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:
/ / Preliminary Proxy Statement / / Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to
Section 240.14a-11(c) or Section 240.14a-12
KANA COMMUNICATIONS, INC.
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(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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(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.
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(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:
/ / 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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[KANA LOGO]
KANA COMMUNICATIONS, INC.
740 Bay Road
Redwood City, CA 94063
(650) 298-9282
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON October 4, 2000
The annual meeting of stockholders of Kana Communications, Inc., a Delaware
corporation, will be held on October 4, 2000 at 10:00 a.m., local time, at the
offices of Brobeck, Phleger & Harrison LLP at Two Embarcadero Place, 2200 Geng
Road, Palo Alto, California 94303 for the following purposes:
1. To elect three directors to serve for a three-year term ending in the
year 2003 and until their successors are duly elected and qualified.
2. To ratify the appointment of PricewaterhouseCoopers LLP as our
independent auditors for the year ending December 31, 2000.
3. To transact such other business as may properly come before the annual
meeting and any adjournment or postponement thereof.
The foregoing matters are described in more detail in the enclosed proxy
statement. The board of directors has fixed the close of business on August 18,
2000, as the record date for the determination of the stockholders entitled to
notice of, and to vote at, the annual meeting and any postponement or
adjournment thereof. Only those stockholders of record as of the close of
business on that date will be entitled to vote at the annual meeting or any
postponement or adjournment thereof.
By Order of the Board of Directors,
/s/ MICHAEL J. MCCLOSKEY
Michael J. McCloskey
Chief Executive Officer
Redwood City, California
September 1, 2000
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YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. PLEASE
READ THE ATTACHED PROXY STATEMENT CAREFULLY AND SUBMIT YOUR PROXY AND VOTING
INSTRUCTIONS OVER THE INTERNET OR BY TELEPHONE, OR COMPLETE, SIGN AND DATE THE
ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE AND RETURN IT IN THE ENCLOSED
ENVELOPE.
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KANA COMMUNICATIONS, INC.
740 BAY ROAD
REDWOOD CITY, CA 94063
(650) 298-9282
PROXY STATEMENT
Your vote at the annual meeting is important to us. Please vote your shares
of common stock by completing the enclosed proxy card and returning it in the
enclosed envelope, or by submitting your proxy and voting instructions over the
Internet or by telephone. This proxy statement has information about the annual
meeting and was prepared by our management for the board of directors. This
proxy statement and the accompanying proxy card are first being mailed to you on
or about September 1, 2000.
GENERAL INFORMATION ABOUT VOTING
WHO CAN VOTE?
You can vote your shares of common stock if our records show that you owned
the shares on August 18, 2000. A total of 93,308,145 shares of common stock can
vote at the annual meeting. You get one vote for each share of common stock. The
enclosed proxy card shows the number of shares you can vote.
HOW DO I VOTE BY PROXY?
Follow the instructions on the enclosed proxy card to vote on each proposal
to be considered at the annual meeting. Sign and date the proxy card and mail it
in the enclosed envelope. As an alternative, you may have the option of
executing and submitting your proxy and voting instructions over the Internet or
by telephone. Votes submitted via the Internet or by telephone must be received
by 4 p.m., on October 3. Shareholders submitting proxies over the Internet or by
telephone should not mail the proxy voting instruction form. The proxyholders
named on the proxy card will vote your shares as you instruct. If you submit
your proxy over the Internet or by telephone, or sign and return the proxy card
but, in either case, do not vote on a proposal, the proxyholders will vote for
you on that proposal. Unless you instruct otherwise, the proxyholders will vote
for each of the three director nominees and for the other proposal to be
considered at the meeting.
WHAT DOES IT MEAN IF I RECEIVE MORE THAN ONE PROXY CARD?
It means that you have multiple accounts at the transfer agent and/or with
stockbrokers. Please sign and return or submit voting instructions for all proxy
cards to ensure that all your shares are voted.
WHAT IF OTHER MATTERS COME UP AT THE ANNUAL MEETING?
The matters described in this proxy statement are the only matters we know
will be voted on at the annual meeting. If other matters are properly presented
at the meeting, the proxyholders will vote your shares as they see fit.
CAN I CHANGE MY VOTE AFTER I RETURN MY PROXY CARD?
Yes. At any time before the vote on a proposal, if you vote your proxy by
mail, you can change your vote by giving our secretary a written notice revoking
your proxy card or by signing, dating, and returning to us a new proxy card. We
will honor the proxy card with the latest date. If you chose to vote your proxy
over the Internet or by telephone, you can change your vote at any time by
voting again using the same method used for the original vote (i.e. the Internet
or telephone) so long as you retain the proxy card referencing your control
number.
CAN I VOTE IN PERSON AT THE ANNUAL MEETING RATHER THAN BY COMPLETING THE PROXY
CARD?
Although we encourage you to complete and return the proxy card or vote via
the Internet or by telephone to ensure that your vote is counted, you can attend
the annual meeting and vote your shares in person.
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WHAT DO I DO IF MY SHARES ARE HELD IN "STREET NAME"?
If your shares are held in the name of your broker, a bank, or other
nominee, that party should give you instructions for voting your shares.
HOW ARE VOTES COUNTED?
We will hold the annual meeting if holders of a majority of the shares of
common stock entitled to vote sign and return their proxy cards, submit their
proxies over the Internet or by telephone, or attend the meeting. If you sign
and return your proxy card or submit your proxy over the Internet or by
telephone, your shares will be counted to determine whether we have a quorum
even if you abstain or fail to vote on any of the proposals listed on the proxy
card.
If your shares are held in the name of a nominee, and you do not tell the
nominee how to vote your shares (so-called "broker nonvotes"), the nominee can
vote them as it sees fit only on matters that are determined to be routine, and
not on any other proposal. Broker nonvotes will be counted as present to
determine if a quorum exists but will not be counted as present and entitled to
vote on any nonroutine proposal.
WHO PAYS FOR THIS PROXY SOLICITATION?
We bear the entire cost of solicitation, including the preparation,
assembly, printing and mailing of this proxy statement, the proxy and any
additional solicitation materials furnished to you. In addition to sending you
these materials, some of our employees may contact you by telephone, by mail, or
in person. None of these employees will receive any extra compensation for doing
this.
WHEN IS THE DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS FOR THE 2001 ANNUAL
MEETING?
Proposals of our stockholders that are intended to be presented by such
stockholders at our 2001 annual meeting must be received no later than May 3,
2001, in order that they may be included in the proxy statement and form of
proxy relating to that meeting. In addition, the proxy solicited by the board of
directors for the 2001 annual meeting will confer discretionary authority to
vote on any stockholder proposal presented at that meeting, unless we receive
notice of such proposal not later than July 18, 2001.
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PROPOSAL NO 1: ELECTION OF DIRECTORS
Our board of directors is divided into three classes designated Class I,
Class II and Class III. The number of directors is determined from time to time
by the board of directors and is currently fixed at nine (9) members. A single
class of directors is elected each year at the annual meeting. Subject to
transition provisions, each director elected at each such meeting will serve for
a term ending on the date of the third annual meeting of stockholders after his
election and until his successor has been elected and duly qualified. At this
year's annual meeting, Class I directors will stand for re-election.
In April 2000, one of our board members, who was a Class II director,
resigned. The current vacancy on the board of directors will remain open and
will not be filled at this annual meeting.
Set forth below is certain information concerning the incumbent directors:
DIRECTORS TO BE ELECTED AT THE 2000 ANNUAL MEETING
David M. Beirne, age 36, has served as one of our directors since September
1997. Mr. Beirne has been a Managing Member of Benchmark Capital, a venture
capital firm, since June 1997. Prior to joining Benchmark Capital, Mr. Beirne
founded Ramsey/Beirne Associates, an executive search firm, and served as its
Chief Executive Officer from October 1987 to June 1997. Mr. Beirne serves on the
board of directors of Scient Corporation, PlanetRx.com, Inc., Webvan Group,
Inc., 1-800-FLOWERS.COM, Inc., and several private companies. Mr. Beirne holds a
B.S. in Management from Bryant College.
