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                                                                   EXHIBIT 99.1



                        SAFE HARBOR COMPLIANCE STATEMENT
                         FOR FORWARD-LOOKING STATEMENTS

         In passing the Private Securities Litigation Reform Act of 1995, or
the Reform Act, Congress encouraged public companies to make "forward-looking
statements" by creating a safe harbor to protect them from securities law
liability in connection with these statements. We intend to qualify both our
written and oral forward-looking statements for protection under the Reform Act
and any other similar safe harbor provisions.

         Generally, forward-looking statements include expressed expectations
of future events and the assumptions on which these expectations are based. All
forward-looking statements are inherently uncertain as they are based on
expectations and assumptions concerning future events, and they are subject to
numerous known and unknown risks and uncertainties that could cause actual
events or results to differ materially from those projected. Due to those
uncertainties and risks, the investment community is urged not to place undue
reliance on our written or oral forward-looking statements. We do not undertake
any obligation to update or revise this Safe Harbor Compliance Statement for
Forward-Looking Statements to reflect future developments. In addition, we do
not undertake any obligation to update or revise forward-looking statements to
reflect changed assumptions, the occurrence of unanticipated events or changes
to future operating results over time.

         We provide the following risk factor disclosure in connection with our
continuing effort to qualify our written and oral forward-looking statements
for the safe harbor protection of the Reform Act and any other similar safe
harbor provisions. Important factors currently known to our management that
could cause actual results to differ materially from those in forward-looking
statements include the disclosures contained in the Annual Report on Form 10-K
to which this statement is appended as an exhibit and also include the
following:

WE HAVE NOT ACHIEVED PROFITABILITY TO DATE, WE EXPECT LOSSES IN THE FUTURE AND
WE MAY NOT EVER BECOME PROFITABLE

    We have incurred substantial losses since our inception and expect to
continue to suffer losses in the future. In every fiscal period since we began
operations, our business has not experienced sufficient cash flow to fund our
operations without acquiring capital from other sources. In addition, we expect
to continue to devote substantial resources to research and development,
professional services and sales and marketing activities. As a result, we will
need to generate significant revenues to achieve and sustain profitability in
any future period, and we may never be able to do so. If we fail to achieve
profitability at all or within the time frame expected by investors, it will
materially and adversely affect the market price of our stock.

OUR QUARTERLY REVENUES, EXPENSES AND OPERATING RESULTS ARE LIKELY TO FLUCTUATE,
WHICH MAY CAUSE OUR STOCK PRICE TO DECLINE

    Our quarterly revenues, expenses and operating results could vary
significantly from period to period. In particular, we derive a significant
portion of our software license revenue in each quarter from a small number of
relatively large orders. A delay in the recognition of revenues from one of
these orders may cause our results of operations during a quarter to be lower
than we expect. The delay or failure to close anticipated sales in a particular
quarter could reduce our revenues in that quarter and subsequent quarters over
which revenues for the sale would likely be recognized. In addition, because
our revenues from implementation, maintenance and training services largely
correlates with our license revenues, a decline in license revenues could also
cause a decline in our services revenues in the same quarter or in subsequent
quarters. Our revenues, expenses and operating results may vary significantly
in response to the risk factors described in this section, as well as the
following factors, some of which are beyond our control:


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    -   a decrease in demand for our software or, more generally, for products
        that record and analyze the interactions between a business and its
        customers;

    -   announcements or introductions of new products and services by our
        competitors;

    -   product pricing decisions by our competitors;

    -   our ability to develop, market and manage new software, software
        enhancements and services;

    -   the deferral of orders for our software or delays in the  implementation
        of our software from one quarter to a later quarter;

    -   how quickly we are able to develop new software,  software  enhancements
        and services that our customers require;

    -   how much money we have to spend to improve our software, services and
        operations;

    -   customer delays in purchasing our software or services due to Year 2000
        concerns;

    -   the lengthiness and unpredictability of sales cycles for our software;

    -   the mix of revenue generated by software licenses and related services;

    -   the timing and size of our capital expenditures and changes in our
        working capital; and

    -   general economic factors and changes in technology that could cause our
        existing and potential customers to decrease what they spend on
        customer relationship management software.

    Due to the foregoing factors, we believe that quarter-to-quarter comparisons
of our operating results may not be a good indication of our future
performance, and you should not rely on them to predict our future performance
or the future performance of our stock price. Historically, our revenue growth
has fluctuated significantly from one quarter to the next. If our future
revenues or operating results fall below the expectations of investors or
securities analysts, the price of our common stock would likely decline.

SEASONAL TRENDS IN SALES OF BUSINESS SOFTWARE OR CUSTOMER INTERACTION LEVELS MAY
AFFECT OUR QUARTERLY REVENUES

    The market for business software has experienced seasonal fluctuations in
demand. The first and third quarters of the year have been typically
characterized by lower levels of revenues. We believe that these fluctuations
are caused in part by customer buying patterns, which are influenced by
year-end budgetary pressures and by sales force commission structures. Customer
interaction centers typically experience much higher volumes of customer
contact during and immediately following the year-end holiday season. As a
result, many customers may elect to defer installation of our software during
this time. This has caused us to experience, and we expect to continue to
experience, seasonal fluctuations in our revenues. As our revenues grow,
seasonal fluctuations in our revenues may become more evident.

