Document:

EXHIBIT 4(c)

                           FAUQUIER BANKSHARES, INC.

                      DIRECTOR DEFERRED COMPENSATION PLAN

                       (As Adopted Effective May 1, 1995)

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

                                                                            Page
                                   ARTICLE I

                              DEFINITION OF TERMS
                              -------------------

1.1     Administrator..................................................        1
1.2     Affiliate......................................................        1
1.3     Beneficiary....................................................        1
1.4     Benefits Committee.............................................        1
1.5     Board..........................................................        1
1.6     Code...........................................................        1
1.7     Compensation...................................................        1
1.8     Corporation....................................................        2
1.9     Deferral Account...............................................        2
1.10    Deferral Contributions.........................................        2
1.11    Effective Date.................................................        2
1.12    Eligible Director..............................................        2
1.13    Participant....................................................        2
1.14    Plan...........................................................        2
1.15    Plan Sponsor...................................................        2
1.16    Plan Year......................................................        2
1.17    Rate of Return.................................................        2
1.18    Stock..........................................................        2
1.19    Valuation Date.................................................        3
1.20    Value..........................................................        3

                                   ARTICLE II

                         ELIGIBILITY AND PARTICIPATION
                         -----------------------------

2.1     Eligibility and Notice.........................................        3
2.2     Election Required for Commencement of Active Participation.....        3
2.3     Deferred Compensation Election.................................        4
2.4     Termination of Active Participation............................        5
2.5     Length of Participation........................................        5

                                  ARTICLE III

                       DETERMINATION OF DEFERRAL ACCOUNTS
                       ----------------------------------

3.1     Deferral Account and Subaccounts...............................        5
3.2     Crediting of Deferral Contributions to Deferral Account........        6
3.3     Subtractions from Deferral Account.............................        6
3.4     Crediting of Deemed Earnings to Deferral Account...............        6
3.5     Equitable Adjustment in Case or Error or Omission..............        6
3.6     Statement of Benefits..........................................        6

                                       -i-
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                                   ARTICLE IV

                                    VESTING
                                    -------

4.1     Vesting........................................................        6

                                   ARTICLE V

                                 DEATH BENEFITS
                                 --------------

5.1     Death after Benefit Commencement...............................        7
5.2     Death before Benefit Commencement..............................        7
5.3     Beneficiary Designation........................................        7

                                   ARTICLE VI

                              PAYMENT OF BENEFITS
                              -------------------

6.1     Time and Form of Payment to a Participant......................        7
6.2     Time and Form of Payment to a Beneficiary......................        8
6.3     Lump Sum Payments and Periodic Installments....................        8
6.4     Benefit Determination and Payment Procedure....................        9
6.5     Payments to Minors and Incompetents............................        9
6.6     Distribution of Benefit When Distributee Cannot be Located.....        9

                                  ARTICLE VII

                                  WITHDRAWALS
                                  -----------

7.1     No Withdrawals Permitted.......................................        9

                                  ARTICLE VIII

                                    FUNDING
                                    -------

8.1     Funding........................................................        9
8.2     Use of Trust...................................................       10

                                   ARTICLE IX

                               PLAN ADMINISTRATOR
                               ------------------

9.1     Plan Administrator.............................................       10
9.2     Duties and Responsibilities of Plan Administrator..............       10
9.3     Power and Authority............................................       11
9.4     Availability of Records........................................       11

                                   ARTICLE X

                        AMENDMENT OR TERMINATION OF PLAN
                        --------------------------------

10.1    Amendment or Termination of the Plan...........................       11
10.2    Effect of Corporate Merger, Consolidation or Liquidation.......       11

                                      -ii-
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                                   ARTICLE XI

                                 MISCELLANEOUS
                                 -------------

11.1    Non-assignability..............................................       12
11.2    Right to Require Information and Reliance Thereon..............       12
11.3    Notices and Elections..........................................       12
11.4    Delegation of Authority........................................       12
11.5    Service of Process.............................................       12
11.6    Governing Law..................................................       12
11.7    Binding Effect.................................................       12
11.8    Severability...................................................       12
11.9    No Effect on Agreement.........................................       12
11.10   Gender and Number..............................................       12
11.11   Titles and Captions............................................       12

                                  ARTICLE XII

                       ADOPTION BY ADDITIONAL CORPORATIONS
                       -----------------------------------

12.1    Adoption by Additional Corporations............................       13
12.2    Termination Events with Respect to Corporations Other Than
          the Plan Sponsor.............................................       13

                                      -iii-
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         Pursuant to action taken by the Board of Directors of Fauquier
Bankshares, Inc., a Virginia corporation, and The Fauquier Bank, a Virginia
corporation, (hereinafter collectively or individually called the
"Corporation"), the Fauquier Bankshares, Inc. Director Deferred Compensation
Plan (hereinafter referred to as the "Plan") is hereby adopted as follows:

                                  WITNESSETH:
                                  -----------

         WHEREAS, the Corporation desire to adopt a plan for deferral of
directors compensation as hereinafter set forth;

         NOW, THEREFORE, in consideration of the premises and of the covenants
herein contained, this Plan is adopted to provide benefits, as herein set forth:

                                    ARTICLE I

                              DEFINITION OF TERMS
                              -------------------

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

         1.1 "ADMINISTRATOR": The Plan Administrator provided for in ARTICLE IX
hereof.