Robert W. Frick, age 63, has served as one of our directors since August
1999. Mr. Frick previously served as the Vice Chairman of the Board, Chief
Financial Officer and head of the World Banking Group for Bank of America, as
Managing Director of BankAmerica International, and as President of Bank of
America's venture capital subsidiary. He is now retired. Mr. Frick previously
served as a director of Connectify, Inc. from its founding to its acquisition by
us, and he currently serves on the board of directors of six private companies.
Mr. Frick holds a B.S. in Civil Engineering and an M.B.A. from Washington
University in St. Louis, Missouri.
Steven T. Jurvetson, age 33, has served as one of our directors since April
1997. Mr. Jurvetson has been a Managing Director of Draper Fisher Jurvetson, a
venture capital firm, since June 1995. Prior to joining Draper Fisher Jurvetson,
from July 1990 to September 1993, Mr. Jurvetson served as a consultant with Bain
& Company, a management consulting firm. Mr. Jurvetson served as a research and
development engineer at Hewlett-Packard during the summer months from June 1987
to August 1989. Mr. Jurvetson serves on the boards of directors of Cognigine
Corporation, FastParts, Inc., iTv Corp., Tacit Knowledge Corporation, Third
Voice, Inc., ReleaseNow.com Corporation, Everdream Corporation and Vivaldi
Networks, Inc. Mr. Jurvetson holds a B.S. and an M.S. in Electrical Engineering
from Stanford University and an M.B.A. from the Stanford Graduate School of
Business.
DIRECTORS WHOSE TERMS EXPIRE IN 2001
Eric A. Hahn, age 40, has served as one of our directors since June 1998.
Mr. Hahn is a founding partner of Inventures Group, a venture capital firm. From
November 1996 to June 1998, Mr. Hahn served as the Executive Vice President and
later as the Chief Technical Officer of Netscape Communications Corporation and
served as a member of Netscape's Executive Committee. Mr. Hahn also served as
General Manager of Netscape's Server Products Division, overseeing Netscape's
product development and marketing activities for enterprise Internet, intranet
and extranet servers, from November 1995 to November 1996. Prior to joining
Netscape, from February 1993 to November 1995, Mr. Hahn was founder and Chief
Executive Officer of Collabra Software, Inc., a groupware provider that was
acquired by Netscape. Mr. Hahn holds a B.S. and Ph.D. in Computer Science from
the Worcester Polytechnic Institute.
Dr. Charles A. Holloway, age 64, has served as one of our directors since
December 1996. Dr. Holloway holds the Kleiner, Perkins, Caufield & Byers
Professorship in Management at the Stanford Graduate School of Business and has
been a faculty member of the Stanford Graduate School of Business since 1968.
Dr. Holloway is also currently co-director of the Stanford Center for
Entrepreneurial Studies at the Graduate School of Business. Dr. Holloway was the
founding co-chair of the Stanford Integrated Manufacturing Association, a
cooperative effort between the Graduate School of Business and the School of
Engineering, which focuses on research and curriculum
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development in manufacturing and technology. Dr. Holloway serves on the board of
directors of several private companies. Dr. Holloway holds a B.S. in Electrical
Engineering from the University of California at Berkeley and an M.S. in Nuclear
Engineering and Ph.D. in Business Administration from the University of
California, Los Angeles.
DIRECTORS WHOSE TERMS EXPIRE IN 2002
Michael J. McCloskey, age 44, joined us in June 1999 as Chief Executive
Officer and a director, and currently serves as our Chairman of the Board of
Directors. Prior to joining us, from September 1996 to February 1999, Mr.
McCloskey served in various positions with Genesys Telecommunications
Laboratories, Inc., a provider of enterprise interaction management software,
including President from July 1998 to December 1998, Chief Operating Officer
from September 1997 to July 1998 and Vice President, Finance and International,
Chief Financial Officer and Secretary from September 1996 to July 1998. From May
1995 to September 1996, he served as Vice President, Finance, Chief Financial
Officer and Vice President, Operations at Network Appliance, Inc., a network
data storage device company. From September 1993 to May 1995, Mr. McCloskey
served as Executive Vice President and Chief Financial Officer at Digital
Microwave Corporation, a telecommunications company. From 1991 to 1993, Mr.
McCloskey was the Chief Operating Officer and a member of the board of directors
of Wavefront Technologies, a 3-D graphics visualization software development
company. Mr. McCloskey holds a B.S. in Business Administration from Santa Clara
University.
James C. Wood, age 43, joined us in April 2000 as a director in connection
with our acquisition of Silknet Software, Inc. and has served as our President
since May 2000. Mr. Wood founded Silknet in March 1995 and served as its
Chairman of the Board, President and Chief Executive Officer. From January 1988
until November 1994, Mr. Wood served as President and Chief Executive Officer of
CODA Incorporated, a subsidiary of CODA Limited, a financial accounting software
company. Mr. Wood also served as a director of CODA Limited from November 1988
until November 1994. Mr. Wood holds a B.S. in Electrical Engineering from
Villanova University.
Mark S. Gainey, age 32, co-founded our company in January 1996, has served
as a director since January 1996, served as our Chief Executive Officer from
January 1996 to June 1999, served as our President from January 1996 through
April 2000 and served as our Chairman of the Board of Directors from April 2000
through June 2000. Prior to co-founding our company, from April 1991 to
September 1995, Mr. Gainey served as an associate with TA Associates, Inc., a
venture capital firm, where he focused primarily on technology and business
services investments. Mr. Gainey holds a B.A. in General Studies from Harvard
University.
THE BOARD OF DIRECTORS AND COMMITTEES
Our board of directors held eight meetings during fiscal 1999. The board of
directors has an audit committee and a compensation committee. Each director
participated in 75% or more of the aggregate of (i) the total number of meetings
of the board of directors and (ii) the total number of meetings held by all
committees of the board on which such director served during 1999.
The audit committee currently consists of three directors, Dr. Holloway and
Messrs. Frick and Jurvetson, and met three times in 1999. The audit committee
reviews and supervises our financial controls, including the selection of our
auditors, reviews the books and accounts, meets with our officers regarding our
financial controls, acts upon recommendations of the auditors and takes any
further actions the audit committee deems necessary to complete an audit of our
books and accounts, as well as addressing other matters that may come before us
or as directed by the board.
The compensation committee currently consists of two directors, Messrs.
Beirne and Hahn. The compensation committee met twice in 1999. The compensation
committee reviews and approves the compensation and benefits for our executive
officers, administers our stock plans and performs other duties as may from time
to time be determined by the board.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1999, our compensation committee consisted of Messrs. Beirne and
Hahn. Neither Mr. Beirne nor Mr. Hahn was an employee of us or our subsidiaries
during 1999 or at any time prior to 1999. None of our executive
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officers serves on the board of directors or compensation committee of any
entity that has one or more executive officers serving as a member of our board
of directors or compensation committee.
DIRECTOR COMPENSATION
We currently do not compensate any non-employee member of the board of
directors. Directors who are also employees do not receive additional
compensation for serving as directors.
Non-employee directors are eligible to receive discretionary option grants
and stock issuances under the 1999 Stock Incentive Plan. In addition, under the
1999 Stock Incentive Plan, each new non-employee director will receive an
automatic option grant for 40,000 shares upon his or her initial appointment or
election to the board, and continuing non-employee directors will receive an
automatic option grant for 10,000 shares on the date of each annual meeting of
stockholders.
In August 1999, we granted an option to purchase 66,666 shares of common
stock to Mr. Frick at an exercise price of $4.50 per share under our 1997 Stock
Option/Stock Issuance Plan. The option was fully vested and immediately
exercisable on the grant date. Mr. Frick exercised this option in full in
September 1999. Mr. Frick delivered a full-recourse promissory note in the
amount of $300,000 to us in full payment of the purchase price. The note bears
interest at a rate of 6.0% per annum, compounded annually, and is payable in a
lump sum on September 18, 2004.
In September 1999, we granted an option to purchase 60,000 shares of common
stock to Dr. Holloway at an exercise price of $7.50 per share under the
Discretionary Grant program of our 1999 Stock Incentive Plan. The option may be
exercised for unvested shares, subject to our right to repurchase those shares
at the exercise price paid per share if Dr. Holloway leaves the board before the
shares vest. Twenty-five percent of the option shares will vest upon Dr.
Holloway's completion of one year of service measured from September 20, 1999,
and the balance of the option shares will vest in a series of 36 equal monthly
installments upon his completion of each additional month of service thereafter.
