<PAGE>
- -------------------- ------------------------
CUSIP NO. 827094103 13D PAGE 1 OF 12 PAGES
- -------------------- ------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Schedule 13D
Under the Securities Exchange Act of 1934
Silknet Software Inc.
---------------------
(Name of Issuer)
Common Stock, $.01 Par Value
----------------------------
(Title of Class of Securities)
827094103
---------
(CUSIP Number)
John Hession, Esq. David A. Makarechian, Esq.
Testa, Hurwitz & Thibeault, LLP Brobeck, Phleger & Harrison LLP
125 High Street Two Embarcadero Place
Boston, MA 02110 Palo Alto, CA 94303
(617) 248-7000 (650) 424-0160
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
February 6, 2000
----------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition which is the subject of this Schedule 13D, and is filing
this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the
following box [ ].
Note: Schedules filed in paper format shall include a signed
original and five copies of the schedule, including all exhibits. See Rule
13d-7(b) for other parties to whom copies are to be sent.
(Continued on following pages)
(Page 1 of 12 Pages)
- ----------------------------
* The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class of
securities, and for any subsequent amendment containing information which would
alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not
be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 ("Act") or otherwise subject to the liabilities of that section of
the Act but shall be subject to all other provisions of the Act (however, see
the Notes).
<PAGE>
- -------------------- ------------------------
CUSIP NO. 827094103 13D PAGE 2 OF 12 PAGES
- -------------------- ------------------------
- ------------------------------------------------------------------------------
NAMES OF REPORTING PERSONS.
1 Kana Communications, Inc.
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY).
IRS I.D. # 77-0435679
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (SEE INSTRUCTIONS)
2 (a) [_]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS
4
00
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS
5 2(d) OR 2(e)
[_]
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
State of Delaware
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF 3,417,652 (acquisition of such shares is conditioned
upon the occurrence of certain events specified in the
Silknet Stock Option Agreement dated February 6, 2000
and incorporated by reference as Exhibit 4 to this
Schedule 13D)
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
7,798,592 (pursuant to the Silknet Stock Voting
Agreement dated February 6, 2000 and incorporated by
reference as Exhibit 2 to this Schedule 13D)
OWNED BY
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING 3,417,652 (acquisiton of such shares is conditioned
upon the occurrence of certain events specified in the
Silknet Stock Option Agreement dated February 6, 2000
and incorporated by reference as Exhibit 4 to this
Schedule 13D)
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
-0-
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
11,216,244
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (9) EXCLUDES CERTAIN SHARES
12 (SEE INSTRUCTIONS)
[_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (9)
13
65.3% (based on the number of shares of Issuer Common Stock outstanding
as of February 3, 2000 as represented by the Issuer in the Merger
Agreement dated February 6, 2000 and incorporated by reference as Exhibit
1 to this Schedule 13D)
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON (SEE INSTRUCTIONS)
14
CO
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT
<PAGE>
- -------------------- ------------------------
CUSIP NO. 827094103 13D PAGE 3 OF 12 PAGES
- -------------------- ------------------------
Neither the filing of this Schedule 13D nor any of its contents shall be deemed
to constitute an admission by Kana Communications, Inc. that it is the
beneficial owner of any of the Common Stock of Silknet Software Inc. referred to
herein for purposes of Section 13(d) of the Securities Exchange Act of 1934, as
amended (the "Act"), or for any other purpose, and such beneficial ownership is
expressly disclaimed.
<PAGE>
- -------------------- ------------------------
CUSIP NO. 827094103 13D PAGE 4 OF 12 PAGES
- -------------------- ------------------------
Item 1. Security and Issuer.
--------------------
This statement on Schedule 13D relates to the common stock, par value
$.01 per share (the "Issuer Common Stock"), of Silknet Software Inc., a Delaware
corporation (the "Issuer"). The principal executive offices of the Issuer are
located at 50 Philippe Cote Street, Manchester, NH 03101.
Item 2. Identity and Background.
------------------------
(a) The name of the person filing this statement is Kana Communications,
Inc., a Delaware corporation ("Kana").
(b) The address of the principal office and principal business of Kana is
740 Bay Road, Redwood City, CA 94063.
(c) Kana develops, markets and supports customer communication software
products and services for e-Businesses. Set forth in Schedule A is the name and
present principle occupation or employment and the name, principal business and
address of any corporation or other organization in which such employment is
conducted, of each of Kana's directors and executive officers, as of the date
hereof. Schedule A also sets forth information regarding certain persons who,
because of their representation on Kana's board of directors or because they may
be deemed to beneficially own more than ten percent (10%) of Kana's outstanding
common stock, may be deemed to control Kana.
(d) During the past five years, neither Kana nor, to Kana's knowledge, any
person named in Schedule A to this Statement, has been convicted in a criminal
proceeding (excluding traffic violations or similar misdemeanors).
(e) During the past five years, neither Kana nor, to Kana's knowledge, any
person named in Schedule A to this Statement, was a party to a civil proceeding
of a judicial or administrative body of competent jurisdiction as a result of
which such person was or is subject to a judgment, decree or final order
enjoining future violations of or prohibiting or mandating activity subject to
Federal or State securities laws or finding any violation with respect to such
laws.
(f) Kana is a Delaware Corporation. Draper Fisher Jurvetson and those
entities affiliated with Draper Fisher Jurvertson are organized under the laws
of California. Benchmark Capital Partners L.P. and those entities affiliated
with Benchmark Capital Partners L.P. are organized under the laws of Delaware.
To Kana's knowledge, each natural person listed on Schedule A is a citizen of
the United States, with the exception of Pallipuram V. Kannan, who is a
citizen of India.
Item 3. Source and Amount of Funds or Other Consideration.
--------------------------------------------------
Pursuant to an Agreement and Plan of Reorganization dated as of
February 6, 2000 (the "Merger Agreement"), by and among Kana, Pistol Acquisition
Corp., a Delaware corporation and wholly owned subsidiary of Kana ("Merger
Sub"), and the Issuer, and subject to the conditions set forth therein, Merger
Sub will be merged with and into the Issuer (the "Merger"), with each share of
Issuer Common Stock being converted into the right to receive 0.83 of a share of
Kana Common Stock (the "Exchange Ratio"). The Merger is subject to the approval
of the Merger Agreement by the stockholders of the Issuer, the approval by
Kana's stockholders of the issuance of Kana Common Stock in the Merger and the
satisfaction or waiver of certain other conditions as more fully described in
the Merger Agreement. The foregoing summary of the Merger is qualified in its
entirety by reference to the copy of the Merger Agreement included as Exhibit 1
to this Schedule 13D and incorporated herein in its entirety by reference.
This statement on Schedule 13D relates to a voting agreement between
Kana and certain stockholders of the Issuer whereby such stockholders have
agreed to vote their shares of
1
<PAGE>
- -------------------- ------------------------
CUSIP NO. 827094103 13D PAGE 5 OF 12 PAGES
- -------------------- ------------------------
Issuer Common Stock in favor of the issuance of Issuer Common Stock in
connection with the Merger as described in Item 4 below and an option granted to
Kana by the Issuer to purchase shares of Issuer Common Stock upon the occurrence
of certain events as described in Item 4 below.
Item 4. Purpose of Transaction.
-----------------------
(a)-(b) As described in Item 3 above, this statement relates to the
Merger of Merger Sub, a wholly owned subsidiary of Kana, with and into Issuer in
a statutory merger pursuant to the Delaware General Corporation Law. At the
effective time of the Merger, the separate existence of Merger Sub will cease to
exist and Issuer will continue as the surviving corporation and as a wholly
owned subsidiary of Kana (the "Surviving Corporation"). Holders of outstanding
Issuer Common Stock will receive, in exchange for each share of Issuer Common
Stock held by them immediately prior to the Merger, 0.83 of a share of Kana
Common Stock. Kana will assume the Issuer's 1995 Employee Stock Option Plan,
1999 Stock Option and Incentive Plan, 1999 Non-Employee Director Stock Option
Plan, 1999 Employee Stock Purchase Plan, and InSite Marketing Technology, Inc.
1997 Stock Option Plan, each as amended, as well as the outstanding options
issued under such plans or certain other agreements.
The Merger Agreement contains customary representations and warranties
on the part of Kana, the Issuer and Merger Sub, and the consummation of the
Merger is subject to customary closing conditions, including, without
limitation, approval by the stockholders of the Issuer and Kana. The Merger
Agreement also contains covenants regarding the activities of the parties
pending consummation of the Merger. Generally, each of the parties must conduct
its business in the ordinary course consistent with past practice. In certain
circumstances, upon a termination of the Merger Agreement, a cash termination
fee is required to be paid.
As an inducement to Kana to enter into the Merger Agreement, certain
stockholders (collectively, the "Stock Voting Agreement Stockholders") of the
Issuer have entered into a Stock Voting Agreement, dated as of February 6, 2000
(the "Stock Voting Agreement"), with Kana and have, by executing the Stock
Voting Agreement, irrevocably appointed Kana (or any nominee of Kana) as his
lawful attorney and proxy. Such proxy gives Kana the limited right to vote each
of the 7,798,592 shares of Issuer Common Stock beneficially and collectively
owned by the Stock Voting Agreement Stockholders (the "Shares") in all matters
related to the Merger. Subject to certain limited exceptions, the Stock Voting
Agreement Stockholders are prohibited from transferring any of the Shares and
from making any offer or agreement relating thereto at any time prior to the
expiration of the Stock Voting Agreement in order to facilitate approval of
the Merger Agreement. The Stock Voting Agreement Stockholders and the number
of shares beneficially owned by each of them is set forth in Schedule B hereto
which is hereby incorporated herein by this reference. The foregoing summary
of the Stock Voting Agreement is qualified in its entirety by reference to the
copy of the form of Stock Voting Agreement included as Exhibit 2 to this
Schedule 13D and incorporated herein in its entirety by reference.
In exercising its right to vote the Shares as lawful attorney and
proxy of the Stock Voting Agreement Stockholders, Kana (or any nominee of Kana)
will be limited, at every Issuer stockholders meeting and every written consent
in lieu of such meeting to vote the Shares in favor of approval of the Merger
and the Merger Agreement. The Stock Voting Agreement
2
<PAGE>
- -------------------- ------------------------
CUSIP NO. 827094103 13D PAGE 6 OF 12 PAGES
- -------------------- ------------------------
Stockholders may vote the Shares on all other matters. The Stock Voting
Agreement terminates upon the earlier to occur of (i) such date and time as the
Merger shall become effective in accordance with the terms and provisions of the
Merger Agreement and (ii) the date of termination of the Merger Agreement.
Also as an inducement to Kana to enter into the Merger Agreement, Kana
and the Issuer entered into a Issuer Stock Option Agreement, dated February 6,
2000 (the "Issuer Stock Option Agreement"). The Issuer Stock Option Agreement
grants Kana an irrevocable option (the "Option") to purchase, under certain
conditions, up to the number of shares of Issuer Common Stock equal to nineteen
and nine-tenths percent (19.9%) of the shares of Issuer Common Stock issued and
outstanding at the time of exercise of the Option, in the manner set forth in
the Issuer Stock Option Agreement, at a purchase price of $214.87 per share,
subject to adjustment in the event of changes in the Issuer's capitalization
(the "Option Shares"). Kana may exercise the Option, in whole or in part, at
any time and from time to time upon the occurrence of an "Exercise Event" as set
forth in Section 2 of the Issuer Stock Option Agreement. In addition, at any
time during which the Option is exercisable Kana shall have the right to sell to
Issuer and Issuer shall be obligated to purchase from Kana all or any portion of
the Option, to the extent not previously exercised and all or any portion of the
Option Shares, if any, acquired by Kana pursuant to the Option as set forth in
Section 6 of the Issuer Stock Option Agreement.
The Option may not be exercised unless: (i) all material consents,
approvals, orders or authorizations of, or registrations, declarations or
filings with, any United States federal, state, or local administrative agency
or commission or other United States federal, state or local governmental
authority or instrumentality, if any, required in connection with the issuance
of the Option Shares pursuant to the Option have been obtained or made, as the
case may be, and (ii) no preliminary or permanent injunction or other order by
any court of competent jurisdiction in the United States prohibiting or
otherwise restraining such issuance is in effect. The Option will terminate
upon the earliest of certain events, including consummation of the Merger, as
set forth in the Issuer Stock Option Agreement.
The foregoing summary of the Option is qualified in its entirety by
reference to the copy of the Issuer Stock Option Agreement included as Exhibit 4
to this Schedule 13D and incorporated herein by reference.
(c) Not applicable.
(d) Upon consummation of the Merger, the directors of the Surviving
Corporation shall be Mark S. Gainey and Michael J. McCloskey. The officers of
the Surviving Corporation shall be the existing officers of the Issuer, until
their respective successors are duly elected or appointed and qualified.
(e) Other than as a result of the Merger described in Item 3 above, not
applicable.
(f) Not applicable.
(g) Upon consummation of the Merger, the Certificate of Incorporation of
Merger Sub, as in effect immediately prior to the Merger, shall be the
Certificate of Incorporation of the Surviving Corporation until thereafter
amended as provided by Delaware Law and such
3
<PAGE>
- -------------------- ------------------------
CUSIP NO. 827094103 13D PAGE 7 OF 12 PAGES
- -------------------- ------------------------
Certificate of Incorporation; provided, however, that Article IV of the
Certificate of Incorporation of the Surviving Corporation shall be amended to
read in its entirety as follows: "The total number of shares of all classes of
stock which the Corporation shall have authority to issue is 1000, all of which
shall consist of Common Stock, par value $.001 per share," Upon consummation of
the Merger, the Bylaws of Merger Sub, as in effect immediately prior to the
Merger, shall be the Bylaws of the Surviving Corporation.
(h)-(i) If the Merger is consummated as planned, the Issuer Common Stock
will be deregistered under the Act and delisted from the Nasdaq National Market.
(j) Other than described above, Kana currently has no plan or
proposals which relate to, or may result in, any of the matters listed in Items
4(a) - (i) of Schedule 13D (although Kana reserves the right to develop such
plans).
Item 5. Interest in Securities of the Issuer.
-------------------------------------
(a)-(b) If the Option becomes exercisable, Kana will have the right to
acquire a number of shares equal to 19.9% of the issued and outstanding shares
of the Issuer Common Stock at the time of the exercise of the Option, which
would amount to 3,417,652 shares of Issuer Common Stock based on the number of
shares of Issuer Common Stock outstanding as of February 3, 2000. If acquired,
Kana would have sole voting and dispositive power over such shares, and such
shares would constitute approximately 16.6% of the outstanding Issuer Common
Stock after giving effect to the exercise of the Option.
As a result of the Stock Voting Agreement, Kana may be deemed to be
the beneficial owner of at least 7,798,592 shares of Issuer Common Stock. Such
Issuer Common Stock constitutes approximately 45.4% of the issued and
outstanding shares of Issuer Common Stock based on the number of shares of
Issuer Common Stock outstanding as of February 3, 2000.
Kana has the power to vote the 7,798,592 Shares for the limited
purposes described above in connection with the Stock Voting Agreement. Kana
does not have the power to dispose or to direct the disposition of any shares of
Issuer Common Stock pursuant to the Stock Voting Agreement. Kana (i) is not
entitled to any rights as a stockholder of Issuer as to the Shares covered by
the Stock Voting Agreement and (ii) disclaims any beneficial ownership of the
shares of Issuer Common stock which are covered by the Stock Voting Agreement.
To the best of Kana's knowledge, no shares of Issuer Common Stock are
beneficially owned by any of the persons named in Schedule A.
(c) Neither Kana nor, to the knowledge of Kana, any person named in
Schedule A, has effected any transaction in the Issuer Common Stock during the
past 60 days.
(d) Not applicable.
(e) Not applicable.
Item 6. Contracts, Arrangements, Understandings or Relationships with Respect
---------------------------------------------------------------------
to Securities of the Issuer.
- ----------------------------
Other than the Merger Agreement, the Stock Voting Agreement and the
Issuer Stock Option Agreement, to the knowledge of Kana, there are no contracts,
arrangements, understandings or relationships (legal or otherwise) among the
persons named in Item 2 and
4
<PAGE>
- -------------------- ------------------------
CUSIP NO. 827094103 13D PAGE 8 OF 12 PAGES
- -------------------- ------------------------
between such persons and any person with respect to any securities of the
Issuer, including but not limited to transfer or voting of any of the
securities, finder's fees, joint ventures, loan or option arrangements, puts or
calls, guarantees of profits, division of profits or loss, or the giving or
withholding of proxies.
Item 7. Materials to be Filed as Exhibits.
----------------------------------
The following documents are filed as exhibits:
1. Agreement and Plan of Reorganization, dated as of February 6, 2000,
by and among Kana Communications, Inc., a Delaware corporation,
Pistol Acquisition Corp., a Delaware corporation and wholly owned
subsidiary of Kana Communications, Inc., and Silknet Software Inc.,
a Delaware corporation.
2. Form of Silknet Stock Voting Agreement, dated as of February 6,
2000, by and among Kana Communications, Inc., a Delaware
corporation, and certain stockholders of Silknet Software Inc., a
Delaware corporation.
3. Form of Kana Stock Voting Agreement, dated as of February 6, 2000,
by and among Kana Communications, Inc., a Delaware corporation, and
certain stockholders of Kana Communications, Inc., a Delaware
corporation.
4. Silknet Stock Option Agreement, dated as of February 6, 2000, by
and among Kana Communications, Inc., a Delaware corporation, and
Silknet Software Inc., a Delaware corporation.
5. Kana Stock Option Agreement, dated as of February 6, 2000, by and
among Kana Communications, Inc., a Delaware corporation, and
Silknet Software Inc., a Delaware corporation.
5
<PAGE>
- -------------------- ------------------------
CUSIP NO. 827094103 13D PAGE 9 OF 12 PAGES
- -------------------- ------------------------
SIGNATURE
---------
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: February 15, 2000
KANA COMMUNICATIONS, INC.
By: /s/ Michael J. McCloskey
-------------------------------------
Michael J. McClosky
Chief Executive Officer
6
<PAGE>
- -------------------- --------------------------
CUSIP NO. 827094103 13D PAGE 10 OF 12 PAGES
- -------------------- --------------------------
Schedule A
----------
DIRECTORS AND EXECUTIVE OFFICERS OF
KANACOMMUNICATIONS, INC.
<TABLE>
<CAPTION>
Present Principal Occupation
Including Name of Employer (if
other than Kana
Name Communications, Inc.) Address of Employer
- ---------------------------- ------------------------------------ ---------------------------
<S> <C> <C>
Executive Officers of
Kana Communications, Inc.
- ------------------------------
Michael J. McCloskey Chief Executive Officer and 740 Bay Road, Redwood City, CA
Director 94063
Mark S. Gainey President and Chairman of the 740 Bay Road, Redwood City, CA
Board of Directors 94063
Joseph G. Ansanelli Vice President, Marketing 740 Bay Road, Redwood City, CA
94063
Tim Campbell Vice President and General 740 Bay Road, Redwood City, CA
Manager, 94063
Kana Online
Ian Cavanagh Vice President, Business 740 Bay Road, Redwood City, CA
Development 94063
Alexander E. Evans Vice President, International 740 Bay Road, Redwood City, CA
94063
Paul R. Holland Vice President, Worldwide Sales 740 Bay Road, Redwood City, CA
94063
Pallipuram V. Kannan Vice President, Realtime 740 Bay Road, Redwood City, CA
94063
Joseph D. McCarthy Vice President, Finance and 740 Bay Road, Redwood City, CA
Operations 94063
William R. Phelps Vice President, Professional 740 Bay Road, Redwood City, CA
Services 94063
Toya Rico Vice President, Human Resources 740 Bay Road, Redwood City, CA
94063
Don Whitt Vice President, eBusiness 740 Bay Road, Redwood City, CA
Services 94063
Michael R. Wolfe Vice President, Engineering 740 Bay Road, Redwood City, CA
and Director 94063
Outside Directors
- ------------------------------
David M. Beirne Managing Member of Benchmark 2480 Sand Hill Road, Suite 200,
Capital Management Co., L.P. Menlo Park, CA 94025
</TABLE>
<PAGE>
- -------------------- --------------------------
CUSIP NO. 827094103 13D PAGE 11 OF 12 PAGES
- -------------------- --------------------------
<TABLE>
<S> <C> <C>
Robert W. Frick Investor, self-employed 3374 McGraw Lane, Lafayette,
CA 94549
Eric A. Hahn. Founding Partner of 465 Melville, Palo Alto, CA
Inventures Group 94301
Charles A. Holloway, Ph.D. Professor, Stanford University 335 Littlefield Drive, Stanford
Graduate School of Business University, Stanford, CA
Steven T. Jurvetson Managing Director of Draper 400 Seaport Court, Suite 250,
Fisher Jurvetson Redwood City, CA 94063
Ariel Poler Chief Executive Officer of 620 Folsom Street, Suite 300, San
Topica, Inc. Francisco, CA 94107
10% Shareholders
- ----------------
Entities affiliated with 400 Seaport Court, Suite 250,
Draper Fisher Jurvetson(1) Redwood City, CA 94063
Entities affiliated with 2480 Sand Hill Road, Suite 200,
Benchmark Capital Partners L.P.(2) Menlo Park, CA 94025
</TABLE>
(1) Includes 3,740,830 shares of common stock held by Draper Fisher Associates
Fund IV, L.P. and 281,567 shares of common stock held by Draper Fisher
Partners IV, LLC. The General Partners of Draper Fisher Jurvetson include
Timothy C. Draper, John H. Fisher and Steven T. Jurvetson. Mr. Jurvetson
disclaims beneficial ownership of these shares, except to the extent of
his pecuniary interest in the Draper Fisher Jurvetson Funds.
(2) Includes 3,783,347 shares of common stock held by Benchmark Capital
Partners, L.P., and 528,779 shares of common stock held by Benchmark
Founder's Fund L.P. The General Partners of Benchmark Capital Partners
L.P. include David M. Beirne, Bruce W. Dunlevie, J. William Gurley, Kevin
R. Harvey, Robert C. Kagle, Andrew S. Rachleff and Steven M. Spurlock. Mr.
Beirne disclaims beneficial ownership of these shares, except to the
extent of his pecuniary interest in the Benchmark funds.
<PAGE>
- ---------------------- -------------------------
CUSIP NO. 827094103 13D PAGE 12 OF 12 PAGES
- ---------------------- -------------------------
Schedule B
----------
<TABLE>
<CAPTION>
Stockholder Shares Beneficially Owned
- ----------- -----------------------------
<S> <C>
James C. Wood 1,546,645
Nigel K. Donovan 346,107
Patrick J. Scannell, Jr. 19,081
James Davis 16,697
Mark H. Green 13,168
Eric Carlson 26,873
Guy Bradley 10,000
Joo Hock Chua 0
Stanley Fung 2,939
Andrew Goldfarb 900
Glen L. Urban 121,016
Zero Stage Capital V, L.P. 1,667,033
CMG @ Ventures II LLC. 2,761,536
JAFCO Co., Ltd. 22,138
JAFCO R-3 Investment Enterprise Partnership 18,066
JAFCO JS-3 Investment Enterprise Partnership 10,839
JAFCO G-6(A) Investment Enterprise Partnership 16,259
JAFCO G-6(B) Investment Enterprise Partnership 16,259
U.S. Information Technology No. 2 Investment
Enterprise Partnership 334,234
Vertex Investment (II) Ltd. 402,600
Vertex Technology Fund Pte Ltd. 346,002
HWH Investment Pte Ltd. 100,200
</TABLE>
<PAGE>
EXHIBIT 1
---------
AGREEMENT AND PLAN OF REORGANIZATION
dated as of
FEBRUARY 6, 2000
by and among
KANA COMMUNICATIONS, INC.,
PISTOL ACQUISITION CORP.
and
SILKNET SOFTWARE INC.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I. THE MERGER............................................................ 2
Section 1.01 Effective Time Of The Merger................................ 2
Section 1.02 Closing..................................................... 2
Section 1.03 Effects Of The Merger....................................... 3
Section 1.04 Directors And Officers...................................... 3
ARTICLE II. CONVERSION OF SECURITIES............................................. 3
Section 2.01 Conversion Of Capital Stock................................. 3
Section 2.02 Exchange Of Certificates.................................... 4
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF SILKNET........................... 7
Section 3.01 Organization of Silknet..................................... 7
Section 3.02 Silknet Capital Structure................................... 7
Section 3.03 Authority; No Conflict; Required Filings And Consents....... 9
Section 3.04 SEC Filings; Financial Statements........................... 10
Section 3.05 No Undisclosed Liabilities.................................. 10
Section 3.06 Absence Of Certain Changes Or Events........................ 11
Section 3.07 Taxes....................................................... 11
Section 3.08 Properties.................................................. 12
Section 3.09 Intellectual Property....................................... 12
Section 3.10 Agreements, Contracts And Commitments....................... 13
Section 3.11 Litigation.................................................. 13
Section 3.12 Environmental Matters....................................... 13
Section 3.13 Employee Benefit Plans...................................... 14
Section 3.14 Compliance With Laws........................................ 15
Section 3.15 Tax Matters................................................. 16
Section 3.16 Labor Matters............................................... 16
Section 3.17 Insurance................................................... 16
Section 3.18 No Existing Discussions..................................... 16
Section 3.19 Interested Party Transactions............................... 16
Section 3.20 Registration Statement; Joint Proxy Statement/Prospectus.... 16
Section 3.21 Payments Resulting from Mergers............................. 17
Section 3.22 Opinion Of Financial Advisor................................ 18
Section 3.23 Section 203 of the DGCL Not Applicable; Silknet Rights Plan. 18
Section 3.24 Voting Requirements......................................... 18
Section 3.25 Brokers..................................................... 18
Section 3.26 Certain Contracts........................................... 18
Section 3.27 Silknet Voting Agreement.................................... 19
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF Kana............................... 19
Section 4.01 Organization Of Kana And Merger Sub......................... 19
Section 4.02 Kana Capital Structure...................................... 19
Section 4.03 Authority; No Conflict; Required Filings And Consents....... 20
Section 4.04 SEC Filings; Financial Statements........................... 21
Section 4.05 No Undisclosed Liabilities.................................. 22
Section 4.06 Absence Of Certain Changes Or Events........................ 22
Section 4.07 Taxes....................................................... 22
Section 4.08 Agreements, Contracts And Commitments....................... 23
Section 4.09 Litigation.................................................. 23
Section 4.10 Employee Benefit Plans...................................... 23
Section 4.11 Compliance With Laws........................................ 23
Section 4.12 Tax Matters................................................. 24
Section 4.13 Registration Statement; Joint Proxy Statement/Prospectus.... 24
Section 4.14 Opinion Of Financial Advisor................................ 24
Section 4.15 Voting Requirements......................................... 24
Section 4.16 Brokers..................................................... 24
Section 4.17 Kana Voting Agreement....................................... 25
Section 4.18 Intellectual Property....................................... 25
Section 4.19 Certain Contracts........................................... 26
ARTICLE V. CONDUCT OF BUSINESS................................................... 26
Section 5.01 Covenants Of Silknet........................................ 26
Section 5.02 Covenants Of Kana........................................... 28
Section 5.03 Cooperation................................................. 30
Section 5.04 Advice of Changes........................................... 30
ARTICLE VI. ADDITIONAL AGREEMENTS................................................ 30
Section 6.01 Proxy Statement/Prospectus; Registration Statement.......... 30
Section 6.02 No Solicitation by Silknet.................................. 31
Section 6.03 No Solicitation by Kana..................................... 33
Section 6.04 Nasdaq...................................................... 35
Section 6.05 Access To Information....................................... 35
Section 6.06 Stockholders Meetings....................................... 35
Section 6.07 Legal Conditions To Merger.................................. 39
Section 6.08 Public Disclosure........................................... 39
Section 6.09 Tax-Free Reorganization..................................... 40
Section 6.10 Nasdaq Quotation............................................ 40
Section 6.11 Stock Plans and Warrants.................................... 40
Section 6.12 Stock Option and Voting Agreements.......................... 43
Section 6.13 Board Composition........................................... 43
Section 6.14 Brokers Or Finders.......................................... 43
Section 6.15 Stand-Off Agreements........................................ 44
Section 6.16 Registration Rights......................................... 44
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Section 6.17 Indemnification............................................. 44
Section 6.18 Benefit Plans............................................... 45
Section 6.19 Registration Statement; Joint Proxy Statement/Prospectus.... 47
ARTICLE VII. CONDITIONS TO MERGER................................................ 47
Section 7.01 Conditions To Each Party's Obligation To Effect The Merger.. 47
Section 7.02 Additional Conditions To Obligations Of Kana And Merger Sub. 48
Section 7.03 Additional Conditions To Obligations Of Silknet............. 49
Section 7.04 Frustration of Closing Conditions........................... 50
ARTICLE VIII. TERMINATION AND AMENDMENT.......................................... 50
Section 8.01 Termination................................................. 50
Section 8.02 Effect of Termination....................................... 52
Section 8.03 Expenses and Termination Fees............................... 52
Section 8.04 Amendment................................................... 53
Section 8.05 Extension; Waiver........................................... 54
ARTICLE IX. MISCELLANEOUS........................................................ 54
Section 9.01 Nonsurvival Of Representations, Warranties And Agreements... 54
Section 9.02 Notices..................................................... 54
Section 9.03 Definitions................................................. 55
Section 9.04 Interpretation.............................................. 57
Section 9.05 Counterparts................................................ 57
Section 9.06 Entire Agreement; No Third Party Beneficiaries.............. 57
Section 9.07 Governing Law............................................... 57
Section 9.08 Assignment.................................................. 58
</TABLE>
EXHIBITS
EXHIBIT A Silknet Stock Voting Agreement
---------
EXHIBIT B Kana Stock Voting Agreement
---------
EXHIBIT C Silknet Stock Option Agreement
---------
EXHIBIT D Kana Stock Option Agreement
---------
EXHIBIT E Stand-Off Agreement
---------
EXHIBIT F Rights Agreement Amendment
---------
iii
<PAGE>
TABLE OF DEFINED TERMS
<TABLE>
<CAPTION>
Terms Cross-Reference
- ----- in Agreement
------------
<S> <C>
Agreement...................................................... Preamble
Bankruptcy and Equity Exception................................ Section 3.03(a)
Certificate of Merger.......................................... Section 1.01
Closing........................................................ Section 1.02
Closing Date................................................... Section 1.02
Confidentiality Agreement...................................... Section 9.01
Constituent Corporations....................................... Section 1.03
Costs.......................................................... Section 6.17(a)
Current Premium................................................ Section 6.17(b)
DGCL........................................................... Section 1.01
Effective Time................................................. Section 1.01
Environmental Law.............................................. Section 3.12(b)
ERISA.......................................................... Section 3.13(a)
ERISA Affiliate................................................ Section 3.13(a)
Exchange Act................................................... Section 3.03(c)
Exchange Agent................................................. Section 2.02(a)
Exchange Fund.................................................. Section 2.02(a)
Exchange Ratio................................................. Section 2.01(c)
Governmental Entity............................................ Section 3.03(c)
Hazardous Substance............................................ Section 3.12(c)
Indemnified Parties............................................ Section 6.17(a)
Internal Revenue Code.......................................... Preamble
IRS............................................................ Section 3.07(b)
Joint Proxy Statement/Prospectus............................... Section 3.20
Kana Balance Sheet............................................. Section 4.04(b)
Kana Common Stock.............................................. Section 2.01(b)
Kana Disclosure Schedule....................................... Article IV
Kana Employee Plans............................................ Section 6.18(c)
Kana Entry Date................................................ Section 6.11(f)
Kana ESPP...................................................... Section 6.18(b)
Kana Intellectual Property Rights.............................. Section 4.18(a)
Kana Material Adverse Effect................................... Section 9.03(b)
Kana Material Contracts........................................ Section 4.08
Kana Preferred Stock........................................... Section 4.02(a)
Kana Principal Stockholders.................................... Preamble
Kana SEC Reports............................................... Section 4.04(a)
Kana Stock Option Agreement.................................... Preamble
Kana Stock Plans............................................... Section 4.02(a)
Kana Stockholders Agreement.................................... Preamble
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
Terms Cross-Reference
- ----- in Agreement
------------
<S> <C>
Kana Stockholders Meeting...................................... Section 3.20
Kana Superior Offer............................................ Section 6.06(d)
Kana Takeover Proposal......................................... Section 6.03(d)
Kana Voting Proposal........................................... Section 6.03(a)
Material Lease(s).............................................. Section 3.08(a)
Merger......................................................... Preamble
Merger Consideration........................................... Section 2.01(c)(c)
Merger Sub..................................................... Preamble
Order.......................................................... Section 6.07(b)
Other Filings.................................................. Section 6.01
Payment Period................................................. Section 3.02(c)
Registration Statement......................................... Section 3.20
Representatives................................................ Section 6.02(a)
Repurchase Options............................................. Section 6.11(a)
SEC............................................................ Section 3.03(c)
SEC Effective Date............................................. Section 6.01
Securities Act................................................. Section 3.04(a)
Stand-Off Agreement............................................ Section 6.15
Silknet Balance Sheet.......................................... Section 3.04(b)
Silknet Certificates........................................... Section 2.02(b)
Silknet Common Stock........................................... Section 2.01(b)
Silknet Disclosure Schedule.................................... Article III
Silknet Employee Plans......................................... Section 3.13(a)
Silknet ESPP................................................... Section 3.02(c)
Silknet Intellectual Property Rights........................... Section 3.09(a)
Silknet Material Adverse Effect................................ Section 9.03(a)
Silknet Material Contracts..................................... Section 3.10
Silknet Preferred Stock........................................ Section 3.02(a)
Silknet Principal Stockholders................................. Preamble
Silknet Rights Plan............................................ Section 3.23(b)
Silknet SEC Reports............................................ Section 3.04(a)
Silknet Stock Option........................................... Section 6.11
Silknet Stock Option Agreement................................. Preamble
Silknet Stock Plans............................................ Section 3.02(a)
Silknet Stockholder Approval................................... Section 3.24
Silknet Stockholders Agreement................................. Preamble
Silknet Stockholders Meeting................................... Section 3.20
Silknet Superior Offer......................................... Section 6.06(b)
Silknet Takeover Proposal...................................... Section 6.01(c)
Stock Option Agreements........................................ Preamble
Subsidiary..................................................... Section 3.01
Surviving Corporation.......................................... Section 1.03
Tax............................................................ Section 3.07(a)
</TABLE>
v
<PAGE>
<TABLE>
<CAPTION>
Terms Cross-Reference
- ----- in Agreement
------------
<S> <C>
Taxes.......................................................... Section 3.07(a)
Voting Agreements.............................................. Section 6.12
</TABLE>
vi
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
------------------------------------
AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement"), dated as of
---------
February 6, 2000, by and among Kana Communications, Inc., a Delaware corporation
("Kana"), Pistol Acquisition Corp., a Delaware corporation and a direct, wholly-
----
owned subsidiary of Kana ("Merger Sub") and Silknet Software Inc., a Delaware
----------
corporation ("Silknet").
