CONVERSION AGREEMENT AND AMENDMENT TO SUBORDINATED SECURED PROMISSORY NOTES

Exhibit 10.1

CONVERSION AGREEMENT AND AMENDMENT TO SUBORDINATED SECURED PROMISSORY NOTES

This CONVERSION AGREEMENT AND AMENDMENT TO SUBORDINATED SECURED PROMISSORY NOTES (this “ Agreement ” ), dated as of September 24, 2008, between eGain Communications Corporation, a Delaware corporation (the “ Company ” ), and each of the entitles and individuals listed on the attached Schedule A (each a “ Lender ” and collectively, the “ Lenders ” ).

WITNESSETH:

WHEREAS, the Lenders have previously loaned to the Company an aggregate of $8,500,000 pursuant to that certain Note and Warrant Purchase Agreement dated as of December 23, 2002, that certain Note and Warrant Purchase Agreement dated as of March 31, 2004 and that certain Note and Warrant Purchase Agreement and Amendment to Subordinated Secured Promissory Notes (collectively, the “ Prior Loan Agreements ” ) as evidenced by subordinated secured promissory notes in the aggregate face amounts of $3,524,000, $3,524,000, $4,405,854.20 and $2,441,600 dated as of December 31, 2002, October 31, 2003, March 31, 2004 and June 29, 2007, respectively (collectively, the “ Original Notes ” ); and

WHEREAS, on June 29, 2007, the Original Notes dated as of December 31, 2002 and October 31, 2003 were amended and restated as a single restated subordinated secured promissory note dated as of June 29, 2007 in the aggregate face amount of $7,765,486.40 with a maturity date of March 31, 2009 (together with the Original Notes, the “ Prior Notes ” ); and

WHEREAS, the Company and the Lenders now desire to (i) convert a portion of the outstanding indebtedness under the Prior Notes equal to $6,535,977 into shares of the Company’s common stock at a price per share equal to $0.95 (the “ Note Conversion ” ), and (ii) extend the maturity date of the remaining outstanding indebtedness accrued under the Prior Notes to March 31, 2012, as well as the period for which interest shall accrue on the Prior Notes (the “ Note Extension ” ); and

WHEREAS, the Company intends that all indebtedness remaining outstanding on each of the Prior Notes from the Company remain fully subordinated to the indebtedness of the Company to Bridge Bank, N.A. and on a parity with the outstanding indebtedness under all Prior Notes; and

WHEREAS, as consideration for the Note Extension, each of the Lenders shall receive warrants to purchase shares of the Company’s common stock as set forth herein:

NOW, THEREFORE, in consideration of the foregoing promises and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, parties hereto hereby agree as follows:

ARTICLE I

DEFINITIONS

Capitalized terms not otherwise defined herein shall have the meanings set forth below when used in this Agreement and in the Exhibits hereto:

“ Collateral ” means the property described on Annex A .

“ Contingent Obligations ” means, for any Person, any direct or indirect liability, contingent or not, of that Person for (i) any indebtedness, lease, dividend, letter of credit or other obligation of another such as an obligation directly or indirectly guaranteed, endorsed, co-made, discounted or sold with recourse by that Person, or for which that Person is directly or indirectly liable; (ii) any obligations for undrawn letters of credit for the account of that Person; and (iii) all obligations from any interest rate, currency or commodity swap agreement, interest rate cap or collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; but “Contingent Obligation” does not include endorsements in the ordinary course of business. The amount of a Contingent Obligation is the stated or determined amount of the primary obligation for which the Contingent Obligation is made or, if not determinable, the maximum reasonably anticipated liability for it determined by the Person in good faith; but the amount may not exceed the maximum of the obligations under the guarantee or other support arrangement.

“Copyrights” means all copyright rights, applications or registrations and like protections in each work or authorship or derivative work, whether published or not (whether or not it is a trade secret) now or later existing, created, acquired or held.

“ GAAP ” means generally accepted accounting principles.

“ Indebtedness ” means (a) indebtedness for borrowed money or the deferred price of property or services, such as reimbursement and other obligations for surety bonds and letters of credit, (b) obligations evidenced by notes, bonds, debentures or similar instruments, (c) capital lease obligations and (d) Contingent Obligations.

