SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] Confidential, for Use of the Commission
only (as permitted by Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-12
KANA SOFTWARE, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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[LOGO] "KANA"
December , 2001
To Our Stockholders:
You are cordially invited to attend a Special Meeting of Stockholders of
Kana Software, Inc., to be held at our headquarters located at 181 Constitution
Drive, Menlo Park, California, on , January , 2002, at 9:00 a.m.
Pacific Standard Time. The purpose of this meeting is to consider and vote upon
the issuance and sale of up to $45 million of our 8% Series A convertible
preferred stock in a private placement financing with two investment funds
affiliated with Technology Crossover Ventures. This proposal is described in
detail in the accompanying notice of special meeting of stockholders and proxy
statement.
Our board of directors has approved this proposal to issue and sell the 8%
Series A convertible preferred stock and unanimously recommends that you
approve the proposal.
Please use this opportunity to take part in our affairs by voting on the
business to come before this meeting. Whether or not you plan to attend the
meeting, please complete, date, sign and promptly return the enclosed proxy in
the enclosed postage-paid envelope prior to the meeting so that your shares
will be represented at the meeting. Returning the proxy does not deprive you of
your right to attend the meeting and to vote your shares in person.
We hope to see you at the meeting.
Sincerely,
/s/ Chuck Bay
Chuck Bay
Chief Executive Officer and President
KANA SOFTWARE, INC.
181 Constitution Drive
Menlo Park, California 94025
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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Our Stockholders:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of Kana
Software, Inc. will be held at our headquarters located at 181 Constitution
Drive, Menlo Park, California, on , January , 2002, at 9:00 a.m.,
Pacific Standard Time. At the meeting, you will be asked to consider and vote
upon the following matters:
1. To approve the issuance and sale by Kana, pursuant to a private
placement, of up to $45 million of our 8% Series A convertible preferred stock
pursuant to a share purchase agreement, dated as of November 28, 2001, with two
investment funds affiliated with Technology Crossover Ventures, and the
issuance of shares of common stock upon the conversion of the Series A
convertible preferred stock; and
2. To transact such other business as may properly come before the meeting
or any adjournment or postponement of the meeting.
The foregoing items of business are more fully described in the proxy
statement accompanying this notice. Only stockholders of record at the close of
business on December 21, 2001 are entitled to notice of and to vote at the
meeting or any adjournment or postponement of the meeting.
By Order of the Board of Directors
/s/ Chuck Bay
Chuck Bay
Chief Executive Officer and President
Menlo Park, California
December , 2001
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WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN
AND PROMPTLY RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE SO THAT YOUR SHARES MAY BE REPRESENTED AT THE MEETING.
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KANA SOFTWARE, INC.
181 Constitution Drive
Menlo Park, California 94025
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December , 2001
The accompanying proxy is solicited on behalf of the board of directors of
Kana Software, Inc., a Delaware corporation, for use at a Special Meeting of
our Stockholders, to be held at our headquarters located at 181 Constitution
Drive, Menlo Park, California, on , January , 2002, at 9:00 a.m.
Pacific Standard Time. This proxy statement and the accompanying form of proxy
were first mailed to stockholders on or about December , 2001.
Record Date and Quorum
Only holders of our common stock of record at the close of business on
December 21, 2001, the record date, will be entitled to vote at the meeting. A
majority of the shares outstanding on the record date will constitute a quorum
for the transaction of business at the meeting. At the close of business on the
record date, we had shares of common stock outstanding and entitled to vote,
held of record by approximately stockholders.
Voting Rights and Required Votes
Holders of our common stock are entitled to one vote for each share held as
of the record date. Approval of Proposal No. 1 to issue and sell the 8% Series
A convertible preferred stock requires the affirmative vote of the majority of
the shares of our outstanding common stock present in person or represented by
proxy at the special meeting and entitled to vote at the meeting. All votes
will be tabulated by the inspector of elections appointed for the meeting, who
will separately tabulate, for each proposal, affirmative and negative votes,
abstentions and broker non-votes.
Effect of Abstentions and Broker Non-Votes
If you or your broker mark "Abstain" on a duly submitted proxy card
representing your shares, or if you attend the stockholder meeting in person
but elect not to vote on a particular proposal or proposals, then your shares
will be considered present at the meeting for purposes of determining the
required quorum. However, your shares will be considered shares entitled to
vote with respect to Proposal No. 1, and, therefore, will have the effect of a
vote against the proposal.
Brokers holding shares of record for customers generally are not entitled to
vote on some matters unless they receive voting instructions from their
customers. "Broker non-votes" are votes that could have been cast on the matter
in question if the brokers had received their customers' instructions, and as
to which the broker has notified us on a proxy form in accordance with industry
practice or has otherwise advised us that it lacks voting authority. Shares
represented by broker non-votes will be considered present at the meeting for
purposes of determining the required quorum, but will have no effect on whether
or not Proposal No. 1 is approved.
Voting of Proxies
The proxy accompanying this proxy statement is solicited on behalf of our
board of directors for use at the meeting. Stockholders are requested to
complete, date and sign the accompanying proxy card and promptly return it in
the enclosed envelope or otherwise mail it to us. All executed, returned
proxies that are not revoked will be voted in accordance with the included
instructions. Signed proxies that are returned without instructions as to how
they should be voted on a particular proposal at the meeting will be counted as
votes "for" such proposal. We are not aware of any other matters to be brought
before the meeting. However, as to any business
that may properly come before the meeting, we intend that proxies in the form
enclosed will be voted in accordance with the judgment of the persons holding
such proxies. In the event that sufficient votes in favor of the proposal 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. Any such adjournment would require the affirmative vote of the
majority of the outstanding shares present in person or represented by proxy at
the meeting. We will pay the expenses of soliciting proxies to be voted at the
meeting. Following the original mailing of the proxies and other soliciting
materials, we will request that brokers, custodians, nominees and other record
holders of our common stock forward copies of the proxy and other soliciting
materials to persons for whom they hold shares of common stock and request
authority for the exercise of proxies. In such cases, upon the request of the
record holders, we will reimburse such holders for their reasonable expenses.
Proxies may also be solicited by some of our directors, officers and regular
employees, without additional compensation, in person or by telephone.
Revocability of Proxies
Anyone signing a proxy in the form accompanying this proxy statement has the
power to revoke it prior to the meeting or at the meeting prior to the vote
pursuant to the proxy. A proxy may be revoked by a writing delivered to us
stating that the proxy is revoked, by a subsequent proxy that is signed by the
person who signed the earlier proxy and is present at the meeting, or by
attendance at the meeting and voting in person. 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 meeting, you must bring to the meeting a letter from the broker,
bank or other nominee confirming your beneficial ownership of the shares and
that such broker, bank or other nominee is not voting your shares.
No Appraisal Rights
No appraisal rights are available under the Delaware General Corporation Law
or under our certificate of incorporation or bylaws to any stockholder who
dissents from this proposal.
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PROPOSAL 1
APPROVAL OF THE PRIVATE PLACEMENT
Introduction
We are asking you to approve the issuance and sale, through a private
placement, of up to $45 million of our newly created 8% Series A convertible
preferred stock to certain affiliates of Technology Crossover Ventures, which
we collectively refer to as Technology Crossover Ventures, as well as the
issuance of shares of our common stock upon conversion of the Series A
convertible preferred stock. Technology Crossover Ventures has committed to
purchase a minimum of $38 million, and a maximum of $45 million, of the Series
A convertible preferred stock, with the specific amount within this range to be
determined by Technology Crossover Ventures at its discretion prior to the
special meeting. The purchase price per share of preferred stock will be ten
times the lesser of (i) $10.00 per share or (ii) 66 2/3% of the daily
volume-based weighted average price for our common stock on the Nasdaq National
Market averaged over the ten trading days through and including the second
trading day prior to the closing of the private placement (the "Weighted
Average Stock Price"). All share and per share amounts contained in this proxy
statement have been adjusted to give effect to our 1-for-10 reverse stock split
effected on December 13, 2001.
Technology Crossover Ventures is a leading provider of capital to technology
companies, providing funds to private companies, as well as public companies.
Founded in 1995, Technology Crossover Ventures now has over $2.5 billion under
management. The firm has ten partners and is headquartered in Palo Alto,
California.
The following is a brief summary of some of the principal terms of the
private placement. A more detailed description is contained below in this proxy
statement under the captions "Effect of the Proposed Investment by Technology
Crossover Ventures," "The Share Purchase Agreement, the Investor Rights
Agreement and the Warrants" and "Terms of the 8% Series A Convertible Preferred
Stock." Finally, this summary and the more detailed descriptions below are
qualified by reference to the share purchase agreement, including the
certificate of designation attached thereto, form of investor rights agreement
and forms of warrants which are filed as exhibits to our Form 8-K/A filed with
the SEC on December 12, 2001.
Summary of the Terms of the Series A Convertible Preferred Stock.
The Series A convertible preferred stock is convertible into common stock at
any time at the option of Technology Crossover Ventures. Each share of the
Series A convertible preferred stock will initially convert into shares of
common stock on 10-for-1 basis. There will be no change to the conversion ratio
subsequent to issuance of the Series A convertible preferred stock based upon
the trading price of our common stock. The Series A convertible preferred stock
will automatically convert into common stock at any time after the first
anniversary of the issuance date if our common stock has had a daily
volume-base weighted average stock price of at least three times the initial
conversion price of the Series A convertible preferred stock for ninety
consecutive trading days, subject to certain conditions. The Series A
convertible preferred stock will accrue and cumulate dividends at a rate of 8%
per year, compounded quarterly. Accrued dividends are added to the liquidation
preference of the Series A convertible preferred stock and are only payable in
connection with a liquidation or conversion into common stock. The Series A
convertible preferred stock is not subject to redemption at the election of the
investors or Kana.