-------
WHEREAS, the Boards of Directors of Kana and Silknet deem it advisable
and in the best interests of each corporation and their respective stockholders
that Kana and Silknet combine in order to advance the long-term business
interests of Kana and Silknet;
WHEREAS, the respective Boards of Directors of Kana and Silknet have
each determined that the Merger and the other transactions contemplated hereby
are consistent with, and in furtherance of, their respective business strategies
and goals and that the products and services of Silknet will compliment and
enhance the products and services of Kana;
WHEREAS, the combination of Kana and Silknet shall be effected by the
terms of this Agreement through a merger in which the stockholders of Silknet
will become stockholders of Kana (the "Merger");
------
WHEREAS, simultaneously with the execution and delivery of this
Agreement and as a condition and inducement to the willingness of Kana and
Merger Sub to enter into this Agreement, Kana and certain principal stockholders
of Silknet (the "Silknet Principal Stockholders") are entering into an agreement
------------------------------
(the "Silknet Stockholders Agreement") pursuant to which the Silknet Principal
------------------------------
Stockholders will agree to vote to approve this Agreement and to take certain
other actions in furtherance of the Merger upon the terms and subject to the
conditions set forth in the Silknet Stockholders Agreement;
WHEREAS, simultaneously with the execution and delivery of this
Agreement and as a condition and inducement to the willingness of Silknet to
enter into this Agreement, Silknet and certain directors, officers and principal
stockholders of Kana (the "Kana Principal Stockholders") are entering into an
---------------------------
agreement (the "Kana Stockholders Agreement") pursuant to which the Kana
---------------------------
Principal Stockholders will agree to vote to approve the transactions
contemplated by this Agreement and to take certain other actions in furtherance
of the Merger upon the terms and subject to the conditions set forth in the Kana
Stockholders Agreement;
WHEREAS, immediately following execution and delivery of this
Agreement, Silknet and Kana will enter into stock option agreements whereby
Silknet will grant Kana the option to purchase shares of Silknet Common Stock
(the "Silknet Stock Option Agreement") and Kana will grant Silknet the option to
------------------------------
purchase shares of Kana Common Stock (the "Kana Stock Option Agreement")
---------------------------
(collectively, the "Stock Option Agreements");
-----------------------
WHEREAS, for federal income tax purposes, it is intended that (a) the
Merger shall qualify as a reorganization within the meaning of Section 368(a) of
--------------
the Internal Revenue
<PAGE>
Code of 1986, as amended (the "Internal Revenue Code") and the rules and
---------------------
regulations promulgated thereunder, (b) this Agreement constitutes a plan of
reorganization, and (c) Kana, Merger Sub and Silknet will each be a party to
such reorganization within the meaning of Section 368(b) of the Code;
--------------
WHEREAS, for accounting purposes, it is intended that the Merger shall
be accounted for as a purchase; and
WHEREAS, Kana, Merger Sub and Silknet desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the Merger.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth below, the
parties agree as follows:
ARTICLE I.
THE MERGER
Section 1.01 Effective Time Of The Merger.
------------------------------------------
Subject to the provisions of this Agreement, a certificate of merger
(the "Certificate of Merger") in such form as is required by the relevant
---------------------
provisions of the Delaware General Corporation Law ("DGCL") shall be duly
----
prepared, executed and acknowledged by the Surviving Corporation (as defined in
Section 1.03) and thereafter delivered to the Secretary of State of the State of
- ------------
Delaware for filing, as provided in the DGCL, as early as practicable on the
Closing Date (as defined in Section 1.02). The Merger shall become effective
------------
upon the filing of the Certificate of Merger with the Secretary of State of the
State of Delaware (the "Effective Time").
--------------
Section 1.02 Closing.
---------------------
The closing of the Merger (the "Closing") will take place at 10:00
-------
a.m., local time, on a date to be specified by Kana and Silknet, which shall be
no later than the second business day after satisfaction of the latest to occur
of the conditions set forth in Section 7.01, Section 7.02(b) (other than the
------------ ---------------
delivery of the officers' certificate referred to therein) and Section 7.03(b)
---------------
(other than the delivery of the officers' certificate referred to therein)
(provided that the other closing conditions set forth in Article VII have been
-----------
met or waived as provided in Article VII at or prior to the Closing), (the
-----------
"Closing Date"), at the offices of Brobeck, Phleger & Harrison LLP, Palo Alto
- -------------
California, unless another date, place or time is agreed to in writing by Kana
and Silknet.
2
<PAGE>
Section 1.03 Effects Of The Merger.
-----------------------------------
At the Effective Time (i) the separate existence of Merger Sub shall
cease and Merger Sub shall be merged with and into Silknet (Merger Sub and
Silknet are sometimes referred to below as the "Constituent Corporations" and
------------------------
Silknet following the Merger is sometimes referred to below as the "Surviving
---------
Corporation"), (ii) the Certificate of Incorporation of Silknet shall be amended
- -----------
so that Article Fourth of such Certificate of Incorporation reads in its
entirety as follows: "The total number of shares of all classes of stock which
the Corporation shall have authority to issue is 1000, all of which shall
consist of Common Stock, par value $.001 per share," and, as so amended, such
Certificate of Incorporation shall be the Certificate of Incorporation of the
Surviving Corporation, and (iii) the Bylaws of Merger Sub as in effect
immediately prior to the Effective Time shall be the Bylaws of the Surviving
Corporation.
Section 1.04 Directors And Officers.
------------------------------------
(a) The officers of Merger Sub immediately prior to the Effective Time
shall be the initial officers of the Surviving Corporation, each to hold office
in accordance with the Certificate of Incorporation and Bylaws of the Surviving
Corporation.
(b) Kana shall take such action so that, upon the Effective Time,
James C. Wood shall become a director of Kana. James C. Wood shall be nominated
for director of Kana at the next annual meeting of stockholders of Kana.
ARTICLE II.
CONVERSION OF SECURITIES
Section 2.01 Conversion Of Capital Stock.
-----------------------------------------
As of the Effective Time, by virtue of the Merger and without any
action on the part of the holder of any shares of Silknet Common Stock or
capital stock of Merger Sub:
(a) Capital Stock Of Merger Sub. Each issued and outstanding share of
---------------------------
the capital stock of Merger Sub shall be converted into and become one fully
paid and nonassessable share of Common Stock, par value $.001 per share, of the
Surviving Corporation.
(b) Cancellation Of Treasury Stock And Kana-Owned Stock. All shares of
---------------------------------------------------
Common Stock, par value $.01 per share, of Silknet ("Silknet Common Stock") that
--------------------
are owned by Silknet as treasury stock and any shares of Silknet Common Stock
owned by Kana, Merger Sub or any other wholly-owned Subsidiary (as defined in
Section 3.01) of Kana shall be cancelled and retired and shall cease to exist
- ------------
and no stock of Kana or other consideration shall be delivered in exchange
therefor. All shares of Common Stock, par value $.001 per share, of Kana ("Kana
----
Common Stock") owned by Silknet shall be unaffected by the Merger.
- ------------
3
<PAGE>
(c) Exchange Ratio For Silknet Common Stock. Subject to Section 2.02,
--------------------------------------- ------------
each issued and outstanding share of Silknet Common Stock (other than shares to
be cancelled in accordance with Section 2.01(b)) shall be converted into the
---------------
right to receive 0.83 of a duly authorized, validly issued, fully paid and
nonassessable share (the "Exchange Ratio") of Kana Common Stock (the "Merger
-------------- ------
Consideration"). As of the Effective Time, all such shares of Silknet Common
- -------------
Stock, when so converted, shall no longer be outstanding and shall automatically
be cancelled and retired and shall cease to exist, and each holder of a
certificate representing any such shares shall cease to have any rights with
respect thereto, except the right to receive the shares of Kana Common Stock and
any cash in lieu of fractional shares of Kana Common Stock to be issued or paid
in consideration therefor upon the surrender of such certificate in accordance
with Section 2.02, without interest. In the event Kana changes (or establishes
------------
a record date for changing) the number of shares of Kana Common Stock issued and
outstanding prior to the Effective Time as a result of a stock split, stock
dividend, recapitalization, subdivision, reclassification, combination, exchange
of shares or similar transaction with respect to the outstanding Kana Common
Stock and the record date therefor shall be prior to the Effective Time
(including the two-for-one stock dividend expected to be paid by Kana on
February 22, 2000), the Exchange Ratio shall be proportionately and equitably
adjusted to reflect such stock split, stock dividend, recapitalization,
subdivision, reclassification, combination, exchange of shares or similar
transaction.
Section 2.02 Exchange Of Certificates.
--------------------------------------
The procedures for exchanging outstanding shares of Silknet Common
Stock for Kana Common Stock pursuant to the Merger are as follows:
(a) Exchange Agent. As of the Effective Time, Kana shall deposit with
--------------
a bank or trust company designated by Kana and Silknet (the "Exchange Agent"),
--------------
for the benefit of the holders of shares of Silknet Common Stock, for exchange
in accordance with this Section 2.02, through the Exchange Agent, certificates
------------
representing the shares of Kana Common Stock (such shares of Kana Common Stock,
together with any dividends or distributions with respect thereto issuable by
virtue of subsection (c) below, being hereinafter referred to as the "Exchange
--------
Fund") issuable pursuant to Section 2.01 in exchange for outstanding shares of
- ---- ------------
Silknet Common Stock and any cash payable in lieu of fractional shares of
Silknet Common Stock.
(b) Exchange Procedures. As soon as reasonably practicable after the
-------------------
Effective Time, the Exchange Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Silknet Common Stock (the "Silknet
-------
Certificates") whose shares were converted pursuant to Section 2.01 into the
- ------------ ------------
right to receive the Merger Consideration (i) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to the
Silknet Certificates shall pass, only upon delivery of the Silknet Certificates
to the Exchange Agent and shall be in such form and have such other provisions
as Kana and Silknet may reasonably specify) and (ii) instructions for effecting
the surrender of the Silknet Certificates in exchange for the Merger
Consideration (plus cash in lieu of fractional shares, if any, of Kana Common
Stock as provided below). Upon surrender of a Silknet Certificate for
cancellation to the Exchange Agent, together
4
<PAGE>
with such letter of transmittal, duly executed, the holder of such Silknet
Certificate shall receive in exchange therefor a certificate representing that
number of whole shares of Kana Common Stock which such holder has the right to
receive pursuant to the provisions of this Article II, certain dividends or
----------
other distributions in accordance with subsection (c) below, cash in lieu of any
fractional share of Kana Common Stock in accordance with subsection (e) below,
and the Silknet Certificate so surrendered shall immediately be cancelled. In
the event of a transfer of ownership of Silknet Common Stock which is not
registered in the transfer records of Silknet, a certificate representing the
proper number of shares of Kana Common Stock may be issued to a transferee if
the Silknet Certificate representing such Silknet Common Stock is presented to
the Exchange Agent, accompanied by all documents required to evidence and effect
such transfer and by evidence that any applicable stock transfer taxes have been
paid. Until surrendered as contemplated by this Section 2.02, each Silknet
------------
Certificate shall be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender the Merger Consideration and cash
in lieu of any fractional shares of Kana Common Stock as contemplated by this
Section 2.02.
- ------------
(c) Distributions With Respect To Unexchanged Shares. No dividends or
------------------------------------------------
other distributions declared or made after the Effective Time with respect to
Kana Common Stock with a record date after the Effective Time shall be paid to
the holder of any unsurrendered Silknet Certificate with respect to the shares
of Kana Common Stock represented thereby and no cash payment in lieu of
fractional shares shall be paid to any such holder pursuant to subsection (e)
below, and all such dividends, other distributions and cash in lieu of
fractional shares of Kana Common Stock shall be paid by Kana to the Exchange
Agent and shall be included in the Exchange Fund, in each case until the holder
of record of such Silknet Certificate shall surrender such Silknet Certificate.
Subject to the effect of applicable laws, following surrender of any such
Silknet Certificate, there shall be paid to the record holder of the
certificates representing whole shares of Kana Common Stock issued in exchange
therefor, without interest, (i) at the time of such surrender, the amount of any
cash payable in lieu of a fractional share of Kana Common Stock to which such
holder is entitled pursuant to subsection (e) below and the amount of dividends
or other distributions with a record date after the Effective Time previously
paid with respect to such whole shares of Kana Common Stock, and (ii) at the
appropriate payment date, the amount of dividends or other distributions with a
record date after the Effective Time but prior to surrender and a payment date
subsequent to surrender payable with respect to such whole shares of Kana Common
Stock.
(d) No Further Ownership Rights In Silknet Common Stock. All shares of
---------------------------------------------------
Kana Common Stock issued upon the surrender for exchange of Silknet Certificates
in accordance with the terms hereof (including any cash paid pursuant to
subsection (c) or subsection (e) of this Section 2.02) shall be deemed to have
------------
been issued in full satisfaction of all rights pertaining to such shares of
Silknet Common Stock, subject, however, to the Surviving Corporation's
obligation to pay any dividends or make any other distributions with a record
date prior to the Effective Time which may have been declared or made by Silknet
on such shares of Silknet Common Stock in accordance with the terms of this
Agreement (to the extent permitted under Section 5.01) prior to the date hereof
------------
and which remain unpaid at the Effective Time, and from and after the Effective
Time there shall be no further registration of transfers on the stock
5
<PAGE>
transfer books of the Surviving Corporation of the shares of Silknet Common
Stock which were outstanding immediately prior to the Effective Time. If, after
the Effective Time, Silknet Certificates are presented to the Surviving
Corporation or the Exchange Agent for any reason, they shall be cancelled and
exchanged as provided in this Section 2.02.
------------
(e) No Fractional Shares. No certificate or scrip representing fractional
--------------------
shares of Kana Common Stock shall be issued upon the surrender for exchange of
Silknet Certificates, and such fractional share interests will not entitle the
owner thereof to vote or to any other rights of a stockholder of Kana.
Notwithstanding any other provision of this Agreement, each holder of shares of
Silknet Common Stock exchanged pursuant to the Merger who would otherwise have
been entitled to receive a fraction of a share of Kana Common Stock (after
taking into account all Silknet Certificates delivered by such holder) shall
receive, in lieu thereof, cash (without interest) in an amount equal to such
fractional part of a share of Kana Common Stock multiplied by the average of the
last reported sales prices of Kana Common Stock, as reported on the Nasdaq
National Market, on each of the ten (10) trading days immediately preceding the
date of the Effective Time.
(f) Termination Of Exchange Fund. Any portion of the Exchange Fund which
----------------------------
remains undistributed to the holders of Silknet Certificates for one hundred
eighty (180) days after the Effective Time shall be delivered to Kana, upon
demand, and any holders of Silknet Certificates who have not previously complied
with this Section 2.02 shall thereafter look only to Kana for payment of their
------------
claim for Merger Consideration, any cash in lieu of fractional shares of Kana
Common Stock and any dividends or distributions with respect to Kana Common
Stock.
(g) No Liability. Neither Kana nor Silknet shall be liable to any holder
------------
of shares of Silknet Common Stock or Kana Common Stock, as the case may be, for
such shares (or dividends or distributions with respect thereto) delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
(h) Withholding Rights. Each of Kana and the Surviving Corporation shall
------------------
be entitled to deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to any holder of shares of Silknet Common Stock such
amounts as it is required to deduct and withhold with respect to the making of
such payment under the Internal Revenue Code, or any provision of state, local
or foreign tax law. To the extent that amounts are so withheld by Surviving
Corporation or Kana, as the case may be, such withheld amounts shall be treated
for all purposes of this Agreement as having been paid to the holder of the
shares of Silknet Common Stock in respect of which such deduction and
withholding was made by Surviving Corporation or Kana, as the case may be.
(i) Lost Silknet Certificates. If any Silknet Certificate shall have been
-------------------------
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming such Silknet Certificate to be lost, stolen or destroyed and, if
required by the Surviving Corporation, the posting by such person of a bond in
such reasonable amount as the Surviving Corporation may direct as indemnity
against any claim that may be made against it with respect to such Silknet
6
<PAGE>
Certificate, the Exchange Agent will issue in exchange for such lost, stolen or
destroyed Silknet Certificate the shares of Kana Common Stock and any cash in
lieu of fractional shares, and unpaid dividends and distributions on shares of
Kana Common Stock deliverable in respect thereof pursuant to this Agreement.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF SILKNET
Silknet represents and warrants to Kana and Merger Sub that the
statements contained in this Article III are true and correct except as set
-----------
forth herein and in the disclosure schedule delivered by Silknet to Kana on or
before the date of this Agreement (the "Silknet Disclosure Schedule"). The
---------------------------
Silknet Disclosure Schedule shall be arranged in paragraphs corresponding to the
numbered and lettered sections contained in this Article III and the disclosure
-----------
in any paragraph shall qualify other sections in this Article III only to the
-----------
extent that it is reasonably apparent from a reading of such disclosure that it
also qualifies or applies to such other sections.
Section 3.01 Organization of Silknet.
-------------------------------------
Each of Silknet and its Subsidiaries (as defined below) is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation, has all requisite corporate power to
own, lease and operate its property and to carry on its business as now being
conducted and as proposed to be conducted, and is duly qualified to do business
and is in good standing as a foreign corporation in each jurisdiction in which
the failure to be so qualified would have a Silknet Material Adverse Effect, as
defined in Section 9.03(a). Except as set forth in the Silknet SEC Reports (as
---------------
defined in Section 3.04) filed prior to the date hereof, neither Silknet nor any
------------
Subsidiary of Silknet directly or indirectly owns any equity or similar interest
in, or any interest convertible into or exchangeable or exercisable for, any
corporation, partnership, joint venture or other business association or entity,
excluding securities in any publicly traded company held for investment by
Silknet and comprising less than five percent (5%) of the outstanding stock of
such company. Each and every Subsidiary of Silknet and its place of
incorporation or organization is listed in Section 3.01 of the Silknet
Disclosure Schedule. As used in this Agreement, the word "Subsidiary" or
----------
"Subsidiaries" means, with respect to any party, any corporation or other
- -------------
organization, whether incorporated or unincorporated, of which (i) such party or
any other Subsidiary of such party is a general partner (excluding partnerships,
the general partnership interests of which held by such party or any Subsidiary
of such party do not have a majority of the voting interest in such partnership)
or (ii) at least a majority of the securities or other interests having by their
terms ordinary voting power to elect a majority of the Board of Directors or
others performing similar functions with respect to such corporation or other
organization is directly or indirectly owned or controlled by such party or by
any one or more of its Subsidiaries, or by such party and one or more of its
Subsidiaries.
7
<PAGE>
Section 3.02 Silknet Capital Structure.
---------------------------------------
(a) (a) The authorized capital stock of Silknet consists of
50,000,000 shares of Common Stock, $.01 par value, and 15,000,000 shares of
Preferred Stock, $.01 par value, ("Silknet Preferred Stock"). As of February 3,
-----------------------
2000, (i) 17,174,133 shares of Silknet Common Stock were issued and outstanding,
all of which are validly issued, fully paid and nonassessable and (ii) no shares
of Silknet Common Stock were held in the treasury of Silknet or by its
Subsidiaries. The Silknet Disclosure Schedule shows the number of shares of
Silknet Common Stock reserved for future issuance pursuant to stock options
granted and outstanding as of February 3, 2000 and the plans under which such
options were granted (collectively, the "Silknet Stock Plans"). No material
-------------------
change in such capitalization has occurred between December 31, 2000 and the
date of this Agreement. As of the date of this Agreement, none of the shares of
Silknet Preferred Stock is issued and outstanding. All shares of Silknet Common
Stock subject to issuance as specified above are duly authorized and, upon
issuance on the terms and conditions specified in the instruments pursuant to
which they are issuable, shall be validly issued, fully paid and nonassessable.
There are no obligations, contingent or otherwise, of Silknet or its
Subsidiaries to repurchase, redeem or otherwise acquire any shares of Silknet
Common Stock or the capital stock of any Subsidiary or to provide funds to or
make any material investment (in the form of a loan, capital contribution or
otherwise) in any Subsidiary or any other entity other than guarantees of bank
obligations of its Subsidiaries entered into in the ordinary course of business,
except for repurchase rights of Silknet under the Silknet stock option plans, or
under any stock option agreements pursuant to which options were granted under
these plans. All of the outstanding shares of capital stock of Silknet's
Subsidiaries are duly authorized, validly issued, fully paid and nonassessable
and all such shares (other than directors' qualifying shares in the case of
foreign Subsidiaries) are owned by Silknet or another Subsidiary free and clear
of all security interests, liens, claims, pledges, agreements, limitations in
Silknet's voting rights, charges or other encumbrances of any nature.
(b) (b) Except as disclosed in Section 3.02 of the Silknet
------------
Disclosure Schedule or as set forth in this Section 3.02 or as reserved for
------------
future grants of options under the Silknet Stock Plans or the Silknet Stock
Option Agreement, there are no equity securities of any class of Silknet or its
Subsidiaries, or any security exchangeable into or exercisable for such equity
securities, issued, reserved for issuance or outstanding. There are no options,
warrants, equity securities, calls, rights, commitments or agreements of any
character to which Silknet or any Subsidiary is a party or by which it is bound
obligating Silknet or any Subsidiary to issue, deliver or sell, or cause to be
issued, delivered or sold, additional shares of capital stock of Silknet or any
Subsidiary or obligating Silknet or any Subsidiary to grant, extend, accelerate
the vesting of or enter into any such option, warrant, equity security, call,
right, commitment or agreement. There are no voting trusts, proxies or other
voting agreements or understandings with respect to the shares of capital stock
of Silknet and to which Silknet is a party. The terms of the Silknet Stock
Plans and the agreements evidencing the outstanding options thereunder will
permit the assumption of those options by Kana in the manner contemplated in
Section 6.11 of this Agreement, without the approval or consent of the holders
- ------------
of those options, the Silknet stockholders or other party.
8
<PAGE>
(c) (c) The current "Payment Period" (as defined under the Silknet
Employee Purchase Plan (the "Silknet ESPP")) began on February 1, 2000, and will
------------
end on the date determined in accordance with Section 6.11(f) of this Agreement.
---------------
Except for the purchase rights granted under the Silknet ESPP on February 1,
2000, to the current participants in the Payment Period that commenced on that
date, there are no other purchase rights or options outstanding under the
Silknet ESPP.
Section 3.03 Authority; No Conflict; Required Filings And Consents.
-------------------------------------------------------------------
(a) Silknet has all requisite corporate power and authority to enter
into this Agreement and the Silknet Stock Option Agreement and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of this
Agreement and the Silknet Stock Option Agreement and the consummation of the
transactions contemplated by this Agreement and the Silknet Stock Option
Agreement by Silknet have been duly authorized by all necessary corporate action
on the part of Silknet, subject only to the approval of the Merger by Silknet
stockholders under the DGCL. This Agreement and the Silknet Stock Option
Agreement have been duly executed and delivered by Silknet and constitute the
valid and binding obligations of Silknet, enforceable in accordance with their
terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general principles of equity (the "Bankruptcy and
--------------
Equity Exception").
- ----------------
(b) The execution and delivery of this Agreement and the Silknet Stock
Option Agreement by Silknet does not, and the consummation of the transactions
contemplated by this Agreement and the Silknet Stock Option Agreement will not,
(i) conflict with, or result in any violation or breach of, any provision of the
Certificate of Incorporation or Bylaws of Silknet, (ii) result in any violation
or breach of, or constitute (with or without notice or lapse of time, or both) a
default (or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of any material benefit) under, or require a consent or
waiver under, any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, lease, contract or other agreement, instrument or
obligation to which Silknet or its Subsidiaries is a party or by which any of
them or any of their properties or assets may be bound, or (iii) conflict with
or violate any permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Silknet or any
Subsidiary or any of its or their properties or assets, except in the case of
(ii) and (iii) for any such conflicts, violations, defaults, terminations,
cancellations or accelerations which, individually or in the aggregate, would
not have a Silknet Material Adverse Effect.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other governmental authority or instrumentality ("Governmental Entity") is
-------------------
required by or with respect to Silknet or any of its Subsidiaries in connection
with the execution and delivery of this Agreement and the Silknet Stock Option
Agreement or the consummation of the transactions contemplated hereby, except
for (i) the filing of the Certificate of Merger with the Delaware Secretary of
State, (ii) the filing of the Joint Proxy Statement/Prospectus (as defined in
Section 3.20 below) with the Securities
- ------------
9
<PAGE>
and Exchange Commission (the "SEC") in accordance with the Securities Exchange
---
Act of 1934, as amended (the "Exchange Act"), (iii) such consents, approvals,
------------
orders, authorizations, registrations, declarations and filings as may be
required under applicable state securities laws and the laws of any foreign
country and (iv) such other consents, authorizations, filings, approvals and
registrations which, if not obtained or made, would not be reasonably likely to
have a Silknet Material Adverse Effect.
Section 3.04 SEC Filings; Financial Statements.
-----------------------------------------------
(a) Silknet has filed and made available to Kana all forms, reports
and documents required to be filed by Silknet with the SEC since May 5, 1999
other than registration statements on Form S-8 (collectively, the "Silknet SEC
-----------
Reports"). The Silknet SEC Reports (i) at the time filed, complied in all
material respects with the applicable requirements of the Securities Act of
1933, as amended (the "Securities Act"), and the Exchange Act, as the case may
--------------
be, and (ii) did not at the time they were filed (or if amended or superseded by
a filing prior to the date of this Agreement, then as and on the date so amended
or superseded) contain any untrue statement of a material fact or omit to state
a material fact required to be stated in such Silknet SEC Reports or necessary
in order to make the statements in such Silknet SEC Reports, in the light of the
circumstances under which they were made, not misleading. Silknet's Subsidiaries
are not required to file any forms, reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each
case, any related notes) contained in the Silknet SEC Reports complied as to
form in all material respects with the applicable published rules and
regulations of the SEC with respect thereto, was prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes to such
financial statements or, in the case of unaudited statements, as permitted by
Form 10-Q of the SEC) and fairly presented the consolidated financial position
of Silknet and its Subsidiaries as of the dates and the consolidated results of
its operations and cash flows for the periods indicated, except that the
unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments which were not or are not expected to be material
in amount. The audited balance sheet of Silknet as of June 30, 1999 is referred
to herein as the "Silknet Balance Sheet."
---------------------
Section 3.05 No Undisclosed Liabilities.
----------------------------------------
Except as disclosed in the Silknet SEC Reports filed prior to the date
hereof, and except for normal or recurring liabilities incurred since December
31, 1999 in the ordinary course of business consistent with past practices,
Silknet and its Subsidiaries do not have any liabilities, either accrued,
contingent or otherwise (whether or not required to be reflected in financial
statements in accordance with generally accepted accounting principles), and
whether due or to become due, which individually or in the aggregate would have
a Silknet Material Adverse Effect.
10
<PAGE>
Section 3.06 Absence Of Certain Changes Or Events.
--------------------------------------------------
Except as disclosed in the Silknet SEC Reports filed prior to the date
hereof or disclosed in writing by Silknet to Kana on or prior to the date
hereof, since the date of the Silknet Balance Sheet, Silknet and its
Subsidiaries have conducted their businesses only in the ordinary course and in
a manner consistent with past practice and, since such date, there has not been
(i) any Silknet Material Adverse Effect; (ii) any damage, destruction or loss
(whether or not covered by insurance) with respect to Silknet or any of its
Subsidiaries having a Silknet Material Adverse Effect; (iii) any material change
by Silknet in its accounting methods, principles or practices to which Kana has
not previously consented in writing; (iv) any revaluation by Silknet of any of
its assets having a Silknet Material Adverse Effect; or (v) any other action or
event that would have required the consent of Kana pursuant to Section 5.01 of
------------
this Agreement had such action or event occurred after the date of this
Agreement and that, individually or in the aggregate, has had a Silknet Material
Adverse Effect.
Section 3.07 Taxes.
-------------------
(a) For the purposes of this Agreement, the terms "Tax" and,
---
collectively, "Taxes" mean any and all material federal, state, local and
-----
foreign taxes, assessments and other governmental charges, duties, impositions
and liabilities, including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad valorem,
transfer, gains, franchise, withholding, payroll, recapture, employment, excise,
unemployment insurance, social security, business license, occupation, business
organization, stamp, environmental and property taxes, together with all
interest, penalties and additions imposed with respect to such amounts and any
obligations under any agreements or arrangements with any other person with
respect to such amounts and including any liability for taxes of a predecessor
entity.
(b) Silknet and each of its Subsidiaries have (i) filed all federal,
state, local and foreign tax returns and reports required to be filed by them
prior to the date of this Agreement (taking into account extensions), (ii) paid
or accrued all Taxes due and payable, and (iii) paid or accrued all Taxes for
which a notice of assessment or collection has been received (other than amounts
being contested in good faith by appropriate proceedings), except in the case of
clause (i), (ii) or (iii) for any such filings, payments or accruals which are
not reasonably likely, individually or in the aggregate, to have a Silknet
Material Adverse Effect. Neither the Internal Revenue Service (the "IRS") nor
---
any other taxing authority has asserted any claim for taxes, or to the actual
knowledge of the executive officers of Silknet or any of its Subsidiaries, is
threatening to assert any claims for Taxes, which claims, individually or in the
aggregate, are reasonably likely to have a Silknet Material Adverse Effect.
Silknet and each of its Subsidiaries have withheld or collected and paid over to
the appropriate governmental authorities (or are properly holding for such
payment) all Taxes required by law to be withheld or collected, except for
amounts which are not reasonably likely, individually or in the aggregate, to
have a Silknet Material Adverse Effect. Neither Silknet nor any of its
Subsidiaries has made an election under Section 341(f) of the Internal Revenue
--------------
Code, except for any such election which shall not have a Silknet Material
Adverse Effect. There are no liens for Taxes upon the assets of Silknet or its
11
<PAGE>
Subsidiaries (other than liens for Taxes that are not yet due or that are being
contested in good faith by appropriate proceedings), except for liens which
would not, individually or in the aggregate, have a Silknet Material Adverse
Effect.
Section 3.08 Properties.
------------------------
(a) Silknet has provided to Kana a true and complete list of all
material real property leased by Silknet or its Subsidiaries (collectively
"Material Lease(s)") and the location of the premises. Neither Silknet nor any
----------------
Subsidiary is in default under any such leases, except where the existence of
such defaults, individually or in the aggregate, is not reasonably likely to
have a Silknet Material Adverse Effect.
(b) Silknet owns no real property.
Section 3.09 Intellectual Property.
-----------------------------------
(a) Except as disclosed in Section 3.09 of the Silknet Disclosure
------------
Schedule, Silknet and its Subsidiaries own, or are licensed or otherwise possess
legally enforceable rights to use, all patents, trademarks, trade names, service
marks, copyrights and mask works, any applications for and registrations of such
patents, trademarks, trade names, service marks, copyrights and mask works, and
all processes, formulae, methods schematics, technology, know how, computer
software programs or applications and tangible or intangible proprietary
information or material that are necessary to conduct the business of Silknet
and its Subsidiaries as currently conducted or planned to be conducted by
Silknet and its Subsidiaries (the "Silknet Intellectual Property Rights").
------------------------------------
(b) Except as disclosed in Section 3.09 of the Silknet Disclosure
------------
Schedule, neither Silknet nor any of its Subsidiaries is, or will be as a result
of the execution and delivery of this Agreement or the performance of its
obligations under this Agreement, in breach of any material license, sublicense
or other agreement relating to the Silknet Intellectual Property Rights or any
material license, sublicense or other agreement pursuant to which Silknet or any
of its Subsidiaries is authorized to use any third party patents, trademarks or
copyrights, including software, which are incorporated in or form a part of any
product of Silknet or any of its Subsidiaries that is material to the business
of Silknet and its Subsidiaries, taking Silknet and its Subsidiaries together as
a whole, and where such breach would have a Silknet Material Adverse Effect.
(c) Except as disclosed in Schedule 3.09 of the Silknet Disclosure
Schedule, (i) all patents, registered trademarks, service marks and copyrights
which are held by Silknet or any of its Subsidiaries, and which are material to
the business of Silknet and its Subsidiaries, taking Silknet and its
Subsidiaries together as a whole, are valid and subsisting; (ii) Silknet has not
been sued in any suit, action or proceeding which involves a claim of
infringement of any patents, trademarks, service marks, copyrights or violation
of any trade secret or other proprietary right of any third party; and (iii) the
manufacturing, marketing, licensing or sale of Silknet's products does not
infringe any patent, trademark, service mark, copyright, trade secret or other
12
<PAGE>
proprietary right of any third party, which infringement, either individually or
in the aggregate, could reasonably be expected to have a Silknet Material
Adverse Effect.
(d) Silknet has taken all actions necessary and appropriate to assure
that there shall be no material adverse change in the delivery of Silknet's
products and services by reason of the advent of the year 2000, and warrants
that all of its products (including products currently under development) will,
without interruption or manual intervention, continue to consistently,
predictably and accurately record, store, process, calculate and present
calendar dates falling on and after (and if applicable, spans of time including)
January 1, 2000, and will consistently, predictably and accurately calculate any
information dependent on or relating to such dates in the same manner, and with
the same functionality, data integrity and performance, as such products record,
store, process, calculate and present calendar dates on or before December 31,
1999, or calculate any information dependent on or relating to such dates.
Section 3.10 Agreements, Contracts And Commitments.
---------------------------------------------------
Neither Silknet nor any of its Subsidiaries has breached, or received
in writing any claim or notice that it has breached, any of the terms or
conditions of any material agreement, contract or commitment to which it is a
party or by which any of its assets and properties are bound ("Silknet Material
----------------
Contracts") in such a manner as, individually or in the aggregate, is reasonably
- ---------
likely to have a Silknet Material Adverse Effect. Each Silknet Material Contract
that has not expired by its terms is in full force and effect and is not subject
to any material default thereunder of which Silknet is aware by any party
obligated to Silknet or any of its Subsidiaries pursuant to such Silknet
Material Contract.
Section 3.11 Litigation.
------------------------
Except as described in the Silknet SEC Reports filed prior to the date
hereof, there is no action, suit or proceeding, claim, arbitration or
investigation against Silknet or any of its Subsidiaries pending or as to which
Silknet or any such Subsidiary has received any written notice of assertion,
which, individually or in the aggregate, if determined adversely to Silknet or
any such Subsidiary, would be reasonably likely to have a Silknet Material
Adverse Effect or would materially impair or delay the ability of Silknet to
consummate the transactions contemplated by this Agreement nor is there, to the
knowledge of Silknet, any claim, action, suit, proceeding or investigation
described in Section 6.17(d), or any basis therefor.
---------------
Section 3.12 Environmental Matters.
