Exhibit 10.25

AMENDED AND RESTATED

LOAN AND SECURITY AGREEMENT

THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (together with any
schedule, annex, or exhibit attached hereto, as the same may be amended,
restated, or otherwise modified, this “Agreement”) is entered into on May 30,
2008 (the “Effective Date”) between and 3PAR INC., a Delaware corporation
(“Borrower”), amends, restates, replaces and supersedes in its entirety that
certain Loan and Security Agreement dated as of June 30, 2005, as amended,
between Bank and Borrower. Definitions of capitalized terms used in this
Agreement are set forth in Section 13 below. The parties agree as follows:

 

  1. ACCOUNTING AND OTHER TERMS

Accounting terms not defined in this Agreement shall be construed following
GAAP. Calculations and determinations must be made following GAAP. Capitalized
terms not otherwise defined in this Agreement shall have the meanings set forth
in Section 13. All other terms contained in this Agreement, unless otherwise
indicated, shall have the meaning provided by the Code to the extent such terms
are defined therein.

 

  2. LOAN AND TERMS OF PAYMENT

2.1. Promise to Pay. Borrower hereby unconditionally promises to pay Bank the
outstanding principal amount of all Credit Extensions and accrued and unpaid
interest thereon as and when due in accordance with this Agreement.

2.1.1. Revolving Advances.

(a) Availability. Subject to the terms and conditions of this Agreement, Bank
shall make Advances not exceeding the Availability Amount. Amounts borrowed
under the Revolving Line may be repaid and, prior to the Revolving Line Maturity
Date, reborrowed, subject to the applicable terms and conditions precedent
herein.

(b) Termination; Repayment. The Revolving Line terminates on the Revolving Line
Maturity Date, when the principal amount of all Advances, the unpaid interest
thereon, and all other Obligations relating to the Revolving Line shall be
immediately due and payable.

2.1.2. Letters of Credit Sublimit.

(a) As part of the Revolving Line, Bank shall issue or have issued Letters of
Credit for Borrower’s account. The face amount of outstanding Letters of Credit
(including drawn but unreimbursed Letters of Credit and any Letter of Credit
Reserve) may not exceed the Availability Amount. Such aggregate amounts utilized
hereunder shall at all times reduce the amount otherwise available for Advances
under the Revolving Line. If, on the Revolving Line Maturity Date, there are any
outstanding Letters of Credit, then on such date Borrower shall provide to Bank
cash collateral in an amount equal to 105% of the face amount of all such
Letters of Credit plus all interest, fees, and costs due or to become due in
connection therewith (as estimated by Bank in its good faith business judgment),
to secure all of the Obligations relating to said Letters of Credit. All Letters
of Credit shall be in form and substance acceptable to Bank in its sole
discretion and shall be subject to the terms and conditions of Bank’s standard
Application and Letter of Credit Agreement (the “Letter of Credit Application”).
Borrower agrees to execute any further documentation in connection with the
Letters of Credit as Bank may reasonably request. Borrower further agrees to be
bound by the regulations and interpretations of the issuer of any Letters of
Credit guarantied by Bank and opened for Borrower’s account or by Bank’s
interpretations of any Letter of Credit issued by Bank for Borrower’s account,
and Borrower understands and agrees that Bank shall not be liable for any error,
negligence, or mistake, whether of omission or commission, in following
Borrower’s instructions or those contained in the Letters of Credit or any
modifications, amendments, or supplements thereto.

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(b) The obligation of Borrower to immediately reimburse Bank for drawings made
under Letters of Credit shall be absolute, unconditional, and irrevocable, and
shall be performed strictly in accordance with the terms of this Agreement, such
Letters of Credit, and the Letter of Credit Application.

(c) Borrower may request that Bank issue a Letter of Credit payable in a Foreign
Currency. If a demand for payment is made under any such Letter of Credit, Bank
shall treat such demand as an Advance to Borrower of the equivalent of the
amount thereof (plus fees and charges in connection therewith such as wire,
cable, SWIFT or similar charges) in Dollars at the then-prevailing rate of
exchange in San Francisco, California, for sales of the Foreign Currency for
transfer to the country issuing such Foreign Currency.

(d) To guard against fluctuations in currency exchange rates, upon the issuance
of any Letter of Credit payable in a Foreign Currency, Bank shall create a
reserve (the “Letter of Credit Reserve”) under the Revolving Line in an amount
equal to ten percent (10%) of the face amount of such Letter of Credit. The
amount of the Letter of Credit Reserve may be adjusted by Bank from time to time
to account for fluctuations in the exchange rate. The availability of funds
under the Revolving Line shall be reduced by the amount of such Letter of Credit
Reserve for as long as such Letter of Credit remains outstanding.

2.1.3. Foreign Exchange Sublimit. As part of the Revolving Line, Borrower may
enter into foreign exchange contracts with Bank under which Borrower commits to
purchase from or sell to Bank a specific amount of Foreign Currency (each, a “FX
Forward Contract”) on a specified date (the “Settlement Date”). FX Forward
Contracts shall have a Settlement Date of at least one (1) FX Business Day after
the contract date and shall be subject to a reserve of ten percent (10%) of each
outstanding FX Forward Contract in a maximum aggregate amount equal to
$15,000,000 (the “FX Reserve”). The aggregate amount of FX Forward Contracts at
any one time may not exceed ten (10) times the amount of the FX Reserve. The
obligations of Borrower relating to this section may not exceed the Availability
Amount.

2.1.4. Cash Management Services Sublimit. Borrower may use up to $15,000,000
(the “Cash Management Services Sublimit”) of the Revolving Line for Bank’s cash
management services which may include merchant services, direct deposit of
payroll, business credit card, and check cashing services identified in Bank’s
various cash management services agreements (collectively, the “Cash Management
Services”). Any amounts Bank pays on behalf of Borrower or any amounts that are
not paid by Borrower for any Cash Management Services will be treated as
Advances under the Revolving Line and will accrue interest at the interest rate
applicable to Advances. The obligations of Borrower relating to this section may
not exceed the Availability Amount.

2.2. Prepayments.

(a) Overadvances. If, Borrower’s aggregate obligations under Sections 2.1.1,
2.1.2, 2.1.3 and 2.1.4 exceed the lesser of the Committed Revolving Line, then,
in Borrower must immediately pay Bank the excess.

(b) Each Credit Extension shall, at Borrower’s option in accordance with the
terms of this Agreement, be either in the form of a Prime Rate Credit Extension
or a LIBOR Credit Extension; provided that in no event shall Borrower maintain
at any time LIBOR Credit Extensions having more than five (5) different Interest
Periods. Borrower shall pay interest accrued on the Credit Extensions at the
rates and in the manner set forth in Section 2.3(a).

2.3. Payment of Interest on the Credit Extensions.

(a) (i) Computation of Interest. Interest on the Credit Extensions and all fees
payable hereunder shall be computed on the basis of a 360-day year and the
actual number of days elapsed in the period during which such interest accrues.
In computing interest on any Credit Extension, the date of the making of such
Credit Extension shall be included and the date of payment shall be excluded;
provided, however, that if any Credit Extension is repaid on the same day on
which it is made, such day shall be included in computing interest on such
Credit Extension.

 

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(ii) Advances. Subject to Section 2.3(b), each Advance shall bear interest on
the outstanding principal amount thereof from the date when made, continued or
converted until paid in full at a rate per annum equal to the Prime Rate or the
LIBOR Rate plus the LIBOR Rate Margin, as the case may be. Pursuant to the terms
hereof, interest on each Advance shall be paid in arrears on each Interest
Payment Date. Interest shall also be paid on the date of any prepayment of any
Advance pursuant to this Agreement for the portion of any Advance so prepaid and
upon payment (including prepayment) in full thereof. All accrued but unpaid
interest on the Advances shall be due and payable on the Revolving Line Maturity
Date.

(b) Default Interest. Except as otherwise provided in Section 2.3(a), after an
Event of Default, Obligations shall bear interest five percent (5.00%) above the
rate effective immediately before the Event of Default (the “Default Rate”).
Payment or acceptance of the increased interest rate provided in this
Section 2.3(b) is not a permitted alternative to timely payment and shall not
constitute a waiver of any Event of Default or otherwise prejudice or limit any
rights or remedies of Bank.

(c) Prime Rate Credit Extensions. Each change in the interest rate of the Prime
Rate Credit Extensions based on changes in the Prime Rate shall be effective on
the effective date of such change and to the extent of such change. Bank shall
use its best efforts to give Borrower prompt notice of any such change in the
Prime Rate; provided, however, that any failure by Bank to provide Borrower with
notice hereunder shall not affect Bank’s right to make changes in the interest
rate of the Prime Rate Credit Extensions based on changes in the Prime Rate.

(d) LIBOR Credit Extensions. The interest rate applicable to each LIBOR Credit
Extension shall be determined in accordance with Section 3.6(a) hereunder.
Subject to Sections 3.6 and 3.7, such rate shall apply during the entire
Interest Period applicable to such LIBOR Credit Extension, and interest
calculated thereon shall be payable on the Interest Payment Date applicable to
such LIBOR Credit Extension.

(e) Debit of Accounts. Bank may debit any of Borrower’s deposit accounts,
including the Designated Deposit Account, for principal and interest payments
when due, or any other amounts Borrower owes Bank, when due. Bank shall promptly
notify Borrower after it debits Borrower’s accounts. These debits shall not
constitute a set-off.

(f) Limitations on Interest Rates. Notwithstanding any provision in this
Agreement or any of the other Loan Documents, the total liability for payments
in the nature of interest shall not exceed the applicable limits imposed by any
applicable federal or state interest rate laws. If any payments in the nature of
interest, additional interest and other charges made hereunder or under any of
the Loan Documents are held to be in excess of the applicable limits imposed by
any applicable federal or state law, the amount held to be in excess shall be
considered payment of principal under the Credit Extensions and the indebtedness
evidenced thereby shall be reduced by such amount in the inverse order of
maturity so that the total liability for payments in the nature of interest,
additional interest and other charges shall not exceed the applicable limits
imposed by any applicable federal or state interest rate laws.

2.4. Fees. Borrower shall pay to Bank:

(a) Loan Fee. A fully earned, non-refundable loan fee equal to $10,000 on the
Effective Date;

(b) Letter of Credit Fee. Bank’s customary fees and expenses for the issuance or
renewal of Letters of Credit, including, without limitation, any customary
fronting fees for each Letter of Credit issued, upon the issuance, each
anniversary of the issuance, and the renewal of such Letter of Credit;

(c) Letter of Credit Fee. A fee equal to 0.75% of the face amount of each issued
Letter of Credit; and

(d) Bank Expenses. All Bank Expenses (including reasonable attorneys’ fees and
expenses, plus expenses, for documentation and negotiation of this Agreement)
incurred through and after the Effective Date, when due.

 

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  3. CONDITIONS OF LOANS

3.1. Conditions Precedent to Initial Credit Extension. Bank’s obligation to make
the initial Credit Extension is subject to the condition precedent that Bank
shall have received, in form and substance reasonably satisfactory to Bank, such
documents, and completion of such other matters, as Bank may reasonably deem
necessary or appropriate, including, without limitation:

(a) Borrower shall have delivered duly executed original signatures to the Loan
Documents to which it is a party;

(b) Borrower shall have delivered its Operating Documents and a good standing
certificate of Borrower certified by the Secretary of States of the State of
Delaware and State of California as of a date no earlier than thirty (30) days
prior to the Effective Date;

(c) Borrower shall have delivered duly executed original signatures to the
completed Borrowing Resolutions for Borrower;

(d) Borrower shall have delivered the Perfection Certificate(s) executed by
Borrower;

(e) An amendment to the increditor agreement by and among Bank and the agent and
lenders under the Growth Capital Facility, in form and substance satisfactory to
Bank;

(f) Bank shall have received lien searches against Borrower satisfactory to
Bank; and

(g) Borrower shall have paid the fees and Bank Expenses then due as specified in
Section 2.4 hereof.

3.2. Conditions Precedent to all Credit Extensions. Bank’s obligations to make
each Credit Extension, including the initial Credit Extension, is subject to the
following:

(a) for Advances under the Committed Revolving Line, timely receipt of a Notice
of Borrowing;

(b) the representations and warranties in Section 5 shall be true in all
material respects on the date of the Notice of Borrowing, and on the Funding
Date of each Credit Extension; provided, however, that such materiality
qualifier shall not be applicable to any representations and warranties that
already are qualified or modified by materiality in the text thereof; and
provided, further that those representations and warranties expressly referring
to a specific date shall be true, accurate and complete in all material respects
as of such date, and no Event of Default shall have occurred and be continuing
or result from the Credit Extension. Each Credit Extension is Borrower’s
representation and warranty on that date that the representations and warranties
in Section 5 remain true in all material respects; provided, however, that such
materiality qualifier shall not be applicable to any representations and
warranties that already are qualified or modified by materiality in the text
thereof; and provided, further that those representations and warranties
expressly referring to a specific date shall be true, accurate and complete in
all material respects as of such date; and

(c) in Bank’s sole discretion, there has not been a Material Adverse Change.

3.3. Covenant to Deliver.

Borrower agrees to deliver to Bank each item required to be delivered to Bank
under this Agreement as a condition to any Credit Extension. Borrower expressly
agrees that the extension of a Credit Extension prior to the receipt by Bank of
any such item shall not constitute a waiver by Bank of Borrower’s obligation to
deliver such item, and any such extension in the absence of a required item
shall be in Bank’s sole discretion.

 

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3.4. Procedures for Borrowing.

