Accel-KKR Buying KANA Software

Accel-KKR has agreed to acquire the assets and liabilities of customer service software provider KANA Software Inc. (OTC BB: KANA), for approximately $48.9 million.

PRESS RELEASE

KANA Software, Inc. (OTCBB: KANA), a world leader in innovative customer service solutions, today announced that it has entered into a definitive agreement with an affiliate of Accel-KKR, a technology-focused private equity firm, which will buy substantially all of KANA’s assets and liabilities for a cash purchase price to KANA of approximately $48.9 million (which represents an enterprise value of $50.1 million), subject to adjustment based on closing net working capital, net indebtedness, transaction expenses and other adjustments described below. The transaction is subject to specified closing conditions. After the transaction is completed, KANA’s current operating business, which includes software, services and licensing, will operate as a privately-held company under its current KANA brand.

At that time, the OTC Bulletin Board-listed entity will be renamed and will continue to be publicly traded under a new trading symbol with the net cash proceeds from the transaction and more than $400 million of net operating loss (NOLs) carry-forwards.

The Board of Directors of KANA has unanimously approved the asset purchase agreement and has recommended to the company’s stockholders that they adopt and approve the agreement. In connection with the execution of the asset purchase agreement, KANA Directors, officers and major shareholders have signed voting agreements with Accel-KKR to vote approximately 22 percent of the company’s outstanding shares in favor of the transaction.

“This is a transaction that brings optimal value to our shareholders, our customers and our company,” said Michael S. Fields, KANA’s Chief Executive Officer. “We intend to focus on completing this transaction promptly.”

The KANA Board of Directors issued the following statement: “With the assistance of the company’s financial advisor, Pagemill Partners, the company conducted a thorough process and received this proposal from Accel-KKR. After extensive negotiations, careful due diligence and in-depth consultation with our financial advisors, the Board has unanimously concluded that this transaction is in the best interests of our stockholders.”

The renamed publicly traded company’s strategic plan will be to enhance stockholder value by pursuing opportunities to acquire one or more profitable businesses. The publicly traded company will not compete with the privately held KANA. The public company believes that the current economic and business environment, though challenging, should nevertheless allow it to secure a business platform that provides growth opportunities and can also utilize the NOLs.

In the event that the renamed public company has not invested at least half of the proceeds of the asset sale within six months of closing the asset sale, the company anticipates soliciting the vote of stockholders on a proposal to continue seeking acquisition candidates; and if this proposal is not approved by stockholders, the company intends to return at least half of its cash to stockholders at that time, through a dividend, issuer tender offer or other distribution. The company’s stockholder rights plan, which is triggered if a stockholder acquires more than 4.9 percent of the company’s outstanding stock, will remain in effect to protect the company’s ability to utilize its NOLs.

“KANA is pleased that a world-class investor like Accel-KKR has such confidence in the software business of this company,” continued Mr. Fields. “We believe strongly that Accel-KKR’s financial strength and deep domain expertise will be critical to enabling the privately held KANA to extend its current technology leadership to global market leadership in our sector.”

Jason Klein, Managing Director at Accel-KKR said, “Accel-KKR is excited about partnering with KANA’s management and employees to help the company expand its existing position in the global multi-channel customer service market. We look forward to investing in KANA and helping the company better serve its customers in industries as diverse as retail, technology, telecommunications, health care, insurance, financial services and the public sector.”

The proposed transaction is expected to close within 90 days and is subject to agreed-upon closing conditions, including the absence of any material adverse change in the company’s business or results of operations prior to closing and the receipt of certain consents from third parties. Further, the transaction is subject to the approval of the asset purchase agreement by holders of a majority of the outstanding shares of the company’s common stock. The purchase price to be paid by Accel-KKR is subject to adjustments based on the company’s net working capital at closing, its indebtedness (net of its cash), and transaction expenses, and based on other matters. KANA anticipates that, following adjustments that are currently expected, the renamed public company will have cash at closing of between $40 million and $44 million. However, the actual amount could be less, depending on the company’s cash, debt and net working capital at closing, and final transaction expenses. Certain proceeds may be held in escrow following closing, pending resolution of certain specified contingencies.

Pagemill Partners served as financial advisor to the Board and rendered an opinion as to the fairness, from a financial point of view, to the company’s stockholders. Fenwick & West LLP is serving as legal counsel to the company. Accel-KKR is advised by Kirkland & Ellis LLP.