortization of deferred financing costs recorded as interest expense was $241,000 in fiscal year 2019.
Leases
Lease agreements are evaluated to determine whether an arrangement is or contains a lease in accordance with ASC 842, Leases.
Operating leases are included in operating lease right-of-use (ROU) assets, current operating lease liabilities, and noncurrent operating lease liabilities in the consolidated financial statements. ROU assets represent the Company’s right to use leased assets over the agreed upon term. Lease liabilities represent the Company’s contractual obligation to make lease payments over the lease term.
For operating leases, ROU assets and lease liabilities are recognized at the commencement date of the lease. The lease liability is measured as the present value of the lease payments over the lease term, using the rate implicit in the lease if readily determinable. If the rate implicit in the lease cannot be readily determined, the Company uses its incremental
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borrowing rate at lease commencement. The operating lease right-of-use assets are calculated as the present value of the remaining lease payments plus unamortized initial direct costs and any prepayments, less unamortized lease incentives received.
Operating leases typically include non-lease components such as common-area maintenance costs. We have elected to include non-lease components with lease payments for the purpose of calculating lease right-of-use assets and liabilities, to the extent that they are fixed. Non-lease component payments that are not fixed are expensed as incurred as variable lease payments.
Lease terms may include renewal or extension options to the extent they are reasonably certain to be exercised. The assessment of whether renewal or extension options are reasonably certain to be exercised is made at lease commencement. Factors considered in determining whether an option is reasonably certain of exercise include, but are not limited to, the value of any leasehold improvements, the value of renewal rates compared to market rates, and the presence of factors that would cause a significant economic penalty to the Company if the option were not exercised. Lease expense is recognized on a straight-line basis over the lease term. The Company has elected not to recognize right-of-use assets and obligations for leases with an initial term of twelve months or less, and has applied a capitalization threshold to recognize a lease on the balance sheet. The expense associated with short-term leases and leases that do not meet the Company’s capitalization threshold are recorded to lease expense in the period it is incurred.
Software Development Costs
We account for software development costs in accordance with ASC 985, Software, for costs of the software to be sold, leased or marketed, whereby costs for the development of new software products and substantial enhancements to existing software products are included in research and development expense as incurred until technological feasibility has been established, at which time any additional costs are capitalized. Technological feasibility is established upon completion of a working model. To date, software development costs incurred in the period between achieving technological feasibility and general availability of software have not been material and have been charged to operations as incurred.
Advertising Costs
We expense advertising costs as incurred. Total advertising expenses for the fiscal years ended June 30, 2020 and 2019 were $221,000 and $150,000, respectively.
Stock-Based Compensation
We account for stock-based compensation in accordance with ASC 718, Compensation—Stock Compensation. Determining the fair value of the stock-based awards at the grant date requires significant judgment and the use of estimates, particularly surrounding Black-Scholes valuation assumptions such as stock price volatility and expected option term. Stock-based compensation expense for employee and non-employee awards is recognized as expense over the vesting period. Fair value for employee awards is measured as of the grant date. Fair value for non-employee awards is measured as of the grant date and is subsequently remeasured each reporting period.
Income Taxes
Income taxes are accounted for using the asset and liability method in accordance with ASC 740, Income Taxes. Under this method, deferred tax liabilities and assets are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. For the legacy eGain business in the United States, based upon the weight of available evidence, which includes our historical operating performance, our future investment plans, and the uncertainty in the current market environment due to COVID-19, we have provided a full valuation allowance against our net deferred tax assets. For the legacy eGain business in the United Kingdom, based on the positive evidence, the Company has determined it would be able to utilize the deferred tax assets and does not have a valuation allowance against the deferred tax assets. The remaining eGain foreign operations as well as Exony’s business have historically been profitable and we believe it is more likely than not that those assets will be realized. Our tax provision primarily relates to foreign activities as well as state income taxes. Our income
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tax rate differs from the statutory tax rates primarily due to the utilization of net operating loss carry-forwards which had previously been valued against as well as our foreign operations.
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (Tax Act). The Tax Act revised the taxation of U.S. and multinational corporations which significantly reduced the statutory corporate U.S. federal income tax rate from 35% to 21%, imposed limitations on the ability of corporations to deduct interest expense and made taxation changes on U.S. multinational corporation’s foreign operations. The provisions of the Tax Act are complex and likely will be subject to regulatory and administrative guidance. The Tax Act includes a provision to tax global intangible low-taxed income (GILTI) of foreign subsidiaries and a base erosion anti-abuse tax (BEAT) measure that taxes certain payments between a U.S. corporation and its foreign subsidiaries. For the fiscal year ended June 30, 2020, we have $3.2 million of GILTI income inclusion and used our net operating losses to offset our taxable income. For the fiscal year ended June 30, 2020, we did not incur any BEAT tax.
We account for uncertain tax positions according to the provisions of ASC 740. ASC 740 contains a two-step approach for recognizing and measuring uncertain tax positions. Tax positions are evaluated for recognition by determining if the weight of available evidence indicates that it is probable that the position will be sustained on audit, including resolution of related appeals or litigation. Tax benefits are then measured as the largest amount which is more than 50% likely of being realized upon ultimate settlement. We consider many factors when evaluating and estimating tax positions and tax benefits, which may require periodic adjustments and which may not accurately anticipate actual outcomes.
As of June 30, 2020, we have completed a 382 study under Section 382 of the Internal Revenue Code, and have determined there was no loss of NOLs as a result of these changes. Utilization of the NOL or tax credit carryforwards to offset future taxable income and taxes, respectively, are subject to an annual limitation under the Internal Revenue Code of 1986 and similar state provisions, which is determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term, tax-exempt rate, and then could be subject to additional adjustments such as built in gain or built in loss, as required. Any limitation may result in expiration of all or a portion of its NOL and or tax credit carryforwards before utilization.
Comprehensive Income
We report comprehensive income and its components in accordance with ASC 220, Comprehensive Income. Under the accounting standards, comprehensive loss includes all changes in equity during a period except those resulting from investments by or distributions to owners. Total comprehensive income for each of the two years in the period ended June 30, 2020 is shown in the accompanying statements of comprehensive income. Accumulated other comprehensive income presented in the accompanying consolidated balance sheets as of June 30, 2020 and 2019 consist of accumulated foreign currency translation adjustments.
Net Income Per Common Share
Basic net income per common share is computed using the weighted-average number of shares of common stock outstanding. In periods where net income is reported, the weighted average number of shares is increased by warrants and options in the money to calculate diluted net income per common share.
The following table represents the calculation of basic and diluted net income per common share (in thousands, except per share data):
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Weighted average options to purchase 613,643 and 256,538 shares of common stock as of June 30, 2020 and 2019, respectively, were not included in the computation of diluted net income per common share due to their anti-dilutive effect. Such securities could have a dilutive effect in future periods.
Segment Information
We operate in one segment, the development, license, implementation and support of our customer service infrastructure software solutions. Operating segments are identified as components of an enterprise for which discrete financial information is available and regularly reviewed by our chief operating decision-maker in order to make decisions about resources to be allocated to the segment and assess its performance. Our chief operating decision-makers under ASC 280, Segment Reporting, are our executive management team. Our chief operating decision-makers review financial information presented on a consolidated basis for purposes of making operating decisions and assessing financial performance. Information relating to our geographic areas for the fiscal years ended June 30, 2020 and 2019 is as follows (in thousands):
For the purposes of entity-wide geographic area disclosures, we define long-lived assets as hard assets that cannot be easily removed, such as property and equipment.
Recent Accounting Pronouncements
Pronouncements Not Yet Adopted
In August 2018, the Financial Accounting Standards Board (FASB) issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40). This update requires a customer in a cloud computing service arrangement to follow the internal-use software guidance to determine which implementation costs to recognize and defer as an asset. This update is effective for fiscal years beginning after December 15, 2019 (our fiscal year 2021). We are currently evaluating the impact of this update on our consolidated financial statements and related disclosures.
In December 2019, FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This update simplifies the accounting for income taxes. This update is effective for fiscal years beginning after December 15, 2020 (our fiscal year 2022). We are currently evaluating the impact of this update on our consolidated financial statements and related disclosures.
Pronouncements Recently Adopted
In February 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This update provides the option to reclassify tax effects to retained earnings relating to items in accumulated other comprehensive income that the FASB refers to as having been stranded in accumulated other comprehensive income as a result of the U.S. Tax Act.
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We adopted this guidance as of our first quarter of fiscal year 2020 without a significant impact on our consolidated financial statements.
In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718)—Improvements to Nonemployee Share-Based Payment Accounting. This update expands the scope of Topic 718, Compensation—Stock Compensation, to include share-based awards granted to non-employees in exchange for goods or services. The accounting for employees and non-employees will be substantially aligned. We adopted this guidance as of our first quarter of fiscal year 2020 without a significant impact on our consolidated financial statements.
In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which provides an alternative transition method by allowing companies to initially apply the new leases guidance at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. We adopted this guidance as of our first quarter of fiscal year 2020.
In February 2019, the FASB issued ASU No. 2019-01 Leases (Topic 842) Codification Improvements, which aligns the guidance for fair value of the underlying asset by lessors that are not manufacturers or dealers in Topic 842 with that of existing guidance. As a result, the fair value of the underlying asset at lease commencement is its cost. We adopted this guidance as of our first quarter of fiscal year 2020.
Leases
Effective July 1, 2019, the Company adopted the provisions and expanded disclosure requirements described in Topic 842. The Company adopted the standard under a modified retrospective approach, using the provision of ASU 2018-11, Leases (Topic 842) Targeted Improvements, which allows for the adoption of Topic 842 to be applied at the beginning of the fiscal year of adoption. As a result, the consolidated balance sheet and statement of operations for prior periods are not comparable to fiscal year 2020. In addition, the Company elected the package of practical expedients permitted under the transition guidance, which among other things, allowed the Company to not reassess prior conclusions on lease classifications or initial direct costs, or on whether contracts are or contain a lease. The Company did not use hindsight when determining the lease term.
Upon adoption, operating leases are now reported on the consolidated balance sheet, which has materially increased total assets and liabilities. As a result, the Company recorded operating lease right-of-use assets of approximately $4.5 million and corresponding operating lease liabilities of $4.8 million on its opening consolidated balance sheet.
1. | Represents prepaid rent reclassified to operating lease right-of-use assets. |
2. | Represents capitalization of operating lease right-of-use assets. |
3. | Represents reclassification of deferred rent reclassified to operating lease right-of-use assets. |
4. | Represents recognition of operating lease liabilities. |
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Revenue Recognition
Revenue Recognition Policy
Our revenue is comprised of two categories including subscription and professional services. Subscription includes SaaS revenue and legacy revenue. SaaS includes revenue from cloud delivery arrangements, term licenses and embedded OEM royalties and associated support. Legacy revenue is associated with license, maintenance and support contracts on perpetual license arrangements that we no longer sell. Professional services includes consulting, implementation and training.
Significant Judgment Applied in the Determination of Revenue Recognition
We enter into contractual arrangements with customers that may include promises to transfer multiple services, such as subscription, support and professional services. With respect to our business, a performance obligation is a promise to transfer a service to a customer that is distinct. Significant judgment is required to determine whether services are distinct
performance obligations that should be accounted for separately or combined as one unit of accounting. Additionally, significant judgment is required to determine the timing of revenue recognition.
We allocate the transaction price to each performance obligation on a relative standalone selling price basis (SSP). The SSP is the price at which we would sell a promised service separately to one of our customers. Judgment is required to determine the SSP for each distinct performance obligation.
We determine the SSP by considering our pricing objectives in relation to market demand. Consideration is placed based on our history of discounting prices, size and volume of transactions involved, customer demographics and geographic locations, price lists, contract prices and our market strategy.
Determination of Revenue Recognition
Under Topic 606, we recognize revenue upon the transfer of control of promised services to our customers in the amount that is commensurate with the consideration that we expect to receive in exchange for those services. If consideration includes a variable amount in the arrangement, such as service level credits or contingent fees, then we include an estimate of the amount that we expect to receive for the total transaction price.
The amount of revenue that we recognize is based on (i) identifying the contract with a customer; (ii) identifying the performance obligations in the contract; (iii) determining the transaction price; (iv) allocating the transaction price to the performance obligations in the contract on a relative SSP basis; and (v) recognizing revenue when, or as, we satisfy each performance obligation in the contract typically through delivery or when control is transferred to the customer.
Subscription Revenue
The following customer arrangements are recognized ratably over the contract term as the performance obligations are delivered:
● | Cloud delivery arrangements; |
● | Maintenance and support arrangements; and |
● | Term license subscriptions which incorporate on-premise software licenses and substantial cloud functionality that are not distinct in the context of our arrangements as such are considered highly interrelated and represent a single combined performance obligation. |
For contracts involving distinct software licenses, the license performance obligation is satisfied at a point in time when control is transferred to the customer.
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We typically invoice our customers in advance upon execution of the contract or subsequent renewals with payment terms between 30 and 45 days. Invoiced amounts are recorded in accounts receivable, deferred revenue or revenue, depending if control transferred to our customers based on each arrangement.
The Company has a royalty revenue agreement with a customer related to the Company’s embedded intellectual property. Under the terms of the agreement, the customer is to provide a combined fixed fee, per agent, for each software license sold containing the embedded software to the Company. These embedded OEM royalties are included as subscription revenue. Under Topic 606 revenue guidance, since these arrangements are for sales-based licenses of intellectual property, for which the guidance in paragraph ASC 606-10-55-65 applies, the Company recognizes revenue only as the subsequent sale occurs. However, the Company notes that such sales are reported by the customer with a quarter in arrears, such revenue is recognized at the time it is reported and paid by the customer given that any estimated variable consideration would have to be fully constrained due to the unpredictability of such estimate and the unavoidable risk that it may lead to significant revenue reversals.
Professional Services Revenue
Professional services revenue includes system implementation, consulting and training. The transaction price is allocated to various performance obligations based on their stand-alone selling prices. Revenue allocated to each performance obligation is recognized at the earlier of satisfaction of discrete performance obligations, or as work is performed on a time and material basis. Our consulting and implementation service contracts are bid either on a time-and-materials basis or on a fixed-fee basis. Fixed fees are generally paid upon milestone billing or acceptance at pre-determined points in the contract. Amounts that have been invoiced are recorded in accounts receivable and in deferred revenue or revenue, depending on whether transfer of control to customers has occurred.
Training revenue that meets the criteria to be accounted for separately is recognized when training is provided.
2. BALANCE SHEET COMPONENTS
Property and equipment consists of the following:
|
|
|
|
|
|
|
|
|
As of June 30, |
||||
|
|
2020 |
|
2019 |
||
|
|
(in thousands) |
||||
Computers and equipment |
|
$ |
3,324 |
|
$ |
3,741 |
Furniture and fixtures |
|
|
940 |
|
|
1,077 |
Leasehold improvements |
|
|
554 |
|
|
542 |
Total |
|
|
4,818 |
|
|
5,360 |
Accumulated depreciation and amortization |
|
|
(4,105) |
|
|
(4,835) |
Property and equipment, net |
|
$ |
713 |
|
$ |
525 |
Depreciation and amortization expense was $304,000 and $362,000 for the fiscal years ended June 30, 2020 and 2019, respectively. Disposed fixed assets, which were substantially fully-depreciated, were $920,000 and $3.6 million for the years ended June 30, 2020, and 2019, respectively.
Accrued compensation consists of the following:
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Accrued liabilities consists of the following:
3. REVENUE RECOGNITION
Disaggregation of Revenue
The following table presents our subscription and professional services revenue during the fiscal years ended June 30, 2020 and 2019, respectively:
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30, |
||||
|
|
2020 |
|
2019 |
||
|
|
(in thousands) |
||||
Revenue: |
|
|
|
|
|
|
SaaS |
|
$ |
56,793 |
|
$ |
44,788 |
Legacy revenue |
|
|
9,336 |
|
|
15,225 |
Total subscription |
|
|
66,129 |
|
|
60,013 |
Professional services |
|
|
6,600 |
|
|
7,219 |
Total revenue |
|
$ |
72,729 |
|
$ |
67,232 |
The following table presents our revenue by geography. Revenue by geography is generally determined on the region of our contracting entity rather than the region of our customer. The relative proportion of our total revenues between each geographic region as presented in the table below was materially consistent across each of our operating segments’ revenues for the periods presented.
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30, |
||||
|
|
2020 |
|
2019 |
||
|
|
(in thousands) |
||||
Revenue: |
|
|
|
|
|
|
North America |
|
$ |
44,813 |
|
$ |
37,435 |
EMEA |
|
|
27,916 |
|
|
29,797 |
Total Revenue |
|
$ |
72,729 |
|
$ |
67,232 |
Contract Balances
Contract assets, if any, consist of unbilled receivables for completed performance obligations which have not been invoiced, and for which we do not have an unconditional right to consideration. Contract liabilities consist of deferred revenue for which we have an obligation to transfer services to customers and have received consideration in advance or the amount is due from customers. Once the obligations are fulfilled, then deferred revenue is recognized to revenue in the respective period.
There were no contract assets for the years ended June 30, 2020 and 2019.
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The following table presents the changes in contract liabilities (in thousands):
With respect to deferred revenue balances as of June 30, 2019, $32.5 million was recognized to revenue during fiscal year ended June 30, 2020.
Remaining Performance Obligations
Remaining performance obligations represent contracted revenues that had not yet been recognized, and include deferred revenues, invoices that have been issued to customers but were uncollected and have not been recognized as revenues, and amounts that will be invoiced and recognized as revenues in future periods. The transaction price allocated to the remaining performance obligation is influenced by a variety of factors, including seasonality, timing of renewals, average contract terms and foreign currency rates. As of June 30, 2020, our remaining performance obligations were $68.6 million of which we expect to recognize $47.3 million and $21.3 million as revenue within one year and beyond one year, respectively.
4. BANK BORROWINGS
On January 27, 2017, we entered into Amendment Number Two to the Credit Agreement, which further amended the Credit Agreement with Wells Fargo and the lenders party thereto dated November 21, 2014 (as amended, the Credit Agreement). The loan was secured by substantially all of our assets.
Our Credit Agreement and the obligations under the agreement matured on November 21, 2019. All remaining principal was paid prior to that date and all remaining deferred financing costs have been amortized to interest expense.
5. INCOME TAXES
Income before income tax provision consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30, |
||||
|
|
2020 |
|
2019 |
||
United States |
|
$ |
5,260 |
|
$ |
2,904 |
Foreign |
|
|
2,726 |
|
|
2,097 |
Income before income tax provision |
|
$ |
7,986 |
|
$ |
5,001 |
65
The following table reconciles the federal statutory tax rate to the effective tax rate of the income tax provision:
The components of the income tax provision are as follows (in thousands):
As of June 30, 2020, we had federal and state net operating loss carryforwards of approximately $163.6 million and $12.3 million, respectively. The net operating loss carryforwards will expire at various dates beginning in fiscal year ending June 30, 2021, if not utilized. We also had federal research and development credit carryforwards of approximately $3.5 million as of June 30, 2020, which will expire at various dates beginning in fiscal year ending June 30, 2021, if not utilized. The California research and development credit carryforwards are approximately $5.2 million as of June 30, 2020 and have an indefinite carryover period.
As of June 30, 2020, we have completed a 382 study under Section 382 of the Internal Revenue Code, and have determined there was no loss of NOLs as a result of these changes. Utilization of the NOL or tax credit carryforwards to offset future taxable income and taxes, respectively, are subject to an annual limitation under the Internal Revenue Code of 1986 and similar state provisions, which is determined by first multiplying the value of the Company’s stock at the time of the ownership change by the applicable long-term, tax-exempt rate, and then could be subject to additional adjustments such as built in gain or built in loss, as required. Any limitation may result in expiration of all or a portion of its NOL and or tax credit carryforwards 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.
66
Significant components of our deferred tax assets and liabilities for federal, state and foreign income taxes are as follows (in thousands):
ASC 740, Income Taxes, provides for the recognition of deferred tax assets if realization of such assets is more likely than not. For the legacy eGain business in the United States, based upon the weight of available evidence, which includes our historical operating performance and the reported cumulative net losses in prior years, we have provided a full valuation allowance against our U.S. net deferred tax assets. With respect to our foreign operations, we expect to utilize the deferred tax assets and have not placed a valuation allowance against them. Our tax provision primarily relates to foreign activities as well as state income taxes. Our income tax rate differs from the statutory tax rates primarily due to the utilization of net operating loss carryforwards which had previously been valued against, change in valuation allowance, stock-based compensation, research and development credits, and our foreign operations.
The net valuation allowance decreased by $5.7 million and $2.7 million for the fiscal years ended June 30, 2020 and 2019, respectively.
We have not provided for taxes on $17.1 million of undistributed earnings of our foreign subsidiaries as of June 30, 2020. It is our intention to reinvest such undistributed earnings indefinitely in our foreign subsidiaries. If we distribute these earnings, in the form of dividends or otherwise, we would be subject to withholding taxes payable to the foreign jurisdiction.
67
Uncertain Tax Positions
The aggregate changes in the balance of our gross unrecognized tax benefits during fiscal years 2020 and 2019 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30, |
||||
|
|
2020 |
|
2019 |
||
Beginning balance |
|
$ |
1,665 |
|
$ |
1,578 |
Increases in balances related to tax positions taken during current periods |
|
|
26 |
|
|
87 |
Ending balance |
|
$ |
1,691 |
|
$ |
1,665 |
There is no amount of unrecognized tax benefit, if recognized currently, that would impact the Company’s effective tax rate as of June 30, 2020 and 2019, respectively. No accrued interest and penalties have been recognized in the tax provision related to unrecognized tax benefits.
We do not anticipate the amount of existing unrecognized tax benefit to significantly increase or decrease during the next twelve months. Our policy is to record interest and penalties related to unrecognized tax benefits as income tax expense.
We file income tax returns in the United States as well as various state and foreign jurisdictions. In these jurisdictions, tax years between 2001 and 2019 remain subject to examination by the appropriate governmental agencies due to tax loss carryovers from those years.
6. STOCKHOLDERS’ EQUITY
Common Stock
We have reserved shares of common stock for issuance as of June 30, 2020 as follows:
|
|
|
|
|
Reserved |
|
|
Stock |
|
|
Options |
Stock options outstanding |
|
2,885,966 |
Stock available for future grants or issuance: |
|
|
2005 Stock Incentive Plan |
|
1,073,386 |
2005 Management Stock Option Plan |
|
68,649 |
2017 Employee Stock Purchase Plan |
|
773,483 |
Total reserved shares of common stock for issuance |
|
4,801,484 |
Preferred Stock
We are authorized to issue 5,000,000 shares of preferred stock with a par value of $0.001 per share, and no shares of preferred stock are outstanding. Our board of directors has the authority, without further action by our stockholders, to issue up to 5,000,000 shares of preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof. These rights, preferences and privileges could include dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences, sinking fund terms and the number of shares constituting any series or the designation of such series, any or all of which may be greater than the rights of the common stock.
68
2005 Management Stock Option Plan
In May 2005, our board of directors adopted the 2005 Management Stock Option Plan (2005 Management Plan) which provides for the grant of non-statutory stock options to directors, officers and key employees of eGain and its subsidiaries. Our board extended the expiration date of the 2005 Management Plan to September 30, 2024. Options under the 2005 Management Plan are granted at a price not less than 100% of the fair market value of the common stock on the date of grant. Options granted under the 2005 Management Plan are subject to eGain’s right of repurchase, whose right shall lapse with respect to one-forty-eighth (1/48th) of the shares granted to a director, officer or key employee for each month of continuous service provided by such director, officer or key employee to eGain. The options granted under this plan are exercisable for up to ten years from the date of grant.
The following table represents the activity under the 2005 Management Plan:
2005 Stock Incentive Plan
In March 2005, our board of directors adopted the 2005 Stock Incentive Plan which provides for the grant of stock options to eGain’s employees, officers, directors and consultants. Our board extended the expiration date of the 2005 Stock Incentive Plan to September 30, 2024 and made certain other changes. Options granted under the 2005 Stock Incentive Plan are non-qualified stock options. Non-qualified stock options may be granted to employees with exercise prices of no less than the fair value of the common stock on the date of grant. The options generally vest ratably over a period of four years and expire no later than ten years from the date of grant.
The following table represents the activity under the 2005 Stock Incentive Plan:
No shares were granted to consultants during the fiscal year ended June 30, 2020.
69
The following table summarizes information about stock options outstanding and exercisable under all stock option plans as of June 30, 2020:
The summary of options vested and exercisable as of June 30, 2020 comprised:
The aggregate intrinsic value in the preceding table represents the total intrinsic value based on stock options with a weighted average exercise price less than our closing stock price of $11.11 as of June 30, 2020 that would have been received by the option holders, had they exercised their options on June 30, 2020. The total intrinsic value of stock options exercised during fiscal years 2020 and 2019 was $1.3 million and $4.5 million, respectively.
Stock-Based Compensation
We account for stock-based compensation in accordance with ASC 718, Compensation—Stock Compensation. Under the fair value recognition provisions of ASC 718, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the vesting period. Stock-based compensation expense consists of expenses for stock options and our employee stock purchase plan (ESPP).
2017 Employee Stock Purchase Plan
In October 2017, our board of directors adopted the 2017 Employee Stock Purchase Plan (ESPP) which provided eligible employees the option purchase the Company’s common stock through payroll deductions at a price equal to 85% of the lower of the fair market value at the entry date of the applicable offering period or at the end of each applicable purchasing period. The offering period, meaning a period with respect to which the right to purchase shares of our common stock may be granted under the ESPP, will not exceed twenty-seven months and consist of a series of six-month purchase periods. Eligible employees may join the ESPP at the beginning of any six-month purchase period. Under the terms of the ESPP, employees can choose to have between 1% and 15% of their base earnings withheld to purchase the Company’s common stock.
70
Determining the fair value of the stock-based awards at the grant date requires significant judgment and the use of estimates, particularly surrounding Black-Scholes valuation assumptions such as stock price volatility and expected option term.