In the event of a liquidation of Kana, the holders of the Series A
convertible preferred stock are entitled to a liquidation preference equal to
the purchase price of the Series A convertible preferred stock, plus accrued
dividends, unless the holders of each share of common stock (assuming
conversion of the Series A convertible preferred stock) would receive an amount
equal to at least five times the initial conversion price of the Series A
convertible preferred stock plus accrued dividends. After payment of this
preference (if applicable), the Series A convertible preferred stock would
participate with the common stock. A merger, consolidation or sale of Kana is
treated as a liquidation. If the merger, consolidation or sale has been
approved by the holders of a
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majority of the outstanding Series A convertible preferred stock, then the
holders of the Series A convertible preferred stock will be treated as provided
in the applicable agreements for such transaction rather than receiving the
liquidation preference as described above.
The Series A convertible preferred stock generally will vote with the shares
of common stock on an as-converted to common stock basis, and not as a separate
class. However, the Series A convertible preferred stock will be entitled to a
separate class vote with respect to certain matters, including the creation of
a class or series of preferred stock that is senior to or on a parity with the
Series A convertible preferred stock, or a proposed merger, consolidation or
sale of Kana. The holders of the Series A convertible preferred stock will be
entitled to designate a member of Kana's board of directors. Pursuant to this
right, it is anticipated that Jay C. Hoag, a general partner of Technology
Crossover Ventures, will join Kana's board of directors upon the completion of
the transaction.
Summary of the Terms of the Warrants.
Kana has issued two warrants to Technology Crossover Ventures to purchase
common stock at an exercise price of $10.00 per share. The first warrant
entitles Technology Crossover Ventures to purchase up to approximately 190,000
shares of common stock and will be exercisable until the closing of the sale of
the Series A convertible preferred stock or the end of a 30 trading-day period
following termination of the share purchase agreement, whether or not our
stockholders approve the proposed private placement. The second warrant would
entitle Technology Crossover Ventures to purchase up to approximately 190,000
additional shares of common stock and will only become exercisable in the event
of the failure of Kana's stockholders to approve the transaction under certain
circumstances, or the termination of the share purchase agreement following a
change in recommendation by Kana's board of directors or under certain other
conditions. If the second warrant is triggered, it will be exercisable for two
years and the exercise period of the first warrant will also be extended for
the same length of time.
Reasons for the Private Placement
The principal reasons for the private placement of Series A convertible
preferred stock are to strengthen our financial position, to provide us with
the resources to pursue growth and new market opportunities, and to assure
potential customers that we have sufficient financial resources to successfully
continue to develop and support our products. We believe that obtaining
additional capital is critical to our ability to continue to execute our
business plan during a period of uncertain and difficult economic conditions
and to sustain the confidence of our customers, business partners and
employees. The board of directors and management of Kana considered a number of
financing alternatives prior to entering into the share purchase agreement for
the private placement. We believe that the best option for additional financing
is to complete the private placement.
Background of the Private Placement
Between April and August 2001, we incurred significant expenses and costs
resulting from the restructuring of our organization and our merger with
Broadbase Software, Inc., and our operating results were adversely affected by
the worsening global economy. In order to streamline operations and reduce
costs, we restructured our organization in the second quarter of 2001 reducing
our staffing and capital spending, and exiting certain facilities. As a result,
we incurred substantial costs associated with severance and other employee and
facility-related costs, which significantly reduced our cash balances. On June
29, 2001, we completed our acquisition of Broadbase, which resulted in
substantial integration expenses and transition costs, duplicate facility and
other costs, and professional fees. In addition, this was an increasingly
difficult period for the global economy and, particularly, the enterprise
software market.
As a result of these significant ongoing demands on Kana's cash, our
management began to actively explore potential means of obtaining additional
financing for our business. In August 2001, we held preliminary
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discussions with investment bankers, and on August 24, 2001, we filed a
registration statement with the SEC registering the possible sale from time to
time of shares of our common stock, in order to provide increased flexibility
to obtain equity financing in the public markets. In early September 2001, we
held discussions with several potential investors regarding our business and
their potential interest in investing in our common stock.
The uncertain and difficult global business environment worsened
considerably as a result of the terrorist attacks in New York and Washington
D.C. on September 11, 2001, and on September 28, 2001, we effected another
restructuring of our organization in order to further reduce costs. As a
result, we incurred substantial severance costs and other cash payment
obligations. In addition, the deterioration of the business environment
heightened our need for cash to fund increased anticipated losses from our
operations. Further, we required cash for significant anticipated expenditures
on infrastructure that we believed were needed in order to effectively compete
for business from large enterprises in this environment. Finally, we believe
that some of our competitors were beginning to raise questions regarding our
continued long-term viability in their discussions with potential customers,
which we believed could hamper our ability to sell our products. As a result,
during September and October 2001, we increased our efforts to obtain
financing. During this period, we held meetings with a number of private equity
investors in which we made presentations regarding our business and discussed
possible terms for their potential investment in Kana, and met with investment
banks regarding possible public transactions.
On November 5, 2001, we received a term sheet from one private equity
investor setting forth proposed terms for a $30 million investment in our
convertible preferred stock at a conversion price of $10.00 per share of common
stock. Our board of directors discussed this proposal and the status of our
discussions with other potential investors, as well as our anticipated cash
needs, at a meeting on November 9, 2001. We engaged in discussions with this
investor regarding the terms set forth in their proposed term sheet, but did
not reach an agreement. In particular, the terms proposed by this investor
included provision for redemption of the shares of preferred stock at the
option of the investor after a specified period, which our management viewed as
disadvantageous to our company and its stockholders.
In early November 2001, we learned that Technology Crossover Ventures might
be interested in making an equity investment in our company, and
representatives of Kana and Technology Crossover Ventures met on several
occasions between November 8 and November 18, 2001 to review our business and
discuss possible terms for such an investment. On November 19, 2001, we
received a term sheet for a proposed investment by Technology Crossover
Ventures, which did not include any provision for redemption of the preferred
stock. Representatives of Kana and Technology Crossover Ventures met on
November 20, 2001 to negotiate certain aspects of the term sheet. Following
this meeting, the parties executed a revised term sheet which provided for
Technology Crossover Ventures to purchase $36 million of our 8% Series A
convertible preferred stock at a conversion price of $10.00 per share of common
stock. This term sheet did not contemplate that stockholder approval might be
required for the private placement. During this week, members of our senior
management discussed the principal terms of the proposed transaction with each
of our directors.
On November 21, 2001, we entered into an engagement letter with RBC Capital
Markets (the global brand name for the corporate and investment banking
division of the Royal Bank of Canada and its affiliates, including RBC Dain
Rauscher Inc.) ("RBCCM"), to retain RBCCM as our financial advisor in
connection with the private placement of our capital stock.
In order to ensure that we would secure at least some equity financing at
this time, on November 21, 2001, we agreed to sell an aggregate of one million
shares of our common stock to certain institutional investors at a purchase
price of $10.00 per share. The shares were issued pursuant to the shelf
registration statement we filed with the SEC on August 24, 2001, and the
transaction was completed on November 26, 2001.
On November 23, 2001, Technology Crossover Ventures' counsel provided us
with proposed drafts of the definitive agreements for the private placement,
which agreements reflected the terms of the November 20, 2001
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term sheet. On November 25, 2001, our board of directors held a special meeting
at which it discussed the proposed terms of the private placement, as set forth
in these drafts, with our legal advisors and RBCCM. During the discussion of
the proposed terms, our board discussed the applicability of the stockholder
approval requirements of Nasdaq with our legal advisors. In addition,
representatives of RBCCM reviewed with our board of directors their preliminary
analysis of the proposed transaction. Our board of directors, after discussing
the desirability and terms of the proposed equity financing, determined that it
would be desirable to enter into this transaction, and approved the terms set
forth in the November 20, 2001 term sheet. Our board also determined that it
would be prudent to seek stockholder approval of the transaction in order to
ensure compliance with the stockholder approval requirements of Nasdaq. While
our board did not believe that the preferred stock investment by itself would
require stockholder approval under these requirements, as the number of shares
involved would be less than 20% of our outstanding common stock, it believed
that there was a possibility that Nasdaq might view this transaction together
with our November 21 sale of common stock pursuant to our shelf registration
statement. Since the two transactions, if taken together, would involve the
issuance of shares representing more than 20% of our outstanding common stock,
our board of directors concluded that we should seek stockholder approval for
the issuance of the Series A convertible preferred stock. After this meeting of
our board of directors, on November 25, 2001, representatives of Technology
Crossover Ventures, Kana and their respective legal counsel met to discuss the
November 23, 2001 draft agreements.
On November 26, 2001, representatives of Kana and Technology Crossover
Ventures discussed potential changes to the proposed terms of the equity
financing that might be appropriate in light of the decision by our board of
directors to seek stockholder approval of the transaction. These changes
included increasing the size of the transaction and modifying the pricing terms
to provide for an adjustment in the event that our stock price declined
significantly prior to the special meeting of our stockholders. Representatives
of Technology Crossover Ventures also expressed concern regarding potential
adverse effects on Technology Crossover Ventures if our stockholders did not
approve the transaction.
In the afternoon of November 26, 2001, our board of directors held a special
meeting at which it discussed the revised terms of the Technology Crossover
Ventures' proposal with RBCCM and our legal advisors, and discussed issuing
warrants to Technology Crossover Ventures in consideration of its commitment to
invest in the Series A convertible preferred stock. Our board appointed Chuck
Bay and Robert Frick, two of our directors, to a committee (the "Transaction
Committee") to approve the final terms of the private placement with Technology
Crossover Ventures based upon parameters approved by the entire board.
