SEC Info - Egain Corp - IPO: ‘424B4’ on 9/23/99

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Egain Corp – IPO: ‘424B4’ on 9/23/99

On: Thursday, 9/23/99 · Accession #: 1012870-99-3325 · File #: 333-83439

  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 9/23/99  Egain Corp                        424B4                  1:296K                                   Donnelley R R & S… 13/FA

Initial Public Offering (IPO): Prospectus — Rule 424(b)(4)
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 424B4       Final Prospectus                                     106    458K

Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (Word, et al.) Balance Sheets Business Capitalization Cash and cash equivalents Certain Transactions Consolidated Balance Sheets Consolidated Statement of Stockholders' Equity Consolidated Statements of Cash Flows Consolidated Statements of Operations Cost of revenue Costs and expenses Description of Capital Stock Dilution Dividend Policy EGain EMS EGain WCS Experts General and administrative Hosting If we do not adequately address Year 2000 issues, we may incur significant costs and our business could suffer Index to Financial Statements Legal Matters Limitation of Liability and Indemnification Matters Management Management's Discussion and Analysis of Financial Condition and Results of Operations Net loss per share Notes to Consolidated Financial Statements Notes to Financial Statements Offering, The Principal Stockholders Registration Rights Report of Ernst & Young LLP, Independent Auditors Research and development Revenue Risk Factors Sales and marketing Selected Consolidated Financial Data Shares Eligible for Future Sale Statement of Stockholders' Equity (Net Capital Deficiency) Statements of Cash Flows Statements of Operations Stockholders' equity Summary The Offering Total Underwriting Underwriting Discounts and Commissions Use of Proceeds We must compete successfully in the eCommerce customer service market Where You Can Find More Information Year 2000 Issues You should not rely on recent publicity regarding eGain
1	1st Page - Filing Submission
4	Summary
6	The Offering
7	Risk Factors
15	We must compete successfully in the eCommerce customer service market
16	If we do not adequately address Year 2000 issues, we may incur significant costs and our business could suffer
18	You should not rely on recent publicity regarding eGain
21	Use of Proceeds
"	Dividend Policy
22	Capitalization
23	Dilution
24	Selected Consolidated Financial Data
"	Costs and expenses
25	Management's Discussion and Analysis of Financial Condition and Results of Operations
27	Revenue
"	Cost of revenue
"	Sales and marketing
28	Research and development
"	General and administrative
30	Year 2000 Issues
34	Business
40	EGain EMS
41	EGain WCS
46	Hosting
50	Management
57	Limitation of Liability and Indemnification Matters
58	Certain Transactions
59	Principal Stockholders
61	Description of Capital Stock
62	Registration Rights
65	Shares Eligible for Future Sale
67	Underwriting
68	Total
"	Underwriting Discounts and Commissions
70	Legal Matters
"	Experts
"	Where You Can Find More Information
71	Index to Financial Statements
72	Report of Ernst & Young LLP, Independent Auditors
73	Consolidated Balance Sheets
74	Consolidated Statements of Operations
75	Consolidated Statement of Stockholders' Equity
"	Stockholders' equity
76	Consolidated Statements of Cash Flows
77	Notes to Consolidated Financial Statements
78	Cash and cash equivalents
81	Net loss per share
92	Balance Sheets
93	Statements of Operations
94	Statement of Stockholders' Equity (Net Capital Deficiency)
95	Statements of Cash Flows
96	Notes to Financial Statements

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Filed pursuant to Rule 424(b)(4)
File Number 333-83439

[LOGO OF EGAIN]

5,000,000 Shares

Common Stock

eGain Communications Corporation is offering 5,000,000 shares of its common
stock. This is eGain's initial public offering, and no public market currently
exists for its shares. The shares being sold in the offering have been
approved for quotation on the Nasdaq National Market under the symbol "EGAN."
The initial public offering price is $12.00 per share.

---------------------

Investing in the common stock involves risks.
See "Risk Factors" beginning on page 6.

---------------------

[Download Table]

Per Share Total
--------- -----

Public Offering Price.................................... $12.00 $60,000,000
Underwriting Discounts and Commissions................... $ 0.84 $ 4,200,000
Proceeds to eGain........................................ $11.16 $55,800,000

The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities, or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.

eGain has granted the underwriters a 30-day option to purchase up to an
additional 750,000 shares of common stock to cover over-allotments. BancBoston
Robertson Stephens Inc. expects to deliver the shares of common stock to
purchasers on September 28, 1999.

---------------------

BancBoston Robertson Stephens

Donaldson, Lufkin & Jenrette

Volpe Brown Whelan & Company

The date of this prospectus is September 23, 1999.

424B4 2nd Page of 106 TOC 1st Previous Next ↓Bottom Just 2nd
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.

----------------

TABLE OF CONTENTS

[Download Table]

Page
----

Summary.................................................................. 3
Risk Factors............................................................. 6
Forward Looking Statements............................................... 20
Use of Proceeds.......................................................... 20
Dividend Policy.......................................................... 20
Capitalization........................................................... 21
Dilution................................................................. 22
Selected Consolidated Financial Data..................................... 23
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 24
Business................................................................. 33
Management............................................................... 49
Certain Transactions..................................................... 57
Principal Stockholders................................................... 58
Description of Capital Stock............................................. 60
Shares Eligible for Future Sale.......................................... 64
Underwriting............................................................. 66
Legal Matters............................................................ 69
Experts.................................................................. 69
Where You Can Find More Information...................................... 69
Index to Financial Statements............................................ F-1

----------------

Until October 18, 1999, all dealers that buy, sell or trade our common
stock, whether or not participating in this offering, may be required to
deliver a prospectus. This requirement is in addition to the dealers'
obligation to deliver a prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.

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[Gatefold]

[Text appears against left margin]

eGain is a leading provider of customer service infrastructure for eCommerce

eGain's Internet-based software products and related services help companies
deliver customer service via email and real-time Web collaboration.

.multi-application platform for Web-based customer service
. highly flexible and scalable Web Component Architecture
. leading provider of hosted customer service solutions

eGain eMail Management Systems (EMS) is a Web-based application that enables
customer service departments to route, track and respond to high volumes of
customer email and Web form inquires.

eGain Web Collaboration System (WCS) enables customer service representatives
to answer customer questions and provide interactive assistance over the Web
using browser sharing, text chat and assisted form-filling technology.

[Graphic depicting the alternative modes of deploying eGain's customer service
solutions]

Installed Software Solution

[Boxes with "eGain EMS" and "eGain WCS"]

Companies can deploy eGain applications by purchasing a license and installing
the applications in-house

[Box with "In-House Customer Service Department or Outsourced Call Center
Provider"]

[Graphic depicting online shopper interacting with an eCommerce Website through
the Internet]

[Graphic depicting the eGain Hosted Network]

Companies can also deploy our applications through the eGain Hosted Network--a
network of eGain-managed operations centers and redundant hosting partners
linked by high-speed Internet connections.

[within eGain Hosted Network graphic are graphics depicting two hosting
partners connected to the Internet and eGain Network Operations Center]

Remote Application Management

Solution Development

System Implementation

customer service infrastructure for eCommerce eGain

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SUMMARY

eGain Communications

We are a leading provider of customer service infrastructure for companies
engaged in electronic commerce. Our software products and related services are
designed to help businesses provide more effective Internet-based customer
service, thereby improving customer satisfaction and converting a higher
percentage of Web site visitors to buyers. We believe we are one of the leading
providers of customer service infrastructure for companies engaged in eCommerce
because we were the first company to offer a platform for online customer
service which companies can access remotely through the eGain Hosted Network.
The eGain Hosted Network allows companies to access our platform through the
Internet while we maintain the software applications and hardware. Our solution
is also available as installed software for in-house implementation.
Approximately 50% of our current customers access our applications through the
eGain Hosted Network. Our customers include both dedicated Internet companies,
such as Go2Net, Snap.com and WebTV, and traditional companies engaged in
eCommerce, such as Mazda USA and FCC National's Wingspan Bank.

Businesses use our applications to effectively manage high volumes of
customer email as well as live Web-based interaction. Our email management
system helps businesses route, track, analyze and respond to customer emails.
Our Web collaboration system helps businesses provide live online assistance to
visitors on their Web site. Our solutions are built on a scalable, Web-based
architecture designed to meet the growth in Internet-based communications. Our
products are built on technologies that are based on industry standards and are
therefore designed to integrate easily with existing customer databases and
applications.

Superior customer service is critical to businesses competing in the
eCommerce marketplace. Today, most online customer communication takes place
through email. However, according to a recent Jupiter Communications study of
125 top eCommerce sites, 42% of the sites either refused to accept an email,
never responded to an email, or took longer than five days to respond.
Companies that fail to address their online customer service needs risk losing
customers to eager competitors located a mouse click away. Traditional
approaches to online customer service, such as trying to extend front office
software packages that were designed for telephone-based interactions or
developing homegrown solutions, have proved to be inadequate for many
businesses. As a result, businesses are seeking dedicated, scalable
applications to help them deliver superior Internet-based customer service.
International Data Corporation estimates that worldwide license revenues for
eCommerce customer service and support applications will grow from $42 million
in 1998 to $1.6 billion in 2002.

We provide a flexible and scalable Web-based customer service platform for
companies engaged in eCommerce. Our applications for email management and Web
collaboration are designed to provide the following strategic and operating
benefits:

. Strengthen customer relationships. Our applications allow companies to
strengthen customer relationships by providing rapid, personalized and
effective customer service.

. Convert Web site visitors to buyers. Our Web collaboration product
enables live assistance for visitors on a Web site, thereby increasing
the likelihood of converting them into customers.

. Scale to meet growing eCommerce demands. Our architecture allows
companies to scale their customer service infrastructure to meet the
growing volume and complexity of electronic customer communications.

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. Rapidly deployable solution. Businesses can quickly deploy customer
service capabilities as an application service through our eGain Hosted
Network. Also, our applications can be rapidly customized through Web-
based interfaces.

. Gain customer insight. Our solution enables companies to capture and
analyze customer communications in order to understand the needs and
preferences of their customers.

. Maximize productivity of customer service organizations. Our email
management and workflow tools make customer service representatives and
managers more efficient.

. Reduce costs and administrative burden. Customers using the eGain Hosted
Network recognize cost efficiencies by eliminating the need to manage and
administer in-house customer service applications.

. Integrate applications to provide comprehensive customer information. Our
applications integrate with existing eCommerce platforms, call center
systems and customer databases, providing customer service
representatives with comprehensive customer information.

Our objective is to be the leading provider of customer service
infrastructure for businesses engaged in eCommerce. To achieve this objective,
we intend to:

. Capitalize on our first mover advantage and extend our brand recognition.
We intend to capitalize on the momentum we have built as the first
company to offer a multi-application platform for Web-based customer
service in a hosted environment and on our early investment in building
our brand.

. Expand the eGain Hosted Network. We intend to expand the eGain Hosted
Network, which we believe offers cost, administrative and performance
benefits, by establishing additional hosting centers that leverage our
partners' physical hosting infrastructure.

. Introduce value-added products. We intend to continue to add products
that complement and enhance our existing online customer service platform
to address the evolving needs of eCommerce businesses.

. Expand strategic relationships. We intend to enter into strategic
relationships that benefit our marketing and distribution efforts to
rapidly capture market share.

. Expand international presence. We intend to continue to expand our
presence internationally into additional markets, including Europe and
Asia.

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The Offering

[Enlarge/Download Table]

Common stock offered by eGain...................... 5,000,000 shares
Common stock to be outstanding after the offering.. 27,815,562 shares
Use of proceeds.................................... For working capital and other general
corporate purposes
Nasdaq National Market symbol...................... EGAN

The number of shares of common stock to be outstanding after this offering
includes 269,994 shares issuable upon exercise of warrants that will expire
upon completion of this offering and assumes no exercise of the underwriters'
over-allotment option. The number of shares of common stock to be outstanding
after this offering excludes 2,829,431 shares that could be issued upon
exercise of options and warrants outstanding as of August 20, 1999 and
3,318,923 additional shares available for future issuance under our stock
plans.

Summary Consolidated Financial Data
(in thousands, except per share data)

Please see Note 1 of the notes to the consolidated financial statements for
an explanation of the determination of the number of shares used in computing
per share data. The pro forma as adjusted consolidated balance sheet data
summarized below reflects the net proceeds from the sale of shares of common
stock offered by eGain at an initial public offering price of $12.00 per share,
after deducting the underwriting discounts and commissions and our estimated
offering expenses.

[Download Table]

Period from
September 10, 1997 Year Ended
(Inception) June 30,
to June 30, 1998 1999
------------------ ----------

Consolidated Statement of Operations Data:
Revenue........................................... $ 2 $ 1,019
Costs and expenses................................ 884 12,319
Loss from operations.............................. (882) (11,300)
----- --------
Net loss.......................................... $(938) $(11,305)
===== ========
Pro forma net loss per share (unaudited):
Net loss per share--basic and diluted........... $ (0.93)
========
Weighted average shares--basic and diluted...... 12,153
========

[Download Table]

June 30, 1999
--------------------
Pro Forma
Actual as Adjusted
------- -----------

Consolidated Balance Sheet Data:
Cash and cash equivalents ................................. $ 1,265 $61,497
Working capital (deficit).................................. (755) 59,476
Total assets............................................... 23,965 84,196
Notes payable, less current portion........................ 221 221
Stockholders' equity....................................... 20,483 80,715

Our headquarters are located at 455 W. Maude Avenue, Sunnyvale, California
94086 and our telephone number is (408) 737-7400. Our Web site address is
www.egain.com. The information on our Web site is not a part of this
prospectus.

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RISK OF RELIANCE ON RECENT PUBLICITY

On September 22, 1999, a Reuters news article appeared containing statements
resulting directly or indirectly from an interview with Robert Apollo, an
officer of eGain. The statements in the Reuters article were not intended to be
relied upon by potential investors in making an investment decision to purchase
the common stock offered hereby. Furthermore, eGain disclaims all the
information contained in the Reuters article for purposes of this offering, and
prospective investors should not rely on such information or any other
information not contained in this prospectus in making an investment decision
to purchase the common stock offered hereby. See "Risk Factors--You should not
rely on recent publicity regarding eGain."

RISK FACTORS

This offering involves a high degree of risk. You should carefully consider
the risks described below and the other information in this prospectus before
deciding to invest in shares of our common stock. Our business, operating
results and financial condition could be harmed by any of the following risks.
The trading price of our common stock could decline due to any of these risks,
and you could lose all or part of your investment. You should also refer to the
other information in this prospectus, including our financial statements and
the related notes.

Company Risks

We expect continuing losses and may never achieve profitability, which in
turn may harm our future operating performance and may cause the market price
of our stock to decline

We incurred net losses of approximately $938,000 for the period from
September 10, 1997 (inception) through June 30, 1998 and approximately $11.3
million for the year ended June 30, 1999. As of June 30, 1999, we had an
accumulated deficit of approximately $12.2 million. We expect to continue to
incur net losses for the foreseeable future. If we continue to incur net
losses, we may not be able to increase our number of employees or our
investment in capital equipment, sales, marketing, customer support and
research and development programs in accordance with our present plans. We do
not know when or if we will become profitable. If we do not become profitable
within the timeframe expected by securities analysts or investors, the market
price of our stock will likely decline. If we do achieve profitability, we may
not sustain or increase profitability in the future.

Our operating expenses may increase as we build our business and this
increase may harm our operating results and financial condition

We have spent heavily on technology and infrastructure development. We expect
to continue to spend substantial financial and other resources on developing
and introducing product and service offerings, and expanding our sales,
marketing and customer support organizations and operating infrastructure. We
expect that our operating expenses will continue to increase in absolute
dollars and may increase as a percentage of revenue. If our revenue does not
correspondingly increase, our business and operating results could suffer.

We may not meet quarterly financial expectations, which could cause our stock
price to decline

We were incorporated in September 1997 and shipped our first product in
September 1998. Because of this limited operating history and other factors,
our quarterly revenue and operating

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results are difficult to predict. In addition, due to the emerging nature of
the eCommerce customer service market and other factors, our quarterly revenue
and operating results may fluctuate from quarter to quarter. It is likely that
our operating results in some quarters will be below the expectations of
securities analysts or investors. In this event, the market price of our common
stock is likely to decline.

A number of factors are likely to cause fluctuations in our operating results,
including, but not limited to, the following:

. the growth rate of eCommerce;

. demand for eCommerce customer service applications;

. our ability to attract and retain customers and maintain customer
satisfaction;

. our ability to upgrade, develop and maintain our systems and
infrastructure;

. the amount and timing of operating costs and capital expenditures
relating to expansion of our business and infrastructure;

. technical difficulties or system outages;

. our ability to attract and retain qualified personnel with Internet
industry expertise, particularly sales and marketing personnel;

. the announcement or introduction of new or enhanced products and services
by our competitors;

. changes in our pricing policies and those of our competitors;

. failure to increase our international sales; and

. governmental regulation surrounding the Internet and eCommerce in
particular.

We base our expense levels in part on our expectations regarding future
revenue levels. If our revenue for a particular quarter is lower than we
expect, we may be unable to proportionately reduce our operating expenses for
that quarter. For example, our hosting agreements are typically for a period of
one year and automatically renew unless terminated by either party with 60
days' prior notice. In addition, some of our hosting agreements give the
customer the right to terminate the contract at any time. Period-to-period
comparisons of our operating results are not a good indication of our future
performance.

Our business is premised on a novel business model that is largely untested

Our business is premised on novel business assumptions that are largely
untested. Customer service historically has been provided primarily in person
or over the telephone. Our business model assumes that companies engaged in
eCommerce will continue to elect to provide customer service through the
Internet rather than by telephone. Our business model also assumes that many
companies recognize the benefits of a hosted delivery model and will seek to
have their customer service applications hosted by eGain. If any of these
assumptions is incorrect, our business will be seriously harmed.

Our success will depend on sales of the eGain EMS platform

In fiscal 1999, we derived substantially all of our revenue from sales of the
eGain EMS platform and related services. Although we recently added eGain WCS
to our product offerings, we expect to

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continue to derive a majority of our revenue from sales of the eGain EMS
platform in the future. Implementation of our strategy depends upon the eGain
EMS platform being able to solve the customer service needs of businesses
engaging in eCommerce. In fiscal 1999, two of our eGain EMS customers, FCC
National and WebTV, accounted for 15.6% and 10.8% of total revenue. If these or
other current or future customers are not satisfied with the eGain EMS
platform, our business and operating results will be seriously harmed.

We face a number of integration risks and significant goodwill costs related
to our recent acquisition of Sitebridge

We will face integration risks and record significant goodwill costs as a
result of our acquisition of Sitebridge in April 1999. We may be unable to
effectively integrate the operations, personnel and systems of Sitebridge with
our other operations in a timely fashion, or at all. In addition, we may not
achieve value from our acquisition of Sitebridge commensurate with the
consideration paid. We have just begun to integrate Sitebridge with our
operations and we expect this integration to place a significant burden on our
management team. If we are unable to effectively integrate Sitebridge into our
operations or to generate sufficient revenue from eGain WCS or our combined
operations, our business and operating results are likely to suffer.

As a result of the Sitebridge acquisition, we have recorded a significant
amount of goodwill that will adversely affect our operating results for the
foreseeable future. As of June 30, 1999, we had goodwill and other purchased
intangible assets of approximately $20.2 million, which we expect to amortize
over three years from the date of the acquisition. If the amount of recorded
goodwill or other intangible assets is increased or we have future losses and
are unable to demonstrate our ability to recover the amount of goodwill, the
amount of amortization could be increased or the period of amortization could
be shortened. This would increase annual amortization charges or result in the
write off of goodwill in a one-time non-cash charge, which could be significant
and would likely harm our operating results.

We may engage in future acquisitions or investments that could dilute our
existing stockholders, cause us to incur significant expenses or harm our
business

We may review acquisition or investment prospects that would complement our
current business or enhance our technological capabilities. Integrating any
newly acquired businesses, technologies or products, may be expensive and time-
consuming. To finance any acquisitions, it may be necessary for us to raise
additional funds through public or private financings. Additional funds may not
be available on terms that are favorable to us and, in the case of equity
financings, may result in dilution to our stockholders. We may not be able to
operate any acquired businesses profitably or otherwise implement our growth
strategy successfully. If we are unable to integrate any newly acquired
entities or technologies effectively, our operating results could suffer.
Future acquisitions by us could also result in large and immediate write-offs,
incurrence of debt and contingent liabilities, or amortization of expenses
related to goodwill and other intangibles, any of which could harm our
operating results.

We could incur additional non-cash charges associated with stock-based
compensation arrangements

Our operating results may be impacted if we incur significant non-cash
charges associated with stock-based compensation arrangements with employees
and non-employees. We have issued options to non-employees which are subject to
various vesting schedules of up to 48 months. For deferred compensation
purposes, these options are required to be remeasured at each vesting date,
which may

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require us to record additional non-cash accounting expenses. These expenses
may result in us incurring net losses or increased net losses for a given
period and this could seriously harm our operating results and stock price.

In addition, in connection with our acquisition of Sitebridge, we may face
stock-based compensation charges related to Sitebridge's relationship with
Ambrose, an independent professional employer organization, which formerly
provided payroll and employee benefits for Sitebridge employees. Based on a
recent draft pronouncement by the Financial Accounting Standards Board, we may
be required to recognize additional deferred stock-based compensation estimated
to be approximately $6.0 million related to this relationship.

If we fail to expand our sales, marketing and customer support activities, we
may be unable to expand our business

If we do not successfully expand our sales, marketing and customer support
activities, we cannot expand our business and our stock price could decline.
The complexity of our eCommerce customer service platform and related products
and services requires us to have highly trained sales, marketing and customer
support personnel to educate prospective customers regarding the use and
benefits of our services, and provide effective customer support. With our
relatively brief operating history and our plans for expansion, we have
considerable need to recruit, train, and retain qualified staff. Any delays or
difficulties we encounter in these staffing efforts could impair our ability to
attract new customers and to enhance our relationships with existing customers.
This in turn would adversely impact the timing and extent of our revenue.
Because the majority of our sales, marketing and customer support personnel
have recently joined us and have limited experience working together, our
sales, marketing and customer support organizations may not be able to compete
successfully against bigger and more experienced organizations of our
competitors.

We must recruit and retain our key employees to expand our business

Our success will depend on the skills, experience and performance of our
senior management, engineering, sales, marketing and other key personnel, many
of whom have worked together for only a short period of time. The loss of the
services of any of our senior management or other key personnel, including our
Chief Executive Officer and co-founder, Ashutosh Roy, and our President and co-
founder, Gunjan Sinha, could harm our business. We do not have employment
agreements with, or life insurance policies on, any of our key employees. These
employees may terminate their employment with us at any time. Our success also
will depend on our ability to recruit, retain and motivate other highly skilled
engineering, sales, marketing and other personnel. Competition for these
personnel is intense, especially in the San Francisco Bay Area, and we have had
difficulty hiring employees in the timeframe we desire. In particular, we may
be unable to hire a sufficient number of qualified software engineers. If we
fail to retain and recruit necessary engineering, sales and marketing, customer
support or other personnel, our business and our ability to develop new
products and services and to provide acceptable levels of customer service
could suffer. In addition, companies in the software industry whose employees
accept positions with competitors frequently claim that competitors have
engaged in unfair hiring practices. We could incur substantial costs in
defending ourselves against any of these claims, regardless of the merits of
such claims.

Our failure to expand third-party distribution channels would impede our
revenue growth

To increase our revenue, we must increase the number of our marketing and
distribution partners, including software and hardware vendors and resellers.
Our existing or future marketing and

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distribution partners may choose to devote greater resources to marketing and
supporting the products of competitors, which could also harm us.

Failure to expand our relationships with systems integrators would impede
acceptance of our products and growth of our revenue

To increase our revenue and implementation capabilities, we must develop and
expand relationships with systems integrators. We rely on systems integrators
to recommend our products to their customers and to install and support our
products for their customers. Systems integrators may develop, market or
recommend software applications that compete with our products. Moreover, if
these firms fail to implement our products successfully for their customers, we
may not have the resources to implement our products on the schedule required
by our customers.

Unknown software defects could disrupt our products and services, which could
harm our business and reputation

Our product and service offerings depend on complex software, both internally
developed and licensed from third parties. Complex software often contains
defects, particularly when first introduced or when new versions are released.
We may not discover software defects that affect our new or current services or
enhancements until after they are deployed. It is possible that, despite
testing by us, defects may occur in the software. These defects could result
in:

. damage to our reputation;

. lost sales;

. product liability claims;

. delays in or loss of market acceptance of our products;

. product returns; and

. unexpected expenses and diversion of resources to remedy errors.

We may face liability associated with our management of sensitive customer
information

Our applications manage sensitive customer information, and we may be subject
to claims associated with invasion of privacy or inappropriate disclosure, use
or loss of this information. Any imposition of liability, particularly
liability that is not covered by insurance or is in excess of insurance
coverage, could harm our reputation and our business and operating results.

If our system security is breached, our business and reputation could suffer

A fundamental requirement for online communications and transactions is the
secure transmission of confidential information over public networks. Third
parties may attempt to breach our security or that of our customers. We may be
liable to our customers for any breach in our security and any breach could
harm our business and our reputation. Although we have implemented network
security measures, our servers are vulnerable to computer viruses, physical or
electronic break-ins and similar disruptions, which could lead to
interruptions, delays or loss of data. We may be required to expend significant
capital and other resources to license encryption technology and additional
technologies to protect against security breaches or to alleviate problems
caused by any breach.

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Due to the lengthy sales cycles of some of our products, the timing of our
sales are difficult to predict and may cause us to miss our revenue
expectations

Our sales cycle for our eCommerce customer service applications can be as
long as three months or more and may vary substantially from customer to
customer. While our customers are evaluating our products and before they may
place an order with us, we may incur substantial sales and marketing expenses
and spend significant management effort. Consequently, if revenue forecasted
from a specific customer for a particular quarter are not realized in that
quarter, we may incur significant expenses that are not offset by corresponding
sales.

If we do not successfully address the risks inherent in the expansion of our
international operations, our business could suffer

We intend to continue to expand into international markets and to spend
significant financial and managerial resources to do so. For example, we have
established a subsidiary in the United Kingdom. If our revenue from
international operations does not exceed the expense associated with
establishing and maintaining these operations, our business and operating
results will suffer. We have limited experience in international operations and
may not be able to compete effectively in international markets. We face
various risks inherent in conducting business internationally, such as the
following:

. unexpected changes in regulatory requirements;

. difficulties and costs of staffing and managing international operations;

. differing technology standards;

. difficulties in collecting accounts receivable and longer collection
periods;

. political and economic instability;

. fluctuations in currency exchange rates;

. imposition of currency exchange controls;

. potentially adverse tax consequences; and

. reduced protection for intellectual property rights in foreign countries.

Our recent growth has placed a strain on our resources and if we fail to
manage our future growth, our business could suffer

We recently began to expand our operations rapidly and intend to continue
this expansion. The number of our full-time employees increased from 20 at June
30, 1998 to 155 at August 15, 1999. This expansion has placed, and is expected
to continue to place, a significant strain on our managerial, operational and
financial resources. To manage any further growth, we will need to improve or
replace our existing operational, customer support and financial systems,
procedures and controls. Any failure by us to properly manage these system and
procedural transitions could impair our ability to attract and service
customers, and could cause us to incur higher operating costs and delays in the
execution of our business plan. We will also need to continue the expansion of
our operations and employee base. Our management may not be able to hire,
train, retain, motivate and manage required personnel. In addition, our
management may not be able to successfully identify, manage and exploit
existing and potential market opportunities.

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We may not be able to upgrade our systems and the eGain Hosted Network to
accommodate growth in eCommerce

We face risks related to ability of the eGain Hosted Network to operate with
higher activity levels while maintaining expected performance. As the volume
and complexity of eCommerce customer communications increases, we will need to
expand our systems and hosted network infrastructure. The expansion and
adaptation of our network infrastructure will require substantial financial,
operational and management resources. Due to the limited deployment of our
products and services to date, our ability to connect and manage a
substantially larger number of customers is unknown.

Customer demand for our products and services could be greatly reduced if we
fail to maintain high capacity data transmission. In addition, as we upgrade
our network infrastructure, we are likely to encounter equipment or software
incompatibility. We may not be able to expand or adapt our hosted network
infrastructure to meet additional demand or our customers' changing
requirements in a timely manner or at all.

