EXHIBIT 10.22

 

LOAN AND SECURITY AGREEMENT

 

by and between

 

Legato Systems, Inc., as Borrower

 

and

 

Silicon Valley Bank, as Lender

 

December 31, 2002

 

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TABLE OF CONTENTS

 

              

Page

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1.

  

DEFINITIONS; ACCOUNTING AND OTHER TERMS

  

1

2.

  

LOAN AND TERMS OF PAYMENT

  

1

    

2.1

  

Promise to Pay

  

1

    

2.2

  

Overadvances

  

3

    

2.3

  

Interest Rate, Payments

  

3

    

2.4

  

Fees

  

3

3.

  

CONDITIONS OF LOANS

  

3

    

3.1

  

Conditions Precedent to Initial Advance

  

3

    

3.2

  

Conditions Precedent to all Advances

  

4

4.

  

CREATION OF SECURITY INTEREST

  

4

    

4.1

  

Grant of Security Interest

  

4

    

4.2

  

Authorization to File; Delivery of Additional Documentation

  

4

5.

  

REPRESENTATIONS AND WARRANTIES

  

4

    

5.1

  

Due Organization; Organizational Structure; Authorization

  

4

    

5.2

  

Collateral

  

5

    

5.3

  

Litigation

  

5

    

5.4

  

No Material Adverse Change in Financial Statements

  

5

    

5.5

  

Solvency

  

5

    

5.6

  

Regulatory Compliance

  

6

    

5.7

  

Subsidiaries

  

6

    

5.8

  

Full Disclosure

  

6

6.

  

AFFIRMATIVE COVENANTS

  

6

    

6.1

  

Government Compliance

  

6

    

6.2

  

Financial Statements, Reports, Certificates

  

7

    

6.3

  

Inventory; Returns

  

7

    

6.4

  

Taxes

  

8

    

6.5

  

Insurance

  

8

    

6.6

  

Financial Covenants

  

8

    

6.7

  

Investable Funds with Bank

  

8

 

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TABLE OF CONTENTS

(Continued)

 

            

Page

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6.8

 

Registration of Intellectual Property Rights

  

8

   

6.9

 

Use of Proceeds

  

9

   

6.10

 

Account Control Agreements

  

9

   

6.11

 

Further Assurances

  

9

7.

 

NEGATIVE COVENANTS

  

9

   

7.1

 

Dispositions

  

9

   

7.2

 

Changes in Business, Ownership, Management or Business Locations

  

9

   

7.3

 

Mergers or Acquisitions

  

9

   

7.4

 

Indebtedness

  

10

   

7.5

 

Encumbrance

  

10

   

7.6

 

Distributions; Investments

  

10

   

7.7

 

Transactions with Affiliates

  

10

   

7.8

 

Subordinated Debt

  

10

   

7.9

 

Compliance

  

10

8.

 

EVENTS OF DEFAULT

  

10

   

8.1

 

Payment Default

  

11

   

8.2

 

Covenant Default

  

11

   

8.3

 

Material Adverse Change

  

11

   

8.4

 

Attachment

  

11

   

8.5

 

Insolvency

  

11

   

8.6

 

Other Agreements

  

12

   

8.7

 

Judgments

  

12

   

8.8

 

Misrepresentations

  

12

   

8.9

 

Guaranty

  

12

9.

 

BANK’S RIGHTS AND REMEDIES

  

12

   

9.1

 

Rights and Remedies

  

12

   

9.2

 

Power of Attorney

  

13

   

9.3

 

Accounts Collection

  

13

   

9.4

 

Bank Expenses

  

13

   

9.5

 

Bank’s Liability for Collateral

  

14

 

 

ii.

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TABLE OF CONTENTS

(Continued)

 

            

Page

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9.6

 

Remedies Cumulative

  

14

   

9.7

 

Demand Waiver

  

14

10.

 

NOTICES

  

14

11.

 

CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER

  

14

12.

 

GENERAL PROVISIONS

  

15

   

12.1

 

Successors and Assigns

  

15

   

12.2

 

Indemnification

  

15

   

12.3

 

Time of Essence

  

15

   

12.4

 

Severability of Provision

  

15

   

12.5

 

Amendments in Writing; Integration

  

15

   

12.6

 

Counterparts

  

15

   

12.7

 

Survival

  

15

   

12.8

 

Confidentiality

  

16

   

12.9

 

Attorneys’ Fees, Costs and Expenses

  

16

13.

 

DEFINITIONS

  

16

 

 

iii.

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THIS LOAN AND SECURITY AGREEMENT, dated as of December 31, 2002, is by and
between SILICON VALLEY BANK (“Bank”), whose address is 3003 Tasman Drive, Santa
Clara, California, 95054, and LEGATO SYSTEMS, INC. (“Borrower”), whose address
is 2350 West El Camino Real, Mountain View, California, 94040, and provides the
terms on which Bank will lend to Borrower and Borrower will repay Bank. The
parties hereto agree as follows:

 

1. DEFINITIONS; ACCOUNTING AND OTHER TERMS

 

Capitalized terms used herein shall have the meanings given to such terms in
Section 13 of this Agreement. 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
thereto. 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 Promise to Pay.

 

Borrower promises to pay Bank the unpaid principal amount of all Advances and
interest on the unpaid principal amount of the Advances.

 

2.1.1 Advances.

 

(a) Bank will make Advances not exceeding the lesser of (i) the Committed
Revolving Line or (ii) the Borrowing Base minus (A) the outstanding principal
balance of the Advances minus (B) the amount of all outstanding Letters of
Credit (including drawn but unreimbursed Letters of Credit) minus (C) the FX
Reserve and minus (D) all amounts for services utilized for Cash Management
Services. Amounts borrowed hereunder that remain available for borrowing under
this Agreement may be repaid and reborrowed prior to the Maturity Date.

 

(b) To obtain an Advance, Borrower must notify Bank by facsimile or telephone by
12:00 noon Pacific Time on the Business Day the Advance is to be made. Borrower
must promptly confirm the notification by delivering to Bank the Loan
Payment/Advance Request Form attached as Exhibit B (the “Payment/Advance Form”).
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 such reliance.

 

(c) The Committed Revolving Line shall terminate on the Maturity Date, and all
Advances are immediately due and payable on the Maturity Date.

