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Filed Pursuant to Rule 424(b)(4)
Registration No. 333-42522
3,010,486 SHARES
[KANA LOGO]
KANA COMMUNICATIONS, INC.
COMMON STOCK
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This prospectus relates to the sale by certain of our current stockholders
of up to 3,010,486 shares of our common stock that were issued in connection
with our mergers with Business Evolution, Inc. and netDialog, Inc. in December
1999. We are registering our common stock for sale by these selling
stockholders. The prices at which such stockholders may sell the shares will be
determined by the prevailing market for the shares or in negotiated
transactions. We will not receive any proceeds from the sale of shares offered
under this prospectus.
Our common stock is traded on the Nasdaq National Market under the symbol
"KANA." The closing price on October 26, 2000 was $23.75 per share.
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THE SHARES OF COMMON STOCK OF KANA OFFERED OR SOLD UNDER THIS PROSPECTUS
INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 5 OF THIS
PROSPECTUS TO READ ABOUT IMPORTANT FACTORS YOU SHOULD CONSIDER BEFORE BUYING THE
COMMON STOCK.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The date of this prospectus is October 27, 2000.
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You should rely only on the information contained in or incorporated by
reference in this prospectus. We have not authorized anyone to provide you with
different information. We are not making an offer of these securities in any
state where the offer is not permitted. You should not assume that the
information contained in or incorporated by reference in this prospectus is
accurate as of any date other than the date on the front of this prospectus.
TABLE OF CONTENTS
PAGE
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PROSPECTUS SUMMARY...................................................... 3
RISK FACTORS............................................................ 5
FORWARD-LOOKING STATEMENTS.............................................. 17
WHERE YOU CAN FIND MORE INFORMATION..................................... 18
SELLING STOCKHOLDERS.................................................... 19
USE OF PROCEEDS......................................................... 20
PLAN OF DISTRIBUTION.................................................... 20
LEGAL MATTERS........................................................... 22
EXPERTS................................................................. 22
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PROSPECTUS SUMMARY
This summary highlights some information from this prospectus, and it may
not contain all of the information that is important to you. It is qualified in
its entirety by the more detailed information and consolidated financial
statements, including the notes to the consolidated financial statements,
incorporated by reference in this prospectus. You should read the full text of,
and consider carefully the more specific details contained in or incorporated by
reference into this prospectus.
OUR BUSINESS
We are a leading provider of integrated e-business solutions that deliver a
Web-architected e-business platform and a comprehensive suite of customer-facing
applications for marketing, sales and service. We define e-businesses as
companies that leverage the reach and efficiency of the Internet to enhance
their competitive market position, from Internet start-ups to the largest 2,000
companies in the world, commonly known as the "Global 2000." Our products and
services allow companies to offer customers, business partners and businesses
alike, the ability to collaborate with the company and each other to efficiently
resolve their problems and to receive timely, easy to access, relevant
information.
Our objective is to become the leading provider of mission critical
Web-architected communications and relationship management software products and
services for e-businesses. To achieve our objective, we intend to expand our
products to enter new markets, increase our global distribution capabilities and
alliances, leverage our hosted application service and continue to emphasize
customer advocacy and satisfaction.
RECENT DEVELOPMENTS
On June 12, 2000, we sold 2,500,000 shares of our common stock for gross
proceeds of $125.0 million (net proceeds of $120.0 million) in a private
placement transaction with entities affiliated with Putnam Investment
Management, Inc. and The Putnam Advisory Company, Inc., entities affiliated with
The Galleon Group, DWS Investments and Metzler Investments. On June 28, 2000, we
registered with the Securities and Exchange Commission our common stock for
resale by these selling stockholders.
On April 19, 2000, we completed a merger with Silknet Software, Inc. under
which Silknet became our wholly-owned subsidiary. Silknet provides electronic
relationship management software, or eRM software, that allows companies to
offer marketing, sales, e-commerce and support services through a single Web
site interface personalized for individual customers. Silknet's products enable
a company to deliver these services to its customers over the Web through
customer self-service, assisted service or immediate, direct collaboration among
that company and its customers, partners, employees and suppliers. These users
can choose from a variety of communications media, such as the Web, e-mail and
the telephone, to do business with that company. Silknet's software can capture
and consolidate data derived from all of these sources and distribute it
throughout a company and to its partners to provide a single view of the
customer's interaction with that company.
In connection with the merger, each share of Silknet common stock
outstanding immediately prior to the completion of the Merger was converted into
the right to receive 1.66 shares of our common stock and we assumed Silknet's
outstanding stock options and warrants based on the exchange ratio, issuing
approximately 29.2 million shares of our common stock and assuming options and
warrants to acquire approximately 4.0 million shares of Silknet common stock.
The transaction is intended to qualify as a tax-free reorganization under the
Internal Revenue Code of 1986, as amended, and was accounted for using the
purchase method of accounting.
CORPORATE INFORMATION
We were founded by Mark Gainey and Michael Horvath in 1996. We were first
incorporated in California in July 1996 as Kana Net Works, Inc., and we changed
our name to Kana.com, Inc. in January 1997. We then changed our name to Kana
Communications, Inc. in October 1997. We reincorporated in Delaware in September
1999. In December 1999, we completed mergers with Business Evolution, Inc. and
netDialog, Inc., and in April 2000, we completed our merger with Silknet
Software, Inc. References in this prospectus to "Kana," "we," "our," and "us"
collectively refer to Kana Communications, Inc., a Delaware corporation, its
subsidiaries and its California predecessor. Our principal executive offices are
located at 740 Bay Road, Redwood City, California 94063 and our telephone number
is (650) 298-9282.
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THE OFFERING
On December 3, 1999, we completed a merger with Business Evolution, Inc.
and a merger with netDialog, Inc. pursuant to which Business Evolution and
netDialog became our wholly-owned subsidiaries, and which we refer to in this
prospectus as the "mergers." This prospectus relates to the sale of up to
3,010,486 shares of our common stock issued in connection with the mergers for
all outstanding shares, warrants and convertible notes of Business Evolution and
netDialog. Of this amount, 1,890,200 shares are being offered for sale by former
stockholders of Business Evolution and 1,120,286 shares are being offered for
sale by former stockholders of netDialog. We are registering our common stock
for sale by these selling stockholders. The prices at which these stockholders
may sell the shares will be determined by the prevailing market for the shares
or in negotiated transactions. See "Selling Stockholders."
USE OF PROCEEDS
The selling stockholders will receive all of the proceeds from the sale of
the common stock pursuant to this prospectus. We will not receive any of the
proceeds from sales by the selling stockholders of the offered shares of common
stock.
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RISK FACTORS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED
IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING
THOSE SET FORTH IN THE FOLLOWING RISK FACTORS AND ELSEWHERE IN THIS PROSPECTUS.
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS, TOGETHER WITH ALL
OTHER INFORMATION INCLUDED OR INCORPORATED BY REFERENCE INTO THIS PROSPECTUS,
BEFORE YOU DECIDE WHETHER TO PURCHASE SHARES OF OUR COMMON STOCK.
RISKS AND UNCERTAINTIES, IN ADDITION TO THOSE WE DESCRIBE BELOW, THAT ARE
NOT PRESENTLY KNOWN TO US, OR THAT WE CURRENTLY BELIEVE ARE IMMATERIAL MAY ALSO
IMPAIR OUR BUSINESS OPERATIONS. IF ANY OF THE FOLLOWING RISKS OCCUR, OUR
BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION COULD BE SERIOUSLY HARMED.
IN ADDITION, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE DUE TO THE
OCCURRENCE OF ANY OF THESE RISKS.
RISKS RELATED TO OUR BUSINESS
BECAUSE WE HAVE A LIMITED OPERATING HISTORY, THERE IS LIMITED INFORMATION UPON
WHICH YOU CAN EVALUATE OUR BUSINESS
We are still in the early stages of our development, and our limited
operating history makes it difficult to evaluate our business and prospects. We
were incorporated in July 1996 and first recorded revenue in February 1998.
