As filed with the Securities and Exchange Commission on April 27, 2001
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
Under the Securities Act of 1933
KANA COMMUNICATIONS, INC.
(Exact Name of Registrant as Specified in its Charter)
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Delaware 7372 77-0435679
(State of Incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code) Identification Number)
740 Bay Road, Redwood City, California 94063, (650) 298-9280
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
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James C. Wood, Chief Executive Officer
Kana Communications, Inc., 740 Bay Road, Redwood City, California 94063, (650)
298-9280
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
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Copies to:
David A. Makarechian, Esq. David K. Michaels, Esq.
Jonathan G. Shapiro, Esq. Katherine Tallman Schuda, Esq.
Taylor L. Stevens, Esq. Samuel Angus, Esq.
Brian E. Covotta, Esq. Cynthia E. Garabedian, Esq.
Gerald H. Tsai, Esq. Matthew S. Wilson, Esq.
Brobeck, Phleger & Harrison LLP Fenwick & West LLP
Two Embarcadero Place, 2200 Geng Road Two Palo Alto Square
Palo Alto, California 94303 Palo Alto, CA 94306
(650) 496-0160 (650) 494-0600
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Approximate date of commencement of proposed sale to the public: At the
Effective Time of the Merger of a wholly-owned subsidiary of the Registrant
with and into Broadbase Software, Inc., which shall occur as soon as
practicable after the Effective Date of this Registration Statement, and the
satisfaction or waiver of all conditions to the closing of such Merger.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
CALCULATION OF REGISTRATION FEE
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Title of Each Class of Proposed Maximum Proposed Maximum
Securities to be Amount to be Offering Price Aggregate Amount of
Registered Registered(1) Per Share Offering Price(2) Registration Fee
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Common Stock, par value
$0.001 per share...... 114,217,537 N/A $129,636,904.50 $32,409.23
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(1) Based upon the maximum number of shares of the Registrant's common stock
expected to be issued in connection with the merger, calculated as the
product of (a) 108,778,607, the aggregate number of shares of Broadbase
Software, Inc. common stock outstanding on April 6, 2001 and shares
issuable pursuant to outstanding options and warrants prior to the date
the merger is expected to be consummated and (b) an exchange ratio of 1.05
shares of the Registrant's common stock for each share of Broadbase common
stock.
(2) Estimated solely for purposes of calculating the registration fee required
by Section 6(b) of the Securities Act and calculated pursuant to Rule
457(f)(1) under the Securities Act. Pursuant to Rule 457(f)(1) under the
Securities Act, the proposed maximum aggregate offering price of the
Registrant's common stock was calculated as the average of the reported
high and low per share prices of Broadbase common stock on April 20, 2001
multiplied by the total number of shares of Broadbase common stock
expected to be exchanged for the shares of Kana common stock registered
hereunder.
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The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment that specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to such Section
8(a), may determine.
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[KANA COMMUNICATIONS, INC. LETTERHEAD]
, 2001
Dear Kana Communications, Inc. Stockholders:
I am writing to you today about our proposed merger with Broadbase Software,
Inc. This merger will create a combined company that will be one of the largest
providers of customer relationship management solutions for e-businesses.
In the merger, a wholly-owned subsidiary of Kana Communications, Inc. will
merge with and into Broadbase, each share of Broadbase common stock will be
exchanged for 1.05 shares of the common stock, par value $0.001 per share, of
Kana, and Broadbase will become a wholly-owned subsidiary of Kana. We expect to
issue approximately 86.2 million shares of our common stock and to assume
options and warrants for the purchase of approximately 28.1 million shares of
common stock in the merger. The merger is described more fully in the
accompanying joint proxy statement/prospectus.
You will be asked to vote upon the issuance of shares of Kana common stock
pursuant to the merger agreement by and among Kana, Broadbase and Arrow
Acquisition Corp., the merger subsidiary, at the annual meeting of Kana
stockholders to be held on , 2001 at 10:00 a.m., local time, at the
offices of Brobeck, Phleger & Harrison LLP, Two Embarcadero Place, 2200 Geng
Road, Palo Alto, California. For the merger to go forward, the holders of a
majority of the outstanding shares of Kana common stock must approve the
issuance of these shares. At the annual meeting, you will also be asked to
consider and vote upon the following five additional proposals:
1. To consider and vote upon a proposal to change the name of Kana to
"Kana Software, Inc." by amending Kana's second amended and restated
certificate of incorporation;
2. To approve an amendment of the Kana 1999 Stock Incentive Plan to
increase the number of shares of common stock available for issuance under
the Stock Incentive Plan by an additional 10,000,000 shares;
3. To approve an amendment and restatement of the Kana 1999 Employee
Stock Purchase Plan to increase the number of shares of common stock
issuable under the term of the 1999 Employee Stock Purchase Plan by an
additional 10,000,000 shares of common stock and to revise certain other
provisions of the plan.
4. To elect two directors to serve for a three-year term ending in the
year 2004 and until their successors are duly elected and qualified; and
5. To transact such other business as may properly come before the
annual meeting or any adjournment or postponement thereof.
The proposal to change the name of Kana requires the approval of the holders
of a majority of the outstanding shares of Kana common stock. The proposals to
amend the 1999 Stock Incentive Plan and to amend and restate the 1999 Employee
Stock Purchase Plan require the approval of a majority of Kana shares present
or represented at the annual meeting and entitled to vote on such proposals.
The proposal to elect two directors to Kana's board of directors requires the
affirmative vote of the holders of a plurality of the Kana shares present or
represented at the annual meeting and entitled to vote on such proposal. Only
stockholders who hold shares of Kana common stock at the close of business on
, 2001 will be entitled to vote at the annual meeting.
We are very excited by the opportunities we envision for the combined
company. Our board of directors has determined that the merger and the issuance
of Kana common stock in the merger are fair to, and in the best interests of,
Kana and its stockholders, and unanimously recommends that you approve the
issuance of the shares of Kana common stock in connection with the merger. Our
board of directors has obtained an opinion from Kana's financial advisor in
connection with the merger, Goldman, Sachs & Co., to the effect that, as of the
date of such opinion and based upon and subject to a number of qualifications,
assumptions and limitations, the exchange ratio of 1.05 shares of Kana common
stock for each outstanding share of Broadbase common stock to be received by
the Broadbase stockholders is fair from a financial point of view to Kana. The
full text of the written opinion of Goldman, Sachs & Co., dated April 9, 2001,
which sets forth the assumptions made, matters considered and limitations on
the review undertaken in connection with the opinion, is attached as Appendix
VIII to the joint proxy statement/prospectus. Holders of Kana common stock are
urged to, and should, read such opinion in its entirety.
Our board of directors has also determined that the proposals to change
Kana's name, amend the 1999 Stock Incentive Plan, amend and restate the 1999
Employee Stock Purchase Plan and elect two directors to the board are also in
the best interest of Kana and its stockholders, and unanimously recommends that
you approve these proposals.
The accompanying joint proxy statement/prospectus provides detailed
information about the two companies and the merger as well as the other
proposals described above. We have also enclosed a copy of Kana's annual report
for 2000 which contains additional information about Kana. Please give all of
this information your careful attention. In particular, you should carefully
consider the discussion in the section entitled "Risk Factors" beginning on
page 14 of the joint proxy statement/prospectus.
Your vote is very important regardless of the number of shares you own. To
vote your shares, you may use the enclosed proxy card, grant your proxy by
telephone or the Internet or attend the special stockholders meeting. To
approve the issuance of shares of Kana common stock pursuant to the merger
agreement, you MUST vote "FOR" the proposal by following the instructions
stated on the enclosed proxy card. We urge you to vote "FOR" this proposal, a
necessary step in the merger of Kana and Broadbase. In addition, to approve the
other proposals submitted for your approval, you must vote "FOR" those proposal
by following the instructions stated on the enclosed proxy card, and we
encourage you to do so.
Sincerely,
James C. Wood
Chief Executive Officer and Director
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of this transaction or the securities of
Kana to be issued in the merger, or determined if this joint proxy
statement/prospectus is accurate or complete. Any representation to the
contrary is a criminal offense.
This joint proxy statement/prospectus is dated , 2001, and was first
mailed to Kana stockholders on or about , 2001.
2
SOURCES OF ADDITIONAL INFORMATION
This joint proxy statement/prospectus incorporates important business and
financial information about Kana and Broadbase that is not included in or
delivered with this document. This information is available without charge to
stockholders of Kana and Broadbase upon written or oral request. To request
copies of documents, contact either Kana or Broadbase at:
Kana Communications, Inc. Broadbase Software, Inc.
Investor Relations Investor Relations
740 Bay Road 181 Constitution Road
Redwood City, CA 94063 Menlo Park, CA 94025
(650) 298-9282 (650) 614-8300
To obtain timely delivery of requested documents, you must request them no
later than , 2001.
Also see "Where You Can Find More Information" in this joint proxy
statement/prospectus.
3
KANA COMMUNICATIONS, INC.
740 Bay Road
Redwood City, CA 94063
(650) 298-9282
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held on , 2001
We will hold the annual meeting of stockholders of Kana Communications,
Inc. at 10:00 a.m., local time, on , 2001 at the offices of
Brobeck, Phleger & Harrison LLP, Two Embarcadero Place, 2200 Geng Road, Palo
Alto, California. At the annual meeting, you will be asked:
1. To consider and vote upon a proposal to approve the issuance of
shares of common stock, par value $0.001 per share, of Kana pursuant to the
Agreement and Plan of Merger dated as of April 9, 2001 by and among Kana,
Broadbase Software, Inc. and Arrow Acquisition Corp., a wholly-owned
subsidiary of Kana, under which Broadbase will become a wholly-owned
subsidiary of Kana;
2. To consider and vote upon a proposal to change the name of Kana to
"Kana Software, Inc." by amending Kana's second amended and restated
certificate of incorporation;
3. To approve an amendment of the Kana 1999 Stock Incentive Plan which
will increase the number of shares of Kana common stock available for
issuance under the 1999 Stock Incentive Plan by an additional 10,000,000
shares and to increase the limit on the maximum number of shares by which
the share reserve under the 1999 Stock Incentive Plan may automatically
increase each calendar year from 4,000,000 shares to 10,000,000 shares,
effective for all calendar years after 2001;
4. To approve an amendment and restatement of the Kana 1999 Employee
Stock Purchase Plan to:
. increase the number of shares of common stock issuable under the
term of the 1999 Employee Stock Purchase Plan by an additional
10,000,000 shares of common stock, from 2,122,507 shares to
12,122,507 shares;
. increase the limit on the maximum number of shares by which the
share reserve under the 1999 Employee Stock Purchase Plan may
automatically increase each calendar year from 666,666 shares to
4,000,000 shares, effective for all calendar years after the 2001
calendar year; and
. revise certain provisions of the plan document in order to
facilitate the administration of the 1999 Employee Stock Purchase
Plan.
5. To elect two directors to Kana's Board of Directors for a three-year
term ending in the year 2004 and until their successors are duly elected
and qualified; and
6. To transact such other business as may properly come before the
annual meeting or any adjournment or postponement thereof.
Our board of directors has determined that the merger and the issuance of
shares of Kana common stock in the merger, are fair to and in the best
interests of Kana and Kana's stockholders, and unanimously recommends that you
vote to approve the issuance of Kana common stock. Your board of directors has
also determined that the proposals to change Kana's name, amend the 1999 Stock
Incentive Plan, amend and restate the 1999 Employee Stock Purchase Plan and
elect two directors to Kana's board are also in the best interests of Kana and
Kana's stockholders and unanimously recommends that you vote in favor of these
proposals.
We describe the merger, the proposed name change, the proposed amendment of
the 1999 Stock Incentive Plan, the proposed amendment and restatement of the
1999 Employee Stock Purchase Plan and the background of the nominees for
election to the board more fully in the accompanying joint proxy
statement/prospectus, which we urge you to read. We have also enclosed Kana's
annual report for 2000 which contains additional information about Kana.
Only Kana stockholders of record at the close of business on ,
2001 are entitled to notice of and to vote at the annual meeting or any
adjournment or postponement.
Your vote is important. To assure that your shares are represented at the
annual meeting, you are urged to complete, date and sign the enclosed proxy and
mail it promptly in the postage-paid envelope provided, or call the toll-free
telephone number or use the Internet by following the instructions included
with your proxy card, whether or not you plan to attend the annual meeting in
person. You may revoke your proxy in the manner described in the accompanying
joint proxy statement/prospectus at any time before it has been voted at the
annual meeting. You may vote in person at the annual meeting even if you have
returned a proxy.
By Order of the Board of Directors
Warren T. Lazarow
Secretary
Redwood City, California
, 2001
2
[BROADBASE LETTERHEAD]
, 2001
Dear Broadbase Software, Inc. Stockholders:
I am writing to you today about our proposed merger with Kana
Communications, Inc. This merger will create a combined company that will be
one of the largest providers of customer relationship management solutions for
e-Businesses.
In the merger, a wholly-owned subsidiary of Kana will merge with and into
Broadbase, each share of Broadbase common stock will be exchanged for 1.05
shares of Kana common stock and we will become a wholly-owned subsidiary of
Kana. As a result of the merger, Broadbase stockholders will own approximately
48% of the combined company, based on the number of shares of Broadbase and
Kana common stock outstanding on , 2001. Kana common stock is traded on the
Nasdaq National Market under the trading symbol "KANA," and closed at $1.24 per
share on April 26, 2001. The merger is described more fully in the accompanying
joint proxy statement/prospectus.
You will be asked to vote upon the merger at a special meeting of Broadbase
stockholders to be held on , 2001 at 10:00 a.m., local time, at
the Stanford Park Hotel, 100 El Camino Real, Menlo Park, California. The
holders of a majority of the outstanding shares of Broadbase common stock must
approve and adopt the merger agreement and approve the merger. Only
stockholders who hold shares of Broadbase common stock at the close of business
on , 2001 will be entitled to vote at the special meeting.
We are very excited by the opportunities we envision for the combined
company. Our board of directors has determined that the terms and conditions of
the merger are fair and in the best interests of Broadbase and you, and
unanimously recommends that you approve the merger agreement and the merger.
Our board of directors has obtained an opinion from its financial advisor,
Morgan Stanley & Co. Incorporated, to the effect that, at the date of that
opinion and based upon and subject to qualifications and limitations stated in
that opinion, the exchange ratio pursuant to the merger agreement was fair from
a financial point of view to the holders of Broadbase common stock. The full
text of the written opinion of Morgan Stanley & Co. Incorporated, dated April
9, 2001, which sets forth the assumptions made, matters considered and
limitations on the review undertaken in connection with the opinion, is
attached as Appendix IX to the joint Proxy Statement/Prospectus. Holders of
Broadbase common stock are urged to, and should, read such opinion in its
entirely.
The accompanying joint proxy statement/prospectus provides detailed
information about Kana and the merger. Please give all of this information your
careful attention. In particular, you should carefully consider the discussion
in the section entitled "Risk Factors" on page 14 of the joint proxy
statement/prospectus.
Your vote is very important regardless of the number of shares you own. To
vote your shares, you may use the enclosed proxy card, grant your proxy by
telephone or through the Internet or attend the special meeting of Broadbase
stockholders. To approve the merger agreement, you MUST vote "FOR" the proposal
by following the instructions stated on the enclosed proxy card. If you do not
vote at all, it will, in effect, count as a vote against the merger. We urge
you to vote "FOR" this proposal, a necessary step in the merger of Broadbase
and Kana.
Sincerely,
Chuck Bay
President and Chief Executive
Officer
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of this transaction or the securities of
Kana to be issued in the merger, or determined if this joint proxy
statement/prospectus is accurate or complete. Any representation to the
contrary is a criminal offense.
This joint proxy statement/prospectus is dated , 2001, and was
first mailed to Broadbase stockholders on or about , 2001.
2
SOURCES OF ADDITIONAL INFORMATION
This joint proxy statement/prospectus incorporates important business and
financial information about Kana and Broadbase that is not included in or
delivered with this document. This information is available without charge to
stockholders of Kana and Broadbase upon written or oral request. To request
copies of documents, contact either Kana or Broadbase at:
Kana Communications, Inc. Broadbase Software, Inc.
Investor Relations Investor Relations
740 Bay Road 181 Constitution Road
Redwood City, CA 94063 Menlo Park, CA 94025
(650) 298-9282 (650) 614-8300
To obtain timely delivery of requested documents, you must request them no
later than , 2001.
Also see "Where You Can Find More Information" in this joint proxy
statement/prospectus.
3
BROADBASE SOFTWARE INC.
181 Constitution Drive
Menlo Park, CA 94025
(650) 614-8300
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To be held on , 2001
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We will hold a special meeting of stockholders of Broadbase Software, Inc.
at 10:00 a.m., local time, on , 2001 at the Stanford Park
Hotel, 100 El Camino Real, Menlo Park, California for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger dated as of April 9, 2001 among Kana
Communications, Inc., Broadbase Software, Inc. and a wholly-owned
subsidiary of Kana, and to approve the merger contemplated by that
agreement under which the wholly-owned subsidiary of Kana will merge with
and into Broadbase, Broadbase will become a wholly-owned subsidiary of
Kana, and each outstanding share of Broadbase common stock will be
converted into 1.05 shares of Kana common stock; and
2. To transact such other business as may properly come before the
special meeting or any adjournment or postponement thereof.
Our board of directors has determined that the merger is advisable and in
the best interests of Broadbase and you, and unanimously recommends that you
vote to approve the merger agreement and the merger.
We describe the merger more fully in the accompanying joint proxy
statement/prospectus, which we urge you to read.
Only Broadbase stockholders of record at the close of business on
, 2001 are entitled to notice of and to vote at the special
meeting or any adjournment or postponement.
Your vote is important. To assure that your shares are represented at the
special meeting, you are urged to complete, date and sign the enclosed proxy
and mail it promptly in the postage-paid envelope provided, or call the toll-
free number or use the Internet by following the instructions enclosed with
your proxy, whether or not you plan to attend the special meeting in person.
You may revoke your proxy in the manner described in the accompanying joint
proxy statement/prospectus at any time before it has been voted at the special
meeting. You may vote in person at the special meeting even if you have
returned a proxy.
By Order of the Board of Directors
Eric Willgohs
Secretary
Menlo Park, California
, 2001
TABLE OF CONTENTS
Page
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QUESTIONS AND ANSWERS ABOUT THE MERGER.................................... 1
SUMMARY................................................................... 3
RISK FACTORS.............................................................. 14
Risks Related to the Merger............................................. 14
Risks Related to Kana................................................... 19
Risks Related to Broadbase.............................................. 31
ANNUAL MEETING OF KANA STOCKHOLDERS....................................... 44
General................................................................. 44
Date, Time and Place.................................................... 44
Matters to be Considered at the Annual Meeting.......................... 44
Record Date............................................................. 45
Voting of Proxies....................................................... 45
Votes Required.......................................................... 45
Quorum; Abstentions and Broker Non-Votes................................ 45
Solicitation of Proxies and Expenses.................................... 46
Stockholder Proposals for the Kana 2002 Annual Meeting.................. 46
Board Recommendations................................................... 46
SPECIAL MEETING OF BROADBASE STOCKHOLDERS................................. 48
Date, time, place and purpose of the Broadbase meeting.................. 48
Record date and outstanding shares...................................... 48
Vote and quorum requirements............................................ 48
Voting and revocability of proxies...................................... 48
Expenses of proxy solicitation.......................................... 49
THE MERGER................................................................ 50
Background of the Merger................................................ 50
Recommendation of the Kana Board of Directors and Kana's Reasons for the
Merger................................................................. 56
Opinion of Kana's Financial Advisor..................................... 56
Broadbase's Reasons for the Merger and Recommendation of Broadbase's
Board of Directors..................................................... 63
Opinion of Broadbase's Financial Advisor................................ 65
Interests of Broadbase's Management in the Merger and Potential
Conflicts of Interest.................................................. 72
The Merger.............................................................. 73
Closing of the Merger................................................... 73
Conversion of Broadbase Shares in the Merger............................ 73
Broadbase Stock Options and Warrants.................................... 74
The Exchange Agent...................................................... 74
Exchange of Broadbase Stock Certificates for Kana Stock Certificates.... 74
Transfer of Ownership; Distributions with Respect to Unexchanged
Shares................................................................. 74
Material Federal Income Tax Considerations.............................. 74
Accounting Treatment.................................................... 76
Stockholders' Dissenters' Rights........................................ 76
Listing of Kana Common Stock to be Issued in the Merger................. 76
Restrictions on Sale of Shares by Affiliates of Kana and Broadbase...... 76
Management Following the Merger......................................... 76
Operations Following the Merger......................................... 77
i
TABLE OF CONTENTS--(Continued)
Page
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THE MERGER AGREEMENT..................................................... 78
Representations and Warranties........................................ 78
Conduct of Each Company's Business Before the Closing of the Merger... 79
No Other Negotiations................................................. 81
Public Disclosure..................................................... 83
Employee Benefit Plans................................................ 83
Conditions to Closing the Merger...................................... 83
Termination of the Merger Agreement................................... 84
Termination Fee....................................................... 86
Amendment, Extension and Waiver of the Merger Agreement............... 87
RELATED AGREEMENTS....................................................... 88
The Voting Agreements................................................. 88
The Stock Option Agreements........................................... 89
Distribution and License Agreement.................................... 91
Revolving Loan Agreement.............................................. 92
KANA COMMUNICATIONS, INC. UNAUDITED PRO-FORMA COMBINED FINANCIAL
STATEMENTS.............................................................. 94
COMPARISON OF STOCKHOLDER RIGHTS......................................... 99
Comparison of Rights of Kana Stockholders and Broadbase Stockholders
under Delaware Law and Each Company's Certificate of Incorporation
and Bylaws........................................................... 99
OTHER KANA PROPOSALS..................................................... 104
Proposal to Change Kana's Name........................................ 104
Proposal to Amend Kana's 1999 Stock Incentive Plan.................... 104
Proposal to Amend and Restate Kana's 1999 Employee Stock Purchase
Plan................................................................. 115
Election of Directors................................................. 121
Other Matters......................................................... 124
COMPENSATION COMMITTEE REPORT............................................ 125
AUDIT COMMITTEE REPORT................................................... 127
INFORMATION ABOUT KANA................................................... 129
Management of Kana.................................................... 129
Kana's Employment Arrangements, Termination of Employment Arrangements
and Change in Control Arrangements................................... 133
Certain Transactions of Kana.......................................... 134
Principal Stockholders of Kana........................................ 135
MARKET PRICE INFORMATION................................................. 137
EXPERTS.................................................................. 138
LEGAL MATTERS............................................................ 138
WHERE YOU CAN FIND MORE INFORMATION...................................... 139
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.......................... 140
APPENDICES
Appendix I-- Agreement and Plan of Merger............................. I-1
Appendix II-- Form of Kana Voting Agreement............................ II-1
Appendix III-- Form of Broadbase Voting Agreement....................... III-1
Appendix IV-- Form of Kana Stock Option Agreement...................... IV-1
ii
TABLE OF CONTENTS--(Continued)
Page
----
Appendix V-- Form of Broadbase Stock Option Agreement............. V-1
Appendix VI-- Form of Distribution and License Agreement........... VI-1
Appendix VII-- Form of Revolving Loan Agreement..................... VII-1
Appendix VIII-- Opinion of Goldman, Sachs & Co., financial advisor to
Kana Communications, Inc. .......................... VIII-1
Appendix IX-- Opinion of Morgan Stanley & Co. Incorporated,
financial advisor to Broadbase Software, Inc. ...... IX-1
Appendix X-- Form of Kana Proxy Card.............................. X-1
Appendix XI-- Form of Broadbase Proxy Card......................... XI-1
Appendix XII-- Amended and Restated 1999 Stock Incentive Plan of
Kana Communications, Inc. .......................... XII-1
Appendix XIII-- Amended and Restated 1999 Employee Stock Purchase
Plan of Kana Communications, Inc.................... XIII-1
Appendix XIV-- Charter of the Audit Committee of the Board of
Directors of Kana Communications, Inc............... XIV-1
iii
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: Why are Broadbase and Kana proposing to merge?
A: This merger will combine two leading providers of customer relationship and
communication software solutions for electronic businesses, or eBusinesses,
with the objective of strengthening and extending their leadership position.
In addition, Broadbase and Kana believe that the merger has the potential to
enhance the ability of each company to achieve profitability sooner than
they would if they remain independent, as a result of a stronger product
offering, sales and distribution synergies and cross-selling opportunities,
and the opportunity to reduce overhead and other costs. Further, Broadbase
and Kana will each benefit from the complementary resources of the other,
including complementary operating, financial and technology resources and
strategic relationships. Overall, both Broadbase and Kana believe that the
merger will provide added value to their respective stockholders.
Q: What will Broadbase stockholders receive in the merger?
A: If the merger is completed, Broadbase stockholders will receive 1.05 shares
of Kana common stock for each share of Broadbase common stock they own.
Q: When do you expect to complete the merger?
A: We are working to complete the merger in the summer of 2001. Because the
merger is subject to various conditions, however, we cannot predict the
exact timing.
Q: What happens if the trading price of Kana or Broadbase common stock changes
before the merger?
A: The number of shares of Kana common stock to be issued for each share of
Broadbase common stock will not be adjusted based upon changes in the market
price of Kana common stock or Broadbase common stock. As a result, the value
of the Kana common stock to be received in the merger will fluctuate up or
down as the market price of Kana common stock fluctuates up or down. Neither
Kana nor Broadbase has the right to terminate the merger agreement or to
resolicit the vote of its stockholders based on changes in the market price
of Kana or Broadbase common stock.
Q: Are there risks I should consider in deciding whether to vote for the
merger.
A: Yes. For example, the combined company might not realize the expected
benefits of the merger or become profitable. In evaluating the merger, you
should carefully consider the factors discussed beginning on page 14 in the
section entitled "Risk Factors."
Q: Should Broadbase stockholders send in their stock certificates now?
A: No. After we complete the merger, Kana will send instructions to Broadbase
stockholders explaining how to exchange their shares of Broadbase common
stock for the appropriate number of shares of Kana common stock.
Q: Should Kana stockholders send in their stock certificates?
A: No. Kana stockholders will continue to own their shares of Kana common stock
after the merger and should continue to hold their stock certificates.
1
Q: How do I vote?
A: Mail your signed proxy card in the enclosed return envelope or grant your
proxy by telephone or the Internet as soon as possible so that your shares
may be represented at the special stockholders meeting. You may also attend
the meeting in person instead of submitting a proxy. If your shares are held
in "street name" by your broker, your broker will vote your shares only if
you provide instructions on how to vote. You should follow the directions
provided by your broker regarding how to instruct your broker to vote your
shares.
Q: What rights do I have if I oppose the merger?
A: You can vote against the merger by indicating a vote against the proposal on
your proxy card and signing and mailing your proxy card, or by voting
against the merger in person at our special meeting. If the merger is
approved at our special meeting, your shares of Broadbase common stock will
be converted into shares of Kana common stock regardless of whether you
voted for or against the merger. You will not have appraisal or dissenters'
rights in connection with the merger or any of the transactions contemplated
by the merger agreement.
Q: Can I change my vote after mailing my proxy?
A: Yes. You may change your vote by delivering a signed notice of revocation or
a later-dated, signed proxy card to the corporate secretary of Kana or
Broadbase, as appropriate, before the appropriate stockholder meeting, or by
attending the stockholder meeting and voting in person.
Q: What are the tax consequences of the merger to me?
A: We expect that the merger will qualify as a tax-free reorganization for
federal income tax purposes. If the merger qualifies as a tax-free
reorganization, you will not recognize any gain or loss for federal income
tax purposes upon the exchange of your shares of Broadbase common stock for
shares of Kana common stock, although you will recognize taxable income with
respect to any cash received in lieu of a fractional share of common stock.
You should consult your own tax advisor for a full understanding of the tax
consequences of the merger to you. For a more detailed description of the
tax consequences of the merger, see the section of this joint proxy
statement/prospectus entitled "The Merger--Material Federal Income Tax
Considerations" beginning on page 74.
Q: Who will lead the combined company?
A: We expect that the board of directors of the combined company will include
James Wood and Robert Frick, who are currently Kana directors, and Chuck
Bay, Kevin Harvey and Massood Zarrabian, who are currently Broadbase
directors. Mr. Zarrabian, the former chief executive officer of Servicesoft,
Inc., joined the Broadbase board in December 2000 following Broadbase's
acquisition of Servicesoft. In addition, following the merger, Chuck Bay,
president and chief executive officer of Broadbase, will serve as Kana's
president and chief executive officer and James Wood, Kana's chief executive
officer, will continue to serve as chairman of Kana's board of directors.
Q: Who can I call with questions?
A: If you are a Kana stockholder with questions about the merger, please call
Kana Investor Relations at (650) 298-9282.
If you are a Broadbase stockholder with questions about the merger, please
call Broadbase Investor Relations at (650) 614-8300.
2
SUMMARY
The following summary highlights selected information from this joint proxy
statement/prospectus and may not contain all of the information that is
important to you. You should carefully read this entire joint proxy
statement/prospectus, including the appendices, and the other documents we
refer to for a more complete understanding of the merger.
The Companies
KANA COMMUNICATIONS, INC.
740 Bay Road
Redwood City, CA 94063
www.kana.com.
(650) 298-9282
Kana is a leading provider of enterprise Relationship Management (eRM)
software solutions that deliver integrated communication and business
applications built on a Web-architected platform. Kana's eRM software solutions
redefine and extend the enterprise to incorporate customers, partners, and
suppliers in collaborative business relationships for greater long-term loyalty
and profitability. At the same time, Kana's eRM solutions enable enterprises to
lower operating and distribution costs as they build relationships. Using
Kana's software products and services, enterprises can:
. offer to customers, partners, and suppliers a consistent, personalized,
and comprehensive view of their business relationship so that they can
learn, buy, and get care that is relevant and targeted to their needs;
. offer customers, partners and suppliers an integrated business experience
across their service, sales, and marketing activities;
. embrace customers, partners, and suppliers in productive and efficient
relationships through collaborative participation in automated business
processes;
. enhance the effectiveness of both online and offline relationships via
integrated communication channels and interactions methods; and
. facilitate integrated information and services via a scalable, flexible,
and adaptable Web-architected platform.
Kana's customers range from Global 2000 companies pursuing an e-business
strategy to Internet-only companies. The following is a representative list of
Kana's customers:
.eBay .E*Trade
.American Airlines .Kodak
.The Gap .Bellsouth
BROADBASE SOFTWARE INC.
181 Constitution Drive
Menlo Park, CA 94025
(650) 614-8300
Broadbase is a leading provider of software solutions that enable companies
to conduct highly effective, intelligent customer interactions through the
Internet and traditional business channels, thereby providing the basis for
businesses to improve their customer acquisition, retention and profitability.
Broadbase's web-based product suite combines operational marketing and service
applications with customer analytics. Broadbase's software integrates
information from numerous points of customer interaction, or tough points, by
pulling
3
information from multiple data sources and transforming it into a standard
format that can be analyzed and acted upon. Broadbase's software then analyzes
this reformatted information to provide a comprehensive understanding of the
customer lifecycle from initial identification through acquisition and
retention. Broadbase's software applications translate this analysis into
specific marketing, sales and service actions, including the execution of
targeted marketing campaigns, the delivery of Internet and traditional-based
customer service, and the personalization of all customer interactions. By
integrating, analyzing and acting on valuable customer information, Broadbase's
products enable businesses to build long-lasting and profitable customer
relationships.
Broadbase customers include both traditional "bricks and mortar" companies
and Internet-only companies. The following is a representative list of
Broadbase's customers:
. Cisco Systems .Hewlett-Packard
. Eddie Bauer .eBags
. Fidelity Investments .Verizon
The Merger (See page 50)
Kana and Broadbase have entered into a merger agreement that provides for
the merger of a newly formed, wholly-owned subsidiary of Kana with and into
Broadbase. As a result, Broadbase will become a wholly-owned subsidiary of
Kana. Stockholders of Broadbase will become stockholders of Kana following the
merger, and each share of Broadbase common stock will be exchanged for 1.05
shares of Kana common stock. We urge you to read the merger agreement, which is
included as Appendix I, carefully and in its entirety.
Stockholder Approvals (See pages 44 and 48)
Kana Stockholders
The holders of a majority of the shares of Kana common stock entitled to
vote and that are present or represented by proxy at the annual meeting of
Kana's stockholders must approve the issuance of Kana common stock in the
merger. For the merger to proceed, the holders of a majority of outstanding
shares of Kana common stock must approve the issuance of these shares. Kana
stockholders are entitled to cast one vote per share of Kana common stock owned
at the close of business on , 2001. Pursuant to a voting agreement in
the form of Appendix II hereto, Kana's directors, executive officers and their
affiliates, who owned beneficially approximately 20.5% of Kana's common stock
outstanding as of April 9, 2001 (including any shares issuable upon the
exercise of options that are exercisable with 60 days of April 9, 2001) have
agreed to vote all of their shares of Kana common stock for the issuance of
shares of Kana common stock as contemplated by the merger agreement and against
any action or agreement that would prevent, or compete with, the merger.
In addition, Kana stockholders will be asked at the annual meeting to
approve:
. a proposal to change the name of Kana to "Kana Software, Inc." by
amending Kana's second amended and restated certificate of incorporation;
. an amendment of the Kana 1999 Stock Incentive Plan which will increase
the number of shares of Kana common stock available for issuance under
the 1999 Stock Incentive Plan by an additional 10,000,000 shares and to
increase the limit on the maximum number of shares by which the share
resurrender the 1999 Stock Incentive Plan may automatically increase each
calendar year from 4,000,000 shares to 10,000,000 shares, effective for
all calendar years after 2001;
. an amendment and restatement of the Kana 1999 Employee Stock Purchase
Plan which will:
4
. increase the number of shares of common stock issuable under the term of
the 1999 Employee Stock Purchase Plan by an additional 10,000,000 shares
of common stock, from 2,122,507 shares to 12,122,507 shares;
. increase the limit on the maximum number of shares by which the share
reserve under the 1999 Employee Stock Purchase Plan may automatically
increase each calendar year from 666,666 shares to 4,000,000 shares,
effective for all calendar years after the 2001 calendar year;
. revise certain provisions of the plan document in order to facilitate
the administration of the 1999 Employee Stock Purchase Plan; and
. the election of two directors to Kana's board of directors for a three-
year term ending in the year 2004 and until their successors are duly
elected and qualified.
For the amendment to Kana's certificate of incorporation to take effect,
holders of majority of the outstanding common stock must approve the amendment.
For the amendment of Kana's 1999 Stock Incentive Plan and the amendment and
restatement of Kana's 1999 Employee Stock Purchase Plan to take effect, the
holders of a majority of Kana's outstanding common stock entitled to vote and
that are present or represented by proxy at the annual meeting must approve the
amendments. For the election of the two directors to Kana's board of directors
to take effect, the holders of a plurality of the Kana outstanding common stock
entitled to vote and that are present or represented at the annual meeting must
approve the election.
Broadbase Stockholders
For the merger to proceed, the holders of a majority of the outstanding
shares of Broadbase common stock must adopt the merger agreement and approve
the merger. Broadbase stockholders are entitled to cast one vote per share of
Broadbase common stock owned at the close of business on , 2001. Under
separate voting agreements in the form attached as Appendix III hereto,
Broadbase's directors, executive officers and their affiliates owning
beneficially approximately 11.7% of Broadbase's common stock outstanding as of
April 9, 2001 (including any shares issuable upon the exercise of options that
are exercisable within 60 days of April 9, 2001) have agreed to vote all of
their shares of Broadbase common stock for adoption and approval of the merger
agreement and approval of the merger and against any action or agreement that
would prevent, or compete with, the merger.
Stock Option Agreements (See page 88)
Kana
As an inducement to Kana to enter into the merger agreement, Broadbase
granted Kana the right, under certain circumstances, to purchase a number of
shares of newly-issued Broadbase common stock equal to 19.9% of Broadbase's
issued and outstanding shares of common stock as of the date of exercise of the
option. The stock option becomes exercisable upon the occurrence of an exercise
event and the satisfaction of a number of conditions. The exercise price of the
option is $0.7188 per share, payable in cash. Broadbase has the right to
repurchase all, but not less than all, of any exercised option shares under
certain circumstances. The proceeds from the option shares cannot exceed any
termination fee payable to Kana under the merger agreement. See "Related
Agreements--Stock Option Agreements."
Broadbase
As an inducement to Broadbase to enter into the merger agreement, Kana
granted Broadbase the right, under certain circumstances, to purchase a number
of shares of newly-issued Kana common stock equal to 19.9% of Kana's issued and
outstanding shares of common stock as of the date of exercise of the option, or
such lesser amount of shares of Kana common stock that equals 19.9% of Kana's
issued and outstanding shares when counted together with the shares acquired
upon conversion of amounts outstanding under the revolving loan agreement
described below. The option becomes exercisable upon the occurrence of an
exercise event and the satisfaction of a number of conditions. The exercise
price of the option is $0.875 per share, payable in cash.
5
Kana has the right to repurchase all, but not less than all, of any exercised
option shares under certain circumstances. The proceeds from the option shares
cannot exceed any termination fee payable to Broadbase under the merger
agreement. See "Related Agreements--Stock Option Agreements."
Distribution and License Agreement (See page 91)
As an inducement to both Kana and Broadbase to enter into the merger
agreement, each party granted the other a non-exclusive, worldwide, non-
transferable royalty-bearing license to all of their respective intellectual
property. Each license also provides for the licensor's source code to be
placed in escrow subject to release upon the occurrence of certain events, such
as events relating to bankruptcy or the failure by the licensor to provide
maintenance and support for its products. Each license is subject to immediate
termination by either party upon the attempted assignment of the license by, or
the change of control of, the other party without the first party's consent.
Revolving Loan Agreement (See page 92)
As an inducement to Kana to enter into the merger, Broadbase agreed to loan
up to $20.0 million to Kana subject to the terms and conditions of a revolving
credit agreement. The entire $20 million of such facility will be placed in an
escrow account prior to any drawdowns by Kana pursuant to the terms of the
revolving credit agreement. The loan commitment will terminate upon the earlier
of the closing of the merger or the termination of the merger agreement.
Beginning on July 16, 2001, Broadbase will have the right to convert any amount
outstanding under the loan into Kana common stock at a price of $1.10 per
share, provided that the total amount converted under the loan when counted
together with the shares acquired under the stock option agreement in favor of
Broadbase, as described above, cannot exceed 19.9% of Kana's outstanding common
stock.
Recommendations of the Boards of Directors (See pages 54 and 63)
The Broadbase and Kana boards of directors have determined that the terms
and conditions of the merger are advisable and in the best interests of their
respective stockholders. The Broadbase board unanimously recommends that
Broadbase stockholders vote FOR the adoption and approval of the merger
agreement and approval of the merger, and the Kana board unanimously recommends
that Kana stockholders vote FOR issuing the shares of Kana common stock in
connection with the merger, the change in Kana's name, the amendment of Kana's
1999 Stock Incentive Plan, the amendment and restatement of Kana's 1999
Employee Stock Purchase Plan and the election of two directors to Kana's board.
Opinions of Financial Advisors (See pages 56 and 65)
In deciding to approve the merger, each of the Broadbase and Kana boards of
directors considered opinions from their financial advisors, among various
other factors described below in "The Merger--Recommendation of the Kana Board
of Directors and Kana's Reasons for the Merger," and "The Merger--
Recommendation of Broadbase's Board of Directors and Broadbase's Reasons for
the Merger."
On April 8, 2001, Goldman, Sachs & Co., Kana's financial advisor in
connection with the merger, delivered its oral opinion to the Kana board that,
as of that date, the exchange ratio pursuant to the merger agreement was fair
from a financial point of view to Kana. Goldman, Sachs & Co. subsequently
confirmed its oral opinion by delivery of its written opinion dated April 9,
2001. The full text of the written opinion of Goldman, Sachs & Co., which sets
forth assumptions made, matters considered and limitations on the review
undertaken in connection with the opinion, is attached as Appendix VIII.
Goldman, Sachs & Co. provided its opinion for the information and assistance of
Kana's board of directors in connection with its consideration of the merger.
The opinion of Goldman, Sachs & Co. is not a recommendation as to how any
holder of Kana common stock should vote on any matter relating to the merger.
We urge you to read the opinion in its entirety.
6
In deciding to approve the merger, the Broadbase board of directors
considered, among other things, the opinion of its financial advisor, Morgan
Stanley & Co. Incorporated, that, as of the date of its opinion, and subject to
and based on the considerations referred to in its opinion, the exchange ratio
pursuant to the merger agreement was fair, from a financial point of view, to
the holders of Broadbase common stock. The full text of Morgan Stanley & Co.
Incorporated's written opinion, dated April 9, 2001, which sets forth
assumptions made, matters considered and limitations on the review undertaken
in connection with the opinion, is attached to Appendix IX. Broadbase urges its
stockholders to read the opinion of Morgan Stanley & Co. Incorporated in its
entirety. Morgan Stanley & Co. Incorporated's opinion is directed to the
Broadbase board of directors and does not constitute a recommendation to any
stockholder as to how stockholders should vote on any matter relating to the
merger.
Interests of Broadbase's Management in the Merger and Potential Conflicts of
Interest (See page 72)
When considering the recommendation of the Broadbase board, you should be
aware that some directors and officers of Broadbase have the following
interests in the merger that are different from, or in addition to, yours:
. Certain executive officers of Broadbase have employment agreements under
which they will be entitled to 50% accelerated vesting of their
outstanding options, including the Broadbase options assumed by Kana in
the merger, in the event they are not offered employment by Kana in a
comparable position and at a comparable salary after the merger.
. Massood Zarrabian, an employee member of Broadbase's board of directors,
has an employment agreement under which he will be entitled to 12 months
of salary continuation payments and 50% accelerated vesting of his
outstanding options in the event that he is not offered employment by
Kana in a comparable position and at comparable salary or his employment
is terminated by Kana without just cause prior to December 19, 2002.
. Robert Davoli, a non-employee member of Broadbase's board of directors,
has a restricted stock purchase agreement under which he will be entitled
to 100% accelerated vesting of his shares purchased under the agreement
upon the close of the merger.
. Kana has agreed that Chuck Bay, the president and chief executive officer
of Broadbase, will be appointed to serve as president and chief executive
officer of Kana following the merger.
. Kana has agreed to cause the surviving corporation in the merger to
indemnify each present and former Broadbase officer and director against
liabilities arising out of such person's service as an officer or
director. The surviving corporation in the merger will maintain officer's
and director's liability insurance to cover any such liabilities for the
next six years.
. Kana has agreed that upon completion of the merger, Chuck Bay, Kevin
Harvey and Massood Zarrabian, each of whom are currently Broadbase
directors, will be appointed to Kana's board of directors.
David Beirne, one of Kana's directors, and Kevin Harvey, one of Broadbase's
directors, are both managing members of Benchmark Capital Management Co., LLC,
which is the general partner of several Benchmark funds that collectively hold
a significant number of shares of both Kana and Broadbase. Entities affiliated
with Benchmark Capital Management Co., LLC beneficially owned 6,927,511 shares
of Kana common stock, or 8.3% of its common stock, as of February 28, 2001.
Entities affiliated with Benchmark Capital Management Co., LLC beneficially
owned 4,091,832 shares of Broadbase common stock, or approximately 5.0% of its
common stock, as of March 1, 2001.
As a result, these directors and officers may be more likely to recommend
adoption of the merger agreement than Broadbase stockholders generally. See
"The Merger--Interests of Broadbase's Management in the Merger and Potential
Conflicts of Interest."
7
Conditions To Completion of The Merger (See page 83)
Whether Kana and Broadbase complete the merger depends on a number of
conditions being satisfied in addition to Kana stockholders' approval of the
issuance of Kana common stock and Broadbase stockholders' approval of the
merger agreement. See "The Merger Agreement--Conditions to Closing the Merger."
Either Kana or Broadbase may choose to complete the merger even though one or
more of these conditions has not been satisfied, as long as applicable law
allows them to do so. Kana and Broadbase cannot be certain when, or if, the
conditions to the merger will be satisfied or waived, or that the merger will
be completed. The following conditions, among others, must be satisfied or
waived before the merger can be completed:
. the shares of Kana common stock to be issued in exchange for Broadbase
common stock shall have been registered with the SEC under the Securities
Act of 1933, as amended;
. no governmental agency shall have acted or entered any order or judgment
prohibiting the merger and the relevant waiting period for antitrust
review under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, must have expired or been terminated;
. the representations and warranties of Kana and Broadbase in the merger
agreement must be, in the aggregate, materially true and correct;
. Kana and Broadbase must perform and comply in all material respects with
their respective covenants in the merger agreement;
. Kana and Broadbase each must have received written opinions from its tax
counsel that the merger will constitute a tax-free reorganization under
the Internal Revenue Code;
. no event, change, condition or effect that is or is reasonably likely to
be materially adverse to either company and its subsidiaries, taken as a
whole, occurs;
. the shares of Kana common stock to be issued in the merger must be
authorized for listing on the Nasdaq National Market; and
. Kana and Broadbase must have completed substantial headcount reductions
approved by their respective board of directors.
Termination of the Merger Agreement (See page 84)
Kana and Broadbase can agree at any time prior to completing the merger to
terminate the merger agreement. Also, either of Kana or Broadbase can decide,
without the other's consent, but subject to certain limitations, to terminate
the merger agreement if the merger has not been completed on or before October
31, 2001, if the other company has breached its obligations under the merger
agreement or the revolving loan agreement in the form attached as Appendix VII
hereto or for other reasons described herein.
Termination Fee and Expenses (See page 86)
Kana and Broadbase have each agreed to pay the other party a termination fee
of $2.5 million if the merger agreement terminates under the circumstances that
are described on page 86 under "The Merger--Termination Fee." The termination
fee will constitute liquidated damages to the recipient and the responsible
party shall have no further liability for the action that triggered the
termination fee. The amounts received upon any sale of the option shares
purchased under the Kana and Broadbase stock option agreements cannot exceed
any termination fee received by the party exercising the option.
8
No Solicitation of Transactions (See page 81)
Subject to limited exceptions, the merger agreement prohibits Kana and
Broadbase from soliciting, or participating in discussions with third parties
with respect to, alternative transactions that may prevent the merger. In
addition, each company must provide the other party with information concerning
any alternative transactions. Kana and Broadbase must also give prior written
notice of any meeting at which the company's board is reasonably expected to
consider an alternative transaction. The restrictions, however, do not prohibit
the boards from taking specified actions necessary to fulfill their respective
fiduciary duties if a superior offer (as defined on page 82), is received.
Conduct of Kana and Broadbase Before the Merger
Broadbase and Kana have each agreed that until the earlier of the closing of
the merger and the termination of the merger agreement, or unless the other
consents in writing, each of them and their subsidiaries will carry on their
business in the usual, regular and ordinary course, pay its debts and taxes
when due and perform its other material obligations. Each has also agreed to
use all reasonable efforts to preserve its relationships with customers,
suppliers, licensors, licensees, and others with which it has business
dealings. Each has also agreed to notify the other of any material event
involving its business. Broadbase and Kana have also each agreed that until the
earlier of the closing of the merger and the termination of the merger
agreement, or unless the other company consents in writing (which consent shall
not be unreasonably withheld or delayed) and as contemplated by the merger
agreement, it and each of its subsidiaries will conduct its business in
compliance with specific restrictions set forth in more detail on page 79.
Governmental Approvals and Regulatory Requirements
Other than compliance with applicable federal and state securities laws in
connection with the issuance of Kana common stock pursuant to the merger,
compliance with the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and compliance with applicable provisions of the Delaware General
Corporation Law, no federal or state regulatory requirements must be complied
with or approval must be obtained in connection with the merger.
United States Federal Income Tax Consequences of the Merger (See page 74)
It is intended that the merger qualify as a tax-free reorganization for
United States federal income tax purposes. If the merger qualifies as a tax-
free reorganization, Broadbase stockholders generally will not recognize gain
or loss for United States federal income tax purposes in the merger. It is a
condition to completion of the merger that each of Broadbase and Kana obtain a
legal opinion from outside counsel that the merger constitutes a reorganization
within the meaning of the Internal Revenue Code.
Anticipated Accounting Treatment of the Merger (See page 76)
The merger will be treated as a purchase for accounting and financial
reporting purposes, which means that Broadbase will be treated as a separate
entity for periods prior to the closing, and thereafter as a wholly-owned
subsidiary of Kana. In addition, Kana may record on its balance sheet goodwill
or negative goodwill depending on the fair value of the assets acquired and
liabilities assumed in the merger. This amount is expected to be amortized over
a three year period following the merger.
Restrictions on the Ability to Sell Kana Stock (See page 76)
All shares of Kana common stock that Broadbase stockholders receive in
connection with the merger will be freely transferable unless the holder is
considered an "affiliate" of either Kana or Broadbase for purposes of
9
the Securities Act of 1933, as amended. Shares of Kana common stock held by
these affiliates may be sold only pursuant to an effective registration
statement covering the resale of the shares or an exemption under the
Securities Act.
Dissenters' Appraisal Rights
Under Delaware law, neither Kana nor Broadbase stockholders are entitled to
dissenters' rights of appraisal as a consequence of the merger.
Other Kana Proposals (see page 104)
Kana is also presenting proposals to its stockholders at the Kana annual
meeting to:
. approve a proposal to change the name of Kana to "Kana Software, Inc." by
amending Kana's second amended and restated certificate of incorporation;
. approve an amendment of the Kana 1999 Stock Incentive Plan which will
increase the number of shares of Kana common stock available for issuance
under the 1999 Stock Incentive Plan by an additional 10,000,000 shares
and to increase the limit on the maximum number of shares by which the
share resurrender the 1999 Stock Incentive Plan may automatically
increase each calendar year from 4,000,000 shares to 10,000,000 shares,
effective for all calendar years after 2001;
. approve an amendment and restatement of the Kana 1999 Employee Stock
Purchase Plan which will:
. increase the number of shares of common stock issuable under the term of
the 1999 Employee Stock Purchase Plan by an additional 10,000,000 shares
of common stock, from 2,122,507 shares to 12,122,507 shares;
. increase the limit on the maximum number of shares by which the share
reserve under the 1999 Employee Stock Purchase Plan may automatically
increase each calendar year from 666,666 shares to 4,000,000 shares,
effective for all calendar years after the 2001 calendar year; and
. revise certain provisions of the plan document in order to facilitate
the administration of the 1999 Employee Stock Purchase Plan.
. elect two directors to the Kana board of directors to serve for a three-
year term ending in the year 2004 and until their successors are duly
elected and qualified.
Approval of the proposal to change Kana's name requires the favorable vote
of a majority of the outstanding Kana shares. Approval of the proposals to
amend the 1999 Stock Incentive Plan and to amend and restate the 1999 Employee
Stock Purchase Plan requires the favorable vote of a majority of the
outstanding Kana shares present or represented at the annual meeting and
entitled to vote on such proposals. Approval of the proposal to elect two
directors to Kana's board of directors requires a plurality of the outstanding
Kana common stock entitled to vote that are present or represented at the annul
meeting.
The Kana board of directors unanimously recommends that Kana stockholders
vote to approve the foregoing proposals.
Trademarks
Kana(R) is a registered trademark, and KANA COMMUNICATIONS and Design(TM)
and the Kana logo are trademarks of Kana Communications, Inc.
10
Broadbase(R) is a registered trademark of Broadbase and Broadbase
Software(TM), Intelligent Customer Interaction(TM) and the Broadbase logo are
trademarks of Broadbase Software, Inc.
This joint proxy statement/prospectus contains other trade names, trademarks
and service marks of Kana, Broadbase and of other companies.
Dividend Information
Neither Kana nor Broadbase has ever paid any cash dividends on its stock,
and Kana anticipates that, following the merger, it will continue to retain any
earnings for the foreseeable future for use in the operation of its business.
In January 2000, Kana and Broadbase declared a stock split of one share of
common stock per share of common stock outstanding,.
Forward-Looking Statements in this Joint Proxy Statement/Prospectus
This joint proxy statement/prospectus contains forward-looking statements
within the "safe harbor" provisions of the Private Securities Litigation Reform
Act of 1995 with respect to Kana's and Broadbase's financial condition, results
of operations and business and the expected impact of the merger on Kana's
financial performance. Words such as "anticipates," "expects," "intends,"
"plans," "believes," "seeks," "estimates" and similar expressions indicate
forward-looking statements, including those relating to the proposed merger.
These forward-looking statements are not guarantees of future performance and
are subject to risks and uncertainties that could cause actual results to
differ materially from the results contemplated by the forward-looking
statements. In evaluating the merger, you should carefully consider the
discussion of risks and uncertainties in the section entitled "Risk Factors"
beginning on page 14. You are cautioned not to place undue reliance on these
forward looking statements, which reflect the views of Kana's or Broadbase's
management only as of the date of this prospectus. Neither Kana nor Broadbase
undertakes any obligation to update these statements or publicly release the
results of any revisions to the forward-looking statements that they may make
to reflect events or circumstances after the date of this prospectus or to
reflect the occurrence of unanticipated events.
11
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA INFORMATION
The following tables show summary financial results as if Kana and Broadbase
had been combined as of January 1, 2000 for statement of operations purposes
and as of December 31, 2000 for balance sheet purposes.
The summary pro forma unaudited combined financial information is derived
from the unaudited pro forma combined financial statements, which give effect
to the proposed merger of Kana and Broadbase, the merger of Kana and Silknet,
and the merger of Broadbase and Servicesoft using the purchase method of
accounting and should be read in conjunction with such unaudited pro forma
combined financial statements and the notes thereto included in this joint
proxy statement/prospectus. The unaudited pro forma combined financial
information is based on estimates and assumptions, which are preliminary and
have been made solely for purposes of developing such pro forma information.
The pro forma information is presented for illustrative purposes only and is
not necessarily indicative of the operating results or financial position that
would have occurred if each transaction had been consummated at January 1, 2000
or December 31, 2000, respectively, nor is it necessarily indicative of future
operating results or financial position. The unaudited pro forma combined
financial information should be read in conjunction with the historical
consolidated financial statements of Kana and Broadbase and related notes
thereto, "Management's Discussion and Analysis of Financial Condition and
Results of Operations of Kana" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations of Broadbase" contained in the
annual reports, quarterly reports and other information Kana and Broadbase have
on file with the Securities and Exchange Commission.
12
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
(In thousands, except per share amounts)
Year Ended
December 31,
2000
------------
Pro Forma Combined Condensed Statement of Operations Data:
Total revenues.................................................... $ 202,404
Gross profit...................................................... 101,268
Amortization of goodwill and identifiable intangibles............. 860,141
Amortization of deferred stock-based compensation................. 65,013
Acquisition-related costs......................................... 52,073
Goodwill impairment............................................... 2,084,841
Operating loss.................................................... (3,266,475)
Net loss.......................................................... (3,247,880)
Basic and diluted net loss per share.............................. $ (18.83)
Shares used in per share computations............................. 172,493
Equivalent basic and diluted net loss per Broadbase share......... $ (19.77)
As of
December 31,
2000
------------
Pro Forma Combined Condensed Balance Sheet Data:
Cash, cash equivalents and short-term investments................. $ 228,719
Working capital................................................... 171,932
Intangible assets, principally goodwill........................... 800,000
Total assets...................................................... 1,186,250
Notes payable, less current portion............................... 851
Total stockholders' equity........................................ 995,816
As of
December 31,
2000
------------
Pro Forma Book Value Per Share:
Historical Kana................................................... $ 9.56
Historical Broadbase.............................................. 14.87
Combined Pro Forma Per Kana Share................................. 5.52
Equivalent Combined Pro Forma Per Broadbase Share................. 5.80
To assist you in understanding the table above, the following methods were
used:
. The equivalent pro forma combined net loss per Broadbase share amount is
calculated by multiplying the pro forma combined share amounts by the
exchange ratio of 1.05 shares of Kana common stock for each share of
Broadbase common stock.
. The historical book value per share is computed by dividing Kana's and
Broadbase's respective stockholders' equity by the number of shares each
company's of common stock outstanding at December 31, 2000. The pro
forma combined book value per share is computed by dividing pro forma
stockholders' equity by the pro forma number of shares of Kana common
stock outstanding as of December 31, 2000 assuming the merger had
occurred as of December 31, 2000. The pro forma equivalent combined book
value per Broadbase share is calculated by multiplying the pro forma
combined book value per Kana share by the exchange ratio of 1.05 shares
of Kana common stock for each share of Broadbase common stock.
13
RISK FACTORS
By voting in favor of the merger, Broadbase stockholders will be choosing to
invest in Kana common stock. An investment in Kana common stock involves a high
degree of risk. In addition to the other information contained in this joint
proxy statement/prospectus, you should carefully consider the following risk
factors in deciding whether to vote for the merger. If any of the following
risks actually occur, the business and prospects of Broadbase or Kana may be
seriously harmed. In such case, the trading price of Kana common stock would
decline, and you may lose all or part of your investment.
Risks Related to the Merger
Broadbase stockholders will receive a fixed number of shares of Kana common
stock despite changes in market value of Broadbase common stock or Kana common
stock, and the dollar value of Kana common stock received in the merger may
increase or decrease after Broadbase stockholders submit their proxies
Upon the merger's completion, each share of Broadbase common stock will be
exchanged for 1.05 shares of Kana common stock. There will be no adjustment for
changes in the market price of either Broadbase common stock or Kana common
stock. In addition, neither Broadbase nor Kana may terminate the merger
agreement or "walk away" from the merger or resolicit the vote of its
stockholders solely because of changes in the market price of Kana common
stock. Accordingly, the specific dollar value of Kana common stock that
Broadbase stockholders will receive upon the merger's completion will depend on
the market value of Kana common stock when the merger is completed and may
decrease from the date you submit your proxy. The market price of Kana common
stock is by nature subject to the general price fluctuations in the market for
publicly traded equity securities and has experienced significant volatility.
In addition, the market price of Kana common stock may decline as a result of
any of the risks set forth below. We urge you to obtain recent market
quotations for Kana common stock and Broadbase common stock. Kana cannot
predict or give any assurances as to the market price of Kana common stock at
any time before or after the completion of the merger.
Kana and Broadbase may not achieve the benefits they expect from the merger
Kana and Broadbase entered into the merger agreement with the expectation
that the merger will result in significant benefits. Achieving the benefits of
the merger depends on the timely, efficient and successful execution of a
number of post-merger events. Key events include:
. integrating the operations and personnel and eliminating redundancies of
the two companies;
. integrating the products and technologies of the two companies;
. offering the existing products and services of each company to the other
company's customers; and
. developing new products and services that utilize the assets of both
companies.
Kana and Broadbase will need to overcome significant issues, however, in
order to realize any benefits or synergies from the merger. The successful
execution of these post-merger events will involve considerable risk and may
not be successful.
Operations and personnel. Broadbase provides customer-focused analytic,
marketing automation and e-service software applications that analyze customer
data from multiple touch points, and use that information to execute marketing
campaigns, improve online merchandising and content, increase site stickiness
and personalize all customer interactions. Kana provides Web-architected
enterprise relationship management (eRM) solutions, delivers a broad range of
integrated e-business and interaction applications with a modular and scalable
platform for both Internet and Global 2000 companies, and has very limited
experience in Broadbase's business. In order for the merger to be successful,
Kana must successfully integrate Broadbase's operations and personnel with
Kana's operations and personnel. Failure to complete the integration
successfully could result in the loss of key personnel and customers.
14
Products and Services. Each company initially intends to offer its
respective products and services to the customers of the other company. There
can be no assurance that either company's customers will have any interest in
the other company's products and services. The failure of such cross-marketing
efforts would diminish the synergies expected to be realized by this merger.
In addition, Kana intends after the merger to integrate the products of the
two companies into an integrated solution, and to develop new products and
services that strengthen this solution. To date, the companies have not
thoroughly investigated the obstacles, technological, market-driven or
otherwise, to developing and marketing these new products and services in a
timely and efficient way. Kana's products have historically operated on a
variety of operating platforms, including UNIX and Windows NT, while most of
Broadbase's products have historically operated only on Windows NT. This may
create integration issues between the technologies and challenges in selling
the combined product suite. There can be no assurance that Kana will be able to
overcome these obstacles, or that there will be a market for new products and
services developed by Kana after the merger.
In general, neither company can offer any assurances that they can
successfully integrate or realize the anticipated benefits of the merger. The
failure to do so could have a material adverse effect on the combined company's
business, financial condition and operating results or could result in the loss
of key personnel. In addition, the attention and effort devoted to the
integration of the two companies will significantly divert management's
attention from other important issues, and could seriously harm the combined
company.
Failure to complete the merger could harm Kana's cash position
Kana and Broadbase have entered into a revolving loan agreement concurrently
with entering into the merger agreement. Pursuant to the terms of the loan
agreement, Broadbase has agreed to make available to Kana a revolving credit
facility up to an aggregate principal amount of $20.0 million. In addition,
Kana and Broadbase have agreed upon a form of convertible promissory note to be
issued by Kana to Broadbase in exchange for loans under the credit facility. If
the merger is terminated, Broadbase will no longer be obligated to make loans
to Kana, and Broadbase may declare any obligations of Kana under the loan
agreement to be due and payable in 30 to 90 days, depending on the reason for
the termination, which may harm Kana's cash position.
Broadbase's officers and directors have conflicts of interest that may
influence them to support or approve the merger
The directors and officers of Broadbase participate in arrangements and have
continuing indemnification against liabilities that provide them with interests
in the merger that are different from, or in addition to, yours, including the
following:
. Certain executive officers of Broadbase have employment agreements under
which they will be entitled to 50% accelerated vesting of their
outstanding options, including the Broadbase options assumed by Kana in
the merger, in the event they are not offered employment by Kana in a
comparable position and at a comparable salary after the merger.
. Massood Zarrabian, an employee member of Broadbase's board of directors,
has an employment agreement under which he will be entitled to 12 months
of salary continuation payments and 50% accelerated vesting of his
outstanding options in the event that he is not offered employment by
Kana in a comparable position and at comparable salary or his employment
is terminated by Kana without just cause prior to December 19, 2002.
. Robert Davoli, a non-employee member of Broadbase's board of directors,
has a restricted stock purchase agreement under which he will be entitled
to 100% accelerated vesting of his shares purchased under the agreement
upon the close of the merger.
. Kana has agreed that Charles Bay, the president and chief executive
officer of Broadbase, will be appointed president and chief executive
officer of Kana following the merger.
15
. Kana has agreed to cause the surviving corporation in the merger to
indemnify each present and former Broadbase officer and director against
liabilities arising out of such person's service as an officer or
director. The surviving corporation in the merger will maintain officer's
and director's liability insurance to cover any such liabilities for the
next six years.
. Kana has agreed that upon completion of the merger, Chuck Bay, Kevin
Harvey and Massood Zarrabian, each of whom are currently Broadbase
directors, will be appointed to Kana's board of directors.
David Beirne, one of Kana's directors, and Kevin Harvey, one of Broadbase's
directors, are both managing members of Benchmark Capital Management Co., LLC,
which is the general partner of several Benchmark funds which collectively hold
a significant number of shares of both companies. Entities affiliated with
Benchmark Capital Management Co., LLC beneficially owned 6,927,511 shares of
Kana common stock, or 8.3% of its common stock as of February 28, 2001.
Entities affiliated with Benchmark Capital Management Co., LLC beneficially
owned 4,091,832 shares of Broadbase common stock, or approximately 5.0% of its
common stock as of March 1, 2001.
For the above reasons, the directors and officers of Broadbase could be more
likely to vote to approve the merger agreement than if they did not hold these
interests. Broadbase stockholders should consider whether these interests may
have influenced these directors and officers to support or recommend the
merger.
The merger may fail to qualify as a reorganization, resulting in the
recognition of taxable gains or losses on Broadbase shares
Kana and Broadbase have structured the merger to qualify as a reorganization
under Section 368(a) of the Internal Revenue Code of 1986, as amended. Although
the Internal Revenue Service has not provided a ruling on the matter, Kana and
Broadbase expect to obtain legal opinions from their respective counsel that
the merger qualifies as a reorganization. These opinions do not bind the IRS or
prevent the IRS from adopting a contrary position. If the merger fails to
qualify as a reorganization and the companies decide to proceed with the
merger, Broadbase stockholders generally would recognize gains or losses on
each share of Broadbase common stock surrendered in the amount of the
difference between the basis in that share and the fair market value of the
Kana common stock received in exchange for that share at the effective time of
the merger.
Failure to complete the merger could negatively impact the stock price of Kana
and Broadbase and their future businesses and operations
If the merger is not completed for any reason, Kana and Broadbase may be
subject to a number of material risks, including the following:
. either Kana or Broadbase may be required under certain circumstances to
pay to the other a termination fee of $2.5 million and reimburse the
other for expenses incurred to collect that fee;
. the price of Kana's or Broadbase's common stock may decline to the extent
that the current market price of their common stock reflects a market
assumption that the merger will be completed; and
. costs incurred by Kana and Broadbase related to the merger, such as
legal, accounting and a portion of financial advisor fees, must be paid
even if the merger is not completed.
Announcement of the merger may delay or defer customer and supplier decisions
concerning Kana and Broadbase, which may negatively affect their respective
businesses
Kana and Broadbase customers and suppliers, in response to the announcement
of the merger, may delay or defer decisions concerning them. In addition,
customers or channel partners of Kana or Broadbase may seek to change existing
agreements they have with either company as a result of the merger. Any delay
or deferral in those decisions or changes in company contracts by Kana's and
Broadbase's customers or suppliers could have a material adverse effect on
their respective business, regardless of whether the merger is ultimately
completed.
16
Similarly, current and prospective employees may experience uncertainty about
their future roles with either company until their strategies with regard to
each other are announced or executed. This may adversely affect Kana's and
Broadbase's ability to attract and retain key management, sales, marketing and
technical personnel.
Kana and Broadbase have entered into agreements that would severely limit the
ability of either company to combine with a third party if the merger is not
completed
If the merger is terminated and either Kana or Broadbase's board of
directors determines to seek another merger or business combination, there can
be no assurance that they will be able to find a partner willing to enter into
an equivalent or more attractive agreement than the merger agreement. In
addition, while the merger agreement is in effect and subject to very narrowly
defined exceptions, Kana and Broadbase are prohibited from soliciting,
initiating or encouraging or entering into certain extraordinary transactions,
such as a merger, sale of assets or other business combination, with any party
other than each other. These factors could also adversely affect Kana's or
Broadbase's stock price.
The stock options Kana and Broadbase have granted to each other under the
stock option agreements give the recipient the right to purchase up to 19.9% of
newly issued common stock of the grantor at a favorable price, less, in the
case of Broadbase, any amounts previously converted under the loan agreement
between Kana and Broadbase. The stock options are exercisable by the recipient
upon certain events associated with a competing transaction between the grantor
and a third party. The distribution and license agreement between Kana and
Broadbase gives each party a worldwide license to all of the other party's
intellectual property at a favorable royalty, including the right under certain
circumstances to receive the other party's source code, currently being held in
escrow, and does not terminate upon the termination of the merger agreement.
The terms of the stock options and the distribution and license agreement,
either alone or in combination with each other, will make it substantially more
difficult for either party to pursue a competing transaction with a third party
because of the obstacles posed by these agreements to a potential third party
suitor. For example, a third party who proposed to merge with either Kana or
Broadbase in an alternate transaction might have to negotiate with a 19.9%
stockholder opposed to the alternate transaction who holds a license to all of
the intellectual property of the potential target that would survive the
transaction. Accordingly, the failure of Kana or Broadbase stockholders to
approve the merger would put their respective companies in a position where
substantial actions had been taken in furtherance of a merger that would be
abandoned and where an alternate transaction would be extremely difficult to
negotiate.
Kana and Broadbase have both acquired several companies in the recent past and
the ability of Kana to successfully integrate those companies or Broadbase may
be negatively impacted by the merger
In the past 18 months, Broadbase has acquired Rubric, Aperio, Panopticon,
Decisionism and Servicesoft and Broadbase needs to assimilate substantially all
of these companies' operations into its operations. In the past 18 months, Kana
has acquired Silknet, Business Evolution, netDialog and Connectify and Kana
needs to assimilate all of these companies' operations into its operations. The
merger of Kana and Broadbase will require Kana to assimilate the operations of
Broadbase into its operations and in addition may complicate its ability to
complete the assimilation of the operations of Rubric, Aperio, Panopticon,
Decisionism, Servicesoft, Silknet, Business Evolution, netDialog and
Connectify. Any failure by Kana to successfully assimilate any of these
operations could negatively affect the quality of Kana's products, Kana's
ability to respond to its customers and retain key personnel, and Kana's
business in general.
The merger may go forward even though material adverse changes result from the
announcement of the merger, the economy as a whole, industry-wide changes and
other causes
In general, either party can refuse to complete the merger if there is a
material adverse change affecting the other party before the closing. But
certain types of changes will not prevent the merger from going forward, even
if they would have a material adverse effect on Kana or Broadbase. Changes
affecting the economy as a whole, industry-wide changes, changes in trading
prices or volume for either company's stock and changes
17
resulting from the announcement of the merger will not allow either party to
walk away from the merger. In addition, short term variations in revenue for
either company and consequences of the headcount reductions implemented by both
companies are expressly exempted from changes that will allow one or both
parties to abandon the merger. If adverse changes occur but Kana and Broadbase
must still complete the merger, Kana's stock price may suffer. This in turn may
reduce the value of the merger to Kana and Broadbase stockholders.
The market price of Kana common stock may decline as a result of the merger
The market price of Kana common stock may decline as a result of the merger
if:
. the integration of Kana and Broadbase is unsuccessful;
. Kana does not achieve the perceived benefits of the merger as rapidly or
to the extent anticipated by financial or industry analysts or investors;
or
. the effect of the merger on Kana's financial results is not consistent
with the expectations of financial or industry analysts or investors.
The market price of the Kana common stock could also decline as a result of
factors related to the merger which may currently be unforeseen.
After completion of the merger, Kana will compete against both Kana's and
Broadbase's current competitors, and may face competition from additional
companies
After the merger, the level of competition encountered by the combined
companies of Kana and Broadbase may increase. As Kana and Broadbase combine and
enhance their product lines to offer a more comprehensive e-Business software
solution, they will increasingly compete with large, established providers of
customer management and communication solutions such as Siebel Systems, Inc. as
well as other competitors, such as E.piphany, Inc. The combined product line
may not be sufficient to successfully compete with the product offerings
available from these companies, which could slow the growth of the combined
company and harm its business.
If Kana is not able to successfully cross-sell Kana and Broadbase's products
and services to Broadbase and Kana customers, this may negatively affect Kana's
operating results
Kana intends to offer its current products to Broadbase customers, and
Broadbase's current products to existing customers of Kana products. There can
be no assurance that either company's customers will have an interest in the
other company's products and services. The failure of cross-marketing efforts
would diminish Kana and Broadbase's ability to achieve one of the benefits that
the companies expect to realize as a result of the merger, and could have a
material, negative impact on Kana and Broadbase's business, financial condition
and operating results.
Failure to retain key employees could diminish the anticipated benefits of the
merger
The success of the merger will depend in part on the retention of personnel
critical to the business and operations of the combined company due to, for
example, their technical skills or management expertise. Employees may
experience uncertainty about their future role with Kana and Broadbase until
strategies with regard to Broadbase's employees are announced or executed. Kana
and Broadbase have different corporate cultures, and Kana and Broadbase
employees may not want to work for the combined company. In addition,
competitors may recruit employees during Kana's integration of Broadbase, as is
common in high technology mergers. If Kana and Broadbase are unable to retain
personnel that are critical to the successful integration of the companies,
Kana and Broadbase could face disruptions to operations, loss of key
information, expertise or know-how and unanticipated additional recruitment and
training costs. In addition, the loss of key personnel could diminish the
anticipated benefits of the merger.
18
Kana's failure to comply with Nasdaq's listing standards could result in its
delisting by Nasdaq from the Nasdaq National Market and severely limit the
ability to sell any of Kana's common stock
Kana's stock is currently traded on the Nasdaq National Market. Under
Nasdaq's listing maintenance standards, if the closing bid price of Kana's
common stock is under $1.00 per share for 30 consecutive trading days, Nasdaq
will notify Kana that it may be delisted from the Nasdaq National Market. If
the closing bid price of Kana's common stock does not thereafter regain
compliance for a minimum of 10 consecutive trading days during the 90 days
following notification by Nasdaq, Nasdaq may delist Kana's common stock from
trading on the Nasdaq National Market. There can be no assurance that Kana's
common stock will remain eligible for trading on the Nasdaq National Market,
which is a condition to closing the merger with Broadbase. In addition, if
Kana's stock is delisted after the merger, you would not be able to sell Kana
common stock on the Nasdaq National Market and your ability to sell any of
Kana's common stock at all would be severely, if not completely, limited.
Kana's common stock has reached a high of $169.81 and traded as low as $0.50
through April 25, 2001.
The role of acquisitions in the growth of the combined company may be limited,
which could seriously harm its continued operations
In the past, acquisitions have been an important part of the growth strategy
for each of Kana and Broadbase. To gain access to key technologies, new
products and broader customer bases, each of Kana and Broadbase has acquired
companies in exchange for shares of its common stock. Because the recent
trading prices of Kana's and Broadbase's common stock have been significantly
lower than in the past, the role of acquisitions in the growth of the combined
company may be substantially limited. If the combined company is unable to
acquire companies in exchange for its common stock, it may not have access to
new customers, needed technological advances or new products and enhancements
to existing products. This would substantially impair the ability of the
combined company to respond to market opportunities, which could adversely
affect its operating results and financial condition.
Risks Related to Kana
Because Kana has a limited operating history, there is limited information upon
which you can evaluate Kana's business
Kana is still in the early stages of its development, and Kana's limited
operating history makes it difficult to evaluate its business and prospects.
Kana was incorporated in July 1996 and first recorded revenue in February 1998.
Thus, Kana has a limited operating history upon which you can evaluate its
business and prospects. Due to Kana's limited operating history, it is
difficult or impossible to predict future results of operations. For example,
Kana cannot forecast operating expenses based on its historical results because
they are limited, and it is required to forecast expenses in part on future
revenue projections. Moreover, due to Kana's limited operating history, any
evaluation of its business and prospects must be made in light of the risks and
uncertainties often encountered by early-stage companies in Internet-related
markets. Many of these risks are discussed in the subheadings below, and
include Kana's ability to:
. attract more customers;
. implement its sales, marketing and after-sales service initiatives, both
domestically and internationally;
. execute its product development activities;
. anticipate and adapt to the changing Internet market;
. attract, retain and motivate qualified personnel;
. respond to actions taken by its competitors;
. continue to build an infrastructure to effectively manage growth and
handle any future increased usage; and
19
. integrate acquired businesses, technologies, products and services.
If Kana is unsuccessful in addressing these risks or in executing its
business strategy, its business, results of operations and financial condition
would be materially and adversely affected.
Kana's quarterly revenues and operating results may fluctuate in future periods
and Kana may fail to meet expectations, which may cause the price of Kana's
common stock to decline
Kana's quarterly revenues and operating results are difficult to predict and
may fluctuate significantly from quarter to quarter particularly because its
products and services are relatively new and its prospects are uncertain. If
quarterly revenues or operating results fall below the expectations of
investors or public market analysts, the price of Kana's common stock could
decline substantially. Factors that might cause quarterly fluctuations in
Kana's operating results include the factors described in the subheadings below
as well as:
. the evolving and varying demand for customer communication software
products and services for e-businesses, particularly Kana's products and
services;
. budget and spending decisions by information technology departments of
Kana's customers;
. costs associated with integrating Broadbase and Kana's other recent
acquisitions, and costs associated with any future acquisitions;
. Kana's ability to manage its expenses;
. the timing of new releases of its products;
. the discretionary nature of Kana's customers' purchasing and budgetary
cycles;
. changes in Kana's pricing policies or those of its competitors;
. the timing of execution of large contracts that materially affect Kana's
operating results;
. the mix of sales channels through which Kana's products and services are
sold;
. the mix of Kana's domestic and international sales;
. costs related to the customization of Kana's products;
. Kana's ability to expand its operations, and the amount and timing of
expenditures related to this expansion;
. decisions by customers and potential customers to delay purchasing Kana's
products; and
. global economic conditions, as well as those specific to large
enterprises with high e-mail volume.
Kana also often offers volume-based pricing, which may affect operating
margins. Most of Kana's expenses, such as employee compensation and rent, are
relatively fixed in the short term. Moreover, Kana's expense levels are based,
in part, on its expectations regarding future revenue levels. As a result, if
total revenues for a particular quarter are below expectations, Kana could not
proportionately reduce operating expenses for that quarter. Therefore, this
revenue shortfall would have a disproportionate effect on Kana's expected
operating results for that quarter. In addition, because Kana's service revenue
is largely correlated with its license revenue, a decline in license revenue
could also cause a decline in service revenue in the same quarter or in
subsequent quarters.
Due to the foregoing factors, Kana believes that quarter-to-quarter
comparisons of its operating results are not a good indication of its future
performance.
Kana has a history of losses and may not be profitable in the future and may
not be able to generate sufficient revenue or funding to continue as a going
concern
Since Kana began operations in 1997, its revenues have not been sufficient
to support its operations, and Kana has incurred substantial operating losses
in every quarter. As a result of accumulated operating losses,
20
Kana has a significant accumulated deficit. This has caused some of Kana's
potential customers to question its viability, which has in turn hampered its
ability to sell some of its products. Since inception, Kana has funded its
business primarily through selling its stock, not from cash generated by its
business. Kana's growth in recent periods has been from a limited base of
customers, and Kana may not be able to increase revenues sufficiently to keep
pace with its growing expenditures. Kana may not be able to increase its
revenue growth in the future. Specifically, as a result of uncertainties in its
business, Kana has experienced and expects to continue to experience
difficulties in collecting outstanding receivables from its customers and
attracting new customers. As a result, Kana expects to continue to experience
losses and negative cash flows, even if sales of Kana's products and services
continue to grow, and it may not generate sufficient revenues to achieve
profitability in the future. If Kana does achieve profitability, Kana may not
be able to sustain or increase any profitability on a quarterly or annual basis
in the future. Accordingly, Kana plans to reduce its operating expenses and may
require additional financing. There can be no assurance that Kana will be able
to achieve expense reductions or that any such financing would be available on
acceptable terms, if at all. With the decline in Kana's stock price, any such
financing is likely to be dilutive to existing stockholders. Kana's auditors
have included a paragraph in their report indicating that substantial doubt
exists as to its ability to continue as a going concern.
Kana may incur non-cash charges related to issuances of Kana's equity which
could harm Kana's operating results
In connection with the issuance of 400,000 shares of Kana's common stock and
a warrant to purchase up to 725,000 shares of Kana's common stock to Accenture
pursuant to a stock and warrant purchase agreement dated September 6, 2000,
Kana will incur substantial charges to stock-based compensation. With respect
to the 400,000 shares of common stock, Kana recorded $14.8 million of deferred
stock-based compensation which will be amortized over the four-year term of
Kana's global strategic alliance with Accenture based upon the fair market
value of Kana's common stock on September 6, 2000, the date of closing, of
$37.125 per share. With respect to the warrant, 125,000 shares of common stock
were fully vested and exercisable under the warrant and were valued on
September 6, 2000 using the Black-Scholes model and are being amortized over
four years. On the unearned portion of the warrant, Kana will incur a charge to
stock-based compensation when certain performance goals are achieved. This
charge will be measured using the Black-Scholes valuation model and the fair
market value of Kana's common stock at the time of achievement of these goals.
Accordingly, significant increases in Kana's stock price could result in
substantial non-cash accounting charges and variations in Kana's results of
operations. In addition, we may issue additional warrants in the future that
may result in adverse accounting charges.
Kana may be unable to hire and retain the skilled personnel necessary to
develop Kana's engineering, professional services and support capabilities in
order to continue to grow
Kana may increase its sales, marketing, engineering, professional services
and product management personnel in the future. Competition for these
individuals is intense, and Kana may not be able to attract, assimilate or
retain highly qualified personnel in the future. Kana's business cannot
continue to grow if Kana cannot attract qualified personnel. Kana's failure to
attract and retain the highly trained personnel that are integral to its
product development and professional services group, which is the group
responsible for implementation and customization of, and technical support for,
Kana's products and services, may limit the rate at which Kana can develop and
install new products or product enhancements, which would harm Kana's business.
Kana may need to increase its staff to support new customers and the expanding
needs of Kana's existing customers, without compromising the quality of its
customer service. Since Kana's inception, a number of employees have left or
have been terminated, and Kana expects to lose more employees in the future.
Recently, Kana restructured its organization and terminated a significant
number of employees in the process. Hiring qualified professional services
personnel, as well as sales, marketing, administrative and research and
development personnel, is very competitive in Kana's industry, particularly in
the San Francisco Bay Area, where Kana is headquartered, due to the limited
number of people available with the necessary technical skills. Kana faces
greater difficulty attracting these personnel with equity incentives as a
public company than it did as a privately held company. We recently terminated
an offer to allow some of our employees with out-of-the money stock options to
obtain new options with a lower exercise price. In addition, in light of Kana's
recent
21
workforce reduction, Kana may face additional difficulty in attracting and
retaining these professionals and other key personnel. Also, the workforce
reduction may adversely affect the morale of, and Kana's ability to retain,
those employees who are not being terminated. Because Kana's stock price has
recently suffered a significant decline, stock-based compensation, including
options to purchase Kana's common stock, may have diminished effectiveness as
employee hiring and retention devices. If Kana's retention efforts are
ineffective, employee turnover could increase and Kana's ability to provide
client service and execute its strategy would be negatively affected.
Kana may face difficulties in hiring and retaining qualified sales personnel to
sell Kana's products and services, which could harm Kana's ability to increase
its revenues in the future
Kana's financial success depends to a large degree on the ability of its
direct sales force to increase sales to a level required to adequately fund
marketing and product development activities. Therefore, Kana's ability to
increase revenues in the future depends considerably upon its success in
recruiting, training and retaining additional direct sales personnel and the
success of the direct sales force. Also, it may take a new salesperson a number
of months before he or she becomes a productive member of Kana's sales force.
Kana's business will be harmed if it fails to hire or retain qualified sales
personnel, or if newly hired salespeople fail to develop the necessary sales
skills or develop these skills more slowly than it anticipates.
Kana's workforce reduction and financial performance may adversely affect the
morale and performance of Kana's personnel and its ability to hire new
personnel
In connection with Kana's effort to streamline operations, reduce costs and
bring its staffing and structure in line with industry standards, it recently
restructured its organization in the first four months of 2001 with reductions
in its workforce by approximately 650 employees. There have been and may
continue to be substantial costs associated with the workforce reduction
related to severance and other employee-related costs, and Kana's restructuring
plan may yield unanticipated consequences, such as attrition beyond its planned
reduction in workforce. As a result of these reductions, Kana's ability to
respond to unexpected challenges may be impaired and Kana may be unable to take
advantage of new opportunities. In addition, many of the employees who were
terminated possessed specific knowledge or expertise, and that knowledge or
expertise may prove to have been important to Kana's operations. In that case,
their absence may create significant difficulties. Further, the reduction in
force may reduce employee morale and may create concern among existing
employees about job security, which may lead to increased turnover. This
headcount reduction may subject Kana to the risk of litigation. In addition,
recent trading levels of Kana's common stock have decreased the value of the
stock options granted to employees pursuant to Kana's stock option plans. As a
result of these factors, Kana's remaining personnel may seek employment with
larger, more established companies or companies they perceive as having less
volatile stock prices.
Kana has appointed a new chief executive officer, a new president, a new
interim chief financial officer, and a new chief operating officer, and the
integration of these officers may interfere with Kana's operations
In February 2001, Kana announced the appointment of Art M. Rodriguez as its
interim chief financial officer, replacing Brian K. Allen, its former chief
financial officer. In January 2001, Kana announced the appointment of James C.
Wood as its new chief executive officer and chairman of the board, in
connection with the January 2001 resignation of its former chief executive
officer and chairman of the board, Michael J. McCloskey, for health reasons.
Kana also announced the appointment of David B. Fowler as Kana's new president
and Nigel K. Donovan as Kana's new chief operating officer. The transitions of
Messrs. Rodriguez, Wood, Fowler and Donovan have resulted and will continue to
result in disruption to Kana's ongoing operations, and these transitions may
materially harm the way that the market perceives Kana and the price of its
common stock.
Kana faces substantial competition and may not be able to compete effectively
The market for Kana's products and services is intensely competitive,
evolving and subject to rapid technological change. In addition, changes in the
perceived needs of customers for specific products, features
22
and services may result in Kana's products becoming uncompetitive. Kana expects
the intensity of competition to increase in the future. Increased competition
may result in price reductions, reduced gross margins and loss of market share.
Kana currently faces competition for its products from systems designed by
in-house and third-party development efforts. Kana expects that these systems
will continue to be a principal source of competition for the foreseeable
future. Kana's competitors include a number of companies offering one or more
products for the e-business communications and relationship management market,
some of which compete directly with Kana's products. For example, Kana's
competitors include companies providing stand-alone point solutions, including
Annuncio, Inc., AskJeeves, Inc., Brightware, Inc., Digital Impact, Inc., eGain
Communications Corp., E.piphany, Inc., Inference Corp., Marketfirst, Inc., Live
Person, Inc., Avaya, Inc. and Responsys.com. In addition, Kana competes with
companies providing traditional, client-server based customer management and
communications solutions, such as Clarify Inc. (which was acquired by Northern
Telecom), Alcatel, Cisco Systems, Inc., Lucent Technologies, Inc., Message
Media, Inc., Oracle Corporation, Pivotal Corporation, Siebel Systems, Inc. and
Vantive Corporation (which was acquired by PeopleSoft, Inc.). Changes in Kana's
products may also impact the ability of Kana's sales force to effectively sell.
Furthermore, Kana may face increased competition should Kana expand its product
line, through acquisition of complementary businesses such as Broadbase or
otherwise.
Many of Kana's competitors have longer operating histories, significantly
greater financial, technical, marketing and other resources, significantly
greater name recognition and a larger installed base of customers than Kana
has. In addition, many of Kana's competitors have well-established
relationships with Kana's current and potential customers and have extensive
knowledge of its industry. Kana may lose potential customers to competitors for
various reasons, including the ability or willingness of competitors to offer
lower prices and other incentives that Kana cannot match. Accordingly, it is
possible that new competitors or alliances among competitors may emerge and
rapidly acquire significant market share. Kana also expects that competition
will increase as a result of recently-announced industry consolidations, as
well as future consolidations.
Kana may not be able to compete successfully against current and future
competitors, and competitive pressures may seriously harm its business.
Kana's failure to consummate its expected sales in any given quarter could
dramatically harm its operating results because of the large size of typical
orders
Kana's sales cycle is subject to a number of significant risks, including
customers' budgetary constraints and internal acceptance reviews, over which it
has little or no control. Consequently, if sales expected from a specific
customer in a particular quarter are not realized in that quarter, Kana is
unlikely to be able to generate revenue from alternate sources in time to
compensate for the shortfall. As a result, and due to the relatively large size
of a typical order, a lost or delayed sale could result in revenues that are
lower than expected. Moreover, to the extent that significant sales occur
earlier than anticipated, revenues for subsequent quarters may be lower than
expected.
Kana may not be able to forecast its revenues accurately because Kana's
products have a long and variable sales cycle
The long sales cycle for Kana's products may cause license revenue and
operating results to vary significantly from period to period. To date, the
sales cycle for Kana's products has taken 3 to 12 months in the United States
and longer in foreign countries. Kana's sales cycle has required pre-purchase
evaluation by a significant number of individuals in its customers'
organizations. Along with third parties that often jointly market Kana's
software with Kana, Kana invests significant amounts of time and resources
educating and providing information to prospective customers regarding the use
and benefits of its products. Many of Kana's customers evaluate its software
slowly and deliberately, depending on the specific technical capabilities of
the customer, the size of the deployment, the complexity of the customer's
network environment, and the quantity of hardware and the degree of hardware
configuration necessary to deploy Kana's products. In the event that
23
the current economic downturn were to continue, the sales cycle for Kana's
products may become longer and Kana may require more resources to complete
sales.
Kana's stock price has been highly volatile and has experienced a significant
decline, particularly because its business depends on the Internet, and may
continue to be volatile and decline
The trading price of Kana's common stock has fluctuated widely in the past
and is expected to continue to do so in the future, as a result of a number of
factors, many of which are outside Kana's control. In addition, the stock
market has experienced extreme price and volume fluctuations that have affected
the market prices of many technology and computer software companies,
particularly Internet-related companies, and that have often been unrelated or
disproportionate to the operating performance of these companies. These broad
market fluctuations could adversely affect the market price of Kana's common
stock. 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. Securities class action litigation could
result in substantial costs and a diversion of Kana's management's attention
and resources. Kana's common stock reached a high of $175.50 and traded as low
as $8.25 in the year 2000, and has reached a high of $169.81 and traded as low
as $.50 through April 25, 2001. The last reported sales price of Kana shares on
April 26, 2001 was $1.24.
Future sales of stock could affect Kana's stock price
If Kana's stockholders sell substantial amounts of its common stock,
including shares issued upon the exercise of outstanding options and warrants
and shares to be issued in connection with the merger with Broadbase, in the
public market, the market price of Kana's common stock could fall. These sales
also might make it more difficult for Kana to sell equity or equity-related
securities in the future at a time and price that Kana deems appropriate.
Difficulties in implementing Kana's products could harm Kana's revenues and
margins
Forecasting Kana's revenues depends upon the timing of implementation of its
products. This implementation typically involves working with sophisticated
software, computing and communications systems. If Kana experiences
difficulties with implementation or does not meet project milestones in a
timely manner, Kana could be obligated to devote more customer support,
engineering and other resources to a particular project. Some customers may
also require Kana to develop customized features or capabilities. If new or
existing customers have difficulty deploying Kana's products or require
significant amounts of its professional services support or customized
features, Kana's revenue recognition could be further delayed and its costs
could increase, causing increased variability in its operating results.
Kana's business depends on the acceptance of Kana's products and services, and
it is uncertain whether the market will accept Kana's products and services
Kana is not certain that its target customers will widely adopt and deploy
Kana's products and services. Kana's future financial performance will depend
on the successful development, introduction and customer acceptance of new and
enhanced versions of Kana's products and services. In the future, Kana may not
be successful in marketing its products and services, including any new or
enhanced products.
A failure to manage Kana's internal operating and financial functions could
lead to inefficiencies in conducting Kana's business and subject Kana to
increased expenses
Kana's ability to offer its products and services successfully in a rapidly
evolving market requires an effective planning and management process. Kana has
limited experience in managing rapid growth. Kana has experienced a period of
growth in connection with the mergers it has completed that has placed a
significant strain on its managerial, financial and personnel resources. In
August 1999, Kana acquired Connectify, and in December 1999, Kana acquired
netDialog and Business Evolution. On April 19, 2000, Kana completed its merger
with Silknet Software, Inc. Kana's business will suffer if it fails to manage
this growth successfully. Moreover, Kana will need to assimilate substantially
all of Broadbase's operations into Kana's operations. Any
24
additional growth will further strain Kana's management, financial, personnel,
internal training and other resources. To manage any future growth effectively,
Kana must improve its financial and accounting systems, controls, reporting
systems and procedures, integrate new personnel and manage expanded operations.
Any failure to do so could negatively affect the quality of Kana's products,
its ability to respond to its customers and retain key personnel, and its
business in general.
Delays in the development of new products or enhancements to existing products
would hurt Kana's sales and damage its reputation
To be competitive, Kana must develop and introduce on a timely basis new
products and product enhancements for companies with significant e-business
customer interactions needs. Kana's ability to deliver competitive products may
be impacted by the resources Kana has to devote to the suite of products, the
rate of change of competitive products and required company responses to
changes in the demands of its customers. Any failure to do so could harm Kana's
business. If Kana experiences product delays in the future, Kana may face:
. customer dissatisfaction;
. cancellation of orders and license agreements;
. negative publicity;
. loss of revenues;
. slower market acceptance; and
. legal action by customers.
In the future, Kana's efforts to remedy this situation may not be successful
and it may lose customers as a result. Delays in bringing to market new
products or their enhancements, or the existence of defects in new products or
their enhancements, could be exploited by Kana's competitors. If Kana were to
lose market share as a result of lapses in its product management, Kana's
business would suffer.
Technical problems with either Kana's internal or outsourced computer and
communications systems could interrupt the Kana Online service
The success of the Kana Online service depends on the recruitment and
retainment of qualified staff as well as the efficient and uninterrupted
operation of Kana's own and outsourced computer and communications hardware and
software systems. These systems and operations are vulnerable to damage or
interruption from human error, natural disasters, telecommunications failures,
break-ins, sabotage, computer viruses, intentional acts of vandalism and
similar adverse events. Kana has entered into an Internet-hosting agreement
with two data centers. Exodus Communications, Inc.'s data center in Santa
Clara, California services Kana's west coast customers and UUNET's data center
in Princeton, New Jersey services Kana's east coast customers. Kana's
operations depend on both Exodus' and UUNET's ability to protect its and Kana's
systems in Exodus' and UUNET's data center against damage or interruption.
Neither data center guarantees that Kana's Internet access will be
uninterrupted, error-free or secure. Kana has no formal disaster recovery plan
in the event of damage or interruption, and Kana's insurance policies may not
adequately compensate it for any losses that it may incur. Any system failure
that causes an interruption in Kana's service or a decrease in responsiveness
could harm its relationships with customers and result in reduced revenues.
Kana is currently contemplating outsourcing the management and operation of
the Kana Online service. If Kana proceeds with such plan with a third party, it
may have less control over the operations of the service, which could also harm
its relationships with customers and result in reduced revenues.
If Kana fails to build skills necessary to sell its Kana Online service, it
will lose revenue opportunities and its sales will suffer
The skills necessary to market and sell Kana Online are different from those
relating to Kana's software products. Kana licenses its software products for a
fixed fee based on the number of concurrent users and the
25
optional applications purchased. Kana licenses Kana Online based on a fixed fee
for installation, configuration and training, and a variable monthly component
depending on actual customer usage. Kana's sales force sells both its software
products and Kana Online. Because different skills are necessary to sell Kana
Online as compared to selling software products, Kana's sales and marketing
groups may not be able to maintain or increase the level of sales of either
Kana Online or its software products.
Kana's pending patents may never be issued and, even if issued, may provide
little protection
Kana's success and ability to compete depend to a significant degree upon
the protection of its software and other proprietary technology rights. Kana
regards the protection of patentable inventions as important to its future
opportunities. Kana currently has one issued U.S. patent and eight U.S. patent
applications pending relating to its software. Although Kana has filed four
international patent applications corresponding to four of Kana's U.S. patent
applications, none of its technology is patented outside of the United States.
It is possible that:
. Kana's pending patent applications may not result in the issuance of
patents;
. any patents issued may not be broad enough to protect its proprietary
rights;
. any issued patent could be successfully challenged by one or more third
parties, which could result in Kana's loss of the right to prevent others
from exploiting the inventions claimed in those patents;
. current and future competitors may independently develop similar
technology, duplicate its products or design around any of its patents;
and
. effective patent protection may not be available in every country in
which Kana does business.
Kana relies upon trademarks, copyrights and trade secrets to protect its
proprietary rights, which may not be sufficient to protect its intellectual
property
Kana also relies on a combination of laws, such as copyright, trademark and
trade secret laws, and contractual restrictions, such as confidentiality
agreements and licenses, to establish and protect its proprietary rights. In
the United States, Kana currently has a registered trademark, "Kana," and seven
pending trademark applications, including trademark applications for its logo
and "KANA COMMUNICATIONS and Design." Outside of the United States, Kana has
two trademark registrations in the European Union, one trademark registration
in Australia, and it has additional trademark applications pending in
Australia, Canada, the European Union, India, Japan, South Korea and Taiwan.
However, despite the precautions that Kana has taken:
. laws and contractual restrictions may not be sufficient to prevent
misappropriation of Kana's technology or deter others from developing
similar technologies;
. current federal laws that prohibit software copying provide only limited
protection from software "pirates," and effective trademark, copyright
and trade secret protection may be unavailable or limited in foreign
countries;
. other companies may claim common law trademark rights based upon state or
foreign laws that precede the federal registration of Kana's marks; and
. policing unauthorized use of Kana's products and trademarks is difficult,
expensive and time-consuming, and Kana may be unable to determine the
extent of this unauthorized use.
Also, the laws of other countries in which Kana markets its products may
offer little or no effective protection of its proprietary technology. Reverse
engineering, unauthorized copying or other misappropriation of Kana's
proprietary technology could enable third parties to benefit from its
technology without paying Kana for it, which would significantly harm Kana's
business.
Kana may become involved in litigation over proprietary rights, which could be
costly and time consuming
Substantial litigation regarding intellectual property rights exists in
Kana's industry. Kana expects that software in its industry may be increasingly
subject to third-party infringement claims as the number of
26
competitors grows and the functionality of products in different industry
segments overlaps. Third parties may currently have, or may eventually be
issued, patents upon which Kana's products or technology infringe. Any of these
third parties might make a claim of infringement against Kana. Many of Kana's
software license agreements require Kana to indemnify its customers from any
claim or finding of intellectual property infringement. Any litigation, brought
by Kana or others, could result in the expenditure of significant financial
resources and the diversion of management's time and efforts. In addition,
litigation in which Kana is accused of infringement might cause product
shipment delays, require Kana to develop non-infringing technology or require
it to enter into royalty or license agreements, which might not be available on
acceptable terms, or at all. If a successful claim of infringement were made
against Kana and it could not develop non-infringing technology or license the
infringed or similar technology on a timely and cost-effective basis, Kana's
business could be significantly harmed.
Kana may face higher costs and lost sales if its software contains errors
Kana faces the possibility of higher costs as a result of the complexity of
its products and the potential for undetected errors. Due to the mission-
critical nature of Kana's products and services, undetected errors are of
particular concern. Kana has only a few "beta" customers that test new features
and functionality of its software before it makes these features and
functionalities generally available to its customers. If Kana's software
contains undetected errors or it fails to meet customers' expectations in a
timely manner, Kana could experience:
. loss of or delay in revenues expected from the new product and an
immediate and significant loss of market share;
. loss of existing customers that upgrade to the new product and of new
customers;
. failure to achieve market acceptance;
. diversion of development resources;
. injury to its reputation;
. increased service and warranty costs;
. legal actions by customers; and
. increased insurance costs.
Kana may face liability claims that could result in unexpected costs and damage
to Kana's reputation
Kana's licenses with customers generally contain provisions designed to
limit its exposure to potential product liability claims, such as disclaimers
of warranties and limitations on liability for special, consequential and
incidental damages. In addition, Kana's license agreements generally cap the
amounts recoverable for damages to the amounts paid by the licensee to Kana for
the product or service giving rise to the damages. However, these contractual
limitations on liability may not be enforceable and Kana may be subject to
claims based on errors in its software or mistakes in performing its services
including claims relating to damages to its customers' internal systems. A
product liability claim, whether or not successful, could harm Kana's business
by increasing its costs, damaging its reputation and distracting its
management.
Kana's international operations could divert management attention and present
financial issues
Kana's international operations are located throughout Europe, Australia,
Japan, Singapore and Brazil, and, to date, have been limited. Kana may expand
its existing international operations and establish additional facilities in
other parts of the world. Kana may face difficulties in accomplishing this
expansion, including finding adequate staffing and management resources for its
international operations. The expansion of Kana's existing international
operations and entry into additional international markets will require
significant management attention and financial resources. In addition, in order
to expand Kana's international sales operations, Kana will need to, among other
things:
. expand its international sales channel management and support
organizations;
. customize its products for local markets; and
27
. develop relationships with international service providers and additional
distributors and system integrators.
Kana's investments in establishing facilities in other countries may not
produce desired levels of revenues. Even if Kana is able to expand its
international operations successfully, Kana may not be able to maintain or
increase international market demand for its products. In addition, Kana has
only licensed its products internationally since January 1999 and has limited
experience in developing localized versions of its software and marketing and
distributing them internationally. Localizing Kana's products may take longer
than it anticipates due to difficulties in translation and delays it may
experience in recruiting and training international staff.
Kana's growth could be limited if Kana fails to execute its plan to expand
internationally
For the twelve month periods ended December 31, 2000 and December 31, 1999,
Kana derived approximately 16% and 10%, respectively, of its total revenues
from sales outside North America. Kana has established offices in the United
Kingdom, Australia, Germany, Japan, Holland, France, Spain, Sweden, Singapore
and Brazil. As a result, Kana faces risks from doing business on an
international basis, any of which could impair its international revenues. Kana
could, in the future, encounter greater difficulty with collecting accounts
receivable, longer sales cycles and collection periods or seasonal reductions
in business activity. In addition, Kana's international operations could cause
its average tax rate to increase. Any of these events could harm Kana's
international sales and results of operations.
International laws and regulations may expose Kana to potential costs and
litigation
Kana's international operations will increase its exposure to international
laws and regulations. If Kana cannot comply with foreign laws and regulations,
which are often complex and subject to variation and unexpected changes, Kana
could incur unexpected costs and potential litigation. For example, the
governments of foreign countries might attempt to regulate Kana's products and
services or levy sales or other taxes relating to its activities. In addition,
foreign countries may impose tariffs, duties, price controls or other
restrictions on foreign currencies or trade barriers, any of which could make
it more difficult for Kana to conduct its business. The European Union has
enacted its own privacy regulations that may result in limits on the collection
and use of certain user information, which, if applied to the sale of Kana's
products and services, could negatively impact its results of operations.
Kana may suffer foreign exchange rate losses
Kana's international revenues and expenses are denominated in local
currency. Therefore, a weakening of other currencies compared to the U.S.
dollar could make Kana's products less competitive in foreign markets and could
negatively affect Kana's operating results and cash flows. Kana does not
currently engage in currency hedging activities. Kana has not yet, but may in
the future, experience significant foreign currency transaction losses,
especially to the extent that it does not engage in currency hedging.
Kana's prospects for obtaining additional financing, if required, are uncertain
and failure to obtain needed financing could affect Kana's ability to pursue
future growth
Kana may need to raise additional funds to develop or enhance its products
or services, to fund expansion, to respond to competitive pressures or to
acquire complementary products, businesses or technologies. Kana does not have
a long enough operating history to know with certainty whether Kana's existing
cash and expected revenues will be sufficient to finance its anticipated
growth. Additional financing may not be available on terms that are acceptable
to Kana. If Kana raises additional funds through the issuance of equity or
convertible debt securities, the percentage ownership of Kana's stockholders
would be reduced and these securities might have rights, preferences and
privileges senior to those of Kana's current stockholders. If adequate funds
are not available on acceptable terms, Kana's ability to fund any potential
expansion, take advantage of unanticipated opportunities, develop or enhance
products or services, or otherwise respond to competitive pressures would be
significantly limited.
28
Kana has completed four mergers, and those mergers may result in disruptions to
Kana's business and management due to difficulties in assimilating personnel
and operations
Kana may not realize the benefits from the significant mergers Kana has
completed. In August 1999, Kana acquired Connectify, and in December 1999, Kana
acquired netDialog and Business Evolution. On April 19, 2000, Kana completed
its merger with Silknet Software, Inc. Kana may not be able to successfully
assimilate the additional personnel, operations, acquired technology and
products into Kana's business. In particular, Kana will need to assimilate and
retain key professional services, engineering and marketing personnel. This is
particularly difficult with Business Evolution and Silknet, since their
operations are located on the east coast and Kana is headquartered on the West
coast. Key personnel from the acquired companies have in certain instances
decided, and they may in the future decide, that they do not want to work for
Kana. In addition, products of these companies will have to be integrated into
Kana's products, and it is uncertain whether Kana may accomplish this easily or
at all. These difficulties could disrupt Kana's ongoing business, distract
management and employees or increase expenses. Acquisitions are inherently
risky and Kana may also face unexpected costs, which may adversely affect
operating results in any quarter.
If Kana acquires additional companies, products or technologies, Kana may face
risks similar to those faced in Kana's other mergers
If Kana is presented with appropriate opportunities, Kana intends to make
other investments in complementary companies, products or technologies. Kana
may not realize the anticipated benefits of any other acquisition or
investment. If Kana acquires another company, it will likely face the same
risks, uncertainties and disruptions as discussed above with respect to Kana's
other mergers. Furthermore, Kana may have to incur debt or issue equity
securities to pay for any additional future acquisitions or investments, the
issuance of which could be dilutive to Kana or its existing stockholders. In
addition, Kana's profitability may suffer because of acquisition-related costs
or amortization costs for acquired goodwill and other intangible assets.
Kana's executive officers and directors can exercise significant influence over
stockholder voting matters
As of February 28, 2001, Kana's executive officers and directors, and their
affiliates together control approximately 20.5% of Kana's outstanding common
stock, including shares issuable upon exercise of options that were exercisable
within 60 days of February 28, 2001. As a result, these stockholders, if they
act together, will have a significant impact on all matters requiring approval
of its stockholders, including the election of directors and significant
corporate transactions. This concentration of ownership may delay, prevent or
deter a change in control of Kana, could deprive its stockholders of an
opportunity to receive a premium for their common stock as part of a sale of
Kana or its assets and might affect the market price of its common stock.
Kana has adopted anti-takeover defenses that could delay or prevent an
acquisition of the company
Kana's board of directors has the authority to issue up to 5,000,000 shares
of preferred stock. Moreover, without any further vote or action on the part of
the stockholders, the board of directors has the authority to determine the
price, rights, preferences, privileges and restrictions of the preferred stock.
This preferred stock, if issued, might have preference over and harm the rights
of the holders of common stock. Although the issuance of this preferred stock
will provide Kana with flexibility in connection with possible acquisitions and
other corporate purposes, this issuance may make it more difficult for a third
party to acquire a majority of Kana's outstanding voting stock. Kana currently
has no plans to issue preferred stock.
Kana's certificate of incorporation, bylaws and equity compensation plans
include provisions that may deter an unsolicited offer to purchase Kana. These
provisions, coupled with the provisions of the Delaware General Corporation
Law, may delay or impede a merger, tender offer or proxy contest involving
Kana. Furthermore, Kana's board of directors is divided into three classes,
only one of which is elected each year. Directors are removable by the
affirmative vote of at least 66 2/3% of all classes of voting stock. These
factors may further delay or prevent a change of control of Kana.
29
Kana's failure to manage multiple technologies and technological change could
harm Kana's future product demand
Future versions of hardware and software platforms embodying new
technologies and the emergence of new industry standards could render Kana's
products obsolete. The market for e-business customer communication software is
characterized by:
. rapid technological change;
. frequent new product introductions;
. changes in customer requirements; and
. evolving industry standards.
Kana's products are designed to work on a variety of hardware and software
platforms used by its customers. However, Kana's software may not operate
correctly on evolving versions of hardware and software platforms, programming
languages, database environments and other systems that its customers use. For
example, the server component of the current version of Kana's products runs on
the Windows NT operating system from Microsoft, and Kana must develop products
and services that are compatible with UNIX and other operating systems to meet
the demands of its customers. If Kana cannot successfully develop these
products in response to customer demands, Kana's business could suffer. Also,
Kana must constantly modify and improve its products to keep pace with changes
made to these platforms and to database systems and other back-office
applications and Internet-related applications. This may result in uncertainty
relating to the timing and nature of new product announcements, introductions
or modifications, which may cause confusion in the market and harm Kana's
business. If Kana fails to modify or improve its products in response to
evolving industry standards, its products could rapidly become obsolete, which
would harm Kana's business.
If Kana fails to respond to changing customer preferences in Kana's market,
demand for Kana's products and its ability to enhance Kana's revenues will
suffer
Kana must continually improve the performance, features and reliability of
its products, particularly in response to competitive offerings. Kana's success
depends, in part, on its ability to enhance its existing software and to
develop new services, functionality and technology that address the
increasingly sophisticated and varied needs of its prospective customers. If
Kana does not properly identify the feature preferences of prospective
customers, or if Kana fails to deliver features that meet the requirements of
these customers, its ability to market its products successfully and to
increase its revenues could be impaired. The development of proprietary
technology and necessary service enhancements entails significant technical and
business risks and requires substantial expenditures and lead time.
If the Internet and web-based communications fail to grow and be accepted as
media of communication, demand for Kana's products and services will decline
Kana sells its products and services primarily to organizations that receive
large volumes of e-mail and web-based communications. Many of Kana's customers
have business models that are based on the continued growth of the Internet.
Consequently, Kana's future revenues and profits, if any, substantially depend
upon the continued acceptance and use of the Internet and e-mail, which are
evolving as media of communication. Rapid growth in the use of e-mail is a
recent phenomenon and may not continue. As a result, a broad base of
enterprises that use e-mail as a primary means of communication may not develop
or be maintained. In addition, the market may not accept recently introduced
products and services that process e-mail, including Kana's products and
services. Moreover, companies that have already invested significant resources
in other methods of communications with customers, such as call centers, may be
reluctant to adopt a new strategy that may limit or compete with their existing
investments. If businesses do not continue to accept the Internet and e-mail as
media of communication, Kana's business will suffer.
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Future regulation of the Internet may slow Kana's growth, resulting in
decreased demand for Kana's products and services and increased costs of doing
business
Due to the increasing popularity and use of the Internet, it is possible
that state, federal and foreign regulators could adopt laws and regulations
that impose additional burdens on those companies that conduct business online.
These laws and regulations could discourage communication by e-mail or other
web-based communications, particularly targeted e-mail of the type facilitated
by Kana's Connect product, which could reduce demand for Kana's products and
services.
The growth and development of the market for online services may prompt
calls for more stringent consumer protection laws or laws that may inhibit the
use of Internet-based communications or the information contained in these
communications. The adoption of any additional laws or regulations may decrease
the expansion of the Internet. A decline in the growth of the Internet,
particularly as it relates to online communication, could decrease demand for
Kana's products and services and increase its costs of doing business, or
otherwise harm its business. Kana's costs could increase and its growth could
be harmed by any new legislation or regulation, the application of laws and
regulations from jurisdictions whose laws do not currently apply to Kana's
business, or the application of existing laws and regulations to the Internet
and other online services.
Kana's security could be breached, which could damage Kana's reputation and
deter customers from using its services
Kana must protect its computer systems and network from physical break-ins,
security breaches and other disruptive problems caused by the Internet or other
users. Computer break-ins could jeopardize the security of information stored
in and transmitted through Kana's computer systems and network, which could
adversely affect its ability to retain or attract customers, damage its
reputation and subject it to litigation. Kana has been in the past, and could
be in the future, subject to denial of service, vandalism and other attacks on
its systems by Internet hackers. Although Kana intends to continue to implement
security technology and establish operational procedures to prevent break-ins,
damage and failures, these security measures may fail. Kana's insurance
coverage in certain circumstances may be insufficient to cover losses that may
result from such events.