Following this meeting, representatives of Kana and its counsel discussed
certain of the revised terms, and remaining open issues, with representatives
of Technology Crossover Ventures and its counsel.
On November 27, 2001, Technology Crossover Ventures' counsel provided Kana
and its counsel with revised drafts of the proposed definitive agreements in
response to these discussions. The revised agreements provided for an
investment of between $38 and $45 million in our Series A convertible preferred
stock at a price equal to ten times the lesser of (i) $10.00 per share or (ii)
66 2/3% of the daily volume-based weighted average price for our common stock
on the Nasdaq National Market, with each share of the Series A convertible
preferred stock to initially convert into shares of common stock on 10-for-1
basis. In addition, the drafts provided for the issuance of warrants to
Technology Crossover Ventures permitting Technology Crossover Ventures to
purchase shares of our common stock, at an exercise price of $10.00 per share.
Representatives of Kana and Technology Crossover Ventures then met to discuss
the revised drafts. During this meeting, representatives of Kana and Technology
Crossover Ventures had an extensive discussion regarding the possible terms of
the proposed warrants and the number of shares that would be issuable upon
their exercise. Following this meeting, it was proposed that Kana might issue
two warrants, each of would permit Technology Crossover Ventures to purchase
193,059 shares of our common stock (approximately one percent of our
outstanding shares) at an exercise price of $10.00 per share. One of the
warrants would generally be exercisable for only a limited period, and the
other warrant would be exercisable only if our stockholders did not approve the
transaction under certain circumstances, or if the share purchase agreement
were otherwise terminated under certain circumstances.
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On the morning of November 28, 2001, our board of directors held a special
meeting at which it discussed the terms of the revised draft agreements that
had been received from counsel to Technology Crossover Ventures, and the
further revisions that had been discussed at the meeting on November 27. Our
board of directors approved the revised terms of the private placement,
including the increase in deal size, the pricing formula and the issuance of
the warrants, subject to approval of the final agreements by the Transaction
Committee and receipt of a fairness opinion from RBCCM.
On November 28, 2001, representatives of Kana and Technology Crossover
Ventures negotiated the final terms of the agreements for the transaction, and
on the evening of November 28, the Transaction Committee of our board of
directors held a special meeting at which it discussed the final terms of the
proposed transaction agreements. Representatives of RBCCM reviewed their
analysis of the proposed transaction and rendered their opinion to our board of
directors as to the fairness, from a financial point of view, of the
consideration to be received by Kana upon issuance of the Series A convertible
preferred stock of Kana in the proposed private placement. The Transaction
Committee then approved the final terms of the transaction agreements and
approved entering into the private placement with Technology Crossover Ventures
on the terms set forth in those agreements. Later in the evening on November
28, 2001, the parties executed the share purchase agreement and warrants and
finalized the forms of investor rights agreement and certificate of
designations for the 8% Series A convertible preferred stock. Immediately
thereafter, the parties publicly announced the transaction.
On December 12, 2001, we held a special meeting of our stockholders at which
our stockholders approved a 1-for-10 reverse stock split that had been
previously approved by our board of directors. This reverse stock split was
effected on December 13, 2001, and all share and per share amounts contained in
this proxy statement have been adjusted to give effect to this reverse stock
split unless otherwise indicated.
Opinion of Kana's Financial Advisor
Pursuant to an engagement letter dated November 21, 2001, RBCCM was retained
by Kana to act as financial advisor and, if requested, to furnish an opinion as
to the fairness, from a financial point of view, of the consideration to be
received by Kana upon issuance of the Series A convertible preferred stock of
Kana in the proposed private placement.
On November 28, 2001, RBCCM rendered its opinion to Kana's board of
directors that, as of such date and based on the procedures followed, factors
considered and assumptions made by RBCCM and certain other limitations, the
consideration to be received by Kana upon issuance of the Series A convertible
preferred stock of Kana in the proposed private placement was fair, from a
financial point of view, to Kana. A copy of RBCCM's written opinion is attached
as Appendix A to this document. The holders of common stock of Kana are urged
to read the RBCCM opinion carefully in its entirety. This summary of the
opinion is qualified in its entirety by reference to the full text of RBCCM's
opinion.
RBCCM's opinion was provided for the information and assistance of Kana's
board of directors in connection with its consideration of the proposed private
placement. RBCCM's opinion does not address the relative merits of the proposed
private placement and any other transactions or business strategies discussed
by Kana's board of directors as alternatives to the proposed private placement,
or the underlying business decision of Kana's board of directors to proceed
with the proposed private placement. RBCCM's opinion and presentation to Kana's
board of directors were only two of many factors taken into consideration by
Kana's board of directors in making its determination to approve the proposed
private placement agreement. RBCCM's opinion does not constitute a
recommendation to any Kana stockholder as to how such stockholder should vote
with respect to the proposed private placement. RBCCM's opinion addresses
solely the fairness, from a financial point of view, of the consideration to be
received by Kana upon issuance of the Series A convertible preferred stock in
the proposed private placement to Technology Crossover Ventures and does not
address any matters relating to investors who may purchase preferred stock in
the proposed private placement or any other terms or agreements related to the
proposed private placement.
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In conducting its review and in rendering its opinion, RBCCM has assumed and
relied upon the accuracy and completeness of the financial and other
information provided to it or publicly available and has not assumed any
responsibility for independent verification of such information. RBCCM has
further relied upon the assurances of management of Kana that they are not
aware of any facts that would make the information supplied to RBCCM, or
publicly available, inaccurate or misleading. In rendering its opinion, RBCCM
expresses no view as to the reasonableness of such forecasts and projections or
the assumptions on which they are based. RBCCM has considered the assessment of
Kana's management as to Kana's financing requirements, the availability of
alternative financing and the potential effects on Kana and its business of a
failure to obtain additional capital in the near term. RBCCM expressed no
opinion as to whether the terms of the proposed private placement are the most
beneficial terms from Kana's perspective that could under the circumstances be
negotiated among the parties to the proposed private placement and no opinion
is expressed whether any alternative transaction might produce proceeds to Kana
in an amount in excess of that to be received by Kana in the proposed private
placement. At the request of Kana, RBCCM has not engaged in any discussions
with any third parties regarding a merger or any other business combination
involving Kana and RBCCM has not solicited alternative financing transactions
for Kana.
For purposes of rendering its opinion, RBCCM has assumed that, in all
respects material to its analysis, the representations and warranties of the
parties contained in the share purchase agreement are true and correct, each
party will perform all of the covenants and agreements to be performed by it
under the share purchase agreement and all conditions to the obligations of
each party to consummate the private placement will be satisfied without any
waiver thereof. RBCCM has assumed that all material governmental, regulatory or
other approvals and consents required in connection with the consummation of
the proposed private placement will be obtained. In addition, RBCCM has assumed
that the proposed private placement does not result in a change of control of
Kana.
In arriving at its opinion, RBCCM did not make an independent appraisal of
the assets or liabilities of Kana, and does not express an opinion regarding
the liquidation value, solvency or regulatory compliance of Kana. Furthermore,
RBCCM does not express any opinion as to the prices at which shares of Kana's
common stock may trade following the date of the opinion, at the closing of the
proposed private placement, or at any time in the future. RBCCM's opinion is
based solely on information available to RBCCM on or before the date of the
opinion, and reflects general market, economic, financial, monetary, and other
conditions as of such date. RBCCM will not undertake to reaffirm or revise this
opinion or otherwise comment upon any events occurring after the date of the
opinion.
RBCCM has assumed that the proposed private placement will be exempt from
the registration requirements of the Securities Act of 1933, as amended, and
has further assumed that the proposed private placement will be consummated in
a manner that in all other respects complies with the requirements of federal
and state securities laws, rules and regulations.
In arriving at its opinion, RBCCM has undertaken such review, analyses and
inquiries as it deemed necessary and appropriate under the circumstances. Among
other things, RBCCM:
. reviewed the financial terms of the draft share purchase agreement dated
November 28, 2001;
. reviewed and analyzed certain publicly available information filed with
the Securities and Exchange Commission and certain other financial and
operating information supplied by Kana, including certain historical
audited financial statements, certain internal unaudited financial
information, and certain summary financial projections relating to Kana;
. made inquiries of the management of Kana regarding its past and current
business operations, financial condition, and future prospects;
8
. held discussions with management of Kana to understand the reasons for
completing the proposed private placement;
. reviewed the historical market prices and trading activity of Kana's
common stock;
. compared certain financial and stock market information regarding Kana
to similar information for certain publicly traded companies in the
software industry;
. reviewed the terms of certain comparable private investments in equity
securities of other publicly traded companies, and compared the terms of
these transactions to the terms of the proposed private placement; and
. performed other studies and analyses as RBCCM considered appropriate.
No single company or transaction used in the above analyses as a comparison
is identical to Kana or the proposed private placement.
The preparation of a fairness opinion is a complex process that involves the
application of subjective business judgment in determining the most appropriate
and relevant methods of financial analysis and the application of those methods
to the particular circumstances and, therefore, is not necessarily susceptible
to partial consideration of the analyses or summary description. RBCCM believes
that its analyses must be considered as a whole and that selecting portions of
the analyses and of the factors considered, without considering all factors and
analyses, could create an incomplete or misleading view of the processes
underlying its opinion. In arriving at its fairness determination, RBCCM
considered the results of all of its analyses as well as qualitative factors.
In view of the wide variety of factors considered in connection with its
evaluation of the fairness of the proposed private placement from a financial
point of view, RBCCM did not find it practicable to assign relative weights to
the factors considered in reaching its opinion.