(a) Subject to the prior satisfaction of all other applicable conditions to the
making of a Credit Extension set forth in this Agreement, each Credit Extension
shall be made upon Borrower’s irrevocable written notice delivered to Bank in
the form of a Notice of Borrowing, each executed by a Responsible Officer of
Borrower or his or her designee or without instructions if the Credit Extensions
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. Such Notice of Borrowing must be received by Bank prior to 12:00 p.m.
Pacific time, (i) at least three (3) Business Days prior to the requested
Funding Date, in the case of LIBOR Credit Extensions, and (ii) at least one
(1) Business Day prior to the requested Funding Date, in the case of Prime Rate
Credit Extensions, specifying:

(i) the amount of the Credit Extension, which, if a LIBOR Credit Extension is
requested, shall be in an aggregate minimum principal amount of $1,000,000 or in
any integral multiple of $1,000,000 in excess thereof;

(ii) the requested Funding Date;

(iii) whether the Credit Extension is to be comprised of LIBOR Credit Extensions
or Prime Rate Credit Extensions; and

(iv) the duration of the Interest Period applicable to any such LIBOR Credit
Extensions included in such notice; provided that if the Notice of Borrowing
shall fail to specify the duration of the Interest Period for any Credit
Extension comprised of LIBOR Credit Extensions, such Interest Period shall be
one (1) month.

(b) The proceeds of all such Credit Extensions will then be made available to
Borrower on the Funding Date by Bank by transfer to the Designated Deposit
Account and, subsequently, by wire transfer to such other account as Borrower
may instruct in the Notice of Borrowing. No Credit Extensions shall be deemed
made to Borrower, and no interest shall accrue on any such Credit Extension,
until the related funds have been deposited in the Designated Deposit Account.

3.5. Conversion and Continuation Elections.

(a) So long as (1) no Event of Default or Default exists; (2) Borrower shall not
have sent any notice of termination of this Agreement; and (3) Borrower shall
have complied with such customary procedures as Bank has established from time
to time for Borrower’s requests for LIBOR Credit Extensions, Borrower may, upon
irrevocable written notice to Bank:

(i) elect to convert on any Business Day, Prime Rate Credit Extensions in an
amount equal to $1,000,000 or any integral multiple of $1,000,000 in excess
thereof into LIBOR Credit Extensions;

(ii) elect to continue on any Interest Payment Date any LIBOR Credit Extensions
maturing on such Interest Payment Date (or any part thereof in an amount equal
to $1,000,000 or any integral multiple of $1,000,000 in excess thereof);
provided, that if the aggregate amount of LIBOR Credit Extensions shall have
been reduced, by payment, prepayment, or conversion of part thereof, to be less
than $1,000,000, such LIBOR Credit Extensions shall automatically convert into
Prime Rate Credit Extensions, and on and after such date the right of Borrower
to continue such Credit Extensions as, and convert such Credit Extensions into,
LIBOR Credit Extensions shall terminate; or

(iii) elect to convert on any Interest Payment Date any LIBOR Credit Extensions
maturing on such Interest Payment Date (or any part thereof in an amount equal
to $1,000,000 or any integral multiple of $1,000,000 in excess thereof) into
Prime Rate Credit Extensions.

(b) Borrower shall deliver a Notice of Conversion/Continuation in accordance
with Section 10 to be received by Bank prior to 12:00 p.m. Pacific time at least
(i) three (3) Business Days in advance of the Conversion Date or Continuation
Date, if any Credit Extensions are to be converted into or continued as LIBOR
Credit

 

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Extensions; and (ii) one (1) Business Day in advance of the Conversion Date, if
any Credit Extensions are to be converted into Prime Rate Credit Extensions, in
each case specifying the:

(i) proposed Conversion Date or Continuation Date;

(ii) aggregate amount of the Credit Extensions to be converted or continued
which, if any Credit Extensions are to be converted into or continued as LIBOR
Credit Extensions, shall be in an aggregate minimum principal amount of
$1,000,000 or in any integral multiple of $1,000,000 in excess thereof;

(iii) nature of the proposed conversion or continuation; and

(iv) duration of the requested Interest Period.

(c) If upon the expiration of any Interest Period applicable to any LIBOR Credit
Extensions, Borrower shall have timely failed to select a new Interest Period to
be applicable to such LIBOR Credit Extensions, Borrower shall be deemed to have
elected to convert such LIBOR Credit Extensions into Prime Rate Credit
Extensions.

(d) Any LIBOR Credit Extensions shall, at Bank’s option, convert into Prime Rate
Credit Extensions in the event that (i) an Event of Default or Default shall
exist, or (ii) the aggregate principal amount of the Prime Rate Credit
Extensions which have been previously converted to LIBOR Credit Extensions, or
the aggregate principal amount of existing LIBOR Credit Extensions continued, as
the case may be, at the beginning of an Interest Period shall at any time during
such Interest Period exceed the Revolving Line. Borrower agrees to pay Bank,
upon demand by Bank (or Bank may, at its option, charge the Designated Deposit
Account or any other account Borrower maintains with Bank) any amounts required
to compensate Bank for any loss (including loss of anticipated profits), cost,
or expense incurred by Bank, as a result of the conversion of LIBOR Credit
Extensions to Prime Rate Credit Extensions pursuant to any of the foregoing.

(e) Notwithstanding anything to the contrary contained herein, Bank shall not be
required to purchase United States Dollar deposits in the London interbank
market or other applicable LIBOR market to fund any LIBOR Credit Extensions, but
the provisions hereof shall be deemed to apply as if Bank had purchased such
deposits to fund the LIBOR Credit Extensions.

3.6. Special Provisions Governing LIBOR Credit Extensions.

Notwithstanding any other provision of this Agreement to the contrary, the
following provisions shall govern with respect to LIBOR Credit Extensions as to
the matters covered:

(a) Determination of Applicable Interest Rate. As soon as practicable on each
Interest Rate Determination Date, Bank shall determine (which determination
shall, absent manifest error in calculation, be final, conclusive and binding
upon all parties) the interest rate that shall apply to the LIBOR Credit
Extensions for which an interest rate is then being determined for the
applicable Interest Period and shall promptly give notice thereof (in writing or
by telephone confirmed in writing) to Borrower.

(b) Inability to Determine Applicable Interest Rate. In the event that Bank
shall have determined (which determination shall be final and conclusive and
binding upon all parties hereto), on any Interest Rate Determination Date with
respect to any LIBOR Credit Extension, that by reason of circumstances affecting
the London interbank market adequate and fair means do not exist for
ascertaining the interest rate applicable to such Credit Extension on the basis
provided for in the definition of LIBOR, Bank shall on such date give notice (by
facsimile or by telephone confirmed in writing) to Borrower of such
determination, whereupon (i) no Credit Extensions may be made as, or converted
to, LIBOR Credit Extensions until such time as Bank notifies Borrower that the
circumstances giving rise to such notice no longer exist, and (ii) any Notice of
Borrowing or Notice of Conversion/Continuation given by Borrower with respect to
Credit Extensions in respect of which such determination was made shall be
deemed to be rescinded by Borrower.

 

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(c) Compensation for Breakage or Non-Commencement of Interest Periods. Borrower
shall compensate Bank, upon written request by Bank (which request shall set
forth the manner and method of computing such compensation), for all reasonable
losses, expenses and liabilities, if any (including any interest paid by Bank to
lenders of funds borrowed by it to make or carry its LIBOR Credit Extensions and
any loss, expense or liability incurred by Bank in connection with the
liquidation or re-employment of such funds) such that Bank may incur: (i) if for
any reason (other than a default by Bank or due to any failure of Bank to fund
LIBOR Credit Extensions due to impracticability or illegality under Sections
3.7(d) and 3.7(e)) a borrowing or a conversion to or continuation of any LIBOR
Credit Extension does not occur on a date specified in a Notice of Borrowing or
a Notice of Conversion/Continuation, as the case may be, or (ii) if any
principal payment or any conversion of any of its LIBOR Credit Extensions occurs
on a date prior to the last day of an Interest Period applicable to that Credit
Extension.

(d) Assumptions Concerning Funding of LIBOR Credit Extensions. Calculation of
all amounts payable to Bank under this Section 3.6 and under Section 3.4 shall
be made as though Bank had actually funded each of its relevant LIBOR Credit
Extensions through the purchase of a Eurodollar deposit bearing interest at the
rate obtained pursuant to the definition of LIBOR Rate in an amount equal to the
amount of such LIBOR Credit Extension and having a maturity comparable to the
relevant Interest Period; provided, however, that Bank may fund each of its
LIBOR Credit Extensions in any manner it sees fit and the foregoing assumptions
shall be utilized only for the purposes of calculating amounts payable under
this Section 3.6 and under Section 3.4.

(e) LIBOR Credit Extensions After Default. After the occurrence and during the
continuance of an Event of Default, (i) Borrower may not elect to have an Credit
Extension be made or continued as, or converted to, a LIBOR Credit Extension
after the expiration of any Interest Period then in effect for such Credit
Extension and (ii) subject to the provisions of Section 3.6(c), any Notice of
Conversion/Continuation given by Borrower with respect to a requested
conversion/continuation that has not yet occurred shall be deemed to be
rescinded by Borrower and be deemed a request to convert or continue Credit
Extensions referred to therein as Prime Rate Credit Extensions.

3.7. Additional Requirements/Provisions Regarding LIBOR Credit Extensions.

(a) If for any reason (including voluntary or mandatory prepayment or
acceleration), Bank receives all or part of the principal amount of a LIBOR
Credit Extension prior to the last day of the Interest Period for such Credit
Extension, Borrower shall immediately notify Borrower’s account officer at Bank
and, on demand by Bank, pay Bank the amount (if any) by which (i) the additional
interest which would have been payable on the amount so received had it not been
received until the last day of such Interest Period exceeds (ii) the interest
which would have been recoverable by Bank by placing the amount so received on
deposit in the certificate of deposit markets, the offshore currency markets, or
United States Treasury investment products, as the case may be, for a period
starting on the date on which it was so received and ending on the last day of
such Interest Period at the interest rate determined by Bank in its reasonable
discretion. Bank’s determination as to such amount shall be conclusive absent
manifest error.

(b) Borrower shall pay Bank, upon demand by Bank, from time to time such amounts
as Bank may determine to be necessary to compensate it for any costs incurred by
Bank that Bank determines are attributable to its making or maintaining of any
amount receivable by Bank hereunder in respect of any Credit Extensions relating
thereto (such increases in costs and reductions in amounts receivable being
herein called “Additional Costs”), in each case resulting from any Regulatory
Change which:

(i) changes the basis of taxation of any amounts payable to Bank under this
Agreement in respect of any Credit Extensions (other than changes which affect
taxes measured by or imposed on the overall net income of Bank by the
jurisdiction in which Bank has its principal office);

(ii) imposes or modifies any reserve, special deposit or similar requirements
relating to any extensions of credit or other assets of, or any deposits with,
or other liabilities of Bank (including any Credit Extensions or any deposits
referred to in the definition of LIBOR); or

(iii) imposes any other condition affecting this Agreement (or any of such
extensions of credit or liabilities).

 

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Bank will notify Borrower of any event occurring after the Effective Date which
will entitle Bank to compensation pursuant to this Section 3.7 as promptly as
practicable after it obtains knowledge thereof and determines to request such
compensation. Bank will furnish Borrower with a statement setting forth the
basis and amount of each request by Bank for compensation under this
Section 3.7. Determinations and allocations by Bank for purposes of this
Section 3.7 of the effect of any Regulatory Change on its costs of maintaining
its obligations to make Credit Extensions, of making or maintaining Credit
Extensions, or on amounts receivable by it in respect of Credit Extensions, and
of the additional amounts required to compensate Bank in respect of any
Additional Costs, shall be conclusive absent manifest error.

(c) If Bank shall determine that the adoption or implementation of any
applicable law, rule, regulation, or treaty regarding capital adequacy, or any
change therein, or any change in the interpretation or administration thereof by
any governmental authority, central bank, or comparable agency charged with the
interpretation or administration thereof, or compliance by Bank (or its
applicable lending office) with any respect or directive regarding capital
adequacy (whether or not having the force of law) of any such authority, central
bank, or comparable agency, has or would have the effect of reducing the rate of
return on capital of Bank or any person or entity controlling Bank (a “Parent”)
as a consequence of its obligations hereunder to a level below that which Bank
(or its Parent) could have achieved but for such adoption, change, or compliance
(taking into consideration policies with respect to capital adequacy) by an
amount deemed by Bank to be material, then from time to time, within fifteen
(15) days after demand by Bank, Borrower shall pay to Bank such additional
amount or amounts as will compensate Bank for such reduction. A statement of
Bank claiming compensation under this Section 3.7(c) and setting forth the
additional amount or amounts to be paid to it hereunder shall be conclusive
absent manifest error.

(d) If, at any time, Bank, in its sole and absolute discretion, determines that
(i) the amount of LIBOR Credit Extensions for periods equal to the corresponding
Interest Periods are not available to Bank in the offshore currency interbank
markets, or (ii) LIBOR does not accurately reflect the cost to Bank of lending
the LIBOR Credit Extensions, then Bank shall promptly give notice thereof to
Borrower. Upon the giving of such notice, Bank’s obligation to make the LIBOR
Credit Extensions shall terminate; provided, however, Credit Extensions shall
not terminate if Bank and Borrower agree in writing to a different interest rate
applicable to LIBOR Credit Extensions.

(e) If it shall become unlawful for Bank to continue to fund or maintain any
LIBOR Credit Extensions, or to perform its obligations hereunder, upon demand by
Bank, Borrower shall prepay the Credit Extensions in full with accrued interest
thereon and all other amounts payable by Borrower hereunder (including, without
limitation, any amount payable in connection with such prepayment pursuant to
Section 3.7(a)). Notwithstanding the foregoing, to the extent a determination by
Bank as described above relates to a LIBOR Credit Extension then being requested
by Borrower pursuant to a Notice of Borrowing or a Notice of
Conversion/Continuation, Borrower shall have the option, subject to the
provisions of Section 3.6(c), to (i) rescind such Notice of Borrowing or Notice
of Conversion/Continuation by giving notice (by facsimile or by telephone
confirmed in writing) to Bank of such rescission on the date on which Bank gives
notice of its determination as described above, or (ii) modify such Notice of
Borrowing or Notice of Conversion/Continuation to obtain a Prime Rate Credit
Extension or to have outstanding Credit Extensions converted into or continued
as Prime Rate Credit Extensions by giving notice (by facsimile or by telephone
confirmed in writing) to Bank of such modification on the date on which Bank
gives notice of its determination as described above.

