Exhibit 10.39

 

LOAN AND SECURITY AGREEMENT

 

BY AND BETWEEN

 

PALM, INC.

 

AND

 

SILICON VALLEY BANK

 

 

AUGUST 28, 2003

 

 

 

[**] = Information redacted pursuant to a confidential treatment request. Such
omitted information has been filed separately with the Securities and Exchange
Commission.

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TABLE OF CONTENTS

 

               PAGE

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2.

  

LOAN AND TERMS OF PAYMENT

   1     

2.1

  

Promise to Pay

   1     

2.2

  

Overadvances

   3     

2.3

  

Interest Rate, Payments

   3     

2.4

  

Fees

   3

3.

  

CONDITIONS OF LOANS

   4     

3.1

  

Conditions Precedent to Initial Advance

   4     

3.2

  

Conditions Precedent to all Advances

   4

4.

  

CREATION OF SECURITY INTEREST

   4     

4.1

  

Grant of Security Interest.

   4     

4.2

  

Authorization to File; Delivery of Additional Documentation

   4

5.

  

REPRESENTATIONS AND WARRANTIES

   5     

5.1

  

Due Organization; Organizational Structure; Authorization

   5     

5.2

  

Collateral

   5     

5.3

  

Litigation

   5     

5.4

  

No Material Adverse Change in Financial Statements

   6     

5.5

  

Solvency

   6     

5.6

  

Regulatory Compliance

   6     

5.7

  

Investments

   6     

5.8

  

Full Disclosure

   6

6.

  

AFFIRMATIVE COVENANTS

   7     

6.1

  

Designated Senior Indebtedness

   7     

6.2

  

Government Compliance

   7     

6.3

  

Financial Statements, Reports, Certificates

   7     

6.4

  

Inventory; Returns

   8     

6.5

  

Taxes

   8     

6.6

  

Insurance

   8     

6.7

  

Financial Covenant

   8     

6.8

  

Investable Funds with Bank

   8

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TABLE OF CONTENTS

(CONTINUED)

 

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6.9

  

Registration of Intellectual Property Rights

   9     

6.10

  

Use of Proceeds

   9     

6.11

  

Account Control Agreements

   9     

6.12

  

Charge on Shares

   9     

6.13

  

Certificate of Qualification

   9     

6.14

  

Further Assurances

   9

7.

  

NEGATIVE COVENANTS

   9     

7.1

  

Dispositions

   9     

7.2

  

Changes in Business, Ownership, or Name

   10     

7.3

  

Mergers or Acquisitions

   10     

7.4

  

Indebtedness

   10     

7.5

  

Encumbrance

   10     

7.6

  

Distributions; Investments

   10     

7.7

  

Transactions with Affiliates

   11     

7.8

  

Subordinated Debt

   11     

7.9

  

Compliance

   11

8.

  

EVENTS OF DEFAULT

   11     

8.1

  

Payment Default

   11     

8.2

  

Covenant Default

   11     

8.3

  

Intentionally Omitted

   12     

8.4

  

Attachment

   12     

8.5

  

Insolvency

   12     

8.6

  

Other Agreements

   12     

8.7

  

Judgments

   13     

8.8

  

Misrepresentations

   13     

8.9

  

Guaranty

   13

9.

  

BANK’S RIGHTS AND REMEDIES

   13     

9.1

  

Rights and Remedies

   13     

9.2

  

Power of Attorney

   14     

9.3

  

Accounts Collection

   14

 

ii.

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TABLE OF CONTENTS

(CONTINUED)

 

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9.4

  

Bank Expenses

   14    

9.5

  

Bank’s Liability for Collateral

   14    

9.6

  

Remedies Cumulative

   15    

9.7

  

Notices of Control

   15    

9.8

  

Demand Waiver

   15

10.

 

NOTICES

   15

11.

 

CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER

   15

12.

 

GENERAL PROVISIONS

   16    

12.1

  

Successors and Assigns

   16    

12.2

  

Indemnification

   16    

12.3

  

Time of Essence

   16    

12.4

  

Severability of Provision

   16    

12.5

  

Amendments in Writing; Integration

   16    

12.6

  

Counterparts

   17    

12.7

  

Survival

   17    

12.8

  

Confidentiality

   17    

12.9

  

Attorneys’ Fees, Costs and Expenses

   17

13.

 

DEFINITIONS

   17

 

iii.

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THIS LOAN AND SECURITY AGREEMENT, dated as of August 28, 2003, is by and between
SILICON VALLEY BANK (“Bank”), whose address is 3003 Tasman Drive, Santa Clara,
California, 95054, and PALM, INC. (“Borrower”), whose address is 400 North
McCarthy Blvd., Milpitas, California, 94035, and provides the terms on which
Bank will lend to Borrower and Borrower will repay Bank. The parties hereto
agree as follows:

 

1. DEFINITIONS; ACCOUNTING AND OTHER TERMS

 

Capitalized terms used herein shall have the meanings given to such terms in
Section 13 of this Agreement and in Appendix A hereto. Accounting terms not
defined in this Agreement will be construed following GAAP. Calculations and
determinations must be made following GAAP. The term “financial statements”
includes the notes and schedules thereto. The terms “including” and “includes”
always mean “including (or includes) without limitation,” in this or any Loan
Document.

 

2. LOAN AND TERMS OF PAYMENT

 

2.1 Promise to Pay.

 

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

 

2.1.1 Advances.

 

(a) Bank will make Advances not exceeding the Committed Revolving Line minus (i)
the outstanding principal balance of the Advances 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) all amounts for services
utilized for Cash Management Services. Amounts borrowed hereunder that remain
available for borrowing under this Agreement may be repaid and reborrowed prior
to the Maturity Date.

 

(b) To obtain an Advance, Borrower must notify Bank pursuant to the terms of
Section 1 of Appendix A. Borrower must promptly confirm the notification by
delivering to Bank a Loan Payment/Advance Request Form (the “Payment/Advance
Form”) for a Prime Rate Loan, and a Libor Rate Borrowing Certificate for a Libor
Rate Loan. Bank will credit Advances to Borrower’s deposit account. Bank may
make Advances under this Agreement based on instructions from a Responsible
Officer or his or her designee or without instructions if the Advances are
necessary to meet Obligations which have become due. Bank may rely on any
telephone notice given by a person whom Bank believes is a Responsible Officer
or designee. Borrower will indemnify Bank for any loss Bank suffers due to such
reliance.

 

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

 

(d) Bank’s obligation to lend the undisbursed portion of the Committed Revolving
Line will terminate if, (i) there is a material impairment in the perfection or
priority of Bank’s security interest in the Collateral or in the value of such
Collateral which is

 

 

[**] = Information redacted pursuant to a confidential treatment request. Such
omitted information has been filed separately with the Securities and Exchange
Commission.

 

1.

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not covered by adequate insurance or (ii) Bank determines, based upon
information available to it and in its reasonable judgment, that there is a
reasonable likelihood that Borrower will fail to comply with any financial
covenant in Section 6.7 during the next succeeding financial reporting period (a
“Material Adverse Change”).

 

(e) Bank will review the credit facility contemplated by this Agreement on each
anniversary of the Closing Date and may, in its sole discretion, elect to extend
the Maturity Date by an additional twelve month period.