 

(d) Bank’s obligation to lend the undisbursed portion of the Obligations will
terminate if, in Bank’s sole discretion, there has been a material adverse
change in the general affairs, management, results of operation, condition
(financial or otherwise) or the

 

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prospect of repayment of the Obligations, or there has been any material adverse
deviation by Borrower from the most recent business plan of Borrower presented
to and accepted by Bank prior to the execution of this Agreement.

 

2.1.2 Letters of Credit.

 

(a) Bank will issue or have issued standby Letters of Credit for Borrower’s
account not exceeding the lesser of (a) the amount available under the Committed
Revolving Line and (b) the Borrowing Base (each, a “Letter of Credit”). Each
Letter of Credit will have an expiry date of no later than 180 days after the
Maturity Date, but Borrower’s reimbursement obligation will be secured by cash
on terms acceptable to Bank at any time after the Maturity Date if such Maturity
Date is not extended by Bank or if an Event of Default occurs and continues.
Borrower agrees to execute any further documentation in connection with the
Letters of Credit as Bank may reasonably request.

 

(b) Prior to or simultaneously with the opening of each Letter of Credit,
Borrower shall pay to Bank Bank’s customary fees in connection with the opening
of a letter of credit (the “Letter of Credit Fees”). The Letter of Credit Fees
shall be paid upon the opening of each Letter of Credit and upon each
anniversary thereof, if required. In addition, Borrower shall pay to Bank, for
its own account, any and all additional issuance, negotiation, processing,
transfer or other fees to the extent and as and when required by the provisions
of any application for Letters of Credit. All Letter of Credit Fees shall be
part of the Obligations.

 

(c) If any Letter of Credit is drawn upon, such amount shall constitute an
Advance but shall be immediately due and payable. If such amount is not paid
immediately, then the full amount thereof shall accrue interest at the rate set
forth in Section 2.3(a).

 

2.1.3 Foreign Exchange.

 

If there is availability under the lesser of the Committed Revolving Line and
the Borrowing Base, then Borrower may enter into 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 ten percent (10%)
of each outstanding FX Forward Contract from the amount available under the
Committed Revolving Line (the “FX Reserve”). Bank may terminate the FX Forward
Contracts if an Event of Default occurs.

 

2.1.4 Cash Management Services.

 

Borrower may use the availability under the lesser of the Committed Revolving
Line and the Borrowing Base for Bank’s Cash Management Services, which may
include merchant services, direct deposit of payroll, business credit cards,
automated clearing house transactions, controlled disbursement accounts and
check cashing services identified in various cash management services agreements
related to such services (the “Cash Management Services”). Such aggregate
amounts utilized for Cash Management Services will at all times reduce the
amount otherwise available to be borrowed under the Committed Revolving Line.
Any amounts Bank pays on behalf of Borrower or any amounts that are not paid by
Borrower for

 

2.

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any Cash Management Services will be treated as Advances under the Committed
Revolving Line and will accrue interest at the rate for Advances.

 

2.2 Overadvances.

 

If, at any time, Borrower’s Obligations hereunder exceed the lesser of (a) the
Committed Revolving Line or (b) the Borrowing Base, Borrower shall immediately
pay Bank the excess.

 

2.3 Interest Rate, Payments.

 

(a) Interest Rate. Advances accrue interest on the outstanding principal balance
thereof at a per annum rate equal to the greater of (i) one-half of one
percentage point above the Prime Rate and (ii) 4.75%. After an Event of Default
has occurred, Obligations shall accrue interest at a rate per annum equal to 3
percent above the rate effective immediately before the Event of Default. The
interest rate increases or decreases when the Prime Rate changes. Interest is
computed on a 360 day year for the actual number of days elapsed.

 

(b) Payments. Interest due on the Advances is payable on the first (1st) of each
month. Bank may debit any of Borrower’s deposit accounts, including account
number 3300385582, for principal and interest payments owing or any amounts
Borrower owes Bank. Bank will promptly notify Borrower when it debits Borrower’s
accounts. These debits are not a set-off. Payments received after 1:00 PM
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) Loan Fee. A fully earned, non-refundable loan fee in the amount of Fifty
Thousand Dollars ($50,000) is due on or before the Closing Date.

 

(b) Expedite Fee. A fully earned, non-refundable fee in the amount of Ten
Thousand Dollars ($10,000) is due on or before the Closing Date, but only if the
Closing Date occurs on or before December 31, 2002.

 

(c) Bank Expenses. All Bank Expenses (including reasonable attorneys’ fees and
expenses) incurred through and after the date of this Agreement are payable upon
demand.

 

3. CONDITIONS OF LOANS

 

3.1 Conditions Precedent to Initial Advance.

 

Bank’s obligation to make the initial Advance is subject to the condition
precedent that it receive the agreements, documents, including the Opinion of
Borrower’s counsel, and fees it requires.

 

3.

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3.2 Conditions Precedent to all Advances.

 

Bank’s obligation to make each Advance, including the initial Advance, is
subject to the following:

 

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

 

(b) 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 Advance
and no Event of Default may have occurred and be continuing, or result from such
Advance. Each Advance 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. Any security interest will be a
first priority security interest in the Collateral. Bank may place a “hold” on
any deposit account pledged as Collateral. If this Agreement is terminated,
Bank’s lien and security interest in the Collateral will continue until Borrower
fully satisfies its Obligations.

 

4.2 Authorization to File; Delivery of Additional Documentation.

 

Borrower authorizes Bank to file financing statements without notice to
Borrower, with all appropriate jurisdictions, as Bank deems appropriate, in
order to perfect or protect Bank’s security interest in the Collateral. Borrower
shall execute and deliver to Bank, at the request of Bank, all documents that
Bank may reasonably request, in form satisfactory to Bank, to perfect and
continue perfected Bank’s security interest in the Collateral and in order to
fully consummate all of the transactions contemplated under the Loan Documents.

 

5. REPRESENTATIONS AND WARRANTIES

 

Borrower represents and warrants as follows:

 

5.1 Due Organization; Organizational Structure; 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, except where the failure to do so could not
reasonably be expected to cause a Material Adverse Change.

 

Borrower has not changed its state of formation or organizational structure or
type or any organizational number assigned by its jurisdiction of formation.

 

4.

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The execution, delivery and performance of the Loan Documents have been duly
authorized, and do not conflict with Borrower’s formation 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 reasonably be expected to cause a Material
Adverse Change.