 

  4. CREATION OF SECURITY INTEREST.

4.1. Grant of Security Interest. Borrower hereby grants Bank, to secure the
payment and performance in full of all of the Obligations, a continuing security
interest in, and pledges to Bank, the Collateral, wherever located, whether now
owned or hereafter acquired or arising, and all proceeds and products thereof.
Borrower represents, warrants, and covenants that the security interest granted
herein is and shall at all times continue to be a first priority perfected
security interest in the Collateral (subject only to Permitted Liens that may
have superior priority to Bank’s Lien under this Agreement). If Borrower or any
Guarantor shall acquire a commercial tort claim, which it is asserting, Borrower
shall, and shall cause such Guarantor to, promptly notify Bank in a writing
signed by Borrower or such Guarantor of the general details thereof and grant to
Bank in such writing a security interest therein and in the proceeds thereof,
all upon the terms of this Agreement, with such writing to be in form and
substance reasonably satisfactory to Bank.

 

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If this Agreement is terminated, Bank’s Lien in the Collateral shall continue
until the Obligations (other than inchoate indemnity obligations) are repaid in
full in cash. Upon payment in full in cash of the Obligations and at such time
as Bank’s obligation to make Credit Extensions has terminated, Bank shall, at
Borrower’s sole cost and expense, release its Liens in the Collateral and all
rights therein shall revert to Borrower or Guarantors, as applicable.

Borrower has agreed not to encumber any of its copyright rights, copyright
applications, copyright registrations and like protections in each work of
authorship and derivative work, whether published or unpublished, any patents,
patent applications and like protections, including improvements, divisions,
continuations, renewals, reissues, extensions, and continuations-in-part of the
same, trademarks, service marks and, to the extent permitted under applicable
law, any applications therefor, whether registered or not, and the goodwill of
the business of Borrower connected with and symbolized thereby, know-how,
operating manuals, trade secret rights, rights to unpatented inventions, and any
claims for damage by way of any past, present, or future infringement of any of
the foregoing, without Bank’s prior written consent.

4.2. Authorization to File Financing Statements. Borrower hereby authorizes, and
shall cause each Guarantor to authorize, Bank to file financing statements,
without notice to Borrower or any Guarantor, with all appropriate jurisdictions
to perfect or protect Bank’s interest or rights hereunder, including a notice
that any disposition of the Collateral, by either Borrower, any Guarantor or any
other Person, shall be deemed to violate the rights of Bank under the Code.

 

  5. REPRESENTATIONS AND WARRANTIES

Except as otherwise provided below or as set forth in the Disclosure Schedule
(which may be updated from time to time), Borrower represents and warrants as
follows:

5.1. Due Organization and Authorization. Borrower and each of its Subsidiaries
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 their business or its ownership of property requires that they be
qualified, except where the failure to do so could not reasonably be expected to
cause a Material Adverse Change. In connection with this Agreement, Borrower has
delivered, or has caused each Guarantor to deliver, to Bank completed Perfection
Certificate[s] in form and substance satisfactory to Bank (each a “Perfection
Certificate”). Borrower represents and warrants to Bank that (a) Borrower’s and
each Guarantor’s exact legal name is that indicated on the Perfection
Certificates and on the signature pages thereof; (b) Borrower and each Guarantor
are an organization of the type and are organized in the jurisdictions set forth
in the Perfection Certificates; (c) the Perfection Certificates accurately set
forth Borrower’s and each Guarantor’s organizational identification numbers or
accurately state that neither Borrower nor such Guarantor has one; (d) the
Perfection Certificates accurately set forth Borrower’s and such Guarantor’s
places of business, or, if more than one, its respective chief executive office
as well as Borrower’s and such Guarantor’s mailing addresses (if different than
its respective chief executive office); (e) Borrower and such Guarantor (and
each of its respective predecessors) have not, in the past five (5) years,
changed its respective state of formation, organizational structure or type, or
any organizational number assigned by its respective jurisdiction; and (f) all
other information set forth on the Perfection Certificates pertaining to
Borrower and each of its Subsidiaries is accurate and complete. If neither
Borrower nor any Guarantor is a Registered Organization but later becomes one,
Borrower shall, and shall cause each Guarantor to promptly notify Bank of such
occurrence and provide Bank with Borrower’s and such Guarantor’s organizational
identification numbers.

The execution, delivery and performance of the Loan Documents have been duly
authorized, and do not conflict with Borrower’s or any Guarantor’s
organizational documents, nor constitute an event of default under any material
agreement by which Borrower or any Guarantor is bound. Neither Borrower nor any
Guarantor is in default under any agreement to which it is a party or by which
it is bound in which the default could reasonably be expected to have a material
adverse effect on Borrower’s or such Guarantor’s business.

Each Loan Document has been duly executed and delivered by Borrower and each
Guarantor that is a party thereto and is the legally valid and binding
obligation of Borrower and such Guarantor, enforceable against Borrower and such
Guarantor in accordance with its respective terms, except as may be limited by
bankruptcy,

 

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insolvency, reorganization, moratorium or similar laws relating to or limiting
creditors’ rights generally or by equitable principles relating to
enforceability (whether enforcement is sought in equity or at law).

5.2. Collateral. Borrower and each Guarantor have good title to its Collateral,
free of Liens except Permitted Liens. Neither Borrower nor any Guarantor has
other Deposit Accounts, other than the Deposit Accounts described in the
Disclosure Schedule. The Collateral is maintained at the locations set forth in
the Disclosure Schedule. The Collateral is not in the possession of any third
party bailee (such as at a warehouse) unless the fair market value of the
Collateral at such location is less than $1,000,000. Unless the fair market
value of the Collateral at such location is less than $1,000,000, in the event
that Borrower or any Guarantor, after the date hereof, intends to store or
otherwise deliver the Collateral to a bailee, then Borrower and such Guarantor
shall receive the prior written consent of Bank (such consent not to be
unreasonably withheld), and such bailee must acknowledge in writing that the
bailee is holding such Collateral for the benefit of Bank. All Inventory is in
all material respects of good and marketable quality, free from material
defects. Borrower and Guarantors are the sole owner of its respective
Intellectual Property, except for licenses granted to its customers in the
ordinary course of business. To Borrower’s knowledge, each Patent is valid and
enforceable, and no material 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 for any such claim that would not be expected to result in a Material
Adverse Change.

5.3. Intentionally Blank.

5.4. Litigation. There are no actions or proceedings pending or, to the
knowledge of Borrower’s or any of its Subsidiaries’ Responsible Officers,
threatened by or against Borrower or any of its Subsidiaries in which an adverse
decision could reasonably be expected to cause a Material Adverse Change.

5.5. No Material Deviation in Financial Statements. All consolidating financial
statements for Borrower and its Subsidiaries delivered to Bank fairly present in
all material respects Borrower’s consolidated financial condition and Borrower’s
and its Subsidiaries’ 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.

5.6. Solvency. The fair salable value of Borrower’s and each of its
Subsidiaries’ assets (including goodwill minus disposition costs) exceeds the
fair value of its liabilities; Neither Borrower nor any of its Subsidiaries is
left with unreasonably small capital after the transactions in this Agreement;
and Borrower and each of its Subsidiaries are able to pay their debts (including
trade debts) as they mature.

5.7. Regulatory Compliance. Neither Borrower nor any of its Subsidiaries is an
“investment company” or a company “controlled” by an “investment company” under
the Investment Company Act. Neither Borrower nor any of its Subsidiaries is
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
and each of its Subsidiaries have complied in all material respects with the
Federal Fair Labor Standards Act. Neither Borrower nor any of its Subsidiaries
has 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 of its Subsidiaries’ properties or assets has been used by Borrower or its
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 of its Subsidiaries has generally 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 of its Subsidiaries 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.

5.8. Subsidiaries; Investments. Neither Borrower nor any of its Subsidiaries
owns any stock, partnership interest or other equity securities except for
Permitted Investments.

5.9. Tax Returns and Payments; Pension Contributions. Borrower and each of its
Subsidiaries have timely filed all required tax returns and reports, and
Borrower and each of its Subsidiaries have timely paid all

 

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foreign, federal, state and local taxes, assessments, deposits and contributions
owed by Borrower or such Subsidiary. Borrower and each of its Subsidiaries may
defer payment of any contested taxes, provided that Borrower or such Subsidiary
(a) in good faith contests its obligation to pay the taxes by appropriate
proceedings promptly and diligently instituted and conducted, (b) notifies Bank
in writing of the commencement of, and any material development in, the
proceedings, (c) posts bonds or takes any other steps required to prevent the
governmental authority levying such contested taxes from obtaining a Lien upon
any of the Collateral that is other than a “Permitted Lien”. Neither Borrower
nor any of its Subsidiaries is aware of any claims or adjustments proposed for
any of Borrower’s or such Subsidiary’s prior tax years which could result in
additional taxes becoming due and payable by Borrower or such Subsidiary.
Borrower and each of its Subsidiaries have paid all amounts necessary to fund
all present pension, profit sharing and deferred compensation plans in
accordance with their terms, and neither Borrower nor any of its Subsidiaries
have withdrawn from participation in, and has permitted partial or complete
termination of, or permitted the occurrence of any other event with respect to,
any such plan which could reasonably be expected to result in any liability of
Borrower or any of its Subsidiaries, including any liability to the Pension
Benefit Guaranty Corporation or its successors or any other governmental agency.

5.10. Use of Proceeds. Borrower shall use the proceeds of the Advances for
working capital and to fund its general business requirements.

5.11. Full Disclosure. No written representation, warranty or other statement of
Borrower or any of its Subsidiaries in any certificate or written statement
given to Bank pursuant to this Agreement (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. Bank recognizes that
the projections, forecasts, and business plans provided by Borrower or any of
its Subsidiaries 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 shall, and shall cause each of its Subsidiaries to, do all of the
following for so long as Bank has an obligation to lend or there are outstanding
Obligations:

6.1. Government Compliance.

(a) Maintain its and all its Subsidiaries’ legal existence and good standing in
their jurisdictions of formation and maintain qualification in each jurisdiction
in which the failure to so qualify could reasonably be expected to cause a
Material Adverse Change; and

(b) Comply, and have each of its Subsidiaries comply, with all laws, ordinances
and regulations to which it is subject, for which noncompliance could have a
material adverse effect on Borrower’s or such Subsidiary’s business or
operations or would reasonably be expected to cause a Material Adverse Change.

6.2. Financial Statements, Reports, Certificates.

(a) Deliver to Bank: (i) Quarterly financial statements, as soon as available,
and in any event no later than 45 days following the end of Borrower’s fiscal
quarter, (ii) as soon as available, but no later than the earlier of (A) five
(5) days after filing with the Securities Exchange Commission (“SEC”) or (B) 50
days after each fiscal quarter or 90 days after each fiscal year end, the
Borrower’s 10K, 10Q, and 8K reports. Borrower’s 10K, 10Q, and 8K reports
required to be delivered pursuant to this clause (a) shall be deemed to have
been delivered on the date on which Borrower posts such report or provides a
link thereto on Borrower’s or another website on the Internet; provided, that
Borrower shall provide paper copies to Bank of the Compliance Certificates
required by clause (c) below, (iii) a prompt report of any legal actions pending
or threatened against Borrower or any of its Subsidiaries that could result in
damages or costs to Borrower or any of its Subsidiaries of $1,000,000 or more,
or in which an adverse decision could reasonably be expected to cause a Material
Adverse Change (collectively, “Material Litigation”), and (v) a cash balance
report within 50 days following the end of Borrower’s fiscal quarter;

 

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(b) Deliver to Bank, annual financial statements, as soon as available, and in
any event no later than 90 days following the end of Borrower’s fiscal year,
certified by, and with an unqualified opinion of, independent certified public
accountants acceptable to Bank;

(c) Deliver to Bank, a Compliance Certificate, together with delivery of the
financial statements referenced in clause (a) and (b) above, in such form as
Bank shall reasonably specify, signed by the Responsible Officer of Borrower,
certifying that, as of the end of such period, Borrower was in full compliance
with all of the terms and conditions of this Agreement, and setting forth
calculations showing compliance with the financial covenants set forth in this
Agreement and such other information as Bank shall reasonably request;

(d) Deliver to Bank: annual operating budgets and Board-approved projections
(including income statements, balance sheets and cash flow statements, by month)
for the upcoming fiscal year of Borrower as updated, but no later than
forty-five (45) days after the end of the fiscal year; and

(e) At reasonable times, and on one (1) Business Day’s notice, Bank, or its
agents, shall have the right to inspect the Collateral and the right to audit
and copy Borrower’s Books. After the initial inspection and audit, such
inspections and audits shall (at Bank’s discretion) occur semi-annually, unless
an Event of Default exists. Bank shall take reasonable steps to keep
confidential all information obtained in any such inspection or audit, but Bank
shall have the right to disclose any such information to its auditors,
regulatory agencies, and attorneys, and pursuant to any subpoena or other legal
process. The foregoing inspections and audits shall be at Borrower’s expense and
the charge therefor shall be $750 per person per day (or such higher amount as
shall represent Bank’s then current standard charge for the same), plus
reasonable out-of-pocket expenses; provided that so long as no Event of Default
has occurred and is continuing, Borrower shall not be required to pay such
expenses more than twice per fiscal year.

6.3. Inventory. Keep all Inventory in good and marketable condition, and free
from material defects. Returns and allowances between Borrower and its
Subsidiaries, on the one hand, and their respective account debtors, on the
other, shall follow Borrower’s or such Subsidiaries’ customary practices as they
exist at execution of this Agreement.