Risks Related to Broadbase
Broadbase's business is difficult to evaluate because its operating history is
limited and because it recently completed a major acquisition
Because it is still in the early stages of its development, Broadbase is
subject to the risks, expenses and uncertainties frequently encountered by a
young company. For example, because Broadbase introduced a number of its
products in May 1999, and its E-Service (formerly Servicesoft 2001) family of
products in August 2000, it is difficult to predict whether Broadbase's
products will continue to be accepted by the market, which is evolving rapidly,
and the level of revenues Broadbase can expect to derive from sales of its
products. Several members of Broadbase's management team have been with it for
only a short period of time. Because of its limited operating history and
evolving product offerings, Broadbase's insights into trends that may emerge
and affect its business are limited. In addition, on December 18, 2000,
Broadbase completed its acquisition of Servicesoft, which substantially
expanded the scale of its operations. Because Broadbase has limited experience
operating as a combined company, its business is even more difficult to
evaluate.
Broadbase has incurred losses since inception and it expects to incur losses
for the foreseeable future due in large part to acquisition-related
amortization charges
Broadbase incurred net losses and losses from operations for each period
from its inception through the end of 2000. As of December 31, 2000, Broadbase
had accumulated net losses of approximately $235.1 million. Servicesoft, which
Broadbase acquired on December 18, 2000, had accumulated net losses of
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approximately $120.8 million as of that date. Broadbase has not achieved
profitability to date, and it expects to continue to incur substantial losses
for the foreseeable future. Although its and Servicesoft's revenues grew
significantly in 2000, Broadbase's growth has not continued at the same rate.
Broadbase's revenue growth has been affected by the challenges it faces as a
result of the increasingly uncertain economic conditions both generally and in
its market. Although Broadbase has reduced its workforce to decrease operating
expenses, Broadbase will need to significantly increase its revenue to achieve
profitability. In addition, if the Kana merger is not completed, Broadbase
expects substantial noncash charges from amortization of goodwill, intangible
assets and stock compensation. Even if it does achieve profitability, Broadbase
might not be able to sustain or increase profitability on a quarterly or annual
basis in the future.
Broadbase expects its quarterly revenue and operating results to fluctuate, and
it is difficult to predict its future operating results
Broadbase's revenue and operating results have varied in the past and are
likely to continue to vary significantly from quarter to quarter in the future.
These fluctuations are due to a number of factors, many of which are outside of
Broadbase's control, including:
. changes in its pricing policies, or changes in the pricing policies of
its competitors;
. the size and timing of customer orders for its products and its
professional services;
. changes in the demand for its products, particularly its e-business
applications;
. uncertainty regarding the timing of the implementation cycle for its
products;
. increased expenses for sales and marketing, product development and
administration;
. changes in the level of sales of professional services as compared to
product licenses;
. its success in developing and introducing new products and the timing of
the introduction of new products and services by Broadbase or its
competitors, which could affect the demand for its existing products and
services;
. changes in the purchasing and budgeting cycles of its customers, and the
discretionary nature of its customers' budgets for software and e-
business related purchases;
. the amount and timing of operating costs and capital expenditures
relating to the expansion of its business, including acquisitions of
technology or businesses;
. changes in the mix of its domestic and international sales, together with
fluctuations in foreign currency exchange rates;
. changes in general economic and market conditions affecting its customers
or its industry; and
. a trend of continuing consolidation in its industry.
Broadbase has experienced seasonality in its revenues, with the fourth
quarter of the year typically having the highest revenue for the year and with
the revenue growth from the third quarter to the fourth quarter of the year
typically exceeding the revenue growth for the fourth quarter to the first
quarter of the following year. Broadbase believes that this seasonality results
primarily from the budgeting cycles of its customers. Broadbase expects that
this seasonality will continue, and could increase. In addition, Broadbase's
ability to achieve increased revenue and profitability depends on overall
demand for e-business software and related services, and in particular for
customer-focused applications. Due to current slowdowns in the general economy,
Broadbase believes that many existing and potential customers are reassessing
or reducing their planned technology and internet-related investments and
deferring purchasing decisions. As a result, there is increased uncertainty
with respect to Broadbase's expected revenues in 2001, and further delays or
reductions in business spending in the area of information technology,
particularly the eCRM market and related products and services, could have a
material adverse effect on its revenues and operating results.
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Broadbase does not believe that recent revenue growth rates are indicative
of the growth in revenues, if any, that it can expect in the future.
Accordingly, Broadbase believes that period-to-period comparisons of its
operating results may not be meaningful and you should not rely on these
comparisons as an indication of its future performance. Broadbase's operating
results might fall below the expectations of investors. In this event, the
market price of its common stock would likely decrease.
Broadbase's operating expenses are fixed, and if it fails to meet its revenue
forecasts, Broadbase will not be able to reduce these expenses quickly
During 2001, Broadbase reduced its workforce by approximately 41% to
significantly reduce its operating expenses. Despite these cuts, if Broadbase
does not significantly increase revenues, it will not achieve profitability.
Broadbase's operating expenses are based on its expectations of future revenues
and are relatively fixed in the short term. As a result, Broadbase would not be
able to further reduce spending quickly if its revenue were lower than it had
projected. Therefore, if its revenue falls below its expectations in any
quarter, or if its cuts in expenses are not sufficient, Broadbase's operating
results will be lower than expected.
The unpredictable timing of Broadbase's sales and implementation cycle makes it
difficult to forecast its operating results
Broadbase's products can have a long and unpredictable sales cycle.
Potential customers often require time to weigh the costs and benefits of
Broadbase's products compared to those of in-house development and integration
efforts. As a result, Broadbase's sales cycle for its products has typically
ranged from two to seven months, although it can take longer. Consequently,
Broadbase faces difficulty predicting the quarter in which sales to expected
customers will occur. This contributes to the uncertainty of Broadbase's future
operating results.
Delays and uncertainty in product and service implementations can compound
the difficulty of forecasting Broadbase's operating results. In most customer
sales, Broadbase is involved in the installation of its software products at
the customer site, and Broadbase recognizes revenue from a customer sale based
in part on when its software products are effectively operational. However, the
timing of the commencement and completion of the installation process is
subject to factors that may be beyond Broadbase's control, as this process
requires access to the customer's facilities and coordination with the
customer's personnel after delivery of the software. In addition, customers
could delay product implementations. Further, general uncertainty in the
economy could cause potential new customers to reduce or eliminate their
immediate need to purchase Broadbase's products, or lead its existing customers
to decline to purchase additional products from Broadbase. These factors make
it difficult to forecast operating results and can result in significant
variability in period-to-period results.
Broadbase's acquisitions might result in disruptions to its business due to
difficulties in assimilating personnel, technology and operations
Broadbase recently acquired several companies, including Servicesoft,
Decisionism and Panopticon. Many of these companies are in the early stages of
their development and have unproven business models. Broadbase might not
realize the anticipated benefits of these or other acquisitions or investments.
The integration of acquired companies into Broadbase has been and will continue
to be a complex, time consuming and expensive process and might disrupt
Broadbase's business if not completed efficiently or in a timely manner. For
example, Broadbase's acquisition of Servicesoft in December 2000 substantially
expanded Broadbase's scale of operations. The number of Broadbase's full-time
employees increased from 350 at November 30, 2000 to 678 at December 31, 2000,
primarily as a result of this acquisition. Broadbase must demonstrate to
customers and suppliers that an acquisition will not result in adverse changes
in customer service standards, or dilution of or distraction to its business
focus. Broadbase might not be able to successfully retain and assimilate
additional personnel, integrate acquired operations and technology or sell
acquired products. The difficulties of integrating other businesses could be
greater than Broadbase anticipates, and could disrupt its ongoing business,
disrupt its management and employees and increase its expenses.
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Accounting charges relating to acquisitions will prevent Broadbase from
achieving positive net income under generally accepted accounting principles as
quickly as it might otherwise
Broadbase has accounted for its recent acquisitions using the purchase
method of accounting. Under the purchase method, the purchase price of the
acquired company is allocated based on an independent valuation, to the
specific tangible and intangible assets acquired and liabilities assumed.
Broadbase recorded approximately $361.8 million, $28.8 million, $92.8 million,
$10.7 million and $630.0 million of intangible assets and goodwill on its
balance sheet in connection with its acquisitions of Rubric, Aperio,
Panopticon, Decisionism and Servicesoft, respectively. In the first quarter of
2001, Broadbase recorded a charge of $958.2 million to reflect impairment of
these intangible assets and goodwill. If the Kana merger is not completed,
Broadbase would amortize the remaining $32.8 million in intangible assets and
goodwill as of March 31, 2001 over their respective remaining useful lives
ranging from two to four years. It is also possible that Broadbase could
experience further impairment of remaining intangible assets requiring future
additional charges to expense to reflect such impairment. Finally, Broadbase
would likely record additional intangible assets and goodwill and merger
related costs in connection with potential future acquisitions. Amortization or
impairment of such intangible assets and goodwill would reduce Broadbase's net
income reported under generally accepted accounting principles.
Broadbase needs to attract, train and retain additional qualified personnel in
a competitive employment market
Broadbase's success depends on its ability to attract, train and retain
qualified, experienced employees. During 2001, Broadbase reduced its workforce
by approximately 41%. Although a number of technology companies have recently
implemented lay-offs, there remains substantial competition for experienced
management, engineering, sales and marketing personnel, particularly in the
market segment in which Broadbase competes. The market price of Broadbase's
common stock has fluctuated substantially since its initial public offering in
September 1999, and has experienced a significant decline since the first
quarter of 2000. Broadbase has relied historically on its ability to attract
employees using equity incentives, and any perception by potential and existing
employees that its equity incentives are less attractive could harm its ability
to attract and retain qualified employees. In addition, Broadbase's workforce
reduction may cause lower morale among the employees who are not being
terminated, which could make it more difficult for Broadbase to retain those
employees. If Broadbase's employees perceive uncertainty as a result of the
merger, current economic circumstances or any other reason, they could be
vulnerable to the recruiting efforts of Broadbase's competitors. Further, such
perceived uncertainty could hinder Broadbase's ability to attract or compete
for experienced management, engineering, sales and marketing personnel. If
Broadbase is unable to retain its existing key personnel, or to attract, train
and retain additional qualified personnel, it may experience inadequate levels
of staffing to develop and sell its products and perform services for its
customers.
Broadbase's reduction in headcount may seriously harm Broadbase's business
In connection with Broadbase's effort to streamline its operations, reduce
costs and bring its staffing and structure in line with industry standards, it
recently restructured Broadbase's organization with headcount reductions in
2001 of approximately 275 employees. This represented a personnel reduction of
approximately 41% based on its staffing level as of December 31, 2000. There
will be significant costs associated with this headcount reduction related to
severance and other employee-related costs. As a result of these reductions,
Broadbase's ability to respond to unexpected challenges may be impaired and
Broadbase may be unable to take advantage of new opportunities. In addition,
many of the employees who were terminated possessed specific knowledge or
expertise and that knowledge or expertise may prove to have been important to
Broadbase operations. In that case, their absence may create significant
difficulties. Further, the reduction in force may reduce employee morale and
may create concern among existing employees about job security, which may lead
to increased turnover. This headcount reduction may subject Broadbase to the
risk of litigation. Decisions as to which employees were terminated in
connection with the headcount reduction were made by Broadbase on the
assumption that the merger would occur. If the merger does not occur, Broadbase
may need to hire additional employees in some areas or terminate employees in
other areas. Broadbase may not be able to hire such additional employees and
may be adversely affected by any further reductions in force.
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Broadbase's growth depends on market acceptance of its applications designed
for internet-based systems
Broadbase first introduced its applications designed for Internet-based
systems in May 1999, and its E-Service (formerly Servicesoft 2001) family of
products in August 2000. Broadbase expects that its future growth will depend
significantly on revenue from licenses of these applications and related
services. There are significant risks inherent in introducing Internet-based
systems applications. Market acceptance of these products will depend on the
growth of the market for e-business solutions. This growth might not occur.
Further, Broadbase cannot assure you that these e-business applications or any
new ones it may introduce will meet customer performance expectations. If they
do not meet customer expectations or the market for these products fails to
develop or develops more slowly than it expects, Broadbase's business would be
harmed.
Broadbase's business will suffer if it is unable to significantly expand its
sales force
Broadbase sells its products primarily through its direct sales force.
Broadbase must develop its direct sales operations to increase market awareness
of its products and increase revenue. Broadbase cannot be certain that it will
be successful in these efforts. Broadbase's products and services require
sophisticated sales efforts. As a result, Broadbase's ability to develop its
direct sales operation will depend on its ability to recruit, train and retain
top sales people with advanced sales skills and technical knowledge. There is a
shortage of sales personnel with these qualifications, and competition for
qualified personnel is intense in Broadbase's industry. If Broadbase is unable
to hire or retain qualified sales personnel, or if newly hired personnel fail
to develop the necessary skills or reach productivity more slowly than
anticipated, Broadbase's business could be harmed.
Broadbase relies on marketing, technology and distribution relationships that
may generally be terminated at any time, and if its current and future
relationships are not successful, Broadbase's growth might be limited
Broadbase relies on marketing and technology relationships with a variety of
companies that, in part, generate leads for the sale of its products. These
marketing and technology relationships include relationships with:
. system integrators and consulting firms;
. vendors of e-commerce and Internet software;
. vendors of software designed for customer relationship management or for
management of organizations' operational information;
. vendors of key technology and platforms;
. demographic data providers; and
. an application service provider and an Internet hoster.
If Broadbase cannot maintain successful marketing and technology
relationships or cannot enter into additional marketing and technology
relationships, it could have difficulty expanding the sales of its products and
its growth might be limited. While these companies do not sell or distribute
its products, Broadbase believes that many of its direct sales are the result
of leads generated by vendors of e-business and enterprise applications.
Broadbase's marketing and technology relationships are generally not documented
in writing, or are governed by agreements that can be terminated by either
party with little or no prior notice. In addition, companies with which
Broadbase has marketing, technology or distribution relationships may promote
products of several different companies. If these companies choose not to
promote Broadbase's products or if they develop, market or recommend software
applications that compete with its products, Broadbase's business will be
harmed.
In addition, Broadbase has distribution relationships with companies located
around the world that distribute or resell its products. Sales through these
indirect sales channels accounted for approximately 28.7%
35
of Broadbase's total revenues for 1998, 35.3% for 1999 and 13.6% for 2000.
These channel partners may experience reduced sales due to a number of factors,
including general economic uncertainty in Broadbase's industry, which would
cause Broadbase's revenues to decline. If Broadbase cannot maintain successful
relationships with its indirect sales channel partners, it might have
difficulty expanding the sales of its products and its international growth
could be limited.
In addition, Broadbase relies on distributors, value-added resellers,
systems integrators, consultants and other third-party resellers to recommend
its Servicesoft products and to install and support these products. If these
companies fail to implement Broadbase's Servicesoft products successfully for
its customers, Broadbase might be unable to complete implementation on the
schedule required by the customers. Broadbase might not be able to maintain
these relationships and enter into additional relationships that will provide
timely and cost-effective customer support and service.
Customer satisfaction and demand for Broadbase products will depend on
Broadbase's ability to expand its professional services group, which assists
its customers with the implementation of its products
Broadbase believes that growth in its product sales depends in part on its
ability to provide its customers with professional services to assist with
support, training, consulting and initial implementation of its products and to
educate third-party systems integrators in the use of its products. As a
result, Broadbase may need to increase the number of professional services
personnel to respond to customer requirements. New professional services
personnel will require training and take time to reach full productivity.
Broadbase might not be able to attract or retain a sufficient number of highly
qualified professional services personnel. Competition for qualified
professional services personnel with the appropriate knowledge is intense.
Broadbase is in a new market and there is a limited number of people who have
the necessary skills. To meet its customers' needs for professional services,
Broadbase may also need to use more costly third-party consultants to
supplement its own professional services group. In addition, Broadbase could
experience delays in recognizing revenue if its professional services group
falls behind schedule in connecting its products to customers' systems and data
sources.
Broadbase might be unable to attract new customers if it does not develop new
products and enhancements
If Broadbase does not continue to improve its products and develop new
products that keep pace with competitive product introductions and
technological developments, satisfy diverse and rapidly evolving customer
requirements and achieve market acceptance, Broadbase might be unable to
attract new customers. For example, Broadbase has recently released new
versions of a number of Broadbase's existing analytic applications and its E-
Service (formerly Servicesoft 2001) family of software products. Broadbase
might not be successful in marketing and supporting these new versions, or
developing and marketing other product enhancements and new products that
respond to technological advances and market changes, on a timely or cost-
effective basis. In addition, even if these products are developed and
released, they might not achieve market acceptance. Broadbase has in the past
experienced delays in releasing new products and product enhancements and could
experience similar delays in the future. These delays or problems in the
installation or implementation of Broadbase's new releases could cause
customers to forego purchases of its products.
Broadbase depends on increased business from new customers, and if it fails to
grow its customer base or generate repeat business, Broadbase's operating
results could be harmed
If Broadbase fails to grow its customer base or generate repeat and expanded
business from its current and future customers, its business and operating
results will be seriously harmed. In some cases, Broadbase's customers
initially make a limited purchase of its products and services for pilot
programs. These customers may not purchase additional licenses to expand their
use of Broadbase's products. These customers have not yet developed or deployed
initial applications based on Broadbase's products. If these customers do not
successfully develop and deploy these initial applications, they may choose not
to purchase deployment licenses or additional development licenses.
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The effectiveness of Broadbase's Servicesoft products depends in part on the
widespread adoption and use of these products by customer support personnel.
Some of Broadbase's customers who have made initial purchases of this software
have deferred or suspended implementation of these products due to slower than
expected rates of internal adoption by customer support personnel. If more
customers decide to defer or suspend implementation of these products in the
future, Broadbase's ability to increase its revenue from these customers
through additional licenses or maintenance agreements will also be impaired,
and its financial position could be seriously harmed. Broadbase's business
model generally depends on the expanded use of its products within its
customers' organizations.
In addition, as Broadbase introduces new versions of its products or new
products, its current customers might not require the functionality of
Broadbase's new products and might not ultimately license these products.
Because the total amount of maintenance and support fees Broadbase receives in
any period depends in large part on the size and number of licenses that it has
previously sold, any downturn in its software license revenue would negatively
affect Broadbase's future services revenue. In addition, if customers elect not
to renew their maintenance agreements, Broadbase's services revenue could
decline significantly. Further, some of Broadbase's customers are Internet-
based companies, which have been forced to significantly reduce their
operations in light of limited access to sources of financing and the current
economic slowdown. If customers are unable to pay for their current products or
are unwilling to purchase additional products, Broadbase's revenues would
decline.
Market acceptance of Broadbase products might suffer if Broadbase is unable to
keep pace with rapid technological changes and industry standards
Rapidly changing technology and operating system standards, changes in
customer requirements and evolving industry standards might impede market
acceptance of Broadbase's products. Broadbase's new applications have been
designed based upon currently prevailing Internet technology. If new Internet
technologies emerge that are incompatible with Broadbase's applications, or if
competing products emerge which are based on new technologies or new industry
standards, which perform better or cost less than Broadbase's products,
Broadbase's key products could become obsolete and its existing and potential
customers could seek alternatives to its products. Broadbase might not be able
to quickly adapt its products to any new Internet technology, customer
requirements or industry standards.
Broadbase has designed its products to work with databases such as Oracle
and Microsoft SQL Server. Any changes to those databases, or increasing
popularity of other databases, could require Broadbase to modify its products,
and could cause Broadbase to delay releasing future products and enhancements.
Furthermore, software adapters are necessary to integrate Broadbase products
with other systems and data sources used by its customers. Broadbase must
develop and update these adapters to reflect changes to these systems and data
sources in order to maintain the functionality provided by its products. As a
result, uncertainties related to the timing and nature of new product
announcements, introductions or modifications by vendors of operating systems,
databases, customer relationship management software, web servers and other
enterprise and Internet-based applications could delay Broadbase's product
development, increase its product development expense or cause customers to
delay evaluation, purchase and deployment of its products.
Broadbase's business depends on the acceptance and use of the Windows NT
operating system
Most of Broadbase's products have historically run only on the Windows NT
operating system. Kana's products have historically operated on a variety of
operating system platforms, including UNIX and Windows NT. This may create
integration issues between the technologies and challenges in selling the
combined company's product line. In addition, any change to the Windows NT
operating system could require Broadbase to modify its products and could cause
Broadbase to delay product releases. Any decline in the market acceptance of
the Windows NT operating system for any reason, including as a result of errors
or delayed introduction of enhancement or upgrades, could seriously harm
Broadbase's business. If potential customers do not want to use the Windows NT
operating system, Broadbase will need to develop products that run on other
37
operating systems such as Windows 2000, the successor to Windows NT, or any of
the UNIX based systems. The development of new products in response to these
risks would require Broadbase to commit a substantial investment of resources,
and it might not be able to successfully develop or introduce such products on
a timely or cost-effective basis, or at all, which could lead potential
customers to choose alternative products.
Failure to license necessary third party software incorporated in Broadbase
products could cause delays or reductions in its sales
Broadbase licenses third party software that it incorporates into its
products. These licenses may not continue to be available on commercially
reasonable terms or at all. Some of this technology would be difficult to
replace. The loss of any such license could result in delays or reductions of
Broadbase's applications until Broadbase identifies, licenses and integrates or
develops equivalent software. If Broadbase is required to enter into license
agreements with third parties for replacement technology, Broadbase could be
subject to higher royalty payments and a loss of product differentiation. In
the future, Broadbase might need to license other software to enhance its
products and meet evolving customer needs. If Broadbase is unable to do this,
it could experience reduced demand for its products.
Broadbase faces intense competition, which could make it difficult to acquire
and retain customers
Broadbase's market is intensely competitive, and it expects competition to
intensify in the future. In recent periods, some of Broadbase's competitors
reduced the prices of their products and services (substantially in certain
cases) in order to obtain new customers. Competitive pressures could make it
difficult for Broadbase to acquire and retain customers and could require
Broadbase to reduce the price of its products. Failure to maintain and enhance
Broadbase's competitive position could seriously harm its business. Broadbase's
customers' requirements and the technology available to satisfy those
requirements are continually changing. Therefore, Broadbase must be able to
respond to these changes in order to remain competitive.
Broadbase's competitors vary in size and in the scope and breadth of
products and services offered. Broadbase currently faces competition from
providers of consulting-based analytic solutions, providers of e-service
software products similar to its Servicesoft products, vendors of point
technologies that provide website analysis, in-house development efforts by
potential customers, and from other software providers. Broadbase may also face
competition from providers of customer relationship management, e-commerce and
communications solutions. In addition, Broadbase faces competition from vendors
of other enterprise applications as they expand the functionality of their
product offerings, including companies that design software for decision
support, management of customer relationships or of organizations operational
information or for providing customer service, as well as vendors of database
applications. In addition, Broadbase expects that competition may increase as a
result of software industry consolidations and formations of alliances among
industry participants or with third parties. For example, eGain Communications
Corp. recently acquired Inference Corporation, Siebel Systems, Inc. recently
acquired Onlink Technologies, Inc., and E.piphany, Inc. recently acquired
Octane Software, Inc. Finally, it is possible that new competitors might
emerge.
Some of Broadbase's current and potential competitors have longer operating
histories and significantly greater financial, technical, marketing and other
resources than Broadbase does, and thus may be able to respond more quickly to
new or changing opportunities, technologies and customer requirements. Also,
many current and potential competitors have wider name recognition and more
extensive customer bases that they could leverage, thereby gaining market share
to Broadbase's detriment. They might be able to undertake more extensive
promotional activities, adopt more aggressive pricing strategies, and offer
purchasers more attractive terms than Broadbase can. Broadbase's competitors
might develop products that are superior to Broadbase's or that achieve greater
market acceptance.
Broadbase depends on its intellectual property and litigation regarding its
intellectual property could harm its business
The success of Broadbase's business is largely dependent on its ability to
protect its intellectual property. Broadbase's intellectual property includes
its proprietary technology, trade secrets, trademarks and copyrights in
38
its software products. Broadbase has no issued patents, although patents may
become increasingly important in software and e-business applications. Existing
copyright, trademark and trade secret laws afford only limited protection, and
the laws of some foreign countries do not protect Broadbase's proprietary
rights to the same extent as do the laws of the United States. Third parties
might infringe upon Broadbase's intellectual property rights, and Broadbase
might be unable to detect this unauthorized use or effectively enforce its
rights. In addition, any legal action that Broadbase may bring to protect its
intellectual property rights could be expensive and distract management from
day-to-day operations. Unauthorized use or misappropriation of Broadbase's
intellectual property could seriously harm its business.
Broadbase's business activities might infringe upon the proprietary rights
of others, and other parties might assert infringement claims against
Broadbase. If Broadbase becomes liable to any other third party for infringing
its intellectual property rights, Broadbase could be required to pay
substantial damage awards, develop non-infringing technology, obtain licenses
or cease selling the applications that contain the infringing intellectual
property. Broadbase could have to redesign its products, which could be costly
and time-consuming and could substantially delay product shipments, assuming
that a redesign is even feasible. Broadbase might be unable to develop non-
infringing technology or obtain licenses on commercially reasonable terms, if
at all. Litigation is subject to inherent uncertainties and any of these
results in connection with a lawsuit could seriously harm Broadbase's business.
Furthermore, Broadbase could incur substantial costs in defending against any
intellectual property litigation, and these costs could increase significantly
if any dispute were to go to trial. Broadbase's defense of any litigation,
regardless of the merits of the complaint, will likely be time-consuming,
costly and a distraction for its management personnel. Publicity related to any
intellectual property litigation could also harm the sale of Broadbase's
products and disrupt its relationships with existing customers.
Software defects could lead to loss of revenue or delay in market acceptance
for Broadbase products or expose Broadbase to liability
Broadbase's software products are internally complex and might contain
defects, especially when they are first introduced or when new versions are
released. In the past, Broadbase has discovered software errors in some of its
products after their introduction. Broadbase recently released new versions of
a number of its analytic software applications and its E-Service (formerly
Servicesoft 2001) family of products. As a result, these products might be
particularly susceptible to errors. Although Broadbase continues to evaluate
its products for errors following the commencement of commercial shipments and
receives information from customers regarding errors they detect, if Broadbase
is not able to detect and correct errors in products or releases before
commencing commercial shipments, Broadbase could experience loss of or delay in
revenues, loss of market share or failure to achieve market acceptance for its
products, diversion of development resources or injury to its reputation.
Broadbase might encounter product liability claims in the future as a result
of any product defects. Broadbase's license agreements with its customers
typically contain provisions designed to limit its exposure to potential
product liability claims. However, all domestic and international jurisdictions
may not enforce these limitations. Product liability claims brought against
Broadbase could divert the attention of management and key personnel, could be
expensive to defend and could result in adverse settlements and judgments.
Barriers to international expansion could limit Broadbase's future growth
Broadbase has only a limited history of marketing, selling and supporting
its products and services internationally. Broadbase conducts its international
sales primarily through direct sales offices in Europe and Asia, through a
Servicesoft subsidiary in Canada and through distributors in Japan. Revenue
from customers outside the United States represented 5.1%, 23.2%, and 20.3% of
Broadbase's total net revenue for 1998, 1999, and 2000 respectively. Broadbase
intends to expand its international operations, but it could face significant
barriers to this expansion. Broadbase's failure to manage its international
operations effectively could limit the future growth of its business. The
expansion of its existing international operations and entry into additional
international markets will require significant management attention and
financial resources. Expenses incurred in expanding international operations
might never result in increased revenue.
39
Broadbase's products must be localized, or customized to meet local user
needs, in order to be sold in particular foreign countries. Developing
localized versions of Broadbase's products for foreign markets is difficult and
can take longer than Broadbase anticipates. Broadbase currently has limited
experience in localizing products and in testing whether these localized
products will be accepted in the targeted countries. Broadbase cannot assure
you that its localization efforts will be successful.
Broadbase also faces certain other risks inherent in conducting business
internationally, such as:
. difficulties and costs of staffing and managing international operations;
. difficulties in recruiting and training an international staff;
. difficulties in entering into strategic relationships with companies in
international markets, particularly in Japan where the majority of
Broadbase's sales have been made through distributors;
. language and cultural differences;
. difficulties in collecting accounts receivable and longer collection
periods;
. seasonal business activity in certain parts of the world;
. fluctuations in currency exchange rates;
. legal and governmental regulatory requirements;
. tariffs, duties, price controls and other trade barriers; and
. potentially adverse tax consequences.
Any of these factors could seriously harm Broadbase's international
operations and, consequently, its business.
To date, a majority of Broadbase's international revenue and costs have been
denominated in foreign currencies. Broadbase has not engaged in any foreign
exchange hedging transactions to mitigate exchange rate risk. Accordingly,
Broadbase's results of operations could be harmed by foreign currency exchange
rate fluctuations.
Broadbase grew rapidly in 2000, and the failure to manage change could harm its
business
Broadbase grew rapidly in 2000, increasing its total number of full-time
employees from 131 at December 31, 1999 to 678 at December 31, 2000. During the
first and second quarters of 2001, Broadbase reduced its headcount to
approximately 560 and 400, respectively. Broadbase's net growth over this
period has placed significant demands on management as well as on Broadbase's
administrative, operational and financial resources and controls. Broadbase
recently completed the implementation of several new operational information
systems, and began an extensive upgrade of its finance, accounting, and product
distribution systems. In addition, Broadbase deployed certain modules of these
systems in its European operations during the first quarter of 2001. Broadbase
plans to continue deployment of various modules of these systems throughout
Europe and Japan in the second quarter of 2001. Failure to successfully
complete these systems implementations, upgrades, and deployments in a timely
and effective manner could result in the disruption of Broadbase's operations,
which could adversely affect its operating results. Any future growth in
Broadbase's operations could cause similar, and perhaps increased, strain on
its systems and controls.
Broadbase's prospects for obtaining additional financing, if required, are
uncertain and failure to obtain needed financing could affect its ability to
pursue future growth
Broadbase expects that its cash and cash equivalents and short-term
investments on hand will be sufficient to meet its working capital and capital
expenditure needs for the foreseeable future. However, if the Kana merger is
not completed, Broadbase could be required to raise additional funds for
expansion, to respond to
40
competitive pressures or to acquire complementary products, businesses or
technologies. Broadbase might not be able to obtain additional financing on
favorable terms, if at all, especially in light of the currently uncertain
market climate. If Broadbase issues additional equity securities, stockholders
could experience additional dilution or the new equity securities might have
rights, preferences or privileges senior to those of existing holders of common
stock. Under current market conditions, Broadbase may not be able to obtain
additional equity or debt financing. If Broadbase cannot raise necessary
additional funds on acceptable terms, it might not be able to fund expansion,
take advantage of future opportunities or respond to competitive pressures or
unanticipated requirements.
Broadbase's stock price has been volatile, which could lead to losses by
investors and to securities litigation
The market price of Broadbase's common stock has experienced a significant
decline in recent months. The price has been and is likely to continue to be
highly volatile due to several factors, such as:
. variations in Broadbase's actual and anticipated operating results;
. changes in Broadbase's earnings estimates by analysts;
. the volatility inherent in stocks within the emerging sector within which
Broadbase conducts business; and
. the volume of trading in Broadbase's common stock.
In addition, stock markets, particularly the Nasdaq National Market, have
experienced extreme price and volume fluctuations, and the market prices of
securities of technology companies, especially Internet-related companies, have
declined significantly in recent months. Some of these declines have been
unrelated to the operating performance of such companies. Fluctuations or
declines such as these could continue to affect the market price of Broadbase's
common stock in the future. Substantial sales of Broadbase's common stock could
also cause the stock price to decline.
In the past, securities class action litigation has often been instituted
against companies following periods of volatility in their stock price. This
type of litigation could result in substantial costs and could divert
Broadbase's management's attention and resources.
Broadbase depends on the growth in the use of the Internet for its business
Broadbase's future success depends heavily on the increased acceptance and
use of the Internet for business. Although the Internet is experiencing rapid
growth in the number of users and traffic, this growth is a recent phenomenon
and might not continue. Furthermore, despite this growth in usage, the use of
the Internet for business transactions is relatively new. If use of the
Internet for business does not continue to increase or increases more slowly
than expected, Broadbase's business would be seriously harmed. Consumers and
businesses might reject the Internet as a viable commercial medium, or be slow
to adopt it, for a number of reasons, including potentially inadequate network
infrastructure, slow development of enabling technologies, concerns about the
security of transactions and confidential information and insufficient
commercial support. The Internet infrastructure may not be able to support the
demands placed on it by increased Internet usage and bandwidth requirements. In
addition, delays in the development or adoption of new standards and protocols
required to handle increased levels of Internet activity, or increased
governmental regulation, could cause the Internet to lose its viability as a
commercial medium.
If these or any other factors cause use of the Internet for business to slow
or decline, Broadbase's business would be harmed. For example, Servicesoft's
products address a new and emerging market for e-service solutions. Therefore,
Broadbase's future success depends substantially upon the widespread adoption
of the Internet as a significant medium for commerce and business applications.
If this market fails to develop or develops more slowly than expected, demand
for Broadbase's products and services will be reduced. Even if
41
the required infrastructure, standards, protocols or complementary products,
services or facilities are developed, Broadbase might incur substantial
expenses adapting its products to changing or emerging technologies.
Increasing governmental regulation of the Internet could limit the market for
Broadbase products
A number of legislative and regulatory proposals under consideration by
federal, state, local and foreign governmental organizations might lead to laws
or regulations concerning various aspects of the Internet, such as user
privacy, taxation of goods and services provided over the Internet, pricing,
content and quality of products and services. Legislation could dampen the
growth in Internet usage and decrease or limit its acceptance as a
communications and commercial medium. If enacted, these laws and regulations
could limit the market for Broadbase's products. In addition, existing laws
could be applied to the Internet, including consumer privacy laws. Legislation
or application of existing laws could expose companies involved in electronic
commerce, or e-commerce, to increased liability, which could limit the growth
of e-commerce generally.
Government regulation of the collection and use of personal data could reduce
demand for Broadbase products
Broadbase's products connect to and analyze data from various applications,
including Internet applications, that enable businesses to capture and use
information about their customers. Government regulation that limits
Broadbase's customers' use of this information could reduce the demand for
Broadbase's products. A number of jurisdictions have adopted, or are
considering adopting, laws that restrict the use of customer information from
Internet applications. The European Union has required that its member states
adopt legislation that imposes restrictions on the collection and use of
personal data, and that limits the transfer of personally-identifiable data to
countries that do not impose equivalent restrictions. In the United States, the
Children's Online Privacy Protection Act was enacted in October 1998. This
legislation directs the Federal Trade Commission to regulate the collection of
data from children on commercial websites. In addition, the Federal Trade
Commission has begun investigations into the privacy practices of businesses
that collect information on the Internet. These and other privacy-related
initiatives could reduce demand for some of the Internet applications with
which Broadbase's products operate, and could restrict the use of its products
in some e-commerce applications. This could reduce demand for Broadbase's
products.
The imposition of sales and other taxes on products sold by Broadbase customers
over the Internet could have a negative effect on online commerce and the
demand for Broadbase products and services
The imposition of new sales or other taxes could limit the growth of
Internet commerce generally and, as a result, the demand for Broadbase's
products and services. Recent federal legislation limits the imposition of
state and local taxes on Internet-related sales. Congress may choose not to
renew this legislation in 2001, in which case state and local governments would
be free to impose taxes on electronically purchased goods. Broadbase believes
that most companies that sell products over the Internet do not currently
collect sales or other taxes on shipments of their products into states or
foreign countries where they are not physically present. However, one or more
states or foreign countries may seek to impose sales or other tax collection
obligations on out-of-jurisdiction companies that engage in e-commerce. A
successful assertion by one or more states or foreign countries that companies
that engage in e-commerce should collect sales or other taxes on the sale of
their products over the Internet, even though not physically in the state or
country, could indirectly reduce demand for Broadbase's products.
Privacy concerns relating to the Internet are increasing, which could result in
legislation that negatively affects Broadbase's business, in reduced sales of
its products, or both
Businesses using Broadbase's products capture information regarding their
customers when those customers contact them on-line with customer service
inquiries. Privacy concerns could cause visitors to resist providing the
personal data necessary to allow Broadbase's customers to use its software
products most
42
effectively. More importantly, even the perception of privacy concerns, whether
or not valid, may indirectly inhibit market acceptance of Broadbase's products.
In addition, legislative or regulatory requirements may heighten these concerns
if businesses must notify Web site users that the data captured after visiting
certain Web sites may be used by marketing entities to unilaterally direct
product promotion and advertising to that user. While Broadbase is not aware of
any such legislation or regulatory requirements currently in effect in the
United States, other countries and political entities, such as the European
Union, have adopted such legislation or regulatory requirements and the United
States may do so as well. If consumer privacy concerns are not adequately
addressed, Broadbase's business could be harmed.
43
ANNUAL MEETING OF KANA STOCKHOLDERS
General
Kana is furnishing this joint proxy statement/prospectus to holders of Kana
common stock in connection with the solicitation of proxies by the Kana board
of directors for use at the annual meeting of stockholders of Kana to be held
on , 2001, and any adjournment or postponement thereof.
This joint proxy statement/prospectus is first being furnished to Kana
stockholders on or about , 2001.
Date, Time and Place
The annual meeting will be held on , 2001 at 10:00 a.m., local time,
at the offices of Brobeck, Phleger & Harrison LLP, Two Embarcadero Place, 2200
Geng Road, Palo Alto, California 94303.
Matters to be Considered at the Annual Meeting
At the annual meeting and any adjournment or postponement of the annual
meeting, Kana stockholders will be asked:
. to approve the issuance of Kana common stock to Broadbase stockholders as
contemplated by the merger agreement;
. to approve a proposal to change the name of Kana to "Kana Software, Inc."
by amending Kana's second amended and restated certificate of
incorporation;
. to approve an amendment of the Kana 1999 Stock Incentive Plan that will
increase the number of shares of Kana common stock available for issuance
under the 1999 Stock Incentive Plan by an additional 10,000,000 shares
and to increase the limit on the maximum number of shares by which the
share resurrender the 1999 Stock Incentive Plan may automatically
increase each calendar year from 4,000,000 shares to 10,000,000 shares,
effective for all calendar years after 2001;
. to approve an amendment and restatement of the Kana 1999 Employee Stock
Purchase Plan that will:
. increase the number of shares of common stock issuable under the term
of the 1999 Employee Stock Purchase Plan by an additional 10,000,000
shares of common stock, from 2,122,507 shares to 12,122,507 shares;
. increase the limit on the maximum number of shares by which the share
reserve under the 1999 Employee Stock Purchase Plan may automatically
increase each calendar year from 666,666 shares to 4,000,000 shares,
effective for all calendar years after the 2001 calendar year; and
. revise certain provisions of the plan document in order to facilitate
the administration of the 1999 Employee Stock Purchase Plan.
. to elect two directors to serve for three-year terms ending in the year
2004 or until their successors are duly elected and qualified; and
. to transact such other business as may properly come before the special
meeting.
44
Record Date
Kana's board has fixed the close of business on , 2001, as the record
date for determination of Kana stockholders entitled to notice of and to vote
at the annual meeting.
Voting of Proxies
Kana requests that its stockholders complete, date and sign the accompanying
proxy and promptly return it in the accompanying envelope or otherwise mail it
to Kana. Brokers holding shares in "street name" may vote the shares only if
the stockholder provides instructions on how to vote. Brokers will provide
directions on how to instruct the broker to vote the shares. All properly
executed proxies that Kana receives prior to the vote at the annual meeting,
and that are not revoked, will be voted in accordance with the instructions
indicated on the proxies or, if no direction is indicated, to approve the
issuance of shares of Kana as contemplated by the merger agreement, to approve
the name change and the amendment of the 1999 Stock Incentive Plan, the
amendment and restatement of the 1999 Employee Stock Purchase Plan and the
election of the directors nominated for election. Kana's board does not
currently intend to bring any other business before the annual meeting and, so
far as Kana's board knows, no other matters are to be brought before the annual
meeting. If other business properly comes before the annual meeting, the
proxies will vote in accordance with their own judgment.
Stockholders may revoke their proxies at any time prior to its use:
. by delivering to the Secretary of Kana a signed notice of revocation or a
later-dated, signed proxy; or
. by attending the annual meeting and voting in person.
Attendance at the annual meeting does not in itself constitute the
revocation of a proxy.
Votes Required
As of the close of business on , 2001, the record date for
determination of stockholders entitled to notice of and to vote at the annual
meeting, there were shares of Kana common stock outstanding and entitled
to vote. Each stockholder is entitled to one vote for each share of Kana common
stock held by such stockholder. For the amendment to Kana's second amended and
restated certificate of incorporation to change the name of Kana to "Kana
Software, Inc.," holders of a majority of Kana's outstanding common stock must
approve the amendment. The issuance of Kana common stock in the merger, the
amendment of the 1999 Stock Incentive Plan and the amendment and restatement of
the 1999 Employee Stock Purchase Plan each require the approval of the holders
of a majority of the shares of Kana's common stock entitled to vote and that
are present or represented by proxy at the Kana meeting. The proposal to elect
two directors to Kana's board of directors requires the affirmative vote of a
plurality of the Kana shares present or represented at the annual meeting and
entitled to vote on such proposal. Kana stockholders have one vote per share of
Kana common stock owned on the record date.
As of April 9, 2001, directors and executive officers of Kana and their
affiliates beneficially owned an aggregate of shares of Kana common stock
(including shares issuable upon the exercise of options that are exercisable
within 60 days of April 9, 2001) or approximately 20.5% of the shares of Kana
common stock outstanding on such date. Pursuant to separate voting agreements
in the form attached hereto as Appendix II, Kana's directors and executive
officers, and their affiliates, have indicated their intention to vote their
shares of Kana common stock in favor of the issuance of the Kana common stock
in connection with the merger and on all related matters. As of April 9, 2001,
directors and executive officers of Broadbase owned no shares of Kana common
stock.
Quorum; Abstentions and Broker Non-Votes
The required quorum for the transaction of business at the annual meeting is
holders, present or by proxy, of a majority of the shares of Kana common stock
issued and outstanding on the record date. Abstentions and
45
broker non-votes each will be included in determining the number of shares
present and voting at the meeting for the purpose of determining the presence
of a quorum. Brokers holding shares for beneficial owners cannot vote on the
actions proposed in this joint proxy statement/prospectus without the owners'
specific instructions. Accordingly, Kana stockholders are urged to return the
enclosed proxy card marked to indicate their vote. Broker non-votes will not be
included in vote totals and will have no effect on the outcome of the votes on
the issuance of the shares in the merger. Abstentions, however, will have the
same effect as a vote against issuing the shares in the merger. Adjournment
would require the affirmative vote of the holders of a majority of the
outstanding Kana common stock present in person or represented by proxy at the
Kana annual meeting.
Solicitation of Proxies and Expenses
Kana has retained the services of ChaseMellon Consulting Services, LLC to
assist in the solicitation of proxies from Kana stockholders. The fees to be
paid to the firm by Kana for these services are not expected to exceed
$100,000, plus reasonable out-of-pocket expenses. Kana and Broadbase will each
bear its own expenses in connection with the solicitation of proxies for its
annual meeting of stockholders, except that each will pay one-half of all
printing and filing costs and expenses incurred in connection with the
registration statement and this joint proxy statement/prospectus.
In addition to solicitation by mail, the directors, officers and employees
of Kana may solicit proxies from Kana stockholders by telephone, facsimile or
in person. Brokerage houses, nominees, fiduciaries and other custodians will be
requested to forward soliciting materials to beneficial owners and will be
reimbursed for their reasonable expenses incurred in sending proxy materials to
beneficial owners.
Stockholder Proposals for the Kana 2002 Annual Meeting
Proposals of stockholders of Kana that are intended to be presented at
Kana's 2002 Annual Meeting must be timely delivered or received by Kana. Under
Kana's bylaws, to be deemed properly presented, notice must be delivered to, or
mailed and received by, Kana no less than 120 days prior to the date of the
meeting. The stockholder's notice must set forth, as to each proposed matter:
. a brief description of the business desired to be brought before the
meeting and the reasons for conducting the business at the meeting;
. the name and address, as they appear on Kana's books, of the stockholder
proposing the business, and the name and address of the beneficial owner,
if any, on whose behalf the proposal is made;
. the class and number of shares of stock of Kana that are owned
beneficially and of record by the stockholders of record and the
beneficial owner, if any, on whose behalf the proposal is made; and
. any material interest of the stockholder of record and the beneficial
owner, if any, on whose behalf the proposal is made in the business to be
presented.
If the presiding officer of the meeting determines that such business has not
been properly brought before the meeting, then the business will not be
transacted.
Board Recommendations
The Kana board has determined that the merger and the issuance of Kana
common stock in the merger are advisable and fair to, and in the best interests
of, Kana and its stockholders. Accordingly, the board unanimously has approved
the issuance of shares of Kana common stock contemplated by the merger
agreement and unanimously recommends that stockholders vote "FOR" approval of
the issuance of shares of Kana common stock contemplated by the merger
agreement.
46
The Kana board has also determined that the change in Kana's name, the
election of the two nominated directors, the amendment of the 1999 Stock
Incentive Plan and the amendment and restatement of the 1999 Employee Stock
Purchase Plan are also in the best interest of Kana and its stockholders. The
Kana board unanimously recommends that Kana stockholders vote "FOR" approval of
each of these proposals.
The matters to be considered at the annual meeting are of great importance
to Kana stockholders. Accordingly, Kana stockholders are urged to read and
carefully consider the information presented in this joint proxy
statement/prospectus, and to complete, date, sign and promptly return the
enclosed proxy in the enclosed postage-paid envelope.
Kana stockholders should not send any stock certificates with their proxy
cards.
47
SPECIAL MEETING OF BROADBASE STOCKHOLDERS
Date, Time, Place and Purpose of the Broadbase Meeting
Broadbase Software, Inc. will hold a special meeting of its stockholders at
the Stanford Park Hotel located at 100 El Camino Real, Menlo Park, California,
on , 2001, at 10:00 a.m., Pacific Time.
At the meeting, Broadbase stockholders will be asked to adopt and approve a
merger agreement with Kana and to approve the merger of Broadbase with a
wholly-owned subsidiary of Kana, which will result in Broadbase becoming a
wholly-owned subsidiary of Kana. The merger agreement is attached as Appendix I
to this document.
Broadbase does not anticipate that any other matter will be presented for
action at the meeting. If any other matters are properly brought before the
meeting, the persons named in the proxies will have discretion to vote on these
matters in accordance with their judgment.
Record Date and Outstanding Shares
The record date for the Broadbase meeting is , 2001. Only holders of
record of Broadbase common stock at the close of business on the record date
are entitled to notice of and to vote at the meeting. As of the close of
business on the record date, there were shares of Broadbase common stock
outstanding and entitled to vote, held of record by approximately
stockholders, although Broadbase has been informed that there are in excess of
beneficial holders.
On the record date, directors, executive officers and other affiliated
stockholders of Broadbase as a group beneficially owned shares of
Broadbase common stock. These shares constituted approximately % of all of
the outstanding shares of Broadbase common stock as of the record date.
Broadbase stockholders holding approximately 11.7% of the outstanding shares of
Broadbase common stock (including shares issuable upon exercise of options that
are exercisable within 60 days of April 9, 2001) have agreed to vote all of
their shares of Broadbase common stock in favor of the adoption and approval of
the merger agreement and approval of the merger and against any action or
agreement that would prevent or compete with the merger. See the section
entitled "Related Agreements--Voting Agreements."
Vote and Quorum Requirements
Vote Required. Each Broadbase stockholder is entitled to one vote for each
share of Broadbase common stock held as of the record date. Adoption and
approval of the merger agreement and approval of the merger requires the
affirmative vote of the holders of a majority of the outstanding shares of
Broadbase common stock present in person or represented by proxy at the
Broadbase meeting. Abstentions and broker non-votes will have the same effect
as votes against the merger agreement and the merger.
Quorum. The holders of a majority of the shares of Broadbase entitled to
vote at the Broadbase meeting, present in person or represented by proxy, will
constitute a quorum for the purposes of the meeting. If sufficient votes to
constitute a quorum or to approve the merger are not received by the date of
the meeting, the persons named as proxies may propose one or more adjournments
of the meeting to permit further solicitation of proxies. Adjournment would
require the affirmative vote of the holders of a majority of the outstanding
shares of Broadbase common stock present in person or represented by proxy at
the Broadbase meeting. The persons named as proxies would generally exercise
their authority to vote in favor of adjournment.
Voting and Revocability of Proxies
The accompanying proxy is solicited on behalf of Broadbase's board of
directors for use at the Broadbase meeting. Please complete, date and sign the
proxy card and promptly return it in the enclosed envelope or
48
otherwise mail it to Broadbase. All properly signed proxies that Broadbase
receives and that are not revoked prior to the vote at the Broadbase meeting
will be voted at the meeting according to the instructions indicated on the
proxies or, if no vote is indicated, in favor of adopting and approving the
merger agreement and approving the merger. You may revoke your proxy at any
time before it is exercised at the meeting by taking any of the following
actions:
. delivering to the secretary of Broadbase a written notice, bearing a date
later than the date of the proxy, stating that the proxy is revoked;
. signing and delivering to the secretary of Broadbase a proxy relating to
the same shares and bearing a later date prior to the vote at the
meeting; or
. attending the Broadbase meeting and voting in person, although attendance
at the meeting will not, by itself, revoke a proxy. Please note, however,
that if your shares are held of record by a broker, bank or other nominee
and you wish to vote at the Broadbase meeting, you must bring to the
meeting a letter from the broker, bank or other nominee confirming your
beneficial ownership of the shares.
Expenses of Proxy Solicitation
Broadbase will pay the expenses of soliciting proxies to be voted at the
Broadbase meeting. Following the original mailing of the proxies and other
soliciting materials, Broadbase and its agents also may solicit proxies by
mail, telephone or in person. Also, Broadbase will request brokers, custodians,
nominees and other record holders of Broadbase common stock to forward copies
of the proxy and other soliciting materials to persons for whom they hold
shares of Broadbase common stock and to request authority for the exercise of
proxies. In these cases, upon the request of the record holders, Broadbase will
reimburse these holders for their reasonable expenses.
Broadbase's board of directors recommends a vote FOR the adoption and
approval of the merger agreement and approval of the merger.
49
THE MERGER
This section of the joint proxy statement/prospectus describes material
aspects of the proposed merger, including the merger agreement which is
attached as Appendix I and incorporated herein by reference. While Kana and
Broadbase believe that this description covers the material terms of the merger
and the related transactions, this summary may not contain all of the
information that is important to Kana stockholders and Broadbase stockholders.
Stockholders should read the entire merger agreement and the other documents we
refer to carefully and in their entirety for a more complete understanding of
the merger.
Background of the Merger
As a regular part of their business plans, Kana and Broadbase have from time
to time each considered opportunities for expanding and strengthening their
technology, products, research and development capabilities and distribution
channels, including strategic acquisitions, business combinations, investments,
licensing and development agreements and joint ventures.
Between late December 1999 and the end of February 2000, Michael J.
McCloskey, Kana's former chief executive officer, and Chuck Bay, president and
chief executive officer of Broadbase, engaged in discussions regarding a
potential strategic business combination. During that time, various members of
the Broadbase management team met with members of Kana's management team to
conduct business due diligence and to discuss the potential benefits of a
business combination, and representatives of the two companies communicated
regarding possible terms of a transaction. However, the parties did not reach
agreement on proposed terms. From time to time from April 2000 to December
2000, Mr. McCloskey and Mr. Bay occasionally communicated regarding their
businesses and potential relationships between the companies.
At various times between April 2000 and March 2001, Mr. Bay and other
representatives of Broadbase also held preliminary discussions with several
other companies with respect to potential acquisitions of Broadbase or
potential mergers involving Broadbase, some of which parties conducted
financial, legal and technical due diligence on Broadbase. However, Broadbase
did not reach agreement with any of these companies as to valuation or other
material terms of any potential merger or acquisitions, and the parties did not
engage in negotiations of definitive agreements for any such transactions.
During the last week of March 2001, James C. Wood, Kana's new chief
executive officer, contacted Mr. Bay to discuss the respective businesses of
Kana and Broadbase and to determine whether Broadbase would be interested in
resuming discussions regarding a business combination with Kana. Over the next
several days, Mr. Wood and Mr. Bay engaged in preliminary discussions regarding
the nature of a possible business combination between Kana and Broadbase and
the potential of the combined enterprise.
At a special meeting of the board held on the evening of March 30, 2001,
Kana's board of directors received an update from Mr. Wood and other officers
of Kana on Kana's business and financial condition, its remaining cash and cash
expenditure rate, and its competitive outlook in the marketplace. Kana's board
of directors decided to evaluate various strategic transactions, including a
potential business combination with Broadbase and other potential strategic
transactions with several companies with respect to which Kana had received
informal inquiries but had not yet received formal offers or indications of
interest. Among these companies were Company A, a large Nasdaq-listed
enterprise software applications provider, and Company B a large, Nasdaq-listed
communications hardware and software provider. Kana's board instructed Mr. Wood
to contact Goldman, Sachs & Co., (Goldman Sachs), in connection with the
proposed strategic transactions. In addition, Kana's board authorized Mr. Wood
to continue evaluating potential strategic transactions, including further
discussions with Broadbase, Company A and Company B.
On April 2 and April 3, 2001, the Kana board held two special meetings to
review the status of the strategic transactions available to Kana. The Kana
board discussed the merits of potential strategic business combinations with
Broadbase, Company A and Company B and certain other companies in the software
industry and communications industry. The discussions included the strategic
benefits that could be achieved in a combination of the companies' products and
services, management and sales organizations and the possibility of obtaining
interim financing in connection with any such transaction. The Kana board also
discussed potential
50
headcount and cost reductions. Mr. Wood reported to the board that additional
discussions had been held with representatives of Company A and Company B and
it was likely that Kana would receive a proposal for a strategic transaction
from one or both companies in the near future. Representatives of Goldman Sachs
and Brobeck, Phleger & Harrison LLP, Kana's outside legal counsel (Brobeck)
attended the meetings. On April 3, 2001, Kana's board agreed to formally retain
Goldman Sachs as its financial advisor in connection with potential strategic
transactions.
On April 2 and April 3, 2001, Mr. Wood and Mr. Bay continued to discuss the
benefits of a strategic transaction between Kana and Broadbase, the benefits of
combining the companies, the possibility of interim financing, and valuation
expectations.
On April 3 and April 4, 2001, Kana and Broadbase, respectively, announced
their preliminary results of operations for the first quarter of 2001.
On April 5, 2001, Eric Willgohs, Broadbase's Executive Vice President and
General Counsel, contacted Fenwick & West LLP, Broadbase's outside legal
counsel (Fenwick) and Morgan Stanley & Co. Incorporated (Morgan Stanley)
regarding the proposed merger, and representatives of Morgan Stanley, Fenwick
and Broadbase prepared a draft term sheet to be submitted to Kana. On April 5,
2001, the Broadbase board of directors held a special meeting to review the
discussions with Kana. The Broadbase board discussed potential benefits and
risks of the proposed transaction with Kana, as well as the anticipated
operating results of the combined company. Representatives of Fenwick discussed
specific terms of the proposed transaction with Kana, including the proposed
exchange ratio, the proposed interim financing of Kana, the proposed stock
option agreements and voting agreements, the proposed management and board of
directors of the combined company, the terms of the non-solicitation covenants,
and the terms of the proposed license agreement, and the duties of the
Broadbase board with respect to the proposed transaction. The Broadbase board
authorized management to proceed with its discussions with Kana. In addition,
Broadbase's board agreed to formally retain Morgan Stanley as its financial
advisor in connection with the proposed transaction.
On April 5, 2001, the Kana board held a special meeting to review the status
of discussions with Broadbase, Company A and Company B as well as other
possible strategic transactions. The Kana board reviewed and discussed the term
sheet which had been delivered by Broadbase's financial advisor, Morgan
Stanley. The Kana board also reviewed and discussed a letter of interest that
had been received by Kana indicating the basic terms of a possible transaction
with Company A. Mr. Wood reported that it was likely that a formal offer would
be made by Company B in the next 48-72 hours, but that the offer was likely to
be for a strategic investment, rather than a business combination.
Representatives of Brobeck and Goldman Sachs also attended and participated in
this meeting. Among the factors the Kana board considered in evaluating
potential transactions with each of Broadbase, Company A and Company B were the
comparative market capitalizations, revenue potential, liquidity, possibility
of interim financing, infrastructures and product fit of each potential
partner, as well as the timeline on which a transaction could be concluded.
Representatives of Brobeck then discussed specific aspects of the proposed
transaction with Broadbase, including the proposed restrictions on the conduct
of Kana's business, the proposed management of Kana following the merger, the
terms of the non-solicitation covenants, the termination sections and the
consequences of termination, the operation of the stock option agreements, the
terms of the voting agreements, and the possible terms of an interim loan from
Broadbase. Based on the relative merits offered by each potential transaction,
the Kana board determined that it would move forward with negotiating
definitive documents with Broadbase based on the term sheet reviewed at the
meeting, but that it would entertain further discussions with Company A and/or
Company B should a formal offer from one or both companies be forthcoming.
On April 5, 2001, Kana and Broadbase entered into a non-disclosure
agreement, and Broadbase instructed Fenwick to prepare drafts of the merger
agreement and other transaction documents. Later that evening, Brobeck and
representatives of Company A's outside legal counsel negotiated a nondisclosure
agreement, which was then executed by Kana and Company A.
Beginning on the morning of April 6, 2001 and continuing through April 8,
2001, a series of meetings was held at the offices of Fenwick between
marketing, legal, operations, technical and finance personnel,
51
accountants and financial advisors of both companies for the purpose of
conducting due diligence. Representatives from Brobeck and Fenwick also
conducted a legal due diligence review. On the evening of April 6, 2001, a
draft of a merger agreement and other draft transaction documents were
distributed to the working group for the transaction by Fenwick.
On April 7, 2001, Brobeck provided its initial comments on the draft merger
agreement and other draft transaction documents previously distributed by
Fenwick.
In the early evening of April 7, 2001, the Broadbase board of directors held
a special meeting to review the status of the discussions with Kana. The board
discussed the proposed plan for headcount reductions at both companies, the
financial condition, liquidity and anticipated results of operations of
Broadbase and Kana, and the cost structure and anticipated potential results of
operations of the combined company. Representatives of Morgan Stanley attended
and discussed the financial performance of Kana and Broadbase, current economic
and industry conditions, and the likelihood and possible terms of alternative
transactions that Broadbase could pursue. Representatives of Fenwick also
attended and advised the Broadbase board of its fiduciary duties in considering
the merger and reviewed the principal terms of the revised draft merger
agreement and related agreements. The Broadbase board discussed the principal
terms of the proposed transaction, including the proposed exchange ratio, the
requirement that Broadbase provide Kana with up to $20 million in unsecured
loans, and the operation and terms of the proposed distribution and license
agreement, the proposed voting agreements and the proposed stock option
agreements. The Broadbase board authorized management to continue its
negotiations with Kana.
In the early evening of April 7, 2001, the Kana board held a special meeting
to discuss the status of the potential strategic transactions available to
Kana. Mr. Wood noted that in the afternoon, Kana had received a formal proposal
from Company A for an acquisition of Kana and a formal proposal from Company B
for a strategic investment in Kana. Representatives of Goldman Sachs attended
the meeting and discussed the selected financial attributes of Kana, Broadbase
and Company A. Representatives of Goldman Sachs also participated in
discussions with the board with respect to the terms of the proposals from
Company A and Company B. After further discussion, the Kana board determined
that, notwithstanding the strength and resources of Company B, a business
combination with Broadbase was preferable to operating independently following
an investment by Company B because of the perceived strategic fit between
Kana's and Broadbase's businesses and product lines. The Kana board determined
that Company B's proposal had a number of disadvantages and did not offer as
much value to Kana and its stockholders as a combination with Broadbase. Mr.
Wood also noted that Company B had indicated that it was not interested in
consummating a business combination with Kana in the near term. The Kana board
then determined to defer further discussions with Company B.
The Kana board then considered the terms of the alternative proposal from
Company A as compared with the Broadbase proposal. The Kana board noted that
the alternative proposal from Company A was subject to a due diligence
investigation that had not yet begun and the drafting and negotiating of
definitive agreements, and weighed these factors in light of the relative
certainty associated with the relatively more completed process with Broadbase,
and the attractiveness of the interim funding aspect of the Broadbase proposal,
in light of Kana's cash position. The Company A proposal was further weighed
against the possibility that Broadbase might have been unwilling to proceed on
the terms then under discussion if Kana continued to engage in discussions with
Company A. The Kana board viewed the Broadbase transaction as more attractive
than the alternative proposal from Company A both because of the proposed terms
of the respective transactions and because it believed that Broadbase's
financial position, products, services, management and sales organizations
provided a more favorable strategic fit with Kana than a strategic combination
with Company A. The Kana board also considered that a definitive merger
agreement with Broadbase would contain provisions allowing Kana to consider and
respond to future unsolicited proposals from Company A, Company B, or any other
party if the Kana board made a finding that it was required to do so to comply
with its fiduciary duties to its stockholders, subject to the payment to
Broadbase of a $2.5 million merger termination fee and other provisions.
52
Representatives of Brobeck, Phleger & Harrison LLP discussed with and
answered questions from the Kana board of its legal duties and responsibilities
in connection with considering the proposed business combination with Broadbase
and reviewed the principal terms of the revised draft merger agreement and
related agreements. The Kana board discussed the principal issues in the
proposed transaction with Broadbase, the proposed exchange ratio, treatment of
Broadbase employees following the proposed transaction, acceleration of
Broadbase stock options, management of the combined companies and industry
competition. The Kana board also reviewed additional issues relating to the
proposed transaction with Broadbase, including the merger consideration,
exchange ratio, and termination rights, the distribution and license agreement
and the proposed headcount reduction. After lengthy discussion, the Kana board
decided to continue negotiating with Broadbase, subject to review of the
revised merger agreement and revised related agreements.
During the evening of April 7, 2001 and the morning of April 8, 2001,
representatives of Brobeck and Fenwick held a series of negotiations concerning
the terms of the draft merger agreement and the other draft related agreements
by teleconference and at the offices of Fenwick. The terms discussed in these
negotiations included, among other things, the representations and warranties
made by the parties, the restrictions on the conduct of their business, the
terms of the non-solicitation covenants and other material covenants, the
termination provisions, the provisions regarding payment of the termination
fees and the consequences of termination, the conditions to closing and the
definition of adverse events that would not prevent the closing of the
transaction, the terms and conditions of the revolving loan agreement, the
distribution and license agreement, the stock option agreements and the voting
agreements.
On the afternoon of April 8, 2001, revised drafts of the proposed merger
agreement and other related agreements were distributed by Fenwick, and Brobeck
provided comments on these draft agreements. Through the evening of April 8,
2001, representatives of Brobeck and Fenwick continued to negotiate the terms
of these agreements by teleconference and at the offices of Fenwick.
Thereafter, revised agreements were distributed by Fenwick.
The Kana board held a special meeting in the evening on April 8, 2001 to
review and approve the terms of the merger with Broadbase. Mr. Rodriguez,
Kana's Interim Chief Financial Officer, updated the board on Kana's financial
position, including its cash position. Brobeck briefed the Kana board regarding
the board's legal duties and responsibilities in connection with considering
the merger, and again reviewed the results of the parties' further
negotiations, the principal terms of the merger agreement and the related
agreements. Representatives of Goldman Sachs attended the meeting and discussed
the financial performance of Kana and Broadbase, the current financial market
environment, the stock trading patterns of Kana and Broadbase as well as other
companies in the software industry and the financial impact of the proposed
merger. Goldman Sachs later delivered its oral opinion to Kana's board that, as
of such date, and subject to a number of assumptions, qualifications and
limitations which are set forth in the written opinion attached as Appendix
VIII to this joint proxy statement/prospectus, the exchange ratio of 1.05
shares of Kana common stock to be exchanged for each share of Broadbase common
stock pursuant to the merger agreement was fair from a financial point of view
to Kana. Following the discussions, Kana's board unanimously determined that
the proposed merger was fair and in the best interests of Kana and its
stockholders and approved the terms of the merger agreement and related
agreements and the issuance of Kana stock in the merger and authorized Mr. Wood
to execute, on behalf of Kana, the merger agreement and related agreements,
subject to any non-material changes that Mr. Wood was empowered to negotiate.
In addition, the Kana board considered a proposed plan for reduction of Kana's
headcount and other operating savings, including the impact of this plan if the
merger was not consummated, the impact of this plan on Kana's anticipated costs
and revenues, and the viability of further headcount reductions. The Kana board
unanimously approved the proposed headcount and expenditure reduction plan and
the future operations and cash requirements of Kana and the combined Company.
In the evening on April 8, 2001, the Broadbase board of directors held a
special meeting to review and approve the terms of the proposed merger.
Representatives of Morgan Stanley and Fenwick were present. Morgan Stanley
delivered its oral opinion to Broadbase's board that, as of that date, the
exchange ratio of 1.05 shares of Kana common stock to be exchanged for each
share of Broadbase common stock pursuant to the merger was fair to Broadbase's
stockholders from a financial point of view. Fenwick advised the Broadbase
53
board regarding the board's legal duties and responsibilities considering the
merger, and again reviewed the principal terms of the merger agreement and the
related agreements. Following the discussions, Broadbase's board unanimously
determined that the proposed merger was fair and in the best interests of
Broadbase and its stockholders and approved the terms of the merger agreement
and related agreements and authorized Mr. Bay to execute, on behalf of
Broadbase, the merger agreement and related agreements, subject to any non-
material changes that Mr. Bay was empowered to negotiate. In addition, the
Broadbase board considered the Broadbase's proposed headcount reduction plan,
including the impact of this plan if the merger was not consummated, the impact
of the plan on Broadbase's anticipated costs and revenues, and the viability of
further headcount reductions. After discussion, the Broadbase board unanimously
approved the proposed headcount reduction plan.
Representatives of Brobeck and Fenwick then proceeded to complete
negotiations on the remaining disputed points of the merger agreement and the
related agreements.
Early in the morning on April 9, 2001, Kana and Broadbase entered into the
merger agreement, the stock option agreements, the revolving loan agreement and
the distribution and license agreement. Also on April 9, 2001, certain
stockholders of Kana entered into voting agreements with Broadbase and certain
Broadbase stockholders entered into voting agreements with Kana, and agreed to
vote their shares in favor of the transaction. Kana and Broadbase then issued a
joint press release announcing the signing of the merger agreement and held a
conference call to discuss the merger with interested investors and analysts.
Recommendation of the Kana Board of Directors and Kana's Reasons for the Merger
Kana's Reasons for the Merger
The board of directors of Kana unanimously concluded that the merger was in
the best interests of Kana and its stockholders, and determined to recommend
that the stockholders approve the issuance of shares of Kana common stock in
the merger. This decision was based upon several potential benefits of the
merger that Kana's board believes will contribute to the success of the
combined company. These potential benefits from combining Broadbase with Kana
include:
. The opportunity to preserve and enhance stockholder value by combining
two complementary businesses.
. access to Broadbase's cash reserves to help fund Kana's operations;
. expanding Kana's technology leadership by providing a web-architected e-
Business platform and a comprehensive suite of customer-facing
applications;
. the combination of products that could provide the platform for linking
business-to-consumer and business-to-business functions within an e-
Business;
. the complementary nature of each company's product offering as an
extension of the offering of the other company;
. increased distribution channels for Kana's product through Broadbase's
portfolio of partners;
. the expectation that the combined company would wield a stronger
management team;
. increased distribution channels for Broadbase's products through Kana's
base of customers;
. increased product diversification and penetration of each company's
customer base;
. a reduction in operating expense that would result from combining
functionalities of Kana and Broadbase and eliminating redundancies;
. Broadbase's leadership position in its market;
. similarities in corporate culture;
54
. the opportunity for expanded research and development of the combined
product offering, including potential new product offerings; and
. an increase in the size of Kana's market.
Kana's board reviewed a number of factors in evaluating the merger,
including, but not limited to, the following:
. information concerning Broadbase's business, financial performance and
condition, particularly its cash position, operations, technology and
management;
. the timing of the interim financing;
. the strength of Broadbase's management team;
. information concerning the financial condition, results of operations
and businesses of Kana and Broadbase before and after giving effect to
the merger;
. current financial market conditions and historical market prices,
volatility and trading information with respect to Kana common stock and
Broadbase common stock;
. the consideration Kana will issue in the merger in light of comparable
merger transactions;
. the belief that the terms of the merger agreement and related agreements
are reasonable;
. the impact of the merger on the customers and employees of Kana and the
combined company;
. Kana's management's view as to the integration of Broadbase;
. results of the due diligence investigation conducted by Kana's
management, accountants, financial advisors and legal counsel;
. the percentage ownership of the combined company of Kana's stockholders;
. possible alternative means of achieving the anticipated benefits of the
merger, including the possibility of a combination with other companies
and possible strategic alliances that would not involve a combination;
. the restrictions posed by the non-solicitation, stockholder vote and
termination provisions of the merger agreement and the effect that these
provisions might have on Kana's ability to respond to a superior offer
from a third party and directors' ability to discharge their fiduciary
duties;
. advice of Kana's outside legal counsel, on the proposed terms of the
merger agreement.
. the terms of the stock option agreement and the distribution and license
agreement and Kana's evaluation of the likelihood that another company
would propose an alternative transaction even in the absence of these
agreements; and
. the analyses performed by Goldman Sachs & Co., and its opinion (the full
text of which is attached as Appendix VIII to this joint proxy
statement/prospectus) to the effect that, as of April 9, 2001, and
subject to a number of qualifications, assumptions and limitations set
forth in the opinion, the exchange ratio in the merger agreement was
fair from a financial point of view to Kana.
Kana's board also considered the terms of the merger agreement regarding
Kana's rights and limits on its ability to consider and negotiate other
strategic transaction proposals, as well as the possible effects of the
provisions regarding termination fees, the loan agreement, the distribution and
license agreement and the stock option agreement. In addition, it was noted to
Kana's board that the merger is expected to be a tax-free transaction and
accounted for as a purchase.
55
The Kana board also identified and considered a number of potentially
negative factors in its deliberations concerning the merger including the
following:
. the risk that the potential benefits of the merger may not be realized;
. the risk that the merger may not be consummated, notwithstanding the
voting agreements obtained from holders representing beneficial
ownership (including shares issuable upon the exercise of options or
exercisable within 60 days of April 9, 2001) of approximately 11.7% of
Broadbase's common stock and holders of 20.5% of Kana's common stock as
of April 9, 2001;
. the risk of management and employee disruption associated with the
merger, including the risk that despite the efforts of the combined
company, key technical, sales and management personnel might not remain
employed by the combined company;
. the risk that Broadbase and Kana would not be able to integrate their
respective products, technology and organizations;
. the anticipated impact of the merger on Kana's customers, strategic
partners and employees and their expected reaction to the announcement
of the merger;
. the potential effect of the license agreement and the termination fee
and the stock option agreement negotiated by Kana in deterring other
potential acquirors from proposing an alternative transaction that might
be more advantageous to Kana stockholders;
. the risk that if the merger is not completed, Kana would have borrowed
substantial sums from Broadbase, implemented significant reductions in
its workforce, incurred other significant costs in contemplation of the
merger, granted an option to purchase a substantial amount of its
capital stock to a competitor, and granted a worldwide five year license
to all of its intellectual property to Broadbase at a favorable price,
and that these actions could weaken it as an independent company if the
merger were not completed; and
. other applicable risks described in this joint proxy
statement/prospectus under "Risk Factors."
Kana's board concluded, however, that some of these risks were unlikely to
occur, that others could be mitigated, and on balance, the merger's potential
benefits to Kana and its stockholders outweighed the associated risks. The
discussion of the information and factors considered by Kana's board is not
intended to be exhaustive. In view of the variety of factors considered in
connection with its evaluation of the merger, Kana's board did not find it
practicable to, and did not quantify or otherwise assign relative weight to,
the specific factors considered in reaching its determination.
FOR THE REASONS DISCUSSED ABOVE, KANA'S BOARD OF DIRECTORS HAS DETERMINED
THE MERGER AGREEMENT AND THE MERGER TO BE FAIR TO AND IN THE BEST INTERESTS OF
KANA AND ITS STOCKHOLDERS. IN CONNECTION WITH THE MERGER, KANA'S BOARD OF
DIRECTORS RECOMMENDS THAT KANA STOCKHOLDERS VOTE FOR APPROVAL OF THE ISSUANCE
OF SHARES OF KANA COMMON STOCK AS CONTEMPLATED BY THE MERGER AGREEMENT.
Opinion of Kana's Financial Advisor
On April 8, 2001, Goldman Sachs delivered its oral opinion to the board of
directors of Kana that, as of such date, the exchange ratio was fair from a
financial point of view to Kana. Goldman Sachs subsequently confirmed its oral
opinion by delivery of its written opinion dated April 9, 2001.
The full text of the written opinion of Goldman Sachs, dated April 9, 2001,
which sets forth assumptions made, matters considered and limitations on the
review undertaken in connection with the opinion, is attached as Appendix VIII.
Goldman Sachs provided its opinion for the information and assistance of Kana's
board of directors in connection with its consideration of the merger. The
Goldman Sachs opinion is not a recommendation as to how any holder of Kana
common stock should vote with respect to the merger. We urge you to read the
opinion in its entirety.
56
In connection with its opinion, Goldman Sachs reviewed, among other things:
. the merger agreement;
. the registration statements on Form S-1 of Kana and Broadbase relating
to the initial public offering of the Kana common stock and the
Broadbase common stock, respectively;
. Annual reports to stockholders and annual reports on Form 10-K of Kana
and Broadbase for the two years ended December 31, 2000;
. certain interim reports to stockholders and quarterly reports on form
10-Q of Kana and Broadbase;
. certain other communications from Kana and Broadbase to their respective
stockholders; and
. certain internal financial analyses and forecasts for Kana and Broadbase
prepared by their respective managements, including certain cost savings
and operating synergies projected by the managements of Kana and
Broadbase to result from the merger.
Goldman Sachs also held discussions with members of the senior management of
Kana and Broadbase regarding their assessment of the strategic rationale for,
and the potential benefits of, the transaction contemplated by the merger
agreement and the past and current business operations, financial condition and
future prospects of their respective companies, including the current and
projected availability of cash for each of Kana and Broadbase. In addition,
Goldman Sachs:
. reviewed the reported price and trading activity for the Kana common
stock and the Broadbase common stock;
. compared certain financial and stock market information for Kana and
Broadbase with similar information for certain other companies the
securities of which are publicly traded;
. reviewed the financial terms of certain recent business combinations in
the software industry specifically and in other industries generally;
and
. performed such other studies and analyses as Goldman Sachs considered
appropriate.
Goldman Sachs relied upon the accuracy and completeness of all of the
financial, accounting and other information discussed with or reviewed by it
and assumed such accuracy and completeness for purposes of rendering its
opinion. In that regard, Goldman Sachs assumed, with the consent of Kana's
board of directors, that the internal financial forecasts prepared by the
managements of Kana and Broadbase, including any synergies, were reasonably
prepared on a basis reflecting the best currently available estimates and
judgments of Kana and Broadbase. Goldman Sachs did not make an independent
evaluation or appraisal of the assets and liabilities of Kana or Broadbase or
any of their respective subsidiaries and was not furnished with any such
evaluation or appraisal. The opinion of Goldman Sachs does not address the
relative merits of the transaction contemplated by the merger agreement as
compared to any alternative business transaction that might be, or might have
been, available to Kana.
The advisory services and opinion of Goldman Sachs were provided for the
information and assistance of the board of directors of Kana in connection with
its consideration of the merger, and the opinion does not constitute a
recommendation as to how any holder of Kana common stock should vote with
respect to the merger.
The following is a summary of the material financial analyses used by
Goldman Sachs in connection with providing its oral opinion to Kana's board of
directors on April 8, 2001. Goldman Sachs utilized substantially the same type
of financial analyses in connection with providing the written opinion attached
hereto as Appendix VIII. Some of the summaries of the financial analyses
include information presented in tabular format. In order to more fully
understand the financial analyses used by Goldman Sachs, the tables must be
read together with the full text of each summary. The tables alone are not a
complete description of Goldman Sachs' financial analyses.
57
(1) Exchange Ratio and Price Premium Analysis. Goldman Sachs calculated (i)
the average ratio of the closing price of the Broadbase common stock to the
closing price of the Kana common stock for selected time periods ending on
April 6, 2001 and (ii) the implied premium being paid in the merger based on
the exchange ratio in the merger of 1.05 shares of Kana common stock for each
share of Broadbase common stock as compared to such historical average price
ratios. Goldman Sachs also calculated (i) the average closing price of the
Broadbase common stock for selected time periods ending on April 6, 2001 and
(ii) the implied premium being paid in the merger based on the value of the
Kana common stock to be exchanged for each share of Broadbase common stock
(based on the exchange ratio in the merger and the closing price of the Kana
common stock on April 6, 2001) as compared to such historical average prices of
the Broadbase common stock. The results of such analysis are set forth below:
Average Closing Implied Premium Over
Period Average Implied Premium Price Average Closing
(ending on Price Over Average of Broadbase Price of Broadbase
April 6, 2001) Ratio Price Ratio(1) Common Stock Common Stock(2)
-------------- ------- --------------- --------------- --------------------
April 6, 2001 0.821x 27.8% $0.72 27.8 %
5 Trading Days 1.111x (5.5)% $1.11 (16.9)%
10 Trading Days 1.131x (7.2)% $1.62 (43.2)%
20 Trading Days 1.092x (3.8)% $1.92 (52.1)%
30 Trading Days 1.079x (2.6)% $2.36 (61.1)%
60 Trading Days 0.982x 7.0 % $3.90 (76.5)%
90 Trading Days 0.852x 23.2% $4.95 (81.5)%
--------
(1) Based on the exchange ratio in the merger of 1.05.
(2) Based on the closing price of the Kana common stock on April 6, 2001 of
$0.88 and the exchange ratio in the merger of 1.05.
(2) Cash Position Analysis. Goldman Sachs analyzed the amount of cash
currently held by each of Kana and Broadbase and the pro forma cash to be held
by the combined company, and calculated the amount of cash per fully-diluted
share outstanding for each of Kana, Broadbase and the combined company. The
results of such analysis are set forth below.
Combined
Kana Broadbase Company
----- --------- --------
Cash (1) (2).................................. $ 20 $ 130 $ 150
Fully-Diluted Shares Outstanding (2).......... 94.7(3) 83.7(4) 183.3
Cash Per Fully-Diluted Share.................. $0.21 $1.55 $ 0.82
Cash Accretion Per Kana Share................................. 288%
--------
(1) As of March 31, 2001. Based on data provided by management of Kana and
Broadbase.
(2) In millions.
(3) As of March 31, 2001. Based on data provided by management of Kana.
(4) As of March 1, 2001. Based on data provided by management of Broadbase.
In addition, for purposes of comparison with the pro forma cash per fully-
diluted share of the combined company, Goldman Sachs analyzed the cash per
fully-diluted Kana share that would result from a primary offering of Kana
common stock. Goldman Sachs performed such analysis using various assumptions
with respect to the discount to Kana's April 6, 2001 closing share price at
which shares could be issued in such an offering. For each scenario, Goldman
Sachs calculated (i) the amount of cash that could be raised in an offering in
which Kana's current stockholders retained a 51.7% ownership percentage in Kana
subsequent to the offering (51.7% is the estimated fully-diluted ownership
percentage of the Kana stockholders in the combined
58
company after the merger) and (ii) the post-offering cash per fully-diluted
Kana share. The results of such analysis are set forth below.
Discount to Kana's Additional Cash Raised Post-Offering
April 6, 2001 While Maintaining Cash Per Fully-
Share Price 51.7% Ownership Diluted Share
------------------ ---------------------- ---------------
0.0 % $77.5(1) $0.53
(10.0)% $69.8 $0.49
(20.0)% $62.0 $0.45
(30.0)% $54.3 $0.41
(40.0)% $46.5 $0.36
Cash Per Fully-Diluted Share Of Combined
Company in Proposed Transaction............... $0.82
--------
(1) In millions.
As summarized above, the pro forma cash per fully-diluted share of the
combined company in the merger significantly exceeds Kana's cash per fully-
diluted share on a stand-alone basis and under each of the primary offering
shares as summarized above.
(3) Selected Companies Analysis. Goldman Sachs reviewed and compared certain
financial information, ratios and percentages for Kana and Broadbase with
corresponding financial information, ratios and percentages for the following
publicly traded companies in the software industry: (i) Art Technology Group,
Inc.; (ii) Aspect Communications Corporation; (iii) Blue Martini Software,
Inc.; (iv) BroadVision, Inc.; (v) E.piphany, Inc.; (vi) Intershop
Communications Aktiengesellschaft; (vii) Interwoven, Inc.; (viii) Onyx Software
Corporation; (ix) Pivotal Corporation; (x) Siebel Systems, Inc.; and (xi)
Vignette Corporation. Goldman Sachs selected the aforementioned companies for
comparison because they are publicly traded companies in the software industry
with operations that for purposes of analysis may be considered similar, in
varying degrees, to the operations of Kana and Broadbase, respectively.
The ratios and percentages were calculated using the closing price per share
for Kana, Broadbase and each of the selected companies on April 6, 2001, the
most recent publicly available information, and in certain cases, estimates
provided by Institutional Brokers Estimate System ("IBES") and Wall Street
research.
Goldman Sachs' analysis of the selected companies compared the following to
the results for Kana and Broadbase:
. April 6, 2001 closing share price as a percentage of the 52-week high
share price;
. equity market value as a multiple of estimated calendar year 2001 and
2002 revenue;
. April 6, 2001 closing share price as a multiple of estimated calendar
year 2001 and 2002 earnings per share;
. estimated five-year compound annual growth rate of earnings per share;
and
. the ratio of the April 6, 2001 closing share price to the estimated
calendar year 2001 and 2002 earnings per share, as a multiple of the
estimated five-year compound annual growth rate of earnings per share.
59
The results of such analysis are summarized below.
Selected Companies
-----------------------
Low High Median Mean Kana Broadbase
---- ---- ------ ---- ---- ---------
April 6, 2001 Closing Share Price
as a Percentage of 52-Week High... 2.7% 24.5% 8.0% 8.8% 1.2% 1.8%
Equity Market Value as a Multiple
of Revenue (1)(2)(3):
2001........................... 0.3x 5.5x 1.9x 1.8x 0.6x 0.8x
2002(5)........................ 0.3x 3.9x 0.9x 1.2x NA(8) NA
April 6, 2001 Closing Share Price
as a Multiple of Earnings Per
Share(4)(3):
2001(6)........................ 37.1x 53.6x 45.8x 45.6x NM(9) NM
2002(7)........................ 20.4x 56.9x 29.7x 31.4x NM NM
5-Yr. Compound Annual Growth Rate
of Earnings Per Share (3)(4)(10).. 20.0% 53.5% 50.0% 46.5% 57.5% 50.0%
Price-Earnings Ratio as a Multiple
of 5-Yr. Compound Annual Growth
Rate of Earnings Per Share(3)(4):
2001 (11)...................... 0.8x 1.1x 1.0x 1.0x NM NM
2002 (12)...................... 0.4x 1.1x 0.6x 0.6x NM NM
--------
(1) Equity market capitalization based on fully diluted shares outstanding
based on the treasury method.
(2) Revenue estimates for selected companies based on Wall Street research.
Revenue estimates for Kana and Broadbase based on data provided by
management of Kana and Broadbase.
(3) Estimates have been calendarized for companies with non-December fiscal
year-ends.
(4) Earnings per share based on IBES estimates.
(5) For four of the selected companies, revenue data for 2002 was not
available.
(6) Data was not meaningful (as described in note 9 below) for seven of the
selected companies.
(7) Data was not meaningful (as described in note 9 below) for two of the
selected companies.
(8) "NA" indicates that the requisite data was not available.
(9) "NM" indicates that data was not meaningful because the company at issue
had a net loss for the period presented.
(10) Data was not available for one of the selected companies.
(11) Data was not meaningful (as described in note 9 above) for seven of the
selected companies.
(12) Data was not meaningful (as described in note 9 above) for two of the
selected companies; data was not available for one of the selected
companies.
60
(4) Selected Transactions Analysis. For selected recent business combination
transactions involving high-technology companies, Goldman Sachs analyzed (i)
the implied ownership percentage of the combined company of the stockholders of
the acquiror and the target, respectively, (ii) the representation of the
acquiror and the target on the board of directors of the combined company and
(iii) the premium paid based on the closing stock prices of the acquiror and
the target one day prior to announcement of the transaction and the exchange
ratio in such transaction. The selected transactions were nine business
combination transactions involving high-technology companies announced since
January 1999. The results of such analysis are summarized below.
Proposed
High Low Median Transaction (1)
---- --- ------ ---------------
Acquiror Implied Ownership Percentage....... 83% 50% 61% 52.3%(2)
51.7%(3)
Acquiror Board Representation (4) .......... 89% 31%(5) 67% 40%(6)
One-Day Premium (7)......................... 68% 2% 28.5% 27.8%(8)
--------
(1) Kana is considered the acquiror in the proposed transaction for purposes of
this analysis.
(2) Basic.
(3) Fully-diluted.
(4) Board representation information was not available for one of the selected
transactions.
(5) In one of the selected transactions, four board members were designated by
each of acquiror and target (31% each); three additional board members were
selected by acquiror and target jointly; and two additional board members
were selected by a stockholder of target.
(6) Two board members will be designated by each of Kana and Broadbase, and one
board member will be designated jointly.
(7) One-day premium is not applicable for one of the selected transactions
because the target was a private company prior to the transaction.
(8) Based on closing prices of the Kana common stock and the Broadbase common
stock on April 6, 2001.
In addition, for each of the selected transactions, Goldman Sachs analyzed
the selection of the chairman of the board, chief executive officer and name of
the combined company. Such analysis indicated that (i) the chairman was
designated by the acquiror in seven of the selected transactions and by the
target in one of the selected transactions (in one of the selected
transactions, the chairman was designated jointly), (ii) the chief executive
officer was designated by the acquiror in six of the selected transactions and
by the target in two of the selected transactions (in one of the selected
transactions, the chief executive officer was an outsider) and (iii) the
combined company retained the name of the acquiror in six of the selected
transactions (the combined company adopted the name of the target, a new name,
and a combination of the names of the acquiror and target, respectively, in the
other selected transactions).
61
(5) Contribution Analysis. Goldman Sachs reviewed certain historical and
estimated future operating and financial information for Kana, Broadbase and
the pro forma combined company, and calculated the respective contributions
each of Kana and Broadbase would have made to the combined company based on
such operating and financial information for purposes of comparison with the
relative equity interests of the stockholders of Kana and Broadbase in the
combined company after the merger. Goldman Sachs performed such analysis with
respect to revenues and gross profit for 2000 and 2001 and current cash
balance. The analysis did not take into account any synergies that may result
from the merger. The results of such analysis are set forth below.
Kana Broadbase
Contribution Contribution
to Combined to Combined
Company Company
------------ ------------
Revenues(1)
2000 (actual)(2).................................. 73.3% 26.7%
1st Quarter 2001 (estimated)...................... 66.0% 34.0%
2nd Quarter 2001 (estimated)...................... 63.7% 36.3%
3rd Quarter 2001 (estimated)...................... 61.5% 38.5%
4th Quarter 2001 (estimated)...................... 63.6% 36.4%
2001 (estimated).................................. 63.5% 36.5%
Gross Profit(1)
2000 (actual)(2).................................. 71.2% 28.8%
2001 (estimated).................................. 62.8% 37.2%
Cash Balance (Current)(1)........................... 13.3% 86.7%
Pro Forma Ownership of Combined Company in Proposed
Transaction Kana Broadbase
--------------------------------------------------- ------------ ------------
Basic ............................................ 52.3% 47.7%
Fully-Diluted..................................... 51.7% 48.3%
--------
(1) Based on data and estimates provided by management of Kana and Broadbase.
(2) 2000 revenues and gross profit for Kana are pro forma for the Silknet
acquisition. 2000 revenues and gross profit for Broadbase exclude
Servicesoft.
(6) Historical Stock Price Performance Analysis. Goldman Sachs reviewed the
indexed historical trading prices for the Kana common stock and the Broadbase
common stock for the period from September 21, 1999 (the date of the initial
public offering of shares of common stock of each of Kana and Broadbase) to
April 6, 2001. In addition, Goldman Sachs compared the price changes in the
Kana common stock and the Broadbase common stock during such period to the
changes in (i) an index of 51 software companies (the Goldman Sachs Software
Index) and (ii) the Nasdaq 500 index.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying Goldman Sachs' opinion. In arriving at its fairness determination,
Goldman Sachs considered the results of all such analyses. No company or
transaction used in the above analyses as a comparison is directly comparable
to Kana or Broadbase or the contemplated transaction.
The analyses were prepared solely for purposes of Goldman Sachs' providing
its opinion to the Kana board of directors as to the fairness from a financial
point of view to Kana of the exchange ratio in the merger. These analyses do
not purport to be appraisals or necessarily reflect the prices at which
businesses or securities actually may be sold. Analyses based upon forecasts of
future results are not necessarily indicative of actual future results, which
may be significantly more or less favorable than suggested by such analyses.
Because such analyses are inherently subject to uncertainty, being based upon
numerous factors or events beyond the control of the parties or their
respective advisors, none of Kana, Broadbase, Goldman Sachs or any other person
assumes responsibility if future results are materially different from those
forecast.
62
As described above, Goldman Sachs' opinion to the board of directors of Kana
was one of many factors taken into consideration by the Kana board of directors
in making its determination to approve the merger agreement. The foregoing
summary does not purport to be a complete description of the analyses performed
by Goldman Sachs.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. Goldman Sachs is
familiar with Kana, having provided certain investment banking and financial
advisory services to Kana from time to time, including having acted as lead
managing underwriter of Kana's initial public offering of 3,300,000 shares of
Kana common stock in September 1999, as financial advisor to Kana in connection
with its acquisition of Silknet Software, Inc. in April 2000, as agent for Kana
on its private placement of 2,500,000 shares of Kana common stock in June 2000
and as Kana's financial advisor in connection with, and having participated in
certain of the negotiations leading to, the merger agreement. Goldman Sachs has
also provided certain investment banking services to Broadbase from time to
time, including having acted as lead managing underwriter of its public
offering of 3,450,000 shares of Broadbase common stock in February 2000. Kana
selected Goldman Sachs as its financial advisor because it is a nationally
recognized investment banking firm that has substantial experience in
transactions similar to the merger.
Goldman Sachs provides a full range of financial advisory and securities
services and, in the course of its normal trading activities, may from time to
time effect transactions and hold securities, including derivative securities,
of Kana or Broadbase for its own account and for the accounts of customers.
Pursuant to a letter agreement dated March 7, 2001, Kana engaged Goldman
Sachs to act as its financial advisor in connection with a possible merger or
consolidation between Kana and a third party or a possible sale of all or a
portion of Kana to a third party. Pursuant to the terms of the letter
agreement, Kana has agreed to pay Goldman Sachs a customary fee upon
consummation of the merger. Kana also has agreed to reimburse Goldman Sachs for
its reasonable out-of-pocket expenses, including attorneys' fees, and to
indemnify Goldman Sachs against certain liabilities, including certain
liabilities under the federal securities laws.
Broadbase's Reasons for the Merger and Recommendation of Broadbase's Board of
Directors
Broadbase's Reasons For The Merger. At the meeting of Broadbase's board of
directors on April 8, 2001, the board voted unanimously to enter into the
merger agreement. The board of directors of Broadbase unanimously concluded
that the merger agreement and merger are fair to and in the best interests of
Broadbase and its stockholders, and determined to recommend that the
stockholders of Broadbase vote to approve the merger and adopt the merger
agreement. This decision was based upon several potential benefits of the
merger that, when taken as a whole, Broadbase's board believes will contribute
to the success of the combined company compared to Broadbase continuing to
operate as an independent business. These potential benefits include:
. the complementary nature of the technologies, products and services of
Broadbase and Kana and the opportunity to provide an integrated product
that addresses a much wider range of customer requirements for contact
center, communications, knowledge management, marketing and analytics
applications than either company could provide alone, increasing the
value that can be provided to customers;
. the large customer base of the combined company and the potential for
significant cross-selling and up-selling opportunities;
. the potential for the merger to increase the ability of each company to
achieve profitability sooner than if it had remained independent, as a
result of a stronger product offering, sales and distribution synergies
and cross-selling opportunities, the opportunity to leverage the
recurring maintenance revenues of the combined company and the
opportunity to reduce overhead and other costs;
63
. the opportunity to enhance relationships with systems integrators,
technology partners and other strategic partners and to attract new
partners;
. the opportunity to increase the competitive position of the combined
company by offering a broad, integrated product suite to a large
customer base and by combining the technology, sales and management
resources of Kana and Broadbase;
In its evaluation of the merger, the board of Broadbase reviewed several
factors, including:
. historical information and the views of Broadbase's management and
financial advisers concerning the strengths and weaknesses of Broadbase
and Kana and the key attributes and opportunities of the combined
company in terms of, among other things, products, sales, customers,
management, and financial and competitive position;
. Broadbase's management's view of the financial condition, results of
operations and businesses of Broadbase and Kana before and after giving
effect to the merger, including the anticipated impact of the merger and
the companies' anticipated headcount reductions;
. the percentage ownership of the combined company of Broadbase's
stockholders;
. the substantial charges and costs to be incurred in connection with the
merger, including costs of integrating the businesses and transaction
expenses arising from the merger;
. the prospects of Broadbase, independent of Kana, including risks and
potential rewards associated with remaining independent in the face of
industry-wide consolidation;
. the nature of the e-business software industry in which Broadbase
operates and the belief of Broadbase's board of directors that greater
size and resources are increasingly required for companies to
successfully compete in this industry;
. possible alternative means of achieving the anticipated benefits of the
merger, including the possibility of a combination with other companies
and possible strategic alliances that would not involve a combination,
and internal development of new products and services, as well as the
feasibility of these alternatives, their potential timing and resource
requirements;
. current financial market conditions and historical market prices,
volatility and trading information with respect to Broadbase's common
stock;
. the opinion of Morgan Stanley dated April 8, 2001 that, subject to and
based on the considerations described in its opinion, the exchange ratio
set forth in the merger agreement was fair from a financial point of view
to holders of Broadbase common stock, and the related financial analysis;
and
. reports from Broadbase's management and advisors as to the results of
their due diligence investigations of Kana.
Broadbase's board of directors also identified and considered a number of
potentially negative factors in its deliberations concerning the merger,
including the following:
. the risk that the potential benefits of the merger, including expected
synergies and cost savings, may not be realized;
. the need to achieve significant cost reductions in order for the combined
company to realize the potential benefits of the merger and to become
profitable;
. the reduction of Broadbase's cash balances as a result of loans to Kana
under the revolving loan agreement;
. the uncertain current and prospective market environment for Broadbase's
and Kana's products and services;
64
. the risk that Broadbase and Kana would not be able to integrate their
respective products, technology and organizations;
. the risk that if the merger is not completed, Broadbase would have made
loans to Kana, and would have incurred other significant costs and taken
other actions in contemplation of the merger, and that these actions
could weaken it as an independent company if the merger were not
completed;
. risks related to Kana's existing relationships with its distribution
partners and difficulties experienced by Kana in collecting payments from
certain customers;
. the risk that the merger could adversely affect Broadbase's or Kana's
relationships with current and potential customers, distribution partners
and other strategic partners;
. the potential effect of the distribution and license agreement, the non-
solicitation covenants, the termination fee and the stock option
agreement negotiated by Kana in deterring other potential acquirors from
proposing an alternative transaction that might be more advantageous to
Broadbase stockholders; and
. the other applicable risks described in this joint proxy
statement/prospectus under the heading "Risk Factors."
In addition, Broadbase's board of directors considered the interests that
its officers and directors may have with respect to the merger in addition to
their interests as Broadbase stockholders. See "Interests of Broadbase's Board
of Directors and Broadbase's Reasons for the Merger" on page 72 for a more
complete discussion of these interests.
Broadbase's board of directors concluded that, on balance, the potential
benefits to Broadbase and its stockholders of the merger outweighed the risks
associated with the merger. The discussion of the information and factors
considered by Broadbase's board of directors is not intended to be exhaustive.
In view of the variety of factors considered in connection with its evaluation
of the merger, Broadbase's board of directors did not find it practicable to,
and did not quantify or otherwise assign relative weight to, the specific
factors considered in reaching its determination.
Recommendation of Broadbase's Board of Directors. After careful
consideration, Broadbase's board of directors has unanimously determined that
the terms of the merger are fair to and in the best interests of Broadbase and
its stockholders and recommends to its stockholders that they vote in favor of
the proposal to approve and adopt the merger and the merger agreement.
Opinion of Broadbase's Financial Advisor
Under an engagement letter dated April 5, 2001, Broadbase retained Morgan
Stanley to provide it with financial advisory services and a financial fairness
opinion in connection with the merger. Broadbase's Board of Directors selected
Morgan Stanley to act as its financial advisor based on Morgan Stanley's
qualifications, expertise and reputation and its knowledge of the business and
affairs of Broadbase. At the meeting of the Broadbase Board of Directors on
April 8, 2001, Morgan Stanley rendered its oral opinion, subsequently confirmed
in writing, that as of April 8, 2001, based upon and subject to the various
considerations set forth in the opinion, the exchange ratio pursuant to the
merger agreement was fair from a financial point of view to holders of shares
of Broadbase common stock.
The full text of the written opinion of Morgan Stanley, dated as of April 8,
2001, is attached as Appendix IX to this document. The opinion sets forth,
among other things, the assumptions made, procedures followed, matters
considered and limitations on the scope of the review undertaken by Morgan
Stanley in rendering its opinion. We urge you to read the entire opinion
carefully. Morgan Stanley's opinion is directed to Broadbase's Board of
Directors and addresses only the fairness from a financial point of view of the
exchange ratio pursuant to the merger agreement to holders of shares of
Broadbase common stock as of the date of the opinion. It does not address any
other aspects of the
65
merger and does not constitute a recommendation to any holder of Broadbase
common stock as to how to vote at the Broadbase special meeting to be held in
connection with the merger. The summary of the opinion of Morgan Stanley set
forth in this document is qualified in its entirety by reference to the full
text of the opinion.
In connection with rendering its opinion, Morgan Stanley, among other
things:
. reviewed certain publicly available financial statements and other
information of Broadbase and Kana, respectively;
. reviewed certain internal financial statements and other financial and
operating data concerning Broadbase and Kana, prepared by the managements
of Broadbase and Kana, respectively;
. reviewed certain financial projections prepared by the managements of
Broadbase and Kana;
. reviewed certain projections of the financial benefits including, cost
savings, and costs anticipated prior to and resulting from the Merger
prepared by the management of Broadbase and Kana;
. reviewed the pro forma impact of the Merger on certain financial and
operating metrics, including the impact on cash balances, for the
combined company;
. discussed the past and current operations and financial condition and the
prospects of Broadbase and Kana, including financial projections prepared
by the managements of Broadbase and Kana and information relating to
certain strategic, financial and operational benefits anticipated from
the Merger, with senior executives of Broadbase and Kana, respectively;
. reviewed the reported prices and trading activity for the Broadbase
Common Stock and Kana Common Stock;
. compared the financial performance of Broadbase and Kana and the prices
and trading activity of the Broadbase Common Stock and Kana Common Stock
with that of certain other publicly-traded companies comparable to
Broadbase and Kana, respectively, and their securities;
. reviewed the financial terms, to the extent publicly available, of
certain comparable merger transactions;
. reviewed and discussed with the senior managements of Broadbase and Kana
their strategic rationales for the merger;
. participated in discussions and negotiations among representatives of
Broadbase, Kana and their financial and legal advisors;
. reviewed the draft merger agreement and certain related documents; and
. performed such other analyses and considered such other factors as Morgan
Stanley deemed appropriate.
Morgan Stanley assumed and relied upon, without independent verification,
the accuracy and completeness of the information reviewed by it for the
purposes of its opinion. With respect to the financial projections, including
certain projections and information relating to the strategic, financial and
operational costs and benefits anticipated prior to and resulting from the
merger, Morgan Stanley assumed that they were reasonably prepared on bases
reflecting the best currently available estimates and judgements of the future
financial performance of Broadbase and Kana, respectively. In addition, Morgan
Stanley assumed that the merger will be consummated in accordance with the
terms set forth in the merger agreement and will be treated as a tax-free
reorganization pursuant to Section 368(a) of the Internal Revenue Code of 1986.
Morgan Stanley relied upon the assessment by the managements of Broadbase
and Kana of their ability to retain key employees of Broadbase and Kana,
respectively. Morgan Stanley also relied upon, without independent
verification, the assessment by the managements of Broadbase and Kana of: (i)
the strategic, financial and other costs and benefits expected to result from
the merger; (ii) the timing and risks associated
66
with the integration of Broadbase and Kana; and (iii) the validity of, and
risks associated with, Broadbase's and Kana's existing and future technologies,
services or business models. Morgan Stanley did not make any independent
valuation or appraisal of the assets or liabilities or technology of Broadbase
and Kana, nor was Morgan Stanley furnished with any such appraisals. Morgan
Stanley's opinion is necessarily based on financial, economic, market and other
conditions as in effect on, and the information made available to Morgan
Stanley as of April 8, 2001.
In arriving at its opinion, Morgan Stanley was not authorized to solicit,
and did not solicit, interest from any party with respect to an acquisition,
business combination or other extraordinary transaction involving Broadbase.
Morgan Stanley was not asked to consider, and its opinion does not address, the
relative merits of the Merger as compared to any alternative strategies or
transactions that might exist for Broadbase or the effect of such strategies or
transactions.
The following is a brief summary of the material analyses performed by
Morgan Stanley in connection with its oral opinion and the preparation of its
written opinion letter dated April 8, 2001. Some of these summaries of
financial analyses include information presented in tabular format. In order to
fully understand the financial analyses used by Morgan Stanley, the tables must
be read together with the text of each summary. The tables alone do not
constitute a complete description of the financial analyses.
On April 8, 2001, Broadbase and Kana entered into a merger agreement whereby
each holder of Broadbase common stock would receive 1.05 shares of Kana common
stock. As a result, Broadbase's shareholders would own approximately 48% of the
combined company on a pro forma basis.
Exchange Ratio Premium Analysis. Morgan Stanley reviewed the ratios of the
closing prices of Broadbase common stock divided by the corresponding closing
prices of Kana common stock over various periods ending April 6, 2001. The
resulting ratios are referred to as average exchange ratios. Morgan Stanley
examined the premiums represented by the exchange ratio of 1.05x set forth in
the merger agreement, referred to as the transaction exchange ratio, over the
averages of these average exchange ratios, and found them to be as follows:
Transaction Exchange
Ratio (1.05x)
Average Premium to Average
Ending April 6, 2001 Exchange Ratio Exchange Ratio
-------------------- -------------- --------------------
April 6, 2001............................ 0.821x 28 %
Last 30 days............................. 1.079x (3)%
Last 60 days............................. 0.982x 7 %
Last 90 days............................. 0.852x 23 %
Last twelve months....................... 0.649x 62 %
Morgan Stanley noted that the transaction exchange ratio was higher than the
exchange ratio as of April 6, 2001 and the average exchange ratio for the
periods ranging from 60 days through 12 months prior to the transaction.
Further, Morgan Stanley noted that the transaction exchange ratio was close to
the high-end of this trading range.
67
Relative Contribution Analysis. Morgan Stanley compared Broadbase's and
Kana's stockholders' respective pro forma percentage ownership of the combined
company after the merger to Broadbase's and Kana's percentage contribution of
revenues and gross profit to the combined company based on 2000 actual results
and 2001 management estimates of Broadbase and Kana, respectively.
% Contribution
by
--------------
Financial Statistic Broadbase Kana
------------------- --------- ----
Revenue
Calendar Year 2000 Actual.................................... 34.8% 65.2%
Calendar Year 2001 Estimated................................. 36.8 63.2
Gross Profit
Calendar Year 2000 Actual.................................... 36.5 63.5
Calendar Year 2001 Estimated................................. 39.9 60.1
Morgan Stanley noted that based on the exchange ratio of 1.05x set forth in
the merger agreement, holders of shares of Broadbase common stock would own
approximately 48% of the combined company on a pro forma basis. Morgan Stanley
also noted that the 48% pro forma ownership position of holders of shares of
Broadbase common stock was higher than the percentage contribution to the
combined company by Broadbase of revenues and gross profits for the periods
under consideration. However, Morgan Stanley also noted that Kana's percentage
contribution to the net loss of the pro forma company was greater than that of
Broadbase.
Analysis of Stock Price Premiums Paid in Comparable Transactions. Morgan
Stanley compared publicly available statistics for comparable mergers of equals
transactions of 14 public transactions between January 1997 to April 8, 2001,
where the target company's ownership of the newly formed entity exceeded 40%.
Morgan Stanley reviewed the premiums to the preceding 1-day, 30-day and 90-day
average exchange ratios prior to announcement for each of these transactions.
Based on these analyses, Morgan Stanley applied the following comparable
transactions' exchange ratio premiums to the historical relative trading
performance of Broadbase common stock to Kana common stock:
Comparable Implied
Transactions' Value Per
Trading Performance Statistic Premium/(Discount) Share
----------------------------- ------------------ -----------
Broadbase
Premium to Price on April 6, 2001............ (1)%- 8% $0.71-$0.78
Premium to 30-day Average Exchange Ratio..... (1)%- 5% $0.93-$0.99
Premium to 90-day Average Exchange Ratio..... 0 %-10% $0.75-$0.82
Based on the exchange ratios paid in comparable transactions analysis,
Morgan Stanley estimated a range of $0.70-$1.00 per share of Broadbase and
noted that the implied transaction value per share (based on the exchange ratio
of 1.05x set forth in the merger agreement) of $0.92 per share which was close
to the high end of implied value per share range for comparable transactions.
No company or transaction utilized in the analysis of stock price premiums
paid in comparable transactions is identical to Broadbase or Kana or the
merger. In evaluating the precedent acquisition transactions, Morgan Stanley
made judgments and assumptions with regard to general business, market and
financial conditions and other matters, which are beyond the control of
Broadbase and Kana, such as the impact of competition on the business of
Broadbase, Kana, or the industry generally, industry growth and the absence of
any adverse material change in financial condition of Broadbase, Kana or the
industry or in the financial markets in general, which could affect the public
trading value of the companies and the aggregate value of the transactions to
which they are being compared.
Comparable Companies Analysis. Morgan Stanley compared certain financial
information of Broadbase and Kana with publicly available information for
companies that were comparable to Broadbase and Kana. The
68
companies analyzed by Morgan Stanley included E.piphany Inc., eGain
Communications Corp., and Primus Knowledge Solutions Inc., (the "eCRM
Companies"), Critical Path Inc., Navisite Inc., Lante Corp., Calico Commerce
Inc., and Concur Technologies Inc. (the "Distressed Companies"), Vignette
Corp., Broadvision Inc., Art Technology Group Inc., and Blue Martini Software
(the "E-Commerce CRM Companies") and Oracle Corp., SAP AG, Siebel Systems Inc.,
BEA Systems Inc., and i2 Technologies Inc., (the "Large Cap CRM Companies"),
together referred to as the comparable companies.
For purposes of this analysis, Morgan Stanley analyzed the following
statistics:
. the ratio of aggregate value, defined as market capitalization plus total
debt less cash and cash equivalents to estimated calendar year 2002
revenues (based on management estimates)
. the ratio of market capitalization to cash and cash equivalents (based on
the latest public information)
The following table presents, as of April 6, 2001, the statistics of the
comparable companies Morgan Stanley analyzed.
Aggregate Value to Market
Calendar Year 2002 Capitalization
Company Estimated Revenues to Cash
------- ------------------ --------------
Broadbase.................................. N.M. 0.5
Kana....................................... 0.4 4.0
ECRM
E.piphany.................................. 0.6 1.4
EGain Communications....................... N.M. 0.9
Primus Knowledge Solutions................. 0.1 1.2
Distressed Companies
Critical Path.............................. 0.3 0.4
Navisite................................... 0.4 0.9
Lante...................................... N.M. 0.6
Calico Commerce............................ N.M. 0.3
Concur Technologies........................ N.M. 0.2
E-Commerce CRM
Vignette................................... 0.9 2.2
BroadVision................................ 1.9 3.6
Art Technology............................. 1.0 2.6
Blue Martini Software...................... 0.2 1.3
Large Cap CRM
Oracle..................................... 5.3 14.9
SAP........................................ 4.6 30.6
Siebel Systems............................. 4.2 12.9
BEA Systems................................ 11.9 12.8
I2 Technologies............................ 3.6 8.7
69
In conducting its analysis, Morgan Stanley applied the selected financial
multiples of the comparable companies to the management estimates of various
financial statistics of Broadbase and Kana. Morgan Stanley then estimated the
implied value per share of Broadbase and Kana as of April 6, 2001. Morgan
Stanley estimated the following:
Implied
Calendar Year Value Per
Financial Statistic Multiple Share
------------------- ------------- -----------
Broadbase
Cash............................................... 0.3x-1.4x $0.48-$2.16
Calendar Year 2002E Revenue........................ 0.5x-1.0x $2.14-$2.74
Kana
Cash............................................... 0.3x-1.4x $0.07-$0.30
Calendar Year 2002E Revenue........................ 0.5x-1.0x $1.15-$2.10
Based on the comparable companies analysis, Morgan Stanley estimated a range
of prices per share of $0.50-$2.00 for Broadbase and a range of prices per
share of $0.50-$2.00 for Kana. Morgan Stanley noted that the value of each Kana
share was on the low end of the range for the comparable companies that were
comparable to Kana.
No company utilized in the comparable companies analysis is identical to
Broadbase or Kana. In evaluating the comparable companies, Morgan Stanley made
judgments and assumptions with regard to industry performance, general
business, economic, market and financial conditions and other matters, many of
which are beyond the control of Broadbase and Kana, such as the impact of
competition on the businesses of Broadbase and Kana and the industry generally,
industry growth and the absence of any adverse material change in the financial
condition and prospects of Broadbase and Kana or the industry or in the
financial markets in general. Mathematical analysis (such as determining the
average or median) is not in itself a meaningful method of using peer group
data.
Discounted Equity Value Analysis. Morgan Stanley performed discounted future
equity value analyses to estimate the present value per share of Broadbase and
Kana. The projections of financial performance were based on management
estimates.
Calendar Implied
Year Discount Value Per
Financial Statistic Multiple Rate Share
------------------- ----------- -------- ------------
Broadbase
Calendar Year 2003E Revenue............... 20.0x-40.0x 25.0% $0.70-$ 6.96
Kana
Calendar Year 2003E Revenue............... 20.0x-40.0x 25.0% $1.06-$10.61
Morgan Stanley also performed a pro forma discounted future equity value
analysis to estimate the present value per share of Kana stock for each
Broadbase share after the merger, based on management estimates.
Pro Forma
Implied
Calendar Value Per Premium to
Year Discount Broadbase Broadbase
Financial Statistic Multiple Rate Share Standalone
------------------- ----------- -------- ----------- ----------
Pro Forma
Calendar Year 2003E Revenue..... 20.0x-40.0x 25.0% $1.49-$8.93 28%-114%
Morgan Stanley noted that the pro forma implied value per Broadbase share
was higher than the implied value per share of Broadbase, with the premium
ranging from 28% to 114%. Further, Morgan Stanley also noted that low end of
the pro forma implied value per Broadbase share was higher than Broadbase's
market price on April 6, 2001 ($0.72/share).
