Document:

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                                                                     EXHIBIT 4.5

                                     FORM OF

                           XCEL PHARMACEUTICALS, INC.

                            2002 STOCK INCENTIVE PLAN

                           (Effective ________, 2002)

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                                TABLE OF CONTENTS
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                                                                            Page
                                                                            ----
SECTION 1. ESTABLISHMENT AND PURPOSE.........................................  1

SECTION 2. DEFINITIONS.......................................................  1

SECTION 3. ADMINISTRATION....................................................  4
  (a)  Committee Composition.................................................  4
  (b)  Committee for Non-Officer Grants .....................................  5
  (c)  Committee Procedures..................................................  5
  (d)  Committee Responsibilities............................................  5

SECTION 4. ELIGIBILITY.......................................................  6
  (a)  General Rule..........................................................  6
  (b)  Transferability.......................................................  6
  (c)  Limitation on Grants..................................................  8
  (d)  Ten-Percent Stockholders..............................................  8
  (e)  Attribution Rules.....................................................  8
  (f)  Outstanding Stock.....................................................  8

SECTION 5. STOCK SUBJECT TO PLAN.............................................  8
  (a)  Basic Limitation......................................................  8
  (b)  Annual Increase in Shares ............................................  8
  (c)  Additional Shares.....................................................  9
  (d)  Dividend Equivalents..................................................  9

SECTION 6. RESTRICTED SHARES.................................................  9
  (a)  Restricted Stock Agreement............................................  9
  (b)  Payment for Awards ...................................................  9
  (c)  Vesting...............................................................  9
  (d)  Voting and Dividend Rights............................................  9

SECTION 7. OTHER TERMS AND CONDITIONS OF AWARDS OR SALES..................... 10
  (a)  Duration of Offers and Nontransferability of Rights................... 10
  (b)  Purchase Price........................................................ 10
  (c)  Withholding Taxes..................................................... 10
  (d)  Restrictions on Transfer of Shares.................................... 10

SECTION 8. TERMS AND CONDITIONS OF OPTIONS................................... 10
  (a)  Stock Option Agreement................................................ 10
  (b)  Number of Shares...................................................... 10
  (c)  Exercise Price........................................................ 10
  (d)  Withholding Taxes..................................................... 11
  (e)  Exercisability and Term............................................... 11
  (f)  Nontransferability ................................................... 11

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                                                                            Page
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  (g)  Exercise of Options Upon Termination of Service....................... 11
  (h)  Effect of Change in Control........................................... 11
  (i)  Leaves of Absence..................................................... 11
  (j)  No Rights as a Stockholder............................................ 12
  (k)  Modification, Extension and Renewal of Options ....................... 12
  (l)  Restrictions on Transfer of Shares ................................... 12
  (m)  Buyout Provisions..................................................... 12

SECTION 9. PAYMENT FOR SHARES................................................ 12
  (a)  General Rule.......................................................... 12
  (b)  Surrender of Stock.................................................... 12
  (c)  Services Rendered..................................................... 13
  (d)  Cashless Exercise..................................................... 13
  (e)  Exercise/Pledge....................................................... 13
  (f)  Promissory Note....................................................... 13
  (g)  Other Forms of Payment................................................ 13

SECTION 10. STOCK APPRECIATION RIGHTS........................................ 13
  (a)  SAR Agreement......................................................... 13
  (b)  Number of Shares...................................................... 13
  (c)  Exercise Price........................................................ 14
  (d)  Exercisability and Term............................................... 14
  (e)  Effect of Change in Control........................................... 14
  (f)  Exercise of SARs...................................................... 14
  (g)  Special Holding Period................................................ 14
  (h)  Special Exercise Window............................................... 14
  (i)  Modification or Assumption of SARs.................................... 14

SECTION 11. STOCK UNITS...................................................... 15
  (a)  Stock Unit Agreement.................................................. 15
  (b)  Payment for Awards.................................................... 15
  (c)  Vesting Conditions.................................................... 15
  (d)  Voting and Dividend Rights............................................ 15
  (e)  Form and Time of Settlement of Stock Units............................ 15
  (f)  Death of Recipient ................................................... 15
  (g)  Creditors' Rights..................................................... 16

SECTION 12. ADJUSTMENT OF SHARES............................................. 16
  (a)  Adjustments........................................................... 16
  (b)  Dissolution or Liquidation............................................ 16
  (c)  Reorganizations....................................................... 16
  (d)  Reservation of Rights................................................. 17

SECTION 13. DEFERRAL OF AWARDS............................................... 17

SECTION 14. AWARDS UNDER OTHER PLANS......................................... 18

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SECTION 15. PAYMENT OF DIRECTOR'S FEES IN SECURITIES......................... 18
  (a)  Effective Date........................................................ 18
  (b)  Elections to Receive NSOs, Restricted Shares or Stock Units........... 18
  (c)  Number and Terms of NSOs, Restricted Shares or Stock Units............ 18

SECTION 16. LEGAL AND REGULATORY REQUIREMENTS................................ 18

SECTION 17. WITHHOLDING TAXES................................................ 18
  (a)  General............................................................... 18
  (b)  Share Withholding..................................................... 19

SECTION 18. NO EMPLOYMENT RIGHTS............................................. 19

SECTION 19. DURATION AND AMENDMENTS.......................................... 19
  (a)  Term of the Plan...................................................... 19
  (b)  Right to Amend or Terminate the Plan.................................. 19
  (c)  Effect of Amendment or Termination.................................... 19

SECTION 20. EXECUTION........................................................ 20

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                           XCEL PHARMACEUTICALS, INC.

                            2002 STOCK INCENTIVE PLAN

SECTION 1.        ESTABLISHMENT AND PURPOSE.

         The purpose of the Plan is to promote the long-term success of the
Company and the creation of stockholder value by (a) encouraging Employees,
Outside Directors and Consultants to focus on critical long-range objectives,
(b) encouraging the attraction and retention of Employees, Outside Directors and
Consultants with exceptional qualifications and (c) linking Employees, Outside
Directors and Consultants directly to stockholder interests through increased
stock ownership. The Plan seeks to achieve this purpose by providing for Awards
in the form of Restricted Shares, Stock Units, Options (which may constitute
incentive stock options or nonstatutory stock options) and SARs.

SECTION 2.        DEFINITIONS.

         (a) "Affiliate" shall mean any entity other than a Subsidiary, if the
Company and/or one of more Subsidiaries own not less than fifty percent (50%) of
such entity.

         (b) "Award" shall mean any award of an Option, a SAR, a Restricted
Share or a Stock Unit under the Plan.

         (c) "Board of Directors" shall mean the Board of Directors of the
Company, as constituted from time to time.

         (d) "Change in Control" shall mean the occurrence of any of the
following events:

             (i) The consummation of a merger or consolidation of the Company
          with or into another entity or any other corporate reorganization, if
          more than fifty percent (50%) of the combined voting power of the
          continuing or surviving entity's securities outstanding immediately
          after such merger, consolidation or other reorganization is owned
          by persons who were not stockholders of the Company immediately
          prior to such merger, consolidation or other reorganization; or

             (ii) Any transaction (other than issuance of shares by the Company
          for cash) in or by means of which one or more persons acting in
          concert acquire, in the aggregate, more than fifty percent (50%) of
          the combined voting power of the Company's outstanding equity
          securities; or

             (iii) The sale, transfer or other disposition of all or
          substantially all of the Company's assets; or

             (iv) Any other event determined by the Board of Directors to
          constitute a Change of Control for purposes of this Plan.

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         For purposes of this Section 2(d), the term "person" shall have the
                              -------------
same meaning as when used in Sections 13(d) and 14(d) of the Exchange Act but
shall exclude (1) a trustee or other fiduciary holding securities under an
employee benefit plan maintained by the Company or a Parent or Subsidiary and
(2) a corporation owned directly or indirectly by the stockholders of the
Company in substantially the same proportions as their ownership of the Stock.

         Any other provision of this Section 2(d) notwithstanding, a transaction
                                     ------------
shall not constitute a Change in Control if its sole purpose is to (x) change
the state of the Company's incorporation or (y) create a holding company that
will be owned in substantially the same proportions by the persons who held the
Company's securities immediately before such transaction.

         (e) "Code" shall mean the Internal Revenue Code of 1986, as amended.

         (f) "Committee" shall mean the committee designated by the Board of
Directors, which is authorized to administer the Plan, as described in Section 3
                                                                       ---------
below.

         (g) "Company" shall mean Xcel Pharmaceuticals, Inc., a Delaware
corporation.

         (h) "Consultant" shall mean a consultant or advisor who is an Employee
and who provides bona fide services to the Company, a Parent or a Subsidiary as
an independent contractor or a member of the board of directors of the Company,
a Parent or a Subsidiary. Service as a Consultant shall be considered Service
for all purposes of the Plan. Notwithstanding any other provision herein to the
contrary, a Consultant may be an entity.

         (i) "Employee" shall mean any individual who is a common-law employee
of the Company, a Parent or a Subsidiary.

         (j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.

         (k) "Exercise Price" shall mean, (x) in the case of an Option, the
amount for which one Common Share may be purchased upon exercise of such Option,
as specified in the applicable Stock Option Agreement, and (y) in the case of a
SAR, an amount, as specified in the applicable SAR Agreement, which is
subtracted from the Fair Market Value of one Common Share in determining the
amount payable upon exercise of such SAR.

         (l) "Fair Market Value," with respect to a Share, shall mean the market
price of one Share, determined by the Committee as follows:

             (i) If the Stock was traded over-the-counter on the date in
         question but was not traded on The Nasdaq Stock Market, then the Fair
         Market Value shall be equal to the last transaction price quoted for
         such date by the OTC Bulletin Board or, if not so quoted, shall be
         equal to the mean between the last reported representative bid and
         asked prices quoted for such date by the principal automated
         inter-dealer quotation system on which the Stock is quoted or, if the
         Stock is not quoted on any such system, by the "Pink Sheets" published
         by the National Quotation Bureau, Inc.;

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             (ii) If the Stock was traded on The Nasdaq Stock Market, then the
         Fair Market Value shall be equal to the last reported sale price quoted
         for such date by The Nasdaq Stock Market;

             (iii) If the Stock was traded on a United States stock exchange on
         the date in question, then the Fair Market Value shall be equal to the
         closing price reported for such date by the applicable
         composite-transactions report; and

             (iv) If none of the foregoing provisions is applicable, then the
         Fair Market Value shall be determined by the Committee in good faith on
         such basis as it deems appropriate.

In all cases, the determination of Fair Market Value by the Committee shall be
conclusive and binding on all persons.

         (m) "ISO" shall mean an incentive stock option described in Section 422
of the Code.

         (n) "Nonstatutory Option" or "NSO" shall mean a stock option that is
not an ISO.

         (o) "Offeree" shall mean an individual to whom the Committee has
offered the right to acquire Shares under the Plan pursuant to an Award (other
than upon exercise of an Option).

         (p) "Option" shall mean an ISO or Nonstatutory Option granted under the
Plan and entitling the holder to purchase Shares.

         (q) "Optionee" shall mean an individual or estate holding an Option or
SAR.

         (r) "Outside Director" shall mean a member of the Board of Directors
who is not a common-law employee of the Company, a Parent or a Subsidiary.

         (s) "Parent" shall mean any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing fifty percent (50%) or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain. A corporation that attains the status of a
Parent on a date after the adoption of the Plan shall be a Parent commencing as
of such date.

         (t) "Participant" shall mean an individual or estate holding an Award.

         (u) "Plan" shall mean this Xcel Pharmaceuticals, Inc. 2002 Stock
Incentive Plan, as amended from time to time.

         (v) "Purchase Price" shall mean the consideration for which one Share
may be acquired under the Plan (other than upon exercise of an Option), as
specified by the Committee.

         (w) "Restricted Share" shall mean a Share awarded under the Plan
pursuant to a Restricted Share Agreement.

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         (x) "Restricted Share Agreement" shall mean the agreement between the
Company and the recipient of a Restricted Share which contains the terms,
conditions and restrictions pertaining to such Restricted Shares.

         (y) "SAR" shall mean a stock appreciation right granted under the Plan
pursuant to a SAR Agreement.

         (z) "SAR Agreement" shall mean the agreement between the Company and an
Optionee which contains the terms, conditions and restrictions pertaining to his
or her SAR.

         (aa) "Service" shall mean service as an Employee, Consultant or Outside
Director.

         (bb) "Share" shall mean one share of Stock, as adjusted in accordance
with Section 12 below (if applicable).
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         (cc) "Stock" shall mean the Common Stock of the Company.

         (dd) "Stock Option Agreement" shall mean the agreement between the
Company and an Optionee that contains the terms, conditions and restrictions
pertaining to his or her Option.

         (ee) "Stock Purchase Agreement" shall mean the agreement between the
Company and an Offeree who acquires Shares under the Plan that contains the
terms, conditions and restrictions pertaining to the acquisition of such Shares.

         (ff) "Stock Unit" shall mean a bookkeeping entry representing the
equivalent of one Share, as awarded under the Plan.

         (gg) "Stock Unit Agreement" shall mean the agreement between the
Company and the recipient of a Stock Unit which contains the terms, conditions
and restrictions pertaining to such Stock Unit.

         (hh) "Subsidiary" shall mean any corporation, if the Company and/or one
or more other Subsidiaries own not less than fifty percent (50%) of the total
combined voting power of all classes of outstanding stock of such corporation. A
corporation that attains the status of a Subsidiary on a date after the adoption
of the Plan shall be considered a Subsidiary commencing as of such date.

         (ii) "Total and Permanent Disability" shall mean that the Optionee is
unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment.

SECTION 3. ADMINISTRATION.

        (a) Committee Composition.  The Plan shall be administered by the
Committee.  The Committee shall consist of three (3) or more directors of the
Company, who shall be appointed by the Board of Directors.  In addition, the
composition of the Committee shall satisfy:

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              (i) such requirements as the Securities and Exchange Commission
         may establish for administrators acting under plans intended to qualify
         for exemption under Rule 16b-3 (or its successor) under the Exchange
         Act; and

              (ii) such requirements as the Internal Revenue Service may
         establish for outside directors acting under plans intended to qualify
         for exemption under Section 162(m)(4)(C) of the Code.