 

5.2 Collateral.

 

Borrower has rights in the Collateral and its Intellectual Property sufficient
to grant a security interest therein, free of Liens except Permitted Liens. All
of Borrower’s deposit accounts are described on the Schedule. The 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. The Collateral is not in the
possession of any third party bailee (such as at a warehouse). In the event that
Borrower, after the date hereof, intends to store or otherwise deliver the
Collateral to such a bailee, then Borrower will receive the prior written
consent of Bank and such bailee must acknowledge in writing that the bailee is
holding such collateral for the benefit of Bank. 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 and exclusive licenses granted to its customers in the ordinary
course of business. Each issued Patent owned by Borrower 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, except to the
extent such claim could not reasonably be expected to cause a Material Adverse
Change. Borrower shall not change the location of any Collateral.

 

5.3 Litigation.

 

Except as shown in the Schedule, there are no actions or proceedings pending or,
to the knowledge of Borrower’s Responsible Officers, threatened by or against
Borrower or any Subsidiary in which a likely adverse decision could reasonably
be expected to 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

 

 

5.

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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 in all material respects with the Federal Fair Labor Standards Act.
Borrower has not violated any laws, ordinances or rules, the violation of which
could reasonably be expected to 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, except where the failure to do so could not reasonably be
expected to cause a Material Adverse Change.

 

5.7 Subsidiaries.

 

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

 

5.8 Full Disclosure.

 

No written representation, warranty or other statement of Borrower in any
certificate or written statement given to Bank (taken together with all such
written certificates and written statements 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 (it
being recognized by Bank that the projections and forecasts provided by Borrower
in good faith and based upon reasonable assumptions are not viewed as facts and
that actual results during the period or periods covered by such projections and
forecasts may differ from the projected and forecasted results).

 

6. AFFIRMATIVE COVENANTS

 

Borrower will do all of the following for so long as Bank has an obligation to
lend, or there are outstanding Obligations:

 

6.1 Government Compliance.

 

Borrower will maintain its and all Subsidiaries’ legal existence and good
standing in its jurisdiction of formation and maintain qualification in each
jurisdiction in which the failure to so qualify would reasonably be expected to
cause a material adverse effect on Borrower’s business or operations. Borrower
will comply, and have each Subsidiary comply, with all laws,

 

 

6.

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ordinances and regulations to which it is subject, noncompliance with which
could have a material adverse effect on Borrower’s business or operations or
would reasonably be expected to 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 certified by a Responsible Officer and in a form acceptable to
Bank; (ii) as soon as available, but no later than 90 days after the last day of
Borrower’s fiscal year, audited consolidated financial statements prepared under
GAAP, consistently applied, together with an unqualified opinion on the
financial statements from an independent certified public accounting firm
reasonably acceptable to Bank; (iii) annual financial projections in form and
substance commensurate with those provided to Borrower’s board of directors or
utilized by Borrower’s executive management, in form and substance satisfactory
to Bank; (iv) 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 $100,000 or more; and (v) budgets, sales projections,
operating plans or other financial information Bank reasonably requests.

 

(b) Within 20 days after the last day of each month, Borrower will deliver to
Bank a Borrowing Base Certificate, with aged listings of accounts receivable and
accounts payable.

 

(c) Within 20 days after the last day of each month, Borrower will deliver to
Bank a schedule containing a description Borrower’s Deferred Revenue, on a
consolidated basis (the “Deferred Revenue Schedule”), in form and substance
acceptable to Bank.

 

(d) Within 30 days after the last day of each month, Borrower will deliver to
Bank with the monthly financial statements a Compliance Certificate.

 

(e) Borrower will allow Bank to audit Borrower’s Collateral at Borrower’s
expense, and such audit will be satisfactory to Bank. Such audits will be
conducted no more often than once in every 6-month period unless an Event of
Default shall have occurred.

 

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 Borrower’s customary practices as they exist at execution of
this Agreement. Borrower must promptly notify Bank of all returns, recoveries,
disputes and claims, that involve more than $50,000.

 

 

7.

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6.4 Taxes.

 

Borrower will make, and cause each Subsidiary to make, timely payment of all
material federal, state, and local taxes or assessments (other than taxes and
assessments which Borrower is contesting in good faith, with adequate reserves
maintained in accordance with GAAP) 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 standard for Borrower’s industry, and as Bank may reasonably request.
Insurance policies will be in a form, with companies, and in amounts that are
satisfactory to Bank in Bank’s reasonable discretion. All property policies will
have a lender’s loss payable endorsement showing Bank as an additional loss
payee and all liability policies will show the Bank as an additional insured and
provide that the insurer must give Bank at least 20 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 Financial Covenants.

 

(a) Borrower will maintain each of the following as of the last day of each
month:

 

(i) Quick Ratio (Adjusted). A ratio of Quick Assets to Current Liabilities minus
Deferred Revenue of at least 1.20 to 1.00; and

 

(ii) Unrestricted Cash and Availability. Unrestricted Cash and Availability in
an amount not less than $20,000,000.

 

(b) Borrower will maintain each of the following as of the last day of each
quarter:

 

(i) Quick Ratio (Adjusted). A ratio of Quick Assets to Current Liabilities minus
Deferred Revenue of at least 1.25 to 1.00; and

 

(ii) Quarterly Revenue. Revenue in an amount not less than $68,000,000.

 

6.7 Investable Funds with Bank. Borrower shall deposit with Bank or any
Affiliate of Bank 100% of its consolidated, Investable Funds.

 

6.8 Registration of Intellectual Property Rights.

 

Borrower will (i) protect, defend 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 material to
Borrower’s business to be abandoned, forfeited or dedicated to the public
without Bank’s written consent.

 

 

8.

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6.9 Use of Proceeds.

 

Borrower shall use the Advances (including Advances constituting Letters of
Credit) only for its general working capital requirements.

 

6.10 Account Control Agreements.

 

Borrower shall deliver to Bank a Control Agreement executed by any institution
with which Borrower maintains any type of deposit, operating or investment
account, including Wells Fargo Bank, within sixty (60) calendar days after the
Closing Date, and, thereafter, Borrower shall deliver to Bank a Control
Agreement immediately upon the opening any such account.

 

6.11 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
for so long as Bank has an obligation to lend or there are any outstanding
Obligations:

 

7.1 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, except for Transfers (i) of Inventory in the ordinary course of
business; (ii) of non-exclusive licenses and similar arrangements (such as
source code escrow 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.