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In connection with the review of the merger by Broadbase's board of
directors, Morgan Stanley performed a variety of financial and comparative
analyses for purposes of rendering its opinion. The preparation of a fairness
opinion is a complex process and is not necessarily susceptible to a partial
analysis or summary description. In arriving at its opinion, Morgan Stanley
considered the results of all of its analyses as a whole and did not attribute
any particular weight to any analysis or factor it considered. Morgan Stanley
believes that selecting any portion of its analyses, without considering all
analyses as a whole, would create an incomplete view of the process underlying
its analyses and opinion. In addition, Morgan Stanley may have given various
analyses and factors more or less weight than other analyses and factors, and
may have deemed various assumptions more or less probable than other
assumptions. As a result, the ranges of valuations resulting from any
particular analysis described above should not be taken to be Morgan Stanley's
view of the actual value of Broadbase or Kana. In performing its analyses,
Morgan Stanley made numerous assumptions with respect to industry performance,
general business and economic conditions and other matters. Many of these
assumptions are beyond the control of Broadbase or Kana. Any estimates
contained in Morgan Stanley's analyses are not necessarily indicative of future
results or actual values, which may be significantly more or less favorable
than those suggested by such estimates.
Morgan Stanley conducted the analyses described above solely as part of its
analysis of the fairness of the exchange ratio pursuant to the merger agreement
from a financial point of view to holders of shares of Broadbase common stock
and in connection with the delivery of its opinion to Broadbase's board of
directors. These analyses do not purport to be appraisals or to reflect the
prices at which shares of common stock of Broadbase or Kana might actually
trade.
The exchange ratio pursuant to the merger agreement was determined through
arm's length negotiations between Broadbase and Kana and was approved by
Broadbase's board of directors. Morgan Stanley provided advice to Broadbase
during these negotiations. Morgan Stanley did not however, recommend any
specific exchange ratio to Broadbase or that any specific exchange ratio
constituted the only appropriate exchange ratio for the merger.
In addition, Morgan Stanley's opinion and its presentation to Broadbase's
board of directors was one of many factors taken into consideration by
Broadbase's board of directors in deciding to approve the merger. Consequently,
the analyses as described above should not be viewed as determinative of the
opinion of Broadbase's Board of Directors with respect to the exchange ratio or
of whether Broadbase's Board of Directors would have been willing to agree to a
different exchange ratio.
Broadbase's board of directors retained Morgan Stanley based upon Morgan
Stanley's qualifications, experience and expertise. Morgan Stanley is an
internationally recognized investment banking and advisory firm. Morgan
Stanley, as part of its investment banking and financial advisory business, is
continuously engaged in the valuation of businesses and securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for corporate, estate and other purposes. In the
past, Morgan Stanley has provided financial advisory services for Broadbase and
has received fees for rendering these services. In the ordinary course of
business, Morgan Stanley or its affiliates may from time to time trade in the
securities or indebtedness of Broadbase or Kana for its own account, the
accounts of investment funds and other clients under the management of Morgan
Stanley and for the account of customers and, accordingly, may hold long or
short positions in these securities or indebtedness.
Under the engagement letter, Morgan Stanley provided financial advisory
services in connection with the merger, and Broadbase agreed to pay Morgan
Stanley a fee for providing financial advisory services in connection with the
merger. Broadbase has also agreed to reimburse Morgan Stanley for its expenses
incurred in performing its services. In addition, Broadbase has agreed to
indemnify Morgan Stanley and its affiliates, their respective directors,
officers, agents and employees and each person, if any, controlling Morgan
Stanley or any of its affiliates against certain liabilities and expenses,
including certain liabilities under the federal securities laws, related to or
arising out of Morgan Stanley's engagement.
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Interests of Broadbase's Management in the Merger and Potential Conflicts of
Interest
Upon consummation of the merger, it is anticipated that the directors and
officers of Broadbase and their affiliates will beneficially own approximately
5.7% of the then outstanding shares of Kana common stock. Beneficial ownership
is determined in accordance with the rules of the Securities and Exchange
Commission. The following are deemed to be beneficially owned and outstanding
for purposes of calculating the number of shares an the percentage beneficially
owned by that person or entity:
. shares of common stock issuable upon the exercise of options which may be
exercised within 60 days after April 9, 2001, or currently exercisable
options; and
. shares of common stock issuable upon the exercise of warrants which may
be exercised within 60 days after April 9, 2001, or currently exercisable
warrants.
However, these shares are not deemed to be beneficially owned and
outstanding for purposes of computing the percentage beneficially owned by any
other person or entity.
Robert Davoli and Kevin Harvey, each non-employee members of Broadbase's
board of directors, hold outstanding options to purchase 20,000 and 40,000
shares of Broadbase common stock, respectively. These options are fully vested
and immediately exercisable. In addition, Mr. Davoli owns 36,010 shares of
Broadbase common stock issued pursuant to a restricted stock purchase agreement
under which Broadbase may repurchase any shares that have not vested. According
to the terms of Mr. Davoli's restricted stock purchase agreement, Broadbase's
right of repurchase will lapse as to all of Mr. Davoli's shares upon the
closing of the merger.
One employee member of Broadbase's board of directors, Massood Zarrabian, is
entitled to certain benefits if he is terminated without cause or effectively
terminated prior to December 19, 2002. Currently, he holds an option to
purchase 619,372 shares of Broadbase common stock that will become fully
exercisable as to all of the remaining, unvested portions upon the occurrence
of either such event. Mr. Zarrabian also holds options to purchase an
additional 259,272 shares of Broadbase common stock that shall become fully
exercisable as to 50% of the remaining, unvested portions upon the occurrence
of either such event. Finally, upon the occurrence of either such event, Mr.
Zarrabian is also entitled to one year of salary, plus bonuses, payable in lump
sum.
In addition, certain executive officers of Broadbase, including Chuck Bay,
Thomas Doyle, Brian Kelly, David Milam, and Eric Willgohs, have employment
agreements under which they will be entitled to 50% accelerated vesting as to
their outstanding, unvested options, including the Broadbase options assumed by
Kana in the merger, in the event they are not offered employment by Kana in a
comparable position and at a comparable salary.
On April 26, 2001, James C. Wood, Kana's chief executive officer, who is
expected to be chairman of Kana's board of directors following the merger, and
Nigel Donovan, Kana's chief operating officer, who is expected to become a vice
president of Kana following the merger, received options to purchase Kana
common stock. Mr. Wood received an option to purchase 400,000 shares of Kana
common stock that will vest monthly from the grant date over the next 48 months
of his continued service to Kana, and Mr. Donovan received an option to
purchase 200,000 shares of Kana common stock that will vest monthly from the
grant date over the next 24 months of his continued service to Kana. Both
options have an exercise price of $1.08.
For certain employees of Broadbase the acceleration of the vesting of
options upon the closing of the merger or the subsequent termination of
employment may, together with any severance payment, result in "excess
parachute payments" as defined in Section 280G of the Internal Revenue Code.
Excess parachute payments are not deductible in accordance with Section 280G.
As a result, Kana will not be entitled to a tax deduction for the amount
determined to be excess parachute payments.
Kana and Broadbase have agreed that Kana's board of directors shall upon
completion of the merger consist of two directors designated by Kana, two
directors designated by Broadbase and one independent director to be mutually
agreed to by Kana and Broadbase.
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Kana and Broadbase have agreed that following the merger, Charles Bay,
president and chief executive officer of Broadbase, shall be elected and
appointed as president and chief executive officer of Kana, to serve until his
successor is duly elected and authorized.
Kana has agreed to indemnify present and former officers and directors of
Broadbase against costs or expenses, judgments, fines, losses, claims, damages
or liabilities arising out of or pertaining to matters relating to their
service as such an officer or director existing or occurring at or prior to the
effective time (including, without limitation, the transactions contemplated by
the merger agreement) whether asserted or claimed prior to, or at the effective
time, to the fullest extent that Broadbase would have been permitted under
applicable law and its charter documents. The merger agreement provides that
all rights to indemnification for present and former officers and directors of
Broadbase shall survive the merger and continue in full force and effect for a
period of not less that six years from the effective time. Kana has also agreed
to maintain insurance for Broadbase's directors and officers equivalent to
Broadbase's current directors' and officers' liability insurance for not less
than six years after the effective time, subject to limitations.
David Beirne, one of Kana's directors, and Kevin Harvey, one of Broadbase's
directors, are both managing members of Benchmark Capital Management Co., LLC,
which is the general partner of several Benchmark funds that collectively hold
a significant number of shares of both companies. Entities affiliated with
Benchmark Capital Management Co., LLC beneficially owned 6,927,511 shares of
Kana common stock, or 8.3% of its common stock as of February 28, 2001.
Entities affiliated with Benchmark Capital Management Co., LLC beneficially
owned 4,091,832 shares of Broadbase common stock, or approximately 5.0% of its
common stock as of March 1, 2001.
As a result of the foregoing, the directors and officers of Broadbase may be
more likely to approve the merger that Broadbase stockholders generally.
The Merger
Arrow Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of Kana, will merge with and into Broadbase following:
. the approval and adoption of the merger agreement and the merger by the
Broadbase stockholders;
. the approval of the issuance of Kana common stock in the merger and other
related matters by the Kana stockholders; and
. the satisfaction or waiver of the other conditions to the merger. See the
"The Merger Agreement--Conditions to Closing the Merger."
Broadbase will be the surviving corporation and will become a wholly-owned
subsidiary of Kana upon completion of the merger.
Closing of the Merger
The merger will become effective when Kana and Broadbase file a certificate
of merger with the Secretary of State of the State of Delaware. Kana and
Broadbase are working toward completing the merger as soon as possible and hope
to complete the merger by the summer of 2001. Because the merger is subject to
a number of conditions, however, we cannot predict the exact timing.
Conversion of Broadbase Shares in the Merger
At the effective time of the merger, each outstanding share of Broadbase
common stock will automatically be converted into the right to receive 1.05
shares of Kana common stock. The number of shares of Kana common stock issuable
in the merger will be proportionately adjusted as appropriate for any stock
split, stock dividend or similar event with respect to Broadbase common stock
or Kana common stock effected between the date of the merger agreement and the
completion of the merger.
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Broadbase Stock Options and Warrants
Immediately prior to the effective time of the merger, each option to
purchase shares of Broadbase common stock under the Broadbase 1999 Equity Plan,
the Broadbase 2000 Stock Incentive Plan, the Broadbase 1996 Equity Incentive
Plan and the Broadbase 1999 Employee Stock Purchase Plan together with all
other options to purchase Broadbase common stock and warrants outstanding as of
the effective time will be assumed by Kana, regardless of whether the options
and warrants are then exercisable, and will be converted into options and
warrants, as the case may be, to purchase Kana common stock. Each assumed
Broadbase stock option and warrant will constitute an option or warrant to
acquire, on the same terms and conditions that were applicable to the option or
warrant immediately prior to the effective time, that number of shares of Kana
common stock equal to the number of shares of Broadbase common stock
purchasable under such option or warrant multiplied by 1.05 (rounded down to
the nearest whole number), at a price per share equal to the aggregate exercise
price for the shares of Broadbase common stock purchasable under such Broadbase
stock option or warrant immediately prior to the effective time divided by the
number of full shares of Kana common stock deemed purchasable under such
Broadbase stock option or warrant in accordance with this description (rounded
upward to the nearest whole cent).
The parties intend for the Broadbase stock options assumed by Kana to
qualify as incentive stock options to the extent the stock options qualified as
incentive stock options prior to the effective time of the merger.
The Exchange Agent
As of the effective time of the merger, Kana is required to deposit with a
bank or trust company certificates representing the shares of Kana common stock
to be exchanged for shares of Broadbase common stock and cash to pay for
fractional shares and any dividends or distributions that holders of Broadbase
common stock may be entitled to receive under the merger agreement.
Exchange of Broadbase Stock Certificates for Kana Stock Certificates
Promptly after the effective time, the exchange agent will mail to Broadbase
stockholders a letter of transmittal and instructions for surrendering their
Broadbase stock certificates in exchange for Kana stock certificates. Broadbase
stockholders should not submit their stock certificates for exchange until they
have received the letter of transmittal and instructions referred to above.
Transfer of Ownership; Distributions with Respect to Unexchanged Shares
Kana will issue a Kana stock certificate in the name registered for the
surrendered Broadbase stock certificate. Kana will issue a stock certificate in
a name other than this only if the exchange agent is provided with documents
that:
. show and effect the unrecorded transfer of ownership; and
. show that any applicable stock transfer taxes have been paid.
Broadbase stockholders are not entitled to receive any dividends or other
distributions on Kana common stock with a record date after the merger is
completed until they have surrendered their Broadbase stock certificates in
exchange for Kana stock certificates.
If there is any dividend or other distribution on Kana common stock with a
record date after the closing of the merger, former Broadbase stockholders will
receive, only following surrender of their Broadbase stock certificates, the
dividend or other distribution payable with respect to the whole shares of Kana
common stock issued in exchange for their Broadbase stock certificates.
Material Federal Income Tax Considerations
Federal Income Tax Consequences to Broadbase Stockholders. The following
discussion summarizes the material United States federal income tax
consequences of the merger. This discussion is based on the Internal Revenue
Code, the related Treasury regulations promulgated thereunder, existing
administrative interpretations
74
and court decisions, all of which are subject to change, possibly with
retroactive effect. This discussion assumes that Broadbase stockholders hold
their shares of Broadbase stock as capital assets within the meaning of section
1221 of the Internal Revenue Code. This discussion does not address all aspects
of United States federal income taxation that may be important to you in light
of your particular circumstances or if you are subject to special rules. These
special rules include rules relating to:
. stockholders who are not citizens or residents of the United States;
. financial institutions;
. tax-exempt organizations;
. insurance companies;
. dealers in securities;
. stockholders who acquired their shares of Broadbase common stock through
the exercise of options or similar derivative securities or otherwise as
compensation; or
. stockholders who hold their shares of Broadbase common stock as part of a
straddle, conversion or other integrated transaction.
The obligations of Kana and Broadbase to complete the merger are conditioned
on the delivery of an opinion to Kana from Brobeck, Phleger & Harrison LLP, and
to Broadbase from Fenwick & West LLP, to the effect that the merger will
qualify as a reorganization within the meaning of section 368(a) of the
Internal Revenue Code and that each of Kana and Broadbase will be a party to
the reorganization within the meaning of section 368(a) of the Internal Revenue
Code.
Kana and Broadbase believe, based on the advice of their respective counsel,
that the merger will have the United States federal income tax consequences
discussed below. The opinions of counsel referred to above will assume the
absence of changes in existing facts and will rely on assumptions,
representations and covenants including those contained in certificates
executed by officers of Kana and Broadbase. The opinions referred to above
neither bind the IRS nor preclude the IRS from adopting a position contrary to
that expressed in the opinions, and no assurance can be given that contrary
positions will not be successfully asserted by the IRS or adopted by a court if
the positions were litigated. Neither company intends to obtain a ruling from
the IRS with respect to the tax consequences of the merger.
Assuming the merger does qualify as a reorganization, the merger will have
the following federal income tax consequences to the Broadbase stockholders,
subject to the limitations and qualifications referred to herein:
. You will not recognize gain or loss on the exchange of your Broadbase
shares for shares of Kana common stock in the merger, except as discussed
below with respect to cash received in lieu of fractional shares of Kana
common stock.
. If you receive cash in lieu of a fractional share of Kana common stock,
you will be treated as if you actually received such fractional share,
and such share was subsequently redeemed by Kana. You will recognize gain
or loss with respect to the cash you receive in lieu of a fractional
share measured by the difference between the amount of cash you receive
and your tax basis in the fractional share. Your gain or loss will be
capital gain or loss and will be long-term capital gain or loss if you
have held your Broadbase stock for more than one year as of the closing
date of the merger.
. You must transfer the tax basis in your Broadbase shares to the Kana
common stock (including fractional shares) you receive in the merger.
After any fractional shares are treated as redeemed, the aggregate tax
basis in the Kana common stock you receive in the merger will equal the
aggregate tax basis in the Broadbase shares you surrendered, reduced by
any basis allocable to fractional shares in exchange for which you
receive cash.
. The holding period for the Kana common stock you receive in the merger
will include the period during which you held the Broadbase shares you
exchanged for Kana common stock.
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Even if the merger qualifies as a reorganization, you will recognize gain to
the extent that you receive any shares of Kana common stock in exchange for
services or property other than solely Broadbase shares. All or a portion of
such gain could be taxable as ordinary income. You will also recognize gain to
the extent you are treated as receiving consideration other than Kana common
stock in exchange for Broadbase shares.
Federal Income Tax Consequences to Kana and Broadbase. Kana, including the
merger subsidiary, and Broadbase will not recognize gain or loss as a result of
the merger.
Accounting Treatment
Kana intends to account for the merger as a purchase for accounting and
financial reporting purposes, which means that Broadbase will be treated as a
separate entity for periods prior to the closing, and thereafter as a wholly-
owned subsidiary of Kana.
Stockholders' Dissenters' Rights
Under Delaware law, neither Kana nor Broadbase stockholders are entitled to
dissenter's rights of appraisal in connection with the merger.
Listing of Kana Common Stock to be Issued in the Merger
The approval for quotation on the Nasdaq National Market of the shares of
Kana common stock to be issued in the merger is a condition to the consummation
of the merger.
Restrictions on Sale of Shares by Affiliates of Kana and Broadbase
The shares of Kana common stock to be issued in connection with the merger
will be registered under the Securities Act and will be freely transferable
under the Securities Act, except for shares of Kana common stock issued to any
person who is deemed to be an affiliate of either Kana or Broadbase at the time
of the stockholder meetings. Persons who may be deemed to be affiliates include
individuals or entities that control, are controlled by, or are under common
control with either Kana or Broadbase and may include some of the officers,
directors, or principal stockholders of Kana or Broadbase. Affiliates of
Broadbase and Kana may not sell their shares of Kana common stock acquired in
connection with the merger except pursuant to:
. an effective registration statement under the Securities Act covering the
resale of those shares;
. applicable exemption under the Securities Act including, in the case of
affiliates of Broadbase, Rule 145.
Kana's registration statement on Form S-4, of which this joint proxy
statement/prospectus forms a part, does not cover the resale of shares of Kana
common stock to be received by affiliates of Broadbase and Kana in the merger.
Management Following the Merger
Kana and Broadbase have agreed that following the merger, Chuck Bay,
president and chief executive officer of Broadbase, shall be elected and
appointed as president and chief executive officer of Kana, to serve until his
successor is duly elected and qualified. James Wood, Kana's chief executive
officer, shall continue to serve as chairman of the board of directors of Kana
following the merger.
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Operations Following the Merger
Following the merger, Broadbase will operate as a wholly-owned subsidiary of
Kana. Upon consummation of the merger, it is anticipated that the members of
Broadbase's board will be James Wood and Chuck Bay. The stockholders of
Broadbase will become stockholders of Kana, and their rights as stockholders
will be governed by Kana's certificate of incorporation, Kana's bylaws and the
laws of the State of Delaware. After the merger, Kana's board will consist of
two directors designated by Kana, two directors designated by Broadbase and one
independent director to be mutually agreed to by Kana and Broadbase. The
directors designated by Kana are expected to be Robert Frick and James Wood.
The directors designated by Broadbase are expected to be Kevin Harvey and Chuck
Bay. The independent director is expected to be Massood Zarrabian.
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THE MERGER AGREEMENT
This section of the document describes the merger agreement. While we
believe that this description covers the material terms of the merger
agreement, this summary may not contain all of the information that is
important to you. The merger agreement is attached to this joint proxy
statement/prospectus as Appendix I, and we urge you to carefully read this
document in its entirety.
Representations and Warranties
Broadbase and Kana each made substantially similar representations and
warranties in the merger agreement regarding aspects of our respective
businesses, financial condition, structure and other facts pertinent to the
merger. Each company made representations and warranties relating to the
following:
. its corporate organization, good standing and qualification to do
business;
. its subsidiaries and ownership interests in other entities;
. its and its subsidiaries', including the merger subsidiary in the case
of Kana, certificates of incorporation and bylaws;
. its capitalization;
. its obligations with respect to its capital stock, including any
registration rights, rights of first refusal or preemptive rights;
. its authority to enter into the merger agreement and the lack of any
conflicts with the contracts, instruments, obligations, permits,
licenses, corporate authority documents and any laws, orders, rules or
regulations applicable to it as a result thereof;
. the consents, waivers and regulatory or other approvals that may be
required to enter into the merger agreement and complete the merger;
. the effect of the merger on its outstanding obligations
. its filings and reports with the Securities and Exchange Commission;
. its financial statements and liabilities;
. changes in its business since its most recent financial statements;
. its taxes;
. title to the properties it owns and leases;
. its intellectual property, intellectual property that it uses and
infringement of other intellectual property;
. its compliance with applicable laws;
. litigation involving it;
. its employee benefit plans;
. its hazardous material activities and environmental liabilities;
. its agreements, contracts and commitments;
. information supplied by it in this joint proxy statement/prospectus and
the related registration statement filed by Kana;
. the fairness opinions received by it from its financial advisors;
. brokers' and finders' fees in connection with the merger;
. its insurance; and
. any non-competition agreement or other agreement restricting any of its
lines of businesses.
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The representations and warranties in the merger agreement are complicated
and are not easily summarized. We urge you to read the sections of the merger
agreement entitled "Representations and Warranties of Company," and
"Representations and Warranties of Parent and Merger Sub" carefully.
Conduct of Each Company's Business Before the Closing of the Merger
Broadbase and Kana have each agreed that until the earlier of the closing of
the merger and the termination of the merger agreement, or unless the other
consents in writing, each of them and their subsidiaries will carry on their
business in the usual, regular and ordinary course, pay its debts and taxes
when due and perform its other material obligations. Each has also agreed to
use all reasonable efforts to preserve its relationships with customers,
suppliers, licensors, licensees, and others with which it has business
dealings. Each has also agreed to notify the other of any material event
involving its business.
Broadbase and Kana have also each agreed that until the earlier of the
closing of the merger and the termination of the merger agreement, or unless
the other company consents in writing (which consent shall not be unreasonably
withheld or delayed) and as contemplated by the merger agreement, it and each
of its subsidiaries will conduct its business in compliance with specific
restrictions relating to the following:
. waiving any stock repurchase rights, accelerating, amending or changing
the period of exercisability of options or restricted stock, or
repricing of stock options granted under its stock plans;
. granting any severance or termination pay except under written
agreements then in effect or, subsequently entered into consistent with
the restructuring plan approved by its board;
. transferring or licensing intellectual property, other than non-
exclusive licenses in the ordinary course of its business;
. declaring or paying dividends or making other distributions with respect
to its capital stock, or issue or authorize new securities;
. purchasing or redeeming shares of its capital stock except repurchases
of unvested shares at cost in connection with employee terminations;
. issuing, pledging or otherwise encumbering securities other than grants
of options to purchase no more shares of its common stock than are
available under its authorized stock option pool (net of cancellations)
with respect to newly hired employees or promotions of existing
employees, or as a part of its annual option grant program, or as a
retention grant in each case, in the ordinary course of business,
consistent with past practice, or issuances of its common stock upon
exercise of outstanding options on the date of the merger agreement, or
issuances under its employee stock purchase plan or to participants in
its 401(k) plan;
. amending its charter and bylaws;
. acquiring or agreeing to merge with or acquire the assets of, or making
equity investments in, another entity or entering into material joint
ventures or strategic relationships or alliances in a manner that would
materially adversely affect it;
. selling, leasing, licensing, encumbering or disposing of property or
assets that are material to its business, other than with respect to
non-exclusive licenses in the ordinary course of its business;
. incurring or guaranteeing indebtedness except immaterial transactions in
the ordinary course of business consistent with past practice or under
existing credit facilities;
. adopting or amending any employee benefit plan, entering into any
employment contract (other than offer letters in the ordinary course of
business, consistent with past practice) or increase the salary or wages
of any employee or consultant, other than non-executive officers in the
ordinary course of its business or consistent with the restructuring
plan approved by its board;
79
. making any material capital expenditures other than those consistent
with the restructuring plan approved by its board;
. modifying or terminating contracts or waiving, releasing or assigning
any material rights under any contract in a manner that could reasonably
be expected to materially adversely affect it;
. entering into any agreement regarding the acquisition, distribution or
licensing of its material intellectual property other than in the
ordinary course of its business or in connection with the distribution
and license agreement entered into in connection with the merger
agreement;
. initiating litigation, which if resolved adversely to it, would
materially adversely effect it;
. paying, settling or discharging a claim, liability, other than in the
ordinary course of its business and where such action would not have
material effects on it provided the settlement would not result in a
material liability or payment; or
. changing accounting practices or materially revaluing assets (except as
required by generally accepted accounting principles).
Each party has also agreed to use all reasonable efforts to implement and
complete the restructuring plan adopted by the board of directors of each. The
agreements related to the conduct of each company's business in the merger
agreement are complicated and not easily summarized. We urge you to read the
section of the merger agreement entitled "Conduct Prior to the Effective Time"
carefully.
On or about April 12, 2001, Kana agreed to allow Broadbase to reprice all of
its outstanding options and in connection with this repricing, to increase the
size of its option reserve. In addition, Kana was informed that Broadbase wrote
down approximately $958.2 million in goodwill. Concurrently, Broadbase agreed
to allow Kana to pay severance to terminated employees, to allow other
associated severance arrangements, to grant additional options to continuing
employees and to allow Kana to issue warrants to a Kana customer.
Broadbase Stock Option Exchange Program
On April 27, 2001, Broadbase commenced a stock option exchange program and
filed a tender offer statement on Schedule TO with the Securities and Exchange
Commission. Under this exchange program, Broadbase option holders have the
opportunity to exchange existing options for new options to purchase the same
number of shares covered by the existing options. The per share exercise price
of the new options will be $0.92, which was the closing price of Broadbase's
common stock as reported by the Nasdaq National Market on April 11, 2001, the
date on which the Broadbase board approved this program.
To be eligible to participate in the exchange program, an option holder must
have been an employee, officer, director, consultant, independent contractor or
advisor of Broadbase or its subsidiaries as of April 11, 2001. The Broadbase
board expects to grant the new options under Broadbase's 1999 Equity Incentive
Plan or its 2000 Stock Incentive Program. Some of the key features of the new
options are:
. the new options will vest and become exercisable in 48 equal monthly
increments beginning on April 11, 2001, except that if the new option
replaces any existing option that is entirely unvested as of the grant
date, the new option will begin to vest on April 11, 2001, but will not
be exercisable until the first date that the corresponding existing
option would have become exercisable (at which time, the new option will
be exercisable as to any shares that vested monthly between April 11,
2001 and the first date of exercisability);
. if the existing option was fully vested upon grant, the new options will
also be fully vested upon grant;
. if the existing option has a provision for acceleration of some or all of
the vesting of the shares upon a change in control of Broadbase or upon
termination of employment, the new option will have the same provision
for acceleration;
. the new option will expire ten years after the grant date, subject to
earlier termination upon termination of employment;
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. the new option will be a nonstatutory stock option; and
. the other terms and conditions of the new option will be substantially
similar to those of the cancelled options.
Broadbase plans to hold the exchange period open for its option holders
until 9:00 p.m. Pacific Daylight Time on May 24, 2001, unless it extends this
period. Broadbase will grant the new options promptly after this exchange
period expires.
As of April 26, 2001, there were options outstanding to purchase
approximately 24.6 million shares Broadbase common stock. Of these, options to
purchase approximately 19.6 million shares of Broadbase common stock had an
exercise price greater than $0.92. As of April 26, 2001, Broadbase's executive
officers and directors as a group (12 persons) held options to purchase
approximately 6.2 million shares of Broadbase common stock, representing
approximately 25% of the shares subject to all Broadbase options outstanding as
of that date.
No Other Negotiations
Until the merger is completed or the merger agreement is terminated,
Broadbase and Kana have each agreed not to take any of the following actions
directly or indirectly:
. solicit, initiate, knowingly encourage or knowingly induce the making,
submission or announcement of any Acquisition Proposal, as that term is
defined below;
. participate in any discussions or negotiations regarding any Acquisition
Proposal except for discussions to elicit information to determine
whether the Acquisition Proposal constitutes a Superior Offer as defined
below;
. furnish any non-public information with respect to any Acquisition
Proposal;
. take any other action to facilitate any inquiries or the making of any
Acquisition Proposal except to elicit information to determine whether
Acquisition Proposal constitutes a Superior Offer;
. participate in discussions with any person with respect to any
Acquisition Proposal;
. approve, endorse or recommend any Acquisition Proposal; or
. enter into any letter of intent or similar document or any contract,
agreement or commitment relating to any Acquisition Proposal.
However, if either Kana or Broadbase receives an unsolicited, written
Acquisition Proposal prior to the approval of the merger at its stockholders'
meeting that its board concludes in good faith, after consultation with its
financial advisor, may constitute a Superior Offer, as defined below, it may
furnish non-public information regarding it and may enter into discussions with
the person or group who has made that Acquisition Proposal, if:
. neither it nor its representatives shall have violated the non-
solicitation provisions of the merger agreement or the provisions of the
merger agreement relating to holding its stockholders meeting;
. its board of directors concludes in good faith, after consultation with
outside legal counsel, that it would be inconsistent with its fiduciary
obligations to its stockholders under applicable law to fail to take
this action;
. prior to furnishing non-public information to, or entering into any
discussions or negotiations with, a party making the Acquisition
Proposal except discussions to elicit information to determine whether
the Acquisition Proposal constitutes a Superior Offer, it gives the
other company written notice of the Acquisition Proposal, including the
identity of the party making the Acquisition Proposal and the material
terms and conditions of the Acquisition Proposal; and
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. it furnishes the non-public information to the other company (to the
extent that such information has not been previously provided) at the
same time that it furnishes this information to the party making the
Acquisition Proposal and the information furnished to the other party is
subject to an agreement requiring the confidential treatment of that
information.
An Acquisition Proposal is any offer or proposal by a third party to either
Kana or Broadbase relating to:
. the acquisition or purchase of more than a 30% interest in the total
outstanding voting securities of it or any of its subsidiaries;
. any tender offer or exchange offer, that, if consummated, would result
in any person or group beneficially owning 30% or more of the total
outstanding voting securities of it or any of its subsidiaries;
. any merger, consolidation, business combination or similar transaction
involving it under which its stockholders immediately prior to the
acquisition hold less than 60% of the equity interest in the resulting
entity; or
. any sale, lease, other than in the ordinary course of business,
exchange, transfer, license other than in the ordinary course of
business, acquisition, or disposition of more than 50% of its assets.
A Superior Offer with respect to either Kana or Broadbase is:
. an unsolicited, bona fide Acquisition Proposal made by a third party
that its board determines in good faith, after consultation with its
financial advisor, to be substantially more favorable to its
stockholders than the merger; and
. which, by its terms, requires that this merger and the merger agreement
be terminated as a condition to the completion of the proposed
Acquisition Proposal.
An offer will not be a Superior Offer if any financing required to complete
the proposed transaction is not committed and it is not likely in the good
faith determination of the board of directors, after consultation with its
financial advisor, to be obtained by the third party on a timely basis.
The board of either Broadbase or Kana may, without breaching the merger
agreement, withhold, withdraw, amend or modify its recommendation in favor of
the merger proposal or endorse or recommend a Superior Offer if:
. a Superior Offer is made to the other company and is not withdrawn;
. it provides written notice of the Superior Offer to the other company,
including the identity of the party making the Superior Offer and
summarizing the material terms and conditions of the Superior Offer;
. the other company does not, within two business days after receiving a
written notice from the company receiving the Superior Offer, make an
offer that the board of the company receiving the Superior Offer
determines by majority vote in its good faith judgment, after
consultation with its financial advisor, to be at least as favorable to
its stockholders as the Superior Offer;
. its board concludes in good faith, after consultation with its outside
legal counsel, that its failure to withhold, withdraw, amend or modify
its recommendation in light of the Superior Offer would be inconsistent
with its fiduciary obligations to its stockholders under applicable law;
and
. it has not knowingly violated the non-solicitation provisions of the
merger agreement or the provisions of the merger agreement relating to
holding its stockholders meeting.
Each company has also agreed to provide the other with at least two days
prior notice (or such lesser prior notice as provided to its own board) of any
meeting of its board at which its board is reasonably expected to consider any
Acquisition Proposal to determine whether it is a Superior Offer. Even if an
Acquisition Proposal
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or a Superior Proposal is made or the board's recommendation with respect to
the merger proposal is withheld, withdrawn, amended or modified, it must
nevertheless hold and convene its stockholders' meeting as promptly as possible
and within 45 days of the effectiveness of Kana's registration statement and
put the merger proposal to a vote of its stockholders.
Public Disclosure
Kana and Broadbase have each agreed to consult with the other and, to the
extent practicable, agree before issuing any press release or making any public
statement with respect to the merger or the merger agreement.
Employee Benefit Plans
Kana and Broadbase will work together in good faith to agree upon mutually
acceptable employee benefit and compensation arrangements.
Conditions to Closing the Merger
The obligation of each of Kana and Broadbase to complete the merger are
subject to the satisfaction or waiver of each of the following conditions
before closing the merger:
. the merger agreement and the merger must be approved by stockholders of
Broadbase;
. the issuance of the shares of Kana common stock to be issued in the
merger, as well as the amendment to Kana's certificate of incorporation
to change its name, must be approved by Kana's stockholders;
. Kana's registration statement, of which this joint proxy
statement/prospectus is a part, must be effective, no stop order
suspending its effectiveness may be in effect and no proceedings for
suspending its effectiveness may be pending before or threatened by the
Securities and Exchange Commission;
. no governmental entity shall have enacted, issued or enforced any law,
regulation or order that has the effect of making the merger illegal or
otherwise prohibiting the closing of the merger;
. all applicable waiting periods under applicable antitrust laws relating
to the merger must have expired or been terminated;
. each must receive from its tax counsel an opinion to the effect that the
merger will constitute a tax-free reorganization within the meaning of
section 368(a) of the Internal Revenue Code;
. the shares of Kana common stock to be issued in the merger must be
authorized for quotation on the Nasdaq National Market, subject to
official notice of issuance; and
. all required approvals and consents shall have been obtained unless the
failure to receive such consent or approval would not be reasonably
likely to have a material adverse effect, as described below, on the
combined companies.
Broadbase's obligations to complete the merger are subject to satisfaction
or waiver of each of the following additional conditions:
. the representations and warranties of Kana must be true and correct,
except as a result of transactions contemplated by the merger agreement
or where the failure to be true and correct would not, in the aggregate,
have a material adverse effect;
. Kana must have performed or complied in all material respects with all
of its agreements and covenants required by the merger agreement to be
performed or complied with by it at or before closing the merger;
. no material adverse effect with respect to Kana shall have occurred with
respect to it since April 9, 2001, and be continuing;
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. Kana must have complied in all material respects with the terms of the
restructuring plan approved by its board; and
. Kana shall have taken all action necessary to appoint to Kana's board of
directors upon the effective time of the merger the individuals agreed
upon by the parties to the merger agreement.
Kana's obligations to complete the merger are subject to satisfaction or
waiver of each of the following additional conditions:
. the representations and warranties of Broadbase must be true and
correct, except as result of transactions contemplated by the merger
agreement or where the failure to be true and correct would not, in the
aggregate, have a material adverse effect;
. Broadbase must have performed or complied in all material respects with
all of its agreements and covenants required by the merger agreement to
be performed or complied with by it at or before closing the merger;
. no material adverse effect with respect to Broadbase shall have occurred
with respect to it since April 9, 2001, and be continuing; and
. Broadbase must have complied in all material respects with the terms of
the restructuring plan approved by its board.
A material adverse effect is defined to be any change, event, circumstance
or effect that is materially adverse to the business, assets (including
intangible assets), capitalization, financial condition, cash position,
operations or results of operations of such entity taken as a whole with its
subsidiaries. A material adverse effect does not include a change, event,
circumstance or effect that directly results from the following (none of which
shall in and of itself constitute a material adverse effect):
. changes in general economic, political or social conditions;
. short term variations in revenues;
. changes affecting the entity's industry generally, so long as the change
does not affect the entity in a substantially disproportionate manner;
. changes in the trading price or volume of the entity's common stock;
. changes in the electronic customer relationship management market, so
long as these changes do not affect the entity in a substantially
disproportionate manner;
. the effect of the public announcement of the merger or the period of
time during which the merger is not completed on the customers,
suppliers, distributors, partners and employees of the entity;
. the effect of performing the obligations under the merger agreement or
loan agreement or in connection with the restructuring plan approved by
the entity's board; and
. changes principally caused by one party's refusal to consent to an
action reasonably requested by the other party after the latter party's
board determines in good faith and certifies to the first party that the
action is necessary to avoid a material adverse effect.
Termination of the Merger Agreement
The merger agreement may be terminated at any time prior to closing the
merger, whether before or after the requisite stockholder approval, by either
Kana or Broadbase:
. by mutual written consent duly authorized by the boards of Kana and
Broadbase;
. if the merger is not completed by October 31, 2001 (or December 31,
2001, in the event that the applicable waiting period under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976 has not
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expired or the registration statement of which this joint proxy
statement/prospectus forms a part has not been declared effective and the
extending party reasonably believes such event will occur in time to
permit the closing to occur by such date), except that the right to
terminate the merger agreement under this provision is not available to
any party whose action or failure to act has been a principal cause
resulting in the failure of the merger to occur on or by October 31, 2001,
and this action or failure to act constitutes a material breach of the
merger agreement;
. if a governmental authority has issued an order, decree or ruling or
taken any other action that is final and non-appealable, having the
effect of permanently enjoining, restraining or prohibiting the merger;
. if the merger is not approved by the stockholders of Broadbase, except
that the right to terminate the merger agreement under this provision is
not available to Broadbase where the failure to obtain stockholder
approval was caused by an action or failure to act by Broadbase that
constitutes a material breach of the merger agreement;
. if the approval of the issuance of shares of Kana common stock in the
merger and the amendment to Kana's certificate of incorporation
effecting the change of Kana's name shall not have been approved by
Kana's stockholders, except that the right to terminate the merger
agreement under this provision is not available to Kana if the failure
to obtain stockholder approval was caused by an action or failure to act
by Kana that constitutes a material breach of the merger agreement;
. at any time prior to the other party receiving the required approval of
its stockholders, if a Triggering Event, as described below, occurs;
. upon a breach of any representation, warranty, covenant or agreement on
the part of the other party in the merger agreement, or if any of the
other party's representations or warranties are or become materially
untrue, so that the corresponding condition to closing the applicable
merger would not be met. However, if the breach or inaccuracy is curable
by the other party through the exercise of its commercially reasonable
efforts, and the other party continues to exercise commercially
reasonable efforts, then the party may not terminate the merger
agreement if the breach or inaccuracy is cured within 45 days after
delivery of the notice of breach or inaccuracy or the party is in
material breach of the merger agreement; or
. if the other party willfully and materially breaches its obligations
under the loan agreement and this breach continues for two business days
after receiving written notice of the breach.
A Triggering Event will occur if:
. the board of directors or any board committee of Kana or Broadbase
withdraws, amends or modifies, in a manner adverse to the other party,
its recommendation in favor of the adoption and approval of the merger
agreement and the approval of the merger, or in the case of Kana, in
favor of the issuance of Kana common stock or amendment of its
certificate of incorporation in the merger;
. Broadbase or Kana fails to include in this joint proxy
statement/prospectus the recommendation of its board of directors in
favor of the adoption and approval of the merger agreement and the
approval of the merger, or in the case of Kana, in favor of the issuance
of Kana common stock or amendment of its certificate of incorporation in
the merger;
. the board of directors or any board committee of Kana or Broadbase fails
to reaffirm its recommendation in favor of adoption and approval of the
merger agreement and the approval of the merger, or in the case of Kana,
in favor of the issuance of Kana common stock or amendment of its
certificate of incorporation in the merger, within 10 days after the
other party requests in writing that this recommendation be reaffirmed
following the public announcement of an Acquisition Proposal;
. the board of directors of Broadbase or Kana approves or publicly
recommends any Acquisition Proposal;
. Broadbase or Kana enters into a letter of intent or similar document or
agreement accepting an Acquisition Proposal;
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. Broadbase or Kana knowingly breaches the non-solicitation provisions of
the merger agreement or the provisions of the merger agreement relating
to holding its stockholders meeting; or
. if a tender or exchange offer relating to the securities of a party is
commenced by a person or entity unaffiliated with the other party, and
the party does not send to its stockholders within 10 business days
after the tender or exchange offer is first commenced, a statement
disclosing that the party recommends rejection of the tender or exchange
offer.
Termination Fee
Subject to the conditions below, if either Broadbase or Kana terminates the
merger agreement because the merger is not completed by October 31, 2001, (or
December 31, 2001, if extended), then each is obligated to pay to the other
within two days of the termination a termination fee equal to $2.5 million in
immediately available funds.
Subject to the conditions below, Broadbase shall pay Kana a termination fee
equal to $2.5 million in immediately available funds if the merger agreement is
terminated by Kana or Broadbase because of the failure of Broadbase's
stockholders to approve the merger and the merger agreement or if the merger
agreement is terminated by Kana because of a Triggering Event related to
Broadbase.
Subject to the conditions below, Kana shall pay Broadbase a termination fee
equal to $2.5 million in immediately available funds if the merger agreement is
terminated by Kana or Broadbase because of the failure of Kana's stockholders
to approve the issuance of Kana common stock or the amendment of Kana's
certificate of incorporation in the merger or if the merger agreement is
terminated by Broadbase because of a Triggering Event related to Kana.
However, if Broadbase or Kana terminates the merger agreement because the
merger is not completed by October 31, 2001, (or December 31, 2001, if deadline
for closing is extended) or because the required stockholder approvals of that
party have not been received, the $2.5 million termination fee must be paid
only if:
. a Triggering Event related to that party has not occurred;
. prior to termination of the merger agreement an Acquisition Proposal is
publicly announced concerning that party and other person; and
. within twelve months of the termination of the merger agreement, that
party either completes an Acquisition, as defined below, with such
person, or enters into an agreement providing for an Acquisition with
such person and that Acquisition is later consummated at any time,
provided that such party had entered into the agreement during the
twelve-month period.
In any such case, the termination fee shall be payable within two days of
the closing of an Acquisition. Any termination fee paid shall constitute
liquidated damages to the receiving party and the paying party shall have no
further liability for the action that triggered the termination fee.
An Acquisition is any of the following:
. a merger, consolidation, business combination, recapitalization,
liquidation, dissolution or similar transaction involving a party in
which its stockholders immediately preceding the transaction hold less
than 50% of the aggregate equity interests in the surviving entity of
the transaction or its parent;
. a sale or other disposition by a party of assets representing in excess
of 50% of the aggregate fair market value of its business immediately
prior to the sale; or
. the acquisition by any person or group, including by way of a tender
offer or an exchange offer or issuance by a party, directly or
indirectly, of beneficial ownership or a right to acquire beneficial
ownership of shares representing in excess of 50% of the voting power of
the then outstanding shares of its capital stock.
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Amendment, Extension and Waiver of the Merger Agreement
We may amend the merger agreement before completing the merger by execution
of a written instrument signed by each of us, provided that we comply with
applicable state law in amending the agreement. Either of us may, in writing,
extend the other's time for the performance of any of the obligations or other
acts under the merger agreement, waive any inaccuracies in the other's
representations and warranties and waive compliance by the other with any of
the agreements or conditions contained in the merger agreement.
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RELATED AGREEMENTS
This section of the document describes agreements related to the merger
agreement including the stock option agreements and the voting agreements.
While we believe that these descriptions cover the material terms of these
agreements, these summaries may not contain all of the information that is
important to you. The form of Kana stockholders' voting agreement is attached
as Appendix II, the form of Broadbase stockholders' voting agreement is
attached as Appendix III, the Kana stock option agreement is attached as
Appendix IV, the Broadbase stock option agreement is attached as Appendix V,
the Distribution and License Agreement is attached as Appendix VI and the
Revolving Loan Agreement is attached as Appendix VII. We urge you to read each
of these agreements carefully in their entirety.
The Voting Agreements
Kana required some Broadbase stockholders, including Broadbase's executive
officers, directors and affiliates to enter into voting agreements as an
inducement for Kana to enter into the merger agreement. These persons
collectively held approximately 11.7% of the outstanding Broadbase common stock
as of April 9, 2001 (including shares issuable upon exercise of options
exercisable within 60 days of April 9, 2001).
In addition, Broadbase required some Kana stockholders, including Kana's
executive officers, directors and affiliates to enter into voting agreements as
an inducement for Broadbase to enter into the merger agreement. These persons
collectively held approximately 20.5% of the outstanding Kana common stock as
of April 9, 2001 (including shares issued upon exercise of options exercisable
within 60 days of April 9, 2001).
The form of the voting agreements entered into by these stockholders is
attached to this joint proxy statement/prospectus as Appendix II, in the case
of the Kana stockholders, and Appendix III, in the case of the Broadbase
stockholders. We encourage you to read both of these agreements in their
entirety.
Under the voting agreements, these persons agreed:
. in the case of Broadbase stockholders, to vote all shares of Broadbase
common stock that they beneficially own
. in favor of:
. the merger;
. the execution and delivery by Broadbase of the merger agreement;
. the adoption and approval of the terms of the merger agreement;
. all actions contemplated by the merger agreement; and
. to the extent that a vote is solicited in connection with the
voting agreement or merger agreement any other action required in
furtherance of that document.
. and against:
. any action or agreement that would result in breach of any
representation, warranty, covenant or obligation of Broadbase or
the merger agreement or that would preclude fulfillment of a
closing condition of the merger; and
. approval of any proposal made in opposition to, or, in
competition with, the merger, including any Acquisition Proposal
or Superior Offer.
. in the case of Kana stockholders, to vote all shares of Kana common
stock that they beneficially own
. in favor of:
. the issuance of shares of Kana common stock in the merger;
. the amendment to Kana's second amended and restated certificate
of incorporation to change its name to "Kana Software, Inc.";
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. the execution and delivery by Kana of the merger agreement;
. the adoption and approval of the terms of the merger agreement;
. all actions contemplated by the merger agreement; and
. to the extent that a vote is solicited in connection with the
voting agreement or merger agreement any other action required in
furtherance of that document.
. and against:
. any action or agreement that would result in breach of any
representation, warranty, covenant or obligation of Kana or the
merger agreement or that would preclude fulfillment of a closing
condition of the merger.
. approval of any proposal made in opposition to, or, in
competition with, the merger, including any Acquisition Proposal
or Superior Offer.
Concurrently with the execution of the voting agreement, each stockholder
also delivered an irrevocable proxy to the other company granting the board of
directors of the other company the right to vote the shares covered by the
voting agreement in favor of the matters described above.
None of the persons who entered into a voting agreement were paid additional
consideration in connection with the voting agreements. The voting agreements
will terminate upon the earlier to occur of the effective time of the merger or
the valid termination of the merger agreement under Section 7 of the merger
agreement.
The Stock Option Agreements
Under the Kana stock option agreement, Kana granted Broadbase an option to
buy up to a number of shares of Kana common stock equal to 19.9% of the
outstanding shares of Kana common stock as of the date of exercise of the
option (less any amount of shares issued to Broadbase upon the conversion of
debt outstanding under the Revolving Loan Agreement) at an exercise price of
$0.875 per share. Based on the number of shares of Kana common stock
outstanding on April 9, 2001, the option would be exercisable for approximately
18,770,797 shares of Kana common stock.
Under the Broadbase stock option agreement, Broadbase granted Kana an option
to buy up to a number of shares of Broadbase common stock equal to 19.9% of the
outstanding shares of Broadbase common stock on the date of exercise of the
option at an exercise price of $0.7188 per share. Based on the number of shares
of Broadbase common stock outstanding on April 9, 2001, the option would be
exercisable for approximately 16,330,708 shares of Broadbase common stock.
Each of Broadbase and Kana required the other to grant these stock options
as a prerequisite to entering into the merger agreement. The Kana stock option
agreement is attached to this joint proxy statement/prospectus as Appendix IV,
and the Broadbase stock option agreement is attached to this joint proxy
statement/prospectus as Appendix V. We urge you to read both of these
agreements in their entirety. In this section, the grantor of the option,
whether Kana or Broadbase, is referred to as the grantor, and the holder of the
option, whether Broadbase or Kana, is referred to as the option holder.
These options are intended to increase the likelihood that the merger will
be completed. Aspects of the stock option agreements may have the effect of
discouraging persons who might now or at any time be interested in acquiring
all or a significant interest in either of us before closing the merger. The
number of shares issuable upon exercise of each option and the exercise price
of each option are subject to adjustment under specified circumstances to
prevent dilution.
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Neither option is currently exercisable. The option holder may exercise the
option in whole or in part and from time to time only if one or more of the
following occurs:
. a Triggering Event, as defined in the merger agreement, which includes:
. the board of directors or any board committee of the grantor
withdraws, amends or modifies its recommendation in favor of the
adoption and approval of the merger agreement and the approval of the
merger in a manner adverse to the option holder's recommendation;
. the grantor fails to include in this joint proxy statement/prospectus
the recommendation of its board of directors in favor of the adoption
and approval of the merger agreement and the approval of the merger;
. the board of directors or any board committee of the grantor fails to
reaffirm its recommendation in favor of adoption and approval of the
merger agreement and the approval of the merger within 10 days after
the option holder requests in writing that this recommendation be
reaffirmed following the public announcement of an Acquisition
Proposal, as that term is described in this joint proxy
statement/prospectus in the section entitled "The Merger Agreement";
. the board of directors of grantor approves or publicly recommends any
Acquisition Proposal;
. the grantor enters into a letter of intent or agreement accepting an
Acquisition Proposal;
. the grantor knowingly breaches the non-solicitation provisions of the
merger agreement or the provisions of the merger agreement relating to
holding its stockholders meeting; or
. if a tender or exchange offer relating to the securities of the
grantor is commenced by a person or entity unaffiliated with the
option holder, and the company does not send to its stockholders
within 10 business days after the tender or exchange offer is first
commenced a statement disclosing that the grantor recommends rejection
of the tender or exchange offer; or
. the public announcement of an acquisition or purchase by any person or
group of more than a 30% beneficial ownership interest in the total
outstanding voting securities of the grantor; or
. the public announcement or commencement of any tender offer or exchange
offer that if completed would result in any person or group beneficially
owning 30% or more of the total outstanding voting securities of the
grantor.
The option will terminate upon the earliest of any of the following:
. the effective time of the merger;
. the termination of the merger agreement by mutual written consent duly
authorized by the boards of Kana and Broadbase;
. the termination of the merger agreement by either Kana or Broadbase,
prior to a Triggering Event, as described above, upon a breach of any
representation, warranty, covenant or agreement on the part of the other
in the merger agreement, or if any of the other's representations or
warranties are or become untrue, so that the corresponding condition to
closing the applicable merger would not be met (subject in either case
to any applicable cure periods);
. the termination of the merger agreement by either Kana or Broadbase,
prior to a Triggering Event, if:
. the merger is not completed by October 31, 2001;
. if a governmental authority has issued an order, decree or ruling or
taken any other action that is final and non-appealable; or
. if the required approvals of the stockholders of Broadbase or Kana are
not received; or
. 12 months after termination of the merger agreement in other
circumstances;
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except that if the option is exercisable but cannot be exercised due to
government order or because the waiting period under the Hart-Scott-Rodino Act
related to the issuance of the shares underlying the option has not expired or
been terminated, or because any other condition to closing has not been
satisfied, then the option will not terminate until the tenth business day
after this impediment to exercise has been removed or, in the case of a
government order, has become final and not subject to appeal.
If the total of the termination fee plus the proceeds the option holder
receives in connection with any sales or other dispositions of the option or
shares purchased by exercising the option, plus any dividends on these shares
exceed the total of $2.5 million plus the aggregate exercise price paid upon
exercise of the option, then the option holder must promptly remit all excess
proceeds in cash to the grantor.
The stock option agreement may not be exercised unless: (i) all material
consents, approvals, orders or authorizations of, or registrations,
declarations or filings with, any United States federal, state, or local
administrative agency or commission or other United States federal, state or
local governmental authority or instrumentality, if any, required in connection
with the issuance of the option shares pursuant to the stock option agreement
have been obtained or made, as the case may be, and (ii) no preliminary or
permanent injunction or other order by any court of competent jurisdiction in
the United States prohibiting or otherwise restraining such issuance is in
effect.
The stock option agreements grant registration rights to Broadbase and Kana
with respect to the shares of Kana common stock or Broadbase common stock
represented by the respective options. In addition, under each agreement, the
grantor and the option holder agree to indemnify the other against specified
liabilities and expenses, including liabilities under the Securities Act.
Distribution and License Agreement
Kana and Broadbase entered into a license agreement concurrently with the
merger agreement. Under this license, Kana and Broadbase each granted to the
other a world-wide, nontransferable, nonexclusive, royalty-bearing license to
all of the other's intellectual property rights to use, copy, distribute,
display and perform all of the software owned by the other and software,
products and services offered by the other to third parties. The source code
for the licensed products will be placed in escrow to be released only upon the
occurrence of certain bankruptcy-related events, upon a complete cessation of
one party's business or upon a failure by one party that is not cured to
provide maintenance and support in accordance with standard terms.
In consideration of the grant of the license, Kana and Broadbase each agreed
to pay to the other royalties equal to 10% of the net revenue from the
distribution and other commercial exploitation of the licensed products on a
stand-alone basis. If the licensed products are bundled with Kana or
Broadbase's own products, then the royalties will equal 10% of the portion of
the net revenue that is reasonably attributable to the licensed products. No
royalties are due with respect to products that are used internally by Kana or
Broadbase for activities that do not generate revenues or for evaluation or
promotional purposes.
The license agreement will continue for five years from April 9, 2001, and
will renew automatically for additional one year terms unless either party
provides the other with notice of termination at least 60 days prior to the end
of the then-current term. If Kana or Broadbase is not in default under the
license, either may terminate the agreement upon a material breach by the other
that is not cured within 30 days of written notice of the breach. The attempted
assignment of rights by, or the change of control of, either party without the
consent of the other party shall give the non-assigning party or party not
undergoing a change of control the right to immediately terminate the license
granted by it.
91
Revolving Loan Agreement
Kana and Broadbase entered into a revolving loan agreement concurrently with
the merger agreement. Under this loan agreement, Broadbase agreed to make
available to Kana a revolving credit facility up to an aggregate principal
amount of $20.0 million. The facility may be used to pay payroll and other
expenses. The credit facility will be available until the earlier to occur of:
. the effectiveness of the merger;
. the effective date of any termination of the merger agreement; or
. the Maturity Date,
If a Triggering Event, as described above under "The Stock Option
Agreements," occurs with respect to Broadbase, Kana will be entitled to draw
down the entire amount of the credit facility. Broadbase will place the entire
$20 million of the facility in an escrow account pursuant to the revolving
credit agreement.
Kana and Broadbase agreed upon a form of convertible promissory note to be
issued by Kana to Broadbase in exchange for each loan from Broadbase to Kana.
The outstanding principal amount under the notes will accrue interest at a rate
equal to the prime rate plus 2% per year, compounded quarterly. The notes will
be due on the Maturity Date, unless the notes have previously been converted at
Broadbase's option into shares of Kana's common stock, as described below.
The Maturity Date for the credit facility shall be April 9, 2002, unless:
. the merger agreement is terminated before April 9, 2002 by Kana upon a
willful breach by Broadbase, of any representation, warranty, covenant
or other agreement of Broadbase in the merger agreement in which case
the Maturity Date will be extended to one year after the date of such
termination;
. the merger agreement is terminated before April 9, 2002 by Broadbase
upon a willful breach by Kana of any representation, warranty, covenant
or agreement of Kana in the merger agreement by the mutual agreement of
Kana and Broadbase, or upon certain other specified events, in which
case the Maturity Date will be 30 days after the date of such
termination; or
. Kana executes an agreement to be acquired, in which case the Maturity
Date will be 30 days after the date of such agreement.
Broadbase may elect at any time beginning on July 16, 2001 to convert all or
any part of any outstanding principal and accrued interest of the note into
shares of Kana's common stock at a price of $1.10 per share. This price will be
adjusted for stock splits, stock dividends and other recapitalizations. In no
event, however, may the total amount converted under the note, when counted
together with the shares acquired under the stock option agreement in favor of
Broadbase described above, exceed 19.9% of Kana's total outstanding shares of
common stock.
Upon and during the continuation of an event of default under the agreement,
Broadbase will no longer be obligated to make advances to Kana and may declare
any obligations of Kana under the agreement to be immediately due and payable.
Events of default under the agreement include:
. Kana's failing to pay any principal amount within five days of when due
and payable;
. Kana's failing to pay any interest, fees or other amounts within five
days of when due and payable;
. Kana's failing to perform any of its covenants under the agreement and
such failure continuing for 30 days after notice of the default by
Broadbase. Covenants in the loan agreement include:
. using the proceeds for purposes different from those set forth in the
borrowing request for a loan;
. not permitting inspections by Broadbase of all records, financial
information and properties;
92
. not maintaining its corporate existence and using commercially
reasonable efforts to maintain the intellectual property necessary to
conduct its business; or
. merging or liquidating, or permitting any of its subsidiaries to merge
or liquidate, other than as contemplated by the merger agreement.
. any representation or warranty made by Kana in the loan documents being
proven to have been untrue or incorrect when made; and
. Kana becoming subject to various bankruptcy proceedings.
93
KANA COMMUNICATIONS, INC
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements have been
prepared to give effect to the proposed merger of Kana and Broadbase, the
merger of Kana and Silknet, and the merger of Broadbase and Servicesoft, using
the purchase method of accounting. These pro forma statements were prepared as
if the mergers had been completed as of January 1, 2000 for statement of
operations purposes and as of December 31, 2000 for balance sheet purposes.
The unaudited pro forma combined financial statements are presented for
illustrative purposes only and are not necessarily indicative of the financial
position or results of operations that would have actually been reported had
the mergers occurred at December 31, 2000 for balance sheet purposes or at
January 1, 2000 for statement of operations purposes, nor is it necessarily
indicative of the future financial position or results of operations. The pro
forma combined financial statements include adjustments, which are based upon
preliminary estimates, to reflect the allocation of purchase consideration to
the acquired assets and liabilities of Broadbase, before any integration or
restructuring adjustments. The final allocation of the purchase consideration
will be determined after the completion of the merger and will be based on
appraisals and a comprehensive final evaluation of the fair value of all assets
and liabilities assumed as considered appropriate. The pro forma adjustments
may differ materially based upon the final allocation.
These unaudited pro forma combined financial statements are based upon the
respective historical consolidated financial statements of Kana, Broadbase,
Silknet and Servicesoft and should be read in conjunction with the historical
consolidated financial statements of Kana and Broadbase and related notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained in the reports and other information Kana and Broadbase
have on file with the Securities and Exchange Commission.
94
KANA COMMUNICATIONS, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
December 31, 2000
(In thousands)
Pro Forma
---------------------------
Kana Broadbase Adjustments Combined
----------- ---------- ----------- -----------
ASSETS
------
Current assets:
Cash and cash
equivalents........... $ 76,202 $ 51,186 $ -- $ 127,388
Short-term
investments........... 297 101,034 -- 101,331
Accounts receivable,
net................... 43,393 27,536 -- 70,929
Prepaid expenses and
other current assets.. 14,866 8,357 -- 23,223
----------- ---------- ----------- -----------
Total current
assets.............. 134,758 188,113 -- 322,871
Restricted cash.......... -- 2,473 -- 2,473
Property and equipment,
net..................... 40,095 17,730 (17,730)(a) 40,095
Long-term investments.... -- 15,540 -- 15,540
Intangible assets,
principally goodwill.... 800,000 1,044,287 (1,044,287)(b) 800,000
Other assets............. 5,271 7,792 (7,792)(a) 5,271
----------- ---------- ----------- -----------
Total assets......... $ 980,124 $1,275,935 $(1,069,809) $ 1,186,250
=========== ========== =========== ===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
--------------------
Current liabilities:
Current portion of
notes payable......... $ 1,456 $ 346 $ -- $ 1,802
Accounts payable....... 17,980 16,210 -- 34,190
Accrued liabilities.... 35,846 36,851 11,200 (c) 83,897
Deferred revenue....... 25,242 16,320 (10,512)(d) 31,050
----------- ---------- ----------- -----------
Total current
liabilities......... 80,524 69,727 688 150,939
Notes payable, less
current portion......... 148 703 -- 851
Deferred credit-negative
goodwill................ -- -- 38,644 (e) 38,644
----------- ---------- ----------- -----------
Total liabilities.... 80,672 70,430 39,332 190,434
----------- ---------- ----------- -----------
Commitments and
contingencies
Stockholders' equity:
Convertible preferred
stock................. -- -- -- --
Common stock........... 94 81 5 (f) 180
Additional paid-in
capital............... 4,130,231 1,484,130 (1,385,416)(f) 4,228,945
Deferred stock-based
compensation.......... (21,639) (42,899) 40,899 (f) (23,639)
Notes receivable from
stockholders.......... (5,367) (436) -- (5,803)
Accumulated other
comprehensive losses.. (377) (268) 268 (f) (377)
Accumulated deficit.... (3,203,490) (235,103) 235,103 (f) (3,203,490)
----------- ---------- ----------- -----------
Total stockholders'
equity.............. 899,452 1,205,505 (1,109,141) 995,816
----------- ---------- ----------- -----------
Total liabilities and
stockholders'
equity.............. $ 980,124 $1,275,935 $(1,069,809) $ 1,186,250
=========== ========== =========== ===========
The accompanying notes are an integral part of these unaudited pro forma
combined financial statements.
95
KANA COMMUNICATIONS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2000
(In thousands, except per share data)
Acquired Entities Pro Forma
------------------------- --------------------------
Kana Broadbase Silknet(k) Servicesoft(l) Adjustments Combined
----------- --------- ---------- -------------- ----------- -----------
Revenues:
License............... $ 75,360 $ 34,646 $ 7,255 $ 9,920 $ -- $ 127,181
Service............... 43,887 13,608 4,392 13,336 -- 75,223
----------- --------- -------- --------- -------- -----------
Total revenues...... 119,247 48,254 11,647 23,256 -- 202,404
----------- --------- -------- --------- -------- -----------
Cost of revenues:
License............... 2,856 4,452 404 772 -- 8,484
Service............... 56,201 15,984 4,516 15,951 -- 92,652
Amortization of
acquired core and
developed
technology........... -- 1,696 -- -- (1,696)(g) --
----------- --------- -------- --------- -------- -----------
Total cost of
revenues........... 59,057 22,132 4,920 16,723 (1,696) 101,136
----------- --------- -------- --------- -------- -----------
Gross profit............ 60,190 26,122 6,727 6,533 1,696 101,268
----------- --------- -------- --------- -------- -----------
Operating expenses:
Sales and marketing... 88,186 37,247 5,654 30,036 -- 161,123
Research and
development.......... 42,724 17,207 4,556 7,928 -- 72,415
General and
administrative....... 18,945 6,836 2,208 11,371 -- 39,360
Amortization of stock-
based compensation... 14,715 21,284 10 8,874 20,130 (h) 65,013
Amortization of
goodwill and
identifiable
intangibles.......... 873,022 78,145 -- 6,380 (84,525)(g) 860,141
(12,881)(i)
In-process research
and development...... 6,900 25,877 -- -- -- 32,777
Acquisition related
costs................ 6,564 45,509 -- -- -- 52,073
Goodwill impairment... 2,084,841 -- -- -- -- 2,084,841
----------- --------- -------- --------- -------- -----------
Total operating
expenses........... 3,135,897 232,105 12,428 64,589 (77,276) 3,367,743
----------- --------- -------- --------- -------- -----------
Operating loss.......... (3,075,707) (205,983) (5,701) (58,056) 78,972 (3,266,475)
Other income (expense),
net.................... 4,834 12,552 619 590 18,595
----------- --------- -------- --------- -------- -----------
Net loss............ $(3,070,873) $(193,431) $ (5,082) $ (57,466) $ 78,972 $(3,247,880)
=========== ========= ======== ========= ======== ===========
Basic and diluted net
loss per share......... $ (39.57) $ (4.09) $ (18.83)
=========== ========= ===========
Shares used in computing
basic and diluted net
loss per share
amounts................ 77,610 47,259 172,493 (j)
=========== ========= ===========
The accompanying notes are an integral part of these unaudited pro forma
combined financial statements.
96
KANA COMMUNICATIONS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS
1. BASIS OF PRO FORMA PRESENTATION
On April 9, 2001, Kana and Broadbase entered into a merger agreement whereby
each outstanding share of Broadbase common stock will be converted into 1.05
shares of Kana common stock. Each outstanding option and warrant to purchase
shares of Broadbase common stock will be assumed using the 1.05 ratio.
Completion of the merger is conditioned upon the affirmative vote of both
companies' stockholders, among other conditions. Kana expects to issue
approximately 86.2 million shares of Kana common stock and reserve
approximately 28.1 million shares of common stock to assume Broadbase's
outstanding options and warrants to purchase common stock in connection with
the merger agreement. The actual number of shares of Kana common stock to be
issued will be determined on the effective date of the merger based on the
number of shares of Broadbase common stock actually outstanding on such date.
Kana is expected to account for the merger under the purchase method of
accounting.
The unaudited pro forma combined balance sheet at December 31, 2000 combines
Kana's and Broadbase's consolidated financial statements at December 31, 2000
as if the merger had been consummated on that date. The unaudited pro forma
combined statement of operations for the year ended December 31, 2000 gives
effect to the proposed merger of Kana and Broadbase, the merger of Kana and
Silknet and the acquisition by Broadbase of Servicesoft as if each transaction
had been consummated on January 1, 2000.
2. PRELIMINARY PURCHASE PRICE
The unaudited pro forma combined financial statements reflect an estimated
purchase price of approximately $105.2 million, measured using the average fair
market value of Kana's common stock from April 5, 2001 to April 11, 2001, five
trading days surrounding the date the merger agreement was announced, plus the
value of the options and warrants to be issued by Kana in the merger, and other
costs directly related to the merger as follows (in thousands):
Fair market value of Kana's common stock......................... $ 81,200
Fair market value of options and warrants assumed................ 17,600
Estimated acquisition related costs.............................. 6,400
--------
Total consideration............................................ $105,200
========
The final purchase price is dependent on the actual number of shares of
common stock exchanged, the actual number of options and warrants assumed, and
actual acquisition related costs. The final purchase price will be determined
upon completion of the merger. The preliminary purchase price allocation, which
is subject to change based on Kana's final analysis, is as follows (in
thousands):
Tangible assets acquired......................................... $206,562
Deferred compensation............................................ 2,000
Liabilities assumed.............................................. (64,718)
Deferred credit--negative goodwill............................... (38,644)
--------
Total ......................................................... $105,200
========
97
KANA COMMUNICATIONS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS--(Continued)
3. PRO FORMA ADJUSTMENTS
Balance Sheet
The accompanying unaudited pro forma combined balance sheet has been
prepared as if the merger was completed on December 31, 2000 and reflects the
following pro forma adjustments:
(a) To reduce the carrying amount of certain Broadbase long-term assets
to $0 due to the fair value of the acquired assets exceeding the
purchase price (negative goodwill).
(b) To eliminate Broadbase historical goodwill. Due to the fair value
of the acquired assets exceeding the purchase price (negative
goodwill), no value has been assigned to the developed technology,
in-process technology, workforce and other acquired intangible
assets acquired from Broadbase.
(c) To record estimated direct merger costs of approximately $6.4
million to be incurred by Kana and approximately $4.8 million of
estimated merger costs to be incurred by Broadbase.
(d) To reduce the Broadbase deferred revenue to estimated fair value.
(e) To record deferred credit-negative goodwill resulting from the
merger as the fair value of the acquired assets exceeds the
purchase price.
(f) To eliminate the historical stockholders' equity of Broadbase and
record the Kana shares, options and warrants issued in the merger.
Statement of Operations
The accompanying unaudited pro forma combined statement of operations has
been prepared as if the proposed merger of Kana and Broadbase, the merger of
Kana and Silknet and the acquisition by Broadbase of Servicesoft were each
completed as of January 1, 2000 and reflects the following pro forma
adjustments:
(g) To eliminate amortization of Broadbase and Servicesoft historical
goodwill and other purchased intangible assets. No additional
goodwill amortization has been recorded for the Silknet merger for
the period prior to the merger due to the goodwill impairment
charge recorded in the fourth quarter of 2000.
(h) To record amortization of deferred stock-based compensation
resulting from the merger of Kana and Broadbase and the merger of
Broadbase and Servicesoft.
(i) To record the amortization of deferred credit-negative goodwill
resulting from the merger of Kana and Broadbase on a straight line
basis over a three year period.
(j) Reflects issuance by Kana of approximately 86.2 million shares of
common stock in connection with the merger with Broadbase and an
additional approximately 8.7 million shares related to the merger
with Silknet. Shares used to calculate unaudited pro forma net loss
per share exclude the anti-dilutive effect of Kana's stock options
including options to be issued in the merger.
(k) Reflects Silknet's results of operations for the period from
January 1, 2000 through April 19, 2000 prior to the acquisition of
Silknet by Kana on April 20, 2000.
(l) Reflects Servicesoft's results of operations for the period from
January 1, 2000 through December 15, 2000 prior to the acquisition
of Servicesoft by Broadbase on December 18, 2000.
98
COMPARISON OF STOCKHOLDER RIGHTS
This section of the joint proxy statement/prospectus describes some of the
differences between the rights of holders of Broadbase common stock and Kana
common stock. This section does not include a complete description of all
differences among the rights of these stockholders, nor does it include a
complete description of the specific rights of these stockholders. In addition,
the identification of some differences in the rights of these stockholders as
material is not intended to indicate that other differences that are equally
important or that you deem important do not exist. Therefore, this summary is
qualified by reference to Delaware Law, Kana's certificate of incorporation and
bylaws, and Broadbase's certificate of incorporation and bylaws. You should
carefully read this entire joint proxy statement/prospectus and any other
documents to which we refer for a more complete understanding of the
differences between being a stockholder of Kana and being a stockholder of
Broadbase.
Comparison of Rights of Kana Stockholders and Broadbase Stockholders under
Delaware Law and each Company's Certificate of Incorporation and Bylaws
Kana and Broadbase are both organized under the laws of the State of
Delaware. Any differences, therefore, in the rights of holders of Kana common
stock and Broadbase common stock arise primarily from differences in their
respective restated certificates of incorporation, bylaws and rights
agreements. Upon completion of the merger, holders of Broadbase common stock
will become holders of Kana common stock and, consequently, their rights will
be governed by the Kana restated certificate of incorporation and restated
bylaws. However, the rights of holders of Broadbase common stock following the
merger will continue to be governed by Delaware law.
Certificate of Incorporation and Bylaw Provisions. Kana's and Broadbase's
certificates of incorporation and bylaws include provisions that may have the
effect of discouraging, delaying or preventing a change in control or an
unsolicited acquisition proposal that a stockholder might consider favorable,
including a proposal that might result in the payment of a premium over the
market price for the shares held by holders of Kana and Broadbase common stock.
Capital Stock. Broadbase's certificate of incorporation provides that
Broadbase's authorized capital stock consists of 90,000,000 shares of common
stock, $0.001 par value, and 5,000,000 shares of preferred stock, $0.001 par
value. Kana's authorized capital stock consists of 1,000,000,000 shares of
common stock, par value $0.001 per share, and 5,000,000 shares of preferred
stock, par value $0.001 per share.
Classified Board. Delaware law provides that a corporation's board of
directors may be divided into various classes with staggered terms of office.
The boards of directors for both Broadbase and Kana are divided into three
classes with staggered three-year terms. The classification of each board has
the effect of requiring at least two annual stockholder meetings, instead of
one, to replace a majority of the members of either company's board of
directors.
Number and Election of Directors. Under Delaware law, a corporation may fix
the number of directors or the process by which to do so in either its
certificate of incorporation or bylaws. In order to be elected as a director, a
person shall have received a plurality of the votes of shares present and
entitled to vote. When electing directors in a Delaware corporation,
stockholders do not have cumulative voting rights unless the corporation's
certificate of incorporation so provides.
Pursuant to both Kana's and Broadbase's respective certificates of
incorporation, the size of the board of directors of each shall be determined
by resolution of the board of directors. The size of the Kana board is set at
nine members while the size of Broadbase's is five members. The directors of
both Kana and Broadbase are elected as mandated by Delaware law. Neither Kana
nor Broadbase have instituted cumulative voting.
99
Vacancy on the Board of Directors and Removal of Directors. Delaware law
allows any vacancy on the board of directors to be filled by a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director, unless otherwise provided for in the certificate of incorporation or
bylaws. Also, directors of Delaware corporations with staggered boards may only
be removed at an election of directors for cause by a majority of shares
entitled to vote at such meeting.
Both Kana and Broadbase have adopted Delaware's provisions for filling board
vacancies and for the removal of any of either company's directors. Currently,
Kana has three vacancies on its board of directors and Broadbase has one. If
the merger is consummated, then immediately following the merger Kana would
have four vacancies on its board of directors. These provisions prevent a
stockholder from enlarging the board of directors and filling the new
directorships with such stockholder's own nominees without the approval of the
Broadbase board of directors.
Directors' Committees. Under Delaware law, a board of directors may
designate one or more committees, which consists of one or more directors.
Except as provided for in the resolution of the board of directors or the
bylaws, a committee of a Delaware corporation shall have and exercise all the
powers and authority of the board of directors in the management of the
business and affairs of the corporation. However, no such committee shall have
power to approve, adopt, or recommend to the stockholders, any action or matter
require by law to be submitted to the stockholders for approval or to adopt,
amend, or repeal any bylaw of the corporation. Kana's bylaws provide that the
board of directors may by the vote of a majority of the board of directors
designate one or more committees of the board, each comprised of one or more
members of the board. To the extent provided in a resolution of Kana's board of
directors, these committees may exercise all the powers and authority of the
board of directors in the management of Kana, including, if the resolution
expressly provides, the declaration of a dividend or the issuance of stock,
except that no committee may:
. amend Kana's certificate of incorporation or bylaws;
. adopt an agreement of merger or consolidation;
. recommend the sale, lease or exchange of all or substantially all of
Kana's assets; or
. recommend dissolution or revocation of a dissolution of Kana.
Broadbase's bylaws provide that a majority of the board of directors may
designate one or more committees of the board. To the extent provided in a
resolution of the Broadbase board of directors, any committees of the Broadbase
board of directors may exercise all the powers and authority of the board in
the management of the business and affairs of Broadbase, except that no
committee may:
. approve or adopt, or recommend to Broadbase's stockholders, any action or
matter expressly required by law to be submitted to stockholders for
approval; or
. adopt, amend or repeal any bylaws of Broadbase.
Supermajority Voting. Kana's certificate of incorporation requires the
approval of the holders of 66 2/3% of its outstanding voting stock to effect
certain amendments to the certificate of incorporation with respect to:
. the vote necessary to amend its bylaws or certificate of incorporation;
. the size, classification and method of election of its board of
directors;
. the conduct of stockholders' meetings and stockholder action by written
consent; and
. indemnification of its directors, officers and others.
In addition, Kana's certificate of incorporation provides that directors are
removable only by the vote of the holders of 66 2/3% of Kana's outstanding
voting capital stock. Kana's bylaws may be amended by the majority vote of the
board of directors or by the vote of the holders of 66 2/3% of Kana's
outstanding voting capital stock. Neither Broadbase's certificate of
incorporation nor its bylaws require a supermajority vote of Broadbase's
stockholders to approve any action.
100
Special Meeting of Stockholders. Delaware law provides that the board of
directors or any other person may call a special meeting of stockholders as so
authorized by a corporation's charter documents. Kana's certificate of
incorporation provides that special meetings of stockholders of Kana may only
be called by its board of directors. This provision prevents Kana stockholders
from initiating or effecting any action by calling a special meeting of the
stockholders.
Broadbase's bylaws provide that special meetings of stockholders of
Broadbase may only be called by the board of directors, the chairperson of the
board of directors, a majority of the members of the board of directors,
Broadbase's chief executive officer, Broadbase's president or the holders of
shares that are entitled to cast at least a ten-percent of the total number of
votes entitled to be cast by all stockholders at such meeting.
No Stockholder Action by Written Consent. Unless otherwise indicated in a
corporation's certificate of incorporation, stockholders of a Delaware
corporation are entitled by law to take any action without a meeting, prior
notice or vote if holders of enough shares of voting stock to carry the action
at such a meeting consent in writing to take such action without a stockholder
meeting. Kana's certificate of incorporation provides that Kana's stockholders
may take action only at an annual or special meeting of stockholders of Kana
and shall have no right to take any action by written consent without a
meeting. Broadbase's certificate of incorporation and bylaws similarly provide
that stockholder action may only be taken at a duly called annual or special
meeting of stockholders and may not be taken by written consent. These
provisions, taken together, prevent stockholders from forcing consideration by
the stockholders of stockholder proposals over the opposition of the board of
directors, except at an annual special meeting.
Record Date for Determining Stockholders. Delaware provides that the board
may fix a date to determine the stockholders entitled to notice of and vote at
any meeting of stockholders that is not more than 60 days nor less than 10 days
before the date of such meeting. Both Kana and Broadbase have adopted this
provision.
Notice of Board Nominations and Other Stockholder Business--Annual
Meetings. Delaware provides that any proper business may be transacted at a
corporation's annual meeting. Kana's bylaws establish advance notice procedures
with respect to all stockholder proposals to be brought before meetings of
stockholders of Kana, including proposals relating to board nominations, the
removal of directors and amendments to its certificate of incorporation or
bylaws. These procedures provide that such notice must contain the consent of
any nominee for election to the board of directors as well as certain
information with respect to such nominee, a brief description of and reasons
for any business desired to be brought before a meeting, the ownership interest
of the proposing stockholder and certain other information. Generally, to be
timely, notice must be received by Kana's secretary not less than 120 days
prior to the meeting.
Under the notice procedure in its bylaws, Broadbase must receive notice of
stockholder nominations or proposals to be made at an annual not less than 60
days nor more than 90 days prior to the first anniversary of the date of the
preceding year's annual meeting. In the event that the date of the annual
meeting is either thirty days before or sixty days after such anniversary date,
Broadbase must receive notice not less than 60 days nor more than 90 days prior
to such date or 10 days following the day on which Broadbase publicly announces
its annual meeting. However, if the number of directors to be elected to the
board of directors is increased and Broadbase fails to make a public
announcement naming all of the nominees for director or specifying the size of
the increased board of directors at least 70 days prior to the first
anniversary of the preceding year's annual meeting, then notice must be
received not later than the 10th day following the day such public disclosure
was made. In such case, the notice will be timely only with respect to any
director nominees for any position caused by the increase in the board of
directors.
Adequate notice to Broadbase stockholders must contain:
. for each proposed board nominee, all information required to be disclosed
about such person for a solicitation of proxies or pursuant to Regulation
14A under the Securities Exchange Act of 1934, as amended, and the
written consent of the person nominated;
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. as to all other proposed business, a brief description of the proposal,
the reasons for presenting the proposal at the annual meeting, and any
material interest of the proposing stockholder or any related beneficial
owner, if necessary; and
. if proposed on behalf of a beneficial owner, the name and address of the
proposing stockholder and beneficial owner and the class and numbers of
shares owned by the proposing stockholder and the beneficial owner.
Neither Broadbase's nor Kana's bylaws give the board of directors any power
to approve or disapprove stockholder board nominations or proposals for annual
meetings. However, if Kana's or Broadbase's proper advance notice procedures
are not followed with respect to a particular nomination or proposal, then the
nomination or proposal will not be considered at the annual meeting without
regard to whether consideration, or the lack thereof, of such nominees or
proposals might be harmful or beneficial to Kana, Broadbase, or either
company's stockholders. The notice procedure of each company may prevent a
contest for the election of directors or the consideration of stockholder
proposals at an annual meeting. These procedures could also deter a third party
from conducting a solicitation of proxies to elect its own slate of directors
or to approve its own proposal at an annual meeting.
Notice of Board Nominations and Other Stockholder Business--Special
Meetings. Delaware law does not mandate any particular procedures for
stockholders to provide adequate notice of any proposed business. Kana's bylaws
do not distinguish between the procedure for providing notice of board
nominations and other stockholder business for its annual meetings of
stockholders and those for its special meetings of stockholders.
Broadbase's certificate of incorporation limits the business transacted at a
special meeting of stockholders to those purposes stated in the notice of such
meeting. The bylaws of Broadbase require that notice of stockholder nominations
to be made at a special meeting called by the board of directors for the
purpose of electing one or more directors must be received not earlier than the
90th day prior to such special meeting nor later than the close of business on
the 60th day prior to such special meeting or the 10th day following the day
public disclosure of the special meeting and the nominees proposed by the board
of directors to be elected at such meeting was made. These notices must contain
the same information as those for the annual meeting.
Neither Broadbase's nor Kana's bylaws give the board of directors any power
to approve or disapprove stockholder board nominations or proposals for special
meetings. However, if Kana's or Broadbase's proper advance notice procedures
are not followed with respect to a particular nomination or proposal, then the
nomination or proposal will not be considered at the special meeting without
regard to whether consideration, or the lack thereof, of such nominees or
proposals might be harmful or beneficial to Kana, Broadbase, or either
company's stockholders. The notice procedure of each company may prevent a
contest for the election of directors or the consideration of stockholder
proposals at a special meeting. These procedures could also deter a third party
from conducting a solicitation of proxies to elect its own slate of directors
or to approve its own proposal at a special meeting.
Limitations of Liability of Directors. Kana's certificate of incorporation
eliminates, to the maximum extent allowed by the Delaware General Corporation
Law, a director's personal liability to Kana or its stockholders for monetary
damages for breaches of fiduciary duties. The certificate of incorporation does
not, however, eliminate or limit the personal liability of a director for the
following:
. any breach of the director's duty of loyalty to Kana or its stockholders;
. acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
. any transaction from which the director derived an improper personal
benefit.
Broadbase's certificate of incorporation similarly eliminates a director's
personal liability to Broadbase or its stockholders for monetary damages for
breaches of fiduciary duties to the maximum extent allowed by the Delaware
General Corporation Law, which currently prevents the elimination or limitation
of personal liability
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of a director in all those circumstances outlined in Kana's certificate of
incorporation. However, Broadbase's certificate of incorporation does not set
forth the exclusions that are included in Kana's certificate of incorporation.
Effect of Delaware Anti-takeover Statute. Kana and Broadbase are subject to
Section 203 of the Delaware General Corporation Law, as amended, that 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 the date the stockholder became an interested stockholder, 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 by persons who are
directors and also officers and 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.
Section 203 defines business combinations to include:
. any merger or consolidation involving the corporation and any interested
stockholder;
. any sale, transfer, pledge or other disposition of 10% or more of the
assets of the corporation involving the interested stockholder;
. 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 beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
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OTHER KANA PROPOSALS
Proposal to Change Kana's Name
On April 9, 2001, Kana entered into a merger agreement with Broadbase. As a
condition to the completion of the merger, Kana agreed to use commercially
reasonable efforts to change its name from "Kana Communications, Inc." to "Kana
Software, Inc." Kana believes that "Kana Software, Inc." will better reflect
the Company's current business focus as a result of its recent acquisitions,
including the proposed acquisition of Broadbase.
By approving this proposal, the stockholders will authorize the board to
amend Kana's second amended and restated certificate of incorporation to
reflect this name change. The amendment to the second amended and restated
certificate of incorporation will take the following form:
Article I is replaced with a new Article I--"The name of this corporation is
Kana Software, Inc. (the "Corporation')."
Kana expects the formal implementation of the name change with the Delaware
Secretary of State to be completed by the end of summer 2001 after stockholder
approval. There will be no adverse tax consequences associated with this name
change and it will not affect the rights of any holders of Kana's common stock.
Implementation costs during fiscal year 2001 are not expected to be material.
Required Vote
The proposal to change Kana's name to "Kana Software, Inc." by amending
Kana's second amended and restated certificate of incorporation requires the
affirmative vote of the holders of a majority of the outstanding shares of
Kana's common stock.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
APPROVAL OF THE AMENDMENT OF KANA'S SECOND AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION.
Proposal to Amend Kana's 1999 Stock Incentive Plan
The Kana stockholders are being asked to approve an amendment of the 1999
Stock Incentive Plan which will increase the number of shares of Kana common
stock available for issuance under the 1999 Stock Incentive Plan by an
additional 10,000,000 shares.
The amendment will also increase the limit on the maximum number of shares
by which the share reserve under the 1999 Share Incentive Plan may
automatically increase each calendar year from 4,000,000 shares to 10,000,000
shares, effective for all calendar years after 2001.
The increase to the share reserve will allow Kana to continue to utilize
equity incentives to attract and retain the services of key individuals
essential to its long-term growth and financial success. Equity incentives play
a significant role in the company's efforts to remain competitive in the market
for talented individuals, and Kana relies on such incentives as a means to
attract and retain highly qualified individuals in the positions vital to its
success.
All share numbers in this proposal reflect the two-for-one split of the Kana
common stock which was effected on February 22, 2000 through the payment of a
dividend of one additional share of common stock for each share of Kana common
stock outstanding on January 28, 2000.
The following is a summary of the principal features of the 1999 Stock
Incentive Plan, as most recently amended, a copy of which is attached to this
joint proxy statement/prospectus as Appendix XII. The 1999 Stock Incentive Plan
serves as the successor to Kana's 1997 Stock Option/Stock Issuance Plan which
terminated in connection with the initial public offering of our common stock
on September 21, 1999. All outstanding options under the 1997 plan at the time
of such termination were transferred to the 1999 Stock Incentive Plan.
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Equity Incentive Programs
The 1999 Stock Incentive Plan consists of five separate equity incentive
programs: (i) the discretionary option grant program, (ii) the stock issuance
program, (iii) the salary investment option grant program, (iv) the automatic
option grant program for non-employee board members and (v) the director fee
option grant program. The principal features of each program are described
below. The compensation committee of Kana's board of directors will have the
exclusive authority to administer the discretionary option grant and stock
issuance programs with respect to option grants and stock issuances made to
Kana's executive officers and non-employee board members and will also have the
authority to make option grants and stock issuances under those programs to all
other eligible individuals. However, Kana's board of directors may at any time
appoint a secondary committee of one or more board members to have separate but
concurrent authority with the compensation committee to make option grants and
stock issuances under those two programs to individuals other than executive
officers and non-employee board members. The compensation committee will also
have complete discretion to select the individuals who are to participate in
the salary investment option grant program, but all grants made to the selected
individuals will be governed by the express terms of that program.
The term plan administrator, as used in this summary, will mean Kana's
compensation committee and any secondary committee, to the extent each such
entity is acting within the scope of its administrative authority under the
1999 Stock Incentive Plan. However, neither the compensation committee nor any
secondary committee will exercise any administrative discretion under the
automatic option grant or director fee option grant program. All grants under
those programs will be made in strict compliance with the express provisions of
such programs.
Share Reserve
At present, 35,982,428 shares of Kana's common stock are reserved for
issuance over the term of the 1999 Stock Incentive Plan. Such share reserve
consists of (i) the 9,400,000 shares initially reserved for issuance under the
1999 Stock Incentive Plan (including the shares of Kana's common stock subject
to the outstanding options under the predecessor 1997 plan which have been
transferred to the 1999 Stock Incentive Plan) plus (ii) the additional
2,583,100 shares added to the reserve plan on January 3, 2000 pursuant to the
automatic share increase provisions of the 1999 Stock Incentive Plan, plus
(iii) the 10,000,000 share increase approved by the stockholders at the Special
Meeting held on April 25, 2000, plus (iv) the additional 3,999,328 shares added
to the reserve plan on January 2, 2001 pursuant to the automatic share increase
provisions of the 1999 Stock Incentive Plan and (v) the 10,000,000 share
increase which is the subject of this proposal.
The number of shares of Kana's common stock available for issuance under the
1999 Stock Incentive Plan will automatically increase on the first trading day
of January each calendar year, beginning with calendar year 2000, by an amount
equal to 4.25% of the total number of shares of Kana's outstanding common stock
on the last trading day in December of the immediately preceding calendar year,
but in no event will any such annual increase exceed 4,000,000 shares. The
proposed amendment will increase the limit on the maximum number of shares by
which the share reserve under the 1999 Share Incentive Plan may automatically
increase each calendar year from 4,000,000 shares to 10,000,000 shares,
effective for all calendar years after 2001.
No participant in the 1999 Stock Incentive Plan may receive option grants,
separately exercisable stock appreciation rights or direct stock issuances for
more than 2,000,000 shares of Kana's common stock in total per calendar year,
subject to adjustment for subsequent stock splits, stock dividends and similar
transactions. Stockholder approval of this proposal will also constitute re-
approval of the 2,000,000-share limitation for purposes of Internal Revenue
Code Section 162(m).
The shares of common stock issuable under the 1999 Stock Incentive Plan may
be drawn from shares of Kana's authorized but unissued common stock or from
shares of Kana's common stock which it acquires, including shares purchased on
the open market.
Shares subject to any outstanding options under the 1999 Stock Incentive
Plan (including options transferred from the 1997 plan) which expire or
otherwise terminate prior to exercise will be available for subsequent
issuance. Unvested shares issued under the 1999 Stock Incentive Plan and
subsequently purchased
105
by Kana, at the option exercise or direct issue price paid per share, pursuant
to Kana's purchase rights under the 1999 Stock Incentive Plan will be added
back to the number of shares reserved for issuance under the 1999 Stock
Incentive Plan and will accordingly be available for subsequent issuance.
However, any shares subject to stock appreciation rights exercised under the
1999 Stock Incentive Plan will not be available for reissuance.
Eligibility
Officers and employees, non-employee board members and independent
consultants in Kana's service or in the service of any parent and subsidiary
companies (whether now existing or subsequently established) will be eligible
to participate in the discretionary option grant and stock issuance programs.
Kana's executive officers and other highly paid employees will also be eligible
to participate in the salary investment option grant program. Participation in
the automatic option grant and director fee option grant programs will be
limited to the non-employee members of Kana's board of directors.
As of April 20, 2001, approximately 585 employees, including five executive
officers and five non-employee board members, were eligible to participate in
the discretionary option grant and stock issuance programs. The five executive
officers were also eligible to participate in the salary investment option
grant program, and the five non-employee board members were also eligible to
participate in the automatic option grant and director fee option grant
programs.
Valuation
The fair market value per share of Kana's common stock on any relevant date
under the 1999 Stock Incentive Plan will be deemed to be equal to the closing
selling price per share on that date on the Nasdaq National Market. On April
20, 2001, the fair market value per share of Kana's common stock determined on
such basis was $1.27.
Discretionary Option Grant Program
The plan administrator will have complete discretion under the discretionary
option grant program to determine which eligible individuals are to receive
option grants, the time or times when those grants are to be made, the number
of shares subject to each such grant, the status of any granted option as
either an incentive stock option or a non- statutory option under the federal
tax laws, the vesting schedule (if any) to be in effect for the option grant
and the maximum term for which any granted option is to remain outstanding.
Each granted option will have an exercise price per share determined by the
plan administrator, and that price may be set at a dollar amount less than,
equal to or greater than the fair market value of the option shares on the
grant date.
No granted option may have a term in excess of ten years. The shares subject
to each option will generally vest in one or more installments over a specified
period of service measured from the grant date. However, one or more options
may be structured so that they will be immediately exercisable for any or all
of the option shares. The shares acquired under such immediately exercisable
options will be subject to repurchase by Kana, at the exercise price paid per
share, if the optionee ceases service prior to vesting in those shares.
Upon cessation of service, the optionee will have a limited period of time
in which to exercise his or her outstanding options to the extent exercisable
for vested shares. The plan administrator will have complete discretion to
extend the period following the optionee's cessation of service during which
his or her outstanding options may be exercised and/or to accelerate the
exercisability or vesting of such options in whole or in part. Such discretion
may be exercised at any time while the options remain outstanding, whether
before or after the optionee's actual cessation of service.
The plan administrator is authorized to issue tandem stock appreciation
rights under the discretionary option grant program which will provide the
holders with the right to surrender their options to Kana for an
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appreciation distribution. The amount of the distribution payable by Kana will
be equal to the excess of (a) the fair market value of the vested shares of
Kana's common stock subject to the surrendered option over (b) the aggregate
exercise price payable for those shares. Such appreciation distribution may, at
the discretion of the plan administrator, be made in cash or in shares of
Kana's common stock.
The plan administrator will also have the authority to effect the
cancellation of outstanding options under the discretionary option grant
program (including options transferred from the 1997 plan) in return for the
grant of new options for the same or a different number of option shares with
an exercise price per share based upon the fair market value of Kana's common
stock on the new grant date.
Salary Investment Option Grant Program
Kana's compensation committee will have complete discretion in implementing
the salary investment option grant program for one or more calendar years and
in selecting the executive officers and other eligible individuals who are to
participate in the program for those years. As a condition to such
participation, each selected individual must, prior to the start of the
calendar year of participation, file with the compensation committee an
irrevocable authorization directing Kana to reduce his or her base salary for
the upcoming calendar year by a specified dollar amount not less than $10,000
nor more than $50,000 and to apply that amount to the acquisition of a special
option grant under the program.
Each selected individual who files such a timely election will automatically
be granted a non-statutory option on the first trading day in January of the
calendar year for which that salary reduction is to be in effect. Stockholder
approval of this proposal will also constitute pre-approval of each option
granted under the salary investment option grant program and the subsequent
exercise of that option in accordance with the terms of the program summarized
below.
The number of shares subject to each such option will be determined by
dividing the salary reduction amount by two-thirds of the fair market value per
share of Kana common stock on the grant date, and the exercise price will be
equal to one-third of the fair market value of the option shares on the grant
date. As a result, the total spread on the option shares at the time of grant
(the fair market value of the option shares on the grant date less the
aggregate exercise price payable for those shares) will be equal to the amount
by which the optionee's salary is to be reduced for the calendar year. In
effect, the salary reduction serves as a prepayment, as of the time of the
option grant, of two-thirds of the then current market price of the shares of
common stock subject to the option.
The option will become exercisable in a series of twelve successive equal
monthly installments upon the optionee's completion of each month of service in
the calendar year for which the salary reduction is in effect and will become
immediately exercisable for all the option shares on an accelerated basis
should Kana experience certain changes in ownership or control. Each option
will remain exercisable for any vested shares until the earlier of (i) the
expiration of the ten-year option term or (ii) the end of the three-year period
measured from the date of the optionee's cessation of service.
Stock Issuance Program
Shares may be issued under the stock issuance program at a price per share
determined by the plan administrator, and such price may be less than, equal to
or greater than the fair market value of the shares at the time of issuance.
The issue price may be paid in cash or through a full-recourse promissory note.
Shares may also be issued as a bonus for past services without any cash outlay
required of the recipient. Shares may also be issued under the program pursuant
to share right awards which entitle the recipients to receive those shares upon
the attainment of designated performance goals or the completion of a specified
service requirement. The plan administrator will have complete discretion under
the program to determine which eligible individuals are to receive such stock
issuances or share right awards, the time or times when those issuances or
awards are to be made, the number of shares subject to each such issuance or
award, the consideration (if any) to be paid for the issued shares and the
vesting schedule to be in effect for the stock issuance or share rights award.
107
The issued shares may be fully and immediately vested upon issuance or may
vest upon the completion of a designated service period or the attainment of
pre-established performance goals. The plan administrator will, however, have
the discretionary authority at any time to accelerate the vesting of any and
all unvested shares outstanding under the stock issuance program.
Outstanding share right awards under the program will automatically
terminate, and no shares will actually be issued in satisfaction of those
awards, if the performance goals or service requirements established for such
awards are not attained. The plan administrator, however, will have the
discretionary authority to issue shares of Kana's common stock in satisfaction
of one or more outstanding share right awards as to which the designated
performance goals or service requirements are not attained.
Automatic Option Grant Program
Under the automatic option grant program, eligible non-employee members of
Kana's board of directors will receive a series of option grants over their
period of board service. Each new non-employee board member will, at the time
of his or her initial election or appointment to the board, receive an option
grant for 40,000 shares of Kana's common stock, provided such individual has
not previously been in Kana's employ. On the date of each annual stockholders
meeting, each individual who is to continue to serve as a non-employee board
member will automatically be granted an option to purchase 10,000 shares of
Kana's common stock, provided he or she has served as a non-employee board
member for at least six months.
There will be no limit on the number of such 10,000 share annual option
grants any one eligible non-employee board member may receive over his or her
period of continued board service, and non-employee board members who have
previously been in Kana's employ will be eligible to receive one or more such
annual option grants over their period of board service.
Stockholder approval of this proposal will also constitute pre-approval of
each option granted under the automatic option grant program on or after the
date of the annual meeting and the subsequent exercise of each such option in
accordance with the terms of the program summarized below.
Each automatic grant will have an exercise price per share equal to the fair
market value per share of Kana's common stock on the grant date and will have a
maximum term of 10 years, subject to earlier termination following the
optionee's cessation of board service. Each automatic option will be
immediately exercisable for all of the option shares. However, any unvested
shares purchased under such option will be subject to repurchase by Kana, at
the exercise price paid per share, should the optionee cease board service
prior to vesting in those shares. The shares subject to each initial 40,000
share automatic option grant will vest in a series of 8 successive equal semi-
annual installments upon the optionee's completion of each 6 month period of
board service over the 48 month period measured from the grant date. However,
the shares subject to each such initial option grant will immediately vest in
full upon certain changes in control or ownership or upon the optionee's death
or disability while a board member. The shares subject to each annual 10,000
shares automatic grant will be fully vested at the time of the option grant.
Following the optionee's cessation of board service for any reason, each
automatic option grant will remain exercisable for a 12 month period and may be
exercised during that time for any or all shares in which the optionee is
vested at the time of such cessation of board service.
Director Fee Option Grant Program
The plan administrator will have complete discretion in implementing the
director fee option grant program for one or more calendar years. If the
program is implemented, each non-employee board member may elect, prior to the
start of each calendar year, to apply all or any portion of any annual retainer
fee otherwise payable in cash for his or her period of service on the board for
that year to the acquisition of a below-market option grant. The option grant
will be a nonstatutory option and will automatically be made on the first
trading day in January in the calendar year for which an election is in effect.
The option will have a
108
maximum term of 10 years measured from the grant date and an exercise price per
share equal to one-third of the fair market value of the option shares on such
date. The number of shares subject to each option will be determined by
dividing the amount of the retainer fee applied to the acquisition of that
option by two-thirds of the fair market value per share of Kana's common stock
on the grant date. As a result, the total spread on the option (the fair market
value of the option shares on the grant date less the aggregate exercise price
payable for those shares) will be equal to the portion of the retainer fee
applied to the acquisition of the option. In effect, the director fee election
serves as a prepayment, as of the time of the option grant, of two-thirds of
the then current market price of the shares of common stock subject to the
option.
The option will become exercisable in a series of twelve successive equal
monthly installments upon the optionee's completion of each month of board
service in the calendar year for which the director fee election is in effect,
subject to full and immediate acceleration upon certain changes in control or
ownership or upon the optionee's death or disability while a board member. Each
option granted under the program will remain exercisable for vested shares
until the earlier of the expiration of the ten-year option term or the
expiration of the three-year period measured from the date of the optionee's
cessation of board service.
Limited Stock Appreciation Rights
Limited stock appreciation rights may be granted under the discretionary
option grant program to one or more of Kana's officers or non-employee board
members as part of their option grants, and each option granted under the
salary investment option grant, automatic option grant and director fee option
grant program will automatically include such a limited stock appreciation
right. Upon the successful completion of a hostile tender offer for more than
50% of Kana's outstanding voting securities or a change in a majority of Kana's
board of directors as a result of one or more contested elections for board
membership, each outstanding option with a limited stock appreciation right may
be surrendered to Kana in return for a cash distribution. The amount of the
distribution per surrendered option share will be equal to the excess of (i)
the fair market value per share at the time the option is surrendered or, if
greater, the highest tender offer price paid per share in the hostile take-over
over (ii) the exercise price payable per share under the surrendered option.
Predecessor Plan
All outstanding options under the predecessor 1997 plan which were
transferred to the 1999 Stock Incentive Plan will continue to be governed by
the terms of the agreements evidencing those options, and no provision of the
1999 Stock Incentive Plan will affect or otherwise modify the rights or
obligations of the holders of the transferred options with respect to their
acquisition of Kana's common stock. However, the plan administrator has
complete discretion to extend one or more provisions of the 1999 Stock
Incentive Plan to the transferred options, to the extent those options do not
otherwise contain such provisions.
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Stock Awards
The table below shows, as to Kana's chief executive officer, Kana's four
other most highly compensated executive officers (with base salary and bonus
for the 2000 fiscal year in excess of $100,000) and the other individuals and
groups indicated, the number of shares of common stock subject to option grants
made under the 1999 Stock Incentive Plan from September 21, 1999, the effective
date of the 1999 Stock Incentive Plan, through April 20, 2001, together with
the weighted average exercise price payable per share. Kana has not made any
direct stock issuances to date under the 1999 Stock Incentive Plan.
Number of Shares Weighted Average
Underlying Options Purchase Price
Name and Position Granted (#) Per Share ($)
----------------- ------------------ ----------------
James C. Wood............................. 41,599 $15.36
Current Chief Executive Officer(1)
Michael J. McCloskey...................... 1,866,766 $ 0.34
Former Chief Executive Officer(2)
Nigel K. Donovan.......................... 1,137,818 $ 8.94
Chief Operating Officer
Paul R. Holland........................... 856,506 $ 2.10
Former Vice President, Worldwide Sales(3)
William R. Phelps......................... 878,430 $ 2.27
Former Vice President, Professional
Services(4)
Alexander E. Evans........................ 465,100 $17.15
Former Vice President, International(5)
Robert W. Frick........................... 76,666 $ 6.46
Nominee for Election as a Director
Kevin Harvey.............................. -- --
Nominee for Election as a Director
All current executive officers as a group
(5 persons).............................. 2,453,516 $26.33
All current non-employee directors as a
group (5 persons)........................ 486,728 $ 3.56
All employees, including current officers
who are not executive officers, as a
group (approximately 575 persons)........ 18,944,630 $29.72
--------
(1) Mr. Wood joined Kana as a director in April 2000 in connection with Kana's
acquisition of Silknet Software, Inc. and served as Kana's President from
May 2000 to January 2001. In January 2001, Mr. Wood became Kana's Chief
Executive Officer.
(2) Mr. McCloskey served as Kana's Chief Executive Officer from June 1999
through January 2001.
(3) Mr. Holland served as Kana's Vice President, Worldwide Sales from December
1997 through December 2000.
(4) Mr. Phelps served as Kana's Vice President, Professional Services from
December 1998 through April 2001.
(5) Mr. Evans served as Kana's Vice President, International from July 1999
through April 2001.
As of April 20, 2001, 16,229,331 shares of Kana's common stock were subject
to outstanding options under the 1999 Stock Incentive Plan, and 23,909,588
shares remained available for future issuance, assuming stockholder approval of
the 10,000,000 share increase which is the subject of this proposal.
In addition, on April 26, 2001, James C. Wood, Kana's chief executive
officer, who is expected to be chairman of Kana's board of directors following
the merger, and Nigel Donovan, Kana's chief operating officer, who is expected
to become a vice president of Kana following the merger, received options to
purchase Kana common stock. Mr. Wood received an option to purchase 400,000
shares of Kana common stock that will vest monthly from the grant date over the
next 48 months of his continued service to Kana, and Mr. Donovan received an
option to purchase 200,000 shares of Kana common stock that will vest monthly
from the grant date over the next 24 months of his continued service to Kana.
Both options have an exercise price of $1.08.
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New Plan Benefits
No options have been granted to date under the 1999 Stock Incentive Plan on
the basis of the share increase which forms part of this proposal.
1999 Special Stock Option Plan
Kana's 1999 Special Stock Option Plan was implemented by the board of
directors in December 1999, and 1,000,000 shares of Kana's common stock have
been reserved for issuance under this plan. The shares will be made available
from Kana's authorized but unissued shares of common stock or from any common
stock Kana repurchases, whether on the open market or otherwise. Participation
in the special plan is limited to (i) officers who receive their option grant
under the plan in connection with their commencement of employment with Kana,
whether as a result of Kana's acquisition of their former employer or by reason
of their initial hire, and (ii) employees who are neither officer nor directors
at the time of the option grant. All options granted under the special plan
will be non-statutory options under the federal tax laws and will not have a
term in excess of ten years. Kana's compensation committee will serve as the
plan administrator and will have the discretion to grant options under the
special plan with an exercise price less than, equal to or greater than the
fair market value of the option shares on the grant date. The remaining terms
and provisions of the special plan are substantially the same as those in
effect for the discretionary option grant program of Kana's 1999 Stock
Incentive Plan. As of April 20, 2001, options for 870,764 shares of Kana's
common stock were outstanding under the special plan with a weighted average
exercise price of $14.24 per share, options for 24,550 shares had been
exercised, and 206,590 shares remained available for future option grant.
General Provisions
Acceleration
In the event Kana should undergo a change in control, each outstanding
option under the discretionary option grant program will automatically
accelerate in full, unless assumed or otherwise continued in effect by the
successor corporation or replaced with a cash incentive program which preserves
the spread existing on the unvested option shares (the excess of the fair
market value of those shares over the option exercise price payable for such
shares) and provides for subsequent payout in accordance with the same vesting
schedule in effect for those option shares. In addition, all unvested shares
outstanding under the discretionary option grant and stock issuance programs
will immediately vest, except to the extent Kana's repurchase rights with
respect to those shares are to be assigned to the successor corporation or
otherwise continued in effect. The plan administrator will have complete
discretion to grant one or more options under the discretionary option grant
program which will become exercisable for all the option shares in the event
the optionee's service with Kana or the successor entity is terminated
(actually or constructively) within a designated period following a change in
control transaction in which those options are assumed or otherwise continued
in effect. The vesting of outstanding shares under the stock issuance program
may also be structured to accelerate upon similar terms and conditions.
The plan administrator will have the discretion to structure one or more
option grants under the discretionary option grant program so that those
options will immediately vest upon a change in control, whether or not the
options are to be assumed or otherwise continued in effect. The plan
administrator may also structure stock issuances under the stock issuance
program so that those issuances will immediately vest upon a change in control.
The shares subject to each option under the salary investment option grant,
automatic option grant and director fee option grant programs will immediately
vest upon any change in control transaction.
A change in control will be deemed to occur in the event (i) Kana is
acquired by merger or asset sale, (ii) there is a successful tender offer for
more than 50% of Kana's outstanding voting stock or (iii) there is a change in
the majority of the board effected through one or more contested elections for
board membership.
Currently outstanding options under the 1999 Stock Incentive Plan contain a
special acceleration provision pursuant to which 25% of the unvested shares
purchased or purchasable under each such option will
immediately vest in the event Kana is acquired by a merger or asset sale and
the optionee is not offered employment with the successor entity.
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The acceleration of vesting in the event of such a change in control may be
seen as an anti-takeover provision and may have the effect of discouraging a
merger proposal, a takeover attempt or other efforts to gain control of Kana.
Stockholder Rights and Option Transferability
No optionee will have any stockholder rights with respect to the option
shares until the optionee has exercised the option and paid the exercise price
for the purchased shares. Options are not assignable or transferable other than
by will or the laws of inheritance following optionee's death, and during the
optionee's lifetime, the option may only be exercised by the optionee. However,
non-statutory options may be transferred or assigned during optionee's lifetime
to one or more members of the optionee's family or to a trust established for
one or more such family members or to the optionee's former spouse, to the
extent such transfer is in connection with the optionee's estate or pursuant to
a domestic relations order.
Changes in Capitalization
In the event any change is made to the outstanding shares of Kana's common
stock by reason of any recapitalization, stock dividend, stock split,
combination of shares, exchange of shares or other change in corporate
structure effected without Kana's receipt of consideration, appropriate
adjustments will be made to (i) the maximum number and/or class of securities
issuable under the 1999 Stock Incentive Plan, (ii) the maximum number and/or
class of securities for which any one person may be granted stock options,
separately exercisable stock appreciation rights and direct stock issuances
under the 1999 Stock Incentive Plan per calendar year, (iii) the number and/or
class of securities for which grants are subsequently to be made under the
automatic option grant program to new and continuing non-employee board
members, (iv) the number and/or class of securities and the exercise price per
share in effect under each outstanding option, (v) the number and/or class of
securities and the exercise price per share in effect under each outstanding
option transferred from the 1997 plan to the 1999 Stock Incentive Plan and (vi)
the maximum number and/or class of securities by which the share reserve under
the 1999 Stock Incentive Plan is to increase automatically each year. Such
adjustments will be designed to preclude any dilution or enlargement of
benefits under the 1999 Stock Incentive Plan or the outstanding options
thereunder.
Financial Assistance
The plan administrator may institute a loan program to assist one or more
participants in financing the exercise of outstanding options under the
discretionary option grant program or the purchase of shares under the stock
issuance program through full-recourse interest-bearing promissory notes.
However, the maximum amount of financing provided any participant may not
exceed the cash consideration payable for the issued shares plus all applicable
taxes incurred in connection with the acquisition of those shares.
Special Tax Election
The plan administrator may provide one or more holders of options or
unvested share issuances under the Stock Incentive Plan with the right to have
Kana withhold a portion of the shares otherwise issuable to these individuals
in satisfaction of the withholding taxes to which these individuals become
subject in connection with the exercise of those options or the vesting of
those shares. Alternatively, the plan administrator may allow these individuals
to deliver previously acquired shares of common stock in payment of such
withholding tax liability.
Amendment and Termination
The board may amend or modify the 1999 Stock Incentive Plan at any time,
subject to any required stockholder approval pursuant to applicable laws and
regulations. Unless sooner terminated by the board, the Stock Incentive Plan
will terminate on the earliest of (i) June 30, 2009, (ii) the date on which all
shares available for issuance under the 1999 Stock Incentive Plan have been
issued as fully-vested shares or (iii) the termination of all outstanding
options in connection with changes in control or ownership.
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Federal Income Tax Consequences
Option Grants
Options granted under the 1999 Stock Incentive Plan may be either incentive
stock options which satisfy the requirements of Section 422 of the Internal
Revenue Code or non-statutory options which are not intended to meet such
requirements. The Federal income tax treatment for the two types of options
differs as follows:
Incentive Options. No taxable income is recognized by the optionee at the
time of the option grant, and no taxable income is generally recognized at the
time the option is exercised. The optionee will, however, recognize taxable
income in the year in which the purchased shares are sold or otherwise made the
subject of a taxable disposition. For Federal tax purposes, dispositions are
divided into two categories: (i) qualifying and (ii) disqualifying. A
qualifying disposition occurs if the sale or other disposition is made more
than 2 years after the date the option for the shares involved in such sale or
disposition is granted and more than 1 year after the date the option is
exercised for those shares. If those two requirements are satisfied at the time
of the sale or disposition, then a disqualifying disposition will result.
