Document:

<PAGE>

                                                                   EXHIBIT 10.14

                                   VALLEY BANK

                          SUPPLEMENTAL RETIREMENT PLAN

                               FOR THE BENEFIT OF

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

<PAGE>

                                TABLE OF CONTENTS
                                -----------------

<TABLE>
<CAPTION>
                                                                             Page
                                                                             ----
<S>                                                                          <C>
ARTICLE I - Definition of Terms .........................................      1
  1.1   Act .............................................................      1
  1.2   Administrator ...................................................      1
  1.3   Bank ............................................................      1
  1.4   Affiliate .......................................................      1
  1.5   Beneficiary .....................................................      1
  1.6   Board ...........................................................      1
  1.7   Change of Control ...............................................      1
  1.8   Code ............................................................      3
  1.9   Corporation .....................................................      3
  1.10  Delayed Retirement Date .........................................      3
  1.11  Disability Retirement Date ......................................      3
  1.12  Effective Date ..................................................      3
  1.13  Normal Retirement Date ..........................................      3
  1.14  Participant .....................................................      3
  1.15  Plan ............................................................      4
  1.16  Plan Sponsor ....................................................      4
  1.17  Plan Year .......................................................      4
  1.18  Retirement Benefit ..............................................      4
ARTICLE II - Eligibility for Benefits ...................................      4
  2.1   Eligibility and Date of Participation ...........................      4
ARTICLE III - Supplemental Retirement Benefit ...........................      4
  3.1   Supplemental Retirement Benefit .................................      4
  3.2   Definitions .....................................................      5
ARTICLE IV - Death Benefit ..............................................      6
  4.1   Death after Supplemental Retirement Benefit Commencement ........      6
  4.2   Supplemental Death Benefit ......................................      6
  4.3   Beneficiary Designation .........................................      7
ARTICLE V - Vesting Schedule ............................................      7
  5.1   Vesting Generally ...............................................      7
  5.2   Forfeiture of Benefits ..........................................      8
ARTICLE VI - Payment of Benefits ........................................     11
  6.1   Time and Manner for Payment of Supplemental Benefit .............     11
  6.2   Benefit Determination and Payment Procedure .....................     11
  6.3   Payments to Minors and Incompetents .............................     11
  6.4   Distribution of Benefit When Distributee Cannot Be Located ......     12
  6.5   Claims Procedure ................................................     12
ARTICLE VII - Funding ...................................................     13
  7.1   Funding .........................................................     13
  7.2   Use of Rabbi Trust Permitted ....................................     13
  7.3   Obligations upon Change of Control ..............................     13
ARTICLE VIII - Plan Administration ......................................     14
  8.1   Appointment of Plan Administrator ...............................     14
</TABLE>

                                       i

<PAGE>

<TABLE>
<S>                                                                           <C>
  8.2    Bank as Plan Administrator.......................................    14
  8.3    Compensation and Expenses........................................    14
  8.4    Procedure if a Committee.........................................    14
  8.5    Action by Majority Vote if a Committee...........................    14
  8.6    Appointment of Successors........................................    14
  8.7    Additional Duties and Responsibilities...........................    14
  8.8    Power and Authority..............................................    15
  8.9    Availability of Records..........................................    15
  8.10   No Action with Respect to Own Benefit............................    15
  8.11   Plan Interpretation..............................................    15
ARTICLE IX - Amendment and Termination of Plan............................    16
  9.1    Amendment or Termination of the Plan.............................    16
ARTICLE X - Miscellaneous.................................................    16
  10.1   Non-assignability................................................    16
  10.2   Right to Requirement Information and Reliance Thereon............    16
  10.3   Notices and Elections............................................    17
  10.4   Delegation of Authority..........................................    17
  10.5   Service of Process...............................................    17
  10.6   Governing Law....................................................    17
  10.7   Binding Effect...................................................    17
  10.8   Severability.....................................................    17
  10.9   No Effect on Employment Agreement................................    17
  10.10    Gender and Number..............................................    17
  10.11    Titles and Captions............................................    17
  10.12    Construction...................................................    17
</TABLE>

                                       ii

<PAGE>

     THIS SUPPLEMENTAL RETIREMENT PLAN (hereinafter the "Plan") is adopted by
Valley Bank, a State Banking Corporation, organized and existing under the laws
of the Commonwealth of Virginia (hereinafter sometimes referred to as the "Bank"
and sometimes referred to as the "Plan Sponsor") and is effective January 1,
2002 (the "Effective Date" of the Plan for the benefit of _________________
(hereinafter referred to as the "Employee").

                                   WITNESSETH:

     WHEREAS, Employee is employed by the Plan Sponsor; and

     WHEREAS, the Plan Sponsor desires to retain the services of Employee and
deems it appropriate to provide for additional supplemental retirement income
for Employee pursuant to the terms of the Plan in consideration of his services
and as an incentive to remain in the employ of the Plan Sponsor;

                                   WITNESSETH:

                                    ARTICLE I
                               Definition of Terms
                               -------------------

     The following words and terms as used in this Plan shall have the meaning
set forth below, unless a different meaning is clearly required by the context:

     1.1   "Act": The Employee Retirement Income Security Act of 1974, as the
same may be amended from time to time, or the corresponding sections of any
subsequent legislation which replaces it, and, to the extent not inconsistent
therewith, the regulations issued thereunder.

     1.2   "Administrator": The plan administrator provided for in Article VIII
hereof.

     1.3   "Bank": Valley Bank, a bank organized under the laws of the
Commonwealth of Virginia.

     1.4   "Affiliate": Any subsidiary, affiliate or other related business
entity to the Corporation.

     1.5   "Beneficiary": The person or persons designated by Participant or
otherwise entitled pursuant to Article IV to receive benefits under the Plan
attributable to such Participant after the death of such Participant.

     1.6   "Board": The present and any succeeding Board of Directors of the
Bank.

     1.7   "Change of Control": A change in control of a nature that would be
required to be reported (assuming such event has not been "previously reported")
in response to Item 1(a) of the Current Report on Form 8-K, as in effect on the
date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended ("Exchange Act"); provided that,

<PAGE>

notwithstanding the foregoing and without limitation, such a change in control
shall be deemed to have occurred at such time as:

          (i)   any Person is or becomes the "beneficial owner" (as defined in
     Rule 13d-3 or Rule 13d-5 under the Exchange Act as in effect on January 1,
     1994), directly or indirectly, of 20% or more of the combined voting power
     of the Corporation's voting securities;

          (ii)  individuals who as of the date hereof, constitute the Board of
     Directors of the Corporation (the "Incumbent Board") ceases for any reason
     to constitute at least the majority of the Board, provided that any person
     becoming a director subsequent to the date hereof whose election, or
     nomination for election by the Corporation's shareholders, was approved by
     a vote of at least 75% of the directors comprising the Incumbent Board
     (either by a specific vote or by approval of the proxy statement of the
     Corporation in which such person is named as a nominee for director,
     without objection to such nomination) shall be, for purposes of this clause
     (ii) considered as though such person were a member of the Incumbent Board;

          (iii) all or substantially all of the assets of the Corporation or the
     assets of the Bank are sold, transferred or conveyed by any means,
     including but not limited to direct purchase or merger, if the transferee
     is not controlled by the Corporation with "control" for the purposes of
     this subsection meaning the ownership of more than 50% of the combined
     voting power of such entity's voting securities; or

          (iv)  the Corporation is merged or consolidated with another
     corporation or entity and as a result of such merger or consolidation less
     than 75% of the outstanding voting securities of the surviving or resulting
     corporation or entity shall be owned, in the aggregate, by the former
     shareholders of the Corporation.

     Notwithstanding anything in the foregoing to the contrary, no change in
control shall be deemed to have occurred for purposes of this Agreement by
virtue of any transaction

          (i)   which results in Participant or a group of Persons which
     includes Participant, acquiring, directly or indirectly, 20% or more of the
     combined voting power of the Corporation's voting securities;

          (ii)  arranged or caused by a federal bank regulatory agency
     possessing appropriate jurisdiction on the grounds of failing financial
     condition of the Corporation or Bank which results in the acquisition,
     directly or indirectly, of 20% or more of the combined voting power of the
     Corporation's voting securities by any Person; or

          (iii) which results in the Corporation, any subsidiary of the
     Corporation or any profit-sharing plan, employee stock ownership plan or
     employee benefit plan of the Corporation or any of its subsidiaries (or any
     trustee of or fiduciary with respect to any such plan acting in such
     capacity) acquiring, directly or indirectly, 20% or more of the combined
     voting power of the Corporation's voting securities.

                                       2

<PAGE>

     1.8  "Code": The Internal Revenue Code of 1986, as the same may be amended
from time to time, or the corresponding section of any subsequent Internal
Revenue Code, and, to the extent not inconsistent therewith, regulations issued
thereunder.

     1.9  "Corporation": Valley Financial Corporation, the parent corporation
owning the Bank.

     1.10 "Delayed Retirement Date": In the event Participant continues in the
active employment of the Bank beyond his Normal Retirement Date, the first day
of the calendar month next following the date of termination of his employment
with the Bank.

     1.11 "Disability Retirement Date": The first day of the calendar month
coinciding with or next following the date Participant retires as a result of a
Disability. For purposes hereof, the existence of a "Disability" or the status
of being "Disabled" shall be considered present during the period for which
Participant either:

          (i)  Is determined by the Federal Social Security Administration to be
     disabled, as that term is defined for purposes of Federal Social Security
     disability benefits, and for which he receives such benefits after the
     required waiting period prior to his Normal Retirement Date, or

          (ii) Is determined by the applicable fiduciary to be disabled for
     purposes of entitlement to disability benefits under any long term
     disability plan which is maintained by the Bank and under which Participant
     is covered, and for which Participant receives such benefits prior to his
     Normal Retirement Date,

provided the cause of such disability occurred when Participant was
participating in this Plan. The Administrator shall have the right to require
proof of continuing Disability. Failure by Participant to provide such evidence
as may, from. time to time, be required by the Administrator prior to
Participant's attainment of his Normal Retirement Date shall result in the
discontinuance of his Disability Retirement status and the termination of his
status as Disabled under the Plan. The determination of Disability shall be made
by the Administrator in accordance with standards uniformly applied to all other
employees of the Bank participating in similar plans, on the advice of one or
more physicians appointed or approved by the Bank if deemed necessary or
advisable by the Administrator, and the Administrator shall have the right to
require further medical examinations from time to time to determine whether
there has been any change in the Participant's physical condition.

     1.12 "Effective Date": The Effective Date of the Plan is January 1, 2002.

     1.13 "Normal Retirement Date": The first day of the calendar month
coinciding with or next following date on which the Participant attains age
sixty-five (65).

     1.14 "Participant": _________________.

                                       3

<PAGE>

     1.15   "Plan": This document as contained herein or duly amended.

     1.16   "Plan Sponsor": Valley Bank, a state bank.

     1.17   "Plan Year": A year twelve (12) month period commencing on January 1
and ending on December 31 of each year.

     1.18   "Retirement Benefit": The amount due Participant or his designated
Beneficiary under the Plan, as determined pursuant to Article III hereof.

                                   ARTICLE II
                            Eligibility for Benefits
                            ------------------------

     2.1    Eligibility and Date of Participation. Participant shall be eligible
            -------------------------------------
to receive a benefit determined under Article III of this Plan following his
termination of employment with the Plan Sponsor in the event such termination
occurs following his Normal Retirement Date, disability or termination of his
employment for any reason following completion of the required years of service
set forth herein below in Article V; said payment of benefits to be paid in
accordance with the provisions of Article VI.

                                   ARTICLE III
                         Supplemental Retirement Benefit
                         -------------------------------

     3.1    Determination of Supplemental Retirement Benefit.
            ------------------------------------------------

     3.1(a) Subject to the terms and conditions set forth herein, upon
Participant's termination of employment on or after his Normal Retirement Date
he shall be entitled to a yearly benefit equal to fifty percent (50%) of the
Participant's final five (5) years average Compensation, reduced by
Participant's primary Social Security benefit with said yearly benefit to be
paid in monthly installments for a period of one hundred and eighty (180) months
(hereinafter referred to as the "Target Retirement Benefit"). The Target
Retirement Benefit shall be subject to such increase or decrease as may be
determined in accordance with Section 3.1(b) below or Section 5.1(b) if
employment terminates prior to Participant's Normal Retirement Date.

     3.1(b) The Bank shall establish for the benefit of Participant a separate
account for bookkeeping purposes and shall credit to such account for each Plan
Year an amount that when aggregated with similar accruals for all Plan Years
prior to Participant's Normal Retirement Date is projected to fully fund the
Target Retirement Benefit. The amount required each Plan Year to fully fund the
Target Retirement Benefit for the Participant at his Normal Retirement Date
shall be referred to herein as the "Target Annual Accrual".

     In order to ensure that the Supplemental Retirement Benefit to be paid
Participant at his Normal Retirement Date properly reflect the financial
performance of the Corporation during the period of Participant's participation
in the Plan, the Target Annual Accrual amount shall be
             -----------------------------------------

                                       4

<PAGE>

subject to increase or decrease each Plan Year based upon the Corporation's
---------------------------------------------------------------------------
financial performance for the fiscal year of the Corporation immediately
------------------------------------------------------------------------
preceding the Plan Year for which the Target Annual Accrual is to be determined.
-------------------------------------------------------------------------------
The measure of the Corporation's financial performance shall be its Return on
Equity ("ROE") as determined for the most recent fiscal year of the Corporation
immediately preceding the Plan Year in which the determination of the Target
Annual Accrual is to be made. The Corporation's ROE shall be determined by the
Corporation's auditors or certified public accountant on a consistent basis.

       The "Target Annual Accrual" shall be increased or decreased each Plan
Year based upon the following ROE requirements for the Corporation's preceding
fiscal year:

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
 Under 10%    10% - 12%       12% - 15%       15% - 18%        Over 18%
    ROE          ROE             ROE             ROE              ROE
-------------------------------------------------------------------------------------------------------------
<S>            <C>            <C>             <C>              <C>           <C>
    50%                                                                        50% of Target Annual Accrual
-------------------------------------------------------------------------------------------------------------
                 80%                                                           80% of Target Annual Accrual
-------------------------------------------------------------------------------------------------------------
                                 100%                                         100% of Target Annual Accrual
-------------------------------------------------------------------------------------------------------------
                                                 115%                         115% of Target Annual Accrual
-------------------------------------------------------------------------------------------------------------
                                                                  125%        125% of Target Annual Accrual
-------------------------------------------------------------------------------------------------------------
</TABLE>

       Notwithstanding the foregoing, the Administrator shall, on a prospective
basis only, have the right to make adjustments to the ROE requirements set forth
above at any time during the term of this Plan.

       EXAMPLE: If the Corporation's ROE for fiscal year previous to year 1 of
       -------
the Plan shall be 10%-12%, the amount credited to Participant's Account for year
1 of the Plan shall be 80% of the Target Annual Accrual amount for such year.
If, in year 2, the ROE for the previous fiscal year is 15%-18%, the amount
credited to Participant's account in year 2 shall be 115% of the Target Annual
Accrual for such year.

