UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) April 9, 2001
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Kana Communications, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 000-26287 77-0435679
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
740 Bay Road, Redwood City, California 94063
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (650) 298-9282
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(Former name or former address, if changed since last report)
ITEM 5. OTHER EVENTS
On April 9, 2001 Kana Communications, Inc. ("Kana"), Arrow Acquisition
Corp., a wholly owned subsidiary of Kana, and Broadbase Software, Inc.
("Broadbase") entered into an Agreement and Plan of Merger (the "Merger
Agreement"), pursuant to which Broadbase is expected to merge with and into
Arrow Acquisition Corp. and become a wholly-owned subsidiary of Kana (the
"Merger"). In connection with the Merger, the annual meeting of Kana's
stockholders will be scheduled to coincide with the special meeting to be held
to approve matters related to the Merger.
In connection with the Merger, each outstanding share of Broadbase common
stock will be converted into the right to acquire 1.05 shares of Kana common
stock and all outstanding options and warrants of Broadbase will be assumed by
Kana and will become options and warrants to purchase Kana common stock in
accordance with the exchange ratio. Following the Merger, the current
stockholders of Kana and Broadbase will respectively own approximately 52% and
48% of the outstanding common stock of Kana (based on shares outstanding on
April 9, 2001). The Merger is intended to constitute a reorganization for
federal income tax purposes and to be accounted for as a purchase transaction.
Prior to the closing of the Merger, the shares to be issued by Kana are expected
to be registered under the Securities Act of 1933, as amended, and qualified for
listing on the Nasdaq National Market.
If the Merger is consummated, Chuck Bay, the Chief Executive Officer of
Broadbase, will become the President and Chief Executive Officer of Kana and
James Wood, the Chief Executive Officer of Kana will become the Chairman of the
Board of Directors of Kana. The Board of Directors of Kana is expected to
consist of two directors appointed by Broadbase, two directors appointed by
Kana, and one independent director. At the closing of the Merger, Kana is
expected to change its name to "Kana Software, Inc."
Consummation of the Merger is subject to various conditions, including,
among other things, receipt of the necessary approvals of the stockholders of
Kana's and Broadbase's stockholders and clearance under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended. Kana and Broadbase also expect
to complete substantial head count reductions that have been approved by their
respective Boards of Directors.
In connection with the execution of the Merger Agreement, Kana and
Broadbase entered into a Revolving Loan Agreement (the "Loan Agreement"),
pursuant to which Broadbase agreed to extend Kana up to $20 million in loans.
Broadbase's loan commitment will terminate automatically if the Merger Agreement
is terminated. Beginning 90 days after the first drawdown by Kana, Broadbase may
convert amounts outstanding under the Loan Agreement into shares of Kana's
common stock at a price of $1.10 per share, provided however that Broadbase may
not acquire an amount in excess of an aggregate of 19.9% of Kana's common
shares, less any shares issued upon exercise of the Kana Stock Option Agreement
(as defined and described below).
In connection with the execution of the Merger Agreement, (i) Kana
entered into a Stock Option Agreement with Broadbase, (the "Kana Stock Option
Agreement"), pursuant to which Broadbase was granted an option to purchase up to
19.9% of Kana's shares (less any shares issued pursuant to the conversion of the
loan described above) at a price of $0.875 per share (the "Kana Cross Option")
and (ii) Broadbase entered into a Stock Option Agreement with Kana, pursuant to
which Kana was granted an option to purchase up to 19.9% of Broadbase's shares
at a price of $0.7188 per share (together with the Kana Cross Option, the "Cross
Options" and individually a "Cross Option"). Each Cross Option is exercisable by
the recipient only upon occurrence of certain events associated with the
acquisition or potential acquisition of the grantor by a third party. The Cross
Options will terminate upon the termination of the Merger Agreement for reasons
unrelated to the acquisition or potential acquisition of either party. The
proceeds received by either option holder on the sale of the option shares
cannot exceed any termination fee payable in connection with the termination of
the Merger Agreement.
Kana and Broadbase also entered into a Distribution and License Agreement
pursuant to which each granted to the other a worldwide, non-transferable, non-
exclusive, royalty bearing license to all of their respective intellectual
property. The license is for an initial term of five years but will
automatically renew for additional one year terms unless the other party shall
provide prior notice of termination. In connection with the license, each party
has agreed to place the source code for its licensed intellectual property in
escrow, to be released upon the occurrence of certain events, including
bankruptcy or a failure to comply with its obligations to provide required
product support. The change of control of either party without the consent of
the other party shall entitle the other party to immediately terminate the
license.
In connection with the execution of the Merger Agreement, directors and
executive officers of Kana holding an aggregate of approximately 19,408,502
shares of Kana common stock and options to acquire shares of Kana common stock,
representing approximately 20.57% of Kana's 94,345,305 shares outstanding as of
February 28, 2001 (including shares subject to options exercisable within 60
days that are covered by the voting agreements), have entered into voting
agreements and irrevocable proxies pursuant to which they have agreed to vote
their Kana shares to approve the Merger and related matters.
Certain Information Concerning Participants
Kana has solicited irrevocable proxies from certain Kana stockholders and
their respective affiliates in favor of the adoption and approval of the Merger
Agreement and approval of the Merger and related matters, including: James C.
Wood (Chief Executive Officer and Chairman of the Board of Directors), David
Fowler (President), Nigel Donovan (Chief Operating Officer), Art Rodriguez
(Interim Chief Financial Officer), Toya Rico (Chief Personnel Officer), David
Beirne (Director), Robert Frick (Director), Eric Hahn (Director), Charles
Holloway, Ph.D. (Director) and Steven Jurvetson (Director). Certain information
concerning the participants in the solicitation is set forth below. Additional
information will be set forth in the Registration Statement and the Proxy
Statement/Prospectus that are expected to be filed with the Securities and
Exchange Commission in connection with the Merger.