        (b) Committee for Non-Officer Grants. The Board of Directors may also
appoint one or more separate committees of the Board of Directors, each composed
of one or more directors of the Company who need not satisfy the requirements of
Section 3(a) above, who may administer the Plan with respect to Employees who
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are not considered officers or directors of the Company under Section 16 of the
Exchange Act, may grant Awards under the Plan to such Employees and may
determine all terms of such grants. Within the limitations of the preceding
sentence, any reference in the Plan to the Committee shall include such
committee or committees appointed pursuant to the preceding sentence.

        (c) Committee Procedures. The Board of Directors shall designate one of
the members of the Committee as chairman. The Committee may hold meetings at
such times and places as it shall determine. The acts of a majority of the
Committee members present at meetings at which a quorum exists, or acts reduced
to or approved in writing by all Committee members, shall be valid acts of the
Committee.

        (d) Committee Responsibilities.  Subject to the provisions of the Plan,
the Committee shall have full authority and discretion to take the following
actions:

              (i) To interpret the Plan and to apply its provisions;

              (ii) To adopt, amend or rescind rules, procedures and forms
         relating to the Plan;

              (iii) To authorize any person to execute, on behalf of the
         Company, any instrument required to carry out the purposes of the Plan;

              (iv) To determine when Shares are to be awarded or offered for
         sale and when Awards are to be granted under the Plan;

              (v) To select the Offerees and Optionees;

              (vi) To determine the number of Shares to be offered to each
         Offeree or to be made subject to each Award;

              (vii) To prescribe the terms and conditions of each Award,
         including (without limitation) the Purchase Price (or the Exercise
         Price in the case of an Option), the vesting of the Award (including
         accelerating the vesting of Awards), whether an Option is to be
         classified as an ISO or as an NSO, and to specify the provisions of the
         Stock Purchase Agreement or Stock Option Agreement (as applicable)
         relating to such Award;

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                (viii) To amend any outstanding Stock Purchase Agreement or
         Stock Option Agreement, subject to applicable legal restrictions and to
         the consent of the Offeree or Optionee who entered into such agreement;

                (ix) To prescribe the consideration for the grant of each Award
         and to determine the sufficiency of such consideration;

                (x) To determine the disposition of each Award in the event of
         an Optionee's or Offeree's divorce or dissolution of marriage;

                (xi) To determine whether Awards will be granted in replacement
         of other grants under an incentive or other compensation plan of an
         acquired business;

                (xii) To correct any defect, supply any omission, or reconcile
         any inconsistency in the Plan, any Stock Option Agreement or any Stock
         Purchase Agreement; and

                (xiii) To take any other actions deemed necessary or advisable
         for the administration of the Plan.

Subject to the requirements of applicable law, the Committee may designate
persons other than members of the Committee to carry out its responsibilities
and may prescribe such conditions and limitations as it may deem appropriate,
except that the Committee may not delegate its authority to any person to grant
Awards to persons subject to Section 16 of the Exchange Act. All decisions,
interpretations and other actions of the Committee shall be final and binding on
all Offerees, all Optionees, and all persons deriving their rights from an
Offeree or Optionee. No member of the Committee shall be liable for any action
that he has taken or has failed to take in good faith with respect to the Plan
or any Award.

SECTION 4. ELIGIBILITY.

         (a) General Rule. Only Employees shall be eligible for the grant of
ISOs.  Only Employees, Consultants and Outside Directors shall be eligible for
the grant of Shares.

         (b) Transferability. Except as otherwise provided by the Board of
Directors:

                (i) Except as provided by subsections (iv) and (v) below, no
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         Option shall be transferable by the Optionee other than by will, by
         written beneficiary designation or by the laws of descent and
         distribution;

                (ii) An Option may be exercised during the lifetime of the
         Optionee only by the Optionee or by the Optionee's guardian or legal
         representative;

                (iii) Except as provided in subsections (iv) and (v) below, no
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         Option or interest therein may be transferred, assigned, pledged or
         hypothecated by the Optionee during his or her lifetime, whether by
         operation of law or otherwise, or be made subject to execution,
`        attachment or similar process;

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                (iv) An NSO can be assigned in accordance with the terms of a
        "qualified domestic relations order" within the meaning of Section
                                                                   -------
        414(p) of the Code;
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                (v) The Committee may permit an Optionee to transfer all or any
        portion of an NSO, or authorize that all or a portion of any NSO to be
        granted to an Optionee may be transferred by such Optionee, to:

                    (A) the spouse, children or grandchildren of the Optionee
                (the "Immediate Family Members"),

                    (B) a trust or trusts for the exclusive benefit of such
                Immediate Family Members and/or such Optionee, or

                    (C) a partnership or limited liability company, the partners
                or members of which are limited to the Optionee and/or such
                Immediate Family Members

                (collectively, the "Permitted Transferees"); provided,
                                                             --------
                however, that (x) the Optionee receives no consideration for
                -------
                any such transfer and (y) subsequent transfers of the
                transferred NSO shall be prohibited except those by will or
                the laws of descent and distribution or pursuant to a qualified
                domestic order. The Stock Option Agreement or other documents
                evidencing the NSO with respect to which such transferability is
                authorized at the time of grant must be approved by the
                Committee and must expressly provide for transferability in a
                manner consistent with this Section 4(b)(v);
                                            ---------------

                (vi) Following the transfer of any NSO under subsections (iv) or
                                                             ---------------
         (v) above,
         ---

                    (A) such NSO shall continue to be subject to the same terms
                and conditions as were in effect immediately prior to the
                transfer; provided, however, that the term "Offeree" shall be
                          --------  -------
                deemed to refer to the Permitted Transferee, the recipient
                under a qualified domestic relations order, or the estate or
                heirs of a deceased Optionee, as applicable, to the extent
                necessary to enable such person to exercise the transferred
                NSO in accordance with the terms of this Plan and applicable
                law, and

                    (B) the provisions regarding the Optionee's cessation of
                Service or death shall continue to be applied with respect to
                the original Optionee and, upon the Optionee's cessation of
                Service or death, the NSO shall be exercisable only to the
                extent and for the periods specified in the Stock Option
                Agreement evidencing the NSO;

                (vii) Any Optionee desiring to transfer an NSO pursuant to
        subdivision (v) above shall make application therefor in the manner and
        ---------------
        at the time specified by the Committee and shall comply with such other
        requirements as the Committee may determine to be necessary to insure
        compliance with all applicable securities laws. Notwithstanding any
        other provision herein to the contrary, the Committee shall not

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70012313v6

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        permit a transfer of an NSO if such transfer cannot be made in
        compliance with all applicable securities laws; and

                (viii) Neither the Committee nor the Company shall have any
        obligation to inform any transferee of an NSO of any expiration,
        termination, lapse or acceleration of such NSO.

        (c) Limitation on Grants. No Employee, Consultant or Outside Director
shall be granted Options to purchase more than Two Hundred Thousand (200,000)
                                               -------------------- ---------
Shares in any fiscal year of the Company, except that Options granted to a new
Employee, Consultant or Outside Director in the fiscal year of the Company in
which his or her Service first commences shall not pertain to more than Three
                                                                        -----
Hundred Thousand (300,000) Shares (in each case subject to adjustment in
---------------- ---------
accordance with Section 12 below).
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        (d) Ten-Percent Stockholders. An Employee who owns more than ten percent
(10%) of the total combined voting power of all classes of outstanding stock of
the Company, a Parent or Subsidiary shall not be eligible for the grant of an
ISO unless such grant satisfies the requirements of Section 422(c)(5) of the
Code.

        (e) Attribution Rules. For purposes of Section 4(d) above, and only to
                                               ------------
the extent required by the Code, an Employee shall be deemed to own the stock
owned, directly or indirectly, by or for such Employee's brothers, sisters,
spouse, ancestors and lineal descendants. Stock owned, directly or indirectly,
by or for a corporation, partnership, estate or trust shall be deemed to be
owned proportionately by or for its stockholders, partners or beneficiaries.

        (f) Outstanding Stock. For purposes of Section 4(d) above, "outstanding
                                               ------------
stock" shall include all stock actually issued and outstanding immediately after
the grant. "Outstanding stock" shall not include shares authorized for issuance
under outstanding options held by the Employee or by any other person.

SECTION 5. STOCK SUBJECT TO PLAN.

        (a) Basic Limitation. Shares offered under the Plan shall be authorized
but unissued Shares or treasury Shares. The maximum aggregate number of Shares
subject to the Plan shall not exceed Two Million (2,000,000), plus the
                                     ----------- -----------
additional Shares described in Sections 5(b) and (c) below. The limitation of
                               -------------     ---
this Section 5(a) shall be subject to adjustment pursuant to Section 12 below.
     ------------                                            ----------

        (b) Annual Increase in Shares. As of January 1 of each year, commencing
with the year 2003, the aggregate number of Shares subject to the Plan shall
automatically increase by a number equal to the lesser of: (i) One Percent (1%)
of the fully diluted outstanding shares of Stock of the Company on such date or
(ii) a lesser amount determined by the Board of Directors. The aggregate number
of Shares that may be issued under the Plan shall at all times be subject to
adjustment pursuant to Section 12 below. The number of Shares that are subject
                       ----------
to Awards shall not exceed the number of Shares which then remain available for
issuance under the Plan. The Company, during the term of the Plan, shall at all
times reserve and keep available sufficient Shares to satisfy the requirements
of the Plan.

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70012313v6

<PAGE>

        (c) Additional Shares. If Restricted Shares or Shares issued upon the
exercise of Options are forfeited, then such Shares shall again become available
for Awards under the Plan. If Stock Units, Options or SARs are forfeited or
terminate for any other reason before being exercised, then the corresponding
Shares shall again become available for Awards under the Plan. If Stock Units
are settled, then only the number of Shares (if any) actually issued in
settlement of such Stock Units shall reduce the number available under Section
                                                                       -------
5(a) above and the balance shall again become available for Awards under the
----
Plan. If SARs are exercised, then only the number of Shares (if any) actually
issued in settlement of such SARs shall reduce the number available in Section
                                                                       -------
5(a) above and the balance shall again become available for Awards under the
----
Plan. The foregoing notwithstanding, the aggregate number of Shares that may be
issued under the Plan upon the exercise of ISOs shall not be increased when
Restricted Shares or other Shares are forfeited.

        (d) Dividend Equivalents. Any dividend equivalents paid or credited
under the Plan shall not be applied against the number of Shares available for
Awards, whether or not such dividend equivalents are converted into Stock Units.

SECTION 6. RESTRICTED SHARES

        (a) Restricted Stock Agreement. Each grant of Restricted Shares under
the Plan shall be evidenced by a Restricted Stock Agreement between the
recipient and the Company. Such Restricted Shares shall be subject to all
applicable terms of the Plan and may be subject to any other terms that are not
inconsistent with the Plan. The provisions of the various Restricted Stock
Agreements entered into under the Plan need not be identical.

        (b) Payment for Awards. Subject to the following sentence, Restricted
Shares may be sold or awarded under the Plan for such consideration as the
Committee may determine, including (without limitation) cash, cash equivalents,
full-recourse promissory notes, past services and future services. To the extent
that an Award consists of newly issued Restricted Shares, the Award recipient
shall furnish consideration with a value not less than the par value of such
Restricted Shares in the form of cash, cash equivalents, or past services
rendered to the Company (or a Parent or Subsidiary), as the Committee may
determine.

        (c) Vesting. Each Award of Restricted Shares may or may not be subject
to vesting. Vesting shall occur, in full or in installments, upon satisfaction
of the conditions specified in the Restricted Stock Agreement. A Restricted
Stock Agreement may provide for accelerated vesting in the event of the
Participant's death, Total and Permanent Disability or retirement or other
events. The Committee may determine, at the time of granting Restricted Shares
or thereafter, that all or part of such Restricted Shares shall become vested in
the event that a Change in Control occurs with respect to the Company.

        (d) Voting and Dividend Rights. The holders of Restricted Shares awarded
under the Plan shall have the same voting, dividend and other rights as the
Company's other stockholders. A Restricted Stock Agreement, however, may require
that the holders of Restricted Shares invest any cash dividends received in
additional Restricted Shares. Such additional Restricted Shares shall be subject
to the same conditions and restrictions as the Award with respect to which the
dividends were paid.

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<PAGE>

SECTION 7. OTHER TERMS AND CONDITIONS OF AWARDS OR SALES.

        (a) Duration of Offers and Nontransferability of Rights. Except as
otherwise provided by the Committee, any right to acquire Shares under the Plan
(other than an Option) shall automatically expire if not exercised by the
Offeree thirty (30) days after the grant of such right was communicated to him
by the Committee. Such right shall not be transferable and shall be exercisable
only by the Offeree to whom such right was granted.

        (b) Purchase Price.  The Purchase Price shall be determined by the
Committee at its sole discretion.  The Purchase Price shall be payable in one of
the forms described in Section 6(b) above, as determined by the Committee.
                       ------------

        (c) Withholding Taxes. As a condition to the purchase of Shares, the
Offeree shall make such arrangements as the Committee may require for the
satisfaction of any federal, state or local withholding tax obligations that may
arise in connection with such purchase.

        (d) Restrictions on Transfer of Shares. Any Shares awarded or sold under
the Plan shall be subject to such special forfeiture conditions, rights of
repurchase, rights of first refusal and other transfer restrictions as the
Committee may determine. Such restrictions shall be set forth in the applicable
Stock Purchase Agreement and shall apply in addition to any general restrictions
that may apply to all holders of Shares.

SECTION 8. TERMS AND CONDITIONS OF OPTIONS.