       At Normal Retirement, Participant's Supplemental Retirement Benefit to be
paid in accordance with Article VI shall be the Target Retirement Benefit
increased or reduced as a result of any adjustments to the Target Annual
Accruals to his account based upon the annual ROE requirements for the
Corporation.

       For purposes of determining the Supplemental Retirement Benefit due
Participant under this Plan, the assumptions to be used by the Administrator
shall be those set forth in Exhibit 3.1(b) which shall be deemed a part of this
                            --------------
Plan.

       3.1(c) Notwithstanding the foregoing, if Participant terminates
employment prior to his Normal Retirement Date, the benefit calculated under
this Article III may be subject to adjustment in accordance with the vesting
schedule set forth in Article V below.

       3.2    Definitions. For purposes hereof the following terms shall have
              -----------
the following meaning:

       3.2(a) "Compensation" shall, for purposes of projecting Participant's
Target Retirement Benefit mean Participant's total base salary, wages and bonus
received by or made available to

                                        5

<PAGE>

him by the Bank for a Fiscal Year. Compensation shall be determined for
Participant prior to any withholding or deductions and prior to any reduction
for employee elective contributions to a Cafeteria Plan described in Section 125
of the Code or a qualified cash or deferred arrangement described in Section
401(k) of the Code. However, Compensation shall exclude items of compensation as
                                          -------------
expense reimbursements and allowances, amounts contributed to or on behalf of
Participant pursuant to this Plan or any other employee benefit plan or program
of the Bank or Corporation in which Participant is eligible to participate, or
any other similar extraordinary remuneration.

       3.2(b)  "Primary Social Security Benefit" means the annual income to
which Participant is entitled at normal retirement under the provisions of the
Federal Social Security Act as in effect on the first day of the Plan Year in
which he attains age sixty-six (66). If Participant does not qualify for, or
loses, Social Security benefits to which he is entitled under the Federal Social
Security Act because of failure to make application therefore, or for any other
reason, such Social Security benefits shall nevertheless be considered, for
purposes of the Plan, as being received by Participant. It is the intent of this
definition that Participant's Supplemental Retirement Benefit shall be offset by
the actual social security benefits payable at that time. If Participant begins
to receive the social security benefits earlier, such paid benefits will be used
as an offset, and the offset will reflect the fact that the actual payments to
the Participant are less (because of the early payment) than the social security
benefits used to determine the offset.

                                   ARTICLE IV
                                  Death Benefit
                                  -------------

       4.1     Death after Commencement of Payment. If Participant dies after
               -----------------------------------
his Supplemental Retirement Benefit commences to be paid and before Participant
has received one hundred eighty (180) monthly payments, the only benefits
payable under the Plan to his Beneficiary after his death shall be the remaining
monthly payments needed to ensure that one hundred eighty (180) monthly payments
are made.

       4.2     Supplemental Death Benefit.
               --------------------------

       4.2(a)  If Participant dies before his Normal Retirement Date and
provided that Participant has designated a Beneficiary in anticipation of death,
a Supplemental Death Benefit shall be paid to the Beneficiary in an annual
amount equal to the excess of:
                -------------

               (i)   Fifty percent (50%) of the Participant's Compensation, (as
defined in subparagraph 3.2), for the calendar year immediately preceding the
year in which Participant's death occurs, over

               (ii)  The Social Security Survivor Benefit.

The Supplemental Death Benefit shall be paid each year in twelve (12) monthly
installments for a period of one hundred and eighty (180) months commencing on
the first day of the month

                                        6

<PAGE>

following Participant's death. The supplemental Death Benefit shall be paid in
lieu of any Supplemental Retirement Benefit.

       4.3    Beneficiary Designation.
              -----------------------

       4.3(a) Participant shall be entitled to designate a Beneficiary hereunder
by filing a designation in writing with the Administrator on the form provided
for such purpose. Any Beneficiary designation made hereunder shall be effective
only if signed and dated by Participant and delivered to the Administrator prior
to the time of Participant's death. Any Beneficiary designation hereunder shall
remain effective until changed or revoked hereunder.

       4.3(b) Any Beneficiary designation may include multiple, contingent or
successive Beneficiaries and may specify the proportionate distribution to each
Beneficiary.

       4.3(c) A Beneficiary designation may be changed by Participant at any
time, or from time to time, by filing a new designation in writing with the
Administrator.

       4.3(d) If Participant dies without having designated a Beneficiary, or if
the Beneficiary so designated has predeceased him, then his estate shall be
deemed to be his Beneficiary.

       4.3(e) If a Beneficiary of Participant shall survive Participant but
shall die before the Participant's entire benefit under the Plan has been
distributed, then, absent any other provision by Participant, the unpaid balance
thereof shall be distributed to the such other beneficiary named by the deceased
Beneficiary to receive his interest or if none, to the estate of the deceased
Beneficiary. If multiple beneficiaries are designated, absent any other
provision by the Participant, those named or the survivor of them shall share
equally any amounts payable hereunder.

                                    ARTICLE V
                                Vesting Schedule
                                ----------------

       5.1    Vesting Generally.
              -----------------

       5.1(a) Except as set forth below and subject to the forfeiture events
described in paragraph 5.2 hereof, Participant shall be fully vested in his
Supplemental Retirement Benefit upon:

              (i)   A Participant's having reached his Normal Retirement Date
       while employed by the Employer; or

              (ii)  The occurrence of a Change of Control.

                                        7

<PAGE>

       5.1(b) Termination of Employment Prior to Normal Retirement Date.
              ---------------------------------------------------------

       Absent an event described in Section 5.1(a) and 5.2, Participant shall,
following a voluntary termination of employment, be entitled to receive a
portion of his Supplemental Retirement Benefit as determined in Section 3.2
above in accordance with the following schedule:

              ------------------------------------------------------------------
                  Plan Year          Vested %      Plan Year          Vested %
              ------------------------------------------------------------------
                      1                  0             9                 __%
              ------------------------------------------------------------------
                      2                  0             10                __%
              ------------------------------------------------------------------
                      3                  0             11                __%
              ------------------------------------------------------------------
                      4                  0             12                __%
              ------------------------------------------------------------------
                      5                 __%            13                __%
              ------------------------------------------------------------------
                      6                 __%            14                __%
              ------------------------------------------------------------------
                      7                 __%            15                __%
              ------------------------------------------------------------------
                      8                 __%
              ------------------------------------------------------------------

       The payment of Supplemental Retirement Benefits for a Participant who
terminates employment prior to Normal Retirement Date shall be payable in
accordance with the provisions of Article VI herein below.

       5.1(c) Termination of Employment Due to Disability.
              -------------------------------------------

       In the event of termination of Participant's employment on his Disability
Retirement Date on account of Disability, such Participant will have a vested
right to the Supplemental Retirement Benefit described in section 3.1(a) in an
amount equal to the greater of:

              (i)   25%; or

              (ii)  the actual vested amount for such Participant based upon his
years of participation in the Plan as set forth in section 5.1(b) above.

Solely for purposes of determining Participant's final five (5) years average
Compensation in order to compute the benefit payable to him under this section
5.1(c), the Participant's Disability Retirement Date shall be deemed to be the
Participant's Normal Retirement Date. The Supplemental Retirement Benefit
payable to Participant as a result of his Disability shall begin on the
Participant's Normal Retirement Date and shall be paid in accordance with the
provisions of Article VI set forth below.

       5.2    Forfeiture of Benefits.
              ----------------------

       5.2(a) Notwithstanding any contrary provision hereof, the Supplemental
Retirement Benefit with respect to Participant shall be forfeited upon the
occurrence of any the following events:

                                        8

<PAGE>

              (i)   Participant's voluntary termination of employment prior to
     meeting the vesting requirements of Section 5.1(b),

              (ii)  Participant's termination of employment with the Bank for
     "cause";

              (iii) Participant's entering "competition", his making an
     "unauthorized disclosure of confidential information", after his
     termination of or retirement from employment with the Bank, in which case
     all payments to or with respect to Participant shall cease and all payments
     made to Participant or his Beneficiary under the Plan since the occurrence
     of such event of forfeiture shall be returned to the Bank (provided
     however, forfeiture shall not occur upon Participant's entering into
     competition following a Change of Control); or

              (iv)  The discovery by the Bank following Participant's
     termination of or retirement from employment with the Bank or following his
     death, that an event constituting "cause" sufficient for his termination of
     employment or discovery of Participant's previous "unauthorized disclosure
     of confidential information" prior to his termination, retirement or death
     before termination or retirement, in which case all payments under the Plan
     to or with respect to Participant shall cease and all payments previously
     made to Participant or his Beneficiary under the Plan shall be returned to
     the Bank.

All determinations relative to the forfeiture of Supplemental Retirement
Benefits hereunder shall be made by the Board of Directors of the Company.

     5.2(b)   For purposes of this Section 5.2:

              (i)   "Cause" means (i) the willful and continued failure by
     Participant to substantially perform his duties as an employee (other than
     any such failure resulting from his incapacity due to physical or mental
     illness) after a written demand for substantial performance is delivered to
     Participant by the Board (excluding Participant) and which failure has not
     been cured as hereinafter provided, which demand specifically identifies
     the manner in which the Board believes that Participant has not
     substantially performed his duties, or (ii) the willful engaging by
     Participant in illegal conduct or any conduct which is demonstrably and
     materially injurious to the Corporation or Bank. Without limiting the
     generality of the foregoing, Cause shall include the issuance of a removal
     order or similar order by a governmental regulatory agency with appropriate
     jurisdiction prohibiting Participant from participating in the affairs of
     the Corporation or Bank. Any act or failure to act based upon authority
     given pursuant to a resolution duly adopted by the Board of the Corporation
     or Bank Board or based upon the advice of counsel for the Corporation or
     Bank shall be conclusively presumed to be done, or omitted to be done, by
     Participant in good faith and in the best interests of the Corporation and
     Bank. It is also expressly understood and acknowledged by the parties that
     the Participant's attention to matters not directly related to the business
     of the Corporation or Bank shall not provide a basis for termination for
     Cause so long as the Corporation and/or Bank has approved Participant's
     engagement in such activities. Upon

                                        9

<PAGE>

          the issuance of a written demand for substantial performance,
          Participant shall have a reasonable period of time in which to correct
          such alleged violation, provided, however, that the alleged violation
          is neither dishonest nor criminal. The parties acknowledge and agree
          that thirty (30) days shall be deemed a reasonable time in which to
          correct any such alleged violation. If Participant is unable to
          correct the alleged violation within said thirty (30) day period, then
          if the Board (excluding Participant) determines that Participant is
          using his best efforts to make such correction and that the alleged
          violation can be corrected, the Board shall extend the thirty (30) day
          period by such time as is reasonably necessary for Participant to
          effect such correction as expeditiously as practicable.
          Notwithstanding the foregoing, after a Change in Control of the
          Corporation or the Bank, Participant shall not be deemed to be
          terminated for Cause unless and until there shall have been delivered
          to Participant a copy of a resolution duly adopted by the affirmative
          vote of not less than 75% of the entire membership of the Board
          (excluding Participant) at a meeting of such Board called and held for
          such purpose (after a reasonable notice to Participant and an
          opportunity for Participant, together with his counsel, to be heard
          before the Board), finding that in the good faith opinion of the Board
          Participant was guilty of conduct set forth above and specifying the
          particulars thereof in detail. In such event Participant shall have a
          reasonable period of time in which to correct the alleged violation,
          provided, however, that the alleged violation is neither dishonest nor
          criminal. As in the case of an alleged violation prior to a Change in
          Control, it is agreed that thirty (30) days (extended by the Board, if
          necessary, as outlined above) shall be deemed a reasonable time in
          which to correct any such alleged violation.

               (ii)   "Competition" means engaging by Participant, without the
          written consent of the Board or a person authorized thereby, in a
          business as a more than one percent (1%) stockholder, an officer, a
          director, an employee, a partner, an agent, a consultant, or any other
          individual or representative capacity (unless Participant's duties,
          responsibilities, and activities, including supervisory activities,
          for or on behalf of such business, are not related in any way to such
          "competitive activity") if it involves:

                      (A)  Engaging in, or entering into services or providing
               advice pertaining to, any line of business that the Bank, the
               Corporation or any Affiliate actively conducts or develops in
               competition with the Bank, the Corporation or any Affiliate in
               the same geographic area (generally, within a one hundred (100)
               mile radius of Roanoke, Virginia) as such line of business is
               then conducted, or

                      (B)  Employing or soliciting for employment any employees
               of the Bank, the Corporation or any Affiliate.

               (iii)  "Unauthorized disclosure of confidential information"
          means the disclosure by Participant, without the written consent of
          the Board or a person authorized thereby, to any person other than as
          required by law or court order, or other than to an authorized
          employee of the Bank, the Corporation or an Affiliate, or to a person
          to whom disclosure is necessary or appropriate in connection with the
          performance by Participant of his duties as an employee or director of
          the Bank, the Corporation or an Affiliate (including, but not limited
          to, disclosure to the Corporation's or an Affiliate's outside

                                       10

<PAGE>

     counsel, accountants or bankers of financial data properly requested by
     such persons and approved by an authorized officer of the Bank or the
     Corporation), any confidential information of the Bank or the Corporation
     or any Affiliate with respect to any of the products, services, customers,
     suppliers, marketing techniques, methods or future plans of the Bank, the
     Corporation or any Affiliate; provided, however, that:

               (A)  Confidential information shall not include any information
            known generally to the ,public (other than as a result of
            unauthorized disclosure by Participant) or any information of a type
            not otherwise considered confidential by persons engaged in the same
            business or a business similar to that conducted by the Bank, the
            Corporation or any Affiliate; and

               (B)  Participant shall be allowed to disclose confidential
            information to his attorney solely for the purpose of ascertaining
            whether such information is confidential within the intent of the
            Plan, but only so long as Participant both discloses to his attorney
            the provisions of this paragraph and agrees not to waive the
            attorney-client privilege with respect thereto.

                                   ARTICLE VI
                               Payment of Benefits
                               -------------------

     6.1    Time and Manner for Payment of Supplemental Benefit.
            ---------------------------------------------------

     6.1(a) Participant's Supplemental Retirement Benefit shall be payable
commencing the first day of the month following Participant's Normal or Delayed
Retirement Date on which he retires. Subject to the forfeiture events of
paragraph 5.2, benefits shall be payable to Participant in the form of one
hundred eighty (180) monthly installments.

     6.1(b) Participant's Supplemental Retirement Benefit shall be payable
commencing on the first day of the month following his Normal Retirement Date if
he terminates employment for any reason.

     6.1(c) Any Supplemental Death Benefit shall be payable to Participant's
designated Beneficiary beginning on the first day of the month immediately
following the date of Participant's death and shall be payable for a period of
one hundred eighty (180) months.

     6.2    Benefit Determination and Payment Procedure. The Administrator shall
            -------------------------------------------
make all determinations concerning eligibility for benefits under the Plan, the
time or terms of payment, to Participant or Participant's Beneficiary, in the
event of Participant's death.

