**Exhibit 10.37**

**KANA SOFTWARE, INC.**

**BRIDGE BANK, N.A.**

**SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT**

This **SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT** (the “Agreement”) isentered into as of March 28, 2008, by and between BRIDGE BANK, N.A. (“Bank”), **KANA SOFTWARE, INC.** (“Kana”) (“Borrower”). 

**RECITALS**

A. Bank and Borrower are parties to that certain Amended and Restated Loan and SecurityAgreement dated as of February 27, 2007, as amended from time to time including without limitation by that certain Loan and Security Modification Agreement dated as of February 28, 2007; that certain Second Amendment to Loan and SecurityAgreement dated as of May 7, 2007; that certain Third Amendment to Loan and Security Agreement dated as of June 14, 2007; that certain Modification to Third Amendment to Loan and Security Agreement dated as of June 14, 2007; thatcertain Loan and Security Modification Agreement dated as of August 21, 2007; and that certain Loan and Security Modification Agreement dated as of October 3, 2007 (collectively, the “Original Agreement”). 

B. Borrower and Bank wish to amend and restate the terms of the Original Agreement. This Agreement sets forth the terms on which Bank will advance creditto Borrower, and Borrower will repay the amounts owing to Bank. 

**AGREEMENT**

The parties agree as follows: 

**1.DEFINITIONS AND CONSTRUCTION.**

**1.1 Definitions**. As used in this Agreement, the following terms shall have the followingdefinitions: 

“Accounts” means all presently existing and hereafter arising accounts, contract rights, payment intangibles, andall other forms of obligations owing to a Borrower arising out of the sale or lease of goods (including, without limitation, the licensing of software and other technology) or the rendering of services by a Borrower, whether or not earned byperformance, and any and all credit insurance, guaranties, and other security therefor, as well as all merchandise returned to or reclaimed by a Borrower and Borrower’s Books relating to any of the foregoing. 

“Advance” or “Advances” means a cash advance or cash advances under the Revolving Facility. 

“Affiliate” means, with respect to any Person, any Person that owns or controls directly or indirectly such Person, any Person that controls oris controlled by or is under common control with such Person, and each of such Person’s senior executive officers, directors, and partners. 

“Bank Expenses” means all: reasonable costs or expenses (including reasonable attorneys’ fees and expenses) incurred in connection with the preparation, negotiation, administration, and enforcement of the Loan Documents;reasonable Collateral audit fees; and Bank’s reasonable attorneys’ fees and expenses incurred in amending, enforcing or defending the Loan Documents (including fees and expenses of appeal), incurred before, during and after an InsolvencyProceeding of a Borrower, whether or not suit is brought. 

“Borrower’s Books” means all of Borrower’s books and recordsincluding: ledgers; records concerning a Borrower’s assets or liabilities, the Collateral, business operations or financial condition; and all computer programs, or tape files, and the equipment, containing such information. 

“Borrowing Base” means an amount equal to eighty percent (80%) of Eligible Accounts, as determined by Bank with reference to the mostrecent Borrowing Base Certificate delivered by Borrower. 

 

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“Business Day” means any day that is not a Saturday, Sunday, or other day on which banks in theState of California are authorized or required to close. 

“Cash” means unrestricted cash and cash equivalents. 

“Cash Management Sublimit” means a sublimit for cash management transactions approved by Bank under the Revolving Line subject to theavailability under the Revolving Line and the Borrowing Base in an aggregate amount not to exceed $2,500,000 *minus*, in each case, any amounts outstanding under the Letter of Credit Sublimit and the Foreign Exchange Sublimit. 

“Change in Control” shall mean a transaction in which any “person” or “group” (within the meaning ofSection I3(d) and I 4(d)(2) of the Securities Exchange Act of 1934) becomes the “beneficial owner” (as defined in Rule I3d-3 under the Securities Exchange Act of 1934), directly or indirectly, of a sufficient number ofshares of all classes of stock then outstanding of Borrower ordinarily entitled to vote in the election of directors, empowering such “person” or “group” to elect a majority of the Board of Directors of Borrower, who did not havesuch power before such transaction. 

“Closing Date” means the date of this Agreement. 

“Code” means the California Uniform Commercial Code. 

“Collateral” means the property described on **Exhibit A** attached hereto. 

“Consolidated Net Income (or Deficit)” means the consolidated net income (or deficit) of any Person and its Subsidiaries, after deduction of all expenses, taxes, and other proper charges, determined in accordance with GAAP, aftereliminating therefrom all extraordinary nonrecurring items of income. 

“Consolidated Total Interest Expense” means with respectto any Person for any period, the aggregate amount of interest required to be paid or accrued by a Person and its Subsidiaries during such period on all Indebtedness of such Person and its Subsidiaries outstanding during all or any part of suchperiod, whether such interest was or is required to be reflected as an item of expense or capitalized, including payments consisting of interest in respect of any capitalized lease or any synthetic lease, and including commitment fees, agencyfees, facility fees, balance deficiency fees and similar fees or expenses in connection with the borrowing of money. 

“ContingentObligation” means, as applied to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to (i) any indebtedness, lease, dividend, letter of credit or other obligation of another; (ii) anyobligations with respect to undrawn letters of credit, corporate credit cards, or merchant services issued or provided for the account of that Person; and (iii) all obligations arising under any agreement or arrangement designed to protect suchPerson against fluctuation in interest rates, currency exchange rates or commodity prices; provided, however, that the term “Contingent Obligation” shall not include endorsements for collection or deposit in the ordinary course ofbusiness. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determined amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, themaximum reasonably anticipated liability in respect thereof as determined by Bank in good faith; provided, however, that such amount shall not in any event exceed the maximum amount of the obligations under the guarantee or other supportarrangement. 

“Copyrights” means any and all copyright rights, copyright applications, copyright registrations and likeprotections in each work or authorship and derivative work thereof. 

“Credit Extension” means each Advance, the ExistingEquipment Advance, Equipment Loan B Advance, Letter of Credit, or any other extension of credit by Bank for the benefit of a Borrower hereunder. 

“Current Liabilities” means, as of any applicable date, all amounts that should, in accordance with GAAP, be included as current liabilities on the consolidated balance sheet of Borrower and its Subsidiaries, as at such date,plus, to the extent not already included therein, all outstanding Credit Extensions made under this Agreement. 

 

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“Daily Balance” means the amount of the Obligations owed at the end of a given day. 

“Deferred Revenue” means all amounts received in advance of performance under maintenance contracts and not yet recognized as revenue.

“EBITDA” means with respect to any fiscal period an amount equal to the sum of (a) Consolidated Net Income of the Borrowerand its Subsidiaries for such fiscal period, plus (b) in each case to the extent deducted in the calculation of the Borrower’s Consolidated Net Income and without duplication, (i) depreciation and amortization for such period, plus(ii) income tax expense for such period, plus (iii) Consolidated Total Interest Expense paid or accrued during such period, plus (iv) non-cash expense associated with granting stock options, and minus, to the extent added in computingConsolidated Net Income, and without duplication, all extraordinary and non-recurring revenue and gains (including income tax benefits) for such period, all as determined in accordance with GAAP. 

“Eligible Accounts” means those Accounts that arise in the ordinary course of a Borrower’s business that comply with all ofBorrower’s representations and warranties to Bank set forth in Section 5.4; including prebilled maintenance Accounts, provided, that standards of eligibility may be fixed and revised from time to time by Bank in Bank’s reasonablejudgment and upon notification thereof to Borrower in accordance with the provisions hereof. Unless otherwise agreed to by Bank, Eligible Accounts shall not include the following: 

(a) Accounts that the account debtor has failed to pay within ninety (90) days of invoice date; 

(b) Accounts with respect to an account debtor, thirty-five percent (35%) of whose Accounts the account debtor has failed to pay within ninety(90) days of invoice date; 

(c) Accounts with respect to which the account debtor is an officer, employee, or agent of Borrower;

(d) Accounts with respect to which services have not been rendered (other than pre-billed maintenance and managed services), goods areplaced on consignment, guaranteed sale, sale or return, sale on approval, bill and hold, or other terms by reason of which the payment by the account debtor may be conditional; 

(e) Accounts with respect to which the account debtor is an individual or an Affiliate of Borrower; 

(f) Accounts with respect to which the account debtor does not have its principal place of business in the United States, except for Eligible ForeignAccounts; 

(g) Accounts with respect to which the account debtor is the United States or any department, agency, or instrumentality of theUnited States, except as approved in writing by Bank on a case by case basis; 

(h) Accounts with respect to which a Borrower is liable tothe account debtor for goods sold or services rendered by the account debtor to such Borrower or for deposits or other property of the account debtor held by Borrower, but only to the extent of any amounts owing to the account debtor against amountsowed to Borrower; 

(i) Accounts with respect to an account debtor, including Subsidiaries and Affiliates, whose total obligations toBorrower exceed thirty percent (30%) of all Accounts (the “Concentration Limit”), to the extent such obligations exceed the aforementioned percentage, except as approved in writing by Bank and except that the Concentration Limit forAccounts with respect to which the account debtor is IBM shall be fifty percent (50%); 

(j) Accounts issued in the name of any ofBorrower’s Subsidiaries; 

 

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(k) Accounts with respect to which the account debtor disputes liability or makes any claim with respectthereto as to which Bank believes, in its sole discretion, that there may be a basis for dispute (but only to the extent of the amount subject to such dispute or claim), or is subject to any Insolvency Proceeding, or becomes insolvent, or goes outof business; and 

(l) Accounts the collection of which Bank reasonably determines to be doubtful. 