 

2.1.2 Letters of Credit.

 

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

 

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

 

(c) If any Letter of Credit is drawn upon, such amount shall constitute an
Advance but shall be immediately due and payable. If such amount is not paid
immediately, then the full amount thereof shall accrue interest at the rate set
forth in Section 2.3.1.

 

2.1.3 Foreign Exchange.

 

If there is availability under the Committed Revolving Line, then Borrower may
enter into foreign exchange forward contracts with the Bank under which Borrower
commits to purchase from or sell to Bank a set amount of foreign currency more
than one Business Day after the contract date (the “FX Forward Contract”). Bank
will subtract [**] of each outstanding FX Forward Contract from the amount
available under the Committed Revolving Line (the “FX Reserve”). Bank may
terminate the FX Forward Contracts if an Event of Default occurs and is not
cured. Bank shall not charge Borrower a fee in connection with the FX Forward
Contracts.

 

2.

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2.1.4 Cash Management Services.

 

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

 

2.2 Overadvances.

 

If, at any time, Borrower’s Obligations hereunder exceed the Committed Revolving
Line, Borrower shall immediately pay Bank the excess upon demand.

 

2.3 Interest Rate, Payments.

 

2.3.1 Interest Rate. Advances accrue interest on the outstanding principal
balance thereof at the Interest Rate. Borrower may elect to borrow Prime Rate
Loans or LIBOR Rate Loans, all as more particularly set forth in Appendix A
hereto. After an Event of Default has occurred, Obligations shall accrue
interest at a rate per annum equal to [**] percent above the rate effective
immediately before the Event of Default. The Interest Rate applicable to Prime
Rate Loans increases or decreases when the Prime Rate changes. Interest is
computed on a 360 day year for the actual number of days elapsed.

 

2.3.2 Payments. Interest due on the Advances is payable on the first day of each
month. Bank may debit any of Borrower’s deposit accounts, including account
number [**], for principal and interest payments owing or any amounts Borrower
owes Bank. Bank will promptly notify Borrower when it debits Borrower’s
accounts. These debits are not a set-off. Payments received after 12:00 noon
Pacific Time are considered received at the opening of business on the next
Business Day. When a payment is due on a day that is not a Business Day, the
payment is due the next Business Day and additional fees or interest accrue.

 

2.4 Fees.

 

Borrower will pay:

 

(a) Commitment Fee. A fully earned, non-refundable loan fee in the amount of
[**] of the Committed Revolving Line [**] less the [**] deposit previously paid
to Bank is due on or before the Closing Date and on each anniversary of the
Closing Date.

 

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

 

3.

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3. CONDITIONS OF LOANS

 

3.1 Conditions Precedent to Initial Advance.

 

Bank’s obligation to make the initial Advance is subject to the condition
precedent that it receive the agreements, documents and fees it required by this
Agreement and other agreements entered into in connection with this Agreement.

 

3.2 Conditions Precedent to all Advances.

 

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

 

(a) timely receipt of any Payment/Advance Form for a Prime Rate Loan or a Libor
Rate Borrowing Certificate for a Libor Rate Loan; and

 

(b) the representations and warranties in Section 5 must be materially true on
the date of the Payment/Advance Form and on the effective date of each Advance
and no Event of Default may have occurred and be continuing, or result from such
Advance (except to the extent they relate specifically to an earlier date, in
which case such representations and warranties shall continue to have been true
and accurate as of such date specified). Each Advance is Borrower’s
representation and warranty on that date that the representations and warranties
of Section 5 remain true.

 

4. CREATION OF SECURITY INTEREST

 

4.1 Grant of Security Interest.

 

Borrower grants Bank a continuing security interest in all presently existing
and later acquired Collateral to secure all Obligations and performance of each
of Borrower’s duties under the Loan Documents. Any security interest will be a
first priority security interest in the Collateral. If this Agreement is
terminated, Bank’s lien and security interest in the Collateral will continue
until Borrower fully satisfies its Obligations, other than any inchoate
obligations to indemnify Bank. Upon that satisfaction, Bank will terminate its
security interest in the Collateral.

 

4.2 Authorization to File; Delivery of Additional Documentation.

 

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

 

4.

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5. REPRESENTATIONS AND WARRANTIES. Except as described in the Schedule, Borrower
represents and warrants as follows:

 

5.1 Due Organization; Organizational Structure; Authorization.

 

Borrower and each Subsidiary is duly existing and in good standing in its state
of formation and qualified and licensed to do business in, and in good standing
in, any state in which the conduct of its business or its ownership of property
requires that it be qualified, except where the failure to do so could not
reasonably be expected to cause a Material Adverse Change.

 

Borrower has not ceased to be a Delaware corporation and has not changed any
organizational number assigned by its jurisdiction of formation.

 

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

 

5.2 Collateral.

 

Borrower has good title to the Collateral and its Intellectual Property, free of
Liens except Permitted Liens. All of Borrower’s deposit accounts are described
on the Schedule, as updated from time to time. The Accounts are bona fide,
existing obligations, and the service or property has been performed or
delivered to the account debtor or its agent for immediate shipment to and
unconditional acceptance by the account debtor. The Collateral is not in the
possession of any third party bailee (such as at a warehouse). In the event that
Borrower, after the date hereof, intends to store or otherwise deliver the
Collateral to such a bailee, then Borrower will use commercially reasonable
efforts to obtain a bailee acknowledgment in form and substance satisfactory to
Bank 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, except for Inventory for which adequate reserves have been
made in accordance with GAAP. Borrower is the sole owner of the Intellectual
Property, except for Intellectual Property licensed to Borrower and licenses
permitted under Section 7.1. To the best of Borrower’s knowledge, each issued
Patent owned by Borrower is valid and enforceable and no part of the
Intellectual Property has been judged invalid or unenforceable, in whole or in
part, and, except as publicly disclosed by Borrower and disclosed on a
Compliance Certificate, no claim has been made that any part of the Intellectual
Property violates the rights of any third party, except to the extent such
invalidity, unenforceability, or claim could not reasonably be expected to cause
a Material Adverse Change. Except as permitted pursuant to Section 7.1, Borrower
shall not change the location of any Collateral without 10 days prior written
notice to Bank.

 

5.3 Litigation.

 

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

 

5.

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5.4 No Material Adverse Change in Financial Statements.

 

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

 

5.5 Solvency.

 

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

 

5.6 Regulatory Compliance.

 

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

 

5.7 Investments.

 

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

 

5.8 Full Disclosure.

 

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

 

6.

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6. AFFIRMATIVE COVENANTS

 

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

 

6.1 Designated Senior Indebtedness.

 

Borrower shall designate the Loan Documents as “Designated Senior Indebtedness”
(as that term is defined in the Convertible Note), and the Loan Documents shall
constitute Designated Senior Indebtedness for purposes of the Convertible Note.

 

Borrower shall designate the Loan Documents as “Designated Senior Indebtedness”,
or such similar term, in any future convertible note entered into by Borrower
after the date hereof, if such convertible note contains such term or similar
term.