Thus, we have a limited operating history upon which you can evaluate our
business and prospects. In addition, our operating results include the results
of operations of Connectify, Inc., netDialog, Inc. and Business Evolution, Inc.,
three companies acquired by us and accounted for as poolings of interests. Due
to our limited operating history, it is difficult or impossible to predict
future results of operations. For example, we cannot forecast operating expenses
based on our historical results because they are limited, and we are required to
forecast expenses in part on future revenue projections. Moreover, due to our
limited operating history, any evaluation of our business and prospects must be
made in light of the risks and uncertainties often encountered by early-stage
companies in Internet-related markets. Many of these risks are discussed in the
subheadings below, and include our ability to:
o attract more customers;
o implement our sales, marketing and after-sales service initiatives,
both domestically and internationally;
o execute our product development activities;
o anticipate and adapt to the changing Internet market;
o attract, retain and motivate qualified personnel;
o respond to actions taken by our competitors;
o continue to build an infrastructure to effectively manage growth and
handle any future increased usage; and
o integrate acquired businesses, technologies, products and services.
If we are unsuccessful in addressing these risks or in executing our
business strategy, our business, results of operations and financial condition
would be materially and adversely affected.
OUR QUARTERLY REVENUES AND OPERATING RESULTS MAY FLUCTUATE IN FUTURE PERIODS AND
WE MAY FAIL TO MEET EXPECTATIONS, WHICH MAY CAUSE THE PRICE OF OUR COMMON STOCK
TO DECLINE
Our quarterly revenues and operating results are difficult to predict and
may fluctuate significantly from quarter to quarter particularly because our
products and services are relatively new and our prospects uncertain. If
quarterly revenues or operating results fall below the expectations of investors
or public market analysts, the price of our common stock could decline
substantially. Factors that might cause quarterly fluctuations in our operating
results include the factors described in the subheadings below as well as:
o the evolving and varying demand for customer communication software
products and services for e-businesses, particularly our products and
services;
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o costs associated with integrating our recent acquisitions, and costs
associated with any future acquisitions;
o the timing of new releases of our products;
o the discretionary nature of our customers' purchasing and budgetary
cycles;
o changes in our pricing policies or those of our competitors;
o the timing of execution of large contracts that materially affect our
operating results;
o the mix of sales channels through which our products and services are
sold;
o the mix of our domestic and international sales;
o costs related to the customization of our products;
o our ability to expand our operations, and the amount and timing of
expenditures related to this expansion; and
o global economic the conditions, as well as those specific to large
enterprises with high e-mail volume.
We also often offer volume-based pricing, which may affect operating
margins. Most of our expenses, such as employee compensation and rent, are
relatively fixed in the short term. Moreover, our expense levels are based, in
part, on our expectations regarding future revenue levels. As a result, if total
revenues for a particular quarter are below expectations, we could not
proportionately reduce operating expenses for that quarter. Therefore, this
revenue shortfall would have a disproportionate effect on our expected operating
results for that quarter. In addition, because our service revenue is largely
correlated with our license revenue, a decline in license revenue could also
cause a decline in service revenue in the same quarter or in subsequent
quarters.
Due to the foregoing factors, we believe that quarter-to-quarter
comparisons of our operating results are not a good indication of our future
performance.
WE HAVE A HISTORY OF LOSSES AND MAY NOT BE PROFITABLE IN THE FUTURE, WHICH MAY
REDUCE THE TRADING PRICE OF OUR COMMON STOCK
Since we began operations in 1997, we have incurred substantial operating
losses in every quarter. As a result of accumulated operating losses, we have a
significant accumulated deficit. Since inception, we have funded our business
primarily through selling our stock, not from cash generated by our business.
Our growth in recent periods has been from a limited base of customers, and we
may not be able to sustain these growth rates. We expect to continue to increase
our operating expenses. As a result, we expect to continue to experience losses
and negative cash flows, even if sales of our products and services continue to
grow, and we may not generate sufficient revenues to achieve profitability in
the future.
In addition, as a result of our mergers with Connectify, netDialog,
Business Evolution and Silknet, we expect that our losses will increase even
more significantly because of additional costs and expenses related to:
o an increase in the number of employees;
o an increase in research and development activities;
o an increase in sales and marketing activities; and
o assimilation of operations and personnel.
In addition, in connection with the acquisition of Silknet in April 2000,
we recorded goodwill and intangible assets of approximately $3.8 billion in
connection with the merger, which will be amortized over a period of three
years.
Further, in connection with the issuance of 400,000 shares of our common
stock and a warrant to purchase up to 725,000 shares of our common stock to
Andersen Consulting LLP pursuant to a stock and warrant purchase agreement,
dated September 6, 2000, we will incur substantial charges to stock-based
compensation. With respect to the 400,000 shares of common stock, we will incur
a fixed charge to stock-based compensation over the four-year term of our global
strategic alliance with Andersen based upon the fair market value of our common
stock on
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September 6, 2000, the date of closing, of $37.125. With respect to the warrant,
we will incur a charge to stock-based compensation when certain performance
goals are achieved, such charge to be measured using the Black-Scholes valuation
model and the fair market value of our common stock at the time of achievement
of such goals. Because of the accounting policies applicable to the warrant, the
charges associated with the warrant will be measured in part upon the changes in
the fair market value of our stock. Accordingly, significant increases in our
stock price could result in substantial non-cash accounting charges and
variations in our results of operations.
If we do achieve profitability, we may not be able to sustain or increase
any profitability on a quarterly or annual basis in the future.
WE HAVE COMPLETED FOUR MERGERS AND THOSE MERGERS MAY RESULT IN DISRUPTIONS TO
OUR BUSINESS AND MANAGEMENT DUE TO DIFFICULTIES IN ASSIMILATING PERSONNEL AND
OPERATIONS
We may not realize the benefits from the significant mergers we have
completed. In August 1999, we acquired Connectify, and in December 1999, we
acquired netDialog and Business Evolution. On April 19, 2000, we completed our
merger with Silknet. We may not be able to successfully assimilate the
additional personnel, operations, acquired technology and products into our
business. In particular, we will need to assimilate and retain key professional
services, engineering and marketing personnel. This is particularly difficult
with Business Evolution and Silknet, since their operations are located on the
east coast and we are headquartered on the west coast. Key personnel from the
acquired companies have in certain instances decided, and they may in the future
decide, that they do not want to work for us. In addition, products of these
companies will have to be integrated into our products, and it is uncertain
whether we may accomplish this easily or at all. These difficulties could
disrupt our ongoing business, distract management and employees or increase
expenses. Acquisitions are inherently risky and we may also face unexpected
costs, which may adversely affect operating results in any quarter.
THE MERGER OF SILKNET INTO OUR COMPANY COULD ADVERSELY AFFECT COMBINED FINANCIAL
RESULTS
If the benefits of the merger of Silknet into our company do not exceed the
costs associated with the merger, including any dilution to our stockholders
resulting from the issuance of shares in connection with the merger, our
financial results, including earnings per share, could be adversely affected. In
addition, we have recorded goodwill and intangible assets of approximately $3.8
billion in connection with the merger, which will be amortized over a period of
three years.
THE MARKET PRICE OF OUR COMMON STOCK MAY DECLINE AS A RESULT OF THE MERGER OF
SILKNET INTO OUR COMPANY
The market price of our common stock may decline as a result of the merger
if:
o the integration of our company and Silknet is unsuccessful;
o we do not achieve the perceived benefits of the merger as rapidly or
to the extent anticipated by financial or industry analysts or
investors; or
o the effect of the merger on our financial results is not consistent
with the expectations of financial or industry analysts or investors.
The market price of our common stock could also decline as a result of
factors related to the merger which may currently be unforeseen. A decline in
the market price of our common stock could materially and adversely affect our
operating results.