-----------------------------------
(a) Except as disclosed in the Silknet SEC Reports filed prior to the
date hereof: (i) Silknet and its Subsidiaries have complied with all applicable
Environmental Laws (as defined in Section 3.12(b)); (ii) the properties
---------------
currently owned or operated by Silknet and its Subsidiaries (including soils,
groundwater, surface water, buildings or other structures) are not contaminated
with any Hazardous Substances (as defined in Section 3.12(c)); (iii) the
---------------
properties formerly owned or operated by Silknet or any of its Subsidiaries were
not contaminated with Hazardous Substances during the period of ownership or
operation by Silknet or its Subsidiaries; (iv) neither Silknet nor any of its
Subsidiaries is subject to liability for any Hazardous Substance
13
<PAGE>
disposal or contamination on any third party property; (v) neither Silknet nor
any Subsidiary has been associated with any release or threat of release of any
Hazardous Substance; (vi) neither Silknet nor any of its Subsidiaries has
received any notice, demand, letter, claim or request for information alleging
that Silknet or any of its Subsidiaries may be in violation of or liable under
any Environmental Law; (vii) neither Silknet nor any of its Subsidiaries is
subject to any orders, decrees, injunctions or other arrangements with any
Governmental Entity or is subject to any indemnity or other agreement with any
third party relating to liability under any Environmental Law or relating to
Hazardous Substances; and (viii) there are no circumstances or conditions
involving Silknet or any of its Subsidiaries that could reasonably be expected
to result in any claims, liability, investigations, costs or restrictions on the
ownership, use or transfer of any property of Silknet or its Subsidiaries
pursuant to any Environmental Law.
(b) As used herein, the term "Environmental Law" means any federal,
-----------------
state, local or foreign law, regulation, order, decree, permit, authorization,
opinion, common law or agency requirement relating to: (A) the protection,
investigation or restoration of the environment, health and safety, or natural
resources, (B) the handling, use, presence, disposal, release or threatened
release of any Hazardous Substance or (C) noise, odor, wetlands, pollution,
contamination or any injury or threat of injury to persons or property.
(c) As used herein, the term "Hazardous Substance" means any
-------------------
substance that is: (A) listed, classified or regulated pursuant to any
Environmental Law; (B) any petroleum product or by-product, asbestos-containing
material, lead-containing paint or plumbing, polychlorinated biphenyls,
radioactive materials or radon; or (C) any other substance which is the subject
of regulatory action by any Governmental Entity pursuant to any Environmental
Law.
Section 3.13 Employee Benefit Plans.
------------------------------------
(a) Silknet has listed in Section 3.13 of the Silknet Disclosure
Schedule all employee benefit plans (as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")) and all bonus,
-----
stock option, stock purchase, incentive, deferred compensation, supplemental
retirement, severance and other similar employee benefit plans, and all
unexpired severance agreements, written or otherwise, for the benefit of, or
relating to, any current or former employee of Silknet or any trade or business
(whether or not incorporated) which is a member or which is under common control
with Silknet (an "ERISA Affiliate") within the meaning of Section 414 of the
---------------
Internal Revenue Code, or any Subsidiary of Silknet (together, the "Silknet
-------
Employee Plans").
- --------------
(b) With respect to each Silknet Employee Plan, Silknet has made
available to Kana, a true and correct copy of (i) the most recent annual report
(Form 5500) filed with the IRS, (ii) such Silknet Employee Plan, (iii) each
trust agreement and group annuity contract, if any, relating to such Silknet
Employee Plan and (iv) the most recent actuarial report or valuation relating to
a Silknet Employee Plan subject to Title IV of ERISA.
(c) With respect to the Silknet Employee Plans, individually and in
the aggregate, no event has occurred, and to the knowledge of Silknet, there
exists no condition or
14
<PAGE>
set of circumstances in connection with which Silknet could be subject to any
liability that is reasonably likely to have a Silknet Material Adverse Effect
under ERISA, the Internal Revenue Code or any other applicable law.
(d) With respect to the Silknet Employee Plans, individually and in
the aggregate, there are no funded benefit obligations for which contributions
have not been made or properly accrued and there are no unfunded benefit
obligations which have not been accounted for by reserves, or otherwise properly
footnoted in accordance with generally accepted accounting principles, on the
financial statements of Silknet, which obligations are reasonably likely to have
a Silknet Material Adverse Effect.
(e) Except as disclosed in Silknet SEC Reports filed prior to the
date of this Agreement or the Silknet Disclosure Schedule, and except as
provided for in this Agreement, neither Silknet nor any of its Subsidiaries is
a party to any oral or written (i) agreement with any officer or other key
employee of Silknet or any of its Subsidiaries, the benefits of which are
contingent, or the terms of which are materially altered, upon the occurrence
of a transaction involving Silknet of the nature contemplated by this
Agreement, (ii) agreement with any officer of Silknet or any of its
Subsidiaries providing any term of employment or compensation guarantee
extending for a period longer than one year from the date hereof and for the
payment of compensation in excess of $200,000 per annum, or (iii) agreement or
plan, including any stock option plan, stock appreciation right plan,
restricted stock plan or stock purchase plan, any of the benefits of which
will be increased, or the vesting of the benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the Stock Option Agreements or the value of any of the benefits
of which will be calculated on the basis of any of the transactions
contemplated by this Agreement, except that (a) the vesting date of each
outstanding option under the Silknet Stock Plans other than the 1999 Non-
Employee Director Stock Option Plan at the Effective Time shall immediately
accelerate by one year, and the vesting date of any unvested shares previously
purchased under any of the Silknet Stock Plans shall at the Effective Time
accelerate by one year, and (b) each outstanding option under the Silknet 1999
Non-Employee Director Stock Option Plan at the Effective Time shall
immediately become fully vested and exercisable following the Effective Time.
Section 3.14 Compliance With Laws.
----------------------------------
Silknet and each of its Subsidiaries has complied with, is not in
violation of, and has not received any notices of violation with respect to, any
federal, state or local statute, law or regulation with respect to the conduct
of its business, or the ownership or operation of its business, except for
failures to comply or violations which, individually or in the aggregate, have
not had and are not reasonably likely to have a Silknet Material Adverse Effect.
15
<PAGE>
Section 3.15 Tax Matters.
-------------------------
To its knowledge, neither Silknet nor any of its Affiliates has taken
or agreed to take any action which would prevent the Merger from constituting a
transaction qualifying as a reorganization under Section 368(a) of the Internal
Revenue Code.
Section 3.16 Labor Matters.
---------------------------
Neither Silknet nor any of its Subsidiaries is a party to or otherwise
bound by any collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor organization, nor, as of the date
hereof, is Silknet or any of its Subsidiaries the subject of any material
proceeding asserting that Silknet or any of its Subsidiaries has committed an
unfair labor practice or is seeking to compel it to bargain with any labor union
or labor organization nor, as of the date of this Agreement, is there pending
or, to the knowledge of Silknet, threatened, any material labor strike, dispute,
walkout, work stoppage, slow-down or lockout involving Silknet or any of its
Subsidiaries.
Section 3.17 Insurance.
-----------------------
All material fire and casualty, general liability, business
interruption, product liability, and sprinkler and water damage insurance
policies maintained by Silknet or any of its Subsidiaries are with reputable
insurance carriers, and copies or a summary of such policies have been made
available to Kana.
Section 3.18 No Existing Discussions.
-------------------------------------
As of the date hereof, Silknet is not engaged, directly or indirectly,
in any discussions or negotiations with any other party with respect to a
Silknet Takeover Proposal (as defined in Section 6.02(d)).
---------------
Section 3.19 Interested Party Transactions.
-------------------------------------------
Except as set forth in the Silknet SEC Reports or by virtue of the
Merger, no event has occurred that would be required to be reported by Silknet
as a Certain Relationship or Related Transaction pursuant to Item 404 of
Regulation S-K promulgated by the SEC.
Section 3.20 Registration Statement; Joint Proxy Statement/Prospectus.
----------------------------------------------------------------------
The information supplied by Silknet for inclusion in the registration
statement of Kana on Form S-4 pursuant to which shares of Kana Common Stock
issued in the Merger will be registered with the SEC (the "Registration
------------
Statement") shall not contain, at the time the Registration Statement is
- ---------
declared effective by the SEC, any untrue statement of a material fact or omit
to state any material fact required to be stated in the Registration Statement
or necessary in order to make the statements in the Registration Statement, in
light of the circumstances under with they were made, not misleading. The
information supplied by Silknet for inclusion in the joint proxy
statement/prospectus (the "Joint Proxy Statement/Prospectus") to be sent to the
--------------------------------
16
<PAGE>
stockholders of Silknet in connection with the special meeting of Silknet
stockholders to consider this Agreement and the Merger (the "Silknet
-------
Stockholders Meeting") and to the stockholders of Kana in connection with the
- --------------------
special meeting of Kana stockholders to consider the issuance of Kana Common
Stock in connection with the Merger (the "Kana Stockholders Meeting") shall not,
-------------------------
on the date the Joint Proxy Statement/Prospectus is first mailed to stockholders
of Kana and Silknet, at the time of the Silknet Stockholders Meeting, at the
time of the Kana Stockholders Meeting or at the Effective Time, contain any
statement which, at such time and in light of the circumstances under which it
was made, is false or misleading with respect to any material fact, or omit to
state any material fact necessary in order to make the statements made in the
Joint Proxy Statement/Prospectus not false or misleading or omit to state any
material fact necessary to correct any statement in any earlier communication
with respect to the solicitation of proxies for the Kana Stockholders Meeting or
the Silknet Stockholders Meeting which has become false or misleading. If at
any time prior to the Effective Time any event relating to Silknet or any of its
affiliates should be discovered by Silknet which should be set forth in an
amendment to the Registration Statement or a supplement to the Joint Proxy
Statement/Prospectus, Silknet shall promptly inform Kana.
Section 3.21 Payments Resulting from Mergers.
---------------------------------------------
(a) The consummation or announcement of any transaction contemplated
by this Agreement or the Silknet Stock Option Agreement will not (either alone
or upon the occurrence of any additional or further acts or events) result in
any (i) payment (whether of severance pay or otherwise) becoming due from
Silknet or any of its Subsidiaries to any officer, employee, former employee or
director thereof or to the trustee under any "rabbi trust" or similar
arrangement pursuant to any management, employment, deferred compensation,
severance (including any payment, right or benefit resulting from a change in
control), bonus or other contract for personal services with any officer,
director or employee or any plan agreement or understanding similar to any of
the foregoing, or (ii) benefit under any Silknet benefit plan being established
or becoming accelerated, vested or payable.
(b) James C. Wood has agreed to enter into an amendment to his
employment agreement providing for the waiver of any benefits that would
otherwise be due Mr. Wood (including severance payments) as a result of the
Merger. Nigel Donovan has agreed to deliver a written acknowledgement that the
Merger, and his subsequent employment by Kana, will not result in any benefits
becoming due to Mr. Donovan. Patrick J. Scannell, has agreed to amend his
current employment agreement to provide for the waiver of any cash payments as a
result of the Merger, and to provide that his employment agreement will be
amended so that he will continue providing services to Kana for 180 days after
the date hereof, on which date Mr. Scannell will be entitled to the benefits
under his employment agreement (including acceleration of his then unvested
options and severance payments equal to one year's salary).
17
<PAGE>
Section 3.22 Opinion Of Financial Advisor.
------------------------------------------
The financial advisor of Silknet, Credit Suisse First Boston, has
delivered to Silknet an opinion dated the date of this Agreement to the effect
that the Exchange Ratio is fair to the holders of Silknet Common Stock from a
financial point of view.
Section 3.23 Section 203 of the DGCL Not Applicable; Silknet Rights Plan.
-------------------------------------------------------------------------
(a) Section 203 of the DGCL is not applicable to Silknet or (by reason
of Silknet's participation therein) the Merger. No other "fair price,"
"moratorium," "control share acquisition" or other similar anti-takeover statute
or regulation is applicable to Silknet or (by reason of Silknet's participation
therein) the Merger or the other transactions contemplated by this Agreement.
(b) The execution, delivery and performance of this Agreement and the
Silknet Stock Option Agreement and the consummation of the Merger will not cause
any change, effect or result under any stockholder rights plan which is or will
as of the Effective Time be in effect (a "Silknet Rights Plan") which is adverse
-------------------
to the interests of Kana.
Section 3.24 Voting Requirements.
---------------------------------
The affirmative vote at the Silknet Stockholders Meeting of the
holders of a majority of the voting power of all outstanding shares of Silknet
Common Stock to adopt this Agreement (the "Silknet Stockholder Approval") is the
----------------------------
only vote of the holders of any class or series of Silknet 's capital stock
necessary to approve and adopt this Agreement, the Silknet Stock Option
Agreement and the transactions contemplated hereby and thereby.
Section 3.25 Brokers.
---------------------
No broker, investment banker, financial advisor or other person, other
than Credit Suisse First Boston Corporation, the fees and expenses of which will
be paid by Silknet, is entitled to any broker's, finder's, financial advisor's
or other similar fee or commission in connection with the transactions
contemplated by this Agreement and the Stock Option Agreements based upon
arrangements made by or on behalf of Silknet. Silknet has furnished to Kana
true and complete copies of all agreements under which any such fees or expenses
are payable and all indemnification and other agreements related to the
engagement of the persons to whom such fees are payable.
Section 3.26 Certain Contracts.
-------------------------------
Neither Silknet nor any of its Subsidiaries is a party to or bound by
any non-competition agreement or any other similar agreement or obligation which
purports to limit in any material respect the manner in which, or the localities
in which, all or any material portion of the business of Silknet and its
Subsidiaries, taken as a whole, is conducted.
18
<PAGE>
Section 3.27 Silknet Voting Agreement.
--------------------------------------
Each officer, director and affiliate under the control of Silknet is
listed on Schedule 3.27 and has executed and delivered to Kana a voting
agreement, substantially in the form of Exhibit A hereto.
---------
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF KANA
Kana and Merger Sub represent and warrant to Silknet that the
statements contained in this Article IV are true and correct, except as set
----------
forth in the disclosure schedule delivered by Kana to Silknet on or before the
date of this Agreement (the "Kana Disclosure Schedule"). The Kana Disclosure
------------------------
Schedule shall be arranged in paragraphs corresponding to the numbered and
lettered sections contained in this Article IV and the disclosure in any
----------
paragraph shall qualify other sections in this Article IV only to the extent
----------
that it is reasonably apparent from a reading of such document that it also
qualifies or applies to such other sections.
Section 4.01 Organization Of Kana And Merger Sub.
-------------------------------------------------
Each of Kana and Merger Sub and Kana's other Subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation, has all requisite corporate power to
own, lease and operate its property and to carry on its business as now being
conducted and as proposed to be conducted, and is duly qualified to do business
and is in good standing as a foreign corporation in each jurisdiction in which
the failure to be so qualified would have a Kana Material Adverse Effect as
defined in Section 9.03(b). Except as set forth in the Kana SEC Reports (as
---------------
defined in Section 4.04) filed prior to the date hereof, neither Kana nor any of
------------
its Subsidiaries directly or indirectly owns any equity or similar interest in,
or any interest convertible into or exchangeable or exercisable for, any
corporation, partnership, joint venture or other business association or entity,
excluding securities in any publicly traded company held for investment by Kana
and comprising less than five percent (5%) of the outstanding stock of such
company.
Section 4.02 Kana Capital Structure.
------------------------------------
(a) The authorized capital stock of Kana consists of 100,000,000
shares of Common Stock, $.001 par value, and 5,000,000 shares of Preferred
Stock, $.001 par value ("Kana Preferred Stock"). As of February 3, 2000, (i)
--------------------
30,391,355 shares of Kana Common Stock were issued and outstanding, all of which
are validly issued, fully paid and nonassessable, and (ii) no shares of Kana
Common Stock were held in the treasury of Kana or by Subsidiaries of Kana. The
Kana Disclosure Schedule shows the number of shares of Kana Common Stock
reserved for future issuance pursuant to stock options granted and outstanding
as of February 3, 2000 and the plans under which such options were granted
(collectively, the "Kana Stock Plans"). No material change in such
----------------
capitalization has occurred between December 31, 2000 and the date of this
Agreement. As of the date of this Agreement, none of the shares of Kana
19
<PAGE>
Preferred Stock is issued and outstanding. All shares of Kana Common Stock
subject to issuance as specified above are duly authorized and, upon issuance on
the terms and conditions specified in the instruments pursuant to which they are
issuable, shall be validly issued, fully paid and nonassessable. There are no
obligations, contingent or otherwise, of Kana to repurchase, redeem or otherwise
acquire any shares of Kana Common Stock or the capital stock of any of its
Subsidiaries or to provide funds to or make any material investment (in the form
of a loan, capital contribution or otherwise) in any such Subsidiary or any
other entity other than guarantees of bank obligations of Subsidiaries entered
into in the ordinary course of business, except for repurchase rights of Kana
under the Kana stock option plans, or under any stock option agreements pursuant
to which options were granted under these plans. All of the outstanding shares
of capital stock of each of Kana's Subsidiaries are duly authorized, validly
issued, fully paid and nonassessable and all such shares (other than directors'
qualifying shares in the case of foreign Subsidiaries) are owned by Kana or
another Subsidiary free and clear of all security interests, liens, claims,
pledges, agreements, limitations in Kana's voting rights, charges or other
encumbrances of any nature.
(b) Except and as disclosed in Section 4.02 of the Kana Disclosure
------------
Schedule or as set forth in this Section 4.02 or as reserved for future grants
------------
of options under the Kana Stock Plans or the Kana Stock Option Agreement, there
are no equity securities of any class of Kana or any of its Subsidiaries, or any
security exchangeable into or exercisable for such equity securities, issued,
reserved for issuance or outstanding. There are no voting trusts, proxies or
other voting agreements or understandings with respect to the shares of capital
stock of Kana and to which Kana is a party.
Section 4.03 Authority; No Conflict; Required Filings And Consents.
-------------------------------------------------------------------
(a) Each of Kana and Merger Sub has all requisite corporate power and
authority to enter into this Agreement and the Kana Stock Option Agreement and
to consummate the transactions contemplated hereby and thereby. The execution
and delivery of this Agreement and the Kana Stock Option Agreement and the
consummation of the transactions contemplated by this Agreement and by the Kana
Stock Option Agreement by Kana and Merger Sub have been duly authorized by all
necessary corporate action on the part of each of Kana and Merger Sub (including
the approval of the Merger by Kana as the sole stockholder of Merger Sub),
subject only to the approval of the Kana Voting Proposal (as defined in Section
-------
6.03(a) by Kana stockholders. This Agreement and the Kana Stock Option
- -------
Agreement have been duly executed and delivered by each of Kana and, in the case
of this Agreement, Merger Sub constitute the valid and binding obligations of
each of Kana and Merger Sub, enforceable in accordance with their terms, subject
to the Bankruptcy and Equity Exception.
(b) The execution and delivery of this Agreement and the Kana Stock
Option Agreement by each of Kana and Merger Sub does not, and the consummation
of the transactions contemplated by this Agreement and the Kana Stock Option
Agreement will not, (i) conflict with, or result in any violation or breach of,
any provision of the Certificate of Incorporation or Bylaws of Kana or the
Certificate of Incorporation or Bylaws of Merger Sub, (ii) result in any
violation or breach of, or constitute (with or without notice or lapse of time,
or both) a default
20
<PAGE>
(or give rise to a right of termination, cancellation or acceleration of any
obligation or loss of any material benefit) under, or require a consent or
waiver under, any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, lease, contract or other agreement, instrument or
obligation to which Kana or any of its Subsidiaries is a party or by which any
of them or any of their properties or assets may be bound, or (iii) conflict
with or violate any permit, concession, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to Kana or any of
its Subsidiaries or any of its or their properties or assets, except in the case
of (ii) and (iii) for any such conflicts, violations, defaults, terminations,
cancellations or accelerations which, individually or in the aggregate, would
have a Kana Material Adverse Effect.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to Kana or any of its Subsidiaries in connection with the execution and
delivery of this Agreement and the Kana Stock Option Agreement or the
consummation of the transactions contemplated hereby, except for (i) the filing
of the Registration Statement with the SEC in accordance with the Securities
Act, (ii) the filing of the Certificate of Merger with the Delaware Secretary of
State, (iii) the filing of the Joint Proxy Statement/Prospectus with the SEC in
accordance with the Exchange Act, (iv) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable state securities laws and the laws of any foreign country and (v)
such other consents, authorizations, filings, approvals and registrations which,
if not obtained or made, would not be reasonably likely to have a Kana Material
Adverse Effect.
Section 4.04 SEC Filings; Financial Statements.
-----------------------------------------------
(a) Kana has filed and made available to Silknet all forms, reports
and documents required to be filed by Kana with the SEC since September 21, 1999
other than registration statements on Form S-8 (collectively, the "Kana SEC
--------
Reports"). The Kana SEC Reports (i) at the time filed, complied in all material
- -------
respects with the applicable requirements of the Securities Act and the Exchange
Act, as the case may be, and (ii) did not at the time they were filed (or if
amended or superseded by a filing prior to the date of this Agreement, then as
and on the date so amended or superseded) contain any untrue statement of a
material fact or omit to state a material fact required to be stated in such
Kana SEC Reports or necessary in order to make the statements in such Kana SEC
Reports, in the light of the circumstances under which they were made, not
misleading. Kana's Subsidiaries are not required to file any forms, reports or
other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each
case, any related notes) contained in the Kana SEC Reports complied as to form
in all material respects with the applicable published rules and regulations of
the SEC with respect thereto, was prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes to such financial statements
or, in the case of unaudited statements, as permitted by Form 10-Q of the SEC)
and fairly presented the consolidated financial position of Kana and its
Subsidiaries as of the dates and the consolidated results of its operations and
cash flows for the periods indicated, except that
21
<PAGE>
the unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments which were not or are not expected to be material
in amount. The audited balance sheet of Kana as of December 31, 1999 is referred
to herein as the "Kana Balance Sheet."
------------------
Section 4.05 No Undisclosed Liabilities.
----------------------------------------
Except as disclosed in the Kana SEC Reports filed prior to the date
hereof, and except for normal or recurring liabilities incurred since December
31, 1999 in the ordinary course of business consistent with past practices, Kana
and its Subsidiaries do not have any liabilities, either accrued, contingent or
otherwise (whether or not required to be reflected in financial statements in
accordance with generally accepted accounting principles), and whether due or to
become due, which individually or in the aggregate, would have a Kana Material
Adverse Effect.
Section 4.06 Absence Of Certain Changes Or Events.
--------------------------------------------------
Except as disclosed in the Kana SEC Reports filed prior to the date
hereof or disclosed in writing by Kana to Silknet on or prior to the date
hereof, since the date of the Kana Balance Sheet, Kana and its Subsidiaries have
conducted their businesses only in the ordinary course and in a manner
consistent with past practice and, since such date, there has not been (i) any
Kana Material Adverse Effect; (ii) any damage, destruction or loss (whether or
not covered by insurance) with respect to Kana or any of its Subsidiaries having
a Kana Material Adverse Effect; (iii) any material change by Kana in its
accounting methods, principles or practices to which Silknet has not previously
consented in writing; (iv) any revaluation by Kana of any of its assets having a
Kana Material Adverse Effect; or (v) any other action or event that would have
required the consent of Silknet pursuant to Section 5.01 of this Agreement had
------------
such action or event occurred after the date of this Agreement and that,
individually or in the aggregate, has had a Kana Material Adverse Effect.
Section 4.07 Taxes.
-------------------
Kana and each of its Subsidiaries have (i) filed all federal, state,
local and foreign tax returns and reports required to be filed by them prior to
the date of this Agreement (taking into account extensions), (ii) paid or
accrued all Taxes due and payable, and (iii) paid or accrued all Taxes for which
a notice of assessment or collection has been received (other than amounts being
contested in good faith by appropriate proceedings), except in the case of
clause (i), (ii) or (iii) for any such filings, payments or accruals which are
not reasonably likely, individually or in the aggregate, to have a Kana Material
Adverse Effect. Neither the IRS nor any other taxing authority has asserted any
claim for Taxes, or to the actual knowledge of the executive officers of Kana or
any of its Subsidiaries, is threatening to assert any claims for Taxes, which
claims, individually or in the aggregate, are reasonably likely to have a Kana
Material Adverse Effect. Kana and each of its Subsidiaries have withheld or
collected and paid over to the appropriate governmental authorities (or are
properly holding for such payment) all Taxes required by law to be withheld or
collected, except for amounts which are not reasonably likely, individually or
in the aggregate, to have a Kana Material Adverse Effect. Neither Kana nor any
of its Subsidiaries has made an election under Section 341(f) of the Internal
Revenue Code, except for any such
22
<PAGE>
election which shall not have a Kana Material Adverse Effect. There are no liens
for Taxes upon the assets of Kana or any of its Subsidiaries (other than liens
for Taxes that are not yet due or that are being contested in good faith by
appropriate proceedings), except for liens which are not reasonably likely,
individually or in the aggregate, to have a Kana Material Adverse Effect.
Section 4.08 Agreements, Contracts And Commitments.
---------------------------------------------------
Neither Kana nor any of its Subsidiaries has breached, or received in
writing any claim or notice that it has breached, any of the terms or conditions
of any material agreement, contract or commitment to which it is a party or by
which any of its assets or properties are bound ("Kana Material Contracts") in
-----------------------
such a manner as, individually or in the aggregate, is reasonably likely to have
a Kana Material Adverse Effect. Each Kana Material Contract that has not expired
by its terms is in full force and effect and is not subject to any material
default thereunder of which Kana is aware by any party obligated to Kana or any
of its Subsidiaries pursuant to such Kana Material Contract.
Section 4.09 Litigation.
------------------------
Except as described in the Kana SEC Reports filed prior to the date
hereof, there is no action, suit or proceeding, claim, arbitration or
investigation against Kana or any of its Subsidiaries pending or as to which
Kana or any of its Subsidiaries has received any written notice of assertion,
which, individually or in the aggregate, if determined adversely to Kana or any
such Subsidiary, would be reasonably likely to have a Kana Material Adverse
Effect or would materially impair or delay the ability of Kana to consummate the
transactions contemplated by this Agreement.
Section 4.10 Employee Benefit Plans.
------------------------------------
(a) With respect to the Kana Employee Plans, individually and in the
aggregate, there are no funded benefit obligations for which contributions have
not been made or properly accrued and there are no unfunded benefit obligations
which have not been accounted for by reserves, or otherwise properly footnoted
in accordance with generally accepted accounting principles, on the financial
statements of Kana, which obligations are reasonably likely to have a Kana
Material Adverse Effect.
Section 4.11 Compliance With Laws.
----------------------------------
Kana and each of its Subsidiaries has complied with, is not in
violation of, and has not received any notices of violation with respect to, any
federal, state or local statute, law or regulation with respect to the conduct
of its business, or the ownership or operation of its business, except for
failures to comply or violations which, individually or in the aggregate, have
not had and are not reasonably likely to have a Kana Material Adverse Effect.
23
<PAGE>
Section 4.12 Tax Matters.
-------------------------
To its knowledge, neither Kana nor any of its Affiliates has taken or
agreed to take any action which would prevent the Merger from constituting a
transaction qualifying as a reorganization under Section 368(a) of the Internal
Revenue Code.
Section 4.13 Registration Statement; Joint Proxy Statement/Prospectus.
----------------------------------------------------------------------
The information supplied by Kana for inclusion in the Registration
Statement shall not contain, at the time the Registration Statement is declared
effective by the SEC, any untrue statement of a material fact or omit to state
any material fact required to be stated in the Registration Statement or
necessary in order to make the statements in the Registration Statement, in
light of the circumstances under with they were made, not misleading. The
information supplied by Kana for inclusion in the Joint Proxy
Statement/Prospectus to be sent to the stockholders of Silknet in connection
with the Silknet Stockholders Meeting and to the stockholders of Kana in
connection with the Kana Stockholders Meeting shall not, on the date the Joint
Proxy Statement/Prospectus is first mailed to stockholders of Kana and Silknet,
at the time of the Silknet Stockholders Meeting, at the time of the Kana
Stockholders Meeting or at the Effective Time, contain any statement which, at
such time and in light of the circumstances under which it was made, is false or
misleading with respect to any material fact, or omit to state any material fact
necessary in order to make the statements made in the Joint Proxy
Statement/Prospectus not false or misleading or omit to state any material fact
necessary to correct any statement in any earlier communication with respect to
the solicitation of proxies for the Kana Stockholders Meeting or the Silknet
Stockholders Meeting which has become false or misleading. If at any time prior
to the Effective Time any event relating to Kana or any of its affiliates should
be discovered by Kana which should be set forth in an amendment to the
Registration Statement or a supplement to the Joint Proxy Statement/Prospectus,
Kana shall promptly inform Silknet.
Section 4.14 Opinion Of Financial Advisor.
------------------------------------------
The financial advisor of Kana, Goldman, Sachs & Co., has delivered to
Kana an opinion dated the date of this Agreement to the effect that the Exchange
Ratio is fair to Kana from a financial point of view.
Section 4.15 Voting Requirements.
---------------------------------
No vote of the holders of shares of Kana Common Stock or any other
class or series of capital stock of Kana is necessary to approve and adopt this
Agreement and the Kana Option Agreement and the transactions contemplated hereby
and thereby other than the approval of the Kana Voting Proposal.
Section 4.16 Brokers.
---------------------
No broker, investment banker, financial advisor or other person, other
than Goldman, Sachs & Co., the fees and expenses of which will be paid by Kana,
is entitled to any
24
<PAGE>
broker's, finder's, financial advisor's or other similar fee or commission in
connection with the transactions contemplated by this Agreement and the Stock
Option Agreements based upon arrangements made by or on behalf of Kana.
Section 4.17 Kana Voting Agreement.
-----------------------------------
Each officer, director and affiliate under the control of Kana is
listed on Schedule 4.17 and has executed and delivered to Silknet a voting
agreement, substantially in the form of Exhibit B hereto.
---------
Section 4.18 Intellectual Property.
-----------------------------------
(a) Except as disclosed in Section 4.18 of the Kana Disclosure
------------
Schedule, Kana and its Subsidiaries own, or are licensed or otherwise possess
legally enforceable rights to use, all patents, trademarks, trade names, service
marks, copyrights and mask works, any applications for and registrations of such
patents, trademarks, trade names, service marks, copyrights and mask works, and
all processes, formulae, methods schematics, technology, know how, computer
software programs or applications and tangible or intangible proprietary
information or material that are necessary to conduct the business of Kana and
its Subsidiaries as currently conducted or planned to be conducted by Kana and
its Subsidiaries (the "Kana Intellectual Property Rights").
---------------------------------
(b) Except as disclosed in Section 4.18 of the Kana Disclosure
------------
Schedule, neither Kana nor any of its Subsidiaries is, or will be as a result of
the execution and delivery of this Agreement of the performance of its
obligations under this Agreement, in breach of any material license, sublicense
or other agreement relating to the Kana Intellectual Property Rights or any
material license, sublicense or other agreement pursuant to which Kana or any of
its Subsidiaries is authorized to use any third party patents, trademarks or
copyrights, including software, which are incorporated in or form a part of any
product of Kana or any of its Subsidiaries that is material to the business of
Kana and its Subsidiaries, taking Kana and its Subsidiaries together as a whole,
and where such breach would have a Kana Material Adverse Effect.
(c) Except as disclosed in the Kana Disclosure Schedule, (i) all
patents, registered trademarks, service marks and copyrights which are held by
Kana or any of its Subsidiaries, and which are material to the business of Kana
and its Subsidiaries, taking Kana and its Subsidiaries together as a whole, are
valid and subsisting; (ii) Kana has not been sued in any suit, action or
proceeding which involves a claim of infringement of any patents, trademarks,
service marks, copyrights or violation of any trade secret or other proprietary
right of any third party where such proceeding would have a Kana Material
Adverse Effect; and (iii) the manufacturing, marketing, licensing or sale of
Kana's products does not infringe any patent, trademark, service mark,
copyright, trade secret or other proprietary right of any third party, which
infringement, either individually or in the aggregate, could reasonably be
expected to have a Kana Material Adverse Effect.
25
<PAGE>
Section 4.19 Certain Contracts.
-------------------------------
Neither Kana nor any of its Subsidiaries is a party to or bound by any
non-competition agreement or any other similar agreement or obligation which
purports to limit in any material respect the manner in which, or the localities
in which, all or any material portion of the business of Kana and its
Subsidiaries, taken as a whole, is conducted.
ARTICLE V.
CONDUCT OF BUSINESS
Section 5.01 Covenants Of Silknet.
----------------------------------
During the period from the date of this Agreement and continuing until
the earlier of the termination of this Agreement or the Effective Time, Silknet
agrees, as to itself and its Subsidiaries, except to the extent that Kana shall
otherwise consent in writing, to carry on its business in the usual, regular and
ordinary course in substantially the same manner as previously conducted, and
consistent with preserving and advancing the revenues and results of operation
of Silknet, to pay its debts and taxes when due subject to good faith disputes
over such debts or taxes, to pay or perform its other obligations when due, and,
to the extent consistent with such business, use all reasonable efforts
consistent with past practices and policies to preserve intact its present
business organization, keep available the services of its present officers and
key employees and preserve its relationships with customers, suppliers,
distributors, and others having business dealings with it, except in each case
where the failure to do so would not have a Silknet Material Adverse Effect.
Silknet shall promptly notify Kana of any material event or occurrence not in
the ordinary course of business of Silknet. Except as expressly contemplated by
this Agreement or as set forth in Section 5.01 of the Silknet Disclosure
Schedule, Silknet shall not (and shall not permit its Subsidiaries to), without
the written consent of Kana (which shall not be unreasonably delayed):
(a) accelerate, amend or change the period of exercisability of
options or restricted stock granted under any employee stock plan of such party
or authorize cash payments in exchange for any options granted under any of such
plans except as required by the terms of such plans or any related agreements in
effect as of the date of this Agreement, and except that (a) the vesting date of
each outstanding option under the Silknet Stock Plans other than the 1999 Non-
Employee Director Stock Option Plan at the Effective Time shall immediately
accelerate by one year, and the vesting date of any unvested shares previously
purchased under any of the Silknet Stock Plans shall at the Effective Time
accelerate by one year, and (b) each outstanding option under the Silknet 1999
Non-Employee Director Stock Option Plan at the Effective Time shall immediately
become fully vested and exercisable following the Effective Time.