“Eligible Foreign Accounts” means Accounts with respect to which the account debtor does not have its principal place of business in the UnitedStates and (i) that are supported by one or more letters of credit in an amount and of a tenor, and issued by a financial institution, acceptable to Bank, (ii) that Bank approves on a case-by-case basis, or (iii) Accounts with respectto which the account debtor is IBM, subject to the restrictions contained in clauses (b) and (i) of the definition of Eligible Accounts. 

“Equipment” means all present and future machinery, equipment, tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments in which a Borrower has any interest. 

“Equipment Loan B Advance” means a cash advance under Section 2.1(f). “Equipment Loan B Maturity Date” means September 28,2011. 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and the regulations thereunder. 

“Event of Default” has the meaning assigned in Article 8. 

“Foreign Exchange Sublimit” means a sublimit for foreign exchange contracts under the Revolving Line, subject to the availability under theRevolving Line and the Borrowing Base, in an aggregate amount not to exceed $2,500,000 less, in each case, any amounts outstanding under the Letter of Credit Sublimit and the Cash Management Sublimit. 

“GAAP” means generally accepted accounting principles as in effect from time to time. 

“Indebtedness” means (a) all indebtedness for borrowed money or the deferred purchase price of property or services, including withoutlimitation reimbursement and other obligations with respect to surety bonds and letters of credit, (b) all obligations evidenced by notes, bonds, debentures or similar instruments, (c) all capital lease obligations and (d) allContingent Obligations. 

“Insolvency Proceeding” means any proceeding commenced by or against any person or entity under anyprovision of the United States Bankruptcy Code, as amended, or under any other bankruptcy or insolvency law, including assignments for the benefit of creditors, formal or informal moratoria, compositions, extension generally with its creditors, orproceedings seeking reorganization, arrangement, or other relief. 

“Intellectual Property Collateral” means all of eachBorrower’s right, title, and interest in and to the following: Copyrights, Trademarks and Patents; all trade secrets, all design rights, claims for damages by way of past, present and future infringement of any of the rights included above, alllicenses or other rights to use any of the Copyrights, Patents or Trademarks, and all license fees and royalties arising from such use to the extent permitted by such license or rights; all amendments, renewals and extensions of any of theCopyrights, Trademarks or Patents; and all proceeds and products of the foregoing, including without limitation all payments under insurance or any indemnity or warranty payable in respect of any of the foregoing. 

“Inventory” means all inventory in which Borrower has or acquires any interest, including work in process and finished products intended forsale or lease or to be furnished under a contract of service, of every kind and description now or at any time hereafter owned by or in the custody or possession, actual or constructive, of Borrower, including such inventory as is temporarily out ofits custody or possession or in transit and including any returns upon any accounts or other proceeds, including insurance proceeds, resulting from the sale or disposition of any of the foregoing and any documents of title representing any of theabove, and Borrower’s Books relating to any of the foregoing. 

 

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“Investment” means any beneficial ownership of (including stock, partnership interest or othersecurities) any Person, or any loan, advance or capital contribution to any Person. 

“IRC” means the Internal Revenue Code of1986, as amended, and the regulations thereunder. 

“Letter of Credit” means a commercial or standby letter of credit or similarundertaking issued by Bank at Borrower’s request in accordance with Section 2.1(c). 

“Letter of Credit Sublimit” meansa sublimit for Letters of Credit under the Revolving Line, subject to the availability under the Revolving Line and the Borrowing Base, in an aggregate amount not to exceed $2,500,000 less, in each case, any amounts outstanding under the ForeignExchange Sublimit and the Cash Management Sublimit. 

“Lien” means any mortgage, lien, deed of trust, charge, pledge, securityinterest or other encumbrance. 

“Loan Documents” means, collectively, this Agreement, any note or notes executed by Borrower, andany other agreement entered into in connection with this Agreement, all as amended or extended from time to time. 

“Material AdverseEffect” means a material adverse effect on (i) the business operations, condition (financial or otherwise) or prospects of Borrower and its Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the Obligations orotherwise perform its obligations under the Loan Documents or (iii) the value or priority of Bank’s security interests in the Collateral. 

“Negotiable Collateral” means all of each Borrower’s letters of credit of which such Borrower is a beneficiary, notes, drafts, instruments, securities, documents of title, and chattel paper, and each Borrower’s Booksrelating to any of the foregoing. 

“Obligations” means all debt, principal, interest, Bank Expenses and other amounts owed toBank by Borrower pursuant to this Agreement or any other agreement, whether absolute or contingent, due or to become due, now existing or hereafter arising, including any interest that accrues after the commencement of an Insolvency Proceedinginvolving a Borrower and including any debt, liability, or obligation owing from Borrower to others that Bank may have obtained by assignment or otherwise. 

“Patents” means all patents, patent applications and like protections including without limitation improvements, divisions, continuations, renewals, reissues, extensions and continuations-in-part of thesame. 

“Periodic Payments” means all installments or similar recurring payments that Borrower may now or hereafter becomeobligated to pay to Bank pursuant to the terms and provisions of any instrument, or agreement now or hereafter in existence between Borrower and Bank. 

“Permitted Indebtedness” means: 

(a) Indebtedness of Borrower in favor of Bank arising underthis Agreement or any other Loan Document; 

(b) Indebtedness existing on the Closing Date and disclosed in the Schedule; 

(c) Indebtedness secured by a lien described in clause (c) of the defined term “Permitted Liens,” provided (i) such Indebtednessdoes not exceed the lesser of the cost or fair market value of the equipment financed with such Indebtedness and (ii) such Indebtedness does not exceed $100,000 in the aggregate at any given time; and 

 

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(d) Subordinated Debt. 

“Permitted Investment” means: 

(a) Investments existing on the Closing Date disclosed in theSchedule; and 

(b)(i) marketable direct obligations issued or unconditionally guaranteed by the United States of America or anyagency or any State thereof maturing within one (1) year from the date of acquisition thereof, (ii) commercial paper maturing no more than one (1) year from the date of creation thereof and currently having rating of at least A-2 orP-2 from either Standard & Poor’s Corporation or Moody’s Investors Service, (iii) certificates of deposit maturing no more than one (1) year from the date of investment therein issued by Bank and (iv) Bank’smoney market accounts. 

“Permitted Liens” means the following: 

(a) Any Liens existing on the Closing Date and disclosed in the Schedule or arising under this Agreement or the other Loan Documents; 

(b) Liens for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith by appropriateproceedings, provided the same have no priority over any of Bank’s security interests; 

(c) Liens (i) upon or in any equipmentwhich was not financed by Bank acquired or held by Borrower or any of its Subsidiaries to secure the purchase price of such equipment or indebtedness incurred solely for the purpose of financing the acquisition of such equipment, or(ii) existing on such equipment at the time of its acquisition, provided that the Lien is confined solely to the property so acquired and improvements thereon, and the proceeds of such equipment; 

(d) Liens incurred in connection with the extension, renewal or refinancing of the indebtedness secured by Liens of the type described in clauses(a) through (c) above, provided that any extension, renewal or replacement Lien shall be limited to the property encumbered by the existing Lien and the principal amount of the indebtedness being extended, renewed or refinanced does notincrease. 

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

“Prime Rate” means the variable rate of interest, per annum, that appears in The Wall Street Journal on the date of measurement, whether or not such announced rate is the lowest rate available fromBank. 

“Profitability” means Borrower’s net income after tax, net of any stock-based compensation expense, depreciation andamortization expenses. 

“Responsible Office?’ means each of the Chief Executive Officer, the Chief Financial Officer, the VP andGeneral Counsel and the VP Finance of Borrower. 

