SUBORDINATION AGREEMENT AND CONSENT

EXHIBIT 10.3

SUBORDINATION AGREEMENT AND CONSENT

This Subordination Agreement (this “Agreement”), dated as of December 24, 2002, is between Xxxxxxxx Xxx, an individual (the “Lender”) and Silicon Valley Bank (“Bank”).

RECITALS

A.    eGain Communications Corporation, a Delaware corporation (the “Company”), has obtained a loan from Bank which is secured by a pledge of substantially all of the Company’s assets pursuant to the terms of that certain Loan and Security Agreement, dated as of March 27, 2002, between Bank and the Company, and that certain Accounts Receivable Purchase Agreement, dated as of September 24, 2002 (in each case, as amended, restated, modified or supplemented, and including all of the other agreements and documents entered into in connection therewith, the “Loan Documents”).

B.    The Lender desires to purchase Subordinated Secured Promissory Notes (the “Notes”) issued by the Company pursuant to the terms of that certain Note and Warrant Purchase Agreement, dated as of even date herewith, between the Company and the Lender (the “Purchase Agreement”).

C.    The Purchase Agreement provides that the Lender shall obtain warrants to purchase shares of the Company’s Common Stock in connection with Lender’s purchase of the Notes (the “Warrants”).

D.    Bank is willing to allow the Lender to purchase the Notes and the Warrants from the Company, and to enter into the other transactions contemplated by the Purchase Agreement, but only if the Lender and Bank enter into this Agreement, pursuant to the terms and conditions of which the Lender will subordinate: (i) all of the Company’s indebtedness and obligations to the Lender, existing now or later (the “Subordinated Debt”) to all of the Company’s indebtedness and obligations to Bank, and (ii) all of the Lender’s security interests, to all of Bank’s security interests in the Company’s property.

AGREEMENT

1.    In exchange for the agreements of the Lender set forth below, Bank hereby consents for all purposes under the Loan Documents to the sale and purchase of the Notes and the Warrants by the Lender from the Company, and all of the other transactions set forth in or contemplated by the Purchase Agreement.

2.    The Lender subordinates to Bank any security interest or lien that it has in all of the property and assets of the Company. Despite the actual attachment or perfection dates of the Lender’s security interest and Bank’s security interest, Bank’s security interest in all of the assets and property of the Company is prior to the Lender’s security interest.

3.    All Subordinated Debt payments are hereby subordinated to all of the Company’s obligations to Bank existing now or hereafter created, together with collection costs of such obligations (including attorneys’ fees), including, interest accruing after any bankruptcy, reorganization or similar proceeding and all obligations owing to Bank (the “Senior Debt”).

4.    The Lender will not:

a)  demand or receive from the Company (and the Company will not pay) any part of the Subordinated Debt, by payment, prepayment, or otherwise,

b)  exercise any remedy against any assets of the Company, or

c)  accelerate the Subordinated Debt, or begin or participate in any action against the Company, until all the Senior Debt is paid;

provided, however, that the Lender may take any and all of the actions set forth in this Section 4 in the event that a default or an event of default occurs under the Senior Debt, or any of the documents entered into in connection therewith, and the Bank has not within one hundred eighty (180) days of such default or event of default (i) accelerated the indebtedness of the Company to the Bank under the Senior Debt, and (ii) commenced judicial or non-judicial enforcement proceedings with respect to such Senior Debt. No term or provision contained in this Section 4 shall impair, limit, or modify the obligations of the Lender to the Bank set forth in Section 5 below.

5.    The Lender must deliver to Bank in the form received (except for endorsement or assignment by the Lender) any payment, distribution, security or proceeds it receives on the Subordinated Debt, other than according to this Agreement.

6.    These provisions shall remain in full force and effect, despite the Company’s insolvency, reorganization or any case or proceeding under any bankruptcy or insolvency law, and Bank’s claims against the Company and the Company’s estate will be fully paid before any payment is made to the Lender.

