Exhibit 10.40

LOAN AND SECURITY MODIFICATION AGREEMENT

This Loan and Security Modification Agreement is entered into as of March 17,
2009, by and between Kana Software, Inc. (the “Borrower”) and Bridge Bank,
National Association (“Lender”).

1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which may be
owing by Borrower to Lender, Borrower is indebted to Lender pursuant to, among
other documents, a Second Amended and Restated Loan and Security Agreement,
dated March 28, 2008 by and between Borrower to Lender, as may be amended from
time to time (the “Loan and Security Agreement”). Capitalized terms used without
definition herein shall have the meanings assigned to them in the Loan and
Security Agreement.

Hereinafter, all indebtedness owing by Borrower to Lender shall be referred to
as the “Indebtedness” and the Loan and Security Agreement and any and all other
documents executed by Borrower in favor of Lender shall be referred to as the
“Existing Documents.”

2. ACKNOWLEDGEMENT OF DEFAULTS.

Borrower hereby acknowledges that as of the date hereof, the following Events of
Default (the “Existing Defaults”) have occurred and remain uncured under the
Loan and Security Agreement:

 

  1) For the months ended November 30, 2008 and December 31, 2008, failure to
maintain the monthly Asset Coverage Ratio of at least 2.00 to 1.00, as required
in Section 6.7, entitled “Asset Coverage Ratio”.

 

  2) For the month ended January 31, 2009, failure to maintain the monthly Asset
Coverage Ratio of at least 2.00 to 1.00, as required in Section 6.7, entitled
“Asset Coverage Ratio”.

 

  3) For the quarter ended December 31, 2008, failure to maintain the quarterly
Profitability of not less than One Dollar ($1.00), as required in Section 6.8,
entitled “Profitability”.

 

  4) For the quarter ended December 31, 2008, failure to maintain a Debt Service
Coverage ratio of at least 1.50:1.00, as required in Section 6.9, entitled “Debt
Service Coverage”.

3. WAIVER OF CERTAIN EXISTING DEFAULTS.

Lender hereby waives the Existing Defaults as described in Subsections 1), 3),
and 4) of Section 2 hereabove, only so long as Borrower complies in all respects
with the Loan and Security Agreement and with the Existing Documents beginning
with the month ended February 28, 2009 and the quarter ending March 31, 2009, as
applicable. Borrower remains in default with respect to the Asset Coverage Ratio
for the month ended January 31, 2009.

This waiver does not constitute a continuing waiver or a course of conduct by
waiving this or any other provisions of the Loan and Security Agreement.

4. DESCRIPTION OF CHANGE IN TERMS.

 

  1) The following defined term in Section 1.1, entitled “Definitions” is hereby
amended to read as follows, effective as of March 17, 2009:

“Prime Rate” means the greater of i) 4.00% per annum, or (ii) the variable rate
of interest, per annum, most recently announced by Lender as its “Prime Rate”,
whether or not such announced rate is the lowest rate available from Lender.

 

  2) The following Subsections in Section 2.3(a), entitled “Interest Rates”, are
hereby amended to read as follows, effective as of March 17, 2009:

 

  (i) Advances. Except as set forth in Section 2.3(b), the Advances shall bear
interest, on the outstanding Daily Balance thereof, at a rate equal to two and
one half of one percent (2.50%) above the Prime Rate; provided however, such
interest rate shall be reduced to one and one quarter of one percent
(1.25%) above the Prime Rate upon Bank’s receipt of evidence showing Borrower
has been in compliance in all respects with the Loan and Security Agreement and
with the Existing Documents for two consecutive quarters.

 

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  (ii) Existing Equipment Advance, Except as set forth in Section 2.3(b), the
Existing Equipment Advances shall bear interest, on the outstanding Daily
Balance thereof, at a rate equal to two and one half of one percent
(2.50%) above the Prime Rate; provided however, such interest rate shall be
reduced to one and one quarter of one percent (1.25%) above the Prime Rate upon
Bank’s receipt of evidence showing Borrower has been in compliance in all
respects with the Loan and Security Agreement and with the Existing Documents
for two consecutive quarters.

