Exhibit 10.01

 

BUSINESS FINANCING AGREEMENT

dated as of November 30, 2005

between

BRIDGE BANK, NATIONAL ASSOCIATION

and

KANA Software, Inc., a Delaware corporation (“Borrower”)

 

Borrower and Lender agree as follows:

 

1. Definitions and Construction.

 

1.1 Definitions. In this Agreement:

 

“Account Balance” means at any time the aggregate of the Receivable Amounts of
all Eligible Receivables at such time.

 

“Account Debtor” has the meaning in the California Uniform Commercial Code and
includes any person liable on any Receivable, including without limitation, any
guaranty of any Receivable and any issuer of a letter of credit or banker’s
acceptance assuring payment thereof.

 

“Adjustments” means all discounts, allowances, disputes, offsets, defenses,
rights of recoupment, rights of return, warranty claims, or short payments,
asserted by or on behalf of any Account Debtor with respect to any Receivable.

 

“Advance Request” means a writing signed by an authorized representative of
Borrower requesting (1) a Revolving Advance which accurately identifies the
Eligible Receivables and Receivable Amounts, including for each such Receivable
the correct amount owed by the Account Debtor, the name and address of the
Account Debtor, the invoice number, the invoice date and the account code.

 

“Affiliate” means a Person that owns or controls directly or indirectly the
Person, any Person that controls or is controlled by or is under common control
with the Person, and each of that Person’s senior executive officers, directors,
partners and, for any Person that is a limited liability company, that Person’s
managers and members.

 

“Agreement” means this Business Financing Agreement.

 

“Borrowing Base” means at any time the sum of the Account Balance multiplied by
the Receivables Advance Rate.

 

“Cash” means Borrowers cash and cash equivalents.

 

“Cash Burn” means cash as of three months immediately preceding the date of
measurement minus the current month’s ending Cash, excluding the proceeds
received during that period from any loans or investments, but adding back and
payments made during that period on account of long term indebtedness or
purchase of capital equipment.

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“Collateral” means all of Borrower’s rights and interest in any and all personal
property, whether now existing or hereafter acquired or created and wherever
located, and all products and proceeds thereof and accessions thereto, including
the following: accounts, including health care insurance receivables, chattel
paper, inventory, equipment, instruments, including promissory notes, investment
property, documents, deposit accounts, letter of credit rights, any commercial
tort claim of Borrower which is now or hereafter identified by Borrower or
Lender, general intangibles with the exception of              carve out for
specific IP                                 , and supporting obligations.

 

“Collections” means all payments from or on behalf of an Account Debtor with
respect to Receivables.

 

“Compliance Certificate” means a certificate in the form attached to this
Agreement by the chief financial officer or other authorized person of Borrower
that, among other things, the representations and warranties set forth in this
Agreement are true and correct as of the date such certificate is delivered.

 

“Default” means any Event of Default or any event that with notice, lapse of
time or otherwise would constitute an Event of Default.

 

“Default Rate” means 5.00 percentage points above the rate effective immediately
before the Event of Default.

 

“Eligible Receivable” means a Receivable that satisfies all of the following:

 

(a) the Receivable has been created by Borrower in the ordinary course of
Borrower’s business and without any obligation on the part of Borrower to render
any further performance;

 

(b) there are no conditions which must be satisfied before Borrower is entitled
to receive payment of the Receivable, and the Receivable does not arise from COD
sales, consignments or guaranteed sales;

 

(c) the Account Debtor upon the Receivable does not claim any defense to payment
of the Receivable, whether well founded or otherwise;

 

(d) the Receivable is not the obligation of an Account Debtor who has asserted
or may assert any counterclaims or offsets against Borrower, including offsets
for any “contra accounts” owed by Borrower to the Account Debtor for goods
purchased by Borrower or for services performed for Borrower, unless a credit
balance is carried on the books of Borrower;

 

(e) the Receivable represents a genuine obligation of the Account Debtor and to
the extent any credit balances exist in favor of the Account Debtor, such credit
balances shall be deducted in calculating the Receivable Amount;

 

(f) Borrower has sent an invoice to the Account Debtor in the amount of the
Receivable;

 

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(g) Borrower is not prohibited by the laws of the state where the Account Debtor
is located from bringing an action in the courts of that state to enforce the
Account Debtor’s obligation to pay the Receivable. Borrower has taken all
appropriate actions to ensure access to the courts of the state where the
Account Debtor is located, including, where necessary, the filing of a Notice of
Business Activities Report or other similar filing with the applicable state
agency or the qualification by Borrower as a foreign corporation authorized to
transact business in such state;

 

(h) the Receivable is owned by Borrower free of any title defects or any liens
or interests of others except the security interest in favor of Lender, and
Lender has a perfected, first priority security interest in such Receivable;

 

(i) the Account Debtor on the Receivable is not any of the following: (1) an
employee, Affiliate, parent or subsidiary of Borrower, or an entity which has
common officers or directors with Borrower; (2) the U.S. government or any
agency or department of the U.S. government unless Borrower complies with the
procedures in the Federal Assignment of Claims Act of 1940 (41 U.S.C. §15) with
respect to the Receivable, and the underlying contract expressly provides that
neither the U.S. government nor any agency or department thereof shall have the
right of set-off against Borrower; (3) any person or entity located in a foreign
country (other than IBM UK, Seimans AG and Deutsch Bank AG) unless (A) the
Receivable is supported by an irrevocable letter of credit issued by a bank
acceptable to Lender, and (B) if requested by Lender, the original of such
letter of credit and/or any usance drafts drawn under such letter of credit and
accepted by the issuing or confirming bank have been delivered to Lender; or
(4) an Account Debtor as to which 35% or more of the aggregate dollar amount of
all outstanding Receivables owing from such Account Debtor have not been paid
within 90 days from invoice date;

 