All unvested shares will immediately vest upon a merger or asset sale, the
successful completion of a hostile tender offer for more than 50% of our
outstanding voting securities, or a change in the majority of the board through
one or more contested elections for board membership.
RECOMMENDATION OF THE BOARD OF DIRECTORS
OUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE NOMINEES
NAMED ABOVE.
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PROPOSAL NO. 2: RATIFICATION OF APPOINTMENT OF AUDITORS
The board of directors has appointed PricewaterhouseCoopers LLP as our
independent auditors for the year ending December 31, 2000. Audit services for
the year ended December 31, 1999 were performed by KPMG LLP. In the event the
stockholders fail to ratify the appointment, the board of directors will
reconsider its selection. Even if the selection is ratified, the board of
directors in its discretion may direct the appointment of a different
independent auditing firm at any time during the year if the board of directors
believes that such a change would be in the best interests of Kana
Communications, Inc., and its stockholders.
A representative of PricewaterhouseCoopers LLP is expected to be present at
the annual meeting, will have the opportunity to make a statement if he or she
desires to do so, and will be available to respond to appropriate questions. A
representative of KPMG LLP is not expected to be present at the annual meeting.
KPMG LLP was previously our principal accountants. On March 22, 2000, we
and KPMG LLP mutually agreed to terminate KPMG LLP's appointment as principal
accountants due to an anticipated business relationship between our two
companies. The decision to change accountants was approved by the audit
committee of our board of directors. In connection with the audits of the fiscal
years ended December 31, 1998 and 1999, and the subsequent interim period
through March 22, 2000, there were no disagreements with KPMG LLP on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedures, which disagreements, if not resolved to their
satisfaction, would have caused them to make reference in connection with their
opinion to the subject matter of the disagreement. The audit reports of KPMG LLP
on our consolidated financial statements as of and for the years ended December
31, 1998 and 1999, did not contain any adverse opinion or disclaimer of opinion,
nor were they qualified or modified as to uncertainty, audit scope, or
accounting principles.
Effective April 19, 2000, PricewaterhouseCoopers LLP was engaged as our
independent accountants. Prior to April 19, 2000, we had not consulted with
PricewaterhouseCoopers LLP regarding the application of accounting principles to
a specified transaction, either completed or proposed, or the type of audit
opinion that might be rendered on our financial statements, and either a written
report was provided to us or oral advice was provided that
PricewaterhouseCoopers LLP concluded was an important factor considered by us in
reaching a decision as to the accounting, auditing or financial reporting issue.
Additionally, prior to April 19, 2000, we had not consulted with
PricewaterhouseCoopers LLP regarding any matter that was either the subject of a
disagreement or a reportable event.
Unless marked to the contrary, proxies received will be voted FOR
ratification of the appointment of PricewaterhouseCoopers LLP as the independent
auditors for the current year.
REQUIRED VOTE
The ratification of the appointment of PricewaterhouseCoopers LLP as our
independent auditors for the year ending December 31, 2000 requires the
affirmative vote of the holders of a majority of the shares of our common stock
present at the annual meeting in person or by proxy and entitled to vote.
RECOMMENDATION OF THE BOARD OF DIRECTORS
OUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION OF THE
APPOINTMENT OF PricewaterhouseCoopers LLP AS OUR INDEPENDENT AUDITORS.
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OTHER MATTERS
Our board of directors knows of no other business which will be presented
at the annual meeting. If any other business is properly brought before the
annual meeting, proxies in the enclosed form will be voted in respect thereof in
accordance with the judgments of the persons voting the proxies.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information regarding our executive officers
and directors (including ages as of August 18, 2000):
NAME AGE POSITION
- - ---- --- --------
Michael J. McCloskey......... 44 Chief Executive Officer and Chairman of the
Board of Directors
James C. Wood ............... 43 President and Director
Brian K. Allen .............. 39 Chief Financial Officer
Ian P. Cavanagh.............. 34 Vice President, Business Development
Nigel K. Donovan............. 44 Vice President, Development
Alexander E. Evans........... 43 Vice President, International
David B. Fowler.............. 46 Vice President, Corporate Marketing
Paul R. Holland.............. 39 Vice President, Worldwide Sales
William R. Phelps............ 38 Vice President, Professional Services
Toya A. Rico................. 40 Vice President, Human Resources
Michael R. Wolfe............. 32 Chief Technology Officer
David M. Beirne.............. 36 Director
Robert W. Frick.............. 63 Director
Mark S. Gainey .............. 32 Director
Eric A. Hahn................. 40 Director
Charles A. Holloway, Ph.D.... 64 Director
Steven T. Jurvetson.......... 33 Director
MICHAEL J. MCCLOSKEY. See "Proposal No. 1: Election of Directors" for Mr.
McCloskey's biography.
JAMES C. WOOD. See "Proposal No. 1: Election of Directors" for Mr. Wood's
biography.
BRIAN K. ALLEN. Mr. Allen joined us in April 2000 as Chief Financial
Officer. Prior to joining us, from 1983 until 1986 and from 1989 to April 2000,
Mr. Allen was with KPMG LLP, and was admitted to the partnership in 1995. From
1986 to 1989, Mr. Allen was a member of the staff of the Division of Corporation
Finance at the Securities and Exchange Commission. Mr. Allen holds a B.S. in
Business Administration from the University of Montana and is a CPA.
IAN P. CAVANAGH. Mr. Cavanagh joined us in July 1999 as Vice President,
Business Development. Prior to joining us, from February 1996 to July 1999, Mr.
Cavanagh served in various management roles at Genesys Telecommunications
Laboratories, Inc., a provider of enterprise interaction management software,
most recently as Vice President, Asia Pacific and Managing Director, Canada.
From 1994 to February 1996, Mr. Cavanagh served as Senior Manager-Call Centre
Service Development with the New Brunswick Telephone Company. Prior to 1994, Mr.
Cavanagh served as Senior Manager-Service Development with Stentor Canadian
Network Management, an alliance of Canadian telecommunication service providers.
Previously, Mr. Cavanagh held several engineering positions with NBTel. Mr.
Cavanagh holds a Bachelor of Electrical Engineering from the Technical
University of Nova Scotia and Acadia University.
NIGEL K. DONOVAN. Mr. Donovan joined us in April 2000 as Vice President,
Development in connection with our acquisition of Silknet Software, Inc. Prior
to joining us, from February 1999 to April 2000, Mr. Donovan served as Senior
Vice President and Chief Operating Officer of Silknet. From November 1995 to
February 1999 Mr. Donovan served as Silknet's Vice President--Professional
Services. From November 1996 to October 1998, he also served as Silknet's
Treasurer and from May 1997 to October 1998 as its Chief Financial Officer. In
addition, Mr. Donovan served as director of Silknet from October 1996 to
February 1999. From March 1988 until October 1995, Mr. Donovan served as Vice
President--Professional Services of CODA Incorporated. Mr. Donovan holds a B.A.
in Accounting and Finance from the London School of Business Studies.
ALEXANDER E. EVANS. Mr. Evans joined us in July 1999 as Vice President,
International. Prior to joining us, from May 1994 to July 1999, Mr. Evans served
as the Managing Director, Europe for Genesys Telecommunications
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Laboratories, Inc., with responsibility for Europe, Middle East and Africa.
Prior to May 1994, Mr. Evans served in various managerial and sales capacities
at Digital Systems Ltd., a company that supplies outbound predictive dialers.
Previously, Mr. Evans served in various managerial, technical and marketing
positions at Digital Equipment Corp. Prior to his employment by Digital
Equipment, Mr. Evans worked in various technical and project roles involving
material requirement planning, process control and automated manufacturing
systems at Dupont, Inc., Mars Electronics Ltd. and Metal Box PLC. Mr. Evans
holds a degree in Electronics from John Moore University, England.
DAVID B. FOWLER. Mr. Fowler joined us in April 2000 as Vice President,
Corporate Marketing in connection with our acquisition of Silknet Software, Inc.
Prior to joining us, from April 1999 to April 2000, Mr. Fowler served as Vice
President--Marketing of Silknet. From April 1995 to March 1999, Mr. Fowler
served as Vice President--Sales and Marketing for Gradient Technologies, a
software company. From December 1993 to March 1995, Mr. Fowler served as Vice
President--Sales and Marketing for FTP Software. Mr. Fowler holds a B.S. in
Computer Science from Worcester Polytechnic Institute and an M.B.A. from New
York University.