The table below summarizes the effect of stock-based compensation (in thousands):
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30, |
||||
|
|
2020 |
|
2019 |
||
Non-cash stock-based compensation expense |
|
$ |
(1,861) |
|
$ |
(1,623) |
Income tax expense |
|
|
(56) |
|
|
— |
Net income effect |
|
$ |
(1,917) |
|
$ |
(1,623) |
The Company recognized $56,000 of tax expense related to stock-based compensation expense for eGain UK and Exony for the fiscal year ended June 30, 2020. The tax effect related to stock-based compensation in 2019 was nominal. There is no income tax effect that has been recognized relating to the stock-based compensation expense in the US due to full valuation allowance.
Total stock-based compensation includes expense related to non-employee awards of $120,000 and $138,000 during the fiscal years ended June 30, 2020 and 2019, respectively.
Total stock-based compensation includes expense related to the ESPP of $294,000 and $305,000 during the fiscal year ended June 30, 2020 and 2019, respectively.
We utilized the Black-Scholes valuation model for estimating the fair value of the stock-based compensation of options granted. All shares of our common stock issued pursuant to our stock option plans are only issued out of an authorized reserve of shares of common stock, which were previously registered with the Securities and Exchange Commission on a registration statement on Form S-8.
During the fiscal years ended June 30, 2020 and 2019, there were 350,125 and 334,500 options granted, respectively, with a weighted average fair value of $4.50 and $5.17, per share, respectively.
We used the following assumptions:
The fair value of the ESPP stock purchase right is estimated on the date of grant using the following weighted-average assumptions:
During the fiscal year ended June 30, 2020, employees were granted the right to purchase an aggregate of 127,464 shares under the ESPP, and compensation expense related to those purchase rights for the fiscal year ended June 30, 2020 was $294,000. During the fiscal year ended June 30, 2020, 133,533 shares were purchased and 773,483 shares remain available to be purchased pursuant to the 2017 ESPP.
71
As of June 30, 2020 unrecognized compensation expense related to purchase rights that will be recognized over a weighted average period of 0.4 years was $172,000.
The dividend yield of zero is based on the fact that we have never paid cash dividends and have no present intention to pay cash dividends. We determined the appropriate measure of expected volatility by reviewing historic volatility in the share price of our common stock, as adjusted for certain events that management deemed to be non-recurring and non-indicative of future events. The risk-free interest rate is derived from the average U.S. Treasury Strips rate.
We base our estimate of expected life of a stock option on the historical exercise behavior, and cancellations of all past option grants made by the Company during the time period which its common stock has been publicly traded, the contractual term of the option, the vesting period and the expected remaining term of the outstanding options.
In accordance with Accounting Standards Updates (ASU) 2016-09, Compensation—Stock Compensation: Improvements to Employee Share-Based Accounting, we elected to continue to estimate forfeitures in the calculation of stock-based compensation expense.
Total compensation cost, net of forfeitures, for all options granted but not yet vested as of June 30, 2020 was $1.2 million which is expected to be recognized over the weighted average period of 1.13 years.
7. INTANGIBLE ASSETS
Intangible assets are amortized over the estimated lives, as follows (in thousands, except expected life):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
|
Carrying |
|
Accumulated |
|
Net Balance |
|
|
|
Statements of Operations |
|||
Intangible Asset |
|
Amount |
|
Amortization |
|
June 30, 2020 |
|
Life |
|
Category |
|||
Customer relationships - maintenance contracts |
|
|
1,610 |
|
|
(1,584) |
|
|
26 |
|
6 |
|
Cost of recurring |
|
|
$ |
1,610 |
|
$ |
(1,584) |
|
$ |
26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
|
Carrying |
|
Accumulated |
|
Net Balance |
|
|
|
Statements of Operations |
|||
Intangible Asset |
|
Amount |
|
Amortization |
|
June 30, 2019 |
|
Life |
|
Category |
|||
Customer relationships - maintenance contracts |
|
|
1,610 |
|
|
(1,316) |
|
|
294 |
|
6 |
|
Cost of recurring |
|
|
$ |
1,610 |
|
$ |
(1,316) |
|
$ |
294 |
|
|
|
|
Amortization expense related to the above intangible assets for fiscal year ended June 30, 2020 and 2019 was $268,000 and $438,000, respectively.
8. LEASES
We lease our office facilities under non-cancelable operating leases that expire on various dates through fiscal year 2024. Additionally, we are the sublessor for certain office space. All of our office leases are classified as operating leases with lease expense recognized on a straight-line basis over the lease term. Lease right-of-use assets and liabilities are recognized at the commencement date at the present value of lease payments over the lease term. As our leases do not provide an implicit rate, we use our incremental borrowing rate based on information available at the commencement date in determining the present value of lease payments.
72
The following table presents information about leases on our consolidated balance sheet (in thousands):
The following table presents information about the weighted average lease term and discount rate as follows:
|
|
|
|
|
|
|
As of June 30, 2020 |
|
|
Weighted average remaining lease term (in years) |
|
|
2.01 |
|
Weighted average discount rate |
|
|
4.81 |
% |
The following table presents information about leases on our consolidated statement of operations (in thousands):
|
|
|
|
|
|
Fiscal Year Ended |
|
|
|
June 30, 2020 |
|
Operating lease expense |
|
$ |
1,726 |
Short-term lease expense |
|
|
13 |
Sublease income |
|
|
618 |
The following table presents supplemental cash flow information about our leases (in thousands):
|
|
|
|
|
|
Fiscal Year Ended |
|
|
|
June 30, 2020 |
|
Operating cash outflows from operating leases |
|
$ |
1,809 |
Right-of-use assets obtained in exchange for new operating lease liabilities |
|
|
— |
As of June 30, 2020, remaining maturities of lease liabilities are as follows (in thousands):
73
9. COMMITMENTS AND CONTINGENCIES
Employee benefit plans
Defined Contribution Plans
We sponsor an employee savings and retirement plan, the 401(k) Plan, as allowed under Section 401(k) of the Internal Revenue Code. The 401(k) Plan is available to all domestic employees who meet minimum age and service requirements, and provides employees with tax deferred salary deductions and alternative investment options. Employees may contribute up to 60% of their salary, subject to certain limitations. We, at the discretion of our board of directors, may contribute to the 401(k) Plan. In fiscal years 2020 and 2019, we contributed approximately $463,000 and $464,000 to the 401(k) Plan, respectively. We also have a defined contribution plan related to our foreign subsidiaries. Amounts expensed under this plan were $466,000 and $441,000, for the fiscal years ended June 30, 2020 and 2019, respectively.
Gratuity Plan—India
In accordance with Gratuity Act of 1972, we sponsor a defined benefit plan (Gratuity Plan) for all of our India employees. The Gratuity Plan is required by local law, which provides a lump sum payment to vested employees upon retirement or termination of employment in an amount based on each employee’s salary and duration of employment with the Company. The Gratuity Plan benefit cost for the year is calculated on an actuarial basis. Current service costs and actuarial gains or losses, or prior service cost, for the Gratuity Plan were insignificant for the fiscal years 2020 and 2019.
Warranty
We generally warrant that the program portion of our software will perform substantially in accordance with certain specifications for a period up to one year from the date of delivery. Our liability for a breach of this warranty is either a return of the license fee or providing a fix, patch, work-around or replacement of the software.
We also provide standard warranties against and indemnification for the potential infringement of third party intellectual property rights to our customers relating to the use of our products, as well as indemnification agreements with certain officers and employees under which we may be required to indemnify such persons for liabilities arising out of their duties to us. The terms of such obligations vary. Generally, the maximum obligation is the amount permitted by law.
Historically, costs related to these warranties have not been significant. However, we cannot guarantee that a warranty reserve will not become necessary in the future.
Indemnification
We have agreed to indemnify our directors and executive officers for costs associated with any fees, expenses, judgments, fines and settlement amounts incurred by any of these persons in any action or proceeding to which any of those persons is, or is threatened to be, made a party by reason of the person’s service as a director or officer, including any action by us, arising out of that person’s services as our director or officer or that person’s services provided to any other company or enterprise at our request.
Transfer Pricing
We have received transfer-pricing assessments from tax authorities with regard to transfer pricing issues for certain fiscal years, which we have appealed with the appropriate authority. We review the status of each significant matter and assess its potential financial exposure. We believe that such assessments are without merit and would not have a significant impact on our consolidated financial statements.
74
Contractual Obligations and Commitments
Contractual agreements with third parties consist of software licenses, maintenance and support for our operations. As of June 30, 2020, we have paid all non-cancelable contractual agreements related to these software licenses. As of June 30, 2019, future payments for non-cancelable contractual agreements was $1.3 million.
We have no significant commitments related to co-location services for cloud operations as of June 30, 2020 and 2019.
10. LITIGATION
In the ordinary course of business, we are involved in various legal proceedings and claims related to alleged infringement of third-party patents and other intellectual property rights, commercial, corporate and securities, labor and employment, wage and hour, and other claims that are not expected to have a material impact. We have been, and may in the future be, put on notice and/or sued by third parties for alleged infringement of their proprietary rights, including patent infringement.
We evaluate all claims and lawsuits with respect to their potential merits, our potential defenses and counterclaims, settlement or litigation potential and the expected effect on us. Our technologies may be subject to injunction if they are found to infringe the rights of a third party. In addition, our agreements require us to indemnify our customers for third-party intellectual property infringement claims, which could increase the cost to us of an adverse ruling on such a claim.
11. FAIR VALUE MEASUREMENT
ASC 820, Fair Value Measurement and Disclosures, defines fair value, establishes a framework for measuring fair value of assets and liabilities, and expands disclosures about fair value measurements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the assets or liabilities in an orderly transaction between market participants on the measurement date. Subsequent changes in fair value of these financial assets and liabilities are recognized in earnings or other comprehensive income when they occur. ASC 820 applies whenever other statements require or permit assets or liabilities to be measured at fair value.
ASC 820 includes a fair value hierarchy, of which the first two are considered observable and the last unobservable, that is intended to increase the consistency and comparability in fair value measurements and related disclosures. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Observable inputs reflect assumptions market participants would use in pricing an asset or liability based on market data obtained from independent sources while unobservable inputs reflect a reporting entity’s pricing based upon their own market assumptions.
The fair value hierarchy consists of the following three levels:
Level 1 – instrument valuations are obtained from real-time quotes for transactions in active exchange markets involving identical assets.
Level 2 – instrument valuations are obtained from readily-available pricing sources for comparable instruments.
Level 3 – instrument valuations are obtained without observable market value and require a high level of judgment to determine the fair value.
Our money market funds are measured at fair value on a recurring basis based on quoted market prices in active markets and are classified as level 1 within the fair value hierarchy. As of June 30, 2020 and 2019, cash equivalents classified as level 1 instruments were measured at $41.8 million and $29.2 million, respectively.
75
12. QUARTERLY FINANCIAL DATA (Unaudited)
Following is a summary of quarterly operating results and share data for the years ended June 30, 2020 and 2019, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st Quarter |
|
2nd Quarter |
|
3rd Quarter |
|
4th Quarter |
|
Fiscal Year |
|||||
|
|
(in thousands, except per share data) |
|||||||||||||
Fiscal 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
17,190 |
|
$ |
18,155 |
|
$ |
18,354 |
|
$ |
19,030 |
|
$ |
72,729 |
Gross profit |
|
$ |
11,875 |
|
$ |
12,911 |
|
$ |
12,854 |
|
$ |
14,007 |
|
$ |
51,648 |
Income from operations |
|
$ |
1,095 |
|
$ |
2,002 |
|
$ |
1,757 |
|
$ |
2,553 |
|
$ |
7,406 |
Net income |
|
$ |
1,217 |
|
$ |
1,973 |
|
$ |
1,867 |
|
$ |
2,151 |
|
$ |
7,208 |
Basic net income per share |
|
$ |
0.04 |
|
$ |
0.06 |
|
$ |
0.06 |
|
$ |
0.07 |
|
$ |
0.24 |
Diluted net income per share |
|
$ |
0.04 |
|
$ |
0.06 |
|
$ |
0.06 |
|
$ |
0.07 |
|
$ |
0.23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
15,701 |
|
$ |
17,704 |
|
$ |
17,004 |
|
$ |
16,823 |
|
$ |
67,232 |
Gross profit |
|
$ |
10,466 |
|
$ |
12,162 |
|
$ |
11,707 |
|
$ |
11,056 |
|
$ |
45,391 |
Income from operations |
|
$ |
753 |
|
$ |
2,129 |
|
$ |
1,789 |
|
$ |
851 |
|
$ |
5,522 |
Net income |
|
$ |
604 |
|
$ |
2,000 |
|
$ |
1,398 |
|
$ |
166 |
|
$ |
4,168 |
Basic net income per share |
|
$ |
0.02 |
|
$ |
0.07 |
|
$ |
0.05 |
|
$ |
0.01 |
|
$ |
0.15 |
Diluted net income per share |
|
$ |
0.02 |
|
$ |
0.07 |
|
$ |
0.05 |
|
$ |
0.01 |
|
$ |
0.14 |
76
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures.
We maintain “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (Exchange Act), that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Our disclosure controls and procedures have been designed to meet reasonable assurance standards. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Based on their evaluation as of the end of the period covered by this Annual Report on Form 10-K, our Chief Executive Officer and Chief Financial Officer have concluded that, as of June 30, 2020, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Controls.
There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Management’s Annual Report on Internal Control Over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of the effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control—Integrated Framework (2013), our management concluded that our internal control over financial reporting was effective as of June 30, 2020.
OTHER INFORMATION |
None.
77
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
The information required by this item (with respect to our Directors) is incorporated by reference from the information under the heading “Election of Directors” contained in eGain’s definitive Proxy Statement to be filed with the Securities and Exchange Commission in connection with the solicitation of proxies for eGain’s 2020 Annual Meeting of Stockholders (Proxy Statement).
Certain information required by this item concerning executive officers is set forth in Part I, Item 1 of this report under the caption “Information About Our Executive Officers” and is incorporated herein by reference.
The information contained under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement is incorporated herein by reference.
EXECUTIVE COMPENSATION |
The information contained under the headings “Executive Compensation” and “Compensation Committee Report” and under the captions “Director Compensation” in the Proxy Statement is incorporated herein by reference.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
The information contained under the heading “Security Ownership of Certain Beneficial Owners and Management” in the Proxy Statement is incorporated herein by reference.
The following table summarizes our equity compensation plans as of June 30, 2020:
78
Equity Compensation Plans Not Approved By Security Holders
2005 Management Stock Option Plan
In May 2005, our board of directors adopted the 2005 Management Stock Option Plan (2005 Management Plan), pursuant to which the Compensation Committee may grant non-qualified stock options to purchase up to 962,400 shares of eGain common stock, at an exercise price of not less than 100% of the fair market value of such common stock, to directors, officers and key employees of the Company and its subsidiaries. Options granted under the 2005 Management Plan are subject to vesting as determined by the Compensation Committee. The options are exercisable for up to ten years from the date of grant.
Our board of directors approved an increase of 500,000 shares of common stock authorized for issuance under the 2005 Management Plan in November 2007 and another increase of 500,000 shares of common stock authorized for issuance under the 2005 Management Plan in September 2011.
In September 2014, our board of directors approved an amendment to the 2005 Management Plan that increased the number of shares of common stock reserved for issuance by 1,000,000 shares from 1,962,400 shares to 2,962,400 shares and extended the expiration date of the of the 2005 Management Plan to September 30, 2024.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE |
The information contained under the captions “Related Party Transactions” and “Director Independence” in the Proxy Statement is incorporated herein by reference.
PRINCIPAL ACCOUNTING FEES AND SERVICES |
The information contained under the heading “Ratification of Independent Registered Public Accounting Firm” in the Proxy Statement is incorporated herein by reference.
79
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
(a) | 1. Financial Statements |
See Index to Consolidated Financial Statements in Item 8 of this report.
2. Financial Statement Schedule
The following schedule, which is filed as part of this Form 10-K: Schedule II—Valuation and Qualifying Accounts for the fiscal years ended June 30, 2020 and 2019.
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
Years Ended June 30, 2020 and 2019
(in thousands)
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Amounts |
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Balance at |
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Additions |
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Written Off, |
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Beginning of |
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Charged to |
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Net of |
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Balance at |
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Period |
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Expense |
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Recoveries |
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End of Period |
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Allowance for Doubtful Accounts: |
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Year ended June 30, 2020 |
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$ |
320 |
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$ |
317 |
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$ |
(253) |
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$ |
384 |
Year ended June 30, 2019 |
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$ |
256 |
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$ |
253 |
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$ |
(189) |
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$ |
320 |
All other financial statement schedules have been omitted because they are not applicable or not required or because the information in included elsewhere in the Consolidated Financial Statements or the Notes thereto.
3. Exhibits
See Item 15(b) of this report.
All other schedules have been omitted since they are either not required, not applicable or the information has been included in the consolidated financial statements or notes thereto.
(b) | Exhibits |
The exhibits listed below are filed or incorporated by reference herein. Each management contract or compensatory plan or arrangement required to be filed has been identified.
Exhibit
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Description of Exhibits |
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3(i).1 |
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3(i).2 |
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3(ii) |
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4.1 |
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4.2 |
Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934. |
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80
10.1# |
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10.2# |
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10.3# |
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10.4# |
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10.5# |
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10.6 |
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10.7 |
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10.8 |
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10.9 |
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10.11 |
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21.1 |
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23.1 |
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Consent of BPM LLP, Independent Registered Public Accounting Firm. |
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31.1 |
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31.2 |
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32.1* |
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32.2* |
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101.INS |
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XBRL Instance Document |
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101.SCH |
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XBRL Taxonomy Extension Schema Document |
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101.CAL |
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XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF |
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XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB |
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XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE |
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XBRL Taxonomy Extension Presentation Linkbase Document |
# |
Indicates management contract or compensatory plan or arrangement. |
81
* |
This exhibit is not deemed “filed” with the Securities and Exchange Commission and is not to be incorporated by reference into any filing of the Registrant under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after date hereof and irrespective of any general incorporation language contained in such filing. |
(c) |
Financial Statements |
Reference is made to Item 15(a)(2) above.
ITEM 16. |
Not applicable.
82
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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eGain Corporation |
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Date: September 11, 2020 |
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By: |
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/s/ ASHUTOSH ROY |
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Chief Executive Officer |
KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears below constitutes and appoints Ashutosh Roy 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 to this annual report, 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 Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Name |
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Title |
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Date |
---|---|---|---|---|
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/s/ ASHUTOSH ROY |
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Chief Executive Officer and Director
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September 11, 2020 |
Ashutosh Roy |
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/s/ ERIC N. SMIT |
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Chief Financial Officer |
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September 11, 2020 |
Eric N. Smit |
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(Duly Authorized Officer and Principal Financial
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/s/ CHRISTINE RUSSELL |
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Director |
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September 11, 2020 |
Christine Russell |
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/s/ GUNJAN SINHA |
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Director |
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September 11, 2020 |
Gunjan Sinha |
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/s/ PHIROZ P. DARUKHANAVALA |
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Director |
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September 11, 2020 |
Phiroz P. Darukhanavala |
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/s/ BRETT SHOCKLEY |
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Director |
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September 11, 2020 |
Brett Shockley |
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83
Exhibit 4.2
EGAIN CORPORATION
DESCRIPTION OF SECURITIES REGISTERED PURSUANT TO
SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934
eGain Corporation, a Delaware corporation (“we”, “us” or “our”), has one class of securities registered pursuant to Section 12 of the Securities Exchange Act of 1934: our common stock, par value $0.001 per share. The general terms and provisions of our common stock are summarized below. This summary does not purport to be complete and is qualified in its entirety by reference to our restated certificate of incorporation and our amended and restated bylaws, each of which has been filed as an exhibit to our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”), as may be amended by a document filed with one of our periodic reports filed with the SEC subsequent to the date of that Annual Report.
Common Stock
We are authorized to issue 50 million shares of common stock. Each holder of common stock is entitled to one vote for each share of common stock held on all matters submitted to a vote of stockholders. We have not provided for cumulative voting for the election of directors in our restated certificate of incorporation. This means that the holders of a majority of the shares voted can elect all of the directors then standing for election. Subject to preferences that may apply to shares of preferred stock outstanding at the time, the holders of outstanding shares of our common stock are entitled to receive dividends out of assets legally available at the times and in the amounts that our board of directors may determine from time to time. Upon our liquidation, dissolution or winding-up, the holders of common stock are entitled to share ratably in all assets remaining after payment of all liabilities and the liquidation preferences of any outstanding preferred stock. Holders of common stock have no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of common stock are fully paid and nonassessable, and the shares of common stock offered, when issued, will be fully paid and nonassessable.
Anti-Takeover Effects of Delaware Law and Our Certificate of Incorporation and Bylaws
Certain provisions of Delaware law, our restated certificate of incorporation and our amended and restated bylaws could have the effect of delaying, deferring or discouraging another party from acquiring control of us.
Certificate of Incorporation and Bylaws
Our restated certificate of incorporation and amended and restated bylaws provide that:
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• |
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no action can be taken by stockholders except at an annual or special meeting of the stockholders called in accordance with our bylaws, and stockholders may not act by written consent; |
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• |
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our board of directors is authorized to issue up to 5,000,000 shares of preferred stock without stockholder approval, with such designations, powers, preferences and other rights and qualifications, limitations or restrictions as our board of directors may authorize, which preferred stock could decrease the amount of earnings and assets available for distribution to holders of our common stock or adversely affect the rights and powers, including voting rights, of holders of our common stock, and of which 5,000,000 shares of preferred stock remain undesignated as of June 30, 2020; and |
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• |
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we will indemnify officers and directors against losses that they may incur in investigations and legal proceedings resulting from their services to us, which may include services in connection with takeover defense measures. |
Delaware Law
We are subject to the provisions of Section 203 of the General Corporation Law of the State of Delaware regulating corporate takeovers. In general, those provisions prohibit a publicly-held Delaware corporation from engaging, under certain circumstances, in any business combination with any interested stockholder for a period of three years following the date that the person became an interested stockholder unless:
Exhibit 4.2
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• |
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prior to the date of the transaction, the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; |
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• |
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upon completion 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 voting stock outstanding, but not the outstanding voting stock owned by the interested stockholder, (1) shares owned by persons who are directors and also officers and (2) shares owned 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 |
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• |
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on or subsequent to the date of the transaction, the business combination is approved by the board of directors of the corporation 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. |
Generally, a “business combination” includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the “interested stockholder” and an “interested stockholder” is a person who, together with affiliates and associates, owns or, within three years prior to the determination of interested stockholder status, did own 15% or more of a corporation’s outstanding voting stock.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Computershare, Inc.
Listing
Our common stock is listed on The Nasdaq Capital Market under the symbol “EGAN.”
Exhibit 10.5
eGAIN CORPORATION
2017 EMPLOYEE STOCK PURCHASE PLAN
(as adopted by the Board October 16, 2017)
Table of Contents
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Page |
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SECTION 1 |
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Purpose Of The Plan. |
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1 |
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SECTION 2 |
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Definitions. |
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1 |
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(a) |
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“Board” |
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1 |
(b) |
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“Code” |
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1 |
(c) |
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“Committee” |
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1 |
(d) |
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“Company” |
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1 |
(e) |
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“Compensation” |
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1 |
(f) |
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“Corporate Reorganization” |
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1 |
(g) |
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“Eligible Employee” |
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2 |
(h) |
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“Exchange Act” |
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2 |
(i) |
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“Fair Market Value” |
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2 |
(j) |
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“Offering” |
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2 |
(k) |
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“Offering Date” |
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2 |
(l) |
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“Offering Period” |
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2 |
(m) |
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“Participant” |
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2 |
(n) |
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“Participating Company” |
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2 |
(o) |
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“Plan” |
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2 |
(p) |
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“Plan Account” |
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2 |
(q) |
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“Purchase Date” |
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3 |
(r) |
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“Purchase Period” |
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3 |
(s) |
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“Purchase Price” |
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3 |
(t) |
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“Stock” |
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3 |
(u) |
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“Subsidiary” |
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3 |
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SECTION 3 |
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Administration Of The Plan. |
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3 |
(a) |
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Administrative Powers and Responsibilities |
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3 |
(b) |
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International Administration |
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3 |
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SECTION 4 |
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Enrollment And Participation. |
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4 |
(a) |
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Offering Periods |
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4 |
(b) |
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Enrollment |
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4 |
(c) |
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Duration of Participation |
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4 |
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SECTION 5 |
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Employee Contributions. |
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5 |
(a) |
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Frequency of Payroll Deductions |
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5 |
(b) |
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Amount of Payroll Deductions |
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5 |
(c) |
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Changing Withholding Rate |
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5 |
(d) |
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Discontinuing Payroll Deductions |
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5 |
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SECTION 6 |
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Withdrawal From The Plan. |
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5 |
(a) |
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Withdrawal |
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5 |
(b) |
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Re-enrollment After Withdrawal |
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6 |
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SECTION 7 |
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Change In Employment Status. |
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6 |
(a) |
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Termination of Employment |
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6 |
(b) |
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Leave of Absence |
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6 |
(c) |
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Death |
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6 |
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SECTION 8 |
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Plan Accounts and Purchase Of Shares. |
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6 |
(a) |
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Plan Accounts |
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6 |
(b) |
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Purchase Price |
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6 |
(c) |
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Number of Shares Purchased |
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6 |
(d) |
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Available Shares Insufficient |
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7 |
(e) |
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Issuance of Stock |
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7 |
(f) |
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Unused Cash Balances |
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7 |
(g) |
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Stockholder Approval |
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7 |
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SECTION 9 |
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Limitations On Stock Ownership. |
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7 |
(a) |
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Five Percent Limit |
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7 |
(b) |
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Dollar Limit |
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8 |
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SECTION 10 |
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Rights Not Transferable. |
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8 |
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SECTION 11 |
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No Rights As An Employee |
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8 |
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SECTION 12 |
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No Rights As A Stockholder. |
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9 |
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SECTION 13 |
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Securities Law Requirements. |
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9 |
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SECTION 14 |
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Stock Offered Under The Plan. |
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9 |
(a) |
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Authorized Shares |
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9 |
(b) |
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Antidilution Adjustments |
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9 |
(c) |
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Reorganizations |
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9 |
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SECTION 15 |
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Amendment Or Discontinuance. |
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10 |
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SECTION 16 |
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Execution. |
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10 |
eGAIN CORPORATION
2017 EMPLOYEE STOCK PURCHASE PLAN
SECTION 1 Purpose Of The Plan.