IF WE ACQUIRE ADDITIONAL COMPANIES, PRODUCTS OR TECHNOLOGIES, WE MAY FACE RISKS
SIMILAR TO THOSE FACED IN OUR OTHER MERGERS
If we are presented with appropriate opportunities, we intend to make other
investments in complementary companies, products or technologies. We may not
realize the anticipated benefits of any other acquisition or investment. If we
acquire another company, we will likely face the same risks, uncertainties and
disruptions as discussed above with respect to our other mergers. Furthermore,
we may have to incur debt or issue equity securities to pay for any additional
future acquisitions or investments, the issuance of which could be dilutive to
our company or our existing stockholders. In addition, our profitability may
suffer because of acquisition-related costs or amortization costs for acquired
goodwill and other intangible assets.
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WE FACE SUBSTANTIAL COMPETITION AND MAY NOT BE ABLE TO COMPETE EFFECTIVELY
The market for our products and services is intensely competitive, evolving
and subject to rapid technological change. We expect the intensity of
competition to increase in the future. Increased competition may result in price
reductions, reduced gross margins and loss of market share.
We currently face competition for our products from systems designed by
in-house and third-party development efforts. We expect that these systems will
continue to be a principal source of competition for the foreseeable future. Our
competitors include a number of companies offering one or more products for the
e-business communications and relationship management market, some of which
compete directly with our products. For example, our competitors include
companies providing stand-alone point solutions, including Annuncio, Inc.,
AskJeeves, Inc., Brightware, Inc., Broadbase, Inc., Digital Impact, Inc., eGain
Communications Corp., E.piphany, Inc., Inference Corp., Marketfirst, Inc., Live
Person, Inc., Mustang Software, Inc., Responsys.com and Servicesoft, Inc. In
addition, we compete with companies providing traditional, client-server based
customer management and communications solutions, such as Clarify Inc. (which
was acquired by Northern Telecom), Genesys Telecommunications Laboratories, Inc.
(which was acquired by Alcatel), Cisco Systems, Inc., Lucent Technologies, Inc.,
Message Media, Inc., Oracle Corporation, Pivotal Corporation, Siebel Systems,
Inc. and Vantive Corporation (which was acquired by PeopleSoft, Inc.).
Furthermore, we may face increased competition should we expand our product
line, through acquisition of complementary businesses or otherwise.
Many of our competitors have longer operating histories, significantly
greater financial, technical, marketing and other resources, significantly
greater name recognition and a larger installed base of customers than we have.
In addition, many of our competitors have well-established relationships with
our current and potential customers and have extensive knowledge of our
industry. We may lose potential customers to competitors for various reasons,
including the ability or willingness of competitors to offer lower prices and
other incentives that we cannot match. Accordingly, it is possible that new
competitors or alliances among competitors may emerge and rapidly acquire
significant market share. We also expect that competition will increase as a
result of recently-announced industry consolidations, as well as future
consolidations.
We may not be able to compete successfully against current and future
competitors, and competitive pressures may seriously harm our business.
OUR FAILURE TO CONSUMMATE OUR EXPECTED SALES IN ANY GIVEN QUARTER COULD
DRAMATICALLY HARM OUR OPERATING RESULTS BECAUSE OF THE LARGE SIZE OF TYPICAL
ORDERS
Our sales cycle is subject to a number of significant risks, including
customers' budgetary constraints and internal acceptance reviews, over which we
have little or no control. Consequently, if sales expected from a specific
customer in a particular quarter are not realized in that quarter, we are
unlikely to be able to generate revenue from alternate sources in time to
compensate for the shortfall. As a result, and due to the relatively large size
of a typical order, a lost or delayed sale could result in revenues that are
lower than expected. Moreover, to the extent that significant sales occur
earlier than anticipated, revenues for subsequent quarters may be lower than
expected.
WE MAY NOT BE ABLE TO FORECAST OUR REVENUES ACCURATELY BECAUSE OUR PRODUCTS HAVE
A LONG AND VARIABLE SALES CYCLE
The long sales cycle for our products may cause license revenue and
operating results to vary significantly from period to period. To date, the
sales cycle for our products has taken 3 to 12 months in the United States and
longer in foreign countries. Our sales cycle has required pre-purchase
evaluation by a significant number of individuals in our customers'
organizations. Along with third parties that often jointly market our software
with us, we invest significant amounts of time and resources educating and
providing information to prospective customers regarding the use and benefits of
our products. Many of our customers evaluate our software slowly and
deliberately, depending on the specific technical capabilities of the customer,
the size of the deployment, the complexity of the customer's network
environment, and the quantity of hardware and the degree of hardware
configuration necessary to deploy our products.
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OUR STOCK PRICE MAY BE HIGHLY VOLATILE AND COULD DROP, PARTICULARLY BECAUSE OUR
BUSINESS DEPENDS ON THE INTERNET
The trading price of our common stock has fluctuated widely in the past and
is expected to continue to do so in the future, as a result of a number of
factors, many of which are outside our control. In addition, the stock market
has experienced extreme price and volume fluctuations that have affected the
market prices of many technology and computer software companies, particularly
Internet-related companies, and that have often been unrelated or
disproportionate to the operating performance of these companies. These broad
market fluctuations could adversely affect the market price of our common stock.
FUTURE SALES OF STOCK COULD AFFECT OUR STOCK PRICE
If our stockholders sell substantial amounts of our common stock, including
shares issued upon the exercise of outstanding options and warrants, in the
public market, the market price of our common stock could fall. These sales also
might make it more difficult for us to sell equity or equity-related securities
in the future at a time and price that we deem appropriate.
In particular, in July 2000, the lockup agreement executed by the
affiliates of Kana and Silknet elapsed and such stockholders are eligible to
sell all vested shares. In addition, in August 2000, shares held by former
Connectify stockholders became eligible for sale under Rule 144.
DIFFICULTIES IN IMPLEMENTING OUR PRODUCTS COULD HARM OUR REVENUES AND MARGINS
Forecasting our revenues depends upon the timing of implementation of our
products. This implementation typically involves working with sophisticated
software, computing and communications systems. If we experience difficulties
with implementation or do not meet project milestones in a timely manner, we
could be obligated to devote more customer support, engineering and other
resources to a particular project. Some customers may also require us to develop
customized features or capabilities. If new or existing customers have
difficulty deploying our products or require significant amounts of our
professional services support or customized features, our revenue recognition
could be further delayed and our costs could increase, causing increased
variability in our operating results.
OUR BUSINESS DEPENDS ON THE ACCEPTANCE OF OUR PRODUCTS AND SERVICES, AND IT IS
UNCERTAIN WHETHER THE MARKET WILL ACCEPT OUR PRODUCTS AND SERVICES
We are not certain that our target customers will widely adopt and deploy
our products and services. Our future financial performance will depend on the
successful development, introduction and customer acceptance of new and enhanced
versions of our products and services. In the future, we may not be successful
in marketing our products and services, including any new or enhanced products.
WE MAY BE UNABLE TO HIRE AND RETAIN THE SKILLED PERSONNEL NECESSARY TO DEVELOP
OUR ENGINEERING, PROFESSIONAL SERVICES AND SUPPORT CAPABILITIES IN ORDER TO
CONTINUE TO GROW
We intend to increase our sales, marketing, engineering, professional
services and product management personnel over the next 12 months. Competition
for these individuals is intense, and we may not be able to attract, assimilate
or retain highly qualified personnel in the future. Our business cannot continue
to grow if we cannot attract qualified personnel. Our failure to attract and
retain the highly trained personnel that are integral to our product development
and professional services group, which is the group responsible for
implementation and customization of, and technical support for, our products and
services, may limit the rate at which we can develop and install new products or
product enhancements, which would harm our business. We will need to increase
our staff to support new customers and the expanding needs of our existing
customers, without compromising the quality of our customer service. Since our
inception, a number of employees have left or have been terminated, and we
expect to lose more employees in the future. Hiring qualified professional
services personnel, as well as sales, marketing, administrative and research and
development personnel, is very competitive in our industry, particularly in the
San Francisco Bay Area, where we are headquartered, due to the limited number of
people available with the necessary technical skills. We face greater difficulty
attracting these personnel with equity incentives as a public company than we
did as a privately held company.