 

7.2 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 reasonably related thereto or
have a Change in Control. Borrower will not, without at least 30 days prior
written notice, relocate its chief executive office, add any new offices or
business locations in which Borrower maintains or stores over $5,000 in
Borrower’s assets or property or change its state of incorporation.

 

7.3 Mergers or Acquisitions.

 

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) Borrower is
the sole surviving entity.

 

9.

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7.4 Indebtedness.

 

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

 

7.5 Encumbrance.

 

Create, incur, or allow any Lien on any of its property (including its
Intellectual 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 any Collateral not to be subject to the
first priority security interest granted hereunder.

 

7.6 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.

 

7.7 Transactions with Affiliates.

 

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

 

7.8 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.

 

7.9 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 Advance 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:

 

 

10.

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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 Advance 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

 

If Borrower 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 within 10 day period, and the default may be cured within a reasonable
time, then Borrower has an additional period (of not more than 30 days) to
attempt to cure the default. During the additional time, the failure to cure the
default is not an Event of Default (but no Advances 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 value or 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 Advances 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 Advances will be made before any Insolvency Proceeding is
dismissed);

 

 

11.

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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
$100,000 or that could cause a Material Adverse Change;

 

8.7 Judgments.

 

If a money judgment(s) in the aggregate of at least $50,000 is rendered against
Borrower and is unsatisfied and unstayed for 10 days (but no Advances will be
made before the judgment is stayed or satisfied);

 

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; or

 

8.9 Guaranty.

 

Any guaranty of any Obligations ceases for any reason to be in full force or any
Guarantor does not perform any obligation under any guaranty of the Obligations,
or any material misrepresentation or material misstatement exists now or later
in any warranty or representation in any guaranty of the Obligations or in any
certificate delivered to Bank in connection with the guaranty, or any
circumstance described in Sections 8.4, 8.5 or 8.7 occurs to any Guarantor.

 

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,

 

 

12.

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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, Mask Works, 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.

 

Effective only 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 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 Advances 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

 

 

13.

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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 the Code, it is not
liable 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 guarantees held by Bank on which Borrower is liable.

 

10. NOTICES

 

All notices or demands by any party about 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 facsimile to the addresses set forth 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 ANY OF 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 COUNSEL. PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

 

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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
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.

 

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 with respect to (a) and (b) above, 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.

 

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 Borrower and
Bank. This Agreement represents the entire agreement about this subject matter,
and supersedes prior negotiations or agreements. All prior agreements,
understandings, representations, warranties, and negotiations between the
parties about the subject matter of this Agreement merge into this Agreement and
the Loan Documents.

 

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, constitute 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.

 

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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 business with Borrower, (ii) to prospective transferees or purchasers
of any interest in the loans (provided, however, Bank shall use commercially
reasonable efforts in obtaining such prospective transferee or purchasers
agreement of the terms of this provision), (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 already in Bank’s possession before disclosed to
Bank by Borrower, 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 reasonable costs and expenses incurred, in addition to
any other relief to which it may be entitled.

 

13. 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, including Advances used to issue or fund Letters of Credit, the
FX Reserve or Cash Management Services.

 

“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).

 

“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.

 

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“Borrowing Base” is 80% of the sum Eligible Accounts plus Eligible Foreign
Accounts, in each case as determined by Bank from Borrower’s most recent
Borrowing Base Certificate; provided, that Bank may lower the percentage of the
Borrowing Base after performing an audit of Borrower’s Collateral.

 

“Borrowing Base Certificate” is a Borrowing Base Certificate signed by a
Responsible Officer in substantially the same form of Exhibit C attached hereto.

 

“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.

 

“Change in Control” is a transaction in which any “person” or “group” (within
the meaning of Section 13(d) and 14(d)(2) of the Securities Exchange Act of
1934) becomes the “beneficial owner” (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934), directly or indirectly, of a sufficient number
of shares of all classes of stock then outstanding of Borrower ordinarily
entitled to vote in the election of directors, empowering such “person” or
“group” to elect a majority of the board of directors of Borrower, who did not
have such power before such transaction.

 

“Closing Date” is the date of this Agreement.

 

“Code” is the Uniform Commercial Code in effect in any applicable jurisdiction.

 

“Collateral” is the property described on Exhibit A.

 

“Committed Revolving Line” is an Advance up to the aggregate principal amount of
$20,000,000.

 

“Compliance Certificate” is a Compliance Certificate signed by a Responsible
Officer in substantially the same form of Exhibit D attached hereto.

 

“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.

 

17.

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“Control Agreement” is an account control agreement, in form and substance
satisfactory to Bank, executed and delivered by Borrower, Bank and all
applicable depositary institutions, with respect to Borrower’s deposit or
operating accounts, or all applicable securities intermediaries, with respect to
Borrower’s securities accounts.

 

“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.

 

“Current Liabilities” are the aggregate amount of Borrower’s Total Liabilities
which mature within one (1) year.

 

“Deferred Revenue” is all amounts received in advance of performance and not yet
recognized as revenue.

 

“Deferred Revenue Schedule” is defined in Section 6.2(c).

 

“Deferred Revenue Allowance Ratio” is the ratio of (a) Quick Assets minus the
total amount outstanding hereunder to (b) Current Liabilities minus Deferred
Revenue minus the total amount outstanding hereunder.

 

“Eligible Accounts” are Accounts in the ordinary course of Borrower’s business
that meet all Borrower’s representations and warranties in Section 5, and which
contain selling terms and conditions acceptable to Bank; provided, that Bank may
change eligibility standards by giving Borrower notice thereof. Unless Bank
agrees otherwise in writing, Eligible Accounts will not include:

 

(a) Accounts against which Bank does not have a perfected, first priority
security interest;

 

(b) Accounts that the account debtor has not paid within 90 days of invoice
date;

 

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

 

(d) Accounts with credit balances over 90 days from invoice date;

 

(e) 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 otherwise in writing;

 

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

 

(g) Accounts for which the account debtor is a federal, state or local
government entity or any department, agency, or instrumentality and against
which Bank’s security interest has not been perfected under the Assignment of
Claims Act;

 

18.