“Revolving Facility” means the facility under which Borrower may request Bank toissue Advances, as specified in Section 2.1(a) hereof. 

“Revolving Line” means a credit extension of up to Ten MillionDollars ($10,000,000), less the Existing Equipment Advance and the Equipment Loan B Advances. 

“Revolving Maturity Date” meansFebruary 27, 2010. 

“Schedule” means the schedule of exceptions attached hereto and approved by Bank, if any. 

 

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“Subordinated Debt” means any debt incurred by a Borrower that is subordinated to the debtowing by Borrower to Bank on terms acceptable to Bank (and identified as being such by Borrower and Bank). 

“Subsidiary” meansany corporation, company or partnership in which (i) any general partnership interest or (ii) more than 50% of the stock or other units of ownership which by the terms thereof has the ordinary voting power to elect the Board of Directors,managers or trustees of the entity, at the time as of which any determination is being made, is owned by Borrower, either directly or through an Affiliate. 

“Total Liabilities” means at any date as of which the amount thereof shall be determined, all obligations that should, in accordance with GAAP be classified as liabilities on the consolidated balance sheetof Borrower, including in any event all Indebtedness. 

“Trademarks” means any trademark and servicemark rights, whetherregistered or not applications to register and registrations of the same and like protections, and the entire goodwill of the business of each Borrower connected with and symbolized by such trademarks. 

**1.2 Accounting Terms**. All accounting teens not specifically defined herein shall be construed in accordance with GAAP and all calculations madehereunder shall be made in accordance with GAAP. When used herein, the terms “financial statements” shall include the notes and schedules thereto. 

**2. LOAN AND TERMS OF PAYMENT.**

**2.1 Credit Extensions**. 

Borrower promises to pay to the order of Bank, in lawful money of the United States of America, the aggregate unpaid principal amount of all CreditExtensions made by Bank to Borrower hereunder. Borrower shall also pay interest on the unpaid principal amount of such Credit Extensions at rates in accordance with the terms hereof. 

**(a) Revolving Advances**. 

**(i)**Subject to and upon the terms and conditions of this Agreement, a Borrower may request Advances in an aggregate outstanding amount not to exceed the lesser of (i) the Revolving Line or (ii) the Borrowing Base, minus, in each case, anyamounts outstanding under the Letter of Credit Sublimit, the Cash Management Sublimit and the Foreign Exchange Sublimit. Subject to the terms and conditions of this Agreement, amounts borrowed pursuant to this Section 2.1(a) may be repaidand reborrowed at any time prior to the Revolving Maturity Date, at which time all Advances under this Section 2.1(a) shall be immediately due and payable. Borrower may prepay any Advances without penalty or premium. 

**(ii)**Whenever Borrower desires an Advance, Borrower will notify Bank by facsimile transmission or telephone no later than 3:00 p.m. Pacific time,on the Business Day that the Advance is to be made. Each such notification shall be promptly confirmed by a Payment/Advance Form in substantially the form of Exhibit B hereto. Bank is authorized to make Advances under this Agreement, based uponinstructions received from a Responsible Officer or a designee of a Responsible Officer, or without instructions if in Bank’s discretion such Advances are necessary to meet Obligations which have become due and remain unpaid. Bank shall beentitled to rely on any telephonic notice given by a person who Bank reasonably believes to be a Responsible Officer or a designee thereof, and Borrower shall indemnify and hold Bank harmless for any damages or loss suffered by Bank as a result ofsuch reliance. Bank will credit the amount of Advances made under this Section 2.1(a) to a Borrower’s deposit account. 

**(b) Existing Equipment Advance**. There are outstanding equipment advances under the Original Agreement in an aggregate amount equal to $1,562,327.33 as of March 26, 2008 (collectively, the “Existing Equipment Advance”).Interest shall continue to accrue on the Existing Equipment Advance at the rate specified in Section 2.3. Borrower shall not request nor receive any further Existing Equipment Advances. The Existing Equipment Advance shall be payable inthirty-three (33) equal monthly installments of principal plus 

 

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all accrued interest, beginning April 1, 2008 and continuing on the same day of each month thereafter until the Existing Equipment Advance has beenrepaid in full, The Existing Equipment Advance, or any portion thereof, once repaid, may not be reborrowed. Borrower may prepay the Existing Equipment Advance without penalty or premium. 

**(c) Letters of Credit**. Subject to the terms and conditions of this Agreement and the availability under the Revolving Line and the BorrowingBase, at any time prior to the Revolving Maturity Date, Bank agrees to issue letters of credit for the account of Borrower (each, a “Letter of Credit” and collectively, the “Letters of Credit”) in an aggregate outstanding faceamount not to exceed $2,500,000 less any amounts outstanding under the Cash Management Sublimit and the Foreign Exchange Sublimit, and that availability under the Revolving Line shall be reduced by, the Letters of Credit. All Letters of Credit shallbe, in form and substance, acceptable to Bank in its sole discretion and shall be subject to the terms and conditions of Bank’s form of standard application and letter of credit agreement (the “Application”), which Borrower herebyagrees to execute, including Bank’s standard fee. On any drawn but unreimbursed Letter of Credit, the unreimbursed amount shall be deemed an Advance under Section 2.1(a). If at any time the Revolving Facility is terminated or otherwiseceases to exist, Borrower shall immediately secure in cash all obligations under any outstanding Letters of Credit on terms acceptable to Bank. The obligation of Borrower to reimburse Bank for drawings made under Letters of Credit shall be absolute,unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement, the Application, and such Letters of Credit, under all circumstances whatsoever. Borrower shall indemnify, defend, protect, and hold Bankharmless from any loss, cost, expense or liability, including, without limitation, reasonable attorneys’ fees, arising out of or in connection with any Letters of Credit, except for expenses caused by Bank’s gross negligence or willfulmisconduct. 

**(d) Cash Management Sublimit**. Subject to the terms and conditions of this Agreement and the availability under theRevolving Line and the Borrowing Base, Borrower may request cash management services which may include merchant services, direct deposit of payroll, business credit card, and check cashing services identified in various cash management servicesagreements related to such services (the “Cash Management Services”) by delivering to Bank such applications on Bank’s standard forms as requested by Bank; provided, however, that the total amount of the Cash Management Services shallnot exceed $2,500,000 less any amounts outstanding under the Letter of Credit Sublimit and the Foreign Exchange Sublimit, and that availability under the Revolving Line shall be reduced by, the Cash Management Sublimit. In addition, Bank may, in itssole discretion, charge as Advances any amounts that become due or owing to Bank in connection with the Cash Management Services. If at any time the Revolving Facility is terminated or otherwise ceases to exist, Borrower shall immediately secure toBank’s satisfaction its obligations with respect to any Cash Management Services, and, effective as of such date, the balance in any deposit accounts held by Bank and the certificates of deposit issued by Bank in Borrower’s name (and anyinterest paid thereon or proceeds thereof, including any amounts payable upon the maturity or liquidation of such certificates), shall automatically secure such obligations to the extent of the then outstanding Cash Management Services. Borrowerauthorizes Bank to hold such balances in pledge and to decline to honor any drafts thereon or any requests by Borrower or any other Person to pay or otherwise transfer any part of such balances for so long as the Cash Management Services continue.

**(e) Foreign Exchange Sublimit**. Subject to and upon the terms and conditions of this Agreement and any other agreement thatBorrower may enter into with the Bank in connection with foreign exchange transactions (“FX Contracts”) and subject to the availability under the Revolving Line and the Borrowing Base, a Borrower may request Bank to enter into FX Contractswith Borrower due not later than the Revolving Maturity Date unless cash secured on terms satisfactory to Bank. Borrower shall pay any standard issuance and other fees that Bank notifies Borrower will be charged for issuing and processing FXContracts for a Borrower. The FX Amount shall at all times be equal to or less than $2,500,000 minus any amounts outstanding under the Letter of Credit Sublimit and the Cash Management Sublimit. The “FX Amount” shall equal the amountdetermined by multiplying (i) the aggregate amount, in United States Dollars, of FX Contracts between Borrower and Bank remaining outstanding as of any date of determination by (ii) the applicable Foreign Exchange Reserve Percentage as ofsuch date. The “Foreign Exchange Reserve Percentage” shall be a percentage as determined by Bank, in its sole discretion from time to time. If at any time the Revolving Facility is terminated or otherwise ceases to exist, Borrower shallimmediately secure in cash all obligations under the Foreign Exchange Sublimit on terms acceptable to Bank. 

 

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**(f) Equipment Loan B Advances**. 

