UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(RULE 14a-101)
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
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| ¨ | Soliciting Material Pursuant to §240.14a-12. |
Kana Software, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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KANA SOFTWARE, INC.
181 CONSTITUTION DRIVE
MENLO PARK, CALIFORNIA 94025
June 11, 200724, 2008
Dear Stockholders:
You are cordially invited to attend our 20072008 Annual Meeting of Stockholders of Kana Software, Inc. to be held at our headquarters, 181 Constitution Drive, Menlo Park, California, on July 26, 2007,29, 2008, at 9:10:00 a.m., Pacific Time.
The matters expected to be acted upon at our 20072008 Annual Meeting of Stockholders are: (i) the election of onetwo Class I director to our Board of Directors; (ii) the election of three Class IIIII directors to our Board of Directors;Directors and (iii)(ii) the ratification of the selection of Burr, Pilger & Mayer LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2007.2008. Each of these proposals is described in detail in the accompanying Notice of the 20072008 Annual Meeting of Stockholders and Proxy Statement.
Please use this opportunity to take part in our affairs by voting on the business to come before this annual meeting.Whether or not you plan to attend our 20072008 Annual Meeting of Stockholders, please complete, date, sign and promptly return the accompanying proxy card in the enclosed postage-paid envelope prior to our 20072008 Annual Meeting of Stockholders so that your shares will be represented at our 20072008 Annual Meeting of Stockholders. Returning the proxy card does not deprive you of your right to attend our 20072008 Annual Meeting of Stockholders and to vote your shares in person.
We hope to see you at our 20072008 Annual Meeting of Stockholders.
| Sincerely, | ||
/s/ Michael S. Fields | ||
Michael S. Fields | ||
| Chief Executive Officer | ||
This Proxy Statement is dated June 11, 200724, 2008 and will first be mailed to KANA stockholders on or about June 15, 2007.26, 2008.
KANA SOFTWARE, INC.
181 CONSTITUTION DRIVE
MENLO PARK, CALIFORNIA 94025
NOTICE OF THE 20072008 ANNUAL MEETING OF STOCKHOLDERS
Dear Stockholders:
NOTICE IS HEREBY GIVEN that the 20072008 Annual Meeting of Stockholders of Kana Software, Inc. will be held at our headquarters, 181 Constitution Drive, Menlo Park, California, on July 26, 2007,29, 2008, at 9:10:00 a.m., Pacific Time.
At this annual meeting, you will be asked to consider and vote upon the following matters:
| 1. | The election of |
| 2. | The |
| To transact such other business as may properly come before our |
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 May 30, 2007June 17, 2008 are entitled to notice of and to vote at our 20072008 Annual Meeting of Stockholders or any adjournment of our 20072008 Annual Meeting of Stockholders.
| By Order of the Board of Directors, | ||
/s/ Michael S. Fields | ||
Michael S. Fields | ||
| Chief Executive Officer | ||
Menlo Park, California
June 11, 200724, 2008
WHETHER OR NOT YOU PLAN TO ATTEND OUR |
KANA SOFTWARE, INC.
181 CONSTITUTION DRIVE
MENLO PARK, CALIFORNIA 94025
PROXY STATEMENT
June 11, 200724, 2008
The accompanying proxy is solicited on behalf of the Board of Directors of Kana Software, Inc., a Delaware corporation, for use at our 20072008 Annual Meeting of Stockholders to be held at our headquarters, 181 Constitution Drive, Menlo Park, California, on July 26, 2007,29, 2008, at 9:10:00 a.m., Pacific Time. This Proxy Statement, the accompanying Notice of the 20072008 Annual Meeting of Stockholders and form of proxy will first be mailed to our stockholders on or about June 15, 2007.26, 2008. Our stockholders are encouraged to review the information provided in this Proxy Statement in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2006,2007, a copy of which also accompanies this Proxy Statement. References in this Proxy Statement to “KANA,” “Company,” “we,” “our” and “us” collectively refer to Kana Software, Inc. and our predecessor, and our subsidiaries and their predecessors.subsidiaries.
VOTING INFORMATION
Record Date and Quorum
A quorum is required for our stockholders to conduct business at the annual meeting. The holders of a majority of the shares of our common stock outstanding entitled to vote on the record date, present in person or represented by proxy, will constitute a quorum for the transaction of business at the annual meeting. Only holders of our common stock of record at the close of business on May 30, 2007,June 17, 2008, the record date, will be entitled to vote at the 20072008 Annual Meeting of Stockholders. At the close of business on the record date, we had 36,326,60341,212,578 shares of common stock outstanding and entitled to vote that were held by approximately 1,2391,364 stockholders of record.
Voting Rights
Only holders of our common stock are entitled to vote and are allowed one vote for each share held as of the record date. Shares may not be voted cumulatively. If stockholders abstain from voting, including brokers holding their customers’stockholders’ shares of record who cause abstentions to be recorded, these shares are considered present and entitled to vote at the annual meeting and these shares will count toward determining whether or not a quorum is present. However, these shares will not be counted as voting either “for” or “against” any of the proposals.
If a stockholderbroker does not givereceive a proxy to its brokerfrom the stockholder with instructions as to how to vote the shares, the broker has authority under stock market rules to vote those shares for“for” or against“against” certain “routine” matters. All of the proposals to be voted on at the 20072008 Annual Meeting of Stockholders are generally considered “routine” matters for this purpose. If a broker votes shares that are not voted by its customersthe stockholders “for” or “against” a “routine” proposal, these shares are considered present and entitled to vote at the annual meeting, will count toward determining whether or not a quorum is present and the brokers’ votes will be taken into account in determining the outcome of all of the “routine” proposals.
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When a matter is not “routine,“non-routine,” a broker generally wouldis not be entitled to vote its customers’a stockholder’s unvoted shares. These shares would be considered present and would count toward determining whether a quorum is
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present, but would not be considered entitled to vote on the “non-routine” matter. Accordingly, these shares would not be taken into account in determining the outcome of any of the proposals that are “non-routine.”
Required Votes
Proposal One. The director is elected by a plurality of the votes of the shares present in person or represented by proxy at the 2007 Annual Meeting of Stockholders and entitled to vote on the election of a Class I director. This means that the Class I director nominee for election to the Board of Directors who receives the highest number of affirmative votes at the 2007 Annual Meeting of Stockholders will be elected to fill the one open seat for a Class I director.
Proposal Two. Directors are elected by a plurality of the votes of the shares present in person or represented by proxy at the 20072008 Annual Meeting of Stockholders and entitled to vote on the election of Class IIIII directors. This means that the Class IIIII director nominees for election to the Board of Directors who receive the threetwo highest number of affirmative votes at the 20072008 Annual Meeting of Stockholders will be elected to fill the threetwo open seats for Class IIIII directors.
Proposal ThreeTwo. Ratification of the selection of Burr, Pilger & Mayer LLP as our independent registered public accounting firm for the fiscal year endedending December 31, 20072008 requires the affirmative vote of the majority of shares present in person or represented by proxy at the 20072008 Annual Meeting of Stockholders.
All votes will be tabulated by the inspector of elections appointed for the 20072008 Annual Meeting of Stockholders, who will separately tabulate, for each proposal, affirmative and negative votes, abstentions and broker non-votes.
Voting Electronically via the Internet
If your shares are registered in the name of a bank or brokerage, you may be eligible to vote your shares electronically over the Internet or by telephone. A large number of banks and brokerage firms are participating in the ADP Investor Communication ServicesBroadridge Financial Solutions, Inc. online program, which provides eligible stockholders who receive a paper copy of the proxy statement with the opportunity to vote via the Internet or by telephone. If your bank or brokerage firm is participating in ADP Investor Communication ServicesBroadridge Financial Solutions, Inc. online program, your voting form from the bank or brokerage firm will provide instructions. If your voting form does not reference Internet or telephone information, please complete and return the accompanying paper proxy card in the enclosed self-addressed, postage paid envelope.