(j) the Receivable is not in default. A Receivable will be considered in default
if any of the following occur: (i) the Receivable is not paid within 90 days
from its invoice date; (ii) the Account Debtor obligated upon the Receivable
suspends business, makes a general assignment for the benefit of creditors, or
fails to pay its debts generally as they come due; or (iii) any petition is
filed by or against the Account Debtor obligated upon the Receivable under any
bankruptcy law or any other law or laws for the relief of debtors);

 

(k) the Receivable does not arise from the sale of goods which remain in
Borrower’s possession or under Borrower’s control;

 

(1) the Receivable is not evidenced by a promissory note or chattel paper, nor
is the Account Debtor obligated to Borrower under any other obligation which is
evidenced by a promissory note;

 

(m) the Receivable is not that portion of Receivables due from an Account Debtor
which is in excess of 30% of Borrower’s aggregate dollar amount of all
outstanding Receivables, except for IBM, for which such percentage is 50% for
the amounts that exceed that percentage; and

 

(n) the Receivable is otherwise acceptable to Lender.

 

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“Event of Default” has the meaning set forth in Section 7.1.

 

“Facility Fee” means a fee equal to .25% of the Total Credit Limit, due upon
execution of this Agreement.

 

“Formula Advance” means a Revolving Advance made to Borrower under the Formula
Sublimit.

 

“Formula Availability” means the lesser of the Borrowing Base or the Formula
Sublimit.

 

“Formula Sublimit” means $5,000,000.

 

“Inventory” means and includes all of Borrower’s now owned or hereafter acquired
goods, merchandise and other personal property, wherever located, to be
furnished under any consignment, arrangement, contract of service or held for
sale or lease, all raw materials, work in process, finished goods and materials
and supplies of any kind, nature or description which are or might be used or
consumed in Borrower’s business or used in selling or furnishing such goods,
merchandise and other personal property, and all documents of title or other
documents representing them.

 

“Lender” means Bridge Bank, National Association, and its successors and
assigns.

 

“Letter of Credit” has the meaning set forth in Section 2.1(d).

 

“Letters of Credit Outstanding” means, at any time, the sum of, without
duplication, (i) the maximum amount available to be drawn on all outstanding
Letters of Credit issued by Lender or by Lender’s affiliate and (ii) the
aggregate amount of all amounts drawn and unreimbursed with respect to Letters
of Credit issued by the Lender or by Lender’s affiliate.

 

“Letter of Credit Sublimit” has the meaning set forth in Section 2.1(d).

 

“Nonformula Advance” means a Revolving Advance made to Borrower under the
Nonformula Sublimit.

 

“Nonformula Sublimit” means $6,000.000.

 

“Obligations” means all liabilities and obligations of Borrower to Lender of any
kind or nature, present or future, arising under or in connection with this
Agreement or under any other document, instrument or agreement, whether or not
evidenced by any note, guarantee or other instrument, whether arising on account
or by overdraft, whether direct or indirect (including those acquired by
assignment) absolute or contingent, primary or secondary, due or to become due,
now owing or hereafter arising, and however acquired; including, without
limitation, all Advances, fees, interest, expenses, professional fees and
attorneys’ fees.

 

“Overadvance” means (a) as to the total amount of the Formula Advances plus
Nonformula Advances, the amount, if any, that exceeds the Revolving Credit
Limit, (b) as to any Formula Advance (i) with respect to any receivable which is
not an Eligible Receivable, the entire outstanding amount of such Formula
Advance, and (ii) the total amount of the Revolving

 

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Advances then outstanding (including amounts deemed Revolving Advances under
Sections 2.1(e) and (f)) plus the Letters of Credit Outstanding exceeds the
Revolving Credit Limit or the Borrowing Base, (c).

 

“Person” means any individual, sole proprietorship, partnership, limited
liability company, joint venture, company association, trust, unincorporated
organization, association, corporation, institution, public benefit corporation,
firm, joint stock company, estate, entity or government agency.

 

“Prime Rate” means for any day, a variable rate of interest, per annum, most
recently published by the Wall Street Journal, as the “prime rate,” provided
that if such day is not a business day, the Prime Rate for such day shall be
such rate on such transactions on the next preceding business day as so
published in the Money Rates Section of the Western Edition of the Wall Street
Journal on the next succeeding business day.

 

“Receivables Advance Rate” means 80% or such greater or lesser percentage as
Lender may from time to time establish in its sole discretion upon notice to
Borrower.

 

“Receivable Amount” means as to any Receivable, the net amount due from the
Account Debtor after deducting all discounts, credits, offsets, payments or
other deductions of any nature whatsoever.

 

“Receivables” means Borrower’s rights to payment arising in the ordinary course
of Borrower’s business, including accounts, chattel paper, instruments, contract
rights, documents, general intangibles, letters of credit, drafts, and bankers
acceptances.

 

“Remaining Months Liquidity” means an amount equal to (a) Cash in which Lender
has a first priority security interest plus the amount available to Borrower
under this Agreement minus outstanding Revolving Advances and Equipment Loans
divided by (b) Cash Burn.

 

“Revolving Advance” means an advance made by Lender to Borrower pursuant to
Section 2.1.

 

“Revolving Interest Rate” means a per annum rate equal to (a) the Prime Rate
plus two percentage points with respect to Formula Advances and (b) the Prime
Rate plus one-half percentage points with respect to Non-Formula Advances. After
an Event of Default, the outstanding principal balance of the Revolving Advances
shall accrue interest at the Default Rate.

 

“Revolving Credit Limit” means $7,000,000.

 

“Revolving Maturity Date” means November 29, 2006.

 

“Subordinated Debt” is debt incurred by Borrower subordinated to Borrower’s debt
to Lender (pursuant to a subordination agreement entered into between Lender,
Borrower and the subordinated creditor), on terms acceptable to Lender.

 

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“Termination Date” means the earlier of (i) the date in which all Obligations
are indefeasibly paid in full, or (ii) the date on which Lender elects to
terminate this Agreement pursuant to the terms herein.