PAUL R. HOLLAND. Mr. Holland joined us in December 1997 as Vice President,
Worldwide Sales. Prior to joining us, from September 1994 to September 1997, Mr.
Holland worked at Pure Atria Corporation (now Rational Software Corporation), a
software tools company, most recently as its Vice President, Europe. From June
1992 to September 1994, Mr. Holland held various sales positions at Pure Atria
Corporation (then Pure Software Corporation). From 1988 to 1992, Mr. Holland was
director of marketing and sales for Rothchild Consultants, a high technology
market research company. Mr. Holland holds a B.S. in Public Administration from
James Madison University, an M.A. in Foreign Affairs from the University of
Virginia and an M.B.A. from the University of California at Berkeley.
WILLIAM R. PHELPS. Mr. Phelps joined us in December 1998 as Vice President,
Professional Services. Prior to joining us, from March 1997 to November 1998,
Mr. Phelps served as Vice President, Professional Services for CrossWorlds
Software, Inc., an application integration software company. From January 1994
to February 1997, Mr. Phelps served as a principal consultant at Booz, Allen &
Hamilton, a management consulting firm. Mr. Phelps holds a B.S. in Industrial
Engineering from Stanford University.
TOYA A. RICO. Ms. Rico joined us in January 2000 as Vice President, Human
Resources. Prior to joining us, from October 1996 through May 1999, Ms. Rico
served as Director, Human Resources at Adaptec, Inc., a bandwidth management
company. From May 1988 through September 1996, Ms. Rico served in a variety of
human resources management positions at 3Com Corporation, a computer networking
company. Ms. Rico holds a B.A. in Communications from California State
University, San Francisco.
MICHAEL R. WOLFE. Mr. Wolfe joined us in May 1997 and served as Director of
Engineering until April 1998, as Vice President, Engineering from April 1998
through April 2000 and is currently our Chief Technology Officer. Prior to
joining us, from March 1995 to February 1997, Mr. Wolfe served as Director of
Engineering at Internet Profiles Corporation, an Internet marketing company.
From February 1994 to March 1995, Mr. Wolfe was an associate at Wells Fargo
Nikko, specializing in software development. From June 1991 to February 1994,
Mr. Wolfe was a software programming analyst at Goldman, Sachs & Co. Mr. Wolfe
has taught computer science at Stanford University and the University of
California at Berkeley. Mr. Wolfe holds a B.S. and M.S. in Computer Science from
Stanford University.
DAVID M. BEIRNE. See "Proposal No. 1: Election of Directors" for Mr.
Beirne's biography.
ROBERT W. FRICK. See "Proposal No. 1: Election of Directors" for Mr.
Frick's biography.
MARK S. GAINEY. See "Proposal No. 1: Election of Directors" for Mr.
Gainey's biography.
ERIC A. HAHN. See "Proposal No. 1: Election of Directors" for Mr. Hahn's
biography.
DR. CHARLES A. HOLLOWAY. See "Proposal No. 1: Election of Directors" for
Dr. Holloway's biography.
STEVEN T. JURVETSON. See "Proposal No. 1: Election of Directors" for Mr.
Jurvetson's biography.
11
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth information regarding the beneficial ownership
of our common stock as of June 30, 2000, by the following individuals or groups:
o each person or entity who is known by us to own beneficially more
than five percent of our outstanding stock;
o each of the Named Executive Officers;
o each of our directors; and
o all current directors and executive officers as a group.
Applicable percentage ownership in the following table is based on
93,162,339 shares of common stock outstanding as of June 30, 2000, as adjusted
to include all options exercisable within 60 days of June 30, 2000 held by the
particular stockholder and that are included in the first column.
Unless otherwise indicated, the principal address of each of the
stockholders below is c/o Kana Communications, Inc., 740 Bay Road, Redwood City,
CA 94063. Except as otherwise indicated, and subject to applicable community
property laws, the persons named in the table have sole voting and investment
power with respect to all shares of common stock held by them.
NUMBER OF PERCENTAGE
SHARES OF SHARES
ENEFICIALLY ENEFICIALL
NAME AND ADDRESS OF BENEFICIAL OWNER BOWNED (#) BOWNED (%) Y
- - --------------------------------------- ------------- ------------
Entities affiliated with Draper Fisher Jurvetson(1)................................. 8,077,674 8.7
Entities affiliated with Benchmark Capital Partners L.P.(2)......................... 8,624,250 9.3
Entities affiliated with CMG @Ventures II LLC(10)................................... 4,707,553 5.1
Mark S. Gainey(3).................................................................. 4,579,966 4.9
Michael J. McCloskey(4)............................................................. 1,869,466 2.0
James C. Wood....................................................................... 2,582,230 2.8
Paul R. Holland(5).................................................................. 816,206 *
William R. Phelps(6)................................................................ 416,130 *
Joseph D. McCarthy(7)............................................................... 316,130 *
Michael R. Wolfe.................................................................... 630,782 *
Steven T. Jurvetson(1).............................................................. 8,077,674 8.7
David M. Beirne(2)(11).............................................................. 8,828,580 9.5
Eric A. Hahn(8)..................................................................... 433,898 *
Dr. Charles A. Holloway(9).......................................................... 159,998 *
Robert W. Frick..................................................................... 147,034 *
All current directors and executive officers as a group (18 persons)............... 31,314,960 33.6
- - --------------
* Less than one percent.
(1) Principal address is 400 Seaport Court, Suite 250, Redwood City, CA
94063. Includes 7,481,660 shares of common stock held by Draper Fisher
Associates Fund IV, L.P., 563,134 shares of common stock held by Draper
Fisher Partners IV, LLC and 32,880 shares of common stock held by Draper
Richards L.P. Mr. Jurvetson disclaims beneficial ownership of these
shares, except to the extent of his pecuniary interest in the Draper
Fisher Jurvetson Funds.
(2) Principal address is 2480 Sand Hill Road, Suite 200, Menlo Park, CA
94025. Represents 7,566,694 shares of common stock held by Benchmark
Capital Partners, L.P., and 1,057,556 shares of common stock held by
Benchmark Founders' Fund L.P. Mr. Beirne, one of our directors, is a
Managing Member of Benchmark Capital Management Co., LLC. Mr. Beirne
disclaims beneficial ownership of these shares, except to the extent of
his pecuniary interest in the Benchmark funds.
(3) Represents 4,578,666 shares of common stock held by the Mark and
Elisabeth Gainey Family Trust.
(4) Includes 1,057,777 shares of common stock subject to our right of
repurchase. This repurchase right lapses with respect to 31,111 shares
per month.
12
(5) Includes 26,666 shares of common stock held by The Paul Holland Grantor
Retained Annuity Trust, 26,666 shares of common stock held by The Linda
Yates Holland Grantor Retained Annuity Trust, 53,332 shares of common
stock held by the Yates/Holland 1999 Irrevocable Trust, 571,410 shares of
common stock held by The Yates/Holland Family Trust and 133,332 shares of
common stock held by Paul Holland and Linda Yates as community property.
Includes 270,469 shares of common stock subject to our right of
repurchase. This repurchase right lapses with respect to 16,904 shares
per month.
(6) Includes 26,666 shares of common stock held by The William Phelps Grantor
Retained Annuity Trust, 26,666 shares of common stock held by The
Margaret Phelps Grantor Retained Annuity Trust and 360,000 shares of
common stock held by The Phelps Family Trust. Includes 213,888 shares of
common stock subject to our right of repurchase. This repurchase right
lapses with respect to 7,638 shares per month. Also includes 34,028
shares of common stock subject to our right of repurchase, which lapses
with respect to 972 shares per month.
(7) Includes 33,332 shares of common stock held by The Joseph McCarthy
Grantor Retained Annuity Trust and 33,332 shares of common stock held by
Siobhan Lawlor Grantor Retained Annuity Trust. Includes 88,889 shares of
common stock subject to our right of repurchase. This repurchase right
lapses with respect to 4,444 shares per month. Also includes 72,917
shares of common stock subject to our right of repurchase, which lapses
with respect to 2,084 shares per month. Mr. McCarthy will continue to
provide services to us through August 31, 2000. We will repurchase all
shares unvested as of August 31, 2000 at the exercise price paid per
share.