26
<PAGE>
(b) declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any of its capital stock, or
split, combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock, or purchase or otherwise acquire, directly or
indirectly, any shares of its capital stock except from former employees,
directors and consultants in accordance with agreements providing for the
repurchase of shares in connection with any termination of service to such
party;
(c) transfer or license to any person or entity or otherwise extend, amend
or modify in any material respect any rights to the Silknet Intellectual
Property Rights other than on a non-exclusive basis in the ordinary course of
business consistent with past practices;
(d) issue, deliver or sell, or authorize or propose the issuance, delivery
or sale of, any shares of its capital stock or securities convertible into
shares of its capital stock, or subscriptions, rights, warrants or options to
acquire, or other agreements or commitments of any character obligating it to
issue any such shares or other convertible securities, other than (i) the grant
of options consistent with past practices to existing employees, not to exceed
25,000 shares, and to newly hired employees, which hiring of new employees shall
be in the ordinary course of business and which options represent in the
aggregate the right to acquire no more than 100,000 shares (net of
cancellations) of Silknet Common Stock and which will not be entitled to
accelerated vesting as a result of the Merger, or (ii) the issuance of shares of
Silknet Common Stock pursuant to the exercise of options outstanding on the date
of this Agreement;
(e) acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial equity interest in or substantial portion of the assets
of, or by any other manner, any business or any corporation, partnership or
other business organization or division, or otherwise acquire or agree to
acquire any assets (other than inventory and other items in the ordinary course
of business);
(f) sell, lease, license or otherwise dispose of any material properties or
assets, except for transactions in the ordinary course of business; provided,
--------
however, that in no event shall Silknet enter into any agreement, option or
- -------
other arrangements (including any joint venture) involving the exclusive
licensing of Silknet's name or system outside of the ordinary course of business
or inconsistent with past practice;
(g) (i) increase or agree to increase the compensation payable or to become
payable to its officers or employees, except for increases in salary or wages of
employees (other than officers) in accordance with past practices, (ii) grant
any additional severance or termination pay to, or enter into any employment or
severance agreements with, any employees or officers, (iii) enter into any
collective bargaining agreement (other than as required by law or extensions to
existing agreements in the ordinary course of business), (iv) establish, adopt,
enter into or amend any bonus, profit sharing, thrift, compensation, stock
option, restricted stock, pension, retirement, deferred compensation,
employment, termination, severance or other plan, trust, fund, policy or
arrangement for the benefit of any directors, officers or employees, and except
as contemplated by Section 3.21 and Section 5.01(a);
------------ ---------------
27
<PAGE>
(h) amend or propose to amend its Certificate of Incorporation or Bylaws,
except as contemplated by this Agreement;
(i) enter into or amend in any material respect any OEM agreement or any
agreements pursuant to which any third party is granted exclusive marketing,
manufacturing or other rights with respect to any Silknet product, process or
technology;
(j) amend or terminate any material contract, agreement or license to which
it is a party except in the ordinary course of business or where such action
would not have a Silknet Material Adverse Effect;
(k) waive or release any material right or claim, except in the ordinary
course of business;
(l) initiate any litigation or arbitration proceeding without otherwise
first consulting with Kana or where the initiation of such proceedings, if
determined adversely, would have a Silknet Material Adverse Effect;
(m) incur any indebtedness in excess of $10,000,000 for borrowed money
other than in the ordinary course of business;
(n) make or agree to make any new capital expenditure or expenditures, or
enter into any agreement or agreements providing for payments which,
individually, are in excess of $1,000,000 or, in the aggregate, are in excess of
$5,000,000;
(o) make any tax election that, individually or in the aggregate, is
reasonably likely to have a Silknet Material Adverse Effect on the tax liability
of Silknet or settle or compromise any material income tax liability;
(p) pay, discharge, settle or satisfy any material claims, liabilities,
obligations or litigation (absolute, accrued, asserted or unasserted, contingent
or otherwise), other than in the ordinary course of business and where such
action would have a Silknet Material Adverse Effect; or
(q) take, or agree in writing or otherwise to take, any of the actions
described in Section 5.01(a) through Section 5.01(p) above.
--------------- ---------------
Section 5.02 Covenants Of Kana.
------------------------------
During the period from the date of this Agreement and continuing until
the earlier of the termination of this Agreement or the Effective Time, Kana
agrees, as to itself and its Subsidiaries, except to the extent that Silknet
shall otherwise consent in writing, to carry on its business in the usual,
regular and ordinary course in substantially the same manner as previously
conducted (it being acknowledged that the foregoing shall not limit the ability
of Kana to make or pursue corporate acquisitions) and consistent with preserving
and advancing the revenues and results of operations of Kana, to pay its debts
and taxes when due subject to good faith disputes
28
<PAGE>
over such debts or taxes, to pay or perform its other obligations when due, and,
to the extent consistent with such business, use all reasonable efforts
consistent with past practices and policies to preserve intact its present
business organization, keep available the services of its present officers and
key employees and preserve its relationships with customers, suppliers,
distributors, and others having business dealings with it and except in each
case where the failure to do so would not have a Kana Material Adverse Effect.
Kana shall promptly notify Silknet of any material event or occurrence not in
the ordinary course of business of Kana. Except as expressly contemplated by
this Agreement or as set forth in Section 5.02 of the Kana Disclosure Schedule,
------------
Kana shall not (and shall not permit any of its Subsidiaries to), without the
written consent of Silknet (which shall not be unreasonably withheld or
delayed):
(a) accelerate, amend or change the period of exercisability of
options or restricted stock granted under any employee stock plan of such party
or authorize cash payments in exchange for any options granted under any of such
plans except as required by the terms of such plans or any related agreements in
effect as of the date of this Agreement and except that the vesting date of all
options granted to employees of Kana under all options granted under all of
Kana's various stock plans may be accelerated by up to one year by the Kana
Board of Directors or an appropriate committee;
(b) declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any of its capital stock, or
split, combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock, or purchase or otherwise acquire, directly or
indirectly, any shares of its capital stock except from former employees,
directors and consultants in accordance with agreements providing for the
repurchase of shares in connection with any termination of service to such
party;
(c) sell, lease, license or otherwise dispose of a material amount of
properties or assets, except for transactions in the ordinary course of
business;
(d) transfer or license to any person or entity or otherwise extend,
amend or modify in any material respect any rights to the Kana Intellectual
Property Rights other than on a non-exclusive basis in the ordinary course of
business consistent with past practices.
(e) enter in to or amend in any material respect any material OEM
agreement or any agreements pursuant to which any third party is granted
exclusive marketing, manufacturing or other rights with respect to any Kana
product, process or technology and where such action would have a Kana Material
Adverse Effect;
(f) amend or terminate any material contract, agreement or license to
which it is a party except in the ordinary course of business or where such
action would not have a Kana Material Adverse Effect;
(g) initiate any litigation or arbitration proceeding without
otherwise first notifying Silknet where the initiation of such proceedings, if
determined adversely, would have a Kana Material Adverse Effect;
29
<PAGE>
(h) pay, discharge, settle or satisfy any material claims,
liabilities, obligations or litigation (absolute, accrued asserted or
unasserted, contingent or otherwise), other than in the ordinary course of
business or where such action would not have a Kana Material Adverse Effect; or
(i) take, or agree in writing or otherwise to take, any of the actions
described in Section 5.02(a) through Section 5.02(h) above.
--------------- ---------------
Section 5.03 Cooperation.
-------------------------
Subject to compliance with applicable law, from the date hereof until
the Effective Time, each of Kana and Silknet shall confer on a regular and
frequent basis with one or more representatives of the other party to report on
the general status of ongoing operations and shall promptly provide the other
party or its counsel with copies of all filings made by such party with any
Governmental Entity in connection with this Agreement, the Merger and the
transactions contemplated hereby and thereby.
Section 5.04 Advice of Changes.
-------------------------------
Silknet and Kana shall promptly advise the other party orally and in
writing to the extent it has knowledge of (i) any representation or warranty
made by it (and, in the case of Kana, made by Sub) contained in this Agreement
or the Stock Option Agreements becoming untrue or inaccurate in any respect
where the failure of such representation to be so true and correct (without
giving effect to any limitation as to "materiality" or "material adverse effect"
set forth therein), individually or in the aggregate, has had or is reasonably
likely to have a material adverse effect on it, (ii) the failure by it (and, in
the case of Kana, by Sub) to comply in any material respect with or satisfy in
any material respect any covenant, condition or agreement to be complied with or
satisfied by it under this Agreement or the Stock Option Agreements and (iii)
any change or event having, or which is reasonably likely to have, a material
adverse effect on such party or on the truth of their respective representations
and warranties or the ability of the conditions set forth in Article VII to be
satisfied; provided, however, that no such notification shall affect the
representations, warranties, covenants or agreements of the parties (or remedies
with respect thereto) or the conditions to the obligations of the parties under
this Agreement or the Stock Option Agreements.
ARTICLE VI.
ADDITIONAL AGREEMENTS
Section 6.01 Proxy Statement/Prospectus; Registration Statement.
----------------------------------------------------------------
As promptly as reasonably practicable after the execution of this
Agreement, Silknet and Kana will prepare, and file with the SEC, the Joint Proxy
Statement/Prospectus, and Kana will prepare and file with the SEC the
Registration Statement, in which the Joint Proxy Statement/Prospectus will be
included as a prospectus. Each of Kana and Silknet shall provide
30
<PAGE>
promptly to the other such information concerning its business and financial
statements and affairs as, in the reasonable judgment of the providing party or
its counsel, may be required or appropriate for inclusion in the Joint Proxy
Statement/Prospectus and the Registration Statement, or in any amendments or
supplements thereto, and to cause its counsel and auditors to cooperate with the
other's counsel and auditors in the preparation of the Joint Proxy
Statement/Prospectus and the Registration Statement. Each of Silknet and Kana
will respond to any comments of the SEC, and will use its respective
commercially reasonable efforts to have the Registration Statement declared
effective under the Securities Act as promptly as practicable after such filing,
and Silknet will cause the Joint Proxy Statement/Prospectus to be mailed to its
stockholders at the earliest practicable time after the Registration Statement
is declared effective by the SEC (the "SEC Effective Date"). As promptly as
------------------
practicable after the date of this Agreement, each of Silknet and Kana will
prepare and file any other filings required to be filed by it under the Exchange
Act, the Securities Act or any other federal, foreign or Blue Sky or related
securities laws in order to consummate the Merger and the transactions
contemplated by this Agreement (the "Other Filings"). Each of Silknet and Kana
-------------
will notify the other promptly upon the receipt of any comments from the SEC or
its staff and of any request by the SEC or its staff for amendments or
supplements to the Registration Statement or the Joint Proxy
Statement/Prospectus and will supply the other with copies of all correspondence
between such party or any of its representatives, on the one hand, and the SEC
or its staff, on the other hand, with respect to the Registration Statement, the
Joint Proxy Statement/Prospectus or the Merger. Each of Silknet and Kana will
cause all documents that it is responsible for filing with the SEC under this
Section 6.01 to comply in all material respects with all applicable requirements
- ------------
of law and the rules and regulations promulgated thereunder. Whenever any event
occurs which is required to be set forth in an amendment or supplement to the
Joint Proxy Statement/Prospectus or the Registration Statement, Silknet or Kana,
as the case may be, will promptly inform the other of such occurrence and
cooperate in filing with the SEC or its staff, and/or mailing to stockholders of
Silknet, such amendment or supplement. Notwithstanding any other provision of
this Agreement, nothing herein shall required Kana to qualify to do business in
any jurisdiction in which it is not now so qualified or to file a general
consent to service of process under any applicable state securities laws in
connection with the issuance of Kana Common Stock in the Merger.
Section 6.02 No Solicitation by Silknet.
----------------------------------------
(a) Until the earlier of the Effective Time or a valid termination of
this Agreement pursuant to Article VIII, Silknet will not, and will not
------------
authorize, direct or permit any of its officers, directors, employees,
affiliates under the control of Silknet, investment bankers, attorneys,
accountants or other agents, advisors or representatives (collectively,
"Representatives") to, directly or indirectly, (i) solicit, initiate, encourage
---------------
or induce the making, submission or announcement of any Silknet Takeover
Proposal (as defined below), (ii) participate in any discussions or negotiations
with any person regarding, or furnish to any person any information with respect
to, or take any other action to facilitate any inquiry or proposal that
constitutes or may reasonably be expected to lead to, any Silknet Takeover
Proposal, (iii) authorize, approve or recommend any Silknet Takeover Proposal,
or (iv) enter into any letter of intent or similar document or any contract,
agreement or commitment accepting or providing for
31
<PAGE>
any Silknet Takeover Proposal; provided, however, nothing herein shall prohibit
Silknet's Board of Directors from complying with Rules 14d-9 and 14e-2 under the
Exchange Act; and provided, further, however, that this Section 6.02(a) shall
-------- ------- ------- ---------------
not prohibit Silknet, before the adoption of this Agreement by the stockholders
of Silknet, from furnishing information regarding Silknet or entering into
negotiations or discussions with, any person or group in response to a Silknet
Takeover Proposal submitted by such person or group (and not withdrawn) and,
subject to the provisions of Section 6.06 of this Agreement, endorsing and/or
------------
recommending a Silknet Superior Offer (as defined below), and any such actions
shall not be considered a breach of this Agreement to the extent they are taken
in compliance with the conditions and limitations set forth in this Agreement if
(1) neither Silknet nor any of its Representatives shall have violated any of
the restrictions set forth in this Section 6.02(a) or Section 6.06, (2) the
--------------- ------------
Board of Directors of Silknet determines in good faith, after considering the
advice of an investment bank of nationally recognized reputation, that such
Silknet Takeover Proposal is substantially more favorable to Silknet and its
stockholders than the Merger, taking into account the anticipated long-term
strategic benefits of the Merger to Silknet stockholders, (3) the Board of
Directors of Silknet concludes in good faith, after consultation with its
outside legal counsel, that failure to take such action would be inconsistent
with the fiduciary obligations of the Board of Directors of Silknet to Silknet
stockholders under applicable law, (4) prior to furnishing any such information
to, or entering into discussions or negotiations with, such person or group,
Silknet gives Kana written notice of the identity of such person or group, the
terms and conditions of the offer and Silknet's intention to furnish information
to, or enter into discussions or negotiations with, such person or group, (5)
Silknet receives from such person or group an executed confidentiality agreement
which shall not in any way restrict Silknet from complying with its disclosure
obligations under this Agreement and which shall contain customary limitations
on the use and disclosure of all nonpublic written and oral information
furnished to such person or group by or on behalf of Silknet and other terms no
less favorable to Silknet than those set forth in the Confidentiality Agreement
(as hereinafter defined), and (6) contemporaneously with furnishing any such
information to such person or group, Silknet furnishes such information to Kana
(to the extent that such information has not been previously furnished by
Silknet to Kana).
(b) Silknet and its Representatives will immediately cease and cause to be
terminated any and all existing discussions, negotiations, exchanges of
information and other activities with respect to any Silknet Takeover Proposal.
Promptly following the execution and delivery of this Agreement, Silknet shall
(i) inform each of its Representatives of the obligations undertaken in this
Section 6.02 and in the Confidentiality Agreement and (ii) request each person
- ------------
that has heretofore executed a confidentiality or non-disclosure agreement in
connection with its consideration of acquiring it or any of its Subsidiaries to
return to Silknet all confidential information heretofore furnished to such
person by or on behalf of it or any of its Subsidiaries. At the Closing,
Silknet shall assign to Kana the non-exclusive right to enforce the rights of
Silknet and its Subsidiaries under any and all such confidentiality or non-
disclosure agreements. Any violation of the restrictions set forth in this
Section 6.02 by any officer, director or employee of Silknet, any affiliate
- ------------
under the control of Silknet, or any investment banker, attorney, accountant or
other agent, advisor or representative of Silknet shall be deemed to be a breach
of this Section 6.02 by Silknet. Silknet shall notify Kana forthwith if any
------------
inquiries, proposals or offers relating to a Silknet Takeover Proposal are
received by, any such information
32
<PAGE>
is requested from, or any such discussions or negotiations are sought to be
initiated or continued with, Silknet or any of its Representatives, indicating,
in connection with such notice, the name of the person making the inquiry,
proposal or offer and the material terms and conditions of any proposals or
offers. Thereafter Silknet shall provide Kana with a true and complete copy of
such Silknet Takeover Proposal or communication (if it is in writing) and shall
otherwise keep Kana informed, on a current basis, with respect to the status and
terms of any such proposal or offer and the status of any such negotiations or
discussions.
(c) Silknet and Kana agree that irreparable damage would occur in the
event that the provisions of this Section 6.02 were not performed in accordance
------------
with their specific terms or were otherwise breached. It is accordingly agreed
by the parties hereto that Kana shall be entitled to seek an injunction or
injunctions to prevent breaches of this Section 6.02 and to enforce specifically
------------
the terms and provisions hereof in any court of the United States or any state
having jurisdiction, this being in addition to any other remedy to which the
parties may be entitled at law or in equity.
(d) For purposes of this Agreement, "Silknet Takeover Proposal" means any
-------------------------
offer or proposal for, or any indication of interest in, a merger or other
business combination involving Silknet or the acquisition of twenty percent
(20%) or more of the outstanding shares of capital stock of Silknet, or all or
substantially all of the assets of Silknet or any asset of Silknet, the absence
of which would materially diminish the value of the Merger to Kana or the
benefits expected by Kana to be realized from the Merger (other than the
transactions contemplated by this Agreement), or any other transaction
inconsistent with consummation of the transactions contemplated hereby.
Section 6.03 No Solicitation by Kana.
-------------------------------------
(a) Until the earlier of the Effective Time or a valid termination of
this Agreement pursuant to Article VIII, Kana will not, and will not authorize,
------------
direct or permit any of its Representatives to, directly or indirectly, (i)
solicit, initiate, encourage or induce the making, submission or announcement of
any Kana Takeover Proposal (as defined below), (ii) participate in any
discussions or negotiations with any person regarding, or furnish to any person
any information with respect to, or take any other action to facilitate any
inquiry or proposal that constitutes or may reasonably be expected to lead to,
any Kana Takeover Proposal, (iii) authorize, approve or recommend any Kana
Takeover Proposal, or (iv) enter into any letter of intent or similar document
or any contract, agreement or commitment accepting or providing for any Kana
Takeover Proposal; provided, however, nothing herein shall prohibit Kana's Board
-------- -------
of Directors from complying with Rules 14d-9 and 14e-2 under the Exchange Act;
and provided, further, however, that this Section 6.03(a) shall not prohibit
-------- ------- ------- ----------------
Kana, before the approval by Kana stockholders of the issuance of Kana Common
Stock pursuant to this Agreement (the "Kana Voting Proposal"), from furnishing
--------------------
information regarding Kana or entering into negotiations or discussions with,
any person or group in response to a Kana Takeover Proposal submitted by such
person or group (and not withdrawn) and, subject to the provisions of Section
-------
6.06 of this Agreement, endorsing and/or recommending a Kana Superior Offer (as
- ----
defined below), and any such actions shall not be considered a breach of this
Agreement to the extent they are taken in
33
<PAGE>
compliance with the conditions and limitations set forth in this Agreement if
(1) neither Kana nor any of its Representatives shall have violated any of the
restrictions set forth in this Section 6.03(a) or Section 6.06, (2) the Board of
--------------- ------------
Directors of Kana determines in good faith, after considering the advice of an
investment bank of nationally recognized reputation, that such Kana Takeover
Proposal is substantially more favorable to Kana and its stockholders than the
Merger, taking into account the anticipated long-term value and strategic
benefits of the Merger to Kana stockholders, (3) the Board of Directors of Kana
concludes in good faith, after consultation with its outside legal counsel, that
failure to take such action would be inconsistent with the fiduciary obligations
of the Board of Directors of Kana to Kana stockholders under applicable law, (4)
prior to furnishing any such information to, or entering into discussions or
negotiations with, such person or group, Kana gives Silknet written notice of
the identity of such person or group, the terms and conditions of the offer and
Kana's intention to furnish information to, or enter into discussions or
negotiations with, such person or group, (5) Kana receives from such person or
group an executed confidentiality agreement which shall not in any way restrict
Kana from complying with its disclosure obligations under this Agreement and
which shall otherwise contain customary limitations on the use and disclosure of
all nonpublic written and oral information furnished to such person or group by
or on behalf of Kana and other terms no less favorable to Kana than those set
forth in the Confidentiality Agreement, including with respect to such Kana
Takeover Proposal), and (6) contemporaneously with furnishing any such
information to such person or group, Kana furnishes such information to Silknet
(to the extent that such information has not been previously furnished by Kana
to Silknet).
(b) Kana and its Representatives will immediately cease and cause to
be terminated any and all existing discussions, negotiations, exchanges of
information and other activities with respect to any Kana Takeover Proposal.
Promptly following the execution and delivery of this Agreement, Kana shall (i)
inform each of its Representatives of the obligations undertaken in this Section
-------
6.03 and in the Confidentiality Agreement, and (ii) request each person that has
- ----
heretofore executed a confidentiality or non-disclosure agreement in connection
with its consideration of acquiring it or any of its Subsidiaries to return to
Kana all confidential information heretofore furnished to such person by or on
behalf of it or any of its Subsidiaries. Any violation of the restrictions set
forth in this Section 6.03 by any officer, director or employee of Kana, any
------------
affiliate under the control of Kana, or any investment banker, attorney,
accountant or other agent, advisor or representative of Kana shall be deemed to
be a breach of this Section 6.03 by Kana. Kana shall notify Silknet forthwith
------------
if any inquiries, proposals or offers relating to a Kana Takeover Proposal are
received by, any such information is requested from, or any such discussions or
negotiations are sought to be initiated or continued with, Kana or any of its
Representatives, indicating, in connection with such notice, the name of the
person making the inquiry, proposal or offer and the material terms and
conditions of any proposals or offers. Thereafter Kana shall provide Silknet
with a true and complete copy of such Kana Takeover Proposal or communication
(if it is in writing) and shall otherwise keep Silknet informed, on a current
basis, with respect to the status and terms of any such proposal or offer and
the status of any such negotiations or discussions.
(c) Kana and Silknet agree that irreparable damage would occur in the
event that the provisions of this Section 6.03 were not performed in accordance
------------
with their specific terms or
34
<PAGE>
were otherwise breached. It is accordingly agreed by the parties hereto that
Silknet shall be entitled to seek an injunction or injunctions to prevent
breaches of this Section 6.03 and to enforce specifically the terms and
------------
provisions hereof in any court of the United States or any state having
jurisdiction, this being in addition to any other remedy to which the parties
may be entitled at law or in equity.
(d) For purposes of this Agreement, "Kana Takeover Proposal" means any
----------------------
offer or proposal for, or any indication of interest in, a merger or other
business combination involving an acquisition or a change in control of Kana or
the acquisition of a majority of the outstanding shares of capital stock of
Kana, or all or substantially all of the assets of Kana, or any other
transaction inconsistent with consummation of the transactions contemplated
hereby, which offer, proposal or indication of interest is conditioned on the
termination of this Agreement by Kana or the denial by Kana stockholders of the
Kana Voting Proposal.
Section 6.04 Nasdaq.
--------------------
Each of Silknet and Kana agrees to continue the quotation of Kana
Common Stock and Silknet Common Stock, respectively, on the Nasdaq National
Market, during the term of this Agreement so that appraisal rights will not be
available to stockholders of Silknet under Section 262 of the DGCL.
Section 6.05 Access To Information.
-----------------------------------
Upon reasonable notice, Silknet and Kana shall each (and shall cause
each of their respective Subsidiaries to) afford to the officers, employees,
accountants, counsel and other representatives of the other, access, during
normal business hours during the period prior to the Effective Time, to all its
properties, books, contracts, commitments and records and, during such period,
each of Silknet and Kana shall (and shall cause each of their respective
Subsidiaries to) furnish promptly to the other (a) a copy of each report,
schedule, registration statement and other document filed or received by it
during such period pursuant to the requirements of federal securities laws and
(b) all other information concerning its business, properties and personnel as
such other party may reasonably request. Unless otherwise required by law, the
parties will hold any such information which is nonpublic in confidence in
accordance with the Confidentiality Agreement. No information or knowledge
obtained in any investigation pursuant to this Section 6.05 shall affect or be
------------
deemed to modify any representation or warranty contained in this Agreement or
the conditions to the obligations of the parties to consummate the Merger.
Section 6.06 Stockholders Meetings.
-----------------------------------
(a) Promptly after the date hereof, Silknet will take all action
reasonably necessary in accordance with the DGCL and its Certificate of
Incorporation and by-laws to cause the Silknet Stockholders' Meeting to be held
as promptly as practicable for the purpose of voting upon this Agreement and the
Merger, and Kana will take all action reasonably necessary in accordance with
the DGCL and its Certificate of Incorporation and by-laws to cause the Kana
Stockholders' Meeting to be held as promptly as practicable for the purpose of
voting upon the Kana Voting Proposal. Unless otherwise mutually agreed by Kana
and Silknet, Kana and
35
<PAGE>
Silknet shall coordinate and cooperate with respect to the timing of such
meetings and shall use their reasonable best efforts to hold such meetings on
the same day and as soon as practicable after the date hereof. Subject to their
rights under Section 8.01(i) and Section 8.01(j), Silknet and Kana shall
--------------- ---------------
solicit from their respective stockholders proxies in favor of the approval and
adoption of this Agreement and approval of the Merger (in the case of Silknet
stockholders) and the Kana Voting Proposal (in the case of Kana stockholders),
and will take all other action necessary or advisable to secure the vote or
consent of their respective stockholders required by the rules of Nasdaq or the
DGCL to obtain such approvals; provided, however, that neither Silknet nor Kana
-------- -------
shall be required to take any action that its respective Board of Directors
determines in good faith after consultation with outside legal counsel would be
inconsistent with its fiduciary duties to its stockholders under applicable law.
Notwithstanding anything to the contrary contained in this Agreement, Silknet
may adjourn or postpone the Silknet Stockholders' Meeting, and Kana may adjourn
or postpone the Kana Stockholders' Meeting, to the extent that (i) such
adjournment or postponement is necessary to ensure that any necessary supplement
or amendment to the Prospectus/Proxy Statement is provided to such party's
stockholders in advance of the applicable vote or (ii) additional time is
reasonably required to solicit proxies in favor of the approvals required by
Section 7.01(a) or (iii) as of the time for which such stockholders' meeting is
- ---------------
originally scheduled (as set forth in the Prospectus/Proxy Statement) there are
insufficient shares represented (either in person or by proxy) to constitute a
quorum necessary to conduct the business of such stockholders' meeting. Silknet
shall ensure that Silknet Stockholders' Meeting is called, noticed, convened,
held and conducted, and that all proxies solicited by Silknet in connection with
Silknet Stockholders' Meeting are solicited, and Kana shall ensure that Kana
Stockholders' Meeting is called, noticed, convened, held and conducted, and that
all proxies solicited by Kana in connection with Kana Stockholders' Meeting are
solicited, in compliance with the DGCL, applicable charter documents, the rules
of Nasdaq and all other applicable legal requirements.
(b) (i) The Board of Directors of Silknet shall recommend that Silknet
stockholders vote in favor of the approval and adoption of this Agreement and
approval of the Merger at the Silknet Stockholders' Meeting; (ii) the
Prospectus/Proxy Statement shall include a statement to the effect that the
Board of Directors of Silknet has recommended that Silknet stockholders vote in
favor of the approval and adoption of this Agreement and approval of the Merger
at Silknet Stockholders' Meeting; and (iii) neither the Board of Directors of
Silknet nor any committee thereof shall withdraw, amend or modify, or propose or
resolve to withdraw, amend or modify in a manner adverse to Kana the
recommendation of the Board of Directors of Silknet that Silknet stockholders
vote in favor of the approval and adoption of this Agreement and approval of the
Merger; provided, however, that nothing in this Agreement shall prevent the
-------- -------
Board of Directors of Silknet from withholding, withdrawing, amending or
modifying its recommendation in favor of approval and adoption of this Agreement
and approval of the Merger if: (A) a Silknet Superior Offer is made to Silknet
and is not withdrawn, (B) neither Silknet nor any of its representatives shall
have violated any of the restrictions set forth in Section 6.02, (C) five
------------
business days elapse following delivery by Silknet to Kana of written notice
advising Kana that the Board of Directors of Silknet intends to withhold,
withdraw, amend or modify its recommendation; and (D) the Board of Directors of
Silknet concludes in good faith, after considering applicable state law and
consultation with its outside counsel, that,
36
<PAGE>
in light of such Silknet Superior Offer, the failure to withhold, withdraw,
amend or modify such recommendation would be inconsistent with the fiduciary
duties of the Board of Directors of Silknet to Silknet stockholders under
applicable law. For purposes of this Agreement, "Silknet Superior Offer" shall
----------------------
mean an unsolicited, bona fide written offer made by a third party to consummate
any of the following transactions: (x) a merger, consolidation, business
combination, recapitalization, liquidation, dissolution or similar transaction
involving Silknet pursuant to which the stockholders of Silknet immediately
preceding such transaction hold less than fifty percent (50%) of the equity
interest in the surviving or resulting entity of such transaction; (y) a sale or
other disposition by Silknet of assets (excluding inventory and used equipment
sold in the ordinary course of business) representing all or substantially all
of Silknet's assets, or (z) the acquisition by any person or group (including by
way of a tender offer or an exchange offer or issuance by Silknet), directly or
indirectly, of beneficial ownership or a right to acquire beneficial ownership
of shares representing fifty percent (50%) or more of the voting power of the
then outstanding shares of capital stock of Silknet, in each case on terms that,
in the good faith judgment of the Board of Directors of Silknet (after
consultation with an investment bank of nationally recognized reputation) are
substantially more favorable to Silknet stockholders than the Merger (after
taking into account all relevant factors, including the anticipated long-term
value and strategic benefits of the Merger to Silknet stockholders, any
conditions to the Silknet Superior Offer, the timing of the consummation of the
transaction pursuant to the Silknet Superior Offer, the risk of nonconsummation
thereof and the need for any required governmental or other consents, filings
and approvals); provided, however, that an offer shall only be a Silknet
-------- -------
Superior Offer if any financing required to consummate the transaction
contemplated by such offer is committed or is otherwise reasonably likely in the
good faith judgment of Silknet's Board of Directors to be obtained by such third
party on a timely basis.
(c) Subject to the right of Silknet to terminate this Agreement
pursuant to Section 8.01(i), nothing contained in Section 6.06(b) shall limit
---------------
Silknet's obligation to call, give notice of, convene and hold the Silknet
Stockholders' Meeting (regardless of whether the recommendation of the Board of
Directors of Silknet shall have been withdrawn, amended or modified and
regardless of whether any Silknet Takeover Proposal has been commenced,
disclosed, or announced).
(d) (i) The Board of Directors of Kana shall recommend that Kana
stockholders vote in favor of approval of the Kana Voting Proposal at the Kana
Stockholders' Meeting; (ii) the Prospectus/Proxy Statement shall include a
statement to the effect that the Board of Directors of Kana has recommended that
Kana stockholders vote in favor approval of the Kana Voting Proposal pursuant to
this Agreement at the Kana Stockholders' Meeting; and (iii) neither the Board of
Directors of Kana nor any committee thereof shall withdraw, amend or modify, or
propose or resolve to withdraw, amend or modify in a manner adverse to Silknet
the recommendation of the Board of Directors of Kana that Kana stockholders vote
in favor approval of the Kana Voting Proposal pursuant to this Agreement;
provided, however, that nothing in this Agreement shall prevent the Board of
- -------- -------
Directors of Kana from withholding, withdrawing, amending or modifying its
recommendation in favor of approval and adoption of this Agreement and approval
of the Merger if (A) a Kana Superior Offer is made to Kana and is
37
<PAGE>
not withdrawn, (B) neither Kana nor any of its representatives shall have
violated any of the restrictions set forth in Section 6.03, (C) five business
------------
days elapse following delivery by Kana to Silknet of written notice advising
Silknet that the Board of Directors of Kana intends to withhold, withdraw, amend
or modify its recommendation absent modification of the terms and conditions of
this Agreement, and (D) the Board of Directors of Kana concludes in good faith,
after considering applicable state law and consultation with its outside
counsel, that, in light of such Kana Superior Offer, the failure to withhold,
withdraw, amend or modify such recommendation would be inconsistent with the
fiduciary duties of the Board of Directors of Kana to Kana stockholders under
applicable law. For purposes of this Agreement, "Kana Superior Offer" shall mean
-------------------
an unsolicited, bona fide written offer made by a third party to consummate any
of the following transactions: (x) a merger, consolidation, business
combination, recapitalization, liquidation, dissolution or similar transaction
involving Kana pursuant to which the stockholders of Kana immediately preceding
such transaction hold less than fifty percent (50%) of the equity interest in
the surviving or resulting entity of such transaction; (y) a sale or other
disposition by Kana of assets (excluding inventory and used equipment sold in
the ordinary course of business) representing all or substantially all of Kana's
assets, or (z) the acquisition by any person or group (including by way of a
tender offer or an exchange offer or issuance by Kana), directly or indirectly,
of beneficial ownership or a right to acquire beneficial ownership of shares
representing fifty percent (50%) or more of the voting power of the then
outstanding shares of capital stock of Kana, in each case on terms that, in the
good faith judgment of the Board of Directors of Kana (after consultation with
an investment bank of nationally recognized reputation) are substantially more
favorable to Kana or its stockholders than the Merger (after taking into account
all relevant factors, including the anticipated long-term value and strategic
benefits of the Merger to Kana and its stockholders, any conditions to the Kana
Superior Offer, the timing of the consummation of the transaction pursuant to
the Kana Superior Offer, the risk of nonconsummation thereof and the need for
any required governmental or other consents, filings and approvals); provided,
--------
however, that an offer shall only be a Kana Superior Offer if any financing
- -------
required to consummate the transaction contemplated by such offer is committed
or is otherwise reasonably likely in the good faith judgment of Kana's Board of
Directors to be obtained by such third party on a timely basis.
(e) Subject to the right of Kana to terminate this Agreement pursuant
to Section 8.01(j), nothing contained in Section 6.06(d) shall limit Kana's
---------------
obligation to call, give notice of, convene and hold the Kana Stockholders'
Meeting (regardless of whether the recommendation of the Board of Directors of
Kana shall have been withdrawn, amended or modified and regardless of whether
any Kana Takeover Proposal has been commenced, disclosed, or announced).
(f) Kana may also submit additional proposals to its stockholders at
the Kana Stockholders' Meeting (including a proposal to amend its Certificate of
Incorporation to increase the number of authorized shares of Kana Common Stock
or amend its Stock Incentive Plan to increase the number of Kana Common Stock
issuable thereunder) that are not inconsistent with Kana's obligations under
this Agreement, separate from the proposal referred to in Section 3.20. The
------------
approval by Kana stockholders of such additional proposals shall not be a
condition to the closing of the Merger under this Agreement.
38
<PAGE>
Section 6.07 Legal Conditions To Merger.