Upon a qualifying disposition, the optionee will recognize long-term capital
gain in an amount equal to the excess of (i) the amount realized upon the sale
or other disposition of the purchased shares over (ii) the exercise price paid
for the shares. If there is a disqualifying disposition of the shares, then the
excess of (i) the fair market value of those shares on the exercise date over
(ii) the exercise price paid for the shares will be taxable as ordinary income
to the optionee. Any additional gain or loss recognized upon the disposition
will be recognized as a capital gain or loss by the optionee.
If the optionee makes a disqualifying disposition of the purchased shares,
then Kana will be entitled to an income tax deduction, for the taxable year in
which such disposition occurs, equal to the excess of (i) the fair market value
of such shares on the option exercise date over (ii) the exercise price paid
for the shares. If the optionee makes a qualifying disposition, then Kana will
not be entitled to any income tax deduction.
Non-Statutory Options. No taxable income is recognized by an optionee upon
the grant of a non-statutory option. The optionee will in general recognize
ordinary income, in the year in which the option is exercised, equal to the
excess of the fair market value of the purchased shares on the exercise date
over the exercise price paid for the shares, and the optionee will be required
to satisfy the tax withholding requirements applicable to such income.
If the shares acquired upon exercise of the non-statutory option are
unvested and subject to repurchase by Kana in the event of the optionee's
termination of service prior to vesting in those shares, then the optionee will
not recognize any taxable income at the time of exercise but will have to
report as ordinary income, as and when Kana's repurchase right lapses, an
amount equal to the excess of (i) the fair market value of the shares on the
date the repurchase right lapses over (ii) the exercise price paid for the
shares. The optionee may, however, elect under Section 83(b) of the Internal
Revenue Code to include as ordinary income in the year of exercise of the
option an amount equal to the excess of (i) the fair market value of the
purchased shares on the exercise date over (ii) the exercise price paid for
such shares. If the Section 83(b) election is made, the optionee will not
recognize any additional income as and when the repurchase right lapses.
Kana will be entitled to an income tax deduction equal to the amount of
ordinary income recognized by the optionee with respect to the exercised non-
statutory option. The deduction will in general be allowed for Kana's taxable
year in which ordinary income is recognized by the optionee.
Stock Appreciation Rights
No taxable income is recognized upon receipt of a stock appreciation right.
The holder will recognize ordinary income, in the year in which the stock
appreciation right is exercised, in an amount equal to the excess of the fair
market value of the underlying shares of common stock on the exercise date over
the base price in effect for the exercised right, and the holder will be
required to satisfy the tax withholding requirements applicable to such income.
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Kana will be entitled to an income tax deduction equal to the amount of
ordinary income recognized by the holder in connection with the exercise of the
stock appreciation right. The deduction will be allowed for Kana's taxable year
in which ordinary income is recognized.
Direct Stock Issuances
The tax principles applicable to direct stock issuances under the 1999 Stock
Incentive Plan will be substantially the same as those summarized above for the
exercise of non-statutory option grants.
Deductibility of Executive Compensation
Kana anticipates that any compensation deemed paid by it in connection with
the disqualifying disposition of incentive stock option shares or the exercise
of non-statutory options with exercise prices equal to the fair market value of
the option shares on the grant date will qualify as performance-based
compensation for purposes of Code Section 162(m) and will not have to be taken
into account for purposes of the $1 million limitation per covered individual
on the deductibility of the compensation paid to certain of Kana's executive
officers. Accordingly, all compensation deemed paid with respect to those
options will remain deductible by Kana without limitation under Code Section
162(m). However, any compensation deemed paid by Kana in connection with the
exercise of options granted to those executive officers with a below-market
exercise price will not qualify as performance-based compensation and will be
subject to the $1 million per person limitation on the deductibility of the
compensation paid to those officers.
Accounting Treatment
Option grants under the discretionary option grant and automatic option
grant programs with exercise prices equal to the fair market value of the
option shares on the grant date will not result in any direct charge to Kana's
reported earnings. However, the fair value of those options is required to be
disclosed in the notes to Kana's financial statements, and Kana must also
disclose, in footnotes to its financial statements, the pro-forma impact those
options would have upon its reported earnings were the fair value of those
options at the time of grant treated as a compensation expense. In addition,
the number of outstanding options may be a factor in determining Kana's
earnings per share on a fully-diluted basis.
Option grants or stock issuances made under the 1999 Stock Incentive Plan
with exercise or issue prices less than the fair market value of the shares on
the grant or issue date will result in compensation expense to Kana in an
amount equal to the excess of the fair market value over the exercise or issue
price. The expense must be amortized against Kana's earnings over the period
that the option shares or issued shares are to vest. Option grants made to non-
employee consultants (but not non-employee board members) will result in a
direct charge to Kana's reported earnings based upon the fair value of the
option measured initially as of the grant date and then subsequently on the
vesting date of each installment of the underlying option shares. The charge
will accordingly include the appreciation in the value of the option shares
over the period between the grant date of the option and the vesting date of
each installment of the option shares.
In addition, any options which are repriced under the 1999 Stock Incentive
Plan will also trigger a direct charge to Kana's reported earnings measured by
the appreciation in the value of the underlying shares between the grant of the
repriced option and the date the repriced option is exercised for those shares
or otherwise terminates unexercised.
Should one or more individuals be granted tandem stock appreciation rights
under the 1999 Stock Incentive Plan, then these rights would result in a
compensation expense to be charged against Kana's reported earnings.
Accordingly, at the end of each fiscal quarter, the amount (if any) by which
the fair market value of the shares of common stock subject to these
outstanding stock appreciation rights has increased from the prior quarter-end
would be accrued as compensation expense, to the extent the fair market value
is in excess of the aggregate exercise price in effect for those rights.
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Vote Required
The affirmative vote of at least a majority of the shares of common stock
present in person or by proxy at the annual meeting and entitled to vote is
required for approval of the proposed amendment to the 1999 Stock Incentive
Plan. Should such stockholder approval not be obtained, then the 10,000,000
shares increase to the share reserve and the increase in the limit on the
annual automatic share reserve increase to 10,000,000 shares under the 1999
plan will not be implemented. The 1999 plan will, however, continue in effect,
and option grants and direct stock issuances may continue to be made under the
1999 plan until all the shares of common stock available for issuance under the
1999 plan, as in effect prior to the share increase which is the subject of
this proposal, have been issued pursuant to option grants and direct stock
issuances.
Recommendation of the Board of Directors
KANA'S BOARD OF DIRECTORS DEEMS THIS PROPOSAL TO BE IN THE BEST INTERESTS OF
THE COMPANY AND ITS STOCKHOLDERS AND RECOMMENDS A VOTE FOR APPROVAL OF THE
AMENDMENT OF KANA'S 1999 STOCK INCENTIVE PLAN.
Proposal to Amend and Restate Kana's 1999 Employee Stock Purchase Plan
Introduction
Kana's stockholders are being asked to approve an amendment and restatement
of Kana's 1999 Employee Stock Purchase Plan which will effect the following
changes: (i) increase the number of shares of common stock issuable under the
term of the 1999 Employee Stock Purchase Plan by an additional 10,000,000
shares of common stock, from 2,122,507 shares to 12,122,507 shares, (ii)
increase the limit on the maximum number of shares by which the share reserve
under the 1999 Employee Stock Purchase Plan may automatically increase each
calendar year from 666,666 shares to 4,000,000 shares, effective for all
calendar years after the 2001 calendar year, (iii) implement a series of
overlapping twenty-four (24)-month offering periods beginning at semi-annual
intervals each year, (iv) establish a series of semi-annual purchase dates
within each such offering period, (v) increase the limit on the maximum number
of shares of common stock purchasable in total by all participants on any one
purchase date from 250,000 shares to 1,000,000 shares and (vi) revise certain
provisions of the plan document in order to facilitate the administration of
the 1999 Employee Stock Purchase Plan.
The purpose of the amendment and restatement is to ensure that Kana will
continue to have a sufficient reserve of common stock available under the 1999
Employee Stock Purchase Plan to provide eligible employees of Kana and its
participating affiliates (whether now existing or subsequently established)
with the opportunity to purchase shares of common stock at semi-annual
intervals through their accumulated periodic payroll deductions.
The 1999 Employee Stock Purchase Plan was adopted by the board on July 7,
1999 and approved by the Kana stockholders on August 16, 1999. The 1999
Employee Stock Purchase Plan became effective on September 21, 1999, in
connection with the initial public offering of Kana's common stock. The
amendment and restatement of the 1999 Employee Stock Purchase Plan which is the
subject of this proposal was adopted by the Kana Board of Directors in April
2001, subject to the approval of the Kana stockholders at the annual meeting.
The terms and provisions of the amended and restated 1999 Employee Stock
Purchase Plan are summarized below. This summary, however, does not purport to
be a complete description of the 1999 Employee Stock Purchase Plan. A copy of
the 1999 Employee Stock Purchase Plan is attached to this joint proxy
statement/prospectus as Appendix XIII.
All share numbers in this proposal reflect the two-for-one split of the
common stock which was effected on February 22, 2000 through the payment of a
dividend of one additional share of common stock for every share of common
stock outstanding on January 28, 2000.
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Description of the Purchase Plan
Administration
The 1999 Employee Stock Purchase Plan is administered by the compensation
committee of the board. Such committee, as plan administrator, has full
authority to adopt administrative rules and procedures and to interpret the
provisions of the 1999 Employee Stock Purchase Plan.
Securities Subject to the Purchase Plan
The maximum number of shares of common stock currently reserved for issuance
over the term of the 1999 Employee Stock Purchase Plan is currently limited to
2,122,507 shares. As of April 20, 2001, 492,539 shares of common stock have
been issued under the 1999 Employee Stock Purchase Plan, 1,630,148 shares were
available for future issuance under the 1999 Employee Stock Purchase Plan. If
this Proposal is approved at the annual meeting, then the total number of
shares available for issuance will be increased to 5,622,507 shares.
In addition, the share reserve under the 1999 Employee Stock Purchase Plan
will automatically increase on the first trading day of January each calendar
year by an amount equal to 0.75% of the total number of shares of common stock
outstanding on the last trading day of December in the immediately preceding
calendar year, but in no event will any such annual increase exceed 4,000,000
shares. Should the Kana stockholders not approve this proposal, then the limit
on such annual increase will remain at 666,666 shares.
The shares issuable under the 1999 Employee Stock Purchase Plan may be made
available from authorized but unissued shares of Kana's common stock or from
shares of common stock repurchased by Kana, including shares repurchased on the
open market.
In the event that any change is made to the outstanding common stock
(whether by reason of any recapitalization, stock dividend, stock split,
exchange or combination of shares or other change affecting the outstanding
common stock as a class without Kana's receipt of consideration), appropriate
adjustments will be made to (i) the maximum number and class of securities
issuable under the 1999 Employee Stock Purchase Plan, (ii) the maximum number
and class of securities by which the share reserve is to increase automatically
each year, (iii) the maximum number and class of securities purchasable per
participant on any one semi-annual purchase date, (iv) the maximum number and
class of securities purchasable in total by all participants on any one
purchase date and (v) the number and class of securities and the price per
share in effect under each outstanding purchase right. Such adjustments will be
designed to preclude any dilution or enlargement of benefits under the 1999
Employee Stock Purchase Plan or the outstanding purchase rights thereunder.
Offering Periods
Shares of common stock are currently offered under the 1999 Employee Stock
Purchase Plan through a series of successive offering periods, each with a
maximum duration of 24 months. However, the initial offering period began on
September 21, 1999 and is scheduled to end on the last business day in October
2001. Should the fair market value per share of common stock on any remaining
purchase date within that offering period (April 30, 2001 or October 31, 2001)
be less than the fair market value per share on the start date of the two-year
offering period, then that offering period will automatically terminate, and a
new two-year offering period will begin on the next business day, with all
participants in the terminated offering to be automatically transferred to the
new offering period.
If stockholder approval of this proposal is obtained, then the common stock
will be offered for purchase under the 1999 Employee Stock Purchase Plan
through a series of overlapping offering periods, each with a maximum duration
of 24 months. Such offering periods are expected to begin on the first business
day of May and on the first business day of November each year over the
remaining term of the plan. Accordingly, we expect to have 2 separate offering
periods in each calendar year the 1999 Employee Stock Purchase Plan
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remains in effect. However, the initial offering period under this new
arrangement is expected to begin on November 1, 2001 and is expected to end on
the last business day in October 2003.
Each offering period is expected to consist of a series of one or more
successive purchase intervals. Purchase intervals are expected to run from the
first business day in May to the last business day in October each year and
from the first business day in November each year to the last business day in
April in the immediately succeeding year.
Automatic Restart Provisions
If the fair market value per share of common stock on any semi-annual
purchase date within a particular offering period is less than the fair market
value per share of common stock on the start date of that offering period, then
the participants in that offering period will automatically be transferred from
that offering period after the semi-annual purchase of shares on their behalf
and enrolled in the new offering period which begins on the next business day
following such purchase date.
Eligibility and Participation
Any individual who is employed on a basis under which he or she is regularly
expected to work for more than 20 hours per week for more than five months per
calendar year in the employ of Kana or any participating parent or subsidiary
corporation (including any corporation which subsequently becomes such at any
time during the term of the 1999 Employee Stock Purchase Plan) is eligible to
participate in the 1999 Employee Stock Purchase Plan.
An individual who is an eligible employee on the start date of any offering
period may join that offering period at that time. However, an eligible
employee may not participate in more than one offering period at a time.
As of April 20, 2001, approximately 580 employees, including five executive
officers, were eligible to participate in the 1999 Employee Stock Purchase
Plan.
Purchase Price
The purchase price of the common stock purchased on behalf of each
participant in the 1999 Employee Stock Purchase Plan on each semi-annual
purchase date will be equal to 85% of the lower of (i) the fair market value
per share of common stock on the start date of the offering period in which the
participant is enrolled or (ii) the fair market value on the semi-annual
purchase date.
The fair market value per share of common stock on any particular date under
the 1999 Employee Stock Purchase Plan will be deemed to be equal to the closing
selling price per share on such date on the Nasdaq National Market. On April
12, 2001, the closing selling price per share of common stock on the Nasdaq
National Market was $1.32. For the current offering period which began on
September 21, 1999 in connection with the initial public offering of the common
stock, the fair market value per share was deemed to be $7.50 (post-split), the
price per share at which the common stock was sold pursuant to the underwriting
agreement for that offering.
Payroll Deductions and Stock Purchases
Each participant may authorize periodic payroll deductions in any multiple
of 1% up to a maximum of 15% of his or her total cash compensation (base salary
plus bonus, overtime and commissions) to be applied to the acquisition of
common stock at semi-annual intervals. Accordingly, on each semi-annual
purchase date (the last business day in April and October each year), the
accumulated payroll deductions of each participant will automatically be
applied to the purchase of whole shares of common stock at the purchase price
in effect for the participant for that purchase date.
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Special Limitations
The 1999 Employee Stock Purchase Plan imposes certain limitations upon a
participant's rights to acquire common stock, including the following
limitations:
. Purchase rights granted to a participant may not permit such individual
to purchase more than $25,000 worth of common stock (valued at the time
each purchase right is granted) for each calendar year those purchase
rights are outstanding at any time.
. Purchase rights may not be granted to any individual if such individual
would, immediately after the grant, own or hold outstanding options or
other rights to purchase, stock possessing 5% or more of the total
combined voting power or value of all classes of stock of Kana or any of
its affiliates.
. No participant may purchase more than 1,500 shares of common stock on any
one purchase date.
. The maximum number of shares of common stock purchasable in total by all
participants on any one purchase date within the current offering period
which began on September 21, 1999 is limited to 250,000 shares for each
offering period commencing subsequent to the approval of the share
increase proposal and will be increased to 1,000,000 shares or such other
limit as may be determined by the plan administrator for each purchase
date within each subsequent offering period.
Withdrawal Procedure and Termination of Purchase Rights
The participant may withdraw from an offering period at any time and elect
to have his or her accumulated payroll deductions for the semi-annual purchase
interval in which such withdrawal occurs either applied to the purchase of
shares on the next semi-annual purchase date or refunded.
The participant's purchase right will immediately terminate upon his or her
cessation of employment or loss of eligible employee status. Any payroll
deductions which the participant may have made for the semi-annual purchase
interval in which such cessation of employment or loss of eligibility occurs
will be refunded and will not be applied to the purchase of common stock.
Stockholder Rights
No participant will have any stockholder rights with respect to the shares
covered by his or her purchase rights until the shares are actually purchased
on the participant's behalf. No adjustment will be made for dividends,
distributions or other rights for which the record date is prior to the date of
such purchase.
Assignability
Purchase rights are not assignable or transferable by the participant, and
the purchase rights are exercisable only by the participant.
Change in Control or Ownership
In the event Kana is acquired by merger, sale of all or substantially all of
Kana's assets or sale of securities possessing more than 50% of the total
combined voting power of Kana's outstanding securities, all outstanding
purchase rights will automatically be exercised immediately prior to the
effective date of such acquisition. The purchase price in effect for each
participant will be equal to 85% of the lower of (a) the fair market value per
share of common stock on the start date of the offering period in which the
participant is enrolled at the time such acquisition occurs or (b) the fair
market value per share of common stock immediately prior to such acquisition.
The limitation on the maximum number of shares purchasable in total by all
participants on any one purchase date will not be applicable to any purchase
date attributable to such an acquisition.
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Share Pro-Ration
Should the total number of shares of common stock to be purchased pursuant
to outstanding purchase rights on any particular date exceed the number of
shares then available for issuance under the 1999 Employee Stock Purchase Plan,
then the Plan Administrator will make a pro-rata allocation of the available
shares on a uniform and nondiscriminatory basis, and the payroll deductions of
each participant, to the extent in excess of the aggregate purchase price
payable for the common stock pro-rated to such individual, will be refunded.
Amendment and Termination
The 1999 Employee Stock Purchase Plan will terminate upon the earliest of
(a) the last business day in October 2009, (b) the date on which all shares
available for issuance thereunder are sold pursuant to exercised purchase
rights or (c) the date on which all purchase rights are exercised in connection
with an acquisition of Kana.
The Board may at any time alter, suspend or terminate the 1999 Employee
Stock Purchase Plan. However, the Board may not, without stockholder approval,
(a) increase the number of shares issuable under the 1999 Employee Stock
Purchase Plan, (b) alter the purchase price formula so as to reduce the
purchase price or (c) modify the requirements for eligibility to participate in
the 1999 Employee Stock Purchase Plan.
Plan Benefits
The table below shows, as to the listed individuals and specified groups,
the number of shares of common stock purchased under the 1999 Employee Stock
Purchase Plan between September 21, 1999, the start date of the current
offering period under the 1999 Employee Stock Purchase Plan, and October 31,
2000, the most recent purchase date, together with the weighted average
purchase price paid per share. Non-employee directors are not eligible to
participate in the 1999 Employee Stock Purchase Plan.
Weighted
Number of Average
Purchased Purchase Price
Name and Position Shares Per Share ($)
----------------- --------- --------------
James C. Wood........................................ -- --
Current Chief Executive Officer
Michael J. McCloskey................................. 2,638 $6.375
Former Chief Executive Officer
Nigel K. Donovan..................................... -- --
Chief Operations Officer
Paul R. Holland...................................... 2,638 $6.375
Former Vice President, Worldwide Sales
William R. Phelps.................................... 2,638 $6.375
Former Vice President, Professional Services
Alexander E. Evans................................... 2,683 $6.375
Former Vice President, International
All current executive officers as a group (5
persons)............................................ 1,765 $15.19
All employees, including current officers who are not
executive officers, as a group (approximately 575
persons)............................................ 491,541 $ 8.58
New Plan Benefits
No purchase rights have been granted, and no shares have been issued, on the
basis of the share increase which form a part of this Proposal.
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Federal Tax Consequences
The 1999 Employee Stock Purchase Plan is intended to be an "employee stock
purchase plan" within the meaning of Section 423 of the Internal Revenue Code.
Under a plan which so qualifies, no taxable income will be recognized by a
participant, and no deductions will be allowable to Kana, upon either the grant
or the exercise of the purchase rights. Taxable income will not be recognized
until there is a sale or other disposition of the shares acquired under the
1999 Employee Stock Purchase Plan or in the event the participant should die
while still owning the purchased shares.
If the participant sells or otherwise disposes of the purchased shares
within 2 years after the start date of the offering period in which such shares
were acquired or within 1 year after the actual semi-annual purchase date of
those shares, then the participant will recognize ordinary income in the year
of sale or disposition equal to the amount by which the fair market value of
the shares on the purchase date exceeded the purchase price paid for those
shares, and Kana will be entitled to an income tax deduction, for the taxable
year in which such disposition occurs, equal in amount to such excess. The
participant will also recognize capital gain equal to the amount by which the
sale price exceeded the sum of the aggregate purchase price and the ordinary
income recognized.
If the participant sells or disposes of the purchased shares more than 2
years after the start date of the offering period in which the shares were
acquired and more than 1 year after the actual semi-annual purchase date of
those shares, then the participant will recognize ordinary income in the year
of sale or disposition equal to the lesser of (i) the amount by which the fair
market value of the shares on the sale or disposition date exceeded the
purchase price paid for those shares or (ii) 15% of the fair market value of
the shares on the start date of that offering period; and any additional gain
upon the disposition will be taxed as a long-term capital gain. Kana will not
be entitled to an income tax deduction with respect to such disposition.
If the participant still owns the purchased shares at the time of death, the
lesser of (i) the amount by which the fair market value of the shares on the
date of death exceeds the purchase price or (ii) 15% of the fair market value
of the shares on the start date of the offering period in which those shares
were acquired will constitute ordinary income in the year of death.
Accounting Treatment
Under current accounting principles applicable to employee stock purchase
plans qualified under Section 423 of the Internal Revenue Code, the issuance of
common stock under the 1999 Employee Stock Purchase Plan will not result in a
compensation expense chargeable against Kana's reported earnings. However, Kana
must disclose, in pro-forma statements to Kana's financial statements, the
impact the purchase rights granted under the 1999 Employee Stock Purchase Plan
would have upon Kana's reported earnings were the fair value of those purchase
rights treated as compensation expense.
Vote Required
The affirmative vote of a majority of the outstanding voting shares of Kana
present or represented and entitled to vote at the annual meeting is required
for approval of the amendment and restatement of the 1999 Employee Stock
Purchase Plan. Should such stockholder approval not be obtained, then neither
the proposed 10,000,000-share increase to the 1999 Employee Stock Purchase Plan
nor the higher limit on the maximum automatic share increase per year will be
implemented, and any purchase rights granted on the basis of those two
amendments will terminate immediately. No additional purchase rights will be
granted on the basis of those amendments, and the 1999 Employee Stock Purchase
Plan as in effect immediately prior to those two proposed amendments will
remain in effect until the shares in the existing share reserve have been
issued.
The Board believes that it is in the best interests of Kana to continue to
provide employees with the opportunity to acquire an ownership interest in Kana
through their participation in the 1999 Employee Stock
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Purchase Plan and thereby encourage them to remain in Kana's employ and more
closely align their interests with those of the stockholders.
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
APPROVAL OF THE AMENDMENT AND RESTATEMENT OF THE 1999 EMPLOYEE STOCK PURCHASE
PLAN.
Election of Directors
Kana's board of directors is divided into three classes designated Class I,
Class II and Class III. The number of directors is determined from time to time
by the board of directors and is currently fixed at nine members. A single
class of directors is elected each year at the annual meeting. Subject to
transition provisions, each director elected at each such meeting will serve
for a term ending on the date of the third annual meeting of stockholders after
his election and until his successor has been elected and duly qualified. At
this year's annual meeting, Class II directors will stand for re-election.
In order to achieve the composition of directors contemplated by the merger,
the following actions will take place depending on whether the merger is
approved:
. Whether or not the merger is approved, Messrs. Hahn and Holloway will not
seek reelection as Class II directors in 2001, Mr. Wood will retain his
position as a Class I director and Kana stockholders will be asked to
elect Messrs. Frick and Harvey as Class II directors at this annual
meeting.
. If the merger is approved, following the vote upon the merger and his
election as a Class II director, Mr. Frick will immediately resign as a
Class I director. In addition, immediately prior to the closing of the
merger, Messrs. Beirne and Jurvetson will resign from their posts as
Class I directors, Mr. Bay will be appointed by the board to fill a
vacancy in the post of Class III director and Mr. Zarrabian will be
appointed by the board to fill a vacancy in the post of Class I director.
. If the merger is not approved, Messrs. Harvey and Frick will resign as
Class II directors immediately following the meeting. The Kana board
will, as soon as practicable thereafter, find replacement directors who
will be appointed to take their respective places as Class II directors
to serve until Kana's 2004 annual meeting and until their successors are
duly elected and qualified. In addition, Messrs. Frick, Beirne and
Jurvetson will retain their respective posts as Class I directors.
Set forth below is certain information concerning the nominees, the expected
appointees if the merger is approved and the incumbent directors:
Directors to be Elected at the 2001 Annual Meeting
Robert W. Frick, age 63, served as one of Kana's directors since August
1999. Mr. Frick previously served as the Vice Chairman of the Board, Chief
Financial Officer and head of the World Banking Group for Bank of America, as
Managing Director of BankAmerica International, and as President of Bank of
America's venture capital subsidiary. He is now retired. Mr. Frick previously
served as a director of Connectify, Inc. from its founding to its acquisition
by Kana, and he currently serves on the board of directors of six private
companies. Mr. Frick holds a B.S. in Civil Engineering and an M.B.A. from
Washington University in St. Louis, Missouri. Mr. Frick has agreed in writing
to resign as a Class II director immediately following this year's annual
meeting if the merger is not approved.
Kevin Harvey, age 36, has served as a member of the board of directors of
Broadbase since January 1996. Mr. Harvey has been a managing member of
Benchmark Capital, a venture capital firm, since it was founded in January
1995. Mr. Harvey is also a director of Red Hat Software, a developer and
provider of open source
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software and services, Ashford.com, an Internet retailer, Critical Path, an e-
mail hosting services company and several privately held companies. Mr. Harvey
holds a B.S. degree in electrical engineering from Rice University. Mr. Harvey
has agreed in writing to resign as a Kana director following this year's
annual meeting if the merger is not approved.
Director Whose Term Expires in 2002
James C. Wood, age 44, joined Kana in April 2000 as a director in
connection with Kana's acquisition of Silknet Software, Inc. and served as
Kana's President from May 2000 until he was appointed as Kana's Chief
Executive Officer and Chairman of the Board of Directors in January 2001. Mr.
Wood founded Silknet in March 1995 and served as its Chairman of the Board,
President and Chief Executive Officer. From January 1988 until November 1994,
Mr. Wood served as President and Chief Executive Officer of CODA Incorporated,
a subsidiary of CODA Limited, a financial accounting software company. Mr.
Wood also served as a director of CODA Limited from November 1988 until
November 1994. Mr. Wood holds a B.S. in Electrical Engineering from Villanova
University.
Director Whose Term will Expire in 2002 Following His Appointment to the
Board if the Merger is Approved
Chuck Bay, age 43, will be appointed as a director effective upon the
closing of the merger. From January 1998 to present, Mr. Bay has served as the
Chairman of the Board, Chief Executive Officer and President of Broadbase. Mr.
Bay previously served as Broadbase's Chief Financial Officer, General Counsel
and Executive Vice President of Operations. From July 1997 to January 1998, he
served as Chief Financial Officer and General Counsel for Reasoning, Inc., a
software company. From January 1995 to August 1997, he served as Chief
Financial Officer and General Counsel, for Pure Atria Software, Inc., a
software company. Mr. Bay holds a B.S. degree in business administration from
Illinois State University and a J.D. degree from the University of Illinois.
Director Whose Term will Expire in 2003 Following His Appointment to the
Board if the Merger is Approved
Massood Zarrabian, age 52, will be appointed as a director effective upon
the closing of the merger. Since December 2000, Mr. Zarrabian has served as
the President, E-Service Division of Broadbase. From July 1999 until its
acquisition by Broadbase in December 2000, he held various positions with
Servicesoft, a customer relationship management software company, including
most recently Chief Executive Officer, President and director. From January
1999 to July 1999, he served as Vice President of Product Operations, and from
October 1998 to January 1999 as Vice President of Product Development, at
Lewtan Technologies, Inc., a software company specializing in securitized
transactions. From July 1997 to October 1998, he held various positions with
Cayenne Software, Inc., a case tools company, including most recently as
Executive Vice President and Chief Operating Officer. From February 1994 to
July 1996, he held the positions of Vice President, Research and Development
and Vice President, Product Operations at Cayenne's predecessor company,
Bachman Information Systems. Mr. Zarrabian holds a B.S. degree in civil
engineering from the Massachusetts Institute of Technology.
Directors Whose Terms Will Expire in 2003 if the Merger is not Approved
David M. Beirne, age 36, has served as one of Kana's directors since
September 1997. Mr. Beirne has been a Managing Member of Benchmark Capital, a
venture capital firm, since June 1997. Prior to joining Benchmark Capital, Mr.
Beirne founded Ramsey/Beirne Associates, an executive search firm, and served
as its Chief Executive Officer from 1987 to June 1997. Mr. Beirne serves on
the board of directors of Scient Corporation, PlanetRx.com, Inc., Webvan
Group, Inc., 1-800-FLOWERS.COM, Inc. and several private companies. Mr. Beirne
holds a B.S. in Management from Bryant College.
Steven T. Jurvetson, age 33, has served as one of Kana's directors since
April 1997. Mr. Jurvetson has been a Managing Director of Draper Fisher
Jurvetson, a venture capital firm, since June 1995. Prior to joining
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Draper Fisher Jurvetson, from July 1990 to September 1993, Mr. Jurvetson served
as a consultant with Bain & Company, a management consulting firm. Mr.
Jurvetson served as a research and development engineer at Hewlett-Packard
during the summer months from June 1987 to August 1989. Mr. Jurvetson serves on
the boards of directors of Cognigine Corporation, FastParts, Inc., iTv Corp.,
Tacit Knowledge Corporation, Third Voice, Inc., ReleaseNow.com Corporation,
Everdream Corporation and Vivaldi Networks, Inc. Mr. Jurvetson holds a B.S. and
an M.S. in Electrical Engineering from Stanford University and an M.B.A. from
the Stanford Graduate School of Business.
The Board of Directors and Committees
Kana's board of directors held seven meetings during fiscal year 2000. The
board of directors has an audit committee and a compensation committee. Each
director participated in 75% or more of the aggregate of (i) the total number
of meetings of the board of directors and (ii) the total number of meetings
held by all committees of the board on which such director served during 2000,
except for Mr. Jurvetson (71.4% attendance).
The audit committee of Kana's board currently consists of three directors,
Dr. Holloway and Messrs. Frick and Jurvetson, and met seven times in 2000. The
audit committee reviews and supervises Kana's financial controls, including the
selection of its auditors, reviews the books and accounts, meets with its
officers regarding its financial controls, acts upon recommendations of the
auditors and takes any further actions the audit committee deems necessary to
complete an audit of its books and accounts, as well as addressing other
matters that may come before Kana or as directed by the board.
The audit committee is composed of outside directors who are not officers or
employees of Kana. In the opinion of Kana's board of directors, and as
independent is defined by the standards of the National Association of
Securities Dealers, these directors are free of any relationship that would
interfere with their exercise of independent judgement as members of this
committee. The Kana board of directors has adopted a written charter for the
audit committee, a copy of which is attached as Appendix XIV to this joint
proxy statement/prospectus.
The compensation committee currently consists of two directors, Messrs.
Beirne and Hahn. The compensation committee met three times during fiscal year
2000. The compensation committee reviews and approves the compensation and
benefits for Kana's executive officers, administers Kana's stock plans and
performs other duties as may from time to time be determined by the board.
Compensation Committee Interlocks and Insider Participation
During 2000, Kana's compensation committee consisted of Messrs. Beirne and
Hahn. Neither Mr. Beirne nor Mr. Hahn was an employee of Kana nor any of its
subsidiaries during 2000 or at any time prior to 2000. None of Kana's executive
officers serves on the board of directors or compensation committee of any
entity that has one or more executive officers serving as a member of our board
of directors or compensation committee.
Director Compensation
Kana does not currently compensate any non-employee member of the board of
directors. Directors who are also employees do not receive additional
compensation for serving as directors.
Non-employee directors are eligible to receive discretionary option grants
and stock issuances under the 1999 Stock Incentive Plan. In addition, under the
1999 Stock Incentive Plan, each new non-employee director will receive an
automatic option grant for 40,000 shares upon his or her initial appointment or
election to the board, and continuing non-employee directors will receive an
automatic option grant for 10,000 shares on the date of each annual meeting of
stockholders.
123
In October 2000, Kana granted each of its non-employee directors, Messrs.
Beirne, Frick, Jurvetson, Hahn and Holloway, an option to purchase 10,000
shares of common stock at an exercise price of $19.50 per share. Such option
grants occurred automatically pursuant to Kana's 1999 Stock Incentive Plan.
Such options were fully vested and immediately exercisable on the grant date.
Closing Condition to the Merger
Please note that it is a closing condition to the consummation of the merger
that Mr. Harvey be elected a member of the Kana board of directors.
Accordingly, if you vote in favor of the merger, you are urged to elect Messrs.
Harvey and Frick as directors so that the closing of the merger is not delayed
or foreclosed.
Required Vote
The proposal to elect two directors to Kana's board of directors requires
the affirmative vote of the holders of a plurality of the shares of Kana common
stock entitled to vote that are present or represented at the annual meeting
and entitled to vote on such proposal.
Recommendation of the Board of Directors
KANA'S BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF MESSRS.
FRICK AND HARVEY.
Other Matters
Kana knows of no other matters that will be presented for consideration at
the annual meeting. If any other matters properly come before the annual
meeting, it is the intention of the persons named in the enclosed form of proxy
to vote the shares they represent as Kana's board of directors may recommend.
Discretionary authority with respect to such other matters is granted by the
execution of the enclosed proxy.
124
COMPENSATION COMMITTEE REPORT
Overview and Philosophy
Kana's compensation committee is responsible for establishing the
compensation payable to Kana's executive officers, including the named
executive officers. Such compensation is primarily comprised of the following
elements: base salary, stock options and benefits.
It is the committee's objective that executive compensation be directly
influenced by Kana's business results. Accordingly, Kana's executive
compensation program is structured to stimulate and reward exceptional
performance that results in enhanced corporate and stockholder values. Industry
compensation surveys are also reviewed in the committee's assessment of
appropriate compensation levels.
The committee recognizes that the highly-specialized industry sector in
which Kana operates is extremely competitive world-wide, with the result that
there is substantial demand for high-caliber, seasoned executives. It is
crucial that the compensation committee be assured of retaining and rewarding
Kana's executive personnel essential in contributing to the attainment of
Kana's performance goals. For these reasons, the committee believes Kana's
executive compensation arrangements must remain competitive with other e-
business providers.
Cash Compensation
A key objective of Kana's executive compensation program is to position
Kana's key executives to earn annual cash compensation (base salary plus bonus)
generally comparable to that which the executive would earn at other companies
in the industry.
Base salaries for Kana's executive officers are established considering a
number of factors, including the recommendation of Kana's CEO, Kana's growth
and profit margins, the executive's performance and contribution to Kana's
overall performance, and the salary levels of comparable positions reported in
industry surveys. The committee adheres to a compensation philosophy of
moderate levels of fixed compensation such as base salary. Base salary
decisions are made as part of a formal review process. Bonuses are provided in
accordance with the executive's written agreement where one is in place.
Otherwise, bonuses are paid on a discretionary basis based upon individual
performance.
Stock Options
The committee grants stock options under its 1999 Stock Incentive Plan to
provide direct linkage with stockholder interests. The committee considers the
recommendation of Kana's CEO, stock options previously granted to that
individual, industry practices, the executive's performance and accountability
level, and assumed, potential stock value when determining stock option grants.
The committee relies upon competitive guideline ranges of retention-effective,
target gain objectives to be derived from option gains based upon relatively
aggressive assumptions relating to planned growth and earnings. In this manner,
the potential executive's gains parallel those of other stockholders over the
long-term. Therefore, the stock option program serves as Kana's only long-term
incentive and retention tool for executives and other key employees. Stock
options provide an incentive to executives to maximize long term profitable
growth which ordinarily, over time, should be reflected in the price of Kana's
stock.
Benefits
Kana offers to its executives benefits that are substantially the same as
the benefits offered to all Kana employees.
125
Chief Executive Officer Performance and Compensation
In setting the total compensation payable to Mr. McCloskey, who served as
Kana's Chief Executive Officer for the 2000 fiscal year, the compensation
committee sought to make that compensation competitive with the compensation
paid to the Chief Executive Officers of the companies in Kana's industry, while
at the same time assuring that a significant percentage of compensation was
tied to Kana's performance and stock price appreciation. In addition, the
compensation committee decided that in connection with Mr. McCloskey's
resignation for health reasons in January 2001, Kana would not exercise its
right of repurchase of unvested shares. The compensation committee determined
that it would provide this benefit to Mr. McCloskey in recognition of his
service to Kana and medical condition and in lieu-of a substantial cash
severance payment.
The compensation committee determined the base salary of Mr. Wood, Kana's
current Chief Executive Officer, for the 2001 fiscal year in recognition of his
personal performance and with the objective of maintaining his base salary at a
competitive level with similarly situated Chief Executive Officers. With
respect to Mr. Wood's base salary, it is the compensation committee's intent to
provide him with a level of stability and certainty each year and not have this
particular component of compensation affected to any significant degree by
Kana's performance factors.
The compensation committee awarded a stock option grant to Mr. Wood in
fiscal 2000 in order to provide him with an equity incentive to continue
contributing to Kana's financial success. The option will have value for Mr.
Wood only if the market price of the underlying option shares appreciates over
the market price in effect on the date the grant was made.
Compliance with Internal Revenue Code Section 162(m)
Section 162(m) of the Internal Revenue Code, enacted in 1993, generally
disallows a tax deduction to publicly held companies for compensation exceeding
$1 million paid to certain of the corporation's executive officers. The
compensation to be paid to any of Kana's executive officers for fiscal year
2000 did not exceed the $1 million limit per officer, nor is it expected that
the compensation to be paid to any of Kana's executive officers for fiscal year
2001 will exceed that limit. Kana's 1999 plan is structured so that any
compensation deemed paid to an executive officer when he exercises an
outstanding option under the 1999 plan with an exercise price equal to the fair
market value of the option shares on the grant date will qualify as
performance-based compensation which will not be subject to the $1 million
limitation. Because it is very unlikely that the cash compensation payable to
any of Kana's executive officers in the foreseeable future will approach the
$1 million limit, the compensation committee has decided at this time not to
take any other action to limit or restructure the elements of cash compensation
payable to Kana's executive officers. The compensation committee will
reconsider this decision should the individual compensation of any executive
officer ever approach the $1 million level.
It is the opinion of the committee that the adopted executive compensation
policies and plans provide the necessary total remuneration program to properly
align Kana's performance and the interests of Kana's stockholders with
competitive and equitable executive compensation in a balanced and reasonable
manner, for both the short and long-term.
Submitted by the Compensation
Committee
of the Board of Directors
David M. Beirne
Eric A. Hahn
126
AUDIT COMMITTEE REPORT
The following is the report of the audit committee with respect to Kana's
audited financial statements for the fiscal year ended December 31, 2000,
which include Kana's consolidated balance sheets as of December 31, 2000 and
1999, and the related consolidated statements of operations, stockholders'
equity (deficit) and cash flows for each of the three years in the period
ended December 31, 2000, and the notes thereto. The information contained in
this report shall not be deemed to be "soliciting material" or to be "filed"
with the Securities and Exchange Commission, nor shall such information be
incorporated by reference into any future filing under the Securities Act of
1933, as amended, or the 1934 Securities Exchange Act, as amended, except to
the extent that Kana specifically incorporates it by reference in such filing.
Audit and Non-Audit Fees
For the fiscal year ended December 31, 2000, fees for services provided by
Kana's independent auditors were as follows:
. Audit........................................................... $302,000
. Financial Information Systems Design and Implementation......... $ --
. Other Fees...................................................... $316,000
Review with Management
The audit committee has reviewed and discussed Kana's audited financial
statements with management.
Review and Discussions with Independent Accountants
The audit committee has discussed with PricewaterhouseCoopers LLP, Kana's
independent accountants, the matters required to be discussed by SAS 61
(Codification of Statements on Accounting Standards) which includes, among
other items, matters related to the conduct of the audit of Kana's financial
statements.
The audit committee has also received written disclosures and the letter
from PricewaterhouseCoopers LLP required by Independence Standards Board
Standard No. 1 (which relates to the accountant's independence from Kana and
its related entities) and has discussed with PricewaterhouseCoopers LLP their
independence from Kana.
Conclusion
Based on the review and discussions referred to above, the committee
recommended to Kana's board of directors that the audited financial statements
be included in Kana's Annual Report on Form 10-K for the fiscal year ended
December 31, 2000.
Submitted by the Audit Committee
of the Board of Directors
Robert W. Frick, Chairman
Charles A Holloway, Ph.D
Steven T. Jurvetson
127
STOCK PERFORMANCE GRAPH
The graph depicted below shows a comparison of Kana's cumulative total
stockholder returns, the Nasdaq Stock Market Index and the Chase H & Q Internet
100 Index.
COMPARISON OF 15 MONTH CUMULATIVE TOTAL RETURN*
AMONG KANA COMMUNICATIONS, INC.,
THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE JP MORGAN H&Q INTERNET 100 INDEX
[PERFORMANCE GRAPH]
--------
(1) The graph covers the period from September 22, 1999, the commencement date
of Kana's initial public offering of shares of common stock to December 31,
2000.
(2) The graph assumes that $100 was invested on January 3, 2000 in Kana's
common stock, and in the Nasdaq Stock Market Index and the Chase H & Q
Internet 100 Index on January 3, 2000, and that all dividends were
reinvested. No cash dividends have been declared on Kana's common stock.
(3) The performance shown in the graph represents past performance and should
not be considered an indication of future performance.
Notwithstanding anything to the contrary set forth in any of Kana's previous
filings made under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, that might incorporate future filings made by
Kana under those statutes, neither the preceding Stock Performance Graph, the
compensation committee report nor the audit committee report is to be
incorporated by reference into any such prior filings, nor shall such graph or
report be incorporated by reference into any future filings made by Kana under
those statutes.
128
MANAGEMENT OF KANA
Executive Officers and Directors of Kana
The following table sets forth information regarding Kana's current
executive officers and directors (with ages as of December 31, 2000):
Name Age Position
---- --- --------
James C. Wood........... 44 Chief Executive Officer and Chairman of the Board of Directors
David B. Fowler......... 47 President
Nigel K. Donovan........ 45 Chief Operating Officer
Art M. Rodriguez........ 45 Interim Chief Financial Officer
Toya A. Rico............ 40 Chief Personnel Officer
David M. Beirne......... 36 Director
Robert W. Frick......... 63 Director
Eric A. Hahn............ 40 Director
Charles A. Holloway,
Ph.D................... 64 Director
Steven T. Jurvetson..... 33 Director
James C. Wood. See page 122
David B. Fowler. Mr. Fowler joined Kana in connection with Kana's
acquisition of Silknet and served as Kana's Vice President, Corporate Marketing
from April 2000 until he was appointed as Kana's President in January 2001.
Prior to joining Kana, from April 1999 to April 2000, Mr. Fowler served as Vice
President--Marketing of Silknet. From April 1995 to March 1999, Mr. Fowler
served as Vice President--Sales and Marketing for Gradient Technologies, a
software company. From December 1993 to March 1995, Mr. Fowler served as Vice
President--Sales and Marketing for FTP Software. Mr. Fowler holds a B.S. in
Computer Science from Worcester Polytechnic Institute and an M.B.A. from New
York University.
Nigel K. Donovan. Mr. Donovan joined Kana in connection with Kana's
acquisition of Silknet and served as Kana's Vice President, Development from
April 2000 until he was appointed as Kana's Chief Operating Officer in January
2001. Prior to joining Kana, from February 1999 to April 2000, Mr. Donovan
served as Senior Vice President and Chief Operating Officer of Silknet. From
November 1995 to February 1999, Mr. Donovan served as Silknet's Vice
President--Professional Services. From November 1996 to October 1998, he also
served as Silknet's Treasurer and from May 1997 to October 1998 as its Chief
Financial Officer. In addition, Mr. Donovan served as director of Silknet from
October 1996 to February 1999. From March 1988 until October 1995, Mr. Donovan
served as Vice President--Professional Services of CODA Incorporated. Mr.
Donovan holds a B.A. in Accounting and Finance from the London School of
Business Studies.
Art M. Rodriguez. Mr. Rodriguez joined Kana in July 2000 as Kana's Vice
President of Finance and currently serves as the interim Chief Financial
Officer. Prior to joining Kana, Mr. Rodriguez spent 15 years in various
financial positions at Hewlett Packard Co., most recently as the controller for
the Customer Service & Support Group. Before his work at Hewlett Packard, Mr.
Rodriguez served as a Captain in the United States Marine Corps. Mr. Rodriguez
holds an M.B.A. from the University of California at Los Angeles.
Toya A. Rico. Ms. Rico joined Kana in January 2000 as Vice President, Human
Resources and was appointed as Kana's Chief Personnel Officer in January 2001.
Prior to joining Kana, from October 1996 through May 1999, Ms. Rico served as
Director, Human Resources at Adaptec, Inc., a bandwidth management company.
From September 1996 through May 1998, Ms. Rico served in a variety of human
resources management positions at 3Com Corporation, a computer networking
company. Ms. Rico holds a B.A. in Communications from California State
University, San Francisco.
129
David M. Beirne. See page 122
Robert W. Frick. See page 121
Eric A. Hahn. Mr. Hahn has served as one of Kana's directors since June
1998. Mr. Hahn is a founding partner of Inventures Group, a venture capital
firm. From November 1996 to June 1998, Mr. Hahn served as the Executive Vice
President and later as the Chief Technical Officer of Netscape Communications
Corporation and served as a member of Netscape's Executive Committee. Mr. Hahn
also served as General Manager of Netscape's Server Products Division,
overseeing Netscape's product development and marketing activities for
enterprise Internet, intranet and extranet servers, from November 1995 to
November 1996. Prior to joining Netscape, from February 1993 to November 1995,
Mr. Hahn was founder and Chief Executive Officer of Collabra Software, Inc., a
groupware provider that was acquired by Netscape. Mr. Hahn holds a B.S. and
Ph.D. in Computer Science from the Worcester Polytechnic Institute.
Dr. Charles A. Holloway. Dr. Holloway has served as one of Kana's directors
since December 1996. Dr. Holloway holds the Kleiner, Perkins, Caufield & Byers
Professorship in Management at the Stanford Graduate School of Business and has
been a faculty member of the Stanford Graduate School of Business since 1968.
Dr. Holloway is also currently co-director of the Stanford Center for
Entrepreneurial Studies at the Graduate School of Business. Dr. Holloway was
the founding co-chair of the Stanford Integrated Manufacturing Association, a
cooperative effort between the Graduate School of Business and the School of
Engineering, that focuses on research and curriculum development in
manufacturing and technology. Dr. Holloway serves on the board of directors of
several private companies. Dr. Holloway holds a B.S. in Electrical Engineering
from the University of California at Berkeley and an M.S. in Nuclear
Engineering and Ph.D. in Business Administration from the University of
California at Los Angeles.
Steven T. Jurvetson. See page 122
Section 16(a) Beneficial Ownership Reporting Compliance
The members of the board of directors, Kana's executive officers and persons
who hold more than 10% of Kana's outstanding common stock are subject to the
responding requirements of Section 16(a) of the Securities Exchange Act of
1934, as amended, which require them to file with respect to their ownership of
the common stock and their transactions in such common stock. Based upon (1)
the copies of Section 16(a) reports which Kana received from such persons for
their 2000 transactions in the common stock holdings , and (ii) the written
representations received from one or more of such persons that no annual Form 5
reports were required to be filed by them for 2000, Kana believes that the
executive officer and the board members complied with all their reporting
requirements under section 16(a) in 2000 except were follows: the five non-
employee directors (Messrs, Beirne, Frick, Hahn, Holloway, and Jurvetson) did
not did not file timely 5s to report the non-employee director option that was
automatically granted on the date of Kana's annual stockholder meeting held on
October 4, 2000; Joseph Ansanelli, Ian Cavanagh, Nigil Donovan, David Fowler,
Michael Wolfe and James Wood filed late Form 4s; James Wood, Nigil Donovan and
Eric Carlson filed late Forms 3s.
130
Kana's Executive Compensation
Kana's Summary Compensation Table
The following table sets forth certain information concerning compensation
earned for the year ended December 31, 2000, by the individual who served as
Kana's Chief Executive Officer during 2000, by the individual who is currently
serving as Kana's Chief Executive Officer and by each of Kana's four other most
highly compensated current executive officers whose salary and bonus for 2000
exceeded $100,000. The listed individuals are referred to in this joint proxy
statement/prospectus as Kana's Named Executive Officers. No other executive
officers who otherwise would have been includable in this table on the basis of
salary and bonus earned during 2000 has been excluded because they terminated
employment or changed their executive status during the year.
The salary figures include amounts the employees invested into Kana's tax-
qualified plan pursuant to Section 401(k) of the Internal Revenue Code.
However, compensation in the form of perquisites and other personal benefits
that constituted less than the lesser of either $50,000 or 10% of the total
annual salary and bonus of each of Kana's Named Executive Officers in 2000 is
excluded. The option grants reflected in the table below for 2000 were made
under Kana's 1999 Stock Option Issuance Plan.
Long-Term
Compensation
Awards
Annual Compensation Securities
----------------------- Underlying
Name and Principal Position Year Salary($) Bonus($) Options (#)
--------------------------- ---- --------- -------- ------------
James C. Wood............................ 2000 200,000 75,000 100
Chief Executive Officer (1) 1999 186,122 100,000 41,499(2)
1998 140,881 -- --
Michael J. McCloskey (3)................. 2000 150,000 -- 375,100(4)
Former Chief Executive Officer 1999 81,250 -- 1,866,666
Nigel K. Donovan......................... 2000 180,000 100,000 200,100
Chief Operations Officer 1999 158,290 100,000 45,000(2)
1998 120,750 -- 74,700(2)
Paul R. Holland (5)...................... 2000 156,250 393,098 195,100(6)
Former Vice President, Worldwide Sales 1999 75,000 721,600 --
1998 75,000 139,022
William R. Phelps........................ 2000 200,000 60,000 195,100(7)
Vice President, Professional Services 1999 130,000 56,000 413,330
1998 8,917 -- --
Alexander E. Evans....................... 2000 149,886 250,979 65,100
Former Vice President, International (8) 1999 63,115 53,928 400,000
--------
(1) Mr. Wood joined Kana as a director in April 2000 in connection with Kana's
acquisition of Silknet Software, Inc. and served as Kana's President from
May 2000 to January 2001. In January 2001, Mr. Wood became Kana's Chief
Executive Officer.
(2) Options granted to Messrs. Wood and Donovan prior to Kana's fiscal year
2000 were granted pursuant to the stock incentive plans for Silknet that
have been assumed by Kana.
(3) Mr. McCloskey served as Kana's Chief Executive Officer from June 1999
through January 2001.
(4) A 375,000 share option granted to Mr. McCloskey on April 19, 2000 was
cancelled on October 25, 2000.
(5) Mr. Holland served as Kana's Vice President, Worldwide Sales from December
1997 through December 2000.
(6) A 150,000 share option granted to Mr. Holland on February 22, 2000 was
cancelled on October 25, 2000.
(7) A 150,000 share option granted to Mr. Phelps on February 22, 2000 was
cancelled on October 25, 2000.
(8) Mr. Evans joined Kana in July 1999. Mr. Evan's cash compensation was
converted from U.K. currency to U.S. currency based upon an average
exchange rate of 1.51703 for 2000 and 1.6178 for 1999.
131
Kana's Option Grants in Last Fiscal Year
The following table sets forth information with respect to stock options
granted to each of Kana's Named Executive Officers in 2000. Kana granted
options to purchase up to a total of approximately 21,787,000 shares to
employees during the year (including grants made by Silknet in 2000), and the
table's percentage column shows how much of that total was granted to Kana's
Named Executive Officers. No stock appreciation rights were granted to Kana's
Named Executive Officers during 2000.
The table includes the potential realizable value over the 10-year term of
the options, based on assumed rates of stock price appreciation of 5% and 10%,
compounded annually. The potential realizable value is calculated based on the
initial public offering price of the common stock, assuming that price
appreciates at the indicated rate for the entire term of the option and that
the option is exercised and sold on the last day of its term at the appreciated
price. All options listed have a term of 10 years. The stock price appreciation
rates of 5% and 10% are assumed pursuant to the rules of the Securities and
Exchange Commission. Kana can give no assurance that the actual stock price
will appreciate over the 10-year option term at the assumed 5% and 10% levels
or at any other defined level. Actual gains, if any, on stock option exercises
will be dependent on the future performance of Kana's common stock. Unless the
market price of the common stock appreciates over the option term, no value
will be realized from the option grants made to Kana's Named Executive
Officers.
The option grants to Kana's Named Executive Officers were made under Kana's
1999 Stock Incentive Plan. The exercise price for each option grant is equal to
the fair market value of Kana's common stock on the date of grant. See "Kana's
Employment Arrangements, Termination of Employment Arrangements and Change in
Control Arrangements."
Option Grants in 2000
Potential Realizable
Value at Assumed
Annual Rates of Stock
Number of % of Total Price Appreciation
Securities Options Individual Grant for Option Term (1)
Underlying Granted to ----------------------- ---------------------
Options Employees in Exercise Expiration
Name Granted (#) Fiscal Year Price ($/Sh) Date 5% ($) 10% ($)
---- ----------- ------------ ------------ ---------- ---------- ----------
James C. Wood........... 100 * 10.00 04/19/10 5,404 9,197
Michael J. McCloskey.... 375,000(2) 1.7 39.3125 04/19/10 9,271,282 23,495,250
100 * 10.00 04/19/10 5,404 9,197
Nigel K. Donovan........ 200,000 * 39.3125 04/19/10 4,944,684 2,530,800
100 * 10.00 04/19/10 5,404 9,197
100,000 * 15.25 10/18/10
Paul R. Holland......... 150,000(2) * 129.6875 2/22/10 12,233,966 31,003,271
45,000 * 39.3125 04/19/10 1,112,554 2,819,430
100 * 10.00 04/19/10 5,404 9,197
William R. Phelps....... 150,000(2) * 129.6875 2/22/10 12,233,966 31,003,271
45,000 * 39.3125 04/19/10 1,112,554 2,819,430
100 * 10.00 04/19/10 5,404 9,197
Alexander E. Evans...... 50,000 * 129.6875 2/22/10 4,077,989 10,334,424
15,000 * 39.3125 04/19/10 370,851 39,810
100 * 10.00 04/19/10 5,404 9,197
--------
* denotes less than one percent (1%).
(1) The exercise prices of all options granted in fiscal year 2000 are well
above the last close price of Kana's common stock of $1.08 on April 26,
2001.
(2) This option was cancelled by the optionholder on October 25, 2000.
In addition, on April 26, 2001, James C. Wood, Kana's chief executive
officer, who is expected to be chairman of Kana's board of directors following
the merger, and Nigel Donovan, Kana's chief operating officer,
132
who is expected to become a vice president of Kana following the merger,
received options to purchase Kana common stock. Mr. Wood received an option to
purchase 400,000 shares of Kana common stock that will vest monthly from the
grant date over the next 48 months of his continued service to Kana, and Mr.
Donovan received an option to purchase 200,000 shares of Kana common stock that
will vest monthly from the grant date over the next 24 months of his continued
service to Kana. Both options have an exercise price of $1.08.
Kana's Aggregated Option Exercises and Fiscal Year-End Values
The following table sets forth the number of shares underlying exercisable
and unexercisable options held by Kana's Named Executive Officers at the end of
2000, and the value of such options. None of Kana's Named Executive Officers
exercised any options during 2000, other than Mr. Donovan. None of them
exercised any stock appreciation rights during 2000, and none held any stock
appreciation rights at the end of the year.
The value realized is based on the fair market value of Kana's common stock
on the date of exercise, minus the exercise price payable for the shares,
except in the event of a same day sale transaction, in which case the actual
sale price is used. With the exception of an option to purchase 100 shares
granted to all of Kana's employees on April 19, 2000, the exercise price for
each grant equaled the fair market value on the date of exercise. None of such
100 share option grants were exercised by any of Kana's Named Executive
Officers, so Kana's Named Executive Officers did not realize any value on the
exercise of any stock option in 2000.
# of Securities
Number of Underlying Unexercised Value of Unexercised
Shares Options/SARs at Fiscal in-the-Money Options/SARs
Acquired on Year-End (#) at Fiscal Year-End ($)
Exercise Value ------------------------- -------------------------
Name (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------ ----------- ------------- ----------- -------------
James C. Wood........... 0 0 24,309 17,290 150 0
Michael J. McCloskey.... 0 0 100 0 150 0
Nigel K. Donovan........ 100,000 3,772,100 482,319 329,739 5,619,697 129,978
Paul R. Holland......... 0 0 100 45,000 150 0
William R. Phelps....... 0 0 100 45,000 150 0
Alexander E. Evans...... 0 0 400,100 65,000 3,700,150 0
KANA'S EMPLOYMENT ARRANGEMENTS, TERMINATION OF EMPLOYMENT ARRANGEMENTS AND
CHANGE IN CONTROL ARRANGEMENTS
In February 1997, Dr. Holloway, one of Kana's directors, exercised an option
to purchase 106,666 shares of common stock and entered into a stock purchase
agreement for the purchase of those shares. At the time of this joint proxy
statement/prospectus, these shares were fully vested.
In April 1998, Mr. Holland, Kana's former Vice President, Worldwide Sales,
exercised an option to purchase 811,406 shares of common stock and entered into
a stock purchase agreement for the purchase of those shares. To the extent the
shares are unvested at the time of his termination of service, Kana will have
the right to repurchase those shares at the exercise price paid per share.
Under the stock purchase agreement, if Kana is acquired by merger or asset
sale, Kana's right to repurchase the unvested shares will automatically lapse
in its entirety, and the shares will vest in full, unless the repurchase right
is assigned to the successor entity. In addition, if Kana is acquired by merger
or asset sale and Mr. Holland is not offered comparable employment by the
successor entity, Kana's right to repurchase the unvested shares will
automatically lapse and the shares will vest in full.
In July 1998, Mr. Hahn, one of Kana's directors, exercised an option to
purchase 150,064 shares of common stock and entered into a stock purchase
agreement for the purchase of those shares. To the extent the shares are
unvested at the time of his termination of service, Kana will have the right to
repurchase those shares at the exercise price paid per share. Under the stock
purchase agreement, if Kana is acquired by merger or asset sale, Kana's right
to repurchase the unvested shares will automatically lapse in its entirety and
the shares will vest in full.
133
Also in July 1998, Dr. Holloway, one of Kana's directors exercised an option
to purchase 53,332 shares of common stock and entered into a stock purchase
agreement for the purchase of those shares. To the extent the shares are
unvested at the time of his termination of service, Kana will have the right to
repurchase those shares at the exercise price paid per share. Under the stock
purchase agreement, if Kana is acquired by merger or asset sale, Kana's right
to repurchase all of the unvested shares will automatically lapse in its
entirety, and the shares will vest in full, unless the repurchase right is
assigned to the successor entity. In addition, if Kana is acquired by merger or
asset sale and Dr. Holloway does not provide services to the successor entity,
25% of the unvested shares will vest and no longer be subject to repurchase.
In February and June 1999, Mr. Phelps, Kana's Vice President, Professional
Services, exercised options to purchase a total of 413,330 shares of common
stock and entered into a stock purchase agreement for the purchase of those
shares. To the extent the shares are unvested at the time of his termination of
service, Kana will have the right to repurchase those shares at the exercise
price paid per share. Under the stock purchase agreement, if Kana is acquired
by merger or asset sale, Kana's right to repurchase the unvested shares will
automatically lapse in its entirety, and the shares will vest in full, unless
the repurchase right is assigned to the successor entity. In addition, if Kana
are acquired by merger or asset sale and Mr. Phelps is not offered employment
by the successor entity, 25% of the unvested shares will vest and no longer be
subject to repurchase.
In June 1999, Kana entered into an employment arrangement with Mr.
McCloskey, Kana's former Chief Executive Officer. In connection with this
arrangement, Kana granted Mr. McCloskey an option to purchase up to 1,866,666
shares of common stock, which Mr. McCloskey exercised in June 1999. Of these
shares, 1,119,999 are subject to a right of repurchase granted to Kana that
will allow Kana to repurchase those shares at the option exercise price paid
per share, to the extent those shares are unvested at the time of his
termination of service. Under the stock purchase agreement and the terms of Mr.
McCloskey's employment arrangement, the unvested shares will vest in a series
of 48 successive equal monthly installments upon his completion of each month
of service over the 48-month period measured from June 17, 1999. However, all
or part of the shares will vest on an accelerated basis, following a change of
control of Kana, under the various circumstances. Michael McCloskey resigned as
chief executive officer in January 2001 due to the discovery of a medical
condition that prevented him from continuing to serve in such capacity. In
March 2001, Mr. McCloskey resigned as an employee of the Company. In addition,
the Board of Directors approved the acceleration of the 871,111 shares that
remained unvested under his option grant.
In August 1999, Kana granted an option to purchase 66,666 fully vested
shares of common stock to Mr. Frick, one of its directors, at an exercise price
of $4.50 per share, that he exercised in full in September 1999.
Generally, Kana's option grants to employees, other than those under the
1999 Special Stock Option Plan, provide that if Kana is acquired by merger or
asset sale and the employee is not offered employment by the successor entity,
then 25% of any unvested shares held by that individual will vest and no longer
be subject to repurchase.
CERTAIN TRANSACTIONS OF KANA
Sales of Securities by Kana
Since January 2000, Kana has been a party to several transactions in which
the amount involved exceeded $60,000 and in which any of its directors or
executive officers, any holder of more than 5% of its outstanding capital stock
or any member of their immediate families had a direct or indirect material
interest.
These transactions include:
On April 19, 2000, Kana closed a merger with Silknet Software, Inc.,
pursuant to which Silknet became Kana's wholly-owned subsidiary. In connection
with the acquisition of Silknet, approximately 33 million shares
134
of common stock, valued at approximately $4.2 billion, were issued or reserved
for issuance for all outstanding shares, warrants and options of Silknet. In
connection with the acquisition, Mr. Wood, a founder and the Chairman of the
Board, President and Chief Executive Officer of Silknet, became one of our
directors.
Loans to and Other Arrangements with Kana's Officers and Directors
In connection with the option exercises described under "Kana's Employment
Arrangements, Termination of Employment Arrangements and Change of Control
Arrangements," the following officers and directors delivered five-year full
recourse promissory notes, bearing interest at an annual rate of 5.7%, except
in the case of Mr. Frick whose note bears interest at an annual rate of 6.0%,
in amounts and with the balances indicated:
Original Amount
Amount of Outstanding at
Promissory December 31,
Officer or Director Note 2000
------------------- ---------- --------------
Michael J. McCloskey(1)........................... $630,000 $686,500
Robert W. Frick................................... 299,997 323,489
William R. Phelps(2).............................. 79,000 17,155
Ian P. Cavanagh................................... 900,000 974,772
--------
(1) $304,500 remained outstanding as of March 8, 2001.
(2) This loan had been paid in full as of March 8, 2001.
Kana entered into an employment arrangement with Mr. McCloskey, its former
Chief Executive Officer. See "Kana's Employment Arrangements, Termination of
Employment Arrangements and Change in Control Arrangements."
Kana has granted options to its executive officers and directors. See
"Management of Kana--Kana's Director Compensation" and "--Kana's Executive
Compensation."
In connection with the termination of Mr. McCloskey's employment, Kana
agreed to accelerate the vesting of Mr. McCloskey's unvested shares as of
January 2001.
Kana has entered into an indemnification agreement with each of its
executive officers and directors containing provisions that may require it,
among other things, to indemnify its executive officers and directors against
liabilities that may arise by reason of Kana's status or service as executive
officers or directors (other than liabilities arising from willful misconduct
of a culpable nature) and to advance expenses incurred as a result of any
proceeding against them as to which they could be indemnified.
PRINCIPAL STOCKHOLDERS OF KANA
The table below sets forth information regarding the beneficial ownership of
Kana's common stock as of February 28, 2001, by the following individuals or
groups:
.each person or entity who is known by Kana to own beneficially more than
five percent of Kana's outstanding stock;
.each of Kana's Named Executive Officers;
.each of Kana's directors; and
.all current directors and executive officers as a group.
Applicable percentage ownership in the following table is based on
94,345,305 shares of common stock outstanding as of February 28, 2001, as
adjusted to include all options exercisable within 60 days of February 28, 2001
held by the particular stockholder and that are included in the first column.
Unless otherwise indicated, the principal address of each of the
stockholders below is c/o Kana Communications, Inc., 740 Bay Road, Redwood
City, CA 94063. Except as otherwise indicated, and subject to applicable
community property laws, the persons named in the table have sole voting and
investment power with respect to all shares of common stock held by them.
135
Number of Percentage
Shares of Shares
Beneficially Beneficially
Name and Address of Beneficial Owner Owned (#) Owned (%)
------------------------------------ ------------ ------------
Entities affiliated with Draper Fisher
Jurvetson(1)....................................... 7,875,162 8.3
Entities affiliated with Benchmark Capital Partners
L.P.(2)............................................ 6,927,511 7.3
Entities affiliated with CMG @Ventures II LLC....... 4,700,759 5.0
Michael J. McCloskey................................ 1,870,604 2.0
James C. Wood....................................... 2,471,646 2.6
Paul R. Holland(3).................................. 759,844 *
William R. Phelps(4)................................ 379,768 *
Alexander E. Evans.................................. 426,021 *
Nigel K. Donovan.................................... 585,161 *
Steven T. Jurvetson(1).............................. 8,215,331 8.7
David M. Beirne(2)(5)............................... 7,309,190 7.7
Eric A. Hahn(6)..................................... 397,705 *
Dr. Charles A. Holloway............................. 103,748 *
Robert W. Frick..................................... 157,034 *
Kevin Harvey........................................ -- --
All current directors and executive officers as a
group (10 persons)................................. 19,373,634 20.5
--------
* Less than one percent.
(1) Principal address is 400 Seaport Court, Suite 250, Redwood City, CA 94063.
Includes 7,335,461 shares of common stock held by Draper Fisher Associates
Fund IV, L.P., 506,821 shares of common stock held by Draper Fisher
Partners IV, LLC and 32,880 shares of common stock held by Draper Richards
L.P. Mr. Jurvetson disclaims beneficial ownership of these shares, except
to the extent of his pecuniary interest in the Draper Fisher Jurvetson
Funds.
(2) Principal address is 2480 Sand Hill Road, Suite 200, Menlo Park, CA 94025.
Includes 6,436,773 shares of common stock held by Benchmark Capital
Partners, L.P., and 490,738 shares of common stock held by Benchmark
Founders' Fund L.P. Mr. Beirne, one of Kana's directors, is a Managing
Member of Benchmark Capital Management Co., LLC. Mr. Beirne disclaims
beneficial ownership of these shares, except to the extent of his pecuniary
interest in the Benchmark funds.
(3) Includes 26,666 shares of common stock held by The Paul Holland Grantor
Retained Annuity Trust, 26,666 shares of common stock held by The Linda
Yates Holland Grantor Retained Annuity Trust, 53,332 shares of common stock
held by the Yates/Holland 1999 Irrevocable Trust, 513,910 shares of common
stock held by The Yates/Holland Family Trust and 133,332 shares of common
stock held by Paul Holland and Linda Yates as community property. Includes
135,235 shares of common stock subject to Kana's right of repurchase. This
repurchase right lapses with respect to 16,904 shares per month.
(4) Includes 26,278 shares of common stock held by The William Phelps Grantor
Retained Annuity Trust, 27,478 shares of common stock held by The Margaret
Phelps Grantor Retained Annuity Trust and 322,074 shares of common stock
held by The Phelps Family Trust. Includes 152,778 shares of common stock
subject to Kana's right of repurchase. This repurchase right lapses with
respect to 7,638 shares per month. Also includes 25,278 shares of common
stock subject to Kana's right of repurchase that lapses with respect to 972
shares per month.
(5) Includes 192,000 shares of common stock held by Ramsey/Beirne Investment
Pool II, LLC. Mr. Beirne, one of Kana's directors, was Chief Executive
Officer of Ramsey/Beirne Associates until June 1997. Mr. Beirne disclaims
beneficial ownership of these shares, except to the extent of his pecuniary
interest in the Ramsey/Beirne Investment Pool II, LLC.
(6) Includes 43,769 shares of common stock subject to Kana's right of
repurchase. This repurchase right lapses with respect to 3,126 shares per
month.
136
MARKET PRICE INFORMATION
Kana's Market Price Data
Kana's common stock has traded on the Nasdaq National Market under the
symbol "KANA" since September 22, 1999. The following table sets forth the high
and low sales prices reported on the Nasdaq National Market for Kana common
stock for the periods indicated.
High Low
------- ------
Fiscal Year Ended December 31, 1999
Third Quarter (from September 22, 1999)...................... $ 26.13 $22.78
Fourth Quarter............................................... 122.50 24.03
Fiscal Year Ending December 31, 2000
First Quarter................................................ 169.81 68.00
Second Quarter............................................... 61.88 29.63
Third Quarter................................................ 72.25 22.00
Fourth Quarter............................................... 28.36 8.84
Fiscal Year Ending December 31, 2001
First Quarter................................................ 12.00 1.72
Second Quarter (through , 2001).........................
Broadbase's Market Price Data
Broadbase's common stock has traded on the Nasdaq National Market under the
symbol "BBSW" since September 22, 1999. The following table sets forth the high
and low sales prices reported on the Nasdaq National Market for Broadbase
common stock for the periods indicated.
High Low
------ ------
Fiscal Year Ended December 31, 1999
Third Quarter (from September 22, 1999)....................... $14.59 $ 7.75
Fourth Quarter................................................ 71.38 7.97
Fiscal Year Ending December 31, 2000
First Quarter................................................. 86.00 32.50
Second Quarter................................................ 41.00 12.63
Third Quarter................................................. 39.50 12.94
Fourth Quarter................................................ 16.44 5.38
Fiscal Year Ending December 31, 2001
First Quarter................................................. 7.31 1.81
Second Quarter (through , 2001)..........................
Recent Closing Prices
On April 6, 2001, the last trading day before announcement of the proposed
merger, the closing price per share of Kana common stock on the Nasdaq National
Market was $0.88, and the closing price per share of Broadbase common stock on
the Nasdaq National Market was $0.72. On April 2, 2001, five business days
before announcement of the proposed merger, the closing price per share of Kana
common stock on the Nasdaq National Market was $1.34 and the closing price per
share of Broadbase common stock on the Nasdaq National Market was $1.75. On
, 2001, the closing prices per share of Kana common stock and Broadbase
common stock on the Nasdaq National Market were $ and $ ,
respectively.
Because the market price of Kana common stock is subject to fluctuation, the
market value of the shares of Kana common stock that holders of Broadbase
common stock will receive in the merger may increase or
137
decrease prior to and following the merger. Stockholders are urged to obtain
current market quotations for Kana common stock and Broadbase common stock. No
assurance can be given as to the future prices or markets for Kana common stock
or Broadbase common stock.
EXPERTS
The financial statements of Kana Communications, Inc. as of December 31,
2000 and for the year ended December 31, 2000 incorporated in this registration
statement by reference to the Annual Report on Form 10-K of Kana
Communications, Inc. for the year ended December 31, 2000 have been so
incorporated in reliance on the report (which contains an explanatory paragraph
relating to the Company's ability to continue as a going concern as described
in Note 1 to the financial statements) of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The consolidated financial statements of Broadbase Software, Inc. appearing
in Broadbase Software, Inc.'s Annual Report on Form 10-K for the year ended
December 31, 2000, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon included therein and
incorporated herein by reference in reliance upon such report given on the
authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Kana Communications, Inc. as of
December 31, 1999 and for each of the years in the two-year period ended
December 31, 1999 have been incorporated by reference herein in reliance upon
the report KPMG LLP, independent certified public accountants given on the
authority of said firm as experts in accounting and auditing.
The consolidated financial statements of Silknet Software, Inc. as of June
30, 1999 and 1998 and for each of the three years in the period ended June 30,
1999 incorporated in this registration statement by reference to the Current
Report on Form 8-K/A of Kana Communications, Inc. filed on May 8, 2000 have
been so incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The consolidated financial statements of Servicesoft, Inc. as of December
31, 1999 and 1998 and for each of the three years in the period ended December
31, 1999 incorporated in this registration statement by reference to the
Current Report on Form 8-K/A of Broadbase Software, Inc. filed on February 8,
2001 have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
LEGAL MATTERS
The validity of the shares of Kana common stock offered by this joint proxy
statement/prospectus and the federal income tax consequences in connection with
the merger will be passed upon for Kana by Brobeck, Phleger & Harrison LLP,
Palo Alto, California. Attorneys of the firm Brobeck, Phleger & Harrison LLP
beneficially own an aggregate of approximately 29,146 shares of Kana's common
stock. Certain legal matters with respect to federal income tax consequences in
connection with the merger will be passed upon for Broadbase by Fenwick & West
LLP, Palo Alto, California. Fenwick & West LLP and certain of its partners own
an aggregate of 61,758 shares of Broadbase common stock, and Fenwick & West LLP
holds an option to purchase 20,000 shares of Broadbase common stock.
138
WHERE YOU CAN FIND MORE INFORMATION
Kana and Broadbase file annual, quarterly and special reports, proxy
statements and other information with the Securities and Exchange Commission.
Stockholders may read and copy any reports, statements or other information
filed by Kana or Broadbase at the Commission's public reference rooms in
Washington, D.C., New York, New York and Chicago, Illinois. Please call the
Commission at 1-800-SEC-0330 for further information on the public reference
rooms. Kana's and Broadbase's filings with the Commission are also available to
the public from commercial document-retrieval services and at the Web site
maintained by the Commission at http://www.sec.gov.
Kana has filed a registration statement with the Commission to register the
Kana common stock to be issued to Broadbase stockholders in the merger. This
joint proxy statement/prospectus is a part of that registration statement and
constitutes a proxy statement and prospectus of Kana in addition to being a
proxy statement of Broadbase for use at its special meeting.
Kana has supplied all information contained in this joint proxy
statement/prospectus relating to Kana, and Broadbase has supplied all
information contained in this joint proxy statement/prospectus relating to
Broadbase. Neither Kana nor Broadbase warrants the accuracy or completeness of
information relating to the other.
Stockholders can obtain any of the reports referenced above through Kana,
Broadbase or the Commission. Documents are available from Kana or Broadbase
without charge, excluding all exhibits. Stockholders may obtain such documents
by requesting them orally or in writing to the following addresses or by
telephone:
Kana Communications, Inc. Broadbase Software, Inc.
Investor Relations Investor Relations
740 Bay Road 181 Constitution Road
Redwood City, CA 94063 Menlo Park, CA 94025
(650) 298-9282 (650) 614-8300
If you would like to request documents, please do so as soon as possible.
Kana stockholders should rely only on the information contained in this
joint proxy statement/prospectus to vote on the issuance of Kana common stock
as contemplated by the merger agreement and the other proposals presented to
Kana's stockholders. Broadbase stockholders should rely only on the information
contained in this joint proxy statement/prospectus to vote on the merger
agreement. Neither Kana nor Broadbase has authorized anyone to provide
information that is different from what is contained in this joint proxy
statement/prospectus. This joint proxy statement/prospectus is dated
, 2001. Stockholders should not assume that the information
contained in this joint proxy statement/prospectus is accurate as of any other
date, and neither the mailing of this joint proxy statement/prospectus to
stockholders nor the issuance of Kana common stock in the merger shall create
any implication to the contrary.
139
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Securities and Exchange Commission allows Kana to "incorporate by
reference" the information Kana files with it, which means that Kana can
disclose important information to you by referring you to those documents. The
information incorporated by reference is considered to be part of this joint
proxy statement/prospectus, and later information filed with the Securities and
Exchange Commission will update and supersede this information. This joint
proxy statement/prospectus incorporates by reference the documents set forth
below that Kana and Broadbase have previously filed with the Securities and
Exchange Commission. The documents contain important information about Kana and
Broadbase and their finances.
Incorporated by reference are Kana's:
. Annual report on Form 10-K for the year ended December 31, 2000 (as
amended by Form 10-K/A filed April 3, 2001);
. Current reports on Form 8-K filed January 22, 2001, February 1, 2001,
February 21, 2001 and April 12, 2001 and current report on Form 8-K/A
filed May 8, 2000; and
. Common stock description contained in Kana's registration statement on
Form 8-A (File No. 000-27163) filed on August 27, 1999 registering the
Kana common stock under Section 12(g) of the Securities Exchange Act of
1934.
In addition, all of Kana's filings with the Securities and Exchange
Commission after the date of this joint proxy statement/prospectus under
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 shall
be deemed to be incorporated by reference until the merger becomes effective.
Incorporated by reference are Broadbase's:
. Definitive proxy statement for its 2000 annual meeting of stockholders;
. Annual report on Form 10-K for the year ended December 31, 2000;
. Current reports on Form 8-K dated April 16, 2001 and current report on
Form 8-K/A dated February 8, 2001; and
. Common stock description contained in Broadbase's Registration Statement
on Form 8-A (File No. 000-26789) filed on July 22, 1999 registering the
Broadbase's common stock under Section 12(g) of the Securities Exchange
Act of 1934.
In addition, all of Broadbase's filings with the Securities and Exchange
Commission after the date of this joint proxy statement/prospectus under
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 shall
be deemed to be incorporated by reference until the merger becomes effective.
Any statement contained in this joint proxy statement/prospectus or in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this joint proxy
statement/prospectus to the extent that a statement contained herein or in any
other subsequently filed document which also is or is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any such statement
so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this joint proxy statement/prospectus.
140
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 20. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law permits indemnification
of officers, directors and other corporate agents under certain circumstances
and subject to certain limitations. The Registrant's Second Amended and
Restated Certificate of Incorporation and Amended and Restated Bylaws provide
that the Registrant shall indemnify its directors, officers, employees and
agents to the fullest extent permitted by Delaware General Corporation Law,
including in circumstances in which indemnification is otherwise discretionary
under Delaware law. Kana has entered into an indemnification agreement (Exhibit
10.1) with each of its executive officers and directors containing provisions
that may require it, among other things, to indemnify its executive officers
and directors against liabilities that may arise by reason of their status or
service as executive officers or directors (other than liabilities arising from
willful misconduct of a culpable nature) and to advance expenses incurred as a
result of any proceeding against them as to which they could be indemnified.
The Registrant also intends to maintain director and officer liability
insurance.
Item 21. Exhibits and Financial Statement Schedules
Exhibit
Number Description of Document
------- -----------------------
2.1(1) Agreement and Plan of Reorganization, dated August 13, 1999, by and
among Kana Communications, Inc., KCI Acquisition, Inc. and
Connectify, Inc.
2.2(3) Agreement and Plan of Reorganization, dated December 3, 1999, by and
among Kana Communications, Inc., King Acquisition Corp. and Business
Evolution, Inc.
2.3(3) Agreement and Plan of Reorganization, dated December 3, 1999, by and
among Kana Communications, Inc., Kong Acquisition Corp. and
netDialog.
2.4(5) Agreement and Plan of Reorganization, dated February 6, 2000, by and
among Kana Communications, Inc., Pistol Acquisition Corp. and
Silknet Software, Inc.
2.5(14) Agreement and Plan of Merger, dated April 9, 2001, by and among Kana
Communications, Inc., Arrow Acquisition Corp. and Broadbase
Software, Inc.
3.1(10) Second Amended and Restated Certificate of Incorporation, as amended
by the Certificate of Amendment dated April 18, 2000.
3.2(1) Amended and Restated Bylaws.
4.1(1) Form of Registrant's Specimen Common Stock Certificate
4.2(1) Fourth Amended and Restated Investors' Rights Agreement dated August
13, 1999 by and among Kana Communications, Inc. and parties listed
on Schedule A therein.
4.3(6) Form of amendment to Fourth Amended and Restated Investors' Rights
Agreement.
4.4(11) Registration Rights Agreement, dated June 7, 2000, by and among Kana
Communications, Inc. and the parties listed on Exhibit A thereto.
4.5(13) Stock and Warrant Purchase Agreement, dated September 6, 2000 by and
among Kana Communications, Inc. and Andersen Consulting LLP.
4.6(13)* Warrant to Purchase Common Stock, dated September 6, 2000 between
Kana Communications, Inc. and Andersen Consulting LLP.
4.7 Parent Stock Option Agreement, dated April 9, 2001, by and between
Kana Communications, Inc. and Broadbase Software, Inc.
5.1** Opinion of Brobeck, Phleger & Harrison LLP.
8.1** Tax Opinion of Brobeck, Phleger & Harrison LLP.
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Exhibit
Number Description of Document
------- -----------------------
8.2** Tax Opinion of Fenwick & West LLP.
10.1(1) 1997 Stock Option/Stock Issuance Plan of Kana Communications, Inc.
10.2(1) 1999 Stock Incentive Plan of Kana Communications, Inc.
10.3(1) 1999 Employee Stock Purchase Plan of Kana Communications, Inc.
10.4(7) 1999 Special Stock Option Plan of Kana Communications, Inc.
10.5(7) 1999 Special Stock Option Plan--Form of Nonstatutory Stock Option
Agreement--4-year vesting of Kana Communications, Inc.
10.6(7) 1999 Special Stock Option Plan--Form of Nonstatutory Stock Option
Agreement--30-month vesting of Kana Communications, Inc.
10.7(1) Form of Directors' and Officers' Indemnification Agreement of Kana
Communications, Inc.
10.8(1) Form of License Agreement of Kana Communications, Inc.
10.9(1) Letter of Credit, dated July 9, 1999, with Silicon Valley Bank and
Kana Communications, Inc.
10.10(1) Lease, dated May 1998, by and between Encina Properties and Kana
Communications, Inc.
10.11(1) Office/R&D Lease, dated June 18, 1999, by and between Chestnut Bay
LLC and Kana Communications, Inc.
10.12(1) Form of Online Service Agreement of Kana Communications, Inc.
10.13(1) Form of Restricted Stock Purchase Agreement of Kana Communications,
Inc.
10.14(1) QuickStart Loan and Security Agreement, dated November 6, 1998, with
Silicon Valley Bank and Connectify, Inc.
10.15(6) Lease, dated February 11, 2000, by and between Veterans Self-
Storage, LLC and Kana Communications, Inc.
10.16(6) Amended and Restated 1999 Stock Incentive Plan of Kana
Communications, Inc.
10.17(11) Stock Purchase Agreement, dated June 7, 2000, by and among Kana
Communications, Inc. and the parties listed on Exhibit A thereto.
10.18(12) Lease, dated November 15, 1999, by and between 1848 Associates and
Silknet, Inc.
10.19(14) Company Stock Option Agreement, dated April 9, 2001, by and between
Kana Communications, Inc. and Broadbase Software, Inc.
10.20 Distribution and License Agreement, dated April 9, 2001, by and
between Kana Communications, Inc. and Broadbase Software, Inc.
10.21 Revolving Loan Agreement, dated April 9, 2001, by and between Kana
Communications, Inc. and Broadbase Software, Inc.
10.22 Amended 1999 Stock Incentive Plan of Kana Communications, Inc., to
be effective upon approval of the stockholders of Kana
Communications, Inc.
10.23 Amended and Restated 1999 Employee Stock Purchase Plan of Kana
Communications, Inc., to be effective upon approval of the
stockholders of Kana Communications, Inc.
16.1(8) Letter from KPMG LLP, dated March 30, 2000.
21.1 Subsidiaries of Kana Communications, Inc.
23.2 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
23.3** Consent of Brobeck Phleger & Harrison LLP (included in Exhibit 5.1).
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Exhibit
Number Description of Document
------- -----------------------
23.4** Consent of Brobeck Phleger & Harrison LLP (included in Exhibit
8.1).
23.5** Consent of Fenwick & West LLP (included in Exhibit 8.2).
23.6 Consent of Ernst & Young LLP, Independent Auditors.
23.7 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
23.8 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
24.1 Power of Attorney (See Signature Page).
99.1(5) Connectify, Inc. 1998 Stock Plan.
99.2(5) Connectify, Inc. 1998 Stock Plan Form of Incentive Stock Option
Agreement.
99.3(5) Connectify, Inc. 1998 Stock Plan Form of Nonstatutory Stock Option
Agreement.
99.4(5) Form of Option Assumption Agreement.
99.5(4) Business Evolution, Inc. 1999 Stock Plan.
99.6(4) Business Evolution, Inc. Form of Stock Option Agreement.
99.7(4) Form of Option Assumption Agreement--12 Months Acceleration
(Business Evolution Option Shares).
99.8(4) Form of Option Assumption Agreement--24 Months Acceleration
(Business Evolution Option Shares).
99.9(4) netDialog, Inc. 1997 Stock Plan.
99.10(4) netDialog, Inc. Form of Stock Option Agreement.
99.11(4) Form of Option Assumption Agreement (netDialog Option Shares).
99.12(9) Silknet Software, Inc. 1999 Employee Stock Purchase Plan.
99.13(9) Silknet Software, Inc. 1999 Stock Option and Stock Incentive Plan.
99.14(9) Silknet Software, Inc. 1999 Non-Employee Director Stock Option
Plan.
99.15(9) Silknet Software, Inc. Employee Stock Option Plan.
99.16(9) Insite Marketing Technology, Inc. 1997 Stock Option Plan.
99.17(9) Form of Option Assumption Agreement (Silknet Option Shares).
99.18(9) Form of Option Assumption Agreement--Acceleration (Silknet Option
Shares).
99.19*(15) Broadbase Software, Inc. 1999 Equity Incentive Plan
99.20(16) Broadbase Software, Inc. 2000 Stock Incentive Plan
99.21(17) Broadbase Information Systems, Inc. 1996 Equity Incentive Plan
99.22(18) Broadbase Software, Inc. 1999 Employee Stock Purchase Plan
99.23(19) Aperio, Inc. 1998 Incentive and Nonqualified Stock Option Plan
99.24(20) Panopticon, Inc. 1999 Stock Option Plan
99.25(21) Rubric, Inc. 1997 Stock Option Plan
99.26(22) Servicesoft Technologies, Inc. Amended and Restated 1994 Stock
Option Plan
99.27(22) Servicesoft Technologies, Inc. 1999 Stock Option and Grant Plan, as
amended
--------
* Confidential treatment has been granted with respect to certain portions of
this exhibit.
** To be filed by amendment.
(1) Previously filed as an exhibit to the registration statement on Form S-l,
File No. 333-82587, originally filed with the Commission by the Registrant
on July 9, 1999, as subsequently amended, and incorporated herein by
reference.
(2) Previously filed as an exhibit to the Form S-8 filed with the Commission
by the Registrant on December 6, 1999 and incorporated herein by
reference.
II-3
(3) Previously filed as an exhibit to the Form 8-K filed with the Commission
by the Registrant on December 14, 1999, and incorporated herein by
reference.
(4) Previously filed as an exhibit to the Form S-8 filed with the Commission
by the Registrant on December 23, 1999 and incorporated herein by
reference.
(5) Previously filed as an exhibit to the Form 13D filed with the Commission
by the Registrant on February 16, 2000, and incorporated herein by
reference.
(6) Previously filed as an exhibit to the registration statement on Form S-4,
File No. 333-32428, originally filed with the Commission by the Registrant
on March 14, 2000, as subsequently amended, and incorporated herein by
reference.
(7) Previously filed as an exhibit to the Form S-8 filed with the Commission
by the Registrant on March 14, 2000 and incorporated herein by reference.
(8) Previously filed as an exhibit to the Form 10-K filed with the Commission
by the Registrant on March 30, 2000 and incorporated herein by reference.
(9) Previously filed as an exhibit to the Form S-8 filed with the Commission
by the Registrant on April 27, 2000 and incorporated herein by reference.
(10) Previously filed as an exhibit to the Form 8-K filed with the Commission
by the Registrant on May 4, 2000, and incorporated herein by reference.
(11) Previously filed as an exhibit to the Form 8-K filed with the Commission
by the Registrant on June 15, 2000, and incorporated herein by reference.
(12) Previously filed as an exhibit to the registration statement on Form 5-1,
File No. 333-40338, originally filed with the Commission by the Registrant
on June 28, 2000, as subsequently amended, and incorporated herein by
reference.
(13) Previously filed as an exhibit to the registration statement on Form S-3,
File No. 333-46624, originally filed with the Commission by the Registrant
on September 26, 2000, as subsequently amended, and incorporated herein by
reference.
(14) Previously filed as an exhibit to the form 13D filed with the Commission
by the Registrant on April 19, 2001, and incorporated herein by reference.
(15) Previously filed as an exhibit to the registration statement on Form S-8,
File No. 333-48696, filed with the Commission by Broadbase on November 9,
2000, and incorporated herein by reference.
(16) Previously filed as an exhibit to the registration statement on Form S-8,
File No. 333-38480, filed with the Commission by Broadbase on June 2,
2000, and incorporated herein by reference.
(17) Previously filed as an exhibit to the registration statement on Form S-1,
File No. 333-82251, originally filed with the Commission by Broadbase on
July 2, 1999, as subsequently amended, and incorporated herein by
reference.
(18) Previously filed as an exhibit to the registration statement on Form S-4,
File No. 333-48696, originally filed with the Commission by Broadbase on
October 26, 2000, as subsequently amended, and incorporated herein by
reference.
(19) Previously filed as an exhibit to the registration statement on Form S-8,
File No. 333-40206, filed with the Commission by Broadbase on June 26,
2000, and incorporated herein by reference.
(20) Previously filed as an exhibit to the registration statement on Form S-8,
File No. 333-46652, filed with the Commission by Broadbase on September
26, 2000, and incorporated herein by reference.
(21) Previously filed as an exhibit to the registration statement on Form S-1,
File No. 333-95125, originally filed with the Commission by Broadbase on
January 21, 2000, as subsequently amended, and incorporated herein by
reference.
(22) Previously filed as an exhibit to the registration statement on Form S-8,
File No. 333-52198, filed with the Commission by Broadbase on December 19,
2000, and incorporated herein by reference.
II-4
Item 22. Undertakings
The undersigned registrant hereby undertakes:
(1) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the Registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 1.5(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(2) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form.
(3) That every prospectus: (i) that is filed pursuant to paragraph (1)
immediately preceding , or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to
the registration statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(4) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(5) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this
form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request.
(6) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Redwood
City, State of California, on this 27th day of April, 2001.
Kana Communications, Inc.
/s/ James C. Wood
By: _________________________________
James C. Wood
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints James C. Wood, David B. Fowler and Franklin P.
Huang, and each of them, as such person's true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for such person and
in such person's name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, and to file same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as such person might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his or her substitutes, may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ James C. Wood Chief Executive Officer and April 27, 2001
____________________________________ Director (Principal
James C. Wood Executive Officer)
/s/ Art M. Rodriguez Interim Chief Financial April 27, 2001
____________________________________ Officer (Principal
Art M. Rodriguez Financial and Accounting
Officer)
/s/ David M. Beirne Director April 27, 2001
____________________________________
David M. Beirne
/s/ Robert W. Frick Director April 27, 2001
____________________________________
Robert W. Frick
/s/ Eric A. Hahn Director April 27, 2001
____________________________________
Eric A. Hahn
II-6
Signature Title Date
--------- ----- ----
/s/ Dr. Charles A. Holloway Director April 27, 2001
____________________________________
Dr. Charles A. Holloway
/s/ Steven T. Jurvetson Director April 27, 2001
____________________________________
Steven T. Jurvetson
II-7
APPENDIX I
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
KANA COMMUNICATIONS, INC.,
ARROW ACQUISITION CORP.
AND
BROADBASE SOFTWARE, INC.
I-1
TABLE OF CONTENTS
Page
-----
ARTICLE I THE MERGER................................................. I-6
1.1 The Merger................................................. I-6
1.2 Effective Time; Closing.................................... I-6
1.3 Effect of the Merger....................................... I-6
1.4 Certificate of Incorporation; Bylaws....................... I-6
1.5 Directors and Officers..................................... I-6
1.6 Effect on Capital Stock.................................... I-6
1.7 Exchange of Certificates................................... I-7
1.8 No Further Ownership Rights in Company Common Stock........ I-9
1.9 Restricted Stock........................................... I-9
1.10 Tax Consequences........................................... I-10
1.11 Taking of Necessary Action; Further Action................. I-10
ARTICLE II REPRESENTATIONS AND WARRANTIES OF COMPANY.................. I-10
2.1 Organization; Subsidiaries................................. I-10
2.2 Company Capitalization..................................... I-11
2.3 Obligations With Respect to Capital Stock.................. I-12
2.4 Authority; Non-Contravention............................... I-12
2.5 SEC Filings; Company Financial Statements.................. I-13
2.6 Absence of Certain Changes or Events....................... I-14
2.7 Taxes...................................................... I-14
2.8 Title to Properties........................................ I-15
2.9 Intellectual Property...................................... I-15
2.10 Compliance with Laws....................................... I-16
2.11 Litigation................................................. I-16
2.12 Employee Benefit Plans..................................... I-17
2.13 Environmental Matters...................................... I-18
2.14 Certain Agreements......................................... I-19
2.15 Disclosure................................................. I-19
2.16 Board Approval............................................. I-19
2.17 Fairness Opinion........................................... I-19
2.18 DGCL Section 203 and Rights Agreement Not Applicable....... I-20
2.19 Brokers' and Finders' Fees................................. I-20
2.20 Insurance.................................................. I-20
2.21 Certain Contracts.......................................... I-20
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB.... I-20
3.1 Organization; Subsidiaries................................. I-20
3.2 Parent and Merger Sub Capitalization....................... I-21
3.3 Obligations With Respect to Capital Stock.................. I-21
3.4 Authority; Non-Contravention............................... I-22
3.5 SEC Filings; Parent Financial Statements................... I-23
3.6 Absence of Certain Changes or Events....................... I-23
3.7 Taxes...................................................... I-24
3.8 Title to Properties........................................ I-25
3.9 Intellectual Property...................................... I-25
3.10 Compliance with Laws....................................... I-26
3.11 Litigation................................................. I-26
I-2
TABLE OF CONTENTS--(Continued)
Page
----
3.12 Employee Benefit Plans..................................... I-26
3.13 Environmental Matters...................................... I-27
3.14 Agreements, Contracts and Commitments...................... I-28
3.15 Disclosure................................................. I-28
3.16 Board Approval............................................. I-28
3.17 Fairness Opinion........................................... I-29
3.18 Brokers' and Finders' Fees................................. I-29
3.19 Insurance.................................................. I-29
3.20 Certain Contracts.......................................... I-29
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME........................ I-29
4.1 Conduct of Business by Company............................. I-29
4.2 Conduct of Business by Parent.............................. I-31
4.3 Interim Plans.............................................. I-33
ARTICLE V ADDITIONAL AGREEMENTS...................................... I-33
Proxy Statement/Prospectus; Registration Statement;
5.1 Antitrust and Other Filings................................ I-33
5.2 Meeting of Company Stockholders............................ I-34
5.3 Meeting of Parent Stockholders............................. I-36
5.4 No Company Solicitation.................................... I-37
5.5 No Parent Solicitation..................................... I-38
5.6 Confidentiality; Access to Information..................... I-39
5.7 Public Disclosure.......................................... I-40
5.8 Reasonable Efforts; Notification........................... I-40
5.9 Third Party Consents....................................... I-41
5.10 Stock Options and ESPP..................................... I-41
5.11 Company Warrants........................................... I-42
5.12 Form S-8................................................... I-42
5.13 Indemnification............................................ I-42
5.14 Parent Board of Directors.................................. I-43
5.15 Nasdaq Listing............................................. I-43
5.16 Letters of Accountants..................................... I-43
5.17 Takeover Statutes.......................................... I-43
5.18 Certain Employee Benefits.................................. I-43
5.19 Section 16................................................. I-44
5.20 Tax Matters................................................ I-44
ARTICLE VI CONDITIONS TO THE MERGER................................... I-44
Conditions to Obligations of Each Party to Effect the
6.1 Merger..................................................... I-44
6.2 Additional Conditions to Obligations of Company............ I-45
Additional Conditions to the Obligations of Parent and
6.3 Merger Sub................................................. I-46
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER.......................... I-46
7.1 Termination................................................ I-46
7.2 Notice of Termination; Effect of Termination............... I-48
7.3 Fees and Expenses.......................................... I-49
7.4 Amendment.................................................. I-50
7.5 Extension; Waiver.......................................... I-50
7.6 Liquidated Damages......................................... I-50
I-3
TABLE OF CONTENTS--(Continued)
Page
----
ARTICLE VIII GENERAL PROVISIONS.......................................... I-50
8.1 Non-Survival of Representations and Warranties.............. I-50
8.2 Notices..................................................... I-51
8.3 Interpretation; Certain Defined Terms....................... I-51
8.4 Counterparts................................................ I-52
8.5 Entire Agreement; Third Party Beneficiaries................. I-52
8.6 Severability................................................ I-52
8.7 Other Remedies; Specific Performance........................ I-52
8.8 Governing Law............................................... I-53
8.9 Rules of Construction....................................... I-53
8.10 Assignment.................................................. I-53
8.11 Waiver Of Jury Trial........................................ I-53
INDEX OF EXHIBITS
Exhibit A Form of Company Voting Agreement
Exhibit B Form of Parent Voting Agreement
Exhibit C Form of Company Stock Option Agreement
Exhibit D Form of Parent Stock Option Agreement
Exhibit E Form of Distribution and License Agreement
Exhibit F Form of Revolving Loan Agreement
I-4
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement") is made and entered
into as of April 9, 2001, among Kana Communications, Inc., a Delaware
corporation ("Parent"), Arrow Acquisition Corp., a Delaware corporation and a
wholly owned first-tier subsidiary of Parent ("Merger Sub"), and Broadbase
Software, Inc., a Delaware corporation ("Company").
RECITALS
A. The respective Boards of Directors of Parent, Merger Sub and Company have
approved this Agreement, and declared advisable the merger of Merger Sub with
and into Company (the "Merger") upon the terms and subject to the conditions of
this Agreement and in accordance with the General Corporation Law of the State
of Delaware ("Delaware Law").
B. For United States federal income tax purposes, the Merger is intended to
qualify as a "reorganization" pursuant to the provisions of Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code"). For accounting
purposes, the Merger is intended to be accounted for as a "purchase" under
United States generally accepted accounting principles ("GAAP").
C. Concurrently with the execution of this Agreement, and as a condition and
inducement to Parent's willingness to enter into this Agreement, certain
stockholders of Company are entering into a Company Voting Agreement with
Parent in the form of Exhibit A (the "Company Voting Agreement"). Concurrently
with the execution of this Agreement, and as a condition and inducement to
Company's willingness to enter into this Agreement, certain stockholders of
Parent are entering into a Parent Voting Agreement with Company in the form of
Exhibit B (the "Parent Voting Agreement").
D. Concurrently with the execution of this Agreement, and as a condition and
inducement to Parent's willingness to enter into this Agreement, Company shall
execute and deliver a Stock Option Agreement in favor of Parent in
substantially the form attached hereto as Exhibit C (the "Company Stock Option
Agreement"). The Board of Directors of Company has approved the Company Stock
Option Agreement. Concurrently with the execution of this Agreement, and as a
condition and inducement to Company's willingness to enter into this Agreement,
Parent shall execute and deliver a Stock Option Agreement in favor of Company
in substantially the form attached hereto as Exhibit D (the "Parent Stock
Option Agreement"). The Board of Directors of Parent has approved the Parent
Stock Option Agreement.
E. Concurrently with the execution of this Agreement, Parent and Company are
entering into a Distribution and License Agreement in the form of Exhibit E
(the "License Agreement").
F. Concurrently with the execution of this Agreement, Parent and Company are
entering into a Revolving Loan Agreement in the form of Exhibit F (the "Loan
Agreement").
G. In connection with the Merger, the Board of Directors of Parent has
approved a name change of Parent to "Kana Software, Inc." (the "Parent Name
Change") to be effective immediately prior to the Effective Time (as defined
below).
H. The respective boards of directors of Parent and Company have each
determined that the Merger and the other transactions contemplated hereby are
consistent with, and in furtherance of, their respective business strategies
and goals, that the Merger is advisable, and that the products and services of
Parent and Company will complement and enhance each other.
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I. In consideration of the foregoing and the representations, warranties,
covenants and agreements set forth in this Agreement, the parties agree as
follows:
ARTICLE I
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions of this
Agreement and the applicable provisions of Delaware Law, at the Effective Time,
Merger Sub shall be merged with and into Company, the separate corporate
existence of Merger Sub shall cease, and Company shall continue as the
surviving corporation of the Merger and a wholly-owned subsidiary of Parent
(the "Surviving Corporation").
1.2 Effective Time; Closing. Subject to the provisions of this Agreement,
Company and Merger Sub will file a certificate of merger, in such appropriate
form as determined by the parties, with the Secretary of State of the State of
Delaware in accordance with the relevant provisions of Delaware Law (the
"Certificate of Merger") (the time of such filing (or such later time as may be
agreed in writing by Company and Parent and specified in the Certificate of
Merger) being the "Effective Time") as soon as practicable on or after the
Closing Date. The closing of the Merger (the "Closing") shall take place at the
offices of Fenwick & West LLP, Two Palo Alto Square, Palo Alto, California, at
a time and date to be specified by the parties, which shall be no later than
the second business day after the satisfaction or waiver of the conditions set
forth in Article VI, or at such other time, date and location as the parties
hereto agree in writing (the "Closing Date").
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
shall be s provided in this Agreement and the applicable provisions of Delaware
Law. Without limiting the generality of the foregoing, at the Effective Time,
the Surviving Corporation shall possess all the property, rights, privileges,
powers and franchises of Company and Merger Sub, and shall be subject to all
debts, liabilities and duties of Company and Merger Sub.
1.4 Certificate of Incorporation; Bylaws.
(a) At the Effective Time, the Certificate of Incorporation of Merger Sub,
as in effect immediately prior to the Effective Time, shall be the Certificate
of Incorporation of the Surviving Corporation until thereafter amended as
provided by law and such Certificate of Incorporation of the Surviving
Corporation. At the Effective Time, the Certificate of Incorporation of the
Parent shall have been amended to effect the Parent Name Change.
(b) At the Effective Time, the Bylaws of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the Bylaws of the Surviving
Corporation until thereafter amended.
1.5 Directors and Officers. The initial directors of the Surviving
Corporation shall be the directors of Merger Sub immediately prior to the
Effective Time, until their respective successors are duly elected or appointed
and qualified. The initial officers of the Surviving Corporation shall be the
officers of Company immediately prior to the Effective Time, until their
respective successors are duly appointed.
1.6 Effect on Capital Stock. Subject to the terms and conditions of this
Agreement, at the Effective Time, by virtue of the Merger and without any
action on the part of Merger Sub, Company or the holders of any of the
following securities:
(a) Conversion of Company Common Stock. Each share of common stock, par
value $0.001 per share, of Company ("Company Common Stock") issued and
outstanding immediately prior to the Effective Time, other than any shares of
Company Common Stock to be canceled pursuant to Section 1.6(b), will be
canceled and extinguished and automatically converted into the right to receive
1.05 (the "Exchange Ratio") shares of common stock, par value $0.001 per share,
of Parent ("Parent Common Stock") upon surrender of the certificate
representing such share of Company Common Stock in the manner provided in
Section 1.7. No fraction of a share of Parent Common Stock will be issued by
virtue of the Merger, but in lieu thereof, a cash
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payment shall be made pursuant to Section 1.7(e). As of the Effective Time, all
such shares of Company Common Stock, when so converted, shall no longer be
outstanding and shall automatically be canceled and retired and shall cease to
exist, and each holder of a certificate representing any such shares shall
cease to have any rights with respect thereto, except the right to receive the
shares of Parent Common Stock and any cash in lieu of fractional shares of
Parent Common Stock to be issued or paid in consideration therefor upon the
surrender of such certificates.
(b) Cancellation of Company-Owned and Parent-Owned Stock. Each share of
Company Common Stock held by Company or owned by Merger Sub, Parent or any
direct or indirect wholly owned subsidiary of Company or of Parent immediately
prior to the Effective Time shall be canceled and extinguished without any
conversion thereof.
(c) Stock Options; Employee Stock Purchase Plan. At the Effective Time, all
options to purchase Company Common Stock ("Company Options") then outstanding
shall to the extent provided in Section 5.10 be assumed by Parent. Rights
outstanding under Company's 1999 Employee Stock Purchase Plan (the "Company
ESPP") shall be treated as set forth in Section 5.10 of this Agreement.
(d) Warrants. At the Effective Time, each warrant to purchase Company Common
Stock then outstanding ("Company Warrants") shall be assumed by Parent in
accordance with Section 5.11 of this Agreement.
(e) Capital Stock of Merger Sub. Each share of common stock, par value
$0.001 per share, of Merger Sub (the "Merger Sub Common Stock"), issued and
outstanding immediately prior to the Effective Time shall be converted into one
validly issued, fully paid and nonassessable share of common stock, $0.001 par
value per share, of the Surviving Corporation. Following the Effective Time,
each certificate evidencing ownership of shares of Merger Sub common stock
shall evidence ownership of such shares of capital stock of the Surviving
Corporation.
(f) Adjustments to Exchange Ratio. The Exchange Ratio shall be adjusted to
reflect appropriately the effect of any stock split, reverse stock split, stock
dividend (including the Parent Stock Split, and any dividend or distribution of
securities convertible into Parent Common Stock or Company Common Stock),
reorganization, recapitalization, reclassification or other like change with
respect to Parent Common Stock or Company Common Stock occurring on or after
the date hereof and prior to the Effective Time.
1.7 Exchange of Certificates.
(a) Exchange Agent. Parent shall select an institution reasonably acceptable
to Company to act as the exchange agent (the "Exchange Agent") in the Merger.
(b) Exchange Fund. Promptly after the Effective Time, Parent shall make
available to the Exchange Agent for exchange in accordance with this Article I,
the shares of Parent Common Stock (such shares of Parent Common Stock, together
with cash in lieu of fractional shares and any dividends or distributions with
respect thereto, are hereinafter referred to as the "Exchange Fund") issuable
pursuant to Section 1.6 in exchange for outstanding shares of Company Common
Stock.
(c) Exchange Procedures. Promptly after the Effective Time, Parent shall
instruct the Exchange Agent to mail to each holder of record a certificate or
certificates ("Certificates") which immediately prior to the Effective Time
represented outstanding shares of Company Common Stock whose shares were
converted into shares of Parent Common Stock pursuant to Section 1.6, (i) a
letter of transmittal in customary form (that shall specify that delivery shall
be effected, and risk of loss and title to the Certificates shall pass, only
upon proper delivery of the Certificates to the Exchange Agent and shall
contain such other provisions as Parent may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for certificates representing shares of Parent Common Stock. Upon surrender of
Certificates for cancellation to the Exchange Agent together with such letter
of transmittal, duly completed and validly executed in accordance with the
instructions thereto, the holders of such Certificates shall be entitled to
receive in exchange therefor certificates representing the number of whole
shares of Parent Common Stock into which their shares of
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Company Common Stock were converted at the Effective Time, payment in lieu of
fractional shares that such holders have the right to receive pursuant to
Section 1.7(e) and any dividends or distributions payable pursuant to Section
1.7(d), and the Certificates so surrendered shall forthwith be canceled. Until
so surrendered, outstanding Certificates will be deemed from and after the
Effective Time, for all corporate purposes, to evidence only the ownership of
the number of full shares of Parent Common Stock into which such shares of
Company Common Stock shall have been so converted and the right to receive an
amount in cash in lieu of the issuance of any fractional shares in accordance
with Section 1.7(e) and any dividends or distributions payable pursuant to
Section 1.7(d). No interest will be paid or accrued on any cash in lieu of
fractional shares of Parent Common Stock or on any unpaid dividends or
distributions payable to holders of Certificates. In the event of a transfer of
ownership of shares of Company Common Stock which is not registered in the
transfer records of Company, a certificate representing the proper number of
shares of Parent Common Stock may be issued to a transferee if the Certificate
representing such shares of Company Common Stock is presented to the Exchange
Agent, accompanied by all documents required to evidence and effect such
transfer and by evidence that any applicable stock transfer taxes have been
paid.
(d) Distributions With Respect to Unexchanged Shares. No dividends or other
distributions declared or made after the date of this Agreement with respect to
Parent Common Stock with a record date after the Effective Time will be paid to
the holders of any unsurrendered Certificates with respect to the shares of
Parent Common Stock represented thereby until the holders of record of such
Certificates shall surrender such Certificates. Subject to applicable law,
following surrender of any such Certificates, the Exchange Agent shall deliver
to the holders of certificates representing whole shares of Parent Common Stock
issued in exchange therefor, without interest, (i) promptly, the amount of any
cash payable with respect to a fractional share of Parent Common Stock to which
such holder is entitled pursuant to Section 1.7(e) and the amount of dividends
or other distributions with a record date after the Effective Time theretofore
paid with respect to such whole shares of Parent Common Stock, and (ii) at the
appropriate payment date, the amount of dividends or other distributions with a
record date after the Effective Time but prior to surrender and a payment date
occurring after surrender, payable with respect to such whole shares of Parent
Common Stock.
(e) Fractional Shares. (i) As promptly as practicable following the
Effective Time, the Exchange Agent shall determine the excess of (A) the number
of full shares of Parent Common Stock delivered to the Exchange Agent pursuant
to Section 1.7(b), over (B) the aggregate number of full shares of Parent
Common Stock to be distributed to holders of Company Common Stock pursuant to
Section 1.7(c) (such excess, the "Excess Shares"). Following the Effective
Time, the Exchange Agent, as agent for the holders of Company Common Stock,
shall sell the Excess Shares at then prevailing prices on the Nasdaq Stock
Market in the manner set forth in paragraph (ii) of this Section 1.7(e).
(ii) The sale of the excess shares by the Exchange Agent shall be executed
on the Nasdaq Stock Market and shall be executed in round lots to the extent
practicable. The Exchange Agent shall use all commercially reasonable efforts
to complete the sale of the Excess Shares as promptly following the Effective
Time as, in the Exchange Agent's reasonable judgment, is practicable consistent
with obtaining the best execution of such sales in light of prevailing market
conditions. Until the net proceeds of such sales have been distributed to the
holders of Company Common Stock, the Exchange Agent will hold such proceeds in
trust for the holders of Company Common Stock. The Exchange Agent will
determine the portion of such net proceeds to which each holder of Company
Common Stock shall be entitled, if any, by multiplying the amount of the
aggregate net proceeds by a fraction the numerator of which is the amount of
the fractional share interest to which such holder of Company Common Stock is
entitled (after taking into account all shares of Parent Common Stock to be
issued to such holder) and the denominator of which is the aggregate amount of
fractional share interests to which all holders of Company Common Stock are
entitled. As soon as practicable after the determination of the amount of cash,
if any, to be paid to holders of Company Common Stock with respect to
fractional share interests, the Exchange Agent shall promptly pay such amounts
to such holders of Company Common Stock in accordance with the terms of Section
1.7(c).