Voting of Proxies
The proxy card accompanying this Proxy Statement is solicited on behalf of our Board of Directors for use at the 20072008 Annual Meeting of Stockholders. Our stockholders are asked 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 20072008 Annual Meeting of Stockholders will be counted as votes “for” such proposal (or, in the case of the election of directors, as a vote “for” election to the Board of Directorselection of all of the director nominees presented by our Board of Directors). We are not aware of any other matters to be brought before the 20072008 Annual Meeting of Stockholders. However, as to any business that may properly come before the 20072008 Annual Meeting of Stockholders, the proxies that are executed and returned prior to the 20072008 Annual Meeting of Stockholders will be voted in accordance with the judgment of the persons holding such proxies.
In the event that sufficient votes in favor of the proposals are not received by the date of the 20072008 Annual Meeting of Stockholders, the persons named as proxies may propose one or more adjournments of the 2007
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2008 Annual Meeting of Stockholders 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 20072008 Annual Meeting of Stockholders.
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We are paying the expenses of soliciting the proxies to be voted at the 20072008 Annual Meeting of Stockholders. 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 the proxies. In these cases, we may, upon their request, reimburse such record 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
Any person signing a proxy in the form accompanying this Proxy Statement has the power to revoke the proxy prior to the 20072008 Annual Meeting of Stockholders, or at the 20072008 Annual Meeting of Stockholders prior to the vote to which the proxy relates. A proxy may be revoked by any of the following methods:
a written instrument delivered to us stating that the proxy is revoked;
a subsequent proxy that is signed by the person who signed the earlier proxy and is presented at the 20072008 Annual Meeting of Stockholders; or
attendance at the 20072008 Annual Meeting of Stockholders 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 20072008 Annual Meeting of Stockholders, you must bring a letter to the 20072008 Annual Meeting of Stockholders 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.
Communicating with Members of the Board of Directors
You may submit an e-mail to our Board of Directors or any member of our Board of Directors at bod@kana.com. E-mails to this address are routed to our General Counsel, who will forward the message to the full Board of Directors unless the sender indicates that they would like the message to be forwarded solely to non-management members or the chairperson of a particular committee of the Board of Directors.Members of our Board of Directors may, at their option, attend our annual meetings of stockholders. None of the members of our Board of Directorsdirectors attended our 20052007 Annual Meeting of Stockholders. We did not hold an annual meeting in 2006.
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PROPOSAL ONE—ELECTION OF CLASS I DIRECTOR
Our Board of Directors is presently classified in three classes and consists of six members, one of whom is to be elected at the 2007 Annual Meeting of Stockholders as a Class I director. Our directors are to be elected for a full term of three years with the term expiring at the annual meeting of stockholders held in the third year following the year of their election. We did not hold an annual meeting of stockholders in 2006 to re-elect the Class I directors, who continued to serve on our Board of Directors in accordance with our Amended and Restated Certificate of Incorporation and Bylaws until either they are re-elected and take office or their successors are elected and take office. In addition, on March 16, 2007, Dixie L. Mills, a Class I director, resigned from our Board of Directors and chose not to stand for re-election. Thus, our stockholders are being asked to vote for the election of one Class I director at the 2007 Annual Meeting of Stockholders to serve for a two-year period until the annual meeting of stockholders in the year 2009 and until a successor has been elected and qualified, or until earlier resignation, death or removal. The Class I director seat vacated by Ms. Mills will remain vacant until a new director is appointed or elected in accordance with our current certificate of incorporation and bylaws.
The nominee for election as a Class I director is Stephanie Vinella, who currently serves as a Class I director of our Board of Directors. Shares represented by the accompanying proxy will be voted “for” the election of Ms. Vinella unless the proxy is marked in such a manner as to withhold authority to so vote. In the event that Ms. Vinella is unable to serve for any reason, the proxies may be voted for such substitute nominee as the proxy holder may determine. Ms. Vinella has consented to being named in this Proxy Statement and to serve if elected. Ms. Vinella will be elected by a plurality of the votes of the shares present in person or represented by proxy at the 2007 Annual Meeting of Stockholders and entitled to vote in the election of a Class I director. Should there be more than one nominee for the election of a Class I director at the 2007 Annual Meeting of Stockholders, the nominee who receives the greatest number of votes cast in the election of the Class I director at the 2007 Annual Meeting of Stockholders, with a quorum being present, will become our Class I director at the conclusion of the tabulation of votes.
The Board of Directors recommends a voteFOR the election of the nominated Class I director.
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PROPOSAL TWO—ELECTION OF CLASS IIIII DIRECTORS
Our Board of Directors is presently classified individed into three classes and consists of sixfive members, threetwo of whom are to be elected at the 20072008 Annual Meeting of Stockholders as Class IIIII directors. Our directors are to be elected for a full term of three years with the term expiring at the annual meeting of stockholders held in the third year following the year of their election. The nominees for election as Class IIIII directors are Michael S. Fields and John F. Nemelka, each of whom currently serves as a Class III director on our Board of Directors. The Class III directors elected at the 20072008 Annual Meeting of Stockholders will hold office until the annual meeting of stockholders in the year 20102011 and until a successor has been elected and qualified, or until earlier resignation, death or removal.
The nominees for election as Class II directors are Jerry R. Batt, William T. Clifford and Michael J. Shannahan, each of whom currently serves as a Class II director on our Board of Directors. Shares represented by the accompanying proxy will be voted “for” the election of Messrs. Batt, CliffordFields and ShannahanNemelka unless the proxy is marked in such a manner as to withhold authority to so vote. In the event that either Mr. Batt, Mr. CliffordFields or Mr. ShannahanNemelka is unable to serve for any reason, the proxies may be voted for such substitute nominee as the proxy holder may determine. Messrs. Batt, CliffordFields and ShannahanNemelka have consented to being named in this Proxy Statement and to serve if elected. Messrs. Batt, CliffordFields and ShannahanNemelka will be elected by a plurality of the votes of the shares present in person or represented by proxy at the 20072008 Annual Meeting of Stockholders and entitled to vote in the election of Class IIIII directors. Should there be more than threetwo nominees for the election of the Class IIIII directors at the 20072008 Annual Meeting of Stockholders, the threetwo nominees who receive the greatest number of votes cast in the election of the Class IIIII directors at the 20072008 Annual Meeting of Stockholders, with a quorum being present, will become our Class IIIII directors at the conclusion of the tabulation of votes.
The Board of Directors recommends a voteFOR the election of the nominated Class IIIII directors.
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Board of DirectorsDirector Nominees and Nominees
The following table sets forth the names of the director nominees and our continuing directors and information about each (including their ages as of February 28, 2007):
Nominees
Name | Age | Committee | Principal Occupation | Director Since | ||||
Class I Director: | ||||||||
Stephanie Vinella | 52 | Audit, Governance & Nominating | Chief Financial Officer of Nextance Inc. | 2004 | ||||
Class II Directors: | ||||||||
Jerry R. Batt | 56 | Compensation, Governance & Nominating | Vice President and Chief Information Officer of Pulte Homes, Inc. | 2003 | ||||
William T. Clifford | 60 | Compensation | Chairman and Chief Executive Officer of Aperture Technologies, Inc. | 2005 | ||||
Michael J. Shannahan | 58 | Audit | Chief Financial Officer of Medsphere Systems Corporation | 2005 | ||||
Continuing Directors
Name | Age | Committee | Principal Occupation | Director Since | ||||
Class III Directors: | ||||||||
Michael S. Fields | 61 | N/A | Chairman and Chief Executive Officer of KANA | 2005 | ||||
John F. Nemelka | 41 | Compensation | Managing Principal of NightWatch Capital Group, LLC | 2005 | ||||
Our BoardAt each annual meeting of Directors is divided into three classes as nearly equal in size as possible with staggered three-year terms.stockholders, the successors to the directors whose terms will then expire will be elected to serve from the time of their election and qualification until the third annual meeting following their election and until their successors have been duly elected and qualified, or until their earlier resignation or removal. The term of office of our Class I directorsdirector will next expire at the annual meeting of stockholders to be held in 2009. The term of office of our Class II directors will next expire at the annual meeting of stockholders to be in 2010. The term of office of our Class III directors will expire at the annual meeting of stockholders to be held in 2008. At2011.