Unplanned system interruptions and capacity constraints could reduce our
ability to provide hosting services and could harm our business and our
reputation

Our customers have in the past experienced some interruptions with our hosted
network. We believe that these interruptions will continue to occur from time
to time. These interruptions could be due to hardware and operating system
failures. We expect a substantial portion of our revenue to be derived from
customers who use our hosted network. As a result, our business will suffer if
we experience frequent or long system interruptions that result in the
unavailability or reduced performance of our hosted network or reduce our
ability to provide remote management services. We expect to experience
occasional temporary capacity constraints due to sharply increased traffic,
which may cause unanticipated system disruptions, slower response times,
impaired quality and degradation in levels of customer service. If this were to
continue to happen, our business and reputation could be seriously harmed.

Our success largely depends on the efficient and uninterrupted operation of
our computer and communications hardware and network systems. Substantially all
of our computer and communications systems are located in Santa Clara County,
California. Our systems and operations are vulnerable to damage or interruption
from fire, earthquake, power loss, telecommunications failure and similar
events.

We have entered into service agreements with some of our customers that
require minimum performance standards, including standards regarding the
availability and response time of our remote management services. If we fail to
meet these standards, our customers could terminate their relationships with us
and we could be subject to contractual monetary penalties. Any unplanned
interruption of services may harm our ability to attract and retain customers.

We rely on relationships with, and the system integrity of, hosting partners
for our eGain Hosted Network

Our hosted network consists of virtual data centers co-located in the
physical data centers of our hosting partners. Accordingly, we rely on the
speed and reliability of the systems and networks of these hosting partners. If
our hosting partners experience system interruptions or delays, or if we do not
maintain or develop relationships with hosting partners, our business could
suffer.

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Problems arising from use of our products with other vendors' products could
cause us to incur significant costs, divert attention from our product
development efforts and cause customer relations problems

Our customers generally use our products together with products from other
companies. As a result, when problems occur in the network, it may be difficult
to identify the source of the problem. Even when these problems are not caused
by our products, they may cause us to incur significant warranty and repair
costs, divert the attention of our engineering personnel from our product
development efforts and cause significant customer relations problems.

We may be unable to protect our intellectual property and proprietary rights

We regard our copyrights, service marks, trademarks, trade secrets and
similar intellectual property as critical to our success, and rely on trademark
and copyright law, trade secret protection and confidentiality and/or license
agreements with our employees, customers and partners to protect our
proprietary rights. eGain is a registered trademark, and eGain EMS, eGain WCS,
eGain Hosted Network and eGain eCommerce Bridge are trademarks, of eGain.
Despite our efforts to protect our proprietary rights through confidentiality
and license agreements, unauthorized parties may attempt to copy or otherwise
obtain and use our products or technology. These precautions may not prevent
misappropriation or infringement of our intellectual property.

In addition, the status of United States patent protection in the software
industry is not well defined and will evolve as the U.S. Patent and Trademark
Office grants additional patents. We have one patent application pending in the
United States, and we may seek additional patents in the future. We do not know
if our patent application or any future patent application will result in a
patent being issued with the scope of the claims we seek, if at all, or whether
any patents we may receive will be challenged or invalidated. It is difficult
to monitor unauthorized use of technology, particularly in foreign countries
where the laws may not protect our proprietary rights as fully as in the United
States, and our competitors may independently develop technology similar to
ours.

We may face intellectual property infringement claims that could be costly to
defend

Third parties may infringe or misappropriate our copyrights, trademarks and
similar proprietary rights. In addition, other parties may assert infringement
claims against us. Although we have not received notice of any alleged
infringement, our products may infringe issued patents that may relate to our
products. In addition, because the contents of patent applications in the
United States are not publicly disclosed until the patent is issued,
applications may have been filed which relate to our software products. We may
be subject to legal proceedings and claims from time to time in the ordinary
course of our business, including claims of alleged infringement of the
trademarks and other intellectual property rights of third parties.
Intellectual property litigation is expensive and time-consuming and could
divert management's attention away from running our business. This litigation
could also require us to develop non-infringing technology or enter into
royalty or license agreements. These royalty or license agreements, if
required, may not be available on acceptable terms, if at all, in the event of
a successful claim of infringement. Our failure or inability to develop non-
infringing technology or license the proprietary rights on a timely basis would
harm our business.

We may need to license third-party technologies and may be unable to do so

To the extent we need to license third-party technologies, we may be unable
to do so on commercially reasonable terms or at all. In addition, we may fail
to successfully integrate any

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licensed technology into our services. Third-party licenses may expose us to
increased risks, including risks with the integration of new technology, the
diversion of resources from the development of our own proprietary technology,
our inability to generate revenue from new technology sufficient to offset
associated acquisition and maintenance costs. Our inability to obtain any of
these licenses could delay product and service development until equivalent
technology can be identified, licensed and integrated. This in turn would harm
our business and operating results.

Industry Risks

We must compete successfully in the eCommerce customer service market

The eCommerce customer service market is new and intensely competitive. There
are no substantial barriers to entry in this market, and established or new
entities may enter this market in the near future. We compete with companies
that develop and maintain internally developed email management systems. We
also compete directly with companies that provide licensed software products
for email management such as:

. Brightware, Inc.,

. Kana Communications, Inc.,

. Mustang Software, Inc. and

. Silknet Software, Inc.,

as well as Web collaboration application companies such as WebLine
Communications Corp. In addition, some of our competitors who currently offer
licensed software products are now beginning to offer hosted approaches. We
also face competition from larger, front office software companies such as:

. Clarify, Inc.,

. Oracle Corporation,

. Siebel Systems, Inc. and

. The Vantive Corporation.

Furthermore, established enterprise software companies, including IBM, Hewlett-
Packard Company, Microsoft Corporation and similar companies may leverage their
existing relationships and capabilities to offer eCommerce customer service
applications.

We believe competition will increase as our current competitors increase the
sophistication of their offerings and as new participants enter the market.
Many of our current and potential competitors have:

. longer operating histories;

. larger customer bases;

. greater brand recognition;

. more diversified lines of products and services; and

. significantly greater financial, marketing and other resources.

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These competitors may enter into strategic or commercial relationships with
larger, more established and better-financed companies. These competitors may
be able to:

. undertake more extensive marketing campaigns;

. adopt more aggressive pricing policies; and

. make more attractive offers to businesses to induce them to use their
products or services.

Further, any delays in the general market acceptance of the eCommerce
customer service applications and our hosted delivery model would likely harm
our competitive position. Any delay would allow our competitors additional time
to approve their service or product offerings, and also provide time for new
competitors to develop eCommerce customer service applications and solicit
prospective customers within our target markets. Increased competition could
result in pricing pressures, reduced operating margins and loss of market
share.

We depend on broad market acceptance of Web-based eCommerce customer service
applications

We depend on the widespread acceptance and use of Web-based customer service
applications as an effective solution for businesses seeking to manage high
volumes of customer communication over the Internet. We cannot estimate the
size or growth rate of the potential market for our product and service
offerings, and we do not know whether our products and services will achieve
broad market acceptance. The market for Web-based eCommerce customer service is
new and rapidly evolving, and concerns over the security and reliability of
online transactions, the privacy of users and quality of service or other
issues may inhibit the growth of the Internet and commercial online services.
If the market for eCommerce customer service applications fails to grow or
grows more slowly than we currently anticipate, our business will be seriously
harmed.

We may be unable to develop or enhance products or services that address the
changing needs of the eCommerce customer service market

To be competitive in the eCommerce customer service industry, we must
continually improve the performance, features and reliability of our products
and services, including our existing eCommerce customer service applications,
and develop new products, services, functionality and technology that address
changing industry standards and customer needs. If we cannot adapt or respond
in a cost-effective and timely manner to changing industry standards, market
conditions or customer requirements, our business and operating results will
suffer.

If we do not adequately address Year 2000 issues, we may incur significant
costs and our business could suffer

Many existing computer programs use only two digits to identify a year. These
programs were designed and developed without addressing the impact of the
upcoming change in the century. If not corrected, many computer software
applications could fail or create erroneous results by, at or beyond 2000. As a
result, the networks that incorporate our products and our own internal
networks could fail, leading to disruptions in operations and business
activities. As a result of the year 2000 problem, we believe that we face
potential risks which could harm our business in the following areas:

. disruption in our customer relationships or in our sales efforts because
of failures of our customers' networks which are correctly or incorrectly
attributed to the non-compliance of our products;

. claims from our customers based on alleged breach of warranties
concerning the Year 2000 compliance of our products;

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. disruption of our business resulting from failure of systems we use to
run our business;

. disruption of our business resulting from failure of systems used by our
suppliers, customers and potential customers; and

. the potential reduced spending by companies on networking solutions as a
result of significant information systems spending on Year 2000
remediation.

If we, our customers, our providers of hardware and software, or our third-
party network providers fail to remedy any Year 2000 issues, the reasonably
likely worst case scenario would be the interruption of our services, which in
turn could require us to incur material costs or lose revenue. Presently, we
believe we are unable to reasonably estimate the duration and extent of any
such interruption, or quantify the effect it may have on our future revenue.

See "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Year 2000 Issues."

We will only be able to execute our business plan if Internet usage continues
to grow

Our business will be seriously harmed if Internet usage does not continue to
grow or grows at significantly lower rates compared to current trends. The
continued growth of the Internet depends on various factors, many of which are
outside our control. These factors include the following:

. the Internet infrastructure may be unable to support the demands placed
on it;

. the performance and reliability of the Internet may decline as usage
grows;

. security and authentication concerns with respect to transmission over
the Internet of confidential information, such as credit card numbers,
and attempts by unauthorized computer users, so-called hackers, to
penetrate online security systems; and

. privacy concerns, including those related to the ability of Web sites to
gather user information without the user's knowledge or consent.

Because we provide our customer service applications to companies conducting
business over the Internet, our business could suffer if efficient
transmission of data over the Internet is interrupted

The recent growth in the use of the Internet has caused frequent
interruptions and delays in accessing the Internet and transmitting data over
the Internet. Because we provide Internet-based eCommerce customer service
applications, interruptions or delays in Internet transmissions will harm our
customers' ability to receive and respond to email messages. Therefore, our
market depends on improvements being made to the entire Internet infrastructure
to alleviate overloading and congestion.

Governmental regulation and legal uncertainties could impair the growth of
the Internet and decrease demand for our services or increase our cost of
doing business

Governmental regulation may impair the growth of the Internet or commercial
online services. This could decrease the demand for our products and services,
increase our cost of doing business or otherwise harm our business and
operating results. Although there are currently few laws and regulations
directly applicable to the Internet and the use of the Internet as a commercial
medium, a number of laws have been proposed involving the Internet. These
proposed laws include laws addressing user privacy, pricing, content,
copyrights, distribution, antitrust and characteristics and quality of products
and services. Further, the growth and development of the market for commercial

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online transactions may prompt calls for more stringent consumer protection
laws that may impose additional burdens on those companies engaged in
eCommerce. Moreover, the applicability to the Internet of existing laws in
various jurisdictions governing issues such as property ownership, sales and
other taxes, libel and personal privacy is uncertain and may take years to
resolve.

We may be liable for activities of our customers or others using our hosted
network

As a provider of eCommerce customer service applications, we face potential
liability for defamation, negligence, copyright, patent or trademark
infringement and other claims based on the actions of our customers or others
using our hosted network. This liability could result from the nature and
content of the communications transmitted by our customers through our hosted
network. We do not and cannot screen all of the communications generated by our
customers, and we could be exposed to liability with respect to this content.
Furthermore, some foreign governments, such as Germany, have enforced laws and
regulations related to content distributed over the Internet that are more
strict than those currently in place in the United States.

Offering Risks

You should not rely on recent publicity regarding eGain

On September 22, 1999, a Reuters news article appeared containing statements
resulting directly or indirectly from an interview with Robert Apollo, an
officer of eGain. These statements included the following:

. "If you look at the overall e-commerce market, people are today talking
about $500 billion by 2001,"

. "If one percent of that is devoted to servicing customers, you could end
up with a $5 billion market just for customer service,"

. "We have had some very positive reaction to the company's IPO,"

. "Apollo said eGain had a market advantage because it leapfrogged
straight into an Internet-browser mode unlike other conventional network-
based e-mail software," and

. "He said eGain also expected to be strong in the market because of a
flexibility in business practices."

The statements in the Reuters article were not intended to be relied upon by
potential investors in making an investment decision to purchase the common
stock offered hereby. Furthermore, eGain disclaims all the information
contained in the Reuters article for purposes of this offering, and prospective
investors should not rely on such information or any other information not
contained in this prospectus in making an investment decision to purchase the
common stock offered hereby. Forecasts relating to market size and market
position are forward-looking statements that involve numerous risks and
uncertainties. Our actual results could differ materially from those stated in
these forward-looking statements as a result of numerous factors, including
those set forth in "Risk Factors" and elsewhere in this prospectus.

Our stock price may be volatile, and you may not be able to sell your shares
at or above the offering price

Our common stock has not been publicly traded, and an active trading market
may not develop or be sustained after this offering. You may not be able to
sell your shares at or above the offering

424B4 19th Page of 106 TOC 1st Previous Next ↓Bottom Just 19th
price. The price at which our common stock will trade after this offering is
likely to be highly volatile and may fluctuate substantially due to factors
such as the following:

. actual or anticipated fluctuations in our operating results;

. changes in or our failure to meet securities analysts' expectations;

. announcements of technological innovations;

. introduction of new services by us or our competitors;

. developments with respect to intellectual property rights;

. conditions and trends in the Internet and other technology industries;
and

. general market conditions.

We may become involved in securities class action litigation which could
divert management's attention and harm our business

The stock market has from time to time experienced significant price and
volume fluctuations that have affected the market prices for the common stocks
of technology companies, particularly Internet companies. These broad market
fluctuations may cause the market price of our common stock to decline. In the
past, following periods of volatility in the market price of a particular
company's securities, securities class action litigation has often been brought
against that company. We may become involved in this type of litigation in the
future. Litigation is often expensive and diverts management's attention and
resources, which could harm our business and operating results.

After this offering, our directors, executive officers and principal
stockholders will continue to have substantial control over matters requiring
stockholder approval and may not vote in the same manner as our other
stockholders

After this offering, our directors, executive officers and stockholders who
currently own over 5% of our common stock will collectively beneficially own
approximately 48.7% of our outstanding common stock. These stockholders, if
they vote together, will be able to significantly influence all matters
requiring stockholder approval, including the election of directors and
approval of significant corporate transactions. This concentration of ownership
may also delay or prevent a change in control of eGain.

We may need additional capital, and raising additional capital may dilute
existing stockholders

We believe that our existing capital resources, including the anticipated
proceeds of this offering, will enable us to maintain our current and planned
operations for at least the next 12 months. However, we may choose to, or be
required to, raise additional funds due to unforeseen circumstances. If our
capital requirements vary materially from those currently planned, we may
require additional financing sooner than anticipated. This financing may not be
available in sufficient amounts or on terms acceptable to us and may be
dilutive to existing stockholders.

Future sales of our common stock may depress our stock price

Sales of a substantial number of shares of common stock in the public market
after this offering or after the expiration of lockup and holding periods could
cause the market price of our common stock to decline. After this offering, we
will have approximately 27,815,562 shares of common stock outstanding. All the
shares sold in this offering will be freely tradable. The remaining 22,815,562
shares of common stock outstanding after this offering are subject to lock-up
agreements that prohibit

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the sale of the shares for 180 days after the date of this prospectus.
Immediately after the 180 day lockup period, 16,963,195 shares which will be
outstanding after the offering will become available for sale. The remaining
shares of our common stock will become available at various times thereafter
upon the expiration of one-year holding periods.

Purchasers of our common stock will suffer immediate and substantial dilution

Purchasers of our common stock in this offering will experience immediate
dilution of $9.72 in the pro forma net tangible book value per share of common
stock, based on an initial public offering price of $12.00 per share.
Purchasers will also experience additional dilution upon the exercise of
outstanding stock options and warrants. The initial public offering price is
expected to be substantially higher than the book value per share of our common
stock. Some elements of our market value do not originate from measurable
transactions. Therefore, there is not a corresponding rise in "book", or
historical accounting, value for our rise in market value, if any. Examples of
these elements include the perceived value associated with our strategic
relationships, perceived growth prospects of our market and our perceived
competitive position within that market.

Our certificate of incorporation and bylaws contain provisions which could
delay or prevent a change in control even if the change in control would be
beneficial to our stockholders

Our certificate of incorporation and bylaws contain provisions that could
delay or prevent a change in control of eGain. These provisions could limit the
price that investors might be willing to pay in the future for shares of our
common stock. Some of these provisions:

. authorize the issuance of preferred stock that can be created and issued
by the board of directors without prior stockholder approval, commonly
referred to as "blank check" preferred stock, with rights senior to those
of common stock; and

. prohibit stockholder action by written consent.

See "Description of Capital Stock" for additional discussion of these
provisions.

We do not have a quantified business plan for our future operations and if we
do not use the proceeds in a manner beneficial to us, our business could
suffer

We do not have a quantified business plan for our future operations and we
have no current specific plans for the net proceeds from this offering. As a
result, our management will have significant flexibility in applying the net
proceeds of this offering. If the proceeds are not used in a manner beneficial
to eGain, our business could suffer and our stock price could decline. We
intend generally to use the net proceeds from this offering for working capital
and general corporate purposes. We have not yet determined the actual expected
expenditures and thus cannot estimate the amounts to be used for each specified
purpose. The actual amounts and timing of these expenditures will vary
significantly depending on a number of factors, including, but not limited to,
the amount of cash used in or generated by our operations and the market
response to the introduction of any new product and service offerings.
Depending on future developments and circumstances, we may use some of the
proceeds for uses other than those described above.

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FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that involve risks and
uncertainties. These statements relate to our future plans, objectives,
expectations and intentions, and the assumptions underlying or relating to any
of these statements. These statements may be identified by the use of words
such as "expect," "anticipate," "intend," "plan," "will" and similar
expressions. Our actual results could differ materially from those discussed in
these statements. Factors that could contribute to such differences include,
those discussed in "Risk Factors," "Business," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and elsewhere in
this prospectus.

USE OF PROCEEDS

The net proceeds we will receive from the sale of the 5,000,000 shares of
common stock offered by us are estimated to be $54,820,000 ($63,190,000 if the
underwriters' over-allotment option is exercised in full) after deducting the
underwriting discounts and commissions and the estimated offering expenses
payable by us based on the initial public offering price of $12.00 per share.

The principal purposes of this offering are:

. to obtain additional capital;

. to create a public market for our common stock;

. to increase our visibility and credibility; and

. to facilitate future access to the public equity markets.

We intend to use the net proceeds of this offering for working capital and
other general corporate purposes, including product and services development
and expansion of our hosted network. We have not yet determined the expected
expenditures and thus cannot estimate the amounts to be used for each specified
purpose. The actual amounts and timing of these expenditures will vary
significantly depending on a number of factors, including, but not limited to,
the amount of cash used in or generated by our operations and the market
response to the introduction of any new product and service offerings.

In addition, we may use a portion of the net proceeds of this offering to
acquire or invest in businesses, products, services or technologies
complementary to our current business, through mergers, acquisitions, joint
ventures or otherwise. However, we have no specific agreements or commitments
and are not currently engaged in any negotiations with respect to such
transactions. Accordingly, our management will retain broad discretion as to
the allocation of the net proceeds of this offering. We intend to invest the
net proceeds of this offering in short-term, interest-bearing investment grade
securities until they are used.

DIVIDEND POLICY

We have never declared or paid dividends on our capital stock and do not
anticipate paying any dividends in the foreseeable future. We currently intend
to retain our earnings, if any, for the development of our business.
Furthermore, our bank line of credit agreement prohibits the payment of
dividends.

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CAPITALIZATION

The following table sets forth our capitalization as of June 30, 1999:

. on an actual basis;

. on a pro forma basis after giving effect to:

-- the sale of 652,000 shares of Series D preferred stock for gross
proceeds of $5,216,000 in July 1999;

-- the assumed exercise of outstanding warrants to purchase an
aggregate of 394,139 shares of common stock; and

-- the conversion of all outstanding shares of preferred stock into
common stock and changes to our authorized capital stock upon
completion of this offering.

. on the same pro forma basis as adjusted to give effect to the sale of
5,000,000 shares of common stock by us at an initial public offering
price of $12.00 per share and after deducting the underwriting discounts
and commissions and estimated offering expenses payable by us.

This information should be read together with the consolidated financial
statements and related notes included elsewhere in this prospectus.

[Download Table]

June 30, 1999
--------------------------------
Pro Forma
Actual Pro Forma as Adjusted
-------- --------- -----------
(in thousands except share
data)

Notes payable, excluding current portion....... $ 221 $ 221 $ 221
======== ======== ========
Stockholders' equity:
Convertible preferred stock: $0.001 par value;
10,035,887 shares authorized,
9,566,378 shares issued and outstanding,
actual; 10,035,887 shares authorized, no
shares issued and outstanding, pro forma ..... $ 16,987 $ -- $ --
Preferred stock: $0.001 par value; 5,000,000
shares authorized, no shares issued and
outstanding................................... -- -- --
Common stock: $0.001 par value; 50,000,000
shares authorized, 10,946,661 shares issued
and outstanding, actual; 21,559,178 shares
issued and outstanding,
pro forma; 50,000,000 shares authorized,
26,559,178 shares issued and outstanding, pro
forma as adjusted............................. 7,289 22 27
Additional paid-in capital..................... 17,549 47,215 102,030
Notes receivable from stockholders............. (144) (144) (144)
Deferred stock compensation.................... (8,956) (8,956) (8,956)
Accumulated deficit and accumulated other
comprehensive income.......................... (12,242) (12,242) (12,242)
-------- -------- --------
Total stockholders' equity................... 20,483 25,895 80,715
-------- -------- --------
Total capitalization........................... $ 20,704 $ 26,116 $ 80,936
======== ======== ========

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DILUTION

Our pro forma net tangible book value as of June 30, 1999 was $5,699,692, or
$0.26 per share. Pro forma net tangible book value per share is determined by
dividing the amount of our total tangible assets less total liabilities by the
number of shares of common stock outstanding at that date, assuming conversion
of all outstanding shares of preferred stock. Dilution in net tangible book
value per share represents the difference between the amount per share paid by
purchasers of common stock in this offering and the net tangible book value per
share of common stock immediately after completion of this offering. After
giving effect to the sale of the 5,000,000 shares of common stock offered by
eGain in this offering (at an initial public offering price of $12.00 per share
and after deducting the underwriting discounts and commissions and our
estimated offering expenses), our pro forma net tangible book value at June 30,
1999 would have been $60,519,692, or $2.28 per share. This represents an
immediate increase in net tangible book value of $2.02 per share to the
existing stockholders and an immediate dilution of $9.72 per share to new
investors purchasing shares in this offering. The following table illustrates
this per share dilution:

[Download Table]

Initial public offering price per share....................... $12.00
Pro forma net tangible book value per share as of June 30,
1999......................................................... $0.26
Increase per share attributable to this offering.............. 2.02
-----
Pro forma net tangible book value per share after this
offering..................................................... 2.28
------
Dilution per share to new investors........................... $ 9.72
======

The following table summarizes, on a pro forma basis as of June 30, 1999, the
total number of shares of common stock purchased from eGain, the total
consideration paid to eGain and the average price per share paid by existing
stockholders and by new investors purchasing shares in this offering (based
upon an assumed initial public offering price of $12.00 per share and before
deducting the underwriting discounts and commissions and our estimated offering
expenses):

[Download Table]

Shares Purchased Total Consideration
------------------ ------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- -------------

Existing stockholders.. 21,559,178 81% $15,033,880 20% $ 0.70
New investors.......... 5,000,000 19 60,000,000 80 $12.00
---------- --- ----------- ---
Total................ 26,559,178 100% $75,033,880 100%
========== === =========== ===

The foregoing table:

. gives effect to the sale of 652,000 shares of Series D preferred stock
for gross proceeds of $5,216,000 in July 1999,

. gives effect to the assumed exercise of outstanding warrants to purchase
394,139 shares of common and preferred stock that terminate upon
completion of this offering and

. assumes no exercise of outstanding warrants that survive the offering or
outstanding stock options. As of June 30, 1999, there were outstanding
warrants to purchase an aggregate of 195,517 shares of common stock with
a weighted average exercise price of $0.9212 per share that survive the
offering and options to purchase an aggregate of 2,463,031 shares of
common stock with a weighted average exercise price of $0.24 per share.
To the extent any of these warrants or options are exercised, there will
be further dilution to new investors.

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SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated statement of operations data set forth below for
the period from inception through June 30, 1998 and for the year ended June 30,
1999 and the selected consolidated balance sheet data as of June 30, 1998 and
1999 have been derived from our audited consolidated financial statements
included elsewhere in this prospectus. Our historical results are not
necessarily indicative of results to be expected for any future period. The
data have been derived from financial statements that have been prepared in
accordance with generally accepted accounting principles and should be read
together with "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the consolidated financial statements and related
notes included elsewhere in this prospectus. See Note 1 of notes to the
consolidated financial statements for an explanation of the determination of
the number of shares used in computing basic and diluted net loss per share.
The pro forma information gives effect to the conversion of all outstanding
shares of preferred stock as of June 30, 1999 into 9,566,378 shares of common
stock upon completion of this offering.

[Download Table]

Period from
September 10, 1997 Year Ended
(Inception) to June 30,
June 30, 1998 1999
------------------ ----------

(in thousands except
per share data)
Consolidated Statement of Operations Data:
Revenue:
Hosting....................................... $ -- $ 137
License fees.................................. -- 473
Service....................................... 2 409
------- --------
Total revenue............................... 2 1,019

Costs and expenses:
Cost of revenue............................... 39 1,772
Sales and marketing........................... 231 4,182
Research and development...................... 299 2,096
General and administrative.................... 257 1,235
Amortization of goodwill and other intangible
assets....................................... -- 1,217
Amortization of deferred compensation......... 58 1,817
------- --------
Total costs and expenses.................... 884 12,319
------- --------
Loss from operations............................ (882) (11,300)
Interest and other income (expense), net........ (56) (5)
------- --------
Net loss........................................ $ (938) $(11,305)
======= ========
Basic and diluted net loss per share............ $(17.78) $ (2.14)
======= ========
Shares used in computing basic and diluted net
loss per share................................. 53 5,295
======= ========
Pro forma basic and diluted net loss per share
(unaudited).................................... $ (0.93)
========
Shares used in computing pro forma basic and
diluted net loss per share (unaudited)......... 12,153
========

[Download Table]

June 30,
--------------
1998 1999
------ -------

(in thousands)
Consolidated Balance Sheet Data:
Cash and cash equivalents....................................... $3,831 $ 1,265
Working capital (deficit)....................................... 3,691 (755)
Total assets.................................................... 3,990 23,965
Notes payable less current portion.............................. -- 221
Total stockholders' equity...................................... 3,801 20,483

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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Our company was founded in September 1997 to provide customer service
infrastructure solutions to companies engaged in electronic commerce. From
inception to September 1998, our operating activities related primarily to the
planning and developing our proprietary technological solution, recruiting
personnel, raising capital and purchasing operating assets. In September 1998,
we commenced commercial shipment of our eGain Email Management System, or eGain
EMS, an application that helps companies route, track and respond to high
volumes of customer email and Web form inquiries. On April 30, 1999, we
acquired Sitebridge Corporation and added its primary product to our customer
service platform. The product, now called eGain Web Collaboration System, or
eGain WCS, is an application that allows customer service representatives to
interact online with customers on the Web. We began selling eGain WCS in May
1999. Our products and services are designed to enable businesses to deliver
effective customer service, improve customer satisfaction and convert Web site
visitors to buyers. Our products are designed to be highly scalable and to
integrate with a company's existing infrastructure to allow the company to
consolidate customer data from other applications in order to have access to
comprehensive customer information. We offer our customers the flexibility to
access our solution from an external hosted environment or to purchase and
implement our solution directly in-house.

Our revenue consists of hosting revenue, license fees and service revenue
associated with our eGain EMS and eGain WCS applications.

. Hosting Revenue. We derive hosting revenue when our customers choose to
have our applications provided through our eGain Hosted Network, which is
a network of service centers and hosting partners linked by high speed
Internet connections. Our contracts with hosted customers generally
provide for the payment of hosting fees on a monthly basis. Hosting
revenue is recognized monthly as the services are performed.

. License Fees. We derive revenue from license fees when our customers
choose to license our software for in-house installation. Revenue from
license fees is recognized after a license agreement has been executed or
a definitive purchase order has been received, the product has been
delivered, the license fee has become fixed and determinable and
collection of the fee is considered probable.