(iii) Notwithstanding the provisions of paragraphs (i) and (ii) of this
Section 1.7(e), Parent may decide, at its option, exercised prior to the
Effective Time, in lieu of the issuance and sale of Excess Shares and the
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making of the payments contemplated in such paragraphs, that Parent shall pay
to the Exchange Agent an amount sufficient for the Exchange Agent to pay each
holder of Company Common Stock the amount such holder would have received
pursuant to Section 1.7(e)(ii) assuming that the sales of Parent Common Stock
were made at a price equal to the average of the closing prices of the Parent
Common Stock on the Nasdaq Stock Market for the ten consecutive trading days
immediately preceding the Effective Time and, in such case, all references
herein to the cash proceeds of the sale of the Excess Shares and similar
references shall be deemed to mean and refer to the payments calculated as set
forth in this paragraph (iii). In such event, Excess Shares shall not be issued
or otherwise transferred to the Exchange Agent pursuant to Sections 1.7(b) or
(e).
(f) Required Withholding. Each of the Exchange Agent, Parent and the
Surviving Corporation shall be entitled to deduct and withhold from any
consideration payable or otherwise deliverable pursuant to this Agreement to
any holder or former holder of Company Common Stock such amounts as may be
required to be deducted or withheld therefrom under the Code or under any
provision of state, local or foreign tax law or under any other applicable
Legal Requirement (as defined in Section 2.2(b)). To the extent such amounts
are so deducted or withheld, such amounts shall be treated for all purposes
under this Agreement as having been paid to the person to whom such amounts
would otherwise have been paid.
(g) Lost, Stolen or Destroyed Certificates. In the event that any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent
shall issue in exchange for such lost, stolen or destroyed Certificates, upon
the making of an affidavit of that fact by the holder thereof, certificates
representing the shares of Parent Common Stock into which the shares of Company
Common Stock represented by such Certificates were converted pursuant to
Section 1.6, cash for fractional shares, if any, as may be required pursuant to
Section 1.7(e) and any dividends or distributions payable pursuant to Section
1.7(d); provided, however, that Parent may, in its discretion and as a
condition precedent to the issuance of such certificates representing shares of
Parent Common Stock, cash and other distributions, require the owner of such
lost, stolen or destroyed Certificates to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may be made against
Parent, the Surviving Corporation or the Exchange Agent with respect to the
Certificates alleged to have been lost, stolen or destroyed.
(h) No Liability. Notwithstanding anything to the contrary in this Section
1.7, neither the Exchange Agent, Parent, the Surviving Corporation nor any
party hereto shall be liable to a holder of shares of Parent Common Stock or
Company Common Stock for any amount properly paid to a public official pursuant
to any applicable abandoned property, escheat or similar law.
(i) Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the holders of Company Common Stock for six months
after the Effective Time shall be delivered to Parent, upon demand, and any
holders of Company Common Stock who have not theretofore complied with the
provisions of this Section 1.7 shall thereafter look only to Parent for the
shares of Parent Common Stock, any cash in lieu of fractional shares of Parent
Common Stock to which they are entitled pursuant to Section 1.7(e) and any
dividends or other distributions with respect to Parent Common Stock to which
they are entitled pursuant to Section 1.7(d), in each case, without any
interest thereon.
1.8 No Further Ownership Rights in Company Common Stock. All shares of
Parent Common Stock issued in accordance with the terms hereof (including any
cash paid in respect thereof pursuant to Section 1.7(d) and (e)) shall be
deemed to have been issued in full satisfaction of all rights pertaining to
such shares of Company Common Stock, and there shall be no further registration
of transfers on the records of the Surviving Corporation of shares of Company
Common Stock that were outstanding immediately prior to the Effective Time. If
after the Effective Time Certificates are presented to the Surviving
Corporation for any reason, they shall be canceled and exchanged as provided in
this Article I.
1.9 Restricted Stock. If any shares of Company Common Stock that are
outstanding immediately prior to the Effective Time are unvested or are subject
to a repurchase option, risk of forfeiture or other condition providing that
such shares ("Company Restricted Stock") may be forfeited by the stockholder or
repurchased by the Company upon any termination of the stockholders'
employment, directorship or other relationship with
I-9
the Company (and/or any affiliate of the Company) or otherwise under the terms
of any restricted stock purchase agreement or other agreement with the Company
that does not by its terms provide that such repurchase option, risk of
forfeiture or other condition lapses upon consummation of the Merger, then the
shares of Parent Common Stock issued upon the conversion of such shares of
Company Common Stock in the Merger will continue to be unvested and subject to
the same repurchase options, risks of forfeiture or other conditions following
the Effective Time, and the certificates representing such shares of Parent
Common Stock may accordingly be marked with appropriate legends noting such
repurchase options, risks of forfeiture or other conditions. Company shall take
all actions that may be necessary to ensure that, from and after the Effective
Time, Parent is entitled to exercise any such repurchase option or other right
set forth in any such restricted stock purchase agreement or other agreement.
1.10 Tax Consequences. It is intended by the parties hereto that the Merger
shall constitute a "reorganization" within the meaning of Section 368 of the
Code. The parties hereto adopt this Agreement as a "plan of reorganization"
within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the United States
Income Tax Regulations.
1.11 Taking of Necessary Action; Further Action. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of Company and Merger Sub, the officers and directors of Company
and Merger Sub will take all such lawful and necessary action. Parent shall
cause Merger Sub to perform all of its obligations relating to this Agreement
and the transactions contemplated hereby.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY
Except as disclosed in the disclosure letter delivered by Company to Parent
dated as of the date hereof and certified by a duly authorized officer of
Company (the "Company Disclosure Letter") (each Part of which qualifies the
correspondingly numbered representation, warranty or covenant to the extent
specified therein, and such other representations, warranties or covenants to
the extent that the relevance of a disclosure set forth in such Part to such
other representations, warranties or covenants is reasonably evident), it being
understood that the disclosure of any item is not to be construed as the
admission of any fact, Company represents and warrants to Parent and Merger Sub
as follows:
2.1 Organization; Subsidiaries.
(a) Each of Company and its Subsidiaries (as defined below) is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite corporate power and
authority, and all requisite qualifications to do business as a foreign
corporation, to conduct its business in the manner in which its business is
currently being conducted, except where the failure to be so organized,
existing or in good standing or to have such power, authority or qualifications
would not individually or in the aggregate have a Material Adverse Effect on
the Company. Except as set forth in the Company SEC Reports (as defined in
Section 2.5(a)) filed prior to the date hereof, neither Company nor any
Subsidiary of Company directly or indirectly owns any capital stock of, or any
equity interest of any nature in, any corporation, partnership, joint venture
arrangement or other business entity, except for passive investments in equity
interests of public companies as part of the cash management program of
Company. Neither Company nor any Subsidiary of Company has agreed or is
obligated to make, or is bound by any written, oral or other agreement,
contract, subcontract, lease, binding understanding, instrument, note, option,
warranty, purchase order, license, sublicense, insurance policy, benefit plan
or legally binding commitment or undertaking of any nature, as in effect as of
the date hereof or as may hereinafter be in effect under which it may become
obligated to make any future material investment in or material capital
contribution to any other entity. Neither Company, nor any Subsidiary of
Company, is a general partner of any general partnership, limited partnership
or other
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similar entity. Part 2.1 of the Company Disclosure Letter indicates the
jurisdiction of organization of each entity listed therein and Company's direct
or indirect equity interest therein. As used in this Agreement, the word
"Subsidiary" or "Subsidiaries" means, with respect to any party, any
corporation or other organization, whether incorporated or unincorporated, of
which (i) such party or any other Subsidiary of such party is a general partner
(excluding partnerships, the general partnership interests of which held by
such party or any Subsidiary of such party do not have a majority of the voting
interest in such partnership) or (ii) at least a majority of the securities or
other interests having by their terms ordinary voting power to elect a majority
of the Board of Directors or others performing similar functions with respect
to such corporation or other organization is directly or indirectly owned or
controlled by such party or by any one or more of its Subsidiaries, or by such
party and one or more of its Subsidiaries.
(b) Company has delivered or made available to Parent a true and correct
copy of the Certificate of Incorporation and Bylaws of Company and similar
governing instruments of each of its Subsidiaries, each as amended to date
(collectively, the "Company Charter Documents"), and each such instrument is in
full force and effect. Neither Company nor any of its Subsidiaries is in
violation of any of the provisions of the Company Charter Documents.
2.2 Company Capitalization.
(a) The authorized capital stock of Company consists solely of 350,000,000
shares of Company Common Stock, par value $0.001 per share, of which there were
82,063,861 shares issued and outstanding as of the close of business on April
6, 2001, and 5,000,000 shares of Preferred Stock, par value $0.001 per share,
of which no shares are issued or outstanding. All outstanding shares of Company
Common Stock are duly authorized, validly issued, fully paid and nonassessable
and are not subject to preemptive rights created by statute, the Certificate of
Incorporation or Bylaws of Company or any agreement or document to which
Company is a party or by which it is bound. As of the close of business on
April 6, 2001, there are no shares of Company Common Stock held in treasury by
the Company. No material change in such capitalization has occurred between
December 31, 2000 and the date of this Agreement.
(b) As of the close of business on April 6, 2001, (i) 26,569,623 shares of
Company Common Stock are subject to issuance pursuant to outstanding Company
Options to purchase Company Common Stock for a weighted average aggregate
exercise price of approximately $12.53, (ii) 2,203,008 shares of Company Common
Stock are reserved for future issuance under the Company ESPP, and (iii)
145,123 shares of Company Common Stock are subject to issuance pursuant to
outstanding Company Warrants. Part 2.2(b) of the Company Disclosure Letter sets
forth the following information with respect to each Company Option and Company
Warrant outstanding as of the date of this Agreement: (i) the name of the
optionee or warrant holder; (ii) the number of shares of Company Common Stock
subject to such Company Option or Company Warrant; (iii) the exercise price of
such Company Option or Company Warrant; (iv) the date on which such Company
Option was granted or assumed; (v) the date on which such Company Option or
Company Warrant expires; and (vi) with respect to any officer of the Company or
any of its Subsidiaries who is subject to Section 16 of the Exchange Act,
whether the exercisability of such Company Option or Company Warrant will be
accelerated in any way by the transactions contemplated by this Agreement, and
indicates the extent of any such acceleration. Company has made available to
Parent an accurate and complete copies of the and the form of all stock option
agreements evidencing Company Options. All shares of Company Common Stock
subject to issuance as aforesaid, upon issuance on the terms and conditions
specified in the instruments pursuant to which they are issuable, will be duly
authorized, validly issued, fully paid and nonassessable.
(c) All outstanding shares of Company Common Stock, all outstanding Company
Options, all outstanding Company Warrants and all outstanding shares of capital
stock of each subsidiary of Company have been issued and granted in compliance
with (i) all applicable securities laws and other applicable material Legal
Requirements and (ii) all material requirements set forth in applicable
agreements or instruments. For the purposes of this Agreement, "Legal
Requirements" means any federal, state, local, municipal, foreign or other law,
statute, constitution, principle of common law, resolution, ordinance, code,
edict, decree, rule, regulation,
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ruling or requirement issued, enacted, adopted, promulgated, implemented or
otherwise put into effect by or under the authority of any Governmental Entity
(as defined in Section 2.4).
2.3 Obligations With Respect to Capital Stock. Except as set forth in Part
2.3 of the Company Disclosure Letter, there are no equity securities,
partnership interests or similar ownership interests of any class of Company
equity security, or any securities exchangeable or convertible into or
exercisable for such equity securities, partnership interests or similar
ownership interests, issued, reserved for issuance or outstanding. Company owns
all of the securities of its Subsidiaries identified on Part 2.1 of the Company
Disclosure Letter, free and clear of all claims and Encumbrances, and there are
no other equity securities, partnership interests or similar ownership
interests of any class of equity security of any Subsidiary of Company, or any
security exchangeable or convertible into or exercisable for such equity
securities, partnership interests or similar ownership interests, issued,
reserved for issuance or outstanding. For purposes of this Agreement,
"Encumbrances" means any material lien, pledge, hypothecation, charge,
mortgage, security interest, encumbrance, claim, infringement, interference,
option, right of first refusal, preemptive right, community property interest
or restriction of any nature (including any restriction on the voting of any
security, any restriction on the transfer of any security or other asset, any
restriction on the receipt of any income derived from any asset, any
restriction on the use of any asset and any restriction on the possession,
exercise or transfer of any other attribute of ownership of any asset). Except
as set forth in Section 2.2 or Part 2.2 or Part 2.3 of the Company Disclosure
Letter, there are no subscriptions, options, warrants, equity securities,
partnership interests or similar ownership interests, calls, rights (including
preemptive rights), commitments or agreements of any character to which Company
or any of its Subsidiaries is a party or by which it is bound obligating
Company or any of its Subsidiaries to issue, deliver or sell, or cause to be
issued, delivered or sold, or repurchase, redeem or otherwise acquire, or cause
the repurchase, redemption or acquisition of, any shares of capital stock,
partnership interests or similar ownership interests of Company or any of its
Subsidiaries or obligating Company or any of its Subsidiaries to grant, extend,
accelerate the vesting of or enter into any such subscription, option, warrant,
equity security, call, right, commitment or agreement. Except as contemplated
by this Agreement, there are no registration rights with respect to any equity
security of any class of Company or with respect to any equity security,
partnership interest or similar ownership interest of any class of any of its
Subsidiaries.
2.4 Authority; Non-Contravention.
(a) Company has all requisite corporate power and authority to enter into
this Agreement, as well as the Company Option Agreement, the Parent Option
Agreement, the Parent Voting Agreement, the License Agreement and the Loan
Agreement (the Company Option Agreement, the Parent Option Agreement, the
Parent Voting Agreement, the License Agreement and the Loan Agreement together,
the "Company Authorization Agreements"), and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and the Company Authorization Agreements and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of Company, subject only to the approval
and adoption of this Agreement and the approval of the Merger by Company's
stockholders (the "Company Stockholder Approvals") and the filing of the
Certificate of Merger pursuant to Delaware Law. The affirmative vote of the
holders of a majority of the outstanding shares of Company Common Stock is
sufficient for Company's stockholders to approve and adopt this Agreement and
approve the Merger, and no other approval of any holder of any securities of
Company is required in connection with the consummation of the transactions
contemplated hereby. This Agreement and the Company Authorization Agreements
have been duly executed and delivered by Company and, assuming the due
execution and delivery by Parent and Merger Sub, constitute the valid and
binding obligations of Company, enforceable against Company in accordance with
their terms, except as enforceability may be limited by bankruptcy and other
similar laws affecting the rights of creditors generally and general principles
of equity.
(b) The execution and delivery of this Agreement and the Company
Authorization Agreements by Company does not, and the consummation of the
transactions contemplated by this Agreement and the Company Authorization
Agreements will not, (i) conflict with, or result in any violation or breach
of, any
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provision of the Company Charter Documents, (ii) result in any violation or
breach of, or constitute (with or without notice or lapse of time, or both) a
default (or give rise to a right of termination, cancellation or acceleration
of any obligation or loss of any material benefit) under, or require a consent
or waiver under, any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, lease, contract or other agreement, instrument or
obligation to which Company or its Subsidiaries is a party or by which any of
them or any of their properties or assets may be bound, or (iii) conflict with
or violate any permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Company or any
Subsidiary or any of its or their properties or assets, except in the case of
(ii) and (iii) for any such conflicts, violations, defaults, terminations,
cancellations or accelerations which, individually or in the aggregate, would
not have a Material Adverse Effect to Company.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with any court, administrative agency or commission or
other governmental authority or instrumentality, foreign or domestic
("Governmental Entity") or other person, is required to be obtained or made by
Company in connection with the execution and delivery of this Agreement or the
consummation of the Merger, except for (i) the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware and appropriate
documents with the relevant authorities of other states in which the Company is
qualified to do business, (ii) the filing of a Form 8-K, the Joint Proxy
Statement/Prospectus (as defined in Section 2.17) with the Securities and
Exchange Commission ("SEC") in accordance with the Securities Exchange Act of
1934, as amended (the "Exchange Act"), a Schedule 13D with regard to the Parent
Voting Agreement in accordance with the Securities Act and the Exchange Act and
the effectiveness of the Registration Statement (as defined in Section 2.17),
(iii) such consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable federal, foreign
and state securities (or related) laws and the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), and the securities or
antitrust laws of any foreign country, and (iv) such other consents,
authorizations, filings, approvals and registrations which if not obtained or
made would not be material to the Company, Parent or the Surviving Corporation
or have a material adverse effect on the ability of the parties hereto to
consummate the Merger.
2.5 SEC Filings; Company Financial Statements.
(a) Company has filed or made available to Parent, all forms, reports and
documents required to be filed by Company with the SEC since the effective date
of the registration statement of Company's initial public offering. All such
required forms, reports and documents (including those that Company may file
subsequent to the date hereof) are referred to herein as the "Company SEC
Reports." As of their respective dates, the Company SEC Reports (i) were
prepared in accordance with the requirements of the Securities Act of 1933, as
amended (the "Securities Act"), or the Exchange Act, as the case may be, and
the rules and regulations of the SEC thereunder applicable to such Company SEC
Reports and (ii) did not at the time they were filed (or if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing) contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, except to the extent corrected prior to the date of this
Agreement by a subsequently filed Company SEC Report. As of the date of this
Agreement, the Company SEC Reports, taken as a whole, together with any press
release disseminated between the date of the most recent Company SEC Report and
the date of this Agreement, do not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. None of Company's
subsidiaries is required to file any forms, reports or other documents with the
SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes thereto) contained in the Company SEC Reports (the "Company
Financials"), including each Company SEC Report filed after the date hereof
until the Closing, (i) complied as to form in all material respects with the
published rules and regulations of the SEC with respect thereto, (ii) was
prepared in accordance with GAAP applied on a consistent basis throughout the
periods involved (except as may be indicated in the notes thereto or, in the
case of unaudited interim financial statements, as may be permitted by the SEC
on Form 10-Q, 8-K or any successor
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form under the Exchange Act) and (iii) fairly presented the consolidated
financial position of Company and its subsidiaries as at the respective dates
thereof and the consolidated results of Company's operations and cash flows for
the periods indicated, except that the unaudited interim financial statements
may not contain footnotes and were or are subject to normal and recurring year-
end adjustments. The balance sheet of Company contained in Company's Annual
Report on Form 10-K for December 31, 2000 (the "Company Form 10-K") is
hereinafter referred to as the "Company Balance Sheet." Except as disclosed in
the Company Financials, since the date of the Company Balance Sheet, neither
Company nor any of its subsidiaries has any liabilities required under GAAP to
be set forth on a balance sheet (absolute, accrued, contingent or otherwise)
which are, individually or in the aggregate, material to the business, results
of operations or financial condition of Company and its subsidiaries taken as a
whole, except for liabilities incurred since the date of the Company Balance
Sheet in the ordinary course of business consistent with past practices and
liabilities incurred in connection with this Agreement.
2.6 Absence of Certain Changes or Events. Except as disclosed in the Company
SEC Reports filed prior to the date hereof or disclosed in Part 2.6 of the
Company Disclosure Letter, since the date of the Company Balance Sheet, Company
and its Subsidiaries have conducted their businesses only in the ordinary
course and in a manner consistent with past practice and, since such date,
there has not been (i) any damage, destruction or loss (whether or not covered
by insurance) with respect to Company or any of its Subsidiaries having a
Material Adverse Effect with respect to the Company; (ii) any material change
by Company in its accounting methods, principles or practices to which Parent
has not previously consented in writing; (iii) any revaluation by Company of
any of its assets having a Material Adverse Effect with respect to the Company;
or (iv) any other action or event that, individually or in the aggregate, has
had a Material Adverse Effect with respect to the Company.
2.7 Taxes.
(a) For the purposes of this Agreement, the terms "Tax" and, collectively,
"Taxes" mean (i) any and all federal, state, local and foreign taxes,
assessments and other governmental charges, duties, impositions and
liabilities, including taxes based upon or measured by gross receipts, income,
profits, sales, use and occupation, and value added, ad valorem, transfer,
gains, franchise, withholding, payroll, recapture, employment, excise,
unemployment insurance, social security, business license, occupation, business
organization, stamp, environmental and property taxes, together with all
interest, penalties and additions imposed with respect to such amounts, (ii)
any liability for payment of any amounts of the type described in clause (i) as
a result of being a member of an affiliated, consolidated, combined or unitary
group, and (iii) any liability for amounts of the type described in clauses (i)
and (ii) as a result of any express or implied obligation to indemnify another
person or as a result of any obligations under any agreements or arrangements
with any other person with respect to such amounts and including any liability
for taxes of a predecessor entity.
(b) Company, each of its Subsidiaries and any consolidated, combined,
unitary or affiliated group in which Company or any of its Subsidiaries is or
has been a member, have (i) filed all federal, state, local and foreign Tax
returns and reports required to be filed by them (taking into account
applicable extensions), and (ii) paid or accrued all Taxes due and payable,
whether or not shown on such Tax returns or reports (other than amounts being
contested in good faith by appropriate proceedings), except in the case of
clause (i) or (ii) for any such filings, payments or accruals which are not
reasonably likely, individually or in the aggregate, to have a Material Adverse
Effect on Company. Neither the Internal Revenue Service (the "IRS") nor any
other taxing authority has asserted any claim for taxes, or to the knowledge of
the executive officers of Company or any of its Subsidiaries, is threatening to
assert any claims for Taxes, which claims, individually or in the aggregate,
are reasonably likely to have a Material Adverse Effect on Company. Neither
Company nor any of its subsidiaries has been delinquent in the payment of any
material Tax nor is there any material Tax deficiency outstanding, proposed or
assessed against Company or any of its subsidiaries, nor has Company or any of
its subsidiaries executed any unexpired waiver of any statute of limitations on
or extending the period for the assessment or collection of any Tax. No audit
or other examination of any Return of Company or any of its subsidiaries by any
Tax authority is presently in progress, nor has Company or any of its
subsidiaries been notified of any
I-14
request for such an audit or other examination that is reasonably likely to
result in any adjustment that is material to Company. No adjustment relating to
any Returns filed by Company or any of its subsidiaries has been proposed in
writing formally or informally by any Tax authority to Company or any of its
subsidiaries or any representative thereof that is reasonably likely to be
material to Company. Company and each of its Subsidiaries have withheld or
collected and paid over to the appropriate governmental authorities (or are
properly holding for such timely payment) all Taxes required by law to be
withheld or collected, except for amounts which are not reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect on Company.
Neither Company nor any of its Subsidiaries has filed any consent agreement
under Section 341(f) of the Code or agreed to have Section 341(f)(2) of the
Code apply to any disposition of a subsection (f) asset (as defined in Section
341(f)(4) of the Code) owned by Company. There are no liens for Taxes upon the
assets of Company or its Subsidiaries (other than liens for Taxes that are not
yet due or that are being contested in good faith by appropriate proceedings),
except for liens which would not, individually or in the aggregate, have a
Material Adverse Effect on Company.
(c) Neither Company nor any of its subsidiaries is party to or has any
obligation under any tax-sharing, tax indemnity or tax allocation agreement or
arrangement.
(d) Except as may be required as a result of the Merger, Company and its
subsidiaries have not been and will not be required to include any adjustment
in Taxable income for any Tax period (or portion thereof) pursuant to Section
481 or Section 262A of the Code or any comparable provision under state or
foreign Tax laws as a result of transactions, events or accounting methods
employed prior to the Closing.
(e) Company has not been distributed in a transaction qualifying under
Section 355 of the Code within the last two years, nor has Company distributed
any corporation in a transaction qualifying under Section 355 of the Code
within the last two years.
(f) There is no agreement, plan or arrangement to which Company or any of
its subsidiaries is a party, including this Agreement and the agreements
entered into in connection with this Agreement, covering any employee or former
employee of Company or any of its subsidiaries that, individually or
collectively, would be reasonably likely to give rise to the payment of any
amount that would not be deductible pursuant to Sections 280G, 404 or 162(m) of
the Code. There is no contract, agreement, plan or arrangement to which Company
is a party or by which it is bound to compensate any individual for excise
taxes paid pursuant to Section 4999 of the Code.
(g) Company is not aware of any fact, circumstance, plan or intention on the
part of Company that would be reasonably likely to prevent the Merger from
qualifying as a "reorganization" pursuant to the provisions of Section 368 of
the Code.
2.8 Title to Properties.
(a) Company has provided to Parent a true and complete list of all material
real property leased by Company or its Subsidiaries (collectively "Material
Lease(s)") and the location of the premises. Neither Company nor any subsidiary
is in default under such leases, except where the existence of such defaults,
individually or in the aggregate, is not reasonably likely to have a Material
Adverse Effect with respect to Company.
(b) Company owns no real property.
2.9 Intellectual Property.
(a) Except as disclosed in Section 2.09 of the Company Disclosure Letter,
Company and its Subsidiaries own, or are licensed or otherwise possess legally
enforceable rights to use, all patents, trademarks, trade names, service marks,
copyrights and mask works, any applications for and registrations of such
patents, trademarks, trade names, service marks, copyrights and mask works, and
all processes, formulae, methods schematics, technology, know how, computer
software programs or applications and tangible or intangible proprietary
information or material that are necessary to conduct the business of Company
and its Subsidiaries as currently conducted or planned to be conducted by
Company and its Subsidiaries (the "Company Intellectual Property Rights").
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(b) Except as disclosed in Section 2.09 of the Company Disclosure Letter,
neither Company nor any of its Subsidiaries is, or will be as a result of the
execution and delivery of this Agreement or the performance of its obligations
under this Agreement, in breach of any material license, sublicense or other
agreement relating to the Company Intellectual Property Rights or any material
license, sublicense or other agreement pursuant to which Company or any of its
Subsidiaries is authorized to use any third party patents, trademarks or
copyrights, including software, which are incorporated in or form a part of any
product of Company or any of its Subsidiaries that is material to the business
of Company and its Subsidiaries, taking Company and its Subsidiaries together
as a whole, and where such breach would have a Material Adverse Effect on
Company.
(c) Company has not received written notice from any third party that the
operation of the business of Company or any act, product or service of Company,
infringes or misappropriates the Intellectual Property of any third party or
constitutes unfair competition or trade practices under the laws of any
jurisdiction, which allegation, if true, would have a Material Adverse Effect
to Company.
(d) To the knowledge of Company, no person has or is infringing or
misappropriating any Company Intellectual Property, which infringement or
misappropriation, individually or in the aggregate, would have a Material
Adverse Effect to Company.
(e) Company and its subsidiaries have taken reasonable steps to protect
Company's and its subsidiaries' rights in Company's and such subsidiaries'
confidential information and trade secrets, except where the failure to do so
would not have a Material Adverse Effect to Company.
(f) Except as disclosed in Section 2.09 of the Company Disclosure Letter,
(i) all patents, registered trademarks, service marks and copyrights which are
held by Company or any of its Subsidiaries, and which are material to the
business of Company and its Subsidiaries, taking Company and its Subsidiaries
together as a whole, are valid and subsisting; (ii) Company has not been sued
in any suit, action or proceeding which involves a claim of infringement of any
patents, trademarks, service marks, copyrights or violation of any trade secret
or other proprietary right of any third party; and (iii) the manufacturing,
marketing, licensing or sale of Company's products and services does not
infringe any patent, trademark, service mark, copyright, trade secret or other
proprietary right of any third party, which infringement, either individually
or in the aggregate, could reasonably be expected to have a Material Adverse
Effect on Company.
(g) None of the Company Intellectual Property or product or service of
Company contains any significant defect in connection with processing data
containing dates in leap years or in the year 2000 or any preceding of
following years, which defects, individually or in the aggregate, would have an
Material Adverse Effect to Company.
2.10 Compliance with Laws. Company and each of its Subsidiaries has complied
with, is not in violation of, and has not received any notices of violation
with respect to, any federal, state or local statute, law or regulation with
respect to the conduct of its business, or the ownership or operation of its
business, except for failures to comply or violations which, individually or in
the aggregate, have not had and are not reasonably likely to have a Material
Adverse Effect with respect to Company.
2.11 Litigation. There are no claims, suits, actions or proceedings pending
or, to the knowledge of Company, threatened against, relating to or affecting
Company or any of its Subsidiaries, before any Governmental Entity or any
arbitrator that seeks to restrain or enjoin the consummation of the
transactions contemplated by this Agreement or which could reasonably be
expected, either singularly or in the aggregate with all such claims, actions
or proceedings, to have a Material Adverse Effect to Company or on the
Surviving Corporation following the Merger or have a material adverse effect on
the ability of the parties hereto to consummate the Merger. No director or
executive officer of Company has asserted a claim to seek indemnification from
Company under the Company Charter Documents or any indemnification agreement
between Company and such person.
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2.12 Employee Benefit Plans.
(a) Company has listed in Part 2.12 of the Company Disclosure Letter all
employee benefit plans (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) and all bonus, stock option,
stock purchase, incentive, deferred compensation, supplemental retirement,
severance and other similar employee benefit plans, written or otherwise, for
the benefit of, or relating to, any current or former employee of Company or
any trade or business (whether or not incorporated) which is a member or which
is under common control with Company (an "ERISA Affiliate") within the meaning
of Section 414 of the Internal Revenue Code, or any Subsidiary of Company and
all unexpired severance agreements with respect to any officer of the Company
or any of its Subsidiaries who is subject tot Section 16 of the Exchange Act.
(together, the "Company Employee Plans").
(b) With respect to each Company Employee Plan, Company has made available
to Parent, a true and correct copy of (i) the most recent annual report (Form
5500) filed with the IRS, (ii) such Company Employee Plan, (iii) each trust
agreement and group annuity contract, if any, relating to such Company Employee
Plan and (iv) the most recent actuarial report or valuation relating to a
Company Employee Plan subject to Title IV of ERISA.
(c) With respect to the Company Employee Plans, individually and in the
aggregate, no event has occurred, and to the knowledge of Company, there exists
no condition or set of circumstances in connection with which Company could be
subject to any liability that is reasonably likely to have a Material Adverse
Effect to Company under ERISA, the Internal Revenue Code or any other
applicable law.
(d) With respect to the Company Employee Plans, individually and in the
aggregate, there are no funded benefit obligations for which contributions have
not been made or properly accrued and there are no unfunded benefit obligations
which have not been accounted for by reserves, or otherwise properly footnoted
in accordance with generally accepted accounting principles, on the financial
statements of Company, which obligations are reasonably likely to have a
Material Adverse Effect to Company.
(e) Except as expressly contemplated by this Agreement, neither the Company
nor any of its Subsidiaries is a party to any oral or written: (i) agreement
with any officer of Company or any of its Subsidiaries providing any term of
employment or compensation guarantee extending for a period longer than one
year from the date hereof and for the payment of compensation in excess of
$200,000 per annum; (ii) agreement with any executive officer or other employee
thereof (A) the benefits of which are contingent, or the terms of which are
materially altered, upon the occurrence of a transaction involving the Company
or any of its Subsidiaries or any of the other transactions contemplated by
this Agreement or any ancillary agreement, (B) providing any term of employment
or compensation guarantee, or (C) providing severance benefits or other
benefits after the termination of employment of such employee regardless of the
reason for such termination of employment, except as required by applicable
law; or (iii) agreement or plan, including any stock option plan, stock
appreciation rights plan or stock purchase plan, any of the benefits of which
will be increased, or the vesting of benefits of which will be accelerated, by
the transaction contemplated by this Agreement or any ancillary agreement, or
the value of any of the benefits of which will be calculated on the basis of
any of the transactions contemplated by this Agreement or any ancillary
agreement.
(f) Except, in each case, as would not, individually or in the aggregate,
have a Material Adverse Effect on the Company, Company and each of its
subsidiaries: (i) is in compliance in all material respects with all applicable
foreign, federal, state and local laws, rules and regulations respecting
employment, employment practices, terms and conditions of employment and wages
and hours, in each case, with respect to Company Employees; and (ii) has
withheld all amounts required by law or by agreement to be withheld from the
wages, salaries and other payments to Company Employees;
(g) None of the Company and its Subsidiaries is bound by or subject to (and
none of its assets or properties is bound by or subject to) any written or
oral, express or implied, contract, commitment or arrangement with any labor
union, and no labor union has requested or, to the Company's knowledge, has
sought to represent any of the employees representatives or agents of the
Company. No work stoppage or labor strike against Company is pending,
threatened or reasonably anticipated. Company does not know of any
I-17
activities or proceedings of any labor union to organize any Company Employees.
There are no actions, suits, claims, labor disputes or grievances pending, or,
to the knowledge of Company, threatened relating to any labor, safety or
discrimination matters involving any Company Employee, including charges of
unfair labor practices or discrimination complaints, which, if adversely
determined, would, individually or in the aggregate, result in any Material
Adverse Effect to Company. Neither Company nor any of its subsidiaries has
engaged in any unfair labor practices within the meaning of the National Labor
Relations Act. Company is not presently, nor has it been in the past, a party
to, or bound by, any collective bargaining agreement or union contract with
respect to Company Employees and no collective bargaining agreement is being
negotiated by Company.
(h) Each Company International Employee Plan has been established,
maintained and administered in material compliance with its terms and
conditions and with the requirements prescribed by any and all statutory or
regulatory laws that are applicable to such Company International Employee
Plan. No Company International Employee Plan has material unfunded liabilities
that, as of the Effective Time, will not be offset by insurance or that are not
fully accrued on the Company balance sheet. Except as required by law, no
condition exists that would prevent the Company or any subsidiary from
terminating or amending any Company International Employee Plan at any time for
any reason in accordance with the terms of each such Company International
Employee Plan (other than expenses typically incurred in a termination event).
"Company International Employee Plan" shall mean each Company Employee Plan
that has been adopted or maintained by the Company or any Subsidiary, whether
informally or formally, for the benefit of Company Employees outside the United
States.
2.13 Environmental Matters.
(a) Hazardous Material. Except as would not have a Material Adverse Effect
to Company, no underground storage tanks and no amount of any substance that
has been designated by any Governmental Entity or by applicable federal, state
or local law to be radioactive, toxic, hazardous or otherwise a danger to
health or the environment, including, without limitation, PCBs, asbestos,
petroleum, urea-formaldehyde and all substances listed as hazardous substances
pursuant to the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended, or defined as a hazardous waste pursuant to
the United States Resource Conservation and Recovery Act of 1976, as amended,
and the regulations promulgated pursuant to said laws, but excluding office and
janitorial supplies (a "Hazardous Material") are present, as a result of the
actions of Company or any of its subsidiaries or any affiliate of Company, or,
to Company's knowledge, as a result of any actions of any third party or
otherwise, in, on or under any property, including the land and the
improvements, ground water and surface water thereof that Company or any of its
subsidiaries has at any time owned, operated, occupied or leased.
(b) Hazardous Materials Activities. Except as would not have a Material
Adverse Effect to Company (in any individual case or in the aggregate) (i)
neither Company nor any of its subsidiaries has transported, stored, used,
manufactured, disposed of released or exposed its employees or others to
Hazardous Materials in violation of any law in effect on or before the Closing
Date, and (ii) neither Company nor any of its subsidiaries has disposed of,
transported, sold, used, released, exposed its employees or others to or
manufactured any product containing a Hazardous Material (collectively
"Hazardous Materials Activities") in violation of any rule, regulation, treaty
or statute promulgated by any Governmental Entity in effect prior to or as of
the date hereof to prohibit, regulate or control Hazardous Materials or any
Hazardous Material Activity.
(c) Permits. Company and its subsidiaries currently hold all environmental
approvals, permits, licenses, clearances and consents ("Environmental Permits")
material to and necessary for the conduct of Company's and its subsidiaries'
Hazardous Material Activities and other businesses of Company and its
subsidiaries as such activities and businesses are currently being conducted.
(d) Environmental Liabilities. No material action, proceeding, revocation
proceeding, amendment procedure, writ or injunction is pending, and to
Company's knowledge, no material action, proceeding, revocation proceeding,
amendment procedure, writ or injunction has been threatened by any Governmental
Entity against Company or any of its subsidiaries in a writing delivered to
Company concerning any Environmental Permit of Company, Hazardous Material or
any Hazardous Materials Activity of Company or
I-18
any of its subsidiaries. Company is not aware of any fact or circumstance which
reasonably could be expected to involve Company or any of its subsidiaries in
any environmental litigation or impose upon Company any environmental
liability, with such exceptions as would not have a Material Adverse Effect to
Company.
2.14 Agreements, Contracts and Commitments.. Neither Company nor any of its
Subsidiaries is a party to any agreement which would require payment of in
excess of $1.0 million in 2001. Neither Company nor any of its Subsidiaries nor
to Company's knowledge, any other party thereto, is in breach, violation or
default under, and neither Company nor any of its Subsidiaries has received
written notice that it has breached, violated or defaulted, any of the terms or
conditions of any material agreement, contract or commitment to which it is a
party or by which any of its assets and properties are bound ("Company Material
Contracts") in such a manner as, individually or in the aggregate, is
reasonably likely to have a Material Adverse Effect on Company. Each Company
Material Contract that has not expired by its terms, is in full force and
effect and is not subject to any material default hereunder which Company is
aware by any party obligated to Company or any of its Subsidiaries pursuant to
such Company Material Contract.
2.15 Disclosure.
(a) The information supplied by Company for inclusion in the Form S-4 (or
any similar successor form thereto) Registration Statement to be filed by
Parent with the SEC in connection with the issuance of Parent Common Stock in
the Merger (the "Registration Statement") shall not at the time the
Registration Statement is filed with the SEC and at the time it becomes
effective under the Securities Act contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The information
supplied by Company for inclusion or incorporation by reference in the proxy
statement/prospectus to be filed with the SEC as part of the Registration
Statement (the "Joint Proxy Statement/Prospectus") shall not, on the date the
Joint Proxy Statement/Prospectus is mailed to Company's stockholders or to
Parent's stockholders, at the time of the meeting of Company's stockholders
(the "Company Stockholders' Meeting") to consider the Company Stockholder
Approvals, at the time of the meeting of Parent's stockholders meeting (the
"Parent Stockholders' Meeting") to obtain the Parent Stockholder Approvals (as
defined in Section 5.3(b)) or as of the Effective Time, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they are made, not false or misleading; or
omit to state any material fact necessary to correct any statement in any
earlier communication with respect to the solicitation of proxies for the
Company Stockholders' Meeting or Parent Stockholders' Meeting which has become
false or misleading. The Joint Proxy Statement/Prospectus will comply as to
form in all material respects with the provisions of the Securities Act, the
Exchange Act and the rules and regulations thereunder. If at any time prior to
the Effective Time any event relating to Company or any of its affiliates,
officers or directors should be discovered by Company which is required to be
set forth in an amendment to the Registration Statement or a supplement to the
Joint Proxy Statement/Prospectus, Company shall promptly inform Parent.
Notwithstanding the foregoing, Company makes no representation or warranty with
respect to any information supplied by Parent or Merger Sub which is contained
in any of the foregoing documents.
(b) The Board of Directors of Company has, as of the date hereof, adopted
the restructuring plan set forth in Part 2.15 of the Company Disclosure Letter
(the "Company Interim Plan").
2.16 Board Approval. The Board of Directors of Company has, as of the date
of this Agreement, (i) determined that the Merger is in the best interests of
Company and its stockholders, and has approved this Agreement and the Company
Authorization Agreements (ii) declared the advisability of the Merger and
recommends that the stockholders of Company approve and adopt this Agreement
and approve the Merger.
2.17 Fairness Opinion. Company's Board of Directors has received an opinion
from Morgan Stanley & Co., dated as of the date hereof, to the effect that, as
of the date hereof, the Exchange Ratio is fair to Company's stockholders from a
financial point of view.
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2.18 DGCL Section 203 Not Applicable. The restrictions contained in Section
203 of the Delaware Law applicable to a "business combination" (as defined in
such Section 203) are not applicable to the execution, delivery or performance
of this Agreement or to the consummation of the Merger. To Company's knowledge,
no other anti-takeover, control share acquisition, fair price, moratorium or
other similar statute or regulation (each, a "Takeover Statute") applies or
purports to apply to this Agreement, the Merger or the other transactions
contemplated hereby. Company is not a party to, and Company's equity securities
will not be affected by, any rights agreement, "poison pill" or similar plan,
agreement or arrangement which would have an adverse effect on the ability of
Parent to consummate the Merger or the other transactions contemplated hereby.
2.19 Brokers' and Finders' Fees. Except for fees payable to Morgan Stanley
& Co., Company has not incurred, nor will it incur, directly or indirectly, any
liability for brokerage or finders' fees or agents' commissions or any similar
charges in connection with this Agreement or any transaction contemplated
hereby.
2.20 Insurance. All material fire and casualty, general liability, business
interruption, product liability, and sprinkler and water damage insurance
policies maintained by Company or any of its Subsidiaries are with reputable
insurance carriers, and copies or a summary of such policies have been made
available to Parent.
2.21 Certain Contracts. Neither Company nor any of its Subsidiaries is a
party to or bound by any non-competition agreement or any other similar
agreement or obligation which purports to limit in any material respect the
manner in which, or the localities in which, all or any material portion of the
business of Company and its Subsidiaries, taken as a whole, is conducted.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Except as disclosed in the disclosure letter delivered by Parent to Company
dated as of the date hereof and certified by a duly authorized officer of
Parent (the "Parent Disclosure Letter")(each Part of which qualifies the
correspondingly numbered representation, warranty or covenant to the extent
specified therein, and such other representations, warranties or covenants to
the extent that the relevance of a disclosure set forth in such Part to such
other representations, warranties or covenants is reasonably evident), it being
understood that the disclosure of any item is not to be construed as the
admission of any fact, Parent and Merger Sub represent and warrant to Company
as follows:
3.1 Organization; Subsidiaries.
(a) Each of Parent and its Subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority, and all
requisite qualifications to do business as a foreign corporation, to conduct
its business in the manner in which its business is currently being conducted,
except where the failure to be so organized, existing or in good standing or to
have such power, authority or qualifications would not, individually or in the
aggregate, have a Material Adverse Effect on Parent. Except as set forth in the
Parent SEC Reports (as defined in Section 3.5(a)) filed prior to the date
hereof, neither Parent nor any Subsidiary of Parent directly or indirectly owns
any capital stock of, or any equity interest of any nature in, any corporation,
partnership, joint venture arrangement or other business entity, except for
passive investments in equity interests of public companies as part of the cash
management program of Parent. Neither Parent nor any of its Subsidiaries has
agreed or is obligated to make, or is bound by any written, oral or other
agreement, contract, subcontract, lease, binding understanding, instrument,
note, option, warranty, purchase order, license, sublicense, insurance policy,
benefit plan or legally binding commitment or undertaking of any nature, as in
effect as of the date hereof or as may hereinafter be in effect under which it
may become obligated to make any future material investment in or material
capital contribution to any other entity. Neither Parent, nor any of its
Subsidiaries, is a general partner of any general partnership, limited
partnership or other similar entity. Part 3.1 of the Parent Disclosure Letter
indicates the jurisdiction of organization of each entity listed therein and
Parent's direct or indirect equity interest therein.
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(b) Parent has delivered or made available to Company a true and correct
copy of the Certificate of Incorporation and Bylaws of Parent and similar
governing instruments of each of its Subsidiaries, each as amended to date
(collectively, the "Parent Charter Documents"), and each such instrument is in
full force and effect. Neither Parent nor any of its Subsidiaries is in
violation of any of the provisions of the Parent Charter Documents.
3.2 Parent and Merger Sub Capitalization.
(a) The authorized capital stock of Parent consists solely of 1,000,000,000
shares of Parent Common Stock, par value $0.001 per share, of which there were
94,325,615 shares issued and outstanding as of the close of business on April
6, 2001, and 5,000,000 shares of Preferred Stock, par value $0.001 per share,
of which no shares are issued or outstanding. All outstanding shares of Parent
Common Stock are duly authorized, validly issued, fully paid and nonassessable
and are not subject to preemptive rights created by statute, the Certificate of
Incorporation or Bylaws of Parent or any agreement or document to which Parent
is a party or by which it is bound. As of the close of business on April 5,
2001, there are no shares of Parent Common Stock held in treasury by the
Parent. No material change in such capitalization has occurred between December
31, 2000 and the date of this Agreement.
(b) As of the close of business on April 5, 2001, (i) 19,503,810 shares of
Parent Common Stock are subject to issuance pursuant to outstanding options to
purchase Parent Common Stock ("Parent Options") for a weighted average
aggregate exercise price of approximately $41.56, (ii) 1,630,148 shares of
Parent Common Stock are reserved for future issuance under the Parent's 1999
Employee Stock Purchase Plan (the "Parent ESPP"), (iii) no shares of Parent
Common Stock are reserved for future issuance under the Parent's 401(k) Plan,
and (iv) 1,057,000 shares of Parent Common Stock are subject to issuance
pursuant to outstanding warrants ("Parent Warrants"). Part 3.2(b) of the Parent
Disclosure Letter sets forth the following information with respect to each
Parent Option and Parent Warrant outstanding as of the date of this Agreement:
(i) the name of the optionee or warrant holder; (ii) the number of shares of
Parent Common Stock subject to such Parent Option or Parent Warrant; (iii) the
exercise price of such Parent Option or Parent Warrant; (iv) the date on which
such Parent Option was granted or assumed; (v) the date on which such Parent
Option or Parent Warrant expires and (vi) whether the exercisability of such
Parent Option or Parent Warrant will be accelerated in any way by the
transactions contemplated by this Agreement, and indicates the extent of any
such acceleration. Parent has made available to Company an accurate and
complete copies of the form of all stock option agreements evidencing Parent
Options. All shares of Parent Common Stock subject to issuance as aforesaid,
upon issuance on the terms and conditions specified in the instruments pursuant
to which they are issuable, will be duly authorized, validly issued, fully paid
and nonassessable.
(c) The authorized capital stock of Merger Sub consists of 1,000 shares of
common stock, $0.01 par value, all of which, as of the date hereof, are issued
and outstanding and are held by Parent. All of the outstanding shares of Merger
Sub's common stock have been duly authorized and validly issued, and are fully
paid and nonassessable. Merger Sub was formed for the purpose of consummating
the Merger and has no material assets or liabilities except as necessary for
such purpose.
(d) All outstanding shares of Parent Common Stock, all outstanding Parent
Options, all outstanding Parent Warrants and all outstanding shares of capital
stock of each subsidiary of Parent have been issued and granted in compliance
with (i) all applicable securities laws and other applicable material Legal
Requirements and (ii) all material requirements set forth in applicable
agreements or instruments.
(e) The Parent Common Stock to be issued in the Merger, when issued in
accordance with the provisions of this Agreement, will be validly issued, fully
paid and nonassessable.
3.3 Obligations With Respect to Capital Stock. Except as set forth in Part
3.3 of the Parent Disclosure Letter, there are no equity securities,
partnership interests or similar ownership interests of any class of Parent
equity security, or any securities exchangeable or convertible into or
exercisable for such equity securities, partnership interests or similar
ownership interests, issued, reserved for issuance or outstanding. Except for
securities Parent owns free and clear of all claims and Encumbrances, directly
or indirectly through one or
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more Subsidiaries, as of the date of this Agreement, there are no equity
securities, partnership interests or similar ownership interests of any class
of equity security of any Subsidiary of Parent, or any security exchangeable or
convertible into or exercisable for such equity securities, partnership
interests or similar ownership interests, issued, reserved for issuance or
outstanding. Except as set forth in Section 3.2 or Part 3.2 or Part 3.3 of the
Parent Disclosure Letter, there are no subscriptions, options, warrants, equity
securities, partnership interests or similar ownership interests, calls, rights
(including preemptive rights), commitments or agreements of any character to
which Parent or any of its Subsidiaries is a party or by which it is bound
obligating Parent or any of its subsidiaries to issue, deliver or sell, or
cause to be issued, delivered or sold, or repurchase, redeem or otherwise
acquire, or cause the repurchase, redemption or acquisition of, any shares of
capital stock, partnership interests or similar ownership interests of Parent
or any of its Subsidiaries or obligating Parent or any of its Subsidiaries to
grant, extend, accelerate the vesting of or enter into any such subscription,
option, warrant, equity security, call, right, commitment or agreement. Except
as contemplated by this Agreement or disclosed in the Parent SEC Reports, there
are no registration rights with respect to any equity security of any class of
Parent or with respect to any equity security, partnership interest or similar
ownership interest of any class of any of its Subsidiaries.
3.4 Authority; Non-Contravention.
(a) Each of Parent and Merger Sub has all requisite corporate power and
authority to enter into this Agreement, as well as the Company Option
Agreement, the Parent Option Agreement, the Company Voting Agreement, the
License Agreement and the Loan Agreement (the Company Option Agreement, the
Parent Option Agreement, the Company Voting Agreement, the License Agreement
and the Loan Agreement together, the "Parent Authorization Agreements"), and to
consummate the transactions contemplated hereby and thereby. The execution and
delivery of this Agreement and the Parent Authorization Agreements, and the
consummation of the transactions contemplated hereby and thereby, have been
duly authorized by all necessary corporate action on the part of Parent and
Merger Sub, subject only to the Parent Stockholder Approvals and the filing of
the Certificate of Merger pursuant to Delaware Law. The affirmative vote of the
holders of a majority in interest of the stock present or represented by proxy
at the Parent Stockholders' Meeting is sufficient for Parent's stockholders to
approve the issuance of shares of Parent Common Stock pursuant to the Merger,
and no other approval of any holder of any securities of Company is required in
connection with the consummation of the transactions contemplated hereby. This
Agreement and the Parent Authorization Agreements have been duly executed and
delivered by each of Parent and Merger Sub and, assuming the due authorization,
execution and delivery by Company, constitute the valid and binding obligations
of Parent and Merger Sub, respectively, enforceable against Parent and Merger
Sub in accordance with their terms, except as enforceability may be limited by
bankruptcy and other similar laws affecting the rights of creditors generally
and general principles of equity.
(b) The execution and delivery of this Agreement and the Parent
Authorization Agreements by Parent does not, and the consummation of the
transactions contemplated by this Agreement and the Parent Authorization
Agreements will not, (i) conflict with, or result in any violation or breach
of, any provision of the Parent Charter Documents, (ii) result in any violation
or breach of, or constitute (with or without notice or lapse of time, or both)
a default (or give rise to a right of termination, cancellation or acceleration
of any obligation or loss of any material benefit) under, or require a consent
or waiver under, any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, lease, contract or other agreement, instrument or
obligation to which Parent or its Subsidiaries is a party or by which any of
them or any of their properties or assets may be bound, or (iii) conflict with
or violate any permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Parent or any
Subsidiary or any of its or their properties or assets, except in the case of
(ii) and (iii) for any such conflicts, violations, defaults, terminations,
cancellations or accelerations which, individually or in the aggregate, would
not have a Material Adverse Effect to Parent.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with any Governmental Entity or other person is required
to be obtained or made by Parent or Merger Sub in connection with the execution
and delivery of this Agreement or the consummation of the Merger, except for
(i) the filing
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of the Certificate of Merger with the Secretary of State of the State of
Delaware, (ii) the filing of the Joint Proxy Statement/Prospectus and the
Registration Statement with the SEC, a Form 8-K and a Schedule 13D with regard
to the Company Voting Agreement in accordance with the Securities Act and the
Exchange Act, and the effectiveness of the Registration Statement, (iii) such
consents, approvals, orders, authorizations, registrations, declarations and
filings as may be required under applicable federal, foreign and state
securities (or related) laws and the HSR Act and the securities or antitrust
laws of any foreign country, and (iv) such other consents, authorizations,
filings, approvals and registrations which if not obtained or made would not be
material to Parent or the Surviving Corporation or have a material adverse
effect on the ability of the parties hereto to consummate the Merger.
3.5 SEC Filings; Parent Financial Statements.
(a) Parent has filed or made available to Company all forms, reports and
documents required to be filed by Parent with the SEC since the effective date
of the registration statement of Parent's initial public offering. All such
required forms, reports and documents (including those that Parent may file
subsequent to the date hereof) are referred to herein as the "Parent SEC
Reports." As of their respective dates, the Parent SEC Reports (i) were
prepared in accordance with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the SEC
thereunder applicable to such Parent SEC Reports, and (ii) did not at the time
they were filed (or if amended or superseded by a filing prior to the date of
this Agreement, then on the date of such filing) contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading, except to the
extent corrected prior to the date of this Agreement by a subsequently filed
Parent SEC Report. As of the date of this Agreement, the Parent SEC Reports,
taken as a whole, together with any press release disseminated between the date
of the most recent Parent SEC Report and the date of this Agreement, do not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. None of Parent's subsidiaries is required to file any forms,
reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes thereto) contained in the Parent SEC Reports (the "Parent
Financials"), including each Parent SEC Report filed after the date hereof
until the Closing, (i) complied as to form in all material respects with the
published rules and regulations of the SEC with respect thereto, (ii) was
prepared in accordance with GAAP applied on a consistent basis throughout the
periods involved (except as may be indicated in the notes thereto or, in the
case of unaudited interim financial statements, as may be permitted by the SEC
on Form 10-Q, 8-K or any successor form under the Exchange Act) and (iii)
fairly presented the consolidated financial position of Parent and its
subsidiaries as at the respective dates thereof and the consolidated results of
Parent's operations and cash flows for the periods indicated, except that the
unaudited interim financial statements may not contain footnotes and were or
are subject to normal and recurring year-end adjustments. The balance sheet of
Parent contained in Parent's Annual Report on Form 10-K for December 31, 2000
(the "Parent Form 10-K") is hereinafter referred to as the "Parent Balance
Sheet." Except as disclosed in the Parent Financials, since the date of the
Parent Balance Sheet neither Parent nor any of its subsidiaries has any
liabilities required under GAAP to be set forth on a balance sheet (absolute,
accrued, contingent or otherwise) which are, individually or in the aggregate,
material to the business, results of operations or financial condition of
Parent and its subsidiaries taken as a whole, except for liabilities incurred
since the date of the Parent Balance Sheet in the ordinary course of business
consistent with past practices and liabilities incurred in connection with this
Agreement.
3.6 Absence of Certain Changes or Events. Except as disclosed in the Parent
SEC Reports filed prior to the date hereof or disclosed in Part 3.6 of the
Parent Disclosure Letter by Parent to Company on or prior to the date hereof,
since the date of the Parent Balance Sheet, Parent and its Subsidiaries have
conducted their businesses only in the ordinary course and in a manner
consistent with past practice and, since such date, there has not been (i) any
damage, destruction or loss (whether or not covered by insurance) with respect
to Parent or any of its Subsidiaries having a Material Adverse Effect with
respect to the Parent; (ii) any material change by
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Parent in its accounting methods, principles or practices to which Company has
not previously consented in writing; (iii) any revaluation by Parent of any of
its assets having a Material Adverse Effect with respect to the Parent; or (iv)
any other action or event that, individually or in the aggregate, has had a
Material Adverse Effect with respect to the Parent.
3.7 Taxes.
(a) Parent, each of its Subsidiaries and any consolidated, combined, unitary
or affiliated group in which Company or any of its Subsidiaries is or has been
a member, have (i) filed all federal, state, local and foreign Tax returns and
reports required to be filed by them (taking into account extensions), and
(ii) paid or accrued all Taxes due and payable, whether or not shown on such
Tax returns or reports (other than amounts being contested in good faith by
appropriate proceedings), except in the case of clause (i) or (ii) for any such
filings, payments or accruals which are not reasonably likely, individually or
in the aggregate, to have a Material Adverse Effect on Parent. Neither Parent
nor any of its subsidiaries has been delinquent in the payment of any material
Tax nor is there any material Tax deficiency outstanding, proposed or assessed
against Parent or any of its subsidiaries, nor has Parent or any of its
subsidiaries executed any unexpired waiver of any statute of limitations on or
extending the period for the assessment or collection of any Tax. No audit or
other examination of any Return of Parent or any of its subsidiaries by any Tax
authority is presently in progress, nor has Parent or any of its subsidiaries
been notified of any request for such an audit or other examination that is
reasonably likely to result in any adjustment that is material to Parent. No
adjustment relating to any Returns filed by Parent or any of its subsidiaries
has been proposed in writing formally or informally by any Tax authority to
Parent or any of its subsidiaries or any representative thereof that is
reasonably likely to be material to Parent. Neither the Internal Revenue
Service (the "IRS") nor any other taxing authority has asserted any claim for
taxes, or to the knowledge of the executive officers of Parent or any of its
Subsidiaries, is threatening to assert any claims for Taxes, which claims,
individually or in the aggregate, are reasonably likely to have a Material
Adverse Effect on Parent. Parent and each of its Subsidiaries have withheld or
collected and paid over to the appropriate governmental authorities (or are
properly holding for such timely payment) all Taxes required by law to be
withheld or collected, except for amounts which are not reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect on Parent.
Neither Parent nor any of its Subsidiaries has filed any consent agreement
under Section 341(f) of the Code or agreed to have Section 341(f)(2) of the
Code apply to any disposition of a subsection (f) asset (as defined in Section
341(f)(4) of the Code) owned by Parent. There are no liens for Taxes upon the
assets of Parent or its Subsidiaries (other than liens for Taxes that are not
yet due or that are being contested in good faith by appropriate proceedings),
except for liens which would not, individually or in the aggregate, have a
Material Adverse Effect on Parent.
(c) Neither Parent nor any of its subsidiaries is party to or has any
obligation under any tax-sharing, tax indemnity or tax allocation agreement or
arrangement.
(d) Except as may be required as a result of the Merger, Parent and its
subsidiaries have not been and will not be required to include any adjustment
in Taxable income for any Tax period (or portion thereof) pursuant to Section
481 or Section 262A of the Code or any comparable provision under state or
foreign Tax laws as a result of transactions, events or accounting methods
employed prior to the Closing.
(e) Parent has not been distributed in a transaction qualifying under
Section 355 of the Code within the last two years, nor has Parent distributed
any corporation in a transaction qualifying under Section 355 of the Code
within the last two years.
(f) There is no agreement, plan or arrangement to which Parent or any of its
subsidiaries is a party, including this Agreement and the agreements entered
into in connection with this Agreement, covering any employee or former
employee of Parent or any of its subsidiaries that, individually or
collectively, would be reasonably likely to give rise to the payment of any
amount that would not be deductible pursuant to Sections 280G, 404 or 162(m) of
the Code. There is no contract, agreement, plan or arrangement to which Parent
is a party or by which it is bound to compensate any individual for excise
taxes paid pursuant to Section 4999 of the Code.
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(g) Parent is not aware of any fact, circumstance, plan or intention on the
part of Parent that would be reasonably likely to prevent the Merger from
qualifying as a "reorganization" pursuant to the provisions of Section 368 of
the Code.
3.8 Title to Properties.
(a) Parent has provided to Company a true and complete list of all material
real property leased by Parent or its Subsidiaries (collectively "Material
Leases") and the location of the premises. Neither Parent nor any subsidiary is
in default under such leases, except where the existence of such defaults,
individually or in the aggregate, is not reasonably likely to have a Material
Adverse Effect with respect to Parent.
(b) Parent owns no real property.
3.9 Intellectual Property.
(a) Except as disclosed in Section 3.09 of the Parent Disclosure Letter,
Parent and its Subsidiaries own, or are licensed or otherwise possess legally
enforceable rights to use, all patents, trademarks, trade names, service marks,
copyrights and mask works, any applications for and registrations of such
patents, trademarks, trade names, service marks, copyrights and mask works, and
all processes, formulae, methods schematics, technology, know how, computer
software programs or applications and tangible or intangible proprietary
information or material that are necessary to conduct the business of Parent
and its Subsidiaries as currently conducted or planned to be conducted by
Parent and its Subsidiaries (the "Parent Intellectual Property Rights").
(b) Except as disclosed in Section 3.09 of the Parent Disclosure Letter,
neither Parent nor any of its Subsidiaries is, or will be as a result of the
execution and delivery of this Agreement or the performance of its obligations
under this Agreement, in breach of any material license, sublicense or other
agreement relating to the Parent Intellectual Property Rights or any material
license, sublicense or other agreement pursuant to which Parent or any of its
Subsidiaries is authorized to use any third party patents, trademarks or
copyrights, including software, which are incorporated in or form a part of any
product or service of Parent or any of its Subsidiaries that is material to the
business of Parent and its Subsidiaries, taking Parent and its Subsidiaries
together as a whole, and where such breach would have a Material Adverse Effect
on Parent.
(c) Neither Parent nor any of its Subsidiaries has received written notice
from any third party that the operation of the business of Parent or any act,
product or service of Parent, infringes or misappropriates the Intellectual
Property of any third party or constitutes unfair competition or trade
practices under the laws of any jurisdiction, which allegation, if true, would
have a Material Adverse Effect to Parent.
(d) To the knowledge of Parent, no person has or is infringing or
misappropriating any Parent Intellectual Property, which infringement or
misappropriation, individually or in the aggregate, would have a Material
Adverse Effect to Parent.
(e) Parent and its subsidiaries have taken reasonable steps to protect
Parent's and its subsidiaries' rights in Parent's and such subsidiaries'
confidential information and trade secrets, except where the failure to do so
would not have a Material Adverse Effect to Parent.
(f) Except as disclosed in Section 3.09 of the Parent Disclosure Letter, (i)
all patents, registered trademarks, service marks and copyrights which are held
by Parent or any of its Subsidiaries, and which are material to the business of
Parent and its Subsidiaries, taking Parent and its Subsidiaries together as a
whole, are valid and subsisting; (ii) neither Parent nor any of its
Subsidiaries has been sued in any suit, action or proceeding which involves a
claim of infringement of any patents, trademarks, service marks, copyrights or
violation of any trade secret or other proprietary right of any third party;
and (iii) the manufacturing, marketing, licensing or sale of Parent's products
and services does not infringe any patent, trademark, service mark, copyright,
trade secret or other proprietary right of any third party, which infringement,
either individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect on Parent.
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(g) None of the Parent Intellectual Property or product or service of Parent
contains any significant defect in connection with processing data containing
dates in leap years or in the year 2000 or any preceding of following years,
which defects, individually or in the aggregate, would have an Material Adverse
Effect to Parent.
3.10 Compliance with Laws.
(a) Parent and each of its Subsidiaries has complied with, is not in
violation of, and has not received any notices of violation with respect to,
any federal, state or local statute, law or regulation with respect to the
conduct of its business, or the ownership or operation of its business, except
for failures to comply or violations which, individually, or in the aggregate,
have not had and are not reasonably likely to have Material Adverse Effect with
respect to Parent.
3.11 Litigation. There are no claims, suits, actions or proceedings pending
or, to the knowledge of Parent, threatened against, relating to or affecting
Parent or any of its Subsidiaries, before any Governmental Entity or any
arbitrator that seeks to restrain or enjoin the consummation of the
transactions contemplated by this Agreement or which could reasonably be
expected, either singularly or in the aggregate with all such claims, actions
or proceedings, to have a Material Adverse Effect to Parent or on the Surviving
Corporation following the Merger or have a material adverse effect on the
ability of the parties hereto to consummate the Merger. No director or
executive officer of the Parent has asserted a claim to seek indemnification
from the Parent under Parent Charter Documents or any indemnification agreement
between Parent and such person.
3.12 Employee Benefit Plans.
(a) Parent has listed in Part 3.12 of the Parent Disclosure Letter all
employee benefit plans (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) and all bonus, stock option,
stock purchase, incentive, deferred compensation, supplemental retirement,
severance and other similar employee benefit plans, written or otherwise, for
the benefit of, or relating to, any current or former employee of Parent or any
trade or business (whether or not incorporated) which is a member or which is
under common control with Parent (an "ERISA Affiliate") within the meaning of
Section 414 of the Internal Revenue Code, or any Subsidiary of Parent and all
unexpired severance agreements with respect to any officer of the Company or
any of its Subsidiaries who is subject to Section 16 of the Exchange Act
(together, the "Parent Employee Plans").
(b) With respect to each Parent Employee Plan, Parent has made available to
Company, a true and correct copy of (i) the most recent annual report (Form
5500) filed with the IRS, (ii) such Parent Employee Plan, (iii) each trust
agreement and group annuity contract, if any, relating to such Parent Employee
Plan and (iv) the most recent actuarial report or valuation relating to a
Parent Employee Plan subject to Title IV of ERISA.
(c) With respect to the Parent Employee Plans, individually and in the
aggregate, no event has occurred, and to the knowledge of Parent, there exists
no condition or set of circumstances in connection with which Parent could be
subject to any liability that is reasonably likely to have Parent Material
Adverse Effect to Parent under ERISA, the Internal Revenue Code or any other
applicable law.
(d) With respect to the Parent Employee Plans, individually and in the
aggregate, there are no funded benefit obligations for which contributions have
not been made or properly accrued and there are no unfunded benefit obligations
which have not been accounted for by reserves, or otherwise properly footnoted
in accordance with generally accepted accounting principles, on the financial
statements of Parent, which obligations are reasonably likely to have a
Material Adverse Effect to Parent.
(e) Except as expressly contemplated by this Agreement, neither the Parent
nor any of its Subsidiaries is a party to any oral or written: (i) agreement
with any officer of Parent or any of its Subsidiaries providing any term of
employment or compensation guarantee extending for a period longer than one
year from the date hereof and for the payment of compensation in excess of
$200,000 per annum; (ii) agreement with any executive officer or other employee
thereof (A) the benefits of which are contingent, or the terms of which are
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materially altered, upon the occurrence of a transaction involving Parent or
any of its Subsidiaries or any of the other transactions contemplated by this
Agreement or any ancillary agreement, (B) providing any term of employment or
compensation guarantee, or (C) providing severance benefits or other benefits
after the termination of employment of such employee regardless of the reason
for such termination of employment, except as required by applicable law; or
(iii) agreement or plan, including any stock option plan, stock appreciation
rights plan or stock purchase plan, any of the benefits of which will be
increased, or the vesting of benefits of which will be accelerated, by the
transaction contemplated by this Agreement or any ancillary agreement, or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Agreement or any ancillary agreement.
(f) Except, in each case, as would not, individually or in the aggregate,
have a Material Adverse Effect on the Parent, Parent and each of its
subsidiaries: (i) is in compliance in all material respects with all applicable
foreign, federal, state and local laws, rules and regulations respecting
employment, employment practices, terms and conditions of employment and wages
and hours, in each case, with respect to Parent Employees; and (ii) has
withheld all amounts required by law or by agreement to be withheld from the
wages, salaries and other payments to Parent Employees.
(g) None of the Parent and its Subsidiaries is bound by or subject to (and
none of its assets or properties is bound by or subject to) any written or
oral, express or implied, contract, commitment or arrangement with any labor
union, and no labor union has requested or, to the Parent's knowledge, has
sought to represent any of the employees, representatives or agents of the
Parent. No work stoppage or labor strike against Parent is pending, threatened
or reasonably anticipated. Parent does not know of any activities or
proceedings of any labor union to organize any Parent Employees. There are no
actions, suits, claims, labor disputes or grievances pending, or, to the
knowledge of Parent, threatened relating to any labor, safety or discrimination
matters involving any Parent Employee, including charges of unfair labor
practices or discrimination complaints, which, if adversely determined, would,
individually or in the aggregate, result in any Material Adverse Effect to
Parent. Neither Parent nor any of its subsidiaries has engaged in any unfair
labor practices within the meaning of the National Labor Relations Act. Parent
is not presently, nor has it been in the past, a party to, or bound by, any
collective bargaining agreement or union contract with respect to Parent
Employees and no collective bargaining agreement is being negotiated by Parent.
(h) Each Parent International Employee Plan has been established, maintained
and administered in material compliance with its terms and conditions and with
the requirements prescribed by any and all statutory or regulatory laws that
are applicable to such Parent International Employee Plan. No Parent
International Employee Plan has material unfunded liabilities that, as of the
Effective Time, will not be offset by insurance or that are not fully accrued
on Parent balance sheet. Except as required by law, no condition exists that
would prevent Parent or any subsidiary from terminating or amending any Parent
International Employee Plan at any time for any reason in accordance with the
terms of each such International Employee Plan (other than expenses typically
incurred in a termination event). "Parent International Employee Plan" shall
mean each Parent Employee Plan that has been adopted or maintained by Parent or
any subsidiary, whether informally or formally, for the benefit of Parent
Employees outside the United States.
3.13 Environmental Matters.
(a) Hazardous Material. Except as would not have a Material Adverse Effect
to Parent, no underground storage tanks and no amount of any Hazardous
Materials are present, as a result of the actions of Parent or any of its
subsidiaries or any affiliate of Parent, or, to Parent's knowledge, as a result
of any actions of any third party or otherwise, in, on or under any property,
including the land and the improvements, ground water and surface water thereof
that Parent or any of its subsidiaries has at any time owned, operated,
occupied or leased.
(b) Hazardous Materials Activities. Except as would not have a Material
Adverse Effect to Parent (in any individual case or in the aggregate) (i)
neither Parent nor any of its subsidiaries has transported, stored, used,
manufactured, disposed of released or exposed its employees or others to
Hazardous Materials in violation of any law in effect on or before the Closing
Date, and (ii) neither Parent nor any of its subsidiaries
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has disposed of; transported, sold, used, released, exposed its employees or
others to or manufactured any product containing a Hazardous Material in
violation of any rule, regulation, treaty or statute promulgated by any
Governmental Entity in effect prior to or as of the date hereof to prohibit,
regulate or control Hazardous Materials or any Hazardous Material Activity.
(c) Permits. Parent and its subsidiaries currently hold all Environmental
Permits material to and necessary for the conduct of Parent's and its
subsidiaries' Hazardous Material Activities and other businesses of Parent and
its subsidiaries as such activities and businesses are currently being
conducted.
(d) Environmental Liabilities. No material action, proceeding, revocation
proceeding, amendment procedure, writ or injunction is pending, and to Parent's
knowledge, no material action, proceeding, revocation proceeding, amendment
procedure, writ or injunction has been threatened by any Governmental Entity
against Parent or any of its subsidiaries in a writing delivered to Parent
concerning any Environmental Permit of Parent, Hazardous Material or any
Hazardous Materials Activity of Parent or any of its subsidiaries. Parent is
not aware of any fact or circumstance which reasonably could be expected to
involve Parent or any subsidiaries in any environmental litigation or impose
upon Parent any environmental liability, with such exceptions as would not have
a Material Adverse Effect to Parent.
3.14 Agreements, Contracts and Commitments. Neither Parent nor any of its
Subsidiaries is a party to any agreement which would require payment of in
excess of $1.0 million in 2001. Neither Parent nor any of its Subsidiaries, nor
to Parent's knowledge, any other party thereto, is in breach, violation or
default under, and neither Parent nor any of its Subsidiaries has received
written notice that it has breached, violated or defaulted, any of the terms or
conditions of any material agreement, contract or commitment to which it is a
party or by which any of its assets and properties are bound ("Parent Material
Contracts") in such a manner as, individually or in the aggregate, is
reasonably likely to have a Material Adverse Effect on Company. Each Parent
Material Contract that has not expired by its terms, is in full force and
effect and is not subject to any material default hereunder which Parent is
aware by any party obligated to Parent or any of its Subsidiaries pursuant to
such Parent Material Contract.
3.15 Disclosure.
(a) The information supplied by Parent for inclusion in the Registration
Statement shall not at the time the Registration Statement is filed with the
SEC and at the time it becomes effective under the Securities Act contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. The
information supplied by Parent for inclusion or incorporation by reference in
the Joint Proxy Statement/Prospectus shall not, on the date the Joint Proxy
Statement/Prospectus is mailed to Company's stockholders or to Parent's
stockholders, at the time of the Company Stockholders' Meeting, at the time of
the Parent Stockholders' Meeting or as of the Effective Time, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not false or misleading,
or omit to state any material fact necessary to correct any statement in any
earlier communication with respect to the solicitation of proxies for the
Company Stockholders' Meeting or the Parent Stockholders' Meeting which has
become false or misleading. The Registration Statement and Joint Proxy
Statement/Prospectus will comply as to form in all material respects with the
provisions of the Securities Act and the rules and regulations thereunder. If
at any time prior to the Effective Time, any event relating to Parent or any of
its affiliates, officers or directors should be discovered by Parent which is
required to be set forth in an amendment to the Registration Statement or a
supplement to the Joint Proxy Statement/Prospectus, Parent shall promptly
inform Company.
(b) The Board of Directors of Parent has, as of the date hereof, adopted the
restructuring plan set forth in Part 3.15 of the Parent Disclosure Letter (the
"Parent Interim Plan").
3.16 Board Approval. The Board of Directors of Parent has, as of the date of
this Agreement, (i) determined that the Merger is in the best interests of
Parent and its stockholders, and has approved this
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Agreement and the Parent Authorization Agreements, and (ii) recommends that the
stockholders of Parent approve each of the Parent Stockholder Approvals.
3.17 Fairness Opinion. Parent's Board of Directors has received an opinion
from Goldman, Sachs & Co., dated as of the date hereof, to the effect that, as
of the date hereof, the Exchange Ratio is fair to Parent from a financial point
of view.
3.18 Brokers' and Finders' Fees. Except for fees payable to Goldman, Sachs &
Co., Parent has not incurred, nor will it incur, directly or indirectly, any
liability for brokerage or finders' fees or agents' commissions or any similar
charges in connection with this Agreement or any transaction contemplated
hereby.
3.19 Insurance. All material fire and casualty, general liability, business
interruption, product liability, and sprinkler and water damage insurance
policies maintained by Parent or any of its Subsidiaries are with reputable
insurance carriers, and copies or a summary of such policies have been made
available to Company.
3.20 Certain Contracts. Neither Parent nor any of its Subsidiaries is a
party to or bound by any non-competition agreement or any other similar
agreement or obligation which purports to limit in any material respect the
manner in which, or the localities in which, all or any material portion of the
business of Parent and its Subsidiaries, taken as a whole, is conducted.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business by Company. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
pursuant to its terms or the Effective Time, Company and each of its
subsidiaries shall, except to the extent that Parent shall otherwise consent in
writing, carry on its business in the usual, regular and ordinary course, in
substantially the same manner as heretofore conducted and in compliance in all
material respects with all applicable laws and regulations, pay its debts and
Taxes when due subject to good faith disputes over such debts or Taxes, pay or
perform other material obligations when due, and use all reasonable efforts to
preserve its relationships with customers, suppliers, licensors, licensees, and
others with which it has business dealings, except as contemplated by the
Company Interim Plan and except in each case where the failure to do so would
not have a Material Adverse Effect with respect to Company. In addition, during
that period Company will promptly notify Parent of any material event involving
its business or operations consistent with the agreements contained herein.
In addition, except as permitted by the terms of this Agreement, and except
as contemplated by this Agreement or provided in Part 4.1 of the Company
Disclosure Letter, without the prior written consent of Parent (which shall not
be unreasonably withheld or delayed), during the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
pursuant to its terms or the Effective Time, Company shall not do any of the
following and shall not permit its subsidiaries to do any of the following:
(a) Waive any stock repurchase rights, accelerate, amend or change the
period of exercisability of options or restricted stock, or reprice options
granted under any employee, consultant, director or other stock plans or
authorize cash payments in exchange for any options granted under any of such
plans;
(b) Grant any severance or termination pay to, or any additional notice of
termination, or extension or acceleration of the exercisability or vesting of
any equity securities held by any officer or employee except (i) pursuant to
written agreements in effect, or policies existing, on the date hereof and as
previously disclosed to Parent, consistent with the terms of the Company
Interim Plan or (ii) pursuant to written agreements entered into after the date
hereof that are consistent with the terms of the Company Interim Plan or Part
4.1(b) of the Company Disclosure Letter;
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(c) Transfer or license to any person or entity or otherwise extend, amend
or modify in any material respect any rights to the material Company
Intellectual Property, other than non-exclusive licenses in the ordinary course
of business;
(d) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in
respect of any capital stock of Company or split, combine or reclassify any
capital stock of Company or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for any capital stock
of Company (except for a reverse stock split of outstanding Company Common
Stock);
(e) Purchase, redeem or otherwise acquire, directly or indirectly, any
shares of capital stock of Company or its subsidiaries, except repurchases of
unvested shares at cost in connection with the termination of the employment
relationship with any employee pursuant to stock option or purchase agreements
in effect on the date hereof;
(f) Issue, deliver, sell, authorize, pledge or otherwise encumber any shares
of capital stock or any securities convertible into shares of capital stock, or
subscriptions, rights, warrants or options to acquire any shares of capital
stock or any securities convertible into shares of capital stock, or enter into
other agreements or commitments of any character obligating it to issue any
such shares or convertible securities, other than the issuance, delivery and/or
sale of (i) shares of Company Common Stock pursuant to the exercise of Company
Options and Company Warrants, (ii) shares of Company Common Stock issuable to
participants in the Company ESPP, (iii) shares of Company Common Stock issuable
to participants in the Company's 401(k) Plan, in the case of (i), (ii) and
(iii), consistent with the terms thereof, and (iv) pursuant to grants of
Company Options to newly hired employees, upon promotions of existing
employees, as retention grants to existing employees, or as part of Company's
annual option grant program, in each case, in the ordinary course of business,
consistent with past practice, and not to exceed in the aggregate pursuant to
this clause (iv), the balance of the options as of the date of this Agreement
in the Company's existing stock option pool (net of cancellations) and which
will not be entitled to acceleration as a result of the Merger and which shall
vest in a manner as otherwise mutually agreed to by the parties in writing or
as set forth in Part 4.1(f) of the Company Disclosure Letter;
(g) Cause, permit or propose any amendments to its Certificate of
Incorporation, Bylaws or other charter documents (or similar governing
instruments of any of its subsidiaries);
(h) Acquire or agree to acquire by merging or consolidating with, or by
purchasing any equity interest in or a portion of the assets of, or by any
other manner, any business or any corporation, partnership, association or
other business organization or division thereof; or otherwise acquire or agree
to acquire any assets which are material, individually or in the aggregate, to
the business of Company or enter into any material joint ventures, strategic
relationships or alliances that would have a Material Adverse Effect on
Company;
(i) Sell, lease, license, encumber or otherwise dispose of any properties or
assets which are material, individually or in the aggregate, to the business of
Company, except other sales, leases, encumbrances or dispositions or non-
exclusive licenses in the ordinary course;
(j) Incur any indebtedness for borrowed money (excluding for the avoidance
of doubt, trade debt) or guarantee any such indebtedness of another person
(other than a subsidiary), extend or enter into any commitment to make an
extension of any indebtedness (excluding trade credits) except immaterial
transactions in each case in the ordinary course of business consistent with
past practice, issue or sell any debt securities or options, warrants, calls or
other rights to acquire any debt securities of Company, enter into any "keep
well" or other agreement to maintain any financial statement condition or enter
into any arrangement having the economic effect of any of the foregoing other
than pursuant to existing credit facilities, in the ordinary course of
business;
(k) Except as required to comply with any Legal Requirement, adopt or amend
any employee benefit plan or employee stock purchase or employee stock option
plan, or enter into any employment contract (other than offer letters and
letter agreements entered into in the ordinary course of business consistent
with past practice providing for compensation and other benefits generally
commensurate with similarly situated
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employees) or collective bargaining agreement, pay any special bonus or special
remuneration to any director or employee (other than pursuant to the Company
Interim Plan), or increase the salaries or wage rates or fringe benefits
(including rights to severance or indemnification) of its directors, officers,
employees or consultants, other than bonuses, increases in salary or wage rates
for non-directors or non-executive officers in the ordinary course of business
consistent with past practice;
(l) Make any material capital expenditures other than as consistent with the
Company Interim Plan;
(m) Modify, amend or terminate any Company Contract to which Company or any
subsidiary thereof is a party or waive, release or assign any material rights
or claims thereunder, in each case, in a manner that could reasonably be
expected to have a Material Adverse Effect on the Company;
(n) Enter into any licensing or other agreement with regard to the
acquisition, distribution or licensing of any material Company Intellectual
Property other than licenses, distribution or other similar agreements entered
into in the ordinary course of business, and other than in connection with the
License Agreement;
(o) Initiate any litigation or arbitration proceeding, where the initiation
of such proceedings, if determined adversely, would have a Material Adverse
Effect on Company;
(p) Pay, discharge, settle or satisfy any material claims, liabilities,
obligations or litigation (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than in the ordinary course of business and
where such action would not have a Material Adverse Effect on Company,
provided, that no such settlement would create a material liability or require
a material payment;
(q) Materially revalue any of its assets or, except as required by GAAP,
make any change in accounting methods, principles or practices; or
(r) Agree in writing or otherwise to take any of the actions described in
Section 4.1 (a) through (q) above.
4.2 Conduct of Business by Parent. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
pursuant to its terms or the Effective Time, Parent and each of its
subsidiaries shall, except to the extent that Company shall otherwise consent
in writing, carry on its business in the usual, regular and ordinary course, in
substantially the same manner as heretofore conducted and in compliance in all
material respects with all applicable laws and regulations, pay its debts and
Taxes when due subject to good faith disputes over such debts or Taxes, pay or
perform other material obligations when due, and use all reasonable efforts to
preserve its relationships with customers, suppliers, licensors, licensees, and
others with which it has business dealings, except as contemplated by the
Parent Interim Plan and except in each case where the failure to do so would
not have a Material Adverse Effect with respect to Parent. In addition, during
that period Parent will promptly notify Company of any material event involving
its business or operations consistent with the agreements contained herein.
In addition, except as permitted by the terms of this Agreement, and except
as contemplated by this Agreement or provided in Part 4.2 of the Parent
Disclosure Letter, without the prior written consent of Company (which shall
not be unreasonably withheld or delayed), during the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement pursuant to its terms or the Effective Time, Parent shall not do any
of the following and shall not permit its subsidiaries to do any of the
following:
(a) Waive any stock repurchase rights, accelerate, amend or change the
period of exercisability of options or restricted stock, or reprice options
granted under any employee, consultant, director or other stock plans or
authorize cash payments in exchange for any options granted under any of such
plans;
(b) Grant any severance or termination pay to, or any additional notice of
termination, or extension or acceleration of the exercisability or vesting of
any equity securities held by any officer or employee except (i) pursuant to
written agreements in effect, or policies existing, on the date hereof and as
previously disclosed
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in writing to Parent, consistent with the terms of the Parent Interim Plan or
(ii) pursuant to written agreements entered into after the date hereof and
consistent with the terms of the Parent Interim Plan or Part 4.2(b) of the
Parent Disclosure Letter;
(c) Transfer or license to any person or entity or otherwise extend, amend
or modify in any material respect any rights to the material Parent
Intellectual Property, other than non-exclusive licenses in the ordinary course
of business;
(d) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in
respect of any capital stock of Parent or split, combine or reclassify any
capital stock of Parent or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for any capital stock
of Parent (except for a reverse stock split of outstanding Parent Common
Stock);
(e) Purchase, redeem or otherwise acquire, directly or indirectly, any
shares of capital stock of Parent or its subsidiaries, except repurchases of
unvested shares at cost in connection with the termination of the employment
relationship with any employee pursuant to stock option or purchase agreements
in effect on the date hereof;
(f) Issue, deliver, sell, authorize, pledge or otherwise encumber any shares
of capital stock or any securities convertible into shares of capital stock, or
subscriptions, rights, warrants or options to acquire any shares of capital
stock or any securities convertible into shares of capital stock, or enter into
other agreements or commitments of any character obligating it to issue any
such shares or convertible securities, other than the issuance, delivery and/or
sale of (i) shares of Parent Common Stock pursuant to the exercise of
outstanding Parent Options and Parent Warrants, (ii) shares of Parent Common
Stock issuable to participants in the Parent ESPP, (iii) shares of Parent
Common Stock issuable to participants in the Parent's 401(k) Plan, in the case
of (i), (ii) and (iii), consistent with the terms thereof, and (iv) pursuant to
grants of Parent Options to newly hired employees, upon promotions of existing
employees, as retention grants to existing employees, or as part of Parent's
annual option grant program, in each case, in the ordinary course of business,
consistent with past practice, and not to exceed in the aggregate pursuant to
this clause, the balance of the options as of the date of this Agreement in the
Parent's existing stock option pool (net of cancellations) and which will not
be entitled to acceleration as a result of the Merger which shall vest in a
manner as otherwise mutually agreed to by the parties in writing or as set
forth in Part 4.2(f) of the Parent Disclosure Letter;
(g) Cause, permit or propose any amendments to its Certificate of
Incorporation, Bylaws or other charter documents (or similar governing
instruments of any of its subsidiaries), except as required for the Parent Name
Change;
(h) Acquire or agree to acquire by merging or consolidating with, or by
purchasing any equity interest in or a portion of the assets of, or by any
other manner, any business or any corporation, partnership, association or
other business organization or division thereof; or otherwise acquire or agree
to acquire any assets which are material, individually or in the aggregate, to
the business of Parent or enter into any material joint ventures, strategic
relationships or alliances that would have a Material Adverse Effect on Parent;
(i) Sell, lease, license, encumber or otherwise dispose of any properties or
assets which are material, individually or in the aggregate, to the business of
Parent, except for other sales, leases, encumbrances or dispositions or non-
exclusive licenses in the ordinary course of business;
(j) Incur any indebtedness for borrowed money (excluding, for the avoidance
of doubt, trade debt) or guarantee any such indebtedness of another person
(other than a subsidiary), extend or enter into any commitment to make an
extension of any indebtedness (excluding trade credits) except immaterial
transactions in each case in the ordinary course of business consistent with
past practice, issue or sell any debt securities or options, warrants, calls or
other rights to acquire any debt securities of Parent, enter into any "keep
well" or other agreement to maintain any financial statement condition or enter
into any arrangement having the economic effect of any of the foregoing other
than pursuant to existing credit facilities, in the ordinary course of business
except in connection with loans made under the Loan Agreement;
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(k) Except as required to comply with any Legal Requirement, adopt or amend
any employee benefit plan or employee stock purchase or employee stock option
plan, or enter into any employment contract (other than offer letters and
letter agreements entered into in the ordinary course of business consistent
with past practice providing for compensation and other benefits generally
commensurate with similarly situated employees) or collective bargaining
agreement, pay any special bonus or special remuneration to any director or
employee (other than pursuant to the Parent Interim Plan), or increase the
salaries or wage rates or fringe benefits (including rights to severance or
indemnification) of its directors, officers, employees or consultants other
than bonuses, increases in salary or wage rates for non-directors or non-
executive officers in the ordinary course consistent with past practice;
(l) Make any material capital expenditures other than capital expenditures
in the expressly permitted in and consistent with the Parent Interim Plan;
(m) Modify, amend or terminate any Parent Contract to which Parent or any
subsidiary thereof is a party or waive, release or assign any material rights
or claims thereunder, in each case, in a manner that could reasonably be
expected to have a Material Adverse Effect on Parent (other than changes to
existing credit facilities in connection with the Loan Agreement);
(n) Enter into any licensing or other agreement with regard to the
acquisition, distribution or licensing of any material Parent Intellectual
Property other than licenses, distribution or other similar agreements entered
into in the ordinary course of business, and other in connection with the
License Agreement;
(o) Initiate any litigation or arbitration proceeding, where the initiation
of such proceedings, if determined adversely, would have a Material Adverse
Effect on Parent;
(p) Pay, discharge, settle or satisfy any material claims, liabilities,
obligations or litigation (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than in the ordinary course of business and
where such action would not have a Material Adverse Effect on Parent,
provided, that no such settlement would create a material liability or require
a material payment;
(q) Materially revalue any of its assets or, except as required by GAAP,
make any change in accounting methods, principles or practices; or
(r) Agree in writing or otherwise to take any of the actions described in
Section 4.2(a) through (q) above.
4.3 Interim Plans. Parent shall use all reasonable efforts to implement,
fully comply with and timely complete the Parent Interim Plan in accordance
with its terms, and Company shall use all reasonable efforts to implement,
fully comply with and timely complete the Company Interim Plan in accordance
with its terms, in each case subject to compliance with the HSR Act.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Joint Proxy Statement/Prospectus; Registration Statement; Antitrust and
Other Filings.
(a) As promptly as reasonably practicable after the execution of this
Agreement, Company and Parent will prepare and file with the SEC, the Joint
Proxy Statement/Prospectus and Parent will prepare and file with the SEC the
Registration Statement in which the Joint Proxy Statement/Prospectus will be
included as a prospectus. Each of Parent and the Company shall provide
promptly to the other such information concerning its business and financial
statements and affairs as, in the reasonable judgment of the providing party
or its counsel, may be required or appropriate for inclusion in the Joint
Proxy Statement/Prospectus and the Registration Statement, or in any
amendments or supplements thereto, and to cause its counsel and auditors to
cooperate with the other's counsel and auditors in the preparation of the
Joint Proxy Statement/Prospectus and the Registration Statement. Each of
Company and Parent will respond to any comments of the SEC, will use its
respective commercially reasonable efforts to have the Registration Statement
declared effective under the Securities Act as promptly as practicable after
such filing and each of Company and Parent will cause the Joint
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Proxy Statement/Prospectus to be mailed to its respective stockholders at the
earliest practicable time after the Registration Statement is declared
effective by the SEC. Promptly after the date of this Agreement, each of the
Company and Parent will prepare and file (i) with the United States Federal
Trade Commission and the Antitrust Division of the United States Department of
Justice Notification and Report Forms relating to the transactions contemplated
herein as required by the HSR Act, as well as comparable pre-merger
notification forms required by the merger notification or control laws and
regulations of any applicable jurisdiction, as agreed to by the parties (the
"Antitrust Filings") and (ii) any other filings required to be filed by it
under the Exchange Act, the Securities Act or any other federal, state or
foreign laws relating to the Merger and the transactions contemplated by this
Agreement (the "Other Filings"). The Company and Parent each shall promptly
supply the other with any information which may be required in order to
effectuate any filings pursuant to this Section 5.1.
(b) Each of the Company and Parent will notify the other promptly upon the
receipt of any comments from the SEC or its staff or any other government
officials in connection with any filing made pursuant hereto and of any request
by the SEC or its staff or any other government officials for amendments or
supplements to the Registration Statement, the Joint Proxy Statement/Prospectus
or any Antitrust Filings or Other Filings or for additional information and
will supply the other with copies of all correspondence between such party or
any of its representatives, on the one hand, and the SEC, or its staff or any
other government officials, on the other hand, with respect to the Registration
Statement, the Joint Proxy Statement/Prospectus, the Merger or any Antitrust
Filing or Other Filing. Each of the Company and Parent will cause all documents
that it is responsible for filing with the SEC or other regulatory authorities
under this Section 5.1 to comply in all material respects with all applicable
requirements of law and the rules and regulations promulgated thereunder.
Whenever any event occurs which is required to be set forth in an amendment or
supplement to the Joint Proxy Statement/Prospectus, the Registration Statement
or any Antitrust Filing or Other Filing, the Company or Parent, as the case may
be, will promptly inform the other of such occurrence and cooperate in filing
with the SEC or its staff or any other government officials, and/or mailing to
stockholders of the Company and/or Parent, such amendment or supplement.
Notwithstanding any other provision of this Agreement, nothing herein shall
require Parent to qualify to do business in any jurisdiction in which it is not
now so qualified or to file a general consent to service of process under any
applicable state securities laws in connection with the issuance of Parent
Common Stock in the Merger.
5.2 Meeting of Company Stockholders.
(a) Promptly after the date hereof, Company will take all action necessary
in accordance with the Delaware Law and its Certificate of Incorporation and
Bylaws to convene the Company Stockholders' Meeting (including any adjournments
thereof) to be held as promptly as practicable, and in any event (to the extent
permissible under applicable law) within 45 days after the declaration of
effectiveness of the Registration Statement, for the purpose of voting upon
approval and adoption of this Agreement and approval of the Merger. Subject to
Section 5.2(c), Company will use its commercially reasonable efforts to solicit
from its stockholders proxies in favor of the adoption and approval of this
Agreement and the approval of the Merger and will take all other action
necessary to secure the vote or consent of its stockholders required by the
rules of the Nasdaq Stock Market or Delaware Law to obtain such approvals.
Notwithstanding anything to the contrary contained in this Agreement, Company
may adjourn or postpone the Company Stockholders' Meeting to the extent
necessary to ensure that any necessary supplement or amendment to the Joint
Proxy Statement/Prospectus is provided to Company's stockholders in advance of
a vote on the Merger and this Agreement or, if as of the time for which Company
Stockholders' Meeting is originally scheduled (as set forth in the Joint Proxy
Statement/Prospectus) there are insufficient shares of Company Common Stock
represented (either in person or by proxy) to constitute a quorum necessary to
conduct the business of the Company Stockholders' Meeting. Company shall ensure
that the Company Stockholders' Meeting is called, noticed, convened, held and
conducted, and that all proxies solicited by the Company in connection with the
Company Stockholders' Meeting are solicited, in compliance with the Delaware
Law, its Certificate of Incorporation and Bylaws, the rules of the Nasdaq Stock
Market and all other applicable legal requirements. Company's obligation to
call, give notice of, convene and hold the Company Stockholders' Meeting in
accordance with this Section 5.2(a)
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shall not be limited to or otherwise affected by the commencement, disclosure,
announcement or submission to Company of any Company Acquisition Proposal or
Company Superior Offer, or by any withdrawal, amendment or modification of the
recommendation of the Board of Directors of Company with respect to this
Agreement or the Merger.
(b) Subject to Section 5.2(c): (i) the Board of Directors of Company shall
recommend that Company's stockholders vote in favor of and adopt and approve
this Agreement and approve the Merger at the Company Stockholders' Meeting;
(ii) the Joint Proxy Statement/Prospectus shall include a statement to the
effect that the Board of Directors of Company has recommended that Company's
stockholders vote in favor of and adopt and approve this Agreement and the
Merger at the Company Stockholders' Meeting; and (iii) neither the Board of
Directors of Company nor any committee thereof shall withdraw, amend or modify,
or propose or resolve to withdraw, amend or modify in a manner adverse to
Parent, the recommendation of the Board of Directors of Company that Company's
stockholders vote in favor of and adopt and approve this Agreement and the
Merger.
(c) Nothing in this Agreement shall prevent the Board of Directors of the
Company from withholding, withdrawing, amending or modifying its recommendation
in favor of the Merger or endorsing or recommending a Company Superior Offer
(as defined below) if (i) a Company Superior Offer (as defined below) is made
to the Company and is not withdrawn, (ii) the Company shall have provided
written notice to Parent (a "Notice of Company Superior Offer") advising Parent
that the Company has received a Company Superior Offer, summarizing the
material terms and conditions of such Company Superior Offer and identifying
the person or entity making such Company Superior Offer, (iii) Parent shall not
have, within two business days of Parent's receipt of the Notice of Company
Superior Offer, made an offer that the Company's Board of Directors by a
majority vote determines in its good faith judgment (after consultation with a
financial advisor of national standing) to be at least as favorable to
Company's stockholders as such Company Superior Offer (it being agreed that the
Board of Directors of Company shall convene a meeting to consider any such
offer by Parent promptly following the receipt thereof), (iv) the Board of
Directors of Company concludes in good faith, after consultation with its
outside legal counsel, that, in light of such Company Superior Offer, the
failure to withhold, withdraw, amend or modify such recommendation would be
inconsistent with the fiduciary duties of the Board of Directors of Company to
Company's stockholders under applicable law and (v) Company shall not knowingly
have violated any of the restrictions set forth in Section 5.4 or any of the
material provisions of this Section 5.2. Company shall provide Parent with at
least two business days prior notice (or such lesser prior notice as provided
to the members of the Company's Board of Directors) of any meeting of the
Company's Board of Directors at which Company's Board of Directors is
reasonably expected to consider any Company Acquisition Proposal (as defined in
Section 5.4) to determine whether such Company Acquisition Proposal is a
Company Superior Offer. Nothing contained in this Section 5.2(c) shall limit
the Company's obligation to hold and convene the Company Stockholders' Meeting
(regardless of whether the recommendation of the Board of Directors of Company
shall have been withdrawn, amended or modified). For purposes of this
Agreement, "Company Superior Offer" shall mean (a) an unsolicited, bona fide
Company Acquisition Proposal that the Board of Directors of the Company
determines, in its good faith determination (after consultation with a
financial advisor of national standing) to be substantially more favorable to
the Company stockholders than the Merger and (b) which requires by its terms
that as a condition to the consummation of the transaction contemplated by such
written offer the Merger and the transactions contemplated thereby be
terminated; provided, however, that any such offer shall not be deemed to be a
"Company Superior Offer" if any financing required to consummate the
transaction contemplated by such offer is not committed and is not likely in
the good faith determination of the Company's Board of Directors (after
consultation with its financial advisor) to be obtained by such third party on
a timely basis.
(d) Nothing contained in this Agreement shall prohibit the Company or its
Board of Directors from taking and disclosing to its stockholders a position
contemplated by Rules 14d-9 and 14e-2(a) promulgated under the Exchange Act or
otherwise required by directors' duties of disclosure to stockholders under
Delaware Law.
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5.3 Meeting of Parent Stockholders.
(a) Promptly after the date hereof, Parent will take all action necessary in
accordance with the Delaware Law and its Certificate of Incorporation and
Bylaws to convene the Parent Stockholders' Meeting (including any adjournments
thereof) to be held as promptly as practicable, and in any event (to the extent
permissible under applicable law) within 45 days after the declaration of
effectiveness of the Registration Statement, for the purpose of voting upon the
Parent Stockholder Approvals. Subject to Section 5.3(c), Parent will use its
commercially reasonable efforts to solicit from its stockholders proxies in
favor of the approval of the Parent Stockholder Approvals and will take all
other action necessary to secure the vote or consent of its stockholders
required by the rules of the Nasdaq Stock Market or Delaware Law to obtain such
approvals. Notwithstanding anything to the contrary contained in this
Agreement, Parent may adjourn or postpone the Parent Stockholders' Meeting to
the extent necessary to ensure that any necessary supplement or amendment to
the Joint Proxy Statement/Prospectus is provided to Parent's stockholders in
advance of a vote on the Parent Stockholder Approvals or, if as of the time for
which Parent Stockholders' Meeting is originally scheduled (as set forth in the
Joint Proxy Statement/Prospectus) there are insufficient shares of Parent
Common Stock represented (either in person or by proxy) to constitute a quorum
necessary to conduct the business of the Parent Stockholders' Meeting. Parent
shall ensure that the Parent Stockholders' Meeting is called, noticed,
convened, held and conducted, and that all proxies solicited by Parent in
connection with the Parent Stockholders' Meeting are solicited, in compliance
with the Delaware Law, its Certificate of Incorporation and Bylaws, the rules
of the Nasdaq Stock Market and all other applicable legal requirements.
(b) Subject to Section 5.3(c): (a) the Board of Directors of Parent shall
recommend that Parent's stockholders at the Parent Stockholder Meeting approve
the following (i) the issuance of Parent Common Stock pursuant to the Merger,
and (ii) the amendment of Parent's Certificate of Incorporation to effect the
Parent Name Change (collectively, the "Parent Stockholder Approvals"); (b) the
Joint Proxy Statement/Prospectus shall include a statement to the effect that
the Board of Directors of Parent has recommended that Parent's stockholders
approve the Parent Stockholder Approvals at the Parent Stockholders' Meeting;
and (c) neither the Board of Directors of Parent nor any committee thereof
shall withdraw, amend or modify, or propose or resolve to withdraw, amend or
modify in a manner adverse to Company, the recommendation of the Board of
Directors of Parent that Parent's stockholders approve the Parent Stockholder
Approvals.
(c) Nothing in this Agreement shall prevent the Board of Directors of Parent
from withholding, withdrawing, amending or modifying its recommendation in
favor of the Merger or endorsing or recommending a Parent Superior Offer (as
defined below) if (i) a Parent Superior Offer (as defined below) is made to
Parent and is not withdrawn, (ii) Parent shall have provided written notice to
the Company (a "Notice of Parent Superior Offer") advising the Company that
Parent has received a Parent Superior Offer, summarizing all of the material
terms and conditions of such Parent Superior Offer and identifying the person
or entity making such Parent Superior Offer, (iii) the Company shall not have,
within two business days of the Company's receipt of the Notice of Parent
Superior Offer, made an offer that Parent's Board of Directors by a majority
vote determines in its good faith judgment (after consultation with a financial
advisor of national standing) to be at least as favorable to Parent's
stockholders as such Parent Superior Offer (it being agreed that the Board of
Directors of Parent shall convene a meeting to consider any such offer by
Company promptly following the receipt thereof), (iv) the Board of Directors of
Parent concludes in good faith, after consultation with its outside legal
counsel, that, in light of such Parent Superior Offer, the failure to withhold,
withdraw, amend or modify such recommendation would be inconsistent with the
fiduciary duties of the Board of Directors of Parent to Parent's stockholders
under applicable law and (v) Parent shall not have knowingly violated any of
the restrictions set forth in Section 5.5 or any of the material provisions of
this Section 5.3. Parent shall provide Company with at least two business days
prior notice (or such lesser prior notice as provided to the members of the
Parent's Board of Directors) of any meeting of Parent's Board of Directors at
which Parent's Board of Directors is reasonably expected to consider any Parent
Acquisition Proposal (as defined in Section 5.5) to determine whether such
Parent Acquisition Proposal is a Parent Superior Offer. Nothing contained in
this Section 5.3(c) shall limit the Parent's obligation to hold and convene the
Parent Stockholders' Meeting (regardless of whether the recommendation of the
Board of Directors of Parent shall have been withdrawn,
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amended or modified). For purposes of this Agreement, "Parent Superior Offer"
shall mean (a) an unsolicited, bona fide Parent Acquisition Proposal that the
Board of Directors of Parent determines, in its good faith determination (after
consultation with a financial advisor of national standing) to be substantially
more favorable to the Parent stockholders than the Merger and (b) which
requires by its terms that as a condition to the consummation of the
transaction contemplated by such written offer the Merger and the transactions
contemplated thereby be terminated; provided, however, that any such offer
shall not be deemed to be a "Parent Superior Offer" if any financing required
to consummate the transaction contemplated by such offer is not committed and
is not likely in the good faith determination of the Parent's Board of
Directors (after consultation with its financial advisor) to be obtained by
such third party on a timely basis.
(d) Nothing contained in this Agreement shall prohibit Parent or its Board
of Directors from taking and disclosing to its stockholders a position
contemplated by Rules 14d-9 and 14e-2(a) promulgated under the Exchange Act or
otherwise required by directors' duties of disclosure to stockholders under
Delaware Law.
5.4 No Company Solicitation.
(a) From and after the date of this Agreement until the earlier of the
Effective Time or termination of this Agreement pursuant to Article VII,
Company and its subsidiaries will not, nor will they authorize or permit any of
their respective officers, directors, affiliates under the control of the
Company or employees or any investment banker, attorney or other advisor or
representative retained by any of them (collectively, "Company
Representatives") to, directly or indirectly, (i) solicit, initiate, knowingly
encourage or knowingly induce the making, submission or announcement of any
Company Acquisition Proposal (as hereinafter defined), (ii) participate in any
discussions (except discussions to elicit information concerning a Company
Acquisition Proposal which is required to determine whether such proposal may
constitute a Company Superior Offer) or negotiations regarding, or furnish to
any person any non-public information with respect to, or take any other action
to facilitate any inquiries or the making of any Company Acquisition Proposal,
except to elicit information concerning a Company Acquisition Proposal which is
required to determine whether such proposal may constitute a Company Superior
Offer, (iii) approve, endorse or recommend any Company Acquisition Proposal or
(iv) enter into any letter of intent or similar document or any contract,
agreement or commitment proposing or providing for any Company Acquisition
Proposal; provided, however, that notwithstanding the foregoing, Company may
disclose the provisions of this Section 5.4 in response to an unsolicited
inquiry from any person or group, and prior to the approval of this Agreement
and the Merger at the Company Stockholders' Meeting, this Section 5.4(a) shall
not prohibit Company from furnishing nonpublic information regarding Company
and its subsidiaries to, or entering into or participating in discussions or
negotiations with, any person or group who has submitted (and not withdrawn) to
Company an unsolicited, written Company Acquisition Proposal, if the Board of
Directors of Company concludes in good faith (after consultation with a
financial advisor of national standing) may constitute a Company Superior Offer
if (1) neither Company nor any authorized Company Representative and its
subsidiaries shall have violated any of the restrictions set forth in this
Section 5.4, (2) the Board of Directors of Company concludes in good faith,
after consultation with its outside legal counsel, that the failure to take
such action would be inconsistent with the fiduciary obligations of the Board
of Directors of Company to Company's stockholders under applicable law,
(3) prior to furnishing any such nonpublic information to, or entering into any
such discussions (except discussions to elicit information to concerning a
Company Acquisition Proposal which is required to determine whether such
proposal may constitute a Company Superior Offer) or negotiations with, such
person or group, Company gives Parent written notice of the identity of such
person or group and all of the material terms and conditions of such Company
Acquisition Proposal and of Company's intention to furnish nonpublic
information to, or enter into discussions with, such person or group, and
Company receives from such person or group an executed confidentiality
agreement containing terms which shall not restrict Company from complying with
its disclosure obligations under this Agreement and which shall otherwise
contain customary limitations on the use and disclosure of all non-public
information furnished to such person or group or on behalf of the Company and
other terms no less favorable to Company than those set forth in the
Confidentiality Agreement, and (4) contemporaneously with furnishing any such
nonpublic information to such person or group, Company furnishes such nonpublic
information to Parent (to the extent such nonpublic information has not been
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previously furnished by the Company to Parent). Company and its subsidiaries
will immediately cease any and all existing activities, discussions or
negotiations with any parties conducted heretofore with respect to any Company
Acquisition Proposal. Without limiting the foregoing, it is understood that any
violation of the restrictions set forth in the preceding two sentences by any
authorized Company Representative or any of its subsidiaries shall be deemed to
be a breach of this Section 5.4 by Company; provided, however, that if a
violation consists of a communication by any such Company Representative (other
than an executive officer or director) which was unauthorized by Company and
Company terminates its relationship with such Company Representative and with
such Company Representative employer (if a third party) immediately upon
becoming aware of such communication, then such from and after such
termination, then such communication shall no longer be deemed to constitute a
material breach of this Agreement for purposes of Sections 6.3(b) and 7.1(i).
For purposes of this Section 5.4(a), a Company Acquisition Proposal (as defined
below) that was first received by the Company prior to the date of this
Agreement shall be deemed "unsolicited" only if (i) discussions with respect to
such Company Acquisition Proposal were terminated by Company prior to the date
of this Agreement in accordance with this Section 5.4(a) and (ii) the Company
received after the date of this Agreement, a renewed expression of interest
with respect to such Company Acquisition Proposal without any solicitation on
the part of the Company.
For purposes of this Agreement, "Company Acquisition Proposal" shall mean
any offer or proposal by a third party relating to: (A) any acquisition or
purchase from the Company by any person or "group" (as defined under Section
13(d) of the Exchange Act and the rules and regulations thereunder) of more
than a 30% interest in the total outstanding voting securities of the Company
or any of its subsidiaries or any tender offer or exchange offer that if
consummated would result in any person or "group" (as defined under Section
13(d) of the Exchange Act and the rules and regulations thereunder)
beneficially owning 30% or more of the total outstanding voting securities of
the Company or any of its subsidiaries or any merger, consolidation, business
combination or similar transaction involving the Company pursuant to which the
stockholders of the Company immediately preceding such transaction hold less
than 60% of the equity interests in the surviving or resulting entity of such
transaction or (B) any sale, lease (other than in the ordinary course of
business), exchange, transfer, license (other than in the ordinary course of
business), acquisition, or disposition of more than 50% of the assets of the
Company.
5.5 No Parent Solicitation.
(a) From and after the date of this Agreement until the earlier of the
Effective Time or the termination of this Agreement pursuant to Article VII,
Parent and its subsidiaries will not, nor will they authorize or permit any of
their respective officers, directors, affiliates under the control of the
Parent or employees or any investment banker, attorney or other advisor or
representative retained by any of them (collectively, "Parent Representatives")
to, directly or indirectly, (i) solicit, initiate, knowingly encourage or
knowingly induce the making, submission or announcement of any Parent
Acquisition Proposal (as hereinafter defined), (ii) participate in any
discussions (except discussions to elicit information to concerning a Parent
Acquisition Proposal which is required to determine whether such proposal may
constitute a Parent Superior Offer) or negotiations regarding, or furnish to
any person any non-public information with respect to, or take any other action
to facilitate any inquiries or the making of any Parent Acquisition Proposal,
except to elicit information concerning a Parent Acquisition Proposal which is
required to determine whether such proposal may constitute a Parent Superior
Offer, (iii) approve, endorse or recommend any Parent Acquisition Proposal or
(iv) enter into any letter of intent or similar document or any contract,
agreement or commitment proposing or providing for any Parent Acquisition
Proposal; provided, however, that notwithstanding the foregoing, Parent may
disclose the provisions of this Section 5.5 in response to an unsolicited
inquiry from any person or group, and prior to the Parent Stockholder Approval
at the Parent Stockholders' Meeting, this Section 5.5(a) shall not prohibit
Parent from furnishing nonpublic information regarding Parent and its
subsidiaries to, or entering into or participating in discussions or
negotiations with, any person or group who has submitted (and not withdrawn) to
Parent an unsolicited, written Parent Acquisition Proposal, if the Board of
Directors of Parent concludes in good faith (after consultation with a
financial advisor of national standing) may constitute a Parent Superior
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Offer (which for purposes of this Section 5.5(a) shall be defined without
reference to subsection (b) of the definition of Parent Superior Offer in
Section 5.3(c) hereof) if (1) neither Parent nor any authorized Parent
Representative and its subsidiaries shall have violated any of the restrictions
set forth in this Section 5.5, (2) the Board of Directors of Parent concludes
in good faith, after consultation with its outside legal counsel, that the
failure to take such action would be inconsistent with the fiduciary
obligations of the Board of Directors of Parent to Parent's stockholders under
applicable law, (3) prior to furnishing any such nonpublic information to, or
entering into any such discussions (except discussions to elicit information
concerning a Parent Acquisition Proposal which is required to determine whether
such proposal may constitute a Parent Superior Offer) or negotiations with,
such person or group, Parent gives Company written notice of the identity of
such person or group and all of the material terms and conditions of such
Parent Acquisition Proposal and of Parent's intention to furnish nonpublic
information to, or enter into discussions with, such person or group, and
Parent receives from such person or group an executed confidentiality agreement
containing terms which shall not restrict Parent from complying with its
disclosure obligations under this Agreement and which shall otherwise contain
customary limitations on the use and disclosure of all non-public information
furnished to such person or group or on behalf of Parent and other terms no
less favorable to Parent than those set forth in the Confidentiality Agreement,
and (4) contemporaneously with furnishing any such nonpublic information to
such person or group, Parent furnishes such nonpublic information to Company
(to the extent such nonpublic information has not been previously furnished by
Parent to Company). Parent and its subsidiaries will immediately cease any and
all existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any Parent Acquisition Proposal. Without limiting
the foregoing, it is understood that any violation of the restrictions set
forth in the preceding two sentences by any authorized Parent Representative or
any of its subsidiaries shall be deemed to be a breach of this Section 5.5 by
Company; provided, however, that if a violation consists of a communication by
any Parent Representative (other than an executive, officer or director) which
was unauthorized by Parent and Parent terminates its relationship with such
Parent Representative and with such Parent Representative employer (if a third
party) immediately upon becoming aware of such communication, then such from
and after such termination, then such communication shall no longer be deemed
to constitute a material breach of this Agreement for purposes of Sections
6.2(b) and 7.1(h). For purposes of this Section 5.5(a), a Parent Acquisition
Proposal (as defined below) that was first received by the Parent prior to the
date of this Agreement shall be deemed "unsolicited" only if (i) discussions
with respect to such Parent Acquisition Proposal were terminated by Parent
prior to the date of this Agreement in accordance with this Section 5.5(a) and
(ii) the Parent received after the date of this Agreement, a renewed expression
of interest with respect to such Parent Acquisition Proposal without any
solicitation on the part of the Parent.