The following table sets forth the names of the director nominees and our continuing directors and information about each annual meeting(including their ages as of stockholders, the successors to the directors whose terms will then expire will be elected to serve from the time of their election and qualification until the third annual meeting following their election or until their successors have been duly elected and qualified, or until their earlier resignation or removal. Ms. Vinella is currentlyMarch 31, 2008):
Director Nominees
Name | Age | Committee | Principal Occupation | Director Since | ||||
Class III Directors: | ||||||||
Michael S. Fields | 62 | N/A | Chairman and Chief Executive Officer of KANA | 2005 | ||||
John F. Nemelka | 42 | Compensation, Governance & Nominating | Managing Principal of NightWatch Capital Group, LLC | 2005 | ||||
Continuing Directors
| ||||||||
Name | Age | Committee | Principal Occupation | Director Since | ||||
Class I Director: | ||||||||
Stephanie Vinella | 53 | Audit, Governance & Nominating | Chief Financial Officer of Panasas, Inc. | 2004 | ||||
Class II Directors: | ||||||||
Jerry R. Batt | 57 | Compensation, Governance & Nominating | Vice President and Chief Information Officer of Pulte Homes, Inc. | 2003 | ||||
William T. Clifford | 61 | Compensation, Audit | Chairman and Chief Executive Officer of Aperture Technologies, Inc. | 2005 | ||||
On February 28, 2008, Michael J. Shannahan, a Class I director; Messrs. Batt, Clifford and Shannahan are Class II directors and Messrs. Fields and Nemelka are Class III directors. On March 16, 2007, Ms. Mills, a Class I director, resigned from ourthe Board of Directors and chose not to stand for re-election.all committees of the Board of Directors and was appointed Executive Vice President and Chief Financial Officer of KANA. The Class III director seat vacated by Ms. Mills will remain vacant until a new director is appointed or electedMr. Shannahan has been removed in accordance with our current certificate of incorporation and bylaws.
OurNominees for Election—Class III Directors (Term to Expire in 2011)
Michael S. Fields.Mr. Fields joined our Board of Directors met seven times in 2006, including telephone conference meetings. During 2006, no current director attended fewer than 75% of the aggregate of the total number of meetingsJune 2005 and since July 2005, has been serving as our Chairman of the Board of Directors. From July 2005 to August 2005, Mr. Fields served as our acting President. In August 2005, Mr. Fields was appointed as our Chief Executive Officer. Mr. Fields wasChairman and Chief Executive Officer of The Fields Group, a venture capital and management consulting firm,
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from May 1997 to December 2005. In June 1992, Mr. Fields founded OpenVision Technologies, Inc., a supplier of computer systems management applications for open client/server computing environments, and served as its Chief Executive Officer from July 1992 to July 1995 and Chairman of its Board of Directors from July 1992 toApril 1997. Prior to these positions, Mr. Fields served as President at Oracle U.S.A., Inc., and the total number of meetings held by all committees ofmanaged sales organizations at Applied Data Research and Burroughs Corporation. Mr. Fields also serves on the Board of Directors on which suchof Imation Corporation and two privately-held companies, ViaNovus, Inc. and Crucian Global Service7, Inc. Mr. Fields is a Class III Director whose current term expires at this year’s annual meeting of stockholders.
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directorJohn F. Nemelka.Mr. Nemelka joined our Board of Directors in October 2005. Mr. Nemelka founded NightWatch Capital Group, LLC, an investment management business, and has served duringas its Managing Principal since its incorporation in July 2001. From 1997 to 2000, Mr. Nemelka was a Principal at Graham Partners, a private investment firm and affiliate of the time period for which each such director servedprivately-held Graham Group. From 2000 to 2001, Mr. Nemelka was a Consultant to the Graham Group. Mr. Nemelka holds a B.S. degree in Business Administration from Brigham Young University and an M.B.A. degree from the Wharton School at the University of Pennsylvania. Mr. Nemelka also serves on the Board of Directors. The BoardDirectors of Directors has determined that Messrs. Batt, Clifford,a privately-held company, SANUWAVE, Inc. Mr. Nemelka and Shannahan and Ms. Vinella each meet the requirements for independent director status under the listing standardsis a Class III Director whose current term expires at this year’s annual meeting of The NASDAQ Stock Market.
Our Board of Directors has three standing committees: the audit committee, the compensation committee and the governance and nominating committee.stockholders.
Nominee for Election—Continuing Class I Director (Term to Expire in 2009)
Stephanie VinellaVinella.. Ms. Vinella joined our Board of Directors in November 2004. Since January 2005,November 2007, Ms. Vinella has served as Chief Financial Officer of Panasas, Inc., a computer hardware company. From January 2005 to September 2007, Ms. Vinella served as Chief Financial Officer of Nextance Inc., a provider of enterprise contract management solutions. Since April 2005, Ms. Vinella has served as a venture partner of Swan Ventures, a venture capital firm. From November 1999 to August 2004, Ms. Vinella served as Chief Financial Officer of AlphaBlox Corporation, a business analytic software company. From 1990 to 1999, Ms. Vinella served as Chief Financial Officer of Edify Corporation, a software company. Ms. Vinella holds a B.S. degree in Accounting from the University of San Francisco and aan M.B.A. degree from Stanford University. Ms. Vinella is a Class I Director whose current term expires at the annual meeting of stockholders to be held in 2009.
Nominee for Election—Continuing Class II Directors (Term to Expire in 2010)
Jerry R. BattBatt..Mr.Mr. Batt joined our Board of Directors in August 2003. Mr. Batt has served as Vice President and Chief Information Officer of Pulte Homes, Inc., a national home building and construction company, since September 2003. From July 2001 to JulyFebruary 2003, Mr. Batt was the Chief Information Officer and Vice President of Sprint PCS, a communications company. From April 2000 to July 2001, Mr. Batt co-founded and was Chief Executive Officer of Foxfire Consulting, an IT consulting and systems integration firm specializing in the telecommunications industry. From 1973 to January 2000, Mr. Batt held various positions at AT&T, a communications company, where he was responsible for consumer long distance account management and billing and customer service platform at AT&T, a communications company.platforms. Mr. Batt holds B.S. degrees in Industrial Engineering and Operations Research from Virginia Tech University. Mr. Batt is a Class II Director whose current term expires at the annual meeting of stockholders to be held in 2010.
William T. CliffordClifford.. Mr. Clifford joined our Board of Directors in December 2005. Since August 2005, Mr. Clifford has served as Chairman of the Board of Directors and Chief Executive Officer of Aperture Technologies, Inc., an enterprisea data center management software solutionsolutions company. He served on the Board of Directors of Aperture Technologies, Inc. from 2003 until his appointment as Chairman of the Board of Directors and Chief Executive Officer in August 2005. From 2001 to 2003, Mr. Clifford served as a general partnerGeneral Partner of The Fields Group, a venture capital and management consulting firm.Group. From 1993 to 2000, Mr. Clifford held a numberserved as President and Chief Executive Officer of executive positions at Gartner Group, Inc., an information technology research and market company, including President and Chief Executive Officer.company. Prior to these positions, Mr. Clifford was President of the centralCentral and national accountNational Account divisions and Corporate Vice President, Information Systems Development at Automatic Data Processing, Inc., a transaction processing and data communication services company. Mr. Clifford holds a B.A. degree in Economics from the University of Connecticut. Mr. Clifford also serves on the Board of Directors of two privately-held companies, Crucian Global Services,ViaNovus, Inc. and GridApp, Systems, Inc. Mr. Clifford is a Class II Director whose current term expires at the annual meeting of stockholders to be held in 2010.
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Michael J. Shannahan.Mr. Shannahan joined our Board of Directors in June 2005. Since February 2005, Mr. Shannahan has served as Chief Financial Officer of Medsphere Systems Corporation, a software company in the healthcare industry. Mr. Shannahan has also served as Chief Financial Officer of Chordiant Software, Inc., a management software company, from August 2003 to October 2004; Sanctum Inc., a web applications security company, from October 2001 to November 2002Meetings and Broadband Office, Inc., a communication services company, from January 2001 to September 2001. From August 1999 to January 2001, Mr. Shannahan served as Chief Financial Officer of mySimon, Inc., an e-commerce company. Prior to these positions, Mr. Shannahan spent eighteen years with KPMG Peat Marwick, an accounting firm, as a partner in the Information, Communication and Entertainment practice. Mr. Shannahan holds a B.S. degree in Business Administration with a concentration in Accounting and a B.A. degree from Rockhurst College. Mr. Shannahan also serves on theDirector Independence
Our Board of Directors of Critical Path, Inc. and a privately-held company.