6.4. Tax Returns and Payments; Pension Contributions. Borrower, and each of its
Subsidiaries, have timely filed, and will timely file, all required material tax
returns and reports, and Borrower and each of its Subsidiaries, have timely
paid, and will timely pay, all foreign, federal, state and local taxes,
assessments, deposits and contributions now or in the future owed by Borrower or
such Subsidiary, except, in each case, to the extent that non-compliance could
not reasonably be expected to result in a Material Adverse Change.
Notwithstanding the foregoing, Borrower or such Subsidiary may defer payment of
any contested taxes, provided that Borrower (a) in good faith contests
Borrower’s or such Subsidiary’s obligation to pay the taxes by appropriate
proceedings promptly and diligently instituted and conducted, (b) notifies Bank
in writing of the commencement of, and any material development in, the
proceedings, and (c) posts bonds or takes any other steps required to keep the
contested taxes from becoming a lien upon any of the Collateral. Neither
Borrower nor any Subsidiary is unaware of any claims or adjustments proposed for
any of Borrower’s or such Subsidiary’s prior tax years which could result in
additional taxes becoming due and payable by Borrower or such Subsidiary.
Borrower and each Subsidiary have paid, and shall continue to pay all amounts
necessary to fund all present and future pension, profit sharing and deferred
compensation plans in accordance with their terms, and neither Borrower nor any
Subsidiary has or will withdraw from participation in, permit partial or
complete termination of, or permit the occurrence of any other event with
respect to, any such plan which could reasonably be expected to result in any
liability of Borrower or such Subsidiary, including any liability to the Pension
Benefit Guaranty Corporation or its successors or any other governmental agency.

6.5. Insurance. Maintain, with financially sound and reputable insurers, general
business and casualty insurance in such amounts and against such liabilities and
hazards as is customary for companies in Borrower’s and its Subsidiaries’ line
of business. 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 twenty (20) days notice before canceling its policy. If an Event of
Default has occurred and is continuing, proceeds payable under any policy
covering the Collateral will, at Bank’s option, be payable to Bank on account of
the Obligations.

 

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6.6. Operating Accounts.

(a) Maintain its and its Subsidiaries’ primary domestic depository and operating
accounts with Bank and Bank’s affiliates.

(b) Provide Bank five (5) days prior written notice before establishing any
Collateral Account at or with any bank or financial institution other than Bank
or its Affiliates. In addition, for each Collateral Account that Borrower or any
Guarantor at any time maintains, Borrower shall cause the applicable bank or
financial institution (other than Bank) at or with which any Collateral Account
is maintained to execute and deliver a Control Agreement or other appropriate
instrument with respect to such Collateral Account to perfect Bank’s Lien in
such Collateral Account in accordance with the terms hereunder. The provisions
of the previous sentence shall not apply to deposit accounts exclusively used
for payroll, payroll taxes and other employee wage and benefit payments to or
for the benefit of Borrower’s or any Guarantor’s employees and identified to
Bank by Borrower or such Guarantor as such.

6.7. Financial Covenants.

Borrower shall maintain as of the last day of each quarter, unless otherwise
noted, on a consolidated basis with respect to Borrower and its Subsidiaries:

(a) Tangible Net Worth. A Tangible Net Worth of at least $70,000,000 plus
(i) 50% of any of all new net issuances of equity proceeds received by Borrower
plus (ii) 50% of quarterly profits of Borrower and its Subsidiaries.

(b) Quick Ratio. A Quick Ratio of at least 1.25 to 1.0.

6.8. Protection of Intellectual Property Rights. Borrower shall, and shall cause
each of its Subsidiaries to: (a) protect, defend and maintain the validity and
enforceability of its Intellectual Property; (b) promptly advise Bank in writing
of material infringements of its Intellectual Property; and (c) not allow any
Intellectual Property material to Borrower’s or any Guarantor’s business to be
abandoned, forfeited or dedicated to the public without Bank’s written consent.

6.9. Litigation Cooperation. From the date hereof and continuing through the
termination of this Agreement, make available to Bank, without expense to Bank,
Borrower and each of its Subsidiaries and its respective officers, employees and
agents and Borrower’s books and records, to the extent that Bank may deem them
reasonably necessary to prosecute or defend any third-party suit or proceeding
instituted by or against Bank with respect to any Collateral or relating to
Borrower or any such Subsidiary.

6.10. New Subsidiaries. In the event that any Person becomes a Subsidiary of
Borrower or any other existing Subsidiary (other than 3PAR Government Systems,
Inc.), Borrower shall, and shall cause the new Subsidiary and the existing
Subsidiary (other than 3PAR Government Systems, Inc.) to (a) concurrently with
such Person becoming a Subsidiary cause such Subsidiary to guarantee all of the
Obligations and to grant to Bank a first priority Lien (subject to Permitted
Liens) in the Collateral by delivering to Bank a Guarantee in form and substance
satisfactory to Bank, and (b) take all such actions and execute and deliver, or
cause to be executed and delivered, all such documents, instruments, agreements,
and certificates necessary to effectuate such Subsidiary becoming a Guarantor
and to grant such Lien in the Collateral referenced above. If the new Subsidiary
is a foreign Subsidiary in respect of which either (a) the pledge of all of the
equity interest of such Subsidiary as Collateral or (b) the guaranteeing by such
Subsidiary of the Obligations, would, in the good faith judgment of the
Borrower, result in material adverse tax consequences to the Borrower or such
existing Subsidiary, then Borrower or such existing Subsidiary shall pledge only
sixty five percent (65%) of the ownership interests of such foreign Subsidiary
and such foreign Subsidiary shall not be required to be Guarantor or grantor
hereunder.

6.11. Designated Senior Indebtedness. Borrower shall designate all principal of,
interest (including all interest accruing after the commencement of any
bankruptcy or similar proceeding, whether or not a claim for post-petition
interest is allowable as a claim in any such proceeding), and all fees, costs,
expenses and other amounts accrued or due under this Agreement as “Designated
Senior Indebtedness”, or such similar term, in any future

 

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Subordinated Debt incurred by Borrower after the date hereof, if such
Subordinated Debt contains such term or similar term and if the effect of such
designation is to grant to Bank the same or similar rights as granted to Bank as
a holder of “Designated Senior Indebtedness” under the Indenture.

6.12. Further Assurances. Borrower shall, and shall cause such Guarantor to,
execute any further instruments and take further action as Bank reasonably
requests to perfect or continue Bank’s Lien in the Collateral or to effect the
purposes of this Agreement.

 

  7. NEGATIVE COVENANTS

Borrower shall not, and shall not permit any of its Subsidiaries to, 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”), all or any material part of its business or property,
except for Transfers of (a) Inventory in the ordinary course of business;
(b) licenses and similar arrangements for the use of the property of Borrower or
its Subsidiaries in the ordinary course of business; or (c) worn-out or obsolete
Equipment.

7.2. Changes in Control, Business. (a) Engage in any business other than the
business currently engaged in by Borrower and its Subsidiaries or reasonably
related thereto, or (b) have a Change in Control. Neither Borrower nor any
Subsidiary will, without at least thirty (30) days prior written notice,
relocate its respective chief executive office, change its respective state of
formation (including reincorporation), change its respective organizational
number or name or add any new offices or business locations (such as warehouses)
in which Borrower or such Subsidiary maintains or stores over $1,000,000 of
Collateral.

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; provided, however, Bank’s consent
to the foregoing shall not be required so long as Borrower (a) is the sole
survivor upon the consummation of any transaction described hereunder, and
(b) no Event of Default has occurred or is likely to occur as a result of such
transaction. A Subsidiary may merge or consolidate into another Subsidiary or
into Borrower.

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, 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, permit any Collateral not to be subject to the first priority security
interest granted herein, or enter into any agreement, document, instrument or
other arrangement (except with or in favor of Bank) with any Person which
directly or indirectly prohibits or has the effect of prohibiting Borrower or
any Subsidiary from assigning, mortgaging, pledging, granting a security
interest in or upon, or encumbering any of Borrower’s or any Subsidiary’s
Intellectual Property, except as is otherwise permitted in Section 7.1 hereof
and the definition of “Permitted Lien” herein.

7.6. Maintenance of Collateral Accounts. Maintain any Collateral Account except
pursuant to the terms of Section 6.6(b) hereof.

7.7. Investments; Distributions. Directly or indirectly acquire or own any
Person, or make any Investment in any Person, other than Permitted Investments
or as permitted pursuant to Section 7.3 hereof, or pay any dividends or make any
distribution or payment or redeem, retire or purchase any capital stock except
for Permitted Distributions.

7.8. 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 or any Subsidiary
than would be obtained in an arm’s length transaction with a non-affiliated
Person.

 

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7.9. Subordinated Debt. (a) Make or permit any payment on any Subordinated Debt,
except under the terms of the subordination, intercreditor, or other similar
agreement to which such Subordinated Debt is subject, or (b) amend any provision
in any document relating to the Subordinated Debt which would increase the
amount thereof or adversely affect the subordination thereof to Obligations owed
to Bank.

7.10. Compliance. Become an “investment company” or a company controlled by an
“investment company”, under the Investment Company Act of 1940 or undertake as
one of its important activities extending credit to purchase or carry margin
stock (as defined in Regulation U of the Board of Governors of the Federal
Reserve System), or use the proceeds of any Credit Extension for that purpose;
fail to meet the minimum funding requirements of ERISA, permit a Reportable
Event or Prohibited Transaction, as defined in ERISA, to occur; fail to comply
with the Federal Fair Labor Standards Act or violate any other law or
regulation, if the violation could reasonably be expected to have a material
adverse effect on Borrower’s or any Subsidiary’s business, or permit any of its
Subsidiaries to do so; withdraw or permit any Subsidiary to withdraw from
participation in, permit partial or complete termination of, or permit the
occurrence of any other event with respect to, any present pension, profit
sharing and deferred compensation plan which could reasonably be expected to
result in any liability of Borrower or any Subsidiary, including any liability
to the Pension Benefit Guaranty Corporation or its successors or any other
governmental agency.

 

  8. EVENTS OF DEFAULT

Any one of the following shall constitute an event of default (an “Event of
Default”) under this Agreement:

8.1. Payment Default. Borrower fails to (a) make any payment of principal on any
Credit Extension on its due date (including prepayments required under
Section 2.2), (b) make any payment of interest on any Credit Extension on its
due date within three (3) days of its due date or (c) pay any other Obligations
within ten (10) days after such Obligations are due and payable. During the cure
period, the failure to cure the payment default is not an Event of Default (but
no Credit Extension will be made during the cure period);

8.2. Covenant Default.

(a) Borrower or any Guarantor fails or neglects to perform any obligation in
Sections 6 or violates any covenant in Section 7; or

(b) Borrower or any Guarantor shall fail to perform any other non-monetary
Obligation, which failure is not cured within ten (10) days after the date
performance was to be rendered, provided, however, that if the default cannot by
its nature be cured within the ten day period or cannot after diligent attempts
by Borrower or such Guarantor be cured within such ten day period, and such
default is likely to be cured within a reasonable time, then Borrower or such
Guarantor shall have an additional reasonable period (which shall not in any
case exceed thirty (30) days) to attempt to cure such default, and within such
reasonable time period the failure to have cured such default shall not be
deemed an Event of Default (provided that no Credit Extensions will be made
during such cure period). Grace periods provided under this section shall not
apply, among other things, to financial covenants or any other covenants set
forth in subsection (a) above;

8.3. Material Adverse Change. A Material Adverse Change occurs;

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 ten (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 material portion of Borrower’s assets by any
government agency and is not paid within ten (10) days after Borrower receives
notice. These are not Events of Default if stayed or if a bond is posted pending
contest by Borrower (but no Credit Extensions will be made while (a) the stay is
in effect, or (b) Borrower contests the action, whichever is applicable);

 

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8.5. Insolvency. If Borrower becomes insolvent or if Borrower begins an
Insolvency Proceeding or an Insolvency Proceeding is begun against Borrower and
is not dismissed or stayed within forty-five (45) days (but no Credit Extensions
will be made before any Insolvency Proceeding is dismissed);

8.6. Other Agreements. If any event of default occurs under any Indebtedness in
excess of $500,000 secured by a Permitted Lien, which is not cured within any
applicable cure period or waived in writing by the holder of the Permitted Lien;

8.7. Judgments. If a money judgment(s) in the aggregate of at least $1,000,000
is rendered against Borrower and is unsatisfied and unstayed for ten (10) days
(but no Credit Extensions 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 at the time made now or
later in any warranty or representation in this Agreement, any other Loan
Document or in any writing delivered to Bank to induce Bank to enter this
Agreement or any Loan Document; or

8.9. Subordinated Debt. A default or breach occurs under any agreement between
Borrower and any creditor of Borrower that signed a subordination,
intercreditor, or other similar agreement with Bank, or any creditor that has
signed such an agreement with Bank breaches any terms of such agreement; or

8.10. Guaranty. (a) Any guaranty of any Obligations terminates or ceases for any
reason to be in full force and effect; (b) any Guarantor does not perform any
obligation or covenant under any guaranty of the Obligations; (c) any
circumstance described in Sections 8.3, 8.4, 8.5, 8.6, 8.7, 8.8 or 8.9 occurs
with respect to any Guarantor, (d) the liquidation, winding up, or termination
of existence of any Guarantor; or (e) (i) a material impairment in the
perfection or priority of Bank’s Lien in the collateral provided by Guarantor or
in the value of such collateral or (ii) a material adverse change in the general
affairs, management, results of operation, condition (financial or otherwise) or
the prospect of repayment of the Obligations occurs with respect to any
Guarantor.