 

“Unrestricted Cash” means unrestricted, unencumbered marketable securities, cash
and cash equivalents.

 

1.2 Construction:

 

(a) In this Agreement: (i) references to the plural include the singular and to
the singular include the plural; (ii) references to any gender include any other
gender; (iii) the terms “include” and “including” are not limiting; (iv) the
term “or” has the inclusive meaning represented by the phrase “and/or,”
(v) unless otherwise specified, section and subsection references are to this
Agreement, and (vi) any reference to any statute, law, or regulation shall
include all amendments thereto and revisions thereof

 

(b) Neither this Agreement nor any uncertainty or ambiguity herein shall be
construed or resolved using any presumption against either Borrower or Lender,
whether under any rule of construction or otherwise. On the contrary, this
Agreement has been reviewed by each party hereto and their respective counsel.
In case of any ambiguity or uncertainty, this Agreement shall be construed and
interpreted according to the ordinary meaning of the words used to accomplish
fairly the purposes and intentions of all parties hereto.

 

(c) Titles and section headings used in this Agreement are for convenience only
and shall not be used in interpreting this Agreement.

 

2. The Credit.

 

2.1 Revolving Loans.

 

(a) Revolving Credit Line. Subject to the terms and conditions of this
Agreement, from the date on which this Agreement becomes effective until the
Revolving Maturity Date, Lender will make advances (each, a “Revolving Advance”)
to Borrower not exceeding (i) the Formula Sublimit or the Borrowing Base,
whichever is less with respect to Formula Advances and (ii) the Nonformula
Sublimit with respect to Nonformula Advances; provided that in no event shall
the aggregate amount of Formula Advances and Nonformula Advances at any one time
exceed the Revolving Credit Limit. Lender shall not be obligated to make any
Revolving Advance that results in an Overadvance or while any Overadvance is
outstanding. It shall be a condition precedent to the initial Formula Advance
that (i) Lender shall have conducted a collateral audit, the results of which
must be satisfactory to Lender and (ii) Lender shall have received Borrower’s
2006 annual projections which must be in form and substance acceptable to
Lender. Amounts borrowed under this Section may be repaid and reborrowed during
the term of this Agreement. It shall be a condition to each Advance that (a) all
of the representations and warranties set forth in Section 4 are true and
correct on the date of such Revolving Advance as though made at and as of each
such date and (b) no Default has occurred and is continuing, or would result
from such Revolving Advance.

 

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(b) Advance Requests. Borrower may request that Lender make a Revolving Advance
by delivering to Lender an Advance Request. Lender shall be entitled to rely on
all the information provided by Borrower to Lender on or with the Advance
Request and to rely on the signature on any Advance Request as an authorized
signature of Borrower.

 

(c) Due Diligence. Lender may at any time and from time to time contact Account
Debtors and other persons obligated or knowledgeable in respect of Receivables
to confirm the Receivable Amount of such Receivables, to determine whether
Receivables constitute Eligible Receivables, and for any other purpose in
connection with this Agreement. Lender may audit Borrower’s Receivables and any
and all records pertaining to the Collateral, at Lender’s sole discretion and at
Borrower’s expense.

 

(d) Letter of Credit Line. Subject to the terms and conditions of this
Agreement, Lender hereby agrees to issue or cause an affiliate to issue letters
of credit for the account of Borrower (each, a “Letter of Credit” and
collectively, “Letters of Credit”) from time to time up to and including the
Termination Date; provided however, that the aggregate of all undrawn amounts,
and all amounts drawn and unreimbursed, under any Letters of Credit issued under
the Letter of Credit Line shall not at any time exceed the principal amount of
Two Million Dollars ($2,000,000) minus amounts outstanding under paragraphs
(e) and (f) (the “Letter of Credit Sublimit”). The form and substance of each
Letter of Credit shall be subject to approval by Lender, in its sole discretion.
Each Letter of Credit shall be subject to the additional terms of the Letter of
Credit agreements, applications and any related documents required by Lender in
connection with the issuance thereof (each, a “Letter of Credit Agreement”).
Each draft paid under any Letter of Credit shall be repaid by Borrower in
accordance with the provisions of the applicable Letter of Credit Agreement. No
Letter of Credit shall be made that results in an Overadvance or while any
Overadvance is outstanding. Upon the Revolving Maturity Date, the amount of
Letters of Credit Outstanding shall be secured by unencumbered cash on terms
acceptable to Lender if the term of this Agreement is not extended by Lender.

 

(e) Cash Management Services. Borrower may use up to $2,000,000 minus amounts
outstanding under paragraphs (d) and (f) for Lender’s cash management services,
which may include merchant services, direct deposit of payroll, business credit
card, and check cashing services identified in various cash management services
agreements related to such services (the “Cash Management Services”). All
amounts Lender pays for any Cash Management Services will be treated as
Revolving Advances under the Revolving Credit Limit and shall decrease, on a
dollar-for-dollar basis, the amount available for other Revolving Advances. The
Cash Management Services shall be subject to additional terms set forth in
applicable cash management services agreements.

 

(f) Foreign Exchange Facility. Borrower may enter in foreign exchange forward
contracts with Lender under which Borrower commits to purchase from or sell to
Lender a set amount of foreign currency more than one business day after the
contract date (the “FX Forward Contract”). Lender will subtract 10%, or such
greater amount as determined by Lender, of each outstanding FX Forward Contract
from the foreign exchange sublimit which is a maximum of $2,000,000 minus
amounts outstanding under paragraphs (e) and (d) (the “FX Reserve”). The total
FX Forward Contracts at any one time may not exceed 10 times the amount of the
FX Reserve. Ten percent (10%) of the amount of each outstanding FX Forward
Contract

 

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shall be treated as Revolving Advances hereunder and shall decrease, on a
dollar-for-dollar basis, the amount available for other Revolving Advances.
Lender may terminate the FX Forward Contracts if an Event of Default occurs.
Each FX Forward Contract shall be subject to additional terms set forth in the
applicable FX Forward Contract or other agreements executed in connection with
the foreign exchange facility.