For purposes of this Agreement, "Parent Acquisition Proposal" shall mean any
offer or proposal by a third party relating to: (A) any acquisition or purchase
from Parent by any person or "group" (as defined under Section 13(d) of the
Exchange Act and the rules and regulations thereunder) of more than a 30%
interest in the total outstanding voting securities of Parent or any of its
subsidiaries or any tender offer or exchange offer that if consummated would
result in any person or "group" (as defined under Section 13(d) of the Exchange
Act and the rules and regulations thereunder) beneficially owning 30% or more
of the total outstanding voting securities of Parent or any of its subsidiaries
or any merger, consolidation, business combination or similar transaction
involving Parent pursuant to which the stockholders of Parent immediately
preceding such transaction hold less than 60% of the equity interests in the
surviving or resulting entity of such transaction or (B) any sale, lease (other
than in the ordinary course of business), exchange, transfer, license (other
than in the ordinary course of business), acquisition, or disposition of more
than 50% of the assets of Parent.
5.6 Confidentiality; Access to Information.
(a) The parties acknowledge that Company and Parent have previously executed
a mutual confidentiality agreement, dated as of April 5, 2001 (the
"Confidentiality Agreement"), which Confidentiality Agreement will continue in
full force and effect in accordance with its terms.
I-39
(b) Access to Information. Company will afford Parent and its accountants,
counsel and other representatives reasonable access during normal business
hours to the properties, books, contracts, commitments, records (including tax
returns and related work papers) and personnel of Company during the period
prior to the Effective Time to obtain all information concerning the business,
including the status of product development efforts, properties, results of
operations and personnel of Company, as Parent may reasonably request; provided
that Company shall not be required to provide Parent or its agents with access
to any files, books, records or information where (i) such access would waive
any privileges available under applicable law, or (ii) would breach the terms
of any nondisclosure agreement with any third party after Company shall have
used all reasonable efforts to obtain a waiver of, or consent to disclosure
under, such agreement. Parent will afford Company and its accountants, counsel
and other representatives reasonable access during normal business hours to the
properties, books, contracts, commitments, records (including returns and
related work papers) and personnel of Parent during the period prior to the
Effective Time to obtain all information concerning the business, including the
status of product development efforts, properties, results of operations and
personnel of Parent, as Company may reasonably request; provided that Parent
shall not be required to provide Company or its agents with access to any
files, books, records or information where (i) such access would waive any
privileges available under applicable law, or (ii) would breach the terms of
any nondisclosure agreement with any third party after Parent shall have used
all reasonable efforts to obtain a waiver of, or consent to disclosure under,
such agreement. No information or knowledge obtained in any investigation
pursuant to this Section 5.6 will affect or be deemed to modify any
representation or warranty contained herein or the conditions to the
obligations of the parties to consummate the Merger. Unless otherwise required
by law, the parties will hold such non-public information in confidence in
accordance with the Confidentiality Agreement. Company will take all reasonable
precautions to prevent any trading in the securities of Parent by officers,
directors, employees and agents of Company, having knowledge of any material
information regarding Parent provided hereunder, including, without limitation,
the existence of the transactions contemplated by this Agreement until the
information in question has been publicly disclosed. Parent will take all
reasonable precautions to prevent any trading in the securities of Company by
officers, directors, employees and agents of Parent, having knowledge of any
material information regarding Company provided hereunder, including, without
limitation, the existence of the transactions contemplated by this Agreement
until the information in question has been publicly disclosed.
5.7 Public Disclosure. Parent and Company will consult with each other, and
to the extent practicable, agree, before issuing any press release or otherwise
making any public statement with respect to the Merger or this Agreement, and
will not issue any such press release or make any such public statement prior
to such consultation, except as may be required by law or any listing agreement
with a national securities exchange. The parties have agreed to the text of the
joint press release announcing the signing of this Agreement.
5.8 Reasonable Efforts; Notification.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the parties agrees to use all commercially reasonable
efforts to take, or cause to be taken, all actions, and to do, or cause to be
done, and to assist and cooperate with the other parties in doing, all things
necessary, proper or advisable to consummate and make effective, in the most
expeditious manner practicable, the Merger and the other transactions
contemplated by this Agreement, including using commercially reasonable efforts
to accomplish the following: (i) the taking of all reasonable acts necessary to
cause the conditions precedent set forth in Article VI to be satisfied, (ii)
the obtaining of all necessary actions or nonactions, waivers, consents,
approvals, orders and authorizations from Governmental Entities and the making
of all necessary registrations, declarations and filings (including
registrations, declarations and filings with Governmental Entities, if any) and
the taking of all reasonable steps as may be necessary to avoid any suit,
claim, action, investigation or proceeding by any Governmental Entity, (iii)
the obtaining of all necessary consents, approvals or waivers from third
parties, (iv) the defending of any suits, claims, actions, investigations or
proceedings, whether judicial or administrative, challenging this Agreement or
the consummation of the transactions contemplated hereby, including seeking to
have any stay or temporary restraining order entered by any court or other
Governmental
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Entity vacated or reversed and (v) the execution or delivery of any additional
instruments necessary to consummate the transactions contemplated by, and to
fully carry out the purposes of, this Agreement.
(b) Each of Company and Parent will give prompt notice to the other of (i)
any notice or other communication from any person alleging that the consent of
such person is or may be required in connection with the Merger, (ii) any
notice or other communication from any Governmental Entity in connection with
the Merger, (iii) any litigation relating to, involving or otherwise affecting
Company, Parent or their respective subsidiaries that relates to the
consummation of the Merger. Company shall give prompt notice to Parent of any
representation or warranty made by it contained in this Agreement becoming
untrue or inaccurate, or any failure of Company to comply with or satisfy in
any material respect any covenant, condition or agreement to be complied with
or satisfied by it under this Agreement, in each case, such that the conditions
set forth in Section 6.3 would not be satisfied, provided, however, that no
such notification shall affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the parties
under this Agreement. Parent shall give prompt notice to Company of any
representation or warranty made by it or Merger Sub contained in this Agreement
becoming untrue or inaccurate, or any failure of Parent or Merger Sub to comply
with or satisfy in any material respect any covenant, condition or agreement to
be complied with or satisfied by it under this Agreement, in each case, such
that the conditions set forth in Section 6.2 would not be satisfied, provided,
however, that no such notification shall affect the representations,
warranties, covenants or agreements of the parties or the conditions to the
obligations of the parties under this Agreement.
5.9 Third Party Consents. As soon as practicable following the date hereof,
Parent and Company will each use all commercially reasonable efforts to obtain
any material consents, waivers and approvals under any of its or its
subsidiaries' respective agreements, contracts, licenses or leases required to
be obtained in connection with the consummation of the transactions
contemplated hereby.
5.10 Stock Options and ESPP.
(a) At the Effective Time, each outstanding Company Option, whether granted
under the Company's stock option plans or subject to a non-plan agreement and
whether or not exercised, outstanding immediately prior to the Effective Time,
whether or not then exercisable, will be assumed by Parent (an "Assumed Company
Option"). Each Assumed Company Option so assumed by Parent under this Agreement
will continue to have, and be subject to, the same terms and conditions set
forth in the Assumed Company Options immediately prior to the Effective Time
(including, without limitation, any repurchase rights or vesting provisions),
except that (i) each such Assumed Company Option will be exercisable (or will
become exercisable in accordance with its terms) for that number of whole
shares of Parent Common Stock equal to the product of the number of shares of
Company Common Stock that were issuable upon exercise of such Assumed Company
Option immediately prior to the Effective Time multiplied by the Exchange
Ratio, rounded down to the nearest whole number of shares of Parent Common
Stock and (ii) the per share exercise price for the shares of Parent Common
Stock issuable upon exercise of such Assumed Company Option will be equal to
the quotient determined by dividing the exercise price per share of Company
Common Stock at which such Assumed Company Option was exercisable immediately
prior to the Effective Time by the Exchange Ratio, rounded up to the nearest
whole cent. Continuous employment with Company or its subsidiaries shall be
credited to the optionee for purposes of determining the vesting of all assumed
Company Options after the Effective Time.
(b) It is intended that Assumed Company Options assumed by Parent shall
qualify following the Effective Time as incentive stock options as defined in
Section 422 of the Code to the extent Company Options qualified as incentive
stock options immediately prior to the Effective Time and the provisions of
this Section 5.10 shall be applied consistent with such intent.
(c) Each outstanding purchase right under the Company ESPP (each an "Assumed
Purchase Right") shall be assumed by Buyer. Each Assumed Purchase Right shall
continue to have, and be subject to, the terms and conditions set forth in the
Company ESPP and the documents governing the Assumed Purchase Rights, except
that the number of shares of Buyer Common Stock issuable upon exercise thereof
shall equal the number of shares of Company Common Stock otherwise issuable
upon exercise thereof multiplied by the
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Exchange Ratio and the purchase price of such shares of Buyer Common Stock on
the Purchase Date (as defined in the ESPP) shall be the lower of (i) the
quotient determined by dividing eighty-five percent (85%) of the fair market
value per share of the Company Common Stock on the Offering Date for such
Purchase Period by the Exchange Ratio or (ii) eighty-five percent (85%) of the
fair market value per share of the Buyer Common Stock on the applicable
Purchase Date (with the number of shares rounded down to the nearest whole
share and the purchase price rounded up to the nearest whole cent). The Assumed
Purchase Rights shall be exercised on the applicable Purchase Date, and each
participant shall, accordingly, be issued shares of Buyer Common Stock at such
time. The Company ESPP and all outstanding purchase rights thereunder shall
terminate on the last day of any Offering Period in effect on the date hereof,
and no additional purchase rights shall be granted and no additional Offering
Periods shall commence following the date hereof. Buyer agrees that from and
after the Effective Time, employees of Company may participate in Buyer's
employee stock purchase plan, subject to the terms and conditions of such plan
if they are not participating in the ESPP on such date. Capitalized terms in
this Section 6.14 if not otherwise defined in this Agreement, have the meanings
ascribed to them in the Company ESPP.
5.11 Company Warrants. At the Effective Time, each outstanding Company
Warrant, whether or not then exercisable, will be assumed by Parent. Each
Company Warrant so assumed by Parent under this Agreement will continue to
have, and be subject to, the same terms and conditions set forth in such
Company Warrant immediately prior to the Effective Time (including, without
limitation, any vesting provisions), except that (i) each such Company Warrant
will be exercisable (or will become exercisable in accordance with its terms)
for that number of whole shares of Parent Common Stock equal to the product of
the number of shares of Company Common Stock that were issuable upon exercise
of such Company Warrant immediately prior to the Effective Time multiplied by
the Exchange Ratio, rounded down to the nearest whole number of shares of
Parent Common Stock and (ii) the per share exercise price for the shares of
Parent Common Stock issuable upon exercise of such Company Warrant will be
equal to the quotient determined by dividing the exercise price per share of
Company Common Stock at which such Company Warrant was exercisable immediately
prior to the Effective Time by the Exchange Ratio, rounded up to the nearest
whole cent. The exercisability period and other terms and conditions of the
Company Warrants will remain unchanged.
5.12 Form S-8. Parent agrees to file a registration statement on Form S-8
for the shares of Parent Common Stock issuable with respect to assumed Company
Options as soon as is reasonably practicable, after the Effective Time and
shall maintain the effectiveness of such registration statement thereafter for
so long as any of such options or other rights remain outstanding.
5.13 Indemnification.
(a) From and after the Effective Time, Parent will cause the Surviving
Corporation to fulfill and honor in all respects the obligations of Company
pursuant to any indemnification agreements between Company and its directors
and officers as of the Effective Time (the "Indemnified Parties") and any
indemnification provisions under Company's Certificate of Incorporation or
Bylaws as in effect on the date hereof. The Certificate of Incorporation and
Bylaws of the Surviving Corporation will contain provisions with respect to
exculpation and indemnification that are at least as favorable to the
Indemnified Parties as those contained in the Certificate of Incorporation and
Bylaws of Company as in effect on the date hereof, which provisions will not be
amended, repealed or otherwise modified for a period of six years from the
Effective Time in any manner that would adversely affect the rights thereunder
of individuals who, immediately prior to the Effective Time, were directors,
officers, employees or agents of Company, unless such modification is required
by law.
(b) For a period of six years after the Effective Time, Parent will cause
the Surviving Corporation to maintain in effect, if available, directors' and
officers' liability insurance covering those persons who are currently covered
by Company's directors' and officers' liability insurance policy on terms
comparable to those applicable to the current directors and officers of
Company; provided, however, that in no event will Parent or the Surviving
Corporation be required to expend in excess of 200% of the annual premium
currently paid by Company for such coverage (or such coverage as is available
for such 200% of such annual premium).
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(c) This Section 5.13 shall survive the consummation of the Merger, is
intended to benefit Company, the Surviving Corporation and each Indemnified
Party, shall be binding on all successors and assigns of the Surviving
Corporation and Parent, and shall be enforceable by the Indemnified Parties.
5.14 Parent Board of Directors. The Board of Directors of Parent will take
all actions reasonably necessary such that, effective upon the Effective Time,
two persons designated by a majority of Parent's Board of Directors, two
persons designated by a majority of Company's Board of Directors and one person
to be mutually agreed to by Parent and Company which will be Massood Zarrabian
or such other person as may be mutually agreed (the "New Directors") shall be
appointed to Parent's Board of Directors, which directors will be appointed to
the respective classes (Class I, Class II or Class III) as follows: (i) Massood
Zarrabian (or his replacement or substitute) will serve in Class I, (ii) one of
the two directors designed by Parent's Board of Directors will serve in Class
II and the other director designated by Parent's Board of Directors will serve
in Class II, and (iii) one of the two directors designed by Company's Board of
Directors will serve in Class III and the other director designated by
Company's Board of Directors will serve in Class III. Parent will use all
commercially reasonable efforts to fulfill the conditions set forth in Section
6.2(e). Upon the Effective Time, Chuck Bay will be appointed to serve as Chief
Executive Officer and President of Parent, and James Wood will be appointed to
serve as Chairman of Parent.
5.15 Nasdaq Listing. Parent shall use all requisite commercially reasonable
efforts to authorize for listing on the Nasdaq Stock Market the shares of
Parent Common Stock issuable, and those required to be reserved for issuance,
in connection with the Merger, subject to official notice of issuance. Each of
Company and Parent agrees to continue the quotation of Parent Common Stock and
Company Common Stock, respectively, on the Nasdaq National Market, during the
term of this Agreement so that appraisal rights will not be available to
stockholders of Company under Section 262 of Delaware Law. Nothing in this
Agreement shall prohibit or limit the right of any party to effect a reverse
stock split of such party's outstanding common stock, including taking any
action under such party's charter documents to accomplish such stock split
(provided that the Exchange Ratio shall be subject to proportional adjustment
in accordance with Section 1.6(f) in the event of any reverse stock split
effected prior to the Effective Time).
5.16 Letters of Accountants. Company and Parent shall use their respective
reasonable efforts to cause to be delivered to Parent letters of Company's and
Parent's independent accountants, respectively, dated no more than two business
days before the date on which the Registration Statement becomes effective (and
satisfactory in form and substance to Parent), that is customary in scope and
substance for letters delivered by independent public accountants in connection
with registration statements similar to the Registration Statement.
5.17 Takeover Statutes. If any Takeover Statute is or may become applicable
to the Merger or the other transactions contemplated by this Agreement, each of
Parent and Company and their respective Boards of Directors shall grant such
approvals and take such lawful actions as are necessary to ensure that such
transactions may be consummated as promptly as practicable on the terms
contemplated by this Agreement and otherwise act to eliminate or minimize the
effects of such statute and any regulations promulgated thereunder on such
transactions.
5.18 Certain Employee Benefits.
(a) As soon as practicable after the execution of this Agreement, Company
and Parent shall confer and work together in good faith to agree upon mutually
acceptable employee benefit and compensation arrangements (and terminate
Company Employee Plans immediately prior to the Effective Time if appropriate).
(b) Employees of the Company and its subsidiaries will be granted credit for
all service with the Company, its subsidiaries or its Affiliates under each
Company employee benefit plan, program or arrangement of Parent or its
Affiliates in which such Employees are eligible to participate for all
purposes, except for purposes of benefit accrual under a defined benefit
pension plan. If Employees become eligible to participate in a medical, dental
or health plan of Parent or its Affiliates, Parent will cause such plan to (i)
waive any preexisting condition exclusions and waiting period limitations for
conditions covered under the applicable
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medical, dental or health plans maintained or contributed to by Company (but
only to the extent corresponding exclusions and limitations were satisfied by
such Employees under the applicable medical, dental or health plans maintained
or contributed to by Company); and (ii) credit any deductible or out of pocket
expenses incurred by the Employees and their beneficiaries under such plans
during the portion of the calendar year prior to such participation.
(c) Parent and Company shall each perform and undertake all acts as may be
necessary to comply with the applicable provisions of the Workers Adjustment
and Retaining Act ("WARN") and laws for all of their respective employees.
Parent shall be responsible for and pay any liability for severance payments,
pursuant to WARN or otherwise, to any Parent employee that accrues or becomes
payable during the period of such employee's employment or service with Parent
or arises out of the termination of such person's employment with Parent.
Company shall be responsible for and pay any liability for severance payments,
pursuant to WARN or otherwise, to any Company employee that accrues or becomes
payable during the period of such employee's employment or service with Company
or arises out of the termination of such persons employment with Company.
5.19 Section 16. Provided that Company delivers to Parent the Section 16
Information (as defined below) in a timely fashion, the Board of Directors of
Parent, or a committee of two or more Non-Employee Directors thereof (as such
term is defined for purposes of Rule 16b-3 under the Exchange Act), shall adopt
resolutions prior to the consummation of the Merger, providing that the receipt
by the Company Insiders (as defined below) of the Parent Common Stock upon
conversion of the Company Common Stock, and of options for Parent Common Stock
upon conversion of the Company Options, in each case pursuant to the
transactions contemplated hereby, are intended to be exempt from liability
pursuant to Section 16(b) under the Exchange Act. Such resolutions shall comply
with the approval conditions of Rule 16b-3 under the Exchange Act for purposes
of such Section 16(b) exemption, including, but not limited to, specifying the
name of the Company Insiders, the number of securities to be acquired or
disposed of for each such person, the material terms of any derivative
securities, and that the approval is intended to make the receipt of such
securities exempt pursuant to Rule 16b-3(d). "Section 16 Information" shall
mean information regarding the Company Insiders, the number of shares of
Company capital stock held by each such Company Insider and expected to be
exchanged for Parent Common Stock in connection with the Merger, and the number
and description of the Company Options held by each such Company Insider and
expected to be converted into options for Parent Common Stock in connection
with the Merger. "Company Insiders" shall mean those officers and directors of
Company who will be subject to the reporting requirement of Section 16(b) of
the Exchange Act with respect to Parent and who are listed in the Section 16
Information.
5.20 Tax Matters. Each of Parent, Merger Sub and Company agrees that it will
not take any action, or fail to take any action, which action or failure to act
would be reasonably likely to cause the Merger to fail to qualify as a
"reorganization" pursuant to the provisions of Section 368 of the Code.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing Date of the
following conditions:
(a) Company Stockholder Approval. This Agreement shall have been approved
and adopted, and the Merger shall have been approved, by the requisite vote of
the stockholders of Company under applicable law and the Company Charter
Documents.
(b) Parent Stockholder Approval. The Parent Stockholder Approvals shall have
been approved by the requisite vote of the stockholders of Parent under
applicable law and the Parent Charter Documents.
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(c) Registration Statement Effective; Proxy Statement. The SEC shall have
declared the Registration Statement effective. No stop order suspending the
effectiveness of the Registration Statement or any part thereof shall have been
issued and no proceeding for that purpose, and no similar proceeding in respect
of the Joint Proxy Statement/Prospectus, shall have been initiated or
threatened in writing by the SEC.
(d) No Order; HSR Act. No Governmental Entity shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive
order, decree, injunction or other order (whether temporary, preliminary or
permanent) which is in effect and which has the effect of making the Merger
illegal or otherwise prohibiting consummation of the Merger. All waiting
periods, if any, under the HSR Act relating to the transactions contemplated
hereby will have expired or been terminated.
(e) Nasdaq Listing. The shares of Parent Common Stock to be issued in the
Merger shall have been approved for listing on the Nasdaq Stock Market, subject
to official notice of issuance.
(f) Consents. Other than the filing of the Certificate of Merger with the
Delaware Secretary of State, all required approvals or consents of any
Governmental Entity or other person in connection with the Merger and the
consummation of the other transactions contemplated hereby shall have been
obtained (and all relevant statutory, regulatory or other governmental waiting
periods, shall have expired) unless the failure to receive any such approval or
consent would not be reasonably likely, directly or indirectly, to result in a
Material Adverse Effect on Parent and its subsidiaries (including, for the
purposes of this condition, Company and its subsidiaries), taken as a whole.
6.2 Additional Conditions to Obligations of Company. The obligation of
Company to consummate and effect the Merger shall be subject to the
satisfaction at or prior to the Closing Date of each of the following
conditions, any of which may be waived, in writing, exclusively by Company:
(a) Representations and Warranties. The representations and warranties of
Parent and Merger Sub contained in this Agreement, disregarding all
qualifications and exceptions contained therein relating to materiality or
Material Adverse Effect or any similar standard or qualification, shall be true
and correct at and as of the Closing Date as if made at and as of the Closing
Date (other than representations and warranties that address matters only as of
a certain date, which shall be true and correct as of such date), except as a
result of transactions contemplated by this Agreement, and where the failure of
such representations or warranties to be true or correct would not have,
individually or in the aggregate, a Material Adverse Effect on Parent. It is
understood that, for purposes of determining the accuracy of such
representations and warranties, any update of or modification to the Parent
Disclosure Letter made or purported to have been made after the execution of
this Agreement, unless agreed to in writing by the Company, shall be
disregarded. Company shall have received a certificate with respect to the
foregoing signed on behalf of Parent by the Chief Executive Officer or Chief
Financial Officer of Parent.
(b) Agreements and Covenants. Parent and Merger Sub shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by them on or prior to the
Closing Date and Company shall have received a certificate to such effect
signed on behalf of Parent by the Chief Executive Officer or Chief Financial
Officer of Parent.
(c) Material Adverse Effect. No Material Adverse Effect with respect to
Parent shall have occurred since the date of this Agreement and be continuing.
(d) Tax Opinion. Company shall have received an opinion of Fenwick & West
LLP, dated as of the Closing Date, in form and substance reasonably
satisfactory to it, on the basis of the facts, representations and assumptions
set forth or referred to in such opinion, that the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code; provided,
however, that if the counsel to Company does not render such opinion, this
condition shall nonetheless be deemed to be satisfied with respect to Company
if counsel to Parent renders such opinion to Company. The parties to this
Agreement agree to make such reasonable representations as requested by such
counsel for the purpose of rendering such opinions.
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(e) Parent Board of Directors. All actions necessary in order for the New
Directors to become members of the Parent Board of Directors upon the Effective
Time in accordance with Section 5.14 shall have occurred.
(f) Parent Interim Plan. Parent shall have complied with and timely
completed, in all material respects, the Parent Interim Plan.
6.3 Additional Conditions to the Obligations of Parent and Merger Sub. The
obligations of Parent and Merger Sub to consummate and effect the Merger shall
be subject to the satisfaction at or prior to the Closing Date of each of the
following conditions, any of which may be waived, in writing, exclusively by
Parent:
(a) Representations and Warranties. The representations and warranties of
Company contained in this Agreement, disregarding all qualifications and
exceptions contained therein relating to materiality or Material Adverse Effect
or any similar standard or qualification, shall be true and correct at and as
of the Closing Date as if made at and as of the Closing Date (other than
representations and warranties that address matters only as of a certain date,
which shall be true and correct as of such date), except as a result of
transactions contemplated by this Agreement and except where the failure of
such representations or warranties to be true or correct would not have,
individually or in the aggregate, a Material Adverse Effect on Company. It is
understood that, for purposes of determining the accuracy of such
representations and warranties, any update of or modification to the Company
Disclosure Letter made or purported to have been made after the execution of
this Agreement, unless agreed to in writing by the Company, shall be
disregarded. Parent shall have received a certificate with respect to the
foregoing signed on behalf of Company by the Chief Executive Officer or Chief
Financial Officer of Company.
(b) Agreements and Covenants. Company shall have performed or complied in
all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it on or prior to the Closing
Date and Parent shall have received a certificate to such effect signed on
behalf of Company by the Chief Executive Officer or Chief Financial Officer of
Company.
(c) Material Adverse Effect. No Material Adverse Effect with respect to
Company shall have occurred since the date of this Agreement and be continuing.
(d) Company Interim Plan. The Company shall have complied with and timely
completed, in all material respects, the Company Interim Plan.
(e) Tax Opinion. Parent shall have received an opinion of Brobeck, Phleger &
Harrison LLP, dated as of the Closing Date, in form and substance reasonably
satisfactory to it, on the basis of the facts, representations and assumptions
set forth or referred to in such opinion, that the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code; provided,
however, that if the counsel to Parent does not render such opinion, this
condition shall nonetheless be deemed to be satisfied with respect to Parent if
counsel to the Company renders such opinion to Parent. The parties to this
Agreement agree to make such reasonable representations as requested by such
counsel for the purpose of rendering such opinions.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after the requisite approvals of the
stockholders of Company or Parent:
(a) by mutual written consent duly authorized by the Boards of Directors of
Parent and Company;
(b) by either Company or Parent if the Merger shall not have been
consummated by October 31, 2001 for any reason; provided, however, that the
right to terminate this Agreement under this Section 7.1(b) shall not be
available to any party whose action or failure to act has been a proximate
cause of the failure of the Merger to occur on or before such date and such
action or failure to act constitutes a material breach of this Agreement,
provided further that such date shall be extended to December 31, 2001 in the
event that the
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waiting period under the HSR Act has not expired or been terminated or the
Registration Statement has not been declared effective, and the extending party
reasonably believes that the waiting period will expire or the registration
statement will be declared effective in time to permit the closing to occur on
or before December 31, 2001.
(c) by either Company or Parent if a Governmental Entity shall have issued
an order, decree or ruling or taken any other action, in any case having the
effect of permanently restraining, enjoining or otherwise prohibiting the
Merger, which order, decree, ruling or other action is final and non-
appealable;
(d) by either Company or Parent, if the approval and adoption of this
Agreement, and the approval of the Merger, by the stockholders of Company shall
not have been obtained by reason of the failure to obtain the required vote at
a meeting of Company stockholders duly convened therefore or at any adjournment
thereof; provided, however, that the right to terminate this Agreement under
this Section 7.1(d) shall not be available to Company where the failure to
obtain the Company stockholder approval shall have been caused by the action or
failure to act of Company and such action or failure to act constitutes a
material breach by Company of this Agreement;
(e) by either Company or Parent, if the approval of the issuance of shares
of Parent Common Stock pursuant to the Merger by the stockholders of Parent
shall not have been obtained by reason of the failure to obtain the respective
required votes at a meeting of Parent stockholders duly convened therefore or
at any adjournment thereof; provided, however, that the right to terminate this
Agreement under this Section 7.1(e) shall not be available to Parent where the
failure to obtain the Parent stockholder approvals shall have been caused by
the action or failure to act of Parent and such action or failure to act
constitutes a material breach by Parent of this Agreement;
(f) by Parent (at any time prior to the adoption and approval of this
Agreement and the Merger by the required vote of the stockholders of Company)
if a Company Triggering Event (as defined below) shall have occurred;
(g) by Company (at any time prior to the approval of the Parent Stockholder
Approval by the required vote of the stockholders of Parent) if a Parent
Triggering Event (as defined below) shall have occurred;
(h) by Company, if Parent shall have breached any representation or warranty
or shall breach any covenant or agreement on the part of Parent set forth in
this Agreement, or if any representation or warranty of Parent shall have
become materially inaccurate, in either case such that the conditions set forth
in Section 6.2(a) or Section 6.2(b) would not be satisfied as of the time of
such breach or as of the time such representation or warranty shall have become
materially inaccurate, provided that if such inaccuracy in Parent's
representations and warranties or material breach by Parent is curable by
Parent through the exercise of its commercially reasonable efforts, then
Company may not terminate this Agreement under this Section 7.1(h) for 45 days
after delivery of written notice from Company to Parent of such material
breach, provided Parent continues to exercise commercially reasonable efforts
to cure such material breach (it being understood that Company may not
terminate this Agreement pursuant to this paragraph (h) if such material breach
or material inaccuracy by Parent is cured during such 45-day period, or if
Company is then in material breach under this Agreement);
(i) by Parent, if the Company shall have breached any representation or
warranty or shall breach any covenant or agreement on the part of the Company
set forth in this Agreement, or if any representation or warranty of the
Company shall have become materially inaccurate, in either case such that the
conditions set forth in Section 6.3(a) or Section 6.3(b) would not be satisfied
as of the time of such breach or as of the time such representation or warranty
shall have become materially inaccurate, provided that if such inaccuracy in
the Company's representations and warranties or material breach by the Company
is curable by the Company through the exercise of its commercially reasonable
efforts, then Parent may not terminate this Agreement under this Section 7.1(i)
for 45 days after delivery of written notice from Parent to the Company of such
material breach, provided the Company continues to exercise commercially
reasonable efforts to cure such material breach (it being understood that the
Parent may not terminate this Agreement pursuant to this
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paragraph (h) if such material breach or material inaccuracy by the Company is
cured during such 45-day period, or if Parent is then in material breach under
this Agreement); or
(j) By Parent, if Company shall have willfully and materially breached the
Company's obligations under the Loan Agreement and such breach shall continue
despite two (2) business days written notice and opportunity to cure; or
(k) By the Company, if Parent shall have willfully and materially breached
Parent's obligations under the Loan Agreement and such breach shall continue
despite two (2) business days written notice and an opportunity to cure.
For the purposes of this Agreement, a "Company Triggering Event" shall be
deemed to have occurred if: (i) the Board of Directors of Company or any
committee thereof shall for any reason have withdrawn or shall have amended or
modified in a manner adverse to Parent its recommendation in favor of the
adoption and approval of the Agreement or the approval of the Merger; (ii)
Company shall have failed to include in the Joint Proxy Statement/Prospectus
the recommendation of the Board of Directors of Company in favor of the
adoption and approval of the Agreement and the approval of the Merger; (iii)
the Board of Directors of Company fails to reaffirm its recommendation in favor
of the adoption and approval of the Agreement and the approval of the Merger
within 10 business days after Parent requests in writing that such
recommendation be reaffirmed at any time following the public announcement of a
Company Acquisition Proposal; (iv) the Board of Directors of Company or any
committee thereof shall have approved or publicly recommended any Company
Acquisition Proposal; (v) Company shall have entered into any letter of intent
of similar document or any agreement, contract or commitment accepting any
Company Acquisition Proposal; (vi) Company shall have knowingly breached any of
the material provisions of Sections 5.2 or any of the provisions of Section
5.4; or (vii) a tender or exchange offer relating to securities of Company
shall have been commenced by a person unaffiliated with Parent, and Company
shall not have sent to its securityholders pursuant to Rule 14e-2 promulgated
under the Securities Act, within 10 business days after such tender or exchange
offer is first published sent or given, a statement disclosing that Company
recommends rejection of such tender or exchange offer.
For the purposes of this Agreement, a "Parent Triggering Event" shall be
deemed to have occurred if: (i) the Board of Directors of Parent or any
committee thereof shall for any reason have withdrawn or shall have amended or
modified in a manner adverse to Company its recommendation in favor of the
Parent Stockholder Approval; (ii) Parent shall have failed to include in the
Joint Proxy Statement/Prospectus the recommendation of the Board of Directors
of Parent in favor of the Parent Stockholder Approval; (iii) the Board of
Directors of Parent fails to reaffirm its recommendation in favor of the
adoption and approval of the Agreement and the approval of the Merger within 10
business days after Company requests in writing that such recommendation be
reaffirmed at any time following the public announcement of an Parent
Acquisition Proposal; (iv) the Board of Directors of Parent or any committee
thereof shall have approved or publicly recommended any Parent Acquisition
Proposal; (v) Parent shall have entered into any letter of intent of similar
document or any agreement, contract or commitment accepting any Parent
Acquisition Proposal; (vi) Parent shall have knowingly breached any of the
material provisions of Sections 5.3 or any of the provisions of Section 5.5, or
(vii) a tender or exchange offer relating to securities of Parent shall have
been commenced by a person unaffiliated with Company, and Parent shall not have
sent to its securityholders pursuant to Rule 14e-2 promulgated under the
Securities Act, within 10 business days after such tender or exchange offer is
first published sent or given, a statement disclosing that Parent recommends
rejection of such tender or exchange offer.
7.2 Notice of Termination; Effect of Termination.
Any proper termination of this Agreement under Section 7.1 above will be
effective immediately upon the delivery of written notice of the terminating
party to the other parties hereto. In the event of the termination of this
Agreement as provided in Section 7.1, this Agreement shall be of no further
force or effect, and there shall be no obligation or liability on the part of
Parent, Merger Sub, Company, or any of their respective officers,
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directors, securityholders or affiliates, except (i) as set forth in Section
5.7, this Section 7.2, Section 7.3 and Article 8, each of which shall survive
the termination of this Agreement, and (ii) nothing herein shall relieve any
party from liability for any fraud or, notwithstanding Section 7.6, willful
breach of this Agreement. No termination of this Agreement shall affect the
obligations of the parties contained in the Confidentiality Agreement, all of
which obligations shall survive termination of this Agreement in accordance
with their terms.
7.3 Fees and Expenses.
(a) General. Except as set forth in this Section 7.3, all fees and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses whether or not the
Merger is consummated; provided, however, that Parent and Company shall share
equally all fees and expenses, other than attorneys' and accountants fees and
expenses, incurred in relation to the printing and filing with the SEC of the
Joint Proxy Statement/Prospectus (including any preliminary materials related
thereto) and the Registration Statement (including financial statements and
exhibits), any amendments or supplements thereto and any HSR Act filing fees.
(b) Company Payments. In the event that this Agreement is terminated by
Parent or Company, as applicable, pursuant to Sections 7.1(b), 7.1(d) or
7.1(f), the Company shall promptly, but in no event later than two days after
the date of such termination, pay Parent a fee equal to $2.5 million in
immediately available funds (the "Termination Fee"); provided, that in the case
of a termination under Sections 7.1(b) or 7.1(d) prior to which no Company
Triggering Event has occurred, (i) such payment shall be made only if (A)
following the date of this Agreement and prior to the termination of this
Agreement, a person has publicly announced and not withdrawn a Company
Acquisition Proposal and (B) within twelve months following the termination of
this Agreement, either a Company Acquisition (as defined below) is consummated
with such person, or the Company enters into an agreement providing for a
Company Acquisition with such person and such Company Acquisition is later
consummated with such person (or an affiliate of such person) with whom such
agreement was entered into (regardless of when such consummation occurs if the
Company has entered into such an agreement within such twelve-month period),
and (ii) such payment shall be made promptly, but in no event later than two
days after the consummation of such Company Acquisition (regardless of when
such consummation occurs if the Company has entered into such an agreement
within such twelve-month period). Company acknowledges that the agreements
contained in this Section 7.3(b) are an integral part of the transactions
contemplated by this Agreement, and that, without these agreements, Parent
would not enter into this Agreement. Accordingly, if the Company fails to pay
in a timely manner the amounts due pursuant to this Section 7.3(b), and, in
order to obtain such payment, Parent makes a claim that results in a judgment
against the Company for the amounts set forth in this Section 7.3(b), Company
shall pay to Parent its reasonable costs and expenses (including reasonable
attorneys' fees and expenses) in connection with such suit, together with
interest on the amounts set forth in this Section 7.3(b) at the prime rate of
The Chase Manhattan Bank in effect on the date such payment was required to be
made. Payment of the fees described in this Section 7.3(b) shall not be in lieu
of damages incurred in the event of willful breach of this Agreement.
For the purposes of this Agreement, "Company Acquisition" shall mean any of
the following transactions (other than the transactions contemplated by this
Agreement); (i) a merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving the
Company pursuant to which the stockholders of the Company immediately preceding
such transaction hold less than 50% of the aggregate equity interests in the
surviving or resulting entity of such transaction (or the parent thereof), (ii)
a sale or other disposition by the Company of assets representing in excess of
50% of the aggregate fair market value of the Company's business immediately
prior to such sale, or (iii) the acquisition by any person or group (including
by way of a tender offer or an exchange offer or issuance by Company), directly
or indirectly, of beneficial ownership or a right to acquire beneficial
ownership of shares representing in excess of 50% of the voting power of the
then outstanding shares of capital stock of the Company.
(c) Parent Payments. In the event that this Agreement is terminated by
Parent or Company, as applicable, pursuant to Sections 7.1(b), 7.1(e) or
7.1(g), Parent shall promptly, but in no event later than two days after the
date of such termination, pay Company a fee equal to $2.5 million in
immediately available
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funds (the "Termination Fee"); provided, that in the case of a termination
under Sections 7.1(b) or 7.1(e) prior to which no Parent Triggering Event has
occurred, (i) such payment shall be made only if (A) following the date of this
Agreement and prior to the termination of this Agreement, a person has publicly
announced and not withdrawn a Parent Acquisition Proposal and (B) within twelve
months following the termination of this Agreement, either a Parent Acquisition
(as defined below) is consummated with such person, or Parent enters into an
agreement providing for a Parent Acquisition with such person and such Parent
Acquisition is later consummated with such person (or affiliate of such person)
with whom such agreement was entered into (regardless of when such consummation
occurs if the Parent has entered into such an agreement within such twelve-
month period), and (ii) such payment shall be made promptly, but in no event
later than two days after the consummation of such Parent Acquisition
(regardless of when such consummation occurs if Parent has entered into such an
agreement within such twelve-month period). Parent acknowledges that the
agreements contained in this Section 7.3(c) are an integral part of the
transactions contemplated by this Agreement, and that, without these
agreements, Company would not enter into this Agreement. Accordingly, if Parent
fails to pay in a timely manner the amounts due pursuant to this Section
7.3(c), and, in order to obtain such payment, Parent makes a claim that results
in a judgment against Parent for the amounts set forth in this Section 7.3(c),
Parent shall pay to Company its reasonable costs and expenses (including
reasonable attorneys' fees and expenses) in connection with such suit, together
with interest on the amounts set forth in this Section 7.3(c) at the prime rate
of The Chase Manhattan Bank in effect on the date such payment was required to
be made. Payment of the fees described in this Section 7.3(c) shall not be in
lieu of damages incurred in the event of willful breach of this Agreement.
For the purposes of this Agreement, "Parent Acquisition" shall mean any of
the following transactions (other than the transactions contemplated by this
Agreement); (i) a merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving
Parent pursuant to which the stockholders of Parent immediately preceding such
transaction hold less than 50% of the aggregate equity interests in the
surviving or resulting entity of such transaction (or the parent thereof), (ii)
a sale or other disposition by Parent of assets representing in excess of 50%
of the aggregate fair market value of Parent's business immediately prior to
such sale, or (iii) the acquisition by any person or group (including by way of
a tender offer or an exchange offer or issuance by Parent), directly or
indirectly, of beneficial ownership or a right to acquire beneficial ownership
of shares representing in excess of 50% of the voting power of the then
outstanding shares of capital stock of Parent.
7.4 Amendment. Subject to applicable law, this Agreement may be amended by
the parties hereto at any time by execution of an instrument in writing signed
on behalf of each of Parent and Company.
7.5 Extension; Waiver. At any time prior to the Effective Time any party
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties made
to such party contained herein or in any document delivered pursuant hereto and
(iii) waive compliance with any of the agreements or conditions for the benefit
of such party contained herein. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of such party. Delay in exercising any right under
this Agreement shall not constitute a waiver of such right.
7.6 Liquidated Damages. The Parent Termination Fee or the Company
Termination Fee when paid to the receiving party in the manner herein provided
shall constitute liquidated damages to the receiving party and the paying party
shall have no further liability in respect thereof. The parties agree that such
damages are difficult to estimate and that such amounts are reasonable
approximations of actual damages.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Non-Survival of Representations and Warranties. The representations and
warranties of Company, Parent and Merger Sub contained in this Agreement shall
terminate at the Effective Time, and only the covenants and agreements that by
their terms survive the Effective Time shall survive the Effective Time.
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8.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given upon delivery either personally or by
commercial delivery service, or sent via facsimile (receipt confirmed) to the
parties at the following addresses or facsimile numbers (or at such other
address or facsimile numbers for a party as shall be specified by like notice):
(a) if to Parent or Merger Sub, to:
Kana Communications, Inc.
740 Bay Road
Redwood City, CA 94063
Attention: Jay Wood, Chief Executive Officer
Facsimile No.: 650-494-8501
with a copy to:
Brobeck, Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
Attention: David Makarechian, Esq.
Jonathan Shapiro, Esq.
Facsimile No.: 650-496-2885
(b) if to Company, to:
Broadbase Software, Inc.
172 Constitution Drive
Menlo Park, CA 94025
Attention: Chuck Bay, Chief Executive Officer
Facsimile No.: 650-614-8301
with a copy to:
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, California 94306
Attention: Gordon K. Davidson, Esq.
David Michaels, Esq.
Facsimile No.: 650-494-1417
8.3 Interpretation; Certain Defined Terms.
(a) When a reference is made in this Agreement to Exhibits, such reference
shall be to an Exhibit to this Agreement unless otherwise indicated. When a
reference is made in this Agreement to Sections, such reference shall be to a
Section of this Agreement unless otherwise indicated. The words "include,"
"includes" and "including" when used herein shall be deemed in each case to be
followed by the words "without limitation." The table of contents and headings
contained in this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement. When
reference is made herein to "the business of" an entity, such reference shall
be deemed to include the business of all direct and indirect subsidiaries of
such entity. Reference to the subsidiaries of an entity shall be deemed to
include all direct and indirect subsidiaries of such entity.
(b) For purposes of this Agreement, the term "knowledge" means with respect
to a party hereto, with respect to any matter in question, that any of the
executive officers of such party has actual knowledge of such matter. For
purposes of this definition, the "executive officers" of Company shall be those
person listed on Part 8.3(b) of the Company Disclosure Letter. For purposes of
this definition, the "executive officers" of Parent shall be those person
listed on Part 8.3(b) of the Parent Disclosure Letter.
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(c) For purposes of this Agreement, the term "Material Adverse Effect" when
used in connection with an entity means any change, event, circumstance or
effect that is materially adverse to the business, assets (including intangible
assets), capitalization, financial condition, cash position, operations or
results of operations of such entity taken as a whole with its subsidiaries,
except to the extent that such change, event, circumstance or effect directly
results from any of the following (none of which shall in and of itself
constitute a Material Adverse Effect): (i) changes in general economic,
political or social conditions, (ii) short term variations in revenues, (iii)
changes in the industry generally in which such entity operates (provided that
such changes do not affect such entity in a substantially disproportionate
manner), (iv) changes in the trading prices or volume for such entity's capital
stock, (v) any changes in the electronic customer relationship management
market (provided that such changes do not affect such entity in a substantially
disproportionate manner), (vi) the effect of the public announcement or
pendency of the transactions contemplated hereby on customers, suppliers,
distributors, partners, employees, of such entity, (vii) the effect of
performing any obligations under this Agreement or the Loan Agreement or
implementing the Parent Interim Plan or the Company Interim Plan, or (viii)
changes or effects which are proximately caused by one party's (the "first
party's") refusal to consent to action reasonably requested to be taken by the
other party (the "second party") which the second party (at the time of such
request) certified to the first party was necessary, in the good faith judgment
of the second party's Board of Directors, to avoid a Material Adverse Effect on
the second party.
(d) For purposes of this Agreement, the term "person" shall mean any
individual, corporation (including any non-profit corporation), general
partnership, limited liability company, limited partnership, limited liability
partnership, joint venture, estate, trust, company (including any limited
liability company or joint stock company), firm or other enterprise,
association, organization, entity or Governmental Entity.
(e) For purposes of this Agreement, "subsidiary" of a specified entity will
be any corporation, partnership, limited liability company, joint venture or
other legal entity of which the specified entity (either alone or through or
together with any other subsidiary) owns, directly or indirectly, 50% or more
of the stock or other equity or partnership interests the holders of which are
generally entitled to vote for the election of the Board of Directors or other
governing body of such corporation or other legal entity.
8.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
8.5 Entire Agreement; Third Party Beneficiaries. This Agreement, its
Exhibits and the documents and instruments and other agreements among the
parties hereto as contemplated by or referred to herein, including the Company
Disclosure Letter and the Parent Disclosure Letter (a) constitute the entire
agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof, it being understood that
the Confidentiality Agreement shall continue in full force and effect until the
Closing and shall survive any termination of this Agreement; and (b) are not
intended to confer upon any other person any rights or remedies hereunder,
except as specifically provided in Section 5.14.
8.6 Severability. In the event that any provision of this Agreement or the
application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
agree to replace such void or unenforceable provision of this Agreement with a
valid and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such void or unenforceable provision.
8.7 Other Remedies; Specific Performance. Except as otherwise provided
herein, any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party of any one
remedy will not
I-52
preclude the exercise of any other remedy. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to seek an injunction or injunctions to prevent breaches of this Agreement and
to enforce specifically the terms and provisions hereof in any court of the
United States or any state having jurisdiction, this being in addition to any
other remedy to which they are entitled at law or in equity.
8.8 Governing Law. Except for matters required to be governed by, and
construed in accordance with, Delaware corporate law (which shall be so
governed and construed), this Agreement shall be governed by and construed in
accordance with the laws of the State of California, regardless of the laws
that might otherwise govern under applicable principles of conflicts of law
thereof.
8.9 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule
of construction providing that ambiguities in an agreement or other document
will be construed against the party drafting such agreement or document.
8.10 Assignment. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written consent
of the other parties hereto. Subject to the preceding sentence, this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors and permitted assigns. Any purported assignment in
violation of this Section shall be void.
8.11 Waiver Of Jury Trial. EACH OF PARENT, COMPANY AND MERGER SUB HEREBY
IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE ACTIONS OF PARENT, COMPANY OR MERGER SUB IN
THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.
* * * * *
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In Witness Whereof, the parties hereto have caused this Agreement and Plan
of Merger to be executed by their duly authorized respective officers as of the
date first written above.
KANA COMMUNICATIONS, INC.
By: _________________________________
ARROW ACQUISITION CORP.
By: _________________________________
BROADBASE SOFTWARE, INC.
By: _________________________________
Name: Chuck Bay
Title: Chief Executive Officer
I-54
APPENDIX II
FORM OF KANA VOTING AGREEMENT
II-1
PARENT VOTING AGREEMENT AND IRREVOCABLE PROXY
This Voting Agreement and irrevocable proxy (this "Agreement") is made and
entered into as of April 9, 2001 (the "Effective Date"), by and between
Broadbase Software, Inc., a Delaware corporation ("Company"), and the
undersigned stockholder ("Stockholder") of Kana Communications, Inc., a
Delaware corporation ("Parent").
RECITALS
A. Concurrently with the execution of this Agreement, Company, Parent and
Arrow Acquisition Corporation, a Delaware corporation and a wholly-owned
subsidiary of Company ("Merger Sub"), are entering into an Agreement and Plan
of Merger of even date herewith (as such agreement may hereafter be amended
from time to time, the "Merger Agreement") which provides for the merger of
Merger Sub with and into Company (the "Merger"). Pursuant to the Merger, shares
of common stock of Company, par value $0.001 per share ("Company Common Stock")
will be converted into shares of common stock of Parent, par value $0.001 per
share ("Parent Common Stock") on the basis described in the Merger Agreement;
capitalized terms that are used in this Agreement and are not otherwise defined
herein will have the same meanings that such terms have in the Merger
Agreement.
B. Stockholder owns of record or has the power to direct the voting with
respect to such number of Shares (as defined herein) as are indicated on the
final page of this Agreement;
C. Stockholder is entering into this Agreement as a material inducement and
consideration to Company to enter into the Merger Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual premises,
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
1. Definitions.
(a) "Expiration Date" means the earlier to occur of (i) the Effective
Time of the Merger; and (ii) such time as the Merger Agreement may be
terminated in accordance with its terms.
(b) "Shares" means all issued and outstanding shares of Parent Common
Stock owned of record by Stockholder or over which Stockholder exercises voting
power, in each case, as of the record date for persons entitled (i) to receive
notice of, and to vote at the meeting of the stockholders of Parent called for
the purpose of voting on the matters referred to in Section 2.1, or (ii) to
take action by written consent of the stockholders of Parent with respect to
the matters referred to in Section 2.1; provided, however, that any shares of
capital stock of Parent that Stockholder purchases or with respect to which
Stockholder otherwise exercises voting power after the execution of this
Agreement and prior to the Expiration Date shall be subject to the terms and
conditions of this Agreement to the same extent as if they constituted Shares
on the date hereof.
(c) "Transfer" with respect to any security means to directly or
indirectly: (i) sell, pledge, encumber, transfer or dispose of, or grant an
option with respect to, such security or any interest in such security; or (ii)
enter into an agreement or commitment providing for the sale, pledge,
encumbrance, transfer or disposition of, or grant of an option with respect to,
such security or any interest therein.
2. Agreement to Vote.
2.1 Voting Agreement. Stockholder hereby covenants and agrees that,
prior to the Expiration Date, at any meeting (whether annual or special and
whether or not an adjourned or postponed meeting) of the stockholders of
Parent, however called, and in any action taken by the written consent of
stockholders of
II-2
Parent without a meeting, unless otherwise directed in writing by Company,
Stockholder will appear at the meeting or otherwise cause the Shares to be
counted as present thereat for purposes of establishing a quorum and vote or
consent for cause to be voted or consented the Shares:
(a) in favor of the issuance of Parent Common Stock pursuant to the
Merger, the change of the name of Parent to Kana Software, Inc., the execution
and delivery by Parent of the Merger Agreement and the adoption and approval of
the terms thereof, and in favor of the other actions contemplated by the Merger
Agreement and, to the extent that a vote is solicited in connection with this
Voting Agreement or the Merger Agreement, any other action required in
furtherance hereof or thereof;
(b) against any action or agreement that would result in a breach of any
representation, warranty, covenant or obligation of Parent in the Merger
Agreement or that would preclude fulfillment of a condition precedent under the
Merger Agreement to Parent's or Company's obligation to consummate the Merger;
and
(c) against approval of any proposal made in opposition to or in
competition with the issuance of the Parent Common Stock pursuant to the Merger
and the consummation of the Merger, including, without limitation, any Parent
Acquisition Proposal or Parent Superior Offer (each as defined in the Merger
Agreement).
Prior to the Expiration Date, Stockholder will not enter into any agreement
or understanding with any person or entity to vote or give instructions in any
manner inconsistent with any provision of this Section 2.1. This Agreement is
intended to bind Shareholder only with respect to the specific matters set
forth herein.
2.2 Irrevocable Proxy. Contemporaneously with the execution of this
Agreement, Stockholder will deliver to Company a proxy with respect to Shares
in the form attached hereto as Exhibit 1, which proxy will be irrevocable to
the fullest extent permitted by applicable law (the "Proxy"); provided,
however, that the Proxy shall be revoked upon termination of this Agreement in
accordance with its terms.
2.3 Transfer and Other Restrictions. (a) From and after the date hereof
until the termination of this Agreement, Stockholder agrees not to, directly or
indirectly:
(i) except pursuant to the terms of the Merger Agreement, Transfer
any or all of the Shares or any interest therein except as provided in
Section 2.2 hereof;
(ii) grant any proxy, power of attorney, deposit any of the Shares
into a voting trust or enter into a voting agreement or arrangement
with respect to the Shares except as provided in this Agreement; or
(iii) take any other action that would make any representation or
warranty of Stockholder contained herein untrue or incorrect or have
the effect of preventing or disabling Stockholder from performing its
obligations under this Agreement.
(b) To the extent Stockholder is, as of the date hereof, party to a
contract or agreement that requires Stockholder to Transfer Shares to another
person or entity (excluding a contract or agreement pledging Shares to Parent),
Stockholder will not effect any such Transfer unless to cause the transferee to
be bound by and to execute an agreement in the form of this Agreement with
respect to the Shares to be Transferred. Nothing herein shall prohibit
Stockholder from exercising (in accordance with the terms of the option or
warrant, as applicable) any option or warrant Stockholder may hold; provided,
however, that the securities acquired upon such exercise shall be deemed
Shares.
(c) Stockholder agrees with, and covenants to, Company that Stockholder
shall not request that Parent register the transfer (book-entry or otherwise)
of any certificate or uncertificated interest representing any Shares, unless
such transfer is made pursuant to and in compliance with this Agreement.
II-3
The foregoing restrictions shall not prohibit a transfer of Shares (i) in
the case of an individual, to any member of his immediate family, to a trust
for the benefit of Stockholder or any member of his immediate family or a
transfer of Shares upon the death of Stockholder, (ii) in the case of a
partnership or limited liability company, to one or more partners or members
or to an affiliated corporation or (iii) which Stockholder can not prevent (it
being understood that Stockholder shall use his best efforts to prevent
transfers other than pursuant to (i) or (ii) hereof); provided, however, that
any transferee with respect to a transfer permitted under (i) or (ii) shall,
as a precondition to such transfer, agree in a writing delivered to Parent, to
be bound by the terms and conditions of this Agreement and executed and
deliver to Parent a proxy in the form attached hereto
3. Waivers. Stockholder agrees not to exercise any rights of appraisal and
any dissenters' rights that Stockholder may have (whether under applicable law
or otherwise) or could potentially have or acquire in connection with the
Merger.
4. Representations, Warranties and Covenants of Stockholder. Stockholder
hereby represents, warrants and covenants as follows:
4.1 Authority, Enforceability. Stockholder has power and authority to enter
into, execute, deliver and perform Stockholder's obligations under this
Agreement and to make the representations, warranties and covenants contained
herein. This Agreement has been duly executed and delivered by Stockholder and
constitutes a legal, valid and binding obligation of Stockholder, enforceable
against Stockholder in accordance with its terms, subject to (i) laws of
general application relating to bankruptcy, insolvency and the relief of
debtors and (ii) rules of law governing specific performance, injunctive
relief and other equitable remedies.
4.2 No Conflicts, No Defaults and Consents. The execution and delivery of
this Agreement by Stockholder do not, and the performance of this Agreement by
Stockholder will not: (i) conflict with or violate any order, decree or
judgment applicable to Stockholder or by which Stockholder or any of
Stockholder's properties or Shares is bound or affected; (ii) violate any
agreement to which Stockholder is a party or is subject, including, without
limitation, any voting agreement or voting trust; (iii) result in any breach
of or constitute a default (with notice or lapse of time, or both) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of any lien, restriction, adverse
claim, option on, right to acquire, or any encumbrance or security interest in
or to any of the Shares, pursuant to any written, oral or other agreement,
contract or legally binding commitment to which Stockholder is a party or by
which Stockholder or any of the Shares is bound or affected, or (iv) require
any written, oral or other agreement, contract or legally binding commitment
of any third party.
4.3 Shares Owned. As of the Effective Date of this Agreement, Stockholder
owns of record or has the power to direct the voting with respect to, in the
aggregate the number of shares of Parent Common Stock set forth below
Stockholder's name on the signature page of this Agreement, and does not own
of record, or have the power to direct the voting with respect to, any shares
of capital stock of Parent other than the Shares set forth below Stockholder's
name on the signature page hereof.
4.4 Accuracy of Representations; Reliance by Company. The representations
and warranties contained in this Agreement are accurate in all respects as of
the date of this Agreement, will be accurate in all respects at all times
through the Expiration Date and will be accurate in all respects as of the
Effective Time of the Merger as if made on that date. Stockholder understands
and acknowledges that Company is entering into the Merger Agreement in
reliance upon Stockholder's execution and delivery of this Agreement.
4.5 Further Assurances. Stockholder agrees to execute and deliver any
additional documents reasonably necessary or desirable, in the opinion of
Company or Parent, to carry out the purposes and intent of this Agreement and
the Proxy.
II-4
5. Miscellaneous.
5.1 Severability. If any provision of this Agreement is found by any
arbitrator or court of competent jurisdiction to be invalid or unenforceable,
then the parties hereby waive such provision to the extent that it is found to
be invalid or unenforceable and to the extent that to do so would not deprive
one of the parties of the substantial benefit of its bargain. Such provision
will, to the extent allowable by law and the preceding sentence, not be voided
or canceled but will instead be modified by such arbitrator or court so that it
becomes enforceable and, as modified, will be enforced as any other provision
hereof, all the other provisions hereof continuing in full force and effect.
5.2 Amendment; Waiver. This Agreement may be amended, modified,
superseded, canceled, renewed or extended only by an agreement in writing
executed by Company and Stockholder. The failure by either party at any time to
require performance or compliance by the other of any of its obligations or
agreements will in no way affect the right to require such performance or
compliance at any time thereafter. The waiver by either party of a breach of
any provision of this Agreement will not be treated as a waiver of any
preceding or succeeding breach of such provision or as a waiver of the
provision itself. No waiver of any kind will be effective or binding, unless it
is in writing and is signed by the party against whom such waiver is sought to
be enforced.
5.3 Entire Agreement. This Agreement, together with the Merger
Agreement, constitutes the entire agreement between the parties with respect to
the subject matter hereof and supersedes all other prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof.
5.4 Assignment. This Agreement and all rights and obligations hereunder
are personal to Stockholder and may not be transferred or assigned by
Stockholder at any time. Company may assign its rights, and may delegate its
obligations hereunder, to any Subsidiary of Parent; provided however, that any
such assignee assumes Company's obligations hereunder. This Agreement will be
binding upon, and inure to the benefit of, the persons or entities who are
permitted, by the terms of this Agreement, to be successors, assigns and
personal representatives of the respective parties hereto.
5.5 Governing Law. Except for matters required to be governed by and
administered in accordance with Delaware corporate law, this Agreement will be
governed by and construed in accordance with the internal laws of the State of
California, excluding that body of laws pertaining to conflict of laws.
5.6 Costs of Enforcement. If any party to this Agreement seeks to
enforce its rights under this Agreement by legal proceedings or otherwise, the
non-prevailing party will pay all costs and expenses incurred by the prevailing
party, including, without limitation, all reasonable attorneys' and experts'
fees.
5.7 Notices. Any and all notices required or permitted to be given to a
party pursuant to the provisions of this Agreement will be in writing and will
be effective and deemed to provide such party sufficient notice under this
Agreement on the earliest of the following: (i) at the time of personal
delivery, if personal delivery is made to the receiving party; (ii) one (1)
business day after deposit with an express overnight courier for United States
deliveries, or two (2) business days after such deposit for deliveries outside
of the United States; or (iii) three (3) business days after deposit in the
United States mail by registered or certified mail (return receipt requested)
for United States deliveries. All notices for delivery outside the United
States will be sent by express courier. All notices not delivered personally
will be sent with postage and/or other charges prepaid and properly addressed
to the party to be notified at the address set forth below, or at such other
address as such other party may designate by ten (10) days advance written
notice to the other parties hereto.
II-5
If to Stockholder:
c/o Kana Communications, Inc.
740 Bay Road
Redwood City, CA 94063
Attention: Jay Wood
Facsimile No.: (650) 474-8506
with a copy to:
Brobeck, Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
Attention: David Makarechian, Esq.
Phone: (650) 424-2160
Fax: (650) 496-2885
If to Company:
Broadbase Software, Inc.
181 Constitution Drive
Menlo Park, CA 94025
Attention: Chuck Bay
Facsimile No.: (650) 614-8301
with a copy to:
Fenwick & West LLP
275 Battery Street, Suite 1500
San Francisco, CA 94111
Attention: David K. Michaels, Esq.
Phone: (415) 875-2300
Fax: (415) 281-1350
5.8 Specific Performance. Each of the parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained in
this Agreement will cause the other party to sustain damage for which it would
not have an adequate remedy at law for money damages, and therefore each of the
parties hereto agrees that in the event of any such breach the aggrieved party
shall be entitled to the remedy of specific performance of such covenants and
agreements and injunctive and other equitable relief in addition to any other
remedy to which it may be entitled, at law or in equity.
5.9 Counterparts. This Agreement may be executed in counterparts, each
of which will be deemed an original but all of which, taken together,
constitute one and the same agreement.
5.10 Titles. The titles and captions of the sections and paragraphs of
this Agreement are included for convenience of reference only and will have no
effect on the construction or meaning of this Agreement.
5.11 Termination. This Agreement will be terminated and will be of no
further force and effect upon the earlier to occur of (i) the Effective Time
and (ii) the termination of the Merger Agreement pursuant to its terms.
II-6
IN WITNESS WHEREOF, the undersigned parties have executed this Agreement as
of the date first above written.
BROADBASE SOFTWARE, INC. STOCKHOLDER
By: _________________________________ ___________________________________
Name: Chuck Bay Kana Communications, Inc: ___________
Title: Chief Executive Officer
[SIGNATURE PAGE TO VOTING AGREEMENT]
II-7
EXHIBIT 1 TO VOTING AGREEMENT
IRREVOCABLE PROXY
The undersigned stockholder (the "Stockholder") of Kana Communications,
Inc., a Delaware corporation ("Parent"), hereby irrevocably (to the fullest
extent permitted by applicable law) appoints and constitutes the members of
the Board of Directors of Broadbase Software, Inc., a Delaware corporation
("Company"), and each of them (collectively the "Proxyholders"), the agents,
attorneys and proxies of the undersigned, with full power of substitution and
resubstitution, to the fullest extent of the undersigned's rights with respect
to (i) the shares of capital stock of Parent owned of record by the
undersigned, or over which the undersigned has voting power, as of the date of
this proxy, which shares are specified on the final page of this proxy; (ii)
any and all other shares of capital stock of Parent which the undersigned may
acquire or with respect to which the undersigned shall acquire voting power
after the date hereof, including, without limitation, in the event of a
dividend or distribution of capital stock of Parent, or any change in Parent's
capital stock by reason of any stock dividend, split-up, recapitalization,
combination, exchange of shares or the like, all shares of Parent's capital
stock issued or distributed pursuant to such stock dividends and distributions
and any shares of Parent's capital stock into which or for which any or all of
the shares otherwise held by the undersigned may be so changed or exchanged.
(The shares of the capital stock of Parent referred to in clauses (i) and (ii)
of the immediately preceding sentence are collectively referred to as the
"Shares.") Upon the execution hereof, all prior proxies given by the
undersigned with respect to any of the Shares are hereby revoked, and no
subsequent proxies will be given with respect to any of the Shares until such
time as this proxy shall be terminated in accordance with its terms.
The Proxyholders named above will be empowered, and may exercise this
proxy, to vote the Shares at any time until the Expiration Date (as defined in
the Voting Agreement dated as of the date hereof, between Company and the
undersigned (the "Voting Agreement")) at any meeting of the stockholders of
Parent, however called, or in any action by written consent of stockholders of
Parent:
(i) in favor of the issuance of Parent Common Stock pursuant to the
merger (the "Merger") contemplated by the Agreement and Plan of Merger
by and among Company, Arrow Acquisition Corp., and Parent, dated as of
the date hereof (the "Merger Agreement"), the change of the name of
Parent to Kana Software, Inc., the execution and delivery by Parent of
the Merger Agreement and the adoption and approval of the terms thereof
and in favor of the other actions contemplated by the Merger Agreement
and, to the extent that a vote is solicited in connection with the
Voting Agreement or the Merger Agreement, any other action required in
furtherance hereof or thereof;
(ii) against any action or agreement that would result in a breach
of any representation, warranty, covenant or obligation of Parent in
the Merger Agreement or that would preclude fulfillment of a condition
precedent under the Merger Agreement to Parent's or Company's
obligation to consummate the Merger; and
(iii) against approval of any proposal made in opposition to or in
competition with the consummation of the Merger including, without
limitation, any Parent Acquisition Proposal or Parent Superior Offer
(each as defined in the Merger Agreement).
The Proxyholders may not exercise this proxy on any other matter. The
Stockholder may vote the Shares on all such other matters. The proxy granted
by the Stockholder to the Proxyholders hereby is granted as of the date of
this Irrevocable Proxy in order to secure the obligations of the Stockholder
set forth in Section 2 of the Voting Agreement.
This proxy will terminate upon the termination of the Voting Agreement in
accordance with its terms. Any obligation of the undersigned hereunder shall
be binding upon the successors and assigns of the undersigned. The undersigned
Stockholder authorizes the Proxyholders to file this proxy and any
substitution or revocation of substitution with the Secretary of Parent and
with any Inspector of Elections at any meeting of the stockholders of Parent.
II-8
This proxy is irrevocable, is coupled with an interest, and shall survive
the insolvency, incapacity, death or liquidation of the undersigned and will be
binding upon the heirs, successors and assigns of the undersigned (including
any transferee of any of the Shares).
Dated: April , 2001
STOCKHOLDER
__________________________________
Kana Communications, Inc.
Stock: _________________________
II-9
APPENDIX III
FORM OF BROADBASE VOTING AGREEMENT
III-1
COMPANY VOTING AGREEMENT AND IRREVOCABLE PROXY
This Voting Agreement and irrevocable proxy (this "Agreement") is made and
entered into as of April 9, 2001 (the "Effective Date"), by and between Kana
Communications, Inc., a Delaware corporation ("Parent"), and the undersigned
stockholder ("Stockholder") of Broadbase Software, Inc., a Delaware corporation
("Company").
RECITALS
A. Concurrently with the execution of this Agreement, Parent, Company and
Arrow Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary
of Parent ("Merger Sub"), are entering into an Agreement and Plan of Merger of
even date herewith (as such agreement may hereafter be amended from time to
time, the "Merger Agreement") which provides for the merger of Merger Sub with
and into Company (the "Merger"). Pursuant to the Merger, shares of common stock
of Company, par value $0.001 per share ("Company Common Stock") will be
converted into shares of common stock of Parent, par value $0.001 per share
("Parent Common Stock") on the basis described in the Merger Agreement;
capitalized terms that are used in this Agreement and are not otherwise defined
herein will have the same meanings that such terms have in the Merger
Agreement.
B. Stockholder owns of record or has the power to direct the voting with
respect to such number of Shares (as defined herein) as are indicated on the
final page of this Agreement;
C. Stockholder is entering into this Agreement as a material inducement and
consideration to Parent to enter into the Merger Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual premises,
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
1. Definitions.
(a) "Expiration Date" means the earlier to occur of (i) the Effective Time
of the Merger; and (ii) such time as the Merger Agreement may be terminated in
accordance with its terms.
(b) "Shares" means all issued and outstanding shares of Company Common
Stock owned of record by Stockholder or over which Stockholder exercises voting
power, in each case, as of the record date for persons entitled (i) to receive
notice of, and to vote at the meeting of the stockholders of Company called for
the purpose of voting on the matters referred to in Section 2.1, or (ii) to
take action by written consent of the stockholders of Company with respect to
the matters referred to in Section 2.1; provided, however, that any shares of
capital stock of Company that Stockholder purchases or with respect to which
Stockholder otherwise exercises voting power after the execution of this
Agreement and prior to the Expiration Date shall be subject to the terms and
conditions of this Agreement to the same extent as if they constituted Shares
on the date hereof.
(c) "Transfer" with respect to any security means to directly or
indirectly: (i) sell, pledge, encumber, transfer or dispose of, or grant an
option with respect to, such security or any interest in such security; or (ii)
enter into an agreement or commitment providing for the sale, pledge,
encumbrance, transfer or disposition of, or grant of an option with respect to,
such security or any interest therein.
2. Agreement to Vote.
2.1 Voting Agreement. Stockholder hereby covenants and agrees that, prior
to the Expiration Date, at any meeting (whether annual or special and whether
or not an adjourned or postponed meeting) of the stockholders of Company,
however called, and in any action taken by the written consent of stockholders
of Company without a meeting, unless otherwise directed in writing by Parent,
Stockholder will appear at
III-2
the meeting or otherwise cause the Shares to be counted as present thereat for
purposes of establishing a quorum and vote or consent for cause to be voted or
consented the Shares:
(a) in favor of the Merger, the execution and delivery by Company of the
Merger Agreement and the adoption and approval of the terms thereof and in
favor of the other actions contemplated by the Merger Agreement and, to the
extent that a vote is solicited in connection with this Voting Agreement or the
Merger Agreement, any other action required in furtherance hereof or thereof;
(b) against any action or agreement that would result in a breach of any
representation, warranty, covenant or obligation of Company in the Merger
Agreement or that would preclude fulfillment of a condition precedent under the
Merger Agreement to Company's or Parent's obligation to consummate the Merger;
and
(c) against approval of any proposal made in opposition to or in
competition with the consummation of the Merger, including, without limitation,
any Company Acquisition Proposal or Company Superior Offer (each as defined in
the Merger Agreement).
Prior to the Expiration Date, Stockholder will not enter into any agreement
or understanding with any person or entity to vote or give instructions in any
manner inconsistent with any provision of this Section 2.1. This Agreement is
intended to bind Shareholder only with respect to the specific matters set
forth herein.
2.2 Irrevocable Proxy. Contemporaneously with the execution of this
Agreement, Stockholder will deliver to Parent a proxy with respect to Shares in
the form attached hereto as Exhibit 1, which proxy will be irrevocable to the
fullest extent permitted by applicable law (the "Proxy"); provided, however,
that the Proxy shall be revoked upon termination of this Agreement in
accordance with its terms.
2.3 Transfer and Other Restrictions. (a) From and after the date hereof
until the termination of this Agreement, Stockholder agrees not to, directly or
indirectly:
(i) except pursuant to the terms of the Merger Agreement, Transfer
any or all of the Shares or any interest therein except as provided in
Section 2.2 hereof;
(ii) grant any proxy, power of attorney, deposit any of the Shares
into a voting trust or enter into a voting agreement or arrangement
with respect to the Shares except as provided in this Agreement; or
(iii) take any other action that would make any representation or
warranty of Stockholder contained herein untrue or incorrect or have
the effect of preventing or disabling Stockholder from performing its
obligations under this Agreement.
(b) To the extent Stockholder is, as of the date hereof, party to a
contract or agreement that requires Stockholder to Transfer Shares to another
person or entity (excluding a contract or agreement pledging Shares to
Company), Stockholder will not effect any such Transfer unless to cause the
transferee to be bound by and to execute an agreement in the form of this
Agreement with respect to the Shares to be Transferred. Nothing herein shall
prohibit Stockholder from exercising (in accordance with the terms of the
option or warrant, as applicable) any option or warrant Stockholder may hold;
provided, however, that the securities acquired upon such exercise shall be
deemed Shares.
(c) Stockholder agrees with, and covenants to, Parent that Stockholder
shall not request that Company register the transfer (book-entry or otherwise)
of any certificate or uncertificated interest representing any Shares, unless
such transfer is made pursuant to and in compliance with this Agreement.
The foregoing restrictions shall not prohibit a transfer of Shares (i) in
the case of an individual, to any member of his immediate family, to a trust
for the benefit of Stockholder or any member of his immediate family or a
transfer of Shares upon the death of Stockholder, (ii) in the case of a
partnership or limited liability company, to one or more partners or members or
to an affiliated corporation or (iii) which Stockholder can not
III-3
prevent (it being understood that Stockholder shall use his best efforts to
prevent transfers other than pursuant to (i) or (ii) hereof); provided,
however, that any transferee with respect to a transfer permitted under (i) or
(ii) shall, as a precondition to such transfer, agree in a writing delivered to
Parent, to be bound by the terms and conditions of this Agreement and executed
and deliver to Company a proxy in the form attached hereto.
3. Waivers. Stockholder agrees not to exercise any rights of appraisal and
any dissenters' rights that Stockholder may have (whether under applicable law
or otherwise) or could potentially have or acquire in connection with the
Merger.
4. Representations, Warranties and Covenants of Stockholder. Stockholder
hereby represents, warrants and covenants as follows:
4.1 Authority, Enforceability. Stockholder has power and authority to
enter into, execute, deliver and perform Stockholder's obligations under this
Agreement and to make the representations, warranties and covenants contained
herein. This Agreement has been duly executed and delivered by Stockholder and
constitutes a legal, valid and binding obligation of Stockholder, enforceable
against Stockholder in accordance with its terms, subject to (i) laws of
general application relating to bankruptcy, insolvency and the relief of
debtors and (ii) rules of law governing specific performance, injunctive relief
and other equitable remedies.
4.2 No Conflicts, No Defaults and Consents. The execution and delivery of
this Agreement by Stockholder do not, and the performance of this Agreement by
Stockholder will not: (i) conflict with or violate any order, decree or
judgment applicable to Stockholder or by which Stockholder or any of
Stockholder's properties or Shares is bound or affected; (ii) violate any
agreement to which Stockholder is a party or is subject, including, without
limitation, any voting agreement or voting trust; (iii) result in any breach of
or constitute a default (with notice or lapse of time, or both) under, or give
to others any rights of termination, amendment, acceleration or cancellation
of, or result in the creation of any lien, restriction, adverse claim, option
on, right to acquire, or any encumbrance or security interest in or to any of
the Shares, pursuant to any written, oral or other agreement, contract or
legally binding commitment to which Stockholder is a party or by which
Stockholder or any of the Shares is bound or affected, or (iv) require any
written, oral or other agreement, contract or legally binding commitment of any
third party.
4.3 Shares Owned. As of the Effective Date of this Agreement, Stockholder
owns of record or has the power to direct the voting with respect to, in the
aggregate the number of shares of Company Common Stock set forth below
Stockholder's name on the signature page of this Agreement, and does not own of
record, or have the power to direct the voting with respect to, any shares of
capital stock of Company other than the Shares set forth below Stockholder's
name on the signature page hereof.
4.4 Accuracy of Representations; Reliance by Parent. The representations
and warranties contained in this Agreement are accurate in all respects as of
the date of this Agreement, will be accurate in all respects at all times
through the Expiration Date and will be accurate in all respects as of the
Effective Time of the Merger as if made on that date. Stockholder understands
and acknowledges that Parent is entering into the Merger Agreement in reliance
upon Stockholder's execution and delivery of this Agreement.
4.5 Further Assurances. Stockholder agrees to execute and deliver any
additional documents reasonably necessary or desirable, in the opinion of
Parent or Company, to carry out the purposes and intent of this Agreement and
the Proxy.
5. Miscellaneous.
5.1 Severability. If any provision of this Agreement is found by any
arbitrator or court of competent jurisdiction to be invalid or unenforceable,
then the parties hereby waive such provision to the extent that it is found to
be invalid or unenforceable and to the extent that to do so would not deprive
one of the parties of the substantial benefit of its bargain. Such provision
will, to the extent allowable by law and the preceding sentence, not be voided
or canceled but will instead be modified by such arbitrator or court so that it
III-4
becomes enforceable and, as modified, will be enforced as any other provision
hereof, all the other provisions hereof continuing in full force and effect.
5.2 Amendment; Waiver. This Agreement may be amended, modified,
superseded, canceled, renewed or extended only by an agreement in writing
executed by Parent and Stockholder. The failure by either party at any time to
require performance or compliance by the other of any of its obligations or
agreements will in no way affect the right to require such performance or
compliance at any time thereafter. The waiver by either party of a breach of
any provision of this Agreement will not be treated as a waiver of any
preceding or succeeding breach of such provision or as a waiver of the
provision itself. No waiver of any kind will be effective or binding, unless it
is in writing and is signed by the party against whom such waiver is sought to
be enforced.
5.3 Entire Agreement. This Agreement, together with the Merger Agreement,
constitutes the entire agreement between the parties with respect to the
subject matter hereof and supersedes all other prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof.
5.4 Assignment. This Agreement and all rights and obligations hereunder
are personal to Stockholder and may not be transferred or assigned by
Stockholder at any time. Parent may assign its rights, and may delegate its
obligations hereunder, to any subsidiary of Parent; provided however, that any
such assignee assumes Parent's obligations hereunder. This Agreement will be
binding upon, and inure to the benefit of, the persons or entities who are
permitted, by the terms of this Agreement, to be successors, assigns and
personal representatives of the respective parties hereto.
5.5 Governing Law. Except for matters required to be governed by and
administered in accordance with Delaware corporate law, this Agreement will be
governed by and construed in accordance with the internal laws of the State of
California, excluding that body of laws pertaining to conflict of laws.
5.6 Costs of Enforcement. If any party to this Agreement seeks to enforce
its rights under this Agreement by legal proceedings or otherwise, the non-
prevailing party will pay all costs and expenses incurred by the prevailing
party, including, without limitation, all reasonable attorneys' and experts'
fees.
5.7 Notices. Any and all notices required or permitted to be given to a
party pursuant to the provisions of this Agreement will be in writing and will
be effective and deemed to provide such party sufficient notice under this
Agreement on the earliest of the following: (i) at the time of personal
delivery, if personal delivery is made to the receiving party; (ii) one (1)
business day after deposit with an express overnight courier for United States
deliveries, or two (2) business days after such deposit for deliveries outside
of the United States; or (iii) three (3) business days after deposit in the
United States mail by registered or certified mail (return receipt requested)
for United States deliveries. All notices for delivery outside the United
States will be sent by express courier. All notices not delivered personally
will be sent with postage and/or other charges prepaid and properly addressed
to the party to be notified at the address set forth below, or at such other
address as such other party may designate by ten (10) days advance written
notice to the other parties hereto.
If to Stockholder:
c/o Broadbase Software, Inc.
181 Constitution Drive
Menlo Park, CA 94025
Attention: Chuck Bay
Facsimile No.: (650) 614-8301
III-5
with a copy to:
Fenwick & West LLP
275 Battery Street, Suite 1500
San Francisco, CA 94111
Attention: David K. Michaels, Esq.
Phone: (415) 875-2300
Fax: (415) 281-1350
If to Parent:
Kana Communications, Inc.
740 Bay Road
Redwood City, CA 94063
Attention: Jay Wood
Facsimile No.: (650) 474-8506
with a copy to:
Brobeck, Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
Attention: David Makarechian, Esq.
Phone: (650) 424-2160
Fax: (650) 496-2885
5.8 Specific Performance. Each of the parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained in
this Agreement will cause the other party to sustain damage for which it would
not have an adequate remedy at law for money damages, and therefore each of the
parties hereto agrees that in the event of any such breach the aggrieved party
shall be entitled to the remedy of specific performance of such covenants and
agreements and injunctive and other equitable relief in addition to any other
remedy to which it may be entitled, at law or in equity.
5.9 Counterparts. This Agreement may be executed in counterparts, each of
which will be deemed an original but all of which, taken together, constitute
one and the same agreement.
5.10 Titles. The titles and captions of the sections and paragraphs of
this Agreement are included for convenience of reference only and will have no
effect on the construction or meaning of this Agreement.
5.11 Termination. This Agreement will be terminated and will be of no
further force and effect upon the earlier to occur of (i) the Effective Time
and (ii) the termination of the Merger Agreement pursuant to its terms.
III-6
IN WITNESS WHEREOF, the undersigned parties have executed this Agreement as
of the date first above written.
KANA COMMUNICATIONS, INC. STOCKHOLDER
By: _________________________________ ___________________________________
Name: James C. Wood Broadbase Software, Inc. Common
Stock: _____________________________
Title: Chief Executive Officer
[SIGNATURE PAGE TO VOTING AGREEMENT]
III-7
EXHIBIT 1 TO VOTING AGREEMENT
IRREVOCABLE PROXY
The undersigned stockholder (the "Stockholder") of Broadbase Software, Inc.,
a Delaware corporation ("Company"), hereby irrevocably (to the fullest extent
permitted by applicable law) appoints and constitutes the members of the Board
of Directors of Kana Communications, Inc., a Delaware corporation ("Parent"),
and each of them (collectively the "Proxyholders"), the agents, attorneys and
proxies of the undersigned, with full power of substitution and resubstitution,
to the fullest extent of the undersigned's rights with respect to (i) the
shares of capital stock of Company owned of record by the undersigned, or over
which the undersigned has voting power, as of the date of this proxy, which
shares are specified on the final page of this proxy; (ii) any and all other
shares of capital stock of Company which the undersigned may acquire or with
respect to which the undersigned shall acquire voting power after the date
hereof, including, without limitation, in the event of a dividend or
distribution of capital stock of Company, or any change in Company's capital
stock by reason of any stock dividend, split-up, recapitalization, combination,
exchange of shares or the like, all shares of Company's capital stock issued or
distributed pursuant to such stock dividends and distributions and any shares
of Company's capital stock into which or for which any or all of the shares
otherwise held by the undersigned may be so changed or exchanged. (The shares
of the capital stock of Company referred to in clauses (i) and (ii) of the
immediately preceding sentence are collectively referred to as the "Shares.")
Upon the execution hereof, all prior proxies given by the undersigned with
respect to any of the Shares are hereby revoked, and no subsequent proxies will
be given with respect to any of the Shares until such time as this proxy shall
be terminated in accordance with its terms.
The Proxyholders named above will be empowered, and may exercise this proxy,
to vote the Shares at any time until the Expiration Date (as defined in the
Voting Agreement dated as of the date hereof, between Parent and the
undersigned (the "Voting Agreement")) at any meeting of the stockholders of
Company, however called, or in any action by written consent of stockholders of
Company:
(i) in favor of the merger (the "Merger") contemplated by the
Agreement and Plan of Merger by and among Parent, Arrow Acquisition
Corp., and Company, dated as of the date hereof (the "Merger
Agreement"), the execution and delivery by Company of the Merger
Agreement and the adoption and approval of the terms thereof and in
favor of the other actions contemplated by the Merger Agreement and, to
the extent that a vote is solicited in connection with this Voting
Agreement or the Merger Agreement, any other action required in
furtherance hereof or thereof;
(ii) against any action or agreement that would result in a breach
of any representation, warranty, covenant or obligation of Company in
the Merger Agreement or that would preclude fulfillment of a condition
precedent under the Merger Agreement to Company's or Parent's
obligation to consummate the Merger; and
(iii) against approval of any proposal made in opposition to or in
competition with the consummation of the Merger including, without
limitation, any Company Acquisition Proposal or Company Superior Offer
(each as defined in the Merger Agreement).
The Proxyholders may not exercise this proxy on any other matter. The
Stockholder may vote the Shares on all such other matters. The proxy granted by
the Stockholder to the Proxyholders hereby is granted as of the date of this
Irrevocable Proxy in order to secure the obligations of the Stockholder set
forth in Section 2 of the Voting Agreement.
This proxy will terminate upon the termination of the Voting Agreement in
accordance with its terms. Any obligation of the undersigned hereunder shall be
binding upon the successors and assigns of the undersigned. The undersigned
Stockholder authorizes the Proxyholders to file this proxy and any substitution
or revocation of substitution with the Secretary of Company and with any
Inspector of Elections at any meeting of the stockholders of Company.
III-8
This proxy is irrevocable, is coupled with an interest, and shall survive
the insolvency, incapacity, death or liquidation of the undersigned and will be
binding upon the heirs, successors and assigns of the undersigned (including
any transferee of any of the Shares).
Dated: April , 2001
STOCKHOLDER
__________________________________
Broadbase Software, Inc. Common
Stock: _________________________
III-9
EXHIBIT 4.7
FORM OF KANA STOCK OPTION AGREEMENT
IV-1
PARENT STOCK OPTION AGREEMENT
This Stock Option Agreement (the "Agreement") is made and entered into as of
April 9, 2001, between Kana Communications, Inc., a Delaware corporation
("Parent"), and Broadbase Software, Inc., a Delaware corporation ("Company").
RECITALS
A. Concurrently with the execution and delivery of this Agreement, Parent,
Company and Arrow Acquisition Corporation, a Delaware corporation and a wholly
owned subsidiary of Parent ("Merger Sub"), are entering into an Agreement and
Plan of Merger (the "Merger Agreement"), that provides, among other things,
upon the terms and subject to the conditions thereof, for the merger of Merger
Sub and Company (the "Merger"). Capitalized terms used in this Agreement but
not defined herein shall have the meanings ascribed to such terms in the Merger
Agreement.
B. As a condition to Company's willingness to enter into the Merger
Agreement, Company has required that the Parent agree, and the Parent has
agreed, to grant to Company an option to acquire shares of Parent Common Stock
("Parent Shares"), upon the terms and subject to the conditions set forth
herein.
In consideration of the foregoing and of the mutual covenants and agreements
set forth herein and in the Merger Agreement and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties agree as follows:
1. Grant of Option. Parent hereby grants to Company an irrevocable option
(the "Option"), exercisable following the occurrence of an Exercise Event (as
defined in Section 2(a)), to acquire up to a number of Parent Shares equal to
19.9% of the Parent Shares issued and outstanding as of the date, if any, upon
which an Exercise Notice (as defined in Section 2(b) below) shall have been
delivered (the "Option Shares"), in the manner set forth below by paying cash
at a price of $.875 per share (the "Exercise Price"); provided, however, that
the Exercise Price will automatically, equitably and proportionally be adjusted
to reflect any subdivision, stock split, combination, reverse stock split,
stock dividend or other recapitalization affecting Parent Shares; and provided,
further, that the number of Parent Shares issuable hereunder shall be subject
to adjustment such that in no event shall the total number of Parent Shares
issuable upon exercise of the Option exceed that number of shares which is
equal to the difference of 19.9% of the Parent Shares issued and outstanding as
of the date, if any, upon which an Exercise Notice shall have been delivered
less the total number of Parent Shares, if any, issued or issuable at or prior
to the time of such exercise upon conversion of that certain Convertible
Promissory Note pursuant to that certain Revolving Loan Agreement dated the
date hereof between Parent and Company. All references in this Agreement to
Parent Shares issued to Company hereunder shall be deemed to include any
associated Rights.
2. Exercise of Option; Maximum Proceeds.
(a) For all purposes of this Agreement, an "Exercise Event" shall mean the
occurrence of any of (i) a Parent Triggering Event (as such term is defined in
the Merger Agreement), (ii) (A) the public announcement of an acquisition or
purchase by any person or "group" (as defined under Section 13(d) of the
Exchange Act and the rules and regulations thereunder) of more than a 30%
beneficial ownership interest in the total outstanding voting securities of
Parent or any of its subsidiaries; or (B) the public announcement or
commencement of any tender offer or exchange offer that if consummated would
result in any person or "group" beneficially owning 30% or more of the total
outstanding voting securities of Parent or any of its subsidiaries.
(b) At any time following the occurrence of an Exercise Event, Company may
deliver to the Parent a written notice (an "Exercise Notice") specifying that
it wishes to exercise its rights to acquire Parent Shares
IV-2
under the Option and close a purchase of Option Shares and specifying the total
number of Option Shares it wishes to acquire. Unless such Exercise Notice is
withdrawn by Company, the closing of a purchase of such Option Shares (a
"Closing") shall take place at the principal offices of Parent upon such date
(which shall be no earlier than three business days following the delivery of
the Exercise Notice) and at such time prior to the termination of the Option as
may be designated by Company in the Exercise Notice.
(c) The Option shall terminate upon the earliest to occur of (i) the
Effective Time (as such term is defined in the Merger Agreement), (ii)
termination of the Merger Agreement pursuant to Section 7.1(a) thereof, (iii)
termination of the Merger Agreement pursuant to Section 7.1(i) thereof if prior
to such termination no Triggering Event shall have occurred; (iv) termination
of the Merger Agreement pursuant to Section 7.1(b), 7.1(c), 7.1(d) or 7.1(e)
thereof if prior to such termination no Exercise Event shall have occurred or
(v) 12 months following the termination of the Merger Agreement under any other
circumstances; provided, however, that if the Option is exercisable but cannot
be exercised by reason of any applicable government order or because the
waiting period related to the issuance of the Option Shares under the HSR Act
shall not have expired or been terminated, or because any other condition to
closing has not been satisfied, then the Option shall not terminate until the
tenth business day after all such impediments to exercise shall have been
removed or shall have become final and not subject to appeal, and provided,
further that if, subsequent to exercise of the Option, but prior to any other
termination of the Merger Agreement, the Merger Agreement is terminated by
Parent pursuant to Section 7.1(i) thereof, then (1) the Option, to the extent
it has not been exercised, shall terminate and (2) to the extent the Option has
been exercised, Parent may repurchase for cash all Option Shares then held by
Company at a per Option Share price equal to the Exercise Price.
(d) If the sum of (i) any Termination Fee received by Company under
Section 7.3(c) of the Merger Agreement plus (ii) the proceeds received by
Company from any sales or other dispositions of Option Shares (including
pursuant to Parent's exercise of its rights to purchase Option Shares under
Section 7(a) and Section 10 hereof) or the Option (including pursuant to
Company's exercise of its rights to surrender the Option pursuant to Section 9
hereof), plus (iii) any dividends or distributions received by Company declared
on Option Shares is, in the aggregate, greater than the sum of (x) $2,500,000
plus (y) the product of (1) the Exercise Price multiplied by (2) the number of
Parent Shares purchased by Company pursuant to the Option (the sum of clauses
(x) and (y), the "Profit Cap"), then all such proceeds received by Company in
excess of the Profit Cap shall be promptly remitted in cash by Company to
Parent.
3. Conditions to Closing. The obligation of Parent to issue Option Shares to
Company hereunder is subject to the conditions that (a) any waiting period
under the HSR Act applicable to the issuance of the Option Shares hereunder
shall have expired or been terminated; (b) all material consents, approvals,
orders or authorizations of, or registrations, declarations or filings with,
any Governmental Entity, if any, required in connection with the issuance of
the Option Shares hereunder shall have been obtained or made, as the case may
be; and (c) no preliminary or permanent injunction or other order by any court
of competent jurisdiction prohibiting or otherwise restraining such issuance
shall be in effect. It is understood and agreed that at any time during which
Company shall be entitled to deliver to Parent an Exercise Notice, the parties
will use their respective reasonable efforts to satisfy all conditions to
Closing, so that a Closing may take place as promptly as practicable.
4. Closing. At any Closing, (a) Parent shall deliver to Company a single
certificate in definitive form representing the number of Parent Shares
designated by Company in its Exercise Notice consistent with this Agreement,
such certificate to be registered in the name of Company and to bear the legend
set forth in Section 10 hereof, against delivery of (b) payment by Company to
the Parent of the aggregate Exercise Price for the Parent Shares so designated
and being purchased by delivery of a certified check, bank check or wire
transfer of immediately available funds.
5. Representations and Warranties of the Parent. Parent represents and
warrants to Company that (a) Parent is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
the corporate power and authority to enter into this Agreement and to carry out
its
IV-3
obligations hereunder; (b) the execution and delivery of this Agreement by
Parent and consummation by Parent of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of Parent
and no other corporate proceedings on the part of Parent are necessary to
authorize this Agreement or any of the transactions contemplated hereby; (c)
this Agreement has been duly executed and delivered by Parent and constitutes a
legal, valid and binding obligation of Parent and, assuming this Agreement has
been duly executed and delivered by Company, is enforceable against Parent in
accordance with its terms, except as enforceability may be limited by
bankruptcy and other similar laws affecting the rights of creditors generally
and general principles of equity; (d) except for any filings, authorizations,
approvals or orders required under the applicable blue sky laws of any state,
and the rules and regulations promulgated thereunder, Parent has taken all
necessary corporate and other action to authorize and reserve for issuance and
to permit it to issue upon exercise of the Option, and at all times from the
date hereof until the termination of the Option will have reserved for
issuance, a sufficient number of unissued Parent Shares for Company to exercise
the Option in full and will take all necessary corporate or other action to
authorize and reserve for issuance all additional Parent Shares or other
securities which may be issuable pursuant to Section 8(a) upon exercise of the
Option, all of which, upon their issuance and delivery in accordance with the
terms of this Agreement and payment therefor by Company, will be validly
issued, fully paid and nonassessable; (e) upon delivery of the Parent Shares
and any other securities to Company upon exercise of the Option, Company will
acquire such Parent Shares or other securities free and clear of all
Encumbrances, excluding those imposed by Company; (f) the execution and
delivery of this Agreement by Parent do not, and the performance of this
Agreement by Parent will not, (i) violate the Certificate of Incorporation or
Bylaws of the Parent, (ii) conflict with or violate any order applicable to the
Parent or any of its subsidiaries or by which they or any of their material
property is bound or affected or (iii) result in any breach of or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give rise to any right of termination, amendment,
acceleration or cancellation of, or result in the creation of a material
Encumbrance on any material property or assets of Parent or any of its
subsidiaries pursuant to, any material contract or agreement to which Parent or
any of its subsidiaries is a party or by which Parent or any of its
subsidiaries or any of their material property is bound or affected, except to
the extent that any such breach, default, right of termination, amendment,
acceleration or cancellation or creation of a material Encumbrance would not
prevent or materially delay the performance by Parent of Parent's obligations
under this Agreement; and (g) the execution and delivery of this Agreement by
Parent does not, and the performance of this Agreement by Parent will not,
require any consent, approval, authorization or permit of, or filing with, or
notification to, any Governmental Entity.
6. Representations and Warranties of Company. Company represents and
warrants to Parent that (i) the execution and delivery of this Agreement by
Company and the consummation by it of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of Company
and this Agreement has been duly executed and delivered by a duly authorized
officer of Company and will constitute a legal, valid and binding obligation of
Company and, assuming this Agreement has been duly executed and delivered by
Company, is enforceable against Parent in accordance with its terms, except as
enforceability may be limited by bankruptcy and other similar laws affecting
the rights of creditors generally and general principles of equity; and (ii)
Company is acquiring the Option, and, if and when the Company exercises the
Option, it will be acquiring the Option Shares issuable upon the exercise
thereof for its own account and not with a view to distribution or resale in
any manner which would be in violation of the Securities Act.
7. Registration Rights.
(a) Following the termination of the Merger Agreement, Company (sometimes
referred to herein as the "Holder") may by written notice (a "Registration
Notice") to Parent (sometimes referred to herein as the "Registrant") request
the Registrant to register under the Securities Act all or any part of the
Option Shares acquired by the Holder pursuant to this Agreement (such Option
Shares, together with any other
IV-4
shares of the Parent's capital stock issuable in lieu of or with respect to
such Option Shares, the "Registrable Securities") in order to permit the
public sale or other disposition of such shares in accordance with the
intended method of sale or other disposition stated by the Holder;
provided, however, that any such Registration Notice must relate to a
number of shares equal to at least 2% of the outstanding Parent Shares and
that any rights to require registration hereunder shall terminate with
respect to any shares of the Parent's capital stock that may be sold
pursuant to Rule 144(k) under the Securities Act or at such time as all of
the Registrable Securities may be sold in any three month period pursuant
to Rule 144 under the Securities Act. Upon receipt of a Registration
Notice, the Registrant will have the option exercisable by written notice
delivered to the Holder within ten business days after the receipt of the
Registration Notice, irrevocably to agree to purchase all or any part of
the Registrable Securities for cash at a price (the "Option Price") equal
to the product of (i) the number of Registrable Securities so purchased and
(ii) the per share average of the closing sale prices of the Registrant's
Common Stock on the Nasdaq Stock Market for the twenty trading days
immediately preceding the date of the Registration Notice. Any such
purchase of Registrable Securities by the Registrant hereunder will take
place at a closing to be held at the principal executive offices of the
Registrant or its counsel at any reasonable date and time designated by the
Registrant in such notice within five business days after delivery of such
notice. The payment for the shares to be purchased will be made by delivery
at the time of such closing of the Option Price in immediately available
funds.
(b) If the Registrant receives a Registration Notice and does not elect
to exercise its option to purchase pursuant to Section 7(a), the Registrant
shall use all reasonable best efforts to effect, as promptly as
practicable, the registration under the Securities Act of the unpurchased
Registrable Securities requested to be registered in the Registration
Notice; provided, however, that (i) the Holder shall not be entitled to
more than an aggregate of two effective registration statements hereunder,
and provided further, that if the Registrant withdraws a filed registration
statement at the request of the Holder (other than as the result of a
material adverse change in the Registrant's business or prospects or the
Holder's learning of new material information concerning the Registrant),
then such filing shall be deemed to have been an effective registration for
purposes of this clause (i), (ii) the Registrant will not be required to
file any such registration statement or maintain its effectiveness during
any period of time (not to exceed 45 days after a Registration Notice in
the case of clause (A) below or 60 days after a Registration Notice in the
case of clauses (B) and (C) below) when (A) the Registrant is in possession
of material non-public information which it reasonably believes would be
detrimental to be disclosed at such time and such information would have to
be disclosed if a registration statement were filed or effective at that
time; (B) the Registrant is required under the Securities Act to include
audited financial statements for any period in such registration statement
and such financial statements are not yet available for inclusion in such
registration statement; or (C) the Registrant determines, in its good
faith, reasonable judgment, that such registration would materially
interfere with any financing, acquisition or other material transaction
involving the Registrant and (iii) the Registrant will not be required to
maintain the effectiveness of any such registration statement for an
aggregate period greater than 180 days. If consummation of the sale of any
Registrable Securities pursuant to a registration hereunder does not occur
within 180 days after the filing with the SEC of the initial registration
statement therefor, the provisions of this Section 7 shall again be
applicable to any proposed registration. The Registrant shall use all
reasonable best efforts to cause any Registrable Securities registered
pursuant to this Section 7 to be qualified for sale under the securities or
blue sky laws of such jurisdictions as the Holder may reasonably request
and shall continue such registration or qualification in effect in such
jurisdictions until the Holder has sold or otherwise disposed of all of the
securities subject to the registration statement; provided, however, that
the Registrant shall not be required to qualify to do business in, or
consent to general service of process in, any jurisdiction by reason of
this provision.
(c) The registration rights set forth in this Section 7 are subject to
the condition that the Holder shall provide the Registrant with such
information with respect to the Holder's Registrable Securities, the plan
for distribution thereof, and such other information with respect to the
Holder as, in the reasonable
IV-5
judgment of counsel for the Registrant, is necessary to enable the
Registrant to include in a registration statement all facts required to be
disclosed with respect to a registration thereunder, including the identity
of the Holder and the Holder's plan of distribution.
(d) A registration effected under this Section 7 shall be effected at
the Registrant's expense, except for underwriting discounts and commissions
and the fees and expenses of counsel to the Holder, and the Registrant
shall use all reasonable best efforts to: (i) provide such documentation
(including certificates, opinions of counsel and "comfort" letters from
auditors) as are customary in connection with underwritten public offerings
and as an underwriter may reasonably require, (ii) prepare and file with
the SEC such amendments and supplements to such registration statement and
the prospectus used in connection with such registration statements as may
be necessary to comply with the provisions of the Securities Act and (iii)
furnish to the Holder and to any underwriter of such securities such number
of copies of the final prospectus and such other documents as the Holder or
underwriters may reasonably request. In connection with any registration
which the Holder requests be underwritten, the Holder and the Registrant
agree to enter into an underwriting agreement reasonably acceptable to each
such party, in form and substance customary for transactions of this type
with the underwriters participating in such offering.
(e) Indemnification
(i) The Registrant will indemnify the Holder, each of the Holder's
directors and officers and each person who controls the Holder within the
meaning of Section 15 of the Securities Act, and each underwriter of the
Registrant's securities, with respect to any registration, qualification or
compliance which has been effected pursuant to this Agreement, against all
expenses, claims, losses, damages or liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any
action or litigation, commenced or threatened (each, a "Damage Claim"),
arising out of or based on (A) any untrue statement (or alleged untrue
statement) of a material fact contained in any registration statement,
prospectus, offering circular or other document, or any amendment or
supplement thereto, incident to any such registration, qualification or
compliance, (B) any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made,
not misleading, or (C) any violation by the Registrant of any rule or
regulation promulgated under the Securities Act, the Securities Exchange
Act of 1934, as amended, any federal or state securities law or any rule or
regulation promulgated under any of them applicable to the Registrant (each
matter in clause (A), (B) or (C), a "Violation"), in each case in
connection with any such registration, qualification or compliance, and the
Registrant will reimburse the Holder and, each of its directors and
officers and each person who controls the Holder within the meaning of
Section 15 of the Securities Act, and each underwriter for any legal and
any other expenses reasonably incurred in connection with investigating,
preparing or defending any such Damage Claim, provided that the Registrant
will not be liable in any such case to the extent that any such Damage
Claim arises out of or is based on any untrue statement or omission or
alleged untrue statement or omission, made in reliance upon and in
conformity with written information furnished to the Registrant by the
Holder or director or officer or controlling person or underwriter seeking
indemnification, and provided, further, that the indemnity agreement
contained in this Section 7(e)(i) shall not apply to amounts paid in
settlement of any such Damage Claim if such settlement is effected without
the consent of the Registrant, which consent shall not be unreasonably
withheld.
(ii) The Holder will indemnify the Registrant, each of the Registrant's
directors and officers and each underwriter of the Registrant's securities
covered by such registration statement and each person who controls the
Registrant within the meaning of Section 15 of the Securities Act, against
all Damage Claims arising out of or based on any Violation in connection
with any such registration, qualification or compliance, and will reimburse
the Registrant, such directors, officers or control persons or underwriters
for any legal or any other expenses reasonably incurred in connection with
investigating, preparing or defending any such Damage Claim, in each case
to the extent, but only to the extent, that such Violation
IV-6
occurs in such registration statement, prospectus, offering circular or
other document in reliance upon and in conformity with written information
furnished to the Registrant by the Holder expressly for use therein,
provided that in no event shall any indemnity under this Section 7(e)
exceed the gross proceeds of the offering received by the Holder and
provided, further that the indemnity agreement contained in this Section
7(e)(ii) shall not apply to amounts paid in settlement of any such Damage
Claim if such settlement is effected without the consent of the Holder,
which consent shall not be unreasonably withheld.
(iii) Each party entitled to indemnification under this Section 7(e)
(the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity
may be sought, and shall permit the Indemnifying Party to assume the
defense of any such claim or any litigation resulting therefrom, provided
that counsel for the Indemnifying Party, who shall conduct the defense of
such claim or litigation, shall be approved by the Indemnified Party (whose
approval shall not unreasonably be withheld), and the Indemnified Party may
participate in such defense at such party's expense; provided, however,
that the Indemnifying Party shall pay such expense if representation of the
Indemnified Party by counsel retained by the Indemnifying Party would be
inappropriate due to actual or potential differing interests between the
Indemnified Party and any other party represented by such counsel in such
proceeding, and provided, further that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party
of its obligations under this Section 7(e) unless the failure to give such
notice is materially prejudicial to an Indemnifying Party's ability to
defend such action. No Indemnifying Party, in the defense of any such claim
or litigation shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in
respect to such claim or litigation. No Indemnifying Party shall be
required to indemnify any Indemnified Party with respect to any settlement
entered into without such Indemnifying Party's prior consent (which shall
not be unreasonably withheld).
(iv) If the indemnification provided for in this Section 7(e) is held by
a court of competent jurisdiction to be unavailable to an Indemnified Party
with respect to any Damage Claim, then the Indemnifying Party, in lieu of
indemnifying the Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party with respect to such Damage Claim in the
proportion that is appropriate to reflect the relative fault of the
Indemnifying Party and the Indemnified Party in connection with the
statements or omissions that resulted in such Damage Claim, as well as any
other relevant equitable considerations. The relative fault of the
Indemnifying Party and the Indemnified Party shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of material fact or the omission to state a material fact relates
to information supplied by the Indemnifying Party or by the Indemnified
Party, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. In any
such case, (A) the Holder will not be required to contribute any amount in
excess of the aggregate public offering price of all such Registrable
Securities offered and sold by the Holder pursuant to such registration
statement; and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities
Act) will be entitled to contribution from any person or entity who was not
guilty of such fraudulent misrepresentation.
8. Adjustment Upon Changes in Capitalization; Rights Plans
(a) In the event of any change in the Parent Shares by reason of stock
dividends, stock splits, reverse stock splits, mergers (other than the
Merger), recapitalizations, combinations, exchanges of shares and the like,
the type and number of shares or securities subject to the Option shall be
adjusted appropriately, and proper provision shall be made in the
agreements governing such transaction so that Company shall receive, upon
exercise of the Option, the number and class of shares or other securities
or property that Company would have received in respect of the Parent
Shares if the Option had been exercised immediately prior to such event or
the record date therefor, as applicable.
IV-7
(b) Prior to such time as the Option is terminated, and at any time after
the Option is exercised (in whole or in part, if at all), the Parent shall not
(i) adopt (nor permit the adoption of) a new stockholders rights plan that
contains provisions for the distribution or exercise of rights thereunder as a
result of Company or any affiliate or transferee being the beneficial owner of
shares of the Parent by virtue of the Option being exercisable or having been
exercised (or as a result of beneficially owning shares issuable in respect of
any Option Shares), or (ii) take any other action which would prevent or
disable Company from exercising its rights under this Agreement or enjoying the
full rights and privileges possessed by other holders of Parent Shares
generally with respect to the Option Shares obtained by the Holder upon
exercise of the Option.
9. Repurchase of Shares. Parent shall have the right to purchase for cash
(the "Repurchase Right") all, but not less than all, of the Option Shares then
beneficially owned by Company at an aggregate price for all such shares
(regardless of the number of such shares) equal to the Adjusted Profit Cap.
Parent's right to exercise the Repurchase Right shall expire on the twentieth
business day following the two year anniversary of the termination of the
Merger (the "Merger Termination Date"). In the event Parent wishes to exercise
the Repurchase Right, Parent shall send a written notice to Company specifying
a date (not later than ten business days and not earlier than the second
business day following the date such notice is given) for the closing of such
repurchase (the "Repurchase Notice"), provided, however that Parent may not
repurchase any Option Shares hereunder prior to the date that is one calendar
year following the date on which the Merger Agreement is terminated. The
closing of the repurchase of the Option Shares shall take place at the
principal offices of Parent upon such specified date. Upon exercise of Parent's
right to repurchase all outstanding Option Shares and full payment therefor to
Company pursuant to this Section 9, any and all right of Company to future
exercises of the Option shall be terminated. Notwithstanding anything to the
contrary herein, if application of the Adjusted Profit Cap formula below yields
a number that is less than zero, Parent may exercise its Repurchase Right as
provided in this Section 9, and upon such exercise, Company shall deliver all
Option Shares it holds to Parent for cancellation, and neither Company nor
Parent shall pay each other any amount in connection with such exercise of the
Repurchase Right.
For the purposes of this Agreement, the "Adjusted Profit Cap" means the
difference of (i) the Profit Cap minus (ii) the sum of (A) any Termination Fee
received by Company under Section 7.3(c) of the Merger Agreement plus (B) the
proceeds received by Company for any sales or other dispositions of Option
Shares (including pursuant to Parent's exercise of its rights to purchase
Option Shares under Section 7(a) hereof) or the Option, and any dividends or
distributions received by Company declared on Option Shares, in each case,
through the date of the closing of the repurchase under this Section 9;
provided that the Adjusted Profit Cap shall never be less than zero.
10. Restrictive Legends. Each certificate representing Option Shares issued
to Company hereunder (other than certificates representing shares sold in a
registered public offering pursuant to Section 7) shall include a legend in
substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE REOFFERED OR
SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE.
11. Listing. The Parent, upon the request of Company, shall promptly file an
application to list the Parent Shares to be acquired upon exercise of the
Option for quotation on the Nasdaq Stock Market and shall use its reasonable
efforts to obtain approval of such listing as soon as practicable.
12. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns. Except as set forth in Section 7, nothing contained in this Agreement,
express or implied, is intended to confer upon any person other than the
parties hereto and their respective successors and permitted assigns any rights
or remedies of any nature whatsoever by reason of this Agreement.
IV-8
13. Specific Performance; Fees.
(a) The parties hereto recognize and agree that if for any reason any of
the provisions of this Agreement are not performed in accordance with their
specific terms or are otherwise breached, immediate and irreparable harm or
injury would be caused for which money damages would not be an adequate remedy.
Accordingly, each party agrees that in addition to other remedies the other
party shall be entitled to an injunction restraining any violation or
threatened violation of the provisions of this Agreement or the right to
enforce any of the covenants or agreements set forth herein by specific
performance. In the event that any action shall be brought in equity to enforce
the provisions of the Agreement, neither party will allege, and each party
hereby waives the defense, that there is an adequate remedy at law.
(b) If any action, suit or other proceeding (whether at law, in equity or
otherwise) is instituted concerning or arising out of this Agreement or any
transaction contemplated hereunder, the prevailing party shall recover, in
addition to any other remedy granted to such party therein, all such party's
costs and attorneys fees incurred in connection with the prosecution or defense
of such action, suit or other proceeding.
14. Entire Agreement. This Agreement and the Merger Agreement (including the
appendices and exhibits thereto) constitute the entire agreement between the
parties with respect to the subject matter hereof and supersede all other prior
agreements and understandings, both written and oral, between the parties with
respect to the subject matter hereof.
15. Further Assurances. Each party will execute and deliver all such further
documents and instruments and take all such further action as may be necessary
in order to consummate the transactions contemplated hereby.
16. Severability. In the event that any provision of this Agreement or the
application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
agree to replace such void or unenforceable provision of this Agreement with a
valid and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such void or unenforceable provision.
17. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given upon delivery either personally or by
commercial delivery service, or sent via telecopy (receipt confirmed) to the
parties at the following addresses or telecopy numbers (or at such other
address or telecopy numbers for a party as shall be specified by like notice):
(a) if to Parent or Merger Sub, to:
Kana Communications, Inc.
740 Bay Road
Redwood City, CA 94063
Attention: Jay Wood
Facsimile No.: (650) 474-8506
IV-9
with a copy to:
Brobeck, Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
Attention: David Makarechian, Esq.
Facsimile No.: (650) 496-2885
(b) if to Company, to:
Broadbase Software, Inc.
181 Constitution Drive
Menlo Park, CA 94025
Attention: Chuck Bay
Facsimile No.: (650) 614-8301
with a copy to:
Fenwick & West LLP
275 Battery Street, Suite 1500
San Francisco, CA 94111
Attention: David K. Michaels, Esq.
Facsimile No.: (415) 281-1350
18. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof.
19. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
20. Expenses. Except as otherwise expressly provided herein or in the Merger
Agreement, all costs and expenses incurred in connection with the transactions
contemplated by this Agreement shall be paid by the party incurring such
expenses.
21. Amendments; Waiver. This Agreement may be amended by the parties hereto
and the terms and conditions hereof may be waived only by an instrument in
writing signed on behalf of each of the parties hereto, or, in the case of a
waiver, by an instrument signed on behalf of the party waiving compliance.