WE FACE INTENSE COMPETITION THAT COULD ADVERSELY AFFECT OUR REVENUES,
PROFITABILITY AND MARKET SHARE

    The market for products that record and analyze customer interactions is
intensely competitive and experiences rapid changes in technology. We believe
our principal competitors include, but are not limited to:

    -   quality monitoring suppliers to the contact center industry;

    -   traditional call-logging vendors;


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    -   systems integrators and consulting firms; and

    -   new, larger and more established entities that may acquire, invest in or
        form joint ventures with providers of recording or performance
        enhancing software solutions.

    Many of our current and potential competitors have longer operating
histories, more established business relationships, larger customer bases, a
broader range of products and services, greater name recognition and
substantially greater financial, technical, marketing, personnel, management,
service, support and other resources than we do. This could allow our current
and potential competitors to respond more quickly than we can to new or
emerging technologies and changes in customer requirements, better take
advantage of acquisitions and other opportunities, devote greater resources to
the marketing and sale of their products and services and adopt more aggressive
pricing policies. In addition, many of our competitors market their products
through resellers and companies that integrate their technology and products
with those of the competitor. These resellers and technology partners of our
competitors often have strong business relationships with our customers and
potential customers. Our competitors may use these business relationships to
market and sell their products and compete for customers with us. We cannot
assure you that our competitors will not offer or develop products and services
that are superior to ours.

     In addition, we have developed, and intend to continue to develop,
relationships with companies that resell our software and companies that provide
us with customer referrals or leads. Revenues from our resellers have not been
significant to date. We expect revenues from our resellers, and accordingly our
dependence on resellers, to increase as we establish more relationships with
companies to resell our software worldwide. We engage in joint marketing and
sales efforts with our resellers, and rely on them for recommendations of our
software during the evaluation stage of the purchase process. When we enter into
agreements with these companies, the agreements are not exclusive and may
ordinarily be terminated by either party. Some of these companies have similar,
and often more established, relationships with our competitors, and may
recommend the products and services of our competitors to customers instead of
our software and services. In addition, through their relationships with us,
these companies could learn about our software and the market for our software
and services and could develop and sell competing products and services. As a
result, our relationships with these companies could lead to increased
competition for us.

    Our software must integrate with software and hardware solutions provided
by a number of our existing and potential competitors. These competitors or
their business partners could alter their products so that our software no
longer integrates well with them, or they could delay or deny our access to
software releases that allow us to timely adapt our software to integrate with
their products. They could thus effectively prevent us from modifying our
software to keep pace with the changing technology of their products. If we
cannot adapt our software to changes in our competitors' technology, it may
significantly impair our ability to compete effectively, particularly if our
software must integrate with the software and hardware solutions of our
competitors.

    We expect that competition will increase as other established and emerging
companies enter our market and as new products, services and technologies are
introduced. Increased competition may result in price reductions, lower gross
margins and loss of our market share. This could materially and adversely
affect our business, financial condition and results of operations.

OUR SOFTWARE HAS A LONG SALES CYCLE WHICH MAKES IT DIFFICULT TO PLAN OUR
EXPENSES AND FORECAST OUR RESULTS

    Although it typically takes three to six months from the time we qualify a
sales lead until we sign a contract with the customer, we occasionally
experience a longer sales cycle. It is therefore difficult to predict the
quarter in which a particular sale will occur. If our sales cycle unexpectedly
lengthens for one or more large orders or a significant number of small orders,
it would adversely affect the timing of our revenues and the timing of our
corresponding expenditures. This could harm our ability to meet our financial
forecasts for a given quarter. Our customers' decisions regarding their
purchase of our software and services is relatively long due to several
factors, including:


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    -   the complex nature of our software;

    -   our need to educate potential customers about the uses and benefits of
        our software;

    -   the investment of money and other resources required by customers to
        purchase and implement our software;

    -   customers' budget cycles and operating activities, which affect the
        timing of their purchases;

    -   the  competitive  evaluation  and  internal  approval  process  many  of
        our customers undertake before purchasing our software and services;

    -   delayed purchases due to announcements or planned  introductions of new
        software or software enhancements by us or our competitors; and

    -   the length of time some of our larger customers require to make a
        decision to purchase our software and services.