 

(g) Overadvances. Upon any occurrence of an Overadvance, Borrower shall
immediately pay down the Revolving Advances so that, after giving effect to such
payments, no Overadvance exists.

 

3. Interest, Fees and Remittances.

 

3.1 Interest. Revolving Advances accrue interest on the outstanding principal
balance at the Revolving Interest Rate and shall be payable on the tenth day of
each month. After an Event of Default, Obligations accrue interest at the
applicable Default Rate. The applicable interest rate increases or decreases
when the Prime Rate changes. Interest is computed on a 360 day year for the
actual number of days elapsed.

 

3.2 Fees.

 

(a) Facility Fee. On the date of this Agreement and on each anniversary thereof
prior to the termination of this Agreement, Borrower shall pay to Lender the
Facility Fee.

 

(b) Letter of Credit Fees. Borrower shall pay to Lender fees upon the issuance
of each Letter of Credit, upon the payment or negotiation of each draft under
any Letter of Credit and upon the occurrence of any other activity with respect
to any Letter of Credit (including without limitation, the transfer, amendment
or cancellation of any Letter of Credit) determined in accordance with Lender’s
standard fees and charges then in effect for such activity.

 

(c) Cash Management and FX Forward Contract Fees. Borrower shall pay to Lender
fees in connection with the Cash Management Services and the FX Forward
Contracts as determined in accordance with Lender’s standard fees and charges
then in effect for such activity.

 

3.3 Reporting. Within 15 days after the end of each month, Lender shall send to
Borrower a report covering the transactions for such month, including the amount
of interest and other fees and charges. The accounting shall be deemed correct
and conclusive unless Borrower makes written objection to Lender within 30 days
after Lender mails the accounting to Borrower.

 

3.4 Borrower’s Payment. When any Overadvance or other amount owing to Lender
becomes due, Lender shall inform Borrower of the manner of payment which may be
any one or more of the following in Lender’s sole discretion: (a) in cash
immediately upon demand therefor; (b) by deduction from or offset against the
amount that otherwise would be forwarded to Borrower in respect of any further
Revolving Advances that may be made by Lender; or (c) by any combination of the
foregoing as Lender may from time to time choose.

 

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4. Representations and Warranties. Borrower represents and warrants:

 

4.1 Receivables. With respect to each Receivable (except as disclosed to Lender
in writing that such Receivable is not an Eligible Receivable):

 

(a) it is the owner with legal right to sell, transfer and assign it;

 

(b) the correct Receivable Amount has been accurately reported to Lender and is
not disputed; and

 

(c) Lender has the right to endorse and/ or require Borrower to endorse all
payments received on Receivables and all proceeds of Collateral.

 

4.2 Representations and Warranties. No representation, warranty or other
statement of Borrower in any certificate or written statement given to Lender
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statement contained in the certificates or statement
not misleading.

 

4.3 Formation and Qualification. Borrower is duly existing and in good standing
in its state of formation and qualified and licensed to do business in, and in
good standing in, any state or country in which the conduct of its business or
its ownership of property requires that it be qualified.

 

4.4 Authority; No Conflict. The execution, delivery and performance of this
Agreement has been duly authorized, and does not conflict with Borrower’s
organizational documents, nor constitute an Event of Default under any material
agreement by which Borrower is bound. Borrower is not in default under any
agreement to which or by which it is bound.

 

4.5 Collateral. Borrower has good title to the Collateral and all Inventory is
in all material respects of good and marketable quality, free from material
defects.

 

4.6 Name; Locations. Borrower’s name, form of organization, chief executive
office, and the place where the records concerning all Receivables and
Collateral are kept is set forth at the beginning of this Agreement and Borrower
is located at its address for notices set forth in this Agreement.

 

4.7 Intellectual Property. If Borrower owns, holds or has any interest in, any
copyrights (whether registered, or unregistered), patents or trademarks, and
licenses of any of the foregoing (the “Intellectual Property”), such interest
has been specifically disclosed and identified to Lender in writing. All
Intellectual Property owned or utilized by Borrower are valid and constitute all
of the intellectual property rights which are necessary for the operation of its
business; there is no objection to or pending challenge to the validity of any
such Intellectual Property and Borrower is not aware of any grounds for any
challenge. Each Intellectual Property owned or held by Borrower and all trade
secrets used by Borrower consist of original material or property developed by
Borrower or was lawfully acquired by Borrower from the proper and lawful owner
thereof.

 

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5. Covenants. So long as Borrower owes any Obligation to Lender, Borrower
covenants to Lender that Borrower shall observe and perform each and every one
of the following:

 

5.1 Existence. Maintain its corporate existence and good standing in its
jurisdictions of incorporation and maintain its qualification in each
jurisdiction necessary to Borrower’s business or operations.

 

5.2 Change in Name. Give Lender at least 30 days prior written notice of changes
to its name, organization, chief executive office or location of records.

 

5.3 Taxes. Pay all its taxes including gross payroll, withholding and sales
taxes when due and will deliver satisfactory evidence of payment to Lender if
requested.

 

5.4 Financial Statements. Give Lender copies of (i) all of Borrower’s quarterly
balance sheets and income statements, Forms 10-K, 10-Q and 8-K (or equivalents)
within five days of filing any of the foregoing with the Securities and Exchange
Commission, (ii) annual financial statements, as soon as available, and in any
event within 120 days following the end of Borrower’s fiscal year, certified by,
and with an unqualified opinion of, an independent certified public accountants
acceptable to Lender and (iii) annual operating projections (including income
statements, balance sheets and cash flow statements) for the upcoming fiscal
year approved by the Borrower’s board of directors within fifteen days of the
end of each fiscal year of Borrower in form and substance satisfactory to
Lender.