The Plan was adopted by the Board on October 16, 2017 and shall be effective on November 21, 2017, subject to stockholder approval (the “Effective Date”). The purpose of the Plan is to provide Eligible Employees with an opportunity to increase their proprietary interest in the success of the Company by purchasing Stock from the Company on favorable terms and to pay for such purchases through payroll deductions. The Plan is intended to qualify under section 423 of the Code.
SECTION 2 Definitions.
(a) “Board” means the Board of Directors of the Company, as constituted from time to time.
(b) “Code” means the Internal Revenue Code of 1986, as amended.
(c) “Committee” means the Compensation Committee of the Board or such other committee, comprised exclusively of one or more directors of the Company, as may be appointed by the Board from time to time to administer the Plan.
(d) “Company” means eGain Corporation, a Delaware corporation.
(e) “Compensation” means, unless provided otherwise by the Committee in the terms and conditions of an Offering, base salary and wages paid in cash to a Participant by a Participating Company, without reduction for any pre-tax contributions made by the Participant under sections 401(k) or 125 of the Code. “Compensation” shall, unless provided otherwise by the Committee in the terms and conditions of an Offering, exclude variable compensation (including commissions, bonuses, incentive compensation, overtime pay and shift premiums), all non-cash items, moving or relocation allowances, cost-of-living equalization payments, car allowances, tuition reimbursements, imputed income attributable to cars or life insurance, severance pay, fringe benefits, contributions or benefits received under employee benefit plans, income attributable to the exercise of stock options, and similar items. The Committee shall determine whether a particular item is included in Compensation.
(f) “Corporate Reorganization” means:
(i) The consummation of a merger or consolidation of the Company with or into another entity, or any other corporate reorganization; or
(ii) The sale, transfer or other disposition of all or substantially all of the Company’s assets or the complete liquidation or dissolution of the Company.
(g) “Eligible Employee” means any employee of a Participating Company whose customary employment is for more than five months per calendar year and for more than 20 hours per week.
The foregoing notwithstanding, an individual shall not be considered an Eligible Employee if his or her participation in the Plan is prohibited by the law of any country which has jurisdiction over him or her.
(h) “Exchange Act” means the Securities Exchange Act of 1934, as amended.
(i) “Fair Market Value” means the fair market value of a share of Stock, determined as follows:
(i) If Stock was traded on any established national securities exchange including the New York Stock Exchange or The NASDAQ Stock Market on the date in question, then the Fair Market Value shall be equal to the closing price as quoted on such exchange (or the exchange with the greatest volume of trading in the Stock) on such date as reported in the Wall Street Journal or such other source as the Committee deems reliable; or
(ii) If the foregoing provision is not applicable, then the Fair Market Value shall be determined by the Committee in good faith on such basis as it deems appropriate.
For any date that is not a Trading Day, the Fair Market Value of a share of Stock for such date shall be determined by using the closing sale price for the immediately preceding Trading Day. Determination of the Fair Market Value pursuant to the foregoing provisions shall be conclusive and binding on all persons.
(j) “Offering” means the grant of options to purchase shares of Stock under the Plan to Eligible Employees.
(k) “Offering Date” means the first day of an Offering.
(l) “Offering Period” means a period with respect to which the right to purchase Stock may be granted under the Plan, as determined pursuant to Section 4(a).
(m) “Participant” means an Eligible Employee who elects to participate in the Plan, as provided in Section 4(b).
(n) “Participating Company” means (i) the Company and (ii) each present or future Subsidiary designated by the Committee as a Participating Company.
(o) “Plan” means this eGain Corporation 2017 Employee Stock Purchase Plan, as it may be amended from time to time.
(p) “Plan Account” means the account established for each Participant pursuant to Section 8(a).
(q) “Purchase Date” means one or more dates during an Offering on which shares of Stock may be purchased pursuant to the terms of the Offering.
(r) “Purchase Period” means one or more successive periods during an Offering, beginning on the Offering Date or on the day after a Purchase Date, and ending on the next succeeding Purchase Date.
(s) “Purchase Price” means the price at which Participants may purchase shares of Stock under the Plan, as determined pursuant to Section 8(b).
(t) “Stock” means the Common Stock of the Company.
(u) “Subsidiary” means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
(r) “Trading Day” means a day on which the national stock exchange on which the Stock is traded is open for trading.
SECTION 3 Administration Of The Plan.
(a) Administrative Powers and Responsibilities. The Plan shall be administered by the Committee. The Committee shall have full power and authority, subject to the provisions of the Plan, to promulgate such rules and regulations as it deems necessary for the proper administration of the Plan, to interpret the provisions and supervise the administration of the Plan, and to take all action in connection therewith or in relation thereto as it deems necessary or advisable. Any decision reduced to writing and signed by all of the members of the Committee shall be fully effective as if it had been made at a meeting duly held. The Committee’s determinations under the Plan, unless otherwise determined by the Board, shall be final and binding on all persons. The Company shall pay all expenses incurred in the administration of the Plan. No member of the Committee shall be personally liable for any action, determination, or interpretation made in good faith with respect to the Plan, and all members of the Committee shall be fully indemnified by the Company with respect to any such
action, determination or interpretation. The Committee may adopt such rules, guidelines and forms as it deems appropriate to implement the Plan. Subject to the requirements of applicable law, the Committee may designate persons other than members of the Committee to carry out its responsibilities and may prescribe such conditions and limitations as it may deem appropriate. All decisions, interpretations and other actions of the Committee shall be final and binding on all Participants and all persons deriving their rights from a Participant. No member of the Committee shall be liable for any action that he has taken or has failed to take in good faith with respect to the Plan. Notwithstanding anything to the contrary in the Plan, the Board may, in its sole discretion, at any time and from time to time, resolve to administer the Plan. In such event, the Board shall have all of the authority and responsibility granted to the Committee herein.
(b) International Administration. The Committee may establish sub-plans (which need not qualify under section 423 of the Code) and initiate separate Offerings through such sub-plans for the purpose of (i) facilitating participation in the Plan by non-U.S. employees in compliance with foreign laws and regulations without affecting the qualification of the remainder of the Plan under section 423 of the Code or (ii) qualifying the Plan for preferred tax treatment under foreign tax laws (which sub-plans, at the Committee’s discretion, may provide for allocations of the authorized shares reserved for issue under the Plan as set forth in Section 14(a)). The rules, guidelines and forms of such sub-plans (or the Offerings thereunder) may take precedence over other provisions of the Plan, with the exception of Section 4(a)(i), Section 5(b), Section 8(b) and Section 14(a), but unless otherwise superseded by the terms of such sub-plan, the provisions of the Plan shall govern the operation of such sub-plan. Alternatively and in order to comply with the laws of a foreign jurisdiction, the Committee shall have the power, in its discretion, to grant options in an Offering to citizens or residents of a non-U.S. jurisdiction (without regard to whether they are also citizens of the United States or resident aliens) that provide terms which are less favorable than the terms of options granted under the same Offering to employees resident in the United States, subject to compliance with section 423 of the Code.
SECTION 4 Enrollment And Participation.
(a) Offering Periods. While the Plan is in effect, the Committee may from time to time grant options to purchase shares of Stock pursuant to the Plan to Eligible Employees during a specified Offering Period. Each such Offering shall be in such form and shall contain such terms and conditions as the Committee shall determine, subject to compliance with the terms and conditions of the Plan (which may be incorporated by reference) and the requirements of section 423 of the Code, including the requirement that all Eligible Employees have the same rights and privileges. The Committee shall specify prior to the commencement of each Offering (i) the period during which the Offering shall be effective, which may not exceed 27 months from the Offering Date and may include one or more successive Purchase
Periods within the Offering, (ii) the Purchase Dates and Purchase Price for shares of Stock which may be purchased pursuant to the Offering, and (iii) if applicable, any limits on the number of shares purchasable by a Participant, or by all Participants in the aggregate, during any Offering Period or, if applicable, Purchase Period, in each case consistent with the limitations of the Plan. The Committee shall have the discretion to provide for the automatic termination of an Offering following any Purchase Date on which the Fair Market Value of a share of Stock is equal to or less than the Fair Market Value of a share of Stock on the Offering Date, and for the Participants in the terminated Offering to be automatically re-enrolled in a new Offering that commences immediately after such Purchase Date. The terms and conditions of each Offering need not be identical, and shall be deemed incorporated by reference and made a part of the Plan.
(b) Enrollment. Any individual who, on the day preceding the first day of an Offering Period, qualifies as an Eligible Employee may elect to become a Participant in the Plan for such Offering Period by completing the enrollment process prescribed and communicated for this purposes from time to time by the Company to Eligible Employees.
(c) Duration of Participation. Once enrolled in the Plan, a Participant shall continue to participate in the Plan until he or she ceases to be an Eligible Employee or withdraws from the Plan under Section 6(a). A Participant who withdrew from the Plan under Section 6(a) may again become a Participant, if he or she then is an Eligible Employee, by following the procedure described in Subsection (b) above. A Participant whose employee contributions were discontinued automatically under Section 9(b) shall automatically resume participation at the beginning of the earliest Offering Period ending in the next calendar year, if he or she then is an Eligible Employee. When a Participant reaches the end of an Offering Period but his or her participation is to continue, then such Participant shall automatically be re-enrolled for the Offering Period that commences immediately after the end of the prior Offering Period.
SECTION 5 Employee Contributions.
(a) Frequency of Payroll Deductions. A Participant may purchase shares of Stock under the Plan solely by means of payroll deductions; provided, however, that to the extent provided in the terms and conditions of an Offering, a Participant may also make contributions through payment by cash or check prior to one or more Purchase Dates during the Offering. Payroll deductions, subject to the provisions of Subsection (b) below or as otherwise provided under the terms and conditions of an Offering, shall occur on each payday during participation in the Plan.
(b) Amount of Payroll Deductions. An Eligible Employee shall designate during the enrollment process the portion of his or her Compensation that he or she elects to have withheld for the purchase of Stock. Such portion shall be a whole percentage of the Eligible
Employee’s Compensation, but not less than 1% nor more than 15% (or such lower rate of Compensation specified as the limit in the terms and conditions of the applicable Offering).
(c) Changing Withholding Rate. Unless otherwise provided under the terms and conditions of an Offering, a Participant may not increase the rate of payroll withholding during the Offering Period, but may discontinue or decrease the rate of payroll withholding during the Offering Period to a whole percentage of his or her Compensation in accordance with such procedures and subject to such limitations as the Company may establish for all Participants. A Participant may also increase or decrease the rate of payroll withholding effective for a new Offering Period by submitting an authorization to change the payroll deduction rate pursuant to the process prescribed by the Company from time to time. The new withholding rate shall be a whole percentage of the Eligible Employee’s Compensation consistent with Subsection (b) above.
(d) Discontinuing Payroll Deductions. If a Participant wishes to discontinue employee contributions entirely, he or she may do so by withdrawing from the Plan pursuant to Section 6(a). In addition, employee contributions may be discontinued automatically pursuant to Section 9(b).
SECTION 6 Withdrawal From The Plan.
(a) Withdrawal. A Participant may elect to withdraw from the Plan by giving notice pursuant to the process prescribed and communicated by the Company from time to time. Such withdrawal may be elected at any time before the last day of an Offering Period, except as otherwise provided in the Offering. In addition, if payment by cash or check is permitted under the terms and conditions of an Offering, Participants may be deemed to withdraw from the Plan by declining or failing to remit timely payment to the Company for the shares of Stock. As soon as reasonably practicable thereafter, payroll deductions shall cease and the entire amount credited to the Participant’s Plan Account shall be refunded to him or her in cash, without interest. No partial withdrawals shall be permitted.
(b) Re-enrollment After Withdrawal. A former Participant who has withdrawn from the Plan shall not be a Participant until he or she re-enrolls in the Plan under Section 4(b). Re-enrollment may be effective only at the commencement of an Offering Period.
SECTION 7 Change In Employment Status.
(a) Termination of Employment. Termination of employment as an Eligible Employee for any reason, including death, shall be treated as an automatic withdrawal from the Plan under Section 6(a). A transfer from one Participating Company to another shall not be treated as a termination of employment.
(b) Leave of Absence. For purposes of the Plan, employment shall not be deemed to terminate when the Participant goes on a military leave, a sick leave or another bona fide leave of absence, if the leave was approved by the Company in writing. Employment, however, shall be deemed to terminate three months after the Participant goes on a leave, unless a contract or statute guarantees his or her right to return to work. Employment shall be deemed to terminate in any event when the approved leave ends, unless the Participant immediately returns to work.
(c) Death. In the event of the Participant’s death, the amount credited to his or her Plan Account shall be paid to the Participant’s estate.
SECTION 8 Plan Accounts and Purchase Of Shares.
(a) Plan Accounts. The Company shall maintain a Plan Account on its books in the name of each Participant. Whenever an amount is deducted from the Participant’s Compensation under the Plan, such amount shall be credited to the Participant’s Plan Account. Amounts credited to Plan Accounts shall not be trust funds and may be commingled with the Company’s general assets and applied to general corporate purposes. No interest shall be credited to Plan Accounts.
(b) Purchase Price. The Purchase Price for each share of Stock purchased during an Offering Period shall be the lesser of:
(i) 85% of the Fair Market Value of such share on the Purchase Date; or
(ii) 85% of the Fair Market Value of such share on the Offering Date.
The Committee may specify for an alternate Purchase Price amount or formula in the terms and conditions of an Offering, but in no event may such amount or formula result in a Purchase Price less than that calculated pursuant to the immediately preceding formula.
(c) Number of Shares Purchased. As of each Purchase Date, each Participant shall be deemed to have elected to purchase the number of shares of Stock calculated in accordance with this Subsection (c), unless the Participant has previously elected to withdraw from the Plan in accordance with Section 6(a). The amount then in the Participant’s Plan Account shall be divided by the Purchase Price, and the number of shares that results shall be purchased from the Company with the funds in the Participant’s Plan Account. Unless provided otherwise by the Committee prior to commencement of an Offering, the maximum number of shares of Stock which may be purchased by an individual Participant during such Offering is 25,000 shares. The foregoing notwithstanding, no Participant shall purchase more than such number of shares of Stock as may be determined by the Committee with respect to the Offering Period, or Purchase Period, if applicable, nor more than the amounts of Stock set forth in Sections 9(b)
and 14(a). For each Offering Period and, if applicable, Purchase Period, the Committee shall have the authority to establish additional limits on the number of shares purchasable by all Participants in the aggregate.
(d) Available Shares Insufficient. In the event that the aggregate number of shares that all Participants elect to purchase during an Offering Period exceeds the maximum number of shares remaining available for issuance under Section 14(a), or which may be purchased pursuant to any additional aggregate limits imposed by the Committee, then the number of shares to which each Participant is entitled shall be determined by multiplying the number of shares available for issuance by a fraction, the numerator of which is the number of shares that such Participant has elected to purchase and the denominator of which is the number of shares that all Participants have elected to purchase.
(e) Issuance of Stock. Certificates representing the shares of Stock purchased by a Participant under the Plan shall be issued to him or her as soon as reasonably practicable after the applicable Purchase Date, except that the Company may determine that such shares shall be held for each Participant’s benefit by a broker designated by the Company. Shares may be registered in the name of the Participant or jointly in the name of the Participant and his or her spouse as joint tenants with right of survivorship or as community property.
(f) Unused Cash Balances. An amount remaining in the Participant’s Plan Account that represents the Purchase Price for any fractional share shall be carried over in the Participant’s Plan Account to the next Offering Period or refunded to the Participant in cash at the end of the Offering Period, without interest, if his or her participation is not continued. Any amount remaining in the Participant’s Plan Account that represents the Purchase Price for whole shares that could not be purchased by reason of Subsection (c) or (d) above, Section 9(b) or Section 14(a) shall be refunded to the Participant in cash, without interest.
(g) Stockholder Approval. The Plan shall be submitted to the stockholders of the Company for their approval within twelve (12) months after the date the Plan is adopted by the Board. Any other provision of the Plan notwithstanding, no shares of Stock shall be purchased under the Plan unless and until the Company’s stockholders have approved the adoption of the Plan.
SECTION 9 Limitations On Stock Ownership.
(a) Five Percent Limit. Any other provision of the Plan notwithstanding, no Participant shall be granted a right to purchase Stock under the Plan if such Participant, immediately after his or her election to purchase such Stock, would own stock possessing 5% or more of the total combined voting power or value of all classes of stock of the Company or any parent or Subsidiary of the Company. For purposes of this Subsection (a), the following rules shall apply:
(i) Ownership of stock shall be determined after applying the attribution rules of section 424(d) of the Code;
(ii) Each Participant shall be deemed to own any stock that he or she has a right or option to purchase under this or any other plan; and
(iii) Each Participant shall be deemed to have the right to purchase up to the maximum number of shares of Stock that may be purchased by a Participant under this Plan under the individual limit specified pursuant to Section 8(c) with respect to each Offering Period.
(b) Dollar Limit. Any other provision of the Plan notwithstanding, no Participant shall accrue the right to purchase Stock at a rate which exceeds $25,000 of Fair Market Value of such Stock per calendar year (under this Plan and all other employee stock purchase plans of the Company or any parent or Subsidiary of the Company), determined in accordance with the provisions of section 423(b)(8) of the Code and applicable Treasury Regulations promulgated thereunder.
For purposes of this Subsection (b), the Fair Market Value of Stock shall be determined as of the beginning of the Offering Period in which such Stock is purchased. Employee stock purchase plans not described in section 423 of the Code shall be disregarded. If a Participant is precluded by this Subsection (b) from purchasing additional Stock under the Plan, then his or her employee contributions shall automatically be discontinued and shall resume at the beginning of the earliest Offering Period ending in the next calendar year (if he or she then is an Eligible Employee).
SECTION 10 Rights Not Transferable.
The rights of any Participant under the Plan, or any Participant’s interest in any Stock or moneys to which he or she may be entitled under the Plan, shall not be transferable by voluntary or involuntary assignment or by operation of law, or in any other manner other than by the laws of descent and distribution. If a Participant in any manner attempts to transfer, assign or otherwise encumber his or her rights or interest under the Plan, other than by the laws of descent and distribution, then such act shall be treated as an election by the Participant to withdraw from the Plan under Section 6(a).
SECTION 11 No Rights As An Employee.
Nothing in the Plan or in any right granted under the Plan shall confer upon the Participant any right to continue in the employ of a Participating Company for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Participating
Companies or of the Participant, which rights are hereby expressly reserved by each, to terminate his or her employment at any time and for any reason, with or without cause.
SECTION 12 No Rights As A Stockholder.
A Participant shall have no rights as a stockholder with respect to any shares of Stock that he or she may have a right to purchase under the Plan until such shares have been purchased on the applicable Purchase Date.
SECTION 13 Securities Law Requirements.
Shares of Stock shall not be issued under the Plan unless the issuance and delivery of such shares comply with (or are exempt from) all applicable requirements of law, including (without limitation) the Securities Act of 1933, as amended, the rules and regulations promulgated thereunder, state securities laws and regulations, and the regulations of any stock exchange or other securities market on which the Company’s securities may then be traded.
SECTION 14 Stock Offered Under The Plan.
(a) Authorized Shares. The maximum aggregate number of shares of Stock available for purchase under the Plan is 400,000 shares plus an annual increase to be added on the first day of each of the Company’s fiscal years for a period of up to ten years, beginning with the fiscal year that begins July 1, 2018, equal to the least of (i) one percent (1%) of the outstanding shares of Stock on such date, (ii) 300,000 shares, or (iii) a lesser amount determined by the Committee or Board. The aggregate number of shares available for purchase under the Plan (and the limit in clause ii to the annual increase thereto) shall at all times be subject to adjustment pursuant to Section 14(b).
(b) Antidilution Adjustments. The aggregate number of shares of Stock offered under the Plan, the individual and aggregate Participant share limitations described in Section 8(c) and the price of shares that any Participant has elected to purchase shall be adjusted proportionately by the Committee in the event of any change in the number of issued shares of Stock (or issuance of shares other than Common Stock) by reason of any forward or reverse share split, subdivision or consolidation, or share dividend or bonus issue, recapitalization, reclassification, merger, amalgamation, consolidation, split-up, spin-off, reorganization, combination, exchange of shares of Stock, the issuance of warrants or other rights to purchase shares of Stock or other securities, or any other change in corporate structure or in the event of any extraordinary distribution (whether in the form of cash, shares of Stock, other securities or other property).
(c) Reorganizations. Any other provision of the Plan notwithstanding, in the event of a Corporate Reorganization in which the Plan is not assumed by the surviving corporation or its
parent corporation pursuant to the applicable plan of merger or consolidation, the Offering Period then in progress shall terminate immediately prior to the effective time of such Corporate Reorganization and either shares shall be purchased pursuant to Section 8 or, if so determined by the Board or Committee, all amounts in all Participant Accounts shall be refunded pursuant to Section 15 without any purchase of shares. The Plan shall in no event be construed to restrict in any way the Company’s right to undertake a dissolution, liquidation, merger, consolidation or other reorganization.SECTION 15 Amendment Or Discontinuance.
The Board or Committee shall have the right to amend, suspend or terminate the Plan at any time and without notice. Upon any such amendment, suspension or termination of the Plan during an Offering Period, the Board or Committee may in its discretion determine that the applicable Offering shall immediately terminate and that all amounts in the Participant Accounts shall be carried forward into a payroll deduction account for each Participant under a successor plan, if any, or promptly refunded to each Participant. Except as provided in Section 14, any increase in the aggregate number of shares of Stock to be issued under the Plan shall be subject to approval by a vote of the stockholders of the Company. In addition, any other amendment of the Plan shall be subject to approval by a vote of the stockholders of the Company to the extent required by an applicable law or regulation. This Plan shall continue until the earlier to occur of (a) termination of this Plan pursuant to this Section 15 or (b) issuance of all of the shares of Stock reserved for issuance under this Plan.
SECTION 16 Execution.
To record the adoption of the Plan by the Board, the Company has caused its authorized officer to execute the same.
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eGAIN CORPORATION |
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By: |
/s/ Eric N. Smit |
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Name: |
Eric N. Smit |
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Title: |
Chief Financial Officer |
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Date: |
05/09/2019 |
Exhibit 10.6
CREDIT AGREEMENT
by and among
WELLS FARGO BANK, NATIONAL ASSOCIATION,
as Administrative Agent,
THE LENDERS THAT ARE PARTIES HERETO
as the Lenders,
eGAIN CORPORATION
and
EACH OF ITS SUBSIDIARIES THAT ARE SIGNATORIES HERETO
as Borrowers
Dated as of November 21, 2014
1.DEFINITIONS AND CONSTRUCTION.1
1.1Definitions1
1.2Accounting Terms1
1.3Code1
1.4Construction2
1.5Time References2
1.6Schedules and Exhibits2
2.LOANS AND TERMS OF PAYMENT.2
2.1Revolving Loans3
2.2Term Loan3
2.3Borrowing Procedures and Settlements4
2.4Payments; Reductions of Commitments; Prepayments9
2.5Promise to Pay; Promissory Notes15
2.6Interest Rates and Letter of Credit Fee: Rates, Payments, and Calculations15
2.7Crediting Payments17
2.8Designated Account17
2.9Maintenance of Loan Account; Statements of Obligations17
2.10Fees18
2.11Letters of Credit18
2.12LIBOR Option25
2.13Capital Requirements26
2.14[Reserved].28
2.15Joint and Several Liability of Borrowers28
3.CONDITIONS; TERM OF AGREEMENT.29
3.1Conditions Precedent to the Initial Extension of Credit29
3.2Conditions Precedent to all Extensions of Credit30
3.3Maturity30
3.4Effect of Maturity30
3.5Early Termination by Borrowers30
3.6Conditions Subsequent30
4.REPRESENTATIONS AND WARRANTIES.31
4.1Due Organization and Qualification; Subsidiaries31
4.2Due Authorization; No Conflict32
4.3Governmental Consents32
4.4Binding Obligations; Perfected Liens32
4.5Title to Assets; No Encumbrances32
4.6Litigation33
4.7Compliance with Laws33
4.8No Material Adverse Effect33
4.9Solvency33
4.10Employee Benefits33
4.11Environmental Condition33
4.12Complete Disclosure34
4.13Patriot Act34
4.14Indebtedness34
4.15Payment of Taxes35
4.16Margin Stock35
4.17Governmental Regulation35
4.18OFAC35
4.19Employee and Labor Matters35
4.20Leases36
4.21[Reserved]36
4.22Hedge Agreements36
4.23Material Contracts36
5.AFFIRMATIVE COVENANTS36
5.1Financial Statements, Reports, Certificates36
5.2Reporting36
5.3Existence36
5.4Maintenance of Properties37
5.5Taxes37
5.6Insurance37
5.7Inspection37
5.8Compliance with Laws38
5.9Environmental38
5.10Disclosure Updates38
5.11Formation of Subsidiaries39
5.12Further Assurances39
5.13Lender Meetings40
5.14Bank Products40
5.15Material Contracts40
5.16Hedge Agreements40
6.NEGATIVE COVENANTS.40
6.1Indebtedness40
6.2Liens40
6.3Restrictions on Fundamental Changes40
6.4Disposal of Assets41
6.5Nature of Business41
6.6Prepayments and Amendments41
6.7Restricted Payments42
6.8Accounting Methods42
6.9Investments42
6.10Transactions with Affiliates42
6.11Use of Proceeds43
6.12Limitation on Issuance of Equity Interests44
7.FINANCIAL COVENANTS.44
8.EVENTS OF DEFAULT.46
8.1Payments46
8.2Covenants46
8.3Judgments47
8.4Voluntary Bankruptcy, etc.47
8.5Involuntary Bankruptcy, etc.47
8.6Default Under Other Agreements47
8.7Representations, etc.47
8.8Guaranty47
8.9Security Documents47
8.10Loan Documents48
8.11Change of Control48
9.RIGHTS AND REMEDIES.48
9.1Rights and Remedies48
9.2Remedies Cumulative49
10.WAIVERS; INDEMNIFICATION.49
10.1Demand; Protest; etc.49
10.2The Lender Group’s Liability for Collateral49
10.3Indemnification49
11.NOTICES.50
12.CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER; JUDICIAL REFERENCE PROVISION.51
13.ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS.54
13.1Assignments and Participations54
13.2Successors57
14.AMENDMENTS; WAIVERS.57
14.1Amendments and Waivers57
14.2Replacement of Certain Lenders59
14.3No Waivers; Cumulative Remedies60
15.AGENT; THE LENDER GROUP.60
15.1Appointment and Authorization of Agent60
15.2Delegation of Duties61
15.3Liability of Agent61
15.4Reliance by Agent61
15.5Notice of Default or Event of Default61
15.6Credit Decision62
15.7Costs and Expenses; Indemnification62
15.8Agent in Individual Capacity63
15.9Successor Agent63
15.10Lender in Individual Capacity63
15.11Collateral Matters64
15.12Restrictions on Actions by Lenders; Sharing of Payments65
15.13Agency for Perfection66
15.14Payments by Agent to the Lenders66
15.15Concerning the Collateral and Related Loan Documents66
15.16Financial Examination Reports; Confidentiality; Disclaimers by Lenders; Other Reports and Information66
15.17Several Obligations; No Liability67
16.WITHHOLDING TAXES.67
16.1Payments67
16.2Exemptions68
16.3Reductions69
16.4Refunds69
17.GENERAL PROVISIONS.70
17.1Effectiveness70
17.2Section Headings70
17.3Interpretation70
17.4Severability of Provisions70
17.5Bank Product Providers70
17.6Debtor-Creditor Relationship71
17.7Counterparts; Electronic Execution71
17.8Revival and Reinstatement of Obligations; Certain Waivers71
17.9Confidentiality72
17.10Survival73
17.11Patriot Act74
17.12Integration74
17.13eGain as Agent for Borrowers74
EXHIBITS AND SCHEDULES
Exhibit A-1Form of Assignment and Acceptance
Exhibit C-1Form of Compliance Certificate
Exhibit C-2Form of Credit Amount Certificate
Exhibit I-1Form of IP Reporting Certificate
Exhibit L-1Form of LIBOR Notice
Exhibit P-1Form of Perfection Certificate
Schedule A-1Agent’s Account
Schedule C-1Commitments
Schedule 1.1Definitions
Schedule 3.1Conditions Precedent
Schedule 3.6Conditions Subsequent
Schedule 5.1Financial Statements, Reports, Certificates
Schedule 5.2Collateral Reporting
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (this “Agreement”), is entered into as of November 21, 2014, by and among the lenders identified on the signature pages hereof (each of such lenders, together with its successors and permitted assigns, is referred to hereinafter as a “Lender”, as that term is hereinafter further defined), WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking association, as administrative agent for each member of the Lender Group and the Bank Product Providers (in such capacity, together with its successors and assigns in such capacity, “Agent”), eGAIN CORPORATION (“eGain”), and the Subsidiaries of eGain identified on the signature pages hereof (such Subsidiaries, together with eGain, are referred to hereinafter each individually as a “Borrower”, and individually and collectively, jointly and severally, as the “Borrowers”).