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WE MAY FACE DIFFICULTIES IN HIRING AND RETAINING QUALIFIED SALES PERSONNEL TO
SELL OUR PRODUCTS AND SERVICES, WHICH COULD HARM OUR ABILITY TO INCREASE OUR
REVENUES IN THE FUTURE
Our financial success depends to a large degree on the ability of our
direct sales force to increase sales to a level required to adequately fund
marketing and product development activities. Therefore, our ability to increase
revenues in the future depends considerably upon our success in recruiting,
training and retaining additional direct sales personnel and the success of the
direct sales force. Also, it may take a new salesperson a number of months
before he or she becomes a productive member of our sales force. Our business
will be harmed if we fail to hire or retain qualified sales personnel, or if
newly hired salespeople fail to develop the necessary sales skills or develop
these skills more slowly than we anticipate.
LOSS OF OUR CHIEF EXECUTIVE OFFICER OR ANY OF OUR EXECUTIVE OFFICERS COULD HARM
OUR BUSINESS
Our future success depends to a significant degree on the skills,
experience and efforts of our senior management. In particular, we depend upon
the continued services of Michael J. McCloskey, our Chief Executive Officer. The
loss of the services of Mr. McCloskey or any of our executive officers could
harm our business and operations. In addition, we have not obtained life
insurance benefiting us on any of our employees or entered into employment
agreements with our key employees. If any of our key employees left or was
seriously injured and unable to work and we were unable to find a qualified
replacement, our business could be harmed.
A FAILURE TO MANAGE OUR INTERNAL OPERATING AND FINANCIAL FUNCTIONS COULD LEAD TO
INEFFICIENCIES IN CONDUCTING OUR BUSINESS AND SUBJECT US TO INCREASED EXPENSES
Our ability to offer our products and services successfully in a rapidly
evolving market requires an effective planning and management process. We have
limited experience in managing rapid growth. We are experiencing a period of
growth that is placing a significant strain on our managerial, financial and
personnel resources. Our business will suffer if this growth continues and we
fail to manage it successfully. Our number of employees has grown more than
ten-fold since June 30, 1999, when we had 98 employees, and we expect to
continue to hire new employees at a rapid rate. Moreover, we will need to
assimilate substantially all of Silknet's operations into our operations. The
rate of our recent growth has made management of that growth more difficult. Any
additional growth will further strain our management, financial, personnel,
internal training and other resources. To manage any future growth effectively,
we must improve our financial and accounting systems, controls, reporting
systems and procedures, integrate new personnel and manage expanded operations.
Any failure to do so could negatively affect the quality of our products, our
ability to respond to our customers and retain key personnel, and our business
in general.
DELAYS IN THE DEVELOPMENT OF NEW PRODUCTS OR ENHANCEMENTS TO EXISTING PRODUCTS
WOULD HURT OUR SALES AND DAMAGE OUR REPUTATION
To be competitive, we must develop and introduce on a timely basis new
products and product enhancements for companies with significant e-business
customer interactions needs. Any failure to do so could harm our business. If we
experience product delays in the future, we may face:
o customer dissatisfaction;
o cancellation of orders and license agreements;
o negative publicity;
o loss of revenues;
o slower market acceptance; and
o legal action by customers.
In the future, our efforts to remedy this situation may not be successful
and we may lose customers as a result. Delays in bringing to market new products
or their enhancements, or the existence of defects in new products or their
enhancements, could be exploited by our competitors. If we were to lose market
share as a result of lapses in our product management, our business would
suffer.
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TECHNICAL PROBLEMS WITH EITHER OUR INTERNAL OR OUTSOURCED COMPUTER AND
COMMUNICATIONS SYSTEMS COULD INTERRUPT OUR KANA ONLINE SERVICE
The success of the Kana Online service depends on the efficient and
uninterrupted operation of our own and outsourced computer and communications
hardware and software systems. These systems and operations are vulnerable to
damage or interruption from human error, natural disasters, telecommunications
failures, break-ins, sabotage, computer viruses, intentional acts of vandalism
and similar adverse events. We have entered into an Internet-hosting agreement
with Exodus Communications, Inc. to maintain all of the Kana Online servers at
Exodus' data center in Santa Clara, California. Our operations depend on Exodus'
ability to protect its and our systems in Exodus' data center against damage or
interruption. Exodus does not guarantee that our Internet access will be
uninterrupted, error-free or secure. We have no formal disaster recovery plan in
the event of damage or interruption, and our insurance policies may not
adequately compensate us for any losses that we may incur. Any system failure
that causes an interruption in our service or a decrease in responsiveness could
harm our relationships with customers and result in reduced revenues.
IF WE FAIL TO BUILD SKILLS NECESSARY TO SELL OUR KANA ONLINE SERVICE, WE WILL
LOSE REVENUE OPPORTUNITIES AND OUR SALES WILL SUFFER
The skills necessary to market and sell Kana Online are different from
those relating to our software products. We license our software products for a
fixed fee based on the number of concurrent users and the optional applications
purchased. We license Kana Online based on a fixed fee for installation,
configuration and training, and a variable monthly component depending on actual
customer usage. Our sales force sells both our software products and Kana
Online. Because different skills are necessary to sell Kana Online as compared
to selling software products, our sales and marketing groups may not be able to
maintain or increase the level of sales of either Kana Online or our software
products.
OUR PENDING PATENTS MAY NEVER BE ISSUED AND, EVEN IF ISSUED, MAY PROVIDE LITTLE
PROTECTION
Our success and ability to compete depend to a significant degree upon the
protection of our software and other proprietary technology rights. We regard
the protection of patentable inventions as important to our future
opportunities. We currently have nine U.S. patent applications pending relating
to our software. Although we have filed four international patent applications
corresponding to four of our U.S. patent applications, none of our technology is
patented outside of the United States. It is possible that:
o our pending patent applications may not result in the issuance of
patents;
o any patents issued may not be broad enough to protect our proprietary
rights;
o any issued patent could be successfully challenged by one or more
third parties, which could result in our loss of the right to prevent
others from exploiting the inventions claimed in those patents;
o current and future competitors may independently develop similar
technology, duplicate our products or design around any of our
patents; and
o effective patent protection may not be available in every country in
which we do business.
WE RELY UPON TRADEMARKS, COPYRIGHTS AND TRADE SECRETS TO PROTECT OUR PROPRIETARY
RIGHTS, WHICH MAY NOT BE SUFFICIENT TO PROTECT OUR INTELLECTUAL PROPERTY
We also rely on a combination of laws, such as copyright, trademark and
trade secret laws, and contractual restrictions, such as confidentiality
agreements and licenses, to establish and protect our proprietary rights. In the
United States, we currently have a registered trademark, "Kana," and seven
pending trademark applications, including trademark applications for our logo
and "KANA COMMUNICATIONS and Design." Although none of our trademarks is
registered outside of the United States, we have trademark applications pending
in Australia, Canada, the European Union, India, Japan, South Korea and Taiwan.
However, despite the precautions that we have taken:
o laws and contractual restrictions may not be sufficient to prevent
misappropriation of our technology or deter others from developing
similar technologies;
11
<PAGE>
o current federal laws that prohibit software copying provide only
limited protection from software "pirates," and effective trademark,
copyright and trade secret protection may be unavailable or limited in
foreign countries;
o other companies may claim common law trademark rights based upon state
or foreign laws that precede the federal registration of our marks;
and
o policing unauthorized use of our products and trademarks is difficult,
expensive and time-consuming, and we may be unable to determine the
extent of this unauthorized use.
Also, the laws of other countries in which we market our products may offer
little or no effective protection of our proprietary technology. Reverse
engineering, unauthorized copying or other misappropriation of our proprietary
technology could enable third parties to benefit from our technology without
paying us for it, which would significantly harm our business.