 

  9. BANK’S RIGHTS AND REMEDIES

9.1. Rights and Remedies. While 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) demand that Borrower (i) deposits cash with Bank in an amount equal to the
aggregate amount of any Letters of Credit remaining undrawn, as collateral
security for the repayment of any future drawings under such Letters of Credit,
and Borrower shall forthwith deposit and pay such amounts, and (ii) pay in
advance all Letter of Credit fees scheduled to be paid or payable over the
remaining term of any Letters of Credit;

(d) terminate any FX Contracts;

(e) settle or adjust disputes and claims directly with Account Debtors for
amounts on terms and in any order that Bank considers advisable, notify any
Person owing Borrower or any Guarantor money of Bank’s security interest in such
funds, and verify the amount of such account;

 

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

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

(h) ship, reclaim, recover, store, finish, maintain, repair, prepare for sale,
advertise for sale, and sell the Collateral. Bank is hereby granted a
non-exclusive, royalty-free license or other right to use, without charge,
Borrower’s and Guarantors’ 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
and Guarantors’ rights under all licenses and all franchise agreements inure to
Bank’s benefit;

(i) place a “hold” on any account maintained with Bank and/or deliver a notice
of exclusive control, any entitlement order, or other directions or instructions
pursuant to any Control Agreement or similar agreements providing control of any
Collateral;

(j) demand and receive possession of Borrower’s Books; and

(k) exercise all rights and remedies available to Bank under the Loan Documents
or at law or equity, including all remedies provided under the Code (including
disposal of the Collateral pursuant to the terms thereof).

9.2. Power of Attorney. Borrower hereby irrevocably appoints, and shall cause
each Guarantor to appoint, Bank as its lawful attorney-in-fact, exercisable upon
the occurrence and during the continuance of an Event of Default, to:
(a) endorse Borrower’s or such Guarantor’s name on any checks or other forms of
payment or security; (b) sign Borrower’s or such Guarantor’s name on any invoice
or bill of lading for any Account or drafts against Account Debtors; (c) settle
and adjust disputes and claims about the Accounts directly with Account Debtors,
for amounts and on terms Bank determines reasonable; (d) make, settle, and
adjust all claims under Borrower’s or such Guarantor’s insurance policies;
(e) pay, contest or settle any Lien, charge, encumbrance, security interest, and
adverse claim in or to the Collateral, or any judgment based thereon, or
otherwise take any action to terminate or discharge the same; and (f) transfer
the Collateral into the name of Bank or a third party as the Code permits.
Borrower hereby appoints, and shall cause each Guarantor to appoint, Bank as its
lawful attorney-in-fact to sign Borrower’s or such Guarantor’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 until all
Obligations have been satisfied in full and Bank is under no further obligation
to make Credit Extensions hereunder. Bank’s foregoing appointment as Borrower’s
or such Guarantor’s attorney in fact, and all of Bank’s rights and powers,
coupled with an interest, are irrevocable until all Obligations have been fully
repaid and performed and Bank’s obligation to provide Credit Extensions
terminates.

9.3. Accounts Verification; Collection. Whether or not an Event of Default has
occurred and is continuing, Bank may notify any Person owing Borrower or any
Guarantor money of Bank’s security interest in such funds and verify the amount
of such account. After the occurrence of an Event of Default, any amounts
received by Borrower or any Guarantor shall be held in trust by Borrower or such
Guarantor for Bank, and, if requested by Bank, Borrower shall, and shall cause
each Guarantor to, immediately deliver such receipts to Bank in the form
received from the Account Debtor, with proper endorsements for deposit.

9.4. Protective Payments. If Borrower or any Guarantor fails to obtain the
insurance called for by Section 6.6 or fails to pay any premium thereon or fails
to pay any other amount which Borrower or such Guarantor is obligated to pay
under this Agreement or any other Loan Document, Bank may obtain such insurance
or make such payment, and all amounts so paid by Bank are Bank Expenses and
immediately due and payable, bearing

 

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interest at the then highest applicable rate, and secured by the Collateral.
Bank will make reasonable efforts to provide Borrower or such Guarantor with
notice of Bank obtaining such insurance at the time it is obtained or within a
reasonable time thereafter. 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. Application of Payments and Proceeds. Unless an Event of Default has
occurred and is continuing, Bank shall apply any funds in its possession,
whether from Borrower or any Guarantor account balances, payments, or proceeds
realized as the result of any collection of Accounts or other disposition of the
Collateral, first, to Bank Expenses, including without limitation, the
reasonable costs, expenses, liabilities, obligations and attorneys’ fees
incurred by Bank in the exercise of its rights under this Agreement; second, to
the interest due upon any of the Obligations; and third, to the principal of the
Obligations and any applicable fees and other charges, in such order as Bank
shall determine in its sole discretion. Any surplus shall be paid to Borrower or
other Persons legally entitled thereto; Borrower and Guarantors shall remain
liable to Bank for any deficiency. If an Event of Default has occurred and is
continuing, Bank may apply any funds in its possession, whether from Borrower or
any Guarantor account balances, payments, proceeds realized as the result of any
collection of Accounts or other disposition of the Collateral, or otherwise, to
the Obligations in such order as Bank shall determine in its sole discretion.
Any surplus shall be paid to Borrower or other Persons legally entitled thereto;
Borrower and Guarantors shall remain liable to Bank for any deficiency. If Bank,
in its good faith business judgment, directly or indirectly enters into a
deferred payment or other credit transaction with any purchaser at any sale of
Collateral, Bank shall have the option, exercisable at any time, of either
reducing the Obligations by the principal amount of the purchase price or
deferring the reduction of the Obligations until the actual receipt by Bank of
cash therefor.

9.6. Bank’s Liability for Collateral. So long as Bank complies with reasonable
banking practices regarding the safekeeping of the Collateral in the possession
or under the control of Bank, Bank shall not be liable or responsible for:
(a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral;
(c) any diminution in the value of the Collateral; or (d) any act or default of
any carrier, warehouseman, bailee, or other Person. Borrower and Guarantors bear
all risk of loss, damage or destruction of the Collateral.

9.7. No Waiver; Remedies Cumulative. Bank’s failure, at any time or times, to
require strict performance by Borrower of any provision of this Agreement or any
other Loan Document shall not waive, affect, or diminish any right of Bank
thereafter to demand strict performance and compliance herewith or therewith. No
waiver hereunder shall be effective unless signed by Bank and then is only
effective for the specific instance and purpose for which it is given. Bank’s
rights and remedies under this Agreement and the other Loan Documents 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 in
exercising any remedy is not a waiver, election, or acquiescence.

9.8. 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, consents, requests, approvals, demands, or other communication
(collectively, “Communication”) by any party to this Agreement or any other Loan
Document must be in writing and shall be deemed to have been validly served,
given, or delivered: (a) upon the earlier of actual receipt and three
(3) Business Days after deposit in the U.S. mail, first class, registered or
certified mail return receipt requested, with proper postage prepaid; (b) upon
transmission, when sent by electronic mail or facsimile transmission; (c) one
(1) Business Day after deposit with a reputable overnight courier with all
charges prepaid; or (d) when delivered, if hand-delivered by messenger, all of
which shall be addressed to the party to be notified and sent to the address,
facsimile number, or email address indicated below. Bank or Borrower may change
its address or facsimile number by giving the other party written notice thereof
in accordance with the terms of this Section 10.

If to Borrower:    3PAR Inc.

                 4209 Technology Drive

 

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                   Fremont, CA 94538

                   Attn:                                     

                   Fax:                                     

If to Bank:             Silicon Valley Bank

                   2400 Hanover Street

                   Palo Alto, CA 94304

                   Attn: Ray Aguilar

                   Fax: (650) 320 0016

 

  11. CHOICE OF LAW, VENUE, JURY TRIAL WAIVER, AND JUDICIAL REFERENCE

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; provided,
however, that nothing in this Agreement shall be deemed to operate to preclude
Bank from bringing suit or taking other legal action in any other jurisdiction
to realize on the Collateral or any other security for the Obligations, or to
enforce a judgment or other court order in favor of Bank. Borrower expressly
submits and consents in advance to such jurisdiction in any action or suit
commenced in any such court, and Borrower hereby waives any objection that it
may have based upon lack of personal jurisdiction, improper venue, or forum non
conveniens and hereby consents to the granting of such legal or equitable relief
as is deemed appropriate by such court. Borrower hereby waives personal service
of the summons, complaints, and other process issued in such action or suit and
agrees that service of such summons, complaints, and other process may be made
by registered or certified mail addressed to Borrower at the address set forth
in Section 10 of this Agreement and that service so made shall be deemed
completed upon the earlier to occur of Borrower’s actual receipt thereof or
three (3) days after deposit in the U.S. mails, proper postage prepaid.

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

WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES’ AGREEMENT TO WAIVE THEIR
RESPECTIVE RIGHT TO A TRIAL BY JURY, if the above waiver of the right to a trial
by jury is not enforceable, the parties hereto agree that any and all disputes
or controversies of any nature between them arising at any time shall be decided
by a reference to a private judge, mutually selected by the parties (or, if they
cannot agree, by the Presiding Judge of the Santa Clara County, California
Superior Court) appointed in accordance with California Code of Civil Procedure
Section 638 (or pursuant to comparable provisions of federal law if the dispute
falls within the exclusive jurisdiction of the federal courts), sitting without
a jury, in Santa Clara County, California; and the parties hereby submit to the
jurisdiction of such court. The reference proceedings shall be conducted
pursuant to and in accordance with the provisions of California Code of Civil
Procedure §§ 638 through 645.1, inclusive. The private judge shall have the
power, among others, to grant provisional relief, including without limitation,
entering temporary restraining orders, issuing preliminary and permanent
injunctions and appointing receivers. All such proceedings shall be closed to
the public and confidential and all records relating thereto shall be
permanently sealed. If during the course of any dispute, a party desires to seek
provisional relief, but a judge has not been appointed at that point pursuant to
the judicial reference procedures, then such party may apply to the Santa Clara
County, California Superior Court for such relief. The proceeding before the
private judge shall be conducted in the same manner as it would be before a
court under the rules of evidence applicable to judicial proceedings. The
parties shall be entitled to discovery which shall be conducted in the same
manner as it would be before a court under the rules of discovery applicable to
judicial proceedings. The private judge shall oversee discovery and may enforce
all discovery rules and order applicable to judicial proceedings in the same
manner as a trial court judge. The parties agree that the selected or appointed
private judge shall have the power to decide all issues in the action or
proceeding, whether of fact or of law, and shall report a statement of decision
thereon pursuant to the California Code of Civil Procedure § 644(a). Nothing in
this paragraph shall limit the right of any party at any time to exercise
self-help remedies, foreclose against collateral, or obtain provisional
remedies. The private judge shall also determine all issues relating to the
applicability, interpretation, and enforceability of this paragraph.

 

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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 or obligations under it without Bank’s prior written
consent (which may be granted or withheld in Bank’s discretion). Bank has the
right, without the consent of or notice to Borrower or any Guarantor, 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 and
the other Loan Documents.

12.2. Indemnification. Borrower agrees, and shall cause each Guarantor to,
indemnify, defend and hold Bank and its directors, officers, employees, agents,
attorneys, or any other Person affiliated with or representing Bank harmless
against: (a) all obligations, demands, claims, and liabilities (collectively,
“Claims”) 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 arising from transactions between
Bank and Borrower and/or any Guarantor (including reasonable attorneys’ fees and
expenses), except for Claims and/or losses directly caused by Bank’s gross
negligence or willful misconduct.

12.3. Limitation of Actions. Any claim or cause of action by Borrower or any
Guarantor against Bank, its directors, officers, employees, agents, accountants,
attorneys, or any other Person affiliated with or representing Bank based upon,
arising from, or relating to this Loan Agreement or any other Loan Document, or
any other transaction contemplated hereby or thereby or relating hereto or
thereto, or any other matter, cause or thing whatsoever, occurred, done, omitted
or suffered to be done by Bank, its directors, officers, employees, agents,
accountants or attorneys, shall be barred unless asserted by Borrower or such
Guarantor by the commencement of an action or proceeding in a court of competent
jurisdiction by (a) the filing of a complaint within one year from the earlier
of (i) the date any of Borrower’s or such Guarantor’s officers or directors had
knowledge of the first act, the occurrence or omission upon which such claim or
cause of action, or any part thereof, is based, or (ii) the date this Agreement
is terminated, and (b) the service of a summons and complaint on an officer of
Bank, or on any other person authorized to accept service on behalf of Bank,
within thirty (30) days thereafter. Borrower agrees, and shall cause each
Guarantor to agree, that such one-year period is a reasonable and sufficient
time for Borrower and such Guarantor to investigate and act upon any such claim
or cause of action. The one-year period provided herein shall not be waived,
tolled, or extended except by the written consent of Bank in its sole
discretion. This provision shall survive any termination of this Loan Agreement
or any other Loan Document.

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

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

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

12.7. 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.

12.8. Survival. All covenants, representations and warranties made in this
Agreement continue in full force until this Agreement has terminated pursuant to
its terms and all Obligations (other than inchoate indemnity obligations and any
other obligations which, by their terms, are to survive the termination of this
Agreement) have been satisfied. The obligation of Borrower in Section 12.2 to
indemnify Bank shall survive until the statute of limitations with respect to
such claim or cause of action shall have run.

 

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12.9. Confidentiality. In handling any confidential information, Bank shall
exercise the same degree of care that it exercises for its own proprietary
information, but disclosure of information may be made: (a) to Bank’s
Subsidiaries or Affiliates; (b) to prospective transferees or purchasers of any
interest in the Credit Extensions (provided, however, Bank shall use
commercially reasonable efforts to obtain such prospective transferee’s or
purchaser’s agreement to the terms of this provision); (c) as required by law,
regulation, subpoena, or other order; (d) to Bank’s regulators or as otherwise
required in connection with Bank’s examination or audit; and (e) as Bank
considers appropriate in exercising remedies under this Agreement. Confidential
information does not include information that either: (i) is in the public
domain or in Bank’s possession when disclosed to Bank, or becomes part of the
public domain after disclosure to Bank; or (ii) is disclosed to Bank by a third
party, if Bank does not know that the third party is prohibited from disclosing
the information.