Mr. Wood beneficially owns 2,473,376 shares of Kana common stock,
including 29,496 shares issuable upon exercise of options, all of which are
exercisable within 60 days. Mr. Fowler beneficially owns 185,773 shares of Kana
common stock, including 173,307 shares issuable upon exercise of options, all of
which are exercisable within 60 days. Mr. Donovan beneficially owns 592,612
shares of Kana common stock, including 549,452 shares issuable upon exercise of
options, all of which are exercisable within 60 days. Mr. Rodriguez beneficially
owns 57,291 shares of Kana common stock, including 57,291 shares issuable upon
exercise of options, all of which are exercisable within 60 days. Ms. Rico
beneficially owns 107,192 shares of Kana common stock, including 107,183 shares
issuable upon exercise of options, all of which are exercisable within 60 days.
Mr. Beirne beneficially owns 7,117,190 shares of Kana common stock, including
10,000 shares issuable upon exercise of options, all of which are exercisable
within 60 days. Mr. Frick beneficially owns 157,034 shares of Kana common stock,
including 10,000 shares issuable upon exercise of options, all of which are
exercisable within 60 days. Mr. Hahn beneficially owns 397,705 shares of Kana
common stock, including 10,000 shares issuable upon exercise of options, all of
which are exercisable within 60 days. Mr. Holloway beneficially owns 104,998
shares of Kana common stock, including 20,000 shares issuable upon exercise of
options, all of which are exercisable within 60 days. Mr. Jurvetson beneficially
owns 8,215,331 shares of Kana common stock, including 10,000 shares issuable
upon exercise of options, all of which are exercisable within 60 days. Under the
terms of applicable option documents, certain of the options listed above which
are not presently exercisable and vested will become immediately exercisable and
vested upon the completion of the Merger.
Mr. Beirne, a member of our board of directors, is a Managing Member of
Benchmark Capital Co., L.L.C. ("Benchmark"). In addition to holdings of Kana
common stock, entities affiliated with Benchmark own approximately 3,889,484
shares of Broadbase common stock. Benchmark's holdings were disclosed to the
Board of Directors of Kana in connection with its consideration of the Merger.
Kana's Board of Directors, including Mr. Beirne, voted unanimously in favor of
the Merger Agreement, the Merger and related matters.
Forward Looking Statements
This document includes forward-looking statements, including those that
describe the anticipated results of combining the product lines and businesses
of Kana and Broadbase. Those statements are subject to significant risks and
uncertainties and actual results could differ materially from those indicated in
the forward-looking statements. The expected benefits of the proposed
combination may not be realized for a number of reasons including the following.
The Merger may not be approved by the stockholders of Kana and Broadbase and the
other conditions of closing may not be satisfied. The announcement of the Merger
may disrupt the companies' normal sales cycles because their sales forces may be
distracted by the pending business combination or because customers may delay
new orders until the Merger is closed and the sales forces and product lines are
combined. The combined product lines may not be as broad as those of some of the
competitors of Kana and Broadbase, and the Merger could cause Kana and
Broadbase's business partners and potential competitors to acquire other product
lines that would compete directly with the
combined company. Moreover, Kana and Broadbase may not be able to rapidly
integrate the operations or retain the key employees. In addition, the combined
company may not achieve the increase in revenues that it expects or the optimal
mix between license and service revenues that it targets to achieve its
profitability goals.
Additional Information and Where to Find It
Kana Communications plans to file a Registration Statement on Form S-4
with the SEC in connection with the Merger, and Broadbase Software expects to
mail a Proxy Statement/Prospectus to stockholders of Broadbase Software
containing information about the Merger. Investors and security holders of
Broadbase Software are urged to read the Registration Statement and Proxy
Statement/Prospectus carefully when they are available. The Registration
Statement and the Proxy Statement/ Prospectus will contain important information
about Kana Communications, Broadbase Software, the Merger and related matters.
Investors and security holders will be able to obtain free copies of these
documents through the Web site maintained by the U.S. Securities and Exchange
Commission at http://www.sec.gov. Free copies of the Proxy Statement/Prospectus
and these other documents may also obtained from Broadbase Software by directing
a request through the Investor Relations portion of Broadbase Software's site
Investor Relations Department, 500 Broadway, Redwood City, CA 94063.
Free copies of the Proxy Statement/Prospectus and these other documents
may also be obtained from (i) Kana by directing a request by mail or telephone
to Kana Communications, 700 Bay Road, Redwood City, CA 94063, attention: Daphne
Alden, telephone (415) 602-0058 and (ii) Broadbase by directing a request by
mail or telephone to Broadbase Software, 181 Constitution Drive, Menlo Park, CA
94025, attention: Lorraine Daignault, telephone (508) 353-3357. In addition to
the Registration Statement and the Proxy Statement/Prospectus, Kana
Communications and Broadbase Software file annual, quarterly and special
reports, proxy statements and other information with the Securities and Exchange
Commission. You may read and copy any reports, statements or other information
filed by Kana Communications and Broadbase Software at the SEC public reference
rooms at 450 Fifth Street, N.W., Washington, D.C. 20549 or at any of the SEC's
other public reference rooms in New York, New York and Chicago, Illinois. Please
call the SEC at 1-800-SEC-0330 for further information on the public reference
rooms. Kana Communications' and Broadbase Software's filings with the SEC are
also available to the public from commercial document-retrieval services and at
the Web site maintained by the SEC at http://www.sec.gov.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
KANA COMMUNICATIONS, INC.
Date: April 12, 2001 By: /s/ James C. Wood
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Name: James C. Wood
Title: Chief Executive Officer and
Chairman of the Board