     6.3    Payments to Minors and Incompetents. If Participant or his
            -----------------------------------
designated Beneficiary is a minor or is adjudged to be legally incapable of
giving valid receipt and discharge for such benefits, or is deemed so by the
Administrator, benefits will be paid to such person as the Administrator may
designate for the benefit of Participant or Beneficiary. Such payments

                                       11

<PAGE>

shall be considered a direct payment to such Participant or Beneficiary and
shall, to the extent made, be deemed a complete discharge of any liability for
such payments under the Plan.

     6.4    Distribution of Benefit When Distributee Cannot Be Located. The
            ----------------------------------------------------------
Administrator shall make all reasonable attempts to determine the identity
and/or whereabouts of Participant or his Beneficiary entitled to benefits under
the Plan, including the mailing by certified mail of a notice to the last known
address shown on the Bank's records. If the Administrator is unable to locate
such a person entitled to benefits hereunder, or if there has been no claim made
for such benefits, the Bank shall continue to hold the benefit due such person,
subject to any applicable statute of escheats.

     6.5    Claims Procedure.
            ----------------

     6.5(a) Participant or his designated Beneficiary (the "claimant") shall
have the right to request any benefit under the Plan by filing a written claim
for any such benefit with the Administrator on a form provided by the
Administrator for such purpose. The Administrator shall give such claim due
consideration and shall either approve or deny it in whole or in part. Within
ninety (90) days following receipt of such claim by the Administrator, notice of
any denial thereof, in whole or in part, shall be delivered to, and a receipt
therefor shall be obtained from, the claimant or his duly authorized
representative or such notice of denial shall be sent by registered mail to the
claimant, or his duly authorized representative, at the address shown on the
claim form or such individual's last known address. The ninety (90) day response
period may be extended to one hundred eighty (180) days after receipt of the
claimant's claim if special circumstances exist and if written notice of the
extension to one hundred eighty (180) days indicating the special circumstances
involved and the date by which a decision is expected to be made is furnished to
the claimant within ninety (90) days after receipt of the claimant's claim. Such
notice of denial shall be written in a manner calculated to be understoodstood
by the claimant and shall:

            (i)   Set forth a specific reason or reasons for the denial,

            (ii)  Make specific reference to the pertinent provisions of the
     Plan on which any denial of benefits is based,

            (iii) Describe any additional material or information necessary for
     the claimant to perfect the claim and explain why such material or
     information is necessary, and

            (iv)  Explain the claim review procedure of subparagraph 6.5(b).

If such notice of denial is not provided to the claimant within the applicable
ninety (90) day or one hundred eighty (180) day period, the claimant's claim
shall be considered denied for purposes of the claim review procedure of
subparagraph 6.5(b).

     6.5(b) A Participant or Beneficiary whose claim filed pursuant to
subparagraph 6.5(a) has been denied, in whole or in part, may, within sixty (60)
days following receipt of notice of such denial, or following the expiration of
the applicable period provided for in subparagraph

                                       12

<PAGE>

6.5(a) for notifying the claimant of the decision on the claim if no notice of
denial is provided, make written application to the Board for a review of such
claim, which application shall be filed with the Board. For purposes of such
review, the claimant or his duly authorized representative may review Plan
documents pertinent to such claim and may submit to the Board written issues and
comments respecting such claim. The Board may schedule and hold a hearing. The
Board shall make a full and fair review of any denial of a claim for benefits
and issue its decision thereon promptly, but in no event later than sixty (60)
days after receipt by the Board of the claimant request for review, or one
hundred twenty (120) days after such receipt if a hearing is to be held or if
other special circumstances exist and if written notice of the extension to one
hundred twenty (120) days is furnished to the claimant within sixty (60) days
after the receipt of the claimant's request for a review. Such decision shall be
in writing, delivered to the claimant and shall:

            (i)   Include specific reasons for the decision,

            (ii)  Be written in a manner calculated to be understood by the
     claimant, and

            (iii) Contain specific references to the pertinent Plan provisions
     on which the decision is based.

The Board's decision made in good faith shall be final.

                                   ARTICLE VII
                                     Funding
                                     -------

     7.1    Funding.
            -------

     7.1(a) The undertaking to pay the benefits hereunder shall be an unfunded
obligation payable solely from the general assets of the Bank and shall be
subject to the claims of the Bank's creditors.

     7.1(b) Except as provided in any Trust that may be established as provided
in paragraph 7.2, nothing contained in the Plan and no action taken pursuant to
the provisions of the Plan shall create, or be construed to create, a trust of
any kind or a fiduciary relationship between the Bank and Participant or his
designated Beneficiary or any other person or to give Participant or his
Beneficiary any right, title or interest in any specific asset or assets of the
Bank. To the extent that Participant or a Beneficiary acquires a right to
receive payments from the Bank under the Plan, such rights shall be no greater
than the right of any unsecured general creditor of the Bank

     7.2    Use of Rabbi Trust Permitted. Subject to the obligations described
            ----------------------------
in paragraph 7.3, the Bank may in its sole discretion elect to establish and
fund a "Rabbi" Trust for the purpose of providing benefits under the Plan.

     7.3    Obligations upon Change of Control. Upon the occurrence of a Change
            ----------------------------------
of Control, the Bank shall be obligated to establish (if one does not already
exits) and deposit into a

                                       13

<PAGE>

"Rabbi" trust the actuarially determined present value of Participants vested
Supplemental Retirement Benefits determined as of the effective date of the
Change of Control. Alternatively, the Bank may obtain a written and binding
obligation from the party or parties that will exercise effective control
following the Change of Control, that the obligations to Participant under this
Plan will be assumed and continued by such party.

                                  ARTICLE VIII
                               Plan Administration
                               -------------------

         8.1 Appointment of Plan Administrator. The Bank may appoint its Board
             ---------------------------------
of Directors, the Human Resources Subcommittee of the Board of Directors or one
or more persons who may or may not also be members of the Board of Directors to
serve as the Plan Administrator (the "Administrator") for the purpose of
carrying out the duties specifically imposed on the Administrator by this Plan,
the Act and the Code. In the event more than one person is appointed, the
persons shall form an administrative committee for the Plan. The person or
committeemen serving as Administrator shall serve for indefinite terms at the
pleasure of the Bank, and may, by sixty (60) days prior written notice to the
Bank, resign or otherwise terminate such appointment.

         8.2 Bank as Plan Administrator. In the event that no Administrator is
             --------------------------
appointed or in office pursuant to paragraph 8. 1, the Board of Directors of the
Bank shall be the Administrator.

         8.3 Compensation and Expenses. Unless otherwise determined and paid by
             -------------------------
the Board of Directors, the person or committeemen serving as the Administrator
shall serve without compensation for service as such. All expenses of the
Administrator shall be paid by the Bank.

         8.4 Procedure if a Committee. If the Administrator is a committee other
             ------------------------
than the Human Resources Committee or other standing subcommittee established by
the Board of Directors, it shall appoint from its members a Chairman and a
Secretary. The Secretary shall keep records as may be necessary of the acts and
resolutions of such committee and be prepared to furnish reports thereof to the
Bank. Except as otherwise provided, all instruments executed on behalf of such
committee may be executed by its Chairman or Secretary.

         8.5 Action by Majority Vote if a Committee. If the Administrator is a
             --------------------------------------
committee, its action in a matters, questions and decisions shall be determined
by a majority vote of its members qualified to act thereon. They may meet
informally or take any action without the necessity of meeting as a group.

         8.6 Appointment of Successors. Upon the death, resignation or removal
             -------------------------
of a person serving as, or on a committee which serves as the Administrator of
the Plan, the Bank, by its Board of Directors may but need not, appoint a
successor.

         8.7 Additional Duties and Responsibilities. The Administrator shall
             --------------------------------------
have the following duties and responsibilities in addition to those expressly
provided elsewhere in the Plan:

                                       14

<PAGE>

         8.7(a) The Administrator shall be responsible for the fulfillment of
all relevant reporting and disclosure requirements set forth in the Act and the
Code, the distribution thereof to Participant and his Beneficiaries and the
filing thereof with the appropriate governmental officials and agencies.

         8.7(b) The Administrator shall maintain and retain necessary records
respecting administration of the Plan and matters upon which disclosure is
required under the Act and the Code.

         8.7(c) The Administrator shall make any elections for the Plan under
the Act or the Code.

         8.7(d) The Administrator shall make all determinations regarding
eligibility for benefits under the Plan.

         8.7(e) The Administrator shall have the right to settle claims against
the Plan and to make such equitable adjustments in Participant's or his
Beneficiary's rights or entitlements under the Plan as it deems appropriate in
the event an error or omission is discovered or claimed in the operation or
administration of the Plan.

         8.8    Power and Authority. The Administrator is hereby vested with all
                -------------------
the power and authority necessary in order to carry out its duties and
responsibilities in connection with the administration of the Plan, including
the power to interpret the provisions of the Plan. For such purpose, the
Administrator shall have the power to adopt rules and regulations consistent
with the terms of the Plan.

         8.9    Availability of Records. The Bank shall, at the request of the
                -----------------------
Administrator, make available necessary records or other information they
possess which may be required by the Administrator in order to carry out its
duties hereunder.

         8.10   No Action with Respect to Own Benefit. If Participant also
                -------------------------------------
serves as a member of the Administrative Committee, such Participant shall not
take any part as the Administrator in any discretionary action in connection
with his participation as an individual. Such action shall be taken by the
remaining Administrator, if any, or otherwise by the Bank Board of Directors.

         8.11   Plan Interpretation. The Administrator may construe the Plan,
                -------------------
correct defects, supply omissions or reconcile inconsistencies to the extent
necessary to effectuate the Plan and such action shall be conclusive.

                                       15

<PAGE>

                                   ARTICLE IX
                        Amendment and Termination of Plan
                        ---------------------------------

         9.1    Amendment or Termination of the Plan.
                ------------------------------------

         9.1(a) The Plan may be terminated at any time by the Board. Upon
termination of the Plan and subject to the forfeiture events described in
paragraph 5.2, the Supplemental Retirement Benefit or, if applicable, the
Supplemental Death Benefit of each Participant shall become vested and
non-forfeitable.

         9.1(b) The Plan may be amended in whole or in part from time to time by
the Board effective as of any date specified. No amendment shall operate to
decrease Participant's vested Supplemental Retirement Benefit or, if applicable,
Supplemental Death Benefit determined as though Participant had terminated
employment as of the earlier of the date on which the amendment is approved by
the Board or the date on which an instrument of amendment is signed on behalf of
the Bank.

         9.1(c) The Bank hereby delegates to the Administrator the right to
modify, alter, or amend the Plan in whole or in part to make any technical
modification, alteration or amendment which in the opinion of counsel for the
Bank is required by law and is deemed advisable by the Administrator and to make
any other modification, alteration or amendment which does not, in the
Administrator's view, substantially increase costs, contributions or benefits
and does not materially affect the eligibility, vesting or benefit accrual or
allocation provisions of the Plan.

                                    ARTICLE X
                                  Miscellaneous
                                  -------------

         10.1   Non-assignability. The interest of Participant under the Plan
                -----------------
are not subject to claims of the Participants' creditors; and neither
Participant, nor his Beneficiary, shall have any right to sell, assign, transfer
or otherwise convey the right to receive any payments hereunder or any interest
under the Plan, which payments and interest are expressly declared to be
non-assignable and non-transferable.

         10.2   Right to Requirement Information and Reliance Thereon. The Bank
                -----------------------------------------------------
or the Administrator shall have the right to require Participant, his
Beneficiary or other person receiving benefit payments to provide it with such
information, in writing, and in such form as to may deem necessary to the
administration of the Plan and may relay thereon in carrying out its duties
hereunder. Any payment to or on behalf of Participant or his Beneficiary in
accordance with the provisions of the Plan in good faith reliance upon any such
written information provided by Participant or any other person to whom such
payment is made shall be in full satisfaction of all claims by Participant and
his Beneficiary; and any payment to or on behalf of a Beneficiary in accordance
with the provision so the Plan in good faith reliance upon any such written
information provided by such Beneficiary or any other person to whom such
payment is made shall be in full satisfaction of all claims by such Beneficiary.

                                       16

<PAGE>

         10.3  Notices and Elections. All notices required to be given in
               ---------------------
writing and all elections required to be made in writing, under any provision of
the Plan, shall be invalid unless made on such forms as may be provided or
approved by the Administrator and, in the case of a notice or election by
Participant or his Beneficiary, unless executed by Participant or his
Beneficiary giving such notice or making such election.

         10.4  Delegation of Authority. Whenever the Bank is permitted or
               -----------------------
required to perform any act, such act may be performed by its Chief Executive
Officer or other person duly authorized by its Chief Executive Officer or the
Board.

         10.5  Service of Process. The Administrator shall be the agent for
               ------------------
service of process on the Plan.

         10.6  Governing Law. The Plan shall be construed, enforced and
               -------------
administered in accordance with the laws of the Commonwealth of Virginia, and
any federal law which preempts the same.

         10.7  Binding Effect. The Plan shall be binding upon and inure to the
               --------------
benefit of the Bank, its successors and assigns, and the Participant and his
heirs, executors, administrators and legal representatives.

         10.8  Severability. If any provision of the Plan should for any reason
               ------------
be declared invalid or unenforceable by a court of competent jurisdiction, the
remaining provisions shall nevertheless remain in full force and effect.

         10.9  No Effect on Employment Agreement. The Plan shall not be
               ---------------------------------
considered or construed to modify: amend or supersede any employment agreement
between the Bank and Participant heretofore or hereafter entered into unless so
specifically provided.

         10.10 Gender and Number. In the construction of the Plan, the masculine
               -----------------
shall include the feminine or neuter and the singular shall include the plural
and vice-versa in all cases where such meanings would be appropriate.

         10.11 Titles and Captions. Titles and captions and headings herein have
               -------------------
been inserted for convenience of reference only and are to be ignored in any
construction of the provisions hereof.

         10.12 Construction. The Plan has been designed to be an unfunded plan
               ------------
maintained primarily for the purpose of providing deferred compensation for a
select group of management or highly compensated employees as described in the
Act, and shall be interpreted and administered as such.

                                       17

<PAGE>

                                 EXHIBIT 3.1(b)
                                 --------------

      Assumptions for computation of Supplemental Retirement Benefit.

      1.   Projected Compensation at Normal Retirement:  ___________________

      2.   Target Retirement Benefit:  ___________________

      3.   Interest Factor:  __________________

      4.   Target Annual Accruals during Plan Term: _________________________

                                                    _________________________

                                                    _________________________

                                                    _________________________

                                                    _________________________

                                       18<PAGE>

                                                                    EXHIBIT 10.1

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

                           LOAN AND SECURITY AGREEMENT
                           EGAIN COMMUNICATIONS CORP.