----------------------------------------
(a) Silknet and Kana shall each use all requisite commercially
reasonable efforts to (i) take, or cause to be taken, all appropriate action,
and do, or cause to be done, all things necessary and proper under applicable
law to consummate and make effective the transactions contemplated hereby as
promptly as practicable, (ii) obtain from any Governmental Entity or any other
third party any consents, licenses, permits, waivers, approvals, authorizations,
or orders required to be obtained or made by Silknet or Kana or any of their
Subsidiaries in connection with the authorization, execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby
including the Merger, and (iii) as promptly as practicable, make all necessary
filings, and thereafter make any other required submissions, with respect to
this Agreement and the Merger required under (A) the Securities Act and the
Exchange Act, and any other applicable federal or state securities laws, and (B)
any other applicable law. Silknet and Kana shall cooperate with each other in
connection with the making of all such filings, including providing copies of
all such documents to the non-filing party and its advisors prior to filing and,
if requested, to accept all reasonable additions, deletions or changes suggested
in connection therewith. Silknet and Kana shall use commercially reasonable
efforts to furnish to each other all information required for any application or
other filing to be made pursuant to the rules and regulations of any applicable
law (including all information required to be included in the Joint Proxy
Statement/Prospectus and the Registration Statement) in connection with the
transactions contemplated by this Agreement.
(b) Kana and Silknet agree, and shall cause each of their respective
Subsidiaries, to cooperate and to use their respective commercially reasonable
efforts to obtain any government clearances required for Closing, to respond to
any government requests for information, and to contest and resist any action,
including any legislative, administrative or judicial action, and to have
vacated, lifted, reversed or overturned any decree, judgment, injunction or
other order (whether temporary, preliminary or permanent) (an "Order") that
-----
restricts, prevents or prohibits the consummation of the Merger or any other
transactions contemplated by this Agreement, including by vigorously pursuing
all available avenues of administrative and judicial appeal and all available
legislative action.
(c) Each of Silknet and Kana shall give (or shall cause their
respective Subsidiaries to give) any notices to third parties, and use, and
cause their respective Subsidiaries to use, commercially reasonable efforts to
obtain any third party consents related to or required in connection with the
Merger that are (i) necessary to consummate the transactions contemplated
hereby, (ii) disclosed or required to be disclosed in the Silknet Disclosure
Schedule or the Kana Disclosure Schedule, as the case may be, or (iii) required
to prevent a Silknet Material Adverse Effect or a Kana Material Adverse Effect
from occurring.
Section 6.08 Public Disclosure.
-------------------------------
Kana and Silknet shall consult with each other before issuing any
press release or otherwise making any public statement with respect to the
Merger or this Agreement and shall
39
<PAGE>
not issue any such press release or make any such public statement prior to such
consultation, except as may be required by law.
Section 6.09 Tax-Free Reorganization.
-------------------------------------
Kana and Silknet shall each use all requisite commercially reasonable
efforts to cause the Merger to be treated as a reorganization within the meaning
of Section 368(a) of the Internal Revenue Code.
Section 6.10 Nasdaq Quotation.
------------------------------
Kana shall use all requisite commercially reasonable efforts to cause
the shares of Kana Common Stock to be issued in the Merger to be approved for
quotation on the Nasdaq National Market, subject to official notice of issuance,
prior to the Closing Date.
Section 6.11 Stock Plans and Warrants.
--------------------------------------
(a) At the Effective Time, each outstanding option to purchase shares
of Silknet Common Stock (a "Silknet Stock Option") under the Silknet Stock
--------------------
Plans, whether vested or unvested, shall be assumed and shall constitute an
option to acquire, on the same terms and conditions as were applicable under
such Silknet Stock Option, the same number of shares of Kana Common Stock as the
holder of such Silknet Stock Option would have been entitled to receive pursuant
to the Merger had such holder exercised such option in full immediately prior to
the Effective Time (rounded downward to the nearest whole number), at a price
per share (rounded upward to the nearest whole cent) equal to (y) the aggregate
exercise price for the shares of Silknet Common Stock purchasable pursuant to
such Silknet Stock Option immediately prior to the Effective Time divided by (z)
the number of full shares of Kana Common Stock deemed purchasable pursuant to
such Silknet Stock Option in accordance with the foregoing. All outstanding
rights of Silknet that it may hold immediately prior to the Effective Time to
repurchase unvested shares of Silknet Common Stock issued or issuable under any
of the Silknet Stock Plans (the "Repurchase Options") shall be assigned to Kana
------------------
and shall thereafter be exercisable by Kana upon the same terms and conditions
in effect immediately prior to the Effective Time, except that the shares
purchasable pursuant to the Repurchase Options and the purchase price per shall
be adjusted to reflect the Exchange Ratio.
(b) As soon as practicable after the Effective Time, Kana shall
deliver to the participants in Silknet Stock Plans appropriate notice setting
forth such participants' rights pursuant thereto and the grants pursuant to
Silknet Stock Plans shall continue in effect on the same terms and conditions
(subject to the adjustments required by this Section 6.11 after giving effect
------------
to the Merger). Consistent with the terms of the Silknet Stock Plans and the
documents governing the outstanding options under those plans, the Merger
shall not result in the termination of any outstanding options under the
Silknet Stock Plans that are so assumed by Kana or the shares of Kana Common
Stock that will be subject to those options upon Kana's assumption of the
options in the Merger. All holders of Silknet stock options shall have the
right to exercise such options following the Effective Time, with full credit
given to all of the provisions of the existing stock option agreements and the
Silknet stock option plans, including provisions regarding vesting and service
relating to any predecessor corporation acquired by Silknet and including the
vesting acceleration provisions pursuant to which the vesting date of all
options shall accelerate by one year upon a change in control such as the
Merger. It is the intention of the parties that the options so assumed by Kana
qualify following the Effective Time as incentive stock options as defined in
Section 422 of the Code to the extent such options qualified as incentive
stock options prior to the Effective Time. Within 30 business days after the
Effective Time, provided that Kana has received within 10 business days after
the Effective Time all option documentation it requires relating to the
outstanding options, Kana will issue to each person who, immediately prior to
the Effective Time, is a holder of an outstanding option under the Silknet
stock option plans that is to be assumed by Kana hereunder, a document in form
and substance reasonably satisfactory to Silknet evidencing the foregoing
40
<PAGE>
assumption of such option by Kana, including provisions regarding vesting and
service relating to any predecessor corporation acquired by Silknet and its
subsidiaries and including the vesting acceleration provisions pursuant to
which the vesting date of all options shall accelerate by one year upon a
change in control such as the Merger. For purposes of clarity, an option to
purchase 10,000 shares of Silknet Common Stock which but for the Merger would,
immediately prior to the Effective Time, be vested with respect to 2,500
shares of Silknet Common Stock and scheduled to vest with respect to 2,500
shares of Silknet Common Stock in each of the first, second and third years
following the Effective Time shall, immediately prior to the Effective Time,
accelerate such that it is vested with respect to 5,000 shares of Silknet
Common Stock (2,500 previously vested; 2,500 accelerated by one year) and
scheduled to vest with respect to 2,500 shares of Silknet Common Stock in each
of the first and second years following the Effective Time and thereafter be
fully vested and exercisable in accordance with its terms.
(c) Kana shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Kana Common Stock for delivery under
Silknet Stock Plans assumed in accordance with this Section 6.11. As soon as
------------
practicable and in no event more than thirty (30) business days after the
Effective Time, provided that Kana has received within 10 business days after
the Effective Time all option documentation it requires relating to the
outstanding options, Kana shall file a registration statement on Form S-8 (or
any successor forms), subject to such options and shall use commercially
reasonable efforts to maintain the effectiveness of such registration statement
or registration statements (and maintain the current status of the prospectus or
prospectuses contained therein) for so long as such options remain outstanding.
Silknet shall cooperate with and assist Kana in the preparation of such
registration statements.
(d) The Board of Directors of Silknet shall, prior to or as of the
Effective Time, take all necessary actions, pursuant to and in accordance with
the terms of the Silknet Stock Plans and the instruments evidencing the Silknet
Stock Options, to provide for the conversion of the Silknet Stock Options into
options to acquire Kana Common Stock in accordance with this Section 6.11, and
------------
that no consent of the holders of the Silknet Stock Options is required in
connection with such conversion.
(e) The Board of Directors of Silknet shall, prior to or as of the
Effective Time, take appropriate action to approve the deemed cancellation of
the Silknet Stock Options for purposes of Section 16(b) of the Exchange Act. The
Board of Directors of Kana shall, prior to or as of the Effective Time, take
appropriate action to approve the deemed grant of options to purchase Kana
Common Stock under the Silknet Stock Options (as converted pursuant to this
Section 6.11) for purposes of Section 16(b) of the Exchange Act.
- ------------
(f) Effective as of the date that is two business days prior to the
Closing Date, Silknet shall take, or cause to be taken, all action necessary to
amend the Silknet ESPP to (a) provide that the Silknet ESPP, and all future
payment periods thereunder, shall terminate on the
41
<PAGE>
business day immediately prior to the first semi-annual entry date under the
Kana Employee Stock Purchase Plan that is at least 30 business days following
the Effective Time (the "Kana Entry Date"), and (b) any purchase rights that are
---------------
outstanding on the business day immediately prior to the Kana Entry Date shall
be exercised immediately prior to the Plan termination. Outstanding purchase
rights under the Silknet ESPP shall be assumed by Kana at the Effective Time. On
the Closing Date, Silknet shall deliver to Kana a complete list of all holders
of outstanding purchase rights under the Silknet ESPP, including payroll
deduction amounts elected by each holder and the price per share of Silknet
Common Stock at the beginning of the current Silknet ESPP payment period. Each
such purchase right so assumed by Kana under this Agreement shall continue to
have, and be subject to, the same terms and conditions set forth in the Silknet
ESPP and the documents governing the outstanding purchase rights under the
Silknet ESPP, immediately prior to the Effective Time, except that the purchase
price of shares of Kana Common Stock and the number of shares of Kana Common
Stock to be issued upon the exercise of the assumed purchase right under the
Silknet ESPP shall be adjusted in accordance with the Exchange Ratio. On the
date the assumed purchase rights under the Silknet ESPP are exercised in
accordance with the foregoing, each participant in the Silknet ESPP shall
accordingly be issued shares of Kana Common Stock upon such purchase (adjusted
for the Exchange Ratio). The Silknet ESPP, and all outstanding purchase rights
thereunder, shall terminate with such purchase date, and no purchase rights
shall be subsequently granted or exercised under the Silknet ESPP. Silknet
employees who meet the eligibility requirements for participation in the Kana
Employee Stock Purchase Plan (giving credit for service to Silknet for purposes
of determining eligibility) shall be eligible to begin payroll deductions under
that plan as of the first semi-annual entry date thereunder after the Effective
Time.
(g) Within five (5) business days following the date of this
Agreement, Silknet shall set forth on Schedule 6.11(g) a list of all persons who
----------------
Silknet reasonably believes are, with respect to Silknet and as of the date of
this Agreement, "disqualified individuals" (within the meaning of Section 280G
of the Code and the regulations promulgated thereunder). Within five (5)
business days prior to the Closing Date, Silknet shall revise Schedule 6.11(g)
---------------
to reflect any additional information that Silknet reasonably believes would
impact the determination of persons who are, with respect to Silknet, such
"disqualified individuals."
(h) At the Effective Time, Kana shall assume all outstanding warrants
to exercise Silknet Common Stock ("Silknet Warrants") which have not expired or
been exercised prior thereto. Each Silknet Warrant so assumed by Kana under this
Agreement shall continue to have, and be subject to, the same terms and
conditions as were applicable to such Silknet Warrant immediately prior to the
Effective Time (including, without limitation, any repurchase rights or vesting
provisions), provided that (A) such Silknet Warrant shall be exercisable for
that number of whole shares of Kana Common Stock equal to the product of the
number of shares of Silknet Common Stock that were issuable upon exercise of
such Silknet Warrant immediately prior to the Effective Time multiplied by the
Exchange Ratio applicable to the Silknet Common Stock subject to such Silknet
Warrant (rounded down to the nearest whole number of shares of Kana Common
Stock) and (B) the per share exercise price for the shares of Kana Common Stock
issuable upon exercise of such assumed Silknet Warrant shall be equal to the
quotient determined by dividing the exercise price per share of Silknet Common
Stock at which such
42
<PAGE>
Silknet Warrant was exercisable immediately prior to the Effective Time by the
Exchange Ratio applicable to the series of Silknet Common Stock subject to such
Silknet Warrant (rounded up to the nearest whole cent). Kana shall, from and
after the Effective Time, upon exercise of the Silknet Warrants in accordance
with the terms thereof, make available for issuance all shares of Kana Common
Stock covered thereby and shall, as promptly as practicable after the Effective
Time, issue to each holder of an outstanding Silknet Warrant a document
evidencing the foregoing assumption by Kana.
Section 6.12 Stock Option and Voting Agreements.
------------------------------------------------
Concurrently with the execution and delivery of this Agreement,
Silknet and Kana shall (a) execute and deliver the Silknet Stock Option
Agreement and the Kana Stock Option Agreement in the form annexed hereto as
Exhibit C and Exhibit D, respectively, and (b) cause each of their respective
- --------- ---------
directors and executive officers and each of their respective controlled
affiliates listed on Schedule 6.12 herewith to execute and deliver voting
agreements and irrevocable proxies in the applicable forms annexed hereto as
Exhibits A and B (the "Voting Agreements"), agreeing, among other things, to
- ---------- - -----------------
vote in favor of the Merger and against any competing proposals. Silknet and
Kana shall each take all corporate action necessary to reserve for issuance a
sufficient number of shares of its common stock for delivery upon an exercise in
full of the option granted to Kana in the Silknet Stock Option Agreement and to
Silknet in the Kana Stock Option Agreement.
Section 6.13 Board Composition.
-------------------------------
Kana and the Kana Board of Directors shall take all action required
to increase the size of the Board to nine (9) as of the Effective Time and to
cause the election promptly after the Election Time by the Kana Board of James
C. Wood to the Kana Board for at least a period of one (1) year following the
Closing Date.
Section 6.14 Brokers Or Finders.
--------------------------------
Each of Kana and Silknet represents, as to itself, its Subsidiaries
and its affiliates, that no agent, broker, investment banker, financial advisor
or other firm or person is or will be entitled to any broker's or finder's fee
or any other commission or similar fee in connection with any of the
transactions contemplated by this Agreement except Credit Suisse First Boston,
whose fees and expenses will be paid by Silknet in accordance with Silknet's
agreement with such firm (copies of which have been delivered by Silknet to Kana
prior to the date of this Agreement), and Goldman, Sachs & Co., whose fees and
expenses will be paid by Kana in accordance with Kana's agreement with such firm
(a copy of which has been delivered by Kana prior to the date of this
Agreement). Each of Kana and Silknet agrees to indemnify and hold the other
harmless from and against any and all claims, liabilities or obligations with
respect to any such fees, commissions or expenses asserted by any person on the
basis of any act or statement alleged to have been made by such party or any of
its Affiliates.
43
<PAGE>
Section 6.15 Stand-Off Agreements.
----------------------------------
On or before the Effective Time, each officer and director of
Silknet and Kana and affiliates controlled by Silknet or Kana will execute a
Market Stand-Off Agreement in substantially the form attached hereto as Exhibit
-------
E (the "Stand-Off Agreement").
- - -------------------
Section 6.16 Registration Rights.
---------------------------------
On or before the Effective Time, Kana shall use all commercially
reasonable efforts to amend its Fourth Amended and Restated Investors Rights
Agreement to provide registration rights to Silknet Principal Stockholders which
possess rights to cause their Silknet Common Stock to be registered, on a basis
pari passu with the holders of Kana registration rights, substantially in the
form of Exhibit F hereto (the "Rights Agreement Amendment").
---------
Section 6.17 Indemnification.
-----------------------------
(a) From and after the Effective Time, Kana agrees that it will, and
will cause the Surviving Corporation to, indemnify and hold harmless each
present and former director and officer of Silknet (the "Indemnified Parties"),
-------------------
against any costs or expenses (including attorneys' fees), judgments, fines,
losses, claims, damages, liabilities or amounts paid in settlement
(collectively, "Costs") incurred in connection with any claim, action, suit,
-----
proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of or pertaining to matters existing or occurring at
or prior to the Effective Time, whether asserted or claimed prior to, at or
after the Effective Time, to the fullest extent that Silknet would have been
permitted under Delaware law and its certificate of incorporation or bylaws in
effect on the date hereof to indemnify such Indemnified Party (and Kana and the
Surviving Corporation shall also advance expenses as incurred to the fullest
extent permitted under applicable law, provided the Indemnified Party to whom
--------
expenses are advanced provides an undertaking to repay such advances if it is
ultimately determined that such Indemnified Party is not entitled to
indemnification).
(b) For a period of six (6) years after the Effective Time, Kana shall
cause the Surviving Corporation to maintain (to the extent available in the
market) in effect a directors' and officers' liability insurance policy covering
those persons who are currently covered by Silknet's directors' and officers'
liability insurance policy (a copy of which has been heretofore delivered to
Kana) with coverage in amount and scope at least as favorable as Silknet's
existing coverage; provided, that in no event shall Kana or the Surviving
--------
Corporation be required to expend in excess of two hundred percent (200%) of the
annual premium currently paid by Silknet for such coverage as heretofore
disclosed by Silknet to Kana (the "Current Premium"); and if such premium would
---------------
at any time exceed 200% of the Current Premium, then the Surviving Corporation
shall maintain insurance policies which provide the maximum and best coverage
available at an annual premium equal to two hundred percent (200%) of the
Current Premium.
(c) The provisions of this Section 6.17 are intended to be an addition
-----------
to the rights otherwise available to the current officers and directors of
Silknet by law, charter, statute, bylaw
44
<PAGE>
or agreement, and shall operate for the benefit of, and shall be enforceable by,
each of the Indemnified Parties, their heirs and their representatives.
(d) To the extent there is any claim, action, suit, proceeding or
investigation (whether arising before or after the Effective Time) against any
Indemnified Party that arises out of or pertains to any action or omission in
his or her capacity as a director, officer, employee, principal stockholder,
fiduciary or agent of Silknet occurring prior to the Effective Time, or arises
out of or pertains to the transactions contemplated by this Agreement for a
period of six years after the Effective Time (whether arising before or after
the Effective Time), such Indemnified Party shall be entitled to be represented
by counsel and following the Effective Time (i) any counsel retained by the
Indemnified Parties shall be reasonably satisfactory to the Surviving
Corporation and Kana, (ii) the Surviving Corporation and Kana shall pay as
incurred the reasonable fees and expenses of such counsel, promptly after
statement therefor are received, and (iii) the Surviving Corporation and Kana
will cooperate in the defense of any such matter; provided, however, that
-------- -------
neither the Surviving Corporation nor Kana shall be liable for any settlement
effected without its written consent (which consent shall not be unreasonably
withheld, conditioned or delayed); and provided, further, that, in the event
-------- -------
that any claim or claims for indemnification are asserted or made within such
six-year period, all rights to indemnification in respect to any such claim or
claims shall continue until the final disposition of any and all such claims.
The Indemnified Parties as a group may retain only one law firm to represent
them with respect to any single action unless there is, under applicable
standards of professional conduct, a conflict on any significant issue between
the positions of any two or more Indemnified Parties. The provisions of this
Section are intended to be for the benefit of, and shall be enforceable by, each
Indemnified Party, his or her heirs and representatives.
Section 6.18 Benefit Plans.
---------------------------
Kana agrees that, during the period commencing at the Effective Time
and continuing for a reasonable period thereafter, the employees of Silknet and
its Subsidiaries will continue to be provided with benefits under employee
benefit plans (other than stock option or other plans involving the potential
issuance of securities) each of which are listed in Section 3.13 of the Silknet
------------
Disclosure Schedule which are substantially as favorable in the aggregate as
those currently provided by Silknet and its Subsidiaries to such employees
(except with respect to the 401(k) plan as provided below).
(a) Unless Kana consents otherwise in writing, Silknet shall take all
action necessary to terminate, or cause to terminate, before the Effective Time,
any Silknet Employee Plan that is a 401(k) plan or other defined contribution
retirement plan or employee stock purchase plan. Kana shall permit the rollover
of the accounts of participants in the Silknet 401(k) plans to the Kana 401(k)
plan (including outstanding loans of those participants who became employees of
Kana).
(b) Kana shall include Silknet employees in Kana's welfare plans
(within the meaning of Section 3(1) of ERISA) and fringe benefit plans on the
same basis and terms as Silknet employees currently participate and, in any
event, with respect to particular welfare plans
45
<PAGE>
of Kana, upon the termination of the Silknet welfare plans. All welfare benefit
plans of Kana or the Surviving Corporation in which Silknet's employees
participate after the Effective Time shall (i) recognize expenses and claims
that were incurred by Silknet' employees in the year in which the Effective Time
occurs and entitle Silknet employees to applicable copayments and deductibles,
if any, at a rate not higher than that in effect under the corresponding welfare
benefit plan of Silknet in effect at the Effective Time, and (ii) provide
coverage for preexisting health conditions to the extent covered under the
applicable plans or programs of Silknet as of the Effective Time. In addition,
for eligibility purposes under plans of the Surviving Corporation or Kana,
service by an employee for Silknet or any of its subsidiaries and any
predecessor prior to the Effective Time shall be taken into account to the same
extent as service for Kana; provided, that nothing hereby shall require the
--------
inclusion any such employee in any such plan prior to the Effective Time, and
further provided, that in determining the amount of vacation pay owed to any
- ------- --------
such Silknet employee from and after the Effective Time under the applicable
terms of the vacation pay plan of the Surviving Corporation or Kana (which terms
need not be comparable to the terms of the vacation plan or policy of Silknet or
any of its subsidiaries and any predecessor), credit shall be given for such
employee's service for Silknet or any of its subsidiaries and any predecessor
corporation prior to the Effective Time. Employees of Silknet or any of its
subsidiaries and any predecessor corporation as of the Effective Time shall be
permitted to participate in Kana's Employee Stock Purchase Plan (the "Kana
----
ESPP") (if any) commencing on the first enrollment date following the Effective
- ----
Time, subject to compliance with the eligibility provisions of such plan (with
employees receiving credit, for purposes of such eligibility provisions, for
service with Silknet or any of its subsidiaries and any predecessor corporation.
In addition, for eligibility and vesting purposes (but not for benefit
computation or accrual purposes) under plans of the Surviving Corporation or the
Parent, service by an employee for Silknet, its subsidiaries and any of their
predecessor corporations prior to the Effective Time shall be taken into account
to the same extent as service for Kana. Notwithstanding the foregoing, for a
period of no less than one year after the Effective Time, Kana shall provide
severance and termination benefits to employees of Silknet that are no less
favorable than those provided by Silknet to such Silknet employees as of the
date hereof.
(c) (c) With respect to each benefit plan, program practice, policy
or arrangement maintained by Kana (the "Kana Employee Plans") in which employees
-------------------
of Silknet subsequently participate, Kana will recognize such employee's
cumulative prior service to Silknet and its subsidiaries (and their predecessor
corporation) for purposes of determining eligibility to participate in and for
the vesting of benefits under such Kana Employee Plans; provided that such
--------
recognition shall not be for the purpose of determining retirement benefits and
accrual. Such service also shall apply for purposes of satisfying any waiting
periods, evidence of insurability requirements, or the application of any pre-
existing condition limitations. Each Kana Employee Plan shall waive pre-
existing condition limitations to the same extent waived under the applicable
Silknet benefit plan. Silknet Employees shall be given credit for amounts paid
under a corresponding benefit plan during the same period for purposes of
applying deductibles, copayments and out-of-pocket maximums as though such
amounts had been paid in accordance with the terms and conditions of the Kana
Employee Plan.
46
<PAGE>
Section 6.19 Registration Statement; Joint Proxy Statement/Prospectus.
----------------------------------------------------------------------
If at any time prior to the Effective Time any event relating to
Silknet or any of its Affiliates, officers or directors should be discovered by
Silknet which should be set forth in an amendment to the Registration Statement
or a supplement to the Joint Proxy Statement/Prospectus, Silknet shall promptly
inform Kana. If at any time prior to the Effective Time any event relating to
Kana or any of its Affiliates, officers or directors should be discovered by
Kana which should be set forth in an amendment to the Registration Statement or
a supplement to the Joint Proxy Statement/Prospectus, Kana shall promptly inform
Silknet.
Section 6.20 Section 16.
------------------------
Assuming that Silknet delivers to Kana the Section 16 Information
(as defined below) in a timely fashion, the Board of Directors of Kana, or a
committee of two or more "non-employee directors" thereof (as such item is
defined for purposes of Rule 16b-3 under the Exchange Act), shall adopt
resolutions prior to the consummation of the Merger, providing that the receipt
by Silknet Insiders (as defined below) of Kana Common Stock in exchange for
Silknet Common Stock, and of options and warrants for Kana Common Stock upon
conversion of outstanding options and warrants of Silknet, in each case pursuant
to the transactions contemplated hereby and to the extent such securities are
listed in the Section 16 Information, are intended to be exempt from liability
pursuant to Section 16(b) under the Exchange Act. Such resolutions shall comply
with the approval conditions of Rule 16b-3 under the Exchange Act for purposes
of such Section 16(b) exemption, including, but not limited to, specifying the
name of Silknet Insiders, the number of equity securities to be acquired or
disposed of for each such person, the material terms of any derivative
securities, and that the approval is intended to make the receipt of such
securities exempt pursuant to Rule 16b-3(d). "Section 16 Information" shall
mean information accurate in all respects regarding Silknet Insiders, the number
of Silknet Common Stock (or options or warrants therefor, collectively, the
"Options") held by each such Silknet Insider and expected to be exchanged for
Kana Common stock in the Merger, and the number and description of the Options
held by each such Silknet Insider and expected to be converted into options or
warrants for Kana Common Stock in connection with the Merger. "Silknet
Insiders" shall mean those officers, directors and 10% stockholders of Silknet
who will be subject to the reporting requirements of Section 16(b) of the
Exchange Act with respect to Kana and who are listed in the Section 16
Information.
ARTICLE VII.
CONDITIONS TO MERGER
Section 7.01 Conditions To Each Party's Obligation To Effect The Merger.
------------------------------------------------------------------------
The respective obligations of each party to this Agreement to effect
the Merger shall be subject to the satisfaction prior to the Closing Date of the
following conditions:
47
<PAGE>
(a) Stockholder Approval. This Agreement and the Merger shall have
--------------------
been approved and adopted by the affirmative vote of the holders of a majority
of the outstanding shares of Silknet Common Stock and the Kana Voting Proposal
shall have been approved by the affirmative vote of the holders of a majority of
the shares of Kana Common Stock present or represented at the Kana Stockholders'
Meeting at which a quorum is present.
(b) Approvals. Other than the filing provided for by Section 1.01, all
--------- ------------
authorizations, consents, orders or approvals of, or declarations or filings
with, or expirations of waiting periods imposed by, any Governmental Entity
shall have been obtained or made or shall have expired, other than those, the
absence of which would not reasonably be expected to have a Kana Material
Adverse Effect or Silknet Material Adverse Effect and would not prohibit or
render unlawful the consummation of the Merger.
(c) Registration Statement. The Registration Statement shall have
----------------------
become effective under the Securities Act and shall not be the subject of any
stop order or proceedings seeking a stop order.
(d) No Legal Impediment. No Governmental Entity or federal, state or
-------------------
foreign court of competent jurisdiction shall have enacted, issued, promulgated,
enforced or entered any Order, statute, rule or regulation which is in effect
and which has the effect of making the Merger unlawful or otherwise prohibiting
consummation of the Merger.
(e) Nasdaq. The shares of Kana Common Stock to be issued in the
------
Merger shall have been approved for quotation on the Nasdaq.
7.02 Additional Conditions To Obligations Of Kana And Merger Sub.
-----------------------------------------------------------------
The obligations of Kana and Merger Sub to effect the Merger are
subject to the satisfaction of each of the following conditions, any of which
may be waived in writing exclusively by Kana and Merger Sub:
(a) Representations And Warranties. The representations and warranties
------------------------------
of Silknet set forth in this Agreement shall be true and correct as of the date
of this Agreement and as of the Closing Date as though made on and as of the
Closing Date, other than representations and warranties which speak as of an
earlier date (which shall be true and correct as of such earlier date) and
except for (i) changes contemplated by this Agreement and (ii) where the failure
to be true and correct, individually or in the aggregate, has not had and will
not, determined as of the Closing Date and solely with the passage of time, have
a Silknet Material Adverse Effect.
(b) Performance Of Obligations Of Silknet. Silknet shall have
-------------------------------------
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Closing Date.
48
<PAGE>
(c) Certificate. Kana shall have received a certificate signed on
-----------
behalf of Silknet by the chief executive officer and the chief financial officer
of Silknet to the effect that the conditions set forth in Section 7.02(a) and
---------------
Section 7.02(b) are satisfied.
- ---------------
(d) Stand-Off Agreements. Each officer and director of and each
--------------------
affiliate controlled by Silknet shall have entered into Stand-Off Agreements,
pursuant to which each such person will agree not to sell, transfer, pledge,
hypothecate or otherwise dispose of any shares of Silknet Common Stock held as
of the date of such agreement or later acquired by such person for a period
ending 90 days after the Closing.
(e) Tax Opinion. Kana shall have received a written opinion from
-----------
Brobeck, Phleger & Harrison LLP, counsel to Kana, to the effect that the Merger
will be treated for federal income tax purposes as a tax-free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code. The parties
to this Agreement shall make reasonable representations as requested by such
counsel for the purpose of rendering such opinion.
(f) Absence of Material Adverse Effect. No Silknet Material Adverse
----------------------------------
Effect or Kana Material Adverse Effect shall have occurred, and no fact or
circumstance shall exist which will, determined as of the Closing Date and
solely with the passage of time, result in a Silknet Material Adverse Effect.
Section 7.03 Additional Conditions To Obligations Of Silknet.
-------------------------------------------------------------
The obligation of Silknet to effect the Merger is subject to the
satisfaction of each of the following conditions, any of which may be waived, in
writing, exclusively by Silknet:
(a) Representations And Warranties. The representations and warranties
------------------------------
of Kana and Merger Sub set forth in this Agreement shall be true and correct as
of the date of this Agreement and as of the Closing Date as though made on and
as of the Closing Date, other than representations which speak as of an earlier
date (which shall be true and correct as of such earlier date) and except for,
(i) changes contemplated by this Agreement and (ii) where the failures to be
true and correct, individually or in the aggregate, have not had and will not,
determined as of the Closing Date and solely with the passage of time, have a
Kana Material Adverse Effect.
(b) Performance Of Obligations Of Kana And Merger Sub. Kana and Merger
-------------------------------------------------
Sub shall have performed in all material respects all obligations required to be
performed by them under this Agreement at or prior to the Closing Date.
(c) Certificate. Silknet shall have received a certificate signed on
-----------
behalf of Kana by the chief executive officer and the chief financial officer of
Kana to the effect that the conditions set forth in Section 7.03(a) and Section
--------------- -------
7.03(b) are satisfied.
- -------
(d) Stand-Off Agreements. Each officer and director of and each
--------------------
affiliate controlled by Kana shall have entered into Stand-Off Agreements,
pursuant to which each such person will agree not to sell, transfer, pledge,
hypothecate or otherwise dispose of any shares of
49
<PAGE>
Kana Common Stock held as of the date of such agreement or later acquired by
such person for a period ending 90 days after the Closing Date.
(e) Tax Opinion. Silknet shall have received the opinion of Testa,
-----------
Hurwitz &Thibeault, LLP, counsel to Silknet, to the effect that the Merger will
be treated for federal income tax purposes as a tax-free reorganization within
the meaning of Section 368(a) of the Internal Revenue Code. The parties to this
Agreement shall make reasonable representations as requested by such counsel for
the purpose of rendering such opinion.
(f) Absence of Kana Material Adverse Effect. No Kana Material Adverse
---------------------------------------
Effect shall have occurred, and no fact or circumstance shall exist which will,
determined as of the Closing Date and solely with the passage of time, result in
a Kana Material Adverse Effect.
(g) Rights Agreement Amendment. Kana shall have delivered the Rights
--------------------------
Agreement Amendment.
Section 7.04 Frustration of Closing Conditions.
-----------------------------------------------
Neither Kana, Merger Sub nor Silknet may rely on the failure of any
condition set forth in Section 7.01, 7.02 or 7.03, as the case may be, to be
------------
satisfied if such failure was caused by such party's failure to use reasonable
efforts to consummate the Merger and the other transactions contemplated by this
Agreement and the Stock Option Agreements, as required by and subject to Section
-------
6.07.
- ----
ARTICLE VIII.
TERMINATION AND AMENDMENT
Section 8.01 Termination.
-------------------------
At any time prior to the Effective Time, whether before or after
approval of the matters presented in connection with the Merger by the
stockholders of Silknet, this Agreement may be terminated:
(a) by mutual consent duly authorized by the Boards of Directors of
Kana and Silknet;
(b) by either Kana or Silknet, if the Closing shall not have occurred
on or before July 31, 2000 (provided, that the right to terminate this Agreement
under this Section 8.01(b) shall not be available to any party whose action or
---------------
failure to act has been the cause or resulted in the failure of the Merger to
occur on or before such date and such action or failure to act constitutes a
material breach of this Agreement);
(c) by Kana, if (i) Silknet shall have breached any representation or
warranty made as of the date of this Agreement, or shall breach any obligation
or agreement hereunder in a manner causing conditions precedent to the Closing
not to be satisfied and such breach shall
50
<PAGE>
not have been cured within twenty (20) business days of receipt by Silknet of
written notice of such breach, provided that the right to terminate this
--------
Agreement by Kana under this Section 8.01(c)(i) shall not be available to Kana
------------------
where Kana is at that time in material breach of this Agreement, or (ii) the
Board of Directors of Silknet shall have omitted, withdrawn or modified its
recommendation of this Agreement or the Merger in a manner adverse to Kana or
recommended, endorsed, accepted or agreed to a Silknet Takeover Proposal or
shall have resolved to do any of the foregoing;
(d) by Silknet, if (i) Kana shall have breached any representation or
warranty made as of the date of this Agreement, or shall breach any obligation
or agreement hereunder in a manner causing conditions precedent to the Closing
not to be satisfied and such breach shall not have been cured within twenty (20)
business days following receipt by Kana of written notice of such breach,
provided that the right to terminate this Agreement by Silknet under this
Section 8.01(d)(i) shall not be available to Silknet where Silknet is at that
- ------------------
time in material breach of this Agreement, or (ii) the Board of Directors of
Kana shall have omitted, withdrawn or modified its recommendation of this
Agreement or the Merger in a manner adverse to Silknet or recommended, endorsed,
accepted or agreed to a Kana Takeover Proposal or shall have resolved to do any
of the foregoing;
(e) by Kana if (i) any permanent injunction or other order of a court
or other competent authority preventing the consummation of the Merger shall
have become final and nonappealable, (ii) if any required approval of the
stockholders of Silknet shall not have been obtained by reason of the failure to
obtain the required vote upon a vote held at a duly held meeting of stockholders
or at any adjournment thereof, or (iii) the Kana Voting Proposal is not obtained
at the Kana Stockholders Meeting or at any adjournment thereof; or
(f) by Silknet if (i) any permanent injunction or other order of a
court or other competent authority preventing the consummation of the Merger
shall have become final and nonappealable, (ii) if any required approval of the
stockholders of Silknet shall not have been obtained by reason of the failure to
obtain the required vote upon a vote held at a duly held meeting of stockholders
or at any adjournment thereof, or (iii) the Kana Voting Proposal is not obtained
at the Kana Stockholders Meeting or at any adjournment thereof.