 

6.2 Government Compliance.

 

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

 

6.3 Financial Statements, Reports, Certificates.

 

(a) Borrower will deliver to Bank: (i) as soon as available, but no later than 5
days after filing with the SEC, the Borrower’s 10K and 10Q reports; (ii) a
Compliance Certificate together with delivery of the 10K and 10Q reports; (iii)
not more than 30 days after each fiscal year end or the date delivered to
Borrower’s Board of Directors, whichever is later, annual financial projections
(including an income statement, balance sheet, and statement of cash flows on an
at least quarterly basis) in form and substance commensurate with those provided
to Borrower’s board of directors or utilized by Borrower’s executive management;
(iv) a prompt report of any legal actions pending or threatened against Borrower
or any Subsidiary that could result in damages or costs to Borrower or any
Subsidiary of [**] or more; and (v) budgets, sales projections, operating plans
or other financial information Bank reasonably requests.

 

(b) For so long as either (i) the aggregate amount of outstanding Advances and
Letters of Credit, FX Forward Reserve and Cash Management Services, without
duplication, exceed [**] for more than thirty (30) consecutive days or (ii)
unrestricted cash for Borrower and its Subsidiaries is less than [**], then
Borrower will deliver to Bank as soon as available, but no later than 30 days
after the last day of each month, a company prepared consolidated balance sheet
and income statement covering Borrower’s consolidated operations during the
period certified by a Responsible Officer commensurate with that prepared for
Borrower’s executive management, together with a Compliance Certificate.

 

7.

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(c) Within 30 days after the last day of each month, Borrower will deliver to
Bank a cash balance report.

 

(d) Borrower will allow Bank to audit Borrower’s Collateral at Borrower’s
reasonable expense if an Event of Default shall have occurred.

 

6.4 Inventory; Returns.

 

Borrower will keep all Inventory in good and marketable condition, free from
material defects. Returns and allowances between Borrower and its account
debtors will follow Borrower’s customary practices as they exist at execution of
this Agreement.

 

6.5 Taxes.

 

Borrower will make, and cause each Subsidiary to make, timely payment of all
material federal, state, and local taxes or assessments (other than taxes and
assessments which Borrower is contesting in good faith, with adequate reserves
maintained in accordance with GAAP) and will deliver to Bank, on demand,
appropriate certificates attesting to the payment.

 

6.6 Insurance.

 

Borrower will keep its business and the Collateral insured for risks and in
amounts standard for Borrower’s industry, and as Bank may reasonably request.
Insurance policies will be in a form, with companies, and in amounts that are
satisfactory to Bank in Bank’s reasonable discretion. Bank acknowledges that the
insurance policies and insurance companies in place as of the Closing Date are
acceptable to Bank. All property policies will have a lender’s loss payable
endorsement showing Bank as an additional loss payee and all liability policies
will show the Bank as an additional insured and provide that the insurer must
give Bank at least 20 days notice before canceling its policy. At Bank’s
request, Borrower will deliver an insurance certificate evidencing those
policies and evidence of all premium payments. Proceeds payable under any policy
will, at Bank’s option after the occurrence of an Event of Default, be payable
to Bank on account of the Obligations.

 

6.7 Financial Covenant.

 

Borrower will maintain the following as of the last day of each month:
Unrestricted Cash on deposit in the United States in an amount not less than One
Hundred Million Dollars ($100,000,000).

 

6.8 Investable Funds with Bank.

 

Borrower shall deposit and maintain with Bank or any Affiliate of Bank not less
than [**] at all times, provided that Borrower shall have the option to deposit
all or any portion of such amount with institutions in connection with which
Borrower uses Bank’s investment advisory services.

 

8.

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6.9 Registration of Intellectual Property Rights.

 

Borrower will (a) protect, defend and maintain the validity and enforceability
of the Intellectual Property and promptly advise Bank in writing of material
infringements and (b) not allow any Intellectual Property material to Borrower’s
business to be abandoned, forfeited or dedicated to the public without Bank’s
written consent.

 

6.10 Use of Proceeds.

 

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

 

6.11 Account Control Agreements.

 

Within 30 days from the date hereof, Borrower shall deliver to Bank an Account
Control Agreement executed by any financial institution located in the United
States with which Borrower maintains any type of deposit or operating account
into which balance sheet cash is deposited immediately upon the opening of any
such account.

 

6.12 Charge on Shares.

 

Within 60 days from the date hereof, Borrower shall (a) execute and deliver to
Bank a Charge on Shares pledging [**] of the stock of [**] owned by Borrower,
and (b) instruct counsel at [**] to take any action necessary, including but not
limited to, completing all governmental filings, to effect the purposes thereof.

 

6.13 Certificate of Qualification.

 

Within 60 days from the date hereof, Borrower shall deliver to Bank a
Massachusetts Certificate of Qualification to Do Business certified by the
Massachusetts Secretary of the Commonwealth.

 

6.14 Further Assurances.

 

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

 

7. NEGATIVE COVENANTS

 

Borrower will not do any of the following without Bank’s prior written consent
for so long as Bank has an obligation to lend or there are any outstanding
Obligations:

 

7.1 Dispositions.

 

Convey, sell, lease, transfer or otherwise dispose of (collectively “Transfer”),
or permit any of its Subsidiaries to Transfer, all or any part of its business
or property, except for

 

9.

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(a) Transfers in the ordinary course of business which would not otherwise
result in a breach of Section 6.7 above; or (b) of worn-out or obsolete
equipment.

 

7.2 Changes in Business, Ownership, or Name.

 

Engage in or permit any of its Subsidiaries to engage in any business other than
the businesses currently engaged in by Borrower or reasonably related thereto or
have a Change in Control. Borrower will not, without at least 30 days prior
written notice, change its state of incorporation and, except as permitted
pursuant to Section 7.3 below, its name.

 

7.3 Mergers or Acquisitions.

 

Merge or consolidate, or permit any of its Subsidiaries to merge or consolidate,
with any other Person, or acquire, or permit any of its Subsidiaries to acquire,
all or substantially all of the capital stock or property of another Person,
except where (a) no Event of Default under Section 6.7 above has occurred and is
continuing or would result from such action during the term of this Agreement
and (b) Borrower is the sole surviving entity; provided that, upon prior written
notice to Bank, Borrower may create a wholly-owned Subsidiary and effect a short
form merger of Borrower into such Subsidiary solely for the purpose of changing
the name under which Borrower does business to “pa1mOne” or a derivative
thereof, and immediately upon the change of Borrower’s name pursuant to such
short form merger or otherwise, Borrower shall provide Bank with its new legal
name.

 

7.4 Indebtedness.

 

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

 

7.5 Encumbrance.

 

Create, incur, or allow any Lien on any of its property (including its
Intellectual Property), or assign or convey any right to receive income,
including the sale of any Accounts, or permit any of its Subsidiaries to do so,
except for Permitted Liens, or permit any Collateral not to be subject to the
first priority security interest granted hereunder.

 

7.6 Distributions; Investments.

 

(a) Except as permitted under Section 7.3 and for Permitted Investments,
directly or indirectly acquire or own any Person, or make any Investment in any
Person, or

 

(b) Pay any dividends (other than dividends payable solely in stock of Borrower)
or make any distribution or payment or redeem, retire or purchase any capital
stock, in each case for (a) and (b) other than in the ordinary course of
business and only to the extent that a default under Section 6.7 above would not
result, or permit any of its Subsidiaries to do so.

 

10.

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7.7 Transactions with Affiliates.

 

Directly or indirectly enter into or permit to exist any material transaction
with any Affiliate of Borrower except for transactions that are in the ordinary
course of Borrower’s business (it being understood that employment arrangements
with executive officers are within such ordinary course of business), upon fair
and reasonable terms or transactions with its Subsidiaries.