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

<PAGE>

                                TABLE OF CONTENTS
                                -----------------

<TABLE>
<CAPTION>
                                                                                         Page
                                                                                         ----
<S>                                                                                        <C>
1.   ACCOUNTING AND OTHER TERMS  .......................................................   1

2.   LOAN AND TERMS OF PAYMENT  ........................................................   1
     2.1    Credit Extensions  .........................................................   1
     2.2    Overadvances  ..............................................................   4
     2.3    Interest Rate, Payments  ...................................................   4
     2.4    Fees  ......................................................................   4

3.   CONDITIONS OF LOANS  ..............................................................   5
     3.1    Conditions Precedent to Initial Credit Extension  ..........................   5
     3.2    Conditions Precedent to all Credit Extensions  .............................   5

4.   CREATION OF SECURITY INTEREST  ....................................................   5
     4.1    Grant of Security Interest  ................................................   5
     4.2    Termination of Bank's Lien in Intellectual Property  .......................   6

5.   REPRESENTATIONS AND WARRANTIES  ...................................................   6
     5.1    Due Organization and Authorization  ........................................   6
     5.2    Collateral  ................................................................   6
     5.3    Litigation  ................................................................   7
     5.4    No Material Adverse Change in Financial Statements  ........................   7
     5.5    Solvency  ..................................................................   7
     5.6    Regulatory Compliance  .....................................................   7
     5.7    Subsidiaries  ..............................................................   7
     5.8    Full Disclosure  ...........................................................   7

6.   AFFIRMATIVE COVENANTS  ............................................................   8
     6.1    Government Compliance  .....................................................   8
     6.2    Financial Statements, Reports, Certificates  ...............................   8
     6.3    Inventory; Returns  ........................................................   8
     6.4    Taxes  .....................................................................   9
     6.5    Insurance  .................................................................   9
     6.6    Primary Accounts  ..........................................................   9
     6.7    Financial Covenants  .......................................................   9
     6.8    Registration of Intellectual Property Rights  ..............................  10
     6.9    Control Agreements  ........................................................  10
     6.10   Further Assurances  ........................................................  10

7.   NEGATIVE COVENANTS  ...............................................................  10
     7.1    Use of Funds  ..............................................................  11
     7.2    Dispositions  ..............................................................  11
     7.3    Changes in Business, Ownership, Management or Business Locations  ..........  11
</TABLE>

                                        i

<PAGE>

<TABLE>
<S>                                                                            <C>
     7.4    Mergers or Acquisitions  .......................................   11
     7.5    Indebtedness  ..................................................   11
     7.6    Encumbrance  ...................................................   11
     7.7    Distributions; Investments  ....................................   11
     7.8    Transactions with Affiliates. ..................................   12
     7.9    Subordinated Debt  .............................................   12
     7.10   Compliance  ....................................................   12

8.   EVENTS OF DEFAULT  ....................................................   12
     8.1    Payment Default  ...............................................   12
     8.2    Covenant Default  ..............................................   12
     8.3    Material Adverse Change  .......................................   13
     8.4    Attachment  ....................................................   13
     8.5    Insolvency  ....................................................   13
     8.6    Other Agreements  ..............................................   13
     8.7    Judgments  .....................................................   13
     8.8    Misrepresentations  ............................................   13

9.   BANK'S RIGHTS AND REMEDIES  ...........................................   14
     9.1    Rights and Remedies  ...........................................   14
     9.2    Power of Attorney  .............................................   14
     9.3    Accounts Collection  ...........................................   15
     9.4    Bank Expenses  .................................................   15
     9.5    Bank's Liability for Collateral  ...............................   15
     9.6    Remedies Cumulative  ...........................................   15
     9.7    Demand Waiver  .................................................   15

10.  NOTICES  ..............................................................   16

11.  CHOICE OF LAW , VENUE AND JURY TRIAL WAIVER  ..........................   16

12.  GENERAL PROVISIONS  ...................................................   16
     12.1   Successors and Assigns  ........................................   16
     12.2   Indemnification  ...............................................   16
     12.3   Time of Essence  ...............................................   16
     12.4   Severability of Provision  .....................................   17
     12.5   Amendments in Writing, Integration  ............................   17
     12.6   Counterparts  ..................................................   17
     12.7   Survival  ......................................................   17
     12.8   Confidentiality  ...............................................   17
     12.9   Attorneys' Fees, Costs and Expenses  ...........................   17

13.  DEFINITIONS  ..........................................................   18
     13.1   Definitions  ...................................................   18
</TABLE>

                                       ii

<PAGE>

This LOAN AND SECURITY AGREEMENT dated March 27, 2002, between SILICON VALLEY
BANK ("Bank"), whose address is 3003 Tasman Drive, Santa Clara, California 95054
and EGAIN COMMUNICATIONS CORP., a Delaware corporation ("Borrower"), whose
address is 714 East Evelyn Avenue, Sunnyvale, California 94086 provides the
terms on which Bank will lend to Borrower and Borrower will repay Bank. The
parties agree as follows:

1.       ACCOUNTING AND OTHER TERMS.
         --------------------------
         Accounting terms not defined in this Agreement will be construed
following GAAP. Calculations and determinations must be made following GAAP. The
term "financial statements" includes the notes and schedules. The terms
"including" and "includes" always mean "including (or includes) without
limitation," in this or any Loan Document.

2.       LOAN AND TERMS OF PAYMENT
         -------------------------

2.1      Credit Extensions.
         -----------------

         Borrower will pay Bank the unpaid principal amount of all Credit
Extensions and interest on the unpaid principal amount of the Credit Extensions.

2.1.1    Revolving Advances Facility.
         ---------------------------

         (a) Bank will make Advances not to exceed the lesser of: (i) the
Committed Revolving Line; or (ii) the Borrowing Base, minus (1) the amount of
all outstanding Letters of Credit (including drawn but unreimbursed Letters of
Credit), minus (2) the FX Reserve, and minus (3) the amount reserved by Bank as
of the date of determination for Cash Management Services. Amounts borrowed
under this Section may be repaid and reborrowed during the term of this
Agreement.

         (b) To obtain an Advance, Borrower must notify Bank by facsimile or
telephone by 12:00 p.m. Pacific time on the Business Day the Advance is to be
made. Borrower must promptly confirm the notification by delivering to Bank the
Payment/Advance Form attached as Exhibit B. Bank will credit Advances to
Borrower's deposit account. Bank may make Advances under this Agreement based on
instructions from a Responsible Officer or his or her designee or without
instructions if the Advances are necessary to meet Obligations which have become
due. Bank may rely on any telephone notice given by a person whom Bank believes
is a Responsible Officer or designee. Borrower will indemnify Bank for any loss
Bank suffers due to that reliance except for losses caused by Bank's gross
negligence or willful misconduct.

         (c) The Committed Revolving Line terminates on the Revolving Maturity
Date, when all Advances are immediately payable.

2.1.2    Letters of Credit.
         -----------------

         Bank will issue or have issued Letters of Credit for Borrower's account
not exceeding the lesser of: (i) the Committed Revolving Line; or (ii) the
Borrowing Base minus (1) the outstanding principal balance of the Advances,
minus (2) the FX Reserve, and minus (3) the amount reserved by Bank as of the
date of determination for Cash Management Services;

                                        1

<PAGE>

however, the face amount of outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit and any Letter of Credit Reserve) may not exceed
Committed Revolving Line. Each Letter of Credit will expire no later than 180
days after the Revolving Maturity Date, provided Borrower's Letter of Credit
reimbursement obligation is secured by cash on terms acceptable to Bank at any
time after the Revolving Maturity Date if the term of this Agreement is not
extended by Bank. Borrower agrees to execute any further documentation in
connection with the Letters of Credit as Bank may reasonably request.

2.1.3    Foreign Exchange Sublimit.
         -------------------------

         If there is availability under the Committed Revolving Line and the
Borrowing Base, then Borrower may enter in foreign exchange forward contracts
with the Bank under which Borrower commits to purchase from or sell to Bank a
set amount of foreign currency more than one business day after the contract
date (the "FX Forward Contract"). Bank will subtract 10% of each outstanding FX
Forward Contract from the foreign exchange sublimit which is a maximum equal to
Committed Revolving Line (the "FX Reserve"). The total FX Forward Contracts at
any one time may not exceed 10 times the amount of the FX Reserve. Bank may
terminate the FX Forward Contracts if an Event of Default occurs.

2.1.4    Cash Management Services Sublimit.
         ---------------------------------

         If there is availability under the Committed Revolving Line and the
Borrowing Base, Borrower may use up to an amount equal to Committed Revolving
Line for Bank's Cash Management Services, which may include merchant services,
direct deposit of payroll, business credit card, check cashing, automated
clearing house services, and controlled disbursement services identified in
various cash management services agreements related to such services (the "Cash
Management Services"). All amounts Bank pays for any Cash Management Services
will be treated as Advances under the Committed Revolving Line.

2.1.5    Equipment Advances.
         ------------------

         (a) Through September 30, 2002 (the "Equipment Availability End Date"),
Bank will make advances ("Equipment Advance" and, collectively, "Equipment
Advances") not exceeding the Committed Equipment Line. Equipment Advances when
repaid may not be reborrowed. The Equipment Advances may only be used to finance
new or used Eligible Equipment purchased on or after 90 days before the date of
each Equipment Advance; provided, however, that the initial Equipment Advance
                        --------  -------
may be used to finance Eligible Equipment purchased on or after 180 days before
the date of such Equipment Advance. Each Equipment Advance may not exceed 100%
of the equipment invoice excluding taxes, shipping, warranty charges, freight
discounts and installation expense. Other Equipment may constitute up to 25% of
the aggregate Equipment Advances. Each Equipment Advance shall be considered a
promissory note evidencing the amounts due hereunder for all purposes. The
maximum number of Equipment Advances that will be made is seven (7).

         (b) To obtain an Equipment Advance, Borrower must notify Bank (the
notice is irrevocable) by facsimile no later than 12:00 p.m. Pacific time 1
Business Day before the day on which the Equipment Advance is to be made. The
notice in the form of Exhibit B

                                        2

<PAGE>

(Payment/Advance Form) must be signed by a Responsible Officer or designee and
include a copy of the invoice for the Equipment being financed.

         (c) Borrower will make monthly payments of principal and accrued
interest for each Equipment Advance (collectively, "Scheduled Payments"), on the
last Business Day of the month following the Funding Date (or commencing on the
Funding Date if the Funding Date is the last Business Day of the month) with
respect to such Equipment Advance and continuing thereafter during the Repayment
Period on the last Business Day of each calendar month (each a "Payment Date"),
in an amount equal to the Loan Factor multiplied by the Equipment Loan Amount
for such Equipment Advance as of such Payment Date. All unpaid principal and
accrued interest is due and payable in full on the last Payment Date with
respect to such Equipment Advance. Payments received after 12:00 noon Pacific
time are considered received at the opening of business on the next Business
Day. An Equipment Advance may only be prepaid in accordance with Section 2.1.5
(f) and (g).

         (d) Borrower will pay interest on the Payment Dates (as described
above) at the rate in Section 2.3(a)(ii).

         (e) On the Equipment Maturity Date with respect to each Equipment
Advance, Borrower will pay, in addition to the unpaid principal and accrued
interest and all other amounts due on such date with respect to such Equipment
Advance, an amount equal to the Equipment Advance Final Payment.

         (f) If the Equipment Advances are accelerated following the occurrence
of an Event of Default or otherwise, then Borrower will immediately pay to Bank
(i) all unpaid Scheduled Payments (including principal and interest) with
respect to each Equipment Advance, (ii) all remaining Scheduled Payments
(including principal and interest unpaid) (iii) all accrued unpaid interest,
including the default rate of interest, to the date of the prepayment, (iv) the
Equipment Advance Final Payment and (v) all other sums, if any, that shall have
become due and payable with respect to any Equipment Advance.

         (g) Borrower shall have the option to prepay at any time prior to
acceleration, all, but not less than all, of an Equipment Advance advanced by
Bank under this Agreement, provided Borrower (i) provides written notice to Bank
to prepay such Equipment Advance prior to such prepayment, and (ii) pays, on the
date of the prepayment (A) all outstanding principal; (B) all unpaid accrued
interest to the date of the prepayment; and (C) the Equipment Advance Final
Payment.

2.1.6    Term Loan.
         ---------

         (a) Bank will make a Term Loan available to Borrower.

         (b) Borrower will pay 24 equal installments of principal plus interest
of $85,951.03 (the "Term Loan Payment"). Each Term Loan Payment is payable on
the last day of each month during the term of the loan. Borrower's final Term
Loan Payment, due on Term Loan Maturity Date, includes all outstanding Term Loan
principal and accrued interest.

                                        3

<PAGE>

         (c) On the Term Loan Maturity Date, Borrower will pay, in addition to
the unpaid principal and accrued interest and all other amounts due on such date
with respect to the Term Loan, an amount equal to the Term Loan Final Payment.

         (d) If the Term Loan is accelerated following the occurrence of an
Event of Default or otherwise, then Borrower will immediately pay to Bank (i)
all outstanding Term Loan principal and accrued interest, (ii) all accrued
unpaid interest, including the default rate of interest, to the date of the
prepayment, (iv) the Term Loan Final Payment and (v) all other sums, if any,
that shall have become due and payable with respect to the Term Loan.

         (e) Borrower shall have the option to prepay all or a portion, such
portion not to be less than 25%, of the Term Loan advanced by Bank under this
Agreement, provided Borrower (i) provides written notice to Bank to prepay such
           --------
portion of the Term Loan prior to such prepayment, and (ii) pays, on the date of
the prepayment: (A) that percentage of the outstanding principal; (B) that
percentage of unpaid accrued interest to the date of such prepayment; and (C)
that percentage of the Term Loan Final Payment at the time of such prepayment.

2.2      Overadvances.
         ------------

         If Borrower's Obligations under Section 2.1.1, 2.1.2, 2.1.3 and 2.1.4
exceed the lesser of either (i) the Committed Revolving Line or (ii) the
Borrowing Base, Borrower must immediately pay in cash to Bank the excess.

2.3      Interest Rate, Payments.
         -----------------------

         (a) Interest Rate. (i) Advances accrue interest on the outstanding
principal balance at a per annum rate of 0.25 percentage points above the Basic
Rate; (ii) Equipment Advances accrue interest on the outstanding principal
balance at a per annum rate of 0.50 percentage points above the Basic Rate; and
(iii) the Term Loan accrues interest at a per annum rate of 0.50 percentage
points above the Basic Rate. After an Event of Default, Obligations accrue
interest at 5 percent above the rate effective immediately before the Event of
Default. The interest rate increases or decreases when the Basic Rate changes.
Interest is computed on a 360 day year for the actual number of days elapsed.

         (b) Payments. Interest is payable on the last day of each month. Bank
may debit any of Borrower's deposit accounts including Account Number 3300362112
for principal and interest payments owing or any amounts Borrower owes Bank.
Bank will notify Borrower when it debits Borrower's accounts. These debits are
not a set-off. Payments received after 12:00 noon Pacific time are considered
received at the opening of business on the next Business Day. When a payment is
due on a day that is not a Business Day, the payment is due the next Business
Day and additional fees or interest accrue.

2.4      Fees.
         ----

         Borrower will pay:

         (a) Facility Fee. A fully earned, non-refundable facility fee of
$56,250 due on the Closing Date, provided, however, that if for the period
                                 --------  -------
commencing in June 30, 2002 through

                                        4

<PAGE>

and including the Revolving Maturity Date, Borrower maintains at least 85% of
all of Borrower's account balances at the Bank, then the Facility Fee shall be
reduced to $37,500 and the difference plus accrued interest (at the rate equal
                                      ----
to Bank's cost of funds) shall be refunded to the Borrower; and

         (b) Bank Expenses. All Bank Expenses (including reasonable attorneys'
fees and expenses) incurred through and after the Closing Date when due.