IF WE FAIL TO DEVELOP NEW SOFTWARE OR IMPROVE OUR EXISTING SOFTWARE TO MEET OR
ADAPT TO THE CHANGING NEEDS AND STANDARDS OF OUR TARGET MARKET, SALES OF OUR
SOFTWARE AND SERVICES MAY DECLINE

    Our future success depends upon our ability to develop and introduce new
software and software enhancements which meet the needs of companies seeking to
record and analyze their interactions with customers. To achieve increased
market acceptance of our software and services, we must, among other things,
continue to:

    -   improve our existing software and introduce new software solutions;

    -   incorporate new technology into our software and services on a timely
        and cost-effective basis;

    -   keep pace with the products and services of our competitors;

    -   satisfy the changing requirements of our current and potential
        customers;

    -   improve the effectiveness of our software, particularly in
        implementations involving very large databases and large numbers of
        simultaneous users;

    -   enhance our software's ease of administration;

    -   improve our software's ability to extract data from existing software
        systems; and

    -   adapt to rapidly changing computer operating system, database and
        software platform standards and Internet technology.

    We may require substantial product development expenditures and lead-time
to keep pace and ensure compatibility with new technology in our industry. If
we fail to develop and introduce new software and enhancements for our existing
software, our software and services may not achieve market acceptance and we
may be unable to attract new customers. We may also lose existing customers, to
whom we seek to sell additional software and services. Also, we have only
recently released our eQuality Analysis and eQuality Interactive software that
permit recording and analysis of Web chat interactions. We cannot assure you
that we will derive revenues from these products in the future. Moreover, we
cannot be certain how the emergence of the Internet will impact our business.
It may lead to a change in the way call and contact centers operate, which may
ultimately reduce the demand for our software. If this happens it would
materially and adversely affect our business, financial condition and results
of operations.

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    In September 1999, we acquired technology to store and retrieve
substantially larger volumes of data than our software is currently capable of
storing and retrieving. This technology had not yet progressed to a stage where
it had reached technological feasibility, and we are currently working on a
project to develop this technology. We cannot assure you that we will
successfully complete this project in a timely manner. If we are unable to
develop this technology in a timely manner, it may adversely affect our ability
to compete and our ability to attract new customers.

    We believe that our future success also depends upon the continued ability
of our software to work with the products and other technologies offered by
other software and hardware companies. New products may not be compatible with
our software, but may be compatible with the products of our competitors. In
addition, industry standards may not be established, or we may not be able to
conform to new standards in a timely fashion to remain competitive. Our failure
to conform to prevailing technology standards in our industry could limit our
ability to compete and adversely affect our business.

IF THE MARKET IN WHICH WE SELL OUR SOFTWARE AND SERVICES DOES NOT GROW AS WE
ANTICIPATE, WE WILL BE UNABLE TO CONTINUE OUR GROWTH

    The market for customer relationship management software, including
software that records and analyzes customer interactions, is still emerging. If
the market for this software does not grow as quickly or become as large as we
anticipate, we may not be able to continue our growth or may grow more slowly
than expected. Continued growth in demand for this software remains uncertain
because our potential customers may:

    -   not understand the benefits of using customer relationship management
        software generally or, more specifically, software which records and
        analyzes the interactions between a business and its customers;

    -   not achieve favorable results using this software;

    -   experience technical difficulty in implementing this software; or

    -   use alternative methods to solve the same business problems this
        software is intended to address.

    In addition, our software is designed to address the needs of contact
centers. If the number of contact centers does not increase as we expect, or if
it grows more slowly than we anticipate, we may not be able to continue our
growth or may grow more slowly than expected.

WE RELY HEAVILY ON SALES OF OUR EQUALITY BALANCE AND EQUALITY EVALUATION
SOFTWARE

    Our financial performance has depended, and will continue to depend, on our
ability to develop and maintain market acceptance of our eQuality Balance
software and new and enhanced versions of it. Historically, all of our license
revenues have been derived from the sale of our eQuality Balance and eQuality
Evaluation software, and we expect revenues from these two products to continue
to account for substantially all of our revenues for the foreseeable future. As
a result, factors which adversely affect the pricing or demand for our eQuality
Balance and eQuality Evaluation software, such as competitive pressures,
technological change or evolution in customer preferences, could materially and
adversely affect our business, financial condition and results of operations.
Many of these factors are beyond our control and difficult to predict.

IF OUR INTERNAL PROFESSIONAL SERVICES EMPLOYEES DO NOT PROVIDE INSTALLATION
SERVICES EFFECTIVELY AND ACCORDING TO SCHEDULE, OUR CUSTOMERS MAY NOT USE OUR
IMPLEMENTATION SERVICES OR MAY STOP USING OUR SOFTWARE

    Customers that license our products ordinarily purchase installation,
training and maintenance services, which they typically obtain from our
internal professional services organization. Because our software must be
installed to work with a number of computer and telephone network systems,
installation of our software


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can be difficult. These systems vary greatly from one customer site to another,
and the versions and integration requirements of these third party systems
change frequently. We believe that the speed and quality of installation
services are competitive factors in our industry. If our installation services
are not satisfactory to our customers, the customers may choose to not use our
implementation services to install software they license from us. In addition,
these customers may determine that they will not license our software and
instead will use the products and services of one of our competitors. If this
happens, we would lose licensing and services revenues from these customers,
and it would likely harm our reputation in the industry in which we compete.
This could materially and adversely affect our business, financial condition
and results of operations.