 

7.8 Subordinated Debt.

 

Make or permit any payment on any Subordinated Debt, except under the terms of
such Subordinated Debt, or amend any provision in any document relating to any
Subordinated Debt without Bank’s prior written consent.

 

7.9 Compliance.

 

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

 

References to “Subsidiaries” in Article 7 above shall apply to PalmSource, Inc.
so long as PalmSource, Inc. is a subsidiary of Borrower unless the Loan and
Security Agreement by and between Bank and PalmSource, Inc. is in effect.

 

8. EVENTS OF DEFAULT

 

Any one of the following is an Event of Default:

 

8.1 Payment Default.

 

If Borrower fails to pay any of the Obligations within [**] Business Days after
their due date. During the additional period the failure to cure the default is
not an Event of Default (but no Advance will be made during the cure period);

 

8.2 Covenant Default.

 

If Borrower does not perform any obligation in Section 6 or violates any
covenant in Section 7, provided, however, that failure to perform under Section
6.7 or violation of any covenant in Section 7 may be cured by the immediate
pledge of cash to secure the entire amount of Advances, Letters of Credit, FX
Forward Reserve and Cash Management Services then outstanding or issued; or

 

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If Borrower does not perform or observe any other material term, condition or
covenant in this Agreement, any Loan Documents, or in any agreement between
Borrower and Bank and as to any default under a term, condition or covenant that
can be cured, has not cured the default within [**] after it occurs, or if the
default cannot be cured within [**] or cannot be cured after Borrower’s attempts
within [**] period, and the default may be cured within a reasonable time, then
Borrower has an additional period (of not more than [**] ) to attempt to cure
the default. During the additional time, the failure to cure the default is not
an Event of Default (but no Advances will be made during the cure period);

 

8.3 Intentionally Omitted.

 

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 [**] , or if Borrower is enjoined, restrained, or
prevented by court order from conducting a material part of its business or if a
judgment or other claim becomes a Lien on a material portion of Borrower’s
assets, or if a notice of lien, levy, or assessment is filed against any of
Borrower’s assets by any government agency and not paid within [**] after
Borrower receives notice. These are not Events of Default if stayed or if a bond
is posted pending contest by Borrower (but no Advances will be made during the
cure period);

 

8.5 Insolvency.

 

If Borrower becomes insolvent or if Borrower begins an Insolvency Proceeding or
an Insolvency Proceeding is begun against Borrower and not dismissed or stayed
within [**] (but no Advances will be made before any Insolvency Proceeding is
dismissed);

 

8.6 Other Agreements.

 

If (a) there is a default in any agreement between Borrower and a third party
that gives the third party the right to accelerate any Indebtedness exceeding
[**] or that could reasonably be expected to cause a Material Adverse Change or
(b) any holder of the Convertible Note exercises its right to require the
Borrower to repurchase all or any portion of the Convertible Note pursuant to
Section 2 of the Convertible Note; provided, however, that the Event of Default
under clause (a) of this Section 8.6 caused by the occurrence of a default under
another agreement described in this Section shall be automatically cured for
purposes of this Agreement upon the cure or waiver of the default under such
other agreement if (i) Bank has not exercised its right under Section 9.1(a)
hereof to accelerate the maturity of the Obligations, (ii) such cure or waiver
does not result in an Event of Default under any other provision of this
Agreement, and (iii) in connection with such cure or waiver, the agreement with
the third party is not modified in a manner which increases the payments from
the Borrower to the third party or otherwise makes such agreement materially
less advantageous to the Borrower.

 

12.

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8.7 Judgments.

 

If a money judgment(s) in the aggregate of at least [**] (not covered by
insurance) is rendered against Borrower and is unsatisfied and unstayed for [**]
(but no Advances will be made before the judgment is stayed or satisfied);

 

8.8 Misrepresentations.

 

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

 

8.9 Guaranty.

 

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

 

9. BANK’S RIGHTS AND REMEDIES

 

9.1 Rights and Remedies.

 

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

 

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

 

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

 

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

 

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

 

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

 

13.

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

 

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

 

9.2 Power of Attorney.

 

Effective only when an Event of Default occurs and continues, Borrower
irrevocably appoints Bank as its lawful attorney to: (a) endorse Borrower’s name
on any checks or other forms of payment or security; (b) sign Borrower’s name on
any invoice or bill of lading for any Account or drafts against account debtors,
(c) make, settle, and adjust all claims under Borrower’s insurance policies; (d)
settle and adjust disputes and claims about the Accounts directly with account
debtors, for amounts and on terms Bank determines reasonable; and (e) transfer
the Collateral into the name of Bank or a third party as the Code permits. Bank
may exercise the power of attorney to sign Borrower’s name on any documents
necessary to perfect or continue the perfection of any security interest
regardless of whether an Event of Default has occurred. Bank’s appointment as
Borrower’s attorney in fact, and all of Bank’s rights and powers, coupled with
an interest, are irrevocable until all Obligations have been fully repaid and
performed and Bank’s obligation to provide Advances terminates.

 

9.3 Accounts Collection.

 

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

 

9.4 Bank Expenses.

 

If Borrower fails to pay any amount or furnish any required proof of payment to
third persons, Bank may make all or part of the payment or obtain insurance
policies required in Section 6.6, and take any action under the policies Bank
deems prudent. Any amounts paid by Bank are Bank Expenses and immediately due
and payable, bearing interest at the then applicable rate and secured by the
Collateral. No payments by Bank are deemed an agreement to make similar payments
in the future or Bank’s waiver of any Event of Default.

 

9.5 Bank’s Liability for Collateral.

 

If Bank complies with reasonable banking practices and the Code, it is not
liable for: (a) the safekeeping of the Collateral; (b) any loss or damage to the
Collateral; (c) any diminution in

 

14.

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the value of the Collateral; or (d) any act or default of any carrier,
warehouseman, bailee, or other person. Borrower bears all risk of loss, damage
or destruction of the Collateral.

 

9.6 Remedies Cumulative.

 

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

 

9.7 Notices of Control.

 

During the cure period, if any, of any Event of Default, Bank will not deliver
notices of exclusive control or otherwise deny Borrower’s right to exercise any
rights over deposit accounts or investments accounts in which Borrower has an
interest.

 

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 or demands by any party about this Agreement or any other related
agreement must be in writing and be personally delivered or sent by an overnight
delivery service, by certified mail, postage prepaid, return receipt requested,
to the addresses set forth at the beginning of this Agreement or by facsimile to
the persons and numbers set forth below each party’s name on the signature page
hereof against written confirmation of receipt thereof; provided that failure to
send a notice to any person designated to receive a copy of such notice shall
not cause the delivery of such notice to be ineffective. A party may change its
notice address by giving the other party written notice.

 

11. CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER

 

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

 

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

 

15.

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AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

 

12. GENERAL PROVISIONS

 

12.1 Successors and Assigns.

 

This Agreement binds and is for the benefit of the successors and permitted
assigns of each party. Borrower may not assign this Agreement or any rights
under it without Bank’s prior written consent which may be granted or withheld
in Bank’s discretion. Bank has the right, without the consent of or notice to
Borrower, to sell, transfer, negotiate, or grant participation in all or any
part of, or any interest in, Bank’s obligations, rights and benefits under this
Agreement, provided that if Bank grants any participation in Bank’s rights and
benefits under this Agreement, the Borrower shall only be required to deal with
Bank with respect to the administration of the transactions under this
Agreement, including, without limitation, by only being required to give any
notices hereunder to Bank or take directions hereunder from Bank.