. Service Revenue. We derive service revenue from support and maintenance
contracts on software licenses and professional services and training.
Substantially all of our customers that purchase software licenses also
purchase annual support and maintenance, which is paid in advance on an
annual basis and initially recorded as deferred revenue. Revenue from
support and maintenance contracts is recognized ratably over the term of
the support and maintenance period. Professional services revenue is
primarily related to customer support services and training and
installation services and is recognized upon completion of specific
contractual milestone events, or based on an estimated percentage of
completion as work progresses.

We expect to make significant investments in product development and
technology to enhance our current products and services, develop new products
and services and further advance our solution offerings. In addition, an
important part of our strategy is to expand our operations and employee base
and build our sales, marketing, customer support, technical and operational
resources.

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In particular, we intend to expand our strategic distribution, hosting and
solution relationships to add capabilities to our current product offerings and
to help market our products to new customers.

We have incurred significant losses since our inception, and as of June 30,
1999, had an accumulated deficit of approximately $12.2 million. We expect to
continue to incur substantial operating losses for the foreseeable future. In
view of the rapidly evolving nature of our business and our limited operating
history, we believe that period-to-period comparisons of our revenue and
operating results are not meaningful and should not be relied upon as
indications of future performance.

Acquisition of Sitebridge

We acquired Sitebridge effective April 1999. In connection with the
acquisition, we issued 1,609,793 shares of Series C convertible preferred
stock, 1,455,514 shares of common stock, options and warrants to acquire
1,144,456 shares of common stock and warrants to acquire 121,006 shares of
Series C preferred stock in exchange for all the outstanding preferred stock,
common stock, and options and warrants to purchase shares of Sitebridge stock.
The acquisition was accounted for as a purchase, and accordingly the results of
operations of Sitebridge have been included in the consolidated financial
statements since the date of acquisition. The fair market value of the
securities issued in the acquisition was approximately $20.1 million.

Sitebridge, originally Social Science Incorporated, was founded in 1996 to
create tools for live collaboration on Web sites. Sitebridge shipped its first
product, NetDiscussion, in 1997. In late 1997, Sitebridge shifted its business
focus to developing software applications for sales and service organizations
within large- and medium-sized companies. In the second quarter of 1998,
Sitebridge shipped the first version of CustomerNow, an application that allows
customer service representatives to provide live assistance to customers
through real time Web interaction. With our acquisition of Sitebridge, we
changed the name of CustomerNow to eGain WCS. eGain EMS and eGain WCS are
available today as stand-alone applications or as combined solutions with
specific integrated functions.

Goodwill and Other Non-Cash Charges

We recorded goodwill and other purchased intangible assets of approximately
$21.4 million associated with our acquisition of Sitebridge. Goodwill and other
purchased intangible assets are being amortized on a straight-line basis over
the estimated useful lives of three years. We currently expect to record
amortization of goodwill and other intangible assets of approximately
$7.1 million in fiscal 2000, $7.1 million in fiscal 2001 and $6.0 million in
fiscal 2002.

In connection with the grant of stock options to employees and consultants,
we recorded deferred stock compensation totaling approximately $234,000 in
fiscal 1998 and $10.6 million in fiscal 1999. Deferred compensation for options
granted to employees has been determined as the difference between the deemed
fair value of our common stock on the date these options were granted and the
exercise price. Deferred compensation for options granted to consultants has
been determined in accordance with SFAS 123 as the fair value of the
consideration received or the fair value of the equity instruments issued,
whichever is more reliably measured. Deferred compensation for options granted
to consultants is periodically remeasured as the underlying options vest. These
amounts were initially recorded through stockholders' equity and are being
amortized by charges to operations. We recorded amortization of deferred stock
compensation of approximately $58,000 in fiscal 1998 and $1.8 million in fiscal
1999. We recorded additional deferred compensation in July

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and August 1999 of approximately $8.1 million. We expect to record amortization
expense relating to deferred stock compensation approximately as follows: $9.4
million in fiscal 2000, $4.6 million in fiscal 2001, $2.3 million in fiscal
2002 and $870,000 in fiscal 2003. The amortization expense relates to options
awarded to employees and consultants in all operating expense categories. See
Note 6 of Notes to Financial Statements.

Sitebridge previously outsourced its payroll processing and other aspects of
its employee benefits programs under a co-employment arrangement with Ambrose,
an independent professional employer organization that was terminated effective
July 31, 1999. On March 31, 1999, the Financial Accounting Standards Board
issued an Exposure Draft of an FASB Interpretation, Accounting for Certain
Transactions Involving Stock Compensation, an interpretation of APB Opinion No.
25. This FASB Exposure Draft, if adopted in its current form, could be
interpreted to indicate that employees subject to co-employment arrangements
would not be considered employees for purposes of applying APB No. 25. If
additional clarification regarding the definition of an employee is not
provided in the final FASB pronouncement, we may be required to establish a new
measurement date for stock options granted by Sitebridge after December 15,
1998 to these employees for the purpose of accounting for stock options under
APB No. 25. If a new measurement date is required to be established, we would
recognize the deferred stock-based compensation, which would be amortized over
the remaining vesting periods of the options. We estimate that this charge
would be approximately $6.0 million. This amortization could have a material
adverse effect on our operating results.

Results of Operations

We were incorporated in September 1997 but did not commence significant
operations until January 1998. Data for September 1997 through June 30, 1998
(the inception period) are not comparable to those for fiscal 1999 due to the
acceleration of our activities and related expenses during fiscal 1999 and the
different duration of the periods.

Revenue

Revenue for fiscal 1999 was $1.0 million, 60.7% of which was recognized in
the quarter ended June 30, 1999. In fiscal 1999, FCC National accounted for
15.6% of total revenue and WebTV accounted for 10.8% of total revenue. In
fiscal 1999, hosting revenue represented 13.5% of total revenue, license fees
represented 46.4% of total revenue and service revenue represented 40.1% of
total revenue.

Costs and Expenses

Cost of revenue. Cost of revenue consists primarily of costs incurred for
customer support, hosting and professional services. Cost of revenue includes
depreciation of capital equipment used in our hosted network, personnel costs,
cost of third-party products and lease costs paid to remote co-location
centers. In fiscal 1999, cost of revenue was $1.8 million. From July 1, 1998 to
June 30, 1999, the number of customer support and professional services
personnel increased from 2 to 37.

Sales and marketing. Sales and marketing expenses consist primarily of
compensation and benefits of our sales, marketing and business development
personnel, advertising, trade show and other promotional costs and, to a lesser
extent, occupancy costs and related overhead. Sales and marketing expenses were
$4.2 million in fiscal 1999. From July 1, 1998 to June 30, 1999, the number of
our sales and marketing personnel increased from 6 to 29.

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Research and development. Research and development expenses consist primarily
of compensation and benefits of our engineering and quality assurance personnel
and, to a lesser extent, occupancy costs and related overhead. Research and
development expenses are expensed as incurred. Research and development
expenses were $2.1 million in fiscal 1999. From July 1, 1998 to June 30, 1999,
the number of our research and development personnel increased from 7 to 33.

General and administrative. General and administrative expenses consist
primarily of compensation and benefits for our finance, human resources,
administrative and legal services personnel, fees for outside professional
services and, to a lesser extent, occupancy costs and related overhead. General
and administrative expenses were $1.2 million in fiscal 1999. From July 1, 1998
to June 30, 1999, the number of our general and administrative personnel
increased from 5 to 15.

Interest income and expense. Interest income consists of interest earned on
our cash and cash equivalents. Interest income was $111,000 in fiscal 1999. To
date, we have incurred interest expense on a working capital line of credit and
notes payable for equipment financing. In fiscal 1999, interest expense was
$116,000.

Quarterly Results of Operations

The following table sets forth certain unaudited quarterly statement of
operations data for the six quarters ended June 30, 1999. This information has
been derived from our unaudited consolidated financial statements, which, in
management's opinion, have been prepared on the same basis as the audited
financial statements and include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the information for
the quarters presented. This information should be read in conjunction with the
audited financial statements and related notes included elsewhere in this
prospectus. The operating results for any quarter are not necessarily
indicative of the operating results for any future period.

[Download Table]

Three Months Ended
--------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30,
1998 1998 1998 1998 1999 1999
-------- -------- --------- -------- -------- --------
(in thousands)

Statement of Operations
Data:
Revenue
Hosting............... $ -- $ -- $ -- $ 3 $ 18 $ 116
License fees.......... -- -- -- 79 201 193
Service............... -- -- -- 65 34 310
----- ----- ------- ------- ------- -------
Total revenue....... -- -- -- 147 253 619
Costs and expenses
Cost of revenue....... 4 46 143 296 460 873
Sales and marketing... 61 176 508 929 1,078 1,667
Research and
development.......... 107 189 214 355 584 943
General and
administrative....... 70 134 225 205 296 509
Amortization of
goodwill and other
intangible assets.... -- -- -- -- -- 1,217
Amortization of
deferred
compensation......... -- 58 89 190 387 1,151
----- ----- ------- ------- ------- -------
Total costs and
expenses........... 242 603 1,179 1,975 2,805 6,360
----- ----- ------- ------- ------- -------
Loss from operations.... (242) (603) (1,179) (1,828) (2,552) (5,741)
Interest income
(expense), net......... (19) (19) 24 2 (18) (13)
----- ----- ------- ------- ------- -------
Net loss................ $(261) $(622) $(1,155) $(1,826) $(2,570) $(5,754)
===== ===== ======= ======= ======= =======

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Fluctuations in Quarterly Results

Revenue increased substantially in the quarter ended June 30, 1999, primarily
due to the increase in the number of hosting customers and an increase in
consulting services. Cost of revenue increased each quarter primarily due to
the development of the eGain Hosted Network and increased personnel costs.
Sales and marketing expenses increased substantially during the quarters ended
March 31, 1999 and June 30, 1999 due to marketing programs related to the
launch of eGain EMS and the increase in sales personnel costs. The amortization
of goodwill and other intangible assets recorded in the quarter ended June 30,
1999 is associated with our acquisition of Sitebridge in April 1999.

We have incurred operating losses since inception, and we may never achieve
profitability in the future. We believe that future operating results will be
subject to quarterly fluctuations due to a variety of factors, many of which
are beyond our control. These factors may include our ability to do the
following:

. compete in a highly competitive eCommerce customer service market;

. expand our sales, marketing and customer support activities;

. create and maintain strategic relationships, including relationships with
our hosting partners;

. expand our customer base;

. introduce new products and services;

. upgrade our systems and infrastructure;

. reduce service interruptions; and

. recruit and retain key personnel.

Liquidity and Capital Resources

Since our inception in September 1997, we have financed our operations
primarily through the private placement of our preferred stock and, to a lesser
extent, through bank borrowings and capital equipment lease financing. As of
June 30, 1999, we had $1.3 million in cash and cash equivalents and $1.2
million of borrowings available under an equipment financing line of credit.
Net cash provided by financing activities was $6.4 million in fiscal 1999 and
was primarily attributable to net proceeds from the issuance of stock.

Net cash used in operating activities was $7.8 million in fiscal 1999. Cash
used in operating activities was primarily the result of net operating losses
(exclusive of non-cash charges) and increases in accounts receivable and
prepaid assets, partially offset by increases in accrued expenses and accounts
payable.

Net cash used in investing activities was $1.2 million in fiscal 1999. Cash
used in investing activities was primarily related to purchases of property and
equipment.

As of June 30, 1999, our principal commitments consisted of obligations
outstanding under operating leases. Although we have no material commitments
for capital expenditures, we anticipate a substantial increase in our capital
expenditures and lease commitments consistent with our anticipated growth in
operations, infrastructure and personnel.

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During fiscal 1999, we obtained a line of credit with a bank for equipment
purchases and working capital financing in the amount of $1.0 million and an
equipment line of credit with a leasing company in the amount of $1.5 million.
As of June 30, 1999, approximately $1.0 million was outstanding under the bank
line of credit and approximately $342,000 was outstanding under the equipment
credit facility. In addition, in connection with the acquisition of Sitebridge,
we assumed two promissory notes in the total principal amount of $380,000.

Our capital requirements depend on numerous factors, including market
acceptance of our services, the resources we allocate to our hosted network,
sales, marketing and customer support services, and other factors. We have
experienced substantial increases in our expenditures since our inception
consistent with growth in our operations and personnel, and we anticipate that
our expenditures will continue to increase for the foreseeable future.

We believe that the net proceeds from the sale of common stock offered
hereby, together with our current cash balances and cash available under our
lines of credit, will be sufficient to meet our working capital and capital
expenditure requirements for at least the next 12 months. In addition, although
there are no present understandings, commitments or agreements with respect to
any acquisition of other businesses, products or technologies, we from time to
time evaluate potential acquisitions of other businesses, products and
technologies and may in the future require additional equity or debt financings
to consummate any potential acquisitions. We may also need to raise additional
funds, however, in order to fund more rapid expansion, including significant
increases in personnel and office facilities, to develop new or enhance
existing services or products or respond to competitive pressures. In addition,
in order to meet our long term liquidity needs, we may need to raise additional
funds, establish a credit facility or seek other financing arrangements.
Additional funding may not be available on favorable terms, if at all.

Disclosure About Market Risk

Our exposure to market risk is principally confined to our cash and cash
equivalents, which have short maturities and, therefore, minimal market risk.

Year 2000 Issues

Background

The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any computer
programs or hardware that have date-sensitive software or embedded chips may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in system failures or miscalculations causing disruptions of
operations for any company using such computer programs or hardware, including,
among other things, a temporary inability to process transactions, send
invoices or engage in normal business activities. As a result, many companies'
computer systems may need to be upgraded or replaced in order to avoid "Year
2000" issues.

State of Readiness

We initiated a Year 2000 compliance program in April 1999. Our quality
assurance group is directing the program for our internally developed products,
and our information technology group is directing the program for all other
operational areas. We are a comparatively new enterprise, and, accordingly, the
software and hardware we use to manage our business has all been purchased or

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developed by us within the last 24 months. While this fact pattern does not
completely protect us against Year 2000 exposure, we believe we gain some
mitigation from the fact that the information technology we use to manage our
business is not based upon older hardware and software systems developed when
there was less awareness of Year 2000 issues.

Our Product Testing

Our quality assurance team has tested the most current versions of eGain EMS
and eGain WCS for Year 2000 compliance. This team, led by a senior eGain
Product Manager and staffed by other eGain engineers and programmers, devised
and has been executing a Year 2000 compliance plan as follows:

. Phase 1--Inventory: Identify all products and product versions, including
eGain EMS, eGain WCS and discrete product modules, that might have Year
2000 related issues. This phase has been completed.

. Phase 2--Devise compliance tests: Devise appropriate and comprehensive
tests that would accurately determine whether the inventoried product
offerings, including eGain EMS, eGain WCS and discrete product modules,
are Year 2000 compliant. This included especially determining which
product features contained date data or other code that might be affected
by the Year 2000 issue. This phase has been completed.

. Phase 3--Conduct compliance tests: Perform the compliance tests on the
inventoried products. For both eGain EMS and eGain WCS, the members of
eGain's Year 2000 quality assurance team tested all potentially affected
product features to determine whether they could accurately recognize,
process, calculate, manipulate, sort, store and transfer date data
relating to a number of key dates. In particular, the team tested the
core functionality of the identified product features to assess their
performance prior to, through and after the following dates:

. December 31, 1999 to January 1, 2000 (millenium transition);

. February 28, 2000 to February 29, 2000 (first leap year transition in
the new millenium);

. February 29, 2000 to March 1, 2000 (second leap year transition in the
new millenium), and

. December 31, 2010 to January 1, 2011.

This phase has been completed.

. Phase 4--Remediation assessment: Determine, in light of the compliance
tests, whether any product-related remediation is necessary to address
any Year 2000 related issues. As a result of the compliance tests, our
quality assurance team has determined that, when running on Year 2000
compliant hardware and operating systems, the most current versions of
eGain EMS and eGain WCS are Year 2000 compliant according to the
following definition:

. they can process, calculate, manipulate, sort, store and transfer date
data without material error or material performance degradation, while
taking into account century boundaries and leap years where required,
and

. they can operate between year 1999 and year 2000 without producing
date-related errors.

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Because our products obtain and process all date information (such as
creation dates, modification dates, and time/date stamps) from the
underlying operating system being used by our customers, the foregoing
statement only applies if:

. the other software, hardware, networks and systems with which our
applications interface are themselves Year 2000 compliant according to
the above definition, and

. our products are used in accordance with applicable documentation and
other operating instructions provided by eGain.

Our quality assurance team has determined that there are a small number of
code files relating to search and reporting features in the current version
of eGain EMS that may have Year 2000 related problems. These are peripheral
product features unrelated to the core email receiving and processing
functionality of eGain EMS. Nonetheless, our Products Group has already
designed a patch that addresses these performance issues to be installed on
all hosted and existing eGain EMS licensed customers. Future eGain EMS
customers will receive product versions that do not contain the affected
files.

The remediation assessment phase has been completed.

. Phase 5--Deploy remediation: The patch designed to remedy the minor Year
2000 related issues identified in eGain EMS is scheduled to be deployed
to all existing customers no later than September 30, 1999.

Our Internal System

The scope of our internal Year 2000 compliance program plan covers all
computing and network resources within the eGain enterprise. This internal
compliance program is being directed by eGain's Manager of Information
Technology and a team of eGain IT professionals. As with our product-related
Year 2000 program, our internal program is comprised of a number of phases as
follows: inventory all internal hardware, software, and operating systems for
year 2000 compliance; devise a testing plan for all identified systems; conduct
compliance testing; assess any necessary remediation measures to address any
problems discovered through the compliance testing and deploy any necessary
remediation measures.

Our Year 2000 internal compliance team has completed all but the final phase
of the compliance program. We have obtained Year 2000 certification for
substantially all hardware, software and other systems we use, and we require
such certification on all new systems we have purchased or will consider
purchasing. The only noncompliant systems we have identified relate to certain
Microsoft products and software programs, including Microsoft NT 4.0, 95 and 98
operating systems, Microsoft Office 97, Microsoft SQL 6.5 database servers, and
Microsoft Exchange 5.5 mail systems. All identified vulnerabilities within
deployed Microsoft applications and operating systems have been well-
publicized, and Microsoft has devised remediation paths for each affected
system. eGain's IT professionals are Microsoft Corporation Systems Engineers
certified and trained in the use of Microsoft Year 2000 tools and affected
eGain systems no later than September 15, 1999, and we foresee no problem
meeting that schedule. At that time, we believe all internal computing and
network resources within the eGain enterprise will be Year 2000 compliant.

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Budget

We have not incurred any significant expenses to date, and we do not
anticipate that any future costs associated with our Year 2000 remediation
efforts will exceed $100,000. Expenses associated with our Year 2000
remediation efforts will be funded from available cash reserves. We have not
deferred any specific IT projects due to our Year 2000 efforts, and we do not
anticipate doing so in the future.

Reasonably Likely Worst Case Scenario

Contingency Plans

We expect our Year 2000 compliance program to be substantially completed by
September 1999. If we encounter delays or are unable to meet this schedule, we
will analyze non-compliant areas and develop a comprehensive contingency plan
to address the issues by October 1999.

See "Risk Factors--If we do not adequately address Year 2000 issues, we may
incur significant costs and our business could suffer."

Recent Accounting Pronouncements

In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position No. 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." SOP 98-1 requires that entities
capitalize certain costs related to internal use software once certain criteria
have been met. We are required to adopt SOP No. 98-1 effective July 1, 1999. We
do not expect that the adoption of SOP No. 98-1 will have a material impact on
our financial statements.

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Financial
Instruments and for Hedging Activities," which provides a comprehensive and
consistent standard for the recognition and measurement of derivatives and
hedging activities. SFAS 133 is effective for all fiscal quarters for fiscal
years beginning after June 15, 2000 and is not anticipated to have a
significant impact on our operating results or financial condition when
adopted.

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BUSINESS

Company Overview

We are a leading provider of customer service infrastructure for companies
engaged in eCommerce. Our products and related services are designed to help
businesses provide more effective Internet-based customer service, thereby
improving customer satisfaction and converting a higher percentage of Web site
visitors to buyers. We believe we are one of the leading providers of customer
service infrastructure for companies engaged in eCommerce because we were the
first company to offer a platform for online customer service which companies
can access remotely through the eGain Hosted Network. We offer our solutions
both as a Web-based hosted application service through our eGain Hosted Network
and as installed software for in-house implementation. Approximately 50% of our
current customers access our applications through our eGain Hosted Network. Our
customers include both dedicated Internet companies, such as Go2Net, Snap.com
and WebTV, and traditional companies engaged in eCommerce, such as Mazda USA
and FCC National's Wingspan Bank.

Industry Background

Customer Service Is Critical to eCommerce

In a short period of time, the Internet has evolved from primarily an
information source to a new platform for commerce. International Data
Corporation, or IDC, estimates that the number of customers buying goods and
services over the Internet worldwide will grow from approximately 30 million in
1998 to 133 million in 2002, and that the total value of goods and services
purchased over the Internet will increase from approximately $50 billion in
1998 to over $734 billion by 2002.

This growth has increased competitive pressures in online markets. To
maintain or gain market share, many businesses engaged in eCommerce are
focusing on the quality of customer service as a key competitive
differentiator. Providing high quality customer service may be even more
important on the Internet than it is in the physical world. Unlike a
traditional commercial setting where customers can talk to a customer service
representative either in person or by phone, customers on the Internet cannot
easily contact agents with their inquiries. Whether to ask about product
features, check the status of an order or get help with a loan application,
online consumers have traditional service needs, and they want to be assured
that these needs will be met before conducting a transaction. In the
increasingly competitive eCommerce environment, companies that fail to address
these customer service needs may lose sales to competitors located a mouse
click away.

The Need for eCommerce Customer Service Applications

Today, most online customer communication takes place through email. As email
volume is rising, the content within email messages is also becoming more
complex. However, many companies have not taken adequate steps to effectively
address this increase in email volume and complexity. According to a recent
survey by Jupiter Communications of 125 top eCommerce sites, 42% of the sites
either refused to accept an email message, never responded to the message or
took longer than five days to respond. These survey results suggest that online
customers are not receiving the level of service they demand.

Businesses engaged in eCommerce that provide poor customer service risk
losing customers. According to a recent survey by Net Effect Systems, two-
thirds of all online commercial transactions that are initiated are abandoned
before completion. By improving responsiveness to email and

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providing real-time customer communication, companies can convert more of these
potential buyers into actual customers. Moreover, by analyzing captured
customer communications, companies can gain insight into customer preferences
to create new revenue opportunities.

To help address online customer service shortcomings, companies are beginning
to adopt technologies to help them manage email and other forms of online
customer communication. The market for these products is growing rapidly. IDC
estimates that worldwide license revenues for eCommerce customer service and
support applications will grow from $42 million in 1998 to $1.6 billion by
2002.

Existing Customer Service Approaches Are Insufficient

The market for online customer service software applications has developed
mainly because existing approaches to online customer service are typically
unable to effectively handle large volumes of email. Traditional client-server
customer service systems were designed primarily to manage telephone call
center operations and are typically expensive and difficult to deploy and
maintain. Recognizing this, many companies engaged in eCommerce, particularly
companies that came early to the Internet, have developed in-house solutions
for customer service email management. These internally developed approaches,
while customized to fit a company's needs, can also be expensive and time-
consuming to develop and maintain. Furthermore, many in-house systems have
difficulty scaling to keep pace with the rapid expansion of eCommerce.

More recently, several vendors have developed point solutions, or software
packages to handle specific online customer service needs, such as email
management, real-time Web collaboration or self-service. However, these point
solutions often do not work well with each other or integrate easily with a
company's existing legacy system. This lack of integration makes them expensive
to implement and maintain. As a result, there is an increasing need for an
online customer service platform that offers applications that can handle
multiple channels of communication, scale to meet growing Internet-based
communication needs and integrate easily with a company's existing legacy
systems.

The Trend Toward Hosted Customer Service Applications

As the number of software business applications grows and their technological
complexity increases, many companies are recognizing the benefits of the hosted
application service model. Under a typical application hosting arrangement, a
company can enjoy the business benefits of an application without having to
devote the resources to install, maintain and continually upgrade it. These
functions are performed instead by the application hosting provider. The recent
evolution of the Internet into a relatively secure and reliable network has
increased the demand for hosted applications. Also, there is a new generation
of software applications that has been designed specifically to run in a Web-
based environment. Finally, the recent emergence of global physical hosting
providers has created the connectivity and co-location facilities required to
support these applications. The convergence of these trends has led to the
growing appeal of the hosted model today.

The Web-based application hosted model is appropriate for customer service
applications for several reasons. The hosted option allows businesses engaged
in eCommerce to deploy a customer service solution rapidly without using
valuable internal resources. In addition, many companies doing

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business over the Internet rely on geographically dispersed customer service
departments to meet their rapidly growing, 24-hours, 7-days a week customer
needs. The hosted model provides the network security and ease of maintenance
that are crucial to these companies. Finally, many of these companies prefer to
outsource the management and maintenance of customer service applications and
instead focus on developing proprietary customer service processes and content.
For these reasons, we believe that hosting is becoming a preferred delivery
model for eCommerce customer service applications.

The eGain Solution

We provide our customers with a Web-based customer service platform that can
be delivered either as a hosted application service or as in-house software.
Our solution helps companies route, track and respond to high volumes of
customer email and Web form inquiries and allows customer service
representatives to provide real-time online assistance to these customers. Our
applications work together with a company's existing customer service and
database software to provide customer service representatives with
comprehensive information about each customer. We provide our solutions to
businesses seeking to use their customer support capabilities as a competitive
tool to convert Web site visitors to buyers, build lasting customer
relationships and generate incremental revenue. Our customers realize both
strategic and operating benefits of our solution.

Strategic Benefits

Strengthen Customer Relationships. Our eGain Email Management System, or
eGain EMS, is a software application that allows our customers to respond
rapidly and effectively to large volumes of email. Based on business rules set
by our customers, eGain EMS can automatically respond to customer emails or
route each inquiry to an appropriate customer service representative for
personalized attention. The combination of a timely, automated response and
personalized attention improves customer satisfaction and helps build lasting
customer relationships.

Convert Web Site Visitors to Buyers. Our eGain Web Collaboration System, or
eGain WCS, facilitates real-time online communication between the customer and
a company's customer service organization. Online visitors can interact
directly with a company's customer service representative and inquire about a
potential purchase. This personalized and immediate interaction increases the
likelihood that a Web site visitor will complete a purchase.

Scale to Meet Growing eCommerce Demands. Many companies find that their
customer service infrastructure is unable to handle the higher volume and
complexity of customer communication. Our architecture allows us to
incrementally add hardware capacity to address increased customer communication
volume. Whether provided through our hosted network or deployed in-house, our
products provide a customizable solution to the growing business needs of our
customers.

Rapidly Deployable Solution. Our platform is designed to allow business to
quickly deploy customer service capabilities as an application service through
our eGain Hosted Network. Also, our applications can be rapidly customized
through Web-based interfaces.

Gain Customer Insight. Our solution enables companies to capture and analyze
customer communications in order to understand the needs and preferences of
their customers. This understanding can provide a company with a competitive
advantage when targeting customers for

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future promotions and cross-selling opportunities. In addition, comprehensive
knowledge of a customer's needs and preferences can be used strategically to
enhance a company's product offerings.

Operating Benefits

Maximize Productivity of Customer Service Organization. By using the
productivity tools on our platform, customer service representatives can
respond rapidly to complex customer inquiries. Our tracking and workload
reporting features enable supervisors to monitor service levels and agent
productivity. Our customizable workflow capability allows managers to improve
team performance by intelligently distributing workload.

Reduce Cost and Administrative Burden. Customers using the eGain Hosted
Network recognize cost efficiencies by eliminating the need to manage and
administer in-house customer service applications. Moreover, by increasing
productivity, our applications enable companies to reduce personnel costs
associated with their customer service functions.

Integrate Applications to Provide Comprehensive Customer Information. Our
applications are based on open standards and can be integrated easily with
leading eCommerce platforms, call center systems and customer databases. This
integration enables customer service representatives to combine information
from multiple applications to provide customer service representatives with
comprehensive customer information.

The eGain Strategy

Our objective is to be the leading provider of customer service
infrastructure for businesses engaged in eCommerce. Our strategy for achieving
this objective includes the following elements:

Capitalize on First Mover Advantage and Extend Brand Recognition. We were the
first company to offer a platform for Internet-based customer service both as a
hosted application service and as installed software. In addition, we were the
first to offer a customer service platform incorporating both email management
and Web-based collaboration. Having invested early in advertising our solution
and building our brand, we intend to capitalize on our first mover advantage
and extend our brand recognition to become the de facto standard for Internet-
based customer service solutions.