The parties agree as follows:
1. | DEFINITIONS AND CONSTRUCTION. |
2. | LOANS AND TERMS OF PAYMENT. |
Date |
Installment Amount |
---|---|
On each of March 31, 2015, June 30, 2015, and September 30, 2015, December 31, 2015 |
$125,000 |
On each of March 31, 2016, June 30, 2016, and September 30, 2016, December 31, 2016 |
$187,500 |
On March 31, 2017 and on the last day of each fiscal quarter of Borrowers thereafter |
$250,000 |
The outstanding unpaid principal balance and all accrued and unpaid interest on the Term Loan shall be due and payable on the earlier of (i) the Maturity Date, and (ii) the date of the acceleration of the Term Loan in accordance with the terms hereof. Any principal amount of the Term Loan that is repaid or prepaid may not be reborrowed. All principal of, interest on, and other amounts payable in respect of the Term Loan shall constitute Obligations hereunder.
in each case, including that resulting from the Letter of Credit Related Person’s own negligence; provided, however, that such indemnity shall not be available to any Letter of Credit Related Person claiming indemnification under clauses (i) through (x) above to the extent that such Letter of Credit Indemnified Costs may be finally determined in a final, non-appealable judgment of a court of competent jurisdiction to have resulted directly from the gross negligence or willful misconduct of the Letter of Credit Related Person claiming indemnity. Borrowers hereby agree to pay the Letter of Credit Related Person claiming indemnity on demand from time to time all amounts owing under this Section 2.11(f). If and to the extent that the obligations of Borrowers under this Section 2.11(f) are unenforceable for any reason, Borrowers agree to make the maximum contribution to the Letter of Credit Indemnified Costs permissible under applicable law. This indemnification provision shall survive termination of this Agreement and all Letters of Credit.
(i)Borrowers’ reimbursement and payment obligations under this Section 2.11 are absolute, unconditional and irrevocable and shall be performed strictly in accordance with the terms of this Agreement under any and all circumstances whatsoever, including:
provided, however, that subject to Section 2.11(g) above, the foregoing shall not release Issuing Bank from such liability to Borrowers as may be finally determined in a final, non-appealable judgment of a court of competent jurisdiction against Issuing Bank following reimbursement or payment of the obligations and liabilities, including reimbursement and other payment obligations, of Borrowers to Issuing Bank arising under, or in connection with, this Section 2.11 or any Letter of Credit.
and the result of the foregoing is to increase, directly or indirectly, the cost to Issuing Bank or any other member of the Lender Group of issuing, making, participating in, or maintaining any Letter of Credit or to reduce the amount receivable in respect thereof, then, and in any such case, Agent may, at any time within a reasonable period after the additional cost is incurred or the amount received is reduced, notify Borrowers, and Borrowers shall pay within 30 days after demand therefor, such amounts as Agent may specify to be necessary to compensate Issuing Bank or any other member of the Lender Group for such additional cost or reduced receipt, together with interest on such amount from the date of such demand until payment in full thereof at the rate then applicable to Base Rate Loans hereunder; provided, that (A) Borrowers shall not be required to provide any compensation pursuant to this Section 2.11(l) for any such amounts incurred more than 180 days prior to the date on which the demand for payment of such amounts is first made to Borrowers, and (B) if an event or circumstance giving rise to such amounts is retroactive, then the 180-day period referred to above shall be extended to include the period of retroactive effect thereof. The determination by Agent of any amount due pursuant to this Section 2.11(l), as set forth in a certificate setting forth the calculation thereof in reasonable detail, shall, in the absence of manifest or demonstrable error, be final and conclusive and binding on all of the parties hereto.
3. | CONDITIONS; TERM OF AGREEMENT. |
of Agent and each Lender, of each of the conditions precedent set forth on Schedule 3.1 (the making of such initial extensions of credit by a Lender being conclusively deemed to be its satisfaction or waiver of the conditions precedent).
terms thereof (unless such date is extended, in writing, by Agent, which Agent may do without obtaining the consent of the other members of the Lender Group), shall constitute an Event of Default).
4. | REPRESENTATIONS AND WARRANTIES. |
In order to induce the Lender Group to enter into this Agreement, each Borrower makes the following representations and warranties to the Lender Group which shall be true, correct, and complete, in all material respects (except that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof), as of the Closing Date, and shall be true, correct, and complete, in all material respects (except that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof), as of the date of the making of each Revolving Loan (or other extension of credit) made thereafter, as though made on and as of the date of such Revolving Loan (or other extension of credit) (except to the extent that such representations and warranties relate solely to an earlier date, in which case such representations and warranties shall be true and correct in all material respects (except that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof) as of such earlier date) and such representations and warranties shall survive the execution and delivery of this Agreement:
statements delivered pursuant to Section 5.1, in each case except for assets disposed of since the date of such financial statements to the extent permitted hereby. All of such assets of the Loan Parties are free and clear of Liens except for Permitted Liens.
been used by a Loan Party, its Subsidiaries, or by previous owners or operators in the disposal of, or to produce, store, handle, treat, release, or transport, any Hazardous Materials, where such disposal, production, storage, handling, treatment, release or transport was in violation, in any material respect, of any applicable Environmental Law, (b) to each Borrower’s knowledge, after due inquiry, no Loan Party’s nor any of its Subsidiaries’ properties or assets has ever been designated or identified in any manner pursuant to any environmental protection statute as a Hazardous Materials disposal site, (c) no Loan Party nor any of its Subsidiaries has received notice that a Lien arising under any Environmental Law has attached to any revenues or to any Real Property owned or operated by a Loan Party or its Subsidiaries, and (d) no Loan Party nor any of its Subsidiaries nor any of their respective facilities or operations is subject to any outstanding written order, consent decree, or settlement agreement with any Person relating to any Environmental Law or Environmental Liability that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect.
Closing Date and such Schedule accurately sets forth the aggregate principal amount of such Indebtedness as of the Closing Date.
paid or accrued as a liability on the books of Borrowers, except where the failure to do so could not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect.
Each Borrower covenants and agrees that, until termination of all of the Commitments and payment in full of the Obligations:
jurisdictions in which it is qualified to do business and any rights, franchises, permits, licenses, accreditations, authorizations, or other approvals material to their businesses.
material fact or omission of any material fact nor shall any such notification have the effect of amending or modifying this Agreement or any of the Schedules hereto.
limitation of, the foregoing, each Loan Party shall take such actions as Agent may reasonably request from time to time to ensure that the Obligations are guarantied by the Guarantors and are secured by substantially all of the assets of each Borrower and its Subsidiaries, including all of the outstanding capital Equity Interests of each Borrower (other than Administrative Borrower) and its Subsidiaries (subject to exceptions and limitations contained in the Loan Documents with respect to CFCs).
6. | NEGATIVE COVENANTS. |
Each Borrower covenants and agrees that, until termination of all of the Commitments and payment in full of the Obligations:
connection with this Agreement, the other Loan Documents, and the transactions contemplated hereby and thereby, in each case, as set forth in the Funds Flow Agreement, and (b) thereafter, consistent with the terms and conditions hereof, for their lawful and permitted purposes (including that no part of the proceeds of the loans made to Borrowers will be used to purchase or carry any such Margin Stock or to extend credit to others for the purpose of purchasing or carrying any such Margin Stock or for any purpose that violates the provisions of Regulation T, U or X of the Board of Governors).
7. | FINANCIAL COVENANTS. |
Each Borrower covenants and agrees that, until termination of all of the Commitments and payment in full of the Obligations, Borrowers will:
Applicable Amount |
Applicable Period |
---|---|
($2,000,000) |
For the four quarter period ending March 31, 2015 |
$500,000 |
For the four quarter period ending June 30, 2015 |
$1,000,000 |
For the four quarter period ending September 30, 2015 |
$1,000,000 |
For the four quarter period ending December 31, 2015 |
$1,000,000 |
For the four quarter period ending March 31, 2016 |
($500,000) |
For the four quarter period ending June 30, 2016 |
$0 |
For the four quarter period ending September 30, 2016 |
$500,000 |
For the four quarter period ending December 31, 2016 |
Applicable Amount |
Applicable Period |
---|---|
$1,000,000 |
For the four quarter period ending March 31, 2017 |
$2,000,000 |
For the four quarter period ending June 30, 2017 |
$3,000,000 |
For the four quarter period ending September 30, 2017 |
$3,800,000 |
For the four quarter period ending December 31, 2017 |
$4,000,000 |
For the four quarter period ending March 31, 2018 |
$4,300,000 |
For the four quarter period ending June 30, 2018 |
$4,500,000 |
For the four quarter period ending September 30, 2018 |
$4,800,000 |
For the four quarter period ending December 31, 2018 |
$5,100,000 |
For the four quarter period ending March 31, 2019 |
$5,300,000 |
For the four quarter period ending June 30, 2019 |
$5,600,000 |
For the four quarter period ending September 30, 2019 |
$5,900,000 |
For the four quarter period ending December 31, 2019 |
Applicable Ratio |
Applicable Date |
3.00:1.00 |
For the quarters ended September 30, 2016, December 31, 2016 and March 31, 2017 |
2.75:1.00 |
For the quarters ended June 30, 2017 and September 30, 2017 |
2.50:1.00 |
For the quarters ended December 31, 2017 and March 31, 2018 |
2.25:1.00 |
For the quarter ended June 30, 2018 |
2.00:1.00 |
For each quarter thereafter |
8. | EVENTS OF DEFAULT. |
Any one or more of the following events shall constitute an event of default (each, an “Event of Default”) under this Agreement:
this Agreement, (b) with respect to Collateral the aggregate value of which, for all such Collateral, does not exceed at any time, $250,000, or (c) as the result of an action or failure to act on the part of Agent;
9. | RIGHTS AND REMEDIES. |
The foregoing to the contrary notwithstanding, upon the occurrence of any Event of Default described in Section 8.4 or Section 8.5, in addition to the remedies set forth above, without any notice to Borrowers or any other Person or any act by the Lender Group, the Commitments shall automatically terminate and the Obligations (other than the Bank Product Obligations), inclusive of the principal of, and any and all accrued and unpaid interest and fees in respect of, the Loans and all other Obligations (other than the Bank Product Obligations), whether evidenced by this Agreement or by any of the other Loan Documents, shall automatically become and be immediately due and payable and Borrowers shall automatically be obligated to repay all of such Obligations in full (including Borrowers being obligated to provide (and Borrowers agrees that they will provide) (1) Letter of Credit Collateralization to Agent to be held as security for Borrowers’ reimbursement obligations in respect of drawings that may subsequently occur under issued and outstanding Letters of Credit, and (2) Bank Product Collateralization to be held as security for Borrowers’ or their Subsidiaries’ obligations in respect of outstanding Bank Products), without presentment, demand, protest, or notice or other requirements of any kind, all of which are expressly waived by Borrowers.
10. | WAIVERS; INDEMNIFICATION. |
any of its Subsidiaries or any Environmental Actions, Environmental Liabilities or Remedial Actions related in any way to any such assets or properties of any Borrower or any of its Subsidiaries (each and all of the foregoing, the “Indemnified Liabilities”). The foregoing to the contrary notwithstanding, no Borrower shall have any obligation to any Indemnified Person under this Section 10.3 with respect to any Indemnified Liability that a court of competent jurisdiction finally determines to have resulted from the gross negligence or willful misconduct of such Indemnified Person or its officers, directors, employees, attorneys, or agents. This provision shall survive the termination of this Agreement and the repayment in full of the Obligations. If any Indemnified Person makes any payment to any other Indemnified Person with respect to an Indemnified Liability as to which Borrowers were required to indemnify the Indemnified Person receiving such payment, the Indemnified Person making such payment is entitled to be indemnified and reimbursed by Borrowers with respect thereto. WITHOUT LIMITATION, THE FOREGOING INDEMNITY SHALL APPLY TO EACH INDEMNIFIED PERSON WITH RESPECT TO INDEMNIFIED LIABILITIES WHICH IN WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT OF ANY NEGLIGENT ACT OR OMISSION OF SUCH INDEMNIFIED PERSON OR OF ANY OTHER PERSON.
11. | NOTICES. |
Unless otherwise provided in this Agreement, all notices or demands relating to this Agreement or any other Loan Document shall be in writing and (except for financial statements and other informational documents which may be sent by first-class mail, postage prepaid) shall be personally delivered or sent by registered or certified mail (postage prepaid, return receipt requested), overnight courier, electronic mail (at such email addresses as a party may designate in accordance herewith), or telefacsimile. In the case of notices or demands to any Borrower or Agent, as the case may be, they shall be sent to the respective address set forth below:
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Los Angeles, California 90017 |
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Attn: Robert J. Davidson, Esq. |
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Fax No.: 213.896.0400 |
Any party hereto may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other party. All notices or demands sent in accordance with this Section 11, shall be deemed received on the earlier of the date of actual receipt or 3 Business Days after the deposit thereof in the mail; provided, that (a) notices sent by overnight courier service shall be deemed to have been given when received, (b) notices by facsimile shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next Business Day for the recipient) and (c) notices by electronic mail shall be deemed received upon the sender's receipt of an acknowledgment from the intended recipient (such as by the "return receipt requested" function, as available, return email or other written acknowledgment).
12. | CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER; JUDICIAL REFERENCE PROVISION. |
13. | ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS. |
14. | AMENDMENTS; WAIVERS. |
15. | AGENT; THE LENDER GROUP. |
and consultants fees and expenses) incurred by Agent in connection with the preparation, execution, delivery, administration, modification, amendment, or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement or any other Loan Document to the extent that Agent is not reimbursed for such expenses by or on behalf of Borrowers. The undertaking in this Section shall survive the payment of all Obligations hereunder and the resignation or replacement of Agent.
business with any Borrower and its Subsidiaries and Affiliates and any other Person party to any Loan Documents as though such Lender were not a Lender hereunder without notice to or consent of the other members of the Lender Group (or the Bank Product Providers). The other members of the Lender Group acknowledge (and by entering into a Bank Product Agreement, each Bank Product Provider shall be deemed to acknowledge) that, pursuant to such activities, such Lender and its respective Affiliates may receive information regarding a Borrower or its Affiliates or any other Person party to any Loan Documents that is subject to confidentiality obligations in favor of such Borrower or such other Person and that prohibit the disclosure of such information to the Lenders, and the Lenders acknowledge (and by entering into a Bank Product Agreement, each Bank Product Provider shall be deemed to acknowledge) that, in such circumstances (and in the absence of a waiver of such confidentiality obligations, which waiver such Lender will use its reasonable best efforts to obtain), such Lender shall not be under any obligation to provide such information to them.
16. | WITHHOLDING TAXES. |
Agent as promptly as possible after the date the payment of any Indemnified Tax is due pursuant to applicable law, certified copies of tax receipts evidencing such payment by Borrowers. Borrowers agree to pay any present or future stamp, value added or documentary taxes or any other excise or property taxes, charges, or similar levies that arise from any payment made hereunder or from the execution, delivery, performance, recordation, or filing of, or otherwise with respect to this Agreement or any other Loan Document.
expenses of Agent or such Lender and without interest (other than any interest paid by the applicable Governmental Authority with respect to such a refund); provided, that Borrowers, upon the request of Agent or such Lender, agrees to repay the amount paid over to Borrowers (plus any penalties, interest or other charges, imposed by the applicable Governmental Authority, other than such penalties, interest or other charges imposed as a result of the willful misconduct or gross negligence of Agent hereunder) to Agent or such Lender in the event Agent or such Lender is required to repay such refund to such Governmental Authority. Notwithstanding anything in this Agreement to the contrary, this Section 16 shall not be construed to require Agent or any Lender to make available its tax returns (or any other information which it deems confidential) to Borrowers or any other Person.
17. | GENERAL PROVISIONS. |
In addition, each Bank Product Provider, by virtue of entering into a Bank Product Agreement, shall be automatically deemed to have agreed that Agent shall have the right, but shall have no obligation, to establish, maintain, relax, or release reserves in respect of the Bank Product Obligations and that if reserves are established there is no obligation on the part of Agent to determine or insure whether the amount of any such reserve is appropriate or not. In connection with any such distribution of payments or proceeds of Collateral, Agent shall be entitled to assume no amounts are due or owing to any Bank Product Provider unless such Bank Product Provider has provided a written certification (setting forth a reasonably detailed calculation) to Agent as to the amounts that are due and owing to it and such written certification is received by Agent a reasonable period of time prior to the making of such distribution. Agent shall have no obligation to calculate the amount due and payable with respect to any Bank Products, but may rely upon the written certification of the amount due and payable from the applicable Bank Product Provider. In the absence of an updated certification, Agent shall be entitled to assume that the amount due and payable to the applicable Bank Product Provider is the amount last certified to Agent by such Bank Product Provider as being due and payable (less any distributions made to such Bank Product Provider on account thereof). Borrowers may obtain Bank Products from any Bank Product Provider, although Borrowers are not required to do so. Each Borrower acknowledges and agrees that no Bank Product Provider has committed to provide any Bank Products and that the providing of Bank Products by any Bank Product Provider is in the sole and absolute discretion of such Bank Product Provider. Notwithstanding anything to the contrary in this Agreement or any other Loan Document, no provider or holder of any Bank Product shall have any voting or approval rights hereunder (or be deemed a Lender) solely by virtue of its status as the provider or holder of such agreements or products or the Obligations owing thereunder, nor shall the consent of any such provider or holder be required (other than in their capacities as Lenders, to the extent applicable) for any matter hereunder or under any of the other Loan Documents, including as to any matter relating to the Collateral or the release of Collateral or Guarantors.
[Signature pages follow.]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered as of the date first above written.
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BORROWERS: |
eGAIN CORPORATION |
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a Delaware corporation |
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By:/s/ Eric Smit_______________________ |
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Name:Eric Smit__________________________ |
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Title:Chief Financial Officer_______________ |
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ADMINISTRATIVE AGENT: |
WELLS FARGO BANK,
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By:/s/ Tram Foster_____________________ |
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Name:Tram Foster________________________ |
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Title: Vice President______________________ |
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Schedule 1.1
As used in the Agreement, the following terms shall have the following definitions:
“Accounting Changes” means changes in accounting principles required by the promulgation of any rule, regulation, pronouncement or opinion by the Financial Accounting Standards Board of the American Institute of Certified Public Accountants (or successor thereto or any agency with similar functions).
“Acquired Indebtedness” means Indebtedness of a Person whose assets or Equity Interests are acquired by a Borrower or any of its Subsidiaries in a Permitted Acquisition; provided, that such Indebtedness (a) is either purchase money Indebtedness or a Capital Lease with respect to Equipment or mortgage financing with respect to Real Property, (b) was in existence prior to the date of such Permitted Acquisition, and (c) was not incurred in connection with, or in contemplation of, such Permitted Acquisition.
“Acquisition” means (a) the purchase or other acquisition by a Person or its Subsidiaries of all or substantially all of the assets of (or any division or business line of) any other Person, or (b) the purchase or other acquisition (whether by means of a merger, consolidation, or otherwise) by a Person or its Subsidiaries of all or substantially all of the Equity Interests of any other Person.
“Additional Documents” has the meaning specified therefor in Section 5.12 of the Agreement.
“Administrative Borrower” has the meaning specified therefor in Section 17.13 of the Agreement.
“Administrative Questionnaire” has the meaning specified therefor in Section 13.1(a) of the Agreement.
“Affected Lender” has the meaning specified therefor in Section 2.13(b) of the Agreement.
“Affiliate” means, as applied to any Person, any other Person who controls, is controlled by, or is under common control with, such Person. For purposes of this definition, “control” means the possession, directly or indirectly through one or more intermediaries, of the power to direct the management and policies of a Person, whether through the ownership of Equity Interests, by contract, or otherwise; provided, that, for purposes of Section 6.10 of the Agreement: (a) any Person which owns directly or indirectly 10% or more of the Equity Interests having ordinary voting power for the election of directors or other members of the governing body of a Person or 10% or more of the partnership or other ownership interests of a Person (other than as a limited partner of such Person) shall be deemed an Affiliate of such Person, (b) each director (or comparable manager) of a Person shall be deemed to be an Affiliate of such Person, and (c) each partnership in which a Person is a general partner shall be deemed an Affiliate of such Person.
“Agent” has the meaning specified therefor in the preamble to the Agreement.
“Agent-Related Persons” means Agent, together with its Affiliates, officers, directors, employees, attorneys, and agents.
“Agent’s Account” means the Deposit Account of Agent identified on Schedule A-1 to the Agreement (or such other Deposit Account of Agent that has been designated as such, in writing, by Agent to Borrowers and the Lenders).
“Agent’s Liens” means the Liens granted by each Borrower or its Subsidiaries to Agent under the Loan Documents and securing the Obligations.
“Agreed Currency” means (a) Dollars, (b) British Pound Sterling, (c) Euros, and (d) Indian Rupees.
“Agreement” means the Credit Agreement to which this Schedule 1.1 is attached.
“Applicable Margin” means (a) in the case of a Base Rate Loan, 3.75 percentage points (the “Base Rate Margin”), and (b) in the case of a LIBOR Rate Loan, 4.75 percentage points (the “LIBOR Rate Margin”).
“Application Event” means the occurrence of (a) a failure by Borrowers to repay all of the Obligations in full on the Maturity Date, or (b) an Event of Default and the election by Agent or the Required Lenders to require that payments and proceeds of Collateral be applied pursuant to Section 2.4(b)(iii) of the Agreement.
“Assignee” has the meaning specified therefor in Section 13.1(a) of the Agreement.
“Assignment and Acceptance” means an Assignment and Acceptance Agreement substantially in the form of Exhibit A-1 to the Agreement.
“Authorized Person” means any one of the individuals identified on Schedule A-2 of the Disclosure Letter, as such schedule is updated from time to time by written notice from Borrowers to Agent.
“Availability” means, as of any date of determination, the amount that Borrowers are entitled to borrow as Revolving Loans under Section 2.1 of the Agreement (after giving effect to the then outstanding Revolver Usage).
“Bank Product” means any one or more of the following financial products or accommodations extended to a Borrower or its Subsidiaries by a Bank Product Provider: (a) credit cards (including commercial cards (including so-called “purchase cards”, “procurement cards” or “p-cards”)), (b) credit card processing services, (c) debit cards, (d) stored value cards, (e) Cash Management Services, or (f) transactions under Hedge Agreements.
“Bank Product Agreements” means those agreements entered into from time to time by a Borrower or its Subsidiaries with a Bank Product Provider in connection with the obtaining of any of the Bank Products.
“Bank Product Collateralization” means providing cash collateral (pursuant to documentation reasonably satisfactory to Agent) to be held by Agent for the benefit of the Bank Product Providers (other than the Hedge Providers) in an amount determined by Agent as sufficient to satisfy the reasonably estimated credit exposure with respect to the then existing Bank Product Obligations (other than Hedge Obligations).
“Bank Product Obligations” means (a) all obligations, liabilities, reimbursement obligations, fees, or expenses owing by each Borrower and its Subsidiaries to any Bank Product Provider
pursuant to or evidenced by a Bank Product Agreement and irrespective of whether for the payment of money, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, (b) all Hedge Obligations, and (c) all amounts that Agent or any Lender is obligated to pay to a Bank Product Provider as a result of Agent or such Lender purchasing participations from, or executing guarantees or indemnities or reimbursement obligations to, a Bank Product Provider with respect to the Bank Products provided by such Bank Product Provider to a Borrower or one of its Subsidiaries.
“Bank Product Provider” means Wells Fargo or any of its Affiliates, including each of the foregoing in its capacity, if applicable, as a Hedge Provider.