3.       CONDITIONS OF LOANS
         -------------------

3.1      Conditions Precedent to Initial Credit Extension.
         ------------------------------------------------

         Bank's obligation to make the initial Credit Extension is subject to
the condition precedent that it receive the agreements, documents and fees it
requires, including but not limited to control agreements with respect to all
deposit accounts and investment accounts maintained by Borrower, in form and
substance satisfactory to Bank, in order for Bank to perfect its security
interest in such deposit accounts and investments accounts, provided, however,
that if Borrower deposits not less than $4,000,000 in Bank on or before the
Closing Date, Borrower may deliver the herein referenced control agreements on
or before April 15, 2002 (the "Deadline Date"), provided, further, that if
Borrower fails to deliver the herein referenced control agreements on or before
the Deadline Date, notwithstanding anything to the contrary in Section 6.6 of
                                                               -----------
this Agreement, Borrower shall deposit (promptly but in no event later than 2
days from the Deadline Date) not less than 50% of its cash and cash equivalents
in Bank.

3.2      Conditions Precedent to all Credit Extensions.
         ---------------------------------------------

         Bank's obligations to make each Credit Extension, including the initial
Credit Extension, is subject to the following:

         (a) timely receipt of any Payment/Advance Form;

         (b) receipt of an fully executed Intellectual Property Security
Agreement in form and substance satisfactory to Bank; and

         (c) the representations and warranties in Section 5 must be materially
true on the date of the Payment/Advance Form and on the effective date of each
Credit Extension and no Event of Default may have occurred and be continuing, or
result from the Credit Extension. Each Credit Extension is Borrower's
representation and warranty on that date that the representations and warranties
of Section 5 remain true.

4.       CREATION OF SECURITY INTEREST
         -----------------------------

4.1      Grant of Security Interest.
         --------------------------

         Borrower grants Bank a continuing security interest in all presently
existing and later acquired Collateral to secure all Obligations and performance
of each of Borrower's duties under the Loan Documents. Except for Permitted
Liens, any security interest will be a first priority security interest in the
Collateral. Bank may place a "hold" on any deposit account pledged as

                                       5

<PAGE>

Collateral if: (i) an Event of Default has occurred and is continuing, or (ii)
Borrower has agreed to the placing of such hold in writing. If this Agreement is
terminated, Bank's lien and security interest in the Collateral will continue
until Borrower fully satisfies its Obligations.

4.2       Termination of Bank's Lien in Intellectual Property.
          ---------------------------------------------------

          If Borrower achieves two consecutive fiscal quarters of positive EBDA,
Bank shall release and terminate its lien and security interest in the
Intellectual Property. Upon the release and termination of Bank's lien and
security interest in the Intellectual Property, Borrower shall execute and
deliver to Bank a Negative Pledge Agreement in favor of Bank, in form and
substance satisfactory to Bank. Notwithstanding the foregoing, if Borrower
experiences two consecutive fiscal quarters of negative EBDA, Borrower agrees to
grant Bank a continuing security interest in the Intellectual Property and to
execute all necessary documents in connection with the granting of such security
interest and Borrower authorizes Bank to execute and file all necessary
documents (including but not limited to UCC-1 financing statement) to perfect
its security interest in the Intellectual Property.

5.        REPRESENTATIONS AND WARRANTIES
          ------------------------------

          Borrower represents and warrants as follows:

5.1       Due Organization and Authorization.
          ----------------------------------

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

          The execution, delivery and performance of the Loan Documents have
been duly authorized, and do not conflict with Borrower's formations documents,
nor constitute an event of default under any material agreement by which
Borrower is bound. Borrower is not in default under any agreement to which or by
which it is bound in which the default could cause a Material Adverse Change.

5.2       Collateral.
          ----------

          Borrower has good title to the Collateral, free of Liens except
Permitted Liens. The Eligible Accounts are bona fide, existing obligations, and
the service or property has been performed or delivered to the account debtor or
its agent for immediate shipment to and unconditional acceptance by the account
debtor. Borrower has no notice of any actual or imminent Insolvency Proceeding
of any account debtor whose accounts are an Eligible Account in any Borrowing
Base Certificate. All Inventory is in all material respects of good and
marketable quality, free from material defects. Borrower is the sole owner of
the Intellectual Property, except for non-exclusive licenses granted to its
customers in the ordinary course of business. Each Patent is valid and
enforceable and no part of the Intellectual Property has been judged invalid or
unenforceable, in whole or in part, and no claim has been made that any part of
the Intellectual Property violates the rights of any third party.

                                        6

<PAGE>

5.3       Litigation.
          ----------

          Except as shown in the Schedule, there are no actions or proceedings
pending or, to Borrower's knowledge, threatened by or against Borrower or any
Subsidiary in which an adverse decision could cause a Material Adverse Change.

5.4       No Material Adverse Change in Financial Statements.
          --------------------------------------------------

          All consolidated financial statements for Borrower, and any
Subsidiary, delivered to Bank fairly present in all material respects Borrower's
consolidated financial condition and Borrower's consolidated results of
operations. There has not been any material deterioration in Borrower's
consolidated financial condition since the date of the most recent financial
statements submitted to Bank.

5.5       Solvency.
          --------

          The fair salable value of Borrower's assets (including goodwill minus
disposition costs) exceeds the fair value of its liabilities; the Borrower is
not left with unreasonably small capital after the transactions in this
Agreement; and Borrower is able to pay its debts (including trade debts) as they
mature.

5.6       Regulatory Compliance.
          ---------------------

          Borrower is not an "investment company" or a company "controlled" by
an "investment company" under the Investment Company Act. Borrower is not
engaged as one of its important activities in extending credit for margin stock
(under Regulations T and U of the Federal Reserve Board of Governors). Borrower
has complied with the Federal Fair Labor Standards Act. Borrower has not
violated any laws, ordinances or rules, the violation of which could cause a
Material Adverse Change. None of Borrower's or any Subsidiary's properties or
assets has been used by Borrower or any Subsidiary or, to the best of Borrower's
knowledge, by previous Persons, in disposing, producing, storing, treating, or
transporting any hazardous substance other than legally. Borrower and each
Subsidiary has timely filed all required tax returns and paid, or made adequate
provision to pay, all material taxes, except those being contested in good faith
with adequate reserves under GAAP. Borrower and each Subsidiary has obtained all
consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all government authorities that are necessary to
continue its business as currently conducted.

5.7       Subsidiaries.
          ------------

          Borrower does not own any stock, partnership interest or other equity
securities except for Permitted Investments.

5.8       Full Disclosure.
          ---------------

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

                                        7

<PAGE>

6.        AFFIRMATIVE COVENANTS
          ---------------------

          Borrower will do all of the following:

6.1       Government Compliance.
          ---------------------

          Borrower will maintain its and all Subsidiaries' corporate existence
and good standing in its jurisdiction of incorporation and maintain
qualification in each jurisdiction in which the failure to so qualify could have
a material adverse effect on Borrower's business or operations. Borrower will
comply, and have each Subsidiary comply, with all laws, ordinances and
regulations to which it is subject, noncompliance with which could have a
material adverse effect on Borrower's business or operations or cause a Material
Adverse Change.

6.2       Financial Statements, Reports, Certificates.
          -------------------------------------------

          (a)   Borrower will deliver to Bank: (i) as soon as available, but no
later than 30 days after the last day of each month, a company prepared
consolidated balance sheet and income statement covering Borrower's consolidated
operations during the period, in a form acceptable to Bank and certified by a
Responsible Officer; (ii) within 10 days of filing, copies of all statements,
reports and notices made available to Borrower's security holders or to any
holders of Subordinated Debt and all reports on Form 10-K, 10-Q and 8-K filed
with the Securities and Exchange Commission; (iii) a prompt report of any legal
actions pending or threatened against Borrower or any Subsidiary that could
result in damages or costs to Borrower or any Subsidiary of $250,000 or more;
(iv) prompt notice of any material change in the composition of the Intellectual
Property, including any subsequent ownership right of Borrower in or to any
Copyright, Patent or Trademark not shown in any intellectual property security
agreement between Borrower and Bank or knowledge of an event that materially
adversely affects the value of the Intellectual Property taken as a whole; and
(v) budgets, sales projections, operating plans or other financial information
Bank reasonably requests.

          (b)   Within 30 days after the last day of each month, Borrower will
deliver to Bank a Borrowing Base Certificate signed by a Responsible Officer in
the form of Exhibit C, with aged listings of accounts receivable, accounts
payable and schedule of deferred revenues.

          (c)   Within 30 days after the last day of each month, Borrower will
deliver to Bank with the monthly financial statements a Compliance Certificate
signed by a Responsible Officer in the form of Exhibit D.

          (d)   Bank has the right to audit Borrower's Accounts at Borrower's
expense, but the audits will be conducted no less often than once every 6 months
unless an Event of Default has occurred and is continuing; provided, however,
                                                           --------  -------
that the cost of any one audit shall not exceed $2,000.

6.3       Inventory; Returns.
          ------------------

          Borrower will keep all Inventory in good and marketable condition,
free from material defects. Returns and allowances between Borrower and its
account debtors will follow

                                        8

<PAGE>

Borrower's customary practices as they exist the Closing Date. Borrower must
promptly notify Bank of all returns, recoveries, disputes and claims, that
involve more than $100,000.

6.4       Taxes.
          -----

          Borrower will make, and cause each Subsidiary to make, timely payment
of all material federal, state, and local taxes or assessments and will deliver
to Bank, on demand, appropriate certificates attesting to the payment.

6.5       Insurance.
          ---------

          Borrower will keep its business and the Collateral insured for risks
and in amounts, as Bank requests. Insurance policies will be in a form, with
companies, and in amounts that are satisfactory to Bank. All property policies
will have a lender's loss payable endorsement showing Bank as a loss payee and
all liability policies will show the Bank as an additional insured and provide
that the insurer must give Bank at least 30 days notice before canceling its
policy. At Bank's request, Borrower will deliver certified copies of policies
and evidence of all premium payments. Proceeds payable under any policy will, at
Bank's option, be payable to Bank on account of the Obligations.

6.6       Primary Accounts.
          ----------------

                (i)     Borrower will maintain its primary depository and
operating accounts with Bank;

                (ii)    Within 30 days of the Closing Date, Borrower will
transfer not less than 25% of its cash and cash equivalents to Bank;

                (iii)   On or before June 30, 2002, Borrower will transfer not
less than 50% of its cash and cash equivalents to Bank; and

                (iv)    On and after July 1, 2002, Borrower will maintain not
less than 50% of its unrestricted cash and cash equivalents in any accounts at
or through Bank at all times, provided, however, that in the event Borrower
raises capital in future rounds of equity financing (the "Raised Capital"),
Borrower and Bank agree, prior to the closing of any such equity financing
round, to reasonably negotiate in good faith to determine what percentage of the
Raised Capital will be required to be maintained at or through Bank.

6.7       Financial Covenants.
          -------------------

          Borrower will maintain as of the last day of each month:

                (i)     Quick Ratio (Adjusted). A ratio of Quick Assets to
Current Liabilities plus non-cash secured Letters of Credit of at least 1.25 to
1.0.

                (ii)    Profitability. Borrower will have a net profit no more
negative than the following amounts for the corresponding fiscal quarters (Net
Loss, as defined by GAAP, minus dividends payable to common and preferred
shareholders:

                                        9

<PAGE>

                Fiscal Quarter Ending              Net Profit (Net Loss)
                ---------------------              ---------------------

                March 31, 2002                     ($16,300,000)
                June 30, 2002                      ($14,500,000)
                September 30, 2002                 ($12,100,000)
                December 31, 2002                  ($11,100,000)

6.8       Registration of Intellectual Property Rights.
          --------------------------------------------

          Borrower will consistent with its business practices and objectives,
register with the United States Patent and Trademark Office Patents within 30
days of the date of this Agreement and additional Patents developed or acquired
including revisions or additions with any product before the sale or licensing
of the product to any third party. In addition, Borrower will register with the
United States Copyright Office its Copyrights within 30 days of this Agreement
and additional Copyrights on an ongoing basis, provided, however, Borrower will
                                               --------  -------
only be required to register Copyrights developed or acquired that relate to
Borrower's generally available products (including prior, current and future
material version releases thereof) before the sale or licensing of the product
to any third party, provided, further, Borrower will not be required to register
                    --------  -------
any Copyrights until the Ninth Circuit Court Appeals rules on the matter of
Aerocon Engineering v. Silicon Valley Bank, provided, further, that if the Ninth
------------------------------------------
Circuit Court of Appeals rules in Bank's favor (allowing perfection in
unregistered Copyrights by means of UCC-1 financing statement filing), Borrower
will not be required to register any Copyrights.

          Borrower will (consistent with past practices): (i) protect, defend
consistent with past practice and maintain the validity and enforceability of
the Intellectual Property and promptly advise Bank in writing of material
infringements and (ii) not allow any Intellectual Property to be abandoned,
forfeited or dedicated to the public without Bank's written consent, which
consent shall not be unreasonably withheld.

6.9       Control Agreements.
          ------------------

          With respect to deposit accounts or investment accounts maintained at
financial institutions other than Bank, within fifteen (15) days of the opening
of any such deposit account or investment account, Borrower will execute and
deliver to Bank control agreements in form satisfactory to Bank in order for
Bank to perfect its security interest in such deposit accounts or investment
accounts.

6.10      Further Assurances.
          ------------------

          Borrower will execute any further instruments and take further action
as Bank reasonably requests to perfect or continue Bank's security interest in
the Collateral or to effect the purposes of this Agreement.

7.        NEGATIVE COVENANTS
          ------------------

          Borrower will not do any of the following without Bank's prior written
consent, which will not be unreasonably withheld:

                                       10

<PAGE>

7.1       Use of Funds.
          ------------

          7.1.1  Use any proceeds of the Term Loans for any purpose other than
to pay amounts owing to Old Lender in full in accordance with the Payoff Letter.

7.2       Dispositions.
          ------------

          Convey, sell, lease, transfer or otherwise dispose of (collectively
"Transfer"), or permit any of its Subsidiaries to Transfer, all or any part of
its business or property, other than Transfers (i) of Inventory in the ordinary
course of business; (ii) of non-exclusive licenses and similar arrangements for
the use of the property of Borrower or its Subsidiaries in the ordinary course
of business; or (iii) of worn-out or obsolete Equipment.

7.3       Changes in Business, Ownership, Management or Business Locations.
          ----------------------------------------------------------------

          Engage in or permit any of its Subsidiaries to engage in any business
other than the businesses currently engaged in by Borrower or have a change in
its ownership (other than the sale of Borrower's equity securities in a public
or private offering) of greater than 51%. Borrower will not, without at least 30
days prior written notice, relocate its chief executive office or add any new
offices or business locations.