        (a) Stock Option Agreement. Each grant of an Option under the Plan shall
be evidenced by a Stock Option Agreement between the Optionee and the Company.
Such Option shall be subject to all applicable terms and conditions of the Plan
and may be subject to any other terms and conditions which are not inconsistent
with the Plan and which the Committee deems appropriate for inclusion in a Stock
Option Agreement. The Stock Option Agreement shall specify whether the Option is
an ISO or an NSO. The provisions of the various Stock Option Agreements entered
into under the Plan need not be identical. Options may be granted in
consideration of a reduction in the Optionee's other compensation. A Stock
Option Agreement may provide that a new Option will be granted automatically to
the Optionee when he or she exercises a prior Option and pays the Exercise Price
in a form described in Section 9 below.
                       ---------

        (b) Number of Shares. Each Stock Option Agreement shall specify the
number of Shares that are subject to the Option and shall provide for the
adjustment of such number in accordance with Section 12 below. Options granted
                                             ----------
to an Optionee in a single fiscal year of the Company shall not pertain to more
than Two Hundred Thousand (200,000) Shares, except that Options granted to a new
     -------------------- ---------
Employee, Consultant or Outside Director in the fiscal year of the Company in
which his or her Service first commences shall not pertain to more than Three
                                                                        -----
Hundred Thousand (300,000) Shares.
---------------- ---------

        (c) Exercise Price. Each Stock Option Agreement shall specify the
Exercise Price. The Exercise Price of an ISO shall not be less than One Hundred
Percent (100%) of the Fair Market Value of a Share on the date of grant (One
Hundred Ten Percent (110%) for Employees as described in Section 4(d) above). In
                                                         ------------
no event shall the Exercise Price of an NSO be less than the par value of a
Share. Subject to the foregoing in this Section 8(c), the Exercise Price under
                                        ------------
                                - 10 -

<PAGE>

any Option shall be determined by the Committee at its sole discretion. The
Exercise Price shall be payable in one of the forms described in Section 9
                                                                 ---------
below. Notwithstanding the foregoing, an Option may be granted with an Exercise
Price lower than that prescribed in this Section 8(c) pursuant to a merger or
                                         ------------
other corporation transaction as contemplated by Section 424(a) of the Code.

     (d) Withholding Taxes. As a condition to the exercise of an Option, the
Optionee shall make such arrangements as the Committee may require for the
satisfaction of any federal, state or local withholding tax obligations that may
arise in connection with such exercise. The Optionee shall also make such
arrangements as the Committee may require for the satisfaction of any federal,
state or local withholding tax obligations that may arise in connection with the
disposition of Shares acquired by exercising an Option.

     (e) Exercisability and Term. Each Stock Option Agreement shall specify the
date when all or any installment of the Option is to become exercisable. The
Stock Option Agreement shall also specify the term of the Option; provided,
                                                                  --------
however, that the term of an ISO shall in no event exceed ten (10) years from
-------
the date of grant (five (5) years for Employees described in Section 4(d)
                                                             ------------
above). A Stock Option Agreement may provide for accelerated exercisability in
the event of the Optionee's death, disability, or retirement or other events and
may provide for expiration prior to the end of its term in the event of the
termination of the Optionee's service. Options may be awarded in combination
with SARs, and such an Award may provide that the Options will not be
exercisable unless the related SARs are forfeited. Subject to the foregoing in
this Section 8(e), the Committee at its sole discretion shall determine when all
     ------------
or any installment of an Option is to become exercisable and when an Option is
to expire.

     (f) Nontransferability. Except as otherwise provided by the Committee,
during an Optionee's lifetime, his or her Option(s) shall be exercisable only by
the Optionee and shall not be transferable. In the event of an Optionee's death,
his or her Option(s) shall not be transferable other than by will or by the laws
of descent and distribution.

     (g) Exercise of Options Upon Termination of Service. Each Stock Option
Agreement shall set forth the extent to which the Optionee shall have the right
to exercise the Option following termination of the Optionee's Service with the
Company, a Parent or Subsidiary, and the right to exercise the Option of any
executors or administrators of the Optionee's estate or any person who has
acquired such Option(s) directly from the Optionee by bequest or inheritance.
Such provisions shall be determined at the sole discretion of the Committee,
need not be uniform among all Options issued pursuant to the Plan, and may
reflect distinctions based on the reasons for termination of Service.

     (h) Effect of Change in Control. The Committee may determine, at the time
of granting an Option or thereafter, that such Option shall become exercisable
as to all or part of the Shares subject to such Option in the event that a
Change in Control occurs with respect to the Company.

     (i) Leaves of Absence. An Employee's Service shall cease when such Employee
ceases to be actively employed by, or a consultant or adviser to, the Company
(or a Parent or

                                  - 11 -

<PAGE>

Subsidiary) as determined in the sole discretion of the Committee. For purposes
of Options, Service does not terminate when an Employee goes on a bona fide
leave of absence, that was approved by the Company in writing, if the terms of
the leave provide for continued service crediting, or when continued service
crediting is required by applicable law. However, for purposes of determining
whether an Option is entitled to ISO status, an Employee's Service will be
treated as terminating ninety (90) days after such Employee went on leave,
unless such Employee's right to return to active work is guaranteed by law or by
a contract. Service terminates in any event when the approved leave ends, unless
such Employee immediately returns to active work. The Company determines which
leaves count toward Service, and when Service terminates for all purposes under
the Plan.

     (j) No Rights as a Stockholder. An Optionee, or a transferee of an
Optionee, shall have no rights as a stockholder with respect to any Shares
covered by his or her Option until the date of the issuance of a stock
certificate for such Shares. No adjustments shall be made, except as provided in
Section 12 below.
----------

     (k) Modification, Extension and Renewal of Options. Within the limitations
of the Plan, the Committee may modify, extend or renew outstanding options or
may accept the cancellation of outstanding options (to the extent not previously
exercised), whether or not granted hereunder, in return for the grant of new
Options for the same or a different number of Shares and at the same or a
different exercise price. The foregoing notwithstanding, no modification of an
Option shall, without the consent of the Optionee, alter or impair his or her
rights or obligations under such Option.

     (l) Restrictions on Transfer of Shares. Any Shares issued upon exercise of
an Option shall be subject to such special forfeiture conditions, rights of
repurchase, rights of first refusal and other transfer restrictions as the
Committee may determine. Such restrictions shall be set forth in the applicable
Stock Option Agreement and shall apply in addition to any general restrictions
that may apply to all holders of Shares.

     (m) Buyout Provisions. The Committee may at any time (i) offer to buy out
for a payment in cash or cash equivalents an Option previously granted or (ii)
authorize an Optionee to elect to cash out an Option previously granted, in
either case at such time and based upon such terms and conditions as the
Committee shall establish.

SECTION 9. PAYMENT FOR SHARES.

     (a) General Rule. The entire Exercise Price of Shares issued under the Plan
shall be payable in lawful money of the United States of America at the time
when such Shares are purchased, except as provided in Sections 9(b) through 9(g)
                                                      -------------         ----
below.

     (b) Surrender of Stock. To the extent that a Stock Option Agreement so
provides, payment may be made all or in part by surrendering, or attesting to
the ownership of, Shares which have already been owned by the Optionee or his or
her representative for more than twelve (12) months. Such Shares shall be valued
at their Fair Market Value on the date when the new Shares are purchased under
the Plan. The Optionee shall not surrender, or attest to the ownership of,
Shares in payment of the Exercise Price if such action would cause the Company

                                - 12 -

<PAGE>

to recognize compensation expense (or additional compensation expense) with
respect to the Option for financial reporting purposes.

     (c) Services Rendered. At the discretion of the Committee, Shares may be
awarded under the Plan in consideration of services rendered to the Company, a
Parent or Subsidiary prior to the award. If Shares are awarded without the
payment of a Purchase Price in cash, the Committee shall make a determination
(at the time of the award) of the value of the services rendered by the Offeree
and the sufficiency of the consideration to meet the requirements of Section
                                                                     -------
6(b) above.
----

     ( d) Cashless Exercise. To the extent that a Stock Option Agreement so
provides, payment may be made all or in part by delivery (on a form prescribed
by the Committee) of an irrevocable direction to a securities broker to sell
Shares and to deliver all or part of the sale proceeds to the Company in payment
of the aggregate Exercise Price.

     (e) Exercise/Pledge. To the extent that a Stock Option Agreement so
provides, payment may be made all or in part by delivery (on a form prescribed
by the Committee) of an irrevocable direction to a securities broker or lender
to pledge Shares, as security for a loan, and to deliver all or part of the loan
proceeds to the Company in payment of the aggregate Exercise Price.

     (f) Promissory Note. To the extent that a Stock Option Agreement so
provides, payment may be made all or in part by delivering (on a form prescribed
by the Company) a full-recourse promissory note. However, the par value of the
Common Shares being purchased under the Plan, if newly issued, shall be paid in
cash or cash equivalents.

     (g) Other Forms of Payment. To the extent that a Stock Option Agreement so
provides, payment may be made in any other form that is consistent with
applicable laws, regulations and rules.

SECTION 10. STOCK APPRECIATION RIGHTS.

     (a) SAR Agreement. Each grant of a SAR under the Plan shall be evidenced by
a SAR Agreement between the Optionee and the Company. Such SAR shall be subject
to all applicable terms of the Plan and may be subject to any other terms that
are not inconsistent with the Plan. The provisions of the various SAR Agreements
entered into under the Plan need not be identical. SARs may be granted in
consideration of a reduction in the Optionee's other compensation.

     (b) Number of Shares. Each SAR Agreement shall specify the number of Shares
to which the SAR pertains and shall provide for the adjustment of such number in
accordance with Section 12 below. SARs granted to any Optionee in a single
                ----------
calendar year shall in no event pertain to more than Two Hundred Thousand
                                                     --------------------
(200,000) Shares, except that SARs granted to a new Employee, Consultant or
 -------
Outside Director in the fiscal year of the Company in which his or her Service
first commences shall not pertain to more than Three Hundred Thousand (300,000)
                                               ----------------------  -------
Shares. The limitations set forth in the preceding sentence shall be subject to
adjustment in accordance with Section 12 below.
                              ----------

                                - 13 -

<PAGE>

     (c)  Exercise Price. Each SAR Agreement shall specify the Exercise Price. A
SAR Agreement may specify an Exercise Price that varies in accordance with a
predetermined formula while the SAR is outstanding.

     (d)  Exercisability and Term. Each SAR Agreement shall specify the date
when all or any installment of the SAR is to become exercisable. The SAR
Agreement shall also specify the term of the SAR. A SAR Agreement may provide
for accelerated exercisability in the event of the Optionee's death, disability
or retirement or other events and may provide for expiration prior to the end of
its term in the event of the termination of the Optionee's service. SARs may be
awarded in combination with Options, and such an Award may provide that the SARs
will not be exercisable unless the related Options are forfeited. A SAR may be
included in an ISO only at the time of grant but may be included in an NSO at
the time of grant or thereafter. A SAR granted under the Plan may provide that
it will be exercisable only in the event of a Change in Control.

     (e)  Effect of Change in Control. The Committee may determine, at the time
of granting a SAR or thereafter, that such SAR shall become fully exercisable as
to all Shares subject to such SAR in the event that a Change in Control occurs
with respect to the Company.

     (f)  Exercise of SARs. In the discretion of the Committee, a SAR Agreement
may provide that, if, on the date when a SAR expires, the Exercise Price under
such SAR is less than the Fair Market Value on such date but any portion of such
SAR has not been exercised or surrendered, then such SAR shall automatically be
deemed to be exercised as of such date with respect to such portion. Upon
exercise of a SAR, the Optionee (or any person having the right to exercise the
SAR after his or her death) shall receive from the Company (i) Shares, (ii) cash
or (iii) a combination of Shares and cash, as the Committee shall determine. The
amount of cash and/or the Fair Market Value of Shares received upon exercise of
SARs shall, in the aggregate, be equal to the amount by which the Fair Market
Value (on the date of surrender) of the Shares subject to the SARs exceeds the
Exercise Price.

     (g)  Special Holding Period. To the extent required by Section 16 of the
Exchange Act or any rule thereunder, a SAR shall not be exercised for cash
unless both it and the related Option have been outstanding for more than six
(6) months.

     (h)  Special Exercise Window. To the extent required by Section 16 of the
Exchange Act or any rule thereunder, a SAR may only be exercised for cash during
a period which (i) begins on the third (3rd) business day following a date when
the Company's quarterly summary statement of sales and earnings is released to
the public and (ii) ends on the forty-fifth (45th) business day following such
date. This Section 10(h) shall not apply if the exercise occurs automatically on
           -------------
the date when the related Option expires, and the Committee may determine that
it shall not apply to limited SARs that are exercisable only in the event of a
Change in Control.

     (i)  Modification or Assumption of SARs. Within the limitations of the
Plan, the Committee may modify, extend or assume outstanding SARs or may accept
the cancellation of outstanding SARs (whether granted by the Company or by
another issuer) in return for the grant of new SARs for the same or a different
number of shares and at the same or a different exercise

                                     - 14 -

<PAGE>

price. The foregoing notwithstanding, no modification of a SAR shall, without
the consent of the Optionee, alter or impair his or her rights or obligations
under such SAR.

SECTION 11. STOCK UNITS.

     (a)  Stock Unit Agreement. Each grant of Stock Units under the Plan shall
be evidenced by a Stock Unit Agreement between the recipient and the Company.
Such Stock Units shall be subject to all applicable terms of the Plan and may be
subject to any other terms that are not inconsistent with the Plan. The
provisions of the various Stock Unit Agreements entered into under the Plan need
not be identical. Stock Units may be granted in consideration of a reduction in
the recipient's other compensation.

     (b)  Payment for Awards. To the extent that an Award is granted in the form
of Stock Units, no cash consideration shall be required of the Award recipients.

     (c)  Vesting Conditions. Each Award of Stock Units may or may not be
subject to vesting. Vesting shall occur, in full or in installments, upon
satisfaction of the conditions specified in the Stock Unit Agreement. A Stock
Unit Agreement may provide for accelerated vesting in the event of the
Participant's death, disability or retirement or other events. The Committee may
determine, at the time of granting Stock Units or thereafter, that all or part
of such Stock Units shall become vested in the event that a Change in Control
occurs with respect to the Company.