RBCCM is a nationally recognized investment banking firm and is regularly
engaged in the valuation of businesses and securities in connection with
mergers and acquisitions, corporate restructurings, negotiated underwritings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate and other purposes. RBCCM regularly publishes
research reports regarding the software industry and the businesses and
securities of publicly owned companies in that industry. In the ordinary course
of business, RBCCM and its affiliates act as a broker, and may act as a market
maker in the publicly traded securities of Kana and may receive customary
compensation in connection with those activities. RBCCM and its affiliates may
also actively trade securities of Kana for their own accounts or the accounts
of their customers and, accordingly, may from time to time hold a long or short
position in those securities. Kana selected RBCCM to render its opinion based
on RBCCM's knowledge of the software industry and its experience in securities
valuation generally. RBCCM was engaged to act as a co-manager for the 1999
initial public offering of common stock of Broadbase Software, Inc., which was
acquired by Kana in June 2001, and Broadbase's follow-on public offering in
2000. RBCCM also acted as financial advisor to Broadbase in its acquisitions of
Panopticon, Inc. and ServiceSoft, Inc.
Pursuant to an engagement letter, Kana paid RBCCM a customary fee upon the
rendering of its opinion. Payment of this fee to RBCCM was not contingent upon
the closing of the proposed private placement. Kana has also agreed to pay
RBCCM a customary transaction fee upon the closing of the proposed private
placement for investment banking and financial advisory services. The
transaction fee is contingent upon the closing of the proposed private
placement. Whether or not the transaction closes, Kana has agreed to reimburse
RBCCM for its reasonable out-of-pocket expenses and to indemnify RBCCM against
certain liabilities relating to or arising out of services performed by RBCCM
in connection with the proposed private placement. The terms of the engagement
letter, were negotiated at arms'-length between Kana and RBCCM, and Kana's
board of directors was aware of this fee arrangement at the time of its
approval of the proposed private placement agreement.
9
Effect of the Proposed Investment by Technology Crossover Ventures
Technology Crossover Ventures has committed to purchase a minimum of $38
million of the Series A convertible preferred stock, and may, at its
discretion, purchase up to $45 million of the Series A convertible preferred
stock. The number of shares of Series A convertible preferred stock that we
will issue to Technology Crossover Ventures will depend on the Weighted Average
Stock Price. If the Weighted Average Stock Price is $15.00 or more, the
purchase price of the Series A convertible preferred stock will be $100.00 per
share. In this event, Technology Crossover Ventures would purchase a minimum of
380,000 shares of Series A convertible preferred stock, which would initially
convert into 3.8 million shares of our common stock, and Technology Crossover
Ventures would have the discretion to purchase up to 450,000 shares of Series A
convertible preferred stock, which would initially convert into 4.5 million
shares of our common stock. If the Weighted Average Stock Price is less than
$15.00, the purchase price of the Series A convertible preferred stock will be
ten times 66 2/3% of the Weighted Average Stock Price. For example, if the
Weighted Average Stock Price is $12.00, the purchase price of the Series A
convertible preferred stock will be $80.00 per share. In this event, Technology
Crossover Ventures would purchase a minimum of 475,000 shares of Series A
convertible preferred stock, which would initially convert into approximately
4.8 million shares of our common stock, and Technology Crossover Ventures would
have the option to purchase up to 562,500 shares of Series A convertible
preferred stock, which would initially convert into approximately 5.6 million
shares of our common stock. The following table illustrates the effects that
the Series A convertible preferred stock financing would have on our
capitalization based upon various Weighted Average Stock Prices:
Technology
Crossover
Shares of Series A Shares of Common Stock Ventures' Post-
Purchase Price Convertible Preferred Initially Issuable Upon Financing
of the Series A Stock to be Purchased Conversion of the Percentage
Weighted Average Convertible by Technology Series A Convertible Ownership of
Stock Price Preferred Stock Crossover Ventures Preferred Stock Kana (1)(2)
----------- --------------- --------------------- ------------------------- ---------------
$15.00 or above $100.00 380,000-450,000 3.8 million-4.5 million 16.4%-18.9%
$13.50 $ 90.00 422,222-500,000 4.2 million-5.0 million 17.9%-20.6%
$12.00 $ 80.00 475,000-562,500 4.8 million-5.6 million 19.7%-22.6%
$10.50 $ 70.00 542,857-642,857 5.4 million-6.4 million 21.9%-25.0%
$ 9.00 $ 60.00 633,333-750,000 6.3 million-7.5 million 24.7%-28.0%
$ 7.50 $ 50.00 760,000-900,000 7.6 million-9.0 million 28.2%-31.8%
$ 6.00 $ 40.00 950,000-1,125,000 9.5 million-11.3 million 33.0%-36.8%
$ 4.50 $ 30.00 1,266,666-1,500,000 12.7 million-15.0 million 39.6%-43.7%
--------
(1) On an as-converted to common stock basis.
(2) Based upon 19,305,916 shares outstanding as of November 27, 2001.
The issuance of the Series A convertible preferred stock in the private
placement may result in substantial dilution of your ownership interest in
Kana, particularly if the Weighted Average Stock Price is significantly below
$15.00 per share. The issuance of the Series A convertible preferred stock in
the private placement may also result in a substantial decrease in your net
book value per share.
Technology Crossover Ventures, as holder of the Series A convertible
preferred stock, will have the rights and preferences described in this proxy
statement, including the right to vote together with the holders of the common
stock on an as-converted basis. Because Technology Crossover Ventures will own
a significant percentage of Kana on an as-converted to common stock basis
subsequent to completion of the Series A convertible preferred stock financing,
it will have significant influence in determining the outcome of any corporate
transaction or other matter submitted to our stockholders for approval,
including the election of directors and approval of mergers, consolidations and
the sale of all or substantially all of our assets. In addition, the holders of
the Series A convertible preferred stock will have dividend rights that are
senior to those of the holders of our common stock. The holders of the Series A
convertible preferred stock will also have a claim against our assets senior to
the claim of the holders of the common stock in the event of our liquidation or
10
bankruptcy, or in a merger or acquisition of Kana. Initially, the aggregate
amount of the senior claims of the holders of the Series A convertible
preferred stock will equal the amount invested to purchase the Series A
convertible preferred stock and will increase thereafter due to the
accumulation of dividends on the Series A convertible preferred stock.
The holders of the Series A convertible preferred stock will also have a
separate class vote with respect to a number of significant corporate
transactions, including the creation of a class or series of stock having
preferences or privileges senior to or on a parity with the Series A
convertible preferred stock, or a proposed merger, consolidation or sale of
Kana. Technology Crossover Ventures currently has significant investments in
other technology companies, including other enterprise software companies. As a
result, it may have interests with respect to its investment in us that differ
from those of other stockholders. The ownership by Technology Crossover
Ventures of a substantial percentage of our total voting power and the terms of
the Series A convertible preferred stock could make it more difficult and
expensive for a third party to pursue a change of control of Kana, even if a
change of control would generally be beneficial to the interests of our
stockholders.
Sales in the public market of the common stock acquired upon conversion of
the Series A convertible preferred stock could lower our stock price and impair
our ability to raise funds in additional stock offerings. Future sales of a
substantial number of shares of our common stock in the public market, or the
perception that such sales could occur, could adversely affect the prevailing
market price of our common stock and could make it more difficult for us to
raise funds through a public offering of our equity securities.
In connection with the sale of the Series A convertible preferred stock, we
will enter into an investor rights agreement with Technology Crossover Ventures
that will obligate us to register the shares of common stock issuable upon
conversion of the Series A convertible preferred stock within 90 days after the
closing of the private placement. We will also grant Technology Crossover
Ventures piggyback registration rights to participate in underwritten offerings
of our securities. These registration rights will facilitate the investors'
sale in the public market of common stock issued upon conversion of the Series
A convertible preferred stock. These registration rights are described in
further detail under the heading "The Share Purchase Agreement, the Investor
Rights Agreement and the Warrants--Investor Rights Agreement."
The Share Purchase Agreement, the Investor Rights Agreement and the Warrants
General
On November 28, 2001, we entered into a share purchase agreement with
Technology Crossover Ventures pursuant to which Technology Crossover Ventures
has agreed to purchase up to $45 million of our 8% Series A Convertible
Preferred Stock. At closing, we will enter into an investor rights agreement
that will provide registration rights with respect to the shares of common
stock issuable upon conversion of the Series A convertible preferred stock
issued in the private placement. In connection with entering into the share
purchase agreement, we also issued warrants to Technology Crossover Ventures to
purchase shares of our common stock. The following discussion of the share
purchase agreement, investor rights agreement and warrants, and the
transactions contemplated thereby, provide only a summary. For a more complete
understanding of these agreements, we urge you to read our Form 8-K/A filed
with the SEC on December 12, 2001, including the share purchase agreement, form
of investor rights agreement and forms of warrants which are filed as exhibits
thereto.
Price
The purchase price per share of the Series A convertible preferred stock
will be ten times the lesser of (i) $10.00 per share or (ii) 66 2/3% of the
Weighted Average Stock Price.
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Size of Investment
Technology Crossover Ventures has committed to purchase between $38 million
and $45 million of the Series A convertible preferred stock. Within this range,
the size of the investment will be determined by Technology Crossover Ventures,
in its discretion. Technology Crossover Ventures must inform us of the size of
their investment, within this range, no later than the second trading day prior
to the closing of the private placement.
Representations and Warranties
The share purchase agreement contains representations and warranties by us
relating to, among other things, our capitalization and due authorization, the
issuance and sale of the Series A convertible preferred stock, our SEC filings
and our lack of undisclosed liabilities and material adverse changes. The share
purchase agreement also contains representations and warranties by the
investors relating to, among other things, their status as accredited investors
and investment intent.