IF WE NEED ADDITIONAL FINANCING TO MAINTAIN OR EXPAND OUR BUSINESS, IT MAY NOT
BE AVAILABLE ON FAVORABLE TERMS, OR AT ALL

    Although we believe that the net proceeds from the initial public offering,
together with our current cash and borrowing capacity, will be sufficient to
meet our anticipated cash needs for working capital and capital expenditures
for at least the next 12 months, we expect to incur net losses for the
foreseeable future and may need additional funds to expand or meet all of our
operating needs. If we need additional financing, we cannot be certain that it
will be available to us on favorable terms, or at all. Further, if we raise
additional funds by issuing equity securities, your ownership interest could be
significantly diluted, and any additional equity securities we issue may have
rights, preferences or privileges senior to your rights. Also, the terms of any
additional financing we obtain may significantly limit our future financing and
operating activities. If we need funds and cannot raise them on acceptable
terms, we may be forced to sell assets or seek to refinance our outstanding
obligations. We may also be unable to:

    -   develop and enhance our software to remain competitive;

    -   take advantage of future opportunities, such as acquisitions; or

    -   respond to changing customer needs and our competitors' innovations.

    Any of these events could significantly harm our business and financial
condition and limit our growth.

IF WE DO NOT CONTINUE TO EXPAND THE DISTRIBUTION OF OUR PRODUCTS THROUGH DIRECT
AND INDIRECT SALES CHANNELS, WE MAY BE UNABLE TO EXPAND OUR MARKET SHARE OR
INCREASE OUR REVENUES

    To expand our market share and revenues, attract new customers and increase
sales to existing customers, we will need to expand our direct and indirect
channels of distribution. Although we have historically received the greatest
part of our revenues from direct sales, we will require an increase in our
direct sales to achieve our growth plans. To accomplish this, we will need to
expand our direct sales force by hiring additional sales personnel and
management, and increase the number of relationships we have with companies that
provide us with customer referrals or leads for new business. Historically, it
has taken us up to six months to train new sales personnel before they reach an
acceptable level of productivity. We have also experienced difficulty in finding
new sales personnel with experience in computer and telephone integration
technologies. We cannot assure you that we will be able to continue to find an
adequate number of new sales personnel meeting our specific needs. If the
personnel we hire are less qualified, it may take us more time to train them and
they may take a longer time to reach an acceptable level of productivity. We
cannot assure you that we will be able to hire the necessary sales personnel and
management on reasonable terms, or at all. Moreover, we will be required to
train any new personnel, and the new personnel may not reach full productivity
for a long period of time.

    We also intend to derive revenues from our indirect sales channel through
relationships with companies that resell our software. In particular, we intend
to use resellers to increase our sales internationally and to market our
software to small and medium contact centers.

    Historically, we have entered into agreements with only a small number of
companies that resell our software and companies that provide us with customer
referrals. and only a small portion of our revenues


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were generated through these resellers. When we enter into agreements with
these companies, they are not exclusive and may ordinarily be terminated by
either party. Some of these companies have similar, and often more established,
relationships with our competitors, and may recommend the products and services
of our competitors to customers instead of our software and services.
Maintaining reseller relationships in today's rapidly evolving marketplace has
proven to be difficult. We cannot assure you that we will be able to maintain
productive relationships or that we will be able to establish similar
relationships with additional companies on a timely basis, or at all. In
addition, we cannot be certain that these distribution partners will devote
adequate resources to selling our software and services. If we are unable to
maintain and expand our direct sales force and indirect distribution channels,
we will not be able to increase our revenues and our business will suffer.

OUR FAILURE TO PROPERLY MANAGE OUR RAPID GROWTH COULD STRAIN OUR RESOURCES AND
MAKE IT DIFFICULT TO SUPPORT OUR FUTURE OPERATIONS

    Our business could suffer if we fail to effectively manage our growth. Our
growth in revenues and number of employees has placed, and will continue to
place, a significant strain on our management, personnel, systems, controls and
other resources. If we are unable to effectively manage our growth, it may be
difficult to support our future operations. To manage growth effectively, we
must:

    -   accurately  predict the growth in demand for our  software  and expand
        our capacity and implementation services to meet that demand;

    -   expand and improve our operating and financial systems, procedures and
        controls;

    -   attract, train, motivate, manage and retain key personnel;

    -   expand our facilities;

    -   successfully integrate the operations and personnel of any businesses we
        acquire; and

    -   respond quickly and effectively to unanticipated changes in our
        industry.