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Continuing Class III Directors (Term to Expiremet eleven times in 2008)
Michael S. Fields.Mr. Fields joined our Board of Directors in June 2005 and since July 2005, has been serving as our Chairman2007, including telephone conference meetings. During 2007, no current director attended fewer than 75% of the Boardaggregate of Directors. From July 2005 to August 2005, Mr. Fields served as acting Presidentthe total number of KANA. In August 2005, Mr. Fields was appointed Chief Executive Officer of KANA. Mr. Fields has been the Chairman and Chief Executive Officer of The Fields Group, a venture capital and management consulting firm, since May 1997. In June 1992, Mr. Fields founded OpenVision Technologies, Inc., a supplier of computer systems management applications for open client/server computing environments, and served as its Chief Executive Officer from July 1992 to July 1995 and its Chairmanmeetings of the Board of Directors from July 1992 to April 1997. Prior to these positions, Mr. Fields managed sales organizations at Oracle U.S.A., Inc., where heand the total number of meetings held by all committees of the Board of Directors on which such director served as President, Applied Data Research and Burroughs Corporation. Mr. Fields also servesduring the time period for which each such director served on the Board of Directors of Imation Corporation and two privately-held companies, ViaNovus, Inc. and Crucian Global Services, Inc.
John F. Nemelka. Mr. Nemelka joined ourDirectors. Our Board of Directors in October 2005. Mr.has determined that Messrs. Batt, Clifford and Nemelka founded NightWatch Capital Group, LLC, an investment management business, and has served as its Managing Principal sinceMs. Vinella each meet the formation in July 2001. From 1997 to 2000, Mr. Nemelka was a Principal at Graham Partners, a private investment firm and affiliaterequirements for independent director status under the listing standards of the privately-held Graham Group. From 2000 to 2001, Mr. Nemelka was a Consultant to the Graham Group. Mr. Nemelka holds a B.S. degree in Business Administration from Brigham Young University and a M.B.A. degree from the Wharton School at the University of Pennsylvania. Mr. Nemelka also serves on the Board of Directors of a privately-held company.The NASDAQ Stock Market.
Committees of the Board of Directors
Our Board of Directors has three standing committees: the audit committee, the compensation committee and the governance and nominating committee.
Audit Committee. We have a standing audit committee of the Board of Directors (the “Audit Committee”) established in accordance with Rule 10A-3 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and currently comprised. The current members of Mr. Shannahanour Audit Committee are and Ms. Vinella eachand Mr. Clifford. Each member of whomthe Audit Committee meets the independence and other requirements to serve on our Audit Committee under applicable securities laws and the rules of the Securities and Exchange Commission (“SEC”) and listing standards of The NASDAQ Stock Market. OurIn addition, our Board of Directors has determined that Mr. Clifford and Ms. Vinella and Mr. Shannahan are “audit committee financial experts” as defined in the rules of the SEC.SEC and meet the financial sophistication requirements of The NASDAQ Stock Market.
During 2007, Dixie L. Mills served as a member of the Audit Committee until her resignation from the Board of Directors on March 16, 2007. Mr. Shannahan also served as a member of the Audit Committee until his resignation from the Board of Directors on February 28, 2008, in connection with his appointment as KANA’s Executive Vice President and Chief Financial Officer. The Audit Committee met ninesix times in 2006.2007. The report of the Audit Committee is provided below, beginning on page 15.13.
Our Board of Directors has adopted a written charter for the Audit Committee, a copy of which is posted in the Corporate Governance section of our Internet website (at http://www.kana.com under Investor Relations) and is attached to this Proxy Statement asAppendix A. The principal functions of the Audit Committee are to oversee our accounting and financial reporting processes and the audits of our financial statements, oversee our relationship with our independent auditors, including selecting, evaluating and setting the compensation of, and approving all audit and non-audit services to be performed by, the independent auditors, and facilitate communication among our independent auditors and our financial and senior management.
Compensation Committee. The current members of ourWe have a standing compensation committee of the Board of Directors (the “Compensation Committee”). The current members of our Compensation Committee are Messrs. Batt, Clifford and Nemelka, eachNemelka. Each of whomthem meets the independence and other requirements to serve on our Compensation Committee under applicable laws and regulations, including the rules of the SEC and listing standards of The NASDAQ Stock Market. The Compensation Committee met sevenfive times in 2006.2007. The report of the Compensation Committee is provided below, beginning on page 19.26.
Our Board of Directors has adopted a written charter for the Compensation Committee, a copy of which is posted in the corporate governance section of our Internet website (at http://www.kana.com under “Investor Relations”). The Compensation Committee has responsibilities relating to the performance evaluation and the compensation of our Chief Executive Officer, the compensation of our executive officers and directors and our
8
significant compensation arrangements, plans, policies and programs, including our stock compensation plans. Certain of our executive officers, our outside counsel and consultants may occasionally attend the meetings of the Compensation Committee. However, no officer of KANA is present during discussions or deliberations regarding that officer’s own compensation.
Governance and Nominating Committee. We have a standing governance and nominating committee of the Board of Directors (the “Governance and Nominating Committee”) that is currently comprised. The current members of Mr.our Governance and
7
Nominating Committee are Messrs. Batt and Nemelka and Ms. Vinella, eachVinella. Each of whomthem meets the independence and other requirements to serve on our Governance and Nominating Committee under applicable securities laws and the rules of the SEC and listing standards of The NASDAQ Stock Market. The Governance and Nominating Committee did not meetmet once in 2006.2007.
Our Board of Directors has adopted a written charter for the Governance and Nominating Committee, a copy of which is posted in the Corporate Governance section of our Internet website (at http://www.kana.com under “Investor Relations”). The Governance and Nominating Committee considers the performance of the members of our Board of Directors and nominees for director positions and evaluates and oversees corporate governance and related issues.
The goal of the Governance and Nominating Committee is to ensure that the members of our Board of Directors possess a variety of perspectives and skills derived from high-quality business and professional experience. The Governance and Nominating Committee seeks to achieve a balance of knowledge, experience and capability on our Board of Directors. To this end, the Governance and Nominating Committee seeks nominees with the highest professional and personal ethics and values, an understanding of our business and industry, diversity of business experience and expertise, a high level of education, broad-based business acumen and the ability to think strategically. Although the Governance and Nominating Committee uses these and other criteria to evaluate potential nominees to our Board of Directors, it has no stated minimum criteria for such nominees. The Governance and Nominating Committee does not use different standards to evaluate nominees depending on whether they are proposed by our directors and management or by our stockholders. To date, we have not paid any third parties to assist us in this process.
The Governance and Nominating Committee will consider stockholder recommendations for director candidates. The Governance and Nominating Committee has established the following procedure for stockholders to submit such recommendations for which there has been no material change: the stockholder should send the name of the individual and related personal and professional information, including a list of references to our Governance and Nominating Committee, in care of the Corporate Secretary at our principal executive offices, sufficiently in advance of the annual meeting to allow the Governance and Nominating committee appropriate time to consider the recommendation.
Compensation for Directors
In 2006,2007, the Company paid each non-employee director (i) an annual fee of $10,000 and (ii) an additional $2,500 for each of the four (4) regularly scheduled Board of Directors meetings that such director attends. The Company paid the chairperson of the Audit Committee an additional $15,000 and the chairpersons of the Compensation Committee and the Governance and Nominating Committee an additional $5,000.