 

5.5 Merger; Sale of Assets. Not merge or consolidate with or into any other
business organization, or acquire all or substantially all of the capital stock
or property of a third party, unless (i) any such acquired entity becomes a
“Borrower” under this Agreement and (ii) Lender has previously consented to the
applicable transaction in writing.

 

5.6 Indebtedness. Not create, incur, assume, or be liable for any indebtedness
other than indebtedness incurred in the ordinary course of business.

 

5.7 Reports. Provide to Lender:

 

(a) within 45 days after the end of each calendar quarter the following for such
period then ending: consolidated financial statements including, balance sheet,
income statement, statement of cash flows and Compliance Certificate;

 

(b) within 30 days after the end of each month the following for such month and
the period then ending: statement of cash balance and equity statement;

 

(c) concurrent with the initial Formula Advance and within 30 days after the end
of each month thereafter, the following for such month and the period then
ending; accounts receivable and accounts payable aging reports, together with a
Borrowing Base Certificate in form and substance acceptable to Lender setting
forth the Eligible Receivables and Receivable Amounts thereof;

 

(d) immediately upon Lender’s request, a written report if payment of any
Receivable does not occur by its due date and include the reasons for the delay.

 

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5.8 Audit. Lender shall have the right from time to time hereafter to audit
Borrower’s Receivables and the Collateral at Borrower’s expense. Such audits
shall be conducted prior to the initial Formula Advance and annually thereafter
or as otherwise requested by Lender.

 

5.9 Accounts. Maintain its primary depository and operating accounts with Lender
and, in the case of any deposit accounts not maintained with Lender, grant to
Lender a first priority perfected security interest in and “control” (within the
meaning of Section 9104 of the California Uniform Commercial Code) of such
deposit account pursuant to documentation acceptable to Lender.

 

5.10 Insurance. At all times insure all of the tangible Collateral and carry
such other business insurance, with insurers reasonably acceptable to Lender, in
such form and amounts as Lender may reasonably require and that are customary
and in accordance with standard practices for Borrower’s industry and locations,
and Borrower shall provide evidence of such insurance to Lender. All such
insurance policies shall name Lender as an additional loss payee, and shall
contain a lenders loss payee endorsement in form reasonably acceptable to
Lender. Upon receipt of the proceeds of any such insurance, Lender shall apply
such proceeds in reduction of the Obligations as Lender shall determine in its
good faith business judgment, provided that no Default or Event of Default has
occurred and is continuing. If Borrower fails to provide or pay for any
insurance, Lender may, but is not obligated to, obtain the same at Borrower’s
expense. Borrower shall promptly deliver to Lender copies of all material
reports made to insurance companies.

 

5.11 Adjustments. In the event of a breach of Sections 4 or 5, or in the event
any Adjustment or dispute is asserted by any Account Debtor, Borrower shall
promptly advise Lender and shall, subject to Lender’s approval, resolve such
disputes and advise Lender of any adjustments. Lender shall have the right, at
any time, to take possession of any rejected, returned, or recovered personal
property. If such possession is not taken by Lender, Borrower is to resell it
for Lender’s account at Borrower’s expense with the proceeds made payable to
Lender. While Borrower retains possession of any returned goods, Borrower shall
segregate said goods and mark them as property of Lender.

 

5.12 Intellectual Property. Immediately notify Lender if Borrower hereafter
obtains any interest in any copyrights, patents, trademarks or licenses that are
significant in value or are material to the conduct of its business or the value
of any Receivable.

 

5.13 Further Assurances. Execute any further instruments and take further action
as Lender requests to perfect or continue Lender’s security interest in the
Collateral or to effect the purposes of this Agreement.

 

5.14 Financial Covenants. Maintain Borrower’s financial condition as follows
using generally accepted accounting principles consistently applied and used
consistently with prior practices (except to the extent modified by the
definitions herein), with compliance determined commencing with Borrower’s
financial statements for the period ending:

 

(a) Remaining Months Liquidity of at least 3.00 to 1.00 (3 months) as of the
last day of each month.

 

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(b) So long as there are any Nonformula Advances outstanding, Borrower shall
maintain Unrestricted Cash on deposit with Lender in an amount equal to at least
100% of the aggregate amount of outstanding Nonformula Advances.

 

(c) Actual losses not to exceed 120% of its projected losses with respect to any
quarter.

 

5.15 Use of Proceeds. Not use the proceeds of the Revolving Advances for any
other purposes other than working capital.

 

5.16 Management. Not to make any substantial change in the present executive or
management personnel of Borrower.

 

6. Security Interest.

 

6.1 Security Interest in the Collateral. To secure the prompt payment and
performance to Lender of all of the Obligations, Borrower hereby grants to
Lender a continuing security interest in the Collateral. Borrower is not
authorized to sell, assign, transfer or otherwise convey any Collateral without
Lender’s prior written consent, except for the sale of finished inventory in
Borrower’s usual course of business. Borrower agrees to sign any instruments and
documents requested by Lender to evidence, perfect, or protect the interests of
Lender in the Collateral. Borrower agrees to deliver to Lender the originals of
all instruments, chattel paper and documents evidencing or related to
Receivables and other Collateral. Borrower shall not grant or permit any lien or
security interest in the Collateral or any interest therein. Notwithstanding
anything to the contrary herein, upon Borrower’s request and so long as Borrower
is not in default under this Agreement at the time of such request, Lender
agrees to consider permitting Borrower to grant a security interest in certain
items of Collateral to another secured party and to subordinate Lender’s
security interest in such items of Collateral to the security interest granted
by Borrower to such other secured party.