 

12.2 Indemnification.

 

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

 

12.3 Time of Essence.

 

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

 

12.4 Severability of Provision.

 

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

 

12.5 Amendments in Writing; Integration.

 

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

 

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12.6 Counterparts.

 

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

 

12.7 Survival.

 

All covenants, representations and warranties made in this Agreement continue in
full force while any Obligations (other than Obligations under Section 12.2 to
the extent they remain inchoate at the time the other outstanding Obligations
are paid in full) remain outstanding. The obligations of Borrower in Section
12.2 to indemnify Bank will survive until all statutes of limitations for
actions that may be brought against Bank have run.

 

12.8 Confidentiality.

 

In handling any confidential information, Bank will exercise the same degree of
care that it exercises for its own proprietary information (but no less than
reasonable care), but disclosure of information may be made (a) to Bank’s
subsidiaries or affiliates in connection with their business with Borrower, (b)
to prospective transferees or purchasers of any interest in the loans (provided,
however, Bank shall use commercially reasonable efforts in obtaining such
prospective transferee or purchasers agreement of the terms of this provision),
(c) as required by law, regulation, subpoena, or other order, (d) as required in
connection with Bank’s examination or audit and (e) as Bank reasonably considers
appropriate exercising remedies under this Agreement. Confidential information
does not include information that either: (x) is in the public domain (other
than as a result of Bank’s disclosure) or in Bank’s possession when disclosed to
Bank, or becomes part of the public domain after disclosure to Bank; or (y) is
disclosed to Bank by a third party, if Bank does not know that the third party
is prohibited from disclosing the information.

 

12.9 Attorneys’ Fees, Costs and Expenses.

 

In any action or proceeding between Borrower and Bank arising out of the Loan
Documents, the prevailing party will be entitled to recover its reasonable
attorneys’ fees and other reasonable costs and expenses incurred, in addition to
any other relief to which it may be entitled.

 

13. DEFINITIONS

 

In this Agreement:

 

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

 

“Accounts” are all existing and later arising accounts, contract rights, and
other obligations owed Borrower in connection with its sale or lease of goods
(including licensing

 

17.

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software and other technology) or provision of services, all credit insurance,
guaranties, other security and all merchandise returned or reclaimed by Borrower
and Borrower’s Books relating to any of the foregoing.

 

“Advance” or “Advances” is a loan advance (or advances) under the Committed
Revolving Line, including Advances used to fund Letters of Credit, the FX
Reserve or Cash Management Services.

 

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

 

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

 

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

 

“Business Day” is any day that is not a Saturday, Sunday or a day on which the
Bank is closed; provided, however, with respect to LIBOR Rate Loans, a “Business
Day” is a day of the year (a) that is not a Saturday, Sunday or other day on
which banks in the State of California or the City of London are authorized or
required to close and (b) on which dealings are carried on in the interbank
market in which Bank customarily participates.

 

“Cash Management Services” are defined in Section 2.1.4.

 

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

 

“Closing Date” is the date of this Agreement.

 

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

 

“Collateral” is the property described on Exhibit A.

 

“Committed Revolving Line” is an amount up to the aggregate principal amount of
$30,000,000.

 

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

 

18.

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

 

“Convertible Note” is that certain 5% Convertible Subordinated Note Due 2006 in
the aggregate original principal amount of $50,000,000 executed by Borrower in
favor of Texas Instruments Incorporated, as amended from time to time.

 

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

 

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

 

“Foreign Subsidiary” means any Subsidiary of Borrower organized under the laws
of any jurisdiction other than the United States of America or a subdivision
thereof.

 

“FX Forward Contract” is defined in Section 2.1.3.

 

“FX Reserve” is defined in Section 2.1.3.

 

“GAAP” is generally accepted accounting principles.

 

“Guarantor” is any present or future guarantor of the Obligations.

 

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

 

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

 

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“Intellectual Property” is:

 

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

 

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

 

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

 

“Interest Period” means for each LIBOR Rate Loan, a period of approximately one,
two or three months as the Borrower may elect, provided that the last day of an
Interest Period for a LIBOR Rate Loan shall be determined in accordance with the
practices of the LIBOR interbank market as from time to time in effect,
provided, further, in all cases such period shall expire not later than the
applicable Maturity Date.

 

“Interest Rate” shall mean as to: (a) Prime Rate Loans, a rate equal to Prime
Rate, and (b) LIBOR Rate Loans, a rate of 1.75 % per annum in excess of the
LIBOR Rate (based on the LIBOR Rate applicable for the Interest Period selected
by the Borrower).

 

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

 

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

 

“Letter of Credit” is defined in Section 2.1.2.

 

“Letter of Credit Fees” is defined in Section 2.1.2.

 

“LIBOR Base Rate” means, for any Interest Period for a LIBOR Rate Loan, the rate
of interest per annum determined by Bank to be the per annum rate of interest as
which deposits in United States Dollars are offered to Bank in the London
interbank market in which Bank customarily participates at 11:00 a.m. (local
time in such interbank market) two (2) Business Days before 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 LIBOR Rate Loan.

 

“LIBOR Rate” shall mean, for any Interest Period for a LIBOR Rate Loan, a rate
per annum (rounded upwards, if necessary, to the nearest 1/16 of 1%) equal to
(a) the LIBOR Base Rate for such Interest Period divided by (a) 1 minus the
Reserve Requirement for such Interest Period.

 

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“LIBOR Rate Loans” means any Advances made or a portion thereof on which
interest is payable based on the LIBOR Rate in accordance with the terms of
Appendix A.

 

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

 

“Loan Documents” are, collectively, this Agreement, any note, or notes or
guaranties executed by Borrower or Guarantor, any pledge agreements or similar
agreements pledging shares of stock owned by Borrower, any negative pledge
agreements, any account control agreements, and any other present or future
agreement between Borrower or for the benefit of Bank in connection with this
Agreement, all as amended, extended or restated.

 

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

 

“Material Adverse Change” has the meaning set forth in Section 2.1.1(d) hereof.

 

“Maturity Date” is August 27, 2005.

 

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

 

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

 

“Permitted Indebtedness” is:

 

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

 

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

 

(c) Subordinated Debt;

 

(d) Indebtedness to trade creditors incurred in the ordinary course of business
and with respect to surety bonds and similar obligations incurred in the
ordinary course of business;

 

(e) An additional [**] in guaranty to [**] to support credit needs of [**]
solely with respect to such entity’s foreign exchange hedging activities;

 

(f) Indebtedness secured by Permitted Liens other than the types of Permitted
Liens described in clause (c) of the definition thereof;

 

21.

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

(g) Indebtedness arising from the endorsement of instruments in the ordinary
course;

 

(h) Unsecured Indebtedness and Indebtedness secured by the types of Permitted
Liens described in clause (c) of the definition thereof, the aggregate
outstanding principal balance of which does not exceed [**] or, with prior
written notice to Bank, [**]; and

 

(i) Extensions, refinancings, modifications, amendments, and restatements of any
items of Permitted Indebtedness described in clauses (a) through (h) above,
provided that the principal amount thereof is not increased or the terms thereof
are not modified to impose more burdensome terms upon Borrower or its
Subsidiaries, as the case may be.