Our non-employee directors are eligible to receive discretionary stock option grants and stock issuances pursuant to the KANA 1999 Stock Incentive Plan, as amended. When a non-employee director is first elected or appointed as a member of the Board of Directors, he or she is automatically granted a stock option grant to purchase 40,000 shares of common stock. On the date of each annual stockholders meeting, each continuing non-employee director will automatically be granted a stock option grant to purchase 10,000 shares of common stock, provided that such director has served as a non-employee director for at least six (6) months. The non-employee directors are also eligible to receive other types of awards under the KANA 1999 Stock Incentive Plan, as amended, that are discretionary and not automatic. In 2005, the Board of Directors recommended an
9
additional stock option grant to purchase 10,000 shares of common stock to the chairperson of the Audit Committee and an additional stock option grant to purchase 5,000 shares of common stock to the chairpersons of the Governance and Nominating Committee and the Compensation Committee. Each of the above-mentioned stock option grants is immediately exercisable with a repurchase right by the Company that will lapse in a series of eight (8) semi-annual installments over a period of 48 months. Since the Company was not authorized to issue stock options until September 2006 due to the Company’s delay in filing its periodic reports, all directors were not granted their 2005 initial, annual and discretionary stock option grants until September 2006. Moreover, the Company did not hold its annual stockholders meeting in 2006, and thus, in lieu of the automatic annual grant that would have been granted to the non-employee directors at the annual stockholders meeting in 2006, the Board of Directors approved a stock option grant to purchase 10,000 shares of common stock to its non-employee directors in March 2007. All options granted to non-employee directors will have an exercise price equal to the current fair market value of our common stock on the date of the grant, and arewill be nonqualified stock options. In the event of a merger or sale of substantially all of our assets in connection with the Company’s assets,liquidation or dissolution of our company, all of the vesting of all options issuedshares subject to our directorsthe automatic initial and annual stock option grants will accelerate and such options will become exercisable in full.
The Company reimburses its directors for reasonable travel and other expenses incurred in connection with attending the meetings of the Board of Directors.
8
DIRECTOR COMPENSATION FOR 20062007
The table below summarizes the compensation paid by the Company to non–employee directors for the fiscal year ended December 31, 2006.2007.
Name (1) | Fees Earned or Paid in Cash | Option Awards (2) | All Other Compensation | Total | |||||||||
Jerry R. Batt | $ | 25,000 | $ | 24,276 | $ | 49,276 | |||||||
William T. Clifford | $ | 30,000 | $ | 80,920 | $ | 59,900 | (3) | $ | 170,820 | ||||
Dixie L. Mills (4) | $ | 25,000 | $ | 24,276 | $ | 49,276 | |||||||
John F. Nemelka | $ | 20,000 | $ | 64,736 | $ | 84,736 | |||||||
Michael J. Shannahan | $ | 35,000 | $ | 97,104 | $ | 132,104 | |||||||
Stephanie Vinella | $ | 20,000 | $ | 16,184 | $ | 36,184 | |||||||
Name (1) | Fees Earned or Paid in Cash | Option Awards (2) | Total | ||||||
Jerry R. Batt | $ | 25,000 | $ | 44,572 | $ | 69,572 | |||
William T. Clifford | $ | 25,000 | $ | 57,756 | $ | 82,756 | |||
Dixie L. Mills (3) | $ | 0 | $ | 26,959 | $ | 26,959 | |||
John F. Nemelka | $ | 20,000 | $ | 45,637 | $ | 65,637 | |||
Michael J. Shannahan (4) | $ | 35,000 | $ | 57,424 | $ | 92,424 | |||
Stephanie Vinella | $ | 20,000 | $ | 54,918 | $ | 74,918 | |||
| (1) | Mr. Fields, KANA’s Chief Executive Officer and Chairman of the Board of Directors, is not included in this table as he is an employee of KANA and thus, received no compensation for his services as Chairman of the Board of Directors. The compensation received by Mr. Fields as an employee of KANA is shown in the Summary Compensation Table on page 27. |
| (2) |
| (3) |
| Ms. Mills resigned as a member |
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| (4) | Mr. Shannahan resigned as a member of our Board of Directors effective February 28, 2008. |
The aggregate number of option awards outstanding for each of our non-employee directors as of December 31, 20062007 is provided in the table below.
Non-Employee Director | Number of Options Outstanding | |
Jerry R. Batt | ||
William T. Clifford | ||
Dixie L. Mills (1) | ||
John F. Nemelka | ||
Michael J. Shannahan (2) | ||
Stephanie Vinella |
| (1) | Ms. Mills resigned as a member |
| (2) | Mr. Shannahan resigned as a member of |
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PROPOSAL THREE—TWO—RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Our Board of Directors has selected Burr, Pilger & Mayer LLP as KANA’s independent registered public accounting firm to perform the audit of our financial statements for 2007,the year ending December 31, 2008, and our stockholders are being asked to ratify this selection. Our organizational documents do not require that our stockholders to ratify the appointmentselection of Burr, Pilger & Mayer LLP as our independent registered public accounting firm. We are submitting the appointmentselection of Burr, Pilger & Mayer LLP to our stockholders for ratification because we believe it is a matter of good corporate practice. We anticipate that representativesRepresentatives of Burr, Pilger & Mayer LLP willmay be present at the 20072008 Annual Meeting of Stockholders,Stockholders. If present, such representatives will have the opportunity to make a statement at the 20072008 Annual Meeting of Stockholders if they wish and will be available to respond to appropriate questions.
The Board of Directors recommends a voteFOR the ratification of the selection of Burr, Pilger & Mayer LLP as our independent registered public accounting firm.
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RELATIONSHIP WITH OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Change in Certifying Independent Registered Public Accounting Firm
In January 2006, Deloitte & Touche LLP (“D&T”) informed us of their resignation as our independent registered public accounting firm upon the completion of their review of our financial statements for the quarter and six months ended June 30, 2005. D&T did not provide a report on the Company’s financial statements for the years ended December 31, 2006 and December 31, 2007.
In February 2006, we appointed Burr, Pilger & Mayer LLP (“BPM”) as our new independent registered public accounting firm.
D&T did not include in their report on the Company’s financial statements as of December 31, 2004 and for the year then ended an adverse opinion or a disclaimer of opinion, or a qualification or modification as to uncertainty, audit scope, or accounting principle, nor were there disagreements between the Company and D&T on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to D&T’s satisfaction, would have caused D&T to make reference to the subject matter of the disagreement in connection with its report on the Company’s financial statements as of and for the year ended December 31, 2004. In the course of the audit of the Company’s consolidated financial statements for the year ended December 31, 2004, D&T identified and reported material weaknesses in the Company’s internal control over financial reporting. First, we had weaknesses in its general accounting processes related to insufficient documentation and analyses to support its consolidated financial statements, failure to properly evaluate estimates of royalties due, inadequate reconciliation of inter-company accounts, insufficient staffing in the accounting and reporting function, which was exacerbated by changes in management and accounting personnel, and insufficient training of its accounting department. Second, there was no independent review of journal entries, and insufficient documentation or support for journal entries and consolidation entries. In a number of cases, this required adjustments to the Company’s consolidated financial statements for the year ended December 31, 2004. Third, we had multiple and inconsistent travel and entertainment policies and inadequate processes and procedures for review of expense reimbursement requests that were also a material weakness in internal controls.
Fiscal 2006 and 20052007 Audit Firm Fee Summary
Through fiscal year ended December 31, 2005 and the subsequent interim period until June 9, 2006, D&TBurr, Pilger & Mayer LLP served as our independent registered public accounting firm. Since February 23, 2006, BPM has served as our current independent registered public accounting firm and has reviewedaudited our consolidated financial statements for the quarter and nine months ended September 30, 2005 and for the years ended December 31, 20052006 and 2006.2007. Set forth below are the aggregated fees (in thousands) billed for the services of D&TBurr, Pilger & Mayer LLP from January 1, 2005 through June 9, 2006 and BPM from February 23, 2006 through December 31, 2006.2007.
| Year Ended December 31, | Year Ended December 31, | |||||||||||
| 2006 | 2005 | 2007 | 2006 | |||||||||
Audit fees | $ | 447 | $ | 1,303 | $ | 972 | $ | 479 | ||||
Audit-related fees (includes review of Form S-1 filing) | 63 | — | ||||||||||
Audit-related fees (2) | 22 | — | ||||||||||
Tax fees | — | — | — | — | ||||||||
All other fees | ||||||||||||
Total fees | $ | 510 | $ | 1,303 | $ | 994 | $ | 479 | ||||
| (1) | Consists of fees billed for professional services rendered for the audit of our annual consolidated financial statements and review of our quarterly condensed consolidated financial statements and services, such as a comfort letters, consents and review of SEC comment letters that are normally provided by Burr, Pilger & Mayer LLP in connection with statutory and regulatory filing engagements. |
| (2) | Includes fees related to due diligence and accounting consultation in connection with an acquisition. |
Our Audit Committee considers at least annually whether the provision of non-audit services by our independent registered public accounting firm is compatible with maintaining auditor independence. This process includes:
| • | Obtaining and reviewing, on at least an annual basis, a letter from the independent registered public accounting firm describing all relationships between the independent registered public accounting firm
Obtaining reports of all non-audit services proposed to be performed by the independent registered public accounting firm before such services are performed, reviewing and approving or prohibiting, as appropriate, any non-audit services not permitted by applicable law. The Audit Committee may delegate authority to review and approve or prohibit non-audit services to one or more members of the Audit Committee, and direct that any approval so granted be reported to the Audit Committee at a following meeting of the Audit Committee. 11 All services provided by the Company’s independent registered public accounting firms in fiscal years Audit Committee Pre-Approval Policy All audit and permitted non-audit services to be performed for the Company by its independent registered public accounting firm must be pre-approved by the Audit Committee to assure that the provision of such services do not impair the registered public accounting firm’s independence. The Audit Committee does not delegate its responsibility to pre-approve services performed by the independent The annual audit services engagement terms and fees are subject to the specific pre-approval of the Audit Committee. The Audit Committee will approve, if necessary, any changes in terms, conditions and fees resulting from changes in audit scope or other matters. All other audit services not otherwise included in the annual audit services engagement must be specifically pre-approved by the Audit Committee.