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(h) 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);

 

(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;

 

(k) Accounts in which the account debtor disputes liability or makes any claim
and Bank 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 for which Bank determines collection to be doubtful, or the Account
holder to be an unacceptable business risk; or

 

(m) The amount received on behalf of any Account constituting Deferred Revenue.
Notwithstanding the foregoing:

 

(i) if Borrower’s Deferred Revenue Allowance Ratio, measured as of the last day
of a calendar quarter, is at least 1.35 to 1.00, then, for the next succeeding
calendar quarter, 50% of its Deferred Revenue (as set forth on its Deferred
Revenue Schedule) shall be deemed to constitute “Eligible Accounts,” or

 

(ii) if Borrower’s Deferred Revenue Allowance Ratio, measured as of the last day
of a calendar quarter, is at least 1.50 to 1.00, then, for the next succeeding
calendar quarter, 100% of its Deferred Revenue (as set forth on its Deferred
Revenue Schedule) shall be deemed to constitute “Eligible Accounts.”

 

“Eligible Foreign Accounts” are Accounts in the ordinary course of Borrower’s
business, the account debtors of which do not have their principal place of
business in the United States, but only to the extent that such foreign Accounts
meet all of Borrower’s representations and warranties in Section 5, contain
selling terms and conditions acceptable to Bank, and satisfy the following
conditions:

 

(a) the Account debtor is Hewlett Packard or Nokia; or

 

(b) such Accounts are backed by letters of credit advised through and acceptable
to Bank in its sole discretion; or

 

(c) such Accounts are covered by a foreign credit insurance policy acceptable to
Bank in its sole discretion, and Bank is named as the beneficiary thereunder;
provided, that, for purposes of calculating the Borrowing Base, the amount of
such Account shall be reduced by the amount of the applicable insurance
deductible.

 

19.

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Notwithstanding the foregoing, Bank may change eligibility standards by giving
Borrower notice thereof.

 

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

 

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

 

“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.

 

“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.

 

“Intellectual Property” is:

 

(a) Copyrights, Trademarks, Patents, and Mask Works 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;
and

 

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

 

“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.

 

20.

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“Investable Funds” means all domestic cash and cash equivalents minus
non-interest bearing funds held at financial institutions other than Bank.

 

“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.

 

“Letter of Credit Fees” 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, any account control agreements,
and any other present or future agreement between Borrower or for the benefit of
Bank in connection with this Agreement, all as amended, extended or restated.

 

“Mask Works” are all mask works or similar rights available for the protection
of semiconductor chips, now owned or later acquired.

 

“Material Adverse Change” is described in Section 8.3.

 

“Maturity Date” is December 30, 2003.

 

“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.

 

“Opinion” is that certain opinion executed and delivered by Borrower to Bank in
accordance with Section 3.1, substantially in the form of Exhibit E.

 

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

 

“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;
and

 

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(e) Indebtedness secured by Permitted Liens.

 

“Permitted Investments” are:

 

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

 

(b) future Investments in similar types of Investments pursuant to Borrower’s
investment policy (attached hereto as Schedule A) that has been formally adopted
or otherwise approved by Borrower’s Board of Directors.

 

“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 and the cost of such Equipment
does not exceed $250,00 in the aggregate per year;

 

(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) Software escrow arrangements entered into by Borrower in the ordinary course
of business;

 

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

 

(g) 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.

 

“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.

 

22.

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

 

“Quick Assets” is, on any date, the Borrower’s consolidated, unrestricted cash,
cash equivalents, net billed accounts receivable and investments with maturities
of fewer than 12 months determined according to GAAP.

 

“Responsible Officer” is each of the Chief Executive Officer, the President, the
Chief Financial Officer and the Controller of Borrower.

 

“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.

 

“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.

 

“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.

 

“Unrestricted Cash and Availability” is the sum of (a) Borrower’s consolidated,
unrestricted cash and short-term cash equivalents on deposit in the United
States in the name of Borrower or any of its domestic Subsidiaries, as
represented on Borrower’s monthly balance sheet, plus (b) the lesser of (i) the
Borrowing Base less any outstanding Advances or (ii) the amount available under
the Committed Revolving Line.

 

[The signature page follows.]

 

23.

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

 

BORROWER:

 

LEGATO SYSTEMS, INC.

 

     

By:

 

 

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

Printed Name:

 

 

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

Title:

 

 

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

 

 

BANK:

 

SILICON VALLEY BANK

 

     

By:

 

 

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

Printed Name:

 

 

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

Title:

 

 

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

 

24.

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

 

SCHEDULE OF EXCEPTIONS

 

Deposit Accounts (Section 5.2)

 

None

 

Litigation (Section 5.3)

 

None

 

Permitted Indebtedness (Section 13)

 

None

 

Permitted Investments (Section 13)

 

40,113 Shares of Sun Microsystems

 

1,000,0000 Household Nether SR UNS Bonds

 

2,950,000 Westinghouse EL SR UNS Bonds

 

1,000,000 Philip Morris SR UNS Global Bonds

 

2,500,000 Merrill Lynch Ser B MTN SR UNS Bonds

 

3,400,000 Intl Lease Fin SR UNS Bonds

 

1,050,000 C/P Centerpoint ENER

 

1,950,000 C/P Glencore Funding

 

364,000 C/P Ford Motor Company

 

Permitted Liens (Section 13)

 

Three Leases with Town & Country Leasing

 

Town & Country Leasing LLC

1097 Commercial Avenue, PO Box 329

East Petersburg, PA 17520

(717) 735-5120

 

Lease Number 109127: $33,350.20

Lease Number 109030: $340,947.75

Lease Number 109113: $34,557.60

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

 

SCHEDULE A

 

Cash Investment Policy

 

Legato Systems, Inc.

 

1.0 Purpose

 

1.1 The purpose of this policy is to establish the parameters for Legato
Systems, Inc. (the “Company”) to be followed when investing its excess cash.
Excess cash is defined as cash and cash equivalents, which the Company has or
expects to have on hand, that are in excess of its working capital requirements
for the next two months.

 

1.2 The investment objectives of the Company’s excess cash, in order of
priority, are as follows:

 

  •   Preserve principal;

  •   Meet internal liquidity requirements;

  •   Avoid inappropriate concentrations of investments;

  •   Deliver optimum yields (after-tax) in relationship to the guidelines and
market conditions, and;

  •   Provide fiduciary control of all investments.

 

1.3 Risk and yield – The Company is adverse to incurring market risk or credit
risk, and will generally sacrifice yield in the interest of safety. Care must
always be taken to insure that the Company’s reported financial statements are
never materially affected by decreases in the market value of securities held.

 

2.0 Scope

 

The Company’s Cash Investment Policy represents the minimum standard for all
domestic and international subsidiaries and has been approved by the Company’s
Board of Directors.