12.10. Attorneys’ Fees, Costs and Expenses. In any action or proceeding between
Borrower and any Guarantor, on the one hand, and Bank on the other, arising out
of or relating to the Loan Documents, the prevailing party shall be entitled to
recover its reasonable attorneys’ fees and other costs and expenses incurred, in
addition to any other relief to which it may be entitled.

 

  13. DEFINITIONS

13.1. Definitions. As used in this Agreement, the following terms have the
following meanings:

“Account” is any “account” as defined in the Code with such additions to such
term as may hereafter be made, and includes, without limitation, all accounts
receivable and other sums owing to Borrower.

“Account Debtor” is any “account debtor” as defined in the Code with such
additions to such term as may hereafter be made.

“Quick Ratio” is, as of any date of determination, Borrower’s (a) Quick Assets
divided by (b) Current Liabilities.

“Advance” or “Advances” means an advance (or advances) under the Revolving Line.

“Affiliate” of any 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.

“Agreement” is defined in the preamble hereof.

“Availability Amount” is (a) the Revolving Line minus (b) the amount of all
outstanding Letters of Credit (including drawn but unreimbursed Letters of
Credit) plus an amount equal to the Letter of Credit Reserves, minus (c) the FX
Reserve, and minus (d) the outstanding principal balance of any Advances
(including any amounts used for Cash Management Services).

“Bank” is defined in the preamble hereof.

“Bank Expenses” are all audit fees and expenses, costs, and expenses (including
reasonable attorneys’ fees and expenses) for preparing, negotiating,
administering, defending and enforcing the Loan Documents (including, without
limitation, those incurred in connection with appeals or Insolvency Proceedings)
or otherwise incurred with respect to Borrower or any Guarantor.

“Bankruptcy-Related Defaults” is defined in Section 9.1.

 

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“Borrower” is defined in the preamble hereof.

“Borrower’s Books” are all Borrower’s and Guarantors’ books and records
including ledgers, federal and state tax returns, records regarding Borrower’s
and such Guarantor’s assets or liabilities, the Collateral, business operations
or financial condition, and all computer programs or storage or any equipment
containing such information.

“Borrowing Resolutions” are, with respect to any Person, those resolutions
adopted by such Person’s Board of Directors and delivered by such Person to Bank
approving the Loan Documents to which such Person is a party and the
transactions contemplated thereby, together with a certificate executed by its
secretary on behalf of such Person certifying that (a) such Person has the
authority to execute, deliver, and perform its obligations under each of the
Loan Documents to which it is a party, (b) that attached as Exhibit A to such
certificate is a true, correct, and complete copy of the resolutions then in
full force and effect authorizing and ratifying the execution, delivery, and
performance by such Person of the Loan Documents to which it is a party, (c) the
name(s) of the Person(s) authorized to execute the Loan Documents on behalf of
such Person, together with a sample of the true signature(s) of such Person(s),
and (d) that Bank may conclusively rely on such certificate unless and until
such Person shall have delivered to Bank a further certificate canceling or
amending such prior certificate.

“Business Day” is any day other than a Saturday, Sunday or other day on which
banking institutions in the State of California are authorized or required by
law or other governmental action to close, except that if any determination of a
“Business Day” shall relate to a LIBOR Credit Extension, the term “Business Day”
shall also mean a day on which dealings are carried on in the London interbank
market, and if any determination of a “Business Day” shall relate to an FX
Forward Contract, the term “Business Day” shall mean a day on which dealings are
carried on in the country of settlement of the foreign (i.e., non-Dollar)
currency.

“Capital Lease” means with respect to any Person, any lease of any property
(whether real, personal or mixed) by such Person as lessee that, in accordance
with GAAP, would be required to be classified and accounted for as a capital
lease on a balance sheet of such Person.

“Capital Lease Obligation” means with respect to any Capital Lease of any
Person, the amount of the obligation of the lessee thereunder that, in
accordance with GAAP, would appear on a balance sheet of such lessee in respect
of such Capital Lease.

“Cash Equivalents” means (a) marketable direct obligations issued or
unconditionally guaranteed by the United States or any agency or any State
thereof having maturities of not more than one (1) year from the date of
acquisition; (b) commercial paper maturing no more than one (1) year after its
creation and having the highest rating from either Standard & Poor’s Ratings
Group or Moody’s Investors Service, Inc., (c) Bank’s certificates of deposit
issued maturing no more than one (1) year after issue; and (d) money market
funds at least ninety-five percent (95%) of the assets of which constitute Cash
Equivalents of the kinds described in clauses (a) through (c) of this
definition.

“Cash Management Services” is defined in Section 2.1.4.

“Cash Management Services Sublimit” is 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, as amended) becomes the “beneficial owner” (as defined in Rule 13d-3 under
the Securities Exchange Act of 1934, as amended), directly or indirectly, of
greater than 40% of the shares of all classes of stock then outstanding of
Borrower ordinarily entitled to vote in the election of directors.

“Code” is the Uniform Commercial Code, as the same may, from time to time, be
enacted and in effect in the State of California; provided, that, to the extent
that the Code is used to define any term herein or in any Loan Document and such
term is defined differently in different Articles or Divisions of the Code, the
definition of such term contained in Article or Division 9 shall govern;
provided further, that in the event that, by reason of mandatory provisions of
law, any or all of the attachment, perfection, or priority of, or remedies with
respect to, Bank’s Lien on any Collateral is governed by the Uniform Commercial
Code in effect in a jurisdiction other than the State of

 

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California, the term “Code” shall mean the Uniform Commercial Code as enacted
and in effect in such other jurisdiction solely for purposes on the provisions
thereof relating to such attachment, perfection, priority, or remedies and for
purposes of definitions relating to such provisions.

“Collateral” is any and all properties, rights and assets of the Borrower and
Guarantors granted by the Borrower and each Guarantor to Lenders or arising
under the Code, now, or in the future, including, without limitation, the
property described on Exhibit A.

“Collateral Account” is any Deposit Account, Securities Account, or Commodity
Account.

“Commodity Account” is any “commodity account” as defined in the Code with such
additions to such term as may hereafter be made.

“Communication” is defined in Section 10.

“Compliance Certificate” is that certain certificate in the form attached hereto
as Exhibit D.

“Contingent Obligation” is, for any Person, any direct or indirect liability,
contingent or not, of that Person for (a) 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; (b) any
obligations for undrawn letters of credit for the account of that Person; and
(c) 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
any guarantee or other support arrangement.

“Continuation Date” means any date on which Borrower elects to continue a LIBOR
Credit Extension into another Interest Period.

“Control Agreement” is any control agreement entered into among the depository
institution at which Borrower or any Guarantor maintains a Deposit Account or
the securities intermediary or commodity intermediary at which Borrower or any
Guarantor maintains a Securities Account or a Commodity account, Borrower, such
Guarantor and Bank pursuant to which Bank obtains control (within the meaning of
the Code) over such Deposit Account, Securities Account, or Commodity Account.

“Conversion Date” means any date on which Borrower elects to convert a Prime
Rate Credit Extension to a LIBOR Credit Extension or a LIBOR Credit Extension to
a Prime Rate Credit Extension.

“Copyright” means any of the following now owned or hereafter acquired or
created (as a work for hire for the benefit of Borrower or any Guarantor) by
Borrower or any Guarantor or in which Borrower or any Guarantor now holds or
hereafter acquires or receives any right or interest, in whole or in part:
(a) any copyright, whether registered or unregistered, held pursuant to the laws
of the United States or of any other country or foreign jurisdiction,
(b) registration, application or recording in the United States Copyright Office
or in any similar office or agency of the United States or any other country or
foreign jurisdiction, (c) any continuation, renewal or extension thereof, and
(d) any registration to be issued in any pending application, and shall include
any right or interest in and to work protectable by any of the foregoing which
are presently or in the future owned, created or authorized (as a work for hire
for the benefit of Borrower or any Guarantor) or acquired by Borrower or any
Guarantor, in whole or in part.

“Credit Extension” is any Advance, Letter of Credit, FX Forward Contract, amount
utilized for Cash Management Services or any other extension of credit by Bank
for Borrower’s benefit.

 

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“Current Liabilities” means amounts that under GAAP should be included on that
date as current liabilities on Borrower’s consolidated balance sheet.

“Default” means any event which with notice or passage of time or both, would
constitute an Event of Default.

“Default Rate” is defined in Section 2.3(b).

“Deposit Account” is any “deposit account” as defined in the Code with such
additions to such term as may hereafter be made.

“Designated Deposit Account” means that certain deposit account maintained with
Bank in the name of Borrower, account number 3300172477.

“Disclosure Schedule” means the disclosure schedule attached hereto as Schedule
A.

“Dollars,” “dollars” and “$” each mean lawful money of the United States.

“Effective Date” is the date Bank executes this Agreement and as indicated on
the signature page hereof.

“Equipment” is all “equipment” as defined in the Code with such additions to
such term as may hereafter be made, and includes without limitation all
machinery, fixtures, goods, vehicles (including motor vehicles and trailers),
and any interest in any of the foregoing.

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

“Event of Default” is defined in Section 8.

“Foreign Currency” means lawful money of a country other than the United States.

“Funding Date” is any date on which a Credit Extension is made to or on account
of Borrower which shall be a Business Day.

“FX Business Day” is any day when (a) Bank’s Foreign Exchange Department is
conducting its normal business and (b) the Foreign Currency being purchased or
sold by Borrower is available to Bank from the entity from which Bank shall buy
or sell such Foreign Currency.

“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 set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other Person as
may be approved by a significant segment of the accounting profession, which are
applicable to the circumstances as of the date of determination.

“General Intangibles” is all “general intangibles” as defined in the Code in
effect on the date hereof with such additions to such term as may hereafter be
made, and includes without limitation, all copyright rights, copyright
applications, copyright registrations and like protections in each work of
authorship and derivative work, whether published or unpublished, any patents,
trademarks, service marks and, to the extent permitted under applicable law, any
applications therefor, whether registered or not, any trade secret rights,
including any rights to unpatented inventions, payment intangibles, royalties,
contract rights, goodwill, franchise agreements, purchase orders, customer
lists, route lists, telephone numbers, domain names, claims, income and other
tax refunds, security and other deposits, options to purchase or sell real or
personal property, rights in all litigation presently or hereafter pending
(whether in contract, tort or otherwise), insurance policies (including without
limitation key man, property damage, and business interruption insurance),
payments of insurance and rights to payment of any kind.

 

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“Gold Hill” means Gold Hill Venture Lending 03, LP.

“Growth Capital Facility” means the growth capital loan made available to
Borrower by Gold Hill and Silicon Valley Bank pursuant to a Loan and Security
Agreement by and among them dated June 30, 2005, as amended, restated and/or
modified from time to time.

“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” is any proceeding 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” means any intellectual property, in any medium, of any
kind or nature whatsoever, now or hereafter owned or acquired or received by
Borrower or any Guarantor or in which Borrower or any Guarantor now holds or
hereafter acquires or receives any right or interest, and shall include, in any
event, any Copyright, Trademark, Patent, trade secret, customer list, Internet
domain name (including any right related to the registration thereof),
proprietary or confidential information, mask work, source, object or other
programming code, invention (whether or not patented or patentable), technical
information, procedure, design, knowledge, know-how, software, data base, data,
skill, expertise, recipe, experience, process, model, drawing, material or
record, all claims for damages by way of past, present and future infringement
of any of the rights included above and all licenses or other rights to use any
property or rights of a type described above.

“Interest Payment Date” means, with respect to any LIBOR Credit Extension or any
Prime Rate Credit Extensions, the first (1st) day of each month (or, if the
first day of the month does not fall on a Business Day, then on the first
Business Day following such date).

“Interest Period” means, as to any LIBOR Credit Extension, the period commencing
on the date of such LIBOR Credit Extension, or on the conversion/continuation
date on which the LIBOR Credit Extension is converted into or continued as a
LIBOR Credit Extension, and ending on the date that is one (1), two (2) or three
(3) months thereafter, in each case as Borrower may elect in the applicable
Notice of Borrowing or Notice of Conversion/Continuation; provided, however,
that (a) no Interest Period with respect to any LIBOR Credit Extension shall end
later than the Revolving Line Maturity Date, (b) the last day of an Interest
Period shall be determined in accordance with the practices of the LIBOR
interbank market as from time to time in effect, (c) if any Interest Period
would otherwise end on a day that is not a Business Day, that Interest Period
shall be extended to the following Business Day unless, in the case of a LIBOR
Credit Extension, the result of such extension would be to carry such Interest
Period into another calendar month, in which event such Interest Period shall
end on the preceding Business Day, (d) any Interest Period pertaining to a LIBOR
Credit Extension that begins on the last Business Day of a calendar month (or on
a day for which there is no numerically corresponding day in the calendar month
at the end of such Interest Period) shall end on the last Business Day of the
calendar month at the end of such Interest Period, and (e) interest shall accrue
from and include the first Business Day of an Interest Period but exclude the
last Business Day of such Interest Period.

“Interest Rate Determination Date” means each date for calculating the LIBOR for
purposes of determining the interest rate in respect of an Interest Period. The
Interest Rate Determination Date shall be the second Business Day prior to the
first day of the related Interest Period for a LIBOR Credit Extension.

“Inventory” is all “inventory” as defined in the Code in effect on the date
hereof with such additions to such term as may hereafter be made, and includes
without limitation all merchandise, raw materials, parts, supplies,

 

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packing and shipping materials, work in process and finished products, including
without limitation such inventory as is temporarily out of Borrower’s or any
Guarantor’s custody or possession or in transit and including any returned goods
and any documents of title representing any of the above.

