PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On January 24, 2007, RightNow Technologies, Inc. ("RightNow") filed a suit in
the Eighteenth Judicial District Court of Gallatin County, Montana against the
Company and four former RightNow employees who had joined the Company. The suit
alleges violation of certain provisions of employment agreements,
misappropriation of trade secrets, as well as other claims, and seeks damages.
We believe we have meritorious defenses to these claims and intend to defend
against this action vigorously.
On March 16, 2006, Polaris IP, LLC ("Polaris") filed suit against the Company,
Sirius Satellite Radio, Inc., Priceline.com, Capital One, Continental Airlines,
Inc., and E*Trade Financial, in the U.S. District Court for the Eastern District
of Texas, alleging infringement of U.S. Patent Nos. 6,411,947 and 6,278,996, and
seeking injunctive relief, damages and attorneys' fees. In exchange for payment
of a quarterly license fee through 2011, Polaris granted the Company a perpetual
license to certain patents, including those at issue in the litigation, and the
parties dismissed their claims against each other with prejudice on April 26,
2007. The terms of the settlement included the release and dismissal of the
Company's customers named in the lawsuit.
The underwriters for our initial public offering, Goldman Sachs & Co., Lehman
Bros., Hambrecht & Quist LLC and Wit Soundview Capital Corp., the Company and
certain current and former officers of the Company were named as defendants in
federal securities class action lawsuits filed in the U. S. District Court for
the Southern District of New York. The cases allege violations of various
securities laws by more than 300 issuers of stock, including the Company, and
the underwriters for such issuers, on behalf of a class of plaintiffs who, in
the case of the Company, purchased the Company's common stock between
September 21, 1999 and December 6, 2000 in connection with our initial public
offering. Specifically, the complaints allege that the underwriter defendants
engaged in a scheme concerning sales of the Company's and other issuers'
securities in the initial public offering and in the aftermarket. In July 2003,
we decided to join in a settlement negotiated by representatives of a coalition
of issuers named as defendants in this action and their insurers. Although we
believe that the plaintiffs' claims have no merit, we have decided to accept the
settlement proposal to avoid the cost and distraction of continued litigation.
Because the settlement will be funded entirely by the Company's insurers, we do
not believe that the settlement will have any effect on our financial condition,
results of operation or cash flows. The proposed settlement agreement is subject
to final approval by the court. Should the court fail to approve the settlement
agreement, we believe we have meritorious defenses to these claims and will
defend against the action vigorously.
Other third parties have from time to time claimed, and others may claim in the
future that we have infringed their past, current or future intellectual
property rights. We have in the past been forced to litigate such claims. These
claims, whether meritorious or not, could be time-consuming, result in costly
litigation, require expensive changes in our methods of doing business or could
require us to enter into costly royalty or licensing agreements, if available.
As a result, these claims could harm our business.
The ultimate outcome of any litigation is uncertain, and either unfavorable or
favorable outcomes could have a material negative impact on our results of
operations, consolidated balance sheets and cash flows, due to defense costs,
diversion of management resources and other factors.
ITEM 1A. RISK FACTORS.
Information regarding the Company's risk factors appears in "Part I. Financial
Information - Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations" of this Quarterly Report on Form 10-Q and
in "Part I. - Item 1A. Risk Factors" on our Annual Report on Form 10-K for the
fiscal year ended December 31, 2006. There have been no material changes from
the risk factors previously disclosed in our Annual Report on Form 10-K for the
fiscal year ended December 31, 2006 other than the material changes set forth
below:
• We have added our entry into a definitive agreement with eVergance in May
2007 to the risk factor entitled "If we acquire companies, products, or
technologies, we may face risks associated with those acquisitions." This
amended risk factor is provided in Part I. Financial Information - Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations of this Quarterly Report on Form 10-Q.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
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ITEM 6. EXHIBITS
Incorporated by Reference
Exhibit Filing Provided
Number Exhibit Description Form File No. Exhibit Date Herewith
10.01 Amended and Restated Loan and Security X
Agreement, dated February 27, 2007,
between Kana Software, Inc. and Bridge
Bank, N.A., as modified by Loan and
Security Agreement, dated February 28,
2007 and as amended on May 7, 2007.
10.02 Patent License and Settlement Agreement, X
dated March 23, 2007, between Kana
Software, Inc. and Polaris IP, LLC.±
31.01 Certification of Principal Executive X
Officer pursuant to Rule 13a-14(a) of the
Securities Exchange Act and Section 302
of the Sarbanes-Oxley Act of 2002.
31.02 Certification of Principal Financial X
Officer pursuant to Rule 13a-14(a) of the
Securities Exchange Act and Section 302
of the Sarbanes-Oxley Act of 2002.
32.01 Certification of Principal Executive X
Officer pursuant to 18 U.S.C. Section
1350, adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.*
32.02 Certification of Principal Financial X
Officer pursuant to 18 U.S.C. Section
1350, adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.*
± Confidential treatment has been requested with regard to portions of the
exhibit. Such portions were filed separately with the Securities and Exchange
Commission.
* These certifications accompany KANA's Quarterly Report on Form 10-Q; they are
not deemed "filed" with the Securities and Exchange Commission and are not to
be incorporated by reference in any filing of KANA under the Securities Act
of 1933, or the Securities Exchange Act of 1934, whether made before or after
the date hereof and irrespective of any general incorporation language in any
filings.
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