Expand the eGain Hosted Network. We believe that the benefits of the eGain
Hosted Network offer compelling advantages over competing alternatives. These
advantages include the ability to leverage eGain's expertise, easy scalability,
low up-front costs, fast deployment, system security and 24-hour, 7 days-a-week
support. We plan to expand hosting centers in California and add centers in New
York, London and other cities to meet customer needs.

Introduce Value-Added Products. We intend to differentiate ourselves in the
customer service market by adding new products to our platform. For example, we
recently added the eGain WCS, which allows businesses to offer personalized
live online assistance to visitors on their Web site. In the future, we intend
to enhance our platform by leveraging new technologies, such as voice over
Internet Protocol, or voice over IP, which enables voice communications to take
place over the Internet.

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Expand Strategic Relationships. We intend to enter into strategic
relationships that can assist us in marketing and distributing our products.
We plan to expand existing and enter into new strategic relationships with
external hosting partners, front office software companies, outsourced call
center companies and systems integrators focused on eCommerce.

Expand Our International Presence. In addition to expanding our domestic
marketing efforts, we intend to expand internationally. We have recently
formed a subsidiary in the United Kingdom. We have also commenced product
localization efforts for some European and Asian languages. We intend to
capture international market share by marketing overseas, establishing
additional sales offices and developing strategic relationships.

Products and Services

We provide customer service infrastructure for companies engaged in
eCommerce. Our solutions are built on a scalable, Web-based architecture
designed to meet the growth in Internet-based communications. Our products are
built on technologies that are based on industry standards and are therefore
designed to integrate with existing customer databases and applications.

Our two primary Web-based applications, eGain EMS and eGain WCS, are
designed to manage the high volume and complexity of online customer
communication, including email and live interactions on the Web. Our
applications are available to our customers both as a hosted application
service and as installed software. Although each application may be purchased
separately, our applications are designed to work closely with one another and
to integrate into a company's existing software architecture.

Product and Service Offerings

. eGain Email Management System (eGain EMS) -- an application that helps
companies route, track and respond to high volumes of customer email and
Web form inquiries.

. eGain Web Collaboration System (eGain WCS) -- an application that allows
customer service representatives to provide live assistance to customers
through real-time Web interaction.

. eGain eCommerce Bridge -- an application-linking module that enables
rapid integration of eGain EMS with external eCommerce platforms, call
centers and customer databases.

. Professional Services -- includes application management services,
security services and customer support services.

Flexible Deployment

. eGain Hosted Network -- a company may access our solution through the
eGain Hosted Network, a network of eGain service centers and hosting
partners linked by high speed Internet connections designed to host our
customer service applications.

. In-house installation -- a company may implement our solution in-house
and either maintain the application internally or outsource management of
the application to eGain.

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The following provides an overview of our products and services:

[A graphic depicting the various components of the eGain product
and service offerings appears here. Graphic includes eGain
applications, eGain Web Component Architecture, eGain Hosted Network
and eGain Commerce Bridge. ]

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eGain Application Platform

eGain EMS

eGain EMS is a Web-based application that enables customer service
departments to route, track and respond to high volumes of customer email and
Web form inquiries. Using eGain EMS, companies can maintain a comprehensive
customer communication history and improve customer satisfaction with prompt
and effective responses. eGain EMS is designed to scale to the customer service
needs of any company engaging in eCommerce, regardless of size.

Companies using eGain EMS receive emails and Web form inquires from their
email servers or Web sites. Based on business rules selected by the company,
these emails are categorized using a form of artificial intelligence technology
called statistical vector analysis. Once categorized, eGain EMS will send an
automated response or route the email to the appropriate customer service
representative with suggested responses. The customer service representative
can use our productivity tools to access relevant customer-related information
and prepare an effective response. Supervisors use our Web-based monitoring
capability to set performance levels and track service levels. Managers use our
flexible, Web-based reporting system to monitor workload, analyze trends in
customer communications and forecast resource needs. Finally, businesses can
use customer information captured in our system using our direct mail manager,
a system that helps create and target personalized mailings based on customer
attributes. This proactive, targeted customer communication helps strengthen
customer relationships and provides new revenue opportunities.

[Download Table]

Feature Description Benefits

Email Processing . Tracks all inbound and . Maintains complete
and outbound email customer
Categorization . Develops Web forms to link communication history
to email . Increases effectiveness
. Categorizes communications of responses to customer
using inquiries
predetermined instructions

--------------------------------------------------------------------------------

eGain Artificial . Uses statistical vector . Enables routing and
Intelligence analysis, a robust automatic response by
artificial intelligence reading incoming email
technology, to "read" and
determine the substance of
incoming emails

--------------------------------------------------------------------------------

Powerful Workflow. Specifies instructions for . Routes each inquiry to
email routing appropriate CSR
. Pre-built instruction . Enables better workflow
library for various call decisions based on
center functions, including enhanced knowledge about
load-balancing, skill-based customers
routing, shift management
and quality of service
management

--------------------------------------------------------------------------------
Knowledge . Searchable knowledge base . Continually gathers,
Database . Content can be dynamically reviews and disseminates
constructed from foreign knowledge efficiently
data sources . Allows CSRs to use the
. Real-time system-wide most current information
knowledge update to respond to issues

--------------------------------------------------------------------------------

Customer Service . Customizable high-speed Web . Increases CSR
Representative interface productivity
(CSR) . Provides suggested . Improves customer
Productivity responses, response satisfaction with prompt
Tools templates, group email and effective responses
reply, multiple-issue
emails, customer search
capability and audit trails

--------------------------------------------------------------------------------

System Monitoring. Web-based interface for all . Enables supervisors to
and system monitoring customize, set
Administration and administration performance levels and
. Monitors system load, agent monitor with "point-and-
productivity and service click" ease
levels

--------------------------------------------------------------------------------

Enterprise . Real-time and historical . Allows administrators to
Management reports plan system capacity
Reporting . Preconfigured and using workload reports
customizable reports . Enables company to
. Archived reports for analyze trends in
analysis and forecasting customer communication
. Scheduled report delivery
through email

--------------------------------------------------------------------------------

Direct Mail . Creates personalized content . Enables companies to
Manager and targets email based on conduct targeted
customer attributes promotions, proactively
. Captures responses and links address customer concerns
to mailings to monitor and survey customer
efficacy satisfaction

--------------------------------------------------------------------------------

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eGain WCS

eGain WCS enables customer service representatives to answer customer
questions and provide interactive assistance over the Web using browser
sharing, text chat and assisted form-filling technology. Through eGain WCS, a
user is able to communicate with a customer service representative by simply
clicking a hyperlink on a company's Web site, which in turn prompts a customer
service representative to reply. Once connected, the customer service
representative and the customer can engage in a real-time online conversation.
The agent has access to comprehensive information about the customer's past
activity and browsing patterns. eGain WCS integrates with leading eCommerce
platforms, call center systems, computer telephony integration software,
customer databases and customer relationship management systems. eGain WCS is
designed to allow customer service representatives to handle multiple customer
interactions simultaneously, thereby reducing costs associated with traditional
call centers while delivering personalized service.

[Download Table]

Feature Description Benefits

Real-Time . Presents a real-time . Provides valuable
Collaboration interface optimized for the information to help close a
customer's specific platform sale
. CSR console displays the . Enables CSR to escort the
customer's profile along with customer through pre- or post-
a tracking summary of the sales situations
customer's activity on the Web
site
-----------------------------------------------------------------------------------
Queuing and . Tracks customers as they . Queuing helps company route
Profiling interact with specific pages the inquiries to appropriate
. Displays the hyperlinks to CSRs
pages visited by customer . Profiling collects customer
information before a CSR
addresses an inquiry
-----------------------------------------------------------------------------------
Monitoring, . Generates a summary screen . Enables managers to run
Reporting & at the end of a WCS session reports on customers and
Administration . Emails customer a transcript access customer profiles and
of the session, including all session transcripts
text chat and hyperlinks . Enables managers to audit
shared agent performance and
. Stores session information establish effective staffing
into a database policies
-----------------------------------------------------------------------------------
WorksEverywhere . Patent-pending technology . Does not require downloading
that matches customers or installation of software
browsing platforms with
appropriate real-time
interaction method
. Works on browsers and . Offers live customer service
through firewalls and proxy to a broad customer base
servers

eGain eCommerce Bridge

The eGain eCommerce Bridge allows eGain EMS to be easily linked with leading
eCommerce platforms, call center systems and customer databases. This allows
customer service representatives to get a complete profile of the customer by
pulling information from other systems, enabling them to formulate an informed,
personalized response by drawing on prior interactions with the customer. In
addition, the eCommerce Bridge can be used to update existing customer
databases with relevant customer information extracted from eGain EMS. We are
in the process of enhancing the eGain eCommerce Bridge to interface with eGain
WCS. We intend to enable remote application integration by implementing XML-
based interfaces. This remote integration capability would allow our hosted
customers to access their valuable customer information residing in in-house
applications behind corporate firewalls.

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We offer several pre-built adaptors that connect into our eCommerce Bridge to
link eGain applications with a variety of eCommerce platforms, call center
systems and relational databases. These adaptors minimize the need for custom
programming to integrate eGain applications with other enterprise software. We
currently offer adaptors for Microsoft Site Server (Commerce Edition) and
Remedy Action Response System, Siebel Systems Siebel 99, Intershop 3, Oracle
relational databases and ODBC-compliant databases. In the future, we intend to
continue to develop, as well as enable our partners to develop, adaptors to
other leading enterprise applications and call center solutions.

Professional Services

As of August 15, 1999, we had 38 professionals dedicated to providing a wide
range of professional services for application management, solution
development, system installation and training.

Our operations group provides application management services that offer a
24-hour, 7-days-a-week application response monitoring service. We also provide
database services to maintain and enhance the performance, availability and
reliability of production systems. Finally, we offer network security services
to prioritize, assess and address the security concerns of customers at
different levels based on their needs.

Our consulting group offers solution development and system integration
services. The team works with our customers to understand their specific
requirements, analyze their business needs and implement an integrated solution
based on the eGain customer service platform. The eGain eCommerce Bridge and
our industry expertise allow us to integrate enterprise-wide systems with our
customer service solutions. We provide these services ourselves or in
partnership with system integrators who have built consulting expertise on our
platform and can implement complete solutions for our clients.

Our installation group offers rapid implementation services designed to have
a customer up and running quickly. The installation teams are involved in
client engagement, needs assessment, EMS configuration, training and
activation.

Flexible Deployment

We offer our customer service solutions both as a Web-based hosted service
through our eGain Hosted Network and as a licensed software product that can be
implemented and maintained in-house.

eGain Hosted Network

Through a network of eGain service centers and hosting partners linked by
high-speed Internet connections, we provide our customers with multiple
redundant paths to access their hosted customer service applications. We
remotely manage these applications which reside on server machines co-located
at our hosting partners' facilities. We believe the eGain Hosted Network
provides a compelling alternative for companies engaged in eCommerce that seek
to quickly deploy and efficiently scale their customer service capabilities. We
have strategically located eGain service centers in Sunnyvale (Silicon Valley),
London and New York. We select our co-location partners with a view to
providing high bandwidth availability, peering arrangements with other Internet
service providers and global presence. As part of our eGain Hosted Network, we
offer value-added services for application management, database maintenance,
mail hosting and anti-virus protection.

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We have invested early to build a scalable hosted network, and have recruited
experienced operations personnel to maintain the system effectively. For
example, our service centers are linked through dedicated high-speed
connections to the co-location centers to provide our customers with multiple
redundant paths to access their hosted customer service applications. In the
event one of these links fails, user traffic can be quickly rerouted for
continued operations. We have also developed proprietary Web-based hosted
service management systems, enabling our service professionals to efficiently
administer and manage large numbers of hosted customer applications. For
example, we have developed Web-based software tools to monitor application
response and system health.

[Graphic depicting architecture of the eGain Hosted Network appears
here. Graphic depicts the relationships between eGain, its customers
and its hosting partners in the eGain Hosted Network.]

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Sales and Marketing

Sales Strategy

We sell our customer service solutions either as a subscription-based hosted
service or as a licensed software product for installation in-house. We sell
primarily through a worldwide direct sales organization and target our sales to
companies seeking to improve customer relations and increase their eCommerce
activities.

During our sales process, we typically approach the head of customer service
of the organization. In smaller companies, our sales personnel, working closely
with the sales engineers, make product demonstrations and presentations to
address a customer's needs. In larger accounts, we often engage our
professional services team, and in some cases, strategic partners to create
customer-specific demonstrations, presentations and proposals.

As prospective customers proceed towards selecting our products and services,
our professional services team manages the project and may work with outside
system integrators to facilitate timely deployment. Our services team delivers
customer and partner training through lectures, demonstrations, discussions and
hands-on use of our solutions. Following implementation, our account managers
work with the customers to identify and serve their ongoing needs, freeing up
our sales professionals to focus on new business opportunities.

Marketing Strategy

Our marketing strategy is to continue to build brand awareness of eGain as a
leading provider of customer service infrastructure solutions for eCommerce. We
focus our marketing efforts on dedicated Internet companies as well as
traditional companies seeking to take advantage of the commercial opportunities
presented by eCommerce.

We rely on a range of available marketing avenues to pursue our objectives,
including print advertisements, email newsletters, Internet advertisements,
billboards, telemarketing, targeted direct mailing and a variety of trade
shows, seminars and interest groups.

Our marketing group assists our sales team by providing them with product
collateral materials, customer case studies, market surveys and customer
profiles. In addition, our marketing group helps identify and develop key
partnership opportunities and channel distribution relationships.

As of August 15, 1999, we had 40 sales and marketing professionals, including
sales engineers, major account representatives and channel/partner salespeople.
Our sales personnel are located in New York City, Washington DC, Minneapolis,
Toronto, Dallas, Los Angeles, Denver, Seattle and Sunnyvale. We plan to open
new sales offices and expand our direct sales force.

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Customers

We have over 100 customers, which include both dedicated Internet companies
and Fortune 1000 companies that have established a commercial Web site. The
following is a representative list of companies that have entered into
agreements to install eGain EMS or eGain WCS:

Internet Searching and
Computer Technology and Networking Auctions
Microsoft WebTV DoughNET
RealNetworks eGuard
Transition Networks FairMarket

Go2Net
Consumer e-Retail Looksmart
Chapters.ca MediaRing.com
Cooking.com Talk City
Digital Chef ONElist
HMV Canada Six Degrees
Internet Shopping Network Snap.com
KB Toys Winebid.com

PlanetRx
Shopping.com Financial Services
Tucows Consumer Financial Network

i-Escrow
Customer Service Centers Nova Information Systems
Brigade Solutions Quote.com
PanAmerican Call Centers Suretrade
Sykes Enterprises Wingspan Bank

Manufacturing
Mazda USA

Customer Support

We provide customer support to our hosted customers on a 24-hour, 7-days-a-
week basis as part of the basic monthly hosting license fee. In addition, we
offer customers that license our applications and deploy them in-house the
option of purchasing customer support services for an annual fee. Our customer
support professionals refer complex customer issues as needed to our internal
technical support group, to diagnose and solve. Our customer support
representatives use the eGain EMS applications to manage telephone- and email-
based customer inquiries.

Strategic Relationships

We intend to develop strategic relationships which we believe will add
capabilities to our current product offering as well as help market our
products to new customers. Specifically, we seek to establish relationships
with distribution, hosting and solution providers.

Distribution. We intend to continue working with companies, both domestic and
international, to help us identify and close new customer opportunities and
expand market share. We intend to develop arrangements with call center
providers that require assistance in handling email and other Internet-based
customer inquiries for their clients. We also intend to distribute our products
in partnership with leading systems integrators and front office software
companies.

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Solution. We have worked with companies such as Inference, Microsoft, Oracle,
Remedy Corporation and Siebel Systems to ensure that our products can be
integrated easily with the database servers, front office software
applications, and other products they provide.

Hosting. The eGain Hosted Network is enabled by relationships with various
hosting providers that supply the database and connectivity hardware that
supports our applications. We currently have arrangements with AboveNet
Communications and Frontier GlobalCenter, two leading providers of managed co-
location and Internet connectivity. These hosting partners serve as data
centers that, in conjunction with eGain's information systems specialists,
guarantee redundant network and server infrastructure for continuous, 24-hour,
7-days-a-week availability of our applications to our hosted customers.

Competition

The market for eCommerce customer service solutions is relatively new and
growing rapidly. We expect the level of competition in this evolving market to
intensify in the future, as new and existing competitors seek to provide
products and services for our market.

Our current principal competitors for our licensed software products include:

. Brightware, Inc.,

. Kana Communications, Inc.,

. Mustang Software, Inc.,

. Silknet Software, Inc. and

. Webline Communications Corp.

While we were the first company to offer a customer service applications
platform in a hosted environment, some of our competitors for licensed software
products are now beginning to offer hosted approaches.

We also face competition from larger, front office software companies such
as:

. Clarify, Inc.,

. Oracle Corporation,

. Siebel Systems, Inc. and

. The Vantive Corporation.

In the future, we may face competition from established software companies such
as IBM, Hewlett-Packard, Microsoft and others that may seek to enter the market
for eCommerce customer service solutions.

We believe that the principal competitive factors affecting our market are
product features; product performance, including scalability, flexibility and
availability, price, quality of support and service and brand reputation. We
believe that our products currently compete favorably with respect to these
factors; however, our market is evolving rapidly, and we expect to face
increased competition for our product offerings. Some of our competitors have,
and our future competitors may have, longer operating histories, larger
customer base, greater brand recognition and significantly

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greater financial, marketing, technical, support and other resources. Some of
these competitors may be able to devote greater resources to marketing and
promotional campaigns, adopt more aggressive pricing policies or devote
substantially greater resources to product development.

We may not be able to compete successfully against our current and future
competitors. See "Risk Factors--We must compete successfully in the eCommerce
customer service market."

Technology

All of our software products are built on a standards-based, scalable
architecture designed to address the evolving needs of companies engaged in
eCommerce. Specifically, our software is based on our proprietary eGain Web
Component Architecture, or eGain WCA, an open, scalable framework for software
design that builds upon three industry trends:

. widespread availability of reliable Internet connectivity to businesses,
which is enabling the delivery and management of hosted applications over
the Internet;

. investment in Internet technologies, which is driving development of new
Web applications that natively incorporate powerful and flexible
protocols; and

. the success of component-based software development models which provide
the tools for developing robust distributed software applications.

Our eGain WCA is a more scalable approach to application design compared to
traditional client-server or three-tier architectures. For example, in contrast
to client-server or three-tier architectures that require the download and
maintenance of dedicated client-side software, our eGain WCA does not require
the download of any client software. This allows use of the application from
anywhere across the Internet through a standard Web browser. In contrast to
traditional monolithic server-side applications where scalability meant buying
the fastest server machines with maximum memory, the eGain WCA adopts a divide-
and-conquer approach by using distributed processing in a modular hardware
environment.

The component-based software model of our eGain WCA makes it more fault-
resilient and flexible than traditional architectures. Each component can be
diagnosed and monitored independently, and the overall system does not stop if
there is a problem with an individual component. Moreover, each independent
software component can be readily swapped out or augmented to meet the specific
needs of customers.

Our eGain WCA organizes software into logical layers: Presentation,
Application, Service, Object and Data. Each layer consists of software
components that implement specific tasks, and each component offers a well-
defined external programming interface. In addition, each layer includes as an
option a management service that oversees the activities of the components
within that layer. This modular approach facilitates customization and provides
flexibility for future enhancements.

. Presentation Layer. The Presentation Layer localizes the look and feel
logic of the user interface so that customization of the user interface
can be easily managed. Our user interface can be accessed through
standard browsers.

. Application Layer. The design of the Application Layer offers high
reliability and scalable performance by balancing and allocating workload
across multiple application servers.

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. Service Layer. The Service Layer comprises the core set of independent
services that receive, parse, route and dispatch emails. The eGain
service manager monitors all the service instances in real-time, alerting
the system administrator of any performance bottlenecks.

. Object Layer. The Object Layer allows new types of business objects to be
added as needed to handle richer customer service models. This layer
presents to the Application and Service Layers a logical view to system
data in the form of business objects such as a ticket, user, customer and
message.

. Data Layer. The Data Layer allows for greater database portability by
insulating the objects from vendor specific difference across databases.
This layer manages the data access across various data sources and
maintains connection pools for efficiency.

Intellectual Property

We regard our copyrights, service marks, trademarks and similar intellectual
property as critical to our success. We rely on patent, trademark, copyright,
trade secret and other laws to protect the proprietary aspects of our
technology and business. We have no patents to date. We presently have one
patent pending for our WorkEverywhere technology that matches customers'
browsing platform with appropriate real-time interaction method. We also have
several trademark applications pending. Our trademarks include:

. eGain,

. eGain EMS,

. eGain WCS,

. eGain Hosted Network and

. eGain eCommerce Bridge.

We will continue to assess appropriate occasions for seeking patent and other
intellectual property protections for those aspects of our technology that we
believe constitute innovations providing significant competitive advantages.
The pending and any future applications may or may not result in the issuance
of valid patents and trademarks.

We routinely require our employees, customers, and potential business
partners to enter into confidentiality and nondisclosure agreements before we
will disclose any sensitive aspects of our products, technology, or business
plans. In addition, we require employees to agree to surrender to eGain any
proprietary information, inventions or other intellectual property they
generate or come to possess while employed by us. Despite our efforts to
protect our proprietary rights through confidentiality and license agreements,
unauthorized parties may attempt to copy or otherwise obtain and use our
products or technology. These precautions may not prevent misappropriation or
infringement of our intellectual property.

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intellectual property rights of third parties. Intellectual property litigation
is expensive and time-consuming and could divert management's attention away
from running our business. This litigation could also require us to develop
non-infringing technology or enter into royalty or license agreements. These
royalty or license agreements, if required, may not be available on acceptable
terms, if at all, in the event of a successful claim of infringement. Our
failure or inability to develop non-infringing technology or license the
proprietary rights on a timely basis would harm our business.

Employees

As of August 15, 1999, we had 155 full-time employees, including 49 in
research and development, 47 in services, 40 in sales and marketing and 19 in
general and administrative. None of our employees are covered by collective
bargaining agreements. We believe our relations with our employees are good.

Legal Proceedings

We are not a party to any material legal proceeding. We may be subject to
various claims and legal actions arising in the ordinary course of business.

Facilities

Our corporate headquarters are located in Sunnyvale, California, where we
occupy approximately 46,000 square feet under a lease expiring in September
2001. We also maintain a direct operating presence through offices in New York
City and London. We believe our facilities will be adequate to meet our
requirements for at least the next 12 months.

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MANAGEMENT

Directors, Executive Officers and Key Employees

Our directors, executive officers and key employees and their ages as of
August 15, 1999 are as follows:

[Enlarge/Download Table]

Name Age Position
---- --- --------

Ashutosh Roy............ 33 Chief Executive Officer and Chairman
Gunjan Sinha............ 32 President and Director
Harpreet Grewal......... 32 Chief Financial Officer
Robert Apollo........... 44 Vice President and General Manager of European Operations
Ravinder Grewal......... 37 Vice President of Services
Ram Kedlaya............. 40 Vice President of Products
Stephen E. Klann........ 55 Senior Vice President of Sales
Wendell W. Lansford..... 30 Vice President of New Business Initiatives
Prakash Mishra.......... 30 Vice President of Technology
Ryan M. Rosenberg....... 38 Vice President of Marketing
Eric N. Smit............ 37 Vice President of Finance and Administration
A. Michael Spence
(1)(2)................. 55 Director
Mark A. Wolfson(1)(2)... 46 Director

--------
(1) Member of audit committee.
(2) Member of compensation committee.

Ashutosh Roy co-founded eGain and has served as Chief Executive Officer and a
director of eGain since September 1997. From May 1995 through April 1997, Mr.
Roy served as Chairman of WhoWhere? Inc., an Internet-service company co-
founded by Mr. Roy. From June 1994 to April 1995, Mr. Roy co-founded Parsec
Technologies, a call center company based in New Delhi, India. From August
1988, to August 1992, Mr. Roy worked as Software Engineer at Digital Equipment
Corp. Mr. Roy holds a B.S. in Computer Science from the Indian Institute of
Technology, New Delhi, a Masters degree in Computer Science from Johns Hopkins
University and an MBA from Stanford University.

Gunjan Sinha co-founded eGain and served as a director of eGain since
inception in September 1997 and as President of eGain since January 1, 1998.
From May 1995 through April 1997, Mr. Sinha served as President of WhoWhere?
Inc., an Internet-services company co-founded by Mr. Sinha. Prior to co-
founding WhoWhere? Inc., Mr. Sinha was a developer of hardware for
multiprocessor servers at Olivetti Advanced Technology Center. In June 1994,
Mr. Sinha co-founded Parsec Technologies. Mr. Sinha holds a degree in Computer
Science from the Indian Institute of Technology, New Delhi, a Masters degree in
Computer Science from UC Santa Cruz, and a Masters degree in Engineering
Management from Stanford University.

Harpreet Grewal has served as Chief Financial Officer of eGain since July
1999. From November 1998 to July 1999, Mr. Grewal served as Chief Financial
Officer of Pepsi-Cola's North American Fountain Beverage Division. From April
1996 to October 1998, Mr. Grewal held various positions in PepsiCo's Corporate
Strategy and Development Group. From August 1995 to March 1996, Mr. Grewal
worked for International Equity Partners, a private equity firm. Mr. Grewal
holds a Masters degree in International Studies from the Johns Hopkins School
of International Studies and a B.A. in Economics from the University of
California, Berkeley.

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Robert Apollo has served as Vice President and General Manager of European
Operations of eGain since June 1999. From July 1998 to May 1999, Mr. Apollo
served as Vice President, European Operations of Sterling Commerce, an
eCommerce software and services provider. From June 1996 to July 1998, Mr.
Apollo served as Vice President and Managing Director, International, of
XcelleNet Limited, a remote and mobile systems management vendor. From February
1990 until March 1996, Mr. Apollo held various positions at The Santa Cruz
Operation, Inc. and most recently served as Vice President of Marketing for
Europe, Middle East and Africa of The Santa Cruz Operation, Inc. Mr. Apollo
holds a B.A. in Business Studies from Thames Valley University (formerly known
as Ealing College of Higher Education).

Ravinder Grewal has served as Vice President, Worldwide Professional Services
since March 1999. From January 1998 to February 1999, Mr. Grewal served as a
director of Documentum, an enterprise document management software company.
From February 1997 to January 1998, Mr. Grewal served as Vice President,
Consulting for Workgroup Management, Inc., a knowledge management consulting
firm that was acquired by Documentum in January 1998. From May 1995 to February
1997, Mr. Grewal served as Senior Project Director of MCI Systemhouse, a
telecommunications company. From January 1994 to May 1995, Mr. Grewal served as
Director of KPMG/Kanbay Resources (HK) Ltd., a management consulting company.
Mr. Grewal holds a B.S. in Computer Science from the University of California,
Berkeley.

Ram Kedlaya has served as Vice President, Products, of eGain since December
1998. From August 1992 to March 1998, Mr. Kedlaya was a co-founder of NUKO
Information Systems, a provider of networking products and solutions for
broadband network service providers. Mr. Kedlaya served in several positions at
NUKO, most recently as a Vice President, Strategic Planning. Mr. Kedlaya holds
an M.S. in Computer Science from the University of Texas, Austin and a B.S.
from the Indian Institute of Technology, Madras.

Stephen E. Klann has served as Senior Vice President of Sales of eGain since
July 1999. From May 1998 to July 1999, Mr. Klann served as Vice President of
Sales of eGain. Prior to joining eGain, Mr. Klann spent 13 years with Honeywell
Information Systems and 3 years with Wang Labs in various sales management
positions. He then spent 5 years as Vice President of Sales for Interleaf, 3
years as Vice President of Sales and Marketing for Frame Technology and 2 years
as President and CEO of IXI Software Corporation. Over the past 5 years and
just prior to joining eGain, Mr. Klann has been serving in long-term Vice
President capacities as a consultant from State of the Art, Open Text, Thinking
Tools and ShareData.