7.4       Mergers or Acquisitions.
          -----------------------

          Without the consent of the Bank, such consent not to be unreasonably
withheld or delayed, merge or consolidate, or permit any of its Subsidiaries to
merge or consolidate, with any other Person, or acquire, or permit any of its
Subsidiaries to acquire, all or substantially all of the capital stock or
property of another Person, except where (i) no Event of Default has occurred
and is continuing or would result from such action during the term of this
Agreement and (ii) such transaction would not result in a decrease of more than
25% of Tangible Net Worth. A Subsidiary may merge or consolidate into another
Subsidiary or into Borrower.

7.5       Indebtedness.
          ------------

          Create, incur, assume, or be liable for any Indebtedness, or permit
any Subsidiary to do so, other than Permitted Indebtedness.

7.6       Encumbrance.
          -----------

          Create, incur, or allow any Lien on any of its property, or assign or
convey any right to receive income, including the sale of any Accounts, or
permit any of its Subsidiaries to do so, except for Permitted Liens, or permit
Bank's first priority security interest in the Collateral to change, subject to
Permitted Liens.

7.7       Distributions; Investments.
          --------------------------

          Directly or indirectly acquire or own any Person, or make any
Investment in any Person, other than Permitted Investments, or permit any of its
Subsidiaries to do so. Pay any dividends or make any distribution or payment or
redeem, retire or purchase any capital stock, except that

                                       11

<PAGE>

Borrower may repurchase the stock of former employees pursuant to stock
repurchase agreements as long as an Event of Default does not exist prior to
such repurchase or would not exist after giving effect to such repurchase.

7.8       Transactions with Affiliates.
          ----------------------------

          Directly or indirectly enter into or permit any material transaction
with any Affiliate except transactions that are in the ordinary course of
Borrower's business, on terms less favorable to Borrower than would be obtained
in an arm's length transaction with a non-affiliated Person.

7.9       Subordinated Debt.
          -----------------

          Make or permit any payment on any Subordinated Debt, except under the
terms of the Subordinated Debt, or amend any provision in any document relating
to the Subordinated Debt without Bank's prior written consent, such consent not
to be unreasonably withheld.

7.10      Compliance.
          ----------

          Become an "investment company" or a company controlled by an
"investment company," under the Investment Company Act of 1940 or undertake as
one of its important activities extending credit to purchase or carry margin
stock, or use the proceeds of any Credit Extension for that purpose; fail to
meet the minimum funding requirements of ERISA, permit a Reportable Event or
Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the
Federal Fair Labor Standards Act or violate any other law or regulation, if the
violation could reasonably be expected to have a material adverse effect on
Borrower's business or operations or would reasonably be expected to cause a
Material Adverse Change, or permit any of its Subsidiaries to do so.

8.        EVENTS OF DEFAULT
          -----------------

          Any one of the following is an Event of Default:

8.1       Payment Default.
          ---------------

          If Borrower fails to pay any of the Obligations within 3 days after
their due date. During the additional period the failure to cure the default is
not an Event of Default (but no Credit Extension will be made during the cure
period);

8.2       Covenant Default.
          ----------------

          If Borrower does not perform any obligation in Section 6 or violates
any covenant in Section 7 or does not perform or observe any other material
term, condition or covenant in this Agreement, any Loan Documents, or in any
agreement between Borrower and Bank and as to any default under a term,
condition or covenant that can be cured, has not cured the default within 10
days after it occurs, or if the default cannot be cured within 10 days or cannot
be cured after Borrower's attempts in the 10 day period, and the default may be
cured within a reasonable time, then Borrower has an additional time (of not
more than 30 days) to attempt to cure the

                                       12

<PAGE>

default. During the additional period, the failure to cure the default is not an
Event of Default (but no Credit Extensions will be made during the cure period);

8.3       Material Adverse Change.
          -----------------------

          If there (i) occurs a material adverse change in the business
operations, or condition (financial or otherwise) of the Borrower; or (ii) is a
material impairment of the prospect of repayment of any portion of the
Obligations; or (iii) is a material impairment of the priority of Bank's
security interests in the Collateral.

8.4       Attachment.
          ----------

          If any material portion of Borrower's assets is attached, seized,
levied on, or comes into possession of a trustee or receiver and the attachment,
seizure or levy is not removed in 10 days, or if Borrower is enjoined,
restrained, or prevented by court order from conducting a material part of its
business or if a judgment or other claim becomes a Lien on a material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed against
any of Borrower's assets by any government agency and not paid within 10 days
after Borrower receives notice. These are not Events of Default if stayed or if
a bond is posted pending contest by Borrower (but no Credit Extensions will be
made during the cure period);

8.5       Insolvency.
          ----------

          If Borrower becomes Insolvent or if Borrower begins an Insolvency
Proceeding or an Insolvency Proceeding is begun against Borrower and not
dismissed or stayed within 30 days (but no Credit Extensions will be made before
any Insolvency Proceeding is dismissed);

8.6       Other Agreements.
          ----------------

          If there is a default in any agreement between Borrower and a third
party that gives the third party the right to accelerate any Indebtedness
exceeding $250,000 or that could cause a Material Adverse Change, provided,
however that Borrower's failure to pay disputed trade payables of up to $250,000
in the aggregate shall not be an Event of Default under this Section 8.6 unless
such nonpayment could constitute a Material Adverse Change;

8.7       Judgments.
          ---------

          If a money judgment(s) in the aggregate of at least $250,000 is
rendered against Borrower and is unsatisfied and unstayed for 10 days (but no
Credit Extensions will be made before the judgment is stayed or satisfied); or

8.8       Misrepresentations.
          ------------------

          If Borrower or any Person acting for Borrower makes any material
misrepresentation or material misstatement now or later in any warranty or
representation in this Agreement or in any writing delivered to Bank or to
induce Bank to enter this Agreement or any Loan Document.

                                       13

<PAGE>

9.        BANK'S RIGHTS AND REMEDIES
          --------------------------

9.1       Rights and Remedies.
          -------------------

          When an Event of Default occurs and continues Bank may, without notice
or demand, do any or all of the following:

          (a)   Declare all Obligations immediately due and payable (but if an
Event of Default described in Section 8.5 occurs all Obligations are immediately
due and payable without any action by Bank);

          (b)   Stop advancing money or extending credit for Borrower's benefit
under this Agreement or under any other agreement between Borrower and Bank;

          (c)   Settle or adjust disputes and claims directly with account
debtors for amounts, on terms and in any order that Bank considers advisable;

          (d)   Make any payments and do any acts it considers necessary or
reasonable to protect its security interest in the Collateral. Borrower will
assemble the Collateral if Bank requires and make it available as Bank
designates. Bank may enter premises where the Collateral is located, take and
maintain possession of any part of the Collateral, and pay, purchase, contest,
or compromise any Lien which appears to be prior or superior to its security
interest and pay all expenses incurred. Borrower grants Bank a license to enter
and occupy any of its premises, without charge, to exercise any of Bank's rights
or remedies;

          (e)   Apply to the Obligations any (i) balances and deposits of
Borrower it holds, or (ii) any amount held by Bank owing to or for the credit or
the account of Borrower;

          (f)   Ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale, and sell the Collateral. Bank is granted a
non-exclusive, royalty-free license or other right to use, without charge,
Borrower's labels, Patents, Copyrights, rights of use of any name, trade
secrets, trade names, Trademarks, service marks, and advertising matter, or any
similar property as it pertains to the Collateral, in completing production of,
advertising for sale, and selling any Collateral and, in connection with Bank's
exercise of its rights under this Section, Borrower's rights under all licenses
and all franchise agreements inure to Bank's benefit; and

          (g)   Dispose of the Collateral according to the Code.

9.2       Power of Attorney.
          -----------------

          When an Event of Default occurs and continues, Borrower irrevocably
appoints Bank as its lawful attorney to: (i) endorse Borrower's name on any
checks or other forms of payment or security; (ii) sign Borrower's name on any
invoice or bill of lading for any Account or drafts against account debtors,
(iii) make, settle, and adjust all claims under Borrower's insurance policies;
(iv) settle and adjust disputes and claims about the Accounts directly with
account debtors, for amounts and on terms Bank determines reasonable; and (v)
transfer the Collateral into the name of Bank or a third party as the Code
permits. Bank may exercise the power of attorney to sign Borrower's name on any
documents necessary to perfect or continue the

                                       14

<PAGE>

perfection of any security interest regardless of whether an Event of Default
has occurred. Bank's appointment as Borrower's attorney in fact, and all of
Bank's rights and powers, coupled with an interest, are irrevocable until all
Obligations have been fully repaid and performed and Bank's obligation to
provide Credit Extensions terminates.

9.3       Accounts Collection.
          -------------------

          When an Event of Default occurs and continues, Bank may notify any
Person owing Borrower money of Bank's security interest in the funds and verify
the amount of the Account. Borrower must collect all payments in trust for Bank
and, if requested by Bank, immediately deliver the payments to Bank in the form
received from the account debtor, with proper endorsements for deposit.

9.4       Bank Expenses.
          -------------

          If Borrower fails to pay any amount or furnish any required proof of
payment to third persons, Bank may make all or part of the payment or obtain
insurance policies required in Section 6.5, and take any action under the
policies Bank deems prudent. Any amounts paid by Bank are Bank Expenses and
immediately due and payable, bearing interest at the then applicable rate and
secured by the Collateral. No payments by Bank are deemed an agreement to make
similar payments in the future or Bank's waiver of any Event of Default.

9.5       Bank's Liability for Collateral.
          -------------------------------

          If Bank complies with reasonable banking practices and Section 9-207
of the Code, it is not liable or responsible for: (a) the safekeeping of the
Collateral; (b) any loss or damage to the Collateral; (c) any diminution in the
value of the Collateral; or (d) any act or default of any carrier, warehouseman,
bailee, or other person. Borrower bears all risk of loss, damage or destruction
of the Collateral.

9.6       Remedies Cumulative.
          -------------------

          Bank's rights and remedies under this Agreement, the Loan Documents,
and all other agreements are cumulative. Bank has all rights and remedies
provided under the Code, by law, or in equity. Bank's exercise of one right or
remedy is not an election, and Bank's waiver of any Event of Default is not a
continuing waiver. Bank's delay is not a waiver, election, or acquiescence. No
waiver is effective unless signed by Bank and then is only effective for the
specific instance and purpose for which it was given.

9.7       Demand Waiver.
          -------------

          Borrower waives demand, notice of default or dishonor, notice of
payment and nonpayment, notice of any default, nonpayment at maturity, release,
compromise, settlement, extension, or renewal of accounts, documents,
instruments, chattel paper, and guaranties held by Bank on which Borrower is
liable.

                                       15

<PAGE>

10.       NOTICES
          -------

          All notices or demands by any party to this Agreement or any other
related agreement must be in writing and be personally delivered or sent by an
overnight delivery service, by certified mail, postage prepaid, return receipt
requested, or by telefacsimile at the addresses listed at the beginning of this
Agreement. A Party may change its notice address by giving the other Party
written notice.

11.       CHOICE OF LAW , VENUE AND JURY TRIAL WAIVER
          -------------------------------------------

          California law governs the Loan Documents without regard to principles
of conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction
of the State and Federal courts in Santa Clara County, California.

BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY
CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER
CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS
AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

12.       GENERAL PROVISIONS
          ------------------

12.1      Successors and Assigns.
          ----------------------

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

12.2      Indemnification.
          ---------------

          Borrower will indemnify, defend and hold harmless Bank and its
officers, employees, and agents against: (a) all obligations, demands, claims,
and liabilities asserted by any other party in connection with the transactions
contemplated by the Loan Documents; and (b) all losses or Bank Expenses
incurred, or paid by Bank from, following, or consequential to transactions
between Bank and Borrower (including reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.

12.3      Time of Essence.
          ---------------

          Time is of the essence for the performance of all Obligations in this
Agreement.

                                       16

<PAGE>

12.4      Severability of Provision.
          -------------------------

          Each provision of this Agreement is severable from every other
provision in determining the enforceability of any provision.

12.5      Amendments in Writing, Integration.
          ----------------------------------

          All amendments to this Agreement must be in writing and signed by both
Borrower and Bank. This Agreement and the Loan Documents represent the entire
agreement about this subject matter, and supersedes prior or contemporaneous
negotiations or agreements. All prior or contemporaneous agreements,
understandings, representations, warranties, and negotiations between the
parties about the subject matter of this Agreement and the Loan Documents merge
into this Agreement and the Loan Documents.

12.6      Counterparts.
          ------------

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

12.7      Survival.
          --------

          All covenants, representations and warranties made in this Agreement
continue in full force while any Obligations remain outstanding. The obligations
of Borrower in Section 12.2 to indemnify Bank will survive until all statutes of
limitations for actions that may be brought against Bank have run.

12.8      Confidentiality.
          ---------------

          In handling any confidential information, Bank will exercise the same
degree of care that it exercises for its own proprietary information, but
disclosure of information may be made (i) to Bank's subsidiaries or affiliates
in connection with their present or prospective business with Borrower, (ii) to
prospective transferees or purchasers of any interest in the loans, (iii) as
required by law, regulation, subpoena, or other order, (iv) as required in
connection with Bank's examination or audit and (v) as Bank considers
appropriate exercising remedies under this Agreement. Confidential information
does not include information that either: (a) is in the public domain or in
Bank's possession when disclosed to Bank, or becomes part of the public domain
after disclosure to Bank; or (b) is disclosed to Bank by a third party, if Bank
does not know that the third party is prohibited from disclosing the
information.

12.9      Attorneys' Fees, Costs and Expenses.
          -----------------------------------

          In any action or proceeding between Borrower and Bank arising out of
the Loan Documents, the prevailing party will be entitled to recover its
reasonable attorneys' fees and other costs and expenses incurred, in addition to
any other relief to which it may be entitled, whether or not a lawsuit is filed.

                                       17

<PAGE>

13.       DEFINITIONS
          -----------

13.1      Definitions.
          -----------

          In this Agreement:

          "Accounts" are all existing and later arising accounts, contract
rights, and other obligations owed Borrower in connection with its sale or lease
of goods (including licensing software and other technology) or provision of
services, all credit insurance, guaranties, other security and all merchandise
returned or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.

          "Advance" or "Advances" is a loan advance (or advances) under the
Committed Revolving Line.

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

          "Bank Expenses" are all audit fees and expenses and reasonable costs
and expenses (including reasonable attorneys' fees and expenses) for preparing,
negotiating, administering, defending and enforcing the Loan Documents
(including appeals or Insolvency Proceedings).

          "Basic Rate" is, as of the Closing Date, the per annum rate of
interest (based on a year of 360 days) equal to the greater of: (a) the Prime
Rate, or (b) 4.75%.

          "Borrower's Books" are all Borrower's books and records including
ledgers, records regarding Borrower's assets or liabilities, the Collateral,
business operations or financial condition and all computer programs or discs or
any equipment containing the information.

          "Borrowing Base" is (i) 65% of Eligible Accounts, as determined by
Bank from Borrower's most recent Borrowing Base Certificate; provided, however,
                                                             --------  -------
that in Bank's Permitted Discretion, Bank may lower the percentage of the
Borrowing Base after performing an audit of Borrower's Collateral pursuant to
Section 6.2(d); provided further, that no such adjustment shall become effective
until the tenth (10th) Business Day following delivery to Borrower of a report
by the Bank setting forth in reasonable detail the rationale for the adjustment
of the percentage. The Bank agrees that during such ten (10) day period, the
Bank will negotiate in good faith with the Borrower to settle any differences of
opinion with respect to such audit and adjustment.