IF WE FAIL TO EXPAND AND MANAGE OUR INTERNATIONAL OPERATIONS, WE MAY BE UNABLE
TO REACH OR MAINTAIN OUR DESIRED LEVELS OF REVENUE OR PROFITABILITY

    Historically, revenues from customers located outside of North America have
not produced significant revenue. Our current goal is to increase our
international revenues to approximately 20% of our total revenues by the end of
2002. In order to achieve this, we intend to continue to expand our
international operations through internal business expansion and strategic
business relationships. Our operations outside of North America currently
consist of fewer than ten dedicated employees located in the United Kingdom.
Most of our international revenues have come from international branches of our
customers based in North America. We have established relationships with a small
number of international resellers, but historically we have not recognized a
material amount of revenues from these relationships. In addition to general
risks associated with international expansion, such as foreign currency
fluctuations and political and economic instability, our plans to expand
internationally may be adversely affected by a number of risks, including:

    -   limited development of an international market for our software and
        services;

    -   the challenges we face in expanding and training our international sales
        force and support operations;

    -   expenses associated with customizing products for multiple countries;

    -   longer  payment  cycles,   different  accounting  procedures  and
        difficulties in collecting accounts receivable; and


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    -   multiple, conflicting and changing governmental laws and regulations
        governing intellectual property, call monitoring and the recording of
        employees.

    As we further expand our operations outside the United States, we will face
new competitors and competitive environments. In addition to the risks
associated with our domestic competitors, foreign competitors may pose an even
greater risk, as they may possess a better understanding of their local markets
and better working relationships with local infrastructure providers and
others. In particular, because telephone protocols and standards are unique to
each country, local competitors will have more experience with, and may have a
competitive advantage in, these markets. We may not be able to obtain similar
levels of local knowledge or similar relationships in foreign markets, which
could place us at a significant competitive disadvantage.

OUR FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY MAY LEAD TO THIRD PARTIES
USING OUR TECHNOLOGY FOR THEIR OWN BENEFIT AND OUR FAILURE TO ACCESS THIRD
PARTY TECHNOLOGY COULD DELAY THE DEVELOPMENT OR SALE OF OUR SOFTWARE

    Our success depends to a significant degree upon the legal protection of
our software and other proprietary technology rights. We rely on a combination
of patent, trade secret, copyright and trademark laws and confidentiality and
non-disclosure agreements with employees and third parties to establish and
protect our proprietary rights. These measures may not be sufficient to protect
our proprietary rights, and we cannot be certain that third parties will not
misappropriate our technology and use it for their own benefit. Also, most of
these protections do not preclude our competitors from independently developing
products with functionality or features substantially equivalent or superior to
our software. Any failure to protect our intellectual property could have a
material adverse effect on our business.

    As of December 31, 1999, we have three United States registered trademarks,
one patent generally relating to our voice and data synchronization technology
and data capture technique and seven pending copyright registrations protecting
our software source code. We cannot assure you that we will file further
patent, trademark or copyright applications, that any future applications will
be approved, that any existing or future patents, trademarks or copyrights will
adequately protect our intellectual property or that any existing or future
patents, trademarks or copyrights will not be challenged by third parties.
Furthermore, one or more of our existing or future patents, trademarks or
copyrights may be found to be invalid or unenforceable.

    We are aware of certain uses, United States trademark registrations, and
United States trademark applications for the trademark "(e)Quality" and its
variations that predate our use of, and United States trademark application
for, our trademarks eQuality and Bringing eQuality to eBusiness. It is possible
that the United States Patent and Trademark Office will deny our United States
trademark applications. In addition, it is possible that the owner of legal
rights resulting from one or more of these prior uses, United States trademark
registrations, or United States trademark applications will bring legal action
to prevent us from registering and/or using the trademarks eQuality and
Bringing eQuality to eBusiness, and may also seek compensation for damages
resulting from our use of these trademarks. As a result, we cannot assure you
that our efforts to use and register these trademarks will ultimately be
successful, or that this use will not result in liability for trademark
infringement, trademark dilution, and/or unfair competition.

    We are also currently evaluating whether to revise one aspect of the patent
for our synchronization techniques. If we are unsuccessful, we may not be able
to enforce any aspect of that patent against third parties who infringe it. We
also have two patent applications pending in the United States Patent and
Trademark Office. There is no guarantee that our pending applications will
result in issued patents or, if issued, that they will provide us with any
competitive advantages.

    Moreover, the laws of other countries in which we market our products may
afford little or no effective protection of our proprietary technology. If we
resort to litigation to enforce our intellectual property rights, the
proceedings could be burdensome and expensive, would likely divert valuable
management and product


<PAGE>   9


development resources and could involve a high degree of risk, regardless of
whether we win or lose the litigation.

    We rely on technology licensed from third parties, including databases,
application programming interfaces, developmental tools and software necessary
to integrate our software with third party technology and products. In
addition, third party products are bundled with our software. If we lose access
to this technology, or if it is not available to us on reasonable terms, it
could cause delays in our development and introduction of new and enhanced
software until we can obtain equivalent or replacement technology, if
available, or develop this technology internally, if feasible. If we lost
access to technology that is bundled with our software, this would require us
to modify or redesign our software and could cause a delay in our ability to
market and sell our current software, or a delay in our ability to develop,
market and sell new or enhanced software. This delay or a failure to obtain
replacement technology could have a material adverse effect on our business,
financial condition and results of operations.