Wendell W. Lansford has served as Vice President of New Business Initiatives
of eGain since May 1999. From September 1996 to May 1999, Mr. Lansford served
as President and Chief Executive Officer of Sitebridge Corporation, an
ECommerce customer service software company which was acquired by eGain. From
March 1995 to September 1996, Mr. Lansford served as Director of Technology of
CondeNet, the Internet division of Conde Nast Publications. From September 1994
to March 1995, Mr. Lansford served as Partner of Lancomp, a systems integration
and consulting firm. From May 1991 to September 1994, Mr. Lansford served as
Member of Technical Staff of Bellcore, a telecommunications research firm which
was recently renamed Telcordia. Mr. Lansford holds a Masters degree in
Information Networking from Carnegie-Mellon University, and a B.S. in
Electrical Engineering from the University of Tulsa.

Prakash Mishra has served as Vice President of Technology of eGain since May
1999. From September 1996 to May 1999, Mr. Mishra served as Chief Technology
Officer and Executive Vice

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President of SiteBridge Corporation, an eCommerce customer service software
company. From August 1994 to September 1996, Mr. Mishra served as Associate in
Fixed Income Research at Goldman, Sachs & Co. From January 1994 to August 1994,
Mr. Mishra served as Principal of Internet Consulting Corporation, a New York-
based Internet business consultancy. Mr. Mishra holds a Masters degree in
Information Networking from Carnegie-Mellon University, and a B.S. in Computer
Engineering from Rensselaer Polytechnic Institute.

Ryan M. Rosenberg has served as Vice President of Marketing of eGain since
June 1998. From June 1996 to June 1998, Mr. Rosenberg served as Director of
Product Marketing for Symantec Corporation, a business and personal software
company. From November 1993 to June 1996, Mr. Rosenberg served as a Product and
Senior Product Manager for Symantec. Mr. Rosenberg holds a B.S. in Computer
Science from Michigan State University, and an M.B.A. in Marketing from the
University of California, Los Angeles.

Eric N. Smit has served as Vice President, Finance and Administration of
eGain since June 1999. From June 1998 to June 1999, Mr. Smit served as Director
of Finance of eGain. From December 1996 to May 1998, Mr. Smit served as
Director of Finance for WhoWhere? Inc., an Internet services company. From
April 1993 to November 1996, Mr. Smit served as Vice President of Operations
and Chief Financial Officer of Velocity Incorporated, a software game developer
and publisher company. Mr. Smit holds a Bachelor of Commerce in Accounting from
Rhodes University, South Africa.

A. Michael Spence has served as a director of eGain since July 1999. Since
1990, Dr. Spence has served as Dean of the Graduate School of Business at
Stanford University. From 1984 to 1990, Dr. Spence served as Dean of Faculty of
Arts and Sciences at Harvard University. Dr. Spence also serves as a director
of General Mills, Inc., Nike, Inc., Siebel Systems, Inc., Sun Microsystems,
Inc., ITI Education Corporation and Torstar Corporation. Dr. Spence received a
B.A. in Philosophy from Princeton University, a B.A. and an M.A. in Mathematics
from Oxford University and a Ph.D. in Economics from Harvard University.

Mark A. Wolfson has served as a director of eGain since June 1998. Since
October 1998, Mr. Wolfson has served as a managing partner of Oak Hill Capital
Management, Inc. Prior to October 1998, Mr. Wolfson served as a principal of
Oak Hill Venture Partners, L.L.C. Since 1997, Mr. Wolfson has held the position
of professor at the Stanford University Graduate School of Business. Mr.
Wolfson holds a Ph.D. and a Masters degree from the University of Texas, Austin
and a B.S. from the University of Illinois.

Our Chief Financial Officer, Harpreet Grewal, and our Vice President of
Services, Ravinder Grewal, are brothers. There are no other family
relationships among any of our directors or executive officers.

Board Committees

Our board of directors has a compensation committee and an audit committee.
The compensation committee is responsible for determining salaries, incentives
and other forms of compensation for directors, officers and other employees of
eGain and administering various incentive compensation and benefit plans. Mark
Wolfson and Gunjan Sinha served as the compensation committee throughout the
last fiscal year. Mr. Wolfson and Mr. Spence are the current members of the
compensation committee. Ashutosh Roy, our chief executive officer, will
participate

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in all discussions and decisions regarding salaries and incentive compensation
for all employees and consultants of eGain, except that he will be excluded
from decisions regarding his own salary and incentive compensation.

The audit committee reviews our annual audit and meets with our independent
auditors to review our internal controls and financial management practices.
Mr. Wolfson and Mr. Roy served as the audit committee throughout the last
fiscal year. Mr. Wolfson and Mr. Spence are the current members of the audit
committee.

Director Compensation

Except for the grant of stock options, we do not currently compensate our
directors for their services as directors. Directors who are employees of eGain
are eligible to participate in our 1998 Stock Plan and our 1999 Employee Stock
Purchase Plan. In addition, we granted A. Michael Spence, a director of eGain,
an option to purchase 25,000 shares of our common stock. We also reimburse each
member of our board of directors for out-of-pocket expenses incurred in
connection with attending board meetings.

Executive Compensation

The following table provides summary information concerning compensation
earned by or paid to our chief executive officer and to each of our four other
most highly compensated executive officers whose total annual salary and bonus
exceeded $100,000, for services rendered in all capacities to eGain during the
fiscal year ended June 30, 1999. These individuals are referred to as the
"named executive officers."

Summary Compensation Table

[Download Table]

Annual Long-Term
Compensation Compensation
--------------- ------------
Security
Underlying
Name and Principal Position Salary Bonus Options (#)
--------------------------- -------- ------ ------------

Ashutosh Roy...................................... $100,008 $ -- --
Chief Executive Officer and Chairman
Gunjan Sinha...................................... 100,008 -- --
President
Stephen E. Klann.................................. 194,000 8,600 34,271
Senior Vice President of Sales
Ryan M. Rosenberg................................. 135,000 -- 145,000
Vice President of Marketing
Eric N. Smit ..................................... 105,381 -- 125,000
Vice President of Finance and Administration

424B4 54th Page of 106 TOC 1st Previous Next ↓Bottom Just 54th
Option Grants in Last Fiscal Year

The percentage of total options granted is based on an aggregate of 2,666,101
options granted in fiscal 1999. The exercise price on the date of grant was
equal to the fair market value on the date of grant as determined by the board
of directors. Options have a maximum term of 10 years subject to earlier
termination for specified events related to cessation of employment.

The 5% and 10%, assumed rates of appreciation are mandated by the rules of
the Securities and Exchange Commission and do not represent eGain's estimate or
projection of the future stock price. The values reflected in the table may
never be achieved. The dollar values have been calculated by determining the
difference between the fair market value of the securities underlying the
options at June 30, 1999 and the exercise prices of the options. Solely for
purposes of determining the value of the options at June 30, 1999, we have
assumed that the fair market value of shares of common stock issuable upon
exercise of options was $12.00 per share, the initial public offering price,
since the common stock was not traded in an established market prior to the
offering.

All of Mr. Klann's options were immediately vested in full. Both of Mr.
Rosenberg's options and Mr. Smit's option for 50,000 shares vest as to 25% of
the shares on the first anniversary of the vesting start date and 1/48 of the
shares each full month thereafter. Mr. Smit's option for 75,000 shares vests as
to 12/45 of the shares on the first anniversary of the vesting start date and
1/45 of the shares each full month thereafter.

[Enlarge/Download Table]

Potential Realizable
Value at Assumed
Percentage of Annual Rates of Stock
Total Options Exercise Price Appreciation for
Granted to or Base Option Term
Options Employees in Price Expiration -----------------------
Name Granted Fiscal 1999 ($/Share) Date 5% 10%
---- ------- ------------- --------- ---------- ----------- -----------

Ashutosh Roy............ -- --% $ -- -- $ -- $ --

Gunjan Sinha............ -- -- -- -- -- --

Stephen E. Klann........ 8,671 0.3 .10 10/9/08 168,077 267,635
8,400 0.3 .20 1/29/09 161,456 257,092
3,200 0.1 .20 3/19/09 61,507 97,940
10,400 0.4 .40 5/20/09 196,510 312,909
3,600 0.1 .50 6/18/09 67,436 107,381

Ryan M. Rosenberg....... 125,000 4.7 .10 7/31/08 2,422,981 3,858,192
20,000 0.8 .20 1/29/09 384,419 612,123

Eric N. Smit............ 75,000 2.8 .10 10/9/08 1,453,788 2,314,915
50,000 1.9 .50 6/18/09 936,614 1,491,402

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Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values

The following table assumes a per-share fair market value equal to the
initial public offering price of $12.00.

[Enlarge/Download Table]

Number of Unexercised Value of Unexercised
Options at Fiscal In-the-Money Options at
Shares Year-End Fiscal Year-End
Acquired Value ------------------------- -------------------------
Name on Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
---- ----------- ---------- ------------------------- -------------------------

Ashutosh Roy............ -- $ -- --/-- $ --/--

Gunjan Sinha............ -- -- --/-- --/--

Stephen E. Klann........ 68,271 677,123 14,000/-- 162,040/--

Ryan M. Rosenberg....... 145,000 1,433,500 --/-- --/--

Eric N. Smit............ 86,500 849,425 50,000/-- 575,000/--

Compensation Committee Interlocks and Insider Participation

The members of our compensation committee are currently Mark Wolfson and A.
Michael Spence. No interlocking relationship exists, or has existed in the
past, between the board of directors or compensation committee and the board of
directors or compensation committee of any other company.

1998 Stock Plan

Our 1998 Stock Plan was adopted by the board of directors in June 1998 and
will be amended and restated effective upon completion of this offering. Our
1998 Stock Plan provides for the grant of incentive stock options as defined in
Section 422 of the Internal Revenue Code to employees and the grant of
nonstatutory stock options and stock purchase rights to employees, non-employee
directors and consultants. A total of 3,500,000 shares of common stock has been
reserved for issuance under our 1998 Stock Plan as of June 30, 1999. In July
1999 an additional 3,000,000 shares of common stock were reserved for issuance
under our 1998 Stock Plan.

Our 1998 Stock Plan is administered by our compensation committee and our
non-insider option committee. Our compensation committee consists of at least
two directors who are "non-employee directors," as defined in Rule 16b-3. The
board of directors may amend our 1998 Stock Plan as desired without further
action by eGain's stockholders except as required by applicable law. Our 1998
Stock Plan will continue in effect until terminated by the board or for a term
of 10 years from its amendment and restatement date, whichever is earlier.

The consideration for each award under our 1998 Stock Plan will be
established by the compensation committee, but in no event will the option
price for incentive stock options be less than 100% of the fair market value of
the stock on the date of grant. Awards will have such terms and be exercisable
in such manner and at such times as the compensation committee may determine.
However, each incentive stock option must expire within a period of not more
than 10 years from the date of grant.

Generally, options granted under the 1998 Stock Option Plan vest over four
years, and are nontransferable other than by will or the laws of descent and
distribution. In the event of specified changes in control of eGain, the
acquiring or successor corporation may assume or substitute for options
outstanding under the 1998 Stock Option Plan, or these options will terminate.
Some options granted to our executive officers provide for partial acceleration
upon a change in control of eGain.

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As of August 20, 1999,

. 2,386,896 shares of common stock have been issued upon the exercise of
options; and

. 2,499,350 shares were available for future awards.

Sitebridge 1997 Stock Plan

Upon the closing of our acquisition of Sitebridge, we assumed outstanding
options to purchase shares of common stock of Sitebridge that became
exercisable for 1,114,016 shares of eGain common stock. As of August 20, 1999,
options to purchase 675,166 shares of common stock were outstanding under this
plan.

1999 Employee Stock Purchase Plan

The board of directors adopted our 1999 Employee Stock Purchase Plan in July
1999, to be effective upon completion of this offering. A total of 750,000
shares of common stock have been reserved for issuance under our employee stock
purchase plan. Our 1999 Employee Stock Purchase Plan, which is intended to
qualify under Section 423 of the Internal Revenue Code, is administered by the
board of directors or by a committee appointed by the board. Employees
(including officers and employee directors of eGain but excluding 5% or greater
stockholders) are eligible to participate if they are customarily employed for
more than 20 hours per week and for at least five months in any calendar year.
Our 1999 Employee Stock Purchase Plan permits eligible employees to purchase
common stock through payroll deductions, which may not exceed 15% of an
employee's compensation.

The board of directors will establish participation periods for our 1999
Employee Stock Purchase Plan, none of which will exceed 6 months. During each
participation period, payroll deductions will accumulate, without interest. On
the purchase dates set by the board of directors for each participation period,
accumulated payroll deductions will be used to purchase common stock. The
purchase price will be equal to 85% of the fair market value per share of
common stock on either the first day of the participation period or on the
purchase date, whichever is less. Employees may withdraw their accumulated
payroll deductions at any time. Participation in our 1999 Employee Stock
Purchase Plan ends automatically on termination of employment with eGain.
Immediately prior to the effective time of a corporate reorganization, the
participation period then in progress shall terminate and stock will be
purchased with the accumulated payroll deductions, unless the 1999 Employee
Stock Purchase Plan is assumed by the surviving corporation or its parent
corporation pursuant to the plan of merger or consolidation. Our 1999 Employee
Stock Purchase Plan will terminate in July 2009, unless sooner terminated by
the board of directors.

401(k) Plan

We intend to establish a tax-qualified employee savings and retirement plan
for which eGain's employees will generally be eligible. Pursuant to the 401(k)
Plan, employees may elect to reduce their current compensation and have the
amount of such reduction contributed to the 401(k) Plan. To date, eGain has
made no matching contributions. The 401(k) Plan is intended to qualify under
Section 401 of the Internal Revenue Code of 1986, as amended, so that
contributions to the 401(k) Plan, and income earned on plan contributions, are
not taxable to employees until withdrawn from the 401(k) Plan, and so that
contributions by eGain, if any, will be deductible by eGain when made.

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Employment Agreements and Change in Control Arrangements

We do not currently have any employment contracts with any of our named
executive officers. The shares of common stock issued to Ashutosh Roy and
Gunjan Sinha vest over a period of time, which vesting is accelerated in the
event of a change of control of eGain.

Limitation of Liability and Indemnification Matters

Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except liability for:

. any breach of their duty of loyalty to the corporation or its
stockholders;

. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;

. unlawful payments of dividends or unlawful stock repurchases or
redemption; or

. any transaction from which the director derived an improper personal
benefit.

This limitation of liability does not apply to liabilities arising under the
federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.

Our certificate of incorporation and bylaws provide that we will indemnify
our directors and executive officers and may indemnify its other officers and
employees and other agents to the fullest extent permitted by law. Our bylaws
also permit us to secure insurance on behalf of any officer, director, employee
or other agent for any liability arising out of his or her actions in such
capacity, regardless of whether the bylaws would permit indemnification.

We are entering into agreements to indemnify our directors and executive
officers, in addition to indemnification provided for in our certificate of
incorporation and bylaws. We believe that these provisions and agreements are
necessary to attract and retain qualified persons as directors and executive
officers.

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CERTAIN TRANSACTIONS

Since our inception, there has not been any transaction or series of
transactions to which we were or are a party in which the amount involved
exceeded or exceeds $60,000 and in which any director, executive officer,
holder of more than 5% of any class of our voting securities or any member of
the immediate family of any of the foregoing persons had or will have a direct
or indirect material interest, other than the transactions described below.

Transactions with Management and Others

In December 1997, we sold 4,000,000 shares of common stock to each of
Ashutosh Roy, a founder and our Chief Executive Officer, and Gunjan Sinha, a
founder and our President, at a purchase price of $0.005 per share.

Between June 1998 and July 1999, we sold and issued 8,608,585 shares of our
preferred stock for an aggregate consideration of $14,671,004. We sold
5,406,585 shares of Series A preferred stock in June 1998 at a price of $0.8055
per share, 2,550,000 shares of Series B preferred stock between December 1998
and March 1999 at a price of $2.00 per share and 652,000 shares of Series D
preferred stock in July 1999 at a price of $8.00 per share. Upon completion of
this offering, each share of Series A preferred stock, Series B preferred stock
and Series D preferred stock will convert into one share of common stock.

The following table summarizes purchases, valued in excess of $60,000, of
shares of preferred stock by our directors, executive officers and our 5%
stockholder:

[Download Table]

Number of Shares
---------------------------
Series A Series B Series D
--------- -------- --------

Directors and Executive Officers
Ashutosh Roy........................................ -- 750,000 191,375
Gunjan Sinha........................................ -- 750,000 191,375

5% Stockholder
FW Ventures I, L.P.................................. 3,103,663 574,052 163,875

These affiliates purchased the securities described above at the same price
and on the same terms and conditions as the unaffiliated investors in the
private financings. Messrs. Roy and Sinha were affiliates of eGain at the time
they purchased the above securities. FW Ventures I, L.P. became an affiliate of
eGain in connection with the Series A preferred stock financing.

In August 1999, A. Michael Spence, a director of eGain, exercised an option
to purchase 25,000 shares of common stock at a purchase price of $6.40 per
share by payment of $25 and execution of a five-year, full recourse promissory
note in the amount of $159,975. The note does not bear interest.

Business Relationships

In May 1999, we issued FW Ventures I, L.P. a warrant to purchase 175,000
shares of common stock at a price of $0.20 per share in connection with
financial advisory services rendered in connection with our acquisition of
Sitebridge. Mark Wolfson, a director of eGain, is a limited partner of FW
Ventures I, L.P. The transaction with FW Ventures I, L.P. was negotiated with
the unaffiliated directors of eGain and approved by the disinterested directors
of the Registrant and eGain believes that the services provided by FW Ventures
I, L.P. were provided on terms no less favorable to eGain than would have been
obtained from unaffiliated third parties.

It is our current policy that all transactions between us and our officers,
directors, 5% stockholders and their affiliates will be entered into only if
these transactions are approved by a majority of the disinterested directors,
are on terms no less favorable to us than could be obtained from unaffiliated
parties and are reasonably expected to benefit us.

For information concerning indemnification of directors and officers, see
"Management--Limitation of Liability and Indemnification Matters."

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PRINCIPAL STOCKHOLDERS

The following table sets forth information regarding beneficial ownership of
common stock as of August 20, 1999, and as adjusted to reflect the sale of
5,000,000 shares of common stock in this offering, by:

. each person or entity known to us to own beneficially more than 5% of
our common stock;

. each of our directors;

. each of the named executive officers; and

. all executive officers and directors as a group.

The following table assumes no exercise of the underwriters' over-allotment
option. Applicable percentage ownership is based on 22,545,568 shares of common
stock outstanding as of August 20, 1999 and 27,815,562 shares outstanding
immediately after completion of this offering.

Beneficial ownership is determined in accordance with the rules and
regulations of the Securities and Exchange Commission. In computing the number
of shares beneficially owned by a person and the percentage ownership of that
person, shares of common stock subject to options held by that person that are
currently exercisable or exercisable within 60 days of August 20, 1999 are
deemed outstanding. These shares, however, are not deemed outstanding for the
purposes of computing the percentage ownership of any other person. Except as
indicated in the footnotes to this table and pursuant to applicable community
property laws, each stockholder named in the table has sole voting and
investment power with respect to the shares set forth opposite such
stockholder's name.

Unless otherwise indicated, the address for the following stockholders is c/o
eGain Communications Corporation, 455 W. Maude Avenue, Sunnyvale, California
94086.

[Download Table]

Percentage Owned
Total Shares ------------------------------
Name and Address of Beneficial Beneficially
Owner Owned Before Offering After Offering
------------------------------ ------------ --------------- --------------

5% Stockholder:
FW Ventures I, L.P.(1)............ 4,016,590 17.7% 14.4%
201 Main Street, Suite 2600
Ft. Worth, TX 76011

Directors and Executive Officers:
Ashutosh Roy...................... 4,496,931 19.9% 16.2%
Gunjan Sinha...................... 4,496,931 19.9% 16.2%
Stephen E. Klann(2)............... 196,225 * *
Ryan M. Rosenberg(3).............. 150,000 * *
Eric N. Smit(4)................... 136,500 * *
A. Michael Spence(5).............. 25,000 *
Mark A. Wolfson(6)................ -- *
All directors and executive
officers as a group
(8 persons)(6)(7)................ 9,621,587 42.2% 34.3%

--------
* Less than 1%.

(1) Includes a warrant currently exercisable for 175,000 shares. J. Taylor
Crandall is a general partner of Group 31, Inc., which is the general
partner of FW Ventures I, L.P. and, as such, Mr. Crandall is the ultimate
natural person with voting or dispositive powers over the shares held by FW
Ventures I, L.P.

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(2) Includes 117,554 shares issuable under immediately exercisable options, of
which 96,000 shares are subject to eGain's right of repurchase.

(3) Includes 126,337 shares of common stock subject to eGain's right of
repurchase and 5,000 shares issuable under immediately exercisable options
and subject to eGain's right of repurchase.

(4) Includes 125,000 shares of common stock subject to eGain's right of
repurchase.

(5) Includes 25,000 shares subject to eGain's right of repurchase.

(6) Excludes 4,016,590 shares beneficially owned by FW Ventures I, L.P., of
which Mr. Wolfson is a limited partner.

(7) Includes 276,337 shares of common stock subject to eGain's right of
repurchase and 122,554 shares issuable under immediately exercisable
options, of which 101,000 shares are subject to eGain's right of
repurchase.

424B4 61st Page of 106 TOC 1st Previous Next ↓Bottom Just 61st
DESCRIPTION OF CAPITAL STOCK

Upon completion of this offering, and after giving effect to the conversion
of all outstanding preferred stock into common stock and the amendment of our
certificate of incorporation, our authorized capital stock will consist of
50,000,000 shares of common stock, $.001 par value, and 5,000,000 shares of
preferred stock, $.001 par value.

Common Stock

As of August 20, 1999, there were 22,545,568 shares of common stock
outstanding, held by approximately 130 stockholders of record.

Subject to preferences that may be applicable to any preferred stock
outstanding at the time, the holders of common stock are entitled to the
following:

Dividends. Holders of common stock are entitled to receive dividends out of
assets legally available for the payment of dividends at the times and in the
amounts as the board of directors from time to time may determine.

Voting. Holders of common stock are entitled to one vote for each share held
on all matters submitted to a vote of stockholders, including the election of
directors, and will not have cumulative voting rights unless eGain is subject
to Section 2115 of the California Corporations Code. Cumulative voting for the
election of directors is not authorized by our certificate of incorporation,
which means that the holders of a majority of the shares voted can elect all of
the directors then standing for election.

Preemptive rights, conversion and redemption. The common stock is not
entitled to preemptive rights and is not subject to conversion or redemption.

Liquidation, dissolution and winding-up. Upon liquidation, dissolution or
winding-up of eGain, the holders of common stock are entitled to share ratably
in all assets remaining after payment of liabilities and the liquidation of any
preferred stock.

Each outstanding share of common stock is, and all shares of common stock to
be outstanding upon completion of this offering will be, upon payment
therefore, duly and validly issued, fully paid and nonassessable.

Preferred Stock

The board of directors is authorized, without action by the stockholders, to
designate and issue up to 5,000,000 shares of preferred stock in one or more
series. The board of directors can fix the rights, preferences and privileges
of the shares of each series and any qualifications, limitations or
restrictions on these shares.

The board of directors may authorize the issuance of preferred stock with
voting or conversion rights that could adversely affect the voting power or
other rights of the holders of common stock. The issuance of preferred stock,
while providing flexibility in connection with possible acquisitions and other
corporate purposes could have the effect of delaying, deferring or preventing a
change in control of eGain. We have no current plans to issue any shares of
preferred stock.

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Warrants

In August 1998 and October 1998, we issued warrants to purchase an aggregate
of 74,511 shares of our Series A preferred stock at an exercise price of
$0.8055 per share. These warrants expire between August 2005 and five years
after completion of this offering. In May 1999, we assumed warrants exercisable
for the Series A preferred stock of Sitebridge in connection with our
acquisition of Sitebridge. These warrants became exercisable for an aggregate
of 121,006 shares of our Series C preferred stock at an exercise price of
$0.9916 per share. Upon completion of this offering, all of our warrants to
purchase preferred stock will convert into the right to purchase the equivalent
number of shares of common stock at the same exercise price per share.

In 1998, we also issued warrants to purchase 188,699 shares of Series A
preferred stock at an exercise price of $0.8055 per share. In April 1999, we
assumed a warrant to purchase common stock of Sitebridge that is exercisable
for 30,440 shares of our common stock at an exercise price of $0.2754 per
share. In June 1999, we issued a warrant to FW Ventures I, L.P. to purchase
175,000 shares of common stock at an exercise price of $0.20 per share. Each of
these warrants will expire upon completion of this offering.

Registration Rights

Upon completion of this offering, the holders of 10,602,594 shares of common
stock issuable upon conversion of the Series A, B, C and D preferred stock and
upon the exercise of warrants have the right to cause us to register these
shares under the Securities Act as follows:

. Demand Registration Rights. Six months after this offering, the holders
of a majority of the common stock issued upon conversion of Series A, B,
C or D preferred stock may request that we register their shares with
respect to all or part of their registrable securities having aggregate
proceeds of at least $10,000,000.

. Piggyback Registration Rights. The holders of registrable securities may
request to have their shares registered anytime we file a registration
statement to register any of our securities for our own account or for
the account of others.

. S-3 Registration Rights. The holders of at least thirty percent (30%) of
registrable securities have the right to request registrations on Form
S-3 if we are eligible to use Form S-3, have not already effected such
an S-3 registration within the past six (6) months, and if the aggregate
proceeds are at least $1,000,000.

Holders of an additional 7,111,112 shares of common stock have the piggyback
registration rights and S-3 registration rights described above.

Registration of shares of common stock pursuant to the exercise of demand
registration rights, piggyback registration rights or S-3 registration rights
under the Securities Act would result in these shares becoming freely tradable
without restriction under the Securities Act immediately upon the effectiveness
of such registration. See "Shares Eligible for Future Sale" and "Certain
Transactions."

eGain will pay all registration expenses, other underwriting discounts and
commissions in connection with any registration. The registration rights
terminate five years following completion of this offering, or, with respect to
each holder of registrable securities, when the holder can sell all of the
holder's shares in any 90-day period under Rule 144 under the Securities Act.

424B4 63rd Page of 106 TOC 1st Previous Next ↓Bottom Just 63rd
Section 2115

We are currently subject to Section 2115 of the California General
Corporation Law. Section 2115 provides that, regardless of a company's legal
domicile, certain provisions of California corporate law will apply to that
company if more than 50% of its outstanding voting securities are held of
record by persons having addresses in California and the majority of the
company's operations occur in California. For example, while we are subject to
Section 2115, stockholders may cumulate votes in electing directors. This means
that each stockholder may vote the number of votes equal to the number of
candidates multiplied by the number of votes to which the stockholder's shares
are normally entitled in favor of one candidate. This potentially allows
minority stockholders to elect some members of the board of directors. When we
are no longer subject to Section 2115, cumulative voting will not be allowed
and a holder of 50% or more of our voting stock will be able to control the
election of all directors. In addition to this difference, Section 2115 has the
following additional effects:

. enables removal of directors with or without cause with majority
stockholder approval;

. places limitations on the distribution of dividends;

. extends additional rights to dissenting stockholders in any
reorganization, including a merger, sale of assets or exchange of
shares; and

. provides for information rights and required filings in the event we
effect a sale of assets or complete a merger.

We anticipate that our common stock will be qualified for trading as a
national market security on the Nasdaq National Market and that we will have at
least 800 stockholders of record by the record date for our 2000 annual meeting
of stockholders. If these two conditions occur, then we will no longer be
subject to Section 2115 as of the record date for our 2000 annual meeting of
stockholders.

Delaware Anti-Takeover Law and Certain Charter Provisions

Delaware Takeover Statute

We are subject to Section 203 of the Delaware General Corporation Law, which,
subject to some exceptions, prohibits a Delaware corporation from engaging in
any business combination with any interested stockholder for a period of three
years following the date that such stockholder became an interested
stockholder, unless:

. prior to this date, the board of directors of the corporation approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;

. upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned (x) by persons who are
directors and also officers and (y) by employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or

. on or subsequent to such date, the business combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least 66 2/3% of the outstanding voting stock that is not owned by the
interested stockholder.

424B4 64th Page of 106 TOC 1st Previous Next ↓Bottom Just 64th
. subject to certain exceptions, any transaction that results in the
issuance or transfer by the corporation of any stock of the corporation
to the interested stockholder;

. any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or series
of the corporation beneficially owned by the interested stockholder; or

. the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.

In general, Section 203 defines an interested stockholder as any entity or
person who, together with affiliates and associates owns, or within three
years, did own beneficially 15% or more of the outstanding voting stock of the
corporation.