 

6.2 Power of Attorney. Borrower irrevocably appoints Lender and its successors
and assigns as Borrower’s true and lawful attorney in fact, and authorizes
Lender (a) upon the occurrence of an Event of Default, to (i) sell, assign,
transfer, pledge, compromise, or discharge the whole or any part of the
Collateral; (ii) demand, collect, receive, sue, and give releases to any Account
Debtor for the monies due or which may become due upon or with respect to the
Receivables and to compromise, prosecute, or defend any action, claim, case or
proceeding relating to the Collateral, including the filing of a claim or the
voting of such claims in any bankruptcy case, all in Lender’s name or Borrower’s
name, as Lender may choose; and (iii) prepare, file and sign Borrower’s name on
any notice, claim, assignment, demand, draft, or notice of or satisfaction of
lien or mechanics’ lien or similar document with respect to the Collateral, and
(b) whether or not there has been an Event of Default, to (i) notify all Account
Debtors with the with respect to Receivables to pay Lender directly,
(ii) receive and open all mail addressed to Borrower for the purpose of
collecting the Receivables; (iii) endorse Borrower’s name on any checks or other
forms of payment on the Receivables; (iv) execute on behalf of Borrower any and
all instruments, documents, financing statements and the like to perfect
Lender’s interests in the Receivables and Collateral; (v) debit Borrower’s
checking account maintained with Lender for any and all Obligations due under
this Agreement; and

 

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(vi) do all acts and things necessary or expedient, in furtherance of any such
purposes. Upon the occurrence and continuation of an Event of Default, Lender
shall have all the rights set forth in this Section 6.2.

 

7. Default and Remedies.

 

7.1 Events of Default. The occurrence of any one or more of the following shall
constitute an Event of Default hereunder.

 

(a) Failure to Pay. Borrower fails to make a payment under this Agreement.

 

(b) Lien Priority. Lender fails to have an enforceable first lien (except for
any prior liens to which Lender has consented in writing) on or security
interest in the Collateral.

 

(c) False Information. Borrower (or any guarantor) has given Lender false or
misleading information or representations.

 

(d) Bankruptcy. Borrower (or any guarantor) files a bankruptcy petition, a
bankruptcy petition is filed against Borrower (or any guarantor) or Borrower (or
any guarantor) makes a general assignment for the benefit of creditors.

 

(e) Receivers. A receiver or similar official is appointed for a substantial
portion of Borrower’s (or any guarantor’s) business, or the business is
terminated.

 

(f) Judgments. Any judgments or arbitration awards are entered against Borrower
(or any guarantor), or Borrower (or any guarantor) enters into any settlement
agreements with respect to any litigation or arbitration.

 

(g) Material Adverse Change. A material adverse change occurs, or is reasonably
likely to occur, in Borrower’s (or any guarantor’s) business condition
(financial or otherwise), operations, properties or prospects, or ability to
repay the credit; or Lender determines that it is insecure for any other reason.

 

(h) Investor Abandonment. If Lender determines, in its good faith judgment, that
it is the clear intention of Borrower’s investors to not continue to fund the
Borrower in the amounts and timeframe necessary to enable Borrower to satisfy
the Obligations as they become due and payable.

 

(i) Cross-default. Any default occurs under any agreement in connection with any
credit Borrower (or any guarantor) or any of Borrower’s related entities or
Affiliates has obtained from anyone else or which Borrower (or any guarantor) or
any of Borrower’s related entities or Affiliates has guaranteed.

 

(j) Default under Related Documents. Any default occurs under any guaranty,
subordination agreement, security agreement, deed of trust, mortgage, or other
document required by or delivered in connection with this Agreement or any such
document is no longer in effect.

 

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(k) Other Agreements. Borrower (or any guarantor) or any of Borrower’s related
entities or Affiliates fails to meet the conditions of, or fails to perform any
obligation under any other agreement Borrower (or any guarantor) or any of
Borrower’s related entities or Affiliates has with Lender or any affiliate of
Lender.

 

(l) Other Breach Under Agreement. Borrower fails to meet the conditions of, or
fails to perform any obligation under, any term of this Agreement not
specifically referred to above.

 

(m) Change of Control. The holders of the capital ownership of the Borrower as
of the date hereof cease to own and control, directly or indirectly, at least
90% of the capital ownership of the Borrower.

 

(n) Death. If Borrower or any guarantor dies or becomes legally incompetent.

 

7.2 Remedies. Upon the occurrence of an Event of Default, (1) without implying
any obligation to do so, Lender may cease making Revolving Advances, Equipment
Loans or extending any other financial accommodations to Borrower; (2) all or a
portion of the Obligations shall be, at the option of and upon demand by Lender,
or with respect to an Event of Default described in Sections 7.1(d) or (e),
automatically and without notice or demand, due and payable in full; (3) Lender
may notify Account Debtors that the underlying Receivables have been assigned to
Lender and that payment thereof is to be made to the order of Lender and sent
directly to Lender, and (4) Lender shall have and may exercise all the rights
and remedies under this Agreement and under applicable law, including the rights
and remedies of a secured party under the California Uniform Commercial Code,
all the power of attorney rights described in Section 6.2 with respect to all
Collateral, and the right to collect, dispose of, sell, lease, use, and realize
upon all Receivables and all Collateral in any commercial reasonable manner.

 

8. Accrual of Interest. If any amount owed by Borrower hereunder is not paid
when due, including, without limitation, amounts due under Section 3.2,
Overadvances, amounts due under Section 9, and any other Obligations, such
amounts shall bear interest at a per annum rate equal to the per annum rate of
the Revolving Interest Rate until the earlier of (i) payment in good funds or
(ii) entry of a final judgment thereof, at which time the principal amount of
any money judgment remaining unsatisfied shall accrue interest at the highest
rate allowed by applicable law. All interest hereunder calculated at an annual
rate shall be based on a year of 360 days, which results in a higher effective
rate of interest than if a year of 365 or 366 days were used.