“Investment” is any beneficial ownership interest in any Person (including
stock, partnership interest or other securities), and any loan, advance or
capital contribution to any Person.

“Investment Property” means all present and future investment property,
securities, stocks, bonds, debentures, debt securities, partnership interests,
limited liability company interests, options, security entitlements, securities
accounts, commodity contracts, commodity accounts, and all financial assets held
in any securities account or otherwise, and all options and warrants to purchase
any of the foregoing, wherever located, and all other securities of every kind,
whether certificated or uncertificated.

“Letter of Credit” means a standby letter of credit issued by Bank or another
institution based upon an application, guarantee, indemnity or similar agreement
on the part of Bank as set forth in Section 2.1.2.

“Letter of Credit Application” is defined in Section 2.1.2(a).

“Letter of Credit Reserve” has the meaning set forth in Section 2.1.2(d).

“LIBOR” means, for any Interest Rate Determination Date with respect to an
Interest Period for any Credit Extension to be made, continued as or converted
into a LIBOR Credit Extension, the rate of interest per annum determined by Bank
to be the per annum rate of interest at which deposits in United States Dollars
are offered to Bank in the London interbank market (rounded upward, if
necessary, to the nearest 1/100th of one percent (0.01%)) in which Bank
customarily participates at 12:00 p.m. (local time in such interbank market) two
(2) Business Days prior to the first day of such Interest Period for a period
approximately equal to such Interest Period and in an amount approximately equal
to the amount of such Credit Extension.

“LIBOR Credit Extension” means a Credit Extension that bears interest based at
the LIBOR Rate.

“LIBOR Rate” means, for each Interest Period in respect of LIBOR Credit
Extensions comprising part of the same Credit Extensions, an interest rate per
annum (rounded upward to the nearest 1/16th of one percent (0.0625%)) equal to
LIBOR for such Interest Period divided by one (1) minus the Reserve Requirement
for such Interest Period.

“LIBOR Rate Margin” is 2.00%.

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

“Loan Documents” are, collectively, this Agreement, the Disclosure Schedule, the
Perfection Certificates, the IP Agreement, the Subordination Agreement, any
note, or notes or guaranties executed by Borrower or any Guarantor, and any
other present or future agreement between Borrower any Guarantor and/or for the
benefit of Bank in connection with this Agreement, all as amended, restated, or
otherwise modified; , provided, that for the avoidance of doubt, the term “Loan
Documents” shall not include the Growth Capital Facility or any other documents
executed in connection with such Growth Capital Facility.

“Material Adverse Change” means any of the following: (a) a material adverse
change in the business, operations, or financial or other condition of the
Borrower or any of its Subsidiaries, (b) a material impairment of the prospect
of repayment of any portion of the Obligations, or (c) a material impairment of
the priority of Bank’s security interests in the Collateral.

“Material Litigation” has the meaning ascribed to it in Section 6.2(a) hereof.

Notice of Borrowing” means a notice given by Borrower to Bank in accordance with
Section 3.2(a), substantially in the form of Exhibit B, with appropriate
insertions.

 

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“Notice of Conversion/Continuation” means a notice given by Borrower to Bank in
accordance with Section 3.5, substantially in the form of Exhibit C, with
appropriate insertions.

“Obligations” are Borrower’s and/or Guarantors’ obligation to pay when due any
debts, principal, interest, Bank Expenses and other amounts Borrower and/or
Guarantors owe Bank now or later, whether under this Agreement, the Loan
Documents, or otherwise, including, without limitation, all obligations relating
to letters of credit, cash management services, and foreign exchange contracts,
if any, and including interest accruing after Insolvency Proceedings begin and
debts, liabilities, or obligations of Borrower and/or Guarantor assigned to
Bank, and the performance of Borrower’s and/or Guarantors’ duties under the Loan
Documents; Notwithstanding the foregoing, any obligations of Borrower to Bank
with respect to any warrants issued to Bank in connection with the transactions
contemplated by this Agreement shall not be deemed to be “Obligations”
hereunder.

“Other Property” means the following as defined in the Code in effect on the
date hereof with such additions to such term as may hereafter be made, and all
rights relating thereto: all present and future “commercial tort claims”
(including without limitation any commercial tort claims identified in the
Representations), “documents”, “instruments”, “promissory notes”, “chattel
paper”, “letters of credit”, “letter-of-credit rights”, “fixtures”, “farm
products” and “money”; and all other goods and personal property of every kind,
tangible and intangible, whether or not governed by the Code.

“Operating Documents” are, for any Person, such Person’s formation documents, as
certified with the Secretary of State of such Person’s state of formation on a
date that is no earlier than 30 days prior to the Effective Date, and, (a) if
such Person is a corporation, its bylaws in current form, (b) if such Person is
a limited liability company, its limited liability company agreement (or similar
agreement), and (c) if such Person is a partnership, its partnership agreement
(or similar agreement), each of the foregoing with all current amendments or
modifications thereto.

“Patent” means any of the following now hereafter owned or acquired or received
by Borrower or any Guarantor or in which Borrower or any Guarantor now holds or
hereafter acquires or receives any right or interest: (a) letters patent and
right corresponding thereto, of the United States or any other country or other
foreign jurisdiction, any registration and recording thereof, and any
application for letters patent, and rights corresponding thereto, of the United
States or any other country or other foreign jurisdiction, including, without
limitation, registrations, recordings and applications in the United States
Patent and Trademark Office or in any similar office or agency of the United
States, any State thereof or any other country or other foreign jurisdiction;
(b) any reissue, continuation, continuation-in-part or extension thereof;
(c) any petty patent, divisional, and patent of addition; and (d) any patent to
issue in any such application.

“Perfection Certificates” is defined in Section 5.1.

“Permitted Distributions” means:

(a) purchases of capital stock from former employees, consultants and directors
pursuant to repurchase agreements or other similar agreements;

(b) distributions or dividends consisting solely of Borrower’s capital stock;

(c) purchases for value of any rights distributed in connection with any
stockholder rights plan; and

(d) any Subsidiary may pay dividends or make distributions to Borrower or
another Subsidiary.

“Permitted Indebtedness” is:

(a) Borrower’s Indebtedness to Bank under this Agreement or any other Loan
Document, or any other Indebtedness to Bank;

(b) Borrower’s Indebtedness to Bank and Gold Hill pursuant to the Growth Capital
Facility;

 

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(c) any Indebtedness existing on the date of this Agreement and shown on the
Disclosure Schedule;

(d) capitalized leases and purchase money Indebtedness secured by Permitted
Liens not exceeding $750,000;

(e) refinanced Permitted Indebtedness, provided that the amount of such
Indebtedness is not increased except by an amount equal to a reasonable premium
or other reasonable amount paid in connection with such refinancing and by an
amount equal to any existing, but unutilized, commitment thereunder;

(f) Indebtedness of Borrower to any Subsidiary to the extent it is Subordinated
Debt; Indebtedness of any Subsidiary to another Subsidiary; and Indebtedness of
any Subsidiary to Borrower to the extent permitted under clause (g) of the
definition of Permitted Investments;

(g) Indebtedness under any performance, surety, statutory or appeal bonds or
similar obligations incurred in the ordinary course of business;

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

(i) Other Indebtedness in an aggregate amount not to exceed $500,000 in
aggregate principal amount outstanding at any time.

“Permitted Investments” are:

(a) Investments existing on the date of this Agreement and shown on the
Disclosure Schedule;

(b) (i) marketable direct obligations issued or unconditionally guaranteed by
the United States or its agencies or any State maturing within one (1) year from
its acquisition, (ii) commercial paper maturing no more than one (1) year after
its creation and having the highest rating from either Standard & Poor’s
Corporation or Moody’s Investors Service, Inc., (iii) Bank’s certificates of
deposit issued maturing no more than two (2) years after issue; (iv) repurchase
agreements having maturities of not more than 90 days; (v) money market accounts
maintained with mutual funds having assets in excess of $1,000,000; (vi) tax
exempt securities rated A or better by Moody’s or A+ or better by Standard &
Poors; (vii) mutual funds having at least 95% of their assets invested in the
foregoing Investments, and (viii) other Investments permitted by Borrower’s
investment policy that has been approved by its board of directors (or a
committee thereof) and Bank;

(c) Investments consisting of deposit and investment accounts in the name of
Borrower;

(d) Investments consisting of extensions of credit to Borrower’s or its
Subsidiaries’ customers in the nature of accounts receivable, prepaid royalties
or notes receivable arising from the sale or lease of goods, provision of
services or licensing activities of Borrower;

(e) Investments received in satisfaction or partial satisfaction of obligations
owed by financially troubled obligors;

(f) Investments acquired in exchange for any other Investments in connection
with or as a result of a bankruptcy, workout, reorganization or
recapitalization;

(g) Investments of Subsidiaries in or to Borrower; Investments of Subsidiaries
in or to other Subsidiaries.

(h) loans by Borrower to Subsidiaries in an aggregate amount not to exceed
$1,000,000 in principal amount outstanding at any time;

(i) Investments consisting of (i) travel advances, employee relocation loans and
other employee loans and advances in the ordinary course of business not to
exceed $500,000 and (ii) non-cash loans to employees, officers or directors
relating to the purchase of equity securities of Borrower pursuant to employee
stock purchase plans or arrangements approved by Borrower’s board of directors;

 

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(j) temporary advances to cover incidental expenses in the ordinary course of
business;

(k) joint ventures or strategic alliances in the ordinary course of Borrower’s
business consisting of the non-exclusive licensing of technology, the
development of technology or the providing of technical support, provided that
any cash investments by Borrower do not exceed $1,000,000 in the aggregate in
any fiscal year; and

(l) Other Investments in an aggregate amount not to exceed $500,000 in any
fiscal year.

“Permitted Liens” are:

(a) (i) Liens existing on the Effective Date and shown on the Disclosure
Schedule; (ii) Liens in favor of Bank arising under this Agreement or other Loan
Documents or any other Lien in favor of Bank; and (iii) Liens in favor of Bank
and Gold Hill arising under the Growth Capital Facility;

(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 Borrower’s Books, if they have no priority over
any of Bank’s security interests;

(c) Liens (including with respect to capital leases) (i) on property (including
accessions, additions, parts, replacements, fixtures, improvements and
attachments thereto, and the proceeds thereof) acquired or held by Borrower or
its Subsidiaries incurred for financing such property (including accessions,
additions, parts, replacements, fixtures, improvements and attachments thereto,
and the proceeds thereof), or (ii) existing on property (and accessions,
additions, parts, replacements, fixtures, improvements and attachments thereto,
and the proceeds thereof) when acquired, if the Lien is confined to such
property (including accessions, additions, parts, replacements, fixtures,
improvements and attachments thereto, and the proceeds thereof) and the
Indebtedness is Permitted Indebtedness;

(d) 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 it secures may not increase;

(e) 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;

(f) leases or subleases granted in the ordinary course of Borrower’s or any of
its Subsidiaries’ business, including in connection with Borrower’s leased
premises or leased property;

(g) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s or other
like Liens arising in the ordinary course of business which are not overdue for
a period of more than 30 days or which are being contested in good faith and by
appropriate proceeding if adequate reserves with respect thereto are maintained
on the books of the applicable Person;

(h) pledges or deposits in the ordinary course of business in connection with
workers’ compensation, unemployment insurance and other social security
legislation;

(i) deposits to secure the performance of bids, trade contracts (other than for
borrowed money), contracts for the purchase of property, leases, statutory
obligations, surety and appeal bonds, performance bonds and other obligations of
a like nature, in each case, incurred in the ordinary course of business and not
representing an obligation for borrowed money;

 

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(j) easements, rights-of-way, restrictions and other similar encumbrances
affecting real property which do not materially detract from the value of the
property subject thereto or materially interfere with the ordinary conduct of
the business of the applicable Person;

(k) statutory, common law or contractual Liens of depository institutions or
institutions holding securities accounts (including rights of set-off) provided
they are subordinate to Bank’s Liens pursuant to the terms of a control
agreement;

(l) Liens in favor of customs or revenue authorities arising as a matter of law
to secure payment of customs duties in connection with the importation of goods;

(m) Liens on insurance proceeds in favor of insurance companies granted solely
to secure financed insurance premiums.

(n) Liens arising from judgments, decrees or attachments in circumstances not
constituting an Event of Default;

(o) Liens securing Subordinated Debt; and

(p) Liens not otherwise permitted, provided that the amount of indebtedness
secured by the Lien on the property is less than $500,000 and the Lien is
confined to such property.

“Person” is any individual, sole proprietorship, partnership, limited liability
company, joint venture, company, 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.

“Prime Rate Credit Extension” means a Credit Extension that bears interest based
at the Prime Rate.

“Quick Assets” is, on any date, Borrower’s consolidated, unrestricted cash and
cash equivalents on deposit at Bank plus short and long term investments plus
100% of net billed accounts receivable.

“Quick Ratio” is, as of any date of determination, Borrower’s (a) Quick Assets
divided by (b) Current Liabilities.

“Registered Organization” is any “registered organization” as defined in the
Code with such additions to such term as may hereafter be made.

“Regulatory Change” means, with respect to Bank, any change on or after the date
of this Agreement in United States federal, state, or foreign laws or
regulations, including Regulation D, or the adoption or making on or after such
date of any interpretations, directives, or requests applying to a class of
lenders including Bank, of or under any United States federal or state, or any
foreign laws or regulations (whether or not having the force of law) by any
court or governmental or monetary authority charged with the interpretation or
administration thereof.

“Reserve Requirement” means, for any Interest Period, the average maximum rate
at which reserves (including any marginal, supplemental, or emergency reserves)
are required to be maintained during such Interest Period under Regulation D
against “Eurocurrency liabilities” (as such term is used in Regulation D) by
member banks of the Federal Reserve System. Without limiting the effect of the
foregoing, the Reserve Requirement shall reflect any other reserves required to
be maintained by Bank by reason of any Regulatory Change against (a) any
category of liabilities which includes deposits by reference to which the LIBOR
Rate is to be determined as provided in the definition of LIBOR or (b) any
category of extensions of credit or other assets which include Credit
Extensions.