Covenants and Agreements
We have agreed to take, or refrain from taking, certain actions, including:
. to prepare and file with Nasdaq a Notification of Listing of Additional
Shares with respect to the shares of common stock issuable upon
conversion of the Series A convertible preferred stock;
. to file, within 90 days of the date of the share purchase agreement, all
necessary materials with the United States Federal Trade Commission and
United States Department of Justice in order to comply with applicable
antitrust laws;
. to not take specified actions with respect to our capital stock,
certificate of incorporation and bylaws prior to closing;
. to not, along with our directors, officers, employees, agents or
representatives, solicit, encourage or entertain proposals from or enter
into negotiations with or furnish any nonpublic information to any other
entity regarding the possible sale of a minority interest in our capital
stock in connection with a financing transaction, other than the sale of
certain shares of our common stock under the our existing registration
statement on Form S-3; and
. to hold the special meeting of our stockholders to approve the issuance
and sale of the Series A convertible preferred stock.
Technology Crossover Ventures and we have also agreed to use our respective
reasonable best efforts to satisfy the conditions to closing of the private
placement.
Conditions to Closing
The closing of the private placement is conditioned on the satisfaction or
waiver of various conditions, including:
. the accuracy of the representations and warranties included in the share
purchase agreement as of closing;
. each party's compliance with its covenants and agreements in the share
purchase agreement prior to closing;
. approval of the issuance and sale of the Series A convertible preferred
stock by our stockholders;
. the absence of (1) any law or order prohibiting the transactions
contemplated by the share purchase agreement and (2) any claim, action
or proceeding seeking to challenge the transactions contemplated by the
share purchase agreement;
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. the absence of regulatory constraints; and
. the delivery of customary closing documents.
In addition, the obligations of Technology Crossover Ventures to effect the
closing are conditioned on the satisfaction or waiver of the following
conditions:
. receipt of an opinion as to certain legal matters from Fenwick & West
LLP, our legal counsel;
. the absence of any material adverse change to our company since
September 30, 2001;
. the appointment of Jay C. Hoag to our board of directors as the designee
of the holders of the Series A convertible preferred stock; and
. the approval for listing on the Nasdaq National Market of the shares of
common stock to be issued upon conversion of the Series A convertible
preferred stock.
Market Purchases
In addition to the shares of Series A convertible preferred stock it has
agreed to purchase pursuant to the share purchase agreement, Technology
Crossover Ventures may purchase up to an additional 950,000 shares of our
common stock in the open market, in privately negotiated transactions or
otherwise. However, Technology Crossover Ventures will not be permitted to make
any such purchase of our common stock if, immediately following the completion
of such purchase, Technology Crossover Ventures and its affiliates would own in
excess of 45% of our common stock outstanding at such time, assuming conversion
in full of any outstanding Series A convertible preferred stock.
Fees and Expenses
Whether or not the transactions contemplated in the share purchase agreement
are consummated, we will pay the out-of-pocket costs and expenses of Technology
Crossover Ventures arising in connection with the share purchase agreement. We
will not be obligated to pay the costs and expenses of Technology Crossover
Ventures if we have complied in all material respects with all of the
provisions of the share purchase agreement and satisfied all of the conditions
to Technology Crossover Ventures' obligation to complete the transaction, and
the failure to complete the transaction results from the failure of Technology
Crossover Ventures either to comply in all material respects with all of the
provisions of the share purchase agreement or satisfy certain of the conditions
to our obligation to complete the transaction.
Termination
The share purchase agreement may be terminated prior to the closing of the
private placement as follows:
. pursuant to the mutual consent of Kana and Technology Crossover Ventures;
. by Technology Crossover Ventures or us if the closing of the private
placement is not completed by March 15, 2002;
. by Technology Crossover Ventures or us if our stockholders fail to
approve the issuance of the Series A convertible preferred stock;
. by Technology Crossover Ventures if our board of directors withdraws,
modifies or changes its recommendation that our stockholders approve the
issuance and sale of the Series A convertible preferred stock; and
. by Technology Crossover Ventures or us if 66 2/3% of the Weighted
Average Stock Price is less than $4.43.
13
Investor Rights Agreement
In connection with the closing of the private placement, we will enter into
an investor rights agreement with Technology Crossover Ventures. The agreement
will require us to use our best efforts to have a registration statement on
Form S-3 for the shares of common stock issuable upon the conversion of the
Series A convertible preferred stock issued in the private placement declared
effective within 90 days after the closing. We will be required to maintain the
effectiveness of the registration statement until all shares of common stock
underlying the Series A convertible preferred stock can be resold in a
three-month period under Rule 144 of the Securities Act of 1933 pursuant to
either (1) Rule 144(k) or (2) the one percent of the shares of the class
outstanding limitation set forth in Rule 144(e)(1)(i). We will be entitled to
one blackout period not to exceed 90 days in any twelve-month period. We have
also agreed to provide Technology Crossover Ventures with piggyback
registration rights to participate in underwritten offerings of our securities,
subject to customary limitations. These piggyback registration rights will
terminate when Technology Crossover Ventures, together with its affiliates, can
sell all of the shares of common stock underlying the Series A convertible
preferred stock in a three-month period under Rule 144 pursuant to either (1)
Rule 144(k), but only if the shares of common stock underlying the Series A
convertible preferred stock held by Technology Crossover Ventures represent
less than 5% of our then outstanding common stock, or (2) the one percent of
the shares of the class outstanding limitation set forth in Rule 144(e)(1)(i).
Warrants
In connection with entering into the share purchase agreement, we issued two
warrants, a contingent warrant and a commitment warrant, to Technology
Crossover Ventures to purchase, under certain circumstances, shares of our
common stock. The material terms and provisions of each of these warrants are
as follows:
Contingent Warrant. The contingent warrant enables Technology Crossover
Ventures, under the circumstances described below, to purchase up to 193,059
shares of our common stock at an exercise price of $10.00 per share. The
contingent warrant will not become exercisable unless and until the share
purchase agreement is terminated in one of the following ways:
. Technology Crossover Ventures terminates the share purchase agreement
because our board of directors withdraws, modifies or changes its
recommendation that our stockholders approve the issuance of the Series
A convertible preferred stock;
. Either Technology Crossover Ventures or we terminate the share purchase
agreement because our stockholders fail to approve the issuance of the
Series A convertible preferred stock and, prior to the special meeting
of our stockholders, a Qualifying Event (as defined below) has occurred;
or
. Either Technology Crossover Ventures or we terminate the share purchase
agreement because the closing of the private placement has not been
completed by March 15, 2002 and, prior to the special meeting of our
stockholders, a Qualifying Event has occurred.
A "Qualifying Event" will have occurred if (i) our board of directors or any
committee of the board shall for any reason have withdrawn or shall have
amended or modified in a manner adverse to Technology Crossover Ventures its
recommendation in favor of the issuance of the Series A convertible preferred
stock, (ii) we shall have failed to include in the proxy statement sent in
connection with the special meeting of our stockholders the recommendation of
our board of directors in favor of the issuance of the Series A convertible
preferred stock, (iii) a third party makes a public announcement disclosing its
intention to pursue an Alternative Transaction (as defined in the following
sentence) and, within 12 months after the date of such announcement, we enter
into an agreement with respect to, or have consummated, an Alternative
Transaction with such third party or one or more of its affiliates or (iv) we
have announced our intention to enter into, or have entered into, an agreement
with respect to, or have consummated, an Alternative Transaction. An
"Alternative Transaction" means a Sale Transaction (as defined in "Terms of the
8% Series A Convertible Preferred Stock--Rights Upon Liquidation" below) or the
sale by us of securities representing or convertible into 10% or more of our
common stock.
14
In the event that the contingent warrant becomes exercisable because the
share purchase agreement is terminated in one of the ways set forth above, it
will remain exercisable until the second anniversary of the date of such
termination of the share purchase agreement.
In the event that the contingent warrant becomes exercisable, we will file,
as soon as practicable, a registration statement to register the shares subject
to the contingent warrant and use reasonable efforts to cause the registration
statement to be declared effective within 90 days of the date the contingent
warrant became exercisable. In the event that such registration statement is
not effective and available for use in connection with the sale of the shares
underlying the contingent warrant for a period of 30 consecutive days ending on
the termination date of the warrant, the exercise period of the warrant will be
extended until the registration statement has been continuously effective and
available for use in connection with the sale of the shares underlying the
warrant for a period of 30 consecutive days. We will not have to file a
registration statement to register the shares subject to the contingent warrant
if such shares, when combined with all other shares of our common stock held by
Technology Crossover Ventures and its affiliates, assuming the conversion of
all shares of Series A convertible preferred stock into shares of our common
stock, are saleable under Rule 144 in a three-month period pursuant to the one
percent of the shares of the class outstanding limitation set forth in Rule
144(e)(1)(i).
Commitment Warrant. The commitment warrant enables Technology Crossover
Ventures, under the circumstances described below, to purchase up to 193,059
shares of our common stock at an exercise price of $10.00 per share. The
commitment warrant was exercisable upon its issuance, and will remain
exercisable until the closing of the sale of the Series A convertible preferred
stock or, if the share purchase agreement is terminated in accordance with its
terms, until the registration statement we will file to register the shares
subject to the commitment warrant has been effective and available for use for
30 trading days after such termination. In addition, if the share purchase
agreement is terminated in one of the ways described above in the description
of the contingent warrant, then the exercise period of the commitment warrant
would be extended until the second anniversary of the date of such termination
of the share purchase agreement.
We have agreed to file, as soon as practicable, a registration statement to
register the shares subject to the commitment warrant and use reasonable
efforts to cause the registration statement to be declared effective within 90
days of the date of the share purchase agreement.