Certificate of Incorporation and Bylaws

Under our certificate of incorporation, the board of directors has the power
to authorize the issuance of up to 5,000,000 shares of preferred stock and to
determine the price, rights, preferences, privileges and restrictions,
including voting rights, of those shares without further vote or action by the
stockholders. The issuance of preferred stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, may:

Section 203 defines business combination to include:

. any merger or consolidation involving the corporation and the interested
stockholder;

. any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation involving the interested stockholder;
. delay, defer or prevent a change in control of eGain;

. discourage bids for the common stock at a premium over the market price
of our common stock;

. adversely affect the voting and other rights of the holders of our
common stock; and

. discourage acquisition proposals or tender offers for our shares and, as
a consequence, inhibit fluctuations in the market price of our shares
that could result from actual or rumored takeover attempts.

Our bylaws provide that:

. all stockholder action be taken at a stockholders' meeting; and

. special meetings of stockholders may only be called by the chairman of
the board, the chief executive officer or the board of directors.

The provisions described above, together with the ability of the board of
directors to issue preferred stock may have the effect of deterring a hostile
takeover or delaying a change in control or management of eGain.

Transfer Agent and Registrar

The transfer agent and registrar for our common stock is Boston EquiServe.

Listing

We have applied to have our common stock quoted on the Nasdaq National Market
under the symbol "EGAN."

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SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering there has been no public market for our common stock,
and we cannot predict the effect, if any, that market sales of shares or the
availability of shares for sale will have on the market price prevailing from
time to time. As described below, only a limited number of shares will be
available for sale shortly after this offering due to contractual and legal
restrictions on resale. Nevertheless, sales of substantial amounts of our
common stock in the public market after the restrictions lapse could cause the
market price of our common stock to decline.

When this offering is completed, we will have a total of 27,815,562 shares of
common stock outstanding, assuming no exercise of outstanding options. The
5,000,000 shares offered by this prospectus will be freely tradable unless they
are purchased by our "affiliates," as defined in Rule 144 under the Securities
Act of 1933. The remaining 22,815,562 shares are "restricted," which means they
were originally sold in offerings that were not subject to a registration
statement filed with the Securities and Exchange Commission. These restricted
shares may be resold only through registration under the Securities Act of 1933
or under an available exemption from registration, such as provided through
Rule 144.

Lock-up Agreements

The holders of 22,815,562 shares of common stock have agreed to a 180-day
"lock-up" with respect to these shares. This generally means that they cannot
sell these shares during the 180 days following the date of this prospectus.
After the 180-day lock-up period, these shares may be sold in accordance with
Rule 144.

Rule 144

In general, under Rule 144, a person or persons whose shares are aggregated,
who has beneficially owned restricted securities for at least one year,
including the holding period of any holder who is not an affiliate, is entitled
to sell within any three month period a number of our shares of common stock
that does not exceed the greater of:

. 1% of the then outstanding shares of our common stock, which will equal
approximately 278,156 shares upon completion of this offering; or

. the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks preceding the date on
which notice of sale is filed with the Securities and Exchange
Commission.

Sales under Rule 144 are subject to restrictions relating to manner of sale,
notice and the availability of current public information about us. Under Rule
144 and subject to volume limitations, 16,963,195 of the restricted shares will
be eligible for sale beginning 180 days after the date of the final prospectus,
and the remaining restricted shares will become salable at various times
thereafter.

Rule 144(k)

A person who is not deemed an affiliate of ours at any time during the 90
days preceding a sale and who has beneficially owned shares for at least two
years, including the holding period of any prior owner who is not an affiliate,
would be entitled to sell shares following this offering under Rule 144(k)
without regard to the volume limitations, manner of sale provisions, public
information or notice requirements of Rule 144.

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Rule 701 and Options

Rule 701 permits resales of shares in reliance upon Rule 144 but without
compliance with some restrictions, including the holding period requirement, of
Rule 144. Any employee, officer or director or consultant who purchased his or
her shares pursuant to a written compensatory plan or contract may be entitled
to rely on the resale provisions of Rule 701. Rule 701 permits affiliates to
sell their Rule 701 shares under Rule 144 without complying with the holding
period requirements of Rule 144. Rule 701 further provides that non-affiliates
may sell such shares in reliance on Rule 144 without having to comply with the
holding period, public information, volume limitation or notice provisions of
Rule 144. All holders of Rule 701 shares are required to wait 90 days after the
date of this prospectus before selling such shares. However, all shares issued
by us pursuant to Rule 701 are subject to lock-up provisions and will only
become eligible for sale upon the expiration of 180 days after the date of this
prospectus.

Registration

Following this offering, we intend to file a registration statement under the
Securities Act covering shares of common stock subject to outstanding options
or issued or issuable under our 1997 Stock Option Plan, 1998 Stock Plan and our
1999 Employee Stock Purchase Plan. Based on the number of shares subject to
outstanding options at August 20, 1999, and currently reserved for issuance
under these plans, this registration statement would cover approximately
5,682,843 shares. This registration statement will automatically become
effective upon filing. Accordingly, shares registered under this registration
statement will, subject to Rule 144 volume limitations applicable to our
affiliates, be available for sale in the open market immediately after the
expiration of the 180-day lock-up agreements. In addition, holders of
10,602,594 shares of common stock will be entitled to registration rights. See
"Description of Capital Stock--Registration Rights."

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UNDERWRITING

The underwriters named below, acting through their representatives,
BancBoston Robertson Stephens Inc., Donaldson, Lufkin & Jenrette Securities
Corporation and Volpe Brown Whelan & Company, LLC, have severally agreed with
us, subject to the terms and conditions of the underwriting agreement, to
purchase from us the number of shares of common stock set forth opposite their
names below. The underwriters are committed to purchase and pay for all such
shares if any are purchased.

[Download Table]

Number of
Underwriter Shares
----------- ---------

BancBoston Robertson Stephens Inc................................ 2,090,000
Donaldson, Lufkin & Jenrette Securities Corporation.............. 1,430,000
Volpe Brown Whelan & Company, LLC................................ 880,000
E*Trade Securities, Inc. ........................................ 150,000
First Albany Corporation......................................... 150,000
Raymond James & Associates, Inc. ................................ 150,000
Suretrade........................................................ 150,000
---------
Total.......................................................... 5,000,000
=========

We have been advised by the representatives that the underwriters propose to
offer the shares of common stock to the public at the initial public offering
price set forth on the cover page of this prospectus and to certain dealers at
such price less a concession of not more than $0.50 per share, of which $0.10
may be reallowed to other dealers. After the initial public offering, the
public offering price, concession and reallowance to dealers may be reduced by
the representatives. No such reduction shall change the amount of proceeds to
be received by us as set forth on the cover page of this prospectus. The common
stock is offered by the underwriters as stated herein, subject to receipt and
acceptance by them and subject to their right to reject any order in whole or
in part.

The underwriters have advised us that they do not expect sales to
discretionary accounts to exceed five percent of the total number of shares
offered.

Over-allotment Option. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to 750,000 additional shares of common stock at the same price per
share as we will receive for the 5,000,000 shares that the underwriters have
agreed to purchase. To the extent that the underwriters exercise this option,
each of the underwriters will have a firm commitment to purchase approximately
the same percentage of these additional shares that the number of shares of
common stock to be purchased by it shown in the above table represents as a
percentage of the 5,000,000 shares offered hereby. If purchased,
these additional shares will be sold by the underwriters on the same terms as
those on which the 5,000,000 shares are being sold. We will be obligated,
pursuant to the option, to sell shares to the extent the option is exercised.
The underwriters may exercise this option only to cover over- allotments made
in connection with the sale of the shares of common stock offered hereby. If
this option is exercised in full, the total public offering price, underwriting
discounts and commissions and proceeds to us will be $69,000,000, $4,830,000
and $64,170,000, respectively.

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The following table summarizes the compensation to be paid to the
underwriters by us:

[Download Table]

Total
---------------------
Without
Over- With Over-
Per Share allotment allotment
--------- ---------- ----------

Underwriting discounts and commissions
payable by us............................ $0.84 $4,200,000 $4,830,000

We estimate that expenses payable by us in connection with this offering,
other than the underwriting discounts and commissions referred to above, will
be approximately $980,000.

Indemnity. The underwriting agreement contains covenants of indemnity among
the underwriters and us against certain civil liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.

Lock-up Agreements. Each of our officers, directors and stockholders has
agreed, for a period of 180 days after the date of this prospectus, that,
subject to exceptions, they will not offer to sell, contract to sell, or
otherwise sell, dispose of, loan, pledge or grant any rights with respect to
any shares of common stock, any options or warrants to purchase any shares of
common stock, or any securities convertible into or exchangeable for shares of
common stock owned as of the date of this prospectus or, with certain
exceptions, thereafter acquired directly by such holders or with respect to
which they have or hereafter acquire the power of disposition, without the
prior written consent of BancBoston Robertson Stephens Inc. However, BancBoston
Robertson Stephens Inc. may, in its sole discretion and at any time without
notice, release all or any portion of the securities subject to the lock-up
agreements. Other than an agreement releasing from the lock-up period the
shares acquired by non-affiliate employees of eGain in our directed share
program, there are no agreements between the representatives and any of our
stockholders providing consent by the representatives to the sale of shares
prior to the expiration of the lock-up period.

Future Sales. In addition, we have agreed that until 180 days after the date
of this prospectus, we will not, subject to certain exceptions, without the
prior written consent of BancBoston Robertson Stephens Inc.:

. consent to the disposition of any shares held by stockholders prior to
the expiration of the lock-up period or

. issue, sell, contract to sell or otherwise dispose of any shares of
common stock, any options or warrants to purchase any shares of common
stock or any securities convertible into, exercisable for or exchangeable
for shares of common stock other than (1) the sale of shares in this
offering, (2) the issuance of common stock upon the exercise of
outstanding warrants and options, and (3) the issuance of options under
existing stock option and incentive plans. See "Shares Eligible for
Future Sale."

Listing. The shares being sold in the offering have been approved for
quotation on the Nasdaq National Market under the symbol "EGAN."

No Prior Public Market. Prior to this offering, there has been no public
market for our common stock. Consequently, the initial public offering price
for the common stock offered hereby was determined through negotiations between
us and the representatives. Among the factors considered in such negotiations
were prevailing market conditions, certain of our financial information, market
valuations of other companies that we and the representatives believe to be

424B4 69th Page of 106 TOC 1st Previous Next ↓Bottom Just 69th
comparable to us, estimates of our business potential, our present state of
development and other factors deemed relevant.

Stabilization. The representatives have advised us that, pursuant to
Regulation M under the Securities Act, certain persons participating in this
offering may engage in transactions, including stabilizing bids, syndicate
covering transactions or the imposition of penalty bids, that may have the
effect of stabilizing or maintaining the market price of the common stock at a
level above that which might otherwise prevail in the open market. A
"stabilizing bid" is a bid for or the purchase of the common stock on behalf
of the underwriters for the purpose of fixing or maintaining the price of the
common stock. A "syndicate covering transaction" is the bid for or the
purchase of the common stock on behalf of the underwriters to reduce a short
position incurred by the underwriters in connection with this offering. A
"penalty bid" is an arrangement permitting the representatives to reclaim the
selling concession otherwise accruing to an underwriter or syndicate member in
connection with this offering if the common stock originally sold by such
underwriter or syndicate member is purchased by the representatives in a
syndicate covering transaction and has therefore not been effectively placed
by such underwriter or syndicate member. The representatives have advised us
that these transactions may be effected on the Nasdaq National Market or
otherwise and, if commenced, may be discontinued at any time.

Directed Share Program. At our request, the underwriters have reserved up to
250,000 shares of common stock to be issued by us and offered hereby for sale,
at the initial public offering price, to directors, officers, employees,
business associates and related persons of eGain. The number of shares of
common stock available for sale to the general public will be reduced to the
extent such individuals purchase such reserved shares. Any reserved shares
that are not so purchased will be offered by the underwriters to the general
public on the same basis as the other shares offered hereby.

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LEGAL MATTERS

Selected legal matters with respect to the validity of the common stock
offered by this prospectus are being passed upon for eGain by Pillsbury Madison
& Sutro LLP, Palo Alto, California. Certain partners of Pillsbury Madison &
Sutro LLP beneficially own an aggregate of 51,490 shares of eGain common stock.
Legal matters in connection with this offering will be passed upon for the
underwriters by Cooley Godward LLP, San Francisco, California.

EXPERTS

Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements at June 30, 1998 and 1999, for the period from September
30, 1997 (inception) through June 30, 1998, and for the year ended June 30,
1999 as set forth in their report. We have included our consolidated financial
statements in the prospectus and elsewhere in the registration statement in
reliance on Ernst & Young LLP's report, given upon the authority of such firm
as experts in accounting and auditing.

Ernst & Young LLP, independent auditors, have audited the financial
statements of Sitebridge Corporation (a development stage company) at December
31, 1997 and 1998, for the period from September 10, 1996 (inception) through
December 31, 1997 and for the year ended December 31, 1998 and for the period
from September 10, 1996 (inception) through December 31, 1998 as set forth in
their report. The financial statements of Sitebridge Corporation (a development
stage company) are included in the prospectus in reliance on Ernst & Young
LLP's report, given upon the authority of such firm as experts in accounting
and auditing.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to the common stock offered hereby. This
prospectus, which constitutes a part of the registration statement, does not
contain all of the information set forth in the registration statement or the
exhibits and schedules which are part of the registration statement. For
further information with respect to eGain and the common stock offered by this
prospectus, we refer you to the registration statement and the exhibits and
schedules filed as part of the registration statement. You may read and copy
any document we file at the SEC's public reference room at 450 Fifth Street,
N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. Our SEC filings are also available
to the public from the SEC's Web site at http://www.sec.gov.

Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities and Exchange Act, as
amended, and, in accordance therewith, will file periodic reports, proxy
statements and other information with the SEC. These periodic reports, proxy
statements and other information will be available for inspection and copying
at the SEC's public reference rooms and the Web site of the SEC referred to
above.

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eGAIN COMMUNICATIONS CORPORATION

INDEX TO FINANCIAL STATEMENTS

AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF eGAIN COMMUNICATIONS CORPORATION

[Download Table]

Page
----

Report of Ernst & Young LLP, Independent Auditors......................... F-2

Consolidated Balance Sheets............................................... F-3

Consolidated Statements of Operations..................................... F-4

Consolidated Statement of Stockholders' Equity............................ F-5

Consolidated Statements of Cash Flows..................................... F-6

Notes to Consolidated Financial Statements................................ F-7

AUDITED FINANCIAL STATEMENTS OF SITEBRIDGE CORPORATION

Report of Ernst & Young LLP, Independent Auditors......................... F-21

Balance Sheets............................................................ F-22

Statements of Operations.................................................. F-23

Statement of Stockholders' Equity (Net Capital Deficiency)................ F-24

Statements of Cash Flows.................................................. F-25

Notes to Financial Statements............................................. F-26

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS OF eGAIN
COMMUNICATIONS CORPORATION AND SITEBRIDGE CORPORATION..................... F-33

F-1

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REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders eGain Communications Corporation

We have audited the accompanying consolidated balance sheets of eGain
Communications Corporation as of June 30, 1998 and 1999, and the related
consolidated statements of operations, stockholders' equity, and cash flows
for the period from inception (September 10, 1997) to June 30, 1998 and for
the year ended June 30, 1999. These financial statements are the
responsibility of eGain Communications Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of eGain
Communications Corporation at June 30, 1998 and 1999, and the consolidated
results of its operations and its cash flows for the period from inception
(September 10, 1997) to June 30, 1998 and for the year ended June 30, 1999, in
conformity with generally accepted accounting principles.

/s/ Ernst & Young llp

Palo Alto, California
July 16, 1999

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eGAIN COMMUNICATIONS CORPORATION

CONSOLIDATED BALANCE SHEETS

[Download Table]

Pro forma
stockholders'
June 30, equity at
------------------------ June 30,
1998 1999 1999
---------- ------------ -------------
(unaudited)

ASSETS
Current Assets:
Cash and cash equivalents............ $3,830,692 $ 1,265,147
Accounts receivable.................. -- 705,488
Prepaid and other current assets..... 49,164 512,896
---------- ------------
Total current assets............... 3,879,856 2,483,531
Property and equipment, net............ 110,134 1,132,651
Goodwill and other purchased intangible
assets, net........................... -- 20,194,972
Other assets........................... -- 153,884
---------- ------------
$3,989,990 $ 23,965,038
========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank borrowings--line of credit...... $ -- $ 1,000,000
Accounts payable..................... 188,651 683,761
Accrued compensation................. -- 343,471
Accrued liabilities.................. -- 474,757
Deferred revenue..................... -- 302,119
Current portion of notes payable..... -- 434,762
---------- ------------
Total current liabilities.......... 188,651 3,238,870
Notes payable, net of current portion.. -- 221,093
Other long-term liabilities............ -- 21,791
Commitments
Stockholders' Equity:
Convertible preferred stock, $0.001
par value, 10,035,887 shares
authorized, issuable in series:
5,406,585 and 9,566,378 shares
issued and outstanding at June 30,
1998 and 1999; no shares issued, or
outstanding pro forma (aggregate
liquidation preference of $7,172,056
at June 30, 1999)................... 4,329,264 16,986,961 $ --
Preferred stock: $0.001 par value;
5,000,000 shares authorized, no
shares issued and outstanding....... -- -- --
Common stock, $0.001 par value,
50,000,000 shares authorized,
8,000,000 and 10,946,661 shares
issued and outstanding at June 30,
1998 and 1999; 20,513,039 shares
issued and outstanding pro forma.... 295,000 7,288,859 20,513
Additional paid-in capital........... 291,287 17,549,416 41,804,723
Notes receivable from stockholders... -- (143,653) (143,653)
Deferred stock compensation.......... (175,774) (8,956,117) (8,956,117)
Accumulated other comprehensive
income.............................. -- 757 757
Accumulated deficit.................. (938,438) (12,242,939) (12,242,939)
---------- ------------ ------------
Total stockholders' equity......... 3,801,339 20,483,284 $ 20,483,284
---------- ------------ ============
$3,989,990 $ 23,965,038
========== ============

See accompanying notes.

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eGAIN COMMUNICATIONS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

[Download Table]

Period from
inception
(September 10,
1997) to Year ended
June 30, June 30,
1998 1999
-------------- ------------

Revenue:
Hosting........................................ $ -- $ 137,385
License fees................................... -- 473,450
Service........................................ 2,000 408,508
--------- ------------
Total revenue................................ 2,000 1,019,343
Costs and expenses:
Cost of revenue................................ 52,481 1,772,159
Sales and marketing............................ 245,553 4,181,816
Research and development....................... 313,894 2,095,784
General and administrative..................... 214,052 1,234,865
Amortization of goodwill and other intangible
assets........................................ -- 1,217,057
Amortization of deferred compensation.......... 58,258 1,817,266
--------- ------------
Total costs and expenses..................... 884,238 12,318,947
--------- ------------
Loss from operations............................. (882,238) (11,299,604)
Interest income.................................. 1,509 111,360
Interest and other expenses...................... (57,709) (116,257)
--------- ------------
Net loss......................................... $(938,438) $(11,304,501)
========= ============
Basic and diluted net loss per share............. $ (17.78) $ (2.14)
========= ============
Shares used in computing basic and diluted net
loss per share.................................. 52,778 5,294,736
========= ============
Proforma basic and diluted net loss per share
(unaudited)..................................... $ (0.93)
============
Shares used in computing proforma basic and
diluted net loss per share (unaudited).......... 12,153,444
============

See accompanying notes.

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eGAIN COMMUNICATIONS CORPORATION

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

[Enlarge/Download Table]

Convertible Notes Accumulated
Preferred Stock Common Stock Additional Receivable Deferred Other
--------------------- --------------------- Paid-In From Stock Comprehensive Accumulated
Shares Amount Shares Amount Capital Stockholders Compensation Income Deficit
--------- ----------- ---------- ---------- ----------- ------------ ------------ ------------- ------------

Issuance of
common stock to
founders........ -- $ -- 8,000,000 $ 295,000 -- $ -- $ -- $ -- $ --
Issuance of
Series A
convertible
preferred stock
for cash and
conversion of
notes, net of
issuance costs
of $25,740...... 5,406,585 4,329,264 -- -- -- -- -- -- --
Issuance of
warrant......... -- -- -- -- 57,255 -- -- -- --
Deferred stock
compensation.... -- -- -- -- 234,032 -- (234,032) -- --
Amortization of
deferred stock
compensation.... -- -- -- -- -- -- 58,258 -- --
Net loss........ -- -- -- -- -- -- -- -- (938,438)
--------- ----------- ---------- ---------- ----------- --------- ------------ ---- ------------
BALANCE AT JUNE
30, 1998........ 5,406,585 4,329,264 8,000,000 295,000 291,287 -- (175,774) -- (938,438)
Issuance of
Series B
convertible
preferred stock
for cash, net of
issuance costs
of $24,494...... 2,550,000 5,075,506 -- -- -- -- -- -- --
Issuance of
common stock
upon exercise of
employee stock
options and
other issuances
under the 1998
Stock Plan...... -- -- 1,491,147 167,500 -- (143,653) -- -- --
Issuance of
Series C
preferred and
common stock in
exchange for
SiteBridge
preferred and
common stock.... 1,609,793 7,582,191 1,455,514 6,826,359 6,603,225 -- -- -- --
Issuance of
warrants........ -- -- -- -- 36,000 -- -- -- --
Deferred stock
compensation.... -- -- -- -- 10,618,904 -- (10,618,904) -- --
Amortization of
deferred stock
compensation.... -- -- -- -- -- -- 1,838,561 -- --
Comprehensive
loss:
Net loss........ -- -- -- -- -- -- -- -- (11,304,501)
Foreign currency
translation
adjustment...... -- -- -- -- -- -- -- 757 --
Total
comprehensive
loss............ -- -- -- -- -- -- -- -- --
--------- ----------- ---------- ---------- ----------- --------- ------------ ---- ------------
BALANCE AT JUNE
30, 1999........ 9,566,378 $16,986,961 10,946,661 $7,288,859 $17,549,416 $(143,653) $ (8,956,117) $757 $(12,242,939)
========= =========== ========== ========== =========== ========= ============ ==== ============

Stockholders'
Equity
--------------

Issuance of
common stock to
founders........ $ 295,000
Issuance of
Series A
convertible
preferred stock
for cash and
conversion of
notes, net of
issuance costs
of $25,740...... 4,329,264
Issuance of
warrant......... 57,255
Deferred stock
compensation.... --
Amortization of
deferred stock
compensation.... 58,258
Net loss........ (938,438)
--------------
BALANCE AT JUNE
30, 1998........ 3,801,339
Issuance of
Series B
convertible
preferred stock
for cash, net of
issuance costs
of $24,494...... 5,075,506
Issuance of
common stock
upon exercise of
employee stock
options and
other issuances
under the 1998
Stock Plan...... 23,847
Issuance of
Series C
preferred and
common stock in
exchange for
SiteBridge
preferred and
common stock.... 21,011,775
Issuance of
warrants........ 36,000
Deferred stock
compensation.... --
Amortization of
deferred stock
compensation.... 1,838,561
Comprehensive
loss:
Net loss........ (11,304,501)
Foreign currency
translation
adjustment...... 757
--------------
Total
comprehensive
loss............ (11,303,744)
--------------
BALANCE AT JUNE
30, 1999........ $ 20,483,284
==============

See accompanying notes.

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eGAIN COMMUNICATIONS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

[Download Table]

Period from
inception
(September 10,
1997) to Year ended
June 30, June 30,
1998 1999
-------------- ------------

Operating activities
Net loss....................................... $ (938,438) $(11,304,501)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation................................. 7,000 279,400
Amortization of goodwill and other intangible
assets...................................... -- 1,217,057
Amortization of deferred compensation........ 58,258 1,838,561
Amortization of loan discount associated with
warrants.................................... 57,255 14,000
Changes in operating assets and liabilities:
Accounts receivable........................ -- (653,988)
Prepaid and other current assets........... (49,164) (456,307)
Other assets............................... -- (136,384)
Accounts payable........................... 187,982 417,894
Accrued compensation....................... 670 267,800
Other accrued liabilities.................. -- 409,645
Deferred revenue........................... -- 302,119
Other liabilities.......................... -- 21,791
---------- ------------
Net cash used in operating activities.... (676,437) (7,782,913)
---------- ------------
Investing activities
Purchases of property and equipment............ (117,134) (1,258,162)
Cash assumed in Sitebridge acquisition......... -- 78,321
---------- ------------
Net cash used in investing activities.... (117,134) (1,179,841)
---------- ------------
Financing activities
Proceeds from loans............................ -- 1,297,855
Net proceeds from issuance of preferred stock.. 4,329,263 5,075,507
Proceeds from issuance of common stock ........ 295,000 23,847
---------- ------------
Net cash provided by financing
activities.............................. 4,624,263 6,397,209
---------- ------------
Net increase (decrease) in cash and cash
equivalents..................................... 3,830,692 (2,565,545)
Cash and cash equivalents at beginning of
period.......................................... -- 3,830,692
---------- ------------
Cash and cash equivalents at end of period....... $3,830,692 $ 1,265,147
========== ============
Supplemental disclosure of cash flow information
Interest paid.................................. $ -- $ 111,146
========== ============
Conversion of promissory notes to preferred
stock........................................... $ 800,000 $ --
========== ============
Issuance of warrants in exchange for services in
connection with the Sitebridge acquisition...... $ -- $ 789,250
========== ============

See accompanying notes.

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eGAIN COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Business

eGain Communications Corporation ("eGain"), formerly known as Parsec
Communications Corporation, is a developer of customer service infrastructure
solutions for companies engaged in eCommerce. Businesses use eGain's
applications to effectively manage high volumes of customer email as well as
live Web-based interaction. eGain's email management system helps businesses
route, track, analyze and respond to customer emails. eGain was incorporated in
Delaware on September 10, 1997.

During fiscal 1999, eGain commenced shipment of its principal products and
emerged from the development stage. Although eGain is no longer in the
development stage, eGain continues to be subject to many of the risks and
challenges associated with companies in a comparable stage of development,
including dependence on key individuals, competition from substitute products
and from larger companies, successful marketing of its products and acceptance
of its technology, successful development of product enhancements on a
continuing basis and the need for adequate financing to support anticipated
future growth.

eGain has incurred cumulative losses totaling approximately $12,243,000 since
its incorporation and expects to incur additional losses for the foreseeable
future. eGain's current operating plan shows that eGain will continue to
require additional capital to fund its operations and market its products. To
date, eGain has financed its operations with the net proceeds from private
sales of convertible preferred stock, bank borrowings and capital equipment
financing. eGain plans to seek additional funding through public or private
financing or other arrangements with third parties. If the financing
arrangements contemplated by management are not consummated, eGain may have to
seek other sources of capital or adjust its operating plan to delay or reduce
the Company's expenditures and the scope of its operations.

Principles of Consolidation

The consolidated financial statements include the accounts of eGain and its
wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and the
accompanying notes. Actual results could differ materially from these
estimates.

Revenue Recognition

Revenue from hosting services is recognized ratably over the period of the
agreement as services are provided. Hosting agreements are typically for a
period of one year and automatically renew unless either party cancels the
agreement.

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eGAIN COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Revenue from license fees and from sales of software products is recognized
when persuasive evidence of an agreement exists, delivery of the product has
occurred, no significant eGain obligations remain, the fee is fixed or
determinable, and collectibility is probable. License fee revenue in multiple
element contracts is recognized using the residual method when there is vendor
specific appropriate evidence of the fair value of all undelivered elements in
an arrangement but vendor specific appropriate evidence of fair value does not
exist for one or more of the delivered elements in an arrangement. Under the
residual method, the total fair value of the undelivered elements, as indicated
by vendor specific objective evidence, is deferred and the difference between
the total arrangement fee and the amount deferred for the undelivered elements
is recognized as revenue related to the delivered elements, regardless of any
separate prices stated within the contract for each element. If sufficient
vendor-specific objective evidence does not exist for undelivered elements in
an arrangement, all revenue from the arrangement is deferred until the earlier
of the point at which (a) such sufficient vendor-specific objective evidence
does exist or (b) all elements of the arrangement have been delivered.

Service revenue is primarily comprised of revenue from consulting fees,
maintenance agreements, and training. Service revenue from consulting and
training billed on a time and materials basis is recognized as performed.
Service revenue on fixed price service arrangements is recognized upon
completion of specific contractual milestone events, or based on an estimated
percentage of completion as work progresses. Maintenance agreements include the
right to software updates on an if-and-when-available basis. Maintenance
revenue is deferred and recognized on a straight-line basis as service revenue
over the life of the related agreement, which is typically one year.

