Kana Software’s second largest investor cried foul Monday, alleging that its board of directors was acting unfairly “to hold an uncontested election in troubled times and in the face of stockholder dissatisfaction” in a complaint it filed seeking to postpone the Menlo Park company’s annual meeting.
KVO Capital Management, a New Hampshire investment firm that holds 3.35 million shares, or 8.1 percent, of Kana, said it was blind sided last week when Kana said it would hold its yearly gathering on July 15, or four weeks from the day it filed the news with the Securities and Exchange Commission Wednesday.
That’s because KVO wanted to nominate a candidate to challenge the only incumbent member of the board of directors — but was told by Kana that company bylaws require that such nominations must be sent to Kana’s corporate secretary “not less than” 120 days before the annual meeting.
The deadline “had long since passed,” Kana told KVO, according to the complaint.
The unpleasantness could not have been a surprise to Kana.
When KVO first notified the SEC in November that it controlled a greater-than 5 percent stake in Kana, the investor told the company’s board it “would be well served to consider significant changes in business strategy and corporate governance,” including selling the company and cutting expenses “immediately.”
In January, KVO sent Kana’s board a letter requesting a list of its stockholders so that it could communicate with them “in connection with a contemplated shareholder proposal by KVO for inclusion in Kana’s next proxy statement,” a report sent to shareholders before their annual meeting.
In February, KVO Portfolio Manager Robert Ashton sent an e-mail to Kana General Counsel William Bose informing him that KVO was considering taking action at the next annual meeting, either by way of a stockholder proposal or through director nominations, or both, after it evaluated Kana’s 2008 fourth quarter and year-end results.
Aware of Kana’s 120-day advance-notice rule, Ashton told Bose he expected that Kana would “provide adequate notice of the 2009 annual meeting to allow its stockholders to nominate directors or make proposals in compliance” with the company’s bylaws, according to the complaint.
Ashton also “advised” Bose that “Delaware courts have limited the ability of companies to enforce advance notice provision in their bylaws when they have the effect of frustrating the stockholder franchise or making stockholder nominations of other proposals impossible or impracticable.”
Kana did not reply to a request we made for comment on the complaint. If and when the company files a response in court, we’ll endeavor to share it. Late Monday the company issued a press release ostensibly designed to “remind” Kana shareholders of its July 15 annual meeting in which it stated:
“It has additionally come to our attention that KVO has filed a request for an injunction in the Delaware courts to delay our scheduled meeting to give KVO time to nominate an alternative board member. We believe KVO’s request is without merit, given the fact that the bylaw provision at issue, which sets the deadline for stockholder nominations, has been part of our bylaws, and publicly available, for many years, and that KVO itself has admitted in their complaint that they were aware of this deadline, and had determined to nominate a candidate, well in advance of the deadline, but still failed to take action until after the deadline had passed. Accordingly, KVO and our other stockholders have had a full opportunity to nominate candidates prior to this deadline.”