          "Business Day" is any day that is not a Saturday, Sunday or a day on
which the Bank is closed.

          "Cash Management Services" are defined in Section 2.1.4.

          "Closing Date" is the date of this Agreement.

          "Code" is the California Uniform Commercial Code.

                                       18

<PAGE>

          "Collateral" is the property described on Exhibit A.
                                                    ---------

          "Committed Equipment Line" is a Credit Extension of up to $537,282.51.

          "Committed Revolving Line" is an Advance of up to $5,000,000.

          "Contingent Obligation" is, for any Person, any direct or indirect
liability, contingent or not, of that Person for (i) any indebtedness, lease,
dividend, letter of credit or other obligation of another such as an obligation
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse by that Person, or for which that Person is directly or indirectly
liable; (ii) any obligations for undrawn letters of credit for the account of
that Person; and (iii) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; but "Contingent
Obligation" does not include endorsements in the ordinary course of business.
The amount of a Contingent Obligation is the stated or determined amount of the
primary obligation for which the Contingent Obligation is made or, if not
determinable, the maximum reasonably anticipated liability for it determined by
the Person in good faith; but the amount may not exceed the maximum of the
obligations under the guarantee or other support arrangement.

          "Copyrights" are all copyright rights, applications or registrations
and like protections in each work or authorship or derivative work, whether
published or not (whether or not it is a trade secret) now or later existing,
created, acquired or held.

          "Credit Extension" is each Advance, Equipment Advance, Letter of
Credit, Term Loan, Exchange Contract, or any other extension of credit by Bank
for Borrower's benefit.

          "Current Assets" are amounts that under GAAP should be included on
that date as current assets on Borrower's consolidated balance sheet.

          "Current Liabilities" are the aggregate amount of Borrower's Current
Liabilities (as defined pursuant to GAAP), plus the aggregate outstanding amount
of Equipment Advances and Term Loan, minus current portion of Deferred Revenue.

          "Deferred Revenue" is all amounts received in advance of performance
under maintenance or other service contracts and not yet recognized as revenue.

          "EBDA" is net earnings or losses to common stock shareholders, plus
                                                                         ----
depreciation, plus amortization of goodwill, intangible assets, deferred
              ----
compensation, plus dividends on preferred stock, plus restructuring charges not
              ----                               ----
to exceed the following amounts for the corresponding fiscal quarters: (i)
$400,000 for the fiscal quarter ending March 31, 2002, (ii) $75,000 for the
fiscal quarter ending June 30, 2002, (iii) $75,000 for the fiscal quarter ending
September 30, 2002, and (iv) $75,000 for the fiscal quarter ending December 31,
2002.

          "Eligible Accounts" are Accounts in the ordinary course of Borrower's
business that meet all Borrower's representations and warranties in Section 5,
provided, however, that Bank may in its Permitted Discretion change eligibility
standards by giving Borrower notice, provided, further, that no such changes in
eligibility shall become effective until the tenth (10/th/) Business

                                       19

<PAGE>

Day following the delivery to Borrower of a written explanation setting forth in
reasonable detail the rationale for any such changes (except for changes in
eligibility relating to cases where account debtors have declared bankruptcy or
where a receiver has been appointed to operate the business of any such account
debtor, in which situation changes to the eligibility requirements, with respect
to any such account debtors, shall be effective immediately). The Bank agrees
that during such ten (10) Business Day period: (i) Bank will negotiate in good
faith with the Borrower to settle any differences of opinion with respect to any
change in eligibility standards and (ii) Borrower will not be required to repay
such amounts advanced on accounts that were deemed to be ineligible. Unless Bank
agrees otherwise in writing, Eligible Accounts will not include:

          (a)   Accounts that the account debtor has not paid within 90 days of
invoice date, other than non-standard Accounts agreed to by the Bank;

          (b)   Accounts for an account debtor, 50% or more of whose Accounts
have not been paid within 90 days of invoice date;

          (c)   Credit balances over 90 days from invoice date;

          (d)   Accounts for an account debtor, including Affiliates, whose
total obligations to Borrower exceed 25% of all Accounts, for the amounts that
exceed that percentage, unless the Bank approves in writing;

          (e)   Accounts for which the account debtor does not have its
principal place of business in the United States except for Eligible Foreign
Accounts;

          (f)   Accounts for which the account debtor is a federal, state or
local government entity or any department, agency, or instrumentality;

          (g)   Accounts for which Borrower owes the account debtor, but only up
to the amount owed (sometimes called "contra" accounts, accounts payable,
customer deposits or credit accounts), provided, however, that if Borrower
achieves a: (i) ratio of Quick Assets to Current Liabilities plus non-cash
secured Letters of Credit of at least 1.35 to 1.0 during fiscal quarter ending
March 31, 2002, (ii) ratio of Quick Assets to Current Liabilities plus non-cash
secured Letters of Credit of at least 1.40 to 1.0 during fiscal quarter ending
June 30, 2002, and (iii) ratio of Quick Assets to Current Liabilities plus
non-cash secured Letters of Credit of at least 1.50 to 1.0 during fiscal
quarters ending September 30, 2002 and December 31, 2002, then that up to an
aggregate of $75,000 of contra accounts, accounts payable, and customer deposits
or credit accounts may be included as Eligible Accounts;

          (h)   Accounts for which the account debtor does not owe Borrower, but
which Borrower has recognized or can recognize Deferred Revenue, unless and in
which case the portion of such Account that is equal to such Deferred Revenue
amount shall be ineligible under this clause, provided, however, that if
Borrower achieves a: (i) ratio of Quick Assets to Current Liabilities plus
non-cash secured Letters of Credit of at least 1.35 to 1.0 during fiscal quarter
ending March 31, 2002, (ii) ratio of Quick Assets to Current Liabilities plus
non-cash secured Letters of Credit of at least 1.40 to 1.0 during fiscal quarter
ending June 30, 2002, and (iii) ratio of Quick Assets to Current Liabilities
plus non-cash secured Letters of Credit of at least 1.50 to

                                       20

<PAGE>

1.0 during fiscal quarters ending September 30, 2002 and December 31, 2002, then
such Deferred Revenue Accounts may be included as Eligible Accounts.

          (i)   Accounts for demonstration or promotional equipment, or in which
goods are consigned, sales guaranteed, sale or return, sale on approval, bill
and hold, or other terms if account debtor's payment may be conditional;

          (j)   Accounts for which the account debtor is Borrower's Affiliate,
officer, employee, or agent, provided, however, that this exclusion shall not
extend to non-affiliated business partners that sell Borrower's products in the
ordinary course of their business;

          (k)   Accounts in which the account debtor disputes liability or makes
any claim and Bank reasonably believes there may be a basis for dispute (but
only up to the disputed or claimed amount), or if the Account Debtor is subject
to an Insolvency Proceeding, or becomes insolvent, or goes out of business;

          (l)   Accounts being factored by or sold to Bank or other financial
institutions under an Accounts Receivable Purchase Facility or similar
agreement; and

          (m)   Accounts for which Bank reasonably determines collection to be
doubtful, provided, however, that upon Borrower's requests Bank agrees to
          --------  -------
provide Borrower with a list of any such excluded Accounts.

          "Eligible Equipment" is, to the extent reasonably acceptable to Bank,
new or used general purpose computer equipment, office equipment, test and
laboratory equipment, furnishings, and, subject to the limitations set forth
below. Other Equipment, not to exceed $134,320.63 in the aggregate, that
complies with all of Borrower's representations and warranties to Bank and which
is acceptable to Bank in all respects.

          "Eligible Foreign Accounts" are Accounts for which the account debtor
does not have its principal place of business in the United States but are: (1)
covered by credit insurance satisfactory to Bank, less any deductible; or (2)
supported by letter(s) of credit advised and negotiated by Bank or (3) that Bank
approves in writing.

          "Equipment" is all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments in
which Borrower has any interest.

          "Equipment Advance" is defined in Section 2.1.5.

          "Equipment Availability End Date" is defined in Section 2.1.5.

          "Equipment Loan Amount" is the aggregate amount of the Equipment
Advance.

          "Equipment Maturity Date" is, with respect to each Equipment Advance,
the last day of the Repayment Period for such Equipment Advance, or if earlier,
the date of acceleration of such Equipment Advance by Bank following an Event of
Default.

                                       21

<PAGE>

          "Equipment Advance Final Payment" is a payment (in addition to and not
a substitution for the regular monthly payments of principal plus accrued
interest) due on the Equipment Maturity Date for such Equipment Advance equal to
the Equipment Loan Amount for such Equipment Advance multiplied by the Final
Payment Percentage.

          "ERISA" is the Employment Retirement Income Security Act of 1974, and
its regulations.

          "Final Payment Percentage" is, for the Term Loan and each Equipment
Advance, as applicable, 6%.

          "Funding Date" is any date on which an Equipment Advance is made to or
on account of Borrower.

          "FX Forward Contract" is defined in Section 2.1.3.

          "FX Reserve " is defined in Section 2.1.3.

          "GAAP" is generally accepted accounting principles.

          "Guarantor" is any present or future guarantor of the Obligations,
including Egain Communications Corp

          "Indebtedness" is (a) indebtedness for borrowed money or the deferred
price of property or services, such as reimbursement and other obligations for
surety bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations and (d)
Contingent Obligations.

          "Insolvency Proceeding" are proceedings by or against any Person under
the United States Bankruptcy Code, or any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, compositions, extensions
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.

          "Insolvent" means that the fair value of Borrower's or any other
person's liabilities exceeds the fair salable value of its assets (including
goodwill minus disposition costs) or Borrower or any other person is not able to
pay its debts (including trade debts) as they mature.

          "Intellectual Property" is:

          (a)   Copyrights, Trademarks, and Patents including amendments,
renewals, extensions, and all licenses or other rights to use and all license
fees and royalties from the use;

          (b)   Any trade secrets and any intellectual property rights in
computer software and computer software products now or later existing, created,
acquired or held;

          (c)   All design rights which may be available to Borrower now or
later created, acquired or held;

                                       22

<PAGE>

          (d) Any claims for damages (past, present or future) for infringement
of any of the rights above, with the right, but not the obligation, to sue and
collect damages for use or infringement of the intellectual property rights
above;

          All proceeds and products of the foregoing, including all insurance,
indemnity or warranty payments.

          "Inventory" is present and future inventory in which Borrower has any
interest, including merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products intended for sale or
lease or to be furnished under a contract of service, of every kind and
description now or later owned by or in the custody or possession, actual or
constructive, of Borrower, including inventory temporarily out of its custody or
possession or in transit and including returns on any accounts or other proceeds
(including insurance proceeds) from the sale or disposition of any of the
foregoing and any documents of title.

          "Investment" is any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.

          "Letter of Credit" is defined in Section 2.1.2.

          "Lien" is a mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.

          "Loan Documents" are, collectively, this Agreement, any note, or notes
or guaranties executed by Borrower or Guarantor, and any other present or future
agreement between Borrower and/or for the benefit of Bank in connection with
this Agreement, all as amended, extended or restated.

          "Loan Factor" is the percentage which results from amortizing the
Equipment Advance over the Repayment Period, using the Basic Rate as the
interest rate.

          "Material Adverse Change" is defined in Section 8.3.

          "Negative Pledge Agreement" means an agreement reasonably satisfactory
to Lender substantially in the form of Exhibit E attached hereto.

          "Obligations" are debts, principal, interest, Bank Expenses and other
amounts Borrower owes Bank now or later, including cash management services,
letters of credit and foreign exchange contracts, if any and including interest
accruing after Insolvency Proceedings begin and debts, liabilities, or
obligations of Borrower assigned to Bank.

          "Old Lender" Comerica Bank - California.

          "Other Equipment" is leasehold improvements, intangible property such
as computer software and software licenses, and other soft costs, including
taxes, shipping, warranty charges, freight discounts and installation expense.
Unless otherwise agreed to by Bank: not more than

                                       23

<PAGE>

$134,320.63 of the Equipment financed with the proceeds of the Committed
Equipment Line shall consist of Other Equipment.

          "Patents" are patents, patent applications and like protections,
including improvements, divisions, continuations, renewals, reissues, extensions
and continuations-in-part of the same.

          "Pay-Off Letter" means that certain letter, in form and substance
reasonably satisfactory to Bank, from Old Lender respecting the amount necessary
to repay in full all of the obligations of Borrower or any Subsidiary owing to
Old Lender and obtain a termination or release of all of the Liens existing in
favor of Old Lender in and to the assets of Borrower and such Subsidiaries.

          "Permitted Discretion" means a determination made in good faith and in
the exercise of reasonable (from the perspective of a secured lender) business
judgment.

          "Permitted Indebtedness" is:

          (a)   Borrower's indebtedness to Bank under this Agreement or any
other Loan Document;

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

          (c)   Subordinated Debt;

          (d)   Indebtedness to trade creditors incurred in the ordinary course
of business;

          (e)   Indebtedness secured by a Lien described in clause (c) of the
defined term "Permitted Liens", provided, however, that (i) such Indebtedness
does not exceed the lesser of the cost or fair market value of the Equipment
financed with such Indebtedness and (ii) such Indebtedness does not exceed
$5,000,000 in the aggregate at any given time;

          (f)   Capital leases; and

          (g)   Indebtedness secured by Permitted Liens.

          "Permitted Investments" are:

          (a)   Investments shown on the Schedule and existing on the Closing
Date;

          (b)   Investments made by the Borrower or any Subsidiary, provided,
however, that Borrower may make Investments in its Subsidiaries, provided,
however, that (ii) the aggregate amount of such Investments shall not exceed
$3,000,000 in any given quarter and (ii) no Event of Default has occurred which
is continuing or would exist immediately after giving effect to any such
Investment; and

          (c)   (i) marketable direct obligations issued or unconditionally
guaranteed by the United States or its agency or any State maturing within 2
years from its acquisition, (ii) commercial paper maturing no more than 1 year
after its creation and currently having a rating of at least A-1 or P-1 from
either Standard & Poor's Corporation or Moody's Investors

                                       24

<PAGE>

Service, Inc., and (iii) Bank's certificates of deposit issued maturing no more
than 2 years after issue.

          "Permitted Liens" are:

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

          (b)   Liens for taxes, fees, assessments or other government charges
or levies, either not delinquent or being contested in good faith and for which
Borrower maintains adequate reserves on its Books, if they have no priority over
                                                   --
any of Bank's security interests;

          (c)   Purchase money Liens (i) on Equipment acquired or held by
Borrower or its Subsidiaries incurred for financing the acquisition of the
Equipment, or (ii) existing on equipment when acquired, if the Lien is confined
                                                        --
to the property and improvements and the proceeds of the equipment;

          (d)   Licenses or sublicenses granted in the ordinary course of
Borrower's business and any interest or title of a licensor or under any license
or sublicense, if the licenses and sublicenses permit granting Bank a security
               --
interest;

          (e)   Leases or subleases granted in the ordinary course of Borrower's
business, including in connection with Borrower's leased premises or leased
property;

          (f)   Liens incurred in the extension, renewal or refinancing of the
indebtedness secured by Liens described in (a) through (c), but any extension,
                                                            ---
renewal or replacement Lien must be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness may not increase;

          (g)   Capital leases; and

          (h)   Purchase money liens.