22. Assignment. Neither of the parties hereto may sell, transfer, assign or
otherwise dispose of any of its rights or obligations under this Agreement or
the Option created hereunder to any other person, without the express written
consent of the other party, except that the rights and obligations hereunder
shall inure to the benefit of and be binding upon any successor or permitted
assign of a party hereto. No consent shall be required in connection with a
merger, consolidation, reorganization, sale of substantially all assets or
similar transaction with respect to a party hereto. Any purported assignment in
violation of this Section shall be void.
23. Public Announcement. Parent shall consult with Company and Company shall
consult with Parent before issuing any press release with respect to the
initial announcement of this Agreement or the transactions contemplated hereby
and neither party shall issue any such press release prior to such consultation
except as may be required by law.
IV-10
24. Waiver Of Jury Trial. EACH OF PARENT AND COMPANY HEREBY IRREVOCABLY
WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING OR
COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE ACTIONS OF PARENT OR COMPANY IN THE
NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.
* * * * *
IV-11
In Witness Whereof, the parties hereto have caused this Stock Option
Agreement to be executed by their duly authorized respective officers as of the
date first written above.
Broadbase Software, Inc
By:
Name: Chuck Bay
Title: Chief Executive Officer
Kana Communications, Inc.
By:
Name: James C. Wood
Title: Chief Executive Officer
IV-12
APPENDIX V
FORM OF BROADBASE STOCK OPTION AGREEMENT
V-1
COMPANY STOCK OPTION AGREEMENT
This Stock Option Agreement (the "Agreement") is made and entered into as of
April 9, 2001, between Broadbase Software, Inc., a Delaware corporation
("Company"), and Kana Communications, Inc., a Delaware corporation ("Parent").
Recitals
A. Concurrently with the execution and delivery of this Agreement, Company,
Parent and Arrow Acquisition Corporation, a Delaware corporation and a wholly
owned subsidiary of Parent ("Merger Sub"), are entering into an Agreement and
Plan of Merger (the "Merger Agreement"), that provides, among other things,
upon the terms and subject to the conditions thereof, for the merger of Merger
Sub and Company (the "Merger"). Capitalized terms used in this Agreement but
not defined herein shall have the meanings ascribed to such terms in the Merger
Agreement.
B. As a condition to Parent's willingness to enter into the Merger
Agreement, Parent has required that the Company agree, and the Company has
agreed, to grant to Parent an option to acquire shares of Company Common Stock
("Company Shares"), upon the terms and subject to the conditions set forth
herein.
In consideration of the foregoing and of the mutual covenants and agreements
set forth herein and in the Merger Agreement and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties agree as follows:
1. Grant of Option. Company hereby grants to Parent an irrevocable option
(the "Option"), exercisable following the occurrence of an Exercise Event (as
defined in Section 2(a)), to acquire up to a number of Company Shares equal to
19.9% of the Company Shares issued and outstanding as of the date, if any, upon
which an Exercise Notice (as defined in Section 2(b) below) shall have been
delivered (the "Option Shares"), in the manner set forth below by paying cash
at a price of $.7188 per share (the "Exercise Price"); provided, however, that
the Exercise Price will automatically, equitably and proportionally be adjusted
to reflect any subdivision, stock split, combination, reverse stock split,
stock dividend or other recapitalization affecting Company Shares; and
provided, further, that the number of Company Shares issuable hereunder shall
be subject to adjustment such that in no event shall the total number of
Company Shares issuable upon exercise of the Option exceed that number of
shares which is equal to the difference of 19.9% of the Company Shares issued
and outstanding as of the date, if any, upon which an Exercise Notice shall
have been delivered less the total number of Company Shares, if any, issued or
issuable at or prior to the time of such exercise upon conversion of that
certain Convertible Promissory Note pursuant to that certain Revolving Loan
Agreement dated the date hereof between Parent and Company. All references in
this Agreement to Company Shares issued to Parent hereunder shall be deemed to
include any associated Rights.
2. Exercise of Option; Maximum Proceeds.
(a) For all purposes of this Agreement, an "Exercise Event" shall mean the
occurrence of any of (i) a Company Triggering Event (as such term is defined in
the Merger Agreement); or (ii) (A) the public announcement of an acquisition or
purchase by any person or "group" (as defined under Section 13(d) of the
Exchange Act and the rules and regulations thereunder) of more than a 30%
beneficial ownership interest in the total outstanding voting securities of
Company or any of its subsidiaries; or (B) the public announcement or
commencement of any tender offer or exchange offer that if consummated would
result in any person or "group" beneficially owning 30% or more of the total
outstanding voting securities of Company or any of its subsidiaries.
(b) At any time following the occurrence of an Exercise Event, Parent may
deliver to the Company a written notice (an "Exercise Notice") specifying that
it wishes to exercise its rights to acquire Company Shares under the Option and
close a purchase of Option Shares and specifying the total number of Option
Shares it
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wishes to acquire. Unless such Exercise Notice is withdrawn by Parent, the
closing of a purchase of such Option Shares (a "Closing") shall take place at
the principal offices of Company upon such date (which shall be no earlier than
three business days following the delivery of the Exercise Notice) and at such
time prior to the termination of the Option as may be designated by Parent in
the Exercise Notice.
(c) The Option shall terminate upon the earliest to occur of (i) the
Effective Time (as such term is defined in the Merger Agreement), (ii)
termination of the Merger Agreement pursuant to Section 7.1(a) thereof, (iii)
termination of the Merger Agreement pursuant to Section 7.1(h) thereof if prior
to such termination no Triggering Event shall have occurred; (iv) termination
of the Merger Agreement pursuant to Section 7.1(b), 7.1(c), 7.1(d) or 7.1(e)
thereof if prior to such termination no Exercise Event shall have occurred or
(v) 12 months following the termination of the Merger Agreement under any other
circumstances; provided, however, that if the Option is exercisable but cannot
be exercised by reason of any applicable government order or because the
waiting period related to the issuance of the Option Shares under the HSR Act
shall not have expired or been terminated, or because any other condition to
closing has not been satisfied, then the Option shall not terminate until the
tenth business day after all such impediments to exercise shall have been
removed or shall have become final and not subject to appeal, and provided,
further that if, subsequent to exercise of the Option, but prior to any other
termination of the Merger Agreement, the Merger Agreement is terminated by
Company pursuant to Section 7.1(h) thereof, then (1) the Option, to the extent
it has not been exercised, shall terminate and (2) to the extent the Option has
been exercised, Company may repurchase for cash all Option Shares then held by
Parent at a per Option Share price equal to the Exercise Price.
(d) If the sum of (i) any Termination Fee received by Parent under Section
7.3(b) of the Merger Agreement plus (ii) the proceeds received by Parent from
any sales or other dispositions of Option Shares (including pursuant to
Company's exercise of its rights to purchase Option Shares under Section 7(a)
and Section 10 hereof) or the Option (including pursuant to Parent's exercise
of its rights to surrender the Option pursuant to Section 9 hereof), plus (iii)
any dividends or distributions received by Parent declared on Option Shares is,
in the aggregate, greater than the sum of (x) $2,500,000 plus (y) the product
of (1) the Exercise Price multiplied by (2) the number of Company Shares
purchased by Parent pursuant to the Option (the sum of clauses (x) and (y), the
"Profit Cap"), then all such proceeds received by Parent in excess of the
Profit Cap shall be promptly remitted in cash by Parent to Company.
3. Conditions to Closing. The obligation of Company to issue Option Shares
to Parent hereunder is subject to the conditions that (a) any waiting period
under the HSR Act applicable to the issuance of the Option Shares hereunder
shall have expired or been terminated; (b) all material consents, approvals,
orders or authorizations of, or registrations, declarations or filings with,
any Governmental Entity, if any, required in connection with the issuance of
the Option Shares hereunder shall have been obtained or made, as the case may
be; and (c) no preliminary or permanent injunction or other order by any court
of competent jurisdiction prohibiting or otherwise restraining such issuance
shall be in effect. It is understood and agreed that at any time during which
Parent shall be entitled to deliver to Company an Exercise Notice, the parties
will use their respective reasonable efforts to satisfy all conditions to
Closing, so that a Closing may take place as promptly as practicable.
4. Closing. At any Closing, (a) Company shall deliver to Parent a single
certificate in definitive form representing the number of Company Shares
designated by Parent in its Exercise Notice consistent with this Agreement,
such certificate to be registered in the name of Parent and to bear the legend
set forth in Section 10 hereof, against delivery of (b) payment by Parent to
the Company of the aggregate Exercise Price for the Company Shares so
designated and being purchased by delivery of a certified check, bank check or
wire transfer of immediately available funds.
5. Representations and Warranties of the Company. Company represents and
warrants to Parent that (a) Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
the corporate power and authority to enter into this Agreement and to carry out
its obligations hereunder; (b) the execution and delivery of this Agreement by
Company and consummation by
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Company of the transactions contemplated hereby have been duly authorized by
all necessary corporate action on the part of Company and no other corporate
proceedings on the part of Company are necessary to authorize this Agreement or
any of the transactions contemplated hereby; (c) this Agreement has been duly
executed and delivered by Company and constitutes a legal, valid and binding
obligation of Company and, assuming this Agreement has been duly executed and
delivered by Parent, is enforceable against Company in accordance with its
terms, except as enforceability may be limited by bankruptcy and other similar
laws affecting the rights of creditors generally and general principles of
equity; (d) except for any filings, authorizations, approvals or orders
required under the applicable blue sky laws of any state, and the rules and
regulations promulgated thereunder, or by the Nasdaq Stock Market, Company has
taken all necessary corporate and other action to authorize and reserve for
issuance and to permit it to issue upon exercise of the Option, and at all
times from the date hereof until the termination of the Option will have
reserved for issuance, a sufficient number of unissued Company Shares for
Parent to exercise the Option in full and will take all necessary corporate or
other action to authorize and reserve for issuance all additional Company
Shares or other securities which may be issuable pursuant to Section 8(a) upon
exercise of the Option, all of which, upon their issuance and delivery in
accordance with the terms of this Agreement and payment therefor by Parent,
will be validly issued, fully paid and nonassessable; (e) upon delivery of the
Company Shares and any other securities to Parent upon exercise of the Option,
Parent will acquire such Company Shares or other securities free and clear of
all Encumbrances, excluding those imposed by Parent; (f) the execution and
delivery of this Agreement by Company do not, and the performance of this
Agreement by Company will not, (i) violate the Certificate of Incorporation or
Bylaws of the Company, (ii) conflict with or violate any order applicable to
the Company or any of its subsidiaries or by which they or any of their
material property is bound or affected or (iii) result in any breach of or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give rise to any right of termination,
amendment, acceleration or cancellation of, or result in the creation of a
material Encumbrance on any material property or assets of Company or any of
its subsidiaries pursuant to, any material contract or agreement to which
Company or any of its subsidiaries is a party or by which Company or any of its
subsidiaries or any of their material property is bound or affected, except to
the extent that any such breach, default, right of termination, amendment,
acceleration or cancellation or creation of a material Encumbrance would not
prevent or materially delay the performance by Company of Company's obligations
under this Agreement; and (g) the execution and delivery of this Agreement by
Company does not, and the performance of this Agreement by Company will not,
require any consent, approval, authorization or permit of, or filing with, or
notification to, any Governmental Entity.
6. Representations and Warranties of Parent. Parent represents and warrants
to Company that (i) the execution and delivery of this Agreement by Parent and
the consummation by it of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Parent and this
Agreement has been duly executed and delivered by a duly authorized officer of
Parent and will constitute a legal, valid and binding obligation of Parent and,
assuming this Agreement has been duly executed and delivered by Parent, is
enforceable against Company in accordance with its terms, except as
enforceability may be limited by bankruptcy and other similar laws affecting
the rights of creditors generally and general principles of equity; and (ii)
Parent is acquiring the Option, and, if and when the Parent exercises the
Option, it will be acquiring the Option Shares issuable upon the exercise
thereof for its own account and not with a view to distribution or resale in
any manner which would be in violation of the Securities Act.
7. Registration Rights.
(a) Following the termination of the Merger Agreement, Parent (sometimes
referred to herein as the "Holder") may by written notice (a "Registration
Notice") to Company (sometimes referred to herein as the "Registrant") request
the Registrant to register under the Securities Act all or any part of the
Option Shares acquired by the Holder pursuant to this Agreement (such Option
Shares, together with any other shares of the Company's capital stock issuable
in lieu of or with respect to such Option Shares, the "Registrable Securities")
in order to permit the public sale or other disposition of such shares in
accordance with the intended method of sale or other disposition stated by the
Holder; provided, however, that any such Registration Notice must relate to a
number of shares equal to at least 2% of the outstanding Company Shares and
that any rights to require
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registration hereunder shall terminate with respect to any shares of the
Company's capital stock that may be sold pursuant to Rule 144(k) under the
Securities Act or at such time as all of the Registrable Securities may be sold
in any three month period pursuant to Rule 144 under the Securities Act. Upon
receipt of a Registration Notice, the Registrant will have the option
exercisable by written notice delivered to the Holder within ten business days
after the receipt of the Registration Notice, irrevocably to agree to purchase
all or any part of the Registrable Securities for cash at a price (the "Option
Price") equal to the product of (i) the number of Registrable Securities so
purchased and (ii) the per share average of the closing sale prices of the
Registrant's Common Stock on the Nasdaq Stock Market for the twenty trading
days immediately preceding the date of the Registration Notice. Any such
purchase of Registrable Securities by the Registrant hereunder will take place
at a closing to be held at the principal executive offices of the Registrant or
its counsel at any reasonable date and time designated by the Registrant in
such notice within five business days after delivery of such notice. The
payment for the shares to be purchased will be made by delivery at the time of
such closing of the Option Price in immediately available funds.
(b) If the Registrant receives a Registration Notice and does not elect to
exercise its option to purchase pursuant to Section 7(a), the Registrant shall
use all reasonable best efforts to effect, as promptly as practicable, the
registration under the Securities Act of the unpurchased Registrable Securities
requested to be registered in the Registration Notice; provided, however, that
(i) the Holder shall not be entitled to more than an aggregate of two effective
registration statements hereunder, and provided further, that if the Registrant
withdraws a filed registration statement at the request of the Holder (other
than as the result of a material adverse change in the Registrant's business or
prospects or the Holder's learning of new material information concerning the
Registrant), then such filing shall be deemed to have been an effective
registration for purposes of this clause (i), (ii) the Registrant will not be
required to file any such registration statement or maintain its effectiveness
during any period of time (not to exceed 45 days after a Registration Notice in
the case of clause (A) below or 60 days after a Registration Notice in the case
of clauses (B) and (C) below) when (A) the Registrant is in possession of
material non-public information which it reasonably believes would be
detrimental to be disclosed at such time and such information would have to be
disclosed if a registration statement were filed or effective at that time; (B)
the Registrant is required under the Securities Act to include audited
financial statements for any period in such registration statement and such
financial statements are not yet available for inclusion in such registration
statement; or (C) the Registrant determines, in its good faith, reasonable
judgment, that such registration would materially interfere with any financing,
acquisition or other material transaction involving the Registrant and (iii)
the Registrant will not be required to maintain the effectiveness of any such
registration statement for an aggregate period greater than 180 days. If
consummation of the sale of any Registrable Securities pursuant to a
registration hereunder does not occur within 180 days after the filing with the
SEC of the initial registration statement therefor, the provisions of this
Section 7 shall again be applicable to any proposed registration. The
Registrant shall use all reasonable best efforts to cause any Registrable
Securities registered pursuant to this Section 7 to be qualified for sale under
the securities or blue sky laws of such jurisdictions as the Holder may
reasonably request and shall continue such registration or qualification in
effect in such jurisdictions until the Holder has sold or otherwise disposed of
all of the securities subject to the registration statement; provided, however,
that the Registrant shall not be required to qualify to do business in, or
consent to general service of process in, any jurisdiction by reason of this
provision.
(c) The registration rights set forth in this Section 7 are subject to the
condition that the Holder shall provide the Registrant with such information
with respect to the Holder's Registrable Securities, the plan for distribution
thereof, and such other information with respect to the Holder as, in the
reasonable judgment of counsel for the Registrant, is necessary to enable the
Registrant to include in a registration statement all facts required to be
disclosed with respect to a registration thereunder, including the identity of
the Holder and the Holder's plan of distribution.
(d) A registration effected under this Section 7 shall be effected at the
Registrant's expense, except for underwriting discounts and commissions and the
fees and expenses of counsel to the Holder, and the Registrant shall use all
reasonable best efforts to: (i) provide such documentation (including
certificates, opinions of
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counsel and "comfort" letters from auditors) as are customary in connection
with underwritten public offerings and as an underwriter may reasonably
require, (ii) prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statements as may be necessary to comply with the provisions of
the Securities Act and (iii) furnish to the Holder and to any underwriter of
such securities such number of copies of the final prospectus and such other
documents as the Holder or underwriters may reasonably request. In connection
with any registration which the Holder requests be underwritten, the Holder and
the Registrant agree to enter into an underwriting agreement reasonably
acceptable to each such party, in form and substance customary for transactions
of this type with the underwriters participating in such offering.
(e) Indemnification
(i) The Registrant will indemnify the Holder, each of the Holder's
directors and officers and each person who controls the Holder within the
meaning of Section 15 of the Securities Act, and each underwriter of the
Registrant's securities, with respect to any registration, qualification or
compliance which has been effected pursuant to this Agreement, against all
expenses, claims, losses, damages or liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any action
or litigation, commenced or threatened (each, a "Damage Claim"), arising out of
or based on (A) any untrue statement (or alleged untrue statement) of a
material fact contained in any registration statement, prospectus, offering
circular or other document, or any amendment or supplement thereto, incident to
any such registration, qualification or compliance, (B) any omission (or
alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, or (C) any violation by
the Registrant of any rule or regulation promulgated under the Securities Act,
the Securities Exchange Act of 1934, as amended, any federal or state
securities law or any rule or regulation promulgated under any of them
applicable to the Registrant (each matter in clause (A), (B) or (C), a
"Violation"), in each case in connection with any such registration,
qualification or compliance, and the Registrant will reimburse the Holder and,
each of its directors and officers and each person who controls the Holder
within the meaning of Section 15 of the Securities Act, and each underwriter
for any legal and any other expenses reasonably incurred in connection with
investigating, preparing or defending any such Damage Claim, provided that the
Registrant will not be liable in any such case to the extent that any such
Damage Claim arises out of or is based on any untrue statement or omission or
alleged untrue statement or omission, made in reliance upon and in conformity
with written information furnished to the Registrant by the Holder or director
or officer or controlling person or underwriter seeking indemnification, and
provided, further, that the indemnity agreement contained in this Section
7(e)(i) shall not apply to amounts paid in settlement of any such Damage Claim
if such settlement is effected without the consent of the Registrant, which
consent shall not be unreasonably withheld.
(ii) The Holder will indemnify the Registrant, each of the Registrant's
directors and officers and each underwriter of the Registrant's securities
covered by such registration statement and each person who controls the
Registrant within the meaning of Section 15 of the Securities Act, against all
Damage Claims arising out of or based on any Violation in connection with any
such registration, qualification or compliance, and will reimburse the
Registrant, such directors, officers or control persons or underwriters for any
legal or any other expenses reasonably incurred in connection with
investigating, preparing or defending any such Damage Claim, in each case to
the extent, but only to the extent, that such Violation occurs in such
registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information furnished to the
Registrant by the Holder expressly for use therein, provided that in no event
shall any indemnity under this Section 7(e) exceed the gross proceeds of the
offering received by the Holder and provided, further that the indemnity
agreement contained in this Section 7(e)(ii) shall not apply to amounts paid in
settlement of any such Damage Claim if such settlement is effected without the
consent of the Holder, which consent shall not be unreasonably withheld.
(iii) Each party entitled to indemnification under this Section 7(e) (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be sought,
and shall permit
V-6
the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense; provided, however, that the Indemnifying Party shall pay such
expense if representation of the Indemnified Party by counsel retained by the
Indemnifying Party would be inappropriate due to actual or potential differing
interests between the Indemnified Party and any other party represented by such
counsel in such proceeding, and provided, further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 7(e) unless the
failure to give such notice is materially prejudicial to an Indemnifying
Party's ability to defend such action. No Indemnifying Party, in the defense of
any such claim or litigation shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in respect
to such claim or litigation. No Indemnifying Party shall be required to
indemnify any Indemnified Party with respect to any settlement entered into
without such Indemnifying Party's prior consent (which shall not be
unreasonably withheld).
(iv) If the indemnification provided for in this Section 7(e) is held by a
court of competent jurisdiction to be unavailable to an Indemnified Party with
respect to any Damage Claim, then the Indemnifying Party, in lieu of
indemnifying the Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party with respect to such Damage Claim in the
proportion that is appropriate to reflect the relative fault of the
Indemnifying Party and the Indemnified Party in connection with the statements
or omissions that resulted in such Damage Claim, as well as any other relevant
equitable considerations. The relative fault of the Indemnifying Party and the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of material fact or the omission
to state a material fact relates to information supplied by the Indemnifying
Party or by the Indemnified Party, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. In any such case, (A) the Holder will not be required to contribute
any amount in excess of the aggregate public offering price of all such
Registrable Securities offered and sold by the Holder pursuant to such
registration statement; and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any person or entity who was not guilty
of such fraudulent misrepresentation.
8. Adjustment Upon Changes in Capitalization; Rights Plans
(a) In the event of any change in the Company Shares by reason of stock
dividends, stock splits, reverse stock splits, mergers (other than the Merger),
recapitalizations, combinations, exchanges of shares and the like, the type and
number of shares or securities subject to the Option shall be adjusted
appropriately, and proper provision shall be made in the agreements governing
such transaction so that Parent shall receive, upon exercise of the Option, the
number and class of shares or other securities or property that Parent would
have received in respect of the Company Shares if the Option had been exercised
immediately prior to such event or the record date therefor, as applicable.
(b) Prior to such time as the Option is terminated, and at any time after
the Option is exercised (in whole or in part, if at all), the Company shall not
(i) adopt (nor permit the adoption of) a new stockholders rights plan that
contains provisions for the distribution or exercise of rights thereunder as a
result of Parent or any affiliate or transferee being the beneficial owner of
shares of the Company by virtue of the Option being exercisable or having been
exercised (or as a result of beneficially owning shares issuable in respect of
any Option Shares), or (ii) take any other action which would prevent or
disable Parent from exercising its rights under this Agreement or enjoying the
full rights and privileges possessed by other holders of Company Shares
generally with respect to the Option Shares obtained by the Holder upon
exercise of the Option.
9. Repurchase of Shares. Company shall have the right to purchase for cash
(the "Repurchase Right") all, but not less than all, of the Option Shares then
beneficially owned by Parent at an aggregate price for all such shares
(regardless of the number of such shares) equal to the Adjusted Profit Cap.
Company's right to
V-7
exercise the Repurchase Right shall expire on the twentieth business day
following the two year anniversary of the termination of the Merger (the
"Merger Termination Date"). In the event Company wishes to exercise the
Repurchase Right, Company shall send a written notice to Parent specifying a
date (not later than ten business days and not earlier than the second business
day following the date such notice is given) for the closing of such repurchase
(the "Repurchase Notice"), provided, however that Company may not repurchase
any Option Shares hereunder prior to the date that is one calendar year
following the date on which the Merger Agreement is terminated. The closing of
the repurchase of the Option Shares shall take place at the principal offices
of Company upon such specified date. Upon exercise of Company's right to
repurchase all outstanding Option Shares and full payment therefor to Parent
pursuant to this Section 9, any and all right of Parent to future exercises of
the Option shall be terminated. Notwithstanding anything to the contrary
herein, if application of the Adjusted Profit Cap formula below yields a number
that is less than zero, Company may exercise its Repurchase Right as provided
in this Section 9, and upon such exercise, Parent shall deliver all Option
Shares it holds to Company for cancellation, and neither Parent nor Company
shall pay each other any amount in connection with such exercise of the
Repurchase Right.
For the purposes of this Agreement, the "Adjusted Profit Cap" means the
difference of (i) the Profit Cap minus (ii) the sum of (A) any Termination Fee
received by Parent under Section 7.3(b) of the Merger Agreement plus (B) the
proceeds received by Parent for any sales or other dispositions of Option
Shares (including pursuant to Company's exercise of its rights to purchase
Option Shares under Section 7(a) hereof) or the Option, and any dividends or
distributions received by Parent declared on Option Shares, in each case,
through the date of the closing of the repurchase under this Section 9;
provided that the Adjusted Profit Cap shall never be less than zero.
10. Restrictive Legends. Each certificate representing Option Shares issued
to Parent hereunder (other than certificates representing shares sold in a
registered public offering pursuant to Section 7) shall include a legend in
substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE REOFFERED OR SOLD
ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE.
11. Listing. The Company, upon the request of Parent, shall promptly file an
application to list the Company Shares to be acquired upon exercise of the
Option for quotation on the Nasdaq Stock Market and shall use its reasonable
efforts to obtain approval of such listing as soon as practicable.
12. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns. Except as set forth in Section 7, nothing contained in this Agreement,
express or implied, is intended to confer upon any person other than the
parties hereto and their respective successors and permitted assigns any rights
or remedies of any nature whatsoever by reason of this Agreement.
13. Specific Performance; Fees.
(a) The parties hereto recognize and agree that if for any reason any of the
provisions of this Agreement are not performed in accordance with their
specific terms or are otherwise breached, immediate and irreparable harm or
injury would be caused for which money damages would not be an adequate remedy.
Accordingly, each party agrees that in addition to other remedies the other
party shall be entitled to an injunction restraining any violation or
threatened violation of the provisions of this Agreement or the right to
enforce any of the covenants or agreements set forth herein by specific
performance. In the event that any action shall be brought in equity to enforce
the provisions of the Agreement, neither party will allege, and each party
hereby waives the defense, that there is an adequate remedy at law.
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(b) If any action, suit or other proceeding (whether at law, in equity or
otherwise) is instituted concerning or arising out of this Agreement or any
transaction contemplated hereunder, the prevailing party shall recover, in
addition to any other remedy granted to such party therein, all such party's
costs and attorneys fees incurred in connection with the prosecution or defense
of such action, suit or other proceeding.
14. Entire Agreement. This Agreement and the Merger Agreement (including the
appendices and exhibits thereto) constitute the entire agreement between the
parties with respect to the subject matter hereof and supersede all other prior
agreements and understandings, both written and oral, between the parties with
respect to the subject matter hereof.
15. Further Assurances. Each party will execute and deliver all such further
documents and instruments and take all such further action as may be necessary
in order to consummate the transactions contemplated hereby.
16. Severability. In the event that any provision of this Agreement or the
application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
agree to replace such void or unenforceable provision of this Agreement with a
valid and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such void or unenforceable provision.
17. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given upon delivery either personally or by
commercial delivery service, or sent via telecopy (receipt confirmed) to the
parties at the following addresses or telecopy numbers (or at such other
address or telecopy numbers for a party as shall be specified by like notice):
(a)if to Parent or Merger Sub, to:
Kana Communications, Inc.
740 Bay Road
Redwood City, CA 94063
Attention: Jay Wood
Facsimile No.: (650) 474-8506
with a copy to:
Brobeck, Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
Attention: David Makarechian, Esq.
Facsimile No.: (650) 496-2885
(b)if to Company, to:
Broadbase Software, Inc.
181 Constitution Drive
Menlo Park, CA 94025
Attention: Chuck Bay
Facsimile No.: (650) 614-8301
with a copy to:
Fenwick & West LLP
275 Battery Street, Suite 1500
San Francisco, CA 94111
Attention: David K. Michaels, Esq.
Facsimile No.: (415) 281-1350
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18. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof.
19. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
20. Expenses. Except as otherwise expressly provided herein or in the Merger
Agreement, all costs and expenses incurred in connection with the transactions
contemplated by this Agreement shall be paid by the party incurring such
expenses.
21. Amendments; Waiver. This Agreement may be amended by the parties hereto
and the terms and conditions hereof may be waived only by an instrument in
writing signed on behalf of each of the parties hereto, or, in the case of a
waiver, by an instrument signed on behalf of the party waiving compliance.
22. Assignment. Neither of the parties hereto may sell, transfer, assign or
otherwise dispose of any of its rights or obligations under this Agreement or
the Option created hereunder to any other person, without the express written
consent of the other party, except that the rights and obligations hereunder
shall inure to the benefit of and be binding upon any successor or permitted
assign of a party hereto. No consent shall be required in connection with a
merger, consolidation, reorganization, sale of substantially all assets or
similar transaction with respect to a party hereto. Any purported assignment in
violation of this Section shall be void.
23. Public Announcement. Company shall consult with Parent and Parent shall
consult with Company before issuing any press release with respect to the
initial announcement of this Agreement or the transactions contemplated hereby
and neither party shall issue any such press release prior to such consultation
except as may be required by law.
24. Waiver Of Jury Trial. EACH OF PARENT AND COMPANY HEREBY IRREVOCABLY
WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING OR
COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE ACTIONS OF PARENT OR COMPANY IN THE
NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.
* * * * *
V-10
In Witness Whereof, the parties hereto have caused this Stock Option
Agreement to be executed by their duly authorized respective officers as of the
date first written above.
Broadbase Software, Inc.
By:__________________________________
Name: Chuck Bay
Title: Chief Executive Officer
Kana Communications, Inc.
By:__________________________________
Name: James C. Wood
Title: Chief Executive Officer
EXHIBIT 10.20
FORM OF DISTRIBUTION AND LICENSE AGREEMENT
VI-1
DISTRIBUTION AND LICENSE AGREEMENT
This Software Distribution License Agreement ("License Agreement") is made
effective as of April 9, 2001 ("Effective Date"), and is made by and between:
Kana Communications, Inc., a Delaware corporation ("Kana") and Broadbase
Software, Inc., a Delaware corporation ("Broadbase").
WHEREAS the parties wish to enter into a License Agreement to permit each of
the parties to distribute and otherwise exploit the Licensed Products of the
other (as hereinafter defined), the parties agree as follows:
1. Definitions. As used in this License Agreement, the following terms shall
have the following meanings:
"Broadbase Products" means all software owned by Broadbase, and such
software, products and services offered to third parties by Broadbase as of the
Effective Date, and any Updates or Upgrades to such software, products and
services, and new software, products and services offered for sale by
Broadbase, and all documentation associated therewith.
"Broadbase Trademarks" means all trademarks and service marks registered to
Broadbase and all trademarks and service marks for which Broadbase has applied
for registration.
"Derivative Work" means any modification, translation, port, adaptation,
extension, improvement, compilation, abridgment or other form in which the
Licensor's Licensed Products may be recast, transformed or adapted for use,
including but not limited to any form which would infringe any copyright to the
Licensor's Licensed Products but for the license granted herein.
"Intellectual Property" shall mean any or all of the following and all
rights in, arising out of, or associated therewith: (i) all patents and
applications therefor and all reissues, divisions, renewals, extensions,
provisionals, continuations and continuations-in-part thereof; (ii) all
inventions (whether patentable or not), invention disclosures, improvements,
trade secrets, proprietary information, know how, ideas and information,
designs, formulas, algorithms, processes, schematics, technology, technical
data, and all documentation relating to any of the foregoing; (iii) all
copyrights, copyrights registrations and applications therefor, and all other
rights corresponding thereto throughout the world; (iv) all industrial designs
and any registrations and applications therefor throughout the world; (v) all
trade names, URLs, logos, common law trademarks and service marks, trademark
and service mark registrations and applications therefor throughout the world;
(vi) all databases and data collections and all rights therein throughout the
world; (vii) all moral and economic rights of authors and inventors, however
denominated, throughout the world, and (viii) any similar or equivalent rights
to any of the foregoing anywhere in the world.
"Kana Products" means all software owned by Kana, and such software,
products and services offered to third parties by Kana as of the Effective
Date, and any Updates or Upgrades to such software, products and services, and
new software, products and services offered for sale by Kana during the term of
this License Agreement, and all documentation associated therewith.
"Kana Trademarks" means all trademarks and service marks registered to Kana
and all trademarks and service marks for which Kana has applied for
registration.
"Licensed Products" means the Broadbase Products and the Kana Products, as
the context requires.
"Licensed Trademarks" means the Broadbase Trademarks and the Kana
Trademarks, as the context requires.
"Merger Agreement" means the Agreement and Plan of Merger entered into as of
April 9, 2001, among Kana, Arrow Acquisition Corporation, and Broadbase.
VI-2
"Net Revenue" means each of Broadbase and Kana's invoiced license fees for
the other's Licensed Products less actual returns and applicable taxes or
similar charges imposed by governmental authorities.
"Updates" means bug fixes, modifications, variations, or enhancements made
to the Licensor's Licensed Products without a significant change in the
functionality of the Licensor's Licensed Products, the packaging (other than to
indicate a change in the version number to the right of the decimal point).
"Upgrades" means new releases and versions of the Licensor's Licensed
Products that include significant changes to functionality, new functionality,
new packaging or a change in the version number to the left of the decimal
point.
2. Object Code License. Subject to the terms of this License Agreement, each
party (the "Licensor") hereby grants to the other (the "Licensee"), a world-
wide, nontransferable, nonexclusive, royalty-bearing license under all the
Licensor's Intellectual Property to use, copy, distribute, display and perform
the Licensor's Licensed Products, including but not limited to the right to
sublicense the Licensor's Licensed Products to the Licensee's affiliates, or
sublicense or distribute the Licensor's Licensed Products through multiple
layers of distribution on a stand-alone basis or as integrated or bundled with
their own products or technology or the products or technology of others. Each
Licensee may sublicense the Licensor's Licensed Products by permitting bona
fide distributors and resellers to sell user licenses for the Licensor's
Licensed Products, by permitting duplication and distribution of the Licensor's
Licensed Products by OEMs, and by permitting users to duplicate the Licensor's
Licensed Products in connection with site licenses and similar transactions,
provided that each sublicense is made only pursuant to a valid sublicense
agreement that provides substantially similar protections to Licensor as
Licensor's standard license agreement. Each Licensee shall consult in advance
with its respective Licensor in the event that it wishes to enter into site
licenses, OEM License Agreements or other arrangements or license agreements
that provide for unlimited numbers of seats of the Licensor's Licensed Products
to be distributed or sold for a single price or otherwise allow any third party
to create copies of the Licensor's Licensed Products, and shall not enter into
any such arrangements without the Licensor's concurrence, which concurrence
will not be unreasonably withheld or delayed. Failure to object to any request
for concurrence for such arrangement within ten (10) business days of such
request shall be deemed concurrence. Licensee may modify and may authorize its
licensees to modify the documentation for the Licensor's Licensed Products and
distribute such modified documentation with the Licensor's Licensed Products,
provided that each party or its licensees must retain all the other party's
copyright, trademark and similar notices in such documentation, provided that
notwithstanding the terms of this Agreement, Licensor shall have no liability
to Licensee or any third party with respect to any such modified documentation.
3. Delivery. Within five (5) days of the Effective Date, the Licensor shall
deliver to the Licensee, in a form or medium agreed by the parties, a
reproducible form of the master versions of the then current version of the
Licensor's Licensed Products.
4. Source Code License. Each Licensor shall place the source code for the
Licensor's Licensed Products in escrow with such escrow agent as agreed by the
parties, pursuant to the terms of an escrow agreement, a form of which is
attached as Exhibit A. A party's source code shall be released from escrow (the
"Releasing Party") to the other party (the "Beneficiary") upon the occurrence
of one of the following release conditions with respect to the Releasing Party:
(i) if the Releasing Party:
(a) becomes the debtor in a voluntary petition under the United States
Bankruptcy Code;
(b) commences any proceeding for relief from or adjustment of its debts
(including without limitation by consenting to or otherwise
permitting the entry of an order for relief in an involuntary case
under the United States Bankruptcy Code);
(c) requests, consents to or permits the appointment of a receiver for
all or substantially all of its assets; or
(d) files any court proceeding seeking its liquidation and the winding
up of its affairs;
VI-3
(ii) if the Releasing Party:
(a) becomes the alleged debtor in an involuntary petition under the
United States Bankruptcy Code if such petition or proceeding is not
dismissed within ninety (90) days of filing;
(b) has filed against it any involuntary proceeding for relief from or
adjustment of its debts, or requesting the appointment of a receiver
for all or substantially all of its assets; or
(c) becomes the subject of any involuntary proceeding for the
liquidation of the party and the winding up of its affairs if such
petition or proceeding, in each case, is not dismissed within ninety
(90) days of filing;
(iii) if the Releasing Party makes a general assignment for the benefit of
its creditors, or enters into a composition of creditors; or
(iv) if the Releasing Party adopts necessary board and, if required,
stockholder resolutions for dissolution, liquidation and winding up of its
affairs.
(v) if the Releasing Party ceases to operate or do business, without there
being a successor; or
(vi) if the Releasing Party fails to provide maintenance or support of its
Licensed Products in accordance with the standard terms and conditions for such
support, where such failure renders the Licensed Products materially unusable
causing a substantial adverse impact to the business of the Beneficiary and
which failure is not cured within forty-five (45) days of written notice from
the Beneficiary of such failure.
Subject to the terms of this License Agreement, the Licensor hereby grants
to the Licensee, a world-wide, nontransferable, nonexclusive, royalty-free
license under all Intellectual Property to use, modify, or copy the source code
for Licensor's Licensed Products, create Derivative Works and improvements from
the source code for the Licensor's Licensed Products, and/or distribute such
Derivative Works in object code form.
5. Restrictions. Each Licensee agrees that under no circumstance shall it,
or shall it cause or permit any third party to, (a) distribute or allow others
to distribute the Licensor's Licensed Products except as contemplated by this
License Agreement, (b) reproduce, modify or copy the Licensor's Licensed
Products and associated documentation except as contemplated by this License
Agreement, or as permitted by the Licensor in writing, or (c) reverse assemble,
reverse compile or reverse engineer the Licensor's Licensed Products, or
otherwise attempt to discover any of the Licensor's Licensed Products source
code or underlying Confidential Information, except as contemplated in Section
4 of this License Agreement. The parties reserve all rights not expressly
granted in this License Agreement.
6. Ownership of Licensed Products and Derivative Works. As between the
parties, title to and ownership of the Licensor's Licensed Products, and all
Intellectual Property therein, any accompanying printed materials and all
copies and portions thereof shall be and at all times remain in the Licensor.
As between the parties, title to and ownership of the Derivative Works of the
Licensor's Licensed Products created by or on behalf of the Licensee, and all
Intellectual Property therein, any accompanying printed materials and all
copies and portions thereof shall be and at all times remain in the Licensee
creating such Derivative Works, subject to the Licensor's rights to the
Licensor's Licensed Products. Notwithstanding the foregoing, nothing herein
shall restrict Licensor's rights with respect to such Derivative Works to the
extent that they are retained in the memory of Licensor's employees or agents.
7. Trademark License. Subject to the terms of this Agreement, each Licensor
hereby grants to the Licensee a world-wide, nontransferable, nonexclusive,
royalty-free license to use, copy, distribute and display the Licensor's
Licensed Trademarks, including the right to sublicense the use of such
trademarks through the multiple layers of distribution, solely in connection
with the licensing or other distribution of the Licensor's Licensed Products,
and in accordance with the Licensor's trademark usage guidelines provided to
the Licensee from time to time.
VI-4
8. Updates and Upgrades. At no cost to either party, other than as provided
in Section 9, each Licensor shall provide the Licensee with all Updates and
Upgrades as soon as such Updates and Upgrades are made generally available.
9. Maintenance and Support. Each Licensor shall provide to the Licensee all
maintenance and support related to the Licensor's Licensed Products that is
offered to others on terms consistent with those generally offered to any other
person with respect to such maintenance and support.
10. Royalties. Each Licensee shall pay to the Licensor royalties equal to
ten percent (10%) of Net Revenue from the distribution or other commercial
exploitation of the Licensor's Licensed Products on a stand-alone basis, and to
the extent that the Licensor's Licensed Products are bundled with the
Licensee's own products, Licensee shall pay to Licensor royalties equal to ten
percent (10%) of that portion of the Net Revenue for such bundled product that
is reasonably attributable to the Licensor's Licensed Products. No royalties
shall be payable with respect to Licensed Products that are used internally by
the Licensee or Beneficiary or its affiliates for non-revenue generating
activities, or made available to third parties for evaluation or promotional
purposes, provided that any such evaluation or promotional use shall not be for
a period more than thirty (30) days without Licensor's prior written consent.
Royalties payable pursuant to this Section 10 shall be calculated and paid, on
a quarterly basis, not more than thirty (30) days after the last day of the
fiscal quarter in which the Net Revenue giving rise to such royalties are
recognized.
11. Audit. Each party shall deliver to the other along with its payment of
royalties due for each quarter, a written report showing, in detail, its
calculation of royalties payable with respect to such quarter. Each party shall
keep, maintain and preserve for at least two (2) years following the quarter in
which the Net Revenue giving rise to royalties is recognized by such party,
accurate records relating to such royalties. Such records shall be Confidential
Information, but shall be available for inspection and audit as provided
herein. Each party shall have the right no more than once per calendar year to
have an independent public accountant, reasonably acceptable to the other,
examine the other party's relevant books, records and accounts for the purpose
of verifying the accuracy of payments made as required under this License
Agreement. Each party acknowledges and agrees that such accountant shall not
have access to the books, records, and accounts relating to other products or
services except as such books, records and accounts also directly relate to the
payments due hereunder. Each audit will be conducted at the audited party's
place of business, or other place agreed to by the parties, during the audited
party's normal business hours and with at least five (5) business days prior
written notice. Each party shall pay the fees and expenses of its auditor for
the examination; provided that should any examination disclose a greater than
five percent (5%) shortfall in the payments due for the period being audited,
the audited party shall pay the reasonable fees and expenses of the auditor for
that examination.
12. Confidentiality.
a. Each party ("Receiving Party") agrees to keep confidential and not
disclose or use except as contemplated by this License Agreement, confidential
information related to the other party's ("Disclosing Party") technology or
business that is provided to the Receiving Party in connection with this
License Agreement, the source code of any Kana Products and any other
information received from the Disclosing Party that is stamped or marked as
Confidential by the Disclosing Party, including without limitation, any
information disclosed orally that the Disclosing Party identifies as
confidential by written notice to the Receiving Party within thirty (30) days
of such disclosure, or information that would reasonably be expected to be
confidential from its context ("Confidential Information").
b. "Confidential Information" shall not include information the Receiving
Party can document (a) is in or (through no improper action or inaction by the
Receiving Party or any affiliate, agent or employee) enters the public domain,
or (b) was rightfully in the Receiving Party's possession or known by it prior
to receipt from the Disclosing Party, or (c) was rightfully disclosed to the
Receiving Party by another person without restriction, or (d) was independently
developed by the Receiving Party by persons without access to such information
and without use of any Confidential Information of the Disclosing Party.
VI-5
c. Each party, with prior written notice to the Disclosing Party, may
disclose such Confidential Information required to be disclosed to a
governmental entity or agency, or pursuant to the lawful requirement or order
of a governmental entity or agency, provided that reasonable measures are taken
to guard against further disclosure, including without limitation, seeking
appropriate confidential treatment or a protective order, or assisting the
other party to do so.
d. The Receiving Party acknowledges and agrees that due to the unique nature
of the Disclosing Party's Confidential Information, there can be no adequate
remedy at law for any breach of its obligations hereunder, that any such breach
may allow the Receiving Party or third parties to unfairly compete with the
Disclosing Party resulting in irreparable harm to the Disclosing Party, and
therefore, that upon any such breach or any threat thereof, the Disclosing
Party shall be entitled to seek appropriate equitable relief in addition to
whatever remedies it might have at law. The Receiving Party will notify the
Disclosing Party in writing immediately upon the occurrence of any such
unauthorized release or other breach. Any breach of this Section 12 will
constitute a material breach of this License Agreement.
13. Limited Warranty and Disclaimer. Each Licensor warrants that, for a
period of ninety (90) days from the date of delivery of the Licensor Licensed
Products, (a) the Licensor's Licensed Products shall perform substantially in
accordance with the documentation therefor, and (b) the media upon which the
Licensor's Licensed Products are provided to the Licensee shall be free from
defects in material and workmanship under normal use. This warranty covers only
problems reported to the Licensor during the warranty period. WARRANTY
DISCLAIMER: EXCEPT AS EXPRESSLY STATED HEREIN, EACH LICENSOR'S LICENSED
PRODUCTS ARE PROVIDED "AS IS" WITHOUT WARRANTY OF ANY KIND, EXPRESS OR IMPLIED,
INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF PERFORMANCE OR MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE OR NONINFRINGEMENT. EACH LICENSEE BEARS ALL
RISK RELATING TO QUALITY AND PERFORMANCE OF THE LICENSOR'S LICENSED PRODUCTS.
The performance of each Licensor's Licensed Products varies with various
manufacturers' equipment with which it is used. Each Licensor does not warrant
that the Licensor's Licensed Products or the functions contained in the
Licensor's Licensed Products will meet the Licensee's requirements, operate
without interruption or be error free. The exclusive remedy for breach by each
Licensor of its limited warranty set forth above shall be replacement of any
defective Licensor's Licensed Product or medium upon its return to the Licensor
within the warranty period.
14. Limitation of Remedies and Damages. EXCEPT FOR BREACHES OF SECTION 12
PERTAINING TO CONFIDENTIALITY AND THE INDEMNITY OBLIGATIONS IN SECTION 15,
NEITHER PARTY SHALL BE RESPONSIBLE OR LIABLE WITH RESPECT TO ANY SUBJECT MATTER
OF THIS LICENSE AGREEMENT OR TERMS AND CONDITIONS RELATED THERETO UNDER ANY
CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER THEORY (A) FOR LOSS OR
INACCURACY OF DATA OR COST OF PROCUREMENT OF SUBSTITUTE GOODS, SERVICES OR
TECHNOLOGY, OR (B) FOR ANY INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES
INCLUDING, BUT NOT LIMITED TO LOSS OF REVENUES, LOSS OF PROFITS, BUSINESS
INTERRUPTION, LOSS OR INACCURACY OF DATA OR COST OF PROCUREMENT OF SUBSTITUTE
GOODS, ARISING OUT OF THE USE OF OR INABILITY TO USE THE LICENSED PRODUCTS,
EVEN IF THE PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. EXCEPT
FOR BREACHES OF SECTION 12 PERTAINING TO CONFIDENTIALITY AND INDEMNITY
OBLIGATIONS IN SECTION 15, IN NO EVENT WILL A PARTY'S LIABILITY EXCEED THE
TOTAL ROYALTIES PAID BY THE PARTIES PURSUANT TO THIS AGREEMENT. NEITHER PARTY
SHALL BE RESPONSIBLE FOR ANY MATTER BEYOND ITS REASONABLE CONTROL. Because some
jurisdictions do not allow the exclusion or limitation of liability of
consequential or incidental damages, the above limitation may not apply.
15. Indemnity.
a. Each party (the "Indemnifying Party") shall defend, indemnify and save
harmless the other, their respective affiliates, directors, officers,
employees, agents and independent contractors (the Indemnified Parties") from
any and all claims, costs, damages, and expenses (including but not limited to
reasonable
VI-6
attorney's fees) incurred by the Indemnified Parties that are attributable to
any claim, demand or cause of action asserting that any Indemnifying Party's
Licensed Product infringes any U.S. patent, copyright, trademark or trade
secret, provided that the Indemnified Parties tender sole control of the
defense and settlement of such claim to the Indemnifying Party and reasonably
cooperates in the defense thereof, provided that the Licensor shall have no
obligation hereunder to the extent that any such claim, cost, damage or expense
is based upon Licensee's use of a modified or superseded Licensed Product.
b. In the event of an occurrence of a Release Condition, and Beneficiary's
creation of any Derivative Works pursuant to the license granted in Section 4,
the Beneficiary shall defend, indemnify and save harmless the Releasing Party,
its affiliates, and their respective directors, officers, employees, agents and
independent contractors from any and all claims, costs, damages, and expenses
(including but not limited to reasonable attorney's fees) incurred by the
Releasing Party that are attributable to any claim, demand or cause of action
asserting that any Derivative Work created by the Beneficiary pursuant to the
license granted in Section 4 infringes any U.S. patent, copyright, trademark or
trade secret, provided that the Releasing Party tenders sole control of the
defense and settlement of such claim to the Beneficiary and reasonably
cooperates in the defense thereof.
16. Termination. This License Agreement shall continue in effect for five
(5) years from the Effective Date ("Initial Term"), and shall renew
automatically for additional one year terms ("Renewal Term") unless either
party provides the other party with notice of termination of the Agreement at
least sixty (60) days prior to the end of the applicable Initial Term or
Renewal Term. A party not in default under this Agreement may terminate this
Agreement upon a material breach of this Agreement by the other party that is
not cured within thirty (30) days of the breaching party's receipt of notice of
such breach.
17. Nonassignability. Unless otherwise provided in this License Agreement,
neither the rights nor the obligations arising under this License Agreement are
assignable or transferable by either party without the other party's prior
written consent, and any such attempted assignment or transfer shall be deemed
an uncurable breach, permitting the non-breaching party to immediately
terminate the licenses and rights granted to the breaching party hereunder. For
the purposes of this Section 17, any change of control of a party shall be
deemed an assignment by such party.
18. Execution of License Agreement, Controlling Law, Attorneys' Fee. This
License Agreement shall become effective as of the Effective Date and only upon
its execution by both Kana and Broadbase. This License Agreement shall be
governed by and construed in accordance with the laws of the State of
California without regard to the conflicts of law provisions thereof and
without regard to the United Nations Convention on the International Sales of
Goods. In any action to enforce this License Agreement the prevailing party
will be entitled to costs and attorneys' fees.
19. Equitable Relief. The parties acknowledges and agrees that due to the
unique nature of Confidential Information, there can be no adequate remedy at
law for any breach of its obligations hereunder, that any such breach may allow
Receiving Party or third parties to unfairly compete with the Disclosing Party
resulting in irreparable harm to the Disclosing Party and, therefore, that upon
any such breach or threat thereof, the Disclosing Party shall be entitled to
seek injunctions and other appropriate equitable relief, in addition to
whatever remedies it may have at law.
20. Notice. Any notice, report, approval or consent required or permitted
hereunder shall be in writing and will be deemed to have been effectively
given: (i) immediately upon personal delivery or facsimile transmission to the
parties to be notified, (ii) one (1) day after deposit with a commercial
overnight courier with tracking capabilities, or (iii) three (3) days after
deposit with the United States Postal Service, by registered or certified mail,
postage prepaid to the respective addresses of the parties as set forth above.
21. Waiver. The waiver by either party of a breach of this License Agreement
or any right hereunder shall not constitute a waiver of any subsequent breach
of this License Agreement; nor shall any delay by either
VI-7
party to exercise any right under this License Agreement operate as a waiver of
any such right. If any provision of this License Agreement shall be adjudged by
any court of competent jurisdiction to be unenforceable or invalid, that
provision shall be limited or eliminated to the minimum extent necessary so
that this License Agreement shall otherwise remain in full force and effect and
enforceable.
22. Basis of Bargain. EACH PARTY RECOGNIZES AND AGREES THAT THE WARRANTY
DISCLAIMERS AND LIABILITY AND REMEDY LIMITATIONS IN THIS LICENSE AGREEMENT ARE
MATERIAL BARGAINED FOR BASES OF THIS LICENSE AGREEMENT AND THAT THEY HAVE BEEN
TAKEN INTO ACCOUNT AND REFLECTED IN DETERMINING THE CONSIDERATION TO BE GIVEN
BY EACH PARTY UNDER THIS LICENSE AGREEMENT AND IN THE DECISION BY EACH PARTY TO
ENTER INTO THIS LICENSE AGREEMENT.
23. Entire License Agreement. This License Agreement constitutes the entire
License Agreement between the parties hereto related to the subject matter
hereof. Any modifications of this License Agreement must be in writing and
signed by both parties hereto.
24. Independent Contractors. The parties to this Agreement are independent
contractors. There is no relationship of partnership, joint venture,
employment, franchise, or agency between the parties. Neither party will have
the power to bind the other or incur obligations on the other's behalf without
the other's prior written consent.
25. Survival. Sections 5, 6, 10, 11, 12, 14, 13, 15, 18, 19, 20, 21, 22, 23,
24, and 25 shall survive any termination or expiration of this License
Agreement.
26. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
IN WITNESS WHEREOF, the parties hereto have executed this License Agreement
as of the Effective Date.
KANA COMMUNICATIONS, INC. BROADBASE SOFTWARE, INC.
_____________________________________ _____________________________________
By By
James C. Wood Chuck Bay
_____________________________________ _____________________________________
Name (Print) Name (Print)
Chief Executive Officer Chief Executive Officer
_____________________________________ _____________________________________
Title Title
VI-8
EXHIBIT A
FORM OF ESCROW AGREEMENT
COMPREHENSIVE PREFERRED ESCROW AGREEMENT
Account Number
This Agreement is effective , 2001 among
("Escrow Agent"), ("Depositor") and ("Preferred
Beneficiary"), who collectively may be referred to in this Agreement as "the
parties."
A. Depositor and Preferred Beneficiary have entered or will enter into a
distribution and license agreement regarding certain proprietary technology of
Depositor (referred to in this Agreement as "the License Agreement").
B. Depositor desires to avoid disclosure of its proprietary technology
except under certain limited circumstances.
C. The availability of the proprietary technology of Depositor is critical
to Preferred Beneficiary in the conduct of its business and, therefore,
Preferred Beneficiary needs access to the proprietary technology under certain
limited circumstances.
D. Depositor and Preferred Beneficiary desire to establish an escrow with
Escrow Agent to provide for the retention, administration and controlled access
of the proprietary technology materials of Depositor.
E. The parties desire this Agreement to be supplementary to the License
Agreement pursuant to 11 United States [Bankruptcy] Code, Section 365(n).
ARTICLE 1--DEPOSITS
1.1 Obligation to Make Deposit. Upon the signing of this Agreement by the
parties, Depositor shall deliver to Escrow Agent the proprietary technology and
other materials ("Deposit Materials") required to be deposited by the License
Agreement or, if the License Agreement does not identify the materials to be
deposited with Escrow Agent, then such materials will be identified on an
Exhibit B1. If Exhibit B1 is applicable, it is to be prepared and signed by
Depositor and Preferred Beneficiary. Escrow Agent shall have no obligation with
respect to the preparation, signing or delivery of Exhibit B1.
1.2 Identification of Tangible Media. Prior to the delivery of the Deposit
Materials to Escrow Agent, Depositor shall conspicuously label for
identification each document, magnetic tape, disk, or other tangible media upon
which the Deposit Materials are written or stored. Additionally, Depositor
shall complete Exhibit B2 to this Agreement by listing each such tangible media
by the item label description, the type of media and the quantity. The Exhibit
B2 must be signed by Depositor and delivered to Escrow Agent with the Deposit
Materials. Unless and until Depositor makes the initial deposit with Escrow
Agent, Escrow Agent shall have no obligation with respect to this Agreement,
except the obligation to notify the parties regarding the status of the deposit
account as required in Section 2.2 below.
1.3 Deposit Inspection. When Escrow Agent receives the Deposit Materials and
the Exhibit B2, Escrow Agent will conduct a deposit inspection by visually
matching the labeling of the tangible media containing the Deposit Materials to
the item descriptions and quantity listed on the Exhibit B2. In addition to the
deposit inspection, Preferred Beneficiary may elect to cause a verification of
the Deposit Materials in accordance with Section 1.6 below.
1.4 Acceptance of Deposit. At completion of the deposit inspection, if
Escrow Agent determines that the labeling of the tangible media matches the
item descriptions and quantity on Exhibit B2, Escrow Agent will date and sign
the Exhibit B2 and mail a copy thereof to Depositor and Preferred Beneficiary.
If Escrow Agent
VI-9
determines that the labeling does not match the item descriptions or quantity
on the Exhibit B2, Escrow Agent will (a) note the discrepancies in writing on
the Exhibit B2; (b) date and sign the Exhibit B2 with the exceptions noted; and
(c) mail a copy of the Exhibit B2 to Depositor and Preferred Beneficiary.
Escrow Agent's acceptance of the deposit occurs upon the signing of the Exhibit
B2 by Escrow Agent. Delivery of the signed Exhibit B2 to Preferred Beneficiary
is Preferred Beneficiary's notice that the Deposit Materials have been received
and accepted by Escrow Agent.
1.5 Depositor's Representations. Depositor represents as follows:
a. Depositor lawfully possesses all of the Deposit Materials deposited with
Escrow Agent;
b. With respect to all of the Deposit Materials, Depositor has the right
and authority to grant to Escrow Agent and Preferred Beneficiary the
rights as provided in this Agreement;
c. The Deposit Materials are not subject to any lien or other encumbrance;
d. The Deposit Materials consist of the proprietary technology and other
materials identified either in the License Agreement or Exhibit B1, as
the case may be; and
e. The Deposit Materials are readable and useable in their current form or,
if any portion of the Deposit Materials is encrypted, the decryption
tools and decryption keys have also been deposited.
1.6 Verification. Escrow Agent shall perform a Level I verification of the
Deposit Materials upon the initial deposit and for each update. A verification
determines, in different levels of detail, the accuracy, completeness,
sufficiency and quality of the Deposit Materials. A Level I verification is
defined as follows: Escrow Agent will cause a technically qualified Escrow
Agent employee to evaluate the Deposit Materials in order to identify (a) the
hardware and software configurations reasonably necessary to maintain the
Deposit Materials; (b) the hardware and software configurations reasonably
necessary to compile the Deposit Materials; and (c) the compilation
instructions. Escrow Agent will then prepare and deliver to Depositor and
Preferred Beneficiary a report describing the information so identified. It
shall be the responsibility of the Depositor, and not Escrow Agent, to ensure
that the Deposit Materials contain the information so identified in Escrow
Agent's report, as well as any other information that may be required in the
License Agreement.
Preferred Beneficiary shall have the right, at Preferred Beneficiary's
expense, to cause higher levels of verification of any Deposit Materials.
Preferred Beneficiary shall notify Depositor and Escrow Agent of Preferred
Beneficiary's request for verification. Depositor shall have the right to be
present at the verification. If a verification is elected after the Deposit
Materials have been delivered to Escrow Agent, then only Escrow Agent, or at
Escrow Agent's election an independent person or company selected and
supervised by Escrow Agent, may perform the verification.
1.7 Deposit Updates. Unless otherwise provided by the License Agreement,
Depositor shall update the Deposit Materials within 10 days of each release of
a new version of the product which is subject to the License Agreement. Such
updates will be added to the existing deposit. All deposit updates shall be
listed on a new Exhibit B2 and the new Exhibit B2 shall be signed by Depositor.
Each Exhibit B2 will be held and maintained separately within the escrow
account. An independent record will be created which will document the activity
for each Exhibit B2. The processing of all deposit updates shall be in
accordance with Sections 1.2 through 1.6 above. All references in this
Agreement to the Deposit Materials shall include the initial Deposit Materials
and any updates.
Escrow Agent shall notify Depositor in writing semi-annually of Depositor's
obligation to make updated deposits. Within 30 days of receipt of each such
notice, Depositor shall certify in writing to Escrow Agent that (a) it has made
the updated deposits as required in the immediately preceding paragraph; or (b)
there has not been a release of a new version of the product since the last
deposit. After the 30 days, Escrow Agent shall
VI-10
notify Preferred Beneficiary that Escrow Agent has received (a) an updated
deposit from Depositor; (b) a statement from Depositor advising there has not
been a release of a new version of the product since the last deposit; or (c)
no response from Depositor. Unlimited deposit updates and two storage units are
included in the fees for this Agreement.
1.8 Removal of Deposit Materials. The Deposit Materials may be removed
and/or exchanged only on written instructions signed by Depositor and Preferred
Beneficiary, or as otherwise provided in this Agreement.
ARTICLE 2--CONFIDENTIALITY AND RECORD KEEPING
2.1 Confidentiality. Escrow Agent shall maintain the Deposit Materials in a
secure, environmentally safe, locked facility which is accessible only to
authorized representatives of Escrow Agent. Escrow Agent shall have the
obligation to reasonably protect the confidentiality of the Deposit Materials.
Except as provided in this Agreement, Escrow Agent shall not disclose,
transfer, make available, or use the Deposit Materials. Escrow Agent shall not
disclose the content of this Agreement to any third party. If Escrow Agent
receives a subpoena or other order of a court or other judicial tribunal
pertaining to the disclosure or release of the Deposit Materials, Escrow Agent
will immediately notify the parties to this Agreement unless prohibited by law.
It shall be the responsibility of Depositor and/or Preferred Beneficiary to
challenge any such order; provided, however, that Escrow Agent does not waive
its rights to present its position with respect to any such order. Escrow Agent
will not be required to disobey any court or other judicial tribunal order.
(See Section 7.5 below for notices of requested orders.)
2.2 Status Reports. Escrow Agent will issue to Depositor and Preferred
Beneficiary a report profiling the account history at least semi-annually.
Escrow Agent may provide copies of the account history pertaining to this
Agreement upon the request of any party to this Agreement.
2.3 Audit Rights. During the term of this Agreement, Depositor and Preferred
Beneficiary shall each have the right to inspect the written records of Escrow
Agent pertaining to this Agreement. Any inspection shall be held during normal
business hours and following reasonable prior notice.
ARTICLE 3--GRANT OF RIGHTS TO ESCROW AGENT
3.1 Title to Media. Depositor hereby transfers to Escrow Agent the title to
the media upon which the proprietary technology and materials are written or
stored. However, this transfer does not include the ownership of the
proprietary technology and materials contained on the media such as any
copyright, trade secret, patent or other intellectual property rights.
3.2 Right to Make Copies. Escrow Agent shall have the right to make copies
of the Deposit Materials as reasonably necessary to perform this Agreement.
Escrow Agent shall copy all copyright, nondisclosure, and other proprietary
notices and titles contained on the Deposit Materials onto any copies made by
Escrow Agent. With all Deposit Materials submitted to Escrow Agent, Depositor
shall provide any and all instructions as may be necessary to duplicate the
Deposit Materials including but not limited to the hardware and/or software
needed.
3.3 Right to Transfer Upon Release. Depositor hereby grants to Escrow Agent
the right to transfer the Deposit Materials to Preferred Beneficiary upon any
release of the Deposit Materials for use by Preferred Beneficiary in accordance
with Section 4.5. Except upon such a release or as otherwise provided in this
Agreement, Escrow Agent shall not transfer the Deposit Materials.
VI-11
ARTICLE 4--RELEASE OF DEPOSIT
Escrow Agent shall release the Deposit Materials in accordance with the
procedures set forth in this agreement on the occurrence on any one of the
following:
(i) if the Releasing Party:
(a) becomes the debtor in a voluntary petition under the United States
Bankruptcy Code;
(b) commences any proceeding for relief from or adjustment of its debts
(including without limitation by consenting to or otherwise
permitting the entry of an order for relief in an involuntary case
under the United States Bankruptcy Code);
(c) requests, consents to or permits the appointment of a receiver for
all or substantially all of its assets; or
(d) files any court proceeding seeking its liquidation and the winding
up of its affairs;
(ii) if the Releasing Party:
(a) becomes the alleged debtor in an involuntary petition under the
United States Bankruptcy Code if such petition or proceeding is not
dismissed within ninety (90) days of filing;
(b) has filed against it any involuntary proceeding for relief from or
adjustment of its debts, or requesting the appointment of a receiver
for all or substantially all of its assets; or
(c) becomes the subject of any involuntary proceeding for the
liquidation of the party and the winding up of its affairs if such
petition or proceeding, in each case, is not dismissed within ninety
(90) days of filing;
(iii) if the Releasing Party makes a general assignment for the benefit of
its creditors, or enters into a composition of creditors; or
(iv) if the Releasing Party adopts necessary board and, if required,
stockholder resolutions for dissolution, liquidation and winding up of its
affairs.
(v) if the Releasing Party ceases to operate or do business, without there
being a successor; or
(vi) if the Releasing Party fails to provide maintenance or support of its
Licensed Products in accordance with the standard terms and conditions for such
support, where such failure renders the Licensed Products materially unusable
causing a substantial adverse impact to the business of the Beneficiary and
which failure is not cured within forty-five (45) days of written notice from
the Beneficiary of such failure (collectively, "Release Conditions").
4.2 Filing For Release. If Preferred Beneficiary believes in good faith that
a Release Condition has occurred, Preferred Beneficiary may provide to Escrow
Agent written notice of the occurrence of the Release Condition and a request
for the release of the Deposit Materials. Upon receipt of such notice, Escrow
Agent shall provide a copy of the notice to Depositor by commercial express
mail.
4.3 Contrary Instructions. From the date Escrow Agent mails the notice
requesting release of the Deposit Materials, Depositor shall have five business
days to deliver to Escrow Agent contrary instructions. "Contrary Instructions"
shall mean the written representation by Depositor that a Release Condition has
not occurred or has been cured. Upon receipt of Contrary Instructions, Escrow
Agent shall send a copy to Preferred Beneficiary by commercial express mail.
Additionally, Escrow Agent shall notify both Depositor and Preferred
Beneficiary that there is a dispute to be resolved pursuant to the Dispute
Resolution section (Section 7.3) of this Agreement. Subject to Section 5.2,
Escrow Agent will continue to store the Deposit Materials without release
pending (a) joint instructions from Depositor and Preferred Beneficiary; (b)
resolution pursuant to the Dispute Resolution provisions; or (c) order of a
court.
VI-12
4.4 Release of Deposit. If Escrow Agent does not receive Contrary
Instructions from the Depositor, Escrow Agent is authorized to release the
Deposit Materials to the Preferred Beneficiary or, if more than one beneficiary
is registered to the deposit, to release a copy of the Deposit Materials to the
Preferred Beneficiary. However, Escrow Agent is entitled to receive any fees
due Escrow Agent before making the release. Any copying expense in excess of
$300 will be chargeable to Preferred Beneficiary. This Agreement will terminate
upon the release of the Deposit Materials held by Escrow Agent.
4.5 Right to Use Following Release. Unless otherwise provided in the License
Agreement, upon release of the Deposit Materials in accordance with this
Article 4, Preferred Beneficiary shall have the right to use the Deposit
Materials for the sole purpose of exercising its rights pursuant to the License
Agreement. Preferred Beneficiary shall be obligated to maintain the
confidentiality of the released Deposit Materials.
ARTICLE 5--TERM AND TERMINATION
5.1 Term of Agreement. The initial term of this Agreement is for a period of
years from the effective date of the License Agreement. Thereafter, this
Agreement shall automatically renew from year-to-year unless (a) Depositor and
Preferred Beneficiary jointly instruct Escrow Agent in writing that the
Agreement is terminated; or (b) the Agreement is terminated by Escrow Agent for
nonpayment in accordance with Section 5.2.
5.2 Termination for Nonpayment. In the event of the nonpayment of fees owed
to Escrow Agent, Escrow Agent shall provide written notice of delinquency to
all parties to this Agreement. Any party to this Agreement shall have the right
to make the payment to Escrow Agent to cure the default. If the past due
payment is not received in full by Escrow Agent within one month of the date of
such notice, then Escrow Agent shall have the right to terminate this Agreement
at any time thereafter by sending written notice of termination to all parties.
Escrow Agent shall have no obligation to take any action under this Agreement
so long as any payment due to Escrow Agent remains unpaid.
5.3 Disposition of Deposit Materials Upon Termination. Upon termination of
this Agreement, Escrow Agent shall destroy, return, or otherwise deliver the
Deposit Materials in accordance with Depositor's instructions. If there are no
instructions, Escrow Agent may, at its sole discretion, destroy the Deposit
Materials or return them to Depositor. Escrow Agent shall have no obligation to
return or destroy the Deposit Materials if the Deposit Materials are subject to
another escrow agreement with Escrow Agent.
5.4 Survival of Terms Following Termination. Upon termination of this
Agreement, the following provisions of this Agreement shall survive:
a. Depositor's Representations (Section 1.5);
b. The obligations of confidentiality with respect to the Deposit
Materials;
c. The rights granted in the sections entitled Right to Transfer Upon
Release (Section 3.3) and Right to Use Following Release (Section 4.5),
if a release of the Deposit Materials has occurred prior to termination;
d. The obligation to pay Escrow Agent any fees and expenses due;
e. The provisions of Article 7; and
f. Any provisions in this Agreement which specifically state they survive
the termination or expiration of this Agreement.
VI-13
ARTICLE 6--ESCROW AGENT'S FEES
6.1 Fee Schedule. Escrow Agent is entitled to be paid its standard fees and
expenses applicable to the services provided. Escrow Agent shall notify the
party responsible for payment of Escrow Agent's fees at least 60 days prior to
any increase in fees. For any service not listed on Escrow Agent's standard fee
schedule, Escrow Agent will provide a quote prior to rendering the service, if
requested.
6.2 Payment Terms. Escrow Agent shall not be required to perform any service
unless the payment for such service and any outstanding balances owed to Escrow
Agent are paid in full. Fees are due upon receipt of a signed contract or
receipt of the Deposit Materials whichever is earliest. If invoiced fees are
not paid, Escrow Agent may terminate this Agreement in accordance with Section
5.2. Late fees on past due amounts shall accrue interest at the rate of one and
one-half percent per month (18% per annum) from the date of the invoice.
ARTICLE 7--LIABILITY AND DISPUTES
7.1 Right to Rely on Instructions. Escrow Agent may act in reliance upon any
instruction, instrument, or signature reasonably believed by Escrow Agent to be
genuine. Escrow Agent may assume that any employee of a party to this Agreement
who gives any written notice, request, or instruction has the authority to do
so. Escrow Agent will not be required to inquire into the truth or evaluate the
merit of any statement or representation contained in any notice or document.
Escrow Agent shall not be responsible for failure to act as a result of causes
beyond the reasonable control of Escrow Agent.
7.2 Indemnification. Depositor and Preferred Beneficiary each agree to
indemnify, defend and hold harmless Escrow Agent from any and all claims,
actions, damages, arbitration fees and expenses, costs, attorney's fees and
other liabilities ("Liabilities") incurred by Escrow Agent relating in any way
to this escrow arrangement unless such Liabilities were caused solely by the
negligence or willful misconduct of Escrow Agent.
7.3 Dispute Resolution. Any dispute relating to or arising from this
Agreement shall be resolved by arbitration under the Commercial Rules of the
American Arbitration Association. Three arbitrators shall be selected. The
Depositor and Preferred Beneficiary shall each select one arbitrator and the
two chosen arbitrators shall select the third arbitrator, or failing agreement
on the selection of the third arbitrator, the American Arbitration Association
shall select the third arbitrator. However, if Escrow Agent is a party to the
arbitration, Escrow Agent shall select the third arbitrator. Unless otherwise
agreed by Depositor and Preferred Beneficiary, arbitration will take place in
Santa Clara County, California, U.S.A. Any court having jurisdiction over the
matter may enter judgment on the award of the arbitrator(s). Service of a
petition to confirm the arbitration award may be made by First Class mail or by
commercial express mail, to the attorney for the party or, if unrepresented, to
the party at the last known business address.
7.4 Controlling Law. This Agreement is to be governed and construed in
accordance with the laws of the State of California, without regard to its
conflict of law provisions.
7.5 Notice of Requested Order. If any party intends to obtain an order from
the arbitrator or any court of competent jurisdiction which may direct Escrow
Agent to take, or refrain from taking any action, that party shall:
a. Give Escrow Agent at least two business days' prior notice of the
hearing;
b. Include in any such order that, as a precondition to Escrow Agent's
obligation, Escrow Agent be paid in full for any past due fees and be
paid for the reasonable value of the services to be rendered pursuant to
such order; and
c. Ensure that Escrow Agent not be required to deliver the original (as
opposed to a copy) of the Deposit Materials if Escrow Agent may need to
retain the original in its possession to fulfill any of its other duties.
VI-14
ARTICLE 8--GENERAL PROVISIONS
8.1 Entire Agreement. This Agreement, which includes the Exhibits described
herein, embodies the entire understanding among the parties with respect to its
subject matter and supersedes all previous communications, representations or
understandings, either oral or written. Escrow Agent is not a party to the
License Agreement between Depositor and Preferred Beneficiary and has no
knowledge of any of the terms or provisions of any such Webpay Agreements.
Escrow Agent's only obligations to Depositor or Preferred Beneficiary are as
set forth in this Agreement. No amendment or modification of this Agreement
shall be valid or binding unless signed by all the parties hereto, except that
Exhibit B1 need not be signed by Escrow Agent, Exhibit B2 need not be signed by
Preferred Beneficiary and Exhibit B3 need not be signed.
8.2 Notices. All notices, invoices, payments, deposits and other documents
and communications shall be given to the parties at the addresses specified in
the attached Exhibit B3. It shall be the responsibility of the parties to
notify each other as provided in this Section in the event of a change of
address. The parties shall have the right to rely on the last known address of
the other parties. Unless otherwise provided in this Agreement, all documents
and communications may be delivered by First Class mail.
8.3 Severability. In the event any provision of this Agreement is found to
be invalid, voidable or unenforceable, the parties agree that unless it
materially affects the entire intent and purpose of this Agreement, such
invalidity, voidability or unenforceability shall affect neither the validity
of this Agreement nor the remaining provisions herein, and the provision in
question shall be deemed to be replaced with a valid and enforceable provision
most closely reflecting the intent and purpose of the original provision.
8.4 Successors. This Agreement shall be binding upon and shall inure to the
benefit of the successors and assigns of the parties. However, Escrow Agent
shall have no obligation in performing this Agreement to recognize any
successor or assign of Depositor or Preferred Beneficiary unless Escrow Agent
receives clear, authoritative and conclusive written evidence of the change of
parties.
8.5 Regulations. Depositor and Preferred Beneficiary are responsible for and
warrant compliance with all applicable laws, rules and regulations, including
but not limited to customs laws, import, export, and re-export laws and
government regulations of any country from or to which the Deposit Materials
may be delivered in accordance with the provisions of this Agreement.
_____________________________________ _____________________________________
Depositor Preferred Beneficiary
By: _________________________________ By: _________________________________
Name: _______________________________ Name: _______________________________
Title: ______________________________ Title: ______________________________
Date: _______________________________ Date: _______________________________
Escrow Agent
By: _________________________________
Name: _______________________________
Title: ______________________________
Date: _______________________________
VI-15
EXHIBIT B1
MATERIALS TO BE DEPOSITED
Account Number
Depositor represents to Preferred Beneficiary that Deposit Materials
delivered to Escrow Agent shall consist of the following:
------------------------------------- ----------------------------------------
Depositor Preferred Beneficiary
By: _________________________________ By: _________________________________
Name: _______________________________ Name: _______________________________
Title: ______________________________ Title: ______________________________
Date: _______________________________ Date: _______________________________
VI-16
EXHIBIT B2
DESCRIPTION OF DEPOSIT MATERIALS
Depositor Company Name _________________________________________________________
Account Number _________________________________________________________________
Product Name __________________________________________________________ Version
(Product Name will appear as the Exhibit B2 Name on Account History report)
DEPOSIT MATERIAL DESCRIPTION:
Label
Description
of Each
Separate
Quantity Media Type & Size Item
-------- ----------------- -----------
Disk 3.50 or
---
DAT tape mm
---
CD-ROM
---
Data cartridge tape
---
TK 70 or tape
---
Magnetic tape
---
Documentation
---
Other
---
PRODUCT DESCRIPTION:
Environment ____________________________________________________________________
DEPOSIT MATERIAL INFORMATION:
Is the media or are any of the files encrypted? Yes / No
If yes, please include any passwords and the decryption tools.
Encryption tool name __________________________________________________ Version
Hardware required ______________________________________________________________
Software required ______________________________________________________________
Other required information _____________________________________________________
I certify for Depositor that the above described Escrow Agent has inspected and
accepted the above Deposit Materials have been transmitted to Escrow Agent:
materials (any exceptions are noted above):
Signature ___________________________ Signature ___________________________
Print Name __________________________ Print Name __________________________
Date ________________________________ Date Accepted _______________________
Exhibit B2# _________________________
Send materials to: Escrow Agent
VI-17
EXHIBIT B3
DESIGNATED CONTACT
Account Number
Notices, deposit material returns and
communications to Depositor Invoices to Depositor should be
should be addressed to: addressed to:
Company Name: __________________ ___________________________________________
Address: _______________________ ___________________________________________
__________________________ ___________________________________________
__________________________ ___________________________________________
Contact: _______________________ Contact: __________________________________
Telephone: _____________________ Telephone: ________________________________
Facsimile: _____________________ P.O.#, if required: _______________________
Pursuant to Section 1.6
Verification Contact: __________ Telephone: ________________________________
Notices and communications to Invoices to Preferred Beneficiary
Preferred Beneficiary should be
addressed to: should be addressed to:
Company Name: __________________ ___________________________________________
Address: _______________________ ___________________________________________
__________________________ ___________________________________________
__________________________ ___________________________________________
Contact: _______________________ Contact: __________________________________
Telephone: _____________________ Telephone: ________________________________
Facsimile: _____________________ P.O.#, if required: _______________________
Requests from Depositor or Preferred Beneficiary to change the designated
contact should be given in writing by the designated contact or an authorized
employee of Depositor or Preferred Beneficiary.
Contracts, Deposit Materials and
notices to Invoice inquiries and fee remittances
Escrow Agent should be addressed
to: to Escrow Agent should be addressed to:
Escrow Agent Escrow Agent
VI-18
EXHIBIT 10.21
FORM OF REVOLVING LOAN AGREEMENT
VII-1
REVOLVING LOAN AGREEMENT
THIS REVOLVING LOAN AGREEMENT (this "Agreement"), dated as of April 9,
2001, by and between KANA COMMUNICATIONS, INC., a Delaware corporation
("Borrower"), and BROADBASE SOFTWARE, INC., a Delaware corporation ("Lender");
WITNESSETH:
A. Concurrently with the execution of this Agreement, Borrower, Lender and
Arrow Acquisition Corp., a Delaware corporation and a wholly owned subsidiary
of Borrower ("Merger Sub"), are entering into an Agreement and Plan of Merger
of even date herewith (the "Merger Agreement") that provides for the merger of
Merger Sub with and into Lender (the "Merger"). Pursuant to the Merger, shares
of common stock of Lender, $0.001 par value per share, will be converted into
shares of common stock of Borrower, $0.001 par value per share, subject to the
terms and conditions set forth in the Merger Agreement. Capitalized terms used
but not defined herein shall have the meanings set forth in the Merger
Agreement.
B. As a material inducement to enter into the Merger Agreement, Borrower
desires Lender to make available, and Lender is willing to make available, a
revolving credit facility to Borrower of up to an aggregate principal amount
of Twenty Million Dollars ($20,000,000) (the "Facility").
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained and to induce Lender to extend credit to Borrower,
the parties agree as follows:
1. Definitions.
1.1 Defined Terms. As used in this Agreement, the following terms have the
meanings specified below:
"Advance" means an advance of funds to Borrower pursuant to this
Agreement; provided that the aggregate principal amount of all
outstanding Advances shall not exceed at any one time Twenty Million
Dollars ($20,000,000).
"Advance Date" means the date on which an Advance is made.
"Authority" means the government of the United States of America, any
other nation or any political subdivision thereof, whether state or
local, and any agency, authority, instrumentality, regulatory body,
court, central bank or other entity exercising executive, legislative,
judicial, taxing, regulatory or administrative powers or functions of or
pertaining to government.
"Business Day" means a weekday on which commercial banks are open for
business in San Francisco, California.
"Default" or "default" means any of the events specified in Section 5.1.
"Default Rate" means the "default rate" of interest per annum specified
in the Note.
"Effective Date" means the date of this Agreement.
"GAAP" means generally accepted accounting principles as in effect in
the United States from time to time.
"Loan" means an Advance under this Agreement.
"Loan Documents" means this Agreement, the Notes, the Advance requests,
and all other documents and instruments now or hereafter evidencing,
describing, guaranteeing or securing the Obligations contemplated hereby
or delivered in connection herewith, as they may be modified.
"Maturity Date" means the first anniversary of the date of this
Agreement, provided, that (i) if prior to such date the Merger Agreement
is terminated by Borrower pursuant to Section 7.1(i) thereof as a
VII-2
result of a willful breach by Lender, or pursuant to Section 7.1(f)
thereof, then the Maturity Date shall be the first anniversary of the
date of such termination, (ii) if prior to such first anniversary the
Merger Agreement is terminated by either Borrower or Lender pursuant to
Section 7.1(a) or (e) or (g) or (h), then the Maturity Date shall be the
date 30 days after the effective date of such termination, and (iii) if
Borrower shall execute a definitive agreement for a Parent Acquisition
then the Maturity Date shall be 30 days after the date of such
agreement.
"Note" has the meaning given the term in Section 2.4.
"Obligations" means all obligations and liabilities of Borrower to
Lender under the Loan Documents, including, without limitation, the
Loans, together with all interest accruing thereon.
"Person" means any natural person, corporation, unincorporated
organization, trust, joint-stock company, joint venture, association,
company, limited or general partnership, limited liability company, any
government or any agency or political subdivision of any government, or
any other entity or organization.
"Prime Rate" means, for any day, the rate of interest per annum quoted
by the Wall Street Journal on that date as the prime rate in effect;
each change in the Prime Rate shall be effective from and including the
date such change is quoted by the Wall Street Journal as being
effective.
"Subsidiary" means any corporation, partnership or other entity in which
a Person, directly or indirectly, owns more than fifty percent (50%) of
the stock, capital or income interests, or other beneficial interests,
or which is effectively controlled by such Person.
"Termination Date" means the earlier to occur of (i) the Effective Time
of the Merger, or (ii) the effective date of any termination of the
Merger Agreement.
1.2 Financial Terms. All financial terms used herein shall have the meanings
assigned to them under U.S. GAAP unless another meaning shall be specified.
1.3 Construction. Capitalized terms used and not otherwise defined herein
shall have the meanings set forth in the Merger Agreement. Reference to
Sections and Schedules herein shall be construed as referring to the Sections
and Schedules of this Agreement, unless otherwise stated.
2. The Revolving Loan Credit Facility.
2.1 Availability Period. Subject to the terms of this Agreement the Lender
grants to the Borrower a committed revolving credit facility made available for
Advances from the Effective Date until the earlier of (i) the Termination Date
and (ii) the Maturity Date. The Lender shall deposit $20,000,000 representing
the Facility into an escrow account (the "Escrow"). The Lender and the
Borrowers shall use their commercially reasonable efforts to appoint the escrow
agent and to finalize the terms governing the Escrow and providing for the
funding of Advances from such Escrow in accordance with the terms of this
Agreement, within two weeks from the date of this Agreement.
2.2 Advances. Lender shall make each Advance to Borrower on the Advance Date
and in the amount as set forth in the borrowing request delivered in accordance
with Section 2.3; provided that (a) no more than one Advance shall be made in
any week, (b) unless otherwise agreed in writing between the chief executive
officers of the Borrower and Lender, the aggregate principal amount of Advances
(including the Advance to be made pursuant to any such borrowing request) shall
not exceed in any week the sum of (i) the aggregate amount of cash payroll
expense of Borrower and related withholding in such week plus (ii) up to $2.5
million to fund additional expenses to be paid in such week and which are
identified in reasonable detail in the related borrowing request, less (iii)
the excess of Borrower's and its Subsidiaries' cash and cash equivalents at the
time of such borrowing request (as determined under GAAP) over $1,000,000; and
(d) in no event shall the aggregate principal amount of all outstanding
Advances exceed $20,000,000.
VII-3
In the event that a Company Triggering Event shall have occurred the
Borrower shall be entitled, notwithstanding anything to the contrary in this
section, to drawdown the entire amount of the Facility and to request the
release of all remaining funds in the Escrow.
2.3 Advance Requests. To obtain an Advance, Borrower shall submit a
borrowing request in writing, to the attention of Lender's Treasurer or Chief
Financial Officer, which request must be received by Lender no later than 12:00
noon Pacific time on a Business Day that is at least one (1) Business Day
before the Advance Date.
2.4 Promissory Note. The Advances shall be evidenced by and payable in
accordance with the terms of the promissory note, in the form attached hereto
as Exhibit A, dated the date of this Agreement from Borrower to Lender (as
amended, modified, supplemented, restated or renewed from time to time, the
"Note") and shall be repayable in accordance with the terms of the Note and
this Agreement.
2.5 Interest; Repayment of Advances.
(a) Each Advance shall accrue interest on the outstanding principal
balance of such Advance at a rate equal to the higher of (i) a rate per annum
equal to Prime Rate plus two per cent (2%) and (ii) the Applicable Federal
Reserve Rate as published by the United States Treasury Department, from the
date of such Advance until such Advance has been paid in full.
(b) Each Advance shall mature, and the principal amount thereof and all
interest and other amounts payable under the Loan Documents shall be due and
payable, on the Maturity Date.
(c) At the option of the Borrower, on delivering 10 days' prior written
notice of prepayment to the Lender, the principal amount of any Advance may be
prepaid in whole at any time, or in part from time to time, without penalty or
premium, together with interest thereon accrued through the date of such
prepayment. Each partial prepayment of any Advance shall first be applied to
interest accrued through the date of prepayment and then to principal. Any
Advance voluntarily prepaid by the Borrower hereunder may be reborrowed subject
to the terms and conditions of this Agreement.
(d) Borrower unconditionally promises to make each required payment of
principal of and interest on the Loans in lawful money of the United States by
wire transfer in immediately available funds to an account designated in
writing by Lender. Whenever any payment of principal of, or interest on, the
Loans shall be due on a day which is not a Business Day, the date for payment
thereof shall be extended to the next succeeding Business Day, and such
extension of time shall be included in the computation of interest or fees, as
the case may be.
(e) All amounts payable by Borrower pursuant to the Loan Documents shall
be payable without notice or demand and without set-off or counterclaim.
2.6 Overdue Amounts. Any payments required pursuant to any Loan Document not
made as and when due shall bear interest from the date due until paid to Lender
at the Default Rate, in Lender's discretion.
2.7 Calculation of Interest. All interest under the Notes or hereunder shall
be calculated on the basis of a 365/366-day year for the actual days during
which such amounts are outstanding.
2.8 Taxes. Any and all payments by or on account of any Obligation of
Borrower hereunder or under any other Loan Document shall be made free and
clear of and without deduction for any Taxes (excluding franchise Taxes and
Taxes on net income and foreign Taxes); provided that if Borrower shall be
required to deduct any such Taxes from such payments, then (a) the sum payable
shall be increased as necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this
Section), Lender receives an amount equal to the sum it would have received had
no such deductions been made, (b) Borrower shall make such deductions and (c)
Borrower shall pay the full amount deducted to the relevant Authority in
accordance with applicable law.
VII-4
2.9 Term. This Agreement shall become effective upon acceptance by Lender
and shall continue in full force and effect so long as any Obligation (other
than inchoate Obligations) is outstanding.
2.10 Conditions Precedent to Borrowing. In addition to any other
requirement set forth in this Agreement, Lender will not be required to make
any Advances under this Agreement unless and until the following conditions
shall have been satisfied:
(a) Loan Documents. Borrower shall have executed and delivered this
Agreement and the Note.
(b) SVB Facility. The Borrower shall have delivered to Lender a written
waiver and consent letter and, if required by Silicon Valley Bank, an
intercreditor agreement, each in a form reasonably satisfactory to the Lender
executed by Silicon Valley Bank consenting to the Borrower incurring the
indebtedness hereunder. The Lender shall use its commercially reasonable
efforts to conclude any such intercreditor agreement which is required by
Silicon Valley Bank as soon as practicable.
3. Representations and Warranties. In order to induce Lender to enter into
this Agreement and to make the Loans provided for herein, Borrower hereby
represents and warrants (all of which shall survive the execution and delivery
of the Loan Documents and all of which shall be deemed made as of the date
hereof and as of each Advance Date) that:
3.1 Valid Existence and Power. Borrower is duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization
and is duly qualified or licensed to transact business in all places where the
failure to be so qualified could reasonably be expected to have a Material
Adverse Effect on Borrower; and Borrower and each other Person which is a
party to any Loan Document (other than Lender) has the corporate power and
authority to conduct its business and to make and perform the Loan Documents
executed by it and the transactions contemplated thereby, and all such
documents will constitute the legal, valid and binding obligations of
Borrower, enforceable in accordance with their respective terms, subject only
to bankruptcy and similar laws affecting creditors' rights generally and
general principals of equity.
3.2 Authority. The execution, delivery and performance thereof by the
Borrower of any Loan Document and the consummation of the transactions
contemplated thereby have been duly authorized by all necessary corporate
action of the Borrower, and do not and will not conflict with or violate any
provision of law or regulation, or any writ, order or decree of any court or
Authority or any provision of the governing instruments of the Borrower, and
(except with respect to the Borrowers existing credit facilities) do not and
will not, with the passage of time or the giving of notice, result in a breach
of, or constitute a default or require any consent under, or impair the
Borrower's rights under, or result in the creation of any Lien upon any
property or assets of Borrower pursuant to, any law, regulation, or any
material instrument, document or agreement to which any of Borrower is a party
or by which any of Borrower or its respective properties may be subject, bound
or affected.
3.3 Compliance with Covenants; No Default. No Default has occurred and is
continuing, and the execution, delivery and performance of the Loan Documents
and the transactions contemplated thereby, and the funding of the Loan will
not cause a Default.
4. Covenants of Borrower. Borrower covenants and agrees that from the date
of the initial Advance and until payment in full of the Obligations (except
inchoate Obligations), except as otherwise set forth in the Merger Agreement
or this Agreement, it:
4.1 Use of Loan Proceeds. Shall use the proceeds of Advances to pay cash
payroll expense and related withholding, and other expenses that are
identified in reasonable detail in the related borrowing request.
4.2 Inspections. Shall permit inspections, at such times and in such manner
as may be reasonably requested by Lender and at Borrower's expense, all
records and financial information related thereto and the properties of
Borrower as Lender may deem reasonably necessary or desirable from time to
time. All information obtained pursuant to this section shall be subject to
the Confidentiality Agreement.
VII-5
4.3 Maintenance of Existence and Rights. Shall preserve and maintain its
corporate existence, authorities to transact business and shall use its
commercially reasonable efforts to preserve and maintain its Intellectual
Property necessary to the conduct of its business.
4.4 Fundamental Changes. Shall not, nor shall it permit any Subsidiary to,
merge into or consolidate with any other Person (other then Borrower) or
liquidate or dissolve, other than as contemplated by the Merger Agreement.
5. Default/Indemnification.
5.1 Events of Default. Each of the following shall constitute a Default:
(a) Borrower shall fail to pay any principal of any Loan when and as the
same shall become due and payable, whether at the due date thereof or at a date
fixed for prepayment thereof or otherwise and such failure shall continue
unremedied for a period of five (5) days; or
(b) Borrower shall fail to pay any interest on any Loan or any fee or
any other amount payable under this Agreement or any other Loan Document, when
and as the same shall become due and payable, and such failure shall continue
unremedied for a period of five (5) days; or
(c) There shall occur any default by Borrower in any of the covenants
contained in this Agreement which is not cured within thirty (30) days of
notice of such default from Lender; or
(d) Any representation or warranty made by Borrower in any Loan Document
shall prove to have been untrue or incorrect in any material respect when made;
or
(e) Borrower shall voluntarily dissolve, liquidate or terminate
operations or apply for or consent to the appointment of, or the taking of
possession by, a receiver, custodian, trustee, intervenor, liquidator or
similar official of a substantial part of its assets, admit in writing its
inability, or be generally unable, to pay its debts as the debts become due,
make a general assignment for the benefit of its creditors, commence a
voluntary case under any bankruptcy, insolvency, receivership or similar law
now or hereafter in effect, file a petition seeking to take advantage of any
other law relating to bankruptcy, insolvency, reorganization, winding-up, or
composition or adjustment of debts, fail to controvert in a timely and
appropriate manner, or acquiesce in writing to, any petition filed against it
in an involuntary case under any bankruptcy, insolvency, receivership or
similar law now or hereafter in effect, or take any corporate action for the
purpose of effecting any of the foregoing; or
(f) An involuntary proceeding shall be commenced or an involuntary
petition shall be filed seeking (i) liquidation, reorganization or other relief
in respect of Borrower or its debts, or of a substantial part of its assets,
under any bankruptcy, insolvency, receivership or similar law now or hereafter
in effect, or (ii) the appointment of a receiver, custodian, trustee,
intervenor, liquidator or similar official for Borrower or for a substantial
part of its assets, and, in any such case, such proceeding or petition shall
not have been dismissed within sixty (60) days of the commencement or filing,
as the case may be, thereof; or an order for relief, judgment or decree shall
be entered by any court of competent jurisdiction or other competent authority
approving or ordering any of the foregoing actions.
(g) Remedies. If any Default shall occur and be continuing, Lender shall
have no further obligation to make Advances to Borrower and may, at its option,
without notice and without demand, declare any or all Obligations to be
immediately due and payable (if not earlier demanded), terminate its obligation
to make Advances to Borrower, bring suit against Borrower to collect the
Obligations, exercise any remedy available to Lender hereunder at law or in
equity and take any action or exercise any remedy provided herein or in any
other Loan Document or under applicable law or in equity. No remedy shall be
exclusive of other remedies or impair the right of Lender to exercise any other
remedies.
5.2 Application of Payments. Any payments made by Borrower pursuant to this
Agreement shall be paid to and applied as follows: first, to the costs and
expenses, including reasonable attorneys' fees and
VII-6
expenses, incurred by Lender in connection with the exercise of Lender's rights
and remedies hereunder; secondly, to the interest due upon any of the
Obligations; and thirdly, to the principal amount of the Obligations.
5.3 Indemnification. Borrower shall indemnify Lender, and each Related Party
(except affiliates) of Lender (each such person being called an "Indemnitee")
against, and hold each Indemnitee harmless from, any and all losses, claims,
damages, liabilities and related expenses, including the reasonable fees,
charges and disbursements of any counsel for any Indemnitee, incurred by or
asserted against any Indemnitee arising out of, in connection with, or as a
result of (a) any Loan or the use of the proceeds therefrom, (b) the
performance by Borrower of its obligations under any of the Loan Documents or
(c) upon an Event of Default occurring and continuing, the enforcement by the
Lender of its rights and remedies thereunder; excluding Taxes and losses,
claims, damages, liabilities and related expenses arising as a result of the
negligence or willful misconduct of any Indemnitee and excluding consequential
or punitive losses or damages.
6. Miscellaneous.
6.1 No Waiver, Remedies Cumulative. No failure on the part of Lender or
Borrower to exercise, and no delay in exercising, any right hereunder or under
any other Loan Document shall operate as a waiver thereof, nor shall any single
or partial exercise of any right hereunder preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and are in addition to any other remedies provided by
law, in equity, any Loan Document or otherwise.
6.2 Survival of Agreement. All covenants, agreements, representations and
warranties made by Borrower herein and in any other Loan Document shall survive
the making of the Loans hereunder and the execution and delivery of the Notes,
regardless of any investigation made by Lender or on its behalf, and shall
continue in full force and effect so long as any Obligation (other than
inchoate Obligations) is outstanding, and there exists any commitment to lend
by Lender to Borrower.
6.3 Notices. Any notice or other communication hereunder or under any other
Loan Document to any party hereto or thereto shall be made in the manner
specified in the Merger Agreement.
6.4 Governing Law. This Agreement and the Loan Documents shall be deemed
contracts made under the laws of the State of California and shall be governed
by and construed in accordance with the laws of said state (excluding its
conflict of laws provisions if such provisions would require application of the
laws of another jurisdiction).
6.5 Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of Borrower and Lender, and their respective successors
and assigns; provided that no party may assign this Agreement or any other Loan
Document without the express written consent of the other, and any such
assignment made without such consent will be void.
6.6 Amendment. This Agreement may be amended by the parties hereto at any
time by execution of an instrument in writing signed on behalf of each of
Lender and Borrower.
6.7 Entire Agreement. This Agreement, the other Loan Documents and the
Merger Agreement (a) constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, it being understood that the Confidentiality Agreement
shall continue in full force and effect until the Closing and shall survive any
termination of this Agreement, and (b) are not intended to confer upon any
other person any rights or remedies hereunder.
6.8 Severability. In the event that any provision of this Agreement or the
application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or
VII-7
circumstances will be interpreted so as reasonably to effect the intent of the
parties hereto. The parties further agree to replace such void or unenforceable
provision of this Agreement with a valid and enforceable provision that will
achieve, to the extent possible, the economic, business and other purposes of
such void or unenforceable provision.
6.9 Waiver of Jury Trial. EACH OF LENDER AND BORROWER HEREBY IRREVOCABLY
WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
(WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE ACTIONS OF LENDER OR BORROWER IN THE NEGOTIATION,
ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.
6.10 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original and all of
which when taken together shall constitute but one and the same instrument.
6.11 No Usury. Regardless of any other provision of this Agreement, the Note
or in any other Loan Document, if for any reason the effective interest should
exceed the maximum lawful interest, the effective interest shall be deemed
reduced to, and shall be, such maximum lawful interest, and (a) the amount
which would be excessive interest shall be deemed applied to the reduction of
the principal balance of the Note and not to the payment of interest, and (b)
if the Loan evidenced by the Note have been or is thereby paid in full, the
excess shall be returned to the party paying same, such application to the
principal balance of the Note or the refunding of excess to be a complete
settlement and acquittance thereof.
6.12 Representations and Warranties of the Lender. By its execution of or
acceptance of this Agreement, the Lender represents and warrants to the
Borrower that the Lender: (i) has acquired the Note for its own account for
investment and not with a view to any resale or other distribution of the Note
in a transaction constituting a public offering or otherwise requiring
registration under the Securities Act or in a transaction that would result in
noncompliance with applicable state securities laws; (ii) has such knowledge
and experience in financial and business matters as to be capable of evaluating
the merits and the risks of its acquisition of this Note and credit extensions
to the Borrower, (iii) is an accredited investor as such term is defined in
Rule 501 of Regulation D under the Securities Act, and (iv) understands that
the Note has not been, and will not be, registered under the Securities Act or
any state securities laws.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
LENDER:
BROADBASE SOFTWARE, INC.
By: _________________________________
Name: Chuck Bay
Title: Chief Executive Officer
BORROWER:
KANA COMMUNICATIONS, INC.
By: _________________________________
Name: _______________________________
Title: ______________________________
VII-8
EXHIBIT A
[FORM OF CONVERTIBLE PROMISSORY NOTE]
THIS CONVERTIBLE PROMISSORY NOTE (THIS "NOTE") HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (AS AMENDED THE "SECURITIES ACT") AND MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, OR,
IF REQUIRED BY THE ISSUER OF THIS NOTE, AN OPINION OF COUNSEL SATISFACTORY TO
THE ISSUER OF THIS NOTE THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT.
KANA COMMUNICATIONS, INC.
CONVERTIBLE PROMISSORY NOTE
April 9, 2001
Palo Alto, California
For value received, the receipt and sufficiency of which are hereby
acknowledged, KANA COMMUNICATIONS, INC., a Delaware corporation ("Borrower"),
hereby promises to pay to the order of BROADBASE SOFTWARE, INC., a Delaware
corporation ("Lender"), the aggregate unpaid sum of all Advances made by the
Lender to the Borrower, together with accrued interest thereon to be computed
on each Advance from the date of its disbursement, pursuant to the terms and
conditions of the Agreement (as defined below).
This Promissory Note (the "Note") is the Note issued under, and entitled to
the benefits of, the Revolving Loan Agreement by and between Borrower and
Lender dated as of April 9, 2001 (said agreement, as the same may be amended,
restated or supplemented from time to time, being herein called the
"Agreement"), and the other Loan Documents, the terms and conditions of which
are made a part hereof to the same extent and with the same effect as if fully
set forth herein. Capitalized terms not defined in this Note shall have the
respective meanings assigned to them in the Agreement. This Note is entitled to
the benefit of the rights provided in the Loan Agreement.
Interest on the outstanding principal balance under this Note is payable at
the rate equal (i) to Prime Rate plus two (2%) per annum (the "Interest Rate"),
or (ii) under the circumstances contemplated by the Agreement, at the Interest
Rate plus two percent (2%) per annum (the "Default Rate"), compounded
quarterly, in immediately available United States Dollars at the time and in
the manner specified in the Agreement. The outstanding principal and interest
under this Note shall be immediately due and payable on the Maturity Date
(unless this Note shall have been previously converted, at Lender's option, as
provided below). Payments received by Lender shall be applied first to the
payment of accrued, but unpaid interest on this Note and then to the reduction
of the unpaid principal balance of this Note.
The Lender is authorized to endorse the amount and the date on which each
Advance is made, the maturity date therefore, each payment of principal with
respect thereto, and the date and amount of the conversion of any principal or
interest of any Loan that is converted into shares of Borrower's Common Stock,
on Schedule A hereto and made a part hereof, or on continuations thereof which
shall be attached hereto and made a part hereof; which recordation will
constitute prima facie evidence of the accuracy of the information so endorsed
on Schedule A; provided, that any failure to endorse such information on such
schedule or continuation thereof shall not in any manner affect any obligation
of the Borrower under the Agreement and this Note.
VII-9
At the option of Borrower, upon prior notice as provided in the Agreement,
the principal amount of this Note may be prepaid in whole or in part from time
to time, without penalty or premium, together with interest thereon accrued
through the date of such prepayment. Each partial prepayment of this Note shall
first be applied to interest accrued through the date of prepayment and then to
principal.
To the fullest extent permitted by applicable law, Borrower waives: (a)
presentment, demand and protest, and notice of presentment, dishonor, intent to
accelerate, acceleration, protest, default, nonpayment, maturity, release,
compromise, settlement, extension or renewal of any or all of the Obligations,
the Loan Documents or this Note, and (b) any bond or security that might be
required by any court prior to allowing Lender to exercise any of its remedies.
The Lender may elect at any time after the date ninety (90) days after April
17, 2001, at its sole option and effective as of the close of business on the
date of delivery of written notice of conversion to the Borrower, to convert
all or any part of the outstanding principal of and accrued interest on this
Note into that number of fully paid and nonassessable shares of Borrower's
Common Stock that is equal to the dollar amount of the principal and accrued
interest indebtedness being converted, divided by $1.10 (the "Conversion
Price"); provided, that the Conversion Price will automatically, equitably and
proportionally be adjusted to reflect any subdivision (stock split),
combination (reverse stock split), stock dividend or other recapitalization
affecting the Borrower's Common Stock; provided, further, that in no event
shall Lender be entitled to convert this Note into a total number of shares of
Common Stock that exceeds that number of shares which is equal to 19.9% of the
Borrower's total issued and outstanding shares of Common Stock as of the date
of such conversion, less such number of shares of Common Stock (if any) that
are then held by Lender and that were (A) purchased by Lender from any
officers, directors or substantial shareholders (as defined by the National
Association of Securities Dealers) of Borrower or (B) acquired by Lender upon
exercise of options under that certain Company Stock Option Agreement dated as
of April 9, 2001 between Lender and Borrower (the "Company Stock Option
Agreement"), including any shares with respect to which Lender has exercised
such option but which have not yet been delivered to Lender or (C) otherwise
acquired (or other securities convertible into Common Stock of the Borrower
otherwise acquired) by the Lender from the Borrower, or any officers, directors
or substantial shareholders (as defined by the National Association of
Securities Dealers) of Borrower, in connection with the transactions
represented by this Note or the Merger Agreement (as defined in the Agreement);
and provided, further, that Lender shall not be entitled to convert this Note
at any time upon or following a Change of Control of Lender (as defined below).
In the event that the Lender exercises its options under the Company Stock
Option Agreement (and provided that no Change of Control shall have occurred)
the Lender shall be entitled to satisfy the exercise price of such options
through the cancellation of the principal indebtedness and accrued interest
outstanding hereunder. Any such satisfaction of the option exercise price shall
be made on a dollar for dollar basis with the amount of the outstanding
principal and interest so cancelled.
A "Change of Control" of Lender shall mean any of the following transactions
(other than in a transaction involving Borrower): (i) a merger, consolidation,
business combination, recapitalization, liquidation, dissolution or similar
transaction involving the Lender pursuant to which the stockholders of the
Lender immediately preceding such transaction hold less than 50% of the
aggregate equity interests in the surviving or resulting entity of such
transaction (or the parent thereof), (ii) a sale or other disposition by the
Lender of assets representing in excess of 50% of the aggregate fair market
value of the Lender's business immediately prior to such sale, or (iii) the
acquisition by any person or group (including by way of a tender offer or an
exchange offer or issuance by Lender), directly or indirectly, of beneficial
ownership or a right to acquire beneficial ownership of shares representing in
excess of 50% of the voting power of the then outstanding shares of capital
stock of the Lender.
Lender agrees to surrender this Note to the Borrower for cancellation
following conversion of this Note and/or repayment of all principal and accrued
interest outstanding under this Note.
The Borrower shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of this Note, such number of its Common
VII-10
Stock as shall from time to time be sufficient to effect the conversion of this
Note; and if at any time the number of authorized but unissued shares of Common
Stock shall not be sufficient to effect the conversion of this Note the
Borrower will take such corporate action as may be necessary to increase its
authorized but unissued shares of Common Stock or other securities issuable
upon conversion of this Note as shall be sufficient for such purpose.
Upon Lender's election to convert any of the outstanding principal of or
accrued interest on this Note, Borrower, at its expense, will as soon as
practicable cause to be issued in the name of and delivered to Lender, a
certificate or certificates for the number of fully paid and nonassessable
shares of Borrower's Common Stock to which Lender is entitled upon such
conversion. No fractional shares will be issued upon any conversion of this
Note or any part hereof. If, upon any conversion of this Note, a fraction of a
share would otherwise result, then Borrower will pay Lender an amount of cash
equal to the fair market value of one share of the type and class of Borrower's
capital stock issuable to Lender upon such conversion (determined in accordance
with the Conversion Price applicable at the time of such conversion),
multiplied by the fraction of a share of stock to which Lender would otherwise
be entitled.
The Borrower will not, by amendment of its Certificate of Incorporation or
Bylaws, or through reorganization, consolidation, merger, dissolution, issue or
sale of securities, sale of assets or any other voluntary action, willfully
avoid or seek to avoid the observance or performance of any of the terms of
this Note. Without limiting the generality of the foregoing, the Borrower will
take all such action as may be necessary or appropriate in order that the
Borrower may duly and validly issue fully paid and nonassessable shares of
Common Stock upon any conversion of this Note.
This Note and the obligations of Borrower and the rights of Lender shall be
governed by and construed in accordance with the internal substantive laws of
the State of California without giving effect to the choice of laws rules
thereof.
IN WITNESS WHEREOF, the undersigned has executed this Note as of the date
first above written.
KANA COMMUNICATIONS, INC.
By: ________________________________
Name: ______________________________
Title: _____________________________
VII-11
SCHEDULE A TO NOTE
ADVANCES AND REPAYMENT OF ADVANCES
(1) (2) (3) (4) (5)
Amount of
Amount Maturity Repaid or
of Date of Converted Notation
Date Advance Advance Advance Made By
---- ------- -------- --------- --------
VII-12
APPENDIX VIII
OPINION OF GOLDMAN, SACHS & CO.
VIII-1
PERSONAL AND CONFIDENTIAL
April 9, 2001
Board of Directors
Kana Communications, Inc.
740 Bay Road
Redwood City, California 94063
Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to Kana Communications, Inc. ("Kana") of the exchange ratio (the "Exchange
Ratio") of 1.05 shares of Common Stock, par value $0.001 per share ("Kana
Common Stock"), of Kana to be exchanged for each share of Common Stock, par
value $0.001 per share ("Broadbase Common Stock"), of Broadbase Software, Inc.
("Broadbase") pursuant to the Agreement and Plan of Merger, dated as of April
9, 2001 (the "Agreement"), among Kana, Arrow Acquisition Corp., a wholly-owned
subsidiary of Kana, and Broadbase.
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. We are
familiar with Kana having provided certain investment banking and financial
advisory services to Kana from time to time, including having acted as lead
managing underwriter of its initial public offering of 3,300,000 shares of Kana
Common Stock in September 1999, as financial advisor to Kana in connection with
its acquisition of Silknet Software, Inc. in April 2000, as agent for Kana on
its private placement of 2,500,000 shares of Kana Common Stock in June 2000 and
as its financial advisor in connection with, and having participated in certain
of the negotiations leading to, the Agreement. We have also provided certain
investment banking services to Broadbase from time to time, including having
acted as lead managing underwriter on its public offering of 3,450,000 shares
of Broadbase Common Stock in February 2000. Goldman, Sachs & Co. provides a
full range of financial advisory and securities services and, in the course of
its normal trading activities, may from time to time effect transactions and
hold securities, including derivative securities, of Kana or Broadbase for its
own account and for the accounts of customers.
In connection with this opinion, we have reviewed, among other things, the
Agreement; the Registration Statements on Form S-1 of Kana and Broadbase
relating to the initial public offering of their respective Common Stock;
Annual Reports to Stockholders and Annual Reports on Form 10-K of Kana and
Broadbase for the two years ended December 31, 2000; certain interim reports to
stockholders and Quarterly Reports on Form 10-Q of Kana and Broadbase; certain
other communications from Kana and Broadbase to their respective stockholders;
and certain internal financial analyses and forecasts for Kana and Broadbase
prepared by their respective managements, including certain cost savings and
operating synergies projected by the managements of Kana and Broadbase to
result from the transaction contemplated by the Agreement (the "Synergies"). We
also have held discussions with members of the senior management of Kana and
Broadbase regarding their assessment of the strategic rationale for, and the
potential benefits of, the transaction contemplated by the Agreement and the
past and current business operations, financial condition and future prospects
of their respective companies, including the current and projected availability
of cash for each of Kana and Broadbase. In addition, we have reviewed the
reported price and trading activity for Kana Common Stock and Broadbase Common
Stock, compared certain financial and stock market information for Kana and
Broadbase with similar information for certain other companies the securities
of which are publicly traded, reviewed the financial terms of certain recent
business combinations in the software industry specifically and in other
industries generally and performed such other studies and analyses as we
considered appropriate.
VIII-2
We have relied upon the accuracy and completeness of all of the financial,
accounting and other information discussed with or reviewed by us and have
assumed such accuracy and completeness for purposes of rendering this opinion.
In that regard, we have assumed with your consent that the internal financial
forecasts prepared by the managements of Kana and Broadbase, including the
Synergies, have been reasonably prepared on a basis reflecting the best
currently available estimates and judgments of Kana and Broadbase. In addition,
we have not made an independent evaluation or appraisal of the assets and
liabilities of Kana or Broadbase or any of their respective subsidiaries and we
have not been furnished with any such evaluation or appraisal. Our opinion does
not address the relative merits of the transaction contemplated by the
Agreement as compared to any alternative business transaction that might be
available to Kana. Our advisory services and the opinion expressed herein are
provided for the information and assistance of the Board of Directors of Kana
in connection with its consideration of the transaction contemplated by the
Agreement and such opinion does not constitute a recommendation as to how any
holder of Kana Common Stock should vote with respect to such transaction.
Based upon and subject to the foregoing and based upon such other matters as
we consider relevant, it is our opinion that as of the date hereof the Exchange
Ratio pursuant to the Agreement is fair from a financial point of view to Kana.