WE MAY BECOME INVOLVED IN LITIGATION OVER PROPRIETARY RIGHTS, WHICH COULD BE
COSTLY AND TIME CONSUMING, AND GENESYS TELECOMMUNICATIONS LABORATORIES, INC. HAS
FILED AN INFRINGEMENT SUIT AGAINST US
Substantial litigation regarding intellectual property rights exists in our
industry. We expect that software in our industry may be increasingly subject to
third-party infringement claims as the number of competitors grows and the
functionality of products in different industry segments overlaps. Third parties
may currently have, or may eventually be issued, patents upon which our products
or technology infringe. Any of these third parties might make a claim of
infringement against us. Many of our software license agreements require us to
indemnify our customers from any claim or finding of intellectual property
infringement. Any litigation, brought by us or others, could result in the
expenditure of significant financial resources and the diversion of management's
time and efforts. In addition, litigation in which we are accused of
infringement might cause product shipment delays, require us to develop
non-infringing technology or require us to enter into royalty or license
agreements, which might not be available on acceptable terms, or at all. If a
successful claim of infringement were made against us and we could not develop
non-infringing technology or license the infringed or similar technology on a
timely and cost-effective basis, our business could be significantly harmed.
On October 8, 1999, Genesys Telecommunications Laboratories, Inc. filed a
complaint against us in the United States District Court for the District of
Delaware. Genesys has amended its complaint to allege that our Customer
Messaging System 3.0 infringes one or more claims of two Genesys patents.
Genesys is seeking relief in the forms of an injunction, damages, punitive
damages, attorneys' fees, costs and pre- and post-judgment interest. The
litigation is currently in its early stages and we have not received material
information or documentation. We intend to fight this claim vigorously and do
not expect it to materially impact our results from operations. We are not
currently a party to any other material legal proceedings.
WE MAY FACE HIGHER COSTS AND LOST SALES IF OUR SOFTWARE CONTAINS ERRORS
We face the possibility of higher costs as a result of the complexity of
our products and the potential for undetected errors. Due to the
mission-critical nature of our products and services, undetected errors are of
particular concern. We have only a few "beta" customers that test new features
and functionality of our software before we make these features and
functionalities generally available to our customers. If our software contains
undetected errors or we fail to meet customers' expectations in a timely manner,
we could experience:
o loss of or delay in revenues expected from the new product and an
immediate and significant loss of market share;
o loss of existing customers that upgrade to the new product and of new
customers;
o failure to achieve market acceptance;
o diversion of development resources;
o injury to our reputation;
o increased service and warranty costs;
o legal actions by customers; and
12
<PAGE>
o increased insurance costs.
WE MAY FACE LIABILITY CLAIMS THAT COULD RESULT IN UNEXPECTED COSTS AND DAMAGE TO
OUR REPUTATION
Our licenses with customers generally contain provisions designed to limit
our exposure to potential product liability claims, such as disclaimers of
warranties and limitations on liability for special, consequential and
incidental damages. In addition, our license agreements generally cap the
amounts recoverable for damages to the amounts paid by the licensee to us for
the product or service giving rise to the damages. However, these contractual
limitations on liability may not be enforceable and we may be subject to claims
based on errors in our software or mistakes in performing our services including
claims relating to damages to our customers' internal systems. A product
liability claim, whether or not successful, could harm our business by
increasing our costs, damaging our reputation and distracting our management.
WE INTEND TO EXPAND OUR INTERNATIONAL OPERATIONS, WHICH COULD DIVERT MANAGEMENT
ATTENTION AND PRESENT FINANCIAL ISSUES
Our international operations are located in the United Kingdom, Australia,
Germany and Japan and, to date, have been limited. We plan to expand our
existing international operations and establish additional facilities in other
parts of the world. We may face difficulties in accomplishing this expansion,
including finding adequate staffing and management resources for our
international operations. The expansion of our existing international operations
and entry into additional international markets will require significant
management attention and financial resources. In addition, in order to expand
our international sales operations, we will need to, among other things:
o expand our international sales channel management and support
organizations;
o customize our products for local markets; and
o develop relationships with international service providers and
additional distributors and system integrators.
Our investments in establishing facilities in other countries may not
produce desired levels of revenues. Even if we are able to expand our
international operations successfully, we may not be able to maintain or
increase international market demand for our products. In addition, we have only
licensed our products internationally since January 1999 and have limited
experience in developing localized versions of our software and marketing and
distributing them internationally. Localizing our products may take longer than
we anticipate due to difficulties in translation and delays we may experience in
recruiting and training international staff.
OUR GROWTH COULD BE LIMITED IF WE FAIL TO EXECUTE OUR PLAN TO EXPAND
INTERNATIONALLY
For the six month periods ended June 30, 2000 and June 30, 1999, we derived
approximately 10.4% and 9.0%, respectively, of our total revenues from sales
outside North America. We have established offices in the United Kingdom,
Australia, Germany and Japan. As of June 30, 2000, we had 70 sales persons in
our offices outside of North America. As a result, we face risks from doing
business on an international basis, any of which could impair our internal
revenues. We could, in the future, encounter greater difficulty in accounts
receivable collection, longer sales cycles and collection periods or seasonal
reductions in business activity. In addition, our international operations could
cause our average tax rate to increase. Any of these events could harm our
international sales and results of operations.
INTERNATIONAL LAWS AND REGULATIONS MAY EXPOSE US TO POTENTIAL COSTS AND
LITIGATION
Our international operations will increase our exposure to international
laws and regulations. If we cannot comply with foreign laws and regulations,
which are often complex and subject to variation and unexpected changes, we
could incur unexpected costs and potential litigation. For example, the
governments of foreign countries might attempt to regulate our products and
services or levy sales or other taxes relating to our activities. In addition,
foreign countries may impose tariffs, duties, price controls or other
restrictions on foreign currencies or trade barriers, any of which could make it
more difficult for us to conduct our business. The European Union has enacted
its own privacy regulations that may result in limits on the collection and use
of certain user information, which, if applied to the sale of our products and
services, could negatively impact our results of operations.
13
<PAGE>
WE MAY SUFFER FOREIGN EXCHANGE RATE LOSSES
Our international revenues are denominated in local currency. Therefore, a
weakening of other currencies versus the U.S. dollar could make our products
less competitive in foreign markets. We do not currently engage in currency
hedging activities. We have not yet but may in the future experience significant
foreign currency translation losses, especially to the extent that we do not
engage in hedging.
OUR PROSPECTS FOR OBTAINING ADDITIONAL FINANCING, IF REQUIRED, ARE UNCERTAIN AND
FAILURE TO OBTAIN NEEDED FINANCING COULD AFFECT OUR ABILITY TO PURSUE FUTURE
GROWTH
We may need to raise additional funds to develop or enhance our products or
services, to fund expansion, to respond to competitive pressures or to acquire
complementary products, businesses or technologies. We do not have a long enough
operating history to know with certainty whether our existing cash and expected
revenues will be sufficient to finance our anticipated growth. Additional
financing may not be available on terms that are acceptable to us. If we raise
additional funds through the issuance of equity or convertible debt securities,
the percentage ownership of our stockholders would be reduced and these
securities might have rights, preferences and privileges senior to those of our
current stockholders. If adequate funds are not available on acceptable terms,
our ability to fund our expansion, take advantage of unanticipated
opportunities, develop or enhance products or services, or otherwise respond to
competitive pressures would be significantly limited.
OUR EXECUTIVE OFFICERS AND DIRECTORS CAN EXERCISE SIGNIFICANT INFLUENCE OVER
STOCKHOLDER VOTING MATTERS
As of June 30, 2000, our executive officers and directors, and their
affiliates together will control approximately 33.6% of our outstanding common
stock. As a result, these stockholders, if they act together, will have a
significant impact on all matters requiring approval of our stockholders,
including the election of directors and significant corporate transactions. This
concentration of ownership may delay, prevent or deter a change in control of
our company, could deprive our stockholders of an opportunity to receive a
premium for their common stock as part of a sale of our company or our assets
and might affect the market price of our common stock.