“Bank Product Reserves” means, as of any date of determination, the Dollar amount of reserves that Agent deems necessary or appropriate to establish (based upon the Bank Product Providers’ determination of the aggregate net liabilities and obligations of each Borrower and its Subsidiaries in respect of Bank Product Obligations) in respect of Bank Products then provided or outstanding.
“Bankruptcy Code” means title 11 of the United States Code, as in effect from time to time.
“Base Rate” means the greatest of (a) the Federal Funds Rate plus ½%, (b) the LIBOR Rate (which rate shall be calculated based upon an Interest Period of 1 month and shall be determined on a daily basis), plus 1 percentage point, and (c) the rate of interest announced, from time to time, within Wells Fargo at its principal office in San Francisco as its “prime rate”, with the understanding that the “prime rate” is one of Wells Fargo’s base rates (not necessarily the lowest of such rates) and serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto and is evidenced by the recording thereof after its announcement in such internal publications as Wells Fargo may designate.
“Base Rate Loan” means each portion of the Revolving Loans or the Term Loan that bears interest at a rate determined by reference to the Base Rate.
“Base Rate Margin” has the meaning set forth in the definition of Applicable Margin.
“Benefit Plan” means a “defined benefit plan” (as defined in Section 3(35) of ERISA) for which any Borrower or any of its Subsidiaries or ERISA Affiliates has been an “employer” (as defined in Section 3(5) of ERISA) within the past six years.
“Board of Directors” means, as to any Person, the board of directors (or comparable managers) of such Person, or any committee thereof duly authorized to act on behalf of the board of directors (or comparable managers).
“Board of Governors” means the Board of Governors of the Federal Reserve System of the United States (or any successor).
“Borrower” and “Borrowers” have the respective meanings specified therefor in the preamble to the Agreement.
“Borrower Materials” has the meaning specified therefor in Section 17.9(c) of the Agreement.
“Borrowing” means a borrowing consisting of Revolving Loans made on the same day by the Lenders (or Agent on behalf thereof), or by Swing Lender in the case of a Swing Loan, or by Agent in the case of a Protective Advance.
“Business Day” means any day that is not a Saturday, Sunday, or other day on which banks are authorized or required to close in the state of California, except that, if a determination of a Business Day shall relate to a LIBOR Rate Loan, the term “Business Day” also shall exclude any day on which banks are closed for dealings in Dollar deposits in the London interbank market.
“Capital Expenditures” means, with respect to any Person for any period, the amount of all expenditures by such Person and its Subsidiaries during such period that are capital expenditures as determined in accordance with GAAP, whether such expenditures are paid in cash or financed, but excluding, without duplication (a) expenditures made during such period in connection with the replacement, substitution, or restoration of assets or properties pursuant to Section 2.4(e)(ii) of the Agreement, (b) with respect to the purchase price of assets that are purchased substantially contemporaneously with the trade-in of existing assets during such period, the amount that the gross amount of such purchase price is reduced by the credit granted by the seller of such assets for the assets being traded in at such time, (c) expenditures made during such period to consummate one or more Permitted Acquisitions, (d) capitalized software development costs to the extent such costs are deducted from net earnings under the definition of EBITDA for such period, and (e) expenditures during such period that, pursuant to a written agreement, are reimbursed by a third Person (excluding any Borrower or any of its Affiliates).
“Capitalized Lease Obligation” means that portion of the obligations under a Capital Lease that is required to be capitalized in accordance with GAAP.
“Capital Lease” means a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP.
“Cash Equivalents” means (a) Domestic Cash Equivalents; and (b) Foreign Cash Equivalents.
“Cash Management Services” means any cash management or related services including treasury, depository, return items, overdraft, controlled disbursement, merchant store value cards, e-payables services, electronic funds transfer, interstate depository network, automatic clearing house transfer (including the Automated Clearing House processing of electronic funds transfers through the direct Federal Reserve Fedline system) and other cash management arrangements.
“CFC” means a controlled foreign corporation (as that term is defined in the IRC).
“Change in Control” means that:
(a) any Person or two or more Persons acting in concert (other than Permitted Holders), shall have acquired beneficial ownership, directly or indirectly, of Equity Interests of Administrative Borrower (or other securities convertible into such Equity Interests) representing 35% or more of the combined voting power of all Equity Interests of Administrative Borrower entitled (without regard to the occurrence of any contingency) to vote for the election of members of the Board of Directors of Administrative Borrower;
(b) any Person or two or more Persons acting in concert (other than Permitted Holders), shall have acquired by contract or otherwise, or shall have entered into a contract or arrangement that, upon consummation thereof, will result in its or their acquisition of the power to exercise, directly or indirectly, a controlling influence over the management or policies of Administrative Borrower or control over the Equity Interests of such Person entitled to vote for members of the Board of Directors of Administrative Borrower on a fully-diluted basis (and taking into account all such Equity Interests that such Person or
group has the right to acquire pursuant to any option right) representing 35% or more of the combined voting power of such Equity Interests;
(c) during any period of 24 consecutive months commencing on or after the Closing Date, the occurrence of a change in the composition of the Board of Directors of Administrative Borrower such that a majority of the members of such Board of Directors are not Continuing Directors; or
(d) Administrative Borrower fails to own and control, directly or indirectly, 100% of the Equity Interests of each other Loan Party.
“Change in Law” means the occurrence after the date of the Agreement of: (a) the adoption or effectiveness of any law, rule, regulation, judicial ruling, judgment or treaty, (b) any change in any law, rule, regulation, judicial ruling, judgment or treaty or in the administration, interpretation, implementation or application by any Governmental Authority of any law, rule, regulation, guideline or treaty, or (c) the making or issuance by any Governmental Authority of any request, rule, guideline or directive, whether or not having the force of law; provided that notwithstanding anything in the Agreement to the contrary, (i) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith and (ii) all requests, rules, guidelines or directives concerning capital adequacy promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities shall, in each case, be deemed to be a “Change in Law,” regardless of the date enacted, adopted or issued.
“Closing Date” means the date of the making of the initial Revolving Loan (or other extension of credit) under the Agreement.
“Code” means the California Uniform Commercial Code, as in effect from time to time.
“Collateral” means all assets and interests in assets and proceeds thereof now owned or hereafter acquired by any Borrower or its Subsidiaries in or upon which a Lien is granted by such Person in favor of Agent or the Lenders under any of the Loan Documents.
“Commitment” means, with respect to each Lender, its Revolver Commitment or its Term Loan Commitment, as the context requires, and, with respect to all Lenders, their Revolver Commitments or their Term Loan Commitments, as the context requires, in each case as such Dollar amounts are set forth beside such Lender’s name under the applicable heading on Schedule C-1 to the Agreement or in the Assignment and Acceptance pursuant to which such Lender became a Lender under the Agreement, as such amounts may be reduced or increased from time to time pursuant to assignments made in accordance with the provisions of Section 13.1 of the Agreement.
“Compliance Certificate” means a certificate substantially in the form of Exhibit C-1 to the Agreement delivered by the chief financial officer of Administrative Borrower to Agent.
“Confidential Information” has the meaning specified therefor in Section 17.9(a) of the Agreement.
“Continuing Director” means (a) any member of the Board of Directors who was a director (or comparable manager) of Administrative Borrower on the Closing Date, and (b) any individual who becomes a member of the Board of Directors after the Closing Date if such individual was approved, appointed or nominated for election to the Board of Directors by either the Permitted Holders or a majority of the Continuing Directors, but excluding any such individual originally proposed for election in
opposition to the Board of Directors in office at the Closing Date in an actual or threatened election contest relating to the election of the directors (or comparable managers) of Administrative Borrower and whose initial assumption of office resulted from such contest or the settlement thereof.
“Control Agreement” means a control agreement, in form and substance reasonably satisfactory to Agent, executed and delivered by a Borrower or one of its Subsidiaries, Agent, and the applicable securities intermediary (with respect to a Securities Account) or bank (with respect to a Deposit Account).
“Copyright Security Agreement” has the meaning specified therefor in the Guaranty and Security Agreement.
“Credit Amount” means the product of (i) 0.60 times (ii) TTM Recurring Revenue calculated as of the last month for which financial statements have most recently been delivered pursuant to Section 5.1 of the Agreement minus the aggregate amount of reserves, if any, established by Agent under Section 2.1(c) of the Agreement.
“Credit Amount Certificate” means a certificate in the form of Exhibit C-2 to the Agreement.
“Current Assets” means, as at any date of determination, the total assets of Borrowers and their Subsidiaries (other than cash and Cash Equivalents) which may properly be classified as current assets on a consolidated balance sheet of Borrowers and their Subsidiaries in accordance with GAAP.
“Current Liabilities” means, as at any date of determination, the total liabilities of Borrowers and their Subsidiaries which may properly be classified as current liabilities (other than the current portion of the Term Loan, the Swing Loans and the Revolving Loans) on a consolidated balance sheet of Borrowers and their Subsidiaries in accordance with GAAP.
“Default” means an event, condition, or default that, with the giving of notice, the passage of time, or both, would be an Event of Default.
“Defaulting Lender” means any Lender that (a) has failed to fund any amounts required to be funded by it under the Agreement on the date that it is required to do so under the Agreement (including the failure to make available to Agent amounts required pursuant to a Settlement or to make a required payment in connection with a Letter of Credit Disbursement), (b) notified Borrowers, Agent, or any Lender in writing that it does not intend to comply with all or any portion of its funding obligations under the Agreement, (c) has made a public statement to the effect that it does not intend to comply with its funding obligations under the Agreement or under other agreements generally (as reasonably determined by Agent) under which it has committed to extend credit, (d) failed, within 1 Business Day after written request by Agent, to confirm that it will comply with the terms of the Agreement relating to its obligations to fund any amounts required to be funded by it under the Agreement, (e) otherwise failed to pay over to Agent or any other Lender any other amount required to be paid by it under the Agreement on the date that it is required to do so under the Agreement, or (f) (i) becomes or is insolvent or has a parent company that has become or is insolvent or (ii) becomes the subject of a bankruptcy or insolvency proceeding, or has had a receiver, conservator, trustee, or custodian or appointed for it, or has taken any action in furtherance of, or indicating its consent to, approval of or acquiescence in any such proceeding or appointment or has a parent company that has become the subject of a bankruptcy or insolvency proceeding, or has had a receiver, conservator, trustee, or custodian appointed for it, or has taken any action in furtherance of, or indicating its consent to, approval of or acquiescence in any such proceeding or appointment.
“Defaulting Lender Rate” means (a) for the first 3 days from and after the date the relevant payment is due, the Base Rate, and (b) thereafter, the interest rate then applicable to Revolving Loans that are Base Rate Loans (inclusive of the Base Rate Margin applicable thereto).
“Deposit Account” means any deposit account (as that term is defined in the Code).
“Designated Account” means the Deposit Account of Administrative Borrower identified on Schedule D-1 of the Disclosure Letter (or such other Deposit Account of Administrative Borrower located at Designated Account Bank that has been designated as such, in writing, by Borrowers to Agent).
“Designated Account Bank” has the meaning specified therefor in Schedule D-1 of the Disclosure Letter (or such other bank that is located within the United States that has been designated as such, in writing, by Borrowers to Agent).
“Disclosure Letter” means the letter dated as of the Closing Date delivered to Agent containing information with respect to the Loan Parties and their Subsidiaries.
“Disqualified Equity Interests” shall mean any Equity Interest that, by its terms (or by the terms of any security or other Equity Interests into which it is convertible or for which it is exchangeable), or upon the happening of any event or condition (a) matures or is mandatorily redeemable (other than solely for Qualified Equity Interests), pursuant to a sinking fund obligation or otherwise (except as a result of a change of control or asset sale so long as any rights of the holders thereof upon the occurrence of a change of control or asset sale event shall be subject to the prior repayment in full of the Loans and all other Obligations that are accrued and payable and the termination of the Commitments), (b) is redeemable at the option of the holder thereof (other than solely for Qualified Equity Interests), in whole or in part, (c) provides for the scheduled payments of dividends in cash, or (d) is or becomes convertible into or exchangeable for Indebtedness or any other Equity Interests that would constitute Disqualified Equity Interests, in each case, prior to the date that is 180 days after the Maturity Date.
“Dollars” or “$” means United States dollars.
“Domestic Cash Equivalents” means (a) marketable direct obligations issued by, or unconditionally guaranteed by, the United States or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within 1 year from the date of acquisition thereof, (b) marketable direct obligations issued or fully guaranteed by any state of the United States or any political subdivision of any such state or any public instrumentality thereof maturing within 1 year from the date of acquisition thereof and, at the time of acquisition, having one of the two highest ratings obtainable from either Standard & Poor’s Rating Group (“S&P”) or Moody’s Investors Service, Inc. (“Moody’s”), (c) commercial paper maturing no more than 270 days from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 from S&P or at least P-1 from Moody’s, (d) certificates of deposit, time deposits, overnight bank deposits or bankers’ acceptances maturing within 1 year from the date of acquisition thereof issued by any bank organized under the laws of the United States or any state thereof or the District of Columbia or any United States branch of a foreign bank having at the date of acquisition thereof combined capital and surplus of not less than $1,000,000,000, (e) Deposit Accounts maintained with (i) any bank that satisfies the criteria described in clause (d) above, or (ii) any other bank organized under the laws of the United States or any state thereof so long as the full amount maintained with any such other bank is insured by the Federal Deposit Insurance Corporation, (f) repurchase obligations of any commercial bank satisfying the requirements of clause (d) of this definition or recognized securities dealer having combined capital and surplus of not less than $1,000,000,000, having a term of not more than seven days, with respect to securities satisfying the criteria in clauses (a) or (d) above, (g) debt securities with maturities of six months or less from the date of acquisition backed by standby letters of
credit issued by any commercial bank satisfying the criteria described in clause (d) above, and (h) Investments in money market funds substantially all of whose assets are invested in the types of assets described in clauses (a) through (g) above.
“Drawing Document” means any Letter of Credit or other document presented for purposes of drawing under any Letter of Credit.
“Earn-Outs” shall mean unsecured liabilities of a Loan Party arising under an agreement to make any deferred payment as a part of the Purchase Price for a Permitted Acquisition, including performance bonuses or consulting payments in any related services, employment or similar agreement, in an amount that is subject to or contingent upon the revenues, income, cash flow or profits (or the like) of the target of such Permitted Acquisition.
“EBITDA” means, with respect to any fiscal period, net earnings (or loss) of Borrowers and their Subsidiaries determined on a consolidated basis in accordance with GAAP:
minus
(a) without duplication, the sum of the following amounts of Borrowers and their Subsidiaries for such period to the extent included in determining consolidated net earnings (or loss) for such period:
(i)any extraordinary, unusual, or non-recurring gains,
(ii)interest income,
(iii)any software development costs to the extent capitalized during such period,
(iv)exchange, translation or performance gains relating to any hedging transactions or foreign currency fluctuations, and
(v)income arising by reason of the application of FAS 141R,
plus
(b) without duplication, the sum of the following amounts of Borrowers and their Subsidiaries for such period to the extent included in determining consolidated net earnings (or loss) for such period:
(i)any extraordinary, unusual, or non-recurring non-cash losses,
(ii)Interest Expense,
(iii)tax expense based on income, profits or capital, including federal, foreign, state, franchise and similar taxes (and for the avoidance of doubt, specifically excluding any sales taxes or any other taxes held in trust for a Governmental Authority),
(iv)depreciation and amortization (including amortization of deferred commissions) for such period,
(v)with respect to any Permitted Acquisition after the Closing Date, costs, fees, charges, or expenses consisting of out-of-pocket expenses owed by Borrowers or any of their Subsidiaries to any Person for services performed by such Person in connection with such Permitted Acquisition incurred within 180 days of the consummation of such Permitted Acquisition, (i) up to an aggregate amount (for all such items in this clause (B)) for such Permitted Acquisition not to exceed $250,000 and (ii) in any amount to the extent such costs, fees, charges, or expenses in this clause (B) are paid with proceeds of new equity investments in exchange for Qualified Equity Interests of Administrative Borrower contemporaneously made by Permitted Holders,
(vi)with respect to any Permitted Acquisitions after the Closing Date: (1) purchase accounting adjustments, including, without limitation, a dollar for dollar adjustment for that portion of revenue that would have been recorded in the relevant period had the balance of deferred revenue (unearned income) recorded on the closing balance sheet and before application of purchase accounting not been adjusted downward to fair value to be recorded on the opening balance sheet in accordance with GAAP purchase accounting rules; and (2) non-cash adjustments in accordance with GAAP purchase accounting rules under FASB Statement No. 141 and EITF Issue No. 01-3, in the event that such an adjustment is required by Borrowers’ independent auditors, in each case, as determined in accordance with GAAP,
(vii)fees, costs, charges and expenses, in respect of Earn-Outs incurred in connection with any Permitted Acquisition to the extent permitted to be incurred under the Agreement that are required by the application of FAS 141R to be and are expensed by Borrowers and their Subsidiaries,
(viii)non-cash compensation expense (including deferred non-cash compensation expense), or other non-cash expenses or charges, arising from the sale or issuance of Equity Interests, the granting of stock options, and the granting of stock appreciation rights and similar arrangements (including any repricing, amendment, modification, substitution, or change of any such Equity Interests, stock option, stock appreciation rights, or similar arrangements) minus the amount of any such expenses or charges when paid in cash to the extent not deducted in the computation of net earnings (or loss),
(ix)one time non-cash restructuring charges,
(x)exchange, translation, or performance losses relating to any hedging transactions or foreign currency fluctuations,
(xi)non-cash losses on sales of fixed assets or write-downs of fixed or intangible assets,
(xii)with respect to the Loan Documents and related transactions, costs, reasonable fees to Persons (other than any Borrower or any of its Affiliates), or other charges or expenses incurred in connection therewith on or before March 31, 2015 up to an aggregate amount not to exceed $500,000,
(xiii)other fees and expenses incurred on or before March 31, 2015 up to an aggregate amount not to exceed $250,000,
(xiv)other non-cash items reducing net earnings.
For the purposes of calculating EBITDA for any period of 4 consecutive fiscal quarters (each, a “Reference Period”), if at any time during such Reference Period (and after the Closing Date), any
Borrower or any of its Subsidiaries shall have made a Permitted Acquisition, EBITDA for such Reference Period shall be calculated after giving pro forma effect thereto (including pro forma adjustments arising out of events which are directly attributable to such Permitted Acquisition, are factually supportable, and are expected to have a continuing impact, in each case determined on a basis consistent with Article 11 of Regulation S X promulgated under the Securities Act and as interpreted by the staff of the SEC) or in such other manner acceptable to Agent as if any such Permitted Acquisition or adjustment occurred on the first day of such Reference Period
“eGain India” means eGain Communications Private Limited, a private limited company organized under the laws of India.
“eGain UK” means eGain Communications Ltd., a limited company organized under the laws of England and Wales.
“Eligible Transferee” means (a) any Lender (other than a Defaulting Lender), any Affiliate of any Lender and any Related Fund of any Lender; (b) (i) a commercial bank organized under the laws of the United States or any state thereof, and having total assets in excess of $1,000,000,000; (ii) a savings and loan association or savings bank organized under the laws of the United States or any state thereof, and having total assets in excess of $1,000,000,000; (iii) a commercial bank organized under the laws of any other country or a political subdivision thereof; provided that (A) (x) such bank is acting through a branch or agency located in the United States or (y) such bank is organized under the laws of a country that is a member of the Organization for Economic Cooperation and Development or a political subdivision of such country, and (B) such bank has total assets in excess of $1,000,000,000; (c) any other entity (other than a natural person) that is an “accredited investor” (as defined in Regulation D under the Securities Act) that extends credit or buys loans as one of its businesses including insurance companies, investment or mutual funds and lease financing companies, and having total assets in excess of $1,000,000,000; (d) so long as no Event of Default has occurred and is continuing, any other Person (other than a natural person or any entity that does not meet the qualifications of clause (c) above (other than institutions that meet the qualifications under clauses (a) and (b) above)) approved by Agent and Borrower (such approval not to be unreasonably withheld or delayed); and (e) during the continuation of an Event of Default, any other Person approved by Agent.
“Environmental Action” means any written complaint, summons, citation, notice, directive, order, claim, litigation, investigation, judicial or administrative proceeding, judgment, letter, or other written communication from any Governmental Authority, or any third party involving violations of Environmental Laws or releases of Hazardous Materials (a) from any assets, properties, or businesses of any Borrower, any Subsidiary of any Borrower, or any of their predecessors in interest, (b) from adjoining properties or businesses, or (c) from or onto any facilities which received Hazardous Materials generated by any Borrower, any Subsidiary of any Borrower, or any of their predecessors in interest.
“Environmental Law” means any applicable federal, state, provincial, foreign or local statute, law, rule, regulation, ordinance, code, binding and enforceable guideline, binding and enforceable written policy, or rule of common law now or hereafter in effect and in each case as amended, or any judicial or administrative interpretation thereof, including any judicial or administrative order, consent decree or judgment, in each case, to the extent binding on any Borrower or its Subsidiaries, relating to the environment, the effect of the environment on employee health, or Hazardous Materials, in each case as amended from time to time.
“Environmental Liabilities” means all liabilities, monetary obligations, losses, damages, costs and expenses (including all reasonable fees, disbursements and expenses of counsel, experts, or consultants, and costs of investigation and feasibility studies), fines, penalties, sanctions, and interest
incurred as a result of any claim or demand, or Remedial Action required, by any Governmental Authority or any third party, and which relate to any Environmental Action.
“Environmental Lien” means any Lien in favor of any Governmental Authority for Environmental Liabilities.
“Equipment” means equipment (as that term is defined in the Code).
“Equity Interest” means, with respect to a Person, all of the shares, options, warrants, interests, participations, or other equivalents (regardless of how designated) of or in such Person, whether voting or nonvoting, including capital stock (or other ownership or profit interests or units), preferred stock, or any other “equity security” (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the SEC under the Exchange Act).
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute thereto.
“ERISA Affiliate” means (a) any Person subject to ERISA whose employees are treated as employed by the same employer as the employees of any Borrower or its Subsidiaries under IRC Section 414(b), (b) any trade or business subject to ERISA whose employees are treated as employed by the same employer as the employees of any Borrower or its Subsidiaries under IRC Section 414(c), (c) solely for purposes of Section 302 of ERISA and Section 412 of the IRC, any organization subject to ERISA that is a member of an affiliated service group of which any Borrower or any of its Subsidiaries is a member under IRC Section 414(m), or (d) solely for purposes of Section 302 of ERISA and Section 412 of the IRC, any Person subject to ERISA that is a party to an arrangement with any Borrower or any of its Subsidiaries and whose employees are aggregated with the employees of such Borrower or its Subsidiaries under IRC Section 414(o).
“Event of Default” has the meaning specified therefor in Section 8 of the Agreement.
“Excess Cash Flow” means, with respect to any fiscal period and with respect to Borrowers and their Subsidiaries determined on a consolidated basis in accordance with GAAP the result of:
(a)EBITDA for the 12 month period most recently ended,
plus
(b)the sum of (without duplication)
(i)the cash portion of foreign, United States, state, or local tax refunds,
(ii)interest income,
(iii)post-closing Purchase Price adjustments received in cash during such period in connection with a Permitted Acquisition, and
(iv)the amount of any decrease in Net Working Capital for such period,
minus
(c) the sum of (without duplication)
(i)the cash portion of Interest Expense and loan servicing fees paid during such fiscal period,
(ii)the cash portion of taxes (on account of income, profits, or capital) paid during such period,
(iii)all scheduled, mandatory or other payments permitted under the Agreement during such period (including any prepayment premium that may be payable in connection with any such payment) which permanently reduce Funded Indebtedness,
(iv)the cash portion of Capital Expenditures (net of (y) any proceeds reinvested in accordance with the proviso to Section 2.4(e)(ii) of the Agreement, and (z) any proceeds of related financings with respect to such expenditures) made during such period,
(v)[reserved],
(vi)cash payments made in respect of Permitted Acquisitions (in each case, to the extent such payments are not made with the proceeds of Indebtedness (other than Revolving Loans),
(vii) the amount of cash items included in the calculation of EBITDA pursuant to clauses (c)(vii) of the definition of EBITDA for such period (to the extent that the applicable payments are not made with the proceeds of Indebtedness (other than proceeds of Revolving Loans),
(viii) the distributed earnings of a Borrower or any one of its Subsidiaries to the extent that the declaration or payment of dividends or similar distributions by such Borrower or such Subsidiary is permitted under the Agreement,
(ix)the amount of any increase in Net Working Capital for such period, and
(x)any non-cash purchase accounting adjustments with respect to a Permitted Acquisition added to Borrowers’ net income (or loss) pursuant to clause (b)(vi) of the definition of EBITDA.
“Exchange Act” means the Securities Exchange Act of 1934, as in effect from time to time.
“Exchange Rate” means and refers to the nominal rate of exchange (vis-à-vis Dollars) for a currency other than Dollars published in the Wall Street Journal (Western Edition) on the date of determination (which shall be a Business Day on which the Wall Street Journal (Western Edition) is published), expressed as the number of units of such other currency per one Dollar.
“Excluded Taxes” means (i) any tax imposed on the net income or net profits of any Lender or any Participant (including any branch profits taxes), in each case imposed by the jurisdiction (or by any political subdivision or taxing authority thereof) in which such Lender or such Participant is organized or the jurisdiction (or by any political subdivision or taxing authority thereof) in which such Lender’s or such Participant’s principal office is located in each case as a result of a present or former connection between such Lender or such Participant and the jurisdiction or taxing authority imposing the tax (other than any such connection arising solely from such Lender or such Participant having executed, delivered or performed its obligations or received payment under, or enforced its rights or remedies under the Agreement
or any other Loan Document); (ii) taxes resulting from a Lender’s or a Participant’s failure to comply with the requirements of Section 16.2 of the Agreement, (iii) any United States federal withholding taxes that would be imposed on amounts payable to a Foreign Lender based upon the applicable withholding rate in effect at the time such Foreign Lender becomes a party to the Agreement (or designates a new lending office), except that Taxes shall include (A) any amount that such Foreign Lender (or its assignor, if any) was previously entitled to receive pursuant to Section 16.1 of the Agreement, if any, with respect to such withholding tax at the time such Foreign Lender becomes a party to the Agreement (or designates a new lending office), and (B) additional United States federal withholding taxes that may be imposed after the time such Foreign Lender becomes a party to the Agreement (or designates a new lending office), as a result of a change in law, rule, regulation, order or other decision with respect to any of the foregoing by any Governmental Authority, and (iv) any United States federal withholding taxes imposed under FATCA.