 

9. Fees, Costs and Expenses; Indemnification. Borrower will pay to Lender upon
demand all fees, costs and expenses (including fees of attorneys and
professionals and their costs and expenses) that Lender incurs or may from time
to time impose in connection with any of the following: (a) preparing,
negotiating, administering, and enforcing this Agreement or any other agreement
executed in connection herewith, including any amendments, waivers or consents
in connection with any of the foregoing, (b) any litigation or dispute (whether
instituted by Lender, Borrower or any other person) in any way relating to the
Receivables, the Collateral, this Agreement or any other agreement executed in
connection herewith or therewith, (c) enforcing any rights against Borrower or
any guarantor, or any Account Debtor, (d) protecting or enforcing its interest
in the Collateral, (e) collecting the Receivables and the Obligations, or
(f) the

 

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representation of Lender in connection with any bankruptcy case or insolvency
proceeding involving Borrower, any Receivable, the other Collateral, any Account
Debtor, or any guarantor. Borrower shall indemnify and hold Lender harmless from
and against any and all claims, actions, damages, costs, expenses, and
liabilities of any nature whatsoever arising in connection with any of the
foregoing.

 

10. Integration, Severability, Waiver, and Choice of Law. This Agreement and any
related security or other agreements required by this Agreement, collectively:
(a) represent the sum of the understandings and agreements between Lender and
Borrower concerning this credit; (b) replace any prior oral or written
agreements between Lender and Borrower concerning this credit; and (c) are
intended by Lender and Borrower as the final, complete and exclusive statement
of the terms agreed to by them. In the event of any conflict between this
Agreement and any other agreements required by this Agreement, this Agreement
will prevail. If any provision of this Agreement is deemed invalid by reason of
law, this Agreement will be construed as not containing such provision and the
remainder of the Agreement shall remain in full force and effect. Lender retains
all of its rights, even if it makes an Advance after a default. If Lender waives
a default, it may enforce a later default. Any consent or waiver under, or
amendment of, this Agreement must be in writing, and no such consent, waiver, or
amendment shall imply any obligation by Lender to make any subsequent consent,
waiver, or amendment. THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA.

 

11. Notices. All notices shall be given to Lender and Borrower at the addresses
or faxes set forth on the signature page of this Agreement and shall be deemed
to have been delivered and received: (a) if mailed, three (3) calendar days
after deposited in the United States mail, first class, postage pre-paid,
(b) one (1) calendar day after deposit with an overnight mail or messenger
service; or (c) on the same date of confirmed transmission if sent by hand
delivery, telecopy, or electronic means.

 

12. Jury Trial. EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT
TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING IN
CONNECTION WITH THE OBLIGATIONS OR IN ANY WAY CONNECTED WITH OR RELATED OR
INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO
ANY OBLIGATION, OR THE TRANSACTIONS RELATED THERETO, IN EACH CASE WHETHER NOW
EXISTING OR HEREAFTER ARISING, AND WHETHER FOUNDED IN CONTRACT OR TORT OR
OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A
JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A
COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE
SIGNATORIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. EACH PARTY
REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER, HAS DETERMINED FOR
ITSELF THE NECESSITY TO REVIEW THE SAME WITH ITS LEGAL COUNSEL, AND KNOWINGLY
AND VOLUNTARILY WAIVES ALL RIGHTS TO A JURY TRIAL.

 

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13. Reference Provision. The parties prefer that any dispute between them be
resolved in litigation subject to a Jury Trial Waiver set forth above, but the
California Supreme Court has held that pre-dispute Jury Trial Waivers not
authorized by statute are unenforceable. This Reference Provision will be
applicable unless: (i) the California Supreme Court holds that a pre-dispute
Jury Trial Waiver provision similar to that set forth above is valid or
enforceable; (ii) the California Legislature enacts a statute which becomes law,
authorizing pre-dispute Jury Trial Waivers of the type set forth above and, as a
result, such waivers become enforceable, or (iii) the Jury Trial Waiver set
forth above is otherwise determined to be enforceable.

 

13.1 Other than (i) nonjudicial foreclosure of security interests in real or
personal property, (ii) the appointment of a receiver or (iii) the exercise of
other provisional remedies (any of which may be initiated pursuant to applicable
law), any controversy, dispute or claim (each, a “Claim”) between the parties
arising out of or relating to this Agreement or any other document, instrument
or agreement between the Bank and the undersigned (collectively in this Section,
the “Loan Documents”), will be resolved by a reference proceeding in California
in accordance with the provisions of Section 638 et seq. of the California Code
of Civil Procedure (“CCP”), or their successor sections, which shall constitute
the exclusive remedy for the resolution of any Claim, including whether the
Claim is subject to the reference proceeding. Except as otherwise provided in
the Loan Documents, venue for the reference proceeding will be in the Superior
Court or Federal District Court in the County or District where the real
property, if any, is located or in a County or District where venue is otherwise
appropriate under applicable law (the “Court”).

 

13.2 The referee shall be a retired Judge or Justice selected by mutual written
agreement of the parties. If the parties do not agree, the referee shall be
selected by the Presiding Judge of the Court (or his or her representative). A
request for appointment of a referee may be heard on an ex parte or expedited
basis, and the parties agree that irreparable harm would result if ex parte
relief is not granted. The referee shall be appointed to sit with all the powers
provided by law. Pending appointment of the referee, the Court has power to
issue temporary or provisional remedies.

 

13.3 The parties agree that time is of the essence in conducting the reference
proceedings. Accordingly, the referee shall be requested, subject to change in
the time periods specified herein for good cause shown, to (a) set the matter
for a status and trial-setting conference within 15 days after the date of
selection of the referee, (b) if practicable, try all issues of law or fact
within 90 days after the date of the conference and (c) report a statement of
decision within 20 days after the matter has been submitted for decision.

 

13.4 The referee will have power to expand or limit the amount and duration of
discovery. The referee may set or extend discovery deadlines or cutoffs for good
cause, including a party’s failure to provide requested discovery for any reason
whatsoever. Unless otherwise ordered based upon good cause shown, no party shall
be entitled to “priority” in conducting discovery, depositions may be taken by
either party upon seven days written notice, and all other discovery shall be
responded to within 15 days after service. All disputes relating to discovery
which cannot be resolved by the parties shall be submitted to the referee whose
decision shall be final and binding.