 

3.0 Responsibilities

 

The Chief Financial Officer and/or Corporate Controller are authorized to make
cash investments on behalf of the Company and are charged with the
responsibility of creating and maintaining an investment portfolio that adheres
to the guidelines set forth in this policy. Any revisions or amendments to
parameters set forth herein will be the responsibility of the Chief Financial
Officer.

 

4.0 Permissible Investments and Credit Quality

 

4.1 Obligations issued or guaranteed by the U.S. Government, its agencies or
government sponsored entities such as FNMA and FHLMC.

 

4.2 U.S. Government and Agency pass-through securities and collateralized
mortgage obligations (CMOs).

 

4.3 Obligations of corporations, including commercial paper, master notes,
medium term notes or bonds and public debt securities, with short term ratings
of A-2 or P-2 or better or long term rating of A- or A3 or better by either
Standard & Poor’s or Moody’s. In the case of issues with a split rating (e.g., A
by one agency and Bbb by another), the lower rating shall apply.

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

 

4.4 Obligations of U.S. banks, including bank notes, medium-term notes,
certificates of deposits, bankers’ acceptances, time deposits, eurodollar time
deposits and market auction preferred, with short term ratings of A-2 or P-2 or
better or long term rating of A- or A3 or better by either Standard & Poor’s or
Moody’s. In the case of issues with a split rating (e.g., A by one agency and
Bbb by another), the lower rating shall apply.

 

4.5 Asset-backed securities and commercial mortgage-backed securities supported
by assets owned by the issuer and placed with a trustee, which has a short-term
rating A-1/P-1 or a long-term rating of rated AAA or Aaa by Standard & Poor’s or
Moody’s.

 

4.6 Tax-exempt or tax-advantage securities, which have at least a short-term A-1
or a long-term AA Standard & Poor’s or Aa2 Moody’s credit rating. Eligible
investments include auction rate municipal bonds, tax-exempt commercial paper,
municipal notes and bonds, municipal floating rate securities and variable rate
demand notes.

 

4.7 Taxable or tax-exempt money market funds with assets greater than $500
million and whose assets have average maturities less than or equal to 90 days.

 

5.0 Portfolio Diversification Requirements

 

5.1 At the time of purchase, no more than the greater of 5% of the portfolio or
$1 million may be invested with any one issuer valued on a daily market to
market basis, with the exception of obligations of the U.S. Government and its
agencies and daily money market funds for which no limit will be imposed.

 

5.2 A minimum of 10% of the portfolio must be invested in U.S. Treasury
securities, U.S. Governmental agency securities and/or cash.

 

5.3 All of the above credit risk limits are to be measured at the time of
purchase and on a market value basis. As cash withdrawals are made and as the
market value of the portfolio changes, the limits may be exceeded on a market
value basis. Should this occur, the portfolio will be adjusted in a timely,
prudent and economically efficient manner.

 

6.0 Liquidity Requirements

 

6.1 The maximum duration of any single issue of the portfolio will be three (3)
years. For securities that have put dates, reset dates, on auction dates, or
that trade based on their average maturity, the put date, auction date, reset
date, or average maturity will be used instead of the final maturity date for
average duration guidelines purposes.

 

6.2 The duration of the portfolio shall not exceed 1.6 years.

 

7.0 Performance Requirements

 

7.1 The performance of the portfolio shall be measured by comparison to the
total return of an appropriate objective index or investment performance
benchmark. Performance will be measured on a total return basis without
restriction on the amount of realized gains or losses.

 

7.2 The target for performance is the total return of a benchmark that
approximates the target duration of the portfolio using the appropriate blend of
indexes. Indexes should be reputable and readily determinable such as Salomon
Smith Barney, Lehman Brothers or Merrill Lynch.

 

2.

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

 

8.0 Exceptions to this Policy

 

If a proposed action deviates significantly from the policy, the Chief Financial
Officer will secure approval from the Chief Executive Officer or the Chairperson
of the Board, with subsequent concurrence by the full Board of Directors. Minor
exceptions are expected to occur from time to time. The spirit of the Policy is
not to prevent exceptions, but to promote planning for investments and to
integrate investment strategy with other business activity.

 

3.

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

 

EXHIBIT A

 

The Collateral consists of all of Borrower’s right, title and interest in and to
the following, whether now owned or hereafter existing:

 

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 temporarily
out of Borrower’s custody or possession or in transit and including any returns
upon any accounts or other proceeds, including insurance proceeds, resulting
from the sale or disposition of any of the foregoing and any documents of title
representing any of the above;

 

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

 

All now existing and hereafter arising rights to payment of any kind, including
accounts, 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, insurance (including
refund) claims and proceeds, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower;

 

All documents (including warehouse receipts), cash, cash equivalents, deposit
accounts, securities, securities entitlements, securities accounts (including
health care insurance receivables and credit card receivables), investment
property, financial assets, letters of credit, letter of credit rights (whether
or not evidenced by a writing), certificates of deposit, instruments, chattel
paper and electronic chattel paper rights 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 mask work or similar rights available for the
protection of semiconductor chips, now owned or hereafter acquired; all claims
for damages by way of any past, present and future infringement of any of the
foregoing;

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

 

All investment property, whether held directly or as a security entitlement,
securities account, commodity contract or a commodity account, maintained with
any securities intermediary or commodity intermediary; and

 

All Borrower’s Books relating to the foregoing and any and all claims, rights
and interests in any of the above and all substitutions for, additions and
accessions to and proceeds thereof.

 

Notwithstanding the foregoing, the Collateral shall not be deemed to include any
copyrights, copyright applications, copyright registration and like protection
in each work of authorship and derivative work thereof, whether published or
unpublished, now owned or hereafter acquired; any patents, patent applications
and like protections including without limitation improvements, divisions,
continuations, renewals, reissues, extensions and continuations-in-part of the
same, trademarks, servicemarks and applications therefor, whether registered or
not, and the goodwill of the business of Borrower connected with and symbolized
by such trademarks, any trade secret rights, including any rights to unpatented
inventions, knowhow, operating manuals, license rights and agreements and
confidential information, now owned or hereafter acquired; or any claims for
damage by way of any past, present and future infringement of any of the
foregoing (collectively, the “Intellectual Property”), except that the
Collateral shall include the proceeds of all the Intellectual Property that are
accounts, (i.e. accounts receivable) of Borrower, or general intangibles
consisting of rights to payment, if a judicial authority (including a U.S.
Bankruptcy Court) holds that a security interest in the underlying Intellectual
Property is necessary to have a security interest in such accounts and general
intangibles of Borrower that are proceeds of the Intellectual Property, then the
Collateral shall automatically, and effective as of the date hereof, include the
Intellectual Property to the extent necessary to permit perfection of Bank’s
security interest in such accounts and general intangibles of Borrower that are
proceeds of the Intellectual Property.