     (d)  Voting and Dividend Rights. The holders of Stock Units shall have no
voting rights. Prior to settlement or forfeiture, any Stock Unit awarded under
the Plan may, at the Committee's discretion, carry with it a right to dividend
equivalents. Such right entitles the holder to be credited with an amount equal
to all cash dividends paid on one Share while the Stock Unit is outstanding.
Dividend equivalents may be converted into additional Stock Units. Settlement of
dividend equivalents may be made in the form of cash, in the form of Shares, or
in a combination of both. Prior to distribution, any dividend equivalents which
are not paid shall be subject to the same conditions and restrictions (including
without limitation, any forfeiture conditions) as the Stock Units to which they
attach.

     (e)  Form and Time of Settlement of Stock Units. Settlement of vested Stock
Units may be made in the form of (i) cash, (ii) Shares or (iii) any combination
of both, as determined by the Committee. The actual number of Stock Units
eligible for settlement may be larger or smaller than the number included in the
original Award, based on predetermined performance factors. Methods of
converting Stock Units into cash may include (without limitation) a method based
on the average Fair Market Value of Shares over a series of trading days. Vested
Stock Units may be settled in a lump sum or installments. The distribution may
occur or commence when all vesting conditions applicable to the Stock Units have
been satisfied or have lapsed, or it may be deferred to any later date. The
amount of a deferred distribution may be increased by an interest factor or by
dividend equivalents. Until an Award of Stock Units is settled, the number of
such Stock Units shall be subject to adjustment pursuant to Section 12 below.
                                                            ----------

     (f)  Death of Recipient. Any Stock Units Award that becomes payable after
the recipient's death shall be distributed to the recipient's beneficiary or
beneficiaries. Each

                                     - 15 -

<PAGE>

recipient of a Stock Units Award under the Plan shall designate one or more
beneficiaries for this purpose by filing the prescribed form with the Company. A
beneficiary designation may be changed by filing the prescribed form with the
Company at any time before the Award recipient's death. If no beneficiary was
designated or if no designated beneficiary survives the Award recipient, then
any Stock Units Award that becomes payable after the recipient's death shall be
distributed to the recipient's estate.

     (g)  Creditors' Rights. A holder of Stock Units shall have no rights other
than those of a general creditor of the Company. Stock Units represent an
unfunded and unsecured obligation of the Company, subject to the terms and
conditions of the applicable Stock Unit Agreement.

SECTION 12. ADJUSTMENT OF SHARES.

     (a)  Adjustments. In the event of a subdivision of the outstanding Stock, a
declaration of a dividend payable in Shares, a declaration of a dividend payable
in a form other than Shares in an amount that has a material effect on the price
of Shares, a combination or consolidation of the outstanding Stock (by
reclassification or otherwise) into a lesser number of Shares, a
recapitalization, a spin-off or a similar occurrence, the Committee shall make
such adjustments as it, in its sole discretion, deems appropriate in one or more
of:

          (i)   The number of Shares available for future Awards under Section 5
                                                                       ---------
     above;

          (ii)  The limitations on the number of Shares that may be granted
     under this Plan (including the limitations set forth in Sections 4(c), 8(b)
                                                             -------------  ----
     and 10(b) above);
         -----

          (iii) The number of Shares covered by each outstanding Option and SAR;

          (iv)  The Exercise Price under each outstanding Option and SAR; or

          (v)   The number of Stock Units included in any prior Award which has
     not yet been settled.

Except as provided in this Section 12, a Participant shall have no rights by
                           ----------
reason of any issue by the Company of stock of any class or securities
convertible into stock of any class, any subdivision or consolidation of shares
of stock of any class, the payment of any stock dividend or any other increase
or decrease in the number of shares of stock of any class.

     (b)  Dissolution or Liquidation. To the extent not previously exercised or
settled, Options, SARs and Stock Units shall terminate immediately prior to the
dissolution or liquidation of the Company.

     (c)  Reorganizations. In the event that the Company is a party to a merger
or other reorganization, outstanding Awards shall be subject to the agreement of
merger or reorganization. Such agreement shall provide for:

          (i)  The continuation of the outstanding Awards by the Company, if the
Company is a surviving corporation;

                                     - 16 -

<PAGE>

          (ii)  The assumption of the outstanding Awards by the surviving
     corporation or its parent or subsidiary;

          (iii) The substitution by the surviving corporation or its parent or
     subsidiary of its own awards for the outstanding Awards with substantially
     the same terms as the outstanding Awards;

          (iv)  Full exercisability or vesting and accelerated expiration of the
     outstanding Awards; or

          (v)   Settlement of the full value of the outstanding Awards in cash
     or cash equivalents followed by cancellation of such Awards.

     (d)  Reservation of Rights. Except as provided in this Section 12, an
                                                            ----------
Optionee or Offeree shall have no rights by reason of any subdivision or
consolidation of shares of stock of any class, the payment of any dividend or
any other increase or decrease in the number of shares of stock of any class.
Any issue by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number or
Exercise Price of Shares subject to an Option. The grant of an Option pursuant
to the Plan shall not affect in any way the right or power of the Company to
make adjustments, reclassifications, reorganizations or changes of its capital
or business structure, to merge or consolidate or to dissolve, liquidate, sell
or transfer all or any part of its business or assets.

SECTION 13. DEFERRAL OF AWARDS.

     The Committee (in its sole discretion) may permit a Participant to:

     a)   Have cash that otherwise would be paid to such Participant as a result
          of the exercise of a SAR or the settlement of Stock Units credited to
          a deferred compensation account established for such Participant by
          the Committee as an entry on the Company's books;

     b)   Have Shares that otherwise would be delivered to such Participant as a
          result of the exercise of an Option or SAR converted into an equal
          number of Stock Units; or

     c)   Have Shares that otherwise would be delivered to such Participant as a
          result of the exercise of an Option or SAR or the settlement of Stock
          Units converted into amounts credited to a deferred compensation
          account established for such Participant by the Committee as an entry
          on the Company's books. Such amounts shall be determined by reference
          to the Fair Market Value of such Shares as of the date when they
          otherwise would have been delivered to such Participant.

A deferred compensation account established under this Section 13 may be
                                                       ----------
credited with interest or other forms of investment return, as determined by the
Committee. A Participant for whom such an account is established shall have no
rights other than those of a general creditor of the

                                     - 17 -

<PAGE>

Company. Such an account shall represent an unfunded and unsecured obligation of
the Company and shall be subject to the terms and conditions of the applicable
agreement between such Participant and the Company. If the deferral or
conversion of Awards is permitted, the Committee (in its sole discretion) may
establish rules, procedures and forms pertaining to such Awards, including
(without limitation) the settlement of deferred compensation accounts
established under this Section 13.
                       ----------

SECTION 14. AWARDS UNDER OTHER PLANS.

     The Company may grant awards under other plans or programs. Such awards may
be settled in the form of Shares issued under this Plan. Such Shares shall be
treated for all purposes under the Plan like Shares issued in settlement of
Stock Units and shall, when issued, reduce the number of Shares available under
Section 5 above.
---------

SECTION 15. PAYMENT OF DIRECTOR'S FEES IN SECURITIES.

     (a)  Effective Date. No provision of this Section 15 shall be effective
                                               ----------
unless and until the Board of Directors has determined to implement such
provision.

     (b)  Elections to Receive NSOs, Restricted Shares or Stock Units. An
Outside Director may elect to receive his or her annual retainer payments and/or
meeting fees, if any, from the Company in the form of cash, NSOs, Restricted
Shares or Stock Units, or a combination thereof, as determined by the Board of
Directors. Such NSOs, Restricted Shares and Stock Units shall be issued under
the Plan. An election under this Section 15 shall be filed with the Company on
                                 ----------
the prescribed form.

     (c)  Number and Terms of NSOs, Restricted Shares or Stock Units. The number
of NSOs, Restricted Shares or Stock Units to be granted to Outside Directors in
lieu of annual retainers and meeting fees, if any, that would otherwise be paid
in cash shall be calculated in a manner determined by the Board of Directors.
The terms of such NSOs, Restricted Shares or Stock Units shall also be
determined by the Board of Directors.

SECTION 16. LEGAL AND REGULATORY REQUIREMENTS.

     Shares shall not be issued under the Plan unless the issuance and delivery
of such Shares complies with (or is exempt from) all applicable requirements of
law, including (without limitation) the Securities Act of 1933, as amended, the
rules and regulations promulgated thereunder, state securities laws and
regulations and the regulations of any stock exchange on which the Company's
securities may then be listed, and the Company has obtained the approval or
favorable ruling from any governmental agency which the Company determines is
necessary or advisable.

SECTION 17. WITHHOLDING TAXES.

     (a)  General. To the extent required by applicable federal, state, local or
foreign law, a Participant or his or her successor shall make arrangements
satisfactory to the Company for the satisfaction of any withholding tax
obligations that arise in connection with the Plan. The

                                     - 18 -

<PAGE>

Company shall not be required to issue any Shares or make any cash payment under
the Plan until such obligations are satisfied.

     (b)  Share Withholding. The Committee may permit a Participant to satisfy
all or part of his or her withholding or income tax obligations by having the
Company withhold all or a portion of any Shares that otherwise would be issued
to him or her or by surrendering all or a portion of any Shares that he or she
previously acquired; provided, however, the Participant may not surrender Shares
                     --------  -------
to satisfy withholding or income tax obligations in excess of the minimum
legally required obligations. Such Shares shall be valued at their Fair Market
Value on the date when taxes otherwise would be withheld in cash.

SECTION 18. NO EMPLOYMENT RIGHTS.

     No provision of the Plan, nor any right or Option granted under the Plan,
shall be construed to give any person any right to become, to be treated as, or
to remain an Employee. The Company, its Parents and its Subsidiaries reserve the
right to terminate any person's Service at any time and for any or no reason,
with or without notice.

SECTION 19. DURATION AND AMENDMENTS.

     (a)  Term of the Plan. The Plan, as set forth herein, shall terminate
automatically on [______, 2012] and may be terminated on any earlier date
pursuant to Section 19(b) below.
            -------------

     (b)  Right to Amend or Terminate the Plan. The Board of Directors may amend
the Plan at any time and from time to time. Rights and obligations under any
Award granted before amendment of the Plan shall not be materially impaired by
such amendment, except with consent of the person to whom the Award was granted.
An amendment of the Plan shall be subject to the approval of the Company's
stockholders only to the extent required by applicable laws, regulations or
rules.

     (c)  Effect of Amendment or Termination. No Shares shall be issued or sold
under the Plan after the termination thereof, except upon exercise of an Award
granted prior to such termination. The termination of the Plan, or any amendment
thereof, shall not affect any Share previously issued or any Award previously
granted under the Plan.

                                     - 19 -

<PAGE>

SECTION 20. EXECUTION.

     To record the adoption of the Plan by the Board of Directors effective as
of ___________, 2002, the Company has caused its authorized officer to execute
the same.

                                              XCEL PHARMACEUTICALS, INC.
                                              a Delaware corporation

                                              By
                                                 -------------------------------
                                                    Name:
                                                    Title:

                                     - 20 -<PAGE>

                                                                    Exhibit 4.13

                               PURCHASE AGREEMENT

         THIS PURCHASE AGREEMENT is made and entered into as of February 5,
2002, by and between KANA Software, Inc., a Delaware corporation (the
"Company"), and the purchaser whose name and address is set forth on the
signature page hereof (the "Purchaser").

         1. Authorization and Sale of the Shares. Subject to the terms and
conditions of this Agreement, the Company has authorized the issuance and sale
of approximately $40,000,000 purchase price of shares (the "Shares") of its
common stock, par value $0.001 per share (the "Common Stock").

         2. Agreements to Sell and Purchase. On the basis of the representations
and warranties contained in this Agreement, and subject to its terms and
conditions, the Company hereby agrees to sell to the Purchaser, and the
Purchaser agrees to purchase from the Company, the number of Shares set forth on
the signature page hereto at the aggregate purchase price set forth on such
signature page (the "Purchase Price").

         The Company proposes to enter into purchase agreements in substantially
the form of this Agreement with certain other purchasers (collectively, the
"Other Purchasers") and expects, but is not obligated, to complete sales of
Shares to them. The Purchaser and the Other Purchasers are hereinafter sometimes
collectively referred to as the "Purchasers," and this Agreement and the
purchase agreements executed by the Other Purchasers are hereinafter sometimes
collectively referred to as the "Agreements."

         3. Payment and Delivery. Payment for the Shares shall be made to the
Company in Federal or other funds immediately available in New York City against
delivery of such Shares (such payment and delivery hereinafter referred to as
the "Closing") at 10:00 a.m., New York City time, on February 8, 2002, or at
such other time on the same or such other date, not later than February 8, 2002,
as shall be agreed by the Company and the Purchaser. The time and date of such
payment are hereinafter referred to as the "Closing Date." Payment for the
Shares shall be made through an escrow agent on terms and instructions set forth
in an Escrow Agreement dated the date hereof among the Company, the Purchaser
and Morgan Stanley & Co. Incorporated, as placement agent, and Morgan Stanley &
Co. Incorporated, as escrow agent.

         Certificates for the Shares shall be registered in the name of the
Purchaser or if so indicated on the signature page hereto, in the name of a
nominee designated by the Purchaser. The certificates evidencing the Shares
shall be delivered to the Purchaser on the Closing Date, with any transfer taxes
payable in

<PAGE>

connection with the transfer of the Shares to the Purchaser duly paid, against
payment of the Purchase Price therefor.

         4. Conditions to the Company's Obligations. The Company's obligation to
issue and sell the Shares to the Purchaser is subject to the following
conditions:

            (a) Receipt by the Company of Federal or other immediately available
         funds in the full amount of the Purchase Price; and

            (b) accuracy of the representations and warranties made by the
         Purchasers and the fulfillment in all material respects of those
         undertakings of the Purchasers to be fulfilled prior to the Closing.