“Existing Credit Facility” means that certain Loan and Security Agreement, dated as of June 27, 2011, by and between Comerica Bank, a Texas banking association, and eGain.
“Exony UK” means Exony Limited, a limited company organized under the laws of England and Wales.
“Extraordinary Receipts” means (a) so long as no Event of Default has occurred and is continuing, non-ordinary course proceeds of judgments, proceeds of settlements, or other consideration of any kind received in connection with any cause of action or claim (other than reimbursement for misappropriation of funds) in excess of $250,000 ($500,000 solely in respect of proceeds from derived from business interruption insurance), and (b) if an Event of Default has occurred and is continuing, any payments received by any Borrower or any of its Subsidiaries not in the ordinary course of business (and not consisting of proceeds described in Section 2.4(e)(ii) of the Agreement) consisting of (i) proceeds of judgments, proceeds of settlements, or other consideration of any kind received in connection with any cause of action or claim, (ii) indemnity payments (other than to the extent such indemnity payments are immediately payable to a Person that is not an Affiliate of any Borrower or any of its Subsidiaries or received by Borrower or its Subsidiaries as reimbursement for any payment previously made to such Person), and (iii) any purchase price adjustment (other than a working capital adjustment) received in connection with any purchase agreement.
“FATCA” means Sections 1471 through 1474 of the IRC, as of the date of the Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with) and any current or future regulations or official interpretations thereof.
“Fee Letter” means that certain fee letter, dated as of even date with the Agreement, among Borrowers and Agent, in form and substance reasonably satisfactory to Agent.
“Federal Funds Rate” means, for any period, a fluctuating interest rate per annum equal to, for each day during such period, the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by Agent from three Federal funds brokers of recognized standing selected by it.
“Financial Covenant Replacement Date” means the later of: (i) the date on which Borrowers are required to deliver the Compliance Certificate for the fiscal year ending June 30, 2016 pursuant to Section 5.1 of the Agreement and (ii) the first day of the fiscal quarter following the date on which the Borrowers and their Subsidiaries have achieved (both): (x) a Fixed Charge Coverage Ratio equal to or greater than 1.50 to 1.00 and (y) a Leverage Ratio of less than 2.50 to1.00 for the immediately
preceding two consecutive fiscal quarters and Borrowers would not be in default under Section 7(d) as of the last day of the immediately preceding fiscal quarter.
“Fixed Charges” means, with respect to any fiscal period and with respect to Borrowers determined on a consolidated basis in accordance with GAAP, the sum, without duplication, of (a) Interest Expense accrued (other than interest paid-in-kind, amortization of financing fees, and other non-cash Interest Expense) during such period, (b) principal payments in respect of Indebtedness that are scheduled to be paid during such period, and (c) all federal, state, and local income taxes accrued during such period, and (d) all Restricted Payments paid (whether in cash or other property, other than common Equity Interest) during such period.
“Fixed Charge Coverage Ratio” means, with respect to any fiscal period and with respect to Borrowers determined on a consolidated basis in accordance with GAAP, the ratio of (a) EBITDA for such period minus Capital Expenditures made (to the extent not already incurred in a prior period) or incurred during such period, to (b) Fixed Charges for such period.
“Foreign Cash Equivalents” means (a) certificates of deposit, bankers’ acceptances, or time deposits maturing within 1 year from the date of acquisition thereof, in each case payable in an Agreed Currency and issued by any bank organized under the laws of any Specified State and having at the date of acquisition thereof combined capital and surplus of not less than $500,000,000 (calculated at the then applicable Exchange Rate), (b) Deposit Accounts maintained with any bank that satisfies the criteria described in clause (a) above, (c) marketable direct obligations issued by, or unconditionally guaranteed by, a member country of the Organization for Economic Co-operation and Development (“OECD”), in each case maturing within 1 year from the date of acquisition thereof and having one of the two highest ratings obtainable from either Standard & Poor’s Rating Group (“S&P”) or Moody’s Investors Service, Inc. (“Moody’s”), (d) marketable direct obligations issued or fully guaranteed by any state or province a member country of the OECD or any political subdivision of any such state, province, or any public instrumentality thereof maturing within 1 year from the date of acquisition thereof and, at the time of acquisition, having one of the two highest ratings obtainable from either S&P or Moody’s, and (e) Investments in money market funds substantially all of whose assets are invested in the types of assets described in clauses (a) through (d) above.
“Foreign Lender” means any Lender or Participant that is not a United States person within the meaning of IRC section 7701(a)(30).
“Funded Indebtedness” means, as of any date of determination, all Indebtedness for borrowed money or letters of credit of Borrowers and their Subsidiaries, determined on a consolidated basis in accordance with GAAP, that by its terms matures more than one year after the date of determination, and any such Indebtedness maturing within one year from such date that is renewable or extendable at the option of any Borrower or its Subsidiaries, as applicable, to a date more than one year from such date, including, in any event, but without duplication, with respect to Borrowers and their Subsidiaries, the Revolver Usage, the Term Loan, and the amount of their Capitalized Lease Obligations.
“Funding Date” means the date on which a Borrowing occurs.
“Funding Losses” has the meaning specified therefor in Section 2.12(b)(ii) of the Agreement.
“GAAP” means generally accepted accounting principles as in effect from time to time in the United States, consistently applied.
“Governing Documents” means, with respect to any Person, the certificate or articles of incorporation, by-laws, or other organizational documents of such Person.
“Governmental Authority” means the government of any nation or any political subdivision thereof, whether at the national, state, territorial, provincial, municipal or any other level, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of, or pertaining to, government (including any supra-national bodies such as the European Union or the European Central Bank).
“Guarantor” means (a) each domestic Subsidiary of each Borrower, and (b) each other Person that becomes a guarantor after the Closing Date pursuant to Section 5.11 of the Agreement.
“Guaranty and Security Agreement” means a guaranty and security agreement, dated as of even date with the Agreement, in form and substance reasonably satisfactory to Agent, executed and delivered by each of the Borrowers and each of the Guarantors to Agent.
“Hazardous Materials” means (a) substances that are defined or listed in, or otherwise classified pursuant to, any applicable laws or regulations as “hazardous substances,” “hazardous materials,” “hazardous wastes,” “toxic substances,” or any other formulation intended to define, list, or classify substances by reason of deleterious properties such as ignitability, corrosivity, reactivity, carcinogenicity, reproductive toxicity, or “EP toxicity”, (b) oil, petroleum, or petroleum derived substances, natural gas, natural gas liquids, synthetic gas, drilling fluids, produced waters, and other wastes associated with the exploration, development, or production of crude oil, natural gas, or geothermal resources, (c) any flammable substances or explosives or any radioactive materials, and (d) asbestos in any form or electrical equipment that contains any oil or dielectric fluid containing levels of polychlorinated biphenyls in excess of 50 parts per million.
“Hedge Agreement” means a “swap agreement” as that term is defined in Section 101(53B)(A) of the Bankruptcy Code.
“Hedge Obligations” means any and all obligations or liabilities, whether absolute or contingent, due or to become due, now existing or hereafter arising, of each Borrower and its Subsidiaries arising under, owing pursuant to, or existing in respect of Hedge Agreements entered into with one or more of the Hedge Providers.
“Hedge Provider” means Wells Fargo or any of its Affiliates.
“Indebtedness” as to any Person means (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, debentures, notes, or other similar instruments and all reimbursement or other obligations in respect of letters of credit, bankers acceptances, or other financial products, (c) all obligations of such Person as a lessee under Capital Leases, (d) all obligations or liabilities of others secured by a Lien on any asset of such Person, irrespective of whether such obligation or liability is assumed, (e) all obligations of such Person to pay the deferred purchase price of assets (other than trade payables incurred in the ordinary course of business and repayable in accordance with customary trade practices, royalty payments payable in the ordinary course of business in respect of non-exclusive licenses and any Earn-Out until such time as it becomes a non-contingent liability on the balance sheet of such Person in accordance with GAAP), (f) all monetary obligations of such Person owing under Hedge Agreements (which amount shall be calculated based on the amount that would be payable by such Person if the Hedge Agreement were terminated on the date of determination), (g) any Disqualified Equity Interests of such Person, and (h) any obligation of such Person guaranteeing or intended to guarantee
(whether directly or indirectly guaranteed, endorsed, co-made, discounted, or sold with recourse) any obligation of any other Person that constitutes Indebtedness under any of clauses (a) through (g) above. For purposes of this definition, (i) the amount of any Indebtedness represented by a guaranty or other similar instrument shall be the lesser of the principal amount of the obligations guaranteed and still outstanding and the maximum amount for which the guaranteeing Person may be liable pursuant to the terms of the instrument embodying such Indebtedness, and (ii) the amount of any Indebtedness which is limited or is non-recourse to a Person or for which recourse is limited to an identified asset shall be valued at the lesser of (A) if applicable, the limited amount of such obligations, and (B) if applicable, the fair market value of such assets securing such obligation.
“Indemnified Liabilities” has the meaning specified therefor in Section 10.3 of the Agreement.
“Indemnified Person” has the meaning specified therefor in Section 10.3 of the Agreement.
“Indemnified Taxes” means, any Taxes other than Excluded Taxes.
“Insolvency Proceeding” means any proceeding commenced by or against any Person under any provision of the Bankruptcy Code or under any other state or federal bankruptcy or insolvency law, assignments for the benefit of creditors, formal or informal moratoria, compositions, extensions generally with creditors, or proceedings seeking reorganization, arrangement, or other similar relief.
“Intercompany Subordination Agreement” means an intercompany subordination agreement, dated as of even date with the Agreement, executed and delivered by each Borrower, each of its Subsidiaries, and Agent, the form and substance of which is reasonably satisfactory to Agent.
“Interest Expense” means, for any period, the aggregate of the interest expense of Borrowers for such period, determined on a consolidated basis in accordance with GAAP.
“Interest Period” means, with respect to each LIBOR Rate Loan, a period commencing on the date of the making of such LIBOR Rate Loan (or the continuation of a LIBOR Rate Loan or the conversion of a Base Rate Loan to a LIBOR Rate Loan) and ending 1, 2, 3 , or 6 months thereafter; provided, that (a) interest shall accrue at the applicable rate based upon the LIBOR Rate from and including the first day of each Interest Period to, but excluding, the day on which any Interest Period expires, (b) any Interest Period that would end on a day that is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day, (c) with respect to an Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period), the Interest Period shall end on the last Business Day of the calendar month that is 1, 2, 3, or 6 months after the date on which the Interest Period began, as applicable, and (d) Borrowers may not elect an Interest Period which will end after the Maturity Date.
“Investment” means, with respect to any Person, any investment by such Person in any other Person (including Affiliates) in the form of loans, guarantees, advances, capital contributions (excluding (a) commission, travel, and similar advances to officers and employees of such Person made in the ordinary course of business, and (b) bona fide accounts receivable arising in the ordinary course of business), or acquisitions of Indebtedness, Equity Interests, or all or substantially all of the assets of such other Person (or of any division or business line of such other Person), and any other items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. The amount of any Investment shall be the original cost of such Investment plus the cost of all additions thereto, without any
adjustment for increases or decreases in value, or write-ups, write-downs, or write-offs with respect to such Investment.
“IRC” means the Internal Revenue Code of 1986, as in effect from time to time.
“ISP” means, with respect to any Letter of Credit, the International Standby Practices 1998 (International Chamber of Commerce Publication No. 590) and any subsequent revision thereof adopted by the International Chamber of Commerce on the date such Letter of Credit is issued.
“Issuer Document” means, with respect to any Letter of Credit, a letter of credit application, a letter of credit agreement, or any other document, agreement or instrument entered into (or to be entered into) by a Borrower in favor of Issuing Bank and relating to such Letter of Credit.
“Issuing Bank” means Wells Fargo or any other Lender that, at the request of Borrowers and with the consent of Agent, agrees, in such Lender’s sole discretion, to become an Issuing Bank for the purpose of issuing Letters of Credit pursuant to Section 2.11 of the Agreement, and Issuing Bank shall be a Lender.
“Lender” has the meaning set forth in the preamble to the Agreement, shall include Issuing Bank and the Swing Lender, and shall also include any other Person made a party to the Agreement pursuant to the provisions of Section 13.1 of the Agreement and “Lenders” means each of the Lenders or any one or more of them.
“Lender Group” means each of the Lenders (including Issuing Bank and the Swing Lender) and Agent, or any one or more of them.
“Lender Group Expenses” means all (a) costs or expenses (including taxes and insurance premiums) required to be paid by any Borrower or its Subsidiaries under any of the Loan Documents that are paid, advanced, or incurred by the Lender Group, (b) documented out-of-pocket fees or charges paid or incurred by Agent in connection with the Lender Group’s transactions with each Borrower and its Subsidiaries under any of the Loan Documents, including, photocopying, notarization, couriers and messengers, telecommunication, public record searches, filing fees, recording fees, publication, real estate surveys, real estate title policies and endorsements, and environmental audits, (c) Agent’s customary fees and charges imposed or incurred in connection with any background checks or OFAC/PEP searches related to any Borrower or its Subsidiaries, (d) Agent's customary fees and charges (as adjusted from time to time) with respect to the disbursement of funds (or the receipt of funds) to or for the account of any Borrower (whether by wire transfer or otherwise), together with any out-of-pocket costs and expenses incurred in connection therewith, (e) customary charges imposed or incurred by Agent resulting from the dishonor of checks payable by or to any Loan Party, (f) reasonable documented out-of-pocket costs and expenses paid or incurred by the Lender Group to correct any default or enforce any provision of the Loan Documents, or during the continuance of an Event of Default, in gaining possession of, maintaining, handling, preserving, storing, shipping, selling, preparing for sale, or advertising to sell the Collateral, or any portion thereof, irrespective of whether a sale is consummated, (g) financial examination, appraisal, and valuation fees and expenses of Agent related to any financial examinations, appraisals, or valuation to the extent of the fees and charges (and up to the amount of any limitation) provided in Section 2.10 of the Agreement, (h) Agent’s reasonable costs and expenses (including reasonable documented attorneys fees and expenses) relative to third party claims or any other lawsuit or adverse proceeding paid or incurred, whether in enforcing or defending the Loan Documents or otherwise in connection with the transactions contemplated by the Loan Documents, Agent’s Liens in and to the Collateral, or the Lender Group’s relationship with any Borrower or any of its Subsidiaries, (i) Agent’s reasonable documented costs and expenses (including reasonable documented attorneys fees and due diligence expenses) incurred in advising, structuring, drafting,
reviewing, administering (including travel, meals, and lodging), syndicating (including reasonable costs and expenses relative to the rating of the Term Loan, CUSIP, DXSyndicate™, SyndTrak or other communication costs incurred in connection with a syndication of the loan facilities), or amending, waiving, or modifying the Loan Documents, and (j) Agent’s and each Lender’s reasonable documented costs and expenses (including reasonable documented attorneys, accountants, consultants, and other advisors fees and expenses) incurred in terminating, enforcing (including attorneys, accountants, consultants, and other advisors fees and expenses incurred in connection with a “workout,” a “restructuring,” or an Insolvency Proceeding concerning any Borrower or any of its Subsidiaries or in exercising rights or remedies under the Loan Documents), or defending the Loan Documents, irrespective of whether a lawsuit or other adverse proceeding is brought, or in taking any enforcement action or any Remedial Action with respect to the Collateral; provided that attorney’s fees shall be limited to: (x) one counsel (and one local counsel in each relevant jurisdiction and one special counsel in each reasonably necessary specialty area) to the Agent, (y) one additional counsel (and one local counsel in each relevant jurisdiction) to the Lenders, and (z) in the case of a conflict of interest, one additional counsel for each affected Lender.
“Lender Group Representatives” has the meaning specified therefor in Section 17.9 of the Agreement.
“Lender-Related Person” means, with respect to any Lender, such Lender, together with such Lender’s Affiliates, officers, directors, employees, attorneys, and agents.
“Letter of Credit” means a letter of credit (as that term is defined in the Code) issued by Issuing Bank.
“Letter of Credit Collateralization” means either (a) providing cash collateral (pursuant to documentation reasonably satisfactory to Agent, including provisions that specify that the Letter of Credit Fees and all commissions, fees, charges and expenses provided for in Section 2.11(k) of the Agreement (including any fronting fees) will continue to accrue while the Letters of Credit are outstanding) to be held by Agent for the benefit of the Revolving Lenders in an amount equal to 105% of the then existing Letter of Credit Usage, (b) delivering to Agent documentation executed by all beneficiaries under the Letters of Credit, in form and substance reasonably satisfactory to Agent and Issuing Bank, terminating all of such beneficiaries’ rights under the Letters of Credit, or (c) providing Agent with a standby letter of credit, in form and substance reasonably satisfactory to Agent, from a commercial bank acceptable to Agent (in its sole discretion) in an amount equal to 105% of the then existing Letter of Credit Usage (it being understood that the Letter of Credit Fee and all fronting fees set forth in the Agreement will continue to accrue while the Letters of Credit are outstanding and that any such fees that accrue must be an amount that can be drawn under any such standby letter of credit).
“Letter of Credit Disbursement” means a payment made by Issuing Bank pursuant to a Letter of Credit.
“Letter of Credit Exposure” means, as of any date of determination with respect to any Lender, such Lender’s Pro Rata Share of the Letter of Credit Usage on such date.
“Letter of Credit Fee” has the meaning specified therefor in Section 2.6(b) of the Agreement.
“Letter of Credit Indemnified Costs” has the meaning specified therefor in Section 2.11(f) of the Agreement.
“Letter of Credit Related Person” has the meaning specified therefor in Section 2.11(f) of the Agreement.
“Letter of Credit Usage” means, as of any date of determination, the aggregate undrawn amount of all outstanding Letters of Credit.
“Leverage Ratio” means, as of any date of determination the result of (a) the amount of Funded Indebtedness minus Qualified Cash in an amount not to exceed $2,000,000, in each case as of such date, to (b) EBITDA for the 12 month period ended as of such date.
“LIBOR Deadline” has the meaning specified therefor in Section 2.12(b)(i) of the Agreement.
“LIBOR Notice” means a written notice in the form of Exhibit L-1 to the Agreement.
“LIBOR Option” has the meaning specified therefor in Section 2.12(a) of the Agreement.
“LIBOR Rate” means the rate per annum as reported on Reuters Screen LIBOR01 page (or any successor page) 2 Business Days prior to the commencement of the requested Interest Period, for a term, and in an amount, comparable to the Interest Period and the amount of the LIBOR Rate Loan requested (whether as an initial LIBOR Rate Loan or as a continuation of a LIBOR Rate Loan or as a conversion of a Base Rate Loan to a LIBOR Rate Loan) by Borrowers in accordance with the Agreement (and, if any such rate is below zero, the LIBOR Rate shall be deemed to be zero), which determination shall be made by Agent and shall be conclusive in the absence of manifest error.
“LIBOR Rate Loan” means each portion of a Revolving Loan or the Term Loan that bears interest at a rate determined by reference to the LIBOR Rate.
“LIBOR Rate Margin” has the meaning set forth in the definition of Applicable Margin.
“Lien” means any mortgage, deed of trust, pledge, hypothecation, assignment, charge, deposit arrangement, encumbrance, easement, lien (statutory or other), security interest, or other security arrangement and any other preference, priority, or preferential arrangement of any kind or nature whatsoever, including any conditional sale contract or other title retention agreement, the interest of a lessor under a Capital Lease and any synthetic or other financing lease having substantially the same economic effect as any of the foregoing.
“Liquidity” means, as of any date of determination, the sum of Availability and Qualified Cash.
“Loan” shall mean any Revolving Loan, Swing Loan, Protective Advance, or Term Loan made (or to be made) hereunder.
“Loan Account” has the meaning specified therefor in Section 2.9 of the Agreement.
“Loan Documents” means the Agreement, the Control Agreements, the Copyright Security Agreement, any Credit Amount Certificate, the Fee Letter, the Guaranty and Security Agreement, the Intercompany Subordination Agreement, any Issuer Documents, the Letters of Credit, the Mortgages, the Patent Security Agreement, the Trademark Security Agreement, any note or notes executed by Borrowers in connection with the Agreement and payable to any member of the Lender Group, and any other
instrument or agreement entered into, now or in the future, by any Borrower or any of its Subsidiaries and any member of the Lender Group in connection with the Agreement.
“Loan Party” means any Borrower or any Guarantor.
“Maintenance Fee Revenues” means, with respect to any period, all maintenance fee revenues attributable to software owned by Borrowers and their Subsidiaries earned during such period, calculated on a basis consistent with the financial statements delivered to Agent prior to the Closing Date.
“Margin Stock” as defined in Regulation U of the Board of Governors as in effect from time to time.
“Material Adverse Effect” means (a) a material adverse effect in the business, operations, results of operations, assets, liabilities or financial condition of Borrowers and their Subsidiaries, taken as a whole, (b) a material impairment of Borrowers’ and their Subsidiaries ability to perform their obligations under the Loan Documents to which they are parties or of the Lender Group’s ability to enforce the Obligations or realize upon the Collateral (other than as a result of as a result of an action taken or not taken that is solely in the control of Agent), or (c) a material impairment of the enforceability or priority of Agent’s Liens with respect to all or a material portion of the Collateral.
“Material Contract” means, with respect to any Person, (a) each contract or agreement to which such Person or any of its Subsidiaries is a party involving aggregate consideration payable to such Person or such Subsidiary in an amount equal to at least 15% of such Person’s or such Subsidiary’s Recurring Revenues for the prior twelve-month period, and (b) all other contracts or agreements, the loss of which could reasonably be expected to result in a Material Adverse Effect.
“Maturity Date” means November 21, 2019.
“Maximum Revolver Amount” means $10,000,000.
“Moody’s” has the meaning specified therefor in the definition of Cash Equivalents.
“Mortgages” means, individually and collectively, one or more mortgages, deeds of trust, or deeds to secure debt, executed and delivered by a Borrower or one of its Subsidiaries in favor of Agent, in form and substance reasonably satisfactory to Agent, that encumber the Real Property Collateral.
“Net Cash Proceeds” means:
(a) with respect to any sale or disposition by any Borrower or any of its Subsidiaries of assets, the amount of cash proceeds received (directly or indirectly) from time to time (whether as initial consideration or through the payment of deferred consideration) by or on behalf of such Borrower or such Subsidiary, in connection therewith after deducting therefrom only (i) the amount of any Indebtedness secured by any Permitted Lien on any asset (other than (A) Indebtedness owing to Agent or any Lender under the Agreement or the other Loan Documents and (B) Indebtedness assumed by the purchaser of such asset) which is required to be, and is, repaid in connection with such sale or disposition, (ii) reasonable fees, commissions, and expenses related thereto and required to be paid by such Borrower or such Subsidiary in connection with such sale or disposition, (iii) taxes paid or payable to any taxing authorities by such Borrower or such Subsidiary in connection with such sale or disposition, in each case to the extent, but only to the extent, that the amounts so deducted are, at the time of receipt of such cash, actually paid or payable to a Person that is not an Affiliate of any Borrower or any of its Subsidiaries, and are properly attributable to such transaction; and (iv) all amounts that are set aside as a reserve (A) for adjustments in respect of the
purchase price of such assets, (B) for any liabilities associated with such sale or casualty, to the extent such reserve is required by GAAP, and (C) for the payment of unassumed liabilities relating to the assets sold or otherwise disposed of at the time of, or within 30 days after, the date of such sale or other disposition, to the extent that in each case the funds described above in this clause (iv) are (x) deposited into escrow with a third party escrow agent or set aside in a separate Deposit Account that is subject to a Control Agreement in favor of Agent and (y) paid to Agent as a prepayment of the applicable Obligations in accordance with and subject to Section 2.4(e) of the Agreement at such time when such amounts are no longer required to be set aside as such a reserve; and
(b) with respect to the issuance or incurrence of any Indebtedness by any Borrower or any of its Subsidiaries, or the issuance by any Borrower or any of its Subsidiaries of any Equity Interests, the aggregate amount of cash received (directly or indirectly) from time to time (whether as initial consideration or through the payment or disposition of deferred consideration) by or on behalf of such Borrower or such Subsidiary in connection with such issuance or incurrence, after deducting therefrom only (i) reasonable fees, commissions, and expenses related thereto and required to be paid by such Borrower or such Subsidiary in connection with such issuance or incurrence, (ii) taxes paid or payable to any taxing authorities by such Borrower or such Subsidiary in connection with such issuance or incurrence, in each case to the extent, but only to the extent, that the amounts so deducted are, at the time of receipt of such cash, actually paid or payable to a Person that is not an Affiliate of any Borrower or any of its Subsidiaries, and are properly attributable to such transaction.
“Net Working Capital” means, as of any date of determination, with respect to the Borrowers and their Subsidiaries on a consolidated basis Current Assets as of such date minus Current Liabilities as of such date.
“Non-Consenting Lender” has the meaning specified therefor in Section 14.2(a) of the Agreement.
“Non-Defaulting Lender” means each Lender other than a Defaulting Lender.
“Obligations” means (a) all loans (including the Term Loan and the Revolving Loans (inclusive of Protective Advances and Swing Loans)), debts, principal, interest (including any interest that accrues after the commencement of an Insolvency Proceeding, regardless of whether allowed or allowable in whole or in part as a claim in any such Insolvency Proceeding), reimbursement or indemnification obligations with respect to Letters of Credit (irrespective of whether contingent), premiums, liabilities (including all amounts charged to the Loan Account pursuant to the Agreement), obligations (including indemnification obligations), fees (including the fees provided for in the Fee Letter), Lender Group Expenses (including any fees or expenses that accrue after the commencement of an Insolvency Proceeding, regardless of whether allowed or allowable in whole or in part as a claim in any such Insolvency Proceeding), guaranties, and all covenants and duties of any other kind and description owing by any Loan Party arising out of, under, pursuant to, in connection with, or evidenced by the Agreement or any of the other Loan Documents and irrespective of whether for the payment of money, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, and including all interest not paid when due and all other expenses or other amounts that Borrowers are required to pay or reimburse by the Loan Documents or by law or otherwise in connection with the Loan Documents, and (b) all Bank Product Obligations. Without limiting the generality of the foregoing, the Obligations of Borrowers under the Loan Documents include the obligation to pay (i) the principal of the Revolving Loans and the Term Loan, (ii) interest accrued on the Revolving Loans and the Term Loan, (iii) the amount necessary to reimburse Issuing Bank for amounts paid or payable pursuant to Letters of Credit, (iv) Letter of Credit commissions, fees (including fronting fees) and charges, (v) Lender Group Expenses, (vi) fees payable under the Agreement or any of the other Loan Documents, and (vii) indemnities and other amounts payable
by any Loan Party under any Loan Document. Any reference in the Agreement or in the Loan Documents to the Obligations shall include all or any portion thereof and any extensions, modifications, renewals, or alterations thereof, both prior and subsequent to any Insolvency Proceeding.