 

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13.5 Except as expressly set forth in this Agreement, the referee shall
determine the manner in which the reference proceeding is conducted including
the time and place of hearings, the order of presentation of evidence, and all
other questions that arise with respect to the course of the reference
proceeding. All proceedings and hearings conducted before the referee, except
for trial, shall be conducted without a court reporter, except that when any
party so requests, a court reporter will be used at any hearing conducted before
the referee, and the referee will be provided a courtesy copy of the transcript.
The party making such a request shall have the obligation to arrange for and pay
the court reporter. Subject to the referee’s power to award costs to the
prevailing party, the parties will equally share the cost of the referee and the
court reporter at trial.

 

13.6 The referee shall be required to determine all issues in accordance with
existing case law and the statutory laws of the State of California. The rules
of evidence applicable to proceedings at law in the State of California will be
applicable to the reference proceeding. The referee shall be empowered to enter
equitable as well as legal relief, provide all temporary or provisional
remedies, enter equitable orders that will be binding on the parties and rule on
any motion which would be authorized in a trial, including without limitation
motions for summary judgment or summary adjudication. The referee shall issue a
decision and pursuant to CCP Section 644. The referee’s decision shall be
entered by the Court as a judgment or an order in the same manner as if the
action had been tried by the Court. The final judgment or order or from any
appealable decision or order entered by the referee shall be fully appealable as
provided by law. The parties reserve the right to findings of fact, conclusions
of laws, a written statement of decision, and the right to move for a new trial
or a different judgment, which new trial, if granted, is also to be a reference
proceeding under this provision.

 

13.7 If the enabling legislation which provides for appointment of a referee is
repealed (and no successor statute is enacted), any dispute between the parties
that would otherwise be determined by reference procedure will be resolved and
determined by arbitration. The arbitration will be conducted by a retired judge
or Justice, in accordance with the California Arbitration Act, CCP Sections 1280
through 1294.2. The limitations with respect to discovery set forth above shall
apply to any such arbitration proceeding.

 

13.8 THE PARTIES RECOGNIZE AND AGREE THAT ALL DISPUTES RESOLVED UNDER THIS
REFERENCE PROVISION WILL BE DECIDED BY A REFEREE AND NOT BY A JURY. AFTER
CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR OWN
CHOICE, EACH PARTY KNOWINGLY AND VOLUNTARILY AND FOR THEIR MUTUAL BENEFIT AGREES
THAT THIS REFERENCE PROVISION WILL APPLY TO ANY DISPUTE BETWEEN THEM WHICH
ARISES OUT OF OR IS RELATED TO THIS AGREEMENT OR THE LOAN DOCUMENTS.

 

14. Term and Termination. This Agreement shall become effective upon the
execution and delivery hereof by Borrower and Lender and shall continue in full
force and effect until the Termination Date. Upon the Termination Date, the
unpaid balance of the Obligations shall be due and payable without demand or
notice. Notwithstanding any of the foregoing, the obligations of Borrower to
indemnify Lender with respect to the expenses, damages, losses, costs and
liabilities described in Section 9 shall survive until all applicable statute of
limitations periods with respect to actions that may be brought against Lender
have run.

 

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15. Other Agreements.

 

15.1 Security Agreements. Any security agreements, liens and/or security
interests securing payment of any obligations of Borrower owing to Lender or its
affiliates also secure the Obligations, and are valid and subsisting and are not
adversely affected by execution of this Agreement. An Event of Default under
this Agreement constitutes a default under other outstanding agreements between
Borrower and Lender or its affiliates;

 

15.2 Publicity. Lender reserves the right to issue press releases,
advertisements, and other promotional materials describing any successful
outcome of services provided on Borrower’s behalf. Borrower agrees that Lender
shall have the right to identify Borrower by name in those materials.

 

16. GENERAL PROVISIONS

 

16.1 Successors and Assigns. This Agreement binds and is for the benefit of the
successors and permitted assigns of each party. Borrower may not assign this
Agreement or any rights under it without Lender’s prior written consent which
may be granted or withheld in Lender’s discretion. Lender has the right, without
the consent of or notice to Borrower, to sell, transfer, negotiate, or grant
participation in all or any part of, or any interest in, Lender’s obligations,
rights and benefits under this Agreement.

 

16.2 Time of Essence. Time is of the essence for the performance of all
obligations in this Agreement.

 

16.3 Amendments in Writing, Integration. All amendments to this Agreement must
be in writing and signed by Borrower and Lender; provided, that, any amendment
to correct typographical, grammar or similar errors shall be made pursuant to a
letter from the Lender to the Borrower. This Agreement represents the entire
agreement about this subject matter, and supersedes prior negotiations or
agreements. All prior agreements, understandings, representations, warranties,
and negotiations between the parties about the subject matter of this Agreement
merge into this Agreement and the Loan Documents.

 

16.4 Counterparts. This Agreement may be executed in any number of counterparts
and by different parties on separate counterparts, each of which, when executed
and delivered, are an original, and all taken together, constitute one
Agreement.

 

16.5 Survival. All covenants, representations and warranties made in this
Agreement continue in full force while any Obligations remain outstanding. The
obligations of Borrower in Section 9 to indemnify Lender will survive until all
statutes of limitations for actions that may be brought against Lender have run.

 

*        *        *

 

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IN WITNESS WHEREOF, Borrower and Lender have executed this Agreement on the day
and year above written.

 

BORROWER:   LENDER: KANA Software, Inc., a Delaware corporation   BRIDGE BANK,
NATIONAL ASSOCIATION By  

/s/    John M. Thompson

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  By  

/s/    Debra Bowman

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Name:  

John Thompson

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  Name:  

Debra Bowman

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Title:  

CFO

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  Title:  

Vice President

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Address for Notices:   Address for Notices: 181 Constitution Drive   55 Almaden
Boulevard Menlo Park, CA 94025   San Jose, CA 95113 Fax: (650) 614-8350   Fax:
(408) 423-8510

 

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