 

“Permitted Investments” are:

 

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

 

(b) (i) marketable direct obligations issued or unconditionally guaranteed by
the United States or its agency or any State maturing within 1 year from its
acquisition, (ii) commercial paper maturing no more than 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 1 year after issue, and (iv) Investments made in
accordance with Borrower’s investment policy, as approved from time to time by
Borrower’s Board of Directors;

 

(c) a line of credit provided to Handspring, Inc. in an amount not to exceed
$20,000,000 and on substantially the terms set forth in the Loan Agreement
between Palm, Inc. as Lender and Handspring, Inc. as Borrower dated as of June
4, 2003;

 

(d) acquisitions permitted under Section 7.3 hereof;

 

(e) Investments constituting Transfers permitted by Section 7.1 hereof;

 

(f) Investments consisting of repurchases of the stock of officers, directors,
and employees under stock purchase plans approved from time to time by
Borrower’s board of directors;

 

(g) strategic Investments in customers, vendors, suppliers, and other Person in
the same or related industries as Borrower and its Subsidiaries, including the
exercise of warrants to purchase capital stock of such Persons in an aggregate
amount not to exceed [**] per year;

 

(h) Investments consisting of the conversion of any of Borrower’s convertible
securities into other securities pursuant to the terms of such convertible
securities or otherwise in exchange thereof;

 

22.

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

(i) any open-market purchase or exchange of Borrower’s publicly-traded equity
securities; and

 

(j) cash Investments of a total of not more than [**] in Subsidiaries
(excluding, for purposes of calculating said amount, cash Investments made in
the ordinary course of business).

 

“Permitted Liens” are:

 

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

 

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

 

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

 

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

 

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

 

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

 

(g) Liens arising from judgments, decrees, or attachments which do not
constitute an Event of Default hereunder;

 

(h) Liens on earnest money deposit required under a letter of intent or purchase
agreement;

 

(i) Liens in favor of other financial institutions arising in connection with
Borrower’s deposit or investments accounts held at such institutions to secure
fees and charges in connection with said accounts;

 

(j) Statutory Liens securing claims or demands of materialmen, mechanics,
carriers, warehousmen, landlords, and other like Persons imposed without action
of such parties;

 

23.

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

(k) Liens to secure payment of workers’ compensation, employment insurance,
old-age pensions, social security, and other like obligations incurred in the
ordinary course of business;

 

(l) Liens on insurance proceeds in favor of insurance companies granted solely
as security for financed premiums;

 

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

 

(n) Liens which constitute rights of offset of a customary nature that are not
prior to the Bank’s security interests;

 

(o) Liens arising from the filing of any financing statement relating to
operating leases otherwise permitted hereunder;

 

(p) Liens on escrowed cash representing a portion of the proceeds of sales of
assets established to satisfy contingent post-closing obligations that it owes
(including earn-outs, indemnities, and working capital adjustments;

 

(q) Liens on cash collateral securing reimbursement obligations to Bank under
letters of credit;

 

(r) Easements, reservations, rights-of-way, restrictions, minor defects or
irregularities in title and other similar charges or encumbrances affecting real
property not causing a material adverse effect on Borrower’s business or
operations;

 

(s) Licenses and sublicenses permitted under Section 7.1 hereof; and

 

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

 

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

 

“Prime Rate” means the variable rate of interest per annum, most recently
announced by Bank as its “prime rate,” whether or not such announced rate is the
lowest rate available from Bank. The interest rate applicable to the Prime Rate
Loans shall change on each date there is a change in the Prime Rate.

 

“Prime Rate Loans” means any Advances made or a portion thereof on which
interest is payable based on the Prime Rate in accordance with the terms of
Appendix A.

 

24.

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

“Regulatory Change” means, with respect to Bank, any change on or after the date
of this Loan 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 Base Rate” or
(b) any category of extensions of credit or other assets which include Loans.

 

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

 

“Schedule” is any attached schedule of exceptions.

 

“Subordinated Debt” is debt incurred by Borrower subordinated to Borrower’s
indebtedness owed to Bank and which is reflected in a written agreement in a
manner and form acceptable to Bank and approved by Bank in writing and in which
Bank is specifically designated “Designated Senior Debt”, or such similar term,
if applicable.

 

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

 

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

 

“Unrestricted Cash” is Borrower’s unrestricted cash and short-term cash
equivalents on deposit in the name of Borrower, as represented on Borrower’s
monthly balance sheet.

 

[signature page follows]

 

25.

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

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the date first set forth above.

 

BORROWER:

 

PALM, INC.

 

By:

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

Printed Name:

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

Title:

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

 

Notices may be sent by facsimile to:

 

(408) 503-2530

Attn: Treasurer

 

cc: (408) 503-2750

      Attn: General Counsel

 

BANK:

 

SILICON VALLEY BANK

 

By:

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

Printed Name:

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

Title

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

 

Notices may be sent by facsimile to:

 

(510) 608-4787

Attn: Quentin Falconer

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

APPENDIX A

 

LIBOR SUPPLEMENT

 

1. Requests for Loans. Each LIBOR Rate Loan shall be made upon the irrevocable
written request of Borrower received by Bank not later than 11 :00 a.m. (Santa
Clara, California time) on the Business Day three (3) Business Days prior to the
date such Loan is to be made. Each such notice shall specify the date such Loan
is to be made, which day shall be a Business Day; the amount of such Loan, the
Interest Period for such Loan, and comply with such other requirements as Bank
determines are reasonable or desirable in connection therewith.

 

Each written request for a LIBOR Rate Loan shall be in the form of a LIBOR Rate
Loan Borrowing Certificate as set forth on Exhibit A, which shall be duly
executed by the Borrower.

 

Each Prime Rate Loan shall be made upon the irrevocable written request of
Borrower received by Bank not later than 11:00 a.m. (Santa Clara, California
time) on the Business Day one (1) Business day prior to the date such Loan is to
be made. Each such notice shall specify the date such Loan is to be made, which
day shall be a Business Day and the amount of such Loan, and comply with such
other requirements as Bank determines are reasonable or desirable in connection
therewith.

 

2. Conversion/Continuation of Loans.

 

  (a) Borrower may from time to time submit in writing a request that Prime Rate
Loans be converted to LIBOR Rate Loans or that any existing LIBOR Rate Loans
continue for an additional Interest Period. Such request shall specify the
amount of the Prime Rate Loans which will constitute LIBOR Rate Loans (subject
to the limits set forth below) and the Interest Period to be applicable to such
LIBOR Rate Loans. Each written request for a conversion to a LIBOR Rate Loan or
a continuation of a LIBOR Rate Loan shall be substantially in the form of a
LIBOR Rate Conversion/Continuation Certificate as set forth on Exhibit B to this
Supplement which shall be duly executed by the Borrower. Subject to the terms
and conditions contained herein, three (3) Business Days after Bank’s receipt of
such a request from Borrower, such Prime Rate Loans shall be converted to LIBOR
Rate Loans or such LIBOR Rate Loans shall continue, as the case may be provided
that:

 

  (i) no Event of Default or event which with notice or passage of time or both
would constitute an Event of Default exists;

 

  (ii) no party hereto shall have sent any notice of termination of this
Supplement or of the Loan Agreement;

 

  (iii) Borrower shall have complied with such customary procedures as Bank has
established from time to time for Borrower’s requests for LIBOR Rate Loans;

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

  (iv) the amount of a LIBOR Rate Loan shall be [**] or such greater amount
which is an integral multiple of [**]; and

 

  (v) Bank shall have determined that the Interest Period or LIBOR Rate is
available to Bank which can be readily determined as of the date of the request
for such LIBOR Rate Loan.