 

Borrower and Bank are parties to a Negative Pledge Agreement, whereby Borrower,
in connection with Bank’s loan or loans to Borrower, has agreed, among other
things, not to sell, transfer, assign, mortgage, pledge, lease, grant a security
interest in, or encumber any of its Intellectual Property.

 

2.

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

 

EXHIBIT B

 

LOAN PAYMENT/ ADVANCE REQUEST FORM

DEADLINE FOR SAME DAY PROCESSING IS 12:00 NOON PACIFIC TIME

 

Fax To:                                          

 

Date:                                     

 

Borrower: Legato Systems, Inc.

 

¨    Loan Payment:

 

From Account #                                                          

 

To Account #                                                         

                            (Name and Deposit Account #)

 

(Loan Account #)                

 

Principal $                                         
                                                       

 

 

and/or Interest $                                         
                                             

 

Borrower’s representations and warranties in the Loan and Security Agreement are
true, correct and complete in all material respects on and as of the date
hereof, but those representations and warranties expressly referring to another
date shall be true, correct and complete in all material respects as of such
date.

 

Authorized Signature:                                         
                                         

 

Phone Number:                                                          

 

¨    LOAN ADVANCE:

 

Complete Outgoing Wire Request section below if all or a portion of the funds
from this loan advance are for an outgoing wire.

 

From Account #                                                              

 

To Account #                                                              

                                             (Loan Account #)

 

                                (Name and Deposit Account #)

 

Amount of Advance $                                                      

   

 

Borrower’s representations and warranties in the Loan and Security Agreement are
true, correct and complete in all material respects on and as of the date of the
requested Advance, but those representations and warranties expressly referring
to another date shall be true, correct and complete in all material respects as
of such date.

 

Authorized Signature:                                         
                                         

 

Phone Number:                                                          

 

OUTGOING WIRE REQUEST

 

Complete only if all or a portion of funds from the loan advance above are to be
wired.

Deadline for same day processing is 12:00 noon, Pacific Time

 

 

Beneficiary Name:                                         
                                         

 

Amount of Wire: $                                         
                                    

Beneficiary Bank:                                         
                                          

 

Account Number:                                         
                                       

City and State:                                         
                                               

   

Beneficiary Bank Transit (ABA) #:                                         
            

 

Beneficiary Bank Code (Swift, Sort, Chip, etc.):                             

         

(For International Wire Only)

Intermediary Bank:                                         
                                      

 

Transit (ABA) #:                                         
                                         

For Further Credit to:                                         
                                        
                                        
                                                                     

Special Instruction:                                         
                                        
                                        
                                                                         

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

 

By signing below, I (we) acknowledge and agree that my (our) funds transfer
request shall be processed in accordance with and subject to the terms and
conditions set forth in the agreements(s) covering funds transfer service(s),
which agreements(s) were previously received and executed by me (us).

 

Authorized Signature:                                                   

 

2nd Signature (if required):                                     

Print Name/Title:                                                           

 

Print Name/Title:                                                     

Telephone #                                                                   

 

Telephone #                                                             

 

2.

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

EXHIBIT C

 

BORROWING BASE CERTIFICATE

 

Borrower:      

  

Legato Systems, Inc.

  

 

Bank:

  

 

Silicon Valley Bank

    

2350 West El Camino Real

         

 

3003 Tasman Drive

    

Mountain View, CA 94040

         

 

Santa Clara, CA 95054

Commitment Amount: $ 20,000,000

             

ACCOUNTS RECEIVABLE

             

1.

  

Accounts Receivable Book Value as of

         

$

                                     

                

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

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

2.

  

Eligible Foreign Accounts Book Value as of

         

$

 

                

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

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

3.

  

Other additions, including additions based on Deferred Revenue Allowance Ratio
(please explain on reverse)

         

$

 

                

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

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

4.

  

TOTAL ACCOUNTS RECEIVABLE

         

$

 

                

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

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

ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)

             

5.

  

Amounts against which Bank not perfected

  

$

 

                

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

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

      

6.

  

Amounts over 90 days due

  

$

 

                

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

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

      

7.

  

Balance of 50% over 90 day accounts

  

$

 

                

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

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

      

8.

  

Credit balances over 90 days

  

$

 

                

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

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

      

9.

  

Concentration Limits

  

$

 

                

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

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

      

10.

  

Non-Eligible Foreign Accounts

  

$

 

                

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

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

      

11.

  

Governmental Accounts

  

$

 

                

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

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

      

12.

  

Contra Accounts

  

$

 

                

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

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

      

13.

  

Promotion or Demo Accounts

  

$

 

                

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

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

      

14.

  

Intercompany/Employee Accounts

  

$

 

                

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

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

      

15.

  

Accounts challenged by Debtor

  

$

 

                

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

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

      

16.

  

Accounts constituting excludable Deferred Revenue

  

$

 

                

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

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

      

17.

  

Other (please explain on reverse)

  

$

 

                

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

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

      

18.

  

TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS

  

$

 

                

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

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

19.

  

Eligible Accounts (#4 minus #18)

         

$

 

                

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

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

20.

  

LOAN VALUE OF ACCOUNTS (80% of #19)

         

$

 

                

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

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

BALANCES

             

21.

  

Maximum Loan Amount

  

$

20,000,000

      

22.

  

Total Funds Available [Lesser of #21 or #20]

         

$

 

                

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

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

23.

  

Present balance owing on Line of Credit

  

$

 

                

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

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

      

24.

  

Outstanding under Sublimits (LC, FX or CM)

  

$

 

                

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

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

      

25.

  

RESERVE POSITION (#22 minus #23 and #24)

         

$

 

                

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

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

 

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.

 

     

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

       

BANK USE ONLY

COMMENTS:

 

Rec’d By:                            

   

Auth. Signer

   

Date:                                       

   

Verified:                                

LEGATO SYSTEMS, INC.