(g) by Kana, if Silknet or any of its Representatives shall
participate in discussions or negotiations, or take any other action, in breach
(other than an immaterial breach) of Section 6.02.
------------
(h) by Silknet, if Kana or any of its Representatives shall
participate in discussions or negotiations, or take any other action, in breach
(other than an immaterial breach) of Section 6.03.
------------
(i) by Silknet, in response to a Silknet Superior Offer which was not
solicited by Silknet; provided that Silknet shall have complied in all material
--------
respects with its obligations under Sections 6.02 (no-shop) and 6.06
------------- ----
(stockholder meetings) and such Silknet Superior Offer did not otherwise result
from a breach of any of Silknet's obligations under this Agreement; and provided
--------
further, that no termination pursuant to this Section 8.01(i) shall be effective
- ------- ---------------
until after
51
<PAGE>
the fifth business day following Kana's receipt of written notice advising Kana
that the Board of Directors of Silknet is prepared to accept a Silknet Superior
Offer, specifying the material terms and conditions of such Silknet Superior
Offer and identifying the person making such Silknet Superior Offer; and the
payment of any applicable termination fee pursuant to Section 8.03.
------------
(j) by Kana, in response to a Kana Superior Offer which was not
solicited by Kana; provided that Kana shall have complied in all material
--------
respects with its obligations under Sections 6.03 (no-shop) and 6.06
------------- ----
(stockholder meetings) and such Kana Superior Offer did not otherwise result
from a breach of any of Kana's obligations under this Agreement; and provided
--------
further, that no termination pursuant to this Section 8.01(j) shall be effective
- ------- ---------------
until after the fifth business day following Silknet's receipt of written notice
advising Silknet that the Board of Directors of Kana is prepared to accept a
Kana Superior Offer, specifying the material terms and conditions of such Kana
Superior Offer and identifying the person making such Kana Superior Offer; and
the payment of any applicable termination fee pursuant to Section 8.03.
------------
Section 8.02 Effect of Termination.
-----------------------------------
In the event of termination of this Agreement as provided in Section
-------
8.01, this Agreement shall forthwith become void and there shall be no liability
- ----
or obligation on the part of Kana or Silknet or their respective officers,
directors, security holders or affiliates, except as provided in Section 8.03
------------
and/or except to the extent that such termination results from the breach by a
party hereto of any of its representations, warranties, covenants or agreements
set forth in this Agreement involving fraud, intentional misrepresentation or
willful misconduct; provided that the provisions of Section 8.03 and this
------------
Section 8.02 shall remain in full force and effect and survive any termination
- ------------
of this Agreement.
Section 8.03 Expenses and Termination Fees.
-------------------------------------------
(a) Subject to Sections 8.03(b) and 8.03(c), whether or not the Merger
---------------- -------
is consummated, all costs and expenses incurred in connection with this
Agreement, related agreements and documents and the transactions contemplated
hereby and thereby (including the fees and expenses of its advisers, accountants
and legal counsel) shall be paid by the party incurring such expense.
(b) In the event that (i) after a Silknet Takeover Proposal has been
made to Silknet or to Silknet stockholders generally or otherwise has become
publicly known, this Agreement shall be terminated by Kana pursuant to Section
-------
8.01(c)(i) or Section 8.01(e)(ii) or by Silknet pursuant to Section 8.01(f)(ii)
- ---------- ------------------- -------------------
or by either party pursuant to Section 8.01(b), or (ii) this Agreement shall be
---------------
terminated by Kana pursuant to Section 8.01(c)(ii) (other than as a result of a
-------------------
change in the Silknet Board's recommendation based on a right of termination by
Silknet under Section 8.01(d)(i)), or Section 8.01(g), or (iii) this Agreement
------------------ ---------------
shall be terminated by Silknet pursuant to Section 8.01(i), then, in any such
---------------
event, in addition to any other remedies Kana may have, Silknet shall pay to
Kana the sum of one hundred forty-eight million three hundred thousand dollars
($148,300,000), (x) which shall be due and payable in full upon termination
of this Agreement (in the case of termination of Silknet pursuant to Section
-------
8.01(i)) and (y) forty million dollars ($40,000,000) of which shall be due and
- --------
payable upon termination
52
<PAGE>
of this Agreement and the balance of which shall be due and payable upon the
consummation of a Silknet Takeover Proposal at any time prior to the first
anniversary of the termination of this Agreement (in all other cases within the
scope of this Section 8.03(b)). All payments pursuant to Section 8.03(b) shall
--------------- ---------------
be made by wire transfer of same-day funds to an account specified by Kana.
(c) In the event that (i) after a Kana Takeover Proposal has been made
to Kana or to Kana stockholders generally or otherwise has become publicly
known, this Agreement shall be terminated by Silknet pursuant to Section
-------
8.01(d)(i) or Section 8.01(f)(iii) or by Silknet pursuant to Section
- ---------- -------------------- -------
8.01(e)(iii) or by either party pursuant to Section 8.01(b), or (ii) this
- ------------ ---------------
Agreement shall be terminated by Silknet pursuant to Section 8.01(d)(ii) (other
-------------------
than as a result of a change in the Kana Board's recommendation based on the
occurrence of a circumstance giving rise to a right of termination by Kana under
Section 8.01(c)(i)), or Section 8.01(h), or (iii) this Agreement shall be
- ----------------- ---------------
terminated by Kana pursuant to Section 8.01(j), then, in any such event, in
---------------
addition to any other remedies Silknet may have, Kana shall pay to Silknet the
sum of one hundred forty-eight million three hundred thousand dollars
($148,300,000), (x) which shall be due and payable in full upon termination of
this Agreement (in the case of termination by Kana pursuant to Section 8.01(j))
---------------
and (y) forty million dollars ($40,000,000) of which shall be due and payable
upon termination of this Agreement and the balance of which shall be due and
payable upon the consummation of a Kana Takeover Proposal at any time prior to
the first anniversary of the termination of this Agreement (in all other cases
within the scope of this Section 8.03(c)). All payments pursuant to Section
--------------- -------
8.03(c) shall be made by wire transfer of same-day funds to an account specified
- -------
by Silknet.
(d) Each party acknowledges that the agreements contained in this
Section 8.03 are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, the other party would not enter
into this Agreement; accordingly, if a party fails promptly to pay the amount
due pursuant to this Section 8.03 and, in order to obtain such payment, the
------------
other party commences a suit which results in a judgment or settlement for the
fee set forth in this Section 8.03, the liable party shall pay to the party
------------
commencing such suit its costs and expenses (including attorneys' fees and
expenses) in connection with such suit, together with interest on the amount of
the fee at the prime rate of Citibank, N.A. in effect on the date such payment
was required to be made.
Section 8.04 Amendment.
-----------------------
This Agreement may be amended by the parties hereto, by action taken
or authorized by their respective Boards of Directors, at any time before or
after approval of the matters presented in connection with the Merger by the
stockholders of Silknet or of Kana, but, after any such approval, no amendment
shall be made which by law requires further approval by such stockholders
without such further approval. This Agreement may not be amended except by a
written instrument signed on behalf of each of the parties hereto.
53
<PAGE>
Section 8.05 Extension; Waiver.
-------------------------------
At any time prior to the Effective Time any party hereto may, to the
extent legally allowed, (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties made to such party contained
herein or in any document delivered pursuant hereto or (iii) waive compliance
with any of the agreements or conditions for the benefit of such party contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in a written instrument signed on behalf
of such party.
ARTICLE IX.
MISCELLANEOUS
Section 9.01 Nonsurvival Of Representations, Warranties And Agreements.
-----------------------------------------------------------------------
None of the representations, warranties and agreements in this
Agreement or in any instrument delivered pursuant to this Agreement shall
survive the Effective Time, except for the agreements contained in Section 1.04,
------------
Section 2.01, Section 2.02, Section 6.13, Section 6.14, Section 6.15, Section
- ------------ ------------ ------------- ------------ ------------ -------
6.17, Section 6.18, Section 19 and Article IX. The Confidentiality Agreement
- ---- ------------ ---------- ----------
between Kana and Silknet dated as of February 1, 2000 (the "Confidentiality
---------------
Agreement") shall survive the execution and delivery of this Agreement.
- ---------
Section 9.02 Notices.
---------------------
All notices and other communications hereunder shall be in writing and
shall be deemed given if delivered personally or by a nationally recognized
express overnight courier service, telecopied (which is confirmed) or mailed by
registered or certified mail (return receipt requested), to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(a) if to Kana or Merger Sub, to:
Kana Communications, Inc.
740 Bay Road
Redwood City, CA 94063
Fax: (650) 474-8501
Attn.: Chief Executive Officer
54
<PAGE>
with a copy to:
Warren T. Lazarow, Esq.
David A. Makarechian, Esq.
Brobeck, Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
Fax: (650) 496-2885
and to:
Rod J. Howard, Esq.
Brobeck, Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
Fax: (650) 496-2777
(b) if to Silknet, to:
Silknet Software Inc.
50 Phillippe Cote Street
Manchester, NH 03101
Fax: (603) 625-0428
Attn.: Chief Executive Officer
with a copy to:
John Hession, Esq.
Testa, Hurwitz & Thibeault, LLP
Oliver Street Tower
125 High Street
Boston, MA 02110
Fax: (617) 248-7100
Section 9.03 Definitions.
-------------------------
For purposes of this Agreement:
(a) "Silknet Material Adverse Effect" means any change, effect, event,
-------------------------------
occurrence, state of facts or development that is materially adverse to the
business, financial condition or results of operations of Silknet and its
Subsidiaries, taking Silknet and its Subsidiaries together as a whole, provided,
--------
however, that none of the following shall be deemed either alone or in
- -------
combination, to constitute a Material Adverse Effect; (a) any change in the
55
<PAGE>
market price or trading volume of Silknet after the date hereof; (b) any failure
by Silknet to meet the revenue or earnings predictions or other expectations of
equity analysts, or any decrease in revenues from prior periods, for any period
ending (or for which earnings are released) on or after the date of this
Agreement; (c) any adverse effect on the bookings, revenues, gross margins or
earnings of Silknet (or the direct consequence thereof) following the date of
this Agreement which is directly and primarily attributable to or arises
directly and primarily from a delay of, reduction in or cancellation or change
in the terms or timing of product orders by customers of Silknet or any change
in the timing of projects or implementations, purchasing patterns or habits of
Silknet customers, whether current or prospective, or any indecision of any such
customer regarding Silknet products or Services; (d) any change arising directly
and primarily out of conditions affecting the electronic customer relationship
management (eCRM) market, the U.S. economy as a whole or the international
economy as a whole or any political, economic or social instability in any such
markets or economies; (e) any termination or modification of any existing
Silknet contract with a customer or termination or modifications of negotiations
between Silknet and its customers (however, this proviso shall not exclude any
underlying change, effect, event, occurrence, state of facts or development
which results in a change in price or trading volume within the scope of clause
------
(a) or a failure to meet estimates, predictions or expectations within the scope
- ---
of clause (b).
---------
(b) "Kana Material Adverse Effect" means any change, effect, event,
----------------------------
occurrence, state of facts or development that is, materially adverse to the
business, financial condition or results of operations of Kana and its
Subsidiaries, taking Kana and its Subsidiaries together as a whole, provided,
--------
however, that none of the following shall be deemed either alone or in
- -------
combination, to constitute a Material Adverse Effect; (a) any change in the
market price or trading volume of Kana after the date hereof; (b) any failure by
Kana to meet the revenue or earnings predictions or other expectations of equity
analysts, or any decrease in revenues from prior periods, for any period ending
(or for which earnings are released) on or after the date of this Agreement; (c)
any adverse effect on the bookings, revenues, gross margins or earnings of Kana
(or for direct consequence thereof) following the date of this Agreement which
is directly and primarily attributable to or arises directly and primarily from
a delay of, reduction in or cancellation or change in the terms or timing of
product orders by customers of Kana or any change in the timing of projects or
implementations, purchasing patterns or habits of Kana customers, whether
current or prospective, or any indecision of any such customer regarding Kana
products or services; (d) any change arising directly and primarily out of
conditions affecting the electronic customer relationship management (eCRM)
markets, the U.S. economy as a whole or the international economy as a whole or
any political, economic or social instability in any such markets or economies;
(e) any termination or modification of any existing Kana contract with a
customer or termination or modifications of negotiations between Kana and its
customers (however, this proviso shall not exclude any underlying change,
effect, event, occurrence, state of facts or developments which results in a
change in price or trading volume within the scope of clause (a) or a failure to
----------
meet estimates, predictions or expectations within the scope of clause (b)).
----------
56
<PAGE>
Section 9.04 Interpretation.
----------------------------
When a reference is made in this Agreement to Sections, such reference
shall be to a Section of this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include," "includes" or "including" are used in
this Agreement they shall be deemed to be followed by the words "without
limitation." The phrase "made available" in this Agreement shall mean that the
information referred to has been made available if requested by the party to
whom such information is to be made available. The phrases "the date of this
Agreement", "the date hereof," and terms of similar import, unless the context
otherwise requires, shall be deemed to refer to February 6, 2000.
Section 9.05 Counterparts.
--------------------------
This Agreement may be executed in two or more counterparts, all of
which shall be considered one and the same agreement and shall become effective
when two or more counterparts have been signed by each of the parties and
delivered to the other parties, it being understood that all parties need not
sign the same counterpart.
Section 9.06 Entire Agreement; No Third Party Beneficiaries.
------------------------------------------------------------
This Agreement (including the documents and the instruments referred
to herein) (a) constitute the entire agreement and supersedes all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, and (b) except as provided in Section 6.14
------------
are not intended to confer upon any person other than the parties hereto any
rights or remedies hereunder; provided that the Confidentiality Agreement shall
remain in full force and effect until the Effective Time. Each party hereto
agrees that, except for the representations and warranties contained in this
Agreement, neither Silknet nor Kana makes any other representations or
warranties, and each hereby disclaims any other representations and warranties
made by itself or any of its officers, directors, employees, agents, financial
and legal advisors or other representatives, with respect to the execution and
delivery of this Agreement or the transactions contemplated hereby,
notwithstanding the delivery or disclosure to the other or the other's
representatives of any documentation or other information with respect to any
one or more of the foregoing.
Section 9.07 Governing Law.
---------------------------
This Agreement shall be governed and construed in accordance with the
laws of the State of Delaware, including matters relating to merger procedure,
corporate governance and fiduciary duty without regard to any applicable
conflicts of law. All disputes or controversies shall be settled in the
Delaware Chancery Court and each party irrevocably and unconditionally consents
and submits to the jurisdiction of the courts of the State of Delaware for any
actions, suits or proceedings arising out of or relating to this Agreement and
the transactions contemplated hereby.
57
<PAGE>
Section 9.08 Assignment.
------------------------
Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any of the parties hereto (whether by operation
of law or otherwise) without the prior written consent of the other parties.
Subject to the preceding sentence, this Agreement will be binding upon, inure to
the benefit of and be enforceable by the parties and their respective successors
and assigns.
[SIGNATURE PAGE FOLLOWS]
58
<PAGE>
IN WITNESS WHEREOF, Kana, Merger Sub and Silknet have caused this
Agreement to be signed by their respective officers thereunto duly authorized as
of the date first written above.
KANA COMMUNICATIONS, INC. PISTOL ACQUISITION CORP.
By: /s/ Michael J. McCloskey By: /s/ Michael J. McCloskey
-------------------------------- -----------------------------
Title: Chief Executive Officer Title: President
--------------------------- -------------------------
SILKNET SOFTWARE INC.
By: /s/ James C. Wood
----------------------------
Title: Chief Executive Office
------------------------
59
<PAGE>
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION]
60
<PAGE>
EXHIBIT A
---------
SILKNET STOCK VOTING AGREEMENT
61
<PAGE>
EXHIBIT B
---------
KANA STOCK VOTING AGREEMENT
62
<PAGE>
EXHIBIT C
---------
SILKNET STOCK OPTION AGREEMENT
63
<PAGE>
EXHIBIT D
---------
KANA STOCK OPTION AGREEMENT
64
<PAGE>
EXHIBIT E
---------
STAND-OFF AGREEMENT
65
<PAGE>
EXHIBIT F
---------
RIGHTS AMENDMENT AGREEMENT
66
<PAGE>
EXHIBIT 2
SILKNET STOCK VOTING AGREEMENT
THIS SILKNET STOCK VOTING AGREEMENT ("Silknet Stock Voting Agreement")
is made and entered into as of February 6, 2000 by and between Kana
Communications, Inc., a Delaware corporation ("Kana"), and the undersigned
director, officer or affiliate (the "Holder") of Silknet Software Inc., a
Delaware corporation ("Silknet").
Recitals
--------
Concurrently with the execution of this Silknet Stock Voting
Agreement, Kana, Pistol Acquisition Corp., a Delaware corporation and a wholly-
owned subsidiary of Kana ("Sub"), and Silknet have entered into an Agreement and
Plan of Reorganization, dated as of February 6, 2000 (the "Merger Agreement")
providing for the merger of Sub with and into Silknet (the "Merger"). As a
result of the Merger, which is intended to qualify as a reorganization within
the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended,
Silknet will become a wholly-owned subsidiary of Kana and stockholders of
Silknet will become stockholders of Kana. Holder is the holder of record and
the beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act
of 1934, as amended, (the "Exchange Act")) of the number of shares of the
capital stock of Silknet indicated on the signature page of this Silknet Stock
Voting Agreement (the "Shares"). As a condition to its execution and delivery
of the Merger Agreement, Kana has requested that Holder agree, and in
consideration, and to induce the execution and delivery, of the Merger Agreement
by Kana, Holder is willing to agree (i) not to transfer or otherwise dispose of
the Shares or any other shares of capital stock of Silknet acquired after the
date of this Silknet Stock Agreement and prior to the expiration of this Silknet
Stock Voting Agreement, except as specifically permitted hereby, and (ii) to
vote the Shares and any other such shares of Silknet stock so as to facilitate
consummation of the Merger, as more fully described below.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
Agreement
---------
Section 1 No Transfer or Encumbrance of Shares. Holder agrees not
------------------------------------
to sell, pledge, assign, encumber, dispose of or otherwise transfer (including
by merger, testamentary disposition, interspousal disposition pursuant to a
domestic relations proceeding or otherwise by operation of law) ("transfer") any
of the Shares or any New Shares (as defined below), or to make any offer or
agreement relating thereto at any time prior to the expiration of this Silknet
Stock Voting Agreement. The foregoing restrictions shall not prohibit a
transfer of Shares or New Shares (i) in the case of an individual, to any member
of his immediate family, to a trust for the benefit of Holder or any member of
his immediate family or a transfer of Shares or New Shares upon the death of
Holder, (ii) in the case of a partnership or limited liability company, to one
or more partners or members or to an affiliated corporation or (iii) which
Holder can not prevent (it being understood that Holder shall use his best
efforts to prevent transfers other than
<PAGE>
pursuant to (i) or (ii) hereof); provided, however, that any transferee with
respect to a transfer permitted under (i) or (ii) shall, as a precondition to
such transfer, agree in a writing delivered to Kana, to be bound by the terms
and conditions of this Silknet Stock Voting Agreement. This Silknet Stock Voting
Agreement shall expire on the earlier of (a) the date and time on which the
Merger shall become effective in accordance with the terms of the Merger
Agreement or (b) the date on which the Merger Agreement shall be terminated
pursuant to Section 8.01 of the Merger Agreement (the "Expiration Date"). Holder
agrees that any shares of capital stock of Silknet that Holder purchases or with
respect to which Holder otherwise acquires beneficial ownership after the date
of this Silknet Stock Voting Agreement and prior to the Expiration Date ("New
Shares") shall be subject to the terms and conditions of this Silknet Stock
Voting Agreement to the same extent as if such shares constituted Shares.
Section 2 Agreement to Vote Shares. Holder hereby agrees to appear,
------------------------
or, using Holder's best efforts and to the full extent legally permitted, cause
the holder of record on any applicable record date to appear in person or by
proxy for the purpose of obtaining a quorum at any annual or special meeting of
stockholders of the Company and at any adjournment thereof at which matters
relating to the Merger, the Merger Agreement or any transaction contemplated
thereby are considered. At every meeting of the Silknet stockholders called
with respect to any of the following, and at any adjournment thereof, Holder
shall vote or, using Holder's best efforts and to the full extent legally
permitted, cause the holder of record to vote the Shares and any New Shares
(except those Shares or New Shares which are not voting securities):
(a) in favor of adoption of the Merger Agreement and approval of the
Merger and any proposal or action which would, or could reasonably be
expected to, facilitate the Merger;
(b) against approval of any proposal made in opposition to or
competition with consummation of the Merger and the Merger Agreement;
(c) against any merger, consolidation or other business combination of
Silknet with, sale of assets or stock of Silknet to, or reorganization or
recapitalization involving Silknet with, any party other than Kana or an
affiliate of Kana as contemplated by the Merger Agreement;
(d) against any liquidation, or winding up of Silknet; and
(e) against any other proposal or action which would, or could
reasonably be expected to, impede, frustrate, prevent, prohibit or
discourage the Merger (each of (b) through (e) collectively, an "Opposing
Proposal").
Holder, as the holder of voting stock of Silknet, shall be present, in person or
by proxy, or, using Holder's best efforts and to the full extent legally
permitted, cause the holder of record to be present, in person or by proxy, at
all meetings of stockholders of Silknet so that all Shares and New Shares are
counted for the purposes of determining the presence of a quorum at such
meetings. This Silknet Stock Voting Agreement is intended to bind Holder only
with respect to
2
<PAGE>
the specific matters set forth herein, and shall not prohibit Holder from acting
in accordance with Holder's fiduciary duties as an officer or director of
Silknet.
Section 3 Option Exercise. Holder agrees that if, at any meeting of
---------------
stockholders of Silknet called with respect to any of (a) through (e) of Section
2 hereof, the number of shares of Silknet's capital stock voting in accordance
with (a) through (e) of Section 2 hereof shall not be enough to prevail in such
vote, Holder will immediately exercise any and all options and warrants, or
otherwise convert or exercise any securities, beneficially owned by him (to the
full extent permitted by applicable law) in order to vote all New Shares
resulting from such exercise or conversion in accordance with Section 2 hereof.
Kana hereby agrees that, in the event Holder is required pursuant to this
Section 3 to convert or exercise any securities and upon request by Holder, Kana
will make a loan, evidenced by a promissory note and on reasonable terms, to
Holder (or any third party) in the amount of any tax imposed on Holder (or such
third party) solely as a result of such conversion or exercise.
Section 4 Irrevocable Proxy. Concurrently with the execution of this
-----------------
Silknet Stock Voting Agreement, Holder agrees to deliver to Kana a proxy in the
form attached hereto as Annex A (the "Proxy"), which shall be irrevocable to the
extent provided therein; provided, however, that the Proxy shall be revoked upon
termination of this Silknet Stock Voting Agreement in accordance with its terms.
Section 5 Representations, Warranties and Covenants of Holder.
---------------------------------------------------
Holder hereby represents, warrants and covenants to Kana as follows:
(a) Ownership of Shares. Holder (i) is the holder of record or
-------------------
beneficial owner or holder of the voting power of the Shares and will be
the holder of record or beneficial owner or holder of voting power of all
New Shares, if any, which at the date hereof and at all times until the
Expiration Date will be free and clear of any liens, claims, options,
charges or other encumbrances that would interfere with the voting of the
Shares or the granting of any proxy with respect thereto, (ii) does not
beneficially own any shares of capital stock of Silknet other than the
Shares (except to the extent that Holder currently disclaims beneficial
ownership in accordance with applicable law) and (iii) has full power and
authority to make, enter into, deliver and carry out the terms of this
Silknet Stock Voting Agreement and the Proxy.
(b) No Voting Trusts and Agreements. Between the date of this
-------------------------------
Agreement and the Expiration Date, Holder will not, and will not permit any
entity under Holder's control to, deposit any shares of Silknet capital
stock held by Holder or such entity in a voting trust or subject any shares
of Silknet capital stock held by such Holder or such entity to any
arrangement or agreement with respect to the voting of such shares of
capital stock, other than agreements entered into with Kana.
(c) Validity; No Conflict. This Silknet Stock Voting Agreement
---------------------
constitutes the legal, valid and binding obligation of Holder. Neither the
execution of this Silknet Stock Voting Agreement by Holder nor the
consummation of the transactions contemplated herein will violate or result
in a breach of (i) any provision of any trust, charter,
3
<PAGE>
partnership agreement or other charter document applicable to Holder, (ii)
any agreement to which Holder is a party or by which Holder is bound, (iii)
any decree, judgment or order to which Holder is subject, or (iv) any law
or regulation now in effect applicable to Holder.
(d) No Proxy Solicitations. Subject to the last sentence of Section
----------------------
2, between the date of this Agreement and the Expiration Date, Holder will
not, and will not permit any entity under Holder's control, to (i) solicit
proxies or become a "participant" in a "solicitation" (as such terms are
defined in Rule 14A under the Exchange Act) with respect to an Opposing
Proposal or otherwise encourage or assist any party in taking or planning
any action which would compete with, restrain or otherwise serve to
interfere with or inhibit the timely consummation of the Merger in
accordance with the terms of the Merger Agreement, (ii) initiate a
stockholders' vote with respect to an Opposing Proposal or (iii) become a
member of a "group" (as such term is used in Section 13(d) of the Exchange
Act) with respect to any voting securities of Silknet with respect to an
Opposing Proposal.
Section 6 Representations, Warranties and Covenants of Kana. Kana
-------------------------------------------------
represents, warrants and covenants to Holder as follows:
(a) Due Authorization. This Silknet Stock Voting Agreement has been
-----------------
authorized by all necessary corporate action on the part of Kana and has
been duly executed by a duly authorized officer of Kana.
(b) Validity; No Conflict. This Silknet Stock Voting Agreement
---------------------
constitutes the legal, valid and binding obligation of Kana. Neither the
execution of this Silknet Stock Voting Agreement by Kana nor the
consummation of the transactions contemplated herein will violate or result
in a breach of (i) any agreement to which Kana is a party or by which Kana
is bound, (ii) any decree, judgment or order to which Kana is subject, or
(iii) any law or regulation now in effect applicable to Kana.
Section 7 Additional Documents. Holder and Kana hereby covenant and
--------------------
agree to execute and deliver any additional documents necessary or desirable, in
the reasonable opinion of Kana's legal counsel or Holder, as the case may be, to
carry out the intent of this Silknet Stock Voting Agreement.
Section 8 Legending of Shares. Upon the request of Kana, Holder
-------------------
agrees that it shall forthwith surrender all certificates representing the
Shares so that they shall bear a conspicuous legend stating that they are
subject to this Agreement (and the restrictions on transfer provided for herein)
and to an Irrevocable Proxy. Subject to the terms of Section 2 hereof,
Stockholder agrees that it shall not Transfer the Shares without first having
the aforementioned legend affixed to the certificates representing the Shares.
Section 9 Consent and Waiver. Holder hereby gives any consent or
------------------
waiver reasonably required for the consummation of the Merger under the terms of
any agreement to which Holder is a party.
4
<PAGE>
Section 10 Termination. Notwithstanding any other provision
-----------
contained herein, this Silknet Stock Voting Agreement and the Proxy, and all
obligations of Holder hereunder and thereunder, shall terminate as of the
Expiration Date.
5
<PAGE>
Section 11 No Solicitation.
---------------
(a) Until the earlier of the Effective Time (as defined in the Merger
Agreement) or a valid termination of the Merger Agreement pursuant to
Article VIII thereof, Holder will not, and will not authorize, direct or
permit any of its officers, directors, employees, affiliates under its
control, investment bankers, attorneys, accountants or other agents,
advisors or representatives (collectively, "Representatives") to, directly
or indirectly, (i) solicit, initiate, encourage or induce the making,
submission or announcement of any Silknet Takeover Proposal (as defined
below), (ii) participate in any discussions or negotiations with any person
regarding, or furnish to any person any information with respect to, or
take any other action to facilitate any inquiry or proposal that
constitutes or may reasonably be expected to lead to, any Silknet Takeover
Proposal, (iii) authorize, approve or recommend any Silknet Takeover
Proposal, or (iv) enter into any letter of intent or similar document or
any contract, agreement or commitment accepting or providing for any
Silknet Takeover Proposal.
(b) Holder and Kana agree that irreparable damage would occur in the
event that the provisions of this Section 11 were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed by the parties hereto that Kana shall be entitled to
seek an injunction or injunctions to prevent breaches of this Section 11
and to enforce specifically the terms and provisions hereof in any court of
the United States or any state having jurisdiction, this being in addition
to any other remedy to which the parties may be entitled at law or in
equity.
(c) For purposes of this Agreement, "Silknet Takeover Proposal" means
-------------------------
any offer or proposal for, or any indication of interest in, a merger or
other business combination involving Silknet or the acquisition of twenty
percent (20%) or more of the outstanding shares of capital stock of
Silknet, or all or substantially all of the assets of Silknet or any asset
of Silknet, the absence of which would materially diminish the value of the
Merger to Kana or the benefits expected by Kana to be realized from the
Merger, or any other transaction inconsistent with consummation of the
transactions contemplated by the Merger Agreement.
Section 12 Confidentiality. Holder agrees (i) to hold any
---------------
information regarding this Agreement and the Merger in strict confidence and
(ii) not to divulge any such information to any third person, except to the
extent any of the same is hereafter publicly disclosed by Kana.
Section 13 Miscellaneous.
-------------
(a) Severability. If any term, provision, covenant or restriction of
------------
this Silknet Stock Voting Agreement or the Proxy (i) is held by a court of
competent jurisdiction to be invalid, void or unenforceable for any reason,
or (ii) would preclude the Merger from qualifying as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986,
as amended, such term, provision, covenant or restriction shall be modified
or voided, as may be necessary to achieve the intent of the parties to the
extent possible, and the remainder of the terms, provisions, covenants and
restrictions of
6
<PAGE>
this Silknet Stock Voting Agreement shall remain in full force and effect
and shall in no way be affected, impaired or invalidated.
(b) Binding Effect and Assignment. This Silknet Stock Voting
-----------------------------
Agreement and all of the provisions hereof shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
permitted assigns, but, except as otherwise specifically provided herein,
neither this Silknet Stock Voting Agreement nor any of the rights,
interests or obligations of the parties hereto may be assigned by either of
the parties hereto without the prior written consent of the other, and any
attempted assignment thereof without such consent shall be null and void.
(c) Amendments and Modifications. This Silknet Stock Voting Agreement
----------------------------
may not be modified, amended, altered or supplemented except upon the
execution and delivery of a written agreement executed by the parties
hereto.
(d) Specific Performance: Injunctive Relief. The parties hereto
---------------------------------------
acknowledge that Kana will be irreparably harmed by a breach of any of the
covenants or agreements of Holder set forth herein and that there will be
no adequate remedy at law for such a breach. Therefore, it is agreed that,
in addition to any other remedies which may be available to Kana upon such
breach, Kana shall have the right to enforce such covenants and agreements
by specific performance, injunctive relief or by any other means available
to it at law or in equity.
(e) Notices. All notices, requests, claims, demands and other
-------
communications hereunder shall be in writing and sufficient if delivered in
person, by commercial overnight courier service, by confirmed telecopy, or
sent by mail (registered or certified mail, postage prepaid, return receipt
requested), to the respective parties as follows:
If to Kana: Kana Communications, Inc.
740 Bay Road
Redwood City, CA 94063
Fax: (650) 474-8507
Attention: Chief Executive Officer
If to Holder: To the address for notice set forth on the last page
hereof.
With a copy to: Silknet Software Inc.
50 Phillippe Cote Street,
Manchester, NH 03101
Fax: (603) 625-0428
Attention: Chief Executive Officer
7
<PAGE>
and to: Brobeck, Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
Fax: (650) 496-2885
Attention: Warren T. Lazarow, Esq.
David A. Makarechian, Esq.
and to: Brobeck, Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
Fax: (650) 496-2777
Attention: Rod J. Howard, Esq.
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
only be effective upon receipt.
(f) Governing Law. This Silknet Stock Voting Agreement shall be
-------------
governed by, construed and enforced in accordance with the laws of the
State of Delaware, without giving effect to principles of conflicts of law.
Each party hereto irrevocably and unconditionally consents and submits to
the jurisdiction of the courts of the State of Delaware and of the United
States of America located in the State of Delaware for any actions, suits
or proceedings arising out of or relating to this agreement and the
transactions contemplated hereby.
(g) Entire Agreement. This Silknet Stock Voting Agreement contains
----------------
the entire understanding of the parties with respect to the subject matter
hereof, and supersedes all prior negotiations and understandings between
the parties with respect to such subject matter.
(h) Counterparts. This Silknet Stock Voting Agreement may be executed
------------
in one or more counterparts, each of which shall be an original, but all of
which together shall constitute one and the same instrument.
(i) Effect of Headings. The section headings contained herein are for
------------------
convenience only and shall not affect the construction or interpretation of
this Silknet Stock Voting Agreement.
(j) Holder Capacity. Notwithstanding anything herein to the contrary,
---------------
no person executing this Agreement who is, or becomes during the term
hereof, a director of Kana makes any agreement or understanding herein in
his or her capacity as such director, and the agreements set forth herein
shall in no way restrict any director in the exercise of his or her
fiduciary duties as a director of Kana. Holder has executed this Agreement
solely
8
<PAGE>
in his or her capacity as the record or beneficial holder of such Holder's
Shares or as the trustee of a trust whose beneficiaries are the beneficial
owners of such Holder's Shares.
9
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Silknet Stock Voting
Agreement to be duly executed on the day and year first above written.
KANA COMMUNICATIONS, INC.