WE HAVE ADOPTED ANTI-TAKEOVER DEFENSES THAT COULD DELAY OR PREVENT AN
ACQUISITION OF OUR COMPANY
Our board of directors has the authority to issue up to 5,000,000 shares of
preferred stock. Moreover, without any further vote or action on the part of the
stockholders, the board of directors has the authority to determine the price,
rights, preferences, privileges and restrictions of the preferred stock. This
preferred stock, if issued, might have preference over and harm the rights of
the holders of common stock. Although the issuance of this preferred stock will
provide us with flexibility in connection with possible acquisitions and other
corporate purposes, this issuance may make it more difficult for a third party
to acquire a majority of our outstanding voting stock. We currently have no
plans to issue preferred stock.
Our certificate of incorporation, bylaws and equity compensation plans
include provisions that may deter an unsolicited offer to purchase our company.
These provisions, coupled with the provisions of the Delaware General
Corporation Law, may delay or impede a merger, tender offer or proxy contest
involving our company. Furthermore, our board of directors is divided into three
classes, only one of which is elected each year. Directors are removable by the
affirmative vote of at least 66 2/3% of all classes of voting stock. These
factors may further delay or prevent a change of control of our company.
RISKS RELATED TO OUR INDUSTRY
OUR FAILURE TO MANAGE MULTIPLE TECHNOLOGIES AND TECHNOLOGICAL CHANGE COULD HARM
OUR FUTURE PRODUCT DEMAND
Future versions of hardware and software platforms embodying new
technologies and the emergence of new industry standards could render our
products obsolete. The market for e-business customer communication software is
characterized by:
o rapid technological change;
o frequent new product introductions;
14
<PAGE>
o changes in customer requirements; and
o evolving industry standards.
Our products are designed to work on a variety of hardware and software
platforms used by our customers. However, our software may not operate correctly
on evolving versions of hardware and software platforms, programming languages,
database environments and other systems that our customers use. For example, the
server component of the current version of our products runs on the Windows NT
operating system from Microsoft, and we must develop products and services that
are compatible with UNIX and other operating systems to meet the demands of our
customers. If we cannot successfully develop these products in response to
customer demands, our business could suffer. Also, we must constantly modify and
improve our products to keep pace with changes made to these platforms and to
database systems and other back-office applications and Internet-related
applications. This may result in uncertainty relating to the timing and nature
of new product announcements, introductions or modifications, which may cause
confusion in the market and harm our business. If we fail to modify or improve
our products in response to evolving industry standards, our products could
rapidly become obsolete, which would harm our business.
IF WE FAIL TO RESPOND TO CHANGING CUSTOMER PREFERENCES IN OUR MARKET, DEMAND FOR
OUR PRODUCTS AND OUR ABILITY TO ENHANCE OUR REVENUES WILL SUFFER
We must continually improve the performance, features and reliability of
our products, particularly in response to competitive offerings. Our success
depends, in part, on our ability to enhance our existing software and to develop
new services, functionality and technology that address the increasingly
sophisticated and varied needs of our prospective customers. If we do not
properly identify the feature preferences of prospective customers, or if we
fail to deliver features that meet the requirements of these customers, our
ability to market our products successfully and to increase our revenues could
be impaired. The development of proprietary technology and necessary service
enhancements entails significant technical and business risks and requires
substantial expenditures and lead time.
IF THE INTERNET AND E-MAIL FAIL TO GROW AND BE ACCEPTED AS MEDIA OF
COMMUNICATION, DEMAND FOR OUR PRODUCTS AND SERVICES WILL DECLINE
We sell our products and services primarily to organizations that receive
large volumes of e-mail and Web-based communications. Many of our customers have
business models that are based on the continued growth of the Internet.
Consequently, our future revenues and profits, if any, substantially depend upon
the continued acceptance and use of the Internet and e-mail, which are evolving
as media of communication. Rapid growth in the use of e-mail is a recent
phenomenon and may not continue. As a result, a broad base of enterprises that
use e-mail as a primary means of communication may not develop or be maintained.
In addition, the market may not accept recently introduced products and services
that process e-mail, including our products and services. Moreover, companies
that have already invested significant resources in other methods of
communications with customers, such as call centers, may be reluctant to adopt a
new strategy that may limit or compete with their existing investments. If
businesses do not continue to accept the Internet and e-mail as media of
communication, our business will suffer.
FUTURE REGULATION OF THE INTERNET MAY SLOW OUR GROWTH, RESULTING IN DECREASED
DEMAND FOR OUR PRODUCTS AND SERVICES AND INCREASED COSTS OF DOING BUSINESS
Due to the increasing popularity and use of the Internet, it is possible
that state, federal and foreign regulators could adopt laws and regulations that
impose additional burdens on those companies that conduct business online. These
laws and regulations could discourage communication by e-mail or other Web-based
communications, particularly targeted e-mail of the type facilitated by the
Connectify product, which could reduce demand for our products and services.
The growth and development of the market for online services may prompt
calls for more stringent consumer protection laws or laws that may inhibit the
use of Internet-based communications or the information contained in these
communications. The adoption of any additional laws or regulations may decrease
the expansion of the Internet. A decline in the growth of the Internet,
particularly as it relates to online communication, could decrease demand for
our products and services and increase our costs of doing business, or otherwise
harm our business. Our costs could increase and our growth could be harmed by
any new legislation or regulation, the application of laws
15
<PAGE>
and regulations from jurisdictions whose laws do not currently apply to our
business, or the application of existing laws and regulations to the Internet
and other online services.
OUR SECURITY COULD BE BREACHED, WHICH COULD DAMAGE OUR REPUTATION AND DETER
CUSTOMERS FROM USING OUR SERVICES
We must protect our computer systems and network from physical break-ins,
security breaches and other disruptive problems caused by the Internet or other
users. Computer break-ins could jeopardize the security of information stored in
and transmitted through our computer systems and network, which could adversely
affect our ability to retain or attract customers, damage our reputation and
subject us to litigation. We have been in the past, and could be in the future,
subject to denial of service, vandalism and other attacks on our systems by
Internet hackers. Although we intend to continue to implement security
technology and establish operational procedures to prevent break-ins, damage and
failures, these security measures may fail. Our insurance coverage in certain
circumstances may be insufficient to cover losses that may result from such
events.
RISKS RELATED TO THIS OFFERING
THE COMMON STOCK SOLD IN THIS OFFERING WILL INCREASE THE SUPPLY OF OUR COMMON
STOCK ON THE PUBLIC MARKET, WHICH MAY CAUSE OUR STOCK PRICE TO DECLINE
The sale into the public market of the common stock to be sold in this
offering could materially adversely affect the market price of our common stock.
Most of the shares of our common stock are eligible for immediate and
unrestricted sale in the public market at any time. Once the registration
statement of which this prospectus forms a part is declared effective, all
shares of common stock to be sold in this offering will be eligible for
immediate and unrestricted resale into the public market. The presence of these
additional shares of common stock in the public market may further depress our
stock price.
WE MAY ISSUE STOCK AT A DISCOUNT TO THE CURRENT MARKET PRICE, WHICH WOULD DILUTE
OUR EXISTING STOCKHOLDERS
In order to raise the funds we need to execute our business plan and fund
operations generally, we may continue to issue stock at a discount to the
current market price. Transactions of that kind would result in dilution to our
existing stockholders.