Customer advances and billed amounts due from customers in excess of revenue
recognized are recorded as deferred revenue.

eGain has adopted Statement of Position 97-2, "Software Revenue Recognition"
("SOP 97- 2"), and Statement of Position 98-4, "Deferral of the Effective Date
of a Provision of SOP 97-2, Software Revenue Recognition" ("SOP 98-4"). SOP 97-
2 and SOP 98-4 provide guidance for recognizing revenue on software
transactions and supersedes SOP 91-1. The adoption of SOP 97-2 and SOP 98-4 did
not have a material impact on eGain's financial results.

In December 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-9, "Modification of SOP 97-2, Software Revenue
Recognition, With Respect to Certain Transactions" ("SOP 98-9"). SOP 98-9
amends SOP 98-4 to extend the deferral of the application of certain passages
of SOP 97-2 provided by SOP 98-4 through fiscal years beginning on or before
March 15, 1999. All other provisions of SOP 98-9 are effective for transactions
entered into in fiscal years beginning after March 15, 1999. eGain believes
that the adoption of SOP 98-9 will not have a material effect on results of
operations or financial condition.

Cash and Cash Equivalents

eGain considers all highly liquid investments with a maturity from date of
purchase of three months or less to be cash equivalents. Cash equivalents
consist primarily of money market accounts.

Concentration of Credit Risk and Significant Customers

Financial instruments that subject eGain to concentrations of credit risk
consist principally of cash investments and trade accounts receivable. eGain
invests cash which is not required for

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eGAIN COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

immediate operating needs principally in money market funds, which bear minimal
risk.

eGain's customers are currently concentrated in the United States. eGain
performs ongoing credit evaluations and generally does not require collateral.

For the year ended June 30, 1999, two customers accounted for 15.6% and 10.8%
of revenue. One customer represented all of the revenue for the period from
inception (September 10, 1997) to June 30, 1998.

Property and Equipment

Goodwill and Purchased Intangible Assets

Goodwill represents the excess of the purchase price over the estimated fair
market value of tangible and intangible net assets acquired in a business
combination. Goodwill and other purchased intangible assets related to the
acquisition of Sitebridge Corporation are amortized on a straight-line basis
over three years from the date of acquisition.

Under Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of
("SFAS No. 121"), the carrying values of long-term assets and intangibles other
than developed technology ("other intangibles") will be regularly reviewed to
determine if the carrying value of the assets is impaired. The reviews look for
the existence of facts or circumstances, either internal or external, which
indicate the carrying value of the asset cannot be recovered. Such indicators
would include a lack of successful further development and integration of the
acquired company's technology into eGain's operations, lack of the market
acceptance of the products and lower than expected cash flows from operations.
No impairment has been indicated to date. If there is an indication of
impairment in the future, and undiscounted expected future cash flows are less
than the carrying amount of the assets, eGain will measure the amount of the
loss based on discounted expected future cash flows from the impaired assets.
The cash flow calculations would be based on management's best estimates, using
appropriate assumptions and projections at the time.

In addition, eGain will assess the impairment of goodwill not included in the
scope of SFAS 121 under Accounting Principles Board Opinion No. 17, "Intangible
Assets", (APB 17). Write-offs and write-downs to net realizable value of
goodwill not included in the scope of SFAS 121 will typically be made only when
the Company has effectively abandoned and stopped selling virtually all of the
products acquired in an acquisition. No impairment has been indicated to date.

Purchased developed technology is amortized based on the greater of the
straight-line basis over the estimated useful life or the ratio of current
revenues to the total of current and anticipated future revenues. The
recoverability of the carrying value of purchased developed technology and
associated goodwill is reviewed periodically. The carrying value of developed
technology is compared to the estimated future gross revenues from that product
reduced by the estimated future costs of completing and disposing of that
product, including the costs of performing maintenance and customer support
(net undiscounted cash flows) and to the extent that the carrying value exceeds
the undiscounted cash flows the difference will be written off. No write-off
has been recorded to date.

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eGAIN COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Advertising Costs

Advertising costs are accounted for as expenses in the period in which they
are incurred. Advertising expense for the period from inception (September 10,
1997) to June 30, 1998 and the year ended June 30, 1999 were approximately zero
and $210,000, respectively.

Software Development Costs

Software development costs are included in research and development and are
expensed as incurred until the technological feasibility of the product is
achieved. To date, the period between achieving technological feasibility and
general availability of software has been short and software development costs
qualifying for capitalization have been insignificant. Accordingly, eGain has
not capitalized any software development costs.

Stock-Based Compensation

eGain accounts for its stock-based compensation arrangements with employees
using the intrinsic value method. Deferred stock-based compensation is recorded
on the date of grant when the deemed fair value of the underlying common stock
exceeds the exercise price for stock options.

In accordance with the Statement of Financial Accounting Standards No. 123
"Accounting for Stock Based Compensation. ("SFAS 123"), stock options and
warrants issued to non-employees are accounted for based on the fair value of
the consideration received or the fair value of the equity instruments issued,
whichever is more reliably measured.

Comprehensive Loss

eGain adopted Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130"), at June 30, 1999. Under SFAS 130, eGain is
required to display comprehensive income and its components as part of the
financial statements. Other comprehensive income includes certain changes in
equity that are excluded from net income (loss). Total comprehensive loss
(including foreign currency translation effects) is shown in the statement of
stockholders' equity.

Segment Information

In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 131, "Disclosures About
Segments of an Enterprise and Related Information" ("SFAS 131"), effective for
financial statements for periods beginning after December 15, 1997. SFAS 131
establishes standards for the way that public business enterprises report
financial and descriptive information about reportable operating segments in
annual financial statements and interim financial reports issued to
stockholders. eGain adopted SFAS 131 effective July 1, 1998. eGain operates in
one segment. Operating losses generated by the foreign operations of eGain and
their corresponding identifiable assets were not material in any period
presented. eGain's export revenue has not been material in any period
presented.

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eGAIN COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Net Loss Per Share

Basic and diluted net loss per share are presented in accordance with SFAS
No. 128, "Earnings per Share" ("SFAS 128"), for all periods presented. Pursuant
to the Securities and Exchange Commission Staff Accounting Bulletin No. 98,
ordinary shares and convertible preferred shares issued or granted for nominal
consideration prior to the anticipated effective date of eGain's initial public
offering must be included in the calculation of basic and diluted net loss per
share as if they had been outstanding for all periods presented. To date, eGain
has not had any issuances or grants for nominal consideration.

Basic and diluted net loss per share has been computed using the weighted-
average number of shares of common stock outstanding during the period. Had
eGain been in a net income position, diluted earnings per share would have
included the shares used in the computation of basic net loss per share as well
as the impact of common shares outstanding subject to repurchase and
outstanding options and warrants to purchase an additional 699,699 and
2,833,548 shares, prior to the application of the treasury stock method, for
the period from inception (September 10, 1997) to June 30, 1998 and the year
ended June 30, 1999. Such shares have been excluded because they are
antidilutive for all periods presented. Shares of convertible preferred stock
have been excluded from the computation.

Pro Forma Net Loss Per Share (Unaudited)

Pro forma net loss per share is computed using the weighted-average number of
shares of common stock outstanding, including the pro forma effects of the
automatic conversion of eGain's convertible preferred stock into shares of
common stock, effective upon the closing of eGain's initial public offering as
if such conversion occurred at the date of original issuance.

A reconciliation of shares used in the calculation of basic and diluted and
pro forma net loss per share follows:

[Download Table]

Period from
inception
(September 10, Year ended
1997) to June 30,
June 30, 1998 1999
-------------- ------------

Net loss.......................................... $(938,438) $(11,304,501)
--------- ------------
Basic and diluted:
Weighted-average shares of common stock
outstanding.................................... 153,846 8,757,398
Less weighted-average shares subject to
repurchase..................................... (101,068) (3,462,662)
--------- ------------
Shares used in computing basic and diluted net
loss per share................................. 52,778 5,294,736
========= ============
Basic and diluted net loss per share.............. $ (17.78) $ (2.14)
========= ============
Pro forma:
Shares used above............................... 5,294,736
Pro forma adjustment to reflect weighted effect
of assumed conversion of convertible preferred
stock (unaudited).............................. 6,858,708
------------
Shares used in computing pro forma basic and
diluted net loss per share (unaudited)......... 12,153,444
============
Pro forma basic and diluted net loss per share
(unaudited).................................... $ (0.93)
============

F-11

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eGAIN COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Recent Accounting Pronouncements

In June 1998, the FASB issued Statement of Financial Accounting Standard No.
133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging
Activities," which will be effective for the year ending June 30, 2001. This
statement establishes accounting and reporting standards requiring that every
derivative instrument, including certain derivative instruments embedded in
other contracts, be recorded in the balance sheet as either an asset or
liability measured at its fair value. The statement also requires that changes
in the derivative's fair value be recognized in earnings unless specific hedge
accounting criteria are met. eGain believes the adoption of SFAS 133 will not
have a material effect on the financial statements, since it currently does not
invest in derivative instruments and engage in hedging activities.

In March 1998, the American Institute of Certified Public Accounts issued
Statement of Position ("SOP") No. 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 requires that
entities capitalize certain costs related to internal use software once certain
criteria have been met. eGain is required to adopt SOP No. 98-1 effective July
1, 1999. eGain believes that the adoption of SOP No. 98-1 will not have a
material impact on its financial statements.

2. ACQUISITION OF SITEBRIDGE CORPORATION

Effective April 30, 1999, eGain acquired Sitebridge Corporation
("Sitebridge"). The acquisition was accounted for as a purchase and,
accordingly, the results of operations of Sitebridge have been included in the
consolidated financial statements since the date of acquisition. In connection
with the acquisition eGain issued the following equity securities in exchange
for all the outstanding common and preferred stock, and options and warrants to
purchase shares of Sitebridge common and preferred stock:

[Download Table]

No. of
Securities Per Share Aggregate
eGain Securities Issued Issued Value Value
----------------------- ---------- ----------- --------------
(in thousands)

Series C convertible preferred stock.... 1,609,793 $4.71 $ 7,582
Common Stock............................ 1,455,514 $4.69 6,826
Warrants to acquire Series C preferred
stock.................................. 121,006 $3.85 466
Warrants to acquire common stock........ 30,440 $4.57 139
Options to acquire common stock......... 1,114,016 $4.57-$4.67 5,135
-------
Total value of securities issued in the
acquisition of Sitebridge.............. 20,148
Transaction Costs....................... 864
-------
Total purchase price.................... $21,012
=======

The fair market value of the eGain securities issued to Sitebridge were based
on an independent appraisal that used a standard options-based methodology that
incorporated the estimated value range for eGain, the liquidation preference
and conversion features of eGain's preferred stock. Each security was split
into a number of call options, which were valued using the Black-Scholes option
pricing model. Principal assumptions used in the Black-Scholes model were
volatility of 100 percent, risk free interest rate of 4.5 percent, term of 9
months and the stock price was estimated as the indicated range of equity value
concluded through the market capitalization approach.

F-12

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eGAIN COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The purchase price was allocated to the assets acquired based on their
estimated fair values. The excess of the purchase price over the fair value of
the net tangible and intangible assets acquired (goodwill) was approximately
$20,457,000. Goodwill and other intangible assets related to the acquisition of
Sitebridge Corporation are being amortized on a straight-line basis over three
years.

In connection with the acquisition, net assets acquired were as follows (in
thousands):

[Download Table]

Purchased intangible assets (including goodwill).................... $21,412
Cash, receivables, and other assets................................. 155
Property and equipment.............................................. 43
Liabilities assumed................................................. (598)
-------
Net assets acquired............................................... $21,012
=======

Goodwill and purchased intangible assets include the following (in
thousands):

[Download Table]

1999
-------

Goodwill............................................................ $19,962
Developed technology................................................ 1,050
Workforce........................................................... 350
Customer base....................................................... 50
-------
21,412
Less accumulated amortization....................................... (1,217)
-------
$20,195
=======

The following table presents the unaudited pro forma results assuming that
eGain had merged with Sitebridge at the beginning of fiscal 1999. These
unaudited pro forma results have been prepared for comparative purposes only
and include certain adjustments, such as additional amortization expense as a
result of goodwill. They do not purport to be indicative of the results of
operations that actually would have resulted had the combination occurred on
July 1, 1998, or of future results of operations of the consolidated entities.

[Download Table]

Year ended
June 30,
1999
-----------

Revenue........................................................ $ 1,076,877
Net loss....................................................... $19,126,753
Basic and diluted net loss per share........................... $ (3.07)

3. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

[Download Table]

June 30,
--------------------
1998 1999
-------- ----------

Computers and equipment................................ $107,850 $1,215,244
Furniture and fixtures................................. 9,284 188,807
Leasehold improvements................................. -- 15,000
-------- ----------
117,134 1,419,051
Less accumulated depreciation.......................... (7,000) (286,400)
-------- ----------
Property and equipment, net............................ $110,134 $1,132,651
======== ==========

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eGAIN COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

4. NOTES PAYABLE

In August 1998, eGain obtained a $1,000,000 line of credit from a bank for
equipment purchases and working capital financing. Borrowings under the line of
credit are collateralized by all of eGain's assets and bear interest at the
bank's prime rate plus 0.25%. At June 30, 1999, $1,000,000 was outstanding
under this agreement. The entire balance is due on February 6, 2000.

In October 1998, eGain obtained a $1,500,000 credit facility with a leasing
company for equipment purchases. Borrowings under the credit facility are
collateralized by certain fixed assets and bear an imputed interest rate of
13.68%. At June 30, 1999, eGain had borrowed approximately $342,000 under the
credit facility, of which $297,855 was outstanding. Monthly payments of
approximately $9,400 are due under existing borrowings through July 2002.

In conjunction with the line of credit and equipment credit facilities, eGain
issued warrants to purchase 74,511 shares of its Series A preferred stock at
$0.8055 per share (see Note 6).

In connection with the acquisition of Sitebridge, eGain assumed two
promissory notes for a total amount of $380,000. The notes accrue interest at
5% per year and are payable on December 31, 2000.

Long-term debt repayments are due as follows (in thousands):

[Download Table]

2000................................................................ $434,762
2001................................................................ 110,547
2002................................................................ 110,546
--------
$655,855
========

5. COMMITMENTS

Operating Lease Commitments

eGain leases its facilities under noncancelable operating leases expiring in
September 2003. Rent expense for facilities under operating leases was
approximately $80,000 and $362,000 for the period from inception (September 10,
1997) to June 30, 1998 and the year ended June 30, 1999. Future minimal rental
commitments under operating leases at June 30, 1999 are as follows:

[Download Table]

2000.............................................................. $1,049,578
2001.............................................................. 1,360,782
2002.............................................................. 647,197
2003.............................................................. 397,252
2004.............................................................. 85,244
----------
$3,540,053
==========

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eGAIN COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

6. STOCKHOLDERS' EQUITY

Convertible Preferred Stock

Convertible preferred stock as of June 30, 1999 consisted of the following:

[Download Table]

Noncumulative Liquidation
Shares Shares Dividend Preference
Authorized Outstanding Per Share Per Share
---------- ----------- ------------- -----------

Series A.................... 5,707,043 5,406,585 $0.06 $0.8055
Series B.................... 2,600,000 2,550,000 $0.16 $2.00
Series C.................... 1,728,844 1,609,793 $0.08 $1.00
---------- ---------
10,035,887 9,566,378
========== =========

Each share of Series A, B, and C preferred stock is convertible, at the
option of the holder, into a share of common stock, on a one-for-one basis,
subject to adjustments for dilution, if any, resulting from future stock
issuances. Additionally, the preferred shares automatically convert into common
stock concurrent with the closing of an underwritten public offering of common
stock under the Securities Act of 1933 in which eGain receives at least
$10,000,000 in gross proceeds and the price per share is at least $5.00
(subject to adjustment for a recapitalization or certain other stock
adjustments). Each share of Series A, B, and C preferred stock has voting
rights equal to one share common stock on an as-if-converted basis.

No dividends have been declared or paid through June 30, 1999. Under the
terms of the bank line of credit, eGain is prohibited from paying a dividend.

The Series A, B, and C preferred stockholders are entitled to receive, upon
liquidation, a distribution of $0.8055, $2.00, and $1.00 per share (subject to
adjustment for a recapitalization) plus all declared but unpaid dividends. The
Series A and B stockholders are entitled to receive liquidation preferences
prior to any distribution to the Series C stockholders. Thereafter, the
remaining assets and funds, if any, shall be distributed ratably on a per-share
basis among the common stockholders and the Series A, B, and C preferred
stockholders until the Series A, B, and C preferred stockholders have received
an aggregate amount of $2.81925, $6.00, and $2.00 per share.

Common Stock

eGain has issued shares of common stock to founders which are subject to
eGain's right to repurchase upon termination of employment. The repurchase
rights lapse ratably over a period of two years from the date of issuance. At
June 30, 1998 and 1999, 5,333,334 and 2,666,666 shares were subject to
repurchase.

At June 30, 1999, common stock was reserved for issuance as follows:

[Download Table]

Conversion of preferred stock................................... 9,566,378
Exercise of outstanding stock options........................... 2,524,928
Shares of common stock available for grant under the 1998 Stock
Plan........................................................... 567,004
Exercise of preferred and common stock warrants outstanding..... 591,471
----------
13,249,781
==========

F-15

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eGAIN COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Certain option holders have exercised options to purchase shares of
restricted common stock in exchange for five-year, full recourse promissory
notes. The notes bear interest ranging from 4.5% to 5.5% and expire at various
dates through June 2004. eGain has the right to repurchase all unvested shares
at the original exercise price upon employee termination. The number of shares
subject to this repurchase right decreases as the shares vest under the
original option terms, generally four years. As of June 30, 1999, there were
shares 1,149,813 subject to repurchase.

eGain effected a two-for-one stock split of its common stock on June 23,
1998. All share and per share amounts have been adjusted to reflect the stock
split.

Warrants

Warrants to purchase 188,699 shares of Series A preferred stock for a price
of $0.8055 per share were issued in connection with the issuance of convertible
promissory notes in fiscal year 1998. The convertible promissory notes were
subsequently converted into Series A preferred stock. The warrants expire
within two to three years from the date of issuance or upon the closing of a
public offering by eGain. The fair value was appraised at the date of issuance
and additional interest expense of approximately $57,000 was recorded.

Warrants to purchase 74,511 shares of Series A preferred stock for a price of
$0.8055 per share were issued in connection with the line of credit and
equipment credit facilities entered into during fiscal year 1999. The warrants
expire at the earlier of seven years from the date of issuance or five years
after completion of an initial public offering. The warrants were appraised at
the date of issuance and additional interest expense of $36,000 is being
amortized to interest expense over the term of the loans. During the year ended
June 30, 1999, $14,000 of the additional interest expense was amortized.

A warrant to purchase 175,000 shares of common stock at a price of $0.20 per
share was issued to FW Ventures I, L.P. in connection with financial advisory
services rendered in connection with the acquisition of Sitebridge. Mark
Wolfson, a director of eGain, is a limited partner of FW Ventures I, L.P. The
warrant expires in July 2002 and is exercisable at any time prior to the
closing of a public offering by eGain. The fair value was appraised at the date
of issuance as $789,250 and has been included in the acquisition costs (see
Note 2).

Warrants to purchase 121,006 shares of Series C preferred stock for a price
of $0.9916 per share and 30,440 shares of common stock for a price of $0.2754
per share were assumed by eGain in connection with its acquisition of
Sitebridge. The warrants expire at various dates through May 2003. The fair
value of the warrants was appraised at the date of issuance and an amount of
$1,100,000 was included as part of the purchase consideration for Sitebridge
(see Note 2).

1998 Stock Plan

In June 1998, the board of directors adopted the 1998 Stock Plan (the
"Plan"), which provides for issuance to purchase options of common stock to
eligible participants. Options granted under the Plan may be either incentive
stock options or nonstatutory stock options. Incentive stock options may be
granted to employees with exercise prices of no less than the fair value and
nonstatutory options

F-16

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eGAIN COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

may be granted to eligible participants at exercise prices of no less than 85%
of the fair value of the common stock on the grant date as determined by the
board of directors. Options are generally exercisable upon grant, subject to
repurchase rights by eGain until vested.

Pro forma information regarding net loss is required by SFAS 123, and has
been determined as if eGain had accounted for its employee stock options under
the fair value method as specified by SFAS 123. The fair value of these options
was estimated at the date of grant using the minimum value method with the
following weighted-average assumptions: no dividends; an expected life of 3.5
years; and a risk-free interest rate of approximately 5.65% and 5.72% for the
periods ended June 30, 1998 and 1999.

Options generally vest ratably over a period of four years. Options may be
granted with different vesting terms at the discretion of the board of
directors. Options are generally exercisable for a term of ten years after the
date of grant.

The effect of applying the FASB statement's minimum value method to eGain's
stock options granted did not result in pro forma net loss amounts that are
materially different from the reported historical amounts. Therefore, such pro
forma information is not separately presented herein. Future pro forma net
income (loss) results may be materially different from actual amounts reported.

A summary of activity under eGain's stock option plan was as follows:

[Download Table]

Weighted-
Shares Average
Available Exercise
for Grant Options Price
---------- ---------- ---------

Shares authorized for issuance................ 2,000,000
Options granted............................. (511,000) 511,000 $0.05
---------- ----------
Balance at June 30, 1998...................... 1,489,000 511,000 $0.05
Additional authorization.................... 1,500,000 --
Options granted............................. (2,666,101) 2,666,101 $0.24
Options exercised........................... -- (1,447,396) $0.12
Options cancellations....................... 249,105 (249,105) $0.08
Repurchases................................. 75,000 --
---------- ----------
Balance at June 30, 1999...................... 647,004 1,480,600 $0.24
========== ==========

In connection with the acquisition of Sitebridge, eGain assumed options to
purchase 1,114,016 shares of common stock, of which 982,431 are outstanding at
June 30, 1999.

[Download Table]

Options Outstanding Options Exercisable
----------------------------------------- ---------------------------
Weighted-
Average Weighted- Options Weighted-
Remaining Average Exercisable Average
Exercise At June Contractual Exercise at June 30, Exercise
Price Range 30, 1999 Life Price 1999 Price
----------- --------- ----------- --------- ----------- ---------
(In years)

$0.02-$0.05 246,544 8.04 $0.02 116,877 $0.02
$0.10-$0.20 1,371,237 8.47 $0.14 590,809 $0.14
$0.25-$0.50 845,250 9.94 $0.46 23,167 $0.45
--------- -------
2,463,031 8.92 $0.24 730,853 $0.23
========= =======

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eGAIN COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The weighted-average fair value of options granted during the period from
inception (September 10, 1997) to June 30, 1998 was $0.01. It was $0.06 per
share for options granted during the fiscal year ended June 30, 1999.

Stock Compensation

The Company recorded deferred compensation of $168,932 and $8,295,974 during
the periods ended June 30, 1998 and 1999, respectively. These amounts represent
the difference between the exercise price and the deemed fair value of certain
stock options granted to employees by eGain in these periods. During the
periods ended June 30, 1998 and 1999, the Company also recorded deferred
compensation with respect to stock options granted to consultants totaling
$65,100 and $2,322,930 respectively. Options granted to consultants are
periodically valued as they vest in accordance with SFAS 123 and EITF 96-18
using a Black-Scholes model and the following weighted average assumptions for
fiscal 1998 and 1999: volatility of 0.5, risk-free interest rate of
approximately 5.7%, no dividend yield; and an expected life of the option equal
to the full term, generally 10 years from the date of grant. Deferred
compensation is being amortized by charges to operations on a graded vesting
method over the vesting periods of the individual stock options. Such
amortization amounted to $58,258 and $1,838,561 for the periods ended June 30,
1998 and 1999, respectively.

7. INCOME TAXES

Due to operating losses and the inability to recognize the benefits from the
resulting net operating losses, there is no provision for income taxes for the
period from inception (September 10, 1997) to June 30, 1998 or for the year
ended June 30, 1999.

As of June 30, 1999, eGain had federal net operating loss carryforwards of
approximately $11,000,000. eGain also had federal research and development
credit carryforwards of approximately $100,000. The net operating loss and
credit carryforwards will expire at various dates beginning in 2011 through
2019, if not utilized.

Utilization of the net operating losses and credits may be subject to a
substantial limitation due to the "change in ownership" provisions of the
Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in the expiration of net operating losses and credits
before utilization.

F-18

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eGAIN COMMUNICATIONS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Deferred tax assets and liabilities reflect the net tax effects of net
operating loss and credit carryforwards and of temporary differences between
the carrying amounts of assets and liabilities for financial reporting and the
amounts used for income tax purposes. Significant components of eGain's
deferred tax assets and liabilities for federal and state income taxes are as
follows (in thousands):

[Download Table]

As of June 30,
----------------
1998 1999
------- --------

Deferred tax assets:
Net operating loss carryforwards......................... $ 300 $ 4,300
Research credits......................................... -- 100
Deferred compensation.................................... -- 900
Other individually immaterial items...................... -- 100
------ --------
Total deferred tax assets.............................. 300 5,400
Valuation allowance for deferred tax assets............ (300) (4,900)
------ --------
Net deferred tax assets.................................... $ -- $ 500
Deferred tax liabilities:
Other intangibles.......................................... -- (500)
------ --------
$ -- $ --
====== ========

SFAS 109 provides for the recognition of deferred tax assets if realization
of such assets is more likely than not. Based upon the weight of available
evidence, which includes eGain's historical operating performance and the
reported cumulative net losses through June 30, 1999, eGain has provided a full
valuation allowance against its net deferred tax assets.

The net valuation allowance increased by $300,000 during the year ended June
30, 1998.

8. SUBSEQUENT EVENTS (UNAUDITED)

Series D Preferred Stock Financing

In July 1999, the Company issued 652,000 shares of Series D convertible
preferred stock at a price of $8.00 per share for total consideration of
$5,216,000.

Each share of Series D preferred stock is convertible into one share of
common stock (subject to antidilution adjustment) at any time at the option of
the holder. The Series D preferred stock will automatically convert into common
stock upon (i) the consummation of an underwritten public offering ("IPO") with
a price per share of at least $12.00 and aggregate proceeds in excess of
$20,000,000 or (ii) the election of holders of a majority of the outstanding
Series D preferred stock.

Each holder of Series D preferred stock is entitled to receive, when and if
declared by the Company's board, non cumulative dividends at an annual rate of
$0.64 which is equal to 8% of the purchase price per share. For any other
dividends or distributions, preferred stock participates with common stock on
an as-converted basis.

In the event of any liquidation or winding up of the Company, the holders of
Series D preferred will be entitled to receive in preference to the holders of
common stock and Series C preferred stock

F-19

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eGAIN COMMUNICATIONS CORPORATION

NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)

and pari passu with the holders of the Series A preferred stock and Series B
preferred stock an amount equal to the Purchase Price plus any declared and
unpaid dividends on the preferred stock. Thereafter, any remaining assets will
be distributed ratably to the holders of the preferred stock and common stock
on an as-converted basis until the holders of the Series A preferred stock
shall have received an aggregate of $2.81925 per share, the holders of the
Series B preferred stock shall have received an aggregate of $7.00 per share,
the holders of the Series C preferred stock shall have received $2.00 and the
holders of Series D preferred stock shall have received an aggregate of $16.00.
Thereafter, the remaining assets of the Company will be distributed ratably to
the holders of common stock.

A merger, reorganization or similar transaction in which control of the
Company is transferred will be treated as a liquidation for purposes of the
above preferences.

Initial Public Offering

In July 1999, the board of directors authorized the filing of a registration
statement with the Securities and Exchange Commission to register shares of its
common stock in connection with a proposed Initial Public Offering ("IPO"). If
the offering is consummated under the terms presently anticipated, all of the
currently outstanding convertible preferred stock and the Series D preferred
stock issued in July 1999 will convert to shares of common stock upon the
closing of the IPO on a one-for-one basis. The effect of this conversion has
been reflected as unaudited pro forma stockholders' equity in the accompanying
consolidated balance sheet at June 30, 1999.

In July 1999, the board of directors also authorized 5,000,000 shares of
undesignated preferred stock, for which the board of directors is authorized to
fix the designation, powers, preferences and rights and an increase in the
authorized number of shares of common stock to 50,000,000 shares.

1999 Employee Stock Purchase Plan

The Company's 1999 Employee Stock Purchase Plan was adopted by the Board of
Directors and approved by the stockholders in July 1999 to be effective upon
the completion of the Company's initial public offering of its common stock.
The Company has reserved a total of 750,000 shares of common stock for issuance
under the plan. Eligible employees may purchase common stock at 85% of the
lesser of the fair market value of the Company's common stock on the first and
last days of the applicable six month offering period.