         1.2 "AFFILIATE": Any subsidiary, parent, affiliate, or other related
business entity to the Plan Sponsor, as determined by the Administrator.

         1.3 "BENEFICIARY": The person or persons designated by a Participant
or otherwise entitled pursuant to paragraph 5.3 to receive benefits under the
Plan attributable to such Participant after the death of such Participant.

         1.4 "BENEFITS COMMITTEE": The standing committee of the Board of
Directors of the Plan Sponsor having responsibility over the Plan; or if no such
committee is so serving at any time, the Board of the Plan Sponsor.

         1.5 "BOARD": The present and any succeeding Board of Directors of the
Plan Sponsor, unless such term is used with respect to a particular Corporation
and its Board of Directors, in which event it shall mean the present and any
succeeding Board of Directors of that Corporation.

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

         1.7 "COMPENSATION": A Participant's (i) retainers (referred to as
"Retainers") for Board or committee service and (ii) fees for Board or committee
meetings (referred to as "Meeting Fees") paid by the Corporation to an Eligible
Director, but excluding any such compensation deferred from a prior period, any
such compensation attributable to a period during which a Deferred Compensation
Election with respect thereto is not in effect, any expense reimbursement or
allowance, any such compensation not normally paid in cash to the Participant,
and any such compensation attributable to service on the board of directors of
any Affiliate which is not a participating Corporation.
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         1.8 "CORPORATION":

         1.8(a) Fauquier Bankshares, Inc., a Virginia corporation, The Fauquier
Bank, a Virginia corporation, and any other Affiliate which adopts the Plan as a
participating Corporation, including any successor to any such Corporation. A
register of all such Corporations which have adopted the Plan and who are at any
time participating in the Plan shall be maintained by the Administrator.

         1.8(b) Employment as a common law employee with an Affiliate shall be
considered employment as a common law employee with the Corporation for all
purposes of the Plan.

         1.8(c) Service as a director of an Affiliate shall not be considered
service as a director of the Corporation unless the Affiliate is a participating
Corporation.

         1.9 "DEFERRAL ACCOUNT": An unfunded, bookkeeping account maintained on
the books of the Corporation for a Participant which reflects his interest in
amounts attributable to his Deferral Contributions under the Plan.

                  (i) Separate subdivisions of the Deferral Account shall be
         maintained to reflect Deferral Contributions made pursuant to separate
         Deferred Compensation Elections.

                  (ii) Separate subaccounts of each Deferral Account shall be
         maintained to reflect a Participant's interest in the Cash Account and
         in the Share Account.

         1.10 "DEFERRAL CONTRIBUTIONS": That portion of a Participant's
Compensation which is deferred under the Plan.

         1.11 "EFFECTIVE DATE": The Effective Date of the Plan is May 1, 1995.

         1.12 "ELIGIBLE DIRECTOR": An individual who is a member of the Board of
Directors of the Corporation but who is not a common law employee of the
Corporation.

         1.13 "PARTICIPANT": An Eligible Director who elects to participate in
the Plan for so long as he is considered a Participant as provided in ARTICLE II
hereof; and further differentiated as follows:

                  (i) "Active Participant": A Participant who has an election to
         make Deferral Contributions to the Plan in effect at the time in
         question.

                  (ii) "Inactive Participant": A Participant who does not have
         an election to make Deferral Contributions to the Plan in effect at the
         time in question.

         1.14 "PLAN": This document, as contained herein or duly amended, which
shall be known as the "Fauquier Bankshares, Inc. Director Deferred Compensation
Plan".

         1.15 "PLAN SPONSOR": Fauquier Bankshares, Inc., a Virginia corporation,
or any successor thereto.

         1.16 "PLAN YEAR": The calendar year.

         1.17 "RATE OF RETURN": The annual rate equivalent to the highest
interest rate offered by The Fauquier Bank (or its successor) on any of its
deposits, determined at the end of each calendar quarter for the next calendar
quarter.

         1.18 "STOCK": The common stock of Fauquier Bankshares, Inc., a Virginia
corporation, or any successor thereto.