(8) Includes 68,780 shares of common stock subject to our right of
repurchase. This repurchase right lapses with respect to 3,126 shares per
month.
(9) Includes 8,889 shares of common stock subject to our right of repurchase.
This repurchase right lapses with respect to 1,481 shares per month.
(10) Principal address is 100 Brickstone Plaza, Andover, MA 01810. Includes a
warrant to purchase 123,404 shares of common stock.
(11) Includes 192,000 shares of common stock held by Ramsey/Beirne Investment
Pool II, LLC. Mr. Beirne, one of our directors, was Chief Executive
Officer of Ramsey/Beirne Associates until June 1997. Mr. Beirne disclaims
beneficial ownership of these shares, except to the extent of his
pecuniary interest in the Ramsey/Beirne Investment Pool II, LLC.
13
EXECUTIVE COMPENSATION AND RELATED INFORMATION
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information concerning compensation
earned for the year ended December 31, 1999, by the two individuals who served
as our Chief Executive Officer during the 1999 fiscal year, and by each of our
four other most highly compensated current executive officers whose salary and
bonus for the 1999 fiscal year exceeded $100,000. The listed individuals are
referred to in this proxy statement as the Named Executive Officers. No other
executive officers who otherwise would have been includable in this table on the
basis of salary and bonus earned during 1999 have been excluded because they
terminated employment or changed their executive status during the year.
The salary figures include amounts the employees put into our tax-qualified
plan pursuant to Section 401(k) of the Internal Revenue Code. However,
compensation in the form of perquisites and other personal benefits that
constituted less than the lesser of either $50,000 or 10% of the total annual
salary and bonus of each of the Named Executive Officers in fiscal 1999 is
excluded. The option grants reflected in the table below were made under our
1997 Stock Option Issuance Plan.
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION SECURITIES
---------------------------------------------- UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS (#)
--------------------------------------------- -------------- -------------- ------------- ----------------
Michael J. McCloskey(1)..................... 1999 81,250 -- 1,866,666
Chief Executive Officer
Mark S. Gainey(2)........................... 1999 122,500 -- --
Former Chief Executive Officer
Joseph D. McCarthy(3)....................... 1999 143,308 -- 100,000
Former Vice President, Finance and
Operations
Paul R. Holland............................. 1999 75,000 721,600 --
Vice President, Worldwide Sales
William R. Phelps........................... 1999 130,000 56,000 413,330
Vice President, Professional Services
Michael R. Wolfe............................ 1999 135,000 -- 100,000
Chief Technology Officer
- - --------------
(1) Mr. McCloskey joined us and became our Chief Executive Officer in June
1999. His annualized salary for 1999 was $150,000.
(2) Mr. Gainey served as our Chief Executive Officer through June 1999 and
served as our President from January 1996 through April 2000.
(3) Mr. McCarthy joined us in March 1998 and resigned from his position as
Vice President, Finance and Operations effective May 2000.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information with respect to stock options
granted to each of the Named Executive Officers in 1999. We granted options to
purchase up to a total of 8,760,866 shares to employees during the year, and the
table's percentage column shows how much of that total was granted to the Named
Executive Officers. No stock appreciation rights were granted to the Named
Executive Officers during 1999.
The table includes the potential realizable value over the 10-year term of
the options, based on assumed rates of stock price appreciation of 5% and 10%,
compounded annually. The potential realizable value is calculated based on the
initial public offering price of the common stock, assuming that price
appreciates at the indicated rate for the entire term of the option and that the
option is exercised and sold on the last day of its term at the appreciated
price.
14
All options listed have a term of 10 years. The stock price appreciation rates
of 5% and 10% are assumed pursuant to the rules of the Securities and Exchange
Commission. We can give no assurance that the actual stock price will appreciate
over the 10-year option term at the assumed 5% and 10% levels or at any other
defined level. Actual gains, if any, on stock option exercises will be dependent
on the future performance of our common stock. Unless the market price of the
common stock appreciates over the option term, no value will be realized from
the option grants made to the Named Executive Officers.
The option grants to the Named Executive Officers were made under our 1997
Stock Option/Stock Issuance Plan. The exercise price for each option grant is
equal to the fair market value of our common stock on the date of grant, as
determined in good faith by the board of directors. All options are immediately
exercisable in full, but we can buy back any shares purchased under those
options, at the exercise price paid per share, to the extent the shares are not
vested when the officer leaves our employment. Our repurchase rights will lapse
on an accelerated basis under certain conditions in conjunction with a change of
control. See "Employment Arrangements, Termination of Employment Arrangements
and Change in Control Arrangements."
OPTION GRANTS IN 1999 FISCAL YEAR
% OF
TOTAL POTENTIAL REALIZABLE
OPTIONS VALUE AT ASSUMED ANNUAL
NUMBER OF GRANTED INDIVIDUAL GRANT RATES OF STOCK
SECURITIES TO ----------------------- PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM (1)
OPTIONS IN FISCAL PRICE EXPIRATION ---------------------------
NAME GRANTED (#) YEAR ($/SH) DATE 5% ($) 10%($)
- - ------- ------------- ---------- ---------- ----------- ------------- -------------
Michael J. McCloskey............ 1,866,666 21.31 0.3375 06/16/09 22,169,850 35,677,715
Mark S. Gainey.................. -- -- -- -- -- --
Joseph McCarthy................. 100,000 1.14 0.3375 06/16/09 1,187,671 1,911,307
Paul R. Holland................. -- -- -- -- -- --
William R. Phelps............... 366,664 4.19 0.175 12/06/08 4,415,286 7,068,612
46,666 0.53 0.3375 06/16/09 554,239 891,930
Michael R. Wolfe................ 100,000 1.14 4.50 08/17/09 771,671 1,495,307
- - --------------
(1) The 5% and 10% values are based upon the $7.50 price per share at which
the common stock was sold in the initial public offering on September 21,
1999.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth the number of shares the Named Executive
Officers purchased in connection with option exercises during the 1999 fiscal
year and the value they realized on those exercises. None of these Named
Executive Officers held any unexercised options at the end of the 1999 fiscal
year. None of them exercised any stock appreciation rights during 1999, and none
held any stock appreciation rights at the end of the year.
The value realized is based on the fair market value of our common stock on
the date of exercise, minus the exercise price payable for the shares. The fair
market value was determined in good faith by the board of directors for
exercises before September 21, 1999, and was based on our closing price on the
exercise date for exercises on or after September 21, 1999. The exercise price
for each grant equaled the fair market value on the date of exercise, so the
Named Executive Officers who exercised did not realize any value on the
exercises.
# OF SECURITIES
NUMBER OF UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
ACQUIRED AT FISCAL YEAR-END(#) AT FISCAL YEAR-END($)
ON VALUE --------------------------- ----------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- - ------- ------------ ----------- ------------ ------------- ------------ --------------
Michael J. McCloskey..... 1,866,666 0 -- -- -- --
Mark S. Gainey........... -- -- -- -- -- --
Joseph D. McCarthy....... 100,000 0 -- -- -- --
Paul R. Holland.......... -- -- -- -- -- --
William R. Phelps........ 366,664 0 -- -- -- --
46,666 0 -- -- -- --
Michael R. Wolfe......... 100,000 0 -- -- -- --
15
EMPLOYMENT ARRANGEMENTS, TERMINATION OF EMPLOYMENT ARRANGEMENTS AND
CHANGE IN CONTROL ARRANGEMENTS
In February 1997, Dr. Holloway, one of our directors, exercised an option
to purchase 106,666 shares of common stock and entered into a stock purchase
agreement for the purchase of those shares. At the time of this proxy statement,
these shares were fully vested.
In April 1997, we sold to Mr. Gainey, our co-founder and one of our
directors, 5,000,000 shares of common stock at a purchase price of $0.01 per
share. At the time of this proxy statement, these shares were fully vested.