         5. Conditions to the Purchaser's Obligations. The obligations of the
Purchaser to purchase and pay for the Shares on the Closing Date are subject to
the following conditions:

            (a) The Purchaser shall have received on the Closing Date a
         certificate, dated the Closing Date and signed by an executive officer
         of the Company, to the effect that the representations and warranties
         of the Company contained in this Agreement are true and correct as of
         the Closing Date and that the Company has complied with all of the
         agreements and satisfied all of the conditions on its part to be
         performed or satisfied hereunder on or before the Closing Date.

         The officer signing and delivering such certificate may rely upon the
         best of his or her knowledge as to proceedings threatened.

            (b) The Purchaser shall have received on the Closing Date an
         opinion of Fenwick & West LLP, counsel for the Company, dated the
         Closing Date, substantially in the form set forth in Exhibit A. Such
         opinion shall be rendered to the Purchaser at the request of the
         Company and shall so state therein.

            (c) The Purchaser shall have received such closing documents in
         form and substance as are customary for transactions of this nature.

         6. Representations, Warranties and Covenants of the Company. The
Company represents and warrants to, and covenants with, the Purchaser that as of
the date of this Agreement and as of the Closing Date:

            (a) The Company has filed with the Securities and Exchange
         Commission (the "Commission") all documents required to be filed
         pursuant to the Securities Exchange Act of 1934, as amended (the
         "Exchange Act") during the 12 months preceding the date of this

                                       2

<PAGE>

         Agreement. The following documents (collectively, the "Exchange Act
         Documents") complied when filed in all material respects with the
         Exchange Act and the applicable rules and regulations of the Commission
         thereunder, and did not, when so filed, contain any untrue statement of
         a material fact or omit to state a material fact necessary to make the
         statements therein, in the light of the circumstances under which they
         were made, not misleading:

                  (i) Quarterly Report on Form 10-Q for the Quarters ended March
            31, 2001, June 30, 2001 and September 30, 2001;

                  (ii) Annual Report on Form 10-K for the Year ended December
            31, 2000;

                  (iii) Definitive Proxy Statement and Prospectus filed with the
            Commission on May 18, 2001; and

                  (iv) All other documents, if any, filed by the Company with
            the Commission since December 31, 2000.

            (b) The Company has been duly incorporated, is validly existing as a
         corporation in good standing under the laws of the jurisdiction of its
         incorporation, has the corporate power and authority to own or lease
         its properties and to conduct its business as currently conducted and
         as described in the Exchange Act Documents and is duly qualified to
         transact business and is in good standing in each jurisdiction in which
         the conduct of its business or its ownership or leasing of property
         requires such qualification, except to the extent that the failure to
         be so qualified or be in good standing would not have a material
         adverse effect on the Company and its subsidiaries, taken as a whole.

            (c) The description of the Company's results of operations for the
         quarter ended December 31, 2001 and related financial data for such
         quarter contained in the Company's press release dated January 22, 2002
         (but excluding fiscal year 2002 guidance) and the information contained
         in the Company's press release dated February 1, 2002 (collectively,
         the "Press Releases"), and its Exchange Act Documents, taken as a whole
         and as amended to the date hereof, does not as of the date hereof
         contain any untrue statement of a material fact or omit to state a
         material fact necessary to make the statements therein, in the light of
         the circumstances under which they were made, not misleading.

            (d) Each subsidiary of the Company has been duly incorporated, is
         validly existing as a corporation in good standing under

                                       3

<PAGE>

         the laws of the jurisdiction of its incorporation, has the corporate
         power and authority to own or lease its properties and to conduct its
         business as currently conducted and described in the Exchange Act
         Documents and is duly qualified to transact business and is in good
         standing in each jurisdiction in which the conduct of its business or
         its ownership or leasing of property requires such qualification,
         except to the extent that the failure to be so qualified or be in good
         standing would not have a material adverse effect on the Company and
         its subsidiaries, taken as a whole; all of the issued shares of capital
         stock of each subsidiary of the Company have been duly and validly
         authorized and issued, are fully paid and non-assessable and are owned
         directly by the Company (or in the case of certain foreign
         subsidiaries, are beneficially owned by the Company), free and clear of
         all liens, encumbrances, equities or claims, except for a general lien
         held by Silicon Valley Bank on substantially all of the Company's
         assets.

            (e) This Agreement has been duly authorized, executed and delivered
         by, and is a valid and binding agreement of, the Company, enforceable
         in accordance with its terms, subject to applicable bankruptcy,
         insolvency or similar laws affecting creditors' rights generally and
         general principles of equity and except as rights to indemnification
         and contribution in Section 11 hereof may be limited under applicable
         law.

            (f) The authorized capital stock of the Company conforms as to legal
         matters to the description thereof contained in the Exchange Act
         Documents.

            (g) The shares of common stock outstanding prior to the issuance of
         the Shares have been duly authorized and are validly issued, fully paid
         and non-assessable.

            (h) The Shares have been duly authorized and, when issued and
         delivered in accordance with the terms of this Agreement, will be
         validly issued, fully paid and non-assessable, and the issuance of such
         Shares will not be subject to any preemptive or similar rights.

            (i) The execution and delivery by the Company of, and the
         performance by the Company of its obligations under, this Agreement
         will not contravene any provision of applicable law or the certificate
         of incorporation or by-laws of the Company or any agreement or other
         instrument binding upon the Company or any of its subsidiaries that is
         material to the Company and its subsidiaries, taken as a whole, or any
         judgment, order or decree of any governmental body, agency or court
         having jurisdiction over the Company or any subsidiary, and no consent,
         approval, authorization or order of, or qualification with, any

                                       4

<PAGE>

         governmental body or agency is required for the performance by the
         Company of its obligations under this Agreement, except such as may be
         required by the securities or Blue Sky laws of the various states or
         foreign jurisdictions in connection with the offer and sale of the
         Shares and by Federal and state securities laws with respect to the
         Company's obligations under Sections 8 and 10 of this Agreement.

            (j) There has not occurred any material adverse change, or any
         development involving a prospective material adverse change, in the
         condition, financial or otherwise, or in the earnings, business or
         operations of the Company and its subsidiaries, taken as a whole, since
         December 31, 2001.

            (k) There are no legal or governmental proceedings pending or, to
         the Company's knowledge, threatened to which the Company or any of its
         subsidiaries is a party or to which any of the properties of the
         Company or any of its subsidiaries is subject other than proceedings
         accurately described in all material respects in the Exchange Act
         Documents and proceedings that would not reasonably be expected to have
         a material adverse effect on the Company and its subsidiaries, taken as
         a whole, or on the power or ability of the Company to perform its
         obligations under this Agreement to consummate the transactions
         contemplated by this Agreement.

            (l) The Company and its subsidiaries (i) are in compliance with any
         and all applicable foreign, federal, state and local laws and
         regulations relating to the protection of human health and safety, the
         environment or hazardous or toxic substances or wastes, pollutants or
         contaminants ("Environmental Laws"), (ii) have received all permits,
         licenses or other approvals required of them under applicable
         Environmental Laws to conduct their respective businesses and (iii) are
         in compliance with all terms and conditions of any such permit, license
         or approval, except where such noncompliance with Environmental Laws,
         failure to receive required permits, licenses or other approvals or
         failure to comply with the terms and conditions of such permits,
         licenses or approvals would not, alone or in the aggregate, have a
         material adverse effect on the Company and its subsidiaries, taken as a
         whole.

            (m) There are no costs or liabilities associated with Environmental
         Laws (including, without limitation, any capital or operating
         expenditures required for clean-up, closure of properties or compliance
         with Environmental Laws or any permit, license or approval, any related
         constraints on operating activities and any potential liabilities to
         third parties) which would, alone or in the aggregate, have a material
         adverse effect on the Company and its subsidiaries, taken as a whole.

                                       5

<PAGE>

            (n) Except as disclosed in the Exchange Act Documents, the Company
         and its subsidiaries own or possess, or can acquire on reasonable
         terms, all material patents, patent rights, licenses, inventions,
         copyrights, know-how (including trade secrets and other unpatented
         and/or unpatentable proprietary or confidential information, systems or
         procedures), trademarks, service marks and trade names currently
         employed by them in connection with the business now operated by them,
         except where the failure to own, possess or acquire any of the
         foregoing would not result in a material adverse effect on the Company
         and its subsidiaries, taken as a whole, and neither the Company nor any
         of its subsidiaries has received any notice of infringement of or
         conflict with asserted rights of others with respect to any of the
         foregoing which, alone or in the aggregate, could reasonably be
         expected to have a material adverse effect on the Company and its
         subsidiaries, taken as a whole.

            (o) The Company is not, and after giving effect to the offering and
         sale of the Shares and the application of the proceeds thereof will not
         be, required to register as, an "investment company" as such term are
         defined in the Investment Company Act of 1940, as amended.

            (p) Neither the Company nor any affiliate (as defined in Rule 501(b)
         of Regulation D under the Securities Act of 1933, as amended (the
         "Securities Act"), an "Affiliate") of the Company has, directly, or
         through any agent, (i) sold, offered for sale, solicited offers to buy
         or otherwise negotiated in respect of, any security (as defined in the
         Securities Act) which is or will be integrated with the sale of the
         Shares in a manner that would require the registration under the
         Securities Act of the Shares; or (ii) offered, solicited offers to buy
         or sold the Shares by any form of general solicitation or general
         advertising (as those terms are used in Regulation D under the
         Securities Act) or in any manner involving a public offering within the
         meaning of Section 4(2) of the Securities Act; and neither the Company
         nor any Affiliate of the Company will engage in any of the actions
         described in clauses (i) and (ii) of this paragraph.

            (q) Subject to the accuracy of the Purchaser's representations
         herein, it is not necessary in connection with the offer, sale and
         delivery of the Shares to the Purchasers in the manner contemplated by
         this Agreement to register the Shares under the Securities Act.

            (r) The Company shall comply with all requirements of the National
         Association of Securities Dealers, Inc. with respect to the issuance of
         the Shares and the listing thereof on The Nasdaq National Market.

                                       6

<PAGE>

            (s) The Company has not taken and will not, in violation of
         applicable law, take, any action designed to or that might reasonably
         be expected to cause or result in stabilization or manipulation of the
         price of the Common Stock to facilitate the sale or resale of the
         Shares.

            (t) The Company is eligible to file a registration statement on Form
         S-3.

            (u) The Company shall, as soon as practicable following the
         execution of this and any other Agreements, but in no event later than
         the next business day after the date of this Agreement, publicly
         disclose the sale of Shares pursuant to such Agreements to the extent
         required by the Exchange Act and the applicable rules and regulations
         of the Commission thereunder; provided that, except as required by law,
         no disclosure will be made identifying the Purchaser.

            (v) No stockholder of the Company has any right (which has not been
         waived) to require the Company to register the sale of any shares owned
         by such stockholder under the Securities Act in the Registration
         Statement (as defined in Section 8(a)) to be filed by the Company on
         behalf of the Purchaser pursuant to Section 8(a).

         7. Representations, Warranties and Covenants of the Purchaser.

         The Purchaser represents and warrants to, and covenants with, the
         Company that:

            (a) The Purchaser is a qualified institutional buyer as defined in
         Rule 144A under the Securities Act (a "QIB") and has requested,
         received, reviewed and considered all information it deems relevant in
         making an informed decision to purchase the Shares. The Purchaser is
         experienced in evaluating companies such as the Company. At no time was
         the Purchaser presented with or solicited by any publicly issued or
         circulated newspaper, mail, radio, television or, to the Purchaser's
         knowledge, any other form of general advertising or solicitation in
         connection with the offer, sale and purchase of the Shares.

            (b) The Purchaser is acquiring the number of Shares set forth on the
         signature page hereto in the ordinary course of its business and for
         its own account for investment only and with no present intention of
         distributing any of such Shares or any arrangement or understanding
         with any other persons regarding the distribution of such Shares, other
         than as contemplated in Section 8 of this Agreement.

                                       7

<PAGE>

            (c) The Purchaser will not, directly or indirectly, offer, sell,
         pledge, transfer or otherwise dispose of (or solicit offers to buy,
         purchase or otherwise acquire or take a pledge of) any of the Shares,
         except in compliance with the Securities Act and the applicable rules
         and regulations of the Commission thereunder.

            (d) The Purchaser will have, on or prior to February 6, 2002,
         furnished to the Company a fully completed Selling Stockholder
         Questionnaire attached as Appendix I hereto for use in preparation of
         the Registration Statement and all of the information contained therein
         will be true and correct as of such date and as of the Closing Date.

            (e) The Purchaser will notify the Company immediately of any change
         in any such information until such time as the Purchaser has sold all
         of its Shares or until the Company is no longer required to keep the
         Registration Statement effective.

            (f) In connection with its decision to purchase the number of Shares
         set forth on the signature page hereto, the Purchaser (i) has relied
         only upon the Exchange Act Documents and Press Releases, the
         representations and warranties of the Company contained herein and the
         information received pursuant to Section 7(a), and (ii) has not relied
         on any information or advice furnished by or on behalf of Morgan
         Stanley & Co. Incorporated.

            (g) The Purchaser will not make any sale of the Shares without
         complying with the provisions of this Agreement and without causing the
         prospectus delivery requirement under the Securities Act to be
         satisfied, and the Purchaser acknowledges that the certificates
         evidencing the Shares will be imprinted with a legend in substantially
         the following form (and a stop-transfer order may be placed against
         transfer of the certificates for the Shares):

            "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
            REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE
            SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE
            OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID
            ACT UNTIL THE PASSAGE OF TWO YEARS FROM [CLOSING DATE], UNLESS THE
            SECURITIES ARE OTHERWISE SOLD, TRANSFERRED OR ASSIGNED IN COMPLIANCE
            WITH ALL APPLICABLE SECURITIES LAWS, AND THE COMPANY RECEIVES AN
            OPINION OF COUNSEL AS TO THE EXEMPTION FROM

                                       8

<PAGE>

            REGISTRATION OF SUCH SALE, TRANSFER OR ASSIGNMENT."

         The Purchaser acknowledges that there may occasionally be times when
         the Company determines that it must suspend the use of the Prospectus
         (as defined in Section 11(a)) forming part of the Registration
         Statement, as set forth in Section 10.