**(i)**Subject to and upon the terms and conditions of this Agreement, at any time from the date hereof through September 30, 2008 (the“Equipment Loan B Availability End Date”), Bank agrees to make Equipment Loan B Advances to Borrower in an aggregate amount not to exceed $500,000. Each Equipment Loan B Advance shall not exceed 100% of the invoice amount of equipment andsoftware approved by Bank from time to time (which Borrower shall, in any case, have purchased within 180 days of the date of the corresponding Equipment Loan B Advance), excluding taxes, shipping, warranty charges, freight discounts andinstallation expense (“Soft Costs”); provided, however, that Borrower may finance up to $100,000 of Soft Costs; and 

**(ii)**Interest shall accrue from the date of each Equipment Loan B Advance at the rate specified in Section 2.3 and shall be payable monthly on the first (1st) day of each month as long as any Equipment Loan B Advances are outstanding. AnyEquipment Loan B Advances that are outstanding on the Equipment Loan B Availability End Date shall be payable in thirty-six (36) equal monthly installments of principal, plus all accrued interest, beginning on October 1, 2008, andcontinuing on the same day of each month thereafter through the Equipment Loan B Maturity Date, at which time all amounts owing under this Section 2.1(f) and any other amounts owing under this Agreement shall be immediately due andpayable. When a Borrower desires to obtain an Equipment Loan B Advance, Borrower shall notify Bank (which notice shall be irrevocable) by facsimile transmission to be received no later than 3:00 p.m. Pacific time three (3) Business Days beforethe day on which the Equipment Loan B Advance is to be made. Such notice shall be substantially in the form of **Exhibit B**. The notice shall be signed by a Responsible Officer or its designee. 

**2.2 Overadvances**. If the sum of aggregate amount of the outstanding Advances plus the aggregate amount of the Existing Equipment Advances,plus the aggregate amount of the outstanding Equipment Loan B Advances, plus any amounts outstanding under the Letter of Credit Sublimit, the Cash Management Sublimit and the Foreign Exchange Sublimit exceeds the lesser of the Revolving Lineor the Borrowing Base at any time, Borrower shall immediately pay to Bank, in cash, the amount of such excess. If at any time the aggregate Credit Extensions exceed $10,000,000 Borrower will pay the amount of such excess to Bank. Unless otherwiseagreed by Bank, such payment shall be deemed to be made on account of the Advances. 

**2.3 Interest Rates, Payments, and Calculations**.

**(a) Interest Rates**. 

**(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 one and one quarter of one percent (1.25%) above the Prime Rate.

**(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 one and one quarter of one percent (1.25%) above the Prime Rate. 

**(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 one and one quarter of one percent(1.25%) above the Prime Rate. 

**(b) Late Fee; Default Rate**. If any payment is not made within ten (10) days after the datesuch payment is due, Borrower shall pay Bank a late fee equal to the lesser of (i) five percent (5%) of the amount of such unpaid amount or (ii) the maximum amount permitted to be charged under applicable law. All Obligations shallbear interest, from and after the occurrence and during the continuance of an Event of Default, at a rate equal to five (5) percentage points above the interest rate applicable immediately prior to the occurrence of the Event of Default.

 

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**(c) Payments**. Interest hereunder shall be due and payable on the first calendar day of each monthduring the term hereof. Bank shall, at its option, charge such interest, all Bank Expenses, and all Periodic Payments against any of Borrower’s deposit accounts or against the Revolving Line, in which case those amounts shall thereafter accrueinterest at the rate then applicable hereunder. Any interest not paid when due shall be compounded by becoming a part of the Obligations, and such interest shall thereafter accrue interest at the rate then applicable hereunder. All payments shall befree and clear of any taxes, withholdings, duties, impositions or other charges, to the end that Bank will receive the entire amount of any Obligations payable hereunder, regardless of source of payment. Payments will be made via auto debit from aBorrower’s account at Bank. 

**(d) Computation**. In the event the Prime Rate is changed from time to time hereafter, theapplicable rate of interest hereunder shall be increased or decreased, effective as of the day the Prime Rate is changed, by an amount equal to such change in the Prime Rate. All interest chargeable under the Loan Documents shall be computed on thebasis of a three hundred sixty (360) day year for the actual number of days elapsed. 

**2.4 Crediting Payments**. Prior to theoccurrence of an Event of Default, Bank shall credit a wire transfer of funds, check or other item of payment to such deposit account or Obligation as Borrower specifies. After the occurrence of an Event of Default, the receipt by Bank of anywire transfer of funds, check, or other item of payment shall be immediately applied to conditionally reduce Obligations, but shall not be considered a payment on account unless such payment is of immediately available federal funds or unlessand until such check or other item of payment is honored when presented for payment. Notwithstanding anything to the contrary contained herein, any wire transfer or payment received by Bank after 12:00 noon Pacific time shall be deemed to havebeen received by Bank as of the opening of business on the immediately following Business Day. Whenever any payment to Bank under the Loan Documents would otherwise be due (except by reason of acceleration) on a date that is not a Business Day, suchpayment shall instead be due on the next Business Day, and additional fees or interest, as the case may be, shall accrue and be payable for the period of such extension. 

**2.5 Fees**. Borrower shall pay to Bank the following: 

**(a) Facility Fee**. On the Closing Date,a Facility Fee equal to $30,000, which shall be nonrefundable; and 

**(b) Bank Expenses**. On the Closing Date, all Bank Expensesincurred through the Closing Date, including reasonable attorneys’ fees and expenses and, after the Closing Date, all Bank Expenses, including reasonable attorneys’ fees and expenses, as and when they are incurred by Bank. 

**2.6 Term**. This Agreement shall become effective on the Closing Date and, subject to Section 12.9, shall continue in full force and effect forso long as any Obligations remain outstanding or Bank has any obligation to make Credit Extensions under this Agreement. Notwithstanding the foregoing, Bank shall have the right to terminate its obligation to make Credit Extensions under thisAgreement immediately and without notice upon the occurrence and during the continuance of an Event of Default. Notwithstanding termination, Bank’s Lien on the Collateral shall remain in effect for so long as any Obligations are outstanding.

**3. CONDITIONS OF LOANS.**

**3.1 Conditions Precedent to Initial Credit Extension**. The obligation of Bank to make the initial Credit Extension is subject to the condition precedent that Bank shall have received, in form and substance satisfactory to Bank, thefollowing: 

**(a)**this Agreement; 

**(b)**a certificate of the Secretary of each Borrower with respect to incumbency and resolutions authorizing the execution and delivery of this Agreement; 

 

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**(c)**payment of the fees and Bank Expenses then due specified in Section 2.5 hereof; and

**(d)**such other documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate. 

**3.2 Conditions Precedent to all Credit Extensions**. The obligation of Bank to make each Credit Extension, including the initial CreditExtension, is further subject to the following conditions: 

**(a)**timely receipt by Bank of the Payment/Advance Form as provided inSection 2.1; and 

**(b)**the representations and warranties contained in Section 5 shall be true and correct in all materialrespects on and as of the date of such Payment/Advance Form and on the effective date of each Credit Extension as though made at and as of each such date, and no Event of Default shall have occurred and be continuing, or would exist after givingeffect to such Credit Extension. The making of each Credit Extension shall be deemed to be a representation and warranty by a Borrower on the date of such Credit Extension as to the accuracy of the facts referred to in this Section 3.2.

**4. CREATION OF SECURITY INTEREST.**

**4.1 Grant of Security Interest**. Each Borrower grants and pledges to Bank a continuing security interest in all presently existing and hereafter acquired or arising Collateral in order to secure prompt repaymentof any and all Obligations and in order to secure prompt performance by Borrower of each of their covenants and duties under the Loan Documents. Except as set forth in the Schedule, such security interest constitutes a valid, first priority securityinterest in the presently existing Collateral, and will constitute a valid, first priority security interest in Collateral acquired after the date hereof. 

**4.2 Delivery of Additional Documentation Required**. Each Borrower shall from time to time execute and deliver to Bank, at the request of Bank, all Negotiable Collateral, all financing statements and otherdocuments that Bank may reasonably request, in form satisfactory to Bank, to perfect and continue the perfection of Bank’s security interests in the Collateral and in order to fully consummate all of the transactions contemplated under the LoanDocuments Borrower from time to time may deposit with Bank specific time deposit accounts to secure specific Obligations. Borrower authorizes Bank to hold such balances in pledge and to decline to honor any drafts thereon or any request by aBorrower or any other Person to pay or otherwise transfer any part of such balances for so long as the Obligations are outstanding. 