“ Intellectual Property ” means:

(a) Copyrights, Trademarks, and Patents including amendments, renewals, extensions, and all licenses or other rights to use and all license fees and royalties from the use;

(b) Any trade secrets and any intellectual property rights in computer software and computer software products now or later existing, created, acquired or held;

(c) All design rights which may be available to the Company now or later created, acquired or held;

(d) Any claims for damages (past, present or future) for infringement of any of the rights above, with the right, but not the obligation, to sue and collect damages for use or infringement of the intellectual property rights above;

All proceeds and products of the foregoing, including all insurance, indemnity or warranty payments.

“ Intercreditor Agreement ” means that certain Amended and Restated Intercreditor Agreement, dated as of even date herewith, between the Lenders and the Company, substantially in the form of Annex D .

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“ Inventory ” means all present and future inventory in which the Company has any interest, including merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products intended for sale or lease or to be furnished under a contract of service, of every kind and description now or later owned by or in the custody or possession, actual or constructive, of the Company, including inventory temporarily out of its custody or possession or in transit and including returns on any accounts or other proceeds (including insurance proceeds) from the sale or disposition of any of the foregoing and any documents of title.

“ Investment ” means any beneficial ownership of (including stock, partnership interest or other securities) any Person, or any loan, advance or capital contribution to any Person; provided, however, that in no event shall the payments by the Company to its Subsidiaries pursuant to transfer pricing arrangements with such Subsidiaries be considered Investments.

“ Lien ” means any mortgage, lien, deed of trust, charge, pledge, security interest or other encumbrance.

“ Loan Documents ” means, collectively, this Agreement, the Restated Notes and the Warrants.

“ Material Adverse Change ” means (i) a material adverse change in the business operations, or condition (financial or otherwise) of the Company; (ii) a material impairment of the prospect of repayment of any portion of the Obligations; or (iii) a material impairment of the priority of the Lenders’ security interests in the Collateral.

“ Obligations ” means the Company’s obligation to repay amounts to the Lenders as evidenced by the Note.

“ Patents ” means, renewals, reissues, extensions and continuations-in-part of the same.

“ Permitted Investments ” means (a) Investments shown on Exhibit 3.7 and existing on the Effective Date; (b) Investments made by the Company or any Subsidiary, provided, however, that the Company may make Investments in its Subsidiaries, provided, however, that (i) the aggregate amount of such Investments shall not exceed $300,000 in any given quarter and (ii) no Event of Default (as defined in the Prior Loan Agreement pursuant to which such Prior Note was issued) has occurred which is continuing or would exist immediately after giving effect to any such Investment; (c) marketable direct obligations issued or unconditionally guaranteed by the United States or its agency or any State maturing within 2 years from its acquisition; (d) commercial paper maturing no more than 1 year after its creation and currently having a rating of at least A-1 or P-1 from either Standard & Poor’s Corporation or Moody’s Investors Service, Inc.; and (e) Bank certificates of deposit issued maturing no more than 2 years after issue.

“ Permitted Liens ” means (a) Liens existing at the Effective Date and set forth in Exhibit 3.2 hereto or arising under this Agreement or the Note, (b) purchase money Liens (i) on equipment acquired or held by the Company incurred for financing the acquisition of the equipment, or (ii) existing on equipment when acquired, if the Lien is confined to the property and improvements and the proceeds of the equipment; (c) Liens incurred in the extension, renewal or refinancing of the indebtedness secured by Liens described in (a) and (b) above; provided that any extension, renewal or replacement Lien must be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness may not increase.

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“ Person ” means any individual, sole proprietorship, partnership, limited liability company, joint venture, company association, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or government agency.

“ Restated Notes ” means the restated subordinated secured promissory notes of the Company issued to the Lenders in exchange for the cancellation of the Prior Notes in substantially the form attached to this Agreement as Annex B .

“ Securities Act ” means the Securities Act of 1933, as amended, or any similar federal law then in force.

“ Bridge Bank Loan Agreement ” means that certain Loan and Security Agreement, dated as of June 24, 2008, by and between the Company and Bridge Bank, N.A., as amended, modified, and supplemented from time to time.

“ Subsidiary ” means any Person in which the Company, directly or indirectly through Subsidiaries or otherwise, beneficially owns at least 50% of either the equity interest in, or the voting control of, such Person.

“ Trademarks ” means trademark and servicemark rights, registered or not, applications to register and registrations and like protections, and the entire goodwill of the business of the Company connected with the trademarks.

“ Warrants ” means the Warrant to purchase Common Stock of the Company granted to the Lenders under this Agreement in substantially the form attached to this Agreement as Annex C .

Additional defined terms are found in the body of the following text.

The masculine form of words includes the feminine and the neuter and vice versa, and, unles