In April 1998, Mr. Holland, our Vice President, Worldwide Sales, exercised
an option to purchase 811,406 shares of common stock and entered into a stock
purchase agreement for the purchase of those shares. To the extent the shares
are unvested at the time of his termination of service, we will have the right
to repurchase those shares at the exercise price paid per share. Under the stock
purchase agreement, if we are acquired by merger or asset sale, our right to
repurchase the unvested shares will automatically lapse in its entirety, and the
shares will vest in full, unless the repurchase right is assigned to the
successor entity. In addition, if we are acquired by merger or asset sale and
Mr. Holland is not offered comparable employment by the successor entity, our
right to repurchase the unvested shares will automatically lapse and the shares
will vest in full.
Also in April 1998, Mr. Wolfe, our Chief Technology Officer, exercised an
option to purchase 466,666 shares of common stock and entered into a stock
purchase agreement for the purchase of those shares. To the extent the shares
are unvested at the time of his termination of service, we will have the right
to repurchase those shares at the exercise price paid per share. Under the stock
purchase agreement, if we are acquired by merger or asset sale, our right to
repurchase the unvested shares will automatically lapse in its entirety and the
shares will vest in full.
In June 1998, Mr. McCarthy, our former Vice President, Finance and
Operations, exercised an option to purchase 213,330 shares of common stock and
entered into a stock purchase agreement for the purchase of those shares. Mr.
McCarthy will continue to provide services to the Company through August 31,
2000. We will repurchase all shares unvested as of August 31, 2000 at the
exercise price paid per share. Under the stock purchase agreement, if we are
acquired by merger or asset sale, our right to repurchase the unvested shares
will automatically lapse in its entirety and the shares will vest in full.
In July 1998, Mr. Hahn, one of our directors, exercised an option to
purchase 150,064 shares of common stock and entered into a stock purchase
agreement for the purchase of those shares. To the extent the shares are
unvested at the time of his termination of service, we will have the right to
repurchase those shares at the exercise price paid per share. Under the stock
purchase agreement, if we are acquired by merger or asset sale, our right to
repurchase the unvested shares will automatically lapse in its entirety and the
shares will vest in full.
Also in July 1998, Dr. Holloway, one of our directors exercised an option
to purchase 53,332 shares of common stock and entered into a stock purchase
agreement for the purchase of those shares. To the extent the shares are
unvested at the time of his termination of service, we will have the right to
repurchase those shares at the exercise price paid per share. Under the stock
purchase agreement, if we are acquired by merger or asset sale, our right to
repurchase all of the unvested shares will automatically lapse in its entirety,
and the shares will vest in full, unless the repurchase right is assigned to the
successor entity. In addition, if we are acquired by merger or asset sale and
Dr. Holloway does not provide services to the successor entity, 25% of the
unvested shares will vest and no longer be subject to repurchase.
In February and June 1999, Mr. Phelps, our Vice President, Professional
Services, exercised options to purchase a total of 413,330 shares of common
stock and entered into a stock purchase agreement for the purchase of those
shares. To the extent the shares are unvested at the time of his termination of
service, we will have the right to repurchase those shares at the exercise price
paid per share. Under the stock purchase agreement, if we are acquired by merger
or asset sale, our right to repurchase the unvested shares will automatically
lapse in its entirety, and the shares will vest in full, unless the repurchase
right is assigned to the successor entity. In addition, if we are acquired by
merger or asset sale and Mr. Phelps is not offered employment by the successor
entity, 25% of the unvested shares will vest and no longer be subject to
repurchase.
In June 1999, we entered into an employment arrangement with Mr. McCloskey,
our Chief Executive Officer. In connection with this arrangement, we granted Mr.
McCloskey an option to purchase 1,866,666 shares of common stock, which Mr.
McCloskey exercised in June 1999. Of these shares, 1,119,999 are subject to a
right of repurchase
16
granted to us which will allow us to repurchase those shares at the option
exercise price paid per share, to the extent those shares are unvested at the
time of his termination of service. Under the stock purchase agreement and the
terms of Mr. McCloskey's employment arrangement, the unvested shares will vest
in a series of 48 successive equal monthly installments upon his completion of
each month of service over the 48-month period measured from June 17, 1999.
However, all or part of the shares will vest on an accelerated basis, following
a change of control of our company, under the following circumstances:
o if Mr. McCloskey is not offered full-time employment with the
successor corporation, all of his then unvested shares of common
stock will accelerate and vest in full;
o if Mr. McCloskey is offered full-time employment with the successor
corporation as that corporation's chief executive officer, all of his
then unvested shares of common stock will continue to vest in
accordance with their original terms;
o if Mr. McCloskey is offered full-time employment with the successor
corporation as other than that corporation's chief executive officer,
the rate at which his then unvested shares of common stock vest will
double, such that his shares of common stock will vest at a rate
equivalent to 62,224 shares of common stock per month;
o if Mr. McCloskey is offered full-time employment with the successor
corporation as set forth in the second and third points above and he
does not accept the position, his shares of common stock will be
subject to immediate repurchase; and
o if Mr. McCloskey is terminated without cause by the successor
corporation following the change in control, all of his then unvested
shares of common stock will accelerate and vest in full.
Also in June 1999, Mr. McCarthy exercised an option to purchase 100,000
shares of common stock and entered into a stock purchase agreement for the
purchase of those shares. Mr. McCarthy will continue to provide services to the
Company through August 31, 2000. We will repurchase all shares unvested as of
August 31, 2000 at the exercise price paid per share. Under the stock purchase
agreement, if we are acquired by merger or asset sale, our right to repurchase
the unvested shares will automatically lapse in its entirety and the shares will
vest in full.
In August 1999, we granted an option to purchase 66,666 fully vested shares
of common stock to Mr. Frick, one of our directors, at an exercise price of
$4.50 per share, which he exercised in full in September 1999.
In September 1999, Mr. Wolfe exercised an option to purchase 100,000 shares
of common stock and entered into a stock purchase agreement for the purchase of
those shares. To the extent the shares are unvested at the time of his
termination of service, we will have the right to repurchase those shares at the
exercise price paid per share. Under the stock purchase agreement, if we are
acquired by merger or asset sale, our right to repurchase the unvested shares
will automatically lapse in its entirety, and the shares will vest in full,
unless the repurchase right is assigned to the successor entity. In addition, if
we are acquired by merger or asset sale and Mr. Wolfe is not offered employment
by the successor entity, 25% of the unvested shares will vest and no longer be
subject to repurchase.
Also in September 1999, Mr. Wolfe exercised an option to purchase 66,666
shares of common stock and entered into a stock purchase agreement for the
purchase of those shares. To the extent the shares are unvested at the time of
his termination of service, we will have the right to repurchase those shares at
the exercise price paid per share. Under the stock purchase agreement, if we are
acquired by merger or asset sale, our right to repurchase the unvested shares
will automatically lapse in its entirety and the shares will vest in full.
17
In April 2000, we entered into an employment arrangement with Mr. Allen,
our Chief Financial Officer. Mr. Allen's annual salary is $200,000. In
connection with this arrangement, we granted Mr. Allen an option to purchase
500,000 shares of common stock, of which the option to purchase 80,000 shares
was granted at an exercise price of $15 per share, and the option to purchase
the remaining 420,000 shares was granted at the fair market value which was
$39.31 on the grant date. Under the stock purchase agreement and the terms of
Mr. Allen's employment arrangement, the option shares will vest in a series of
48 successive equal monthly installments upon his completion of each month of
service over the 48-month period measured from April 19, 2000. However, part of
the shares will vest on an accelerated basis if we sign an agreement to acquire
another company within 90 days after April 19, 2000 and the acquisition is
consummated within 90 days of signing the agreement, as follows:
18
o if Mr. Allen is offered a position with us in a capacity other than
as the Chief Financial Officer following the acquisition, the rate of
vesting on each of his options will double beginning on the closing
date of the acquisition;
o if Mr. Allen is not offered a position with us following the
acquisition, his options will accelerate with respect to 12 months of
additional vesting beginning on the closing date of the acquisition;
o if Mr. Allen continues to serve as Chief Financial Officer following
the acquisition, then all of his then unvested shares of common stock
will continue to vest in accordance with their original terms.
If Mr. Allen is involuntarily terminated or voluntarily resigns for good
reason during the 12 months following a change of control of our company, he
will accelerate with respect to 24 months of additional vesting measured from
his termination or resignation date.
Generally, our option grants to employees, other than those under the 1999
Special Stock Option Plan, provide that if we are acquired by merger or asset
sale and the employee is not offered employment by the successor entity, then
25% of any unvested shares held by that individual will vest and no longer be
subject to repurchase.