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

          "Prime Rate" is Bank's most recently announced "prime rate," even if
it is not Bank's lowest rate.

          "Quick Assets" is, on any date, the Borrower's consolidated,
unrestricted cash, cash equivalents, and Eligible Accounts.

          "Repayment Period" as to each Equipment Advance, is 36 months;
provided, however that the initial Equipment Advance shall have a repayment
period of 24 months.

                                       25

<PAGE>

         "Responsible Officer" is each of the Chief Executive Officer, the
President, the Chief Financial Officer, and the Vice President of Finance of
Borrower.

         "Revolving Maturity Date" is March 25, 2003.

         "Schedule" is any attached schedule of exceptions.

         "Subordinated Debt" is debt incurred by Borrower subordinated to
Borrower's indebtedness owed to Bank and which is reflected in a written
agreement in a manner and form acceptable to Bank and approved by Bank in
writing.

         "Subsidiary" is for any Person, or any other business entity of which
more than 50% of the voting stock or other equity interests is owned or
controlled, directly or indirectly, by the Person or one or more Affiliates of
the Person.

         "Tangible Net Worth" is, on any date, the consolidated total assets of
Borrower and its Subsidiaries minus, (i) any amounts attributable to (a)
goodwill, (b) intangible items such as unamortized debt discount and expense,
Patents, trade and service marks and names, Copyrights and research and
development expenses except prepaid expenses, and (c) reserves not already
deducted from assets, and (ii) Total Liabilities.

         "Term Loan" a loan of $1,962,717.49.

         "Term Loan Final Payment" is a payment (in addition to and not a
substitution for the regular monthly payments of principal plus accrued
interest) due on the Term Loan Maturity Date equal to the amount of the Term
Loan multiplied by the Final Payment Percentage.

         "Term Loan Maturity Date" is March 25, 2004.

         "Total Liabilities" is on any day, obligations that should, under GAAP,
be classified as liabilities on Borrower's consolidated balance sheet, including
all Indebtedness, and current portion Subordinated Debt allowed to be paid, but
excluding all other Subordinated Debt.

                                       26

<PAGE>

         "Trademarks" are trademark and servicemark rights, registered or not,
applications to register and registrations and like protections, and the entire
goodwill of the business of Assignor connected with the trademarks.

BORROWER:

EGAIN COMMUNICATIONS CORP.

By:________________________________________

Title:_____________________________________

BANK:

SILICON VALLEY BANK

By:________________________________________

Title:_____________________________________

                                       27

<PAGE>

                                    EXHIBIT A

         The Collateral consists of all of Borrower's right, title and interest
in and to the following:

         All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;

         All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is held for sale or lease, or to be furnished under a contract of
service or is temporarily out of Borrower's custody or possession or in transit
and including any returns or repossession upon any accounts or other proceeds,
including insurance proceeds, resulting from the sale or disposition of any of
the foregoing and any documents of title representing any of the above;

         All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, servicemarks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance, payment intangibles, and rights to payment of
any kind;

         All now existing and hereafter arising accounts (including health-care
insurance receivables), contract rights, royalties, license rights and all other
forms of obligations owing to Borrower arising out of the sale or lease of
goods, the licensing of technology or the rendering of services by Borrower,
whether or not earned by performance, and any and all credit insurance,
guaranties, and other security therefor, as well as all merchandise returned to
or reclaimed by Borrower;

         All documents (including negotiable documents), cash, deposit accounts,
securities, securities entitlements, securities accounts, investment property,
financial assets, letters of credit, letter of credit rights, money,
certificates of deposit, instruments (including promissory notes) and chattel
paper (including tangible and electronic chattel paper) now owned or hereafter
acquired and Borrower's Books relating to the foregoing;

         All copyright rights, copyright applications, copyright registrations
and like protections in each work of authorship and derivative work thereof,
whether published or unpublished, now owned or hereafter acquired; all trade
secret rights, including all rights to unpatented inventions, know-how,
operating manuals, license rights and agreements and confidential information,
now owned or hereafter acquired; all claims for damages by way of any past,
present and future infringement of any of the foregoing; and

         All Borrower's Books relating to the foregoing, and the computers and
equipment containing said books and records, and any and all claims, rights and
interests in any of the above and all substitutions for, additions and
accessions to and proceeds thereof.

                                       28

<PAGE>

                                    EXHIBIT B

                   LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM

             DEADLINE FOR SAME DAY PROCESSING IS 12:00 P.M., P.S.T.

TO: CENTRAL CLIENT SERVICE DIVISION    DATE:______________

FAX#:  (650) 320-0018                  TIME:______________

--------------------------------------------------------------------------------
FROM:  EGAIN COMMUNICATIONS CORP.
       -------------------------------------------------------------------------

                             CLIENT NAME (BORROWER)

REQUESTED BY:___________________________________________________
                            AUTHORIZED SIGNER'S NAME

AUTHORIZED SIGNATURE:___________________________________________

PHONE NUMBER:___________________________________________________

FROM ACCOUNT # ______________  TO ACCOUNT # ____________________

REQUESTED TRANSACTION TYPE               REQUESTED DOLLAR AMOUNT
--------------------------               -----------------------

PRINCIPAL INCREASE (ADVANCE)        $___________________________
PRINCIPAL PAYMENT (ONLY)            $___________________________
INTEREST PAYMENT (ONLY)             $___________________________
PRINCIPAL AND INTEREST (PAYMENT)    $___________________________

OTHER INSTRUCTIONS:_____________________________________________

All Borrower's representations and warranties in the Loan and Security Agreement
are true, correct and complete in all material respects on the date of the
telephone request for and Advance confirmed by this Borrowing Certificate; but
those representations and warranties expressly referring to another date shall
be true, correct and complete in all material respects as of that date.

                                  BANK USE ONLY
TELEPHONE REQUEST:
-----------------

The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.

________________________________           _____________________________________
     Authorized Requester                                Phone #

________________________________           _____________________________________
      Received By (Bank)                                 Phone #
--------------------------------------------------------------------------------

                                       29

<PAGE>

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

                      _________________________________________
                           Authorized Signature (Bank)
--------------------------------------------------------------------------------

                                       30

<PAGE>

                                    EXHIBIT C

                           BORROWING BASE CERTIFICATE

Borrower:    EGAIN COMMUNICATIONS CORP.             Bank:  SILICON VALLEY BANK
             714 East Evelyn Avenue                        3003 Tasman Drive
             Sunnyvale, California 94086                   Santa Clara, CA 95054

Commitment Amount:         $5,000,000
--------------------------------------------------------------------------------

ACCOUNTS RECEIVABLE
1.       Accounts Receivable Book Value as of  _____________     $__________
2.       Additions (please explain on reverse)                   $__________
3.       TOTAL ACCOUNTS RECEIVABLE                               $__________

ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4.       Amounts over 90 days due                      $_______
5.       Balance of 50% over 90 day accounts           $_______
6.       Credit balances over 90 days                  $_______
7.       Concentration Limits                          $_______
8.       Foreign Accounts                              $_______
9.       Governmental Accounts                         $_______
10.      Contra Accounts                               $_______
11.      Deferred Revenue                              $_______
12.      Promotion or Demo Accounts                    $_______
13.      Intercompany/Employee Accounts                $_______
14.      Other (please explain on reverse)             $_______
15.      TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS                    $__________
16.      Eligible Accounts (#3 minus #15)              $_______
17.      LOAN VALUE OF ACCOUNTS (65% of #16)                     $__________

BALANCES
18.      Maximum Loan Amount                           $_______
19.      Total Funds Available [Lesser of #17 or #16]            $__________
20.      Present balance owing on Line of Credit       $_______
21.      Outstanding under Sublimits (LC or FX or CMS) $_______
         RESERVE POSITION (#18 minus #19 and #20)                $__________

The undersigned represents and warrants that this is true, complete and correct,
and that the information in this Borrowing Base Certificate complies with the
representations and warranties in the Loan and Security Agreement between the
undersigned and Silicon Valley Bank.

COMMENTS:

                                                   -----------------------------
                                                    BANK USE ONLY
                                                    ---- --- ----
                                                    Rec'd By_______________
                                                             Auth. Signer

EGAIN COMMUNICATIONS CORP.                          Date:__________________
                                                    Verified:______________
                                                               Auth. Signer
                                                    Date:__________________
                                                   -----------------------------

                                       31

<PAGE>

By:__________________________
      Authorized Signer

                                       32

<PAGE>

                                    EXHIBIT D
                             COMPLIANCE CERTIFICATE

TO:             SILICON VALLEY BANK
                3003 Tasman Drive
                Santa Clara, CA 95054

FROM:              EGAIN COMMUNICATIONS CORP.

         The undersigned authorized officer of Egain Communications Corp.
("Borrower") certifies that under the terms and conditions of the Loan and
Security Agreement between Borrower and Bank (the "Agreement"), (i) Borrower is
in complete compliance for the period ending _______________ with all required
covenants except as noted below and (ii) all representations and warranties in
the Agreement are true and correct in all material respects on this date.
Attached are the required documents supporting the certification. The Officer
certifies that these are prepared in accordance with Generally Accepted
Accounting Principles (GAAP) consistently applied from one period to the next
except as explained in an accompanying letter or footnotes. The Officer
acknowledges that no borrowings may be requested at any time or date of
determination that Borrower is not in compliance with any of the terms of the
Agreement, and that compliance is determined not just at the date this
certificate is delivered.

         Please indicate compliance status by circling Yes/No under "Complies"
column.

<TABLE>
<CAPTION>
--------------------------------------------------- ------------------------------------------- -------------------------------
Reporting Covenant                                  Required                                    Complies
------------------                                  --------                                    --------
--------------------------------------------------- ------------------------------------------- -------------------------------
--------------------------------------------------- ------------------------------------------- ----------------- -------------
<S>                                                 <C>                                        <C>               <C>
Monthly financial statements + CC                   Monthly within 30 days                      Yes               No
--------------------------------------------------- ------------------------------------------- ----------------- -------------
10-Q, 10-K and 8-K                                  Within 10 days after filing with SEC        Yes               No
--------------------------------------------------- ------------------------------------------- ----------------- -------------
A/R A/P Agings & Schedule of Deferred Revenues      Monthly within 30 days                      Yes               No
--------------------------------------------------- ------------------------------------------- ----------------- -------------
A/R Audit                                           Initial and Semi-Annual                     Yes               No
--------------------------------------------------- ------------------------------------------- ----------------- -------------
Borrowing Base Certificate                          Monthly within 30 days                      Yes               No
--------------------------------------------------- ------------------------------------------- ----------------- -------------

--------------------------------------------------- ------------------------------------------- ----------------- -------------
Financial Covenant                                  Required                                    Actual            Complies
------------------                                  --------                                    ------            --------

--------------------------------------------------- ------------------------------------------- ----------------- -------------
--------------------------------------------------- ------------------------------------------- ----------------- -------------
Maintain on a Monthly Basis:
--------------------------------------------------- ------------------------------------------- ----------------- ------ ------
  Minimum Quick Ratio (Adjusted)                    1.25 : 1.00                                 _____:1.00        Yes    No
--------------------------------------------------- ------------------------------------------- ----------------- ------ ------
Profitability:                                         quarterly               $_____________               Yes          No
</TABLE>

       Fiscal Quarter Ending     Losses not to exceed:

       March 31, 2002            ($16,300,000)             Yes          No

       June 30, 2002             ($14,500,000)             Yes          No

       September 30, 2002        ($12,100,000)             Yes          No

       December 31, 2002         ($11,100,000)             Yes          No

Have there been updates to Borrower's intellectual property, if appropriate?
                                                           Yes          No

                                       33

<PAGE>

                                              ----------------------------------
Comments Regarding Exceptions: See Attached.  BANK USE ONLY

                                              Received by:______________________
Sincerely,                                                   AUTHORIZED SIGNER

EGAIN COMMUNICATIONS CORP.                    Date:_____________________________

                                              Verified:_________________________
___________________________________                         AUTHORIZED SIGNER
SIGNATURE
                                              Date:_____________________________
___________________________________
TITLE                                         Compliance Status:       Yes    No
                                              ----------------------------------
___________________________________
Date

                                       34

<PAGE>

                                    EXHIBIT E
                            NEGATIVE PLEDGE AGREEMENT

         This Negative Pledge Agreement is made as of _____________, by and
between _________________________ ("Borrower") and Silicon Valley Bank ("Bank").
In connection with, among other documents, the Loan and Security Agreement (the
"Loan Documents") being concurrently executed herewith between Borrower and
Bank, Borrower agrees as follows:

1.       Borrower shall not, without the consent of the Bank, such consent not
to be unreasonably withheld, sell, transfer, assign, mortgage, pledge, lease,
grant a security interest in, or encumber any of Borrower's intellectual
property (except for licensing of its proprietary software in the ordinary
course of business), including, without limitation, the following:

         (a) Any and all copyright rights, copyright applications, copyright
registrations and like protections in each work or authorship and derivative
work thereof, whether published or unpublished and whether or not the same also
constitutes a trade secret, now or hereafter existing, created, acquired or
held;

         (b) All mask works or similar rights available for the protection of
semiconductor chips, now owned or hereafter acquired;

         (c) Any and all trade secrets, and any and all intellectual property
rights in computer software and computer software products now or hereafter
existing, created, acquired or held;

         (d) Any and all design rights which may be available to Borrower now or
hereafter existing, created, acquired or held;

         (e) All patents, patent applications and like protections including,
without limitation, improvements, divisions, continuations, renewals, reissues,
extensions and continuations-in-part of the same, including without limitation
the patents and patent applications;

         (f) Any trademark and servicemark rights, whether registered or not,
applications to register and registrations of the same and like protections, and
the entire goodwill of the business of Borrower connected with and symbolized by
such trademarks, including without limitation;

         (g) Any and all claims for damages by way of past, present and future
infringements of any of the rights included above, with the right, but not the
obligation, to sue for and collect such damages for said use or infringement of
the intellectual property rights identified above;

         (h) All licenses or other rights to use any of the Copyrights, Patents,
or Trademarks and all license fees and royalties arising from such use to the
extent permitted by such license or rights; and

         (i) All amendments, extensions, renewals and extensions of any of the
Copyrights, Trademarks, or Patents; and

                                       35

<PAGE>

     (j) All proceeds and products of the foregoing, including without
limitation all payments under insurance or any indemnity or warranty payable in
respect of any of the foregoing;

2.   It shall be an event of default under the Loan Documents between Borrower
and Bank if there is a breach of any term of this Negative Pledge Agreement.

3.   Capitalized terms used but not otherwise defined herein shall have the same
meaning as in the Loan Documents.

                               BORROWER:

                               EGAIN COMMUNICATIONS CORP.

                               By: ______________________________________
                               Name: ____________________________________
                               Title: ___________________________________

                               BANK:

                               SILICON VALLEY BANK

                               By: ______________________________________
                               Name: ____________________________________
                               Title: ___________________________________

                                       36

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