**4.3Right to Inspect**. Bank (through any of its officers, employees, or agents) shall have the right, upon reasonable prior notice, from time to time during Borrower’s usual business hours but no more than twice a year (unless an Event ofDefault has occurred and is continuing), to inspect Borrower’s Books and to make copies thereof and to check, test, and appraise the Collateral in order to verify Borrower’s financial condition or the amount, condition of, or any othermatter relating to, the Collateral. 

**5. REPRESENTATIONS AND WARRANTIES.**

Each Borrower represents and warrants as follows: 

**5.1 Due Organization and Qualification**. Borrower and each Subsidiary is a corporation duly existing under the laws of its state of incorporation and qualified and licensed to do business in any state in which the conduct of itsbusiness or its ownership of property requires that it be so qualified. 

**5.2 Due Authorization; No Conflict**. The execution,delivery, and performance of the Loan Documents are within Borrower’s powers, have been duly authorized, and are not in conflict with nor constitute a breach of any provision contained in Borrower’s Articles of Incorporation or Bylaws, norwill they constitute an event of default under any material agreement to which Borrower is a party or by which Borrower is bound. Borrower is not in default under any material agreement to which it is a party or by which it is bound. 

 

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**5.3 No Prior Encumbrances**. Borrower has good and marketable title to its property, free and clearof Liens, except for Permitted Liens. 

**5.4 Bona Fide Eligible Accounts**. The Eligible Accounts are bona fide existing obligations.The property and services giving rise to such Eligible Accounts has been delivered or rendered to the account debtor or to the account debtor’s agent for immediate and unconditional acceptance by the account debtor. Borrower has not receivednotice of actual or imminent Insolvency Proceeding of any account debtor that is included in any Borrowing Base Certificate as an Eligible Account. 

**5.5 Merchantable Inventory**. All Inventory is in all material respects of good and marketable quality, free from all material defects, except for Inventory for which adequate reserves have been made. 

**5.6 Intellectual Property Collateral**. Borrower is the sole owner of the Intellectual Property Collateral, except for non-exclusive licensesgranted by Borrower to its customers in the ordinary course of business. Each of the Patents is valid and enforceable, and no part of the Intellectual Property Collateral has been judged invalid or unenforceable, in whole or in part, and no claimhas been made that any part of the Intellectual Property Collateral violates the rights of any third party. Except as set forth in the Schedule, Borrower’s rights as a licensee of intellectual property do not give rise to more than five percent(5%) of its gross revenue in any given month, including without limitation revenue derived from the sale, licensing, rendering or disposition of any product or service. Except as set forth in the Schedule, Borrower is not a party to, or boundby, any agreement that restricts the grant by Borrower of a security interest in Borrower’s rights under such agreement. 

**5.7 Name;Location of Chief Executive Office**. Except as disclosed in the Schedule, Borrower has not done business under any name other than that specified on the signature page hereof. The chief executive office of Borrower is located at the addressindicated in Section 10 hereof. All Borrower’s Inventory and Equipment is located only at the location set forth in Section 10 hereof. 

**5.8 Litigation**. Except as set forth in the Schedule, there are no actions or proceedings pending by or against Borrower or any Subsidiary before any court or administrative agency in which an adverse decisioncould have a Material Adverse Effect, or a material adverse effect on Borrower’s interest or Bank’s security interest in the Collateral. 

**5.9 No Material Adverse Change In Financial Statements**. Al! consolidated and consolidating financial statements related to Borrower and any Subsidiary that Bank has received from Borrower fairly present in all material respectsBorrower’s financial condition as of the date thereof and Borrower’s consolidated and consolidating results of operations for the period then ended. There has not been a material adverse change in the consolidated or the consolidatingfinancial condition of Borrower since the date of the most recent of such financial statements submitted to Bank. 

**5.10 Solvency,Payment of Debts**. Borrower is solvent and able to pay its debts (including trade debts) as they mature. 

**5.11 RegulatoryCompliance**. Borrower and each Subsidiary have met the minimum funding requirements of ERISA with respect to any employee benefit plans subject to ERISA, and no event has occurred resulting from Borrower’s failure to comply with ERISA thatcould result in Borrower’s incurring any material liability. Borrower is not an “investment company” or a company “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940.Borrower is not engaged principally, or as one of the important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulations T and U of the Board of Governors of theFederal Reserve System). Borrower has complied with all the provisions of the Federal Fair Labor Standards Act. Borrower has not violated any statutes, laws, ordinances or rules applicable to it, violation of which could have a Material AdverseEffect. 

 

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**5.12 Environmental Condition**. Except as disclosed in the Schedule, none of Borrower’s or anySubsidiary’s properties or assets has ever been used by Borrower or any Subsidiary or, to the best of Borrower’s knowledge, by previous owners or operators, in the disposal of, or to produce, store, handle, treat, release, or transport,any hazardous waste or hazardous substance other than in accordance with applicable law; to the best of Borrower’s knowledge, none of Borrower’s properties or assets has ever been designated or identified in any manner pursuant to anyenvironmental protection statute as a hazardous waste or hazardous substance disposal site, or a candidate for closure pursuant to any environmental protection statute; no lien arising under any environmental protection statute has attached to anyrevenues or to any real or personal property owned by Borrower or any Subsidiary; and neither Borrower nor any Subsidiary has received a summons, citation, notice, or directive from the Environmental Protection Agency or any other federal, state orother governmental agency concerning any action or omission by Borrower or any Subsidiary resulting in the releasing, or otherwise disposing of hazardous waste or hazardous substances into the environment. 

**5.13 Taxes**. Borrower and each Subsidiary have filed or caused to be filed all tax returns required to be filed, and have paid, or have madeadequate provision for the payment of, all taxes reflected therein. 

**5.14 Subsidiaries**. Borrower does not own any stock, partnershipinterest or other equity securities of any Person, except for Permitted Investments. 

**5.15 Government Consents**. Borrower and eachSubsidiary have obtained all material consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all governmental authorities that are necessary for the continued operation of Borrower’s businessas currently conducted. 

**5.16 Accounts**. None of Borrower’s nor any Subsidiary’s property is maintained or invested with aPerson other than Bank, except as disclosed in the Schedule, provided that Bank has received a control agreement in form satisfactory to Bank covering such property, or as otherwise consented to by Bank in writing. 

**5.17 Full Disclosure**. No representation, warranty or other statement made by Borrower in any certificate or written statement furnished to Bankcontains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained in such certificates or statements not misleading. 

**6. AFFIRMATIVE COVENANTS.**

Borrowershall do all of the following: 

**6.1 Good Standing**. Borrower shall maintain its and each of its Subsidiaries’ corporateexistence and good standing in its jurisdiction of incorporation and maintain qualification in each jurisdiction in which it is required under applicable law. Borrower shall maintain, and shall cause each of its Subsidiaries to maintain, in forceall licenses, approvals and agreements, the loss of which could have a Material Adverse Effect. 

**6.2 Government Compliance**. Borrowershall meet, and shall cause each Subsidiary to meet, the minimum funding requirements of ERISA with respect to any employee benefit plans subject to ERISA. Borrower shall comply, and shall cause each Subsidiary to comply, with all statutes, laws,ordinances and government rules and regulations to which it is subject, noncompliance with which could have a Material Adverse Effect. 

**6.3 Financial Statements, Reports, Certificates**. Borrower shall deliver the following to Bank: (a) as soon as available, but in any event within thirty (30) days after the end of each calendar month, a company preparedconsolidated balance sheet and income statement covering Borrower’s consolidated operations during such period, prepared in accordance with GAAP, consistently applied, in a form acceptable to Bank and certified by a Responsible Officer;(b) copies of all statements, reports and notices sent or made available generally by Borrower to its security holders or to any holders of Subordinated Debt and as soon as available, but in any event within five (5) days after the filingthereof, all reports filed with the Securities and Exchange Commission including 

 

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without limitation on Forms 10-K and 10-Q; (c) promptly upon receipt of notice thereof, a report of any legal actions pending or threatened againstBorrower or any Subsidiary that could result in damages or costs to Borrower or any Subsidiary of Fifty Thousand Dollars ($50,000) or more; (d) as soon as available, but in any event no later than thirty (30) days prior to the beginning ofBorrower’s fiscal year, an operating budget in form reasonably acceptable to Bank and approved by Borrower’s board of directors; and (e) such budgets, sales projections, operating plans or other financial information as Bank mayreasonably request from time to time. 

Within thirty (30) days after the last day of each month, Borrower shall deliver to Bank aBorrowing Base Certificate signed by a Responsible Officer in substantially the form of **Exhibit C** hereto, together with aged listings of accounts receivable and accounts payable. 

Borrower shall deliver to Bank with the monthly financial statements a Compliance Certificate signed by a Responsible Officer in substantially the formof **Exhibit D** hereto. 