19
COMPENSATION COMMITTEE REPORT
OVERVIEW AND PHILOSOPHY
Our compensation committee is responsible for establishing the compensation
payable to our executive officers, including the Named Executive Officers. Such
compensation is primarily comprised of the following elements: base salary,
stock options and benefits.
It is the committee's objective that executive compensation be directly
influenced by our business results. Accordingly, our executive compensation
program is structured to stimulate and reward exceptional performance that
results in enhanced corporate and stockholder values. Industry compensation
surveys are also reviewed in the committee's assessment of appropriate
compensation levels.
The committee recognizes that the highly-specialized industry sector in
which we operate is extremely competitive world-wide, with the result that there
is substantial demand for high-caliber, seasoned executives. It is crucial that
we be assured of retaining and rewarding our executive personnel essential in
contributing to the attainment of our performance goals. For these reasons, the
committee believes our executive compensation arrangements must remain
competitive with other e-business providers.
CASH COMPENSATION
A key objective of our executive compensation program is to position its
key executives to earn annual cash compensation (base salary plus bonus)
generally comparable to that which the executive would earn at other companies
in the industry.
Base salaries for our executive officers are established considering a
number of factors, including the recommendation of our CEO, our growth and
profit margins, the executive's performance and contribution to our overall
performance, and the salary levels of comparable positions reported in industry
surveys. The committee adheres to a compensation philosophy of moderate levels
of fixed compensation such as base salary. Base salary decisions are made as
part of a formal review process. Bonuses are provided in accordance with the
executive's written agreement where one is in place. Otherwise, bonuses are paid
on a discretionary basis based upon individual performance.
STOCK OPTIONS
The committee grants stock options under its 1999 Stock Incentive Plan to
provide direct linkage with stockholder interests. The committee considers the
recommendation of our CEO, stock options previously granted to that individual,
industry practices, the executive's performance and accountability level, and
assumed, potential stock value when determining stock option grants. The
committee relies upon competitive guideline ranges of retention-effective,
target gain objectives to be derived from option gains based upon relatively
aggressive assumptions relating to planned growth and earnings. In this manner,
the potential executive's gains parallel those of other stockholders over the
long-term. Therefore, the stock option program serves as our only long-term
incentive and retention tool for executives and other key employees. Stock
options provide an incentive to executives to maximize long term profitable
growth which ordinarily, over time, should be reflected in the price of our
stock.
BENEFITS
We offer to our executives benefits that are substantially the same as the
benefits offered to all Kana employees.
CHIEF EXECUTIVE OFFICER PERFORMANCE AND COMPENSATION
In setting the total compensation payable to our Chief Executive Officer
for the 1999 fiscal year, the compensation committee sought to make that
compensation competitive with the compensation paid to the Chief Executive
Officers of the companies in our industry, while at the same time assuring that
a significant percentage of compensation was tied to our performance and stock
price appreciation.
20
The compensation committee adjusted Mr. McCloskey's base salary for the
2000 fiscal year in recognition of his personal performance and with the
objective of maintaining his base salary at a competitive level with similarly
situated Chief Executive Officers. With respect to Mr. McCloskey's base salary,
it is the compensation committee's intent to provide him with a level of
stability and certainty each year and not have this particular component of
compensation affected to any significant degree by our performance factors.
The compensation committee awarded a stock option grant to Mr. McCloskey in
fiscal 1999 in order to provide him with an equity incentive to continue
contributing to our financial success. The option will have value for Mr.
McCloskey only if the market price of the underlying option shares appreciates
over the market price in effect on the date the grant was made.
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)
Section 162(m) of the Internal Revenue Code, enacted in 1993, generally
disallows a tax deduction to publicly held companies for compensation exceeding
$1 million paid to certain of the corporation's executive officers. The
compensation to be paid to any of our executive officers for fiscal year 1999
did not exceed the $1 million limit per officer, nor is it expected that the
compensation to be paid to any of our executive officers for fiscal year 2000
will exceed that limit. Our 1999 plan is structured so that any compensation
deemed paid to an executive officer when he exercises an outstanding option
under the 1999 plan with an exercise price equal to the fair market value of the
option shares on the grant date will qualify as performance-based compensation
which will not be subject to the $1 million limitation. Because it is very
unlikely that the cash compensation payable to any of our executive officers in
the foreseeable future will approach the $1 million limit, the compensation
committee has decided at this time not to take any other action to limit or
restructure the elements of cash compensation payable to our executive officers.
The compensation committee will reconsider this decision should the individual
compensation of any executive officer ever approach the $1 million level.
It is the opinion of the committee that the adopted executive compensation
policies and plans provide the necessary total remuneration program to properly
align our performance and the interests of our stockholders with competitive and
equitable executive compensation in a balanced and reasonable manner, for both
the short and long-term.
The Compensation Committee of the Board
David M. Beirne
Eric A. Hahn
21
STOCK PERFORMANCE GRAPH
The graph depicted below shows a comparison of our cumulative total
stockholder returns, the Nasdaq Stock Market Index and the Chase H & Q Internet
100 Index.
COMPARISON OF CUMULATIVE TOTAL RETURN*
AMONG KANA COMMUNICATIONS, INC., THE NASDAQ STOCK MARKET (U.S.) INDEX
AND THE CHASE H & Q INTERNET 100 INDEX
[PERFORMANCE GRAPH APPEARS HERE]
----------------------
9/21/99 12/31/99
KANA COMMUNICATIONS, INC. 100.00 1366.67
NASDAQ STOCK MARKET (U.S.) 100.00 148.00
CHASE H & Q INTERNET 100 100.00 214.29
*$100 INVESTED ON 9/21/99 IN STOCK OR ON 8/31/99
IN INDEX - INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING DECEMBER 31.
(1) The graph covers the period from September 22, 1999, the
commencement date of our initial public offering of shares of
common stock, to December 31, 1999.
(2) The graph assumes that $100 was invested on September 22, 1999 in
our common stock, and in the Nasdaq Stock Market Index and the
Chase H & Q Internet 100 Index on August 31, 1999, and that all
dividends were reinvested. No cash dividends have been declared on
our common stock.
(3) The performance shown in the graph represents past performance and
should not be considered an indication of future performance.
Notwithstanding anything to the contrary set forth in any of our previous
filings made under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, that might incorporate future filings made by
us under those statutes, neither the preceding Stock Performance Graph nor the
compensation committee report is to be incorporated by reference into any such
prior filings, nor shall such graph or report be incorporated by reference into
any future filings made by us under those statutes.
22
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SALES OF SECURITIES
Since January 1999, we have been a party to several transactions in which
the amount involved exceeded $60,000 and in which any of our directors or
executive officers, any holder of more than 5% of our outstanding capital stock
or any member of their immediate families had a direct or indirect material
interest.
These transactions include:
In July 1999, we sold to various investors, including entities affiliated
with Draper Fisher Jurvetson and entities affiliated with Benchmark Capital, a
total of 1,676,932 shares of Series D preferred stock for total consideration of
$10,200,004. At the time of the financing, Mr. Jurvetson, a Managing Director of
Draper Fisher Jurvetson, and Mr. Beirne, a Managing Member of Benchmark Capital,
were two of our directors.
On August 13, 1999, we closed a merger with Connectify, Inc. pursuant to
which Connectify became our wholly-owned subsidiary. In connection with the
acquisition, we issued approximately 6,982,542 shares of our common stock in
exchange for all outstanding shares of Connectify capital stock and reserved
416,690 shares of common stock for issuance upon the exercise of Connectify
options and warrants. In connection with the acquisition, Mr. Frick, a director
of Connectify, Inc., became one of our directors.
On December 3, 1999, we closed a merger with Business Evolution, Inc.
pursuant to which Business Evolution became our wholly-owned subsidiary. In
connection with the acquisition of Business Evolution, approximately 1,890,200
shares of our common stock, valued at approximately $140 million, were issued
for all outstanding shares and warrants of Business Evolution.
On December 3, 1999, we closed a merger with netDialog, Inc. pursuant to
which netDialog became our wholly-owned subsidiary. In connection with the
acquisition of netDialog, approximately 1,120,286 shares of our common stock,
valued at approximately $90 million, were issued for all outstanding shares,
warrants and convertible notes of netDialog.