Very truly yours,
VIII-3
APPENDIX IX
OPINION OF MORGAN STANLEY & CO. INCORPORATED
April 8, 2001
Board of Directors
Broadbase Software, Inc.
181 Constitution Drive,
Menlo Park, CA 94025
Members of the Board:
We understand that Broadbase, Inc. ("Broadbase" or the "Company"), Kana, Inc.
("Kana"), and Arrow Acquisition Corporation, a wholly-owned subsidiary of Kana
("Merger Sub"), propose to enter into an Agreement and Plan of Merger,
substantially in the form of the draft dated April 8, 2000 (the "Merger
Agreement") which provides, among other things, for the merger (the "Merger")
of Merger Sub with and into Broadbase. Pursuant to the Merger, Broadbase will
become a wholly-owned subsidiary of Kana and each outstanding share of common
stock, $0.001 par value per share (the "Broadbase Common Stock"), of Broadbase,
other than shares held in treasury or held by Kana or any affiliates of
Broadbase or Kana, will be converted into the right to receive 1.05 shares (the
"Exchange Ratio") of common stock, $0.001 par value per share (the "Kana Common
Stock") of Kana, subject to adjustment for a reverse stock split by Kana as set
forth in the Merger Agreement. The terms and conditions of the Merger are more
fully set forth in the Merger Agreement.
You have asked for our opinion as to whether the Exchange Ratio pursuant to the
Merger Agreement is fair from a financial point of view to the holders of
shares of Broadbase Common Stock.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of Broadbase and Kana, respectively;
(ii) reviewed certain internal financial statements and other financial and
operating data concerning Broadbase and Kana, prepared by the managements
of Broadbase and Kana, respectively;
(iii) reviewed certain financial projections prepared by the managements of
Broadbase and Kana;
(iv) reviewed certain projections of the financial benefits including, cost
savings, and costs anticipated prior to and resulting from the Merger
prepared by the management of Broadbase and Kana;
(v) reviewed the pro forma impact of the Merger on certain financial and
operating metrics, including the impact on cash balances, for the combined
company;
(vi) discussed the past and current operations and financial condition and the
prospects of Broadbase and Kana, including financial projections prepared
by the managements of Broadbase and Kana and information relating to
certain strategic, financial and operational benefits anticipated from the
Merger, with senior executives of Broadbase and Kana, respectively;
(vii) reviewed the reported prices and trading activity for the Broadbase
Common Stock and Kana Common Stock;
(viii) compared the financial performance of Broadbase and Kana and the prices
and trading activity of the Broadbase Common Stock and Kana Common Stock
with that of certain other publicly-traded companies comparable to
Broadbase and Kana, respectively, and their securities;
(ix) reviewed the financial terms, to the extent publicly available, of certain
comparable merger transactions;
IX-1
(x) reviewed and discussed with the senior managements of Broadbase and Kana
their strategic rationales for the Merger;
(xi) participated in discussions and negotiations among representatives of
Broadbase, Kana and their financial and legal advisors;
(xii) reviewed the draft Merger Agreement and certain related documents; and
(xiii) performed such other analyses and considered such other factors as we
deemed appropriate.
We have assumed and relied upon, without independent verification, the accuracy
and completeness of the information reviewed by us for the purposes of this
opinion. With respect to the financial projections, including certain
projections and information relating to the strategic, financial and
operational costs and benefits anticipated prior to and resulting from the
Merger, we have assumed that they were reasonably prepared on bases reflecting
the best currently available estimates and judgements of the future financial
performance of Broadbase and Kana, respectively. In addition, we have assumed
that the Merger will be consummated in accordance with the terms set forth in
the Merger Agreement and will be treated as a tax-free reorganization pursuant
to Section 368(a) of the Internal Revenue Code of 1986.
We have relied upon the assessment by the managements of Broadbase and Kana of
their ability to retain key employees of Broadbase and Kana, respectively. We
have also relied upon, without independent verification, the assessment by the
managements of Broadbase and Kana of: (i) the strategic, financial and other
costs and benefits expected to result from the Merger; (ii) the timing and
risks associated with the integration of Broadbase and Kana; and (iii) the
validity of, and risks associated with, Broadbase's and Kana's existing and
future technologies, services or business models. We have not made any
independent valuation or appraisal of the assets or liabilities or technology
of Broadbase and Kana, nor have we been furnished with any such appraisals. Our
opinion is necessarily based on financial, economic, market and other
conditions as in effect on, and the information made available to us as of, the
date hereof.
In arriving at our opinion, we were not authorized to solicit, and did not
solicit, interest from any party with respect to an acquisition, business
combination or other extraordinary transaction involving Broadbase. We have not
been asked to consider, and our opinion does not address, the relative merits
of the Merger as compared to any alternative strategies or transactions that
might exist for Broadbase or the effect of such strategies or transactions.
We have acted as financial advisor to the Board of Directors of Broadbase in
connection with this transaction and will receive a fee for our services. In
the ordinary course of our business we may actively trade the securities of
Broadbase and Kana for our own account and for the accounts of our customers
and, accordingly, may at any time hold a long or short position in such
securities. In the past Morgan Stanley & Co. Incorporated ("Morgan Stanley")
has provided financial advisory services for Broadbase and has received fees
for rendering these services.
It is understood that this letter is for the information of the Board of
Directors of Broadbase and may not be used for any other purpose without our
prior written consent. In addition, this opinion does not in any manner address
the prices at which the Broadbase Common Stock or the Kana Common Stock will
trade following the consummation of the Merger, and Morgan Stanley expresses no
opinion or recommendation as to how the stockholders of Broadbase should vote
at the stockholders' meeting to be held in connection with the Merger.
IX-2
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the Exchange Ratio pursuant to the Merger Agreement is fair from a
financial point of view to the holders of shares of Broadbase Common Stock.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: _________________________________
Glenn K. Wein
Principal
IX-3
APPENDIX X
(FORM OF PROXY)
KANA, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS-- , 2001
(This Proxy is solicited by the Board of Directors of the Company)
The undersigned stockholder of Kana Communications, Inc. hereby appoints
James C. Wood, David B. Fowler and Frank Huang, and each of them, with full
power of substitution, proxies to vote the shares of stock which the
undersigned could vote if personally present at the Annual Meeting of
Stockholders of Kana Inc. to be held at 10:00 a.m., local time, on
, 2001, at Brobeck, Phleger & Harrison LLP, Two Embarcadero Place,
2200 Geng Road, Palo Alto, California 94303 on the following matters:
1. APPROVAL OF THE MERGER AND THE ISSUANCE OF SHARES OF COMMON STOCK
PURSUANT TO THE MERGER AGREEMENT AMONG KANA COMMUNICATIONS, INC.,
BROADBASE SOFTWARE, INC. AND ARROW ACQUISITION CORP.
[_] FOR[_] AGAINST[_] ABSTAIN
2. APPROVAL OF THE AMENDMENT TO KANA'S SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION TO CHANGE THE NAME OF THE COMPANY TO "KANA
SOFTWARE, INC."
[_] FOR[_] AGAINST[_] ABSTAIN
3. APPROVAL AND ADOPTION OF AN AMENDMENT OF KANA'S 1999 STOCK INCENTIVE
PLAN TO:
. INCREASE THE NUMBER OF SHARES OF COMMON STOCK AVAILABLE FOR ISSUANCE
UNDER THE 1999 PLAN BY 10,000,000 SHARES; AND
. INCREASE THE LIMIT ON THE MAXIMUM NUMBER OF SHARES BY WHICH THE 1999
PLAN MAY AUTOMATICALLY INCREASE EACH YEAR BY 6,000,000 SHARES
EFFECTIVE IN 2002.
[_] FOR[_] AGAINST[_] ABSTAIN
4. APPROVAL AND ADOPTION OF AN AMENDMENT AND RESTATEMENT OF KANA'S 1999
EMPLOYEE STOCK PURCHASE PLAN TO:
. INCREASE THE NUMBER OF SHARES OF COMMON STOCK AVAILABLE FOR ISSUANCE
UNDER THE PURCHASE PLAN BY 10,000,000 SHARES;
. INCREASE THE MAXIMUM NUMBER OF SHARES BY WHICH THE SHARE RESERVE MAY
AUTOMATICALLY INCREASE BY 3,333,534 SHARES PER YEAR; AND
. REVISE CERTAIN OTHER PROVISIONS TO FACILITATE THE ADMINISTRATION OF
THE 1999 EMPLOYEE STOCK PURCHASE PLAN.
[_] FOR[_] AGAINST[_] ABSTAIN
X-1
5. TO ELECT TWO DIRECTORS TO SERVE FOR THREE-YEAR TERMS ENDING IN THE YEAR
2004 OR UNTIL THEIR SUCCESSORS ARE DULY ELECTED AND QUALIFIED.
[_] FOR all nominees listed below[_] WITHHOLD AUTHORITY[_] EXCEPTIONS
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE
MARK THE "EXCEPTIONS" BOX, AND STRIKE A LINE THROUGH THE NOMINEE'S NAME
IN THE LIST BELOW:
ROBERT W. FRICK
KEVIN HARVEY
6. IN THEIR DISCRETION UPON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE
THE MEETING
[_] FOR[_] AGAINST[_] ABSTAIN
UNLESS OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED FOR PROPOSAL 1, PROPOSAL
2, PROPOSAL 3, PROPOSAL 4, PROPOSAL 5 AND PROPOSAL 6.
Please date and sign exactly as your name appears on the envelope in which
this material was mailed. If shares are held jointly, each stockholder should
sign. Executors, administrators, trustees, etc. should use full title and, if
more than one, all should sign. If the stockholder is a corporation, please
sign full corporate name by an authorized officer. If the stockholder is a
partnership, please sign full partnership name by an authorized person.
--------------------------------------
Name(s) of Stockholder
--------------------------------------
Signature(s) of Stockholder
Dated: ___________________
X-2
APPENDIX XI
(FORM OF PROXY)
BROADBASE SOFTWARE, INC.
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS-- , 2001
(This Proxy is solicited by the Board of Directors of the Company)
The undersigned stockholder of Broadbase Software, Inc. hereby appoints
Chuck Bay and Eric Willgohs, and each of them, with full power of substitution,
proxies to vote the shares of stock which the undersigned could vote if
personally present at the Special Meeting of Stockholders of Broadbase
Software, Inc. to be held at 10:00 a.m., local time, on , 2001, at the
Stanford Park Hotel, 100 El Camino Real, Menlo Park, California.
1. APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AMONG KANA COMMUNICATIONS,
INC., BROADBASE SOFTWARE, INC. AND ARROW ACQUISITION CORP. AND APPROVAL
OF THE MERGER BY ARROW ACQUISITION CORP. WITH AND INTO BROADBASE
SOFTWARE, INC.
[_] FOR [_] AGAINST [_] ABSTAIN
2. IN THEIR DISCRETION UPON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE
THE MEETING.
UNLESS OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED FOR PROPOSAL 1 AND
PROPOSAL 2.
Please date and sign exactly as your name appears on the envelope in which
this material was mailed. If shares are held jointly, each stockholder should
sign. Executors, administrators, trustees, etc. should use full title and, if
more than one, all should sign. If the stockholder is a corporation, please
sign full corporate name by an authorized officer. If the stockholder is a
partnership, please sign full partnership name by an authorized person.
_____________________________________
Name(s) of Stockholder
_____________________________________
Signature(s) of Stockholder
Dated: ______________________________
XI-1
APPENDIX XII
KANA COMMUNICATIONS, INC.
1999 STOCK INCENTIVE PLAN
AS AMENDED IN APRIL 2001
EXHIBIT 10.22
KANA COMMUNICATIONS, INC.
1999 STOCK INCENTIVE PLAN
AS AMENDED IN APRIL 2001
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1999 Stock Incentive Plan is intended to promote the interests of Kana
Communications, Inc., a Delaware corporation, by providing eligible persons in
the Corporation's service with the opportunity to acquire a proprietary
interest, or otherwise increase their proprietary interest, in the Corporation
as an incentive for them to remain in such service.
Capitalized terms shall have the meanings assigned to such terms in the
attached Appendix.
All share numbers in this document reflect the 2-for-1 split of the Common
Stock which was effected on February 22, 2000.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into five separate equity incentives programs:
. the Discretionary Option Grant Program under which eligible persons
may, at the discretion of the Plan Administrator, be granted options
to purchase shares of Common Stock,
. the Salary Investment Option Grant Program under which eligible
employees may elect to have a portion of their base salary invested
each year in special option grants,
. the Stock Issuance Program under which eligible persons may, at the
discretion of the Plan Administrator, be issued shares of Common
Stock directly, either through the immediate purchase of such shares
or as a bonus for services rendered the Corporation (or any Parent
or Subsidiary),
. the Automatic Option Grant Program under which eligible non-employee
Board members shall automatically receive option grants at
designated intervals over their period of continued Board service,
and
. the Director Fee Option Grant Program under which non-employee Board
members may elect to have all or any portion of their annual
retainer fee otherwise payable in cash applied to a special stock
option grant.
B. The provisions of Articles One and Seven shall apply to all equity
programs under the Plan and shall govern the interests of all persons under the
Plan.
III. ADMINISTRATION OF THE PLAN
A. The Primary Committee shall have sole and exclusive authority to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to Section 16 Insiders. Administration of the Discretionary Option
Grant and Stock Issuance Programs with respect to all other persons eligible to
participate in those programs may, at the Board's discretion, be vested in the
Primary Committee or a Secondary Committee, or the Board may retain the power
to administer those programs with respect to all such persons. However, any
discretionary option grants or stock issuances for members of the Primary
Committee must be authorized by a disinterested majority of the Board.
XII-2
B. Members of the Primary Committee or any Secondary Committee shall serve
for such period of time as the Board may determine and may be removed by the
Board at any time. The Board may also at any time terminate the functions of
any Secondary Committee and reassume all powers and authority previously
delegated to such committee.
C. Each Plan Administrator shall, within the scope of its administrative
functions under the Plan, have full power and authority (subject to the
provisions of the Plan) to establish such rules and regulations as it may deem
appropriate for proper administration of the Discretionary Option Grant and
Stock Issuance Programs and to make such determinations under, and issue such
interpretations of, the provisions of those programs and any outstanding
options or stock issuances thereunder as it may deem necessary or advisable.
Decisions of the Plan Administrator within the scope of its administrative
functions under the Plan shall be final and binding on all parties who have an
interest in the Discretionary Option Grant and Stock Issuance Programs under
its jurisdiction or any stock option or stock issuance thereunder.
D. The Primary Committee shall have the sole and exclusive authority to
determine which Section 16 Insiders and other highly compensated Employees
shall be eligible for participation in the Salary Investment Option Grant
Program for one or more calendar years. However, all option grants under the
Salary Investment Option Grant Program shall be made in accordance with the
express terms of that program, and the Primary Committee shall not exercise any
discretionary functions with respect to the option grants made under that
program.
E. Service on the Primary Committee or the Secondary Committee shall
constitute service as a Board member, and members of each such committee shall
accordingly be entitled to full indemnification and reimbursement as Board
members for their service on such committee. No member of the Primary Committee
or the Secondary Committee shall be liable for any act or omission made in good
faith with respect to the Plan or any option grants or stock issuances under
the Plan.
F. Administration of the Automatic Option Grant and Director Fee Option
Grant Programs shall be self-executing in accordance with the terms of those
programs, and no Plan Administrator shall exercise any discretionary functions
with respect to any option grants or stock issuances made under those programs.
IV. ELIGIBILITY
A. The persons eligible to participate in the Discretionary Option Grant and
Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee members of the Board or the board of directors of
any Parent or Subsidiary, and
(iii) consultants and other independent advisors who provide
services to the Corporation (or any Parent or Subsidiary).
B. Only Employees who are Section 16 Insiders or other highly compensated
individuals shall be eligible to participate in the Salary Investment Option
Grant Program.
C. Each Plan Administrator shall, within the scope of its administrative
jurisdiction under the Plan, have full authority to determine, (i) with respect
to the option grants under the Discretionary Option Grant Program, which
eligible persons are to receive such grants, the time or times when those
grants are to be made, the number of shares to be covered by each such grant,
the status of the granted option as either an Incentive Option or a Non-
Statutory Option, the time or times when each option is to become exercisable,
the vesting schedule (if any) applicable to the option shares and the maximum
term for which the option is to remain outstanding and (ii) with respect to
stock issuances under the Stock Issuance Program, which eligible persons are to
receive such issuances, the time or times when the issuances are to be made,
the number of shares to be issued to each Participant, the vesting schedule (if
any) applicable to the issued shares and the consideration for such shares.
XII-3
D. The Plan Administrator shall have the absolute discretion either to grant
options in accordance with the Discretionary Option Grant Program or to effect
stock issuances in accordance with the Stock Issuance Program.
E. The individuals who shall be eligible to participate in the Automatic
Option Grant Program shall be limited to (i) those individuals who first become
non-employee Board members on or after the Underwriting Date, whether through
appointment by the Board or election by the Corporation's stockholders, and
(ii) those individuals who continue to serve as non-employee Board members at
one or more Annual Stockholders Meetings held after the Underwriting Date. A
non-employee Board member who has previously been in the employ of the
Corporation (or any Parent or Subsidiary) shall not be eligible to receive an
option grant under the Automatic Option Grant Program at the time he or she
first becomes a non-employee Board member, but shall be eligible to receive
periodic option grants under the Automatic Option Grant Program while he or she
continues to serve as a non-employee Board member.
F. All non-employee Board members shall be eligible to participate in the
Director Fee Option Grant Program.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of authorized but
unissued or reacquired Common Stock, including shares repurchased by the
Corporation on the open market. The number of shares of Common Stock initially
reserved for issuance over the term of the Plan shall not exceed Thirty-Five
Million Nine Hundred Eighty-Two Thousand Four Hundred Twenty-Eight (35,982,428)
shares. Such reserve shall consist of (i) the number of shares which remained
available for issuance, as of the Plan Effective Date, under the Predecessor
Plan as last approved by the Corporation's stockholders, including the shares
subject to outstanding options under that Predecessor Plan, (ii) plus an
additional increase of approximately Seven Million One Hundred Thirty Thousand
(7,130,000) shares approved by the Corporation's stockholders prior to the
Underwriting Date, plus (iii) an additional increase of Two Million Five
Hundred Eighty Three Thousand and One Hundred (2,583,100) shares on January 3,
2000 pursuant to the automatic share increase provisions of Section V.B of this
Article One, plus (iv) an additional increase of Ten Million (10,000,000)
shares approved by the Board in March 2000, and approved by the Corporation's
stockholders at the 2000 Special Stockholders Meeting held on April 25, 2000,
plus (v) an additional increase of Three Million Nine Hundred Ninety-Nine
Thousand Three Hundred Twenty-Eight (3,999,328) shares on January 2, 2001
pursuant to the automatic share increase provisions of Section V.B of this
Article One, plus (vi) an additional increase of Ten Million (10,000,000)
shares authorized by the Board in April 2001, subject to stockholder approval
at the 2001 Annual Meeting.
B. The number of shares of Common Stock available for issuance under the
Plan shall automatically increase on the first trading day of January each
calendar year during the term of the Plan, beginning with calendar year 2000,
by an amount equal to four and one-fourth percent (4.25%) of the total number
of shares of Common Stock outstanding on the last trading day in December of
the immediately preceding calendar year, but in no event shall any such annual
increase exceed Ten Million (10,000,000) shares./1/
C. No one person participating in the Plan may receive stock options,
separately exercisable stock appreciation rights and direct stock issuances for
more than 1,000,000 shares of Common Stock in the aggregate per calendar year.
D. Shares of Common Stock subject to outstanding options (including options
incorporated into this Plan from the Predecessor Plan) shall be available for
subsequent issuance under the Plan to the extent (i) those options expire or
terminate for any reason prior to exercise in full or (ii) the options are
cancelled in accordance with the cancellation-regrant provisions of Article
Two. Unvested shares issued under the Plan and
--------
/1/The increases in the limitation on the annual increase from Four Million
(4,000,000) to Six Million (6,000,000) shares and from Six Million
(6,000,000) shares to Ten Million (10,000,000) shares were approved by the
stockholders at the Special Meeting held on April 25, 2000 and the 2001
Annual Meeting, respectively.
XII-4
subsequently cancelled or repurchased by the Corporation at the original issue
price paid per share, pursuant to the Corporation's repurchase rights under the
Plan shall be added back to the number of shares of Common Stock reserved for
issuance under the Plan and shall accordingly be available for reissuance
through one or more subsequent option grants or direct stock issuances under
the Plan. However, should the exercise price of an option under the Plan be
paid with shares of Common Stock or should shares of Common Stock otherwise
issuable under the Plan be withheld by the Corporation in satisfaction of the
withholding taxes incurred in connection with the exercise of an option or the
vesting of a stock issuance under the Plan, then the number of shares of Common
Stock available for issuance under the Plan shall be reduced by the gross
number of shares for which the option is exercised or which vest under the
stock issuance, and not by the net number of shares of Common Stock issued to
the holder of such option or stock issuance. Shares of Common Stock underlying
one or more stock appreciation rights exercised under Section IV of Article
Two, Section III of Article Three, Section II of Article Five or Section III of
Article Six of the Plan shall not be available for subsequent issuance under
the Plan.
E. If any change is made to the Common Stock by reason of any stock split,
stock dividend, recapitalization, combination of shares, exchange of shares or
other change affecting the outstanding Common Stock as a class without the
Corporation's receipt of consideration, appropriate adjustments shall be made
by the Plan Administrator to (i) the maximum number and/or class of securities
issuable under the Plan, (ii) the maximum number and/or class of securities for
which any one person may be granted stock options, separately exercisable stock
appreciation rights and direct stock issuances under the Plan per calendar
year, (iii) the number and/or class of securities for which grants are
subsequently to be made under the Automatic Option Grant Program to new and
continuing non-employee Board members, (iv) the number and/or class of
securities and the exercise price per share in effect under each outstanding
option under the Plan, (v) the number and/or class of securities and exercise
price per share in effect under each outstanding option incorporated into this
Plan from the Predecessor Plan and (vi) the maximum number and/or class of
securities by which the share reserve is to increase automatically each
calendar year pursuant to the provisions of Section V.B of this Article One.
Such adjustments to the outstanding options are to be effected in a manner
which shall preclude the enlargement or dilution of rights and benefits under
such options. The adjustments determined by the Plan Administrator shall be
final, binding and conclusive.
XII-5
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the form approved
by the Plan Administrator; provided, however, that each such document shall
comply with the terms specified below. Each document evidencing an Incentive
Option shall, in addition, be subject to the provisions of the Plan applicable
to such options.
A. Exercise Price.
1. The exercise price per share shall be fixed by the Plan Administrator
and may be set at a price per share less than, equal to or greater than the
Fair Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately due upon exercise of the
option and shall, subject to the provisions of Section I of Article Seven
and the documents evidencing the option, be payable in one or more of the
forms specified below:
(i) cash or check made payable to the Corporation,
(ii) shares of Common Stock held for the requisite period necessary
to avoid a charge to the Corporation's earnings for financial reporting
purposes and valued at Fair Market Value on the Exercise Date, or
(iii) to the extent the option is exercised for vested shares,
through a special sale and remittance procedure pursuant to which the
Optionee shall concurrently provide irrevocable instructions to (a) a
Corporation-designated brokerage firm to effect the immediate sale of
the purchased shares and remit to the Corporation, out of the sale
proceeds available on the settlement date, sufficient funds to cover
the aggregate exercise price payable for the purchased shares plus all
applicable Federal, state and local income and employment taxes
required to be withheld by the Corporation by reason of such exercise
and (b) the Corporation to deliver the certificates for the purchased
shares directly to such brokerage firm in order to complete the sale.
Except to the extent such sale and remittance procedure is utilized, payment
of the exercise price for the purchased shares must be made on the Exercise
Date.
B. Exercise and Term of Options. Each option shall be exercisable at such
time or times, during such period and for such number of shares as shall be
determined by the Plan Administrator and set forth in the documents evidencing
the option. However, no option shall have a term in excess of ten (10) years
measured from the option grant date.
C. Effect of Termination of Service.
1. The following provisions shall govern the exercise of any options
held by the Optionee at the time of cessation of Service or death:
(i) Any option outstanding at the time of the Optionee's cessation
of Service for any reason shall remain exercisable for such period of
time thereafter as shall be determined by the Plan Administrator and
set forth in the documents evidencing the option, but no such option
shall be exercisable after the expiration of the option term.
(ii) Any option held by the Optionee at the time of death and
exercisable in whole or in part at that time may be subsequently
exercised by the personal representative of the Optionee's estate or by
the person or persons to whom the option is transferred pursuant to the
Optionee's will or the laws of inheritance or by the Optionee's
designated beneficiary or beneficiaries of that option.
XII-6
(iii) Should the Optionee's Service be terminated for Misconduct or
should the Optionee otherwise engage in Misconduct while holding one or
more outstanding options under this Article Two, then all those options
shall terminate immediately and cease to be outstanding.
(iv) During the applicable post-Service exercise period, the option
may not be exercised in the aggregate for more than the number of
vested shares for which the option is exercisable on the date of the
Optionee's cessation of Service. Upon the expiration of the applicable
exercise period or (if earlier) upon the expiration of the option term,
the option shall terminate and cease to be outstanding for any vested
shares for which the option has not been exercised. However, the option
shall, immediately upon the Optionee's cessation of Service, terminate
and cease to be outstanding to the extent the option is not otherwise
at that time exercisable for vested shares.
2. The Plan Administrator shall have complete discretion, exercisable
either at the time an option is granted or at any time while the option
remains outstanding, to:
(i) extend the period of time for which the option is to remain
exercisable following the Optionee's cessation of Service from the
limited exercise period otherwise in effect for that option to such
greater period of time as the Plan Administrator shall deem
appropriate, but in no event beyond the expiration of the option term,
and/or
(ii) permit the option to be exercised, during the applicable post-
Service exercise period, not only with respect to the number of vested
shares of Common Stock for which such option is exercisable at the time
of the Optionee's cessation of Service but also with respect to one or
more additional installments in which the Optionee would have vested
had the Optionee continued in Service.
D. Stockholder Rights. The holder of an option shall have no stockholder
rights with respect to the shares subject to the option until such person shall
have exercised the option, paid the exercise price and become a holder of
record of the purchased shares.
E. Repurchase Rights. The Plan Administrator shall have the discretion to
grant options which are exercisable for unvested shares of Common Stock. Should
the Optionee cease Service while holding such unvested shares, the Corporation
shall have the right to repurchase, at the exercise price paid per share, any
or all of those unvested shares. The terms upon which such repurchase right
shall be exercisable (including the period and procedure for exercise and the
appropriate vesting schedule for the purchased shares) shall be established by
the Plan Administrator and set forth in the document evidencing such repurchase
right.
F. Limited Transferability of Options. During the lifetime of the Optionee,
Incentive Options shall be exercisable only by the Optionee and shall not be
assignable or transferable other than by will or the laws of inheritance
following the Optionee's death. However, a Non-Statutory Option may be assigned
in whole or in part during the Optionee's lifetime to one or more members of
the Optionee's family or to a trust established exclusively for one or more
such family members or to Optionee's former spouse, to the extent such
assignment is in connection with the Optionee's estate plan or pursuant to a
domestic relations order. The assigned portion may only be exercised by the
person or persons who acquire a proprietary interest in the option pursuant to
the assignment. The terms applicable to the assigned portion shall be the same
as those in effect for the option immediately prior to such assignment and
shall be set forth in such documents issued to the assignee as the Plan
Administrator may deem appropriate. Notwithstanding the foregoing, the Optionee
may also designate one or more persons as the beneficiary or beneficiaries of
his or her outstanding options under this Article Two, and those options shall,
in accordance with such designation, automatically be transferred to such
beneficiary or beneficiaries upon the Optionee's death while holding those
options. Such beneficiary or beneficiaries shall take the transferred options
subject to all the terms and conditions of the applicable agreement evidencing
each such transferred option, including (without limitation) the limited time
period during which the option may be exercised following the Optionee's death.
XII-7
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive Options.
Except as modified by the provisions of this Section II, all the provisions of
Articles One, Two and Seven shall be applicable to Incentive Options. Options
which are specifically designated as Non-Statutory Options when issued under
the Plan shall not be subject to the terms of this Section II.
A. Eligibility. Incentive Options may only be granted to Employees.
B. Exercise Price. The exercise price per share for each Incentive Option
shall not be less than one hundred percent (100%) of the Fair Market Value per
share of Common Stock on the grant date of that Incentive Option.
C. Dollar Limitation. The aggregate Fair Market Value of the shares of
Common Stock (determined as of the respective date or dates of grant) for which
one or more options granted to any Employee under the Plan (or any other option
plan of the Corporation or any Parent or Subsidiary) may for the first time
become exercisable as Incentive Options during any one calendar year shall not
exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the
Employee holds two (2) or more such options which become exercisable for the
first time in the same calendar year, the foregoing limitation on the
exercisability of such options as Incentive Options shall be applied on the
basis of the order in which such options are granted.
D. 10% Stockholder. If any Employee to whom an Incentive Option is granted
is a 10% Stockholder, then the exercise price per share shall not be less than
one hundred ten percent (110%) of the Fair Market Value per share of Common
Stock on the option grant date, and the option term shall not exceed five (5)
years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each outstanding option shall
automatically accelerate so that each such option shall, immediately prior to
the effective date of the Corporate Transaction, become exercisable for all the
shares of Common Stock at the time subject to such option and may be exercised
for any or all of those shares as fully vested shares of Common Stock. However,
an outstanding option shall not become exercisable on such an accelerated basis
if and to the extent: (i) such option is, in connection with the Corporate
Transaction, to be assumed by the successor corporation (or parent thereof) or
(ii) such option is to be replaced with a cash incentive program of the
successor corporation which preserves the spread existing at the time of the
Corporate Transaction on any shares for which the option is not otherwise at
that time exercisable and provides for subsequent payout in accordance with the
same exercise/vesting schedule applicable to those option shares or (iii) the
acceleration of such option is subject to other limitations imposed by the Plan
Administrator at the time of the option grant.
B. All outstanding repurchase rights shall automatically terminate, and the
shares of Common Stock subject to those terminated rights shall immediately
vest in full, in the event of any Corporate Transaction, except to the extent:
(i) those repurchase rights are to be assigned to the successor corporation (or
parent thereof) in connection with such Corporate Transaction or (ii) such
accelerated vesting is precluded by other limitations imposed by the Plan
Administrator at the time the repurchase right is issued.
C. Immediately following the consummation of the Corporate Transaction, all
outstanding options shall terminate and cease to be outstanding, except to the
extent assumed by the successor corporation (or parent thereof).
D. Each option which is assumed in connection with a Corporate Transaction
shall be appropriately adjusted, immediately after such Corporate Transaction,
to apply to the number and class of securities which would have been issuable
to the Optionee in consummation of such Corporate Transaction had the option
been exercised immediately prior to such Corporate Transaction. Appropriate
adjustments to reflect such Corporate
XII-8
Transaction shall also be made to (i) the exercise price payable per share
under each outstanding option, provided the aggregate exercise price payable
for such securities shall remain the same, (ii) the maximum number and/or class
of securities available for issuance over the remaining term of the Plan and
(iii) the maximum number and/or class of securities for which any one person
may be granted stock options, separately exercisable stock appreciation rights
and direct stock issuances under the Plan per calendar year and (iv) the
maximum number and/or class of securities by which the share reserve is to
increase automatically each calendar year. To the extent the actual holders of
the Corporation's outstanding Common Stock receive cash consideration for their
Common Stock in consummation of the Corporate Transaction, the successor
corporation may, in connection with the assumption of the outstanding options
under this Plan, substitute one or more shares of its own common stock with a
fair market value equivalent to the cash consideration paid per share of Common
Stock in such Corporate Transaction.
E. The Plan Administrator shall have the discretionary authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those options shall, immediately prior to the effective date of
such Corporate Transaction, become exercisable for all the shares of Common
Stock at the time subject to those options and may be exercised for any or all
of those shares as fully vested shares of Common Stock, whether or not those
options are to be assumed in the Corporate Transaction. In addition, the Plan
Administrator shall have the discretionary authority to structure one or more
of the Corporation's repurchase rights under the Discretionary Option Grant
Program so that those rights shall not be assignable in connection with such
Corporate Transaction and shall accordingly terminate upon the consummation of
such Corporate Transaction, and the shares subject to those terminated rights
shall thereupon vest in full.
F. The Plan Administrator shall have full power and authority to structure
one or more outstanding options under the Discretionary Option Grant Program so
that those options shall become exercisable for all the shares of Common Stock
at the time subject to those options in the event the Optionee's Service is
subsequently terminated by reason of an Involuntary Termination within a
designated period (not to exceed eighteen (18) months) following the effective
date of any Corporate Transaction in which those options are assumed and do not
otherwise accelerate. In addition, the Plan Administrator may structure one or
more of the Corporation's repurchase rights so that those rights shall
immediately terminate with respect to any shares held by the Optionee at the
time of his or her Involuntary Termination, and the shares subject to those
terminated repurchase rights shall accordingly vest in full at that time.
G. The Plan Administrator shall have the discretionary authority to
structure one or more outstanding options under the Discretionary Option Grant
Program so that those options shall, immediately prior to the effective date of
a Change in Control, become exercisable for all the shares of Common Stock at
the time subject to those options and may be exercised for any or all of those
shares as fully vested shares of Common Stock. In addition, the Plan
Administrator shall have the discretionary authority to structure one or more
of the Corporation's repurchase rights under the Discretionary Option Grant
Program so that those rights shall terminate automatically upon the
consummation of such Change in Control, and the shares subject to those
terminated rights shall thereupon vest in full. Alternatively, the Plan
Administrator may condition the automatic acceleration of one or more
outstanding options under the Discretionary Option Grant Program and the
termination of one or more of the Corporation's outstanding repurchase rights
under such program upon the subsequent termination of the Optionee's Service by
reason of an Involuntary Termination within a designated period (not to exceed
eighteen (18) months) following the effective date of such Change in Control.
H. The portion of any Incentive Option accelerated in connection with a
Corporate Transaction or Change in Control shall remain exercisable as an
Incentive Option only to the extent the applicable One Hundred Thousand Dollar
($100,000) limitation is not exceeded. To the extent such dollar limitation is
exceeded, the accelerated portion of such option shall be exercisable as a
Nonstatutory Option under the Federal tax laws.
I. The outstanding options shall in no way affect the right of the
Corporation to adjust, reclassify, reorganize or otherwise change its capital
or business structure or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
XII-9
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at any time and
from time to time, with the consent of the affected option holders, the
cancellation of any or all outstanding options under the Discretionary Option
Grant Program (including outstanding options incorporated from the Predecessor
Plan) and to grant in substitution new options covering the same or a different
number of shares of Common Stock but with an exercise price per share based on
the Fair Market Value per share of Common Stock on the new grant date.
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and authority to grant to
selected Optionees tandem stock appreciation rights and/or limited stock
appreciation rights.
B. The following terms shall govern the grant and exercise of tandem stock
appreciation rights:
(i) One or more Optionees may be granted the right, exercisable upon
such terms as the Plan Administrator may establish, to elect between
the exercise of the underlying option for shares of Common Stock and
the surrender of that option in exchange for a distribution from the
Corporation in an amount equal to the excess of (a) the Fair Market
Value (on the option surrender date) of the number of shares in which
the Optionee is at the time vested under the surrendered option (or
surrendered portion thereof) over (b) the aggregate exercise price
payable for such shares.
(ii) No such option surrender shall be effective unless it is
approved by the Plan Administrator, either at the time of the actual
option surrender or at any earlier time. If the surrender is so
approved, then the distribution to which the Optionee shall be entitled
may be made in shares of Common Stock valued at Fair Market Value on
the option surrender date, in cash, or partly in shares and partly in
cash, as the Plan Administrator shall in its sole discretion deem
appropriate.
(iii) If the surrender of an option is not approved by the Plan
Administrator, then the Optionee shall retain whatever rights the
Optionee had under the surrendered option (or surrendered portion
thereof) on the option surrender date and may exercise such rights at
any time prior to the later of (a) five (5) business days after the
receipt of the rejection notice or (b) the last day on which the option
is otherwise exercisable in accordance with the terms of the documents
evidencing such option, but in no event may such rights be exercised
more than ten (10) years after the option grant date.
C. The following terms shall govern the grant and exercise of limited stock
appreciation rights:
(i) One or more Section 16 Insiders may be granted limited stock
appreciation rights with respect to their outstanding options.
(ii) Upon the occurrence of a Hostile Take-Over, each individual
holding one or more options with such a limited stock appreciation
right shall have the unconditional right (exercisable for a thirty
(30)-day period following such Hostile Take-Over) to surrender each
such option to the Corporation. In return for the surrendered option,
the Optionee shall receive a cash distribution from the Corporation in
an amount equal to the excess of (A) the Take-Over Price of the shares
of Common Stock at the time subject to such option (whether or not the
Optionee is otherwise vested in those shares) over (B) the aggregate
exercise price payable for those shares. Such cash distribution shall
be paid within five (5) days following the option surrender date.
(iii) At the time such limited stock appreciation right is granted,
the Plan Administrator shall pre-approve any subsequent exercise of
that right in accordance with the terms of this Paragraph C.
Accordingly, no further approval of the Plan Administrator or the Board
shall be required at the time of the actual option surrender and cash
distribution.
XII-10
ARTICLE THREE
SALARY INVESTMENT OPTION GRANT PROGRAM
I. OPTION GRANTS
The Primary Committee shall have the sole and exclusive authority to
determine the calendar year or years (if any) for which the Salary Investment
Option Grant Program is to be in effect and to select the Section 16 Insiders
and other highly compensated Employees eligible to participate in the Salary
Investment Option Grant Program for such calendar year or years. Each selected
individual who elects to participate in the Salary Investment Option Grant
Program must, prior to the start of each calendar year of participation, file
with the Plan Administrator (or its designate) an irrevocable authorization
directing the Corporation to reduce his or her base salary for that calendar
year by an amount not less than Ten Thousand Dollars ($10,000.00) nor more than
Fifty Thousand Dollars ($50,000.00). Each individual who files such a timely
authorization shall automatically be granted an option under the Salary
Investment Grant Program on the first trading day in January of the calendar
year for which the salary reduction is to be in effect.
II. OPTION TERMS
Each option shall be a Non-Statutory Option evidenced by one or more
documents in the form approved by the Plan Administrator; provided, however,
that each such document shall comply with the terms specified below.
A. Exercise Price.
1. The exercise price per share shall be thirty-three and one-third
percent (33-1/3%) of the Fair Market Value per share of Common Stock on the
option grant date.
2. The exercise price shall become immediately due upon exercise of the
option and shall be payable in one or more of the alternative forms
authorized under the Discretionary Option Grant Program. Except to the
extent the sale and remittance procedure specified thereunder is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
B. Number of Option Shares. The number of shares of Common Stock subject to
the option shall be determined pursuant to the following formula (rounded down
to the nearest whole number):
X = A / (B x 66-2/3%), where
X is the number of option shares,
A is the dollar amount of the reduction in the Optionee's base
salary for the calendar year to be in effect pursuant to this program,
and
B is the Fair Market Value per share of Common Stock on the option
grant date.
C. Exercise and Term of Options. The option shall become exercisable in a
series of twelve (12) successive equal monthly installments upon the Optionee's
completion of each calendar month of Service in the calendar year for which the
salary reduction is in effect. Each option shall have a maximum term of ten
(10) years measured from the option grant date.
D. Effect of Termination of Service. Should the Optionee cease Service for
any reason while holding one or more options under this Article Three, then
each such option shall remain exercisable, for any or all of the shares for
which the option is exercisable at the time of such cessation of Service, until
the earlier of (i) the expiration of the ten (10)-year option term or (ii) the
expiration of the three (3)-year period measured from the date of such
cessation of Service. Should the Optionee die while holding one or more options
under this Article Three, then each such option may be exercised, for any or
all of the shares for which the option is exercisable at the time of the
Optionee's cessation of Service (less any shares subsequently purchased by
XII-11
Optionee prior to death), by the personal representative of the Optionee's
estate or by the person or persons to whom the option is transferred pursuant
to the Optionee's will or the laws of inheritance or by the designated
beneficiary or beneficiaries of the option. Such right of exercise shall lapse,
and the option shall terminate, upon the earlier of (i) the expiration of the
ten (10)-year option term or (ii) the three (3)-year period measured from the
date of the Optionee's cessation of Service. However, the option shall,
immediately upon the Optionee's cessation of Service for any reason, terminate
and cease to remain outstanding with respect to any and all shares of Common
Stock for which the option is not otherwise at that time exercisable.
III. CORPORATE TRANSACTION/ CHANGE IN CONTROL/ HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction while the Optionee remains in
Service, each outstanding option held by such Optionee under this Salary
Investment Option Grant Program shall automatically accelerate so that each
such option shall, immediately prior to the effective date of the Corporate
Transaction, become exercisable for all the shares of Common Stock at the time
subject to such option and may be exercised for any or all of those shares as
fully-vested shares of Common Stock. Each such outstanding option shall
terminate immediately following the Corporate Transaction, except to the extent
assumed by the successor corporation (or parent thereof) in such Corporate
Transaction. Any option so assumed and shall remain exercisable for the fully-
vested shares until the earlier of (i) the expiration of the ten (10)-year
option term or (ii) the expiration of the three (3)-year period measured from
the date of the Optionee's cessation of Service.
B. In the event of a Change in Control while the Optionee remains in
Service, each outstanding option held by such Optionee under this Salary
Investment Option Grant Program shall automatically accelerate so that each
such option shall, immediately prior to the effective date of the Change in
Control, become exercisable for all the shares of Common Stock at the time
subject to such option and may be exercised for any or all of those shares as
fully-vested shares of Common Stock. The option shall remain so exercisable
until the earliest to occur of (i) the expiration of the ten (10)-year option
term, (ii) the expiration of the three (3)-year period measured from the date
of the Optionee's cessation of Service, (iii) the termination of the option in
connection with a Corporate Transaction or (iv) the surrender of the option in
connection with a Hostile Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall have a
thirty (30)-day period in which to surrender to the Corporation each
outstanding option granted him or her under the Salary Investment Option Grant
Program. The Optionee shall in return be entitled to a cash distribution from
the Corporation in an amount equal to the excess of (i) the Take-Over Price of
the shares of Common Stock at the time subject to the surrendered option
(whether or not the option is otherwise at the time exercisable for those
shares) over (ii) the aggregate exercise price payable for such shares. Such
cash distribution shall be paid within five (5) days following the surrender of
the option to the Corporation. The Primary Committee shall, at the time the
option with such limited stock appreciation right is granted under the Salary
Investment Option Grant Program, pre-approve any subsequent exercise of that
right in accordance with the terms of this Paragraph C. Accordingly, no further
approval of the Primary Committee or the Board shall be required at the time of
the actual option surrender and cash distribution.
D. Each option which is assumed in connection with a Corporate Transaction
shall be appropriately adjusted, immediately after such Corporate Transaction,
to apply to the number and class of securities which would have been issuable
to the Optionee in consummation of such Corporate Transaction had the option
been exercised immediately prior to such Corporate Transaction. Appropriate
adjustments shall also be made to the exercise price payable per share under
each outstanding option, provided the aggregate exercise price payable for such
securities shall remain the same. To the extent the actual holders of the
Corporation's outstanding Common Stock receive cash consideration for their
Common Stock in consummation of the Corporate Transaction, the successor
corporation may, in connection with the assumption of the outstanding options
under this Plan, substitute one or more shares of its own common stock with a
fair market value equivalent to the cash consideration paid per share of Common
Stock in such Corporate Transaction.
XII-12
E. The grant of options under the Salary Investment Option Grant Program
shall in no way affect the right of the Corporation to adjust, reclassify,
reorganize or otherwise change its capital or business structure or to merge,
consolidate, dissolve, liquidate or sell or transfer all or any part of its
business or assets.
IV. REMAINING TERMS
The remaining terms of each option granted under the Salary Investment
Option Grant Program shall be the same as the terms in effect for option grants
made under the Discretionary Option Grant Program.
XII-13
ARTICLE FOUR
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance Program
through direct and immediate issuances without any intervening option grants.
Each such stock issuance shall be evidenced by a Stock Issuance Agreement which
complies with the terms specified below. Shares of Common Stock may also be
issued under the Stock Issuance Program pursuant to share right awards which
entitle the recipients to receive those shares upon the attainment of
designated performance goals.
A. Purchase Price.
1. The purchase price per share shall be fixed by the Plan Administrator
and may be less than, equal to or greater than the Fair Market Value per share
of Common Stock on the issuance date.
2. Subject to the provisions of Section I of Article Seven, shares of
Common Stock may be issued under the Stock Issuance Program for any of the
following items of consideration which the Plan Administrator may deem
appropriate in each individual instance:
(i) cash or check made payable to the Corporation, or
(ii) past services rendered to the Corporation (or any Parent or
Subsidiary).
B. Vesting Provisions.
1. Shares of Common Stock issued under the Stock Issuance Program may,
in the discretion of the Plan Administrator, be fully and immediately vested
upon issuance or may vest in one or more installments over the Participant's
period of Service or upon attainment of specified performance objectives. The
elements of the vesting schedule applicable to any unvested shares of Common
Stock issued under the Stock Issuance Program shall be determined by the Plan
Administrator and incorporated into the Stock Issuance Agreement. Shares of
Common Stock may also be issued under the Stock Issuance Program pursuant to
share right awards which entitle the recipients to receive those shares upon
the attainment of designated performance goals.
2. Any new, substituted or additional securities or other property
(including money paid other than as a regular cash dividend) which the
Participant may have the right to receive with respect to the Participant's
unvested shares of Common Stock by reason of any stock dividend, stock split,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Common Stock as a class without the Corporation's
receipt of consideration shall be issued subject to (i) the same vesting
requirements applicable to the Participant's unvested shares of Common Stock
and (ii) such escrow arrangements as the Plan Administrator shall deem
appropriate.
3. The Participant shall have full stockholder rights with respect to
any shares of Common Stock issued to the Participant under the Stock Issuance
Program, whether or not the Participant's interest in those shares is vested.
Accordingly, the Participant shall have the right to vote such shares and to
receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in Service while holding one
or more unvested shares of Common Stock issued under the Stock Issuance Program
or should the performance objectives not be attained with respect to one or
more such unvested shares of Common Stock, then those shares shall be
immediately surrendered to the Corporation for cancellation, and the
Participant shall have no further stockholder rights with respect to those
shares. To the extent the surrendered shares were previously issued to the
Participant for consideration paid in cash or cash equivalent (including the
Participant's purchase-money indebtedness), the Corporation shall repay to the
Participant the cash consideration paid for the surrendered shares and shall
cancel the unpaid principal balance of any outstanding purchase-money note of
the Participant attributable to the surrendered shares.
XII-14
5. The Plan Administrator may in its discretion waive the surrender and
cancellation of one or more unvested shares of Common Stock which would
otherwise occur upon the cessation of the Participant's Service or the non-
attainment of the performance objectives applicable to those shares. Such
waiver shall result in the immediate vesting of the Participant's interest in
the shares of Common Stock as to which the waiver applies. Such waiver may be
effected at any time, whether before or after the Participant's cessation of
Service or the attainment or non-attainment of the applicable performance
objectives.
6. Outstanding share right awards under the Stock Issuance Program shall
automatically terminate, and no shares of Common Stock shall actually be issued
in satisfaction of those awards, if the performance goals established for such
awards are not attained. The Plan Administrator, however, shall have the
discretionary authority to issue shares of Common Stock under one or more
outstanding share right awards as to which the designated performance goals
have not been attained.
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. All of the Corporation's outstanding repurchase rights under the Stock
Issuance Program shall terminate automatically, and all the shares of Common
Stock subject to those terminated rights shall immediately vest in full, in the
event of any Corporate Transaction, except to the extent (i) those repurchase
rights are to be assigned to the successor corporation (or parent thereof) in
connection with such Corporate Transaction or (ii) such accelerated vesting is
precluded by other limitations imposed in the Stock Issuance Agreement.
B. The Plan Administrator shall have the discretionary authority to
structure one or more of the Corporation's repurchase rights under the Stock
Issuance Program so that those rights shall automatically terminate in whole or
in part, and the shares of Common Stock subject to those terminated rights
shall immediately vest, in the event the Participant's Service should
subsequently terminate by reason of an Involuntary Termination within a
designated period (not to exceed eighteen (18) months) following the effective
date of any Corporate Transaction in which those repurchase rights are assigned
to the successor corporation (or parent thereof).
C. The Plan Administrator shall also have the discretionary authority to
structure one or more of the Corporation's repurchase rights under the Stock
Issuance Program so that those rights shall automatically terminate in whole or
in part, and the shares of Common Stock subject to those terminated rights
shall immediately vest, in the event the Participant's Service should
subsequently terminate by reason of an Involuntary Termination within a
designated period (not to exceed eighteen (18) months) following the effective
date of any Change in Control.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion, be held in
escrow by the Corporation until the Participant's interest in such shares vests
or may be issued directly to the Participant with restrictive legends on the
certificates evidencing those unvested shares.
XII-15
ARTICLE FIVE
AUTOMATIC OPTION GRANT PROGRAM
I. OPTION TERMS
A. Grant Dates. Option grants shall be made on the dates specified below:
1. Each individual who is first elected or appointed as a non-employee
Board member at any time on or after the Underwriting Date shall automatically
be granted, on the date of such initial election or appointment, a Non-
Statutory Option to purchase 40,000 shares of Common Stock, provided that
individual has not previously been in the employ of the Corporation or any
Parent or Subsidiary.
2. On the date of each Annual Stockholders Meeting held after the
Underwriting Date, each individual who is to continue to serve as an Eligible
Director, whether or not that individual is standing for re-election to the
Board at that particular Annual Meeting, shall automatically be granted a Non-
Statutory Option to purchase 10,000 shares of Common Stock, provided such
individual has served as a non-employee Board member for at least six (6)
months. There shall be no limit on the number of such 10,000-share option
grants any one Eligible Director may receive over his or her period of Board
service, and non-employee Board members who have previously been in the employ
of the Corporation (or any Parent or Subsidiary) or who have otherwise
received one or more stock option grants from the Corporation prior to the
Underwriting Date shall be eligible to receive one or more such annual option
grants over their period of continued Board service.
B. Exercise Price.
1. The exercise price per share shall be equal to one hundred percent
(100%) of the Fair Market Value per share of Common Stock on the option grant
date.
2. The exercise price shall be payable in one or more of the alternative
forms authorized under the Discretionary Option Grant Program. Except to the
extent the sale and remittance procedure specified thereunder is utilized,
payment of the exercise price for the purchased shares must be made on the
Exercise Date.
C. Option Term. Each option shall have a term of ten (10) years measured
from the option grant date.
D. Exercise and Vesting of Options. Each option shall be immediately
exercisable for any or all of the option shares. However, any unvested shares
purchased under the option shall be subject to repurchase by the Corporation,
at the exercise price paid per share, upon the Optionee's cessation of Board
service prior to vesting in those shares. The shares subject to each initial
40,000-share grant shall vest, and the Corporation's repurchase right shall
lapse, in a series of eight (8) successive equal semi-annual installments upon
the Optionee's completion of each six (6)-month period of service as a Board
member over the forty eight (48)-month period measured from the option grant
date. The shares subject to each annual 10,000-share option grant shall be
fully vested as of the grant date.
E. Limited Transferability of Options. Each option under this Article Five
may be assigned in whole or in part during the Optionee's lifetime to one or
more members of the Optionee's family or to a trust established exclusively
for one or more such family members or to Optionee's former spouse, to the
extent such assignment is in connection with the Optionee's estate plan or
pursuant to domestic relations order. The assigned portion may only be
exercised by the person or persons who acquire a proprietary interest in the
option pursuant to the assignment. The terms applicable to the assigned
portion shall be the same as those in effect for the option immediately prior
to such assignment and shall be set forth in such documents issued to the
assignee as the Plan Administrator may deem appropriate. The Optionee may also
designate one or more persons as the beneficiary or beneficiaries of his or
her outstanding options under this Article Five, and those
XII-16
options shall, in accordance with such designation, automatically be
transferred to such beneficiary or beneficiaries upon the Optionee's death
while holding those options. Such beneficiary or beneficiaries shall take the
transferred options subject to all the terms and conditions of the applicable
agreement evidencing each such transferred option, including (without
limitation) the limited time period during which the option may be exercised
following the Optionee's death.
F. Termination of Board Service. The following provisions shall govern the
exercise of any options held by the Optionee at the time the Optionee ceases to
serve as a Board member:
(i) The Optionee (or, in the event of Optionee's death, the personal
representative of the Optionee's estate or the person or persons to
whom the option is transferred pursuant to the Optionee's will or the
laws of inheritance or the designated beneficiary or beneficiaries of
such option) shall have a twelve (12)-month period following the date
of such cessation of Board service in which to exercise each such
option.
(ii) During the twelve (12)-month exercise period, the option may
not be exercised in the aggregate for more than the number of vested
shares of Common Stock for which the option is exercisable at the time
of the Optionee's cessation of Board service.
(iii) Should the Optionee cease to serve as a Board member by reason
of death or Permanent Disability, then all shares at the time subject
to the option shall immediately vest so that such option may, during
the twelve (12)-month exercise period following such cessation of Board
service, be exercised for all or any portion of those shares as fully-
vested shares of Common Stock.
(iv) In no event shall the option remain exercisable after the
expiration of the option term. Upon the expiration of the twelve (12)-
month exercise period or (if earlier) upon the expiration of the option
term, the option shall terminate and cease to be outstanding for any
vested shares for which the option has not been exercised. However, the
option shall, immediately upon the Optionee's cessation of Board
service for any reason other than death or Permanent Disability,
terminate and cease to be outstanding to the extent the option is not
otherwise at that time exercisable for vested shares.
II. CORPORATE TRANSACTION/ CHANGE IN CONTROL/ HOSTILE TAKE-OVER
A. In the event of a Corporate Transaction while the Optionee remains a
Board member, the shares of Common Stock at the time subject to each
outstanding option held by such Optionee under this Automatic Option Grant
Program but not otherwise vested shall automatically vest in full so that each
such option shall, immediately prior to the effective date of the Corporate
Transaction, become exercisable for all the option shares as fully-vested
shares of Common Stock and may be exercised for any or all of those vested
shares. Immediately following the consummation of the Corporate Transaction,
each automatic option grant shall terminate and cease to be outstanding, except
to the extent assumed by the successor corporation (or parent thereof).
B. In the event of a Change in Control while the Optionee remains a Board
member, the shares of Common Stock at the time subject to each outstanding
option held by such Optionee under this Automatic Option Grant Program but not
otherwise vested shall automatically vest in full so that each such option
shall, immediately prior to the effective date of the Change in Control, become
exercisable for all the option shares as fully-vested shares of Common Stock
and may be exercised for any or all of those vested shares. Each such option
shall remain exercisable for such fully-vested option shares until the
expiration or sooner termination of the option term or the surrender of the
option in connection with a Hostile Take-Over.
C. All outstanding repurchase rights shall automatically terminate, and the
shares of Common Stock subject to those terminated rights shall immediately
vest in full, in the event of any Corporate Transaction or Change in Control.
XII-17
D. Upon the occurrence of a Hostile Take-Over, the Optionee shall have a
thirty (30)-day period in which to surrender to the Corporation each of his or
her outstanding automatic option grants. The Optionee shall in return be
entitled to a cash distribution from the Corporation in an amount equal to the
excess of (i) the Take-Over Price of the shares of Common Stock at the time
subject to each surrendered option (whether or not the Optionee is otherwise at
the time vested in those shares) over (ii) the aggregate exercise price payable
for such shares. Such cash distribution shall be paid within five (5) days
following the surrender of the option to the Corporation. No approval or
consent of the Board or any Plan Administrator shall be required at the time of
the actual option surrender and cash distribution.
E. Each option which is assumed in connection with a Corporate Transaction
shall be appropriately adjusted, immediately after such Corporate Transaction,
to apply to the number and class of securities which would have been issuable
to the Optionee in consummation of such Corporate Transaction had the option
been exercised immediately prior to such Corporate Transaction. Appropriate
adjustments shall also be made to the exercise price payable per share under
each outstanding option, provided the aggregate exercise price payable for such
securities shall remain the same. To the extent the actual holders of the
Corporation's outstanding Common Stock receive cash consideration for their
Common Stock in consummation of the Corporate Transaction, the successor
corporation may, in connection with the assumption of the outstanding options
under this Plan, substitute one or more shares of its own common stock with a
fair market value equivalent to the cash consideration paid per share of Common
Stock in such Corporate Transaction.
F. The grant of options under the Automatic Option Grant Program shall in no
way affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
III. REMAINING TERMS
The remaining terms of each option granted under the Automatic Option Grant
Program shall be the same as the terms in effect for option grants made under
the Discretionary Option Grant Program.
XII-18
ARTICLE SIX
DIRECTOR FEE OPTION GRANT PROGRAM
I. OPTION GRANTS
The Primary Committee shall have the sole and exclusive authority to
determine the calendar year or years for which the Director Fee Option Grant
Program is to be in effect. For each such calendar year the program is in
effect, each non-employee Board member may irrevocably elect to apply all or
any portion of the annual retainer fee otherwise payable in cash for his or her
service on the Board for that year to the acquisition of a special option grant
under this Director Fee Option Grant Program. Such election must be filed with
the Corporation's Chief Financial Officer prior to the first day of the
calendar year for which the annual retainer fee which is the subject of that
election is otherwise payable. Each non-employee Board member who files such a
timely election shall automatically be granted an option under this Director
Fee Option Grant Program on the first trading day in January in the calendar
year for which the annual retainer fee which is the subject of that election
would otherwise be payable in cash.
II. OPTION TERMS
Each option shall be a Non-Statutory Option governed by the terms and
conditions specified below.
A. Exercise Price.
1. The exercise price per share shall be thirty-three and one-third
percent (33-1/3%) of the Fair Market Value per share of Common Stock on the
option grant date.
2. The exercise price shall become immediately due upon exercise of the
option and shall be payable in one or more of the alternative forms authorized
under the Discretionary Option Grant Program. Except to the extent the sale and
remittance procedure specified thereunder is utilized, payment of the exercise
price for the purchased shares must be made on the Exercise Date.
B. Number of Option Shares. The number of shares of Common Stock subject to
the option shall be determined pursuant to the following formula (rounded down
to the nearest whole number):
X = A / (B x 66-2/3%), where
X is the number of option shares,
A is the portion of the annual retainer fee subject to the non-
employee Board member's election, and
B is the Fair Market Value per share of Common Stock on the option
grant date.
C. Exercise and Term of Options. The option shall become exercisable in a
series of twelve (12) equal monthly installments upon the Optionee's completion
of each calendar month of Board service during the calendar year for which the
retainer fee election is in effect. Each option shall have a maximum term of
ten (10) years measured from the option grant date.
D. Limited Transferability of Options. Each option under this Article Six
may be assigned in whole or in part during the Optionee's lifetime to one or
more members of the Optionee's family or to a trust established exclusively for
one or more such family members or to Optionee's former spouse, to the extent
such assignment is in connection with Optionee's estate plan or pursuant to a
domestic relations order. The assigned portion may only be exercised by the
person or persons who acquire a proprietary interest in the option pursuant to
the assignment. The terms applicable to the assigned portion shall be the same
as those in effect for the option immediately prior to such assignment and
shall be set forth in such documents issued to the assignee as the Plan
Administrator may deem appropriate. The Optionee may also designate one or more
persons as the
XII-19
beneficiary or beneficiaries of his or her outstanding options under this
Article Six, and those options shall, in accordance with such designation,
automatically be transferred to such beneficiary or beneficiaries upon the
Optionee's death while holding those options. Such beneficiary or beneficiaries
shall take the transferred options subject to all the terms and conditions of
the applicable agreement evidencing each such transferred option, including
(without limitation) the limited time period during which the option may be
exercised following the Optionee's death.
E. Termination of Board Service. Should the Optionee cease Board service for
any reason (other than death or Permanent Disability) while holding one or more
options under this Director Fee Option Grant Program, then each such option
shall remain exercisable, for any or all of the shares for which the option is
exercisable at the time of such cessation of Board service, until the earlier
of (i) the expiration of the ten (10)-year option term or (ii) the expiration
of the three (3)-year period measured from the date of such cessation of Board
service. However, each option held by the Optionee under this Director Fee
Option Grant Program at the time of his or her cessation of Board service shall
immediately terminate and cease to remain outstanding with respect to any and
all shares of Common Stock for which the option is not otherwise at that time
exercisable.
F. Death or Permanent Disability. Should the Optionee's service as a Board
member cease by reason of death or Permanent Disability, then each option held
by such Optionee under this Director Fee Option Grant Program shall immediately
become exercisable for all the shares of Common Stock at the time subject to
that option, and the option may be exercised for any or all of those shares as
fully-vested shares until the earlier of (i) the expiration of the ten (10)-
year option term or (ii) the expiration of the three (3)-year period measured
from the date of such cessation of Board service. In the event of the
Optionee's death while holding such option, the option may be exercised by the
personal representative of the Optionee's estate or by the person or persons to
whom the option is transferred pursuant to the Optionee's will or the laws of
inheritance or by the designated beneficiary or beneficiaries of such option.
Should the Optionee die after cessation of Board service but while holding
one or more options under this Director Fee Option Grant Program, then each
such option may be exercised, for any or all of the shares for which the option
is exercisable at the time of the Optionee's cessation of Board service (less
any shares subsequently purchased by Optionee prior to death), by the personal
representative of the Optionee's estate or by the person or persons to whom the
option is transferred pursuant to the Optionee's will or the laws of
inheritance or by the designated beneficiary or beneficiaries of such option.
Such right of exercise shall lapse, and the option shall terminate, upon the
earlier of (i) the expiration of the ten (10)-year option term or (ii) the
three (3)-year period measured from the date of the Optionee's cessation of
Board service.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL/HOSTILE TAKE-OVER
A. In the event of any Corporate Transaction while the Optionee remains a
Board member, each outstanding option held by such Optionee under this Director
Fee Option Grant Program shall automatically accelerate so that each such
option shall, immediately prior to the effective date of the Corporate
Transaction, become exercisable for all the shares of Common Stock at the time
subject to such option and may be exercised for any or all of those shares as
fully-vested shares of Common Stock. Each such outstanding option shall
terminate immediately following the Corporate Transaction, except to the extent
assumed by the successor corporation (or parent thereof) in such Corporate
Transaction. Any option so assumed and shall remain exercisable for the fully-
vested shares until the earlier of (i) the expiration of the ten (10)-year
option term or (ii) the expiration of the three (3)-year period measured from
the date of the Optionee's cessation of Board service.
B. In the event of a Change in Control while the Optionee remains a Board
member, each outstanding option held by such Optionee under this Director Fee
Option Grant Program shall automatically accelerate so that each such option
shall, immediately prior to the effective date of the Change in Control, become
exercisable for all the shares of Common Stock at the time subject to such
option and may be exercised for any
XII-20
or all of those shares as fully-vested shares of Common Stock. The option shall
remain so exercisable until the earliest to occur of (i) the expiration of the
ten (10)-year option term, (ii) the expiration of the three (3)-year period
measured from the date of the Optionee's cessation of Board service, (iii) the
termination of the option in connection with a Corporate Transaction or (iv)
the surrender of the option in connection with a Hostile Take-Over.
C. Upon the occurrence of a Hostile Take-Over, the Optionee shall have a
thirty (30)-day period in which to surrender to the Corporation each
outstanding option granted him or her under the Director Fee Option Grant
Program. The Optionee shall in return be entitled to a cash distribution from
the Corporation in an amount equal to the excess of (i) the Take-Over Price of
the shares of Common Stock at the time subject to each surrendered option
(whether or not the option is otherwise at the time exercisable for those
shares) over (ii) the aggregate exercise price payable for such shares. Such
cash distribution shall be paid within five (5) days following the surrender of
the option to the Corporation. No approval or consent of the Board or any Plan
Administrator shall be required at the time of the actual option surrender and
cash distribution.
D. Each option which is assumed in connection with a Corporate Transaction
shall be appropriately adjusted, immediately after such Corporate Transaction,
to apply to the number and class of securities which would have been issuable
to the Optionee in consummation of such Corporate Transaction had the option
been exercised immediately prior to such Corporate Transaction. Appropriate
adjustments shall also be made to the exercise price payable per share under
each outstanding option, provided the aggregate exercise price payable for such
securities shall remain the same. To the extent the actual holders of the
Corporation's outstanding Common Stock receive cash consideration for their
Common Stock in consummation of the Corporate Transaction, the successor
corporation may, in connection with the assumption of the outstanding options
under this Plan, substitute one or more shares of its own common stock with a
fair market value equivalent to the cash consideration paid per share of Common
Stock in such Corporate Transaction.
E. The grant of options under the Director Fee Option Grant Program shall in
no way affect the right of the Corporation to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
IV. REMAINING TERMS
The remaining terms of each option granted under this Director Fee Option
Grant Program shall be the same as the terms in effect for option grants made
under the Discretionary Option Grant Program.
XII-21
ARTICLE SEVEN
MISCELLANEOUS
I. FINANCING
The Plan Administrator may permit any Optionee or Participant to pay the
option exercise price under the Discretionary Option Grant Program or the
purchase price of shares issued under the Stock Issuance Program by delivering
a full-recourse, interest bearing promissory note payable in one or more
installments. The terms of any such promissory note (including the interest
rate and the terms of repayment) shall be established by the Plan Administrator
in its sole discretion. In no event may the maximum credit available to the
Optionee or Participant exceed the sum of (i) the aggregate option exercise
price or purchase price payable for the purchased shares (less the par value of
such shares) plus (ii) any Federal, state and local income and employment tax
liability incurred by the Optionee or the Participant in connection with the
option exercise or share purchase.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of Common Stock upon the
exercise of options or the issuance or vesting of such shares under the Plan
shall be subject to the satisfaction of all applicable Federal, state and local
income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion, provide any or all holders
of Non-Statutory Options or unvested shares of Common Stock under the Plan
(other than the options granted or the shares issued under the Automatic Option
Grant or Director Fee Option Grant Program) with the right to use shares of
Common Stock in satisfaction of all or part of the Withholding Taxes to which
such holders may become subject in connection with the exercise of their
options or the vesting of their shares. Such right may be provided to any such
holder in either or both of the following formats:
Stock Withholding: The election to have the Corporation withhold, from
the shares of Common Stock otherwise issuable upon the exercise of such Non-
Statutory Option or the vesting of such shares, a portion of those shares with
an aggregate Fair Market Value equal to the percentage of the Withholding Taxes
(not to exceed one hundred percent (100%)) designated by the holder.
Stock Delivery: The election to deliver to the Corporation, at the time
the Non-Statutory Option is exercised or the shares vest, one or more shares of
Common Stock previously acquired by such holder (other than in connection with
the option exercise or share vesting triggering the Withholding Taxes) with an
aggregate Fair Market Value equal to the percentage of the Withholding Taxes
(not to exceed one hundred percent (100%)) designated by the holder.
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan shall become effective immediately on the Plan Effective Date.
However, the Salary Investment Option Grant Program and the Director Fee Option
Grant Program shall not be implemented until such time as the Primary Committee
may deem appropriate. Options may be granted under the Discretionary Option
Grant at any time on or after the Plan Effective Date, and the initial option
grants under the Automatic Option Grant Program shall also be made on the Plan
Effective Date to any non-employee Board members eligible for such grants at
that time. However, no options granted under the Plan may be exercised, and no
shares shall be issued under the Plan, until the Plan is approved by the
Corporation's stockholders. If such stockholder approval is not obtained within
twelve (12) months after the Plan Effective Date, then all options previously
granted under this Plan shall terminate and cease to be outstanding, and no
further options shall be granted and no shares shall be issued under the Plan.
B. The Plan shall serve as the successor to the Predecessor Plan, and no
further option grants or direct stock issuances shall be made under the
Predecessor Plan after the Plan Effective Date. All options outstanding
XII-22
under the Predecessor Plan on the Plan Effective Date shall be incorporated
into the Plan at that time and shall be treated as outstanding options under
the Plan. However, each outstanding option so incorporated shall continue to be
governed solely by the terms of the documents evidencing such option, and no
provision of the Plan shall be deemed to affect or otherwise modify the rights
or obligations of the holders of such incorporated options with respect to
their acquisition of shares of Common Stock.
C. One or more provisions of the Plan, including (without limitation) the
option/vesting acceleration provisions of Article Two relating to Corporate
Transactions and Changes in Control, may, in the Plan Administrator's
discretion, be extended to one or more options incorporated from the
Predecessor Plan which do not otherwise contain such provisions.
D. The Plan shall terminate upon the earliest to occur of (i) June 30, 2009,
(ii) the date on which all shares available for issuance under the Plan shall
have been issued as fully-vested shares or (iii) the termination of all
outstanding options in connection with a Corporate Transaction. Should the Plan
terminate on June 30, 2009, then all option grants and unvested stock issuances
outstanding at that time shall continue to have force and effect in accordance
with the provisions of the documents evidencing such grants or issuances.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and authority to amend
or modify the Plan in any or all respects. However, no such amendment or
modification shall adversely affect the rights and obligations with respect to
stock options or unvested stock issuances at the time outstanding under the
Plan unless the Optionee or the Participant consents to such amendment or
modification. In addition, certain amendments may require stockholder approval
pursuant to applicable laws or regulations.
B. The Plan was amended and restated in March 2000 (the "March 2000
Restatement") to effect the following changes, which were approved by the
Corporation's stockholders at the 2000 Special Stockholders Meeting held on
April 25, 2000:
(i) increase the maximum number of shares of Common Stock authorized
for issuance under the Plan by an additional 10,000,000 shares so that
the authorized share reserve was thereby increased from 11,983,100
shares to 21,983,100 shares of Common Stock;
(ii) provide the Plan Administrator with the authority to make
option grants and direct stock issuances under the Discretionary Option
Grant and Stock Issuance Programs with an exercise or issue price less
than the Fair Market Value of the shares on the date of the option
grant or stock issuance; and
(iii) increase the limitation on the number of shares by which the
share reserve is to increase automatically each year pursuant to the
provisions of Section V.B of Article One from 4,000,000 shares to
6,000,000 shares.
C. The Plan was amended in April 2001 (the "April 2001 Amendment") subject
to stockholder approval at the 2001 Annual Meeting to: (i) effect an increase
the maximum number of shares of Common Stock authorized for issuance under the
Plan by an additional 10,000,000 shares so that the authorized share reserve
was thereby increased from Twenty-Five Million Nine Hundred Eighty-Two Thousand
Four Hundred Twenty-Eight (25,982,428) shares to Thirty-Five Million Nine
Hundred Eighty-Two Thousand Four Hundred Twenty-Eight (35,982,428) shares of
Common Stock; and increase the limitation of the number of shares by which the
reserve is to increase automatically each year pursuant to the provisions of
Section V.B of Article One from 6,000,000 shares to 10,000,000 shares.
No option grants or direct stock issuances shall be made on the basis of the
share increase authorized by the 2001 Amendment unless and until that amendment
is approved by the stockholders at the 2001 Annual Meeting.
D. Options to purchase shares of Common Stock may be granted under the
Discretionary Option Grant and Salary Investment Option Grant Programs and
shares of Common Stock may be issued under the Stock Issuance Program that are
in each instance in excess of the number of shares then available for issuance
under
XII-23
the Plan, provided any excess shares actually issued under those programs shall
be held in escrow until there is obtained stockholder approval of an amendment
sufficiently increasing the number of shares of Common Stock available for
issuance under the Plan. If such stockholder approval is not obtained within
twelve (12) months after the date the first such excess issuances are made,
then (i) any unexercised options granted on the basis of such excess shares
shall terminate and cease to be outstanding and (ii) the Corporation shall
promptly refund to the Optionees and the Participants the exercise or purchase
price paid for any excess shares issued under the Plan and held in escrow,
together with interest (at the applicable Short Term Federal Rate) for the
period the shares were held in escrow, and such shares shall thereupon be
automatically cancelled and cease to be outstanding.
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of shares of
Common Stock under the Plan shall be used for general corporate purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any stock option under
the Plan and the issuance of any shares of Common Stock (i) upon the exercise
of any granted option or (ii) under the Stock Issuance Program shall be subject
to the Corporation's procurement of all approvals and permits required by
regulatory authorities having jurisdiction over the Plan, the stock options
granted under it and the shares of Common Stock issued pursuant to it.
B. No shares of Common Stock or other assets shall be issued or delivered
under the Plan unless and until there shall have been compliance with all
applicable requirements of Federal and state securities laws, including the
filing and effectiveness of the Form S-8 registration statement for the shares
of Common Stock issuable under the Plan, and all applicable listing
requirements of any stock exchange (or the Nasdaq National Market, if
applicable) on which Common Stock is then listed for trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the Participant any
right to continue in Service for any period of specific duration or interfere
with or otherwise restrict in any way the rights of the Corporation (or any
Parent or Subsidiary employing or retaining such person) or of the Optionee or
the Participant, which rights are hereby expressly reserved by each, to
terminate such person's Service at any time for any reason, with or without
cause.
XII-24
APPENDIX
The following definitions shall be in effect under the Plan:
A. Automatic Option Grant Program shall mean the automatic option grant
program in effect under Article Five of the Plan.
B. Board shall mean the Corporation's Board of Directors.
C. Change in Control shall mean a change in ownership or control of the
Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly by any person or related
group of persons (other than the Corporation or a person that directly
or indirectly controls, is controlled by, or is under common control
with, the Corporation), of beneficial ownership (within the meaning of
Rule 13d-3 of the 1934 Act) of securities possessing more than fifty
percent (50%) of the total combined voting power of the Corporation's
outstanding securities pursuant to a tender or exchange offer made
directly to the Corporation's stockholders, or
(ii) a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of the
Board members ceases, by reason of one or more contested elections for
Board membership, to be comprised of individuals who either (A) have
been Board members continuously since the beginning of such period or
(B) have been elected or nominated for election as Board members during
such period by at least a majority of the Board members described in
clause (A) who were still in office at the time the Board approved such
election or nomination.
D. Code shall mean the Internal Revenue Code of 1986, as amended.
E. Common Stock shall mean the Corporation's common stock.
F. Corporate Transaction shall mean either of the following stockholder-
approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities possessing more
than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately
prior to such transaction, or
(ii) the sale, transfer or other disposition of all or substantially
all of the Corporation's assets in complete liquidation or dissolution
of the Corporation.
G. Corporation shall mean Kana Communications, Inc., a Delaware corporation,
and any corporate successor to all or substantially all of the assets or voting
stock of Kana Communications, Inc. which shall by appropriate action adopt the
Plan.
H. Director Fee Option Grant Program shall mean the special stock option
grant in effect for non-employee Board members under Article Six of the Plan.
I. Discretionary Option Grant Program shall mean the discretionary option
grant program in effect under Article Two of the Plan.
J. Eligible Director shall mean a non-employee Board member eligible to
participate in the Automatic Option Grant Program or the Director Fee Option
Grant Program in accordance with the eligibility provisions of Articles One,
Five and Six.
XII-25
K. Employee shall mean an individual who is in the employ of the Corporation
(or any Parent or Subsidiary), subject to the control and direction of the
employer entity as to both the work to be performed and the manner and method
of performance.
L. Exercise Date shall mean the date on which the Corporation shall have
received written notice of the option exercise.
M. Fair Market Value per share of Common Stock on any relevant date shall be
determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq National
Market, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question, as such price is
reported by the National Association of Securities Dealers on the
Nasdaq National Market. If there is no closing selling price for the
Common Stock on the date in question, then the Fair Market Value shall
be the closing selling price on the last preceding date for which such
quotation exists.
(ii) If the Common Stock is at the time listed on any Stock
Exchange, then the Fair Market Value shall be the closing selling price
per share of Common Stock on the date in question on the Stock Exchange
determined by the Plan Administrator to be the primary market for the
Common Stock, as such price is officially quoted in the composite tape
of transactions on such exchange. If there is no closing selling price
for the Common Stock on the date in question, then the Fair Market
Value shall be the closing selling price on the last preceding date for
which such quotation exists.
(iii) For purposes of any option grants made on the Underwriting
Date, the Fair Market Value shall be deemed to be equal to the price
per share at which the Common Stock is to be sold in the initial public
offering pursuant to the Underwriting Agreement.
N. Hostile Take-Over shall mean the acquisition, directly or indirectly, by
any person or related group of persons (other than the Corporation or a person
that directly or indirectly controls, is controlled by, or is under common
control with, the Corporation) of beneficial ownership (within the meaning of
Rule 13d-3 of the 1934 Act) of securities possessing more than fifty percent
(50%) of the total combined voting power of the Corporation's outstanding
securities pursuant to a tender or exchange offer made directly to the
Corporation's stockholders which the Board does not recommend such stockholders
to accept.
O. Incentive Option shall mean an option which satisfies the requirements of
Code Section 422.
P. Involuntary Termination shall mean the termination of the Service of any
individual which occurs by reason of:
(i) such individual's involuntary dismissal or discharge by the
Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation following (A) a change
in his or her position with the Corporation which materially reduces
his or her duties and responsibilities or the level of management to
which he or she reports, (B) a reduction in his or her level of
compensation (including base salary, fringe benefits and percentage
target bonus under any corporate-performance based bonus or incentive
programs) by more than fifteen percent (15%) or (C) a relocation of
such individual's place of employment by more than fifty (50) miles,
provided and only if such change, reduction or relocation is effected
by the Corporation without the individual's consent.
Q. Misconduct shall mean the commission of any act of fraud, embezzlement or
dishonesty by the Optionee or Participant, any unauthorized use or disclosure
by such person of confidential information or trade secrets of the Corporation
(or any Parent or Subsidiary), or any other intentional misconduct by such
person adversely affecting the business or affairs of the Corporation (or any
Parent or Subsidiary) in a material
XII-26
manner. The foregoing definition shall not be deemed to be inclusive of all the
acts or omissions which the Corporation (or any Parent or Subsidiary) may
consider as grounds for the dismissal or discharge of any Optionee, Participant
or other person in the Service of the Corporation (or any Parent or
Subsidiary).
R. 1934 Act shall mean the Securities Exchange Act of 1934, as amended.
S. Non-Statutory Option shall mean an option not intended to satisfy the
requirements of Code Section 422.
T. Optionee shall mean any person to whom an option is granted under the
Discretionary Option Grant, Salary Investment Option Grant, Automatic Option
Grant or Director Fee Option Grant Program.
U. Parent shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
V. Participant shall mean any person who is issued shares of Common Stock
under the Stock Issuance Program.
W. Permanent Disability or Permanently Disabled shall mean the inability of
the Optionee or the Participant to engage in any substantial gainful activity
by reason of any medically determinable physical or mental impairment expected
to result in death or to be of continuous duration of twelve (12) months or
more. However, solely for purposes of the Automatic Option Grant and Director
Fee Option Grant Programs, Permanent Disability or Permanently Disabled shall
mean the inability of the non-employee Board member to perform his or her usual
duties as a Board member by reason of any medically determinable physical or
mental impairment expected to result in death or to be of continuous duration
of twelve (12) months or more.
X. Plan shall mean the Corporation's 1999 Stock Incentive Plan, as set forth
in this document.
Y. Plan Administrator shall mean the particular entity, whether the Primary
Committee, the Board or the Secondary Committee, which is authorized to
administer the Discretionary Option Grant and Stock Issuance Programs with
respect to one or more classes of eligible persons, to the extent such entity
is carrying out its administrative functions under those programs with respect
to the persons under its jurisdiction.
Z. Plan Effective Date shall mean the date the Plan shall become effective
and shall be coincident with the Underwriting Date.
AA. Predecessor Plan shall mean the Corporation's 1997 Stock Option/Stock
Issuance Plan in effect immediately prior to the Plan Effective Date hereunder.
BB. Primary Committee shall mean the committee of two (2) or more non-
employee Board members appointed by the Board to administer the Discretionary
Option Grant and Stock Issuance Programs with respect to Section 16 Insiders
and to administer the Salary Investment Option Grant Program solely with
respect to the selection of the eligible individuals who may participate in
such program.
CC. Salary Investment Option Grant Program shall mean the salary investment
option grant program in effect under Article Three of the Plan.
DD. Secondary Committee shall mean a committee of one or more Board members
appointed by the Board to administer the Discretionary Option Grant and Stock
Issuance Programs with respect to eligible persons other than Section 16
Insiders.
EE. Section 16 Insider shall mean an officer or director of the Corporation
subject to the short-swing profit liabilities of Section 16 of the 1934 Act.
XII-27
FF. Service shall mean the performance of services for the Corporation (or
any Parent or Subsidiary) by a person in the capacity of an Employee, a non-
employee member of the board of directors or a consultant or independent
advisor, except to the extent otherwise specifically provided in the documents
evidencing the option grant or stock issuance.
GG. Stock Exchange shall mean either the American Stock Exchange or the New
York Stock Exchange.
HH. Stock Issuance Agreement shall mean the agreement entered into by the
Corporation and the Participant at the time of issuance of shares of Common
Stock under the Stock Issuance Program.
II. Stock Issuance Program shall mean the stock issuance program in effect
under Article Four of the Plan.
JJ. Subsidiary shall mean any corporation (other than the Corporation) in an
unbroken chain of corporations beginning with the Corporation, provided each
corporation (other than the last corporation) in the unbroken chain owns, at
the time of the determination, stock possessing fifty percent (50%) or more of
the total combined voting power of all classes of stock in one of the other
corporations in such chain.
KK. Take-Over Price shall mean the greater of (i) the Fair Market Value per
share of Common Stock on the date the option is surrendered to the Corporation
in connection with a Hostile Take-Over or (ii) the highest reported price per
share of Common Stock paid by the tender offeror in effecting such Hostile
Take-Over. However, if the surrendered option is an Incentive Option, the Take-
Over Price shall not exceed the clause (i) price per share.
LL. 10% Stockholder shall mean the owner of stock (as determined under Code
Section 424(d)) possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Corporation (or any Parent or
Subsidiary).
MM. Underwriting Agreement shall mean the agreement between the Corporation
and the underwriter or underwriters managing the initial public offering of the
Common Stock.
NN. Underwriting Date shall mean the date on which the Underwriting
Agreement is executed and priced in connection with an initial public offering
of the Common Stock.
OO. Withholding Taxes shall mean the Federal, state and local income and
employment withholding taxes to which the holder of Non-Statutory Options or
unvested shares of Common Stock may become subject in connection with the
exercise of those options or the vesting of those shares.
XII-28
EXHIBIT 10.23
KANA COMMUNICATIONS, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
AS AMENDED AND RESTATED ON APRIL , 2001
XIII-1
KANA COMMUNICATIONS, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
As Amended and Restated Effective , 2001
I. PURPOSE OF THE PLAN
This Employee Stock Purchase Plan is intended to promote the interests of
Kana Communications, Inc., a Delaware corporation, by providing eligible
employees with the opportunity to acquire a proprietary interest in the
Corporation through participation in a payroll deduction based employee stock
purchase plan designed to qualify under Section 423 of the Code.
Capitalized terms herein shall have the meanings assigned to such terms in
the attached Appendix.
The provisions of this , 2001 restatement (the 2001 "Restatement")
shall become effective with the offering period commencing on November 1, 2001
and shall not have any force or effect prior to such date. All share numbers
contained herein reflect the two-for-one stock dividend effected on February
22, 2000.
II. ADMINISTRATION OF THE PLAN
The Plan Administrator shall have full authority to interpret and construe
any provision of the Plan and to adopt such rules and regulations for
administering the Plan as it may deem necessary in order to comply with the
requirements of Code Section 423. Decisions of the Plan Administrator shall be
final and binding on all parties having an interest in the Plan.
III. STOCK SUBJECT TO PLAN
A. The stock purchasable under the Plan shall be shares of authorized but
unissued or reacquired Common Stock, including shares of Common Stock purchased
on the open market. Subject to the automatic share increase provisions of
Section III.B., the total number of shares of Common Stock reserved for
issuance over the term of the Plan shall be limited to Twelve Million One
Hundred Twenty-Two Thousand Five Hundred Seven (12,122,507) shares (subject to
adjustment under subparagraph (B) below). Such share reserve includes (i) the
initial share reserve of One Million (1,000,000) shares, (ii) the January 3,
2000 automatic increase of Four Hundred Fifty-Five Thousand Eight Hundred
Forty-One (455,841) shares, (iii) the January 2, 2001 automatic increase of Six
Hundred Sixty-Six Thousand Six Hundred Sixty-Six (666,666) shares, and (iv) the
increase of Ten Million (10,000,000) shares authorized by the Board on
, 2001, subject to stockholder approval at the 2001 Annual
Stockholder's Meeting (the "Annual Meeting").
B. The number of shares of Common Stock available for issuance under the
Plan shall automatically increase on the first trading day of January each
calendar year during the term of the Plan, beginning with calendar year 2000,
by an amount equal to three-fourths of one percent (0.75%) of the total number
of shares of Common Stock outstanding on the last trading day in December of
the immediately preceding calendar year, but in no event shall any such annual
increase exceed Four Million (4,000,000) shares./1/
C. Should any change be made to the Common Stock by reason of any stock
split, stock dividend, recapitalization, combination of shares, exchange of
shares or other change affecting the outstanding Common Stock as a class
without the Corporation's receipt of consideration, appropriate adjustments
shall be made to (i) the maximum number and class of securities issuable under
the Plan, (ii) the maximum number and class of securities purchasable per
Participant on any one Purchase Date, (iii) the maximum number and class of
securities purchasable in total by all Participants on any one Purchase Date,
(iv) the maximum number and/or
--------
/1 /For the 2000 and 2001 calendar years, the annual increase was limited to
666,666 shares. The increase to 4,000,000 shares shall be effective for each
subsequent calendar year, subject to stockholder approval of the 2001
Restatement.
XIII-2
class of securities by which the share reserve is to increase automatically
each calendar year pursuant to the provisions of Section III.B of this Article
One and (v) the number and class of securities and the price per share in
effect under each outstanding purchase right in order to prevent the dilution
or enlargement of benefits thereunder.
IV. OFFERING PERIODS
A. Shares of Common Stock shall be offered for purchase under the Plan
through a series of overlapping offering periods until such time as (i) the
maximum number of shares of Common Stock available for issuance under the Plan
shall have been purchased or (ii) the Plan shall have been sooner terminated.
B. Each offering period shall be of such duration (not to exceed twenty-four
(24) months) as determined by the Plan Administrator prior to the start date of
such offering period. Offering periods shall commence at semi-annual intervals
on the first business day of May and on the first business day of November each
year over the term of the Plan. Accordingly, two (2) separate offering periods
shall commence in each calendar year the 2001 Restatement remains in existence.
However, the initial offering period under the 2001 Restatement shall begin on
the first business day in November 2001 and end on the last business day in
October 2003.
C. Each offering period shall be comprised of a series of one or more
successive Purchase Intervals. Purchase Intervals shall run from the first
business day in May to the last business day in October each year and from the
first business day in November each year to the last business day in April in
the following year.
D. Should the Fair Market Value per share of Common Stock on any Purchase
Date within a particular offering period be less than the Fair Market Value per
share of Common Stock on the start date of that offering period, then the
individuals participating in such offering period shall, immediately after the
purchase of shares of Common Stock on their behalf on such Purchase Date, be
transferred from that offering period and automatically enrolled in the next
offering period commencing after such Purchase Date.
V. ELIGIBILITY
A. Each individual who is an Eligible Employee on the start date of any
offering period under the Plan may enter that offering period on such start
date. However, an Eligible Employee may participate in only one offering period
at a time.
B. Except as otherwise provided in Section IV.D. above, an Eligible Employee
must, in order to participate in a particular offering period, complete the
enrollment forms prescribed by the Plan Administrator (including a stock
purchase agreement and a payroll deduction authorization) and file such forms
with the Plan Administrator (or its designate) on or before the start date of
that offering period.
VI. PAYROLL DEDUCTIONS
A. The payroll deduction authorized by the Participant for purposes of
acquiring shares of Common Stock during an offering period may be any multiple
of one percent (1%) of the Cash Earnings paid to the Participant during each
Purchase Interval within that offering period, up to a maximum of fifteen
percent (15%). The deduction rate so authorized shall continue in effect
throughout the offering period, except to the extent such rate is changed in
accordance with the following guidelines:
(i) The Participant may, at any time during the offering period, reduce
his or her rate of payroll deduction to become effective as soon as
possible after filing the appropriate form with the Plan Administrator. The
Participant may not, however, effect more than one (1) such reduction per
Purchase Interval.
(ii) The Participant may, prior to the commencement of any new Purchase
Interval within the offering period, increase the rate of his or her
payroll deduction by filing the appropriate form with the Plan
Administrator. The new rate (which may not exceed the fifteen percent (15%)
maximum) shall become effective on the start date of the first Purchase
Interval following the filing of such form.
XIII-3
B. Payroll deductions shall begin on the first pay day administratively
feasible following the start date of the offering period and shall (unless
sooner terminated by the Participant) continue through the pay day ending with
or immediately prior to the last day of that offering period. The amounts so
collected shall be credited to the Participant's book account under the Plan,
but no interest shall be paid on the balance from time to time outstanding in
such account. The amounts collected from the Participant shall not be required
to be held in any segregated account or trust fund and may be commingled with
the general assets of the Corporation and used for general corporate purposes.
C. Payroll deductions shall automatically cease upon the termination of the
Participant's purchase right in accordance with the provisions of the Plan.
D. The Participant's acquisition of Common Stock under the Plan on any
Purchase Date shall neither limit nor require the Participant's acquisition of
Common Stock on any subsequent Purchase Date, whether within the same or a
different offering period.
VII. PURCHASE RIGHTS
A. Grant of Purchase Rights. A Participant shall be granted a separate
purchase right for each offering period in which he or she participates. The
purchase right shall be granted on the start date of the offering period and
shall provide the Participant with the right to purchase shares of Common
Stock, in a series of successive installments during that offering period, upon
the terms set forth below. The Participant shall execute a stock purchase
agreement embodying such terms and such other provisions (not inconsistent with
the Plan) as the Plan Administrator may deem advisable.
Under no circumstances shall purchase rights be granted under the Plan to
any Eligible Employee if such individual would, immediately after the grant,
own (within the meaning of Code Section 424(d)) or hold outstanding options or
other rights to purchase, stock possessing five percent (5%) or more of the
total combined voting power or value of all classes of stock of the Corporation
or any Corporate Affiliate.
B. Exercise of the Purchase Right. Each purchase right shall be
automatically exercised in installments on each successive Purchase Date within
the offering period, and shares of Common Stock shall accordingly be purchased
on behalf of each Participant on each such Purchase Date. The purchase shall be
effected by applying the Participant's payroll deductions for the Purchase
Interval ending on such Purchase Date to the purchase of whole shares of Common
Stock at the purchase price in effect for the Participant for that Purchase
Date.
C. Purchase Price. The purchase price per share at which Common Stock will
be purchased on the Participant's behalf on each Purchase Date within the
particular offering period in which he or she is enrolled shall be equal to
eighty-five percent (85%) of the lower of (i) the Fair Market Value per share
of Common Stock on the start date of that offering period or (ii) the Fair
Market Value per share of Common Stock on that Purchase Date.
D. Number of Purchasable Shares. The number of shares of Common Stock
purchasable by a Participant on each Purchase Date during the particular
offering period in which he or she is enrolled shall be the number of whole
shares obtained by dividing the amount collected from the Participant through
payroll deductions during the Purchase Interval ending with that Purchase Date
by the purchase price in effect for the Participant for that Purchase Date.
However, the maximum number of shares of Common Stock purchasable per
Participant on any one Purchase Date shall not exceed One Thousand Five Hundred
(1,500) shares, subject to periodic adjustments in the event of certain changes
in the Corporation's capitalization. In addition, the maximum number of shares
of Common Stock purchasable in total by all Participants on any one Purchase
Date, shall not exceed One Million (1,000,000) shares,/2/ subject to periodic
adjustments in the event
--------
/2 /For any the offering period commencing prior to November 1, 2001, the limit
on the maximum number of shares purchasable in total on by all Participants
on any one Purchase Date within such offering period will be Two Hundred
Fifty Thousand (250,0000) shares
XIII-4
of certain changes in the Corporation's capitalization. However, the Plan
Administrator shall have the discretionary authority, exercisable prior to the
start of any offering period under the Plan, to increase or decrease the
limitations to be in effect for the number of shares purchasable per
Participant and in total by all Participants enrolled in that particular
offering period on each Purchase Date which occurs during that offering period.
E. Excess Payroll Deductions. Any payroll deductions not applied to the
purchase of shares of Common Stock on any Purchase Date because they are not
sufficient to purchase a whole share of Common Stock shall be held for the
purchase of Common Stock on the next Purchase Date in the same offering period.
Any payroll deductions not applied to the purchase of shares on the last
Purchase Date in the offering period shall be promptly refunded. Furthermore,
any payroll deductions not applied to the purchase of Common Stock by reason of
the limitation on the maximum number of shares purchasable per Participant or
in total by all Participants on the Purchase Date shall be promptly refunded.
F. Withdrawal/Termination of Purchase Right. The following provisions shall
govern the withdrawal from participation in the Plan and the termination of
outstanding purchase rights:
(i) A Participant may withdraw from the offering period in which he or
she is enrolled by filing the appropriate form with the Plan Administrator
(or its designate) at any time prior to the next scheduled Purchase Date in
that offering period, and no further payroll deductions under the Plan
shall be collected from the Participant with respect to that offering
period. Any payroll deductions previously collected during the Purchase
Interval in which such withdrawal occurs shall, at the Participant's
election, be immediately refunded or held for the purchase of shares on the
next Purchase Date. If no such election is made at the time of such
withdrawal, then the payroll deductions collected from the Participant with
respect to the Purchase Interval in which such withdrawal occurs shall be
refunded as soon as possible.
(ii) The Participant's withdrawal from the offering period shall be
irrevocable, and the Participant may not subsequently rejoin that offering
period. In order to resume participation in any subsequent offering period,
such individual must re-enroll in the Plan (by making a timely filing of
the prescribed enrollment forms) on or before the start date of that
offering period.
(iii) Should the Participant cease to remain an Eligible Employee for
any reason (including death, disability or change in status) while his or
her purchase right remains outstanding, then that purchase right shall
immediately terminate, and all of the Participant's payroll deductions for
the Purchase Interval in which the purchase right so terminates shall be
immediately refunded. However, should the Participant cease to remain in
active service by reason of an approved unpaid leave of absence, then the
Participant shall have the right, exercisable up until the last business
day of the Purchase Interval in which such leave commences, to (a) withdraw
all the payroll deductions collected to date on his or her behalf for that
Purchase Interval or (b) have such funds held for the purchase of shares on
his or her behalf on the next scheduled Purchase Date. In no event,
however, shall any further payroll deductions be collected on the
Participant's behalf during such leave. Upon the Participant's return to
active service (x) within ninety (90) days following the commencement of
such leave or (y) prior to the expiration of any longer period for which
such Participant's right to reemployment with the Corporation is guaranteed
by statute or contract, his or her payroll deductions under the Plan shall
automatically resume at the rate in effect at the time the leave began,
unless the Participant withdraws from the Plan prior to his or her return.
An individual who returns to active employment following a leave of absence
which exceeds in duration the applicable (x) or (y) time period will be
treated as a new Employee for purposes of subsequent participation in the
Plan and must accordingly re-enroll in the Plan (by making a timely filing
of the prescribed enrollment forms) on or before the start date of any
subsequent offering period in which he or she wishes to participate.
G. Change in Control. Each outstanding purchase right shall automatically be
exercised, immediately prior to the effective date of any Change in Control, by
applying the payroll deductions of each Participant for
XIII-5
the Purchase Interval in which such Change in Control occurs to the purchase of
whole shares of Common Stock at a purchase price per share for each Participant
equal to eighty-five percent (85%) of the lower of (i) the Fair Market Value
per share of Common Stock on the start date of the particular offering period
in which the Participant is enrolled at the time such Change in Control occurs
or (ii) the Fair Market Value per share of Common Stock immediately prior to
the effective date of such Change in Control. However, the applicable
limitation on the number of shares of Common Stock purchasable per Participant
shall continue to apply to any such purchase, but not the limitation applicable
to the maximum number of shares of Common Stock purchasable in total by all
Participants on any one Purchase Date.
The Corporation shall use its best efforts to provide at least ten (10)-days
prior written notice of the occurrence of any Change in Control, and
Participants shall, following the receipt of such notice, have the right to
terminate their outstanding purchase rights prior to the effective date of the
Change in Control.
H. Proration of Purchase Rights. Should the total number of shares of Common
Stock to be purchased pursuant to outstanding purchase rights on any particular
date exceed the number of shares then available for issuance under the Plan,
the Plan Administrator shall make a pro-rata allocation of the available shares
on a uniform and nondiscriminatory basis, and the payroll deductions of each
Participant, to the extent in excess of the aggregate purchase price payable
for the Common Stock pro-rated to such individual, shall be refunded.
I. Assignability. The purchase right shall be exercisable only by the
Participant and shall not be assignable or transferable by the Participant.
J. Stockholder Rights. A Participant shall have no stockholder rights with
respect to the shares subject to his or her outstanding purchase right until
the shares are purchased on the Participant's behalf in accordance with the
provisions of the Plan and the Participant has become a holder of record of the
purchased shares.
VIII. ACCRUAL LIMITATIONS
A. No Participant shall be entitled to accrue rights to acquire Common Stock
pursuant to any purchase right outstanding under this Plan if and to the extent
such accrual, when aggregated with (i) rights to purchase Common Stock accrued
under any other purchase right granted under this Plan and (ii) similar rights
accrued under other employee stock purchase plans (within the meaning of Code
Section 423)) of the Corporation or any Corporate Affiliate, would otherwise
permit such Participant to purchase more than Twenty-Five Thousand Dollars
($25,000.00) worth of stock of the Corporation or any Corporate Affiliate
(determined on the basis of the Fair Market Value per share on the date or
dates such rights are granted) for each calendar year such rights are at any
time outstanding.
B. For purposes of applying such accrual limitations to the purchase rights
granted under the Plan, the following provisions shall be in effect:
(i) The right to acquire Common Stock under each outstanding purchase
right shall accrue in a series of installments on each successive Purchase
Date during the offering period on which such right remains outstanding.
(ii) No right to acquire Common Stock under any outstanding purchase
right shall accrue to the extent the Participant has already accrued in the
same calendar year the right to acquire Common Stock under one or more
other purchase rights at a rate equal to Twenty-Five Thousand Dollars
($25,000.00) worth of Common Stock (determined on the basis of the Fair
Market Value per share on the date or dates of grant) for each calendar
year such rights were at any time outstanding.
C. If by reason of such accrual limitations, any purchase right of a
Participant does not accrue for a particular Purchase Interval, then the
payroll deductions which the Participant made during that Purchase Interval
with respect to such purchase right shall be promptly refunded.
D. In the event there is any conflict between the provisions of this Article
and one or more provisions of the Plan or any instrument issued thereunder, the
provisions of this Article shall be controlling.
XIII-6
IX. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Plan was adopted by the Board on July 7, 1999, approved by the sole
stockholder on August 16, 1999, and became effective at the Effective Time,
September 21, 1999.
B. The 2001 Restatement effects the following changes to the Plan: (i)
increase the number of shares of Common Stock authorized for issuance over the
term of the Plan by an additional Ten Million (10,000,000) shares, (ii)
increase the limit on the maximum number of shares by which the share reserve
under the Plan may automatically increase each calendar year, beginning with
the 2002 calendar year, from Six Hundred Sixty Six Thousand Six Hundred Sixty
Six (666,666) shares to Four Million (4,000,000) shares, (iii) implement a
series of overlapping twenty-four (24)-month offering periods beginning at
semi-annual intervals each year, (iv) establish a series of semi-annual
purchase dates within each such offering period, (v) increase the maximum
number of shares of Common Stock purchasable in total by all Participants on
any one Purchase Date from Two Hundred Fifty Thousand (250,000) shares to One
Million (1,000,000) shares and (vi) revise certain provisions of the Plan
document in order to facilitate administration of the Plan. However, the 2001
Restatement shall not become effective unless approved by the stockholders at
the 2001 Annual Meeting. If such stockholder approval is obtained, then the
2001 Restatement shall become effective with the offering period commencing on
November 1, 2001.
C. Unless sooner terminated by the Board, the Plan shall terminate upon the
earliest of (i) the last business day in October 2009, (ii) the date on which
all shares available for issuance under the Plan shall have been sold pursuant
to purchase rights exercised under the Plan or (iii) the date on which all
purchase rights are exercised in connection with a Change in Control. No
further purchase rights shall be granted or exercised, and no further payroll
deductions shall be collected, under the Plan following such termination.
X. AMENDMENT OF THE PLAN
A. The Board may alter, amend, suspend or terminate the Plan at any time to
become effective immediately following the close of any Purchase Interval.
However, the Plan may be amended or terminated immediately upon Board action,
if and to the extent necessary to assure that the Corporation will not
recognize, for financial reporting purposes, any compensation expense in
connection with the shares of Common Stock offered for purchase under the Plan,
should the financial accounting rules applicable to the Plan at the Effective
Time be subsequently revised so as to require the Corporation to recognize
compensation expense in the absence of such amendment or termination.
B. In no event may the Board effect any of the following amendments or
revisions to the Plan without the approval of the Corporation's stockholders:
(i) increase the number of shares of Common Stock issuable under the Plan,
except for permissible adjustments in the event of certain changes in the
Corporation's capitalization, (ii) alter the purchase price formula so as to
reduce the purchase price payable for the shares of Common Stock purchasable
under the Plan or (iii) modify the eligibility requirements for participation
in the Plan.
XI. GENERAL PROVISIONS
A. All costs and expenses incurred in the administration of the Plan shall
be paid by the Corporation; however, each Plan Participant shall bear all costs
and expenses incurred by such individual in the sale or other disposition of
any shares purchased under the Plan.
B. Nothing in the Plan shall confer upon the Participant any right to
continue in the employ of the Corporation or any Corporate Affiliate for any
period of specific duration or interfere with or otherwise restrict in any way
the rights of the Corporation (or any Corporate Affiliate employing such
person) or of the Participant, which rights are hereby expressly reserved by
each, to terminate such person's employment at any time for any reason, with or
without cause.
C. The provisions of the Plan shall be governed by the laws of the State of
California without resort to that State's conflict-of-laws rules.
XIII-7
SCHEDULE A
CORPORATIONS PARTICIPATING IN
EMPLOYEE STOCK PURCHASE PLAN
AS OF THE EFFECTIVE TIME
Kana Communications, Inc.
XIII-8
APPENDIX
The following definitions shall be in effect under the Plan:
A. Board shall mean the Corporation's Board of Directors.
B. Cash Earnings shall mean the (i) regular base salary paid to a
Participant by one or more Participating Companies during such individual's
period of participation in one or more offering periods under the Plan plus
(ii) all overtime payments, bonuses, commissions, profit-sharing distributions
and other incentive-type payments received during such period. Such Cash
Earnings shall be calculated before deduction of (A) any income or employment
tax withholdings or (B) any contributions made by the Participant to any Code
Section 401(k) salary deferral plan or Code Section 125 cafeteria benefit
program now or hereafter established by the Corporation or any Corporate
Affiliate. However, Cash Earnings shall not include any contributions made on
the Participant's behalf by the Corporation or any Corporate Affiliate to any
employee benefit or welfare plan now or hereafter established (other than Code
Section 401(k) or Code Section 125 contributions deducted from such Cash
Earnings).
C. Change in Control shall mean a change in ownership of the Corporation
pursuant to any of the following transactions:
(i) a merger or consolidation in which securities possessing more than
fifty percent (50%) of the total combined voting power of the Corporation's
outstanding securities are transferred to a person or persons different
from the persons holding those securities immediately prior to such
transaction, or
(ii) the sale, transfer or other disposition of all or substantially all
of the assets of the Corporation in complete liquidation or dissolution of
the Corporation, or
(iii) the acquisition, directly or indirectly, by a person or related
group of persons (other than the Corporation or a person that directly or
indirectly controls, is controlled by or is under common control with the
Corporation) of beneficial ownership (within the meaning of Rule 13d-3 of
the 1934 Act) of securities possessing more than fifty percent (50%) of the
total combined voting power of the Corporation's outstanding securities
pursuant to a tender or exchange offer made directly to the Corporation's
stockholders.
D. Code shall mean the Internal Revenue Code of 1986, as amended.
E. Common Stock shall mean the Corporation's common stock, $0.001 par value.
F. Corporate Affiliate shall mean any parent or subsidiary corporation of
the Corporation (as determined in accordance with Code Section 424), whether
now existing or subsequently established.
G. Corporation shall mean Kana Communications, Inc., a Delaware corporation,
and any corporate successor to all or substantially all of the assets or voting
stock of Kana Communications, Inc. which shall by appropriate action adopt the
Plan.
H. Effective Time shall mean the time at which the Underwriting Agreement
for the initial public offering of the Common Stock was executed and finally
priced. Any Corporate Affiliate which becomes a Participating Corporation after
such Effective Time shall designate a subsequent Effective Time with respect to
its employee-Participants.
I. Eligible Employee shall mean any person who is employed by a
Participating Corporation on a basis under which he or she is regularly
expected to render more than twenty (20) hours of service per week for more
than five (5) months per calendar year for earnings considered wages under Code
Section 3401 (a).
XIII-9
J. Fair Market Value per share of Common Stock on any relevant valuation
date shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on the Nasdaq National
Market, then the Fair Market Value shall be the closing selling price per
share of Common Stock on the date in question, as such price is reported by
the National Association of Securities Dealers on the Nasdaq National
Market and published in The Wall Street Journal. If there is no closing
selling price for the Common Stock on the date in question, then the Fair
Market Value shall be the closing selling price on the last preceding date
for which such quotation exists.
(ii) If the Common Stock is at the time listed on any Stock Exchange,
then the Fair Market Value shall be the closing selling price per share of
Common Stock on the date in question on the Stock Exchange determined by
the Plan Administrator to be the primary market for the Common Stock, as
such price is officially quoted in the composite tape of transactions on
such exchange and published in The Wall Street Journal. If there is no
closing selling price for the Common Stock on the date in question, then
the Fair Market Value shall be the closing selling price on the last
preceding date for which such quotation exists.
K. 1933 Act shall mean the Securities Act of 1933, as amended.
L. Participant shall mean any Eligible Employee of a Participating
Corporation who is actively participating in the Plan.
M. Participating Corporation shall mean the Corporation and such Corporate
Affiliate or Affiliates as may be authorized from time to time by the Board to
extend the benefits of the Plan to their Eligible Employees. The Participating
Corporations in the Plan are listed in attached Schedule A.
N. Plan shall mean the Corporation's 1999 Employee Stock Purchase Plan, as
set forth in this document.
O. Plan Administrator shall mean the committee of two (2) or more Board
members appointed by the Board to administer the Plan.
P. Purchase Date shall mean the last business day of each Purchase
Interval. The initial Purchase Date shall be April 30, 2002.
Q. Purchase Interval shall mean each successive six (6)-month period within
a particular offering period at the end of which there shall be purchased
shares of Common Stock on behalf of each Participant.
R. Stock Exchange shall mean either the American Stock Exchange or the New
York Stock Exchange.
S. Underwriting Agreement shall mean the agreement between the Corporation
and the underwriter or underwriters that managed the initial public offering
of the Common Stock.
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APPENDIX XIV
KANA COMMUNICATIONS, INC.
CHARTER OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
I. PURPOSE
The primary function of the Audit Committee is to assist the Board of
Directors in fulfilling its oversight responsibilities by reviewing: the
financial reports and other financial information provided by the Corporation
to any governmental body or the public; the Corporation's systems of internal
controls; and the Corporation's auditing, accounting and financial reporting
processes generally. The Audit Committee's primary duties and responsibilities
are to:
1. Serve as an independent and objective party to monitor the Corporation's
financial reporting process and internal control system;
2. Review and appraise the audit efforts of the Corporation's independent
accountants; and
3. Provide an open avenue of communication among the independent
accountants, financial and senior management and the Board of Directors.
The Audit Committee will primarily fulfill these responsibilities by
carrying out the activities enumerated in Section IV of this Charter.
II. COMPOSITION
The Audit Committee shall be comprised of three or more independent
directors.
All members of the Committee shall have a working familiarity with basic
finance and accounting practices, and at least one member of the Committee
shall have accounting or related financial management expertise.
III. MEETINGS
The Committee shall meet on a regular basis and shall hold special meetings
as circumstances require. As part of its job to foster open communication, the
Committee should meet at least annually with management and the independent
accountants in separate executive sessions to discuss any matters that the
Committee or each of these groups believe should be discussed privately. In
addition, the Committee or at least its Chair should meet with the independent
accountants and management quarterly to review the Corporation's financials.
IV. RESPONSIBILITIES AND DUTIES
To fulfill its responsibilities and duties the Audit Committee shall:
Documents/Reports Review
4. Review and update this Charter at least annually.
5. Review the organization's annual financial statements and any reports or
other financial information submitted to any governmental body, or the public,
including any certification, report, opinion, or review rendered by the
independent accountants.
6. Review the regular internal financial reports prepared by and
management's response.
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Independent Accountants
7. Recommend to the Board of Directors the selection of the independent
accountants and approve the fees and other compensation to be paid to the
independent accountants. On an annual basis, the Committee shall obtain a
formal written statement from the accountants delineating all relationships
between the accountants and the Corporation consistent with Independence
Standards Board Standard 1, and shall review and discuss with the accountants
all significant relationships the accountants have with the Corporation to
determine the accountants' independence.
8. Review the performance of the independent accountants and approve any
proposed discharge of the independent accountants when circumstances warrant.
9. Periodically consult with the independent accountants out of the presence
of management about internal controls and the completeness and accuracy of the
organization's financial statements.
Financial Reporting Processes
10. In consultation with the independent accountants and the financial
management of the Company, review the integrity of the organization's financial
reporting processes, both internal and external.
11. Consider the independent accountants' judgments about the quality and
appropriateness of the Corporation's accounting principles as applied in its
financial reporting.
12. Consider and approve, if appropriate, major changes to the Corporation's
auditing and accounting principles and practices as suggested by the
independent accountants or management.
Process Improvement
13. Establish regular and separate systems of reporting to the Audit
Committee by management and the independent accountants regarding any
significant judgments made in management's preparation of the financial
statements and the view of each as to appropriateness of such judgments.
14. Following completion of the annual audit, review separately with
management and the independent accountants any significant difficulties
encountered during the course of the audit, including any restrictions on the
scope of work or access to required information.
15. Review any significant disagreement among management and the independent
accountants in connection with the preparation of the financial statements.
16. Review with the independent accountants and management the extent to
which changes or improvements in financial or accounting practices, as approved
by the Audit Committee, have been implemented. (This review should be conducted
at an appropriate time subsequent to implementation of changes or improvements,
as decided by the Committee.)
17. Perform any other activities consistent with this Charter, the
Corporation's By-laws and governing law, as the Committee or the Board deems
necessary or appropriate.
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