Bank shall have a right from time to time hereafter to audit Borrower’s Accounts and appraiseCollateral at Borrower’s expense, provided that such audits will be conducted no more often than every six (6) months unless an Event of Default has occurred and is continuing. 

**6.4 Taxes**. Borrower shall make, and shall cause each Subsidiary to make, due and timely payment or deposit of all material federal, state, andlocal taxes, assessments, or contributions required of it by law, and will execute and deliver to Bank, on demand, appropriate certificates attesting to the payment or deposit thereof; and Borrower will make, and will cause each Subsidiary to make,timely payment or deposit of all material tax payments and withholding taxes required of it by applicable laws, including, but not limited to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal income taxes,and will, upon request, furnish Bank with proof satisfactory to Bank indicating that Borrower or a Subsidiary has made such payments or deposits; provided that Borrower or a Subsidiary need not make any payment if the amount or validity of suchpayment is contested in good faith by appropriate proceedings and is reserved against (to the extent required by GAAP) by Borrower. 

**6.5Insurance**. 

**(a)**Borrower, at its expense, shall keep the Collateral insured against loss or damage by fire, theft, explosion,sprinklers, and all other hazards and risks, and in such amounts, as ordinarily insured against by other owners in similar businesses conducted in the locations where Borrower’s business is conducted on the date hereof. Borrower shall alsomaintain insurance relating to Borrower’s business, ownership and use of the Collateral in amounts and of a type that are customary to businesses similar to Borrower’s. 

**(b)**All such policies of insurance shall be in such form, with such companies, and in such amounts as are reasonably satisfactory to Bank. Allsuch policies of property insurance shall contain a lender’s loss payable endorsement, in a form satisfactory to Bank, showing Bank as an additional loss payee thereof, and all liability insurance policies shall show the Bank as an additionalinsured and shall specify that the insurer must give at least twenty (20) days notice to Bank before canceling its policy for any reason. Upon Bank’s request, Borrower shall deliver to Bank certified copies of such policies of insuranceand evidence of the payments of all premiums therefor. All proceeds payable under any such policy shall, at the option of Bank, be payable to Bank to be applied on account of the Obligations. 

**6.6 Accounts**. Borrower shall maintain and shall cause each of its Subsidiaries to maintain its primary depository, operating, and investmentaccounts with Bank. Borrower shall cause any securities intermediary or depositary institution in which Borrower maintains any accounts outside Bank in accordance with the terms of this Section 6.6 to execute a control agreement in form andsubstance satisfactory to Bank. 

**6.7 Asset Coverage Ratio**. Borrower shall maintain, measured monthly, a ratio of Cash plus EligibleAccounts to all Indebtedness to Bank of at least 2.00 to 1.00. 

 

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**6.8 Profitability**. Borrower shall maintain Profitability, measured on a quarterly basis, of notless than One Dollar ($1.00). 

**6.9 Debt Service Coverage**. Borrower shall maintain, measured quarterly, a ratio of annualized EBITDA(net of stock based compensation), divided by the current portion of all long-term Indebtedness plus annualized interest expense of at least 1.50 to 1.00; provided, however, for the quarter ending March 31, 2008, Borrower shall maintain a ratioof 1.00 to 1.00. 

**6.10 Intellectual Property Rights**. 

**(a)**Borrower shall promptly give Bank written notice of any applications or registrations of intellectual property rights filed with the United States Patent and Trademark Office, including the date of suchfiling and the registration or application numbers, if any. Borrower shall (i) give Bank not less than 30 days prior written notice of the filing of any applications or registrations with the United States Copyright Office, including the titleof such intellectual property rights to be registered, as such title will appear on such applications or registrations, and the date such applications or registrations will be filed, and (ii) prior to the filing of any such applications orregistrations, shall execute such documents as Bank may reasonably request for Bank to maintain its perfection in such intellectual property rights to be registered by Borrower, and upon the request of Bank, shall file such documents simultaneouslywith the filing of any such applications or registrations. Upon filing any such applications or registrations with the United States Copyright Office, Borrower shall promptly provide Bank with (i) a copy of such applications or registrations,without the exhibits, if any, thereto, (ii) evidence of the filing of any documents requested by Bank to be filed for Bank to maintain the perfection and priority of its security interest in such intellectual property rights, and (iii) thedate of such filing. 

**(b)**Bank may audit Borrower’s Intellectual Property Collateral to confirm compliance with this Section,provided such audit may not occur more often than twice per year, unless an Event of Default has occurred and is continuing. Bank shall have the right, but not the obligation, to take, at Borrower’s sole expense, any actions that Borrower isrequired under this Section to take but which Borrower fails to take, after 15 days’ notice to Borrower. Borrower shall reimburse and indemnify Bank for all reasonable costs and reasonable expenses incurred in the reasonable exercise ofits rights under this Section. 

**6.11 Further Assurances**. At any time and from time to time Borrower shall execute and deliver suchfurther instruments and take such further action as may reasonably be requested by Bank to effect the purposes of this Agreement. 

**7.NEGATIVE COVENANTS.**

Borrower will not do any of the following: 

**7.1 Dispositions**. Convey, sell, lease, transfer or otherwise dispose of (collectively, a “Transfer”), or permit any of its Subsidiariesto Transfer, all or any part of its business or property, other than: (i) Transfers of Inventory in the ordinary course of business; (ii) Transfers of non-exclusive licenses and similar arrangements for the use of the property of Borroweror its Subsidiaries in the ordinary course of business; or (iii) Transfers of worn-out or obsolete Equipment which was not financed by Bank. 

**7.2 Change in Business; Change in Control or Executive Office**. Engage in any business, or permit any of its Subsidiaries to engage in any business, other than the businesses currently engaged in by Borrower and any businesssubstantially similar or related thereto (or incidental thereto); or cease to conduct business in the manner conducted by Borrower as of the Closing Date; or suffer or permit a Change in Control; or without thirty (30) days prior writtennotification to Bank, relocate its chief executive office or state of incorporation or change its legal name; or without Bank’s prior written consent, change the date on which its fiscal year ends. 

**7.3 Mergers or Acquisitions**. Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with or into any other businessorganization, or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person without Bank’s prior written consent which consent shall not be unreasonably withheld.

 

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**7.4 Indebtedness**. Create, incur, assume or be or remain liable with respect to any Indebtedness,or permit any Subsidiary so to do, other than Permitted Indebtedness. 

**7.5 Encumbrances**. Create, incur, assume or suffer to existany Lien with respect to any of its property, or assign or otherwise convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries so to do, except for Permitted Liens, or agree with any Person other thanBank not to grant a security interest in, or otherwise encumber, any of its property, or permit any Subsidiary to do so. 

**7.6Distributions**. Pay any dividends or make any other distribution or payment on account of or in redemption, retirement or purchase of any capital stock, or permit any of its Subsidiaries to do so, except that Borrower may repurchase the stock offormer employees pursuant to stock repurchase agreements as long as an Event of Default does not exist prior to such repurchase or would not exist after giving effect to such repurchase. 

**7.7 Investments**. Directly or indirectly acquire or own, or make any Investment in or to any Person, or permit any of its Subsidiaries so to do,other than Permitted Investments; or maintain or invest any of its property with a Person other than Bank or permit any of its Subsidiaries to do so unless such Person has entered into an account control agreement with Bank in form and substancesatisfactory to Bank; or suffer or permit any Subsidiary to be a party to, or be bound by, an agreement that restricts such Subsidiary from paying dividends or otherwise distributing property to Borrower. 

**7.8 Transactions with Affiliates**. Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of Borrowerexcept for transactions that are in the ordinary course of Borrower’s business, upon fair and reasonable terms that are no less favorable to Borrower than would be obtained in an arm’s length transaction with a non-affiliated Person.

**7.9 Subordinated Debt**. Make any payment in respect of any Subordinated Debt, or permit any of its Subsidiaries to make any suchpayment, except in compliance with the terms of such Subordinated Debt, or amend any provision contained in any documentation relating to the Subordinated Debt without Bank’s prior written consent. 

**7.10 Inventory and Equipment**. Store the Inventory or the Equipment with a bailee, warehouseman, or other third party unless the third party hasbeen notified of Bank’s security interest and Bank (a) has received an acknowledgment from the third party that it is holding or will hold the Inventory or Equipment for Bank’s benefit or (b) is in pledge possession of thewarehouse receipt, where negotiable, covering such Inventory or Equipment. Store or maintain any Equipment or Inventory at a location other than the location set forth in Section I 0 of this Agreement. 