 

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

“Revolving Line” is an Advance or Advances in an aggregate amount of up to
$15,000,000 outstanding at any time.

“Revolving Line Maturity Date” is May 29, 2009.

“Securities Account” is any “securities account” as defined in the Code with
such additions to such term as may hereafter be made.

“Settlement Date” is defined in Section 2.1.3.

“Subordinated Debt” is Indebtedness incurred by Borrower subordinated to all of
Borrower’s now or hereafter Indebtedness to Bank (pursuant to a subordination,
intercreditor, or other similar agreement in form and substance satisfactory to
Bank entered into between Bank and the other creditor), on terms acceptable to
Bank.

“Subsidiary” means, with respect to any Person, any Person of which more than
50% of the voting stock or other equity interests is owned or controlled,
directly or indirectly, by such Person or one or more Affiliates of such Person.

“Tangible Net Worth” is, on any date, the consolidated total assets of Borrower
and its Subsidiaries minus (a) any amounts attributable to (i) goodwill,
(ii) intangible items including unamortized debt discount and expense, patents,
trade and service marks and names, copyrights and research and development
expenses except prepaid expenses, and (iii) reserves not already deducted from
assets, minus (b) all liabilities of Borrower and its Subsidiaries, including
Subordinated Debt plus (c) 50% of any of all new net issuances of equity
proceeds received by Borrower plus (d) 50% of quarterly profits of Borrower and
its Subsidiaries.

“Trademark” means any of the following now or hereafter owned or acquired or
received by Borrower or any Guarantor or in which Borrower or any Guarantor now
holds or hereafter acquires or receives any right or interest: (a) any
trademark, trade name, corporate name, business name, trade style, service mark,
logo, other source or business identifier, print or label on which any of the
foregoing have appeared or appear, design or other general intangibles of like
nature, now existing or hereafter adopted or acquired, all registrations and
recordings thereof, and any applications in connection therewith, including
registration, recording and application in the United States Patent and
Trademark Office or in any similar office or agency of the United States, any
State thereof or any other country or other foreign jurisdiction and (b) any
reissue, extension or renewal of any of the foregoing.

“Transfer” is defined in Section 7.1.

[Signature page follows.]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the Effective Date.

 

BORROWER: 3PAR INC. By   /s/ Adriel Lares Name:   Adriel Lares Title:   VP of
Finance & CFO

 

BANK: SILICON VALLEY BANK By   /s/ Tom Smith Name:   Tom Smith Title:   Managing
Director Effective Date: May 30, 2008

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EXHIBIT A

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

All right, title and interest of Borrower in and to all of the following,
whether now owned or hereafter arising or acquired and wherever located: all
Accounts; all Inventory; all Equipment; all Deposit Accounts; all General
Intangibles (but excluding all Intellectual Property); all Investment Property;
all Other Property; and any and all claims, rights and interests in any of the
above, and all guaranties and security for any of the above, and all
substitutions and replacements for, additions, accessions, attachments,
accessories, and improvements to, and proceeds (including proceeds of any
insurance policies, proceeds of proceeds and claims against third parties) of,
any and all of the above, and all Borrower’s Books relating to any and all of
the above. Notwithstanding the foregoing, the term “Collateral” shall not
include and the grant of security interest herein shall not include more than
65% of the issued and outstanding voting capital stock of any Subsidiary of
Borrower that is incorporated or organized in a jurisdiction other than the
United States or any state or territory thereof or the District of Columbia.

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EXHIBIT B

FORM OF NOTICE OF BORROWING

3PAR INC.

Date: __________

 

TO: SILICON VALLEY BANK

3003 Tasman Drive

Santa Clara, CA 95054

Attention: Corporate Services Department

 

RE: Amended and Restated Loan and Security Agreement dated as of May 30, 2008
(as amended, modified, supplemented or restated from time to time, the “Loan
Agreement”), by and between 3PAR Inc. (“Borrower”), and Silicon Valley Bank (the
“Bank”)

Ladies and Gentlemen:

The undersigned refers to the Loan Agreement, the terms defined therein and used
herein as so defined, and hereby gives you notice irrevocably, pursuant to
Section 3.4(a) of the Loan Agreement, of the borrowing of a Credit Extension.

1. The Funding Date, which shall be a Business Day, of the requested borrowing
is             .

2. The aggregate amount of the requested borrowing is $            .

3. The requested Credit Extension shall consist of $             of Prime Rate
Credit Extensions and $             of LIBOR Credit Extensions.

4. The duration of the Interest Period for the LIBOR Credit Extensions included
in the requested Credit Extension shall be              months.

The undersigned hereby certifies that the following statements are true on the
date hereof, and will be true on the date of the proposed Credit Extension
before and after giving effect thereto, and to the application of the proceeds
therefrom, as applicable:

(a) all representations and warranties of Borrower contained in the Loan
Agreement are true, accurate and complete in all material respects as of the
date hereof; provided, however, that such materiality qualifier shall not be
applicable to any representations and warranties that already are qualified or
modified by materiality in the text thereof; and provided, further that those
representations and warranties expressly referring to a specific date shall be
true, accurate and complete in all material respects as of such date;

(b) no Default or Event of Default has occurred and is continuing, or would
result from such proposed Credit Extension; and

(c) the requested Credit Extension will not cause the aggregate principal amount
of the outstanding Advances to exceed, as of the designated Funding Date,
(i) the Revolving Line minus (ii) the amount of all outstanding Letters of
Credit (including drawn but unreimbursed Letters of Credit), minus (iii) the FX
Reserve, and minus (iv) the aggregate outstanding Advances (including any
amounts used for Cash Management Services).

 

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BORROWER     3PAR INC.       By:           Name:         Title:  

For internal Bank use only

 

LIBOR Pricing Date

 

LIBOR

 

LIBOR Variance

 

Maturity Date

    ____%  

 

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Sample Notice of Conversion/Continuation

EXHIBIT C

FORM OF NOTICE OF CONVERSION/CONTINUATION

3PAR INC.

Date:                                         

 

TO: SILICON VALLEY BANK

3003 Tasman Drive

Santa Clara, CA 95054

Attention:

 

RE: Amended and Restated Loan and Security Agreement dated as of May 30, 2008
(as amended, modified, supplemented or restated from time to time, the “Loan
Agreement”), by and between 3PAR Inc. (“Borrower”), and Silicon Valley Bank (the
“Bank”)

Ladies and Gentlemen:

The undersigned refers to the Loan Agreement, the terms defined therein being
used herein as therein defined, and hereby gives you notice irrevocably,
pursuant to Section 3.5 of the Loan Agreement, of the [conversion]
[continuation] of the Credit Extensions specified herein, that:

1. The date of the [conversion] [continuation] is                 , 20        .

2. The aggregate amount of the proposed Credit Extensions to be [converted] is
$             or [continued] is $            .

3. The Credit Extensions are to be [converted into] [continued as] [LIBOR]
[Prime Rate] Credit Extensions.

4. The duration of the Interest Period for the LIBOR Credit Extensions included
in the [conversion] [continuation] shall be              months.

The undersigned, on behalf of Borrower, hereby certifies that the following
statements are true on the date hereof, and will be true on the date of the
proposed [conversion] [continuation], before and after giving effect thereto and
to the application of the proceeds therefrom:

(a) all representations and warranties of Borrower stated in the Loan Agreement
are true, accurate and complete in all material respects as of the date hereof;
provided, however, that such materiality qualifier shall not be applicable to
any representations and warranties that already are qualified or modified by
materiality in the text thereof; and provided, further that those
representations and warranties expressly referring to a specific date shall be
true, accurate and complete in all material respects as of such date; and

(b) no Default or Event of Default has occurred and is continuing, or would
result from such proposed [conversion] [continuation].

[Signature page follows.]

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BORROWER     3PAR INC.       By:           Name:         Title:  

For internal Bank use only

 

LIBOR Pricing Date

 

LIBOR

 

LIBOR Variance

 

Maturity Date

    ____%  

 

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EXHIBIT D

COMPLIANCE CERTIFICATE

 

TO: SILICON VALLEY BANK

   Date: ____________

FROM:

The undersigned authorized officer of 3PAR Inc. (“Borrower”) certifies that
under the terms and conditions of the Amended and Restated Loan and Security
Agreement between Borrower and Bank (the “Agreement”), (1) Borrower is in
complete compliance for the period ending              with all required
covenants except as noted below, (2) there are no Events of Default, (3) all
representations and warranties in the Agreement are true and correct in all
material respects on this date except as noted below; provided, however, that
such materiality qualifier shall not be applicable to any representations and
warranties that already are qualified or modified by materiality in the text
thereof; and provided, further that those representations and warranties
expressly referring to a specific date shall be true, accurate and complete in
all material respects as of such date, (4) Borrower, and each of its
Subsidiaries, has timely filed all required tax returns and reports, and
Borrower has timely paid all foreign, federal, state and local taxes,
assessments, deposits and contributions owed by Borrower except as otherwise
permitted pursuant to the terms of Section 5.9 of the Agreement, and (5) no
Liens have been levied or claims made against Borrower or any of its
Subsidiaries relating to unpaid employee payroll or benefits of which Borrower
has not previously provided written notification to Bank. Attached are the
required documents supporting the certification. The undersigned certifies that
these are prepared in accordance with generally GAAP consistently applied from
one period to the next except as explained in an accompanying letter or
footnotes. The undersigned 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. Capitalized terms used but not otherwise
defined herein shall have the meanings given them in the Agreement.

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

 

Reporting Covenant

  

Required

  

Complies

     Quarterly unaudited financial statements and Compliance Certificate    (a)
Quarterly financial statements, as soon as available, and in any event no later
than 45 days following the end of Borrower’s fiscal quarter and (b) as soon as
available, but no later than the earlier of (i) five (5) days after filing with
the Securities Exchange Commission (“SEC”) or (ii) 50 days after each fiscal
quarter or 90 days after each fiscal year end, the Borrower’s 10K, 10Q, and 8K
reports.    Yes    No    N/A Annual operating budgets and projections (including
income statements, balance sheets, and cash flow statements, each of the
foregoing, by month) for the upcoming fiscal year    As updated, but no later
than 45 days after FYE    Yes    No    N/A Annual financial statements certified
by, and with an unqualified opinion of, independent CPA    Annually, no later
than 90 days following the end of Borrower’s fiscal year    Yes    No    N/A
Material Litigation*    Prompt    Yes    No    N/A Cash balance report    No
later than 50 days following the end of Borrower’s fiscal quarter    Yes    No
   N/A

 

* If yes, attached is a summary of the Material Litigation not previously
disclosed by Borrower or any of its Subsidiaries.

 

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Financial Covenant

  

Required

   Actual    Complies Maintain on an applicable Quarterly Basis:         
Minimum Tangible Net Worth    $70MM plus 50% of new net equity proceeds and 50%
of quarterly profits    $____    Yes    No Minimum Quick Ratio    1.25:1.00   
_____:1.0    Yes    No

The following financial covenant analys[is][es] and information set forth in
Schedule 1 attached hereto are true and accurate as of the date of this
Certificate.

The following are the exceptions with respect to the certification above: (If no
exceptions exist, state “No exceptions to note.”)

_______________________________________________________________________________________________

_______________________________________________________________________________________________

_______________________________________________________________________________________________

 

3PAR INC.     BANK USE ONLY By:         Received by:     Name:        
AUTHORIZED SIGNER Title:       Date:            

      Verified:             AUTHORIZED SIGNER       Date:           Compliance
Status:         Yes   No

 

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Schedule 1 to Compliance Certificate

Financial Covenants of Borrower

Dated:                     

I. Tangible Net Worth (Section 6.7(a))

Required: $70,000,000 plus 50% of new net equity proceeds since Effective Date
plus 50% of quarterly profits since Effective Date

Actual:

 

A.    Aggregate value of total assets of Borrower and its Subsidiaries    $
______ B.    Aggregate value of liabilities of Borrower and its Subsidiaries
(including all Subordinated Indebtedness)    $ ______ C.    Aggregate value of
goodwill of Borrower and its Subsidiaries    $ ______ D.    Aggregate value of
intangible assets of Borrower and its Subsidiaries such as unamortized debt
discounts and expenses, patents, trademarks, copyrights and research and
development expenses except prepaid expenses    $ ______ E.    Aggregate value
of any reserves not already deducted from assets    $ ______ F.    50% of new
net equity proceeds received by Borrower since Effective Date    $ ______ G.   
50% of quarterly profits of Borrower and its Subsidiaries since Effective Date
   $ ______ H.    Tangible Net Worth (line A minus line B minus line C minus
line D minus line E plus line F plus line G)    $ ______

Is line H equal to or greater than $70,000,000 plus 50% of new net equity
proceeds since Effective Date plus 50% of quarterly profits since Effective
Date?

_______ No, not in compliance                                          
                       _________ Yes, in compliance

II. Quick Ratio (Section 6.7(b))

Required: 1.25:1.00

Actual:

 

A.    Aggregate value of the unrestricted cash and cash equivalents of Borrower
and its Subsidiaries    $ ______ B.    Aggregate value of 100% of the net billed
accounts receivable of Borrower and its Subsidiaries    $ ______ C.    Aggregate
value of short and long term investments    $ ______ D.    Quick Assets (the sum
of lines A, B and C)    $ ______ E.    Aggregate value of Current Liabilities of
Borrower and its Subsidiaries    $ ______ F.    Quick Ratio (line D divided by
line E)   

Is line F equal to or greater than 1.25:1:00?

 

_______ No, not in compliance    ________ Yes, in compliance

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SCHEDULE A

DISCLOSURE SCHEDULE

 

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