Terms of the 8% Series A Convertible Preferred Stock
General
The following summarizes the material terms and provisions of the 8% Series
A convertible preferred stock, and is qualified in its entirety by reference to
the terms and provisions of our certificate of incorporation, as proposed to be
amended by a Certificate of Designation relating to the Series A convertible
preferred stock. The form of Certificate of Designation is an exhibit to the
form of share purchase agreement that we have filed with the SEC as an exhibit
to our Form 8-K/A on December 12, 2001. For a more complete understanding of
the terms of the Series A convertible preferred stock, we urge you to read the
Certificate of Designation.
When issued, the Series A convertible preferred stock will be validly
issued, fully paid and non-assessable. The holders of the Series A convertible
preferred stock will have no preemptive rights with respect to any shares of
our capital stock or any other securities convertible into or carrying rights
or options to purchase any of our capital stock. The Series A convertible
preferred stock will not be subject to any obligation on our part to repurchase
or retire the Series A convertible preferred stock, except as described below
under "--Rights Upon Liquidation."
15
Rank
The Series A convertible preferred stock will, with respect to dividend
rights and rights on liquidation, rank senior to the common stock.
Dividends
The holders of record of the Series A convertible preferred stock will be
entitled to receive cumulative dividends on each share of Series A convertible
preferred stock at an annual rate equal to 8% of the initial conversion price
of the Series A convertible preferred stock plus accrued dividends, compounded
quarterly. Additionally, except for dividends on common stock payable either in
(1) common stock or (2) options to purchase shares of a series or class of
capital stock that is junior to the Series A convertible preferred stock
("Junior Stock"), pursuant to the provisions of a stockholder rights plan
adopted by our board of directors, holders of the Series A convertible
preferred stock shall be entitled to receive dividends paid on any Junior
Stock, if any, based on the number of shares of common stock into which such
holder's shares of Series A convertible preferred stock would then convert.
Dividends on the Series A convertible preferred stock will not be paid except
pursuant to a liquidation event or the conversion of the Series A convertible
preferred stock into common stock, as described in further detail below. Upon
such occurrence of a liquidation event or the conversion of the Series A
convertible preferred stock into common stock, dividends will cease
accumulating in respect of the applicable shares of Series A convertible
preferred stock on the date of such event.
Rights Upon Liquidation
In the event of any liquidation, dissolution or winding up of Kana,
including a Sale Transaction (as defined below), the holders of the Series A
convertible preferred stock will be entitled to receive out of assets available
for distribution to our stockholders, before any distribution of assets is made
to holders of common stock or Junior Stock upon liquidation, liquidating
distributions equal to at least the initial investment made by Technology
Crossover Ventures, plus accrued and unpaid dividends. After payment of the
full amount of the liquidating distributions to which the holders of the Series
A convertible preferred stock are entitled, our remaining assets available for
distribution shall be distributed pro rata among the holders of the common
stock and Series A convertible preferred stock based on the number of shares of
common stock into which the shares of Series A convertible preferred stock
would then convert. However, if in connection with any liquidation, dissolution
or winding up of Kana, including a Sale Transaction, the holders of the common
stock, assuming conversion of all of the Series A convertible preferred stock
into common stock, would receive liquidating distributions equal to at least
five times the initial conversion price of the Series A convertible preferred
stock, then the holders of the Series A convertible preferred stock will
receive the amount that they would be entitled to if they had converted their
stock into common stock immediately prior to the transaction.
A "Sale Transaction" is (1) any consolidation or merger of Kana with or into
any other corporation or other entity or person in which our stockholders
immediately prior to such transaction own less than 50% of our equity interest
or voting power immediately after such transaction, or any transaction or
series of related transactions, or any other corporate reorganization, to which
we are a direct contracting party in which in excess of 50% of our equity
interest or voting power is transferred, other than a merger or consolidation
effected exclusively to change our domicile (an "Acquisition"), or (2) a sale,
lease or other disposition of all or substantially all of our assets. If the
Sale Transaction has been approved by the holders of a majority of the
outstanding Series A convertible preferred stock, then the holders of the
Series A convertible preferred stock will be treated as provided in the
applicable agreements for such transaction rather than receiving the
liquidation preference as described above.
Conversion
Each share of Series A convertible preferred stock is initially convertible
into ten shares of our common stock, subject to adjustment as described below,
at any time after the closing of the private placement at the
16
option of Technology Crossover Ventures. There will be no change to the
conversion ratio subsequent to issuance of the Series A convertible preferred
stock based upon the trading price of our common stock. In addition, the Series
A convertible preferred stock will convert automatically into shares of common
stock if, at any time after the first anniversary of the closing of the private
placement, (1) our common stock has had a daily volume-based weighted average
stock price of at least three times the initial conversion price of the Series
A convertible preferred stock for 90 consecutive trading days after such
one-year anniversary, which period may begin prior to such one-year
anniversary, and (2) the registration statement we have agreed to file with
respect to the Series A convertible preferred stock is effective and then
available for sales by Technology Crossover Ventures.
Each share of Series A convertible preferred stock converts into common
stock at a conversion ratio equal to (A) the original purchase price per share
of the Series A convertible preferred stock, plus accrued dividends, divided by
(B) 10% of the original purchase price per share of the Series A convertible
preferred stock. The conversion ratio initially will be ten shares of our
common stock for each share of Series A convertible preferred stock, as there
would not yet be any accrued dividends. As cumulative dividends accrue on the
Series A convertible preferred stock as described above under "--Dividends,"
each share of Series A convertible preferred stock will convert into more than
ten shares of common stock based on the conversion ratio formula. The
conversion ratio will be subject to adjustment if certain events occur,
including: (1) the payment of dividends (and other distributions) in common
stock on the outstanding shares of common stock or a subdivision of common
stock into a greater number of shares of common stock or (2) combinations and
reclassifications of common stock, unless we take similar actions with respect
to the Series A convertible preferred stock. In addition, if we (1) pay a
dividend or make a distribution to the holders of common stock payable in
securities other than common stock, (2) recapitalize or reclassify the common
stock or (3) are party to any reorganization, consolidation or merger that
would not be classified as a Sale Transaction, we shall make appropriate
adjustment with respect to the rights of the holders of Series A convertible
preferred stock such that each share of Series A convertible preferred stock
then outstanding will convert into the kind and amount of securities, cash and
other property that is receivable by a holder of the number of shares of common
stock that the shares of Series A convertible preferred stock were convertible
into immediately prior to the event.
Voting Rights
Holders of the Series A convertible preferred stock will have the right to
vote on all matters that the holders of common stock vote on, voting together
with the holders of common stock as a single class. Each share of Series A
convertible preferred stock will be entitled to one vote for each share of
common stock in which such share of Series A convertible preferred stock could
then be converted.
The affirmative vote of the holders of a majority of the outstanding Series
A convertible preferred stock, voting as a separate class, will be required to
take any of the following actions:
. any amendment or waiver of any provisions of our certificate of
incorporation or bylaws in a manner that would adversely affect the
rights, preferences or privileges of the Series A convertible preferred
stock;
. any action that authorizes, creates or results in the issuance of any
class or series of stock, or any other securities convertible into or
exercisable for equity securities of Kana, having rights, preferences or
privileges senior to or on a parity with the Series A convertible
preferred stock;
. any Sale Transaction;
. any increase or decrease in the authorized number of shares of our
Series A convertible preferred stock or common stock;
. the payment or declaration of any dividend or distribution, whether in
cash, securities or other property, on any Junior Stock, other than (1)
a dividend on common stock paid solely in common stock or (2) a dividend
on common stock paid solely in options to purchase Junior Stock pursuant
to the provisions of a stockholder rights plan adopted by our board of
directors; or
17
. the repurchase, redemption or other acquisition of any class of Junior
Stock by us or any of our subsidiaries, except for (1) acquisitions of
common stock by us or any of our subsidiaries pursuant to stock-based
compensation arrangements or agreements that permit us to repurchase
such shares upon termination of services to us or our subsidiaries for a
price not greater than the cost thereof to the applicable service
provider and (2) acquisitions by us or our subsidiaries in whole or
partial satisfaction of the exercise price or applicable tax withholding
requirements in respect of any option, restricted stock or similar award
made pursuant to any compensation or benefit plan, agreement or
arrangement maintained or assumed by, or any warrants issued or assumed
by, us or any of our subsidiaries.
Right to Designate Director
For so long as at least one-third of the shares of Series A convertible
preferred stock that are purchased by Technology Crossover Ventures remain
outstanding, the holders of a majority of the outstanding shares of Series A
convertible preferred stock will have the right to elect one member to our
board of directors. Accordingly, Jay C. Hoag, a partner of Technology Crossover
Ventures, will be elected to our board of directors as the designee of the
Series A convertible preferred stock upon the completion of the private
placement.
No Maturity Date or Mandatory Redemption
The Series A convertible preferred stock will not mature on a specified
date, does not have a stated redemption feature and is not subject to any
sinking fund or similar obligation. Holders will have no right to require us to
repurchase or redeem any shares of Series A convertible preferred stock except
upon an event described under "--Rights Upon Liquidation," in which case the
holders of the Series A convertible preferred stock would be entitled to their
liquidation preference after the payment of which the Series A convertible
preferred stock would be retired.
Absence of Market for Series A Convertible Preferred Stock
There is no established trading market for the Series A convertible
preferred stock. We do not currently intend to list the preferred stock on a
national securities exchange or qualify the preferred stock for quotation on
any automated quotation service such as the Nasdaq National Market.
Use of Proceeds
As described above, Technology Crossover Ventures has committed to purchase
a minimum of $38 million of the Series A convertible preferred stock, and may,
at its discretion, purchase up to $45 million of the Series A convertible
preferred stock. We intend to use the net proceeds from the private placement
(after estimated expenses of approximately $3.0 million) for working capital
and general corporate purposes.