CLAIMS BY OTHER COMPANIES THAT OUR SOFTWARE INFRINGES THEIR INTELLECTUAL
PROPERTY COULD REQUIRE US TO INCUR SUBSTANTIAL EXPENSES OR PREVENT US FROM
SELLING OUR SOFTWARE OR SERVICES

    If any of our software violates the intellectual property rights of others,
we may be required to reengineer or redevelop our software, seek to obtain
licenses from third parties to continue offering our software without
substantial reengineering, or conduct studies of such intellectual property
rights so as to evaluate whether such intellectual property rights are valid or
enforceable. Any efforts to reengineer our software or obtain licenses from
third parties may not be successful, could be extremely costly and would likely
divert valuable management and product development resources. Any efforts to
study the intellectual property rights of third parties may not be successful
and could reveal that such intellectual property rights are valid and
enforceable, could be extremely costly and would likely divert valuable
management and product development resources.

    In addition, in the rapidly developing technological environment in which
we operate, third parties may have filed a number of patent applications, many
of which are confidential when filed. If our software is found to violate these
patents when they are issued or any other intellectual property of others, we
may become subject to claims for infringement. An infringement claim against us
could result in the loss of our proprietary rights and, whether meritorious or
not, could be time-consuming, result in costly litigation or require us to pay
damages or enter into royalty or licensing agreements on terms that are
unfavorable to us. Royalty or licensing agreements might not be available to us
on reasonable terms or at all. In addition, our customers may become subject to
claims if the software they license from us infringes the intellectual property
of others. Our license agreements with our customers generally provide that we
will indemnify the customers for liability they incur as a result of these
infringement claims. As a result, any infringement claim could materially and
adversely affect our business, financial condition and results of operations.

    Approximately two years ago, we were accused of infringing a patent owned
by a third party. We undertook to study the matter, concluded that the asserted
patent was not infringed, and informed the third party of our belief that the
patent was not infringed. Following an exchange of correspondence between
September 1996 and January 1998, nothing further was heard from the patent
owner.

    Although we have not exchanged correspondence with this third party since
January 1998, we cannot assure you that a renewed claim of infringement by this
third party, either in connection with the patent referred to above or another
patent or other intellectual property, or a claim of infringement by a
different patent or other intellectual property owner, will not be asserted
against us in the future. Furthermore, we expect that we and other participants
in our industry and related industries will be increasingly subject to
infringement claims as the number of competitors with patent and other
intellectual property portfolios in these industries grows. Although patent and
intellectual property disputes may be settled through licensing or similar
arrangements, costs associated with these arrangements may be substantial and
we cannot assure you that necessary licenses or similar arrangements will be
made available to us on a reasonable basis or at all. Consequently, if we
become subject to an adverse determination in a judicial or administrative
proceeding or we fail to obtain necessary licenses it could prevent us from
producing and selling our


<PAGE>   10


software. This would have a material adverse effect on our business, financial
condition and results of operations.

    In addition, if we decide to, or are forced to, litigate any of these
claims, the litigation could be expensive and time-consuming, could divert our
management's attention from other matters, and could otherwise materially and
adversely affect our business, financial condition and results of operations,
regardless of the outcome of the litigation. Litigation and intellectual
property claims against us could also disrupt our sale of software.
Additionally, it could lead to claims by third parties against our customers
and others using our software. Our customers and these other users of our
software would likely hold us responsible for these claims and any resulting
harm they suffer.

GOVERNMENT REGULATION OF TELEPHONE AND INTERNET MONITORING COULD CAUSE A
DECLINE IN THE USE OF OUR SOFTWARE, RESULT IN INCREASED EXPENSES FOR US OR
SUBJECT US AND OUR CUSTOMERS TO LIABILITY

    As the telecommunications industry continues to evolve, state, federal and
foreign governments may increasingly regulate the monitoring of
telecommunications and telephone and Internet monitoring and recording
products, such as our software. We believe that increases in regulation could
come in the form of a number of different kinds of laws, including privacy and
employment regulations. The adoption of new laws governing the use of our
software or changes made to existing laws could cause a decline in the use of
our software and could result in increased expenses for us, particularly if we
are required to modify our software to accommodate these new or changing laws.
Moreover, new laws or changes to existing laws could subject us and our
customers to liability. In addition, whether or not these laws are adopted, if
we do not adequately address the privacy concerns of consumers, companies may
be hesitant to use our software. If any of these events occur, it could
materially and adversely affect our business.