            (h) The Purchaser will notify the Company promptly of the sale of
         any of its Shares, other than (i) sales pursuant to a Registration
         Statement contemplated in Section 8 of this Agreement and (ii) sales
         following termination of the transfer restrictions pursuant to Section
         12, and the Purchaser will furnish any information reasonably requested
         by the Company, including an opinion of counsel reasonably satisfactory
         to the Company, to evidence the exemption from the registration
         requirements of the Securities Act, the applicable rules and
         regulations of the Commission thereunder, and state securities laws, in
         reliance upon which such sales have been made.

            (i) This Agreement has been duly authorized, executed and delivered
         by, and is a valid and binding agreement of, the Purchaser, enforceable
         in accordance with its terms, subject to applicable bankruptcy,
         insolvency or similar laws affecting creditors' rights generally and
         general principles of equity and except as rights to indemnification
         and contribution in Section 11 hereof may be limited under applicable
         law.

            (j) The Purchaser will not, prior to the effectiveness of the
         Registration Statement, if then prohibited by law or regulation, sell,
         offer to sell, solicit offers to buy, dispose of, loan, pledge or
         grant any right with respect to (collectively, a "Disposition"), the
         Common Stock, nor will the Purchaser, if then prohibited by law or
         regulation, engage in any hedging or other transaction which is
         designed or could reasonably be expected to lead to or result in a
         Disposition of Common Stock by the Purchaser or any person or entity.
         Such prohibited hedging or other transaction would include, without
         limitation, effecting any short sale or having in effect a short
         position (whether such short sale or position is against the box and
         regardless of when such position was entered into) or any purchase,
         sale or grant of any right (including, without limitation, any put or
         call option) with respect to the Common Stock or with respect to any
         security (other than a broad-based market basket or index) that
         includes or derives any significant part of its value from the Common
         Stock.

            (k) The Purchaser will hold in confidence all information concerning
         this Agreement and the placement of shares hereunder and under the
         Other Agreements until the earlier of such time as the Company

                                       9

<PAGE>

         has made a public announcement concerning this Agreement and the
         placement of Shares hereunder, or this Agreement is terminated.
         Purchaser acknowledges that for purposes of the foregoing, "hold in
         confidence" shall include not trading securities of the Company.

            (l) The Purchaser represents that based on the Company having
         19,397,678 shares of Common Stock outstanding at the Closing Date
         (before giving effect to the sale and purchase of Shares pursuant to
         this Agreement), the Purchaser, together with its ultimate parent
         entity and all entities controlled by the same ultimate parent as the
         Purchaser (such entities, including the Purchaser, hereinafter
         collectively referred to as the "Purchaser Affiliates"), will not hold
         in excess of 10% of the Company's outstanding voting securities as a
         result of the sale and purchase of Shares pursuant to this Agreement,
         and (ii) all voting securities of the Company that the Purchaser
         Affiliates will hold, directly or indirectly, at the Closing Date
         (after giving effect to the sale and purchase of Shares pursuant to
         this Agreement), will be held solely for the purpose of investment such
         that these securities will be held by the Purchaser Affiliates with no
         intention on the part of any of them to participate in the formulation,
         determination or direction of the basic business decisions of the
         Company. As a result of (i) and (ii), the Purchaser Affiliates are
         relying on the exemption available to them as passive investors under
         Section 7A(c)(9) of the Hart-Scott-Rodino Antitrust Improvements Act of
         1976, as amended, and regulations promulgated thereunder (including 16
         C.F.R. Sec. 802.9) in their determination that the sale and purchase of
         Shares pursuant to this Agreement does not require them to submit any
         HSR Notification and Report Form.

            (m) The Purchaser understands that if the Registration Statement is
         not declared effective by the Commission on or before February 14,
         2002, the Commission will not declare it effective prior to the Company
         filing with the Commission its audited financial statements for its
         fiscal year ended December 31, 2001, which the Company is required to
         do in connection with filing its annual report on Form 10-K for such
         fiscal year.

         8. Shelf Registration. The Company shall:

            (a) use its best efforts to prepare and file or cause to be prepared
         and filed with the Commission, as soon as practicable but in any event
         by February 7, 2002 (the "Filing Deadline Date") a registration
         statement (the "Registration Statement") registering the resale from
         time to time by Purchasers of all of the Shares. The Registration
         Statement shall be on Form S-3 or another appropriate form permitting
         registration of such Shares for resale by the Purchasers from time to
         time through the

                                       10

<PAGE>

         automated quotation system of The Nasdaq National Market or the
         facilities of a national security exchange on which the Common Stock is
         then traded, or in privately negotiated transactions. The Company shall
         use its reasonable efforts, subject to receipt of necessary information
         from the Purchaser, to cause the Registration Statement to be declared
         effective under the Securities Act as promptly as is practicable but in
         any event by the date (the "Effectiveness Deadline Date") that is sixty
         (60) days after the date the Registration Statement is filed.

            (b) Prepare and file with the Commission such amendments and
         post-effective amendments to the Registration Statement as may be
         necessary to keep such Registration Statement continuously effective
         for a period not to exceed the earlier of (i) the second anniversary of
         the Closing Date, (ii) such time as such Purchase may immediately sell
         all Shares purchased by such Purchaser and all other shares of Common
         Stock of the Company then held by such Purchaser that are sellable
         under Rule 144(b) (without giving effect to the volume limitations of
         Rule 144(e)) or (iii) such time as all Shares purchased by such
         Purchaser pursuant to this Agreement have been sold pursuant to a
         registration statement or pursuant to Rule 144 under the Securities Act
         (such period, the "Effectiveness Period"); cause the related prospectus
         to be supplemented by any required Prospectus supplement, and as so
         supplemented to be filed pursuant to Rule 424 (or any similar
         provisions then in force) under the Securities Act; and use its best
         efforts to comply with the provisions of the Securities Act applicable
         to it with respect to the disposition of all securities covered by such
         Registration Statement during the Effectiveness Period in accordance
         with the intended methods of disposition by the sellers thereof set
         forth in such Registration Statement as so amended or such Prospectus
         as so supplemented.

            (c) As promptly as practicable give notice to the Purchaser (i) when
         any Prospectus, Prospectus supplement, or the Registration Statement or
         a post-effective amendment to the Registration Statement has been filed
         with the Commission and, with respect to a Registration Statement or
         any post-effective amendment, when the same has been declared
         effective.

            (d) Use reasonable efforts to obtain the withdrawal of any order
         suspending the effectiveness of the Registration Statement or the
         lifting of any suspension of the qualification (or exemption from
         qualification) of any of the Shares for sale in any jurisdiction in
         which they have been qualified for sale, in either case at the earliest
         possible moment, and provide prompt notice to the Purchaser of the
         withdrawal of any such order.

                                       11

<PAGE>

            (e) During the Effectiveness Period, deliver to the Purchaser in
         connection with any sale by the Purchaser of Shares pursuant to the
         Registration Statement, without charge, as many copies of the
         Prospectus or Prospectuses relating to such Shares (including each
         preliminary prospectus) and any amendment or supplement thereto as such
         the Purchaser may reasonably request.

            (f) File documents required of the Company for customary Blue Sky
         clearance in states specified in writing by the Purchaser; provided
         that the Company will not be required to (i) qualify as a foreign
         corporation or as a dealer in securities in any jurisdiction where it
         would not otherwise be required to qualify but for this Agreement or
         (ii) take any action that would subject it to general service of
         process in suits or to taxation in any such jurisdiction where it is
         not then so subject.

            (g) Bear all fees and expenses incurred in connection with the
         performance by the Company of its obligations under paragraphs (a)
         through (f) of this Section whether or not the Registration Statement
         is declared effective, other than fees and expenses, if any, of counsel
         or other advisors to the Purchaser or underwriting discounts, brokerage
         fees and commissions incurred by the Purchaser.

            (h) Not allow any stockholders other than the Purchasers to include
         their shares in the Registration Statement; provided this paragraph
         8(h) shall not apply if and to the extent the Company amends a
         registration statement currently on file with the Securities and
         Exchange Commission to include sales of the Shares by the Purchasers.

         9. Delay in Filing or Effectiveness of Registration Statement. If the
Registration Statement is not filed by the Company with the Commission on or
prior to the Filing Deadline Date, then for each day following the Filing
Deadline Date, until but excluding the date the Registration Statement is filed,
or if the Registration Statement is not declared effective by the Commission by
the Effectiveness Deadline Date, then for each day following the Effectiveness
Deadline Date, until but excluding the date the Commission declares the
Registration Statement effective, the Company shall, for each such day, pay the
Purchaser, as liquidated damages and not as a penalty, an amount equal to a
weekly rate (expressed as a percentage of the Purchase Price) of (a) .25% with
respect to any failure to timely file the Registration Statement and (b) .15%
for days 61-90 and .25% thereafter with respect to any failure to have the
Registration Statement declared effective; and for any such day, such payment
shall be made no later than the first business day of the calendar month next
succeeding the month in which such day occurs.

                                       12

<PAGE>

         The parties agree that the sole damages payable for a violation of the
terms of this Agreement with respect to which liquidated damages are expressly
provided shall be such liquidated damages. Nothing shall preclude the Purchaser
from pursuing or obtaining specific performance or other equitable relief with
respect to this Agreement.

         The parties hereto agree that the liquidated damages provided for in
this Section 9 constitute a reasonable estimate of the damages that may be
incurred by the Purchaser by reason of the failure of the Registration Statement
to be filed or declared effective in accordance with the provisions hereof.

         10. Transfer of Shares After Registration; Suspension.

            (a) The Purchaser agrees that it will not effect any disposition of
         the Shares or its right to purchase the Shares that would constitute a
         sale within the meaning of the Securities Act except as contemplated in
         the Registration Statement referred to in Section 8(a) and as described
         below or as otherwise permitted by law, and that it will promptly
         notify the Company of any changes in the information set forth in the
         Registration Statement regarding the Purchaser or its plan of
         distribution.

            (b) The Company shall, as promptly as practicable, give notice to
         the Purchaser (i) of any request, following the effectiveness of the
         Registration Statement under the Securities Act, by the Commission or
         any other federal or state governmental authority for amendments or
         supplements to any Registration Statement or related prospectus or for
         additional information, (ii) of the issuance by the Commission or any
         other federal or state governmental authority of any stop order
         suspending the effectiveness of the Registration Statement or the
         initiation or threatening of any proceedings for that purpose, (iii) of
         the receipt by the Company of any notification with respect to the
         suspension of the qualification or exemption from qualification of any
         of the Shares for sale in any jurisdiction or the initiation or
         threatening of any proceeding for such purpose, (iv) of the occurrence
         of a Material Event (as defined in Section 10(c)) and (v) of the
         determination by the Company that a post-effective amendment to a
         Registration Statement will be filed with the Commission, which notice
         may, at the discretion of the Company (or as required pursuant to
         paragraph 10(c)), state that it constitutes a Deferral Notice, in which
         event the provisions of Section 10(c) shall apply.

            (c) The Company shall, upon (A) the issuance by the Commission of a
         stop order suspending the effectiveness of the Registration Statement
         or the initiation of proceedings with respect to the Registration
         Statement under Section 8(d) or 8(e) of the Securities Act, (B) the
         occurrence of any event or the existence of any fact (a "Material

                                       13

<PAGE>

         Event") as a result of which the Registration Statement shall contain
         any untrue statement of a material fact or omit to state any material
         fact required to be stated therein or necessary to make the statements
         therein not misleading, or the related prospectus shall contain any
         untrue statement of a material fact or omit to state any material fact
         required to be stated therein or necessary to make the statements
         therein, in the light of the circumstances under which they were made,
         not misleading, or (C) the occurrence or existence of any pending
         corporate development that, in the reasonable discretion of the
         Company, makes it appropriate to suspend the availability of the
         Registration Statement and the related Prospectus, (i) in the case of
         clause (B) above, subject to the next sentence, as promptly as
         practicable prepare and file, if necessary pursuant to applicable law,
         a post-effective amendment to such Registration Statement or a
         supplement to the related Prospectus or any document incorporated
         therein by reference or file any other required document that would be
         incorporated by reference into such Registration Statement and
         Prospectus so that such Registration Statement does not contain any
         untrue statement of a material fact or omit to state any material fact
         required to be stated therein or necessary to make the statements
         therein not misleading, and such prospectus does not contain any untrue
         statement of a material fact or omit to state any material fact
         required to be stated therein or necessary to make the statements
         therein, in the light of the circumstances under which they were made,
         not misleading, as thereafter delivered to the purchasers of the Shares
         being sold thereunder, and, in the case of a post-effective amendment
         to the Registration Statement, subject to the next sentence, use its
         reasonable efforts to cause it to be declared effective as promptly as
         is practicable, and (ii) give notice to the Purchaser that the
         availability of the Registration Statement is suspended (a "Deferral
         Notice") and, upon receipt of any Deferral Notice, the Purchaser agrees
         not to sell any Shares pursuant to the Registration Statement until
         such Purchaser's receipt of copies of the supplemented or amended
         prospectus provided for in clause (i) above, or until it is advised in
         writing by the Company that the Prospectus may be used, and has
         received copies of any additional or supplemental filings that are
         incorporated or deemed incorporated by reference in such Prospectus.
         The Company will use all reasonable efforts to ensure that the use of
         the Prospectus may be resumed (x) in the case of clause (A) and (B)
         above, as promptly as is practicable, and (y) in the case of clause (C)
         above, as soon as, in the sole judgment of the Company, public
         disclosure of such Material Event would not be prejudicial to or
         contrary to the interests of the Company or, if necessary to avoid
         unreasonable burden or expense, as soon as practicable thereafter. The
         Company shall be entitled to exercise its right under this Section
         10(c) to suspend the availability of the Registration Statement or any
         Prospectus no more than two (2) times in any twelve-month period, and
         any such period

                                       14

<PAGE>

         during which the availability of the Registration Statement and any
         Prospectus is suspended (the "Deferral Period") shall not exceed
         forty-five (45) days; provided that any two Deferral Periods in a
         twelve-month period may not exceed a total of sixty (60) days. The
         Company shall use all commercially reasonable efforts to limit the
         duration and number of any Deferral Periods. The Purchaser hereby
         agrees that upon receipt of any Deferral Notice from the Company, the
         Purchaser shall, and shall cause each of its officers, directors,
         employees, affiliates, advisors, agents and representatives to, keep
         confidential all nonpublic information set forth in such notice
         including the existence and terms of such Deferral Notice.