 

Auth. Signer

By:                                     
                                                        

 

Date:                                     

Authorized Signer

     

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

 

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

 

EXHIBIT D

 

COMPLIANCE CERTIFICATE

 

TO:   SILICON VALLEY BANK

3003 Tasman Drive

Santa Clara, CA 95054

 

FROM:   LEGATO SYSTEMS, INC.

2350 West El Camino Real

Mountain View, CA 94040

 

The undersigned authorized officer of LEGATO SYSTEMS, INC. (“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
undersigned officer certifies that such documents were 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 undersigned 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.

 

Reporting Covenant

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

 

Required

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

      

Complies

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

Monthly financial statements + CC

 

Monthly within 30 days

      

Yes

  

No

Annual (Audited)

 

FYE within 90 days

      

Yes

  

No

Borrowing Base Certificate with

A/R & A/P Agings

 

Monthly within 20 days

      

Yes

  

No

A/R Audit

 

Initial and Semi-Annual

      

Yes

  

No

Annual Financial Projections

 

Annually

      

Yes

  

No

Financial Covenant

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

 

Required

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

  

Actual

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

 

Complies

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

Maintain on a Monthly Basis:

                 

Minimum Quick Ratio (Adjusted)

 

1.20:1.00

  

        :1.00

 

Yes

  

No

Unrestricted Cash and Availability

 

$20,000,000

  

$________

 

Yes

  

No

Maintain on a Quarterly Basis:

                 

Minimum Quarterly Revenue

 

$68,000,000

  

$________

 

Yes

  

No

Minimum Quick Ratio (Adjusted)

 

1.25:1.00

  

        :1.00

 

Yes

  

No

 

 

34

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

Comments Regarding Exceptions: See Attached.

 

Sincerely,

 

LEGATO SYSTEMS, INC.

 

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

SIGNATURE

 

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

TITLE

 

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

DATE

      

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

                        BANK USE ONLY

 

Received by:                                                          

                      AUTHORIZED SIGNER

 

Date:                                                                      

 

Verified:                                                                

                AUTHORIZED SIGNER

 

Date:                                                                      

 

Compliance Status:                             Yes     No

 

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

 

 

2.

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

EXHIBIT E

 

FORM OF OPINION OF COUNSEL TO BORROWER

 

[Date]

 

Silicon Valley Bank

2400 Geng Road, Suite 200

Palo Alto, California 94303

 

Re:                                                  

 

Ladies and Gentlemen:

 

We have acted as [special] counsel for [                                       
 ], a Delaware corporation (the “Company”), in connection with [brief
description of transaction] and the Loan and Security Agreement dated as of
[                                ] (the “Agreement”), by and between the Company
and Silicon Valley Bank (the “Lender”).

 

This opinion is furnished to you pursuant to Section          of the Agreement.
Capitalized terms used but not defined herein have the meanings given them in
the Agreement.

 

In connection with this opinion, we have examined the following documents, each
of which is dated as of even date herewith:

 

1. the Agreement; and

 

2. the Negative Pledge Agreement by and between the Company and the Lender.

 

In addition, for purposes of rendering our opinions below, we have examined the
following:

 

3. the Certificate of Incorporation of the Company as certified by the Secretary
of State of the State of Delaware on                                 ;

 

4. the Bylaws of the Company certified to us by an officer of the Company to be
in full force and effect as of the date of this opinion letter;

 

5. the resolutions adopted by the board of directors of the Company at a meeting
held on                                 ;

 

6. the Certificate of Status issued by the Secretary of State of the State of
Delaware stating that the Company is a domestic corporation in good standing in
such state, dated                                 ; and

 

7. the certificate of tax good standing for the Company issued by the Franchise
Tax Board of the State of California on                                 .

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

 

Items (1) and (2) above are hereinafter collectively referred to as the
“Transaction Documents”; items (3) and (4) above are hereinafter collectively
referred to as the “Organizational Documents”; and items (6) and (7) above are
hereafter referred to as the “Good Standing Certificates.”

 

We have examined executed counterparts of the Transaction Documents and
originals, or copies, the authenticity of which has been established to our
satisfaction, of such other documents, corporate records, agreements and
instruments and certificates of public officials and officers of the Company as
we have deemed necessary as the basis for the opinions herein expressed. As to
the questions of fact material to such opinions we have, when relevant facts
were not independently established, relied upon certifications by officers of
the Company.

 

Based on the foregoing and having regard for legal considerations as we have
deemed relevant, it is our opinion that:

 

1. The Company has been duly incorporated, is validly existing as a corporation
in good standing under the laws of the State of Delaware and is qualified as a
foreign corporation in all jurisdictions where the failure to do so would result
in a material adverse effect upon the Company.

 

2. The execution and delivery of each Transaction Document and performance by
the Company of its obligations thereunder and of the transactions contemplated
thereby, are within the corporate power and authority of the Company and have
been authorized by proper corporate proceedings. The Transaction Documents have
been duly executed and delivered by the Company.

 

3. Each of the Transaction Documents and all of the terms and provisions thereof
are the legal, valid and binding obligations of the Company, enforceable in
accordance with their respective terms, except as may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to or affecting
creditors’ rights generally and by general principles of equity including,
without limitation, concepts of materiality, reasonableness, good faith and fair
dealing and possible unavailability of specific performance or injunctive
relief, regardless of whether considered in a proceeding in equity or at law.

 

4. The execution and delivery of, and performance of its obligations under, each
of the Transaction Documents by the Company do not (a) violate any provision of
the Organizational Documents, (b) conflict with or constitute a default under
any credit agreement, loan agreement, or any other agreement evidencing an
obligation by the Company to repay any indebtedness, or (c) breach or otherwise
violate any existing obligation of the Company under any order, writ, injunction
judgment or decree of any state or federal court or governmental authority
binding on the Company.

 

This Opinion is furnished by [us] [the undersigned] as counsel for the Company
and may be relied upon by you only in connection with the transactions
contemplated by the Agreement. It may not be used or relied upon by you or for
any other purpose or by any other person, nor may copies be delivered to any
other person, without in each instance [our] [the undersigned’s] prior written
consent. You may, however deliver a copy of this opinion to each permitted

 

 

2.

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transferee and assignee of the Agreement, together with your and their
participants, and each such transferee, assignee and participant may rely on
this opinion as if it were addressed and had been delivered to it on the date of
this opinion.

 

Respectfully submitted,

 

                                                                              
                          

 

3.