Increase in Option Pool

In July 1999, the board of directors authorized and the stockholders approved
an increase of 3,000,000 shares for issuance under eGain's stock option plan
and granted approximately 773,000 options to purchase common stock to employees
and consultants.

F-20

424B4 91st Page of 106 TOC 1st Previous Next ↓Bottom Just 91st
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Sitebridge Corporation

We have audited the accompanying balance sheets of Sitebridge Corporation (a
development stage company) as of December 31, 1997 and 1998, and the related
statements of operations, stockholders' equity (net capital deficiency), and
cash flows for the period from inception (September 10, 1996) to December 31,
1997, the year ended December 31, 1998, and the period from inception
(September 10, 1996) to December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Sitebridge Corporation (a
development stage company) at December 31, 1997 and 1998, and the results of
its operations and its cash flows for the period from inception (September 10,
1996) to December 31, 1997, the year ended December 31, 1998, and the period
from inception (September 10, 1996) to December 31, 1998, in conformity with
generally accepted accounting principles.

/s/ Ernst & Young LLP
Palo Alto, California
July 16, 1999

F-21

424B4 92nd Page of 106 TOC 1st Previous Next ↓Bottom Just 92nd
SITEBRIDGE CORPORATION
(a development stage company)

BALANCE SHEETS

[Download Table]

December 31,
----------------------
1997 1998
--------- -----------

Assets
Current assets:
Cash and cash equivalents............................ $ 71,695 $ 141,191
Accounts receivable.................................. -- 26,122
Other current assets................................. 1,500 22,547
--------- -----------
Total current assets................................... 73,195 189,860
Property and equipment, net............................ 5,040 47,354
Other long-term assets................................. -- 10,500
--------- -----------
$ 78,235 $ 247,714
========= ===========
Liabilities and stockholders' equity (net capital
deficiency)
Current liabilities:
Accounts payable and accrued liabilities............. $ 9,824 $ 33,112
Deferred revenue..................................... -- 37,045
Payable to stockholder............................... 10,500 --
--------- -----------
Total current liabilities.............................. 20,324 70,157
Notes payable.......................................... 348,305 430,000
Commitments
Stockholders' equity (net capital deficiency):
Convertible preferred stock, $0.001 par value,
1,200,000 shares authorized, issuable in series;
822,600 shares issued and outstanding at December
31, 1998 (aggregate liquidation preference of
$1,480,680 at December 31, 1998).................... -- 1,456,573
Common stock, $0.001 par value, 4,000,000 shares
authorized, 777,900 and 801,900 shares issued and
outstanding at December 31, 1997 and 1998........... 15,195 21,195
Additional paid-in capital........................... -- 60,000
Accumulated deficit.................................. (305,589) (1,790,211)
--------- -----------
Stockholders' equity (net capital deficiency).......... (290,394) (252,443)
--------- -----------
$ 78,235 $ 247,714
========= ===========

See accompanying notes.

F-22

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SITEBRIDGE CORPORATION
(a development stage company)

STATEMENTS OF OPERATIONS

[Download Table]

Period from inception Period from inception
(September 10, 1996) Year ended (September 10, 1996)
to December 31, December 31, to December 31,
1997 1998 1998
--------------------- ------------ ---------------------

Revenue:
License............... $ -- $ 59,800 $ 59,800
Service............... -- 50,612 50,612
--------- ----------- -----------
Total revenue....... -- 110,412 110,412
--------- ----------- -----------
Costs and expenses:
Cost of revenues...... -- 144,073 144,073
Research and
development.......... 181,994 792,404 974,398
Sales, general and
administrative....... 113,175 588,463 701,638
--------- ----------- -----------
Total costs and
expenses........... 295,169 1,524,940 (1,820,109)
--------- ----------- -----------
Loss from operations.... (295,169) (1,414,528) (1,709,697)
Interest and other
expense, net........... (10,420) (70,094) (80,514)
--------- ----------- -----------
Net loss................ $(305,589) $(1,484,622) $(1,790,211)
========= =========== ===========
Basic and diluted net
loss per share......... $ (1.06) $ (1.88)
========= ===========
Weighted-average shares
outstanding............ 289,168 788,701
========= ===========

See accompanying notes.

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SITEBRIDGE CORPORATION
(a development stage company)

STATEMENT OF STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)

[Enlarge/Download Table]

Total
Stockholders'
Convertible Preferred Stock Common Stock Additional Equity (Net
--------------------------- --------------- Paid-In Accumulated Capital
Shares Amount Shares Amount Capital Deficit Deficiency)
--------------------------- ------- ------- ---------- ------------ -------------

Issuance of common stock
to founders for
technology and cash in
October 1996............ -- $ -- 720,000 $ 6,000 $ -- $ -- $ 6,000
Issuance of common stock
for cash in January
through October 1997 at
per share prices of
$0.03 and $0.25......... -- -- 57,900 9,195 -- -- 9,195
Net loss and
comprehensive loss...... -- -- -- -- -- (305,589) (305,589)
----------- --------------- ------- ------- ------- ------------ ----------
Balance at December 31,
1997.................... -- -- 777,900 15,195 -- (305,589) (290,394)
Issuance of Series A
preferred stock at $1.80
per share in May 1998,
net of issuance costs of
$24,131................. 510,831 895,389 -- -- -- -- 895,389
Issuance of Series A
preferred stock at $1.80
per share in May 1998
upon conversion of
promissory notes and
accrued interest........ 311,769 561,184 -- -- -- -- 561,184
Issuance of warrant in
May 1998................ -- -- -- -- 60,000 -- 60,000
Issuance of common stock
for cash in January
through June 1998 at per
share price of $0.25.... -- -- 24,000 6,000 -- -- 6,000
Net loss and
comprehensive loss...... -- -- -- -- -- (1,484,622) (1,484,622)
----------- --------------- ------- ------- ------- ------------ ----------
Balance at December 31,
1998.................... 822,600 $ 1,456,573 801,900 $21,195 $60,000 $ (1,790,211) $ (252,443)
=========== =============== ======= ======= ======= ============ ==========

See accompanying notes.

F-24

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SITEBRIDGE CORPORATION
(a development stage company)

STATEMENTS OF CASH FLOWS

[Download Table]

Period from Period from
inception inception
(September 10, (September 10,
1996) to Year ended 1996) to
December 31, December 31, December 31,
1997 1998 1998
-------------- ------------ --------------

Operating activities:
Net loss.......................... $ (305,589) $ (1,484,622) $ (1,790,211)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation.................... 3,960 7,630 11,590
Accrued interest converted to
preferred stock................ -- 19,602 19,602
Warrant amortization............ -- 60,000 60,000
Changes in operating assets and
liabilities:
Accounts receivable........... -- (26,122) (26,122)
Other assets.................. (1,500) (31,547) (33,047)
Accounts payable and accrued
liabilities.................. 9,824 23,288 33,112
Deferred revenue.............. -- 37,045 37,045
---------- ------------ ------------
Net cash used in operating
activities................. (293,305) (1,394,726) (1,688,031)
---------- ------------ ------------
Investing activities:
Purchases of property and
equipment...................... (9,000) (49,944) (58,944)
---------- ------------ ------------
Net cash used in investing
activities................. (9,000) (49,944) (58,944)
---------- ------------ ------------
Financing activities:
Proceeds from issuance of
preferred stock................ -- 895,389 895,389
Proceeds from issuance of common
stock.......................... 15,195 6,000 21,195
Proceeds from issuance of notes
payable........................ 348,305 623,277 971,582
Loan from stockholder........... 10,500 (10,500) --
---------- ------------ ------------
Net cash provided by
financing activities....... 374,000 1,514,166 1,888,166
---------- ------------ ------------
Net increase in cash and cash
equivalents...................... 71,695 69,496 141,191
Cash and cash equivalents at
beginning of period.............. -- 71,695 --
---------- ------------ ------------
Cash and cash equivalents at end
of period........................ $ 71,695 $ 141,191 $ 141,191
========== ============ ============
Supplemental disclosure of cash
flow information
Promissory notes and accrued
interest converted into preferred
stock............................ $ -- $ 561,184 $ 561,184
========== ============ ============
Issuance of warrant............... $ -- $ 60,000 $ 60,000
========== ============ ============

See accompanying notes.

F-25

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SITEBRIDGE CORPORATION
(a development stage company)

NOTES TO FINANCIAL STATEMENTS

December 31, 1998

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Business

Sitebridge Corporation ("Sitebridge"), formerly known as Social Science,
Inc., develops and deploys mission-critical, Internet-based, front-office
applications for sales and service organizations and was incorporated in
Delaware on September 10, 1996. The operating results for the period from
inception to December 31, 1996 were not material. Sitebridge conducts its
business within one industry segment and all operations through December 31,
1998 were based in the United States.

Since inception, Sitebridge has been engaged primarily in research and
development activities in connection with the development of its products.
Other activities have included raising capital, recruiting managerial and
technical personnel, and establishment of business development and marketing
organizations. Accordingly, Sitebridge was classified as a development stage
enterprise at December 31, 1998.

On April 30, 1999, eGain Communications Corporation ("eGain"), acquired
Sitebridge (see Note 5). To date, Sitebridge has financed its operations with
the net proceeds from private placements of its equity securities. Additional
financing through eGain will be required to fund Sitebridge's operations and
market its products.

Use of Estimates

Cash and Cash Equivalents

Sitebridge considers all highly liquid investments with a maturity from date
of purchase of three months or less to be cash equivalents.

Concentration of Credit Risk and Significant Customers

Financial instruments that subject Sitebridge to concentrations of credit
risk consist principally of cash investments and accounts receivable.
Sitebridge invests cash which is not required for immediate operating needs
principally in money market funds, which bear minimal risk.

At December 31, 1998, 3 customers represented 84% of the total balance of
accounts receivable. For the year ended December 31, 1998, 3 customers
accounted for 27%, 15%, and 9% of total revenue.

F-26

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SITEBRIDGE CORPORATION
(a development stage company)

NOTES TO FINANCIAL STATEMENTS--(Continued)

Property and Equipment

Property and equipment are stated at cost, net of accumulated amortization
and depreciation. Property and equipment are depreciated on a straight-line
basis over the estimated useful lives of the assets, typically three to five
years. Leasehold improvements are amortized using the straight-line method over
the shorter of the estimated life of the asset or the remaining term of the
lease.

Revenue Recognition

Revenue from license fees and from sales of software products is recognized
when persuasive evidence of an agreement exists, delivery of the product has
occurred, no significant Sitebridge obligations with regard to implementation
remain, the fee is fixed or determinable, and collectibility is probable.
Revenue is deferred in cases where the license arrangement calls for future
delivery of products or services for which Sitebridge does not have vendor-
specific objective evidence to allocate a portion of the total fee to the
undelivered element. In such cases, revenue is recognized when the undelivered
elements are delivered or vendor-specific objective evidence of the undelivered
elements becomes available.

Service revenue consists of consulting services, training, and maintenance,
which includes product updates and technical support. Consulting service and
training revenue is generally recognized as services are performed. Maintenance
revenue is recognized ratably over the term of the agreement. In instances
where software license agreements include a combination of consulting services,
training, and maintenance, these separate elements are unbundled from the
arrangement based on the element's relative fair value.

Software Development Costs

Software development costs are included in research and development and are
expensed as incurred until technological feasibility is achieved. To date, the
period between achieving technological feasibility and general availability of
software has been short and software development costs qualifying for
capitalization have been insignificant. Accordingly, Sitebridge has not
capitalized any software development costs.

Stock-Based Compensation

Sitebridge accounts for its stock-based compensation arrangements with
employees using the intrinsic value method. Deferred stock-based compensation
is recorded on the date of grant when the deemed fair value of the underlying
common stock exceeds the exercise price for stock options.

Comprehensive Loss

SiteBridge has no material components of other comprehensive loss and,
accordingly, the comprehensive loss is the same as net loss for all periods
presented.

Net Loss Per Share

Basic and diluted net loss per share has been computed using the weighted-
average number of shares of common stock outstanding during the period. Had
Sitebridge been in a net income

F-27

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SITEBRIDGE CORPORATION
(a development stage company)

NOTES TO FINANCIAL STATEMENTS--(Continued)

position, diluted earnings per share would have included the shares used in the
computation of basic net loss per share as well as the impact of outstanding
options and warrants to purchase an additional 291,035 and 586,806 shares,
prior to the application of the treasury stock method, for the period from
inception (September 10, 1996) to December 31, 1997 and the year ended December
31, 1998. Such shares have been excluded because they are antidilutive for all
periods presented. Shares of convertible preferred stock have been excluded
from the computation.

A reconciliation of shares used in the calculation of basic and diluted net
loss per share follows:

[Download Table]

Period from
inception
(September 10,
1996) to Year ended
December 31, December 31,
1997 1998
-------------- ------------

Net loss....................................... $(305,589) $(1,484,622)
--------- -----------
Basic and diluted:
Weighted-average shares of common stock
outstanding................................. 851,668 1,171,201
Less weighted-average shares subject to
repurchase.................................. (562,500) (382,500)
--------- -----------
Shares used in computing basic and diluted
net loss per share.......................... 289,168 788,701
========= ===========
Basic and diluted net loss per share........... $ (1.06) $ (1.88)
========= ===========

Recent Accounting Pronouncements

In June 1998, the FASB issued Statement of Financial Accounting Standard No.
133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging
Activities," which will be effective for the year ending December 31, 2000.
This statement establishes accounting and reporting standards requiring that
every derivative instrument, including certain derivative instruments embedded
in other contracts, be recorded in the balance sheet as either an asset or
liability measured at its fair value. The statement also requires that changes
in the derivative's fair value be recognized in earnings unless specific hedge
accounting criteria are met. Sitebridge believes the adoption of SFAS 133 will
not have a material effect on the financial statements, since it currently does
not invest in derivative instruments and engage in hedging activities.

In March 1998, the American Institute of Certified Public Accountants issued
SOP 98-1, "Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use" ("SOP 98-1"). SOP 98-1 requires that entities capitalize
certain costs related to internal use software once certain criteria have been
met. Sitebridge is required to implement SOP 98-1 for the year ending December
31, 2000. Adoption of SOP 98-1 is expected to have no material impact on
SiteBridge's financial condition or results of operations.

F-28

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SITEBRIDGE CORPORATION
(a development stage company)

NOTES TO FINANCIAL STATEMENTS--(Continued)

2. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

[Download Table]

December 31,
--------------
1997 1998
------ -------

Furniture and equipment...................................... $9,000 $43,944
Leasehold improvements....................................... -- 15,000
------ -------
9,000 58,944
Less accumulated depreciation................................ 3,960 11,590
------ -------
Property and equipment, net.................................. $5,040 $47,354
====== =======

3. CONVERTIBLE BRIDGE NOTES

In 1997 and 1998, Sitebridge issued convertible bridge notes to investors.
The convertible notes accrued interest at a rate of 5.63% per year and were
convertible into preferred stock at the Company's option. In May 1998,
convertible notes in the amount of $541,582 plus accrued interest of $19,602
were exchanged for 311,769 shares of Series A convertible preferred stock at a
price of $1.80 per share.

In October 1998, Sitebridge issued a convertible bridge note in the amount of
$250,000 which was outstanding at December 31, 1998. The convertible note
accrued interest at 5.06% per year and was convertible into preferred stock at
a price of $4.00 per share. The principle and accrued interest related to the
note was converted into 64,302 shares of Series A convertible preferred stock
in April 1999.

In December 1998, Sitebridge issued a promissory note in the amount of
$180,000 which was outstanding at December 31, 1998. The note accrues interest
at 5.0% per year and is payable on January 31, 2000, as amended.

In connection with the issuance of the convertible notes, Sitebridge issued
warrants to purchase both preferred and common stock (see Note 5).

4. COMMITMENTS

Operating Lease Commitments

Sitebridge leases its facilities under noncancelable operating leases
expiring in March 2003. Rent expense for facilities under operating leases was
$13,859 and $45,660 for the period from inception (September 10, 1996) to
December 31, 1997 and the year ended December 31, 1998. Future minimal rental
commitments under operating leases at December 31, 1998 are as follows:

[Download Table]

1999................................................................ $ 67,500
2000................................................................ 70,500
2001................................................................ 76,500
2002................................................................ 78,000
2003................................................................ 19,500
--------
$312,000
========

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SITEBRIDGE CORPORATION
(a development stage company)

NOTES TO FINANCIAL STATEMENTS--(Continued)

5. STOCKHOLDERS' EQUITY

Convertible Preferred Stock

Sitebridge's Certificate of Incorporation provides for the issuance of up to
1,200,000 shares of convertible preferred stock, 889,667 shares of which have
been designated as Series A.

Each share of Series A preferred stock is convertible, at the option of the
holder, into a share of common stock, on a one-for-one basis, subject to
certain adjustments for dilution, if any, resulting from future stock
issuances. Additionally, the preferred shares automatically convert into common
stock concurrent with the closing of an underwritten public offering of common
stock under the Securities Act of 1933 in which Sitebridge receives at least
$15,000,000 in net proceeds and the price per share is at least $1.80 (subject
to adjustment for a recapitalization or certain other stock adjustments).

Series A preferred stockholders are entitled to annual noncumulative
dividends, before and in preference to any dividends paid on common stock, when
and as declared by the board of directors. No dividends have been declared
through December 31, 1998.

The Series A preferred stockholders are entitled to receive, upon liquidation
or merger, a distribution of $1.80 per share (subject to adjustment for a
recapitalization) plus all declared but unpaid dividends. Thereafter, the
remaining assets and funds, if any, shall be distributed ratably on a per-share
basis among the common stockholders and the Series A preferred stockholders.

The Series A preferred stockholders have voting rights equal to the common
shares they would own upon conversion.

As of December 31, 1998, Sitebridge has reserved 960,102 shares of common
stock for issuance upon conversion of its Series A preferred stock.

Common Stock

In October 1996, Sitebridge issued 720,000 shares of common stock to founders
for technology and cash. The common stock is subject to repurchase upon
termination of employment. Sitebridge's repurchase right lapses ratably over
four years with respect to such shares. At December 31, 1998, approximately
315,000 shares were subject to repurchase.

Warrants

Sitebridge had the following warrants to purchase shares of preferred and
common stock outstanding at December 31, 1998:

[Download Table]

Number of Exercise Price Expiration of
Shares Stock Type Per Share Date Issued Warrants
--------- ------------------------ -------------- ------------ -------------

66,667 Series A preferred stock $1.80 May 1998 May 2003
16,771 Common stock $0.50 October 1998 October 2001

F-30

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SITEBRIDGE CORPORATION
(a development stage company)

NOTES TO FINANCIAL STATEMENTS--(Continued)

Outstanding warrants are exercisable immediately prior to the close of
business on the date of its surrender. The warrants were appraised at the date
of issuance or the date when all terms were fixed, and additional interest
expense of $60,000 was recorded during 1998.

Warrants to purchase 36,109 shares of Series A preferred stock were exercised
in 1998 as part of the Series A preferred stock financing.

1997 Stock Plan

In May 1997, the board of directors adopted the 1997 Stock Plan (the "Plan")
for issuance of options of common stock to eligible participants. Options
granted may be either incentive stock options or nonstatutory stock options.
Incentive stock options may be granted to employees with exercise prices of no
less than the fair value and nonstatutory options may be granted to eligible
participants at exercise prices as determined by the plan administrator.
Options generally vest at the rate of 25% after one year from the date of
grant, with the remaining balance vesting monthly over the next four years with
a term of 10 years. Sitebridge has reserved 650,000 shares of common stock for
the grant of options under the Plan.

Pro forma information regarding net loss is required by SFAS 123, and has
been determined as if Sitebridge had accounted for its employee stock options
under the fair value method as specified by SFAS 123. The fair value of these
options was estimated at the date of grant using the minimum value method with
the following weighted-average assumptions: no dividends; an expected life of
five years; and a risk-free interest rate of approximately 5.5% for the periods
ended December 31, 1997 and 1998.

The effect of applying the FASB statement's minimum value method to
Sitebridge's stock options granted did not result in pro forma net loss amounts
that are materially different from the reported historical amounts. Therefore,
such pro forma information is not separately presented herein. Future pro forma
net income (loss) results may be materially different from actual amounts
reported.

A summary of activity under Sitebridge's stock plan was as follows:

[Download Table]

Weighted-
Shares Available Average
for Grant Options Exercise Price
---------------- ------- --------------

Shares authorized for issuance.... 220,000 --
Additional authorization........ 150,000 --
Options granted................. (296,035) 296,035 $0.17
Options canceled................ 5,000 (5,000) $0.25
-------- -------
Balance at December 31, 1997...... 78,965 291,035 $0.17
Additional authorization........ 280,000 --
Options granted................. (347,597) 347,597 $0.25
Options canceled................ 68,542 (68,542) $0.25
-------- -------
Balance at December 31, 1998...... 79,910 570,090 $0.21
======== =======

F-31

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SITEBRIDGE CORPORATION
(a development stage company)

NOTES TO FINANCIAL STATEMENTS--(Continued)

[Download Table]

Options Outstanding
-------------------------------- Weighted-
Options Average Options
Exercise Outstanding at Remaining Exercisable at
Price December 31, Contractual December 31,
Range 1998 Life 1998
-------- -------------- ----------- --------------
(In years)

$0.03 102,774 7.62 --
$0.25 467,316 9.19 63,170

The weighted-average fair value of options granted during the period ended
December 31, 1997 was $0.03. It was $0.04 per share for options granted during
the year ended December 31, 1998.

6. INCOME TAXES

As of December 31, 1998, Sitebridge had federal net operating loss
carryforwards of approximately $1,700,000. The net operating loss and credit
carryforwards will expire at various dates beginning in 2011 through 2018, if
not utilized.

Utilization of the net operating losses may be subject to a substantial
annual limitation due to the "change in ownership" provisions of the Internal
Revenue Code of 1986 and similar state provisions. The annual limitation may
result in the expiration of net operating losses and credits before
utilization.

As of December 31, 1997 and 1998, Sitebridge had deferred tax assets of
approximately $100,000 and $900,000. The net deferred tax assets have been
fully offset by a valuation allowance. The net valuation allowance increased by
$800,000 during the year ended December 31, 1998. Deferred tax assets relate
primarily to net operating loss carryforwards, and deferred compensation not
currently deductible.

SFAS 109 provides for the recognition of deferred tax assets if realization
of such assets is more likely than not. Based upon the weight of available
evidence, which includes Sitebridge's historical operating performance and the
reported cumulative net losses through December 31, 1998, Sitebridge has
provided a full valuation allowance against its net deferred tax assets.

7. SUBSEQUENT EVENTS (UNAUDITED)

Borrowings

During 1999, Sitebridge issued a promissory note in the amount of $200,000,
which accrues interest at 5% per year and is payable on January 31, 2000.

Acquisition

On April 30, 1999, eGain acquired all the outstanding shares of Sitebridge's
common and preferred stock. Outstanding options and warrants to purchase
Sitebridge's common and preferred stock have been assumed by eGain.

F-32

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eGAIN COMMUNICATIONS CORPORATION AND SITEBRIDGE CORPORATION

UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL INFORMATION

On April 30, 1999, eGain Communications Corporation ("eGain") completed the
acquisition of Sitebridge Corporation ("Sitebridge"). The acquisition of
Sitebridge has been accounted for as a purchase. Accordingly, the results of
operations of Sitebridge have been included in the consolidated statement of
operations of eGain commencing on the date of acquisition.

The accompanying pro forma condensed combined statement of operations for
eGain's year ended June 30, 1999 assumes that the acquisition took place as of
the beginning of fiscal 1999 and combined Sitebridge's statement of operations
for the ten months ended April 30, 1999 with eGain's consolidated statement of
operations for the fiscal year ended June 30, 1999.

The unaudited pro forma condensed combined information is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have actually occurred if the
acquisition had been consummated as of the date indicated, nor is it
necessarily indicative of future operating results or financial position. The
pro forma adjustments are based on the information available at the time of the
printing of this prospectus.

F-33

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eGAIN COMMUNICATIONS CORPORATION AND SITEBRIDGE CORPORATION

PRO FORMA CONDENSED STATEMENT OF OPERATIONS

[Enlarge/Download Table]

Year Ended Ten Months
June 30, Ended
1999 April 30, 1999
------------ --------------
Pro Forma Pro Forma
eGain Sitebridge Adjustments Combined
------------ -------------- ----------- ------------

Revenue................. $ 1,019,343 $ 57,534 $ -- $ 1,076,877
Costs and expenses:
Cost of revenue........ 1,772,159 126,060 -- 1,898,219
Research and
development........... 2,095,784 982,549 -- 3,078,333
Sales, general and
administrative........ 5,416,681 678,006 -- 6,094,687
Amortization........... 3,034,323 -- 5,920,276 (A) 8,954,599
------------ ----------- ----------- ------------
Total costs and
expenses............. 12,318,947 1,786,615 5,920,276 20,025,838
------------ ----------- ----------- ------------
Loss from operations.. (11,299,604) (1,729,081) (5,920,276) (18,948,961)
Interest and other
expenses, net......... (4,897) (7,885) -- (12,782)
------------ ----------- ----------- ------------
Net loss.............. $(11,304,501) $(1,736,966) $(5,920,276) $(18,961,743)
============ =========== =========== ============
Basic and diluted net
loss per share......... $ (2.14) $ (3.04)(B)
============ ============
Shares used in computing
basic and diluted net
loss per share......... 5,294,736 6,239,366 (B)
============ ============

See accompanying notes

F-34

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Notes to the Unaudited Pro Forma Condensed
Combined Financial Information

The total estimated purchase price of the acquisition has been allocated to
acquired assets and liabilities based on estimates of their fair values. The
excess of the purchase price over the fair value of the tangible and intangible
net assets acquired has been allocated to goodwill.

The adjustments to the unaudited pro forma condensed combined statement of
operations for the year ended June 30, 1999, assume the acquisition occurred as
of July 1, 1998 and are as follows:

(A) To reflect the amortization of goodwill and other intangible assets
resulting from the acquisition. The goodwill and other intangible assets
are being amortized over three years.

(B) Basic and diluted net loss per share excludes the preferred shares of eGain
issued in the acquisition as their inclusion would be antidilutive.

In connection with the acquisition, eGain issued Series C convertible
preferred stock, common stock, and options and warrants to purchase preferred
and common stock in exchange for all of the outstanding preferred stock, common
stock and options and warrants to purchase preferred and common stock of
Sitebridge. The acquisition was accounted for as a purchase and, accordingly,
the results of operations for Sitebridge have been included in the consolidated
financial statements commencing on the date of acquisition. The fair market
value of the equity securities issued in the acquisition was approximately
$20.1 million. Goodwill and purchased intangible assets of approximately $21.4
million were recorded and are being amortized on a straight-line basis over the
useful lives of three years.

F-35

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[LOGO OF eGAIN APPEARS HERE]

customer service infrastructure for eCommerce

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Dates Referenced Herein and Documents Incorporated by Reference

		Referenced-On Page
This ‘424B4’ Filing	Date	First	Last	Other Filings

	1/1/11	31
	12/31/10	31		10-Q
	6/30/01	82		10-K
	12/31/00	84	98	10-Q
	6/15/00	33
	3/1/00	31
	2/29/00	31
	2/28/00	31
	2/6/00	84
	1/31/00	99	102
	1/1/00	31
	12/31/99	31		10-Q
	10/18/99	2
	9/30/99	32		10-Q
	9/28/99	1
Filed on:	9/23/99	1
	9/22/99	7	18
	9/15/99	32
	8/20/99	6	66
	8/15/99	12	50
	7/31/99	27
	7/16/99	72	91
	7/1/99	33	82
	6/30/99	6	105
	4/30/99	25	104
	3/31/99	27	29
	3/15/99	78
	12/31/98	70	102
	12/15/98	27
	7/1/98	27	105
	6/30/98	7	89
	6/23/98	86
	1/1/98	50
	12/31/97	70	102
	12/15/97	80
	9/30/97	70
	9/10/97	6	88
	12/31/96	96
	9/10/96	70	99
				List all Filings

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Filing Submission 0001012870-99-003325 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

Egain Corp – IPO: ‘424B4’ on 9/23/99

On: Thursday, 9/23/99 · Accession #: 1012870-99-3325 · File #: 333-83439

Initial Public Offering (IPO): Prospectus — Rule 424(b)(4)Filing Table of Contents

Document Table of Contents

Dates Referenced Herein and Documents Incorporated by Reference

Initial Public Offering (IPO): Prospectus — Rule 424(b)(4)
Filing Table of Contents