Nasdaq Stockholder Approval Requirement
Our common stock is listed on the Nasdaq National Market. The rules
governing companies with securities listed on Nasdaq require stockholder
approval in connection with a transaction other than a public offering
involving the sale or issuance by the issuer of common stock (or securities
convertible into or exchangeable for common stock) equal to 20% or more of the
common stock or 20% or more of the voting power outstanding before the issuance
for less than the greater of book or market value of the stock. This
requirement is set forth in Nasdaq Marketplace Rule 4350(i)(1)(D). In addition,
stockholder approval is required under Nasdaq Marketplace Rule 4350(i)(1)(B) in
connection with the issuance of securities that could result in a change of
control of an issuer.
18
Because the private placement described in this Proposal 1 involves the
potential issuance by us of securities convertible into shares of common stock
that would represent more than 20% of our currently outstanding common stock at
below the greater of book or market value of the common stock, and because it
could also potentially be deemed to result in issuances resulting in a change
of control for Nasdaq purposes, stockholder approval is required for the
issuance of shares of Series A convertible preferred stock to Technology
Crossover Ventures in the private placement.
Required Vote
Approval of the private placement described in this Proposal 1 requires the
affirmative vote of a majority of the outstanding shares of common stock
present in person or represented by proxy at the special meeting and entitled
to vote at the meeting. Abstentions will have same effect as votes against the
proposal and broker "non-votes" will have no effect.
Recommendation of the Board of Directors
The board of directors has approved the matters included in Proposal 1 and
believes that they are fair to, and in the best interests of, us and our
stockholders. The board unanimously recommends that stockholders vote "FOR"
Proposal 1.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table presents information as to the beneficial ownership of
our common stock as of December 1, 2001 by:
. each stockholder known by us to be the beneficial owner of more than 5%
of our common stock;
. each of our directors;
. our Chief Executive Officer and each of our other executive officers; and
. all of our executive officers and directors as a group.
Beneficial ownership is determined under the rules of the SEC and generally
includes voting or investment power with respect to securities. Unless
indicated above, to our knowledge, the persons and entities named in the table
have sole voting and sole investment power with respect to all shares
beneficially owned, subject to community property laws where applicable.
Percentage ownership is based on 19,305,916 shares outstanding as of December
1, 2001. Shares of common stock subject to options and warrants exercisable on
or before January 30, 2002 (within 60 days of December 1, 2001) are deemed to
be outstanding and to be beneficially owned by the person holding the options
or warrants for the purpose of computing the percentage ownership of such
person but are not treated as outstanding for the purpose of computing the
percentage ownership of any other person. Unless indicated above, the address
for each director and executive officer listed below is Kana Software, Inc.,
181 Constitution Drive, Menlo Park, CA 94025.
Number of
Shares of
Common Stock
Beneficially Percent
Name and Address of Beneficial Owner Owned of Class
------------------------------------ ------------ --------
Executive Officers and Directors:
Chuck Bay (1)................................................... 79,486 *
Kevin Harvey (2)................................................ 924,271 4.79%
James C. Wood (3)............................................... 229,160 1.19
Massood Zarabian (4)............................................ 95,608 *
Chris Maeda (5)................................................. 48,436 *
Tom Doyle (6)................................................... 30,590 *
Robert W. Frick (7)............................................. 19,891 *
Brett White (8)................................................. 7,875 *
Bud Michael (9)................................................. 6,732 *
Vicki Amon-Higa (10)............................................ 5,798 *
All directors and executive officers as a group (10 persons).... 1,447,847 7.41
5% stockholder:
Amerindo Investment Advisors, Inc............................... 1,421,964 7.3
--------
* Less than 1%
(1) Represents 34,614 shares held by Mr. Bay, of which 721 shares are subject
to a right of repurchase that lapses at a rate of 721 shares per month
until January 2002 and 4,296 share are subject to a right of repurchase
that lapses as to 358 shares per month until December 2002, and options
that will be exercisable as to 45,322 shares as of January 29, 2002. Mr.
Bay is Chief Executive Officer and President of Kana.
(2) Represents shares of common stock held by Benchmark Capital Partners,
L.P., Benchmark Founders' Fund, L.P., and shares held by Mr. Harvey, and
options to purchase 4,700 shares held by Mr. Harvey that are fully vested
and exercisable. Mr. Harvey, a member of the board of directors of Kana,
is a Managing Member of Benchmark Capital Management Co., LLC, the general
partner of Benchmark Capital Partners, L.P. and Benchmark Founders' Fund,
L.P. Mr. Harvey disclaims beneficial ownership of shares held by Benchmark
Capital except to the extent of his pecuniary interest arising from his
interest in Benchmark Capital.
20
(3) Represents 218,104 shares held by Mr. Wood and options that will be
exercisable as to 11,056 shares as of January 29, 2002. Mr. Wood is
Chairman of the Board of Directors of Kana.
(4) Represents 3,350 shares held by Mr. Zarabian and options that will be
exercisable as to 92,258 shares as of January 29, 2002. Mr. Zarabian is a
director of Kana.
(5) Represents 30,226 shares held by Mr. Maeda and options that will be
exercisable as to 18,210 shares as of January 29, 2002. Mr. Maeda is the
Chief Technology Officer of Kana.
(6) Represents 904 shares held by Mr. Doyle and options that will be
exercisable as to 29,686 shares as of January 29, 2002. Mr. Doyle is the
Chief Operating Officer of Kana.
(7) Represents 15,703 shares held by Mr. Frick and options that will be
exercisable as to 4,188 shares as of January 29, 2002. Mr. Frick is a
director of Kana.
(8) Represents options that will be exercisable as to 7,875 shares as of
January 29, 2002. Mr. White is the Chief Financial Officer of Kana.
(9) Represents 114 shares held by Mr. Michael and options that will be
exercisable as to 6,618 shares as of January 29, 2002. Mr. Michael is the
Executive Vice President, Marketing and Engineering of Kana.
(10) Represents options that will be exercisable as to 5,798 shares as of
January 29, 2002. Ms. Amon-Higa is the Vice President, Corporate
Development and Human Resources of Kana.
The named executive officers listed in the table above represent our chief
executive officer and four highest paid executive officers who currently work
at Kana. The person who served at the end of 2000 as our chief executive
officer and four highest paid executive officers (Michael J. McCloskey, Paul R.
Holland, Nigel K. Donovan, William R. Phelps and Alexander E. Evans), ceased
working for Kana upon or before completion of the Broadbase acquisition.
PROPOSALS FOR THE 2002 ANNUAL MEETING OF STOCKHOLDERS
Proposals of stockholders intended to be presented at our 2002 annual
meeting of stockholders must be received at our principal executive offices no
later than January 24, 2002 in order to be included in our proxy statement and
form of proxy relating to that meeting. Proposals of our stockholders that are
intended to be presented at our 2002 annual meeting (but not included in our
proxy materials) must be timely delivered or received by us 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 our 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 our common stock 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.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
We have elected to "incorporate by reference" certain information into this
proxy statement. By incorporating by reference, we can disclose important
information to you by referring you to another document we have filed
separately with the SEC. The information incorporated by reference is deemed to
be part of this proxy statement, except for information incorporated by
reference that is superseded by information contained in this proxy statement
or incorporated by reference to a subsequent document that we filed with the
Securities and Exchange Commission. This proxy statement incorporates by
reference the documents set forth below that we have previously filed with the
SEC:
. our Annual Report on Form 10-K for the fiscal year ended December 31,
2000, as amended;
. our Quarterly Reports on Form 10-Q for the fiscal quarters ended March
31, 2001, June 30, 2001 and September 30, 2001;
. our Current Reports on Form 8-K filed with the SEC on January 22, 2001,
February 1, 2001, February 21, 2001, April 12, 2001, July 16, 2001,
August 24, 2001 and November 29, 2001 (as amended by our 8-K/A filed
with the SEC on December 12, 2001); and
. the description of our common stock contained in our Registration
Statement on Form 8-A dated August 27, 1999, including any amendment or
report filed for the purpose of updating the description of our common
stock.
Also incorporated by reference are the unaudited pro forma combined
financial statements included in the section entitled "Kana Communications,
Inc. Unaudited Pro Forma Combined Financial Statements" in our Registration
Statement on Form S-4 (Reg. No. 333-59754) filed on April 27, 2001, as amended.
All documents filed by us under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act after the date of this proxy statement are also
incorporated by reference in this proxy statement and made a part of this proxy
statement from the date we file the documents with the SEC.
You may request a free copy of any of these filings, at no cost, by writing
or telephoning us at:
Investor Relations
Kana Software, Inc.
181 Constitution Drive
Menlo Park 94025
Tel. (650) 614-8300
22
WHERE YOU CAN FIND MORE INFORMATION
We are required to file reports and other information with the SEC pursuant
to the information requirements of the Securities Exchange Act of 1934.
Our filings with the SEC may be inspected and copied at the public reference
facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for
further information relating to the public reference rooms. Copies of our
filings may be obtained at the prescribed rates from the Public Reference
Section of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549. In
addition, the SEC maintains an Internet site (http://www.sec.gov) that contains
certain reports, proxy statements and other information regarding Kana.
The share purchase agreement, form of amended and restated investor rights
agreement, form of certificate of designation for the 8% Series A convertible
preferred stock and forms of commitment and contingent warrants, each of which
are discussed in this proxy statement, are filed as exhibits to our amended
Current Report on Form 8-K/A, filed with the SEC and dated as of December 12,
2001. We will provide you with a copy of each of these agreements without
charge. You may request copies of these documents by contacting us at: Kana
Software, Inc., 181 Constitution Drive, Menlo Park, California 94025 or calling
us at (650) 614-8300, Attention: Investor Relations. Statements contained in
this proxy statement as to the contents of any contract or other document
referred to in this proxy statement are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document.