7.    Until the Senior Debt is paid, the Lender irrevocably appoints Bank as its attorney-in-fact, with power of attorney with power of substitution, in the Lender’s name or in Bank’s name, for Bank’s use and benefit without notice to the Lender, to do the following in any bankruptcy, insolvency or similar proceeding involving the Company:

(i)  File any claims for the Subordinated Debt for the Lender if the Lender does not do so at least 30 days before the time to file claims expires, and

(ii)  Accept or reject any plan of reorganization or arrangement for the Lender and vote the Lender’s claims in respect of the Subordinated Debt in any way it chooses.

8.    Lender will immediately put a legend on the Subordinated Debt instruments that the instruments are subject to this Agreement. No amendment of the Subordinated Debt documents will modify this Agreement in any way that terminates or impairs the subordination of the Subordinated Debt or the subordination of the security interest or lien that the Lender has

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in the Company’s property. For example, instruments cannot be amended to (i) increase the interest rate of the Subordinated Debt or (ii) accelerate payment of principal or interest or any other portion of the Subordinated Debt.

9.    This Agreement is effective while the Company owes any amounts to Bank. If after full payment of the Senior Debt, Bank must disgorge any payments made on the Senior Debt, this Agreement and the relative rights and priorities provided in it, will be reinstated as to all disgorged payments as though the payments had not been made, and the Lender will immediately pay Bank all payments received under the Subordinated Debt to the extent the payments would have been prohibited under this Agreement. At any time without notice to the Lender, Bank may take actions it considers appropriate on the Senior Debt such as terminating advances, increasing the principal, extending the time of payment, increasing interest rates, renewing, compromising or otherwise amending any documents affecting the Senior Debt and any collateral securing the Senior Debt, and enforcing or failing to enforce any rights against the Company or any other person. No action or inaction will impair or otherwise affect Bank’s rights under this Agreement. The Lender waives any benefits of California Civil Code Sections 2809, 2810, 2819, 2845, 2847, 2848, 2849, 2850, 2899 and 3433.

10.    This Agreement shall bind any successors or assignees of the Lender and shall benefit any successors or assigns of Bank. This Agreement is solely for the benefit of Lender and Bank and not for the benefit of Company or any other party. The Lender further agrees that if the Company is in the process of refinancing a portion of the Senior Debt with a new lender, and if Bank makes a request of the Lender, the Lender shall agree to enter into a new subordination agreement with the new lender on substantially the terms and conditions of this Agreement.

11.    This Agreement may be executed in two or more counterparts, each of which is an original and all of which together constitute one instrument.

12.    California law governs this agreement without giving effect to conflicts of laws principles. The Lender and Bank submit to the exclusive jurisdiction of the courts in Santa Xxxxx County, California. THE LENDER AND BANK EACH WAIVE THEIR RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION FROM THIS AGREEMENT.

13.    This Agreement represents the entire agreement about this subject matter, and supersedes prior negotiations or agreements. The Lender is not relying on any representations by Bank or the Company in entering into this Agreement. The Lender will keep itself informed of the Company’s financial and other conditions. This Agreement may be amended only by written instrument signed by the Lender and Bank.

14.    If there is an action to enforce the rights of a party under this Agreement, the party prevailing will be entitled, in addition to other relief, all reasonable costs and expenses, including reasonable attorneys’ fees, incurred in the action.

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In Witness Whereof, this Subordination Agreement and Consent has been duly executed and delivered by the duly authorized officer of each party hereto as of the date first above written.

BANK:				SILICON VALLEY BANK
				By:		/S/    XXXXXXX XXXXX
						Name:		Xxxxxxx Xxxxx
						Its:		Vice President
LENDER:				XXXXXXXX XXX
				By:		/S/    XXXXXXXX XXX
						Name:
						Its:
The Company approves the terms of this Agreement:
				eGAIN COMMUNICATIONS CORPORATION
				By:		/S/    XXXX XXXX
						Name:		Xxxx Xxxx
						Its:		Chief Financial Officer

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