By:____________________________________
Its:___________________________________
[Signature page of Voting Agreement]
10
<PAGE>
HOLDER
By: _____________________________________________
Holder's Address for Notice:
_________________________________________________
_________________________________________________
_________________________________________________
Number of Shares owned beneficially:
_______________________________
Number of Shares owned of record (if different
from above):
_______________________________
[Signature page of Voting Agreement]
11
<PAGE>
ANNEX A
-------
IRREVOCABLE PROXY
The undersigned stockholder of Silknet Software Inc., a Delaware
corporation ("Silknet"), hereby irrevocably appoints and constitutes the members
of the Board of Directors of Kana Communications, Inc., a Delaware corporation
("Kana"), and each of them (the "Proxyholders"), the agents and proxies of the
undersigned, with full power of substitution and resubstitution, to the full
extent of the undersigned's rights with respect to the shares of capital stock
of Silknet beneficially owned by the undersigned, which shares are listed below
and any and all other shares or securities issued or issuable in respect
thereof, or which the undersigned otherwise acquires, on or after the date
hereof and prior to the date this proxy terminates (collectively, the "Shares"),
to vote the Shares (except those Shares which are not voting securities at the
time of a vote, or are not converted into voting securities at the time of a
vote) as follows:
The agents and proxies named above are empowered at any time prior to
termination of this proxy to exercise all voting and other rights
(including, without limitation, the power to execute and deliver written
consents with respect to the Shares) of the undersigned at every annual,
special or adjourned meeting of Silknet stockholders, and in every written
consent in lieu of such a meeting, or otherwise,
(a) in favor of (i) adoption of the Agreement and Plan of
Reorganization, by and among Kana, Pistol Acquisition Corp. ("Sub"), and
Silknet, dated as of February __, 2000, as the same may be amended from
time to time, (the "Merger Agreement") and (ii) approval of the merger of
Sub with and into Silknet as contemplated by the Merger Agreement (the
"Merger"), and any proposal or action which would, or could reasonably be
expected to, facilitate the Merger;
(b) against approval of any proposal made in opposition to or
competition with consummation of the Merger and the Merger Agreement;
(c) against any merger, consolidation or other business combination of
Silknet with, sale of assets or stock of Silknet to, or reorganization or
recapitalization involving Silknet with, any party other than Kana or an
affiliate of Kana as contemplated by the Merger Agreement;
(d) against any liquidation, or winding up of Silknet; and
(e) against any other proposal or action which would, or could
reasonably be expected to, prohibit or discourage the Merger.
The Proxyholders may not exercise this proxy with respect to any other matter.
The undersigned may vote the Shares on all such other matters.
12
<PAGE>
The proxy granted by the undersigned to the Proxyholders hereby is granted
as of the date of this Irrevocable Proxy in order to secure the obligations of
the undersigned set forth in Section 2 of the Silknet Stock Voting Agreement,
and is irrevocable and coupled with an interest in such obligations and in the
interests in Silknet to be purchased and sold pursuant to the Merger Agreement.
This proxy will terminate upon the termination of the Silknet Stock Voting
Agreement in accordance with its terms.
Upon the execution hereof, all prior proxies given by the undersigned with
respect to the Shares are hereby revoked, and no subsequent proxies will be
given with respect to the Shares until such time as this proxy shall be
terminated in accordance with its terms.
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned. The undersigned authorizes the
Proxyholders to file this proxy and any substitution or revocation of
substitution with the Secretary of Silknet and with any Inspector of Elections
at any meeting of the stockholders of Silknet.
This proxy is irrevocable and shall survive the insolvency, incapacity,
death or liquidation of the undersigned.
Dated: February __, 2000.
Name of Stockholder: _______________________________
Signature of Stockholder: _______________________________
Shares beneficially owned by Stockholder: _______________________________
Shares owned of record by Stockholder: _______________________________
[Signature page of Voting Agreement]
13
<PAGE>
EXHIBIT 3
KANA STOCK VOTING AGREEMENT
THIS KANA STOCK VOTING AGREEMENT ("Kana Stock Voting Agreement") is
made and entered into as of February 6, 2000 by and between Silknet Software
Inc., a Delaware corporation ("Silknet"), and the undersigned director, officer
or affiliate (the "Holder") of Kana Communications, Inc., a Delaware corporation
("Kana").
Recitals
--------
Concurrently with the execution of this Kana Stock Voting Agreement,
Silknet, Pistol Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of Kana ("Sub"), and Kana have entered into an Agreement and Plan of
Reorganization, dated as of February 6, 2000 (the "Merger Agreement") providing
for the merger of Sub with and into Silknet (the "Merger"). As a result of the
Merger, which is intended to qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended, Silknet will
become a wholly-owned subsidiary of Kana and stockholders of Silknet will become
stockholders of Kana. Holder is the holder of record and the beneficial owner
(as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) of the number of shares of the capital stock of Kana
indicated on the signature page of this Kana Stock Voting Agreement (the
"Shares"). As a condition to its execution and delivery of the Merger
Agreement, Silknet has requested that Holder agree, and in consideration, and to
induce the execution and delivery, of the Merger Agreement by Silknet, Holder is
willing to agree (i) not to transfer or otherwise dispose of the Shares or any
other shares of capital stock of Kana acquired after the date of this Kana Stock
Agreement and prior to the expiration of this Kana Stock Voting Agreement,
except as specifically permitted hereby, and (ii) to vote the Shares and any
other such shares of Kana stock so as to facilitate consummation of the Merger,
as more fully described below.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
Agreement
---------
Section 1 No Transfer or Encumbrance of Shares. Holder agrees not to
------------------------------------
sell, pledge, assign, encumber, dispose of or otherwise transfer (including by
merger, testamentary disposition, interspousal disposition pursuant to a
domestic relations proceeding or otherwise by operation of law) ("transfer") any
of the Shares or any New Shares (as defined below), or to make any offer or
agreement relating thereto at any time prior to the expiration of this Kana
Stock Voting Agreement. The foregoing restrictions shall not prohibit a
transfer of shares or New Shares (i) in the case of an individual, to any member
of his immediate family, to a trust for the benefit of Holder or any member of
his immediate family or a transfer of Shares or New Shares upon the death of
Holder, (ii) in the case of a partnership or limited liability company, to one
or more partners or members or to an affiliated corporation, or (iii) which
Holder can not prevent (it being understood that Holder shall use his best
efforts to prevent transfers other than
<PAGE>
pursuant to (i) and (ii) hereof; provided, however, that any transferee with
respect to a transfer permitted under (i) or (ii) shall, as a precondition to
such transfer, agree in a writing delivered to Silknet, to be bound by the terms
and conditions of this Kana Stock Voting Agreement. This Kana Stock Voting
Agreement shall expire on the earlier of (a) the date and time on which the
Merger shall become effective in accordance with the terms of the Merger
Agreement or (b) the date on which the Merger Agreement shall be terminated
pursuant to Section 8.01 of the Merger Agreement (the "Expiration Date"). Holder
agrees that any shares of capital stock of Kana that Holder purchases or with
respect to which Holder otherwise acquires beneficial ownership after the date
of this Kana Stock Voting Agreement and prior to the Expiration Date ("New
Shares") shall be subject to the terms and conditions of this Kana Stock Voting
Agreement to the same extent as if such shares constituted Shares.
Section 2 Agreement to Vote Shares. Holder hereby agrees to appear, or, using
------------------------
Holder's best efforts and to the full extent legally permitted, cause the holder
of record on any applicable record date to appear in person or by proxy for the
purpose of obtaining a quorum at any annual or special meeting of stockholders
of the Company and at any adjournment thereof at which matters relating to the
Merger, the Merger Agreement or any transaction contemplated thereby are
considered. At every meeting of the Kana stockholders called with respect to
any of the following, and at any adjournment thereof, Holder shall vote or,
using Holder's best efforts and to the full extent legally permitted, cause the
holder of record to vote the Shares and any New Shares (except those Shares or
New Shares which are not voting securities):
(a) in favor of approval of the issuance of shares of Kana stock
pursuant to the Merger Agreement, and any proposal or action which would,
or could reasonably be expected to, facilitate the Merger;
(b) against approval of any proposal made in opposition to or
competition with consummation of the Merger and the Merger Agreement;
(c) against any merger, consolidation or other business combination of
Kana with, sale of assets or stock of Kana to, or reorganization or
recapitalization involving Kana, other than as contemplated or permitted by
the Merger Agreement;
(d) against any liquidation, or winding up of Kana; and
(e) against any other proposal or action which would, or could
reasonably be expected to, impede, frustrate, prevent, prohibit or
discourage the Merger (each of (b) through (e) collectively, an "Opposing
Proposal").
Holder, as the holder of voting stock of Kana, shall be present, in person or by
proxy, or, using Holder's best efforts and to the full extent legally permitted,
cause the holder of record to be present, in person or by proxy, at all meetings
of stockholders of Kana so that all Shares and New Shares are counted for the
purposes of determining the presence of a quorum at such meetings. This Kana
Stock Voting Agreement is intended to bind Holder only with respect to
2
<PAGE>
the specific matters set forth herein, and shall not prohibit Holder from acting
in accordance with Holder's fiduciary duties as an officer or director of Kana.
Section 3 Option Exercise. Holder agrees that if, at any meeting of
---------------
stockholders of Kana called with respect to any of (a) through (e) of Section 2
hereof, the number of shares of Kana's capital stock voting in accordance with
(a) through (e) of Section 2 hereof shall not be enough to prevail in such vote,
Holder will immediately exercise any and all options and warrants, or otherwise
convert or exercise any securities, beneficially owned by him (to the full
extent permitted by applicable law) in order to vote all New Shares resulting
from such exercise or conversion in accordance with Section 2 hereof. Silknet
hereby agrees that, in the event Holder is required pursuant to this Section 3
to convert or exercise any securities and upon request by Holder, Silknet will
make a loan, evidenced by a promissory note and on reasonable terms, to Holder
(or any third party) in the amount of any tax imposed on Holder (or such third
party) solely as a result of such conversion or exercise.
Section 4 Irrevocable Proxy. Concurrently with the execution of this Kana
-----------------
Stock Voting Agreement, Holder agrees to deliver to Silknet a proxy in the form
attached hereto as Annex A (the "Proxy"), which shall be irrevocable to the
extent provided therein; provided, however, that the Proxy shall be revoked upon
termination of this Kana Stock Voting Agreement in accordance with its terms.
Section 5 Representations, Warranties and Covenants of Holder. Holder
---------------------------------------------------
hereby represents, warrants and covenants to Silknet as follows:
(a) Ownership of Shares. Holder (i) is the holder of record or
-------------------
beneficial owner or holder of the voting power of the Shares and will be
the holder of record or beneficial owner or holder of the voting power of
all New Shares, if any, which at the date hereof and at all times until the
Expiration Date will be free and clear of any liens, claims, options,
charges or other encumbrances that would interfere with the voting of the
Shares or the granting of any proxy with respect thereto, (ii) does not
beneficially own any shares of capital stock of Kana other than the Shares
(except to the extent that Holder currently disclaims beneficial ownership
in accordance with applicable law) and (iii) has full power and authority
to make, enter into, deliver and carry out the terms of this Kana Stock
Voting Agreement and the Proxy.
(b) No Voting Trusts and Agreements. Between the date of this
-------------------------------
Agreement and the Expiration Date, Holder will not, and will not permit any
entity under Holder's control to, deposit any shares of Kana capital stock
held by Holder or such entity in a voting trust or subject any shares of
Kana capital stock held by such Holder or such entity to any arrangement or
agreement with respect to the voting of such shares of capital stock, other
than agreements entered into with Silknet.
(c) Validity; No Conflict. This Kana Stock Voting Agreement
---------------------
constitutes the legal, valid and binding obligation of Holder. Neither the
execution of this Kana Stock Voting Agreement by Holder nor the
consummation of the transactions contemplated
3
<PAGE>
herein will violate or result in a breach of (i) any provision of any
trust, charter, partnership agreement or other charter document applicable
to Holder, (ii) any agreement to which Holder is a party or by which Holder
is bound, (iii) any decree, judgment or order to which Holder is subject,
or (iv) any law or regulation now in effect applicable to Holder.
(d) No Proxy Solicitations. Subject to the last sentence of Section
----------------------
2, between the date of this Agreement and the Expiration Date, Holder will
not, and will not permit any entity under Holder's control, to (i) solicit
proxies or become a "participant" in a "solicitation" (as such terms are
defined in Rule 14A under the Exchange Act) with respect to an Opposing
Proposal or otherwise encourage or assist any party in taking or planning
any action which would compete with, restrain or otherwise serve to
interfere with or inhibit the timely consummation of the Merger in
accordance with the terms of the Merger Agreement, (ii) initiate a
stockholders' vote with respect to an Opposing Proposal or (iii) become a
member of a "group" (as such term is used in Section 13(d) of the Exchange
Act) with respect to any voting securities of Kana with respect to an
Opposing Proposal.
Section 6 Representations, Warranties and Covenants of Silknet. Silknet
----------------------------------------------------
represents, warrants and covenants to Holder as follows:
(a) Due Authorization. This Kana Stock Voting Agreement has been
-----------------
authorized by all necessary corporate action on the part of Silknet and has
been duly executed by a duly authorized officer of Silknet.
(b) Validity; No Conflict. This Kana Stock Voting Agreement
---------------------
constitutes the legal, valid and binding obligation of Silknet. Neither
the execution of this Kana Stock Voting Agreement by Silknet nor the
consummation of the transactions contemplated
herein will violate or result in a breach of (i) any agreement to which
Silknet is a party or by which Silknet is bound, (ii) any decree, judgment
or order to which Silknet is subject, or (iii) any law or regulation now in
effect applicable to Silknet.
Section 7 Additional Documents. Holder and Silknet hereby covenant and
--------------------
agree to execute and deliver any additional documents necessary or desirable, in
the reasonable opinion of Silknet's legal counsel or Holder, as the case may be,
to carry out the intent of this Kana Stock Voting Agreement.
Section 8 Legending of Shares. Upon the request of Silknet, Holder agrees
-------------------
that it shall forthwith surrender all certificates representing the Shares so
that they shall bear a conspicuous legend stating that they are subject to this
Agreement (and the restrictions on transfer provided for herein) and to an
Irrevocable Proxy. Subject to the terms of Section 2 hereof, Stockholder agrees
that it shall not Transfer the Shares without first having the aforementioned
legend affixed to the certificates representing the Shares.
4
<PAGE>
Section 9 Consent and Waiver. Holder hereby gives any consent or waiver
------------------
reasonably required for the consummation of the Merger under the terms of any
agreement to which Holder is a party.
Section 10 Termination. Notwithstanding any other provision contained
-----------
herein, this Kana Stock Voting Agreement and the Proxy, and all obligations of
Holder hereunder and thereunder, shall terminate as of the Expiration Date.
5
<PAGE>
Section 11 No Solicitation.
---------------
(a) Until the earlier of the Effective Time (as defined in the Merger
Agreement) or a valid termination of the Merger Agreement pursuant to
Article VIII thereof, Holder will not, and will not authorize, direct or
permit any of its officers, directors, employees, affiliates under its
control, investment bankers, attorneys, accountants or other agents,
advisors or representatives (collectively, "Representatives") to, directly
or indirectly, (i) solicit, initiate, encourage or induce the making,
submission or announcement of any Kana Takeover Proposal (as defined
below), (ii) participate in any discussions or negotiations with any person
regarding, or furnish to any person any information with respect to, or
take any other action to facilitate any inquiry or proposal that
constitutes or may reasonably be expected to lead to, any Kana Takeover
Proposal, (iii) authorize, approve or recommend any Kana Takeover Proposal,
or (iv) enter into any letter of intent or similar document or any
contract, agreement or commitment accepting or providing for any Kana
Takeover Proposal.
(b) Holder and Silknet agree that irreparable damage would occur in
the event that the provisions of this Section 11 were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed by the parties hereto that Silknet shall be entitled to
seek an injunction or injunctions to prevent breaches of this Section 11
and to enforce specifically the terms and provisions hereof in any court of
the United States or any state having jurisdiction, this being in addition
to any other remedy to which the parties may be entitled at law or in
equity.
(c) For purposes of this Agreement, "Kana Takeover Proposal" means any
offer or proposal for, or any indication of interest in, a merger or other
business combination involving an acquisition or a change in control of
Kana or the acquisition of a majority of the outstanding shares of capital
stock of Kana, or all or substantially all of the assets of Kana, or any
other transaction inconsistent with consummation of the transactions
contemplated hereby, which offer, proposal or indication of interest is
conditioned on the termination of the Merger Agreement by Kana or the
denial by Kana stockholders of the Kana Voting Proposal.
Section 12 Confidentiality. Holder agrees (i) to hold any information
---------------
regarding this Agreement and the Merger in strict confidence and (ii) not to
divulge any such information to any third person, except to the extent any of
the same is hereafter publicly disclosed by Silknet.
Section 13 Miscellaneous.
-------------
(a) Severability. If any term, provision, covenant or restriction of
--- ------------
this Kana Stock Voting Agreement or the Proxy (i) is held by a court of
competent jurisdiction to be invalid, void or unenforceable for any reason,
or (ii) would preclude the Merger from qualifying as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986,
as amended, such term, provision, covenant or restriction shall
6
<PAGE>
be modified or voided, as may be necessary to achieve the intent of the
parties to the extent possible, and the remainder of the terms, provisions,
covenants and restrictions of this Kana Stock Voting Agreement shall remain
in full force and effect and shall in no way be affected, impaired or
invalidated.
(b) Binding Effect and Assignment. This Kana Stock Voting Agreement
-----------------------------
and all of the provisions hereof shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns, but, except as otherwise specifically provided herein, neither
this Kana Stock Voting Agreement nor any of the rights, interests or
obligations of the parties hereto may be assigned by either of the parties
hereto without the prior written consent of the other, and any attempted
assignment thereof without such consent shall be null and void.
(c) Amendments and Modifications. This Kana Stock Voting Agreement
----------------------------
may not be modified, amended, altered or supplemented except upon the
execution and delivery of a written agreement executed by the parties
hereto.
(d) Specific Performance: Injunctive Relief. The parties hereto
---------------------------------------
acknowledge that Silknet will be irreparably harmed by a breach of any of
the covenants or agreements of Holder set forth herein and that there will
be no adequate remedy at law for such a breach. Therefore, it is agreed
that, in addition to any other remedies which may be available to Silknet
upon such breach, Silknet shall have the right to enforce such covenants
and agreements by specific performance, injunctive relief or by any other
means available to it at law or in equity.
(e) Notices. All notices, requests, claims, demands and other
-------
communications hereunder shall be in writing and sufficient if delivered in
person, by commercial overnight courier service, by confirmed telecopy, or
sent by mail (registered or certified mail, postage prepaid, return receipt
requested), to the respective parties as follows:
If to Silknet: Silknet Software Inc.
The Gateway Building
50 Phillippe Cote Street
Fax: (603) 625-0070
Attention: Chief Executive Officer
If to Holder: To the address for notice set forth on the last page
hereof.
With a copy to: Kana Communications, Inc.
740 Bay Road
Redwood City, CA 94063
Fax: (650) 474-8507
Attention: Chief Executive Officer
7
<PAGE>
and to: Brobeck, Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
Fax: (650) 496-2885
Attention: Warren T. Lazarow, Esq.
David A. Makarechian, Esq.
and to: Brobeck, Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
Fax: (650) 496-2777
Attention: Rod J. Howard, Esq.
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
only be effective upon receipt.
(f) Governing Law. This Kana Stock Voting Agreement shall be governed
-------------
by, construed and enforced in accordance with the laws of the State of
Delaware, without giving effect to principles of conflicts of law. Each
party hereto irrevocably and unconditionally consents and submits to the
jurisdiction of the courts of the State of Delaware and of the United
States of America located in the State of Delaware for any actions, suits
or proceedings arising out of or relating to this agreement and the
transactions contemplated hereby.
(g) Entire Agreement. This Kana Stock Voting Agreement contains the
----------------
entire understanding of the parties with respect to the subject matter
hereof, and supersedes all prior negotiations and understandings between
the parties with respect to such subject matter.
(h) Counterparts. This Kana Stock Voting Agreement may be executed in
------------
one or more counterparts, each of which shall be an original, but all of
which together shall constitute one and the same instrument.
(i) Effect of Headings. The section headings contained herein are for
------------------
convenience only and shall not affect the construction or interpretation of
this Kana Stock Voting Agreement.
(j) Holder Capacity. Notwithstanding anything herein to the contrary,
---------------
no person executing this Agreement who is, or becomes during the term
hereof, a director of Silknet makes any agreement or understanding herein
in his or her capacity as such director, and the agreements set forth
herein shall in no way restrict any director in the exercise of his or her
fiduciary duties as a director of Silknet. Holder has executed this
8
<PAGE>
Agreement solely in his or her capacity as the record or beneficial holder
of such Holder's Shares or as the trustee of a trust whose beneficiaries
are the beneficial owners of such Holder's Shares.
9
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Kana Stock Voting
Agreement to be duly executed on the day and year first above written.
SILKNET SOFTWARE INC.
By:______________________________
Its:_____________________________
[Signature page to Stock Voting Agreement]
<PAGE>
HOLDER
By:__________________________________
Holder's Address for Notice:
_____________________________________
_____________________________________
_____________________________________
Number of Shares owned beneficially:
_____________________________________
Number of Shares owned of record (if different
from above):
_____________________________________
[Signature page to Stock Voting Agreement]
<PAGE>
ANNEX A
IRREVOCABLE PROXY
The undersigned stockholder of Kana Communications, Inc., a Delaware
corporation ("Kana"), hereby irrevocably appoints and constitutes the members of
the Board of Directors of Silknet Software Inc., a Delaware corporation
("Silknet"), and each of them (the "Proxyholders"), the agents and proxies of
the undersigned, with full power of substitution and resubstitution, to the full
extent of the undersigned's rights with respect to the shares of capital stock
of Kana beneficially owned by the undersigned, which shares are listed below and
any and all other shares or securities issued or issuable in respect thereof, or
which the undersigned otherwise acquires, on or after the date hereof and prior
to the date this proxy terminates (collectively, the "Shares"), to vote the
Shares (except those Shares which are not voting securities at the time of the
vote, or are not converted into voting securities at the time of a vote) as
follows:
The agents and proxies named above are empowered at any time prior to
termination of this proxy to exercise all voting and other rights
(including, without limitation, the power to execute and deliver written
consents with respect to the Shares) of the undersigned at every annual,
special or adjourned meeting of Kana stockholders, and in every written
consent in lieu of such a meeting, or otherwise,
Section 13 (a) in favor of (i) the issuance of shares of Kana stock
pursuant to the Agreement and Plan of Reorganization by and among Kana,
Pistol Acquisition Corp. ("Sub"), and Silknet, dated as of February 6,
2000, as the same may be amended from time to time (the "Merger
Agreement"), and (ii) any proposal or action which would or could
reasonably be expected to facilitate the merger of Sub with and into
Silknet pursuant to the Merger Agreement (the "Merger");
(a) (b) against approval of any proposal made in opposition to or
competition with consummation of the Merger and the Merger Agreement;
(b) (c) against any merger, consolidation or other business
combination of Kana with, sale of assets or stock of Kana to, or
reorganization or recapitalization involving Kana, other than as
contemplated or permitted by the Merger Agreement;
(c) (d) against any liquidation, or winding up of Kana; and
(d) (e) against any other proposal or action which would, or could
reasonably be expected to, prohibit or discourage the
Merger.
The Proxyholders may not exercise this proxy with respect to any other matter.
The undersigned may vote the Shares on all such other matters.
<PAGE>
The proxy granted by the undersigned to the Proxyholders hereby is granted
as of the date of this Irrevocable Proxy in order to secure the obligations of
the undersigned set forth in Section 2 of the Kana Stock Voting Agreement, and
is irrevocable and coupled with an interest in such obligations and in the
interests in Kana to be purchased and sold pursuant the Merger Agreement. This
proxy will terminate upon the termination of the Kana Stock Voting Agreement in
accordance with its terms.
Upon the execution hereof, all prior proxies given by the undersigned with
respect to the Shares are hereby revoked, and no subsequent proxies will be
given with respect to the Shares until such time as this proxy shall be
terminated in accordance with its terms.
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned. The undersigned authorizes the
Proxyholders to file this proxy and any substitution or revocation of
substitution with the Secretary of Kana and with any Inspector of Elections at
any meeting of the stockholders of Kana.
2
<PAGE>
This proxy is irrevocable and shall survive the insolvency, incapacity,
death or liquidation of the undersigned.
Dated: February __, 2000.
Name of Stockholder: _____________________________
Signature of Stockholder: _____________________________
Shares beneficially owned by Stockholder: _______________
Shares owned of record by Stockholder: _______________
[Signature page to Irrevocable Proxy]
<PAGE>
EXHIBIT 4
SILKNET STOCK OPTION AGREEMENT
------------------------------
THIS SILKNET STOCK OPTION AGREEMENT (this "Agreement") is made and entered
---------
into as of February 6, 2000, between Kana Communications, Inc., a Delaware
corporation ("Kana"), and Silknet Software Inc., a Delaware corporation (the
----
"Company"). Capitalized terms used but not otherwise defined herein have the
- --------
meanings ascribed to them in the Merger Agreement (as defined below).
RECITALS
A. Concurrently with the execution and delivery of this Agreement, Kana,
Merger Sub (as defined below) and the Company are entering into an Agreement and
Plan of Merger (the "Merger Agreement") that provides for the merger of a
----------------
wholly-owned subsidiary of Kana ("Merger Sub") with and into the Company (the
----------
"Merger"). Pursuant to the Merger, each share of common stock, par value $0.01
- -------
per share, of the Company ("Company Shares") outstanding at the Effective Time
--------------
of the Merger will be converted into the right to receive common stock, par
value $0.001 per share, of Kana, upon the terms and subject to the conditions
and exceptions set forth in the Merger Agreement.
B. As a condition to Kana's willingness to enter into the Merger
Agreement, Kana has required that the Company agree, and the Company has so
agreed, to grant to Kana an option to acquire Company Shares upon the terms and
subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants
and agreements set forth herein and in the Merger Agreement and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
1. Grant of Option.
---------------
The Company hereby grants to Kana an irrevocable option (the "Option") to
------
purchase from the Company up to the number of fully paid and nonassessable
Company Shares equal to nineteen and nine tenths percent (19.9%) of the Company
Shares issued and outstanding at the time of exercise of the Option (the "Option
------
Shares"), in the manner set forth below by paying cash to the Company at a price
- ------
of two hundred fourteen dollars and eighty-seven cents ($214.87) per Company
Share (the "Exercise Price").
--------------
2. Exercise of Option.
------------------
(a) The Option may be exercised by Kana, in whole or in part, at any
time or from time to time on or after the occurrence of an Exercise Event. The
Company shall notify Kana promptly in writing of the occurrence of any Exercise
Event, it being understood that the giving of such notice by the Company shall
not be a condition to the right of Kana to exercise the option. For all purposes
of this Agreement, an "Exercise Event" shall mean the occurrence of any
--------------
of (i) a
<PAGE>
Triggering Event (as defined below), (ii) the public announcement of an
Acquisition Proposal (as defined below), or (iii) the commencement of a
solicitation within the meaning of Rule 14a-1(1) by any person or entity other
than the Company or its Board of Directors (or any person or entity acting on
behalf of the Company or its Board of Directors) seeking to alter the
composition of the Company's Board of Directors. If Kana wishes to exercise the
Option, Kana will deliver to the Company a written notice (each an "Exercise
--------
Notice") specifying the total number of Option Shares it wishes to acquire.
- ------
Each closing of a purchase of Option Shares (a "Closing") will occur on a date
-------
and at a time prior to the termination of the Option designated by Kana in an
Exercise Notice delivered at least two (2) business days prior to the date of
such Closing, which Closing will be held at the principal offices of the
Company.
(i) For purposes of this Agreement, "Acquisition Proposal"
--------------------
shall mean any offer or proposal (other than by Kana) for any transaction or
series of related transactions involving: (A) any purchase from the Company or
acquisition by any person or "group" (as defined in Section 13(d) of the
Exchange Act and the rules and regulations thereunder) of more than a ten
percent (10%) interest in the total outstanding voting securities of the Company
or any of its subsidiaries or any tender offer or exchange offer that if
consummated would result in any person or group beneficially owning ten percent
(10%) or more of the total outstanding voting securities of the Company or any
of its subsidiaries or any merger, consolidation, business combination or
similar transaction involving the Company; (B) any sale, lease (other than in
the ordinary course of business), exchange, transfer, license (other than in the
ordinary course of business), acquisition or disposition of more than ten
percent (10%) of the assets of the Company; or (C) any liquidation or
dissolution of the Company.
(ii) For purposes of this Agreement, a "Triggering Event" shall
----------------
be deemed to have occurred if: (i) the Board of Directors of the Company or any
committee thereof shall for any reason have withdrawn or shall have amended or
modified in a manner adverse to Kana its recommendation in favor of the approval
and adoption of the Merger Agreement and approval of the Merger; (ii) the
Company shall have failed to include in the Joint Proxy Statement/Prospectus the
recommendation of the Board of Directors of the Company in favor of the approval
and adoption of the Merger Agreement and the Merger; (iii) the Board of
Directors of the Company shall have failed to reaffirm its recommendation in
favor of the approval and adoption of the Merger Agreement and the Merger within
ten (10) business days after Kana requests in writing that such recommendation
be reaffirmed at any time following the making, announcement or submission of a
Silknet Takeover Proposal (as such term is defined in the Merger Agreement); or
(iv) a tender or exchange offer relating to securities of the Company shall have
been commenced by a person unaffiliated with the Company and the Company shall
not have sent to its security holders pursuant to Rule 14e-2 promulgated under
the Securities Act, within ten (10) business days after such tender or exchange
offer is first published sent or given, a statement disclosing that the Company
recommends rejection of such tender or exchange offer.
(b) The Option and this Agreement will terminate upon the earliest of
(i) the Effective Time, (ii) termination of the Merger Agreement pursuant to
Section 8.01(a) thereof, (iii) termination of the Merger Agreement pursuant
- ---------------
to Section 801(e)(i) or 8.01(f)(i) thereof or otherwise under circumstances
- --------------------
which cannot give rise to a termination fee under Section 8.03(b) of
---------------
2
<PAGE>
the Merger Agreement if prior thereto no Exercise Event shall have occurred or
(iv) twelve (12) months following the termination of the Merger Agreement under
any other circumstances; provided, however, that if the Option cannot be
-------- -------
exercised by reason of any applicable judgment, decree, order, law or regulation
(including, without limitation, if the waiting period related to the issuance of
the Option Shares under the HSR Act shall not have expired or been terminated),
then the Option will not terminate until the forty fifth (45/th/) business day
after such impediment to exercise will have been removed or will have become
final and not subject to appeal. In addition, the period for the exercise of the
Option shall be extended to the extent necessary to avoid liability under
Section 16(b) of the Securities Exchange Act of 1934, as amended, and the rules
and regulations of the Securities and Exchange Commission thereunder, by reason
of such exercise.
3. Conditions to Closing.
---------------------
The obligation of the Company to issue Option Shares to Kana hereunder is
subject to the conditions that (A) any waiting period under the HSR Act
applicable to the issuance of the Option Shares hereunder shall have expired or
been terminated; (B) all material consents, approvals, orders or authorizations
of, or registrations, declarations or filings with, any United States Federal,
state or local administrative agency or commission or other United States
Federal state or local governmental authority or instrumentality, if any,
required in connection with the issuance of the Option Shares hereunder shall
have been obtained or made, as the case may be; and (C) no preliminary or
permanent injunction or other order by any court of competent jurisdiction or
other Governmental Entity in the United States prohibiting or otherwise
restraining such issuance shall be in effect. It is understood and agreed that
at any time during which the Option is exercisable, the parties will use their
respective best efforts to satisfy all conditions to Closing, so that a Closing
may take place as promptly as practicable.
4. Closing.
-------
At any Closing, (A) the Company will deliver to Kana a single certificate
in definitive form representing the number of Company Shares designated by Kana
in its Exercise Notice, such certificate to be registered in the name of Kana
and to bear the restrictive legend set forth in Section 9 hereof, against
---------
delivery of (B) payment by Kana to the Company of the aggregate purchase price
for the Company Shares so designated and being purchased by wire transfer of
immediately available funds to an account designated by the Company, provided
that failure or refusal of the Company to designate such an account shall not
preclude Kana from exercising the Option. Upon delivery of an Exercise Notice
and the tender of the aggregate purchase price in immediately available funds,
Kana shall be deemed to be the holder of record of the Option Shares issuable
upon such exercise, notwithstanding that the stock transfer books of the Company
shall then be closed or that certificates representing such Company Shares shall
not be actually delivered to Kana.
5. Representations and Warranties of the Company.
---------------------------------------------
The Company represents and warrants to Kana that (A) the Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware and has the corporate power and authority to enter
into this Agreement and to carry out its obligations
3
<PAGE>
hereunder; (B) the execution and delivery of this Agreement by the Company and
consummation by the Company of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of the Company and
no other corporate proceedings on the part of the Company are necessary to
authorize this Agreement or any of the transactions contemplated hereby; (C)
this Agreement has been duly executed and delivered by the Company and
constitutes a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms; (D) the Company has taken all
necessary corporate and other action to authorize and reserve for issuance and
to permit it to issue upon exercise of the Option, and at all times from the
date hereof until the termination of the Option will have reserved for issuance,
a sufficient number of unissued Company Shares for Kana to exercise the Option
in full and will take all necessary corporate or other action to authorize and
reserve for issuance all additional Company Shares or other securities which may
be issuable pursuant to Section 8(a) upon exercise of the Option, all of which,
------------
upon their issuance and delivery in accordance with the terms of this Agreement,
will be validly issued, fully paid and nonassessable; (E) upon delivery of the
Company Shares and any other securities to Kana upon exercise of the Option,
Kana will acquire such Company Shares or other securities free and clear of all
material claims, liens, charges, encumbrances and security interests of any kind
or nature whatsoever; (F) the execution and delivery of this Agreement by the
Company do not, and the performance of this Agreement by the Company will not,
(i) conflict with or violate the Certificate of Incorporation or Bylaws of the
Company, (ii) conflict with or violate any law, rule, regulation, order,
judgment or decree applicable to the Company or by which its properties is bound
or affected or (iii) result in any breach of or constitute a default (or an
event that with notice or lapse of time or both would become a default) under,
or impair the Company's rights or alter the rights or obligations of any third
party under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or
encumbrance on any of the properties or assets of the Company pursuant to, any
material note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which the Company is a
party or by which the Company or its properties are bound or affected, except,
with respect to clauses (ii) and (iii), for any such conflicts, violations,
breaches, defaults or other occurrences that could not, individually and in the
aggregate, reasonably be expected to have a Material Adverse Effect on the
Company; and (G) the execution and delivery of this Agreement by the Company
does not, and the performance of this Agreement by the Company will not, require
any consent, approval, authorization or permit of, or filing with, or
notification to, any Governmental Entity except as disclosed in the Merger
Agreement and the disclosure schedule of the Company thereto.