         11. Indemnity and Contribution. (a) The Company agrees to indemnify and
hold harmless the Purchaser and each person, if any, who controls the Purchaser
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or the prospectus included
in the Registration Statement, as amended or supplemented by any amendment or
prospectus supplement, including post-effective amendments, and all material
incorporated by reference in such prospectus (the "Prospectus") or in any
amendment or supplement thereto or in any preliminary prospectus, or caused by
any omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages or liabilities are caused by (i)
any such untrue statement or omission or alleged untrue statement or omission
based upon information relating to the Purchaser furnished to the Company in
writing by such Purchaser expressly for use therein, or (ii) the failure of such
Purchaser to comply with the covenants and agreements contained in Sections 7
and 10 hereof respecting resale of the Shares.

            (b) The Purchaser agrees to indemnify and hold harmless the Company,
         its directors and its officers and each person, if any, who controls
         the Company within the meaning of either Section 15 of the Securities
         Act or Section 20 of the Exchange Act, from and against any and all
         losses, claims, damages and liabilities (including, without limitation,
         any legal or other expenses reasonably incurred in connection with
         defending or investigating any such action or claim), insofar as such
         losses, claims, damages or liabilities are caused by (i) the failure of
         the Purchaser to comply with the covenants and agreements contained in
         Sections 7 and 10 hereof respecting resale of the Shares, (ii) any
         untrue statement or alleged untrue statement of a material fact
         contained in the Registration Statement or the Prospectus or in any
         amendment or

                                       15

<PAGE>

         supplement thereto or in any preliminary prospectus, or caused by any
         omission or alleged omission to state therein a material fact required
         to be stated therein or necessary to make the statements therein not
         misleading, in each case to the extent, but only to the extent, that
         such untrue statement or alleged untrue statement or omission or
         alleged omission was made in reliance upon and in conformity with
         information relating to the Purchaser furnished in writing by the
         Purchaser to the Company expressly for use in the Registration
         Statement or Prospectus.

                  (c) In case any proceeding (including any governmental
         investigation) shall be instituted involving any person in respect of
         which indemnity may be sought pursuant to Section 11(a) or 11(b), such
         person (the "indemnified party") shall promptly notify the person
         against whom such indemnity may be sought (the "indemnifying party") in
         writing and the indemnifying party, upon request of the indemnified
         party, shall retain counsel reasonably satisfactory to the indemnified
         party to represent the indemnified party and any others the
         indemnifying party may designate in such proceeding and shall pay the
         fees and disbursements of such counsel related to such proceeding. In
         any such proceeding, any indemnified party shall have the right to
         retain its own counsel, but the fees and expenses of such counsel shall
         be at the expense of such indemnified party unless (i) the indemnifying
         party and the indemnified party shall have mutually agreed to the
         retention of such counsel or (ii) the named parties to any such
         proceeding (including any impleaded parties) include both the
         indemnifying party and the indemnified party and representation of both
         parties by the same counsel would be inappropriate due to actual or
         potential differing interests between them. It is understood that the
         indemnifying party shall not, in respect of the legal expenses of any
         indemnified party in connection with any proceeding or related
         proceedings in the same jurisdiction, be liable for the fees and
         expenses of more than one separate firm (in addition to any local
         counsel) for all indemnified parties, and that all such fees and
         expenses shall be reimbursed as they are incurred. The indemnifying
         party shall not be liable for any settlement of any proceeding effected
         without its written consent, but if settled with such consent or if
         there be a final judgment for the plaintiff, the indemnifying party
         agrees to indemnify the indemnified party from and against any loss or
         liability by reason of such settlement or judgment. No indemnifying
         party shall, without the prior written consent of the indemnified
         party, effect any settlement of any pending or threatened proceeding in
         respect of which any indemnified party is or could have been a party
         and indemnity could have been sought hereunder by such indemnified
         party, unless such settlement includes an unconditional release of such
         indemnified party from all liability on claims that are the subject
         matter of such proceeding.

                                       16

<PAGE>

            (d) To the extent that the indemnification provided for under
         Section 11(a) or 11(b) is unavailable to an indemnified party or is
         insufficient in respect of any losses, claims, damages or liabilities
         referred to therein, then each indemnifying party under such paragraph,
         in lieu of indemnifying such indemnified party thereunder, shall
         contribute to the amount paid or payable by such indemnified party as a
         result of such losses, claims, damages or liabilities (i) in such
         proportion as is appropriate to reflect the relative benefits received
         by the indemnifying party or parties on the one hand and the
         indemnified party or parties on the other hand or (ii) if the
         allocation provided by clause (i) above is not permitted by applicable
         law, in such proportion as is appropriate to reflect not only the
         relative benefits referred to in clause (i) above but also the relative
         fault of the indemnifying party or parties on the one hand and of the
         indemnified party or parties on the other hand in connection with the
         statements or omissions or other matters that resulted in such losses,
         claims, damages or liabilities, as well as any other relevant equitable
         considerations. The relative benefits received by the Company shall be
         deemed to be equal to the total net proceeds from the sale pursuant to
         the Purchase Agreement (before deducting expenses) of the Shares to
         which such losses, claims, damages or liabilities relate. The relative
         benefits received by the Purchaser shall be deemed to be equal to the
         value of receiving Shares that are registered under the Securities Act.
         The relative fault of the Purchaser on the one hand and the Company on
         the other hand shall be determined by reference to, among other things,
         whether the untrue or alleged untrue statement of a material fact or
         the omission or alleged omission to state a material fact, or the
         inaccurate or the alleged inaccurate representation or warranty relates
         to information supplied by the Purchaser or by the Company and the
         parties' relative intent, knowledge, access to information and
         opportunity to correct or prevent such statement or omission.

            The parties hereto agree that it would not be just and equitable if
         contribution pursuant to this Section 11(d) were determined by pro rata
         allocation or by any other method or allocation that does not take
         account of the equitable considerations referred to in the immediately
         preceding paragraph. The amount paid or payable by an indemnified party
         as a result of the losses, claims, damages and liabilities referred to
         in the immediately preceding paragraph shall be deemed to include,
         subject to the limitations set forth above, any legal or other expenses
         reasonably incurred by such indemnified party in connection with
         investigating or defending any such action or claim. Notwithstanding
         this Section 11(d), the Purchaser shall not be required to contribute
         any amount in excess of the amount by which the net amount received by
         the Purchaser from the sale of the Shares to which such loss relates
         exceeds the amount of any damages that such indemnifying party has
         otherwise been required to pay

                                       17

<PAGE>

         by reason of such untrue or alleged untrue statement or omission or
         alleged omission. No person guilty of fraudulent misrepresentation
         (within the meaning of Section 11(f) of the Securities Act) shall be
         entitled to contribution from any person who was not guilty of such
         fraudulent misrepresentation.

            (e) The remedies provided for in this Section 11 are not exclusive
         and shall not limit any rights or remedies which may otherwise be
         available to any indemnified party at law or equity.

            (f) The indemnity and contribution provisions contained in this
         Section 11 and the representations, warranties and other statements of
         the Company and the Purchaser contained in this Agreement shall survive
         the execution of this Agreement and shall remain operative and in full
         force and effect regardless of (i) any investigation made by or on
         behalf of the Purchaser or any person controlling the Purchaser, or the
         Company, or the Company's officers or directors or any person
         controlling the Company and (ii) the sale of any Shares by the
         Purchaser.

         12. Termination of Conditions and Obligations. The conditions precedent
imposed by Sections 7, 8 and 10 upon the transferability of the Shares shall
cease and terminate as to any particular number of the Shares (and any legend on
the Shares will be removed by the Company) at such time as such Shares have been
effectively registered under the Securities Act and sold or otherwise disposed
of in accordance with the intended method of disposition set forth in the
Registration Statement covering such Shares, upon the passage of two years from
the Closing Date, or at such time as an opinion of counsel satisfactory to the
Company shall have been rendered to the effect that such conditions are not
necessary in order to comply with the Securities Act.

         13. Information Available. So long as the Registration Statement is
effective covering the resale of Shares owned by the Purchaser, the Company will
furnish to the Purchaser:

            (a) as soon as practicable after it is available (but in the case of
         the Company's Annual Report to Stockholders, within 90 days of each
         fiscal year of the Company), one copy of:

                  (i) its Annual Report to Stockholders (which Annual Report
            shall contain financial statements audited in accordance with
            generally accepted accounting principles by a national firm of
            certified public accountants);

                  (ii) if not included in substance in the Annual Report to
            Stockholders, its Annual Report on Form 10-K;

                                       18

<PAGE>

                  (iii) its Quarterly Reports on Form 10-Q; and

                  (iv) a full copy of the particular Registration Statement
            covering the Shares (the foregoing, in each case, excluding exhibits
            unless specifically requested); and

            (b) upon the reasonable request of the Purchaser, an adequate number
         of copies of the Prospectus to supply to any other party requiring such
         Prospectus.

         14. Placement Agent's Fee. The Purchaser acknowledges that the Company
intends to pay to Morgan Stanley & Co. Incorporated, in its capacity as the
placement agent for the Shares, a fee in respect of the sale of the Shares to
the Purchaser. Each of the parties to this Agreement hereby represents that, on
the basis of any actions and agreements by it, there are no other brokers or
finders entitled to compensation in connection with the sale of the Shares to
the Purchaser.

         15. Rule 144. (a) The Company covenants that, if at any time before the
end of the Effectiveness Period the Company is not subject to the reporting
requirements of the Exchange Act, it will cooperate with the Purchaser and take
such further reasonable action as the Purchaser may reasonably request in
writing (including, without limitation, making such reasonable representations
as the Purchaser may reasonably request), all to the extent required from time
to time to enable the Purchaser to sell Shares without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144 and
Rule 144A under the Securities Act and customarily taken in connection with
sales pursuant to such exemptions. Upon the written request of the Purchaser,
the Company shall deliver to the Purchaser a written statement as to whether it
has complied with such reporting requirements, unless such a statement has been
included in the Company's most recent report filed pursuant to Section 13 or
Section 15(d) of Exchange Act. Notwithstanding the foregoing, nothing in this
Section 14 shall be deemed to require the Company to register any of its
securities (other than the Common Stock) under any section of the Exchange Act.

            (b) The Company shall file the reports required to be filed by it
         under the Exchange Act and shall comply with all other requirements set
         forth in the instructions to Form S-3 in order to allow the Company to
         be eligible to file registration statements on Form S-3.

         16. Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand delivery, by telecopier, by
courier guaranteeing overnight delivery or by first-class mail, return receipt
requested, and shall be deemed given (i) when made, if made by hand delivery,
(ii) upon confirmation, if made by telecopier, (iii) one (1) business day after
being

                                       19

<PAGE>

deposited with such courier, if made by overnight courier or (iv) on the date
indicated on the notice of receipt, if made by first-class mail, to the parties
as follows:

            (a) if to the Purchaser, at its address on the signature page
         hereto;

            (b) if to the Company, to:

                   KANA Software, Inc.
                   181 Constitution Drive
                   Menlo Park, California 94025
                   Attn: Eric Willgohs, Esq.

                   With a copy to:

                   David Michaels, Esq.
                   Fenwick & West LLP
                   275 Battery Street
                   San Francisco, CA 94111
                   Fax: (415) 281-1350

            (c) if to the Escrow Agent, to:

                   Morgan Stanley & Co. Incorporated
                   1585 Broadway
                   New York, New York  10035
                   Attn: Syndicate Operations

or to such other address as such person may have furnished to the other persons
identified in this Section 16 in writing in accordance herewith.

         17. Severability. If any term provision, covenant or restriction of
this Agreement is held to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth herein
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated thereby, and the parties hereto shall use their best efforts to
find and employ an alternative means to achieve the same or substantially the
same result as that contemplated by such term, provision, covenant or
restriction, it being intended that all of the rights and privileges of the
parties shall be enforceable to the fullest extent permitted by law.

         18. Modification; Amendment. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented unless pursuant to an instrument in writing signed by the Company
and the Purchaser.

                                       20

<PAGE>

         19. Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and is intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto
with respect to the subject matter contained herein. Except as provided in this
Agreement, there are no restrictions, promises, warranties or undertakings,
other than those set forth or referred to herein, with respect to such matters.
This Agreement supersedes all prior agreements and undertakings among the
parties with respect to such matters. No party hereto shall have any rights,
duties or obligations other than those specifically set forth in this Agreement.

         20. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.

         21. Applicable Law. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of New York

         22. Headings. The headings of the sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed a part of
this Agreement.

                                       21

<PAGE>

         IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.

                                  [NAME OF PURCHASER]

                                  By:
                                      ------------------------------------------

                                      Name:
                                           -------------------------------------

                                      Title:
                                            ------------------------------------

                                      Address:
                                              ----------------------------------

                                      Number of Shares:
                                                       -------------------------

                                      Aggregate Purchase Price: $
                                                                 ---------------

                                      Tax ID No.:
                                                 -------------------------------

                                      Contact Name:
                                                   -----------------------------

                                      Telephone:
                                                --------------------------------

                                      Name in which the Shares should be
                                      registered (if different):
                                                                ----------------

                                      Relationship between the Purchaser and
                                      the person or entity in whose name the
                                      Shares should be registered (if
                                      different):
                                                 -------------------------------

                                      ------------------------------------------

Agreed to and Accepted by:

                                  KANA Software, Inc.