“OFAC” means The Office of Foreign Assets Control of the U.S. Department of the Treasury.
“Originating Lender” has the meaning specified therefor in Section 13.1(e) of the Agreement.
“Participant” has the meaning specified therefor in Section 13.1(e) of the Agreement.
“Participant Register” has the meaning set forth in Section 13.1(i) of the Agreement.
“Patent Security Agreement” has the meaning specified therefor in the Guaranty and Security Agreement.
“Patriot Act” has the meaning specified therefor in Section 4.13 of the Agreement.
“Perfection Certificate” means a certificate in the form of Exhibit P-1 to the Agreement.
“Permitted Acquisition” means any Acquisition so long as:
(a) no Default or Event of Default shall have occurred and be continuing or would result from the consummation of the proposed Acquisition and the proposed Acquisition is consensual,
(b) no Indebtedness will be incurred, assumed, or would exist with respect to any Borrower or its Subsidiaries as a result of such Acquisition, other than Permitted Indebtedness and no Liens will be incurred, assumed, or would exist with respect to the assets of any Borrower or its Subsidiaries as a result or such Acquisition other than Permitted Liens,
(c) Borrowers have provided Agent with written confirmation, supported by reasonably detailed calculations, that on a pro forma basis (including pro forma adjustments arising out of events which are directly attributable to such proposed Acquisition, are factually supportable, and are expected to have a continuing impact, in each case, determined as if the combination had been accomplished at the beginning of the relevant period; such eliminations and inclusions determined on a basis consistent with Article 11 of Regulation S X promulgated under the Securities Act and as interpreted by the staff of the SEC) created by adding the historical combined financial statements of Borrowers (including the combined financial statements of any other Person or assets that were the subject of a prior Permitted Acquisition during the relevant period) to the historical consolidated financial statements of the Person to be acquired (or the historical financial statements related to the assets to be acquired) pursuant to the proposed Acquisition, Borrowers and their Subsidiaries (i) would have been in compliance with the financial covenants in Section 7 of the Agreement for the fiscal quarter ended immediately prior to the proposed date of consummation of such proposed Acquisition, and (ii) are projected to be in compliance with the financial covenants in Section 7 of the Agreement for each of the 4 fiscal quarters in the period ended one year after the proposed date of consummation of such proposed Acquisition,
(d) Borrowers have provided Agent with its due diligence package relative to the proposed Acquisition, including forecasted balance sheets, profit and loss statements, and cash flow statements of the Person or assets to be acquired, all prepared on a basis consistent with such Person’s (or assets’) historical financial statements, solely in the case of a proposed Acquisition with purchase consideraton in
excess of $5,000,000, together with appropriate supporting details and a statement of underlying assumptions for the 1 year period following the date of the proposed Acquisition, on a quarter by quarter basis), each in in form and substance (including as to scope and underlying assumptions) reasonably satisfactory to Agent,
(e) Borrowers shall have Availability plus Qualified Cash in an amount equal to or greater than $4,000,000 immediately after giving effect to the consummation of the proposed Acquisition,
(f) the assets being acquired or the Person whose Equity Interests are being acquired did not have EBITDA no worse than negative $1,000,000 during the four-fiscal quarter period most recently concluded prior to the date of the proposed Acquisition,
(g) Borrowers have provided Agent with written notice of the proposed Acquisition at least 15 Business Days prior to the anticipated closing date of the proposed Acquisition and, not later than 5 Business Days prior to the anticipated closing date of the proposed Acquisition, copies of the acquisition agreement and other material documents relative to the proposed Acquisition, which agreement and documents must be reasonably acceptable to Agent,
(h) the assets being acquired (other than a de minimis amount of assets in relation to Borrowers’ and their Subsidiaries’ total assets), or the Person whose Equity Interests are being acquired, are useful in or engaged in, as applicable, the business of Borrowers and their Subsidiaries or a business reasonably related thereto,
(i) the assets being acquired (other than a de minimis amount of assets in relation to the assets being acquired) are located within the United States, Canada or the United Kingdom, or the Person whose Equity Interests are being acquired is organized in a jurisdiction located within the United States, Canada or the United Kingdom or solely in respect of acquisitions with purchase consideration in the aggregate for all such acquisitions of less than $5,000,000 in cash plus an unlimited amount of Equity Interests of Administrative Borrower, the assets being acquired are located anywhere in the world, or the Person whose Equity Interests are being acquired is organized in any jurisdiction,
(j) the subject assets or Equity Interests, as applicable, are being acquired directly by a Borrower or one of its Subsidiaries that is a Loan Party, and, in connection therewith, the applicable Loan Party shall have complied with Section 5.11 or 5.12 of the Agreement, as applicable, of the Agreement and, in the case of an acquisition of Equity Interests, the applicable Loan Party shall have demonstrated to Agent that the new Loan Parties have received consideration sufficient to make the joinder documents binding and enforceable against such new Loan Parties, and
(k) the purchase consideration payable in respect of all Permitted Acquisitions (including the proposed Acquisition and including deferred payment obligations) shall not exceed $40,000,000 in the aggregate; provided, that the purchase consideration payable in respect of any single Acquisition or series of related Acquisitions shall not exceed $20,000,000 in the aggregate.
“Permitted Discretion” means a determination made in the exercise of reasonable (from the perspective of a secured commercial lender) business judgment.
“Permitted Dispositions” means:
(a) sales, abandonment, or other dispositions of Equipment that is substantially worn, damaged, or obsolete or no longer used or useful in the ordinary course of business and leases or subleases of Real Property not useful in the conduct of the business of Borrowers and their Subsidiaries,
(b) sales of inventory to buyers in the ordinary course of business,
(c) the use or transfer of money or Cash Equivalents in a manner that is not prohibited by the terms of the Agreement or the other Loan Documents,
(d) the licensing, on a non-exclusive basis, of patents, trademarks, copyrights, and other intellectual property rights in the ordinary course of business,
(e) the granting of Permitted Liens,
(f) the sale or discount, in each case without recourse, of accounts receivable arising in the ordinary course of business, but only in connection with the compromise or collection thereof,
(g) any involuntary loss, damage or destruction of property,
(h) any involuntary condemnation, seizure or taking, by exercise of the power of eminent domain or otherwise, or confiscation or requisition of use of property,
(i) the leasing or subleasing of assets of any Borrower or its Subsidiaries in the ordinary course of business,
(j) the sale or issuance of Equity Interests (other than Disqualified Equity Interests) of Administrative Borrower,
(k) (i) the lapse of registered patents, trademarks, copyrights and other intellectual property of any Borrower or any of its Subsidiaries to the extent not economically desirable in the conduct of its business or (ii) the abandonment of patents, trademarks, copyrights, or other intellectual property rights in the ordinary course of business so long as (in each case under clauses (i) and (ii)), (A) with respect to copyrights, such copyrights are not material revenue generating copyrights, and (B) such lapse is not materially adverse to the interests of the Lender Group,
(l) the making of Restricted Payments that are expressly permitted to be made pursuant to the Agreement,
(m) the making of Permitted Investments,
(n) so long as no Event of Default has occurred and is continuing or would immediately result therefrom, transfers of assets (i) from any Borrower or any of its Subsidiaries to a Loan Party, and (ii) from any Subsidiary of any Borrower that is not a Loan Party to any other Subsidiary of such any Borrower, and
(o) dispositions of assets acquired by Borrowers and their Subsidiaries pursuant to a Permitted Acquisition consummated within 12 months of the date of the proposed disposition so long as (i) the consideration received for the assets to be so disposed is at least equal to the fair market value of such assets, (ii) the assets to be so disposed are not necessary or economically desirable in connection with the business of Borrowers and their Subsidiaries, and (iii) the assets to be so disposed are readily identifiable as assets acquired pursuant to the subject Permitted Acquisition, and
(p) sales or dispositions of assets (other than Equity Interests of Subsidiaries of any Borrower) not otherwise permitted in clauses (a) through (o) above so long as made at fair market value
and the aggregate fair market value of all assets disposed of in fiscal year (including the proposed disposition) would not exceed $1,000,000.
“Permitted Holder” means Ashutosh Roy any family trust controlled by him, and his heirs and executors.
“Permitted Indebtedness” means:
(a) Indebtedness evidenced by the Agreement or the other Loan Documents,
(b) Indebtedness set forth on Schedule 4.14 of the Disclosure Letter and any Refinancing Indebtedness in respect of such Indebtedness,
(c) Permitted Purchase Money Indebtedness and any Refinancing Indebtedness in respect of such Indebtedness,
(d) endorsement of instruments or other payment items for deposit,
(e) Indebtedness consisting of (i) unsecured guarantees incurred in the ordinary course of business with respect to surety and appeal bonds, performance bonds, bid bonds, appeal bonds, completion guarantee and similar obligations; (ii) unsecured guarantees arising with respect to customary indemnification obligations to purchasers in connection with Permitted Dispositions; and (iii) unsecured guarantees with respect to Indebtedness of any Borrower or one of its Subsidiaries, to the extent that the Person that is obligated under such guaranty could have incurred such underlying Indebtedness,
(f) unsecured Indebtedness of any Borrower that is incurred on the date of the consummation of a Permitted Acquisition solely for the purpose of consummating such Permitted Acquisition so long as (i) no Event of Default has occurred and is continuing or would result therefrom, (ii) such unsecured Indebtedness is not incurred for working capital purposes, (iii) such unsecured Indebtedness does not mature prior to the date that is 12 months after the Maturity Date, (iv) such unsecured Indebtedness does not amortize until 12 months after the Maturity Date, (v) such unsecured Indebtedness does not provide for the payment of interest thereon in cash or Cash Equivalents prior to the date that is 12 months after the Maturity Date, and (vi) such Indebtedness is subordinated in right of payment to the Obligations on terms and conditions reasonably satisfactory to Agent,
(g) Acquired Indebtedness in an amount not to exceed $500,000 outstanding at any one time,
(h) Indebtedness incurred in the ordinary course of business under performance, surety, statutory, or appeal bonds,
(i) Indebtedness owed to any Person providing property, casualty, liability, or other insurance to any Borrower or any of its Subsidiaries, so long as the amount of such Indebtedness is not in excess of the amount of the unpaid cost of, and shall be incurred only to defer the cost of, such insurance for the year in which such Indebtedness is incurred and such Indebtedness is outstanding only during such year,
(j) the incurrence by any Borrower or its Subsidiaries of Indebtedness under Hedge Agreements that are incurred for the bona fide purpose of hedging the interest rate, commodity, or foreign currency risks associated with Borrowers’ and its Subsidiaries’ operations and not for speculative purposes,
(k) Indebtedness incurred in the ordinary course of business in respect of credit cards, credit card processing services, debit cards, stored value cards, commercial cards (including so-called “purchase cards”, “procurement cards” or “p-cards”), or Cash Management Services, ,
(l) unsecured Indebtedness of any Borrower owing to former employees, officers, or directors (or any spouses, ex-spouses, or estates of any of the foregoing) incurred in connection with the repurchase by such Borrower of the Equity Interests of Administrative Borrower that has been issued to such Persons, so long as (i) no Default or Event of Default has occurred and is continuing or would result from the incurrence of such Indebtedness, (ii) the aggregate amount of all such Indebtedness outstanding at any one time does not exceed $250,000, and (iii) such Indebtedness is subordinated to the Obligations on terms and conditions reasonably acceptable to Agent,
(m) unsecured Indebtedness owing to sellers of assets or Equity Interests to a Loan Party that is incurred by the applicable Loan Party in connection with the consummation of one or more Permitted Acquisitions so long as (i) the aggregate principal amount for all such unsecured Indebtedness does not exceed $1,000,000 at any one time outstanding, (ii) is subordinated to the Obligations on terms and conditions reasonably acceptable to Agent, and (iii) is otherwise on terms and conditions (including all economic terms and the absence of covenants) reasonably acceptable to Agent,
(n) contingent liabilities in respect of any indemnification obligation, adjustment of purchase price, non-compete, or similar obligation of Borrowers or the applicable Loan Party incurred in connection with the consummation of one or more Permitted Acquisitions,
(o) Indebtedness composing Permitted Investments,
(p) unsecured Indebtedness incurred in respect of netting services, overdraft protection, and other like services, in each case, incurred in the ordinary course of business,
(q) unsecured Indebtedness of any Borrower or its Subsidiaries in respect of Earn-Outs owing to sellers of assets or Equity Interests to such Borrower or its Subsidiaries that is incurred in connection with the consummation of one or more Permitted Acquisitions so long as such unsecured Indebtedness is on terms and conditions reasonably acceptable to Agent,
(r) Indebtedness in an aggregate outstanding principal amount not to exceed $500,000 at any time outstanding for all Subsidiaries of each Borrower that are CFCs; provided, that such Indebtedness is not directly or indirectly recourse to any of the Loan Parties or of their respective assets,
(s) accrual of interest, accretion or amortization of original issue discount, or the payment of interest in kind, in each case, on Indebtedness that otherwise constitutes Permitted Indebtedness, and
(t) any other unsecured Indebtedness incurred by any Borrower or any of its Subsidiaries in an aggregate outstanding amount not to exceed $2,000,000 at any one time.
“Permitted Intercompany Advances” means loans made by (a) a Loan Party to another Loan Party, (b) a Subsidiary of a Borrower that is not a Loan Party to another Subsidiary of a Borrower that is not a Loan Party, (c) a Subsidiary of a Borrower that is not a Loan Party to a Loan Party, so long as the parties thereto are party to the Intercompany Subordination Agreement, (d) a Loan Party to a Subsidiary of a Borrower that is not a Loan Party (other than eGain India and eGain UK) so long as (i) the aggregate amount of all such loans (by type, not by the borrower) plus all Investments outstanding under clause (q) of the definition of Permitted Investments does not exceed $1,000,000 outstanding at any one time, (ii) at the time of the making of such loan, no Event of Default has occurred and is continuing or would result
therefrom, and (iii) Borrowers have Availability plus Qualified Cash of $4,000,000 or greater immediately after giving effect to each such loan, (e) Administrative Borrower to eGain UK, so long as the parties thereto are party to the Intercompany Subordination Agreement and so long as (i) the aggregate amount of all such loans plus all Investments under clause (r) of the definition of Permitted Investments does not exceed $3,000,000 at any one time outstanding, (ii) at the time of the making of such loan, no Event of Default has occurred and is continuing or would result therefrom, and (iii) Borrowers have Availability plus Qualified Cash of $4,000,000 or greater immediately after giving effect to each such loan, and (f) Administrative Borrower to eGain India, so long as the parties thereto are party to the Intercompany Subordination Agreement and so long as the aggregate amount of all such loans plus all Investments under clause (p) of the definition of Permitted Investments made in any fiscal year does not exceed $1,000,000 in any such fiscal year.
“Permitted Investments” means:
(a) Investments in cash and Cash Equivalents,
(b) Investments in negotiable instruments deposited or to be deposited for collection in the ordinary course of business,
(c) advances made in connection with purchases of goods or services in the ordinary course of business,
(d) Investments received in settlement of amounts due to any Loan Party or any of its Subsidiaries effected in the ordinary course of business or owing to any Loan Party or any of its Subsidiaries as a result of Insolvency Proceedings involving an account debtor or upon the foreclosure or enforcement of any Lien in favor of a Loan Party or its Subsidiaries,
(e) Investments owned by any Loan Party or any of its Subsidiaries on the Closing Date and set forth on Schedule P-1 of the Disclosure Letter,
(f) guarantees permitted under the definition of Permitted Indebtedness,
(g) Permitted Intercompany Advances,
(h) Equity Interests or other securities acquired in connection with the satisfaction or enforcement of Indebtedness or claims due or owing to a Loan Party or its Subsidiaries (in bankruptcy of customers or suppliers or otherwise outside the ordinary course of business) or as security for any such Indebtedness or claims,
(i) deposits of cash made in the ordinary course of business to secure performance of operating leases,
(j) (i) non-cash loans and advances to employees, officers, and directors of Administrative Borrower or any of its Subsidiaries for the purpose of purchasing Equity Interests in Administrative Borrower so long as the proceeds of such loans are used in their entirety to purchase such Equity Interests in Administrative Borrower, and (ii) loans and advances to employees and officers of any Borrower or any of its Subsidiaries in the ordinary course of business for any other business purpose and in an aggregate amount not to exceed $500,000 at any one time,
(k) Permitted Acquisitions,
(l) Investments in the form of capital contributions and the acquisition of Equity Interests made by any Loan Party in any other Loan Party (other than capital contributions to or the acquisition of Equity Interests of any Borrower),
(m) Investments resulting from entering into (i) Bank Product Agreements, or (ii) agreements relative to Indebtedness that is permitted under clause (j) of the definition of Permitted Indebtedness,
(n) equity Investments by any Loan Party in any Subsidiary of such Loan Party which is required by law to maintain a minimum net capital requirement or as may be otherwise required by applicable law,
(o) Investments held by a Person acquired in a Permitted Acquisition to the extent that such Investments were not made in contemplation of or in connection with such Permitted Acquisition and were in existence on the date of such Permitted Acquisition,
(p) Investments in the form of capital contributions and acquisitions of Equity Interests made by Administrative Borrower in eGain India, so long as the aggregate amount of all such Investments made in any fiscal year plus all loans outstanding under clause (f) of the definition of Permitted Intercompany Advances does not exceed $1,000,000 in any such fiscal year,
(q) Investments in the form of capital contributions and acquisitions of Equity Interests made by Administrative Borrower in any Subsidiary of a Borrower that is not a Loan Party (other than eGain India and eGain UK), so long as (i) the aggregate amount of all such Investments plus all loans outstanding under clause (d) of the definition of Permitted Intercompany Advances does not exceed $1,000,000 outstanding at any one time, (ii) at the time of the making of such investment, no Event of Default has occurred and is continuing or would result therefrom, and (iii) Borrowers have Availability plus Qualified Cash of $4,000,000 or greater immediately after giving effect to each such Investment,
(r) Investments in the form of capital contributions and acquisitions of Equity Interests made by Administrative Borrower in eGain UK, so long as (i) the aggregate amount of all such Investments plus all loans outstanding under clause (e) of the definition of Permitted Intercompany Advances does not exceed $3,000,000 at any one time outstanding, (ii) at the time of the making of such Investment, no Event of Default has occurred and is continuing or would result therefrom, and (iii) Borrowers have Availability plus Qualified Cash of $4,000,000 or greater immediately after giving effect to each such loan, and
(s) so long as no Event of Default has occurred and is continuing or would result therefrom, any other Investments in an aggregate amount not to exceed $1,000,000 during the term of the Agreement.
“Permitted Liens” means
(a) Liens granted to, or for the benefit of, Agent to secure the Obligations,
(b) Liens for unpaid taxes, assessments, or other governmental charges or levies that either (i) are not yet delinquent, or (ii) do not have priority over Agent’s Liens and the underlying taxes, assessments, or charges or levies are the subject of Permitted Protests,
(c) judgment Liens arising solely as a result of the existence of judgments, orders, or awards that do not constitute an Event of Default under Section 8.3 of the Agreement,
(d) Liens set forth on Schedule P-2 of the Disclosure Letter; provided, that to qualify as a Permitted Lien, any such Lien described on Schedule P-2 of the Disclosure Letter shall only secure the Indebtedness that it secures on the Closing Date and any Refinancing Indebtedness in respect thereof,
(e) the interests of lessors under operating leases and non-exclusive licensors under license agreements,
(f) purchase money Liens or the interests of lessors under Capital Leases to the extent that such Liens or interests secure Permitted Purchase Money Indebtedness and so long as (i) such Lien attaches only to the asset purchased or acquired and the proceeds thereof, and (ii) such Lien only secures the Indebtedness that was incurred to acquire the asset purchased or acquired or any Refinancing Indebtedness in respect thereof,
(g) Liens arising by operation of law in favor of warehousemen, landlords, carriers, mechanics, materialmen, laborers, or suppliers, incurred in the ordinary course of business and not in connection with the borrowing of money, and which Liens either (i) are for sums not yet delinquent, or (ii) are the subject of Permitted Protests,
(h) Liens on amounts deposited to secure any Borrower’s and its Subsidiaries’ obligations in connection with worker’s compensation or other unemployment insurance,
(i) Liens on amounts deposited to secure any Borrower’s and its Subsidiaries’ obligations in connection with the making or entering into of bids, tenders, or leases in the ordinary course of business and not in connection with the borrowing of money,
(j) Liens on amounts deposited to secure any Borrower’s and its Subsidiaries’ reimbursement obligations with respect to surety or appeal bonds obtained in the ordinary course of business,
(k) with respect to any Real Property, easements, rights of way, and zoning restrictions that do not materially interfere with or impair the use or operation thereof,
(l) non-exclusive licenses of patents, trademarks, copyrights, and other intellectual property rights in the ordinary course of business,
(m) Liens that are replacements of Permitted Liens to the extent that the original Indebtedness is the subject of permitted Refinancing Indebtedness and so long as the replacement Liens only encumber those assets that secured the original Indebtedness,
(n) rights of setoff or bankers’ liens upon deposits of funds in favor of banks or other depository institutions, solely to the extent incurred in connection with the maintenance of such Deposit Accounts in the ordinary course of business,
(o) Liens granted in the ordinary course of business on the unearned portion of insurance premiums securing the financing of insurance premiums to the extent the financing is permitted under the definition of Permitted Indebtedness,
(p) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods,
(q) Liens solely on any cash earnest money deposits made by a Borrower or any of its Subsidiaries in connection with any letter of intent or purchase agreement with respect to a Permitted Acquisition,
(r) Liens assumed by any Borrower or its Subsidiaries in connection with a Permitted Acquisition that secure Acquired Indebtedness, and
(s) other Liens which do not secure Indebtedness for borrowed money or letters of credit and as to which the aggregate amount of the obligations secured thereby does not exceed $1,000,000.
“Permitted Protest” means the right of any Borrower or any of its Subsidiaries to protest any Lien (other than any Lien that secures the Obligations), taxes (other than payroll taxes or taxes that are the subject of a United States federal tax lien), or rental payment, provided that (a) a reserve with respect to such obligation is established on such Borrower’s or its Subsidiaries’ books and records in such amount as is required under GAAP, (b) any such protest is instituted promptly and prosecuted diligently by such Borrower or its Subsidiary, as applicable, in good faith, and (c) Agent is satisfied that, while any such protest is pending, there will be no impairment of the enforceability, validity, or priority of any of Agent’s Liens.
“Permitted Purchase Money Indebtedness” means, as of any date of determination, Indebtedness (other than the Obligations, but including Capitalized Lease Obligations), incurred after the Closing Date and at the time of, or within 20 days after, the acquisition of any fixed assets for the purpose of financing all or any part of the acquisition cost thereof, in an aggregate principal amount outstanding at any one time not in excess of $1,000,000.
“Person” means natural persons, corporations, limited liability companies, limited partnerships, general partnerships, limited liability partnerships, joint ventures, trusts, land trusts, business trusts, or other organizations, irrespective of whether they are legal entities, and governments and agencies and political subdivisions thereof.
“Platform” has the meaning specified therefor in Section 17.9(c) of the Agreement.
“Projections” means Borrowers’ forecasted (a) balance sheets, (b) profit and loss statements, and (c) cash flow statements, all prepared on a basis consistent with Borrowers’ historical financial statements, together with appropriate supporting details and a statement of underlying assumptions.
“Pro Rata Share” means, as of any date of determination:
(a) with respect to a Lender’s obligation to make all or a portion of the Revolving Loans, with respect to such Lender’s right to receive payments of interest, fees, and principal with respect to the Revolving Loans, and with respect to all other computations and other matters related to the Revolver Commitments or the Revolving Loans, the percentage obtained by dividing (i) the Revolving Loan Exposure of such Lender by (ii) the aggregate Revolving Loan Exposure of all Lenders,
(b) with respect to a Lender’s obligation to participate in the Letters of Credit, with respect to such Lender’s obligation to reimburse Issuing Bank, and with respect to such Lender’s right to receive payments of Letter of Credit Fees, and with respect to all other computations and other matters related to the Letters of Credit, the percentage obtained by dividing (i) the Revolving Loan Exposure of such Lender by (ii) the aggregate Revolving Loan Exposure of all Lenders; provided, that if all of the Revolving Loans have been repaid in full and all Revolver Commitments have been terminated, but Letters of Credit remain
outstanding, Pro Rata Share under this clause shall be determined as if the Revolver Commitments had not been terminated and based upon the Revolver Commitments as they existed immediately prior to their termination,
(c) with respect to a Lender’s obligation to make all or a portion of the Term Loan, with respect to such Lender’s right to receive payments of interest, fees, and principal with respect to the Term Loan, and with respect to all other computations and other matters related to the Term Loan Commitments or the Term Loan, the percentage obtained by dividing (i) the Term Loan Exposure of such Lender by (ii) the aggregate Term Loan Exposure of all Lenders, and
(d) with respect to all other matters and for all other matters as to a particular Lender (including the indemnification obligations arising under Section 15.7 of the Agreement), the percentage obtained by dividing (i) the sum of the Term Loan Exposure of such Lender plus the Revolving Loan Exposure of such Lender by (ii) the sum of the aggregate Term Loan Exposure of all Lenders plus the aggregate Revolving Loan Exposure of all Lenders, in any such case as the applicable percentage may be adjusted by assignments permitted pursuant to Section 13.1; provided, that if all of the Loans have been repaid in full, all Letters of Credit have been made the subject of Letter of Credit Collateralization, and all Commitments have been terminated, Pro Rata Share under this clause shall be determined as if the Revolving Loan Exposures and Term Loan Exposures had not been repaid, collateralized, or terminated and shall be based upon the Revolving Loan Exposures and Term Loan Exposures as they existed immediately prior to their repayment, collateralization, or termination.