OUR PRODUCTS MAY FAIL TO PERFORM PROPERLY, WHICH MAY CAUSE US TO INCUR
ADDITIONAL EXPENSES OR LOSE SALES

    Our software is used in a complex operating environment that requires its
integration with computer and telephone networks and other business software
applications. Furthermore, the hardware, software and network systems generally
used in conjunction with our software, particularly telephone standards and
protocols, change rapidly. The evolution of these standards may cause our
products to function slowly or improperly. Poor product performance may
necessitate redevelopment of our product or other costly reengineering measures
which may divert our management and product development resources and funds.
Due to the large number of, and variations in, computer and telephone network
systems and applications, as well as the rapid changes in these products, our
testing process may be unable to duplicate all possible environments in which
our software is expected to perform. Any errors or defects that are discovered
after we release new or enhanced software could cause us to lose revenue, cause
a delay in the market acceptance of our software, damage our customer
relationships and reputation and increase our service and warranty costs.

IF WE ARE UNABLE TO ATTRACT AND RETAIN KEY PERSONNEL, WE MAY NOT BE ABLE TO
EFFECTIVELY MANAGE AND EXPAND OUR BUSINESS

    Our future success will depend in large part on our ability to hire, train,
retain and motivate a sufficient number of qualified personnel, particularly in
sales, marketing, research and development, service and support. In particular,
competition for research and development personnel with computer and telephone
integration skills is intense, and turnover of technical personnel is
particularly high in our industry. If we are unable to attract and retain
qualified personnel or if we experience high personnel turnover, it would
increase our costs of operations and could prevent us from effectively managing
and expanding our business.

    Our future success also depends upon the continued service of our executive
officers, particularly our Chairman, President and Chief Executive Officer,
David Gould. We have an employment agreement with Mr. Gould and non-compete
agreements with all of our executive officers. However, any of our executive
officers and other employees could terminate his or her relationship with us at
any time. The loss of the


<PAGE>   11


services of our executive officers or other key personnel could materially and
adversely affect our business. In addition, if one or more of our executive
officers or key employees were to join one of our competitors or otherwise
compete with us, it could harm our business.

WE MAY MAKE ACQUISITIONS OR INVESTMENTS THAT ARE NOT SUCCESSFUL AND THAT
ADVERSELY AFFECT OUR ONGOING OPERATIONS

    We may acquire or make investments in companies, products, services and
technologies which complement our software and services. Because of the
proliferation of new customer interaction mediums such as the Internet and
e-mail, we believe that it may be important for us to acquire complementary
technology to quickly bring new products to market. We have very limited
experience in making acquisitions and investments. As a result, our ability to
identify prospects, conduct acquisitions and to properly manage the integration
of acquisitions is unproven. If we fail to properly evaluate and execute
acquisitions or investments, it may seriously harm our business and operating
results. In making or attempting to make acquisitions or investments, we face a
number of risks, including:

    -   the difficulty of identifying and hiring one or more senior executives
        with acquisition experience;

    -   the difficulty of identifying  suitable acquisition or investment
        candidates and negotiating acceptable terms for acquisitions and
        investments;

    -   the potential distraction of our management, diversion of our resources
        and disruption of our business;

    -   our retention and motivation of key employees of the acquired companies;

    -   our entry into geographic markets in which we have little or no prior
        experience;

    -   competition for acquisition opportunities with competitors that are
        larger than us or have greater financial and other resources than we
        have;

    -   our inability to accurately forecast the financial impact of an
        acquisition or investment; and

    -   our inability to maintain good relations with the customers and
        suppliers of the acquired company.

    In addition, if we make acquisitions using convertible debt or equity
securities, our existing stockholders may be diluted, which could cause the
market price of our stock to decline.

YEAR 2000 ISSUES MAY DISRUPT OUR OPERATIONS, SUBJECT US TO LIABILITIES AND COSTS
AND AFFECT THE TIMING OF OUR REVENUES

    The Year 2000 computer problem refers to the potential for system and
processing failures of date related data as a result of computer controlled
systems using two digits rather than four to define the applicable year. For
example, software programs that have time-sensitive components may recognize a
date represented as "00" as the year 1900 rather than the year 2000. This
problem could result in miscalculations, data corruption, system failures or
disruptions of operations. We are subject to potential Year 2000 problems
affecting the systems and technology on which we depend, including:

    -   the internal systems, software and other technology we use in our
        business;

    -   the products and other technology produced by others which is integrated
        with our software;

    -   the systems of our customers and our vendors; and

    -   other technology and products employed by our customers which is used in
        connection with our software.


<PAGE>   12


    Furthermore, we cannot assure you that our software is Year 2000 compliant.
Moreover, because our software is used in connection with other products, Year
2000 problems affecting these products could cause our software to fail. If
Year 2000 problems cause the failure of any of the technology, software or
systems described above, we could lose customers, suffer significant
disruptions in our business, lose revenues and incur substantial liabilities
and expenses. We could also become involved in costly litigation resulting from
Year 2000 problems. This could materially and adversely affect our business,
financial condition and results of operations.

    During 1999 and 2000, a significant number of companies, including some of
our current customers, have devoted and are expected to devote a substantial
amount of their information technology resources to testing systems for Year
2000 compliance and fixing existing Year 2000 problems. As a result, many of
our existing and potential customers may delay the purchase and installation of
our software. Consequently, we may have lower than expected licensing and
services revenues during 2000.