On April 19, 2000, we closed a merger with Silknet Software, Inc., pursuant
to which Silknet became our wholly-owned subsidiary. In connection with the
acquisition of Silknet, approximately 33 million shares of common stock, valued
at approximately $4.2 billion, were issued or reserved for issuance for all
outstanding shares, warrants and options of Silknet. In connection with the
acquisition, Mr. Wood, a founder and the Chairman of the Board, President and
Chief Executive Officer of Silknet, became one of our directors.
LOANS TO AND OTHER ARRANGEMENTS WITH OFFICERS AND DIRECTORS
In connection with the option exercises described under "Employment
Arrangements, Termination of Employment Arrangements and Change of Control
Arrangements," the following officers and directors delivered five-year full
recourse promissory notes, bearing interest at an annual rate of 5.7%, except in
the case of Messrs. Frick and Wolfe whose notes bear interest at an annual rate
of 6.0%, in amounts and with the balances indicated:
ORIGINAL AMOUNT OUTSTANDING
OFFICER OR AMOUNT OF AT
DIRECTOR PROMISSORY NOTE JULY 31, 2000
- - ------------------- ------------------- --------------------
Michael J. McCloskey........... $ 630,000 $ 672,535
Robert W. Frick................ 299,997 316,722
William R. Phelps.............. 79,000 75,301
Ian P. Cavanagh................ 900,000 947,634
Michael R. Wolfe............... 458,000 0
We have entered into an employment arrangement with Mr. McCloskey, our
Chief Executive Officer. See "Employment Arrangements, Termination of Employment
Arrangements and Change in Control Arrangements."
We have granted options to our executive officers and directors. See
"Management--Director Compensation" and "--Executive Compensation."
23
We have entered into an indemnification agreement with each of our
executive officers and directors containing provisions that may require us,
among other things, to indemnify our executive officers and directors against
liabilities that may arise by reason of our status or service as executive
officers or directors (other than liabilities arising from willful misconduct of
a culpable nature) and to advance expenses incurred as a result of any
proceeding against them as to which they could be indemnified.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The members of the board of directors, our executive officers and persons
who hold more than 10% of our outstanding common stock are subject to the
reporting requirements of Section 16(a) of the Securities Exchange Act of 1934,
as amended, which require them to file reports with respect to their ownership
of the common stock and their transactions in such common stock. Based upon (i)
the copies of Section 16(a) reports which we received from such persons for
their fiscal year 1999 transactions in the common stock and their common stock
holdings, and (ii) the written representations received from one or more of such
persons that no annual Form 5 reports were required to be filed by them for
fiscal year 1999, we believe that the executive officers and the board members
complied with all their reporting requirements under Section 16(a) for such
fiscal year, although Mr. Gregory Gretsch did not timely file a Form 4 and
Messrs. Timothy Campbell and Donald Whitt did not timely file Form 5's.
ANNUAL REPORT
A copy of our Annual Report for the 1999 fiscal year has been mailed
concurrently with this proxy statement to all stockholders entitled to notice of
and to vote at the annual meeting. The Annual Report is not incorporated into
this Proxy Statement and is not considered proxy solicitation material. It is
important that the proxies be returned promptly and that your shares be
represented. You are urged to promptly sign, date and return the enclosed proxy
card in the enclosed envelope, or promptly submit your proxy and voting
instructions over the Internet or by telephone.
FORM 10-K/A
We have filed an Annual Report on Form 10-K/A for the year ended December
31, 1999 with the Securities and Exchange Commission. You may obtain, free of
charge, a copy of the Form 10-K/A by directing your request to Investor
Relations, Kana Communications, Inc., 740 Bay Road, Redwood City, California
94063, telephone (650) 298-9282.
Dated: September 1, 2000
THE BOARD OF DIRECTORS OF
KANA COMMUNICATIONS, INC.
24
Please mark your vote
as indicated in this /X/
example
1. To elect the following three directors to serve for a three-year term
ending upon the 2003 Annual Meeting of Stockholders and until their successors
are elected and qualified.
FOR all nominees WITHHOLD Nominees: 01 David M. Belme, 02 Robert
listed to the right AUTHORITY W. Fricke, 03 Steven J. Jurvetson
(except as marked to vote all
to the contrary) nominees listed (Instruction: To withhold authority to
to the right vote for any individual nominee, write
that nominee's name on the space
/ / / / provided below.)
--------------------------------------
2. To ratify the appointment of 3. To transact such other business as may properly come
PricewaterhouseCoopers LLP as independent before the Annual Meeting or any adjournment or
auditors of the Company for the fiscal year postponement thereof.
ending December 31, 2000.
FOR AGAINST ABSTAIN
/ / / / / /
Signature______________Signature______________Date___________________
The board of directors recommends a vote FOR each of the directors listed above
and a vote FOR the other proposal. This Proxy, when properly executed, will be
voted as specified above. This Proxy will be voted FOR the election of the
directors listed above and FOR the other proposal if no specification is made.
- - --------------------------------------------------------------------------------
FOLD AND DETACH HERE
VOTE BY TELEPHONE OR INTERNET
QUICK***EASY***IMMEDIATE
YOUR VOTE IS IMPORTANT! - YOU CAN VOTE IN ONE OF THREE WAYS:
1. TO VOTE BY PHONE: Call toll-free 1-800-840-1208 on a touch tone telephone 24
HOURS A DAY-7 DAYS A WEEK
There is NO CHARGE to you for this call. - HAVE YOUR PROXY CARD IN HAND.
You will be asked to enter a Control Number, which is located in the box in the
lower right hand corner of this form.
OPTION 1: To vote as the Board of Directors recommends on ALL proposals, press 1
WHEN ASKED, PLEASE CONFIRM BY PRESSING 1.
OPTION 2: If you choose to vote on each proposal seperately, press 0. You will
hear these instructions.
Proposal 1 - To vote FOR ALL nominees, press 1; to WITHHOLD FOR ALL
nominees, press 9. To WIHHOLD FOR AN INDIVIDUAL nominee, press 0 and
listen to the instructions
Proposal 2 - To vote FOR, press 1; AGAINST, press 9; ABSTAIN, press 0.
WHEN ASKED, PLEASE CONFIRM BY PRESSING 1.
The instructions are the same for all remaining proposals.
OR
2. VOTE BY INTERNET: Follow the instructions at our Website Address:
http://www.eproxy.com/KANA
OR
3. VOTE BY PROXY: Mark, sign and date your proxy card and return promptly
in the enclosed envelope.
NOTE: if you vote by internet or telephone, THERE IS NO NEED TO MAIL BACK your
PROXY CARD.
THANK YOU FOR VOTING
KANA COMMUNICATIONS, INC.
PROXY
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON OCTOBER 4, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
KANA COMMUNICATIONS, INC.
The undersigned revokes all previous proxies, acknowledges receipt of the
Notice of the Annual Meeting of Stockholders to be held on October 4, 2000 and
the Proxy Statement, and appoints Michael J. McCloskey and Brian K. Allen and
each of them, the Proxy of the undersigned, with full power of substitution, to
vote all shares of common stock of Kana Communications, Inc. (the "Company"),
which the undersigned is entitled to vote, either on his or her own behalf or on
behalf of any entity or entities, at the Annual; Meeting of Stockholders of Kana
Communications, Inc. to be held at the offices of Brobeck, Phleger & Harrisson
LLP at Two Embarcadero Place, 2200 Geng Road, Palo ALto, California 94303, on
Wednesday, October 4, 2000 at 10:00 a.m. local time (the "Annual Meeting"), and
at any adjournment or postponement thereof, with the same force and effect as
the undersigned might or could do if personally present thereat. The shares
represented by this Proxy shall be voted in the manner set forth on the reverse
side.
- - --------------------------------------------------------------------------------
FOLD AND DETACH HERE
YOUR VOTE IS IMPORTANT!
YOU CAN VOTE ONE OF THREE WAYS:
1. Mark, sign and date your proxy card and return it promptly in the enclosed
envelope.
OR
2. Call TOLL FREE 1-800-840-1208 on a Touch Tone telephone and follow the
instructions on the reverse side. There is NO CHARGE to you for this call.
OR
3. Vote by Internet at our Internet Address: http://www.eproxy.com/KANA
PLEASE VOTE