“Protective Advances” has the meaning specified therefor in Section 2.3(d)(i) of the Agreement.
“Public Lender” has the meaning specified therefor in Section 17.9(c) of the Agreement.
“Purchase Price” means, with respect to any Acquisition, an amount equal to the aggregate consideration, whether cash, property or securities (including the fair market value of any Equity Interests of Administrative Borrower issued in connection with such Acquisition and including the maximum amount of Earn-Outs), paid or delivered by a Borrower or one of its Subsidiaries in connection with such Acquisition (whether paid at the closing thereof or payable thereafter and whether fixed or contingent), but excluding therefrom (a) any cash of the seller and its Affiliates used to fund any portion of such consideration and (b) any cash or Cash Equivalents acquired in connection with such Acquisition.
“Qualified Cash” means, as of any date of determination, the amount of unrestricted cash and Cash Equivalents of Borrowers and their Subsidiaries that is in Deposit Accounts or in Securities Accounts, or any combination thereof, and which such Deposit Account or Securities Account is the subject of a Control Agreement and is maintained by a branch office of the bank or securities intermediary located within the United States.
“Qualified Equity Interest” means and refers to any Equity Interests issued by a Administrative Borrower (and not by one or more of its Subsidiaries) that is not a Disqualified Equity Interest.
“Real Property” means any estates or interests in real property now owned or hereafter acquired by any Borrower or one of its Subsidiaries and the improvements thereto.
“Real Property Collateral” means (a) the Real Property identified on Schedule R-1 of the Disclosure Letter and (b) any Real Property hereafter acquired by any Loan Party with a fair market value in excess of $1,000,000.
“Record” means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form.
“Recurring Revenues” means, with respect to any period, all hosted, subscription, and Maintenance Fee Revenues attributable to software owned by any Borrower or any of its Subsidiaries earned by any Borrower or any of its Subsidiaries during such period, calculated on a basis consistent with the financial statements delivered to Agent prior to the Closing Date.
“Reference Period” has the meaning set forth in the definition of EBITDA.
“Refinancing Indebtedness” means refinancings, renewals, or extensions of Indebtedness so long as:
(a) such refinancings, renewals, or extensions do not result in an increase in the principal amount of the Indebtedness so refinanced, renewed, or extended, other than by the amount of premiums paid thereon and the fees and expenses incurred in connection therewith and by the amount of unfunded commitments with respect thereto,
(b) such refinancings, renewals, or extensions do not result in a shortening of the average weighted maturity (measured as of the refinancing, renewal, or extension) of the Indebtedness so refinanced, renewed, or extended, nor are they on terms or conditions that, taken as a whole, are or could reasonably be expected to be materially adverse to the interests of the Lenders,
(c) if the Indebtedness that is refinanced, renewed, or extended was subordinated in right of payment to the Obligations, then the terms and conditions of the refinancing, renewal, or extension must include subordination terms and conditions that are at least as favorable to the Lender Group as those that were applicable to the refinanced, renewed, or extended Indebtedness, and
(d) the Indebtedness that is refinanced, renewed, or extended is not recourse to any Person that is liable on account of the Obligations other than those Persons which were obligated with respect to the Indebtedness that was refinanced, renewed, or extended.
“Register” has the meaning set forth in Section 13.1(h) of the Agreement.
“Registered Loan” has the meaning set forth in Section 13.1(h) of the Agreement.
“Related Fund” means any Person (other than a natural person) that is engaged in making, purchasing, holding or investing in bank loans and similar extensions of credit in the ordinary course and that is administered, advised or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers, advises or manages a Lender.
“Remedial Action” means all actions taken to (a) clean up, remove, remediate, contain, treat, monitor, assess, evaluate, or in any way address Hazardous Materials in the indoor or outdoor environment, (b) prevent or minimize a release or threatened release of Hazardous Materials so they do not migrate or endanger or threaten to endanger public health or welfare or the indoor or outdoor environment, (c) restore or reclaim natural resources or the environment, (d) perform any pre-remedial studies, investigations, or post-remedial operation and maintenance activities, or (e) conduct any other actions with respect to Hazardous Materials required by Environmental Laws.
“Replacement Lender” has the meaning specified therefor in Section 2.13(b) of the Agreement.
“Report” has the meaning specified therefor in Section 15.16 of the Agreement.
“Required Availability” means that the sum of the following exceeds $12,000,000: (a) Availability, plus (b) unrestricted funds of Administrative Borrower maintained in depository institutions located in the United States of America, plus (c) up to $2,000,000 of unrestricted funds of Administrative Borrower maintained in depository institutions located in the United Kingdom.
“Required Lenders” means, at any time, Lenders having or holding more than 50% of the sum of (a) the aggregate Revolving Loan Exposure of all Lenders, plus (b) the aggregate Term Loan Exposure of all Lenders; provided, that (i) the Revolving Loan Exposure and Term Loan Exposure of any Defaulting Lender shall be disregarded in the determination of the Required Lenders and (ii) at any time there are 2 or more Lenders, “Required Lenders” must include at least 2 Lenders (who are not Affiliates of one another).
“Restricted Payment” means to (a) declare or pay any dividend or make any other payment or distribution, directly or indirectly, on account of Equity Interests issued by Administrative Borrower (including any payment in connection with any merger or consolidation involving Administrative Borrower) or to the direct or indirect holders of Equity Interests issued by Administrative Borrower in their capacity as such (other than dividends or distributions payable in Qualified Equity Interests issued by Administrative Borrower, or (b) purchase, redeem, make any sinking fund or similar payment, or otherwise acquire or retire for value (including in connection with any merger or consolidation involving Administrative Borrower) any Equity Interests issued by Administrative Borrower, and (c) make any payment to retire, or to obtain the surrender of, any outstanding warrants, options, or other rights to acquire Equity Interests of Administrative Borrower now or hereafter outstanding.
“Revolver Commitment” means, with respect to each Revolving Lender, its Revolver Commitment, and, with respect to all Revolving Lenders, their Revolver Commitments, in each case as such Dollar amounts are set forth beside such Revolving Lender’s name under the applicable heading on Schedule C-1 to the Agreement or in the Assignment and Acceptance pursuant to which such Revolving Lender became a Revolving Lender under the Agreement, as such amounts may be reduced or increased from time to time pursuant to assignments made in accordance with the provisions of Section 13.1 of the Agreement.
“Revolver Usage” means, as of any date of determination, the sum of (a) the amount of outstanding Revolving Loans (inclusive of Swing Loans and Protective Advances), plus (b) the amount of the Letter of Credit Usage.
“Revolving Lender” means a Lender that has a Revolving Loan Commitment or that has an outstanding Revolving Loan.
“Revolving Loan Exposure” means, with respect to any Revolving Lender, as of any date of determination (a) prior to the termination of the Revolver Commitments, the amount of such Lender’s Revolver Commitment, and (b) after the termination of the Revolver Commitments, the aggregate outstanding principal amount of the Revolving Loans of such Lender.
“Revolving Loans” has the meaning specified therefor in Section 2.1(a) of the Agreement.
“Sanctioned Entity” means (a) a country or a government of a country, (b) an agency of the government of a country, (c) an organization directly or indirectly controlled by a country or its government, (d) a Person resident in or determined to be resident in a country, in each case, that is subject to a country sanctions program administered and enforced by OFAC.
“Sanctioned Person” means a person named on the list of Specially Designated Nationals maintained by OFAC.
“S&P” has the meaning specified therefor in the definition of Cash Equivalents.
“SEC” means the United States Securities and Exchange Commission and any successor thereto.
“Securities Account” means a securities account (as that term is defined in the Code).
“Securities Act” means the Securities Act of 1933, as amended from time to time, and any successor statute.
“Settlement” has the meaning specified therefor in Section 2.3(e)(i) of the Agreement.
“Settlement Date” has the meaning specified therefor in Section 2.3(e)(i) of the Agreement.
“Solvent” means, with respect to any Person as of any date of determination, that (a) at fair valuations, the sum of such Person’s debts (including contingent liabilities) is less than all of such Person’s assets, (b) such Person is not engaged or about to engage in a business or transaction for which the remaining assets of such Person are unreasonably small in relation to the business or transaction or for which the property remaining with such Person is an unreasonably small capital, and (c) such Person has not incurred and does not intend to incur, or reasonably believe that it will incur, debts beyond its ability to pay such debts as they become due (whether at maturity or otherwise), and (d) such Person is “solvent” or not “insolvent”, as applicable within the meaning given those terms and similar terms under applicable laws relating to fraudulent transfers and conveyances. For purposes of this definition, the amount of any contingent liability at any time shall be computed as the amount that, in light of all of the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability (irrespective of whether such contingent liabilities meet the criteria for accrual under Statement of Financial Accounting Standard No. 5).
“Specified State” means any member country of the European Union (including the United Kingdom) and India.
“Standard Letter of Credit Practice” means, for Issuing Bank, any domestic or foreign law or letter of credit practices applicable in the city in which Issuing Bank issued the applicable Letter of Credit or, for its branch or correspondent, such laws and practices applicable in the city in which it has advised, confirmed or negotiated such Letter of Credit, as the case may be, in each case, (a) which letter of credit practices are of banks that regularly issue letters of credit in the particular city, and (b) which laws or letter of credit practices are required or permitted under ISP or UCP, as chosen in the applicable Letter of Credit.
“Subsidiary” of a Person means a corporation, partnership, limited liability company, or other entity in which that Person directly or indirectly owns or controls the Equity Interests having ordinary voting power to elect a majority of the Board of Directors of such corporation, partnership, limited liability company, or other entity.
“Swing Lender” means Wells Fargo or any other Lender that, at the request of Borrowers and with the consent of Agent agrees, in such Lender’s sole discretion, to become the Swing Lender under Section 2.3(b) of the Agreement.
“Swing Loan” has the meaning specified therefor in Section 2.3(b) of the Agreement.
“Swing Loan Exposure” means, as of any date of determination with respect to any Lender, such Lender’s Pro Rata Share of the Swing Loans on such date.
“Taxes” means any taxes, levies, imposts, duties, fees, assessments or other charges of whatever nature now or hereafter imposed by any jurisdiction or by any political subdivision or taxing authority thereof or therein, and all interest, penalties or similar liabilities with respect thereto.
“Tax Lender” has the meaning specified therefor in Section 14.2(a) of the Agreement.
“Term Loan” has the meaning specified therefor in Section 2.2 of the Agreement.
“Term Loan Amount” means $10,000,000.
“Term Loan Commitment” means, with respect to each Lender, its Term Loan Commitment, and, with respect to all Lenders, their Term Loan Commitments, in each case as such Dollar amounts are set forth beside such Lender’s name under the applicable heading on Schedule C-1 to the Agreement or in the Assignment and Acceptance pursuant to which such Lender became a Lender under the Agreement, as such amounts may be reduced or increased from time to time pursuant to assignments made in accordance with the provisions of Section 13.1 of the Agreement.
“Term Loan Exposure” means, with respect to any Term Loan Lender, as of any date of determination (a) prior to the funding of the Term Loan, the amount of such Lender’s Term Loan Commitment, and (b) after the funding of the Term Loan, the outstanding principal amount of the Term Loan held by such Lender.
“Term Loan Lender” means a Lender that has a Term Loan Commitment or that has a portion of the Term Loan.
“Trademark Security Agreement” has the meaning specified therefor in the Guaranty and Security Agreement.
“TTM Recurring Revenue” means, as of any date of determination, Recurring Revenues of Borrower and its Subsidiaries determined on a consolidated basis in accordance with GAAP, for the 12 month period most recently ended.
“UCP” means, with respect to any Letter of Credit, the Uniform Customs and Practice for Documentary Credits 2007 Revision, International Chamber of Commerce Publication No. 600 and any subsequent revision thereof adopted by the International Chamber of Commerce on the date such Letter of Credit is issued.
“United States” means the United States of America.
“Unused Line Fee” has the meaning specified therefor in Section 2.10(b) of the Agreement.
“Voidable Transfer” has the meaning specified therefor in Section 17.8 of the Agreement.
“Wells Fargo” means Wells Fargo Bank, National Association, a national banking association.
Exhibit 10.7
AMENDMENT NUMBER ONE TO CREDIT AGREEMENT
This Amendment Number One to Credit Agreement (“Amendment”) is entered into as of September 1, 2015, by and among Lenders identified on the signature pages of this Amendment and WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking association, as administrative agent for each member of the Lender Group and the Bank Product Providers (in such capacity, together with its successors and assigns in such capacity, “Agent”) on the one hand, and eGAIN CORPORATION, a Delaware corporation (“eGain”), and the Subsidiaries of eGain identified on the signature pages hereof (such Subsidiaries, together with eGain, are referred to each individually as a “Borrower”, and individually and collectively, jointly and severally, as the “Borrowers”) on the other hand, in light of the following:
NOW, THEREFORE, the parties hereby amend and supplement the Credit Agreement as follows:
Date |
Installment Amount |
On each of September 30, 2015, and December 31, 2015 |
$187,500 |
On March 31, 2016 and on the last day of each fiscal quarter of Borrowers thereafter |
$250,000 |
Applicable Amount |
Applicable Period |
---|---|
($1,680,000) |
For the three (3) month period ending September 30, 2015 |
($2,228,000) |
For the six (6) month period ending December 31, 2015 |
For the period ending March 31, 2016, and for each period thereafter, such amounts and for such periods as agreed to by Borrowers and Required Lenders within 30 days following delivery of, and based upon, the Projections most recently delivered to Agent pursuant to Section 5.1 and approved by Required Lenders; provided that failure to reach an agreement acceptable to Agent, in its sole discretion, on the reset financial covenant within 30 days following receipt by Agent of the most recently delivered Projections shall be deemed an immediate Event of Default.
“Applicable Margin” means (a) in the case of a Base Rate Loan, 6.00 percentage points (the “Base Rate Margin”), and (b) in the case of a LIBOR Rate Loan, 7.00 percentage points (the “LIBOR Rate Margin”).
“Continuing Director” means (a) any member of the Board of Directors who was a director (or comparable manager) of Administrative Borrower on the Closing Date, and (b) any individual who becomes a member of the Board of Directors after the Closing Date if such individual was approved, appointed or nominated for election to the Board of Directors by either the Permitted Holders or a majority of the Continuing Directors.
“Fee Letter” means that certain amended and restated fee letter, dated as of the First Amendment Effective Date, among Borrowers and Agent.
“Maximum Revolver Amount” means $15,000,000.
“First Amendment Effective Date” means September 2, 2015.
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.
Borrower and each Guarantor, on behalf of itself and each other Releasor, waives and releases any rights or benefits that it may have under Section 1542 to the full extent that it may lawfully waive such rights and benefits, and each of Borrower and each Guarantor, on behalf of itself and each other Releasor, acknowledges that it understands the significance and consequences of the waiver of the provisions of Section 1542 and that it has been advised by its attorney as to the significance and consequences of this waiver.
[The remainder of this page left blank intentionally, signatures to follow]
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first set forth above.
BORROWER: eGAIN CORPORATION, a Delaware corporation
By: /s/ Eric Smit
Title: Chief Financial Officer |
GUARANTOR: |
EXONY, INC. a Delaware corporation
By: /s/ Eric Smit
Title: Chief Financial Officer |
WELLS FARGO BANK, NATIONAL ASSOCIATION, as Agent and sole Lender
By: /s/ Sara Townsend
Name: Sara Townsend
Title: Director
Schedule C-1
Commitments
Lender |
Revolver Commitment |
Term Loan Commitment |
Total Commitment |
Wells Fargo Bank, National Association |
$15,000,000.00 |
$10,000,000.00 |
$25,000,000.00 |
All Lenders |
$15,000,000.00 |
$10,000,000.00 |
$25,000,000.00 |
Exhibit 10.8
AMENDMENT NUMBER TWO TO CREDIT AGREEMENT
This Amendment Number Two to Credit Agreement (“Amendment”) is entered into as of January 27, 2017, by and among Lenders identified on the signature pages of this Amendment and WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking association, as administrative agent for each member of the Lender Group and the Bank Product Providers (in such capacity, together with its successors and assigns in such capacity, “Agent”) on the one hand, and eGAIN CORPORATION, a Delaware corporation (“eGain”), and the Subsidiaries of eGain identified on the signature pages hereof (such Subsidiaries, together with eGain, are referred to each, individually, and collectively, jointly and severally, as “Borrower”) on the other hand, in light of the following:
NOW, THEREFORE, the parties hereby amend and supplement the Credit Agreement as follows:
“provided, further, that if the financial statements demonstrate that EBITDA as of the end of any fiscal year was less than $0, then the Leverage Ratio for such fiscal year shall be deemed to be greater than 3.00:1.00 for purposes of the prepayment required under this Section 2.4(e)(vi).
Applicable Amount |
Applicable Period |
($900,000) |
For the four quarter period ending December 31, 2016 |
($2,000,000) |
For the four quarter period ending March 31, 2017 |
($4,500,000) |
For the four quarter period ending June 30, 2017 |
($6,100,000) |
For the four quarter period ending September 30, 2017 |
($5,100,000) |
For the four quarter period ending December 31, 2017 |
($3,800,000) |
For the four quarter period ending March 31, 2018 |
($3,000,000) |
For the four quarter period ending June 30, 2018 |
($1,500,000) |
For the four quarter period ending September 30, 2018 |
$0 |
For the four quarter period ending December 31, 2018 |
$1,500,000 |
For the four quarter period ending March 31, 2019 |
$3,000,000 |
For the four quarter period ending June 30, 2019 |
$4,000,000 |
For the four quarter period ending September 30, 2019 |
(b)Minimum Liquidity. Commencing as of the Second Amendment Effective Date and on and prior to the Financial Covenant Replacement Date, at all times achieve Liquidity, measured on a monthly basis, of at least $4,000,000, measured as of the last day of each calendar month.
provided, that if the financial statements demonstrate that EBITDA as of the end of any fiscal quarter was less than $0, then the Leverage Ratio for such fiscal quarter shall be deemed to be greater than 3.00:1.00.
“Applicable Margin” means, as of any date of determination and with respect to Base Rate Loans or LIBOR Rate Loans, as applicable, the applicable margin set forth in the following table that corresponds to the most recent TTM Recurring Revenue calculation delivered to Agent pursuant to Section 5.2 of the Agreement (the “TTM Recurring Revenue Calculation”); provided, that for the period from the Second Amendment Effective Date through June 30, 2017, the Applicable Margin shall be set at the margin in the row styled “Level I”; provided further, that any time an Event of Default has occurred and is continuing, the Applicable Margin shall be set at the margin in the row styled “Level I”:
Level |
TTM Recurring
|
Applicable Margin Relative to Base Rate Loans (the “Base Rate Margin”) |
Applicable Margin Relative to LIBOR Rate Loans (the “LIBOR Rate Margin”) |
I |
If the TTM Recurring Revenue is less than or equal to $45,000,000 |
6.00 percentage points |
7.00 percentage points |
II |
If the TTM Recurring Revenue is greater than $45,000,000 |
4.50 percentage points |
5.50 percentage points |
Except as set forth in the foregoing provisos, the Applicable Margin shall be based upon the most recent TTM Recurring Revenue Calculation, which will be calculated as of the end of each fiscal quarter. Except as set forth in the foregoing provisos, the Applicable Margin shall be re-determined quarterly on the first day of the month following the date of delivery to Agent of the certified calculation of the TTM Recurring Revenue pursuant to Section 5.2 of the Agreement; provided, that if Borrower fails to provide such certification when such certification is due, the Applicable Margin shall be set at the margin in the row styled “Level I” as of the first day of the month following the date on which the certification was required to be delivered until the date on which such certification is delivered (on which date (but not retroactively), without constituting a waiver of any Default or Event of Default occasioned by the failure to timely deliver such certification, the Applicable Margin shall be set at the margin based upon the calculations disclosed by such certification). In the event that the information regarding the TTM Recurring Revenue contained in any certificate delivered pursuant to Section 5.2 of the Agreement is shown to be inaccurate, and such inaccuracy, if corrected, would have led to the application of a higher Applicable Margin for any period (an “Applicable Period”) than the Applicable Margin actually applied for such Applicable Period, then (i) Borrower shall immediately deliver to Agent a correct certificate for such Applicable Period, (ii) the Applicable Margin shall be determined as if the correct Applicable Margin (as set forth in the table above) were applicable for such Applicable Period, and (iii) Borrower shall immediately deliver to Agent full payment in respect of the accrued additional interest as a result of such increased Applicable Margin for such Applicable Period, which payment shall be promptly applied by Agent to the affected Obligations.
(iv) depreciation and amortization for such period (but excluding amortization of deferred commissions),
(xii) with respect to the Loan Documents and related transactions, costs, reasonable fees to Persons (other than any Borrower or any of its Affiliates), or other charges or expenses incurred in connection therewith, which are factually supportable and acceptable to Agent, up to an aggregate amount not to exceed $500,000,
(xiii) [reserved],
“Credit Amount” means the product of (i) 0.60 times (ii) TTM Recurring Revenue calculated as of the last month for which the Credit Amount Certificate was most recently delivered pursuant to Section 5.2 of the Agreement minus the aggregate amount of reserves, if any, established by Agent under Section 2.1(c) of the Agreement.
“Fee Letter” means that certain second amended and restated fee letter, dated as of the Second Amendment Effective Date, between Borrower and Agent.
“Financial Covenant Replacement Date” means the first day of the fiscal quarter following the date on which the Borrowers and their Subsidiaries have achieved (both): (A)(i) a Fixed Charge Coverage Ratio equal to or greater than 1.50 to 1.00 and (ii) a Leverage Ratio of less than 2.50 to 1.00, in each case, for the immediately preceding two consecutive fiscal quarters and (B) and Borrowers would not have been in default under Section 7(d) as of the last day of the immediately preceding fiscal quarter if such financial covenants were in effect.
“Leverage Ratio” means, as of any date of determination the result of (a) the amount of Funded Indebtedness minus the aggregate amount of Qualified Cash in an amount not to exceed a total of $3,000,000, in each case as of such date, to (b) EBITDA for the 12 month period ended as of such date.
“Applicable Period” has the meaning specified therefor in the definition of Applicable Margin.
“Second Amendment” means that certain Second Amendment to Credit Agreement dated as of the Second Amendment Effective Date.
“Second Amendment Effective Date” means January 27, 2017.
“TTM Recurring Revenue Calculation” has the meaning specified therefor in the definition of Applicable Margin.
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR.
Borrower, on behalf of itself and each other Releasor, waives and releases any rights or benefits that it may have under Section 1542 to the full extent that it may lawfully waive such rights and benefits, and each of Borrower, on behalf of itself and each other Releasor, acknowledges that it understands the significance and consequences of the waiver of the provisions of Section 1542 and that it has been advised by its attorney as to the significance and consequences of this waiver.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first set forth above.
BORROWER: eGAIN CORPORATION, a Delaware corporation
By: /s/ Eric Smit
Title: Chief Financial Officer |
WELLS FARGO BANK, NATIONAL ASSOCIATION, as Agent and sole Lender
By: /s/ Reid R. Landers
Name: Reid R. Landers
Title: Vice President
Exhibit 21.1
Subsidiaries of eGain
1. | eGain Communications Ltd. (UK) |
2. | Exony Ltd. (UK) |
3. | eGain Communications Pvt. Ltd. (India) |
4. | eGain Communications (SA) |
5. | eGain France S.A.R.L (France) |
6. | eGain Communication B.V. (Netherlands) |
7. | eGain Deutschland GmbH (Germany) |
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 33-236355, 333-236354, 333-228356, 333-199720, 333-161019, 333-153763, 333-129854, 333-76688, 333-76690, 333-76692, 333-41394, and 333-32854) and on Form S-3 (Nos. 333-222543, 333-200637, 333-199639, and, as amended, Nos. 333-177495 and 333-48314) of eGain Corporation of our report dated September 11, 2020 relating to the consolidated financial statements and, financial statement schedule which appears in this Annual Report on Form 10-K.
|
/s/ BPM LLP |
San Jose, California |
September 11, 2020 |
Exhibit 31.1
CERTIFICATIONS
I, Ashutosh Roy, certify that:
1. | I have reviewed this annual report on Form 10-K of eGain Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
9 |
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By: |
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/s/ ASHUTOSH ROY |
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Ashutosh Roy Chief Executive Officer |
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Date: September 11, 2020 |
Exhibit 31.2
I, Eric Smit, certify that:
1. | I have reviewed this annual report on Form 10-K of eGain Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
9 |
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By |
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/s/ ERIC N. SMIT |
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Eric N. Smit |
|
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Chief Financial Officer |
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Date: September 11, 2020 |
Exhibit 32.1
STATEMENT OF CHIEF EXECUTIVE OFFICER UNDER 18 U.S.C. § 1350
I, Ashutosh Roy, the chief executive officer of eGain Corporation (the “Company”), certify for the purposes of section 1350 of chapter 63 of title 18 of the United States Code that, to my knowledge,
(i) the Annual Report of the Company on Form 10-K for the period ending June 30, 2020 the (“Report”), fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934, and
(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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By: |
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/s/ ASHUTOSH ROY |
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Ashutosh Roy |
|
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Chief Executive Officer |
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Date: September 11, 2020 |
A signed original of this written statement required by 18 U.S.C. § 1350 has been provided to eGain Corporation and will be retained by eGain Corporation and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
STATEMENT OF CHIEF FINANCIAL OFFICER UNDER 18 U.S.C. § 1350
I, Eric Smit, the chief financial officer of eGain Corporation (the “Company”), certify for the purposes of section 1350 of chapter 63 of title 18 of the United States Code that, to my knowledge,
(i) the Annual Report of the Company on Form 10-K for the period ending June 30, 2020 (the “Report”), fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934, and
(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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9 |
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By: |
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/s/ ERIC N. SMIT |
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Eric N. Smit |
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Chief Financial Officer |
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Date: September 11, 2020 |
A signed original of this written statement required by 18 U.S.C. § 1350 has been provided to eGain Corporation and will be retained by eGain Corporation and furnished to the Securities and Exchange Commission or its staff upon request.