THE PRICE OF OUR COMMON STOCK AFTER THE INITIAL PUBLIC OFFERING MAY BE VOLATILE,
AND YOU MAY EXPERIENCE INVESTMENT LOSSES

    The market price of our common stock may fluctuate significantly in
response to the following and other factors, some of which are beyond our
control:

    -   variations in our quarterly operating results;

    -   announcements  of significant  contracts,  technological  innovations or
        new products or services by us or our competitors;

    -   changes in financial estimates by securities analysts;

    -   the operating and stock price performance of other companies in our
        industry; and

    -   fluctuations in stock market price and volume, which are particularly
        common among securities of software and other technology companies.

    Further, the stock markets, and in particular the Nasdaq National Market on
which we listed our common stock, have experienced extreme price and volume
fluctuations that have affected the market prices of equity securities of many
technology companies. These fluctuations often have been unrelated or
disproportionate to the operating performance of the companies. Because our
business is technology related, the price of our common stock could fluctuate
widely if the market price of equity securities of other technology companies
becomes volatile. In the past, following periods of downward volatility in the
market price of a company's securities, class action litigation has often been
brought against that company. If such an action is brought against us, it would
be expensive and would divert our management's attention and our other
resources.

OUR MANAGEMENT AND AFFILIATES CONTROL A LARGE PERCENTAGE OF OUR VOTING STOCK
AND COULD EXERT SIGNIFICANT INFLUENCE OVER MATTERS REQUIRING STOCKHOLDER
APPROVAL AFTER THIS OFFERING

    Immediately after the initial public offering, our executive officers and
directors and members of their families together control a majority of our
outstanding common stock. As a result, these stockholders, if they act together,
will be able to control all matters requiring stockholder approval, including
the election of our directors and the approval of significant corporate
transactions involving us. This control may have the effect of delaying,
preventing or deterring a change in control of Witness Systems and could deprive
our stockholders of an opportunity to receive a premium for their common stock
as part of any sale or acquisition.

FUTURE SALES OF COMMON STOCK AND THE RIGHTS OF SOME OF OUR STOCKHOLDERS TO
REGISTER SALES OF THEIR STOCK COULD ADVERSELY AFFECT THE MARKET PRICE OF OUR
STOCK


<PAGE>   13


    Sales of a substantial number of shares of our common stock after the
initial public offering, can cause the market price of our common stock to
decline or can make it more difficult for us to raise funds through the sale of
equity in the future. The shares of common stock sold in the initial public
offering generally are freely tradable without restriction. The remaining
shares of common stock outstanding are restricted securities as defined in Rule
144 under the Securities Act. Except as described in the next paragraph, the
holders of these shares of common stock may sell them in the future without
registration under the Securities Act if they comply with Rule 144, Rule 701 or
any other applicable exemption under the Securities Act.

    We, our directors and executive officers and some of our stockholders have
agreed with the underwriters not to sell any common stock or securities
convertible into or exchangeable or exercisable for common stock for 180 days
after the date of the initial public offering, subject to some exceptions.
Hambrecht & Quist LLC or its successor may agree to release any or all of the
shares of common stock from these lock-up agreements at any time.

    Some of our existing stockholders have the right to require us to register
under the Securities Act shares of their common stock at any time. All of these
shares are subject to the lock-up agreements described above. Once we register
these shares, they can be freely sold in the public market, subject to these
lock-up agreements.

    We intend to register under the Securities Act shares of our common stock
issuable upon the exercise of stock options or reserved for issuance under our
amended and restated stock incentive plan and our employee stock purchase plan.
Once we register these shares, they can be freely sold in the public market
upon issuance, subject to those lock-up agreements.

OUR CERTIFICATE OF INCORPORATION AND BYLAWS, AS WELL AS DELAWARE LAW, MAY
PREVENT OR DELAY A FUTURE TAKEOVER

    Our amended and restated certificate of incorporation and bylaws contain
provisions which could make it harder for a third party to acquire us without
consent of our board of directors. For example, if a potential acquiror were to
make a hostile bid for us, the acquiror would not be able to call a special
meeting of stockholders to remove our board of directors or act by written
consent without a meeting. In addition our board of directors has staggered
terms which makes it difficult to remove all our directors at once. The
acquiror would also be required to provide advance notice of its proposal to
remove directors at an annual meeting.

    Our board of directors has the ability to issue preferred stock which would
significantly dilute the ownership of a hostile acquiror. In addition, Delaware
law limits business combination transactions with 15% stockholders that have
not been approved by the board of directors. These provisions and other similar
provisions make it more difficult for a third party to acquire us without
negotiation.

As a result of these provisions, our board of directors could choose not to
negotiate with an acquiror if it does not believe an acquisition is in our
strategic interests. These provisions may apply even if the acquiror's offer is
considered beneficial to our stockholders. Moreover, if the acquiror is
discouraged from offering to acquire us or prevented from successfully
completing a hostile acquisition, you could lose the opportunity to sell your
shares at a favorable price.