**7.11 Compliance**. Become an “investment company” or be controlled by an “investment company,” within the meaning of theInvestment Company Act of 1940, or become principally engaged in, or undertake as one of its important activities, the business of extending credit for the purpose of purchasing or carrying margin stock, or use the proceeds of any Credit Extensionfor such purpose. Fail to meet the minimum funding requirements of ERISA, permit a Reportable Event or Prohibited Transaction, as defined in ERISA, to occur, fail to comply with the Federal Fair Labor Standards Act or violate any law or regulation,which violation could have a Material Adverse Effect, or a material adverse effect on the Collateral or the priority of Bank’s Lien on the Collateral, or permit any of its Subsidiaries to do any of the foregoing. 

**8. EVENTS OF DEFAULT.**

Any one ormore of the following events shall constitute an Event of Default by Borrower under this Agreement: 

**8.1 Payment Default**. IfBorrower fails to pay, when due, any of the Obligations; 

 

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**8.2 Covenant Default**. 

**(a)**If Borrower fails to perform any obligation under Article 6 or violates any of the covenants contained in Article 7 of thisAgreement; or 

**(b)**If Borrower fails or neglects to perform or observe any other material term, provision, condition, covenantcontained in this Agreement, in any of the Loan Documents, or in any other present or future agreement between Borrower and Bank and as to any default under such other term, provision, condition or covenant that can be cured, has failed to cure suchdefault within ten days after Borrower receives notice thereof or any officer of Borrower becomes aware thereof; provided, however, that if the default cannot by its nature be cured within the ten day period or cannot after diligent attempts byBorrower be cured within such ten day period, and such default is likely to be cured within a reasonable time, then Borrower shall have an additional reasonable period (which shall not in any case exceed 30 days) to attempt to cure such default, andwithin such reasonable time period the failure to have cured such default shall not be deemed an Event of Default but no Credit Extensions will be made. 

**8.3 Material Adverse Effect**. If there occurs any circumstance or circumstances that could have a Material Adverse Effect; 

**8.4 Attachment**. If any portion of Borrower’s assets is attached, seized, subjected to a writ or distress warrant, or is levied upon, or comes into the possession of any trustee, receiver or person actingin a similar capacity and such attachment, seizure, writ or distress warrant or levy has not been removed, discharged or rescinded within ten (10) days, or if Borrower is enjoined, restrained, or in any way prevented by court order fromcontinuing to conduct all or any material part of its business affairs, or if a judgment or other claim becomes a lien or encumbrance upon any material portion of Borrower’s assets, or if a notice of lien, levy, or assessment is filed of recordwith respect to any of Borrower’s assets by the United States Government, or any department, agency, or instrumentality thereof, or by any state, county, municipal, or governmental agency, and the same is not paid within ten (10) daysafter Borrower receives notice thereof, provided that none of the foregoing shall constitute an Event of Default where such action or event is stayed or an adequate bond has been posted pending a good faith contest by Borrower (provided that noCredit Extensions will be required to be made during such cure period); 

**8.5 Insolvency**. If Borrower becomes insolvent, or if anInsolvency Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced against Borrower and is not dismissed or stayed within thirty (30) days (provided that no Credit Extensions will be made prior to the dismissal of suchInsolvency Proceeding); 

**8.6 Other Agreements**. If there is a default or other failure to perform in any agreement to which aBorrower is a party or by which it is bound resulting in a right by a third party or parties, whether or not exercised, to accelerate the maturity of any Indebtedness in an amount in excess of Fifty Thousand Dollars ($50,000) or which could have aMaterial Adverse Effect; 

**8.7 Judgments**. If a judgment or judgments for the payment of money in an amount, individually or in theaggregate, of at least Fifty Thousand Dollars ($50,000) shall be rendered against Borrower and shall remain unsatisfied and unstayed for a period of ten (10) days (provided that no Credit Extensions will be made prior to the satisfaction orstay of such judgment); or 

**8.8 Misrepresentations**. If any material misrepresentation or material misstatement exists now orhereafter in any warranty or representation set forth herein or in any certificate delivered to Bank by any Responsible Officer pursuant to this Agreement or to induce Bank to enter into this Agreement or any other Loan Document. 

 

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**9. BANK’S RIGHTS AND REMEDIES.**

**9.1 Rights and Remedies**. Upon the occurrence and during the continuance of an Event of Default, Bank may, at its election, without notice of itselection and without demand, do any one or more of the following, all of which are authorized by Borrower: 

**(a)**Declare allObligations, whether evidenced by this Agreement, by any of the other Loan Documents, or otherwise, immediately due and payable (provided that upon the occurrence of an Event of Default described in Section 8.5, all Obligations shall becomeimmediately due and payable without any action by Bank); 

**(b)**Cease advancing money or extending credit to or for the benefit ofBorrower under this Agreement or under any other agreement between Borrower and Bank; 

**(c)**Settle or adjust disputes and claimsdirectly with account debtors for amounts, upon terms and in whatever order that Bank reasonably considers advisable; 

**(d)**Makesuch payments and do such acts as Bank considers necessary or reasonable to protect its security interest in the Collateral. Borrower agrees to assemble the Collateral if Bank so requires, and to make the Collateral available to Bank as Bank maydesignate. Borrower authorizes Bank to enter the premises where the Collateral is located, to take and maintain possession of the Collateral, or any part of it, and to pay, purchase, contest, or compromise any encumbrance, charge, or lien which inBank’s determination appears to be prior or superior to its security interest and to pay all expenses incurred in connection therewith. With respect to any of Borrower’s owned premises, Borrower hereby grants Bank a license to enter intopossession of such premises and to occupy the same, without charge, in order to exercise any of Bank’s rights or remedies provided herein, at law, in equity, or otherwise; 

**(e)**Set off and apply to the Obligations any and all (i) balances and deposits of Borrower held by Bank, or (ii) indebtedness at anytime owing to or for the credit or the account of Borrower held by Bank; 

**(f)**Ship, reclaim, recover, store, finish, maintain,repair, prepare for sale, advertise for sale, and sell (in the manner provided for herein) the Collateral. Bank is hereby granted a license or other right, solely pursuant to the provisions of this Section 9.1, to use, without charge,Borrower’s labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks, service marks, and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in completing productionof, advertising for sale, and selling any Collateral and, in connection with Bank’s exercise of its rights under this Section 9.1, Borrower’s rights under all licenses and all franchise agreements shall inure to Bank’s benefit;

**(g)**Dispose of the Collateral by way of one or more contracts or transactions, for cash or on terms, in such manner and at suchplaces (including Borrower’s premises) as Bank determines is commercially reasonable, and apply any proceeds to the Obligations in whatever manner or order Bank deems appropriate; 

**(h)**Bank may credit bid and purchase at any public sale; and 

**(i)**Any deficiency that exists after disposition of the Collateral as provided above will be paid immediately by Borrower. 

**9.2 Power of Attorney**. Effective only upon the occurrence and during the continuance of an Event of Default, Borrower hereby irrevocably appoints Bank (and any of Bank’s designated officer; or employees)as Borrower’s true and lawful attorney to: (a) send requests for verification of Accounts or notify account debtors of Bank’s security interest in the Accounts; (b) endorse Borrower’s name on any checks or other forms ofpayment or security that may come into Bank’s possession; (c) sign Borrower’s name on any invoice or bill of lading relating to any Account, drafts against account debtors, schedules and assignments of Accounts, verifications ofAccounts, and notices to account debtors; (d) dispose of any Collateral; (e) make, settle, and adjust all claims under and decisions with respect to Borrower’s policies of insurance; (f) settle and adjust disputes and 

 

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claims respecting the accounts directly with account debtors, for amounts and upon terms which Bank determines to be reasonable; and (g) to file, in itssole discretion, one or more financing or continuation statements and amendments thereto, relative to any of the Collateral. The appointment of Bank as Borrower’s attorney in fact, and each and every one of Bank’s rights and powers, beingcoupled with an interest, is irrevocable until all of the Obligations have been fully repaid and performed and Bank’s obligation to provide Credit Extensions hereunder is terminated. 

**9.3 Accounts Collection**. At any time after the occurrence of an Event of Default, Bank may notify any Person owing funds to Borrower ofBank’s security interest in such funds and verify the amount of such Account. Borrower shall collect all amounts owing to Borrower for Bank, receive in trust all payments as Bank’s trustee, and immediately deliver such payments to Bank intheir original form as received from the account debtor, with proper endorsements for deposit. 