                                      -2-
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         1.19 "VALUATION DATE": The last day of each Plan Year and such other
dates, if any, as the Administrator may designate. In the event of a
Participant's death where all or one or more subdivisions of his Deferral
Account is to be paid pursuant to paragraph 5.2, the last day of the calendar
month in the Participant dies shall also be a Valuation Date for such benefit to
be paid pursuant to paragraph 5.2

         1.20 "VALUE":

         1.20(a) In the event there is a generally recognized market for Stock,
either (i) the average of the closing trading prices of Stock reported on a
national securities exchange which is registered under Section 6 of the
Securities Exchange Act of 1934 for the five (5) most recent days on which Stock
was traded during the last thirty (30) days ending on the determination date or
(ii) if Stock is not traded on a national securities exchange, the average of
the trading prices for the five (5) most recent trades in the over-the-counter
market during the last thirty (30) days ending on the determination date.

         1.20(b) In the event there is no generally recognized market for Stock
or trades are insufficient to establish the Value, the fair market value of
Stock as determined in good faith by the Board or Benefits Committee.

                                   ARTICLE II

                         ELIGIBILITY AND PARTICIPATION
                         -----------------------------

         2.1 ELIGIBILITY AND NOTICES.

         2.1(a) Each Eligible Director shall be eligible to participate in the
Plan by becoming an Active Participant as provided in paragraph 2.2.

         2.1(b) The Administrator shall give notice of eligibility to each
Eligible Director who is anticipated to be eligible to make Deferral
Contributions within a reasonable period of time prior to the Effective Date of
the Plan and thereafter prior to the beginning of each Plan Year or any
subsequent commencement of status as an Eligible Director.

         2.2 ELECTION REQUIRED FOR COMMENCEMENT OF ACTIVE PARTICIPATION.

         2.2(a) An Eligible Director may elect to become an Active Participant
by executing a Deferred Compensation Election (as provided in paragraph 2.3) and
timely filing it with the Administrator at such time as the Administrator may
require prior to the first day of the Plan Year for which it is to become
effective or, in the case of an Eligible Director's commencement of eligibility
to participate as provided in clause (ii) of subparagraph 2.2(b), within thirty
(30) days after he is first eligible to become an Active Participant.

         2.2(b) An Eligible Director shall become an Active Participant for a
Plan Year as of the beginning of a calendar month at any of the following times
for which he timely files a Deferred Compensation Election (as provided in
paragraph 2.3):

                  (i) On the first day of the Plan Year if he timely files his
         election therefor, or

                  (ii) In the case of his first becoming eligible for the Plan
         Year, on the first day of the calendar month after he timely files his
         election therefor.

If a Corporation institutes payment of a particular type of Compensation during
a Plan Year, the Administrator may permit elections to be made solely with
respect to such newly instituted type of Compensation as though the period for
which such type of Compensation is first offered is the date an Eligible
director is first eligible.

                                      -3-
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         2.3 DEFERRED COMPENSATION ELECTION

         2.3(a) Subject to the restrictions and conditions hereinafter provided,
an Eligible Director shall be entitled to elect to defer, as a Deferral
Contribution with respect to a Plan Year or other period of active
participation, an amount or percentage of his Compensation which is specified by
and in accordance with his direction in his Deferred Compensation Election for
such Plan Year or period. Any such election must be filed with the Administrator
at the time required under paragraph 2.2.

         2.3(b) Deferred Compensation Elections shall be subject to the
following rules:

                  (i) Active participation in the Plan is available on either an
         annual basis, which requires an annual election for active
         participation for each Plan Year, or a continuing basis, which permits
         an election for continuing active participation from year to year.

                  (ii) Where a Participant has made a Deferred Compensation
         Election for active participation on a continuing basis, the
         Participant may modify such election on a prospective basis as of the
         beginning of any Plan Year as though a new election were being made.
         Such modification may include, but is not limited to, a change in the
         dollar amount or percentage of his Compensation to be contributed as
         Deferral Contributions, a change in the payment time or form, and a
         change in the participation basis from participation on a continuing
         basis to participation on annual basis.

                  (iii) Each Deferred Compensation Election (whether made on an
         annual or continuing basis) must specify the following:

                           (A) The dollar amount or percentage of his
                  Compensation to be contributed as Deferral Contributions for
                  the applicable period;

                           (B) The Compensation from which the Deferral
                  Contribution shall be withheld;

                           (C) The Eligible Director's benefit commencement date
                  which date (I) shall be determined pursuant to subparagraph
                  6.1(b), (II) except where permitted by the Administrator,
                  shall be the same for the subdivision of his Deferral Account
                  attributable to the same Deferred Compensation Election, and
                  (III) shall be irrevocable;

                           (D) The form of payment of the Deferral Account to
                  the Participant which form (I) shall be determined pursuant to
                  subparagraph 6.1(b), (II) shall be the same for the
                  subdivision of his Deferral Account attributable to the same
                  Deferred Compensation Election, and (III) shall be
                  irrevocable;

                           (E) The Plan Year or period to which it related;

                           (F) The subaccount (that is, the Cash deferral
                  Account and/or the Share Account) in which the Deferral
                  Contribution will be considered invested; and

                           (G) Such other information as the Administrator may
                  require.