REPORT OF THE AUDIT COMMITTEE The material in this report is not “soliciting material,” is not deemed filed with the SEC and is not to be incorporated by reference in any of our filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date of this Proxy Statement and irrespective of any general incorporation language therein. The Audit Committee’s purpose is to assist the Board of Directors in its oversight of KANA’s financial accounting, reporting and controls. The Board of Directors, in its business judgment, has determined that all members of the Audit Committee are “independent” as required by applicable listing standards of The NASDAQ Stock Market (please see “Committees of the Board of Directors” on page During fiscal year In performing its oversight role during the period since its last report, the Audit Committee The members of the Audit Committee rely on the information provided to them and on the representations made to the Audit Committee by KANA’s management and independent registered public accounting firm without conducting independent verification of the accuracy of such information and representations. Accordingly, the Audit Committee’s oversight does not ensure that management has maintained appropriate accounting and financial reporting principles or appropriate internal controls and procedures designed to assure compliance with accounting standards and applicable laws and regulations. Furthermore, the Audit Committee’s considerations and discussions referred to above do not ensure that any audit of KANA’s financial statements conducted by independent registered public accounting firm has been carried out in accordance with generally accepted auditing standards, or that the financial statements are presented in accordance with generally accepted accounting principles. AUDIT COMMITTEE
Stephanie Vinella (Chairperson since March 2008) William T. Clifford (Member since March 2008)
OTHER BUSINESS Our Board of Directors does not presently intend to bring any other business before the
EXECUTIVE OFFICERS In addition to Michael S. Fields, our Chief Executive Officer whose biographical information appears
Mark A. Angel.Since May 2007, Mr. Angel has served as our Senior Vice President of Corporate Development and Strategy. Prior to joining KANA, from January 1998 to March 2007, he served as Chief Technology Officer of KNOVA Software Inc., a service resolution management software company that is now a division of Consona Corporation. Prior to KNOVA, Mr. Angel founded and served as Chief Executive Officer of Papyrus Technology, which was acquired by Ernst & Young, in 1997 and Kanisa Inc., which was acquired by ServiceWare Technologies, Inc. in 2005. Mr. Angel has served on the Board of Directors of Avidence, Inc., a private company, since May 2006. William A. Bose. Mr. Bose has served as our Vice President and General Counsel since August 2006. Mr. Bose served in a number of legal positions at KANA from September 1999 to August 2006. Mr. Bose holds a B.A. degree from University of California at Santa Barbara and a J.D. degree from Santa Clara University School of Law. Mr. Bose is a member of the California Bar. Marchai B. Bruchey.Since September 2005, Ms. Bruchey has served as our Senior Vice President and Chief Marketing Officer with responsibility for global marketing and strategic alliances. Ms. Bruchey joined KANA in January 1998 as our Senior Vice President of Strategic Alliances and served in this role until September 2005. Prior to joining KANA, Ms. Bruchey spent 18 years with Digital Equipment Corporation, a computer manufacturing company, where she held positions in sales, sales management, alliances and alliances management. Ms. Bruchey holds a B.S. degree in Finance and Marketing from Queens College. Sham Chotai.Since June 2007, Mr. Chotai has served as our Senior Vice President of Engineering. From April 2006 to March 2007, Mr. Chotai served as Vice President of Engineering at KNOVA Software, Inc. Mr. Chotai co-founded DecisionView Software, Inc., an analytics technology company, in October 2002, and served as Chief Technology Officer of DecisionView Software, Inc. from October 2002 until October 2005. Mr. Chotai holds a B.A.Sc. degree in Electrical Engineering from the University of Toronto, with a specialty in adaptive/intelligent control systems. Charles H. Isaacs.Since August 2004, Mr. Isaacs has served as our Chief Technology Officer. From December 15 Jay A.
Chad A. Wolf. Since June 2007, Mr. Wolf has served as our
EXECUTIVE COMPENSATION AND RELATED INFORMATION COMPENSATION DISCUSSION Overview of Compensation Program
Compensation Philosophy and Objectives
Our executive compensation program The executive officers listed in the Summary Compensation Table, whose compensation is discussed in this Compensation Discussion and Analysis, are referred to as our “named executive officers.” For fiscal year 2007, our named executive officers are our Chief Executive Officer, Michael S. Fields, our former Chief Financial Officer, John M. Thompson, who retired from this position in February 2008, the three most highly compensated executive officers for 2007, Marchai B. Bruchey, Jay A. Jones and Daniel A. Turano, and our former Senior Vice President, Global Sales and Service, William A. Rowe, for whom disclosure would have been provided as one of the three most highly compensated executive officers for 2007 but for the fact that he was not serving as an executive officer on December 31, 2007. On February 28, 2008, we entered into an employment offer letter with Michael J. Shannahan, who began serving as our Chief Financial Officer as of March 2008. Our compensation arrangement with Mr. Shannahan is described in the section “Material Terms of Employment Offer Letters” beginning on page 29. 17
Each year, the Compensation Committee reviews, recommends, and approves the mix of compensation elements and compensation levels for each of our executive officers. To evaluate whether the balance between the different elements of compensation
Our Compensation Committee uses the data provided by Compensia as one of several factors in its decisions regarding executive the the executive officer’s performance measured against strategic goals established for that individual; our past and current business performance and future expectations; our long-term goals and strategies; for each executive officer, other than our Chief Executive relative pay levels among the executive the amount of base salary in the
the balance between performance-based cash incentives and the other elements of the executive officer’s total compensation; the balance between equity-based incentives and the other elements of the executive officer’s total compensation. The performance-based, cash incentive compensation plan approved by our Compensation Committee
including our Chief Executive Officer, former Executive Vice President and Chief Financial Officer, current Senior Vice President and Chief Administrative Officer The Elements of
For
base salary;
cash
other benefits. 18 Our Compensation Committee reviews each of the above compensation elements, as well as the overall compensation for each named executive officer. Base Salary
The Compensation Committee reviews base salaries annually and adjusts them In 2007, the Compensation Committee
position of Senior Vice President, Worldwide Field Operations in July 2007 when he replaced Mr. Rowe. At that time, Mr. Rowe’s salary returned to its pre-increase level. The Cash Incentives The Executive Compensation Plan In 2006 we created, and our Compensation Committee approved, a performance-based, non-equity incentive compensation plan to our achievement of our achievement of annual and quarterly revenue targets; our achievement of quarterly positive cash from operations targets; and their quarterly achievement of individualized personal objectives. Recognizing the continued importance of expanding our cash reserves, the 2007 Executive Compensation Plan also awarded our executive officers with a special cash bonus if we achieved non-GAAP net profits that were 10% or more above the quarterly and annual targets. The corporate financial performance targets in the 19 less any draw down on the bank line of credit for operating uses) from Mr. Rowe did not participate in the 2007 Executive Compensation Plan The individualized personal objectives or management by objectives (“MBO”) component of our 2007 Executive Compensation Plan established quarterly operational objectives for
Under the 2007 Executive Compensation Plan, if For 2007, the Compensation Committee approved a Base Bonus Amount for Mr. Fields that equaled his 2006 Base Bonus Amount and approved increases to the Base Bonus Amounts for Mr. Thompson, Mr. Jones, and Ms. Bruchey in the amounts of $8,000, $20,000, and $50,000, respectively. These increases were intended to align their cash incentive levels more closely with competitive practices. In addition, the Compensation Committee reviewed and approved 20
The allocation of the 2007 Executive Compensation Plan’s
21 Once
In addition, if we had achieved more than 110% of our quarterly and
In order for our named executive officers Commission Plan Unlike our other named executive officers, Mr. Turano earns up to 75% of his Base Bonus Amount as commissions on revenue based on our achievement of annual revenue targets within three of our operating units: (i) license and OnDemand, (ii) maintenance, and (iii) professional services. The annual revenue targets for these operating units under the 2007
22 annual license and OnDemand, maintenance and service revenue targets, Mr. Turano would receive a cash commission equal to 65%, 15% and 20%, respectively, of that portion of his Base Bonus Award that is allocated to achievement of annual revenue targets. The remaining 25% of his Base Bonus Amount is based on our achievement of quarterly and annual profit targets and is subject to the quarterly and annual allocations set forth in the table above. In addition, Mr. Turano could have earned one and a half times his commissions-based earnings if our annual license revenue had exceeded the revenue target by 100% and twice his commissions-based earnings if our annual license revenue had exceeded the revenue target by 150%. Mr. Turano did not receive that portion of his Base Bonus Amount that was allocated to our achievement of the profit target because we did not reach that target in 2007, nor did Mr. Turano earn a multiple on his commissions-based earnings in 2007. 2007 Merit Review and Compensation Plan