6. Certain Rights.
--------------
(a) Kana Put. At the request of and upon notice by Kana (the "Put
-------- ---
Notice"), at any time during the period during which the Option is exercisable
- ------
pursuant to Section 2 (the "Purchase Period"), the Company (or any successor
--------- ---------------
entity thereof) shall be obligated to purchase from Kana all or any portion of
the Option, to the extent not previously exercised, at the price set forth in
subparagraph (i) below (as limited by subparagraph (iii) below), and all or any
portion of the Option Shares, if any, acquired by Kana pursuant thereto, at the
price set forth in subparagraph (ii) below (as limited by subparagraph (iii)
below)
4
<PAGE>
(i) The difference between the Market/Tender Offer Price (as
defined below) for the Company Shares as of the date Kana gives notice of its
intent to exercise its rights under this Section 6(a) and the Exercise Price,
------------
multiplied by the number of Company Shares purchasable pursuant to the Option
(or portion thereof with respect to which Kana is exercising its rights under
this Section 6), but only if the Market/Tender Offer Price is greater than the
---------
Exercise Price. "Market/Tender Offer Price" shall mean the highest of (A) the
-------------------------
highest price per share offered pursuant to any Silknet Takeover Proposal which
was made prior to such date and has not terminated or been withdrawn as of such
date and (B) the highest closing sale price of Company Shares as reported on the
Nasdaq National Market during the six (6) months ending on the trading day
immediately preceding such date. For purposes of determining the highest price
offered pursuant to any Silknet Takeover Proposal which involves consideration
other than cash, the value of such consideration will be equal to the higher of
(x) if securities of the same class of the proponent of such Silknet Takeover
Proposal as such consideration are traded on any national securities exchange or
by any registered securities association, a value based on the closing sale
price or closing asked price for such securities on their principal trading
market on such date and (y) the value ascribed to such consideration by the
proponent of such Silknet Takeover Proposal, or if no such value is ascribed, a
value determined in good faith by the Board of Directors of the Company.
(ii) The Exercise Price paid by Kana for Company Shares acquired
pursuant to the Option plus the difference between the Market/Tender Offer Price
and such Exercise Price (but only if the Market/Tender Offer Price is greater
than the Exercise Price) multiplied by the number of Company Shares so purchased
(provided that Kana then has beneficial ownership of such Company Shares).
(iii) The foregoing shall be subject to the limitations on Total
Profit set forth in Section 10.
----------
(b) Payment and Redelivery of Option or Shares. If Kana exercises its
------------------------------------------
rights under Section 6(a), the Company will, within five (5) business days after
------------
Kana delivers a Put Notice pursuant to Section 6(a), pay the required amount to
------------
Kana in immediately available funds and Kana will surrender to the Company the
certificates evidencing the Company Shares and the portion of the Option
purchased by Kana pursuant thereto.
7. Reserved.
--------
8. Adjustment Upon Changes in Capitalization; Rights Plans.
-------------------------------------------------------
(a) In the event of any change in the Company Shares by reason of stock
dividends, stock splits, reclassifications, reverse stock splits, mergers (other
than the Merger), recapitalizations, combinations, exchanges of shares and the
like, the type and number of shares or securities subject to the Option and the
Exercise Price will be adjusted appropriately, and proper provision will be made
in the agreements governing such transaction so that Kana will receive, upon
exercise of the Option, the number and class of shares or other securities or
property that Kana would have received in respect of the Company Shares if the
Option had been exercised immediately prior to such event or the record date
therefor, as applicable.
5
<PAGE>
(b) At any time during which the Option is exercisable, and at any time
after the Option is exercised (in whole or in part, if at all), the Company will
not amend (nor permit the amendment of) any current stockholder rights plan of
the Company or its subsidiaries nor adopt (nor permit the adoption of) a new
stockholders rights plan that contains provisions for the distribution or
exercise of rights thereunder as a result of Kana or any affiliate being the
beneficial owner of shares of the Company by virtue of the Option being
exercisable or having been exercised (or as a result of beneficially owning
shares issuable in respect of any Option Shares).
9. Restrictive Legends.
-------------------
Each certificate representing Option Shares issued to Kana hereunder will
include a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE REOFFERED OR SOLD ONLY
IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. SUCH
SECURITIES ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AS SET FORTH
IN THE STOCK OPTION AGREEMENT DATED AS OF FEBRUARY 6, 2000, A COPY OF WHICH MAY
BE OBTAINED FROM THE ISSUER.
It is understood and agreed that (i) the reference to restrictions arising
under the Securities Act in the above legend will be removed by delivery of
substitute certificate(s) without such reference if such Option Shares have been
registered pursuant to the Securities Act, such Option Shares have been sold in
reliance on and in accordance with Rule 144 under the Securities Act or Kana has
delivered to the Company a copy of a letter from the staff of the SEC, or an
opinion of counsel in form and substance reasonably satisfactory to the Company,
to the effect that such legend is not required for purposes of the Securities
Act and (ii) the reference to restrictions pursuant to this Agreement in the
above legend will be removed by delivery of substitute certificate(s) without
such reference if the Option Shares evidenced by certificate(s) containing such
reference have been sold or transferred in compliance with the provisions of
this Agreement under circumstances that do not require the retention of such
reference.
10. Total Profit.
------------
(a) Notwithstanding any other provision of this Agreement, in no event
shall Net Company Payments (as hereinafter defined) exceed one hundred forty-
eight million three hundred thousand dollars ($148,300,000) and in no event
shall Total Kana Profits (as hereinafter defined) exceed one hundred eighty-
eight million three hundred thousand dollars ($188,300,000), and if Net Company
Payments or Total Kana Profits otherwise would exceed such amounts, Kana, at its
sole election, shall either (i) reduce the number of Company Shares subject to
this Option, (ii) deliver to the Company for cancellation Option Shares
previously purchased by Kana (or other securities into which such Option Shares
are converted or exchanged), (iii) pay cash to the Company or (iv) any
combination thereof, so that Kana's actually realized Net Company Payments and
Total Kana Profit shall not exceed such amounts after taking into account the
foregoing actions.
6
<PAGE>
(b) As used herein, (i) the term "Net Company Payments" means the
--------------------
aggregate amount (without duplication) of (A) the net cash amounts received by
Kana from the Company pursuant to the Company's repurchase of the Option or
Option Shares pursuant to Section 6(a), less (in the case of the Option Shares)
------------
Kana's purchase price for such Option Shares, and (ii) the aggregate amount
actually received by Kana from the Company (exclusive of attorneys' fees and
interest) pursuant to Section 8.03 of the Merger Agreement; and (ii) the term
"Total Kana Profit" means the aggregate amount (without duplication) of (A) the
-----------------
net cash amounts received by Kana pursuant to the Company's repurchase of the
Option or Option Shares pursuant to Section 6(a), less (in the case of the
------------
Option Shares) Kana's purchase price for such Option Shares, (B) the aggregate
amount actually received by Kana pursuant to Section 8.03 of the Merger
Agreement, and (C) the net cash amounts received by Kana pursuant to the sale of
Option Shares (or securities into which such shares are converted or exchanged)
to any other unaffiliated third party, less Kana's purchase price for such
Option Shares.
11. Listing and HSR Filing.
----------------------
The Company, upon the request of Kana, will promptly file an application to
list the Company Shares to be acquired upon exercise of the Option for quotation
on the Nasdaq National Market and will use its best efforts to obtain approval
of such listing as soon as practicable. Promptly after the date hereof, each of
the parties hereto will promptly file with the Federal Trade Commission and the
Antitrust Division of the United States Department of Justice all required
premerger notification and report forms and other documents and exhibits
required to be filed under the HSR Act to permit the acquisition of the Company
Shares subject to the Option at the earliest possible date.
12. Miscellaneous.
-------------
(a) Binding Effect. This Agreement will be binding upon and inure to
--------------
the benefit of the parties hereto and their respective successors and permitted
assigns. Nothing contained in this Agreement, express or implied, is intended
to confer upon any person other than the parties hereto and their respective
successors and permitted assigns any rights or remedies of any nature whatsoever
by reason of this Agreement. Except as expressly provided for in this
Agreement, neither this Agreement nor the rights or the obligations of either
party hereto are assignable, except by operation of law or with the written
consent of the other party.
(b) Specific Performance. The parties hereto recognize and agree that
--------------------
if for any reason any of the provisions of this Agreement are not performed in
accordance with their specific terms or are otherwise breached, immediate and
irreparable harm or injury would be caused for which money damages would not be
an adequate remedy. Accordingly, each party hereto agrees that in addition to
other remedies available, the other party hereto will be entitled to an
injunction restraining any violation or threatened violation of the provisions
of this Agreement or the right to enforce any of the covenants or agreements set
forth herein by specific performance. If any action will be brought in equity
to enforce the provisions of this Agreement, neither party hereto will allege,
and each party hereto hereby waives the defense, that there is an adequate
remedy at law.
7
<PAGE>
(c) Entire Agreement. This Agreement and the Merger Agreement
----------------
(including the exhibits thereto) constitute the entire agreement between the
parties hereto with respect to the subject matter hereof and supersede all other
prior agreements and understandings, both written and oral, between the parties
hereto with respect to the subject matter hereof, it being understood that the
Confidentiality Agreement shall continue in full force and effect until the
Closing under the Merger Agreement and shall survive any terminations thereof or
hereof.
(d) Further Assurances. Each party hereto will execute and deliver all
------------------
such further documents and instruments and take all such further action as may
be necessary in order to consummate the transactions contemplated hereby.
(e) Validity. The invalidity or unenforceability of any provision of
--------
this Agreement will not affect the validity or enforceability of the other
provisions of this Agreement, which will remain in full force and effect. In
the event any Governmental Entity of competent jurisdiction holds any provision
of this Agreement to be null, void or unenforceable, the parties hereto will
negotiate in good faith and will execute and deliver an amendment to this
Agreement in order, as nearly as possible, to effectuate, to the extent
permitted by law, the intent of the parties hereto with respect to such
provision.
(f) Notices. All notices and other communications hereunder will be in
-------
writing and will be deemed given if delivered personally or by commercial
delivery service, or sent via telecopy (receipt confirmed) to the parties at the
following addresses or telecopy numbers (or at such other address or telecopy
numbers for a party as will be specified by like notice):
if to Kana, to:
Kana Communications, Inc.
740 Bay Road
Redwood City, CA 94063
Attention: Chief Executive Officer
Telephone: (650) 298-9282
Facsimile: (650) 474-8501
with a copy to:
Brobeck, Phleger & Harrison LLP
Two Embarcadero Road
2200 Geng Road
Palo Alto, CA 94303
Attention: Warren T. Lazarow, Esq.
David A. Makarechian, Esq.
Telephone: (650) 424-0160
Facsimile: (650) 496-2885
if to the Company, to:
8
<PAGE>
Silknet Software Inc.
50 Phillipe Cote Street
Manchester, NE 03101
Attention: Chief Executive Officer
Facsimile: (603) 6250428
and with a copy to:
Testa, Hurwitz & Thibeault, LLP
Oliver Street Tower
125 High Street
Boston, MA 02110
Attention: John Hession, Esq.
Telephone: (617) 248-7000
Facsimile: (617) 248-7100
(g) Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Delaware, regardless of the laws
that might otherwise govern under applicable principles of conflicts of law
thereof.
(h) Expenses. Except as otherwise expressly provided herein or in the
--------
Merger Agreement, all costs and expenses incurred in connection with the
transactions contemplated by this Agreement will be paid by the party incurring
such expenses.
(i) Amendments; Waiver. This Agreement may be amended by the parties
------------------
hereto and the terms and conditions hereof may be waived only by an instrument
in writing signed on behalf of each of the parties hereto, or, in the case of a
waiver, by an instrument signed on behalf of the party waiving compliance.
(j) Assignment. Neither of the parties hereto may sell, transfer,
----------
assign or otherwise dispose of any of its rights or obligations under this
Agreement or the Option created hereunder to any other person, without the
express prior written consent of the other party, except that the rights and
obligations hereunder will inure to the benefit of and be binding upon any
successor of a party hereto.
(k) Counterparts. This Agreement may be executed in counterparts, each
------------
of which will be deemed to be an original, but both of which, taken together,
will constitute one and the same instrument.
(l) Descriptive Headings. The section headings are for convenience
--------------------
only and shall not affect the construction or interpretation of this Agreement.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers as of the date first above
written.
KANA COMMUNICATIONS, INC.
/s/ Michael J. McCloskey
------------------------
Name: Michael J. McCloskey
Title: Chief Executive Officer
SILKNET SOFTWARE INC.
/s/ James C. Wood
------------------
Name: James C. Wood
Title: Chief Executive Officer
10
<PAGE>
EXHIBIT 5
---------
KANA STOCK OPTION AGREEMENT
---------------------------
THIS KANA STOCK OPTION AGREEMENT (this "Agreement") is made and entered into
---------
as of February 6, 2000, between Silknet Software Inc., a Delaware corporation
("Silknet"), and Kana Communications, Inc., a Delaware corporation (the
"Company"). Capitalized terms used but not otherwise defined herein have the
-------
meanings ascribed to them in the Merger Agreement (as defined below).
RECITALS
A. Concurrently with the execution and delivery of this Agreement, the
Company, Merger Sub (as defined below) and Silknet are entering into an
Agreement and Plan of Merger (the "Merger Agreement") that provides for the
----------------
merger of a wholly-owned subsidiary of the Company ("Merger Sub") with and into
----------
Silknet (the "Merger"). Pursuant to the Merger, each share of common stock, par
------
value $0.01 per share, of Silknet will be converted into the right to receive
common stock, par value $0.001 per share, of the Company, upon the terms and
subject to the conditions set forth in the Merger Agreement.
B. As a condition to Silknet's willingness to enter into the Merger
Agreement, Silknet has required that the Company agree, and the Company has so
agreed, to grant to Silknet an option to acquire shares of common stock, par
value $0.001 per share ("Company Shares"), upon the terms and subject to the
--------------
conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants
and agreements set forth herein and in the Merger Agreement and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
1. Grant of Option.
---------------
The Company hereby grants to Silknet an irrevocable option (the "Option") to
------
purchase from the Company up to the number of fully paid and nonassessable
Company Shares equal to nine and nine-tenths percent (9.9%) of the Company
Shares issued and outstanding at the time of exercise of the Option (the "Option
------
Shares"), in the manner set forth below by paying cash to the Company at a price
- ------
of two hundred fifty-eight dollars and eight-eight cents ($258.88) per Company
Share (the "Exercise Price").
--------------
2. Exercise of Option.
------------------
(a) The Option may be exercised by Silknet, in whole or in part, at any
time or from time to time on or after the occurrence of an Exercise Event. The
Company shall notify Silknet promptly in writing of the occurrence of any
Exercise Event, it being understood that the giving of such notice by the
Company shall not be a condition to the right of Silknet to exercise the option.
For all purposes of this Agreement, an "Exercise Event" shall mean the
--------------
occurrence of any of (i) a
<PAGE>
Triggering Event (as defined below), (ii) the public announcement of an
Acquisition Proposal (as defined below), or (iii) the commencement of a
solicitation within the meaning of Rule 14a-1(1) by any person or entity seeking
control of the Company's Board of Directors in opposition to the Merger. If
Silknet wishes to exercise the Option, Silknet will deliver to the Company a
written notice (each an "Exercise Notice") specifying the total number of Option
---------------
Shares it wishes to acquire. Each closing of a purchase of Option Shares (a
"Closing") will occur on a date and at a time prior to the termination of the
-------
Option designated by Silknet in an Exercise Notice delivered at least two (2)
business days prior to the date of such Closing, which Closing will be held at
the principal offices of the Company.
(i) For purposes of this Agreement, "Acquisition Proposal" shall mean
--------------------
any offer or proposal (other than by Silknet) for a transaction or series of
related transactions involving: (A) any purchase from the Company or
acquisition by any person or "group" (as defined in Section 13(d) of the
Exchange Act and the rules and regulations thereunder) of a majority of the
total outstanding voting securities of the Company or any of its subsidiaries or
any tender offer or exchange offer that if consummated would result in any
person or group beneficially owning a majority of the total outstanding voting
securities of the Company or any merger, consolidation, business combination or
similar transaction involving the Company; (B) any sale, lease (other than in
the ordinary course of business), exchange, transfer, license (other than in the
ordinary course of business), acquisition or disposition of a majority of the
assets of the Company; or (C) any liquidation or dissolution of the Company.
(ii) For purposes of this Agreement, a "Triggering Event" shall be
----------------
deemed to have occurred if: (i) the Board of Directors of the Company or any
committee thereof shall for any reason have withdrawn or shall have amended or
modified in a manner adverse to Silknet its recommendation in favor of the
approval of the issuance of Company Common Stock pursuant to the Merger
Agreement; (ii) the Company shall have failed to include in the Joint Proxy
Statement/Prospectus the recommendation of the Board of Directors of the Company
in favor of the issuance of Company Common Stock pursuant to the Merger
Agreement; (iii) the Board of Directors of the Company shall have failed to
reaffirm its recommendation in favor of the issuance of Company Common Stock
pursuant to the Merger Agreement within ten (10) business days after Silknet
requests in writing that such recommendation be reaffirmed at any time following
the making, announcement or submission of a Kana Takeover Proposal (as such term
is defined in the Merger Agreement); or (iv) a tender or exchange offer for a
majority of the outstanding voting securities of the Company shall have been
commenced by a person unaffiliated with the Company and the Company shall not
have sent to its security holders pursuant to Rule 14e-2 promulgated under the
Securities Act, within ten (10) business days after such tender or exchange
offer is first published sent or given, a statement disclosing that the Company
recommends rejection of such tender or exchange offer.
(b) The Option and this Agreement will terminate upon the earliest
of (i) the Effective Time, (ii) termination of the Merger Agreement pursuant to
Section 8.01(a) thereof, (iii) termination of the Merger Agreement pursuant to
- ---------------
Section 8.01(e)(i) or 8.01(f)(i) thereof or otherwise under circumstances which
- ------------------
cannot give rise to a termination fee under Section 8.03(c) of the Merger
---------------
Agreement if prior thereto no Exercise Event shall have occurred or (iv) twelve
(12)
2
<PAGE>
months following the termination of the Merger Agreement under any other
circumstances; provided, however, that if the Option cannot be exercised by
-------- -------
reason of any applicable judgment, decree, order, law or regulation (including,
without limitation, if the waiting period related to the issuance of the Option
Shares under the HSR Act shall not have expired or been terminated), then the
Option will not terminate until the forty fifth (45/th/) business day after such
impediment to exercise will have been removed or will have become final and not
subject to appeal. In addition, the period for the exercise of the Option shall
be extended to the extent necessary to avoid liability under Section 16(b) of
the Securities Exchange Act of 1934, as amended, and the rules and regulations
of the Securities and Exchange Commission thereunder, by reason of such
exercise.
3. Conditions to Closing.
---------------------
The obligation of the Company to issue Option Shares to Silknet hereunder
is subject to the conditions that (A) any waiting period under the HSR Act
applicable to the issuance of the Option Shares hereunder shall have expired or
been terminated; (B) all material consents, approvals, orders or authorizations
of, or registrations, declarations or filings with, any United States Federal,
state or local administrative agency or commission or other United States
Federal state or local governmental authority or instrumentality, if any,
required in connection with the issuance of the Option Shares hereunder shall
have been obtained or made, as the case may be; and (C) no preliminary or
permanent injunction or other order by any court of competent jurisdiction or
other Governmental Entity in the United States prohibiting or otherwise
restraining such issuance shall be in effect. It is understood and agreed that
at any time during which the Option is exercisable, the parties will use their
respective best efforts to satisfy all conditions to Closing, so that a Closing
may take place as promptly as practicable.
4. Closing.
-------
At any Closing, (A) the Company will deliver to Silknet a single
certificate in definitive form representing the number of Company Shares
designated by Silknet in its Exercise Notice, such certificate to be registered
in the name of Silknet and to bear the restrictive legend set forth in Section 9
---------
hereof, against delivery of (B) payment by Silknet to the Company of the
aggregate purchase price for the Company Shares so designated and being
purchased by wire transfer of immediately available funds to an account
designated by the Company, provided that failure or refusal of the Company to
designate such an account shall not preclude Silknet from exercising the Option.
Upon delivery of an Exercise Notice and the tender of the aggregate purchase
price in immediately available funds, Silknet shall be deemed to be the holder
of record of the Option Shares issuable upon such exercise, notwithstanding that
the stock transfer books of the Company shall then be closed or that
certificates representing such Company Shares shall not be actually delivered to
Silknet.
5. Representations and Warranties of the Company.
---------------------------------------------
The Company represents and warrants to Silknet that (A) the Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware and has the corporate power and authority to enter
into this Agreement and to carry out its obligations hereunder; (B) the
execution and delivery of this Agreement by the Company and
3
<PAGE>
consummation by the Company of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of the Company and
no other corporate proceedings on the part of the Company are necessary to
authorize this Agreement or any of the transactions contemplated hereby; (C)
this Agreement has been duly executed and delivered by the Company and
constitutes a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms; (D) the Company has taken all
necessary corporate and other action to authorize and reserve for issuance and
to permit it to issue upon exercise of the Option, and at all times from the
date hereof until the termination of the Option will have reserved for issuance,
a sufficient number of unissued Company Shares for Silknet to exercise the
Option in full and will take all necessary corporate or other action to
authorize and reserve for issuance all additional Company Shares or other
securities which may be issuable pursuant to Section 8(a) upon exercise of the
------------
the Option, all of which, upon their issuance and delivery in accordance with
the terms of this Agreement, will be validly issued, fully paid and
nonassessable; (E) upon delivery of the Company Shares and any other securities
to Silknet upon exercise of the Option, Silknet will acquire such Company Shares
or other securities free and clear of all material claims, liens, charges,
encumbrances and security interests of any kind or nature whatsoever; (F) the
execution and delivery of this Agreement by the Company do not, and the
performance of this Agreement by the Company will not, (i) conflict with or
violate the Certificate of Incorporation or Bylaws of the Company, (ii) conflict
with or violate any law, rule, regulation, order, judgment or decree applicable
to the Company or by which its properties is bound or affected or (iii) result
in any breach of or constitute a default (or an event that with notice or lapse
of time or both would become a default) under, or impair the Company's rights or
alter the rights or obligations of any third party under, or give to others any
rights of termination, amendment, acceleration or cancellation of, or result in
the creation of a lien or encumbrance on any of the properties or assets of the
Company pursuant to, any material note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which the Company is a party or by which the Company or its properties are
bound or affected, except, with respect to clauses (ii) and (iii), for any such
conflicts, violations, breaches, defaults or other occurrences that could not,
individually and in the aggregate, reasonably be expected to have a Material
Adverse Effect on the Company; and (G) the execution and delivery of this
Agreement by the Company does not, and the performance of this Agreement by the
Company will not, require any consent, approval, authorization or permit of, or
filing with, or notification to, any Governmental Entity except as disclosed in
the Merger Agreement and the disclosure schedule of the Company thereto.
6. Certain Rights.
--------------
(a) Silknet Put. At the request of and upon notice by Silknet (the
-----------
"Put Notice"), at any time during the period during which the Option is
----------
exercisable pursuant to Section 2 (the "Purchase Period"), the Company (or any
--------- ---------------
successor entity thereof) shall be obligated to purchase from Silknet all or any
portion of the Option, to the extent not previously exercised, at the price set
forth in subparagraph (i) below (as limited by subparagraph (iii) below), and
all or any portion of the Option Shares, if any, acquired by Silknet pursuant
thereto, at the price set forth in subparagraph (ii) below (as limited by
subparagraph (iii) below):
4
<PAGE>
(i) The difference between the Market/Tender Offer Price (as defined
below) for the Company Shares as of the date Silknet gives notice of its intent
to exercise its rights under this Section 6(a) and the Exercise Price,
------------
multiplied by the number of Company Shares purchasable pursuant to the Option
(or portion thereof with respect to which Silknet is exercising its rights under
this Section 6), but only if the Market/Tender Offer Price is greater than the
---------
Exercise Price. "Market/Tender Offer Price" shall mean the highest of (A) the
--------------------------
highest price per share offered pursuant to any Kana Takeover Proposal which was
made prior to such date and has not terminated or been withdrawn as of such date
and (B) the highest closing sale price of Company Shares as reported on the
Nasdaq National Market during the six (6) months ending on the trading day
immediately preceding such date. For purposes of determining the highest price
offered pursuant to any Kana Takeover Proposal which involves consideration
other than cash, the value of such consideration will be equal to the higher of
(x) if securities of the same class of the proponent of such Kana Takeover
Proposal as such consideration are traded on any national securities exchange or
by any registered securities association, a value based on the closing sale
price or closing asked price for such securities on their principal trading
market on such date and (y) the value ascribed to such consideration by the
proponent of such Kana Takeover Proposal, or if no such value is ascribed, a
value determined in good faith by the Board of Directors of the Company.
(ii) The Exercise Price paid by Silknet for Company Shares acquired
pursuant to the Option plus the difference between the Market/Tender Offer Price
and such Exercise Price (but only if the Market/Tender Offer Price is greater
than the Exercise Price) multiplied by the number of Company Shares so purchased
(provided that Silknet then has beneficial ownership of such Company Shares).
(iii) The foregoing shall be subject to the limitations on Total
Profit set forth in Section 10.
----------
(b) Payment and Redelivery of Option or Shares. If Silknet exercises its
------------------------------------------
rights under Section 6(a), the Company will, within five (5) business days after
------------
Silknet delivers a Put Notice pursuant to Section 6(a), pay the required amount
------------
to Silknet in immediately available funds and Silknet will surrender to the
Company the certificates evidencing the Company Shares and the portion of the
Option purchased by Silknet pursuant thereto.
7. Reserved.
8. Adjustment Upon Changes in Capitalization; Rights Plans.
-------------------------------------------------------
(a) In the event of any change in the Company Shares by reason of stock
dividends, stock splits, reclassifications, reverse stock splits, mergers (other
than the Merger), recapitalizations, combinations, exchanges of shares and the
like, the type and number of shares or securities subject to the Option and the
Exercise Price will be adjusted appropriately, and proper provision will be made
in the agreements governing such transaction so that Silknet will receive, upon
exercise of the Option, the number and class of shares or other securities or
property that Silknet would have received in respect of the Company Shares if
the Option had been exercised immediately prior to such event or the record date
therefor, as applicable.
5
<PAGE>
(b) At any time during which the Option is exercisable, and at any
time after the Option is exercised (in whole or in part, if at all), the Company
will not amend (nor permit the amendment of) any current stockholder rights plan
of the Company or its subsidiaries nor adopt (nor permit the adoption of) a new
stockholders rights plan that contains provisions for the distribution or
exercise of rights thereunder as a result of Silknet or any affiliate being the
beneficial owner of shares of the Company by virtue of the Option being
exercisable or having been exercised (or as a result of beneficially owning
shares issuable in respect of any Option Shares).
9. Restrictive Legends.
-------------------
Each certificate representing Option Shares issued to Silknet hereunder
will include a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE REOFFERED OR SOLD ONLY
IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. SUCH
SECURITIES ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AS SET FORTH
IN THE STOCK OPTION AGREEMENT DATED AS OF FEBRUARY 6, 2000, A COPY OF WHICH MAY
BE OBTAINED FROM THE ISSUER.
It is understood and agreed that (i) the reference to restrictions arising
under the Securities Act in the above legend will be removed by delivery of
substitute certificate(s) without such reference if such Option Shares have been
registered pursuant to the Securities Act, such Option Shares have been sold in
reliance on and in accordance with Rule 144 under the Securities Act or Silknet
has delivered to the Company a copy of a letter from the staff of the SEC, or an
opinion of counsel in form and substance reasonably satisfactory to the Company,
to the effect that such legend is not required for purposes of the Securities
Act and (ii) the reference to restrictions pursuant to this Agreement in the
above legend will be removed by delivery of substitute certificate(s) without
such reference if the Option Shares evidenced by certificate(s) containing such
reference have been sold or transferred in compliance with the provisions of
this Agreement under circumstances that do not require the retention of such
reference.
10. Total Profit.
------------
(a) Notwithstanding any other provision of this Agreement, in no event
shall Net Company Payments (as hereinafter defined) exceed one hundred forty-
eight million three hundred thousand dollars ($148,300,000) and in no event
shall Total Silknet Profits (as hereinafter defined) exceed one hundred eight-
eight million three hundred thousand dollars ($188,300,000), and if Net Company
Payments or Total Silknet Profits otherwise would exceed such amounts, Silknet,
at its sole election, shall either (i) reduce the number of Company Shares
subject to this Option, (ii) deliver to the Company for cancellation Option
Shares previously purchased by Silknet (or other securities into which such
Option Shares are converted or exchanged), (iii) pay cash to the Company or (iv)
any combination thereof, so that Silknet's actually realized Net Company
6
<PAGE>
Payments and Total Silknet Profit shall not exceed such amounts after taking
into account the foregoing actions.
(b) As used herein, (i) the term "Net Company Payments" means the
--------------------
aggregate amount (without duplication) of (A) the net cash amounts received by
Silknet from the Company pursuant to the Company's repurchase of the Option or
Option Shares pursuant to Section 6(a), less (in the case of the Option Shares)
------------
Silknet's purchase price for such Option Shares, and (ii) the aggregate amount
actually received by Silknet from the Company (exclusive of attorneys' fees and
interest) pursuant to Section 8.03 of the Merger Agreement; and (ii) the term
"Total Silknet Profit" means the aggregate amount (without duplication) of (A)
- ---------------------
the net cash amounts received by Silknet pursuant to the Company's repurchase of
the Option or Option Shares pursuant to Section 6(a), less (in the case of the
------------
Option Shares) Silknet's purchase price for such Option Shares, (B) the
aggregate amount actually received by Silknet pursuant to Section 8.03 of the
Merger Agreement, and (C) the net cash amounts received by Silknet pursuant to
the sale of Option Shares (or securities into which such shares are converted or
exchanged) to any other unaffiliated third party, less Silknet's purchase price
for such Option Shares.
11. Listing and HSR Filing.
----------------------
The Company, upon the request of Silknet, will promptly file an application
to list the Company Shares to be acquired upon exercise of the Option for
quotation on the Nasdaq National Market and will use its best efforts to obtain
approval of such listing as soon as practicable. Promptly after the date hereof,
each of the parties hereto will promptly file with the Federal Trade Commission
and the Antitrust Division of the United States Department of Justice all
required premerger notification and report forms and other documents and
exhibits required to be filed under the HSR Act to permit the acquisition of the
Company Shares subject to the Option at the earliest possible date.
12. Miscellaneous.
-------------
(a) Binding Effect. This Agreement will be binding upon and inure to
--------------
the benefit of the parties hereto and their respective successors and permitted
assigns. Nothing contained in this Agreement, express or implied, is intended
to confer upon any person other than the parties hereto and their respective
successors and permitted assigns any rights or remedies of any nature whatsoever
by reason of this Agreement. Except as expressly provided for in this
Agreement, neither this Agreement nor the rights or the obligations of either
party hereto are assignable, except by operation of law or with the written
consent of the other party.
(b) Specific Performance. The parties hereto recognize and agree that
--------------------
if for any reason any of the provisions of this Agreement are not performed in
accordance with their specific terms or are otherwise breached, immediate and
irreparable harm or injury would be caused for which money damages would not be
an adequate remedy. Accordingly, each party hereto agrees that in addition to
other remedies available, the other party hereto will be entitled to an
injunction restraining any violation or threatened violation of the provisions
of this Agreement or the right to enforce any of the covenants or agreements set
forth herein by specific performance. If any action
7
<PAGE>
will be brought in equity to enforce the provisions of this Agreement, neither
party hereto will allege, and each party hereto hereby waives the defense, that
there is an adequate remedy at law.
(c) Entire Agreement. This Agreement and the Merger Agreement
----------------
(including the exhibits thereto) constitute the entire agreement between the
parties hereto with respect to the subject matter hereof and supersede all other
prior agreements and understandings, both written and oral, between the parties
hereto with respect to the subject matter hereof, it being understood that the
Confidentiality Agreement shall continue in full force and effect until the
Closing under the Merger Agreement and shall survive any terminations thereof or
hereof.
(d) Further Assurances. Each party hereto will execute and deliver all
------------------
such further documents and instruments and take all such further action as may
be necessary in order to consummate the transactions contemplated hereby.
(e) Validity. The invalidity or unenforceability of any provision of
--------
this Agreement will not affect the validity or enforceability of the other
provisions of this Agreement, which will remain in full force and effect. In
the event any Governmental Entity of competent jurisdiction holds any provision
of this Agreement to be null, void or unenforceable, the parties hereto will
negotiate in good faith and will execute and deliver an amendment to this
Agreement in order, as nearly as possible, to effectuate, to the extent
permitted by law, the intent of the parties hereto with respect to such
provision.
(f) Notices. All notices and other communications hereunder will be in
-------
writing and will be deemed given if delivered personally or by commercial
delivery service, or sent via telecopy (receipt confirmed) to the parties at the
following addresses or telecopy numbers (or at such other address or telecopy
numbers for a party as will be specified by like notice):
if to Silknet, to:
Silknet Software Inc.
50 Phillipe Cote Street
Manchester, NE 03101
Attention: Chief Executive Officer
Facsimile: (603) 6250428
and with a copy to:
Testa, Hurwitz & Thibeault, LLP
Oliver Street Tower
125 High Street
Boston, MA 02110
Attention: John Hession, Esq.
Telephone: (617) 248-7000
Facsimile: (617) 248-7100
8
<PAGE>
if to the Company, to:
Kana Communications, Inc.
740 Bay Road
Redwood City, CA 94063
Attention: Chief Executive Officer
Telephone: (650) 298-9282
Facsimile: (650) 474-8501
with a copy to:
Brobeck, Phleger & Harrison LLP
Two Embarcadero Road
2200 Geng Road
Palo Alto, CA 94303
Attention: Warren T. Lazarow, Esq.
David A. Makarechian, Esq.
Telephone: (650) 424-0160
Facsimile: (650) 496-2885
9
<PAGE>
(g) Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Delaware, regardless of the laws
that might otherwise govern under applicable principles of conflicts of law
thereof.
(h) Expenses. Except as otherwise expressly provided herein or in the
--------
Merger Agreement, all costs and expenses incurred in connection with the
transactions contemplated by this Agreement will be paid by the party incurring
such expenses.
(i) Amendments; Waiver. This Agreement may be amended by the parties
------------------
hereto and the terms and conditions hereof may be waived only by an instrument
in writing signed on behalf of each of the parties hereto, or, in the case of a
waiver, by an instrument signed on behalf of the party waiving compliance.
(j) Assignment. Neither of the parties hereto may sell, transfer,
----------
assign or otherwise dispose of any of its rights or obligations under this
Agreement or the Option created hereunder to any other person, without the
express prior written consent of the other party, except that the rights and
obligations hereunder will inure to the benefit of and be binding upon any
successor of a party hereto.
(k) Counterparts. This Agreement may be executed in counterparts, each
------------
of which will be deemed to be an original, but both of which, taken together,
will constitute one and the same instrument.
(l) Descriptive Headings. The section headings are for convenience
--------------------
only and shall not affect the construction or interpretation of this Agreement.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers as of the date first above
written.
KANA COMMUNICATIONS, INC.
/s/ Michael J. McCloskey
-----------------------------------
Name: Michael J. McCloskey
Title: Chief Executive Officer
SILKNET SOFTWARE, INC.
/s/ James C. Wood
-----------------------------------
Name: James C. Wood
Title: Chief Executive Officer
11