 

Any request by Borrower to convert Prime Rate Loans to LIBOR Rate Loans or
continue any existing LIBOR Rate Loans shall be irrevocable. 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 Rate market to fund any LIBOR Rate Loans, but the provisions
hereof shall be deemed to apply as if Bank had purchased such deposits to fund
the LIBOR Rate Loans.

 

  (b) Any LIBOR Rate Loans shall automatically convert to Prime Rate Loans upon
the last day of the applicable Interest Period, unless Bank has received and
approved a complete and proper request to continue such LIBOR Rate Loan at least
three (3) Business Days prior to such last day in accordance with the terms
hereof. Any LIBOR Rate Loans shall, at Bank’s option, convert to Prime Rate
Loans in the event that (i) an Event of Default, or event which with the notice
or passage of time or both would constitute an Event of Default, shall exist,
(ii) this Supplement or the Loan Agreement shall terminate, or (iii) the
aggregate principal amount of the Prime Rate Loans which have previously been
converted to LIBOR Rate Loans, or the aggregate principal amount of existing
LIBOR Rate Loans continued, as the case may be, at the beginning of an Interest
Period shall at any time during such Interest Period exceeds the Committed
Revolving Line. Borrower agrees to pay to Bank, upon demand by Bank (or Bank
may, at its option, charge Borrower’s loan account) any amounts required to
compensate Bank for any loss (including loss of anticipated profits), cost or
expense incurred by such person, as a result of the conversion of LIBOR Rate
Loans to Prime Rate Loans pursuant to any of the foregoing.

 

  (c) On all Loans, Interest shall be payable by Borrower to Bank monthly in
arrears not later than the first (1st) day of each calendar month at the
applicable Interest Rate.

 

3. Additional Requirements/Provisions Regarding LIBOR Rate Loans, Etc.

 

  (a) If for any reason (including voluntary or mandatory prepayment or
acceleration), Bank receives all or part of the principal amount of a LIBOR Rate
Loan prior to the last day of the Interest Period for such Loan, 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 or the offshore currency interbank markets or
United States Treasury

 

2.

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

 

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 to 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 Loans
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
Supplement in respect of any Loans (other than changes which affect taxes
measured by or imposed on the overall net income of Bank by the jurisdiction in
which such Bank has its principal office); or

 

  (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 Loans or any deposits referred to in
the definition of “LIBOR Base Rate”); or

 

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

 

Bank will notify Borrower of any event occurring after the date of the Loan
Agreement which will entitle Bank to compensation pursuant to this section 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. Determinations and allocations by Bank for purposes of this Section 3
of the effect of any Regulatory Change on its costs of maintaining its
obligations to make Loans or of making or maintaining Loans or on amounts
receivable by it in respect of Loans, and of the additional amounts required to
compensate Bank in respect of any Additional Costs, shall be conclusive absent
manifest error.

 

  (c) Borrower shall pay to Bank, upon the request of Bank, such amount or
amounts as shall be sufficient (in the sole good faith opinion of such Bank) to
compensate it for any loss, costs or expense incurred by it as a result of any
failure by Borrower to borrow a Loan on the date for such borrowing specified in
the relevant notice of borrowing hereunder.

 

  (d) 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)

 

3.

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

 

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 its policies with respect to capital adequacy) by an amount deemed
by Bank to be material, then from time to time, within [**] 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 and setting forth the additional amount or amounts to be paid
to it hereunder shall be conclusive absent manifest error.

 

  (e) If at any time Bank, in its sole and absolute discretion, determines that:
(i) the amount of the LIBOR Rate Loans for periods equal to the corresponding
Interest Periods are not available to Bank in the offshore currency interbank
markets, or (ii) the LIBOR Rate does not accurately reflect the cost to Bank of
lending the LIBOR Rate Loan, then Bank shall promptly give notice thereof to
Borrower, and upon the giving of such notice Banks obligation to make the LIBOR
Rate Loans shall terminate, unless Bank and the Borrower agree in writing to a
different interest rate Loans shall terminate, unless Bank and the Borrower
agree in writing to a different interest rate applicable to LIBOR Rate Loans. If
it shall become unlawful for Bank to continue to fund or maintain any Loans, or
to perform its obligations hereunder, upon demand by Bank, Borrower shall prepay
the Loans 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(a) of this Supplement).

 

 

4.

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

EXHIBIT A TO LIBOR SUPPLEMENT

 

LIBOR RATE LOAN BORROWING CERTIFICATE

 

The undersigned hereby certifies as follows:

 

I,                                 , am the duly elected and acting
                                 of Palm, Inc. (“Borrower”).

 

This certificate is delivered pursuant to Section 2 of that certain LIBOR
Supplement to Agreement together with the Loan and Security Agreement by and
between Borrower and SILICON VALLEY BANK (“Bank) (the “Loan Agreement”). The
terms used in this Borrowing Certificate which are defined in the Loan Agreement
have the same meaning herein as ascribed to them therein .

 

Borrower hereby requests on                 , 200   a LIBOR Rate Loan (the
“Loan”) as follows:

 

(a) The date on which the Loan is to be made is                 , 200  .

 

(b) The amount of the Loan is to be                                 
($                    ) for an Interest Period of              month( s).

 

All representations and warranties of Borrower stated in the Loan Agreement are
true, correct and complete in all material respects as of the date of this
request for a loan; provided, however, that those representations and warranties
expressly referring to another date shall be true, correct and complete in all
material respects as of such date.

 

IN WITNESS WHEREOF, this Borrowing Base Certificate is executed by the
undersigned as of this          day of                 , 200  .

 

PALM, INC.

By:

 

 

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

Title:

 

 

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

 

For Internal Bank Use Only

 

LIBOR Pricing Date

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

  

I LIBOR Rate

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

  

I LIBOR Rate Variance

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

  

Maturity Date

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

              %     

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

EXHIBIT B TO LIBOR SUPPLEMENT

 

LIBOR RATE CONVERSION/CONTINUATlON CERTIFICATE

 

The undersigned hereby certifies as follows:

 

1,                                 , am the duly elected and acting
                                 of Palm, Inc. (“Borrower”).

 

This certificate is delivered pursuant to Section 2 of that certain LIBOR
Supplement to Agreement together with the Loan and Security Agreement by and
between Borrower and SILICON VALLEY BANK (“Bank”) (the “Loan Agreement”). The
terms used in this LIBOR Rate Conversion/Continuation Certificate which are
defined in the Loan Agreement have the same meaning herein as ascribed to them
therein.

 

Borrower hereby requests on                 , 200   a LIBOR Rate Loan (the
“Loan”) as follows:

 

(a)

            (i)    A rate conversion of an existing Prime Rate Loan from a Prime
Rate Loan to a LIBOR Rate Loan; or               (ii)    A continuation of an
existing LIBOR Rate Loan as a LIBOR Rate Loan;           [Check (i) or (ii)
above]

 

(b) The date on which the Loan is to be made is                 , 200  .