16
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus, together with all other information included or
incorporated by reference into this prospectus, contains forward-looking
statements that are not historical facts but rather are based on current
expectations, estimates and projections about our business and industry, our
beliefs and assumptions. Words such as "anticipates," "expects," "intends,"
"plans," "believes," "seeks," "estimates" and variations of these words and
similar expressions are intended to identify forward-looking statements. These
statements are not guarantees of future performance and are subject to risks,
uncertainties and other factors, some of which are beyond our control, are
difficult to predict and could cause actual results to differ materially from
those expressed or forecasted in the forward-looking statements. These risks and
uncertainties include those described in "Risk Factors" and elsewhere in this
prospectus, together with all other information included or incorporated by
reference into this prospectus. Forward-looking statements that were true at the
time made may ultimately prove to be incorrect or false. Readers are cautioned
not to place undue reliance on forward-looking statements, which reflect our
management's view only as of the date of this prospectus. Except as required by
law, we undertake no obligation to update any forward-looking statement, whether
as a result of new information, future events or otherwise.
17
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. Our SEC filings are also available to the public
from our Web site at http://kana.com or at the SEC's Web site at
http://www.sec.gov.
The SEC allows us to incorporate by reference into this prospectus the
information we file with the SEC, which means that we can disclose important
information to you by referring you to those documents. The information
incorporated by reference is considered to be part of this prospectus, and
information we file later with the SEC will automatically update and supersede
this information. We incorporate by reference the documents listed below and any
future filings made by us with the SEC under Section 13(a), 13(c), 14 or 15(d)
of the Securities and Exchange Act of 1934 until the sale of all of the shares
of common stock that are part of this offering. The documents we are
incorporating by reference are as follows:
(1) our Annual Report on form 10-K/A filed on August 30, 2000 amending our
previously filed report on Form 10-K for the fiscal year ended
December 31, 1999;
(2) our Current Report on Form 8-K filed on February 7, 2000 concerning an
agreement and plan reorganization entered into with Silknet;
(3) our Current Report on Form 8-K/A filed on February 14, 2000 concerning
the acquisitions of Business Evolution and netDialog;
(4) our Quarterly Report on Form 10-Q for our first fiscal quarter ended
March 31, 2000 filed on May 12, 2000;
(5) our Current Report on Form 8-K filed on April 24, 2000 concerning the
change in our accountants;
(6) our Current Report on Form 8-K/A filed on May 8, 2000 amending a
previously filed report concerning the merger with Silknet;
(7) our Current Report on Form 8-K filed on June 15, 2000 concerning the
closing of a sale of our common stock to certain institutional
investors;
(8) our Quarterly Report on Form 10-Q for our second fiscal quarter ended
June 30, 2000 filed on August 14, 2000; and
(9) the description of our common stock, and the financial statements of
Silknet Software, Inc. as of June 30, 1999, 1998 and each of the three
years in the period ended June 30, 1999 contained in our Registration
Statement on Form S-1 originally filed on July 28, 2000 (File No.
333-42522).
Any statement contained in a document incorporated by reference will be
modified or superseded for all purposes to the extent that a statement contained
in this prospectus (or in any other document that is subsequently filed with the
SEC and incorporated by reference) modifies or is contrary to that previous
statement. Any statement so modified or superseded will not be deemed a part of
this prospectus except as so modified or superseded.
Upon written or oral request, we will provide without charge a copy of
these filings, and a copy of any and all of the information that has been or may
be incorporated by reference in this prospectus. Requests for these copies
should be directed to Investor Relations, Kana Communications, Inc., 740 Bay
Road, Redwood City, California 94063, telephone (650) 298-9282.
You should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement or amendment. We have
authorized no one to provide you with different information. We are not making
an offer of these securities in any state where the offer is not permitted. You
should not assume the information in this prospectus is accurate as of any date
other than the date on the front of those documents.
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<PAGE>
SELLING STOCKHOLDERS
The following table sets forth the names of the selling stockholders and
the number of shares being registered for sale as of the date of this prospectus
and sets forth the number of shares of common stock known by us to be
beneficially owned by each of the selling stockholders. The following table
assumes that the selling stockholders will sell all of the shares being offered
for their account by this prospectus. However, we are unable to determine the
exact number of shares that actually will be sold. None of the selling
stockholders has had a material relationship with us within the past three years
other than as a result of the ownership of our shares or other securities. The
shares offered by this prospectus may be offered from time to time by the
selling stockholders. This information is based upon information provided by
each respective selling stockholder and public documents filed with the SEC, and
is not necessarily indicative of beneficial ownership for any other purpose. The
term "selling stockholders" includes the stockholders listed below and their
transferees, assignees, pledgees, donees or other successors. The percent of
beneficial ownership for each stockholder is based on 93,162,339 shares of
common stock outstanding as of June 30, 2000.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF NUMBER OF
NAME OF SELLING SHARES OF COMMON STOCK OUTSTANDING SHARES SHARES OF COMMON STOCK
STOCKHOLDER BENEFICIALLY OWNED BENEFICIALLY OWNED REGISTERED FOR SALE HEREBY
--------------------------- ----------------------- -------------------- --------------------------
<S> <C> <C> <C>
5S Ventures, LLC (2)........................ 28,702 * 28,702
Allegra Capital Partners III, L.P. (1)...... 284,600 * 284,600
BA Ventures Partners III (2)................ 29,842 * 29,842
Bank of America Ventures (2)................ 268,618 * 268,618
Bay Partners SBIC, LP (2)(3)................ 298,474 * 298,474
Chan, Alice (2)............................. 102 * 102
Chiou, Ming (2)............................. 598 * 598
Christian & Timbers (2)..................... 1,656 * 1,656
Cioffi, Barry (2)........................... 828 * 828
Combs, Stephen (2).......................... 68 * 68
Concannon, Bob (2).......................... 68 * 68
Cornforth, Ben (2).......................... 518 * 518
Encompass Group, Inc. (2)................... 97,234 * 97,234
Fantuzzi, Joe (2)(4)........................ 154,588 * 154,588
Galdes, Frank (2)........................... 112,730 * 112,730
Getty, Paul (2)............................. 4,144 * 4,144
Greffard, Celine (1)........................ 19,212 * 19,212
Groshelle, Heidi (2)........................ 74 * 74
Haque Family Partners (2)................... 4,144 * 4,144
Hart, Jennifer (2).......................... 1,902 * 1,902
Johnson, Craig (1).......................... 5,976 * 5,976
Juntunen, Craig (2)......................... 480 * 480
Kannan, Pallipuram V. (1)................... 860,948 * 860,948
Khurgin, Igor (2)........................... 690 * 690
Klausner, Michael (1)....................... 14,156 * 14,156
Kline, Scott (1)............................ 26,684 * 26,684
Kumar, Suresh (1)........................... 25,042 * 25,042
MAC Investment Corp. (1).................... 264,912 * 264,912
Maddox, Rick (1)............................ 39,814 * 39,814
Michael Klausner, TTEE of the Clair
Klausner Trust, U/A/D, February 12, 1995
(1)...................................... 1,920 * 1,920
Michael Klausner, TTEE of the Jill and
Gregory Klausner Trust, U/A/D,
January 25, 1993 (1)..................... 3,842 * 3,842
Mohan, Mukund (2)........................... 838 * 838
Mustacchio, Tracey (1)...................... 19,892 * 19,892
Nagarajan, Shanmugam (1).................... 89,646 * 89,646
NAS Partners I L.L.C. (1)................... 1,454 * 1,454
Nassau Capital Partners III, L.P. (1)....... 188,276 * 188,276
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF NUMBER OF
NAME OF SELLING SHARES OF COMMON STOCK OUTSTANDING SHARES SHARES OF COMMON STOCK
STOCKHOLDER BENEFICIALLY OWNED BENEFICIALLY OWNED REGISTERED FOR SALE HEREBY
--------------------------- ----------------------- ------------------- --------------------------
<S> <C> <C> <C>
Palmer, Jeanne (2).......................... 68 * 68
Pickus, Joshua (2).......................... 1,158 * 1,158
Saha, Sailen (2)............................ 984 * 984
Smith, Perry (1)............................ 29,882 * 29,882
Taskar, Ben (2)............................. 138 * 138
Tian, Andrew (2)............................ 344 * 344
Trainer, Susan (2).......................... 1,976 * 1,976
U.S. Information Technology Financing, LP
(2)...................................... 97,234 * 97,234
Venkatappa, Muralidhara (2)................. 230 * 230
VLG Investments 1997 (2).................... 3,396 * 3,396
VLG Investments 1999 (1).................... 13,944 * 13,944
West 1991 Revocable Trust (2)............... 8,288 * 8,288
Woods, Christine (2)........................ 172 * 172
</TABLE>
--------------
* Less than one percent
(1) Former Business Evolution, Inc. stockholder.