                                  By:
                                     -------------------------------------------
                                     Name:
                                     Title:

                                       22

<PAGE>

                                                                       EXHIBIT A

                       OPINION OF COUNSEL FOR THE COMPANY

         The opinion of the counsel for the Company, to be delivered pursuant to
Section 5(b) of the Purchase Agreement shall be substantially to the effect (but
may include assumptions and exceptions customary in such opinions) that:

         (A) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own or lease its
properties and to conduct its business as currently conducted and as described
in the Exchange Act Documents and, to such counsel's knowledge, is duly
qualified to transact business and is in good standing in each jurisdiction in
which the conduct of its business or its ownership or leasing of property
requires such qualification, except to the extent that the failure to be so
qualified or be in good standing would not have a material adverse effect on the
Company and its subsidiaries, taken as a whole.

         (B) The Purchase Agreement has been duly authorized, executed and
delivered by, and is a valid and binding agreement of, the Company, enforceable
against the Company in accordance with its terms.

         (C) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Exchange Act Documents.

         (D) The Shares have been duly authorized and, when issued and delivered
in accordance with the terms of the Purchase Agreement against payment by the
Purchasers of the Purchase Price for such Shares as provided therein, will be
validly issued, fully paid and non-assessable, and the issuance of such Shares
will not be subject to any preemptive or similar rights.

         (E) Based upon the representations, warranties and agreements of the
Purchaser in Section 7 of the Purchase Agreement, it is not necessary in
connection with the offer, sale and delivery of the Shares to the Purchaser
under the Purchase Agreement to register the Shares under the Securities Act, it
being understood that no opinion is expressed as to any subsequent resale of any
Shares.

                                       23

<PAGE>

                                                                      APPENDIX I

                               KANA SOFTWARE, INC.

                      SELLING SECURITYHOLDER QUESTIONNAIRE
                              FOR INTENDED SALE OF
                             SHARES OF COMMON STOCK
                    PURSUANT TO SHELF REGISTRATION STATEMENT

         The following questionnaire and agreement (the "Questionnaire") elicits
information necessary to prepare a registration statement on Form S-3 (the
"Shelf Registration Statement") for the registration and resale under Rule 415
of the Securities Act of 1933, as amended (the "Securities Act"), of certain
shares of common stock of KANA Software, Inc. (the "Company") to be filed by the
Company with the Securities and Exchange Commission (the "Commission"), in
accordance with the terms of the Purchase Agreement, dated as of February __,
2002 (the "Purchase Agreement"), between the Company and the undersigned
beneficial owner of shares of common stock of the Company purchased pursuant to
such agreement (the "Selling Securityholder"). All capitalized terms not
otherwise defined herein shall have the meaning ascribed thereto in the Purchase
Agreement.

         In order to sell or otherwise dispose of any Shares pursuant to the
Shelf Registration Statement, you generally will be required to be named as a
selling securityholder in the related prospectus, deliver a prospectus to
purchasers of the Shares and be bound by the provisions of the Purchase
Agreement (including certain indemnification provisions, as described below). If
you do not complete this Questionnaire and deliver it to the Company as provided
below you will not be named as a selling securityholder in the prospectus and
therefore will not be permitted to sell any Shares pursuant to the Shelf
Registration Statement. Please complete and deliver this Questionnaire to [Eric
Willgohs, Esq.] of KANA Software, Inc. as soon as possible and in any event no
later than February __, 2002 [Closing Date].

         Certain legal consequences arise from being named as a selling
securityholder in the Shelf Registration Statement and the related prospectus.
Accordingly, holders and beneficial owners of the Shares are advised to consult
their own securities law counsel regarding the consequences of being named or
not being named as a selling securityholder in the Shelf Registration Statement
and the related prospectus.

                                       24

<PAGE>

         The Selling Securityholder, by signing and returning this
Questionnaire, understands that it will be bound by the terms and conditions of
this Questionnaire and the Purchase Agreement.

         Pursuant to the Purchase Agreement, the undersigned has agreed to
indemnify and hold harmless the Company, any of its directors and officers who
sign the Shelf Registration Statement, and each person, if any, who controls the
Company within the meaning of either Section 15 of the Securities Act or Section
20 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), from
and against certain losses arising in connection with statements concerning the
undersigned made in the Company's Shelf Registration Statement or the related
prospectus in reliance upon the information provided in this Questionnaire.

         The undersigned hereby provides the following information to the
Company and represents and warrants that such information is accurate and
complete:

                                       25

<PAGE>

                                  QUESTIONNAIRE

         1.    (a) Full Legal Name of Selling Securityholder:/1/

               ------------------------------------------------------

               (b) Except as set forth below in this Item 1(b), the undersigned
               does not hold any or all of the Shares on behalf of another
               person or entity.

               State any exceptions here:

               ------------------------------------------------------

         2.    Address of Selling Securityholder:

               ------------------------------------------------------

               ------------------------------------------------------

               Telephone:
                          ----------------------------

               Fax:
                   -----------------------------------

               Contact Person:
                               -----------------------

         3.    Beneficial Ownership:

               Immediately after the Closing, there will be no equity securities
               of the Company of which the undersigned will be the "beneficial
               owner"/2/, except as set forth below in this Item 3. The
               disclosure indicates the amount of equity securities which the
               undersigned beneficially owns, which it has a right to acquire
               within 60 days after the Closing Date, and as to which it has
               sole voting power, shared voting power, sole investment power or
               shared investment power.

               ------------------------------------------------------

               ------------------------------------------------------

----------------------------
         /1/ If this Questionnaire is being completed by or on behalf of a
person other than an individual, the entity on whose behalf the Questionnaire is
being completed should be stated.

         /2/ Defined in Appendix A.

                                       26

<PAGE>

               ------------------------------------------------------

         4.    Except as set forth below in this Item 4, the undersigned wishes
               that all the Shares held by it be offered for the account of the
               undersigned in the Registration Statement.

               State any exceptions here:

               ------------------------------------------------------

               ------------------------------------------------------

               ------------------------------------------------------

         5.    Relationships with the Company:

               Except as set forth below, neither the undersigned nor any of
               its affiliates, officers, directors or principal equity
               holders (5% or more) has held any position or office or has
               had any other material relationship with the Company (or its
               predecessors or affiliates) during the past three years.

               State any exceptions here:

               ------------------------------------------------------

               ------------------------------------------------------

               ------------------------------------------------------

         6.    Plan of Distribution:

               Except as set forth below, the undersigned (including its
               donees or pledgees) intends to distribute the Shares pursuant
               to the Shelf Registration Statement only as follows (if at
               all): Such Shares may be sold from time to time directly by
               the undersigned or, alternatively, through underwriters,
               broker-dealers or agents. If the Shares are sold through
               underwriters or broker-dealers, the Selling Securityholder
               will be responsible for underwriting discounts or commissions
               or agent's commissions. Such Shares may be sold in one more or
               transactions at fixed prices, at prevailing market prices at
               the time of sale, at varying prices determined at the time of
               sale, or at negotiated prices. Such sales may be effected in
               transactions (which may involve block

                                       27

<PAGE>

               transactions) (i) on any national securities exchange or
               quotation service on which the Shares may be listed or quoted
               at the time of sale, (ii) in the over-the-counter market,
               (iii) in transactions otherwise than on such exchanges or
               services or in the over-the-counter market, or (iv) through
               the writing of options. In connection with sales of the Shares
               or otherwise, the undersigned may enter into hedging
               transactions with broker-dealers, which may in turn engage in
               short sales of the Shares in the course of hedging positions
               they assume. The undersigned may also sell Shares short and
               deliver Shares to close out short positions, or loan or pledge
               Shares to broker-dealers that in turn may sell such
               securities.

               State any exceptions here:

               ------------------------------------------------------

               ------------------------------------------------------

               ------------------------------------------------------

               Note: In no event will such method(s) of distribution take the
               form of an underwritten offering of the Shares without the prior
               agreement of the Company.

         7.    State below whether the undersigned is a "member"/3/ of the
               National Association of Securities Dealers, Inc. ("NASD"),
               "person associated with a member", a direct or indirect
               "affiliate" of a "member" or an "underwriter or related person"
               with respect to the proposed offering./4/ If the undersigned is a
               general or limited partnership, a "No" reply shall be assumed to
               confirm that no relationship exists for the undersigned as well
               as each of its general or limited partners./5/

               Yes____________________ No____________________

----------------------
         /3/ Highlighted terms in this Item are defined in Appendix A.

         /4/ NASD Rule 2710(b)(6)(A)(iii).

         /5/ Item 6 need only be answered if either (i) the Selling
Securityholder is an affiliate of the Company, or (ii) the sale of Shares under
the Shelf Registration Statement requires clearance from the NASD.

                                       28

<PAGE>

                  If yes, identify the NASD member and describe the relationship
                  with the NASD member, including in the case of a general or
                  limited partner, the identity of the partner.

         The undersigned acknowledges that it understands its obligation to
comply with the provisions of the Exchange Act and the rules thereunder relating
to stock manipulation, particularly Regulation M thereunder (or any successor
rules or regulations), in connection with any offering of the Shares pursuant to
the Shelf Registration Statement. The undersigned agrees that neither it nor any
person acting on its behalf will engage in any transaction in violation of such
provisions.

         In accordance with the undersigned's obligation under the Purchase
Agreement to provide such information as may be required by law for inclusion in
the Shelf Registration Statement, the undersigned agrees to promptly notify the
Company of any inaccuracies or changes in the information provided herein that
may occur subsequent to the date hereof at any time while the Shelf Registration
Statement remains effective.

         By signing below, the undersigned consents to the disclosure of the
information contained herein in its answers to Items 1 through 6 above and the
inclusion of such information in the Shelf Registration Statement and the
related prospectus. The undersigned understands that such information will be
relied upon by the Company in connection with the preparation or amendment of
the Shelf Registration Statement and the related prospectus.

         IN WITNESS WHEREOF, the undersigned, by authority duly given, has
caused this Questionnaire to be executed and delivered either in person or by
its duly authorized agent.

         Dated:

                                                 [NAME OF SELLING
                                                  SECURITYHOLDER]

                                            By:  _______________________________
                                                 Name:__________________________
                                                 Title: ________________________

                                       29

<PAGE>

                                                                      APPENDIX A

Definitions of Terms Used

         1. You are the "beneficial owner" of a security if you directly or
indirectly, through any contract, arrangement, understanding, relationship, or
otherwise, have or share: (i) voting power which includes the power to vote, or
to direct the voting of, such security, or (ii) investment power which includes
the power to dispose, or to direct the disposition of, such security. You are
deemed the beneficial owner of a security if you, directly or indirectly, create
or use a trust, proxy, power of attorney, pooling arrangement or any other
contract, arrangement, or device with the purpose or effect of divesting
yourself of beneficial ownership of a security or preventing the vesting of such
beneficial ownership. Finally, you are deemed to be the beneficial owner of a
security if you have the right to acquire beneficial ownership of such security
at any time within sixty days, including but not limited to any right to acquire
(a) through the exercise of any option, warrant or right, or (b) through the
conversion of a security, or (c) pursuant to the power to revoke a trust,
discretionary account, or similar arrangement, or (d) pursuant to the automatic
termination of a trust, discretionary account or similar arrangement. If you
have acquired any security or power specified in (a), (b) or (c) above, with the
purpose or effect of changing or influencing the control of the issuer, or in
connection with or as a participant in any transaction having such purpose or
effect, then immediately upon such acquisition you are deemed to be the
beneficial owner of the securities which may be acquired through the exercise or
conversion of such security or power.

         All securities of the same class that are beneficially owned by you,
regardless of the form which such beneficial ownership takes, must be aggregated
in calculating the number of shares beneficially owned by you.

         The above definition is broad and although you may not actually have or
share voting or investment power with respect to securities owned by persons in
your family or living in your home, you should include such shares in your
beneficial ownership disclosure, and then, as appropriate, disclaim beneficial
ownership of such securities.

         2. The term "underwriter or related person" includes, with respect to a
proposed offering, any underwriter, underwriter's counsel, financial consultant
and advisors, finders, members of the selling or distribution group, any member
participating in the proposed offering and any and all other persons associated
with or related to and members of the immediate family of any of such persons.
NASD Rule 2710(a)(6).

         3. The NASD defines a "member" as being either any broker or dealer
admitted to membership in the NASD or any individual, partnership,

                                       30

<PAGE>

corporation or other legal entity admitted to membership in the NASD under the
provisions of Articles III and IV of the By-laws. NASD Rule 0120(i).

         4. The NASD defines a "person associated with a member" as being every
sole proprietor, general or limited partner, officer, director or branch manager
of any member, or any natural person occupying a similar status or performing
similar functions, or any natural person engaged in the investment banking or
securities business who is directly or indirectly controlling or controlled by
such member (for example, any employee), whether or not any such person is
registered or exempt from registration with the NASD. Thus, "person associated
with a member" includes a sole proprietor, general or limited partner, officer,
director or branch manager of an organization of any kind (whether a
corporation, partnership or other business entity) which itself is a "member" or
a "person associated with a member". In addition, an organization of any kind is
a "person associated with a member" if its sole proprietor or any one of its
general or limited partners, officers, directors or branch managers is a
"member" or "person associated with a member". (Article I of the NASD By-Laws.)

         5. The NASD defines "affiliate" to include a company which controls, is
controlled by or is under common control with a member. A company is presumed to
control a member if the company beneficially owns 10 percent or more of the
outstanding voting securities of a member which is a corporation, or
beneficially owns a partnership interest in 10 percent or more of the
distributable profits or losses of a member which is a partnership. A company is
presumed to be controlled by a member if the member and persons associated with
the member beneficially own 10 percent or more of the outstanding voting
securities of a company which is a corporation, or beneficially own a
partnership interest in 10 percent or more of the distributable profits or
losses of a company which is a partnership. A company is presumed to be under
common control with a member if (i) the same natural person or company controls
both the member and company by beneficially owning 10 percent or more of the
outstanding voting securities of a member or company which is a corporation, or
by beneficially owning a partnership interest in 10 percent or more of the
distributable profits or losses of a member or company which is a partnership or
(ii) a person having the power to direct or cause the direction of the
management or policies of the member or the company also has the power to direct
or cause the direction of the management or policies of the other entity in
question. NASD Rule 2720(b)(1).

                                       31

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