23
Appendix A
OPINION OF FINANCIAL ADVISOR
November 28, 2001
The Board of Directors
Kana Software, Inc.
181 Constitution Drive
Menlo Park, California 94025
To the Board of Directors:
You have requested our opinion, as of the date hereof, as to the fairness,
from a financial point of view, to Kana Software, Inc., a Delaware corporation
(the "Company"), of the consideration to be received by the Company pursuant to
the terms of the proposed private offering of 8% Series A Convertible Preferred
Stock (the "Preferred Stock") at the lesser of $10.00 per share or the product
of ten multiplied by the sixty-six and two/thirds percent of the daily volume
weighted average price for the Company Common Stock for the ten trading days
ending one day prior to closing (the "Private Placement"). The terms and
conditions of the Private Placement are set forth in the draft Share Purchase
Agreement (the "Definitive Agreement") proposed to be entered into between the
Company and certain affiliates of Technology Crossover Ventures. We understand
that the shares of Preferred Stock to be sold in the Private Placement will be
considered "restricted stock"; however, we also understand that the Company
shall use its best efforts to have a registration statement for the shares of
the Common Stock issuable upon conversion of the Preferred Stock declared
effective within 90 days after the closing of the Private Placement.
RBC Capital Markets (the global brand name for the corporate and investment
banking division of Royal Bank of Canada and its affiliates, including RBC Dain
Rauscher Inc.)("RBCCM"), 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, secondary
distributions of securities and private placements. RBCCM acts as a market
maker in the Common Stock of the Company and other publicly traded firms in the
software industry and, accordingly, periodically may have a position in the
Company's Common Stock. RBCCM was engaged to act as a co-manager for Broadbase
Software, Inc.'s initial public offering of common stock in 1999 and its
follow-on public offering in 2000. RBCCM also acted as financial advisor to
Broadbase Software, Inc. in its acquisitions of Panopticon Inc. and
ServiceSoft, Inc. in 2001. RBCCM will receive a fee for providing this opinion.
The opinion fee is not contingent upon consummation of the Private Placement.
RBCCM will also receive a transaction fee for the Private Placement which is
contingent upon consummation of the Private Placement. In addition, RBCCM will
be indemnified against certain liabilities that may arise from activities
related to its engagement by the Company.
In arriving at our opinion, we have undertaken such review, analyses and
inquiries as we deemed necessary and appropriate under the circumstances. Among
other things, we have: (i) reviewed the financial terms of the draft Definitive
Agreement dated November 28, 2001, (ii) reviewed and analyzed certain publicly
available information filed by the Company with the Securities and Exchange
Commission and certain other financial and operating information supplied to us
by the Company, including certain historical audited financial statements,
certain internal unaudited financial information, and certain summary financial
projections relating to the Company, (iii) made inquiries of the management of
the Company regarding its past and current business operations, financial
condition, and future prospects, (iv) held discussions with management of the
Company to understand the reasons for completing the Private Placement, (v)
reviewed the historical market prices and trading activity of the Company's
Common Stock, (vi) compared certain financial and stock market information
regarding the Company to similar information for certain publicly traded
companies in the software industry, (vii) reviewed the terms of certain
comparable private investments in public equity securities and compared the
A-1
terms of these transactions to the terms of the Preferred Stock, and (viii)
performed other studies and analyses as we considered appropriate. No single
company or transaction used in the above analyses as a comparison is identical
to the Company or the Private Placement.
In conducting our review and in rendering our opinion, we have assumed and
relied upon the accuracy and completeness of the financial and other
information provided to us or publicly available and we have not assumed any
responsibility for independent verification of such information. The Company
has advised us that it does not publicly disclose internal financial
information of the type provided to us and that such information was prepared
for financial planning purposes and not with the expectation of public
disclosure. We have relied upon the assurances of the management of the Company
that the financial planning data and other business outlook information
provided to us has been prepared on a reasonable basis and in accordance with
industry practice and reflects the best currently available estimates. We have
further relied upon the assurances of management of the Company that they are
not aware of any facts that would make the information supplied to us, or
publicly available, inaccurate or misleading. In rendering its opinion, RBCCM
expresses no view as to the reasonableness of such forecasts and projections or
the assumptions on which they are based. RBCCM has considered the assessment of
the Company's management as to the Company's financing requirements, the
availability of alternative financing and the potential effects on the Company
and its business of a failure to obtain additional capital in the near term.
RBCCM has expressed no opinion as to whether the terms of the Private Placement
are the most beneficial terms from the Company's perspective that could under
the circumstances be negotiated among the parties to the Private Placement and
no opinion is expressed whether any alternative transaction might produce
proceeds to the Company in an amount in excess of that to be received by the
Company in the Private Placement. At the request of the Company, RBCCM has not
engaged in any discussions with any third parties regarding a merger or any
other business combination involving the Company and RBCCM has not solicited
alternative financing transactions for the Company.
For purposes of rendering its opinion, RBCCM has assumed that, in all
respects material to its analysis, the representations and warranties of the
parties contained in the Definitive Agreement are true and correct, each party
will perform all of the covenants and agreements to be performed by it under
the Definitive Agreement and all conditions to the obligations of each party to
consummate the Private Placement will be satisfied without any waiver thereof.
RBCCM has assumed that all material governmental, regulatory or other approvals
and consents required in connection with the consummation of the Private
Placement will be obtained. RBCCM has assumed that the Private Placement does
not result in a change of control of the Company.
In arriving at our opinion, we did not make an independent appraisal of the
assets or liabilities of the Company, and we do not express an opinion
regarding the liquidation value, solvency or regulatory compliance of the
Company. Furthermore, we do not express any opinion as to the prices at which
shares of the Company's Common Stock may trade following the date of this
opinion, at the closing of the Private Placement, or at any time in the future.
Our opinion is based solely on information available to us on or before the
date hereof, and reflects general market, economic, financial, monetary, and
other conditions as of such date. We will not undertake to reaffirm or revise
this opinion or otherwise comment upon any events occurring after the date
hereof.
RBCCM has assumed that it will be able to rely on an opinion from counsel of
the Company that the Private Placement will be exempt from the registration
requirements of the Securities Act of 1933, as amended, and has further assumed
that the Private Placement will be consummated in a manner that in all other
respects complies with the requirements of federal and state securities laws,
rules and regulations.
This opinion is directed solely to and is for the sole use and benefit of
the Board of Directors of the Company in connection with its consideration of
the Private Placement, and this opinion does not constitute a recommendation to
any stockholder of the Company regarding whether to approve the Private
Placement. This opinion may not be relied upon by any other person, without our
prior written consent. This opinion is limited to the fairness to the Company,
from a financial point of view, of the consideration to be received by the
Company
A-2
in the Private Placement, and does not address the Company's underlying
business decisions to proceed with the Private Placement. This opinion also
does not address any matters relating to investors who may purchase Preferred
Stock in the Private Placement or any other term or agreement relating to the
Private Placement.
This letter may not be reproduced, quoted, published, or referred to in any
manner, nor shall any public reference to RBCCM be made without our prior
written consent.
Based upon and subject to the foregoing, and other matters that we
considered relevant, it is our opinion that, as of the date hereof, the
consideration to be received by the Company upon issuance of the Preferred
Stock of the Company in the Private Placement is fair to the Company from a
financial point of view.
Very truly yours,
RBC CAPITAL MARKETS
A-3
(FORM OF PROXY)
Kana Software, Inc.
181 Constitution Drive
Menlo Park, California 94025
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Brett White and Eric Willgohs, and each of
them, as proxies, each with full powers of substitution, and hereby authorizes
them to vote, as designated below, all shares of common stock, $0.001 par value,
of Kana Software, Inc. (the "Company") held of record by the undersigned on
December 21, 2001, at the Special Meeting of Stockholders of the Company to be
held on January __, 2002, and at any continuations or adjournments thereof.
This Proxy, when properly executed and returned in a timely manner, will be
voted at the meeting and any adjournments or postponements thereof in the manner
described herein. If no contrary indication is made, the proxy will be voted FOR
Proposal No. 1 and in accordance with the judgment of the persons named as
proxies herein on any other matters that may properly come before the meeting.
The Board of Directors unanimously recommends that you vote FOR Proposal
No. 1.
[X] Please mark votes as in this sample.
1. Approval of the issuance and sale by Kana, pursuant to a private placement,
of up to $45 million of 8% Series A convertible preferred stock pursuant to
the share purchase agreement, dated as of November 28, 2001, with two
investment funds affiliated with Technology Crossover Ventures, and the
issuance of shares of common stock upon the conversion of the Series A
convertible preferred stock.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Continued on Reverse Side)
In accordance with their judgment, the proxies are authorized to vote upon
such other matters as may properly come before the Special Meeting or any
adjournment or postponement thereof.
Mark here for address change and note on address label [ ]
Whether or not you expect to attend the meeting please complete, date and sign
this proxy card and return it prior to the meeting in the enclosed envelope.
Date:________________________
Signature:___________________
Date:________________________
Signature:___________________
This Proxy must be signed exactly as your name appears
hereon. If more than one name appears, all persons so
designated should sign. Attorneys, executors,
administrators, trustees and guardians indicate their
capacities. If the signer is a corporation, please print
full corporate name and indicated capacity of duly
authorized officer executing on behalf of the corporation.
If the signer is a partnership please print full partnership
name and indicate capacity of duly authorized person
executing on behalf of the partnership.
This is your proxy. Your vote is important.