 

  (iii) Equipment Loan B Advances. Except as set forth in Section 2.3(b), the
Equipment Loan B Advances shall bear interest, on the outstanding Daily Balance
thereof, at a rate equal to two and one half of one percent (2.50%) above the
Prime Rate; provided however, such interest rate shall be reduced to one and one
quarter of one percent (1.25%) above the Prime Rate upon Bank’s receipt of
evidence showing Borrower has been in compliance in all respects with the Loan
and Security Agreement and with the Existing Documents for two consecutive
quarters.

5. RESTRICTION OF ADVANCES UNDER THE REVOLVING FACILITY. Until such time
Borrower is in compliance in all respects with the Loan and Security Agreement
and with the Existing Documents, Borrower shall not request, and Lender shall
not make any Advances under the Revolving Facility.

6. CONSISTENT CHANGES. The Existing Documents are each hereby amended wherever
necessary to reflect the changes described above.

7. PAYMENT OF WAIVER FEE. Borrower shall pay Lender a fee in the amount of
$20,000 (the “Waiver Fee”) plus all out-of-pocket expenses.

8. NO DEFENSES OF BORROWER/GENERAL RELEASE. Borrower agrees that, as of this
date, it has no defenses against the obligations to pay any amounts under the
Indebtedness. Each of Borrower and Guarantor (each, a “Releasing Party”)
acknowledges that Lender would not enter into this Loan and Security
Modification Agreement without Releasing Party’s assurance that it has no claims
against Lender or any of Lender’s officers, directors, employees or agents.
Except for the obligations arising hereafter under this Loan and Security
Modification Agreement, each Releasing Party releases Lender, and each of
Lender’s and entity’s officers, directors and employees from any known or
unknown claims that Releasing Party now has against Lender of any nature,
including any claims that Releasing Party, its successors, counsel, and advisors
may in the future discover they would have now had if they had known facts not
now known to them, whether founded in contract, in tort or pursuant to any other
theory of liability, including but not limited to any claims arising out of or
related to the Agreement or the transactions contemplated thereby. Releasing
Party waives the provisions of California Civil Code section 1542, which states:

“A general release does not extend to claims which the creditor does not know or
suspect to exist in his favor at the time of executing the release, which if
known by him must have materially affected his settlement with the debtor.”

The provisions, waivers and releases set forth in this section are binding upon
each Releasing Party and its shareholders, agents, employees, assigns and
successors in interest. The provisions, waivers and releases of

 

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this section shall inure to the benefit of Lender and its agents, employees,
officers, directors, assigns and successors in interest. The provisions of this
section shall survive payment in full of the Obligations, full performance of
all the terms of this Loan and Security Modification Agreement and the
Agreement, and/or Lender’s actions to exercise any remedy available under the
Agreement or otherwise.

9. CONTINUING VALIDITY. Borrower understands and agrees that in modifying the
existing Indebtedness, Lender is relying upon Borrower’s representations,
warranties, and agreements, as set forth in the Existing Documents. Except as
expressly modified pursuant to this Loan and Security Modification Agreement,
the terms of the Existing Documents remain unchanged and in full force and
effect. Lender’s agreement to modifications to the existing Indebtedness
pursuant to this Loan and Security Modification Agreement in no way shall
obligate Lender to make any future modifications to the Indebtedness. Nothing in
this Loan and Security Modification Agreement shall constitute a satisfaction of
the Indebtedness. It is the intention of Lender and Borrower to retain as liable
parties all makers and endorsers of Existing Documents, unless the party is
expressly released by Lender in writing. No maker, endorser, or guarantor will
be released by virtue of this Loan and Security Modification Agreement. The
terms of this paragraph apply not only to this Loan and Security Modification
Agreement, but also to any subsequent Loan and Security modification agreements.

10. CONDITIONS. The effectiveness of this Loan and Security Modification
Agreement is conditioned upon payment of the Waiver Fee.

11. COUNTERSIGNATURE. This Loan and Security Modification Agreement shall become
effective only when executed by Lender, Borrower, and Guarantor.

 

BORROWER:      LENDER: KANA SOFTWARE, INC.      BRIDGE BANK, NATIONAL
ASSOCIATION By:  

/s/ Michael J. Shannahan

     By:  

/s/ Dan Pistone

Name:  

Michael J. Shannahan

     Name:  

Dan Pistone

Title:  

Chief Financial Officer

     Title:  

Senior Vice President

Guarantor consents to the modifications to the Indebtedness pursuant to this
Loan and Security Modification Agreement, hereby ratifies the provisions of the
Guaranty and confirms that all provisions of that document are in full force and
effect.