**9.4 Bank Expenses**. If Borrower failsto pay any amounts or furnish any required proof of payment due to third persons or entities, as required under the terms of this Agreement, then Bank may do any or all of the following after reasonable notice to Borrower: (a) make payment ofthe same or any part thereof; (b) set up such reserves under a loan facility in Section 2.1 as Bank deems necessary to protect Bank from the exposure created by such failure; or (c) obtain and maintain insurance policies of the typediscussed in Section 6.5 of this Agreement, and take any action with respect to such policies as Bank deems prudent. Any amounts so paid or deposited by Bank shall constitute Bank Expenses, shall be immediately due and payable, and shall bearinterest at the then applicable rate hereinabove provided, and shall be secured by the Collateral. Any payments made by Bank shall not constitute an agreement by Bank to make similar payments in the future or a waiver by Bank of any Event of Defaultunder this Agreement. 

**9.5 Bank’s Liability for Collateral**. So long as Bank complies with reasonable banking practices, Bankshall not in any way or manner be liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage thereto occurring or arising in any manner or fashion from any cause; (c) any diminution in the value thereof;or (d) any act or default of any carrier, warehouseman, bailee, forwarding agency, or other person whomsoever. All risk of loss, damage or destruction of the Collateral shall be borne by Borrower. 

**9.6 Remedies Cumulative**. Bank’s rights and remedies under this Agreement, the Loan Documents, and all other agreements shall be cumulative.Bank shall have all other rights and remedies not inconsistent herewith as provided under the Code, by law, or in equity. No exercise by Bank of one right or remedy shall be deemed an election, and no waiver by Bank of any Event of Default onBorrower’s part shall be deemed a continuing waiver. No delay by Bank shall constitute a waiver, election, or acquiescence by it. No waiver by Bank shall be effective unless made in a written document signed on behalf of Bank and then shall beeffective only in the specific instance and for the specific purpose for which it was given. 

**9.7 Demand; Protest**. Borrower waivesdemand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattelpaper, and guarantees at any time held by Bank on which Borrower may in any way be liable. 

**10. NOTICES.**

Unless otherwise provided in this Agreement, all notices or demands by any party relating to this Agreement or any other agreement entered into inconnection herewith shall be in writing and (except for financial statements and other informational documents which may be sent by first-class mail, postage prepaid) shall be personally delivered or sent by a recognized overnight delivery service,certified mail, postage prepaid, return receipt requested, or by telefacsimile to Borrower or to Bank, as the case may be, at its addresses set forth below: 

 
If to Borrower:  
KANA Software, Inc.

181 Constitution Drive

Menlo Park, CA 94025
  Fax: (650) 614-8301
 

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If to Bank:  
Bridge Bank, N.A.

55 Almaden Blvd

San Jose, CA 95113
  FAX: (408) 423-8520
The parties hereto may change the address at which they are to receive notices hereunder, bynotice in writing in the foregoing manner given to the other. 

**11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.**

This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of California, without regard to principles ofconflicts of law. Borrower and Bank each hereby submit to the exclusive jurisdiction of the state and Federal courts located in the County of Santa Clara, State of California. BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURYTRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORYCLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT ITKNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. 

If the jury waiver set forth in thisSection 11 is not enforceable, then any dispute, controversy or claim arising out of or relating to this Agreement, the Loan Documents or any of the transactions contemplated therein shall be settled by judicial reference pursuant to Code ofCivil Procedure Section 638 et seq. before a referee sitting without a jury, such referee to be mutually acceptable to the parties or, if no agreement is reached, by a referee appointed by the Presiding Judge of the California SuperiorCourt for Santa Clara County. This Section shall not restrict a party from exercising remedies under the Code or from exercising pre-judgment remedies under applicable law. 

**12. GENERAL PROVISIONS.**

**12.1Successors and Assigns**. This Agreement shall bind and inure to the benefit of the respective successors and permitted assigns of each of the parties; provided, however, that neither this Agreement nor any rights hereunder may be assigned byBorrower without Bank’s prior written consent, which consent may be granted or withheld in Bank’s sole discretion. Bank shall have the right without the consent of or notice to Borrower to sell, transfer, negotiate, or grant participationin all or any part of, or any interest in, Bank’s obligations, rights and benefits hereunder. 

**12.2 Indemnification**. Borrowershall defend, indemnify and hold harmless Bank and its officers, employees, and agents against: (a) all obligations, demands, claims, and liabilities claimed or asserted by any other party in connection with the transactions contemplated bythis Agreement; and (b) all losses or Bank Expenses in any way suffered, incurred, or paid by Bank as a result of or in any way arising out of, following, or consequential to transactions between Bank and Borrower whether under this Agreement,or otherwise (including without limitation reasonable attorneys’ fees and expenses), except for losses caused by Bank’s gross negligence or willful misconduct. 

**12.3 Time of Essence**. Time is of the essence for the performance of all obligations set forth in this Agreement. 

**12.4 Severability of Provisions**. Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specificprovision. 

 

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**12.5 Amendments in Writing, Integration**. Neither this Agreement nor the Loan Documents can beamended or terminated orally. All prior agreements, understandings, representations, warranties, and negotiations between the parties hereto with respect to the subject matter of this Agreement and the Loan Documents, if any, are merged into thisAgreement and the Loan Documents. 

**12.6 Acknowledgement and Waiver**. Borrower acknowledges that there are existing and uncured Eventsof Default arising from Borrower’s failure to comply with (i) Section 6.7 (Adjusted Quick Ratio) of the Original Agreement for the periods ended December 31, 2007, January 31, 2008, and February 29, 2008; and(ii) Section 6.9 (Debt Service Coverage) of the Original Agreement for the period ending March 31, 2008, and (iii) Section 6.3 (Monthly Financial Reporting) of the Original Agreement for the month ended January 31, 2008(collectively, the “Existing Defaults”). Subject to the conditions contained herein and performance by Borrower of all of the terms of the Agreement after the date hereof, Bank waives the Existing Defaults. Bank does not waiveBorrower’s obligations under such Sections after the date hereof, and Bank does not waive any other failure by Borrower to perform its respective Obligations under the Loan Documents. This waiver is not a continuing waiver with respect to anyfailure to perform any Obligation after the date hereof. Notwithstanding the foregoing, Borrower shall deliver its balance sheet, income statement, Compliance Certificate, aged listings of accounts receivable and accounts payable and Borrowing BaseCertificate for the month ended January 31, 2008 by no later than March 31, 2008. 

**12.7****Effect of Amendment andRestatement.** This Agreement is intended to and does completely amend and restate, without novation, the Original Agreement. All security interests granted under the Original Agreement are hereby confirmed and ratified and shall continue tosecure all Obligations under this Agreement. 

**12.8 Counterparts**. This Agreement may be executed in any number of counterparts and bydifferent parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement. 

**12.9 Survival**. Alt covenants, representations and warranties made in this Agreement shall continue in full force and effect so long as anyObligations remain outstanding or Bank has any obligation to make Credit Extensions to Borrower. The obligations of Borrower to indemnify Bank with respect to the expenses, damages, losses, costs and liabilities described in Section 12.2 shallsurvive until all applicable statute of limitations periods with respect to actions that may be brought against Bank have run. 

**12.10Confidentiality**. In handling any confidential information Bank and all employees and agents of Bank, including but not limited to accountants, shall exercise the same degree of care that it exercises with respect to its own proprietaryinformation of the same types to maintain the confidentiality of any non-public information thereby received or received pursuant to this Agreement except that disclosure of such information may be made (i) to the subsidiaries or affiliates ofBank in connection with their present or prospective business relations with Borrower, (ii) to prospective transferees or purchasers of any interest in the Loans, provided that they have entered into a comparable confidentiality agreement infavor of Borrower and have delivered a copy to Borrower, (iii) as required by law, regulations, rule or order, subpoena, judicial order or similar order, (iv) as may be required in connection with the examination, audit or similarinvestigation of Bank and (v) as Bank may determine in connection with the enforcement of any remedies hereunder. Confidential information hereunder shall not include information that either: (a) is in the public domain or in the knowledgeor possession of Bank when disclosed to Bank, or becomes part of the public domain after disclosure to Bank through no fault of Bank; or (b) is disclosed to Bank by a third party, provided Bank does not have actual knowledge that such thirdparty is prohibited from disclosing such information. 

**12.11 Patriot Act**. To help the government fight the funding of terrorism andmoney laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account. WHAT THIS MEANS FOR YOU: when you open an account, we will ask your name,address, date of birth, and other information that will allow us to identify you. We may also ask to see your driver’s license or other identifying documents. 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date firstabove written. 

 
**KANA SOFTWARE, INC.**By: 
/s/    Michael Shannahan
Title: Chief Financial Officer**BRIDGE BANK, N.A.**By: 
 
Title: 
 

 

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