(2) Former netDialog, Inc. stockholder.
(3) In August 2000, the shares held by Bay Partners SBIC, LP were
transferred and distributed to the U.S. Small Business Administration;
Robert Anderson; Sally E. Anderson; the Eleanor R. Bailard Trust; The
Gerson Bakar 1984 Trust; The Clumeck Family Paretnership #1; The
Clumeck Family Partnership #2; The Freidenrich Family Partnership; the
Gallo Family Partnership; Isabella Partners; Daniel E. Koshland, Jr.;
James M. Koshland; J.F. Shea Co., Inc. as Nominee 1995-4; the Timken
Living Trust U/A/D 9/14/99; Freidenrich 2050 Ltd; Dempsey Family
Limited Partnership; Marcella Yano; Robert Williams; James Wickett;
and Bay Management Company 1995, GP.
(4) In September 2000, 116,251 shares held by Joe Fantuzzi were
transferred and distributed to Goldman, Sachs & Co.
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the common stock
by the selling stockholders. All proceeds will be received by the selling
stockholders. See "Selling Stockholders."
PLAN OF DISTRIBUTION
We are registering all 3,010,486 shares on behalf of the selling
stockholders. All of the shares were issued by us in connection with our mergers
with Business Evolution, Inc. and netDialog, Inc. We acquired all of the
outstanding shares, warrants and convertible notes of Business Evolution and
netDialog, and Business Evolution and netDialog have survived as our
wholly-owned subsidiaries. We will receive no proceeds from this offering. The
selling stockholders named in the table above or pledgees, donees, transferees
or other successors-in-interest selling shares received from the selling
stockholders as a gift, partnership distribution or other non-sale related
transfer after the date of this prospectus may sell the shares from time to
time. The selling stockholders will act independently of us in making decisions
with respect to the timing, manner and size of each sale. The sales may be made
on one or more exchanges or in the over-the-counter market or otherwise, at
prices and at terms then prevailing or at prices related to the then current
market price, or in negotiated transactions. The selling stockholders may effect
these transactions by selling the shares to or through broker-dealers.
The shares may be sold by one or more of, or a combination of, the
following:
o a block trade in which the broker-dealer so engaged will attempt to
sell the shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by this
broker-dealer for its account through this prospectus;
o an exchange distribution that complies with the rules of the exchange;
o ordinary brokerage transactions and transactions in which the broker
solicits purchasers; and
o in privately negotiated transactions.
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To the extent required, this prospectus may be amended or supplemented from
time to time to describe a specific plan of distribution. In effecting sales,
broker-dealers engaged by the selling stockholders may arrange for other
broker-dealers to participate in the resales.
The selling stockholders may enter into hedging transactions with
broker-dealers in connection with distributions of the shares or otherwise. In
these transactions, broker-dealers may engage in short sales of the shares in
the course of hedging the positions they assume with the selling stockholder.
The selling stockholders also may sell shares short and redeliver the shares to
close out these short positions. The selling stockholders may enter into option
or other transactions with broker-dealers which require the delivery to the
broker-dealer of the shares. The broker-dealer may then resell or otherwise
transfer these shares through this prospectus. The selling stockholders each may
also loan or pledge the shares to a broker-dealer. The broker-dealer may sell
the shares so loaned, or upon a default the broker-dealer may sell the pledged
shares by use of this prospectus.
Broker-dealers or agents may receive compensation in the form of
commissions, discounts or concessions from the selling stockholder.
Broker-dealers or agents may also receive compensation from the purchasers of
the shares for whom they act as agents or to whom they sell as principals, or
both. Compensation as to a particular broker-dealer might be in excess of
customary commissions and will be in amounts to be negotiated in connection with
the sale. Broker-dealers or agents and any other participating broker-dealers or
the selling stockholders may be deemed to be "underwriters" within the meaning
of Section 2(11) of the Securities Act in connection with sales of the shares.
Accordingly, any commission, discount or concession received by them and any
profit on the resale of the shares purchased by them may be deemed to be
underwriting discounts or commissions under the Securities Act. Because selling
stockholders may be deemed to be "underwriters" within the meaning of Section
2(11) of the Securities Act, the selling stockholders will be subject to the
prospectus delivery requirements of the Securities Act. In addition, any
securities covered by this prospectus which qualify for sale through Rule 144
promulgated under the Securities Act may be sold under Rule 144 rather than
through this prospectus. The selling stockholders have advised us that they have
not entered into any agreements, understandings or arrangements with any
underwriters or broker-dealers regarding the sale of the securities. There is no
underwriter or coordinating broker acting in connection with the proposed sale
of shares by the selling stockholders.
The shares will be sold only through registered or licensed brokers or
dealers if required under applicable state securities laws. In addition, in
certain states the shares may not be sold unless they have been registered or
qualified for sale in the applicable state or an exemption from the registration
or qualification requirement is available and is complied with.
Under applicable rules and regulations under the Securities Exchange Act,
any person engaged in the distribution of the shares may not engage in
market-making activities with respect to our common stock during certain
restricted periods. In addition, the selling stockholders will be subject to
applicable provisions of the Securities Exchange Act and the associated rules
and regulations under the Securities Exchange Act, including Regulation M, which
may limit the timing of purchases and sales of shares of our common stock by the
selling stockholders. We will make copies of this prospectus available to the
selling stockholders and have informed them of the need for delivery of copies
of this prospectus to purchasers at or prior to the time of any sale of the
shares.
We will file a supplement to this prospectus, if required, pursuant to Rule
424(b) under the Securities Act upon being notified by a selling stockholder
that any material arrangement has been entered into with a broker-dealer for the
sale of shares through a block trade, special offering, exchange distribution or
secondary distribution or a purchase by a broker or dealer. Such supplement will
disclose:
o the name of each such selling stockholder and of the participating
broker-dealer(s),
o the number of shares involved,
o the price at which such shares were sold,
o the commissions paid or discounts or concessions allowed to such
broker-dealer(s), where applicable,
o that such broker-dealer(s) did not conduct any investigation to verify
the information set out or incorporated by reference in this
prospectus, and
o other facts material to the transaction.
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We will bear all costs, expenses and fees in connection with the
registration of the shares. The selling stockholders will bear all commissions
and discounts, if any, attributable to their respective sales of the shares. The
selling stockholders may agree to indemnify any broker-dealer or agent that
participates in transactions involving sales of the shares against some
liabilities, including liabilities arising under the Securities Act.
LEGAL MATTERS
The validity of the common stock offered in this prospectus and certain
other legal matters will be passed upon for us by Brobeck, Phleger & Harrison
LLP, Palo Alto, California. As of the date of this prospectus, attorneys of
Brobeck, Phleger & Harrison LLP and family members thereof beneficially owned an
aggregate of approximately 30,017 shares of our common stock.
EXPERTS
The consolidated financial statements as of December 31, 1998 and 1999
and for each of the years in the three year period ended December 31, 1999 and
the related financial statement schedule, incorporated in this prospectus by
reference to our Registration Statement on Form S-1 (File No. 333-42522) and to
our December 31, 1999 Form 10K/A have been so incorporated in reliance upon the
reports of KPMG LLP, independent certified public accountants, given on the
authority of said firm as experts in auditing and accounting.
The consolidated financial statements of Silknet Software, Inc. as of
June 30, 1999 and 1998 and for each of the three years in the period ended June
30, 1999 included in the Form S-1 (File No. 333-42522) of Kana Communications,
Inc. have been incorporated by reference in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
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