We
23 week, with the exercise price of In 2007, the Compensation Committee
Other Benefits 401(k) Retirement Plan
Perquisites
Ownership Guidelines
24 Severance
During 2007, the Compensation Committee, with Compensia’s assistance, reviewed, analyzed and approved of a proposal to adopt a standard set of terms for the severance and change in control agreements to be entered into with newly hired executive officers of our company. The Compensation Committee considered our current severance and change in control arrangements and their cost, the severance and change in control practices at companies with which we compete for executive talent and recommendations from Compensia when making its decision. Subject to the Compensation Committee’s review and approval, the severance and change in control agreements will provide our executive officers with a severance payment equal to six months base salary, six months of COBRA coverage and full acceleration of any then-outstanding and unvested equity awards upon an executive officer’s termination without cause or voluntary termination for good reason. If the executive officer’s termination without cause or voluntary termination for good reason occurs within the three months prior to or twelve months following a change in control, then the executive officer will be entitled to receive a severance payment equal to nine months base salary, nine months of COBRA coverage and full acceleration of all current and future equity awards. In addition, each agreement would contain a “best choice” 280G provision, that would allow the executive officer to be paid benefits in an amount that would result in the best after-tax result for the executive officer after giving effect to any “parachute taxes” under Section 280G of the Internal Revenue Code. We have not yet finalized, nor has the Compensation Committee approved, a form of severance and change in control agreement. Therefore, to date, we have not yet entered into any such agreements with our Tax and Accounting Implications As part of its role, the Compensation Committee reviews and considers the deductibility of executive compensation under Section 162(m) of the Internal Revenue Code, which provides that
deduct compensation of more than $1.0 million that is paid to Our stock option grant policies have been affected by the implementation of Statement of Financial Accounting Standards No. 123 (revised 2004),Share Based Payment, (“SFAS No. 123(R)”) which we adopted in the first quarter of fiscal year 2006 using the modified prospective method as permitted by the pronouncement. Under this transition method, we are required to value all stock-based compensation awards granted prior to but not yet vested as of December 31, 2005 based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123(R), as adjusted for estimated forfeitures. 25 Compensation Committee Interlocks and Insider Participation The current members of our Compensation Committee are Messrs. Batt, Clifford and Nemelka. No member of our Compensation Committee was at any time during 2007 an officer or employee of KANA. No member of our Compensation Committee was formerly an officer of KANA. No executive officer of KANA serves as a member of the Board of Directors or Compensation Committee of any entity that has one or more of our executive officers serving as a member of our Board or Compensation Committee. Compensation Committee Report The material in this report is not “soliciting material,” is not deemed filed with the SEC and is not to be incorporated by reference in any of our filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date of this Proxy Statement and irrespective of any general incorporation language therein. Our Compensation Committee
26
The table below summarizes the total compensation
27
28 MATERIAL TERMSOF EMPLOYMENT Michael
installments John Michael J. Shannahan. In February 2008, we entered into an employment offer letter with Mr. Shannahan in connection with his appointment as our Executive Vice President and Chief Financial Officer. Pursuant to the terms of the employment offer letter, we agreed to pay Mr. Shannahan an annual base salary of $275,000 and a one time, non-refundable sign-on bonus of $11,458.33. In addition, Mr. Shannahan is eligible for annual cash incentive award of up to $137,500, prorated to the length of Mr. Shannahan’s service in 2008, and based upon his achievement of individual objectives and our achievement of financial performance targets in 2008, to be set forth in an incentive bonus plan that is subject to the Compensation Committee’s approval. In connection with his employment with us, the Compensation Committee granted Mr. Shannahan an option to purchase 350,000 shares of our common stock on March 13, 2008, at an exercise price equal to the fair market value of our common stock on the date of grant. 25% of the shares underlying the option will vest on August 29, 2008, with the remainder of the shares vesting in 42 equal monthly installments until fully vested on February 29, 2012, subject to Mr. Shannahan’s continuous employment with us. In addition, if a Change in Control Event occurs (as defined below), then the initial option grant to Mr. Shannahan will fully vest and Mr. Shannahan will receive a lump-sum separation payment equal to six months annual base salary. If Mr. Shannahan is terminated without Cause (as defined below) in the absence of a Change in Control Event then he will be entitled to a lump-sum separation payment of six months annual base salary with no acceleration of vesting For purposes of Mr. Shannahan’s offer letter and Ms. Bruchey’s offer letter described below, a “Change in Control Event” occurs if, following a change in control of For purposes of Messrs. Shannahan’s and Rowe’s and Ms. Bruchey’s offer letters, termination for “Cause” exists if one or more of the following events occurs: (i) gross negligence or willful misconduct in the performance of, or failure or refusal to perform their duties with KANA, as determined in good faith by our 29 Board of Directors; (ii) unprofessional, unethical or fraudulent conduct or conduct that discredits us or is detrimental to our reputation, character or standing; (iii) dishonest conduct or a deliberate attempt to injure KANA; (iv) breach of their Invention Assignment and Confidentiality Agreements, and/or duty of confidentiality to us, including, without limitation the theft, misappropriation and/or misuse of our proprietary information; (v) failure or refusal to comply in any material respect with the reasonable policies, standards or regulations of KANA; (vi) any unlawful or criminal act which would reflect badly on us in our reasonable judgment; (vii) absence from work without an approved leave; or (viii) death. Marchai B. Bruchey. In February 2008, we entered into a letter agreement to amend Ms. Bruchey’s offer letter dated December 15, 2000 (the “amendment agreement”) to provide Ms. Bruchey with severance and change in control benefits. Pursuant to the terms of the amendment agreement, if a Change in Control Event occurs, or Ms. Bruchey is terminated without Cause, then Ms. Bruchey shall receive a lump-sum separation payment of six months annual base salary. The amendment agreement also provides that any unvested shares underlying the initial options granted to Ms. Bruchey pursuant to her offer letter shall fully vest upon a Change in Control Event. As of December 31, 2007, Ms. Bruchey’s initial option grants were fully vested. Jay A. Jones A “Change in Control Event,” as defined in Messrs. Jones’, Turano’s and Rowe’s offer letters, means a change in control of Daniel A. Turano. In July 2006, we entered into an employment offer letter with Mr. Turano. Pursuant to the terms of The “Potential Payments Upon Termination or Change in Control” table on page 33 reflects the amounts that Mr. Jones and Mr. Turano would receive upon the occurrence of a Change in Control Event based on the terms promised to them in their offer letters. William A. Rowe
OUTSTANDING EQUITY AWARDSAT FISCAL YEAR ENDEDDECEMBER 31,
The following table shows the number of shares acquired pursuant to the exercise of options by each named executive officer during our fiscal year ended December 31, 2007 and
32 POTENTIAL PAYMENTS UPON TERMINATION Pursuant to the terms of
33
EQUITY COMPENSATION PLAN INFORMATION We maintain the KANA 1999 Stock Incentive Plan, as amended (the “1999 Stock Incentive Plan”), which has been approved by our stockholders, and the KANA 1997 Stock Option Plan (the “1997 Stock Option Plan”), the KANA 1999 Special Stock Option Plan (the “1999 Special Stock Option Plan”) and equity compensation plans assumed by us pursuant to acquisitions of certain companies described further below, which have not been approved by our stockholders. Securities Authorized for Issuance Under Equity Compensation Plans The following table summarizes our equity compensation plans as of December 31,
Equity Compensation Plans Not Approved By Stockholders KANA 1997 Stock Option Plan. Our 1997 Stock Option Plan provides for stock options to be granted to employees, independent contractors, officers and directors. Options are generally granted at an exercise price equivalent to the estimated fair market value per share at the date of grant, as determined by our Board of Directors. All options are granted at the discretion of our Board of Directors and have a term not greater than 10 years from the date of grant. Options are immediately exercisable and generally vest over four years, 25% one year after the grant date and the remainder at a rate of 1/36 per month thereafter. All outstanding options under
our 1997 Stock Option Plan were transferred to the 1999 Stock Incentive Plan, and no further option grants will 34 be made or were made under the 1997 Stock Option Plan after such transfer. The transferred options will continue to be governed by their existing terms, unless the Compensation Committee decides to extend one or more features of the 1999 Stock Incentive Plan to those options. KANA 1999 Special Stock Option Plan. In December 1999, our Board of Directors approved the 1999 Special Stock Option Plan and 1,000,000 shares of common stock were reserved for issuance under this plan. The 1999 Special Stock Option Plan has similar terms as those of the 1997 Stock Option Plan, except that options may be granted with an exercise price less than, equal to or greater than the fair market value of the option shares on the grant date.