 

(c) The amount of the Loan is to be                     ($                ), for
an Interest Period of              month(s).

 

All representations and warranties of Borrower stated in the Loan Agreement are
true, correct and complete in all material respects as of the date of this
request for a loan; provided, however, that those representations and warranties
expressly referring to another date shall be true, correct and complete in all
material respects as of such date.

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

IN WITNESS WHEREOF, this LIBOR Rate Conversion/Continuation Certificate is
executed by the undersigned as of this      day of                 , 200  .

 

PALM, INC.

By:

 

 

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

Title:

 

 

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

 

For Internal Bank Use Only

 

LIBOR Pricing Date

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

  

I LIBOR Rate

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

  

I LIBOR Rate Variance

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

  

Maturity Date

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

              %     

 

 

2.

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

SCHEDULE OF EXCEPTIONS

 

Deposit Accounts (Section 5.2)

 

See attached.

 

Transfers (Section 7.1)

 

None

 

Affiliate Transactions (Section 7.7)

 

See attached.

 

Litigation (Section 5.3)

 

See attached.

 

Permitted Indebtedness (Section 13)

 

See attached.

 

Permitted Investments (Section 13)

 

See attached.

 

Permitted Liens (Section 13)

 

See attached.

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

EXHIBIT A

 

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

 

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

 

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

 

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

 

All now existing and hereafter arising rights to payment of any kind, including
accounts, commercial tort claims (including any claim arising under Palm, Inc.
v. Allianz Insurance Co., et al, Case No. 1-03-CV815620), contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, insurance (including refund) claims and proceeds,
guaranties, and other security therefor, as well as all merchandise returned to
or reclaimed by Borrower;

 

All documents (including warehouse receipts), cash, cash equivalents, deposit
accounts, securities, securities entitlements, securities accounts (including
health care insurance receivables and credit card receivables), investment
property, financial assets, letters of credit, letter of credit rights (whether
or not evidenced by a writing), certificates of deposit, instruments, chattel
paper and electronic chattel paper rights now owned or hereafter acquired and
Borrower’s Books relating to the foregoing;

 

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

 

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

 

2.

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

Notwithstanding the foregoing, the Collateral shall not include (i) real
property of Borrower located at 101 Holger Way, San Jose, California, (ii)
license or any rights to the extent that (a) the grant of a security interest
therein would be contrary to applicable law, or (b) such license or contract
prohibits the grant of a security interest therein (but only to the extent such
prohibition is enforceable under applicable law), (iii) the shares of capital
stock of any Foreign Subsidiary other than [**] (iv) the shares of capital stock
of [**] other than [**] of the shares of [**] pledged pursuant to the terms of
the Charge on Shares between Bank and Borrower; (v) the shares of PalmSource,
Inc.; and (vi) any copyrights, copyright applications, copyright registration
and like protection in each work of authorship and derivative work thereof,
whether published or unpublished, now owned or hereafter acquired; any patents,
patent applications and like protections including without limitation
improvements, divisions, continuations, renewals, reissues, extensions and
continuations-in-part of the same, trademarks, servicemarks and applications
therefor, whether registered or not, and the goodwill of the business of
Borrower connected with and symbolized by such trademarks, any trade secret
rights, including any rights to unpatented inventions, know-how, operating
manuals, license rights and agreements and confidential information, now owned
or hereafter acquired; or any claims for damage by way of any past, present and
future infringement of any of the foregoing (collectively, the “Intellectual
Property”), except that the Collateral shall include the proceeds of all the
Intellectual Property that are accounts, (i.e. accounts receivable) of Borrower,
or general intangibles consisting of rights to payment, and, if a judicial
authority (including a U.S. Bankruptcy Court) holds that a security interest in
the underlying Intellectual Property is necessary to have a security interest in
such accounts and general intangibles of Borrower that are proceeds of the
Intellectual Property, then the Collateral shall automatically, and effective as
of the date hereof, include the Intellectual Property to the extent necessary to
permit perfection of Bank’s security interest in such accounts and general
intangibles of Borrower that are proceeds of the Intellectual Property.

 

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

 

3.

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

EXHIBIT B

 

PRIME RATE LOAN PAYMENT/ADVANCE REQUEST FORM

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

 

Fax To:                                          
Date:                            

 

Borrower: Palm, Inc.

 

¨ Loan Payment:

 

From Account #                                                               

  

To Account #                                                             

                                (Name and Deposit Account #)

  

                                         (Loan Account #)

Principal $                                        
                                         and/or Interest
$                                                                     

 

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

 

Authorized Signature:                                                    

            Phone Number:                                             

 

¨ LOAN ADVANCE:

 

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

 

From Account #                                                                  

            To Account #                                                     

                                (Loan Account #)

  

                                  (Name and Deposit Account #)

Amount of Advance $                                    

 

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

 

Authorized Signature:                                                    

            Phone Number:                                             

 

OUTGOING WIRE REQUEST

 

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

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

 

Beneficiary Name:                                                           

  

Amount of Wire: $                                                         

Beneficiary Bank:                                                            

  

Account Number:                                                          

City and State:                                                                 

    

Beneficiary Bank Transit (ABA) #:                             

  

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

     (For International Wire Only)

Intermediary Bank:                                                          

  

Transit (ABA) #:                                                            

For Further Credit to:                                       
                                        
                                        
                                          

Special Instruction:                                         
                                        
                                        
                                           

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

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

 

Authorized Signature:                                                      

  

2nd Signature (if required):                                         

Print Name/Title:                                                               

  

Print Name/Title:                                                           

Telephone #                                         
                            

  

Telephone #                                                                  

 

2.

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

EXHIBIT C

 

COMPLIANCE CERTIFICATE

 

TO:   SILICON VALLEY BANK

       3003 Tasman Drive

       Santa Clara, CA 95054

 

FROM:   PALM, INC.

       400 North McCarthy Blvd.

       Milpitas, CA 95035

 

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

 

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

 

Financial Covenant

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

   Required

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

   Actual

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

   Complies

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

    

Maintain on a Monthly Basis:

                        

Unrestricted Cash on deposit in the United States

   $100,000,000    $                    Yes    No     

Reporting Covenant

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

   Required

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

        Complies

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

    

Monthly financial statements, (if required)

   Monthly within 30 days    Yes    No    N/A

10K and 10Q reports

   Within 5 days of filing    Yes    No     

Compliance Certificate

   With monthly or SEC
reports, as applicable    Yes    No     

Annual Financial Projections

   Within 30 days after FYE
or when delivered to Board    Yes    No     

Cash Balance Report

   Monthly within 30 days    Yes    No     

 

[continued on following page]

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

Borrower only has deposit accounts located at the following
institutions:                                      
                                        
                                        
                                           .

 

Disclosures, if any, regarding validity or enforceability of Intellectual
Property:                                                         
                                        
                                        
                                             .

 

 

Sincerely,

  BANK USE ONLY    

 

Received by:                                             

PALM, INC.

 

                      AUTHORIZED SIGNER

__________________________________________

SIGNATURE

 

__________________________________________

TITLE

 

__________________________________________

Date

 

 

Date:                                                           

 

 

Verified:                                                      

 

                      AUTHORIZED SIGNER

 

 

Date:                                                           

 

 

Compliance Status:                Yes     No

 

2.