35 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 2, 2008, by the following individuals or groups: each person or entity who is known by us to own beneficially more than five percent of our outstanding stock; each of our named executive officers; each of our current directors; and all current directors and executive officers as a group. Beneficial ownership is determined under the rules of the SEC and generally includes voting or investment power with respect to securities. Applicable percentage ownership in the following table is based on 41,212,578 shares of common stock outstanding as of June 2, 2008, as adjusted to include options and warrants exercisable within 60 days of June 2, 2008 held by the indicated stockholder or stockholders. Unless otherwise indicated, the principal address of each of the stockholders below is c/o Kana Software, Inc., 181 Constitution Drive, Menlo Park, CA 94025. Except as otherwise indicated, and subject to applicable community property laws, the persons named in the table below have sole voting and investment power with respect to all shares of common stock held by them. To determine the number of shares beneficially owned by persons other than our directors, executive officers and their affiliates, we have relied on beneficial ownership reports filed by such persons with the SEC.
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37 CODE OF ETHICS AND CONDUCT Our Board of Directors has adopted a Code of Ethics and Conduct applicable to all directors, officers and employees of KANA, as required by applicable securities laws and the rules of the SEC and listing standards of The NASDAQ Stock Market. A copy of the Code of Ethics and Conduct is posted in the Corporate Governance section of our Internet website at http://www.kana.com under Investor Relations. TRANSACTIONS WITH RELATED PERSONS Review, Approval or Ratification of Transactions with Related Persons Our Audit Committee Charter requires our Audit Committee to review and approve certain transactions between us and our executive officers and directors and greater than 5% beneficial owners of our common stock, and each of their immediate family members. Transactions subject to the review and approval of the Audit Committee (or another independent body of our Board of Directors) include transactions between us and the related person in which the aggregate amount involved exceeds or may be expected to exceed $120,000 and in which such person has or will have a direct or indirect material interest. To identify any related party transactions, each year, we submit and require our directors and officers to complete director and officer questionnaires identifying any transactions with us in which the executive officer or director or their family members has an interest. In addition, our Board of Directors determines, on an annual basis, which members of our Board of Directors meet the definition of independent director as defined in the rules of The NASDAQ Stock Market and reviews and discusses any relationships with a director that would potentially interfere with his or her exercise of independent judgment in carrying out the responsibilities of a director. In approving or rejecting any such transaction, the Audit Committee, considers the relevant facts and circumstances available to it, including but not limited to the risks, costs, benefits to our company, the terms of the transaction, the availability of other sources for comparable services or products and, if applicable, the impact on a director’s independence. Our Audit Committee approves only those transactions that it determines in good faith, are in, or are not inconsistent with, our best interests. Certain Transactions with Related Persons On January 1, 2007, KANA entered into an employment agreement with Michelle E. Fields, the daughter of our Chief Executive Officer. Ms. Fields is the Company’s Director, Legal Services. Ms. Fields received total compensation of $152,562 for her services during 2007, calculated in the same manner as the compensation reported for our named executive officers in the Summary Compensation Table above. The $152,562 consisted of $130,000 in annual base salary, an aggregate of $15,000 in variable compensation earned upon the achievement of personal objectives during each quarter of 2007, and $7,562 in stock-based compensation expense, excluding estimated forfeitures for service-based vesting, that was recognized for financial reporting purposes in accordance with SFAS No. 123(R). Other than the compensation arrangement with Ms. Fields above and the compensation arrangements described above under the headings “Material Terms of Employment Agreements” and “Potential Payments Upon Termination or Change in Control,” since January 1, 2007, there have not been, and there are not currently proposed, any transactions or series of similar transactions in which we were or will be a participant in which the amount involved exceeded or will exceed $120,000 and in which any director, executive officer, holder of 5% or more of any class of our capital stock or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest. 38 SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE The members of our 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 (the “Exchange Act”), which requires them to file reports with respect to their ownership of our common stock and their transactions in such common stock. Based solely on our review of reporting forms filed by our directors, executive officers and persons who hold more than 10% of our outstanding common stock, we believe that during 2007 such persons filed the reports required under Section 16(a) of the Exchange Act on a timely basis, with the exception of a late Form 4 filed for Daniel A. Turano on September 18, 2007 to report the grant to Mr. Turano of an option to purchase 90,000 shares of our common stock on September 13, 2007. STOCKHOLDER PROPOSALS Stockholder proposals intended to be presented at our
181 CONSTITUTION DRIVE MENLO, CA 94025 VOTE BY INTERNET—www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the ELECTRONIC DELIVERY OF FUTURE STOCKHOLDER COMMUNICATIONS If you would like to reduce the costs incurred by Kana Software, Inc.
VOTE BY PHONE—1-800-690-6903 Use any touch-tone telephone to
Mark, sign and date your proxy
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: KANA01 KEEP THIS PORTION FOR YOUR RECORDS THIS PROXY CARD DETACH AND RETURN THIS PORTION ONLY KANA SOFTWARE, INC. The Board of Directors recommends that you voteFOR each of the nominated Class 1. Nominees: 01) Michael S. Fields 02) John F. Nemelka for election as
The Board of Directors recommends that you voteFOR For Against Abstain 2.
In accordance with their judgment, the proxies are authorized to vote upon such other matters as may properly come before the annual meeting or any adjournment or postponement thereof. Whether or not you expect to attend the annual meeting, please complete, date and sign this proxy card and return it in the enclosed envelope prior to the annual This is your proxy. Your vote is important. For address changes and/or comments, please check this box and write them on the
The 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. Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date
KANA KANA SOFTWARE, INC. THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby appoints Michael S. Fields and Michael J. Shannahan, and each of them, as proxies, each with full powers of substitution, and hereby authorizes them to vote, as designated on the reverse side, all shares of common stock, $0.001 par value, of Kana Software, Inc. (“KANA”) held of record by the undersigned on June 17, 2008, at the 2008 Annual Meeting of Stockholders of KANA to be held on July 29, 2008, 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 the Board of Director nominees named on the reverse side and FOR the ratification of the selection by KANA’s Board of Directors of Burr, Pilger & Mayer LLP as KANA’s independent registered public accounting firm for the fiscal year ending December 31, 2008, 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 of KANA recommends a “FOR” vote on each item. This is your proxy. Your vote is important.
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