         2.3(c) Each Deferral Contribution is intended to be an elective
compensation reduction amount which shall be deducted from a Participant's
Compensation otherwise payable to him for a Plan Year by way of Retainers or
Meeting Fees. Unless otherwise approved by the Administrator:

                  (i) Deferral Contributions of Retainers shall be withheld on a
         pro rata basis if a percentage deferral is elected or on a first dollar
         basis from the Retainers before any part of the designated Retainers is
         paid to the Participant if a dollar amount deferral is elected; and

                                      -4-
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                  (ii) Deferral Contributions of Meeting Fees shall be withheld
         on a pro rata basis.

         2.4 TERMINATION OF ACTIVE PARTICIPATION. A Participant who is an Active
Participant for a Plan Year shall cease to be an Active Participant for the Plan
Year if and when he ceases to be an Eligible Director during the Plan Year or if
and when he files an election to cease being an Active Participant for the Plan
Year. If an Active Participant files an election to cease being an Active
Participant for a Plan Year, the election must be filed with the Administrator
prior to the first day of the calendar month it will become effective, and he
may not again become an Active Participant until a subsequent Plan Year.

         2.5 LENGTH OF PARTICIPATION. An Eligible Director who becomes a
Participant shall be or remain a Participant for so long as he is entitled to
future benefits under the terms of the Plan.

                                  ARTICLE III

                       DETERMINATION OF DEFERRAL ACCOUNTS
                       ----------------------------------

         3.1 DEFERRAL ACCOUNT AND SUBACCOUNTS.

         3.1(a) The Corporation shall establish and maintain on its books a
Deferral Account (and appropriate subdivisions thereof to reflect the amount
attributable to each Deferred Compensation Election) for each Participant to
reflect the Participant's benefits under the Plan.

         3.1(b) The balance in the Deferral Account of a Participant shall
consist of his Deferral Contributions made to the Plan pursuant to paragraph 2.3
and credited pursuant to paragraph 3.2, subtractions pursuant to paragraph 3.3,
and deemed earnings thereon determined pursuant to paragraph 3.4.

         3.1(c) Each Deferral Account shall be subdivided into a Cash Account
and a Share Account based on the Participant's Deferred Compensation Election.

                  (i) The Cash Account shall be considered invested in deposit
         instrument offered by The Fauquier Bank, which shall be maintained on a
         cash basis.

                  (ii) The Share Account shall be considered invested in Stock
         and which shall be maintained on a share basis. Under the share basis
         of accounting:

                           (A) Contributions and other amounts (including but
                  not limited to deemed dividends) credited to the subaccount
                  shall be converted to whole and fractional shares of Stock
                  based on the Value of a share of Stock on the day credited.
                  Notwithstanding the foregoing, if the Plan Sponsor maintains a
                  dividend reinvestment plan at any time, deemed dividends
                  credited to the subaccount shall be considered invested in
                  shares of Stock pursuant to the purchase price determination
                  under such plan.

                           (B) The value of the subaccount at any time is the
                  number of shares considered held in the account multiplied by
                  the Value of a share of Stock for the day in question.

                           (C) Fractional shares (calculated to the second,
                  third or fourth decimal place, as determined by the
                  Administrator) shall be maintained on such basis as the
                  Administrator determines from time to time.

                           (D) In the event of a Stock dividend or Stock split
                  or a change in the number of shares of Stock held by the Plan
                  as a result of a reorganization or other recapitalization of
                  the issuer of Stock, there shall be credited to each such
                  subaccount a proportionate number of full and fraction shares
                  of Stock which would have been received by the Plan if the
                  Stock considered held by the Plan were outstanding as a result
                  of such dividend, split or change based on the number of

                                      -5-
<PAGE>

                  shares and fractions thereof in such account as of the
                  Valuation Date (or such other date as the Administrator may
                  direct) coinciding with or next following the ex-dividend or
                  record date as applicable.

         3.1(d) As of any Valuation Date, a Participant (or if deceased, his
Beneficiary) may elect that all or any designated portion of the balance in his
Share Account be transferred to his Cash Account. Any such election shall be
made in writing and filed with the Administrator at least fifteen (15) days (or
shorter period as the Administrator may accept) prior to the Valuation Date as
of which the election is made.

         3.2 CREDITING OF DEFERRAL CONTRIBUTIONS TO DEFERRAL ACCOUNT. Deferral
Contributions made by a Participant shall be credited to his Deferral Account
and the applicable subaccount and subdivision thereof as of the date the
Compensation from which such contributions are deducted would otherwise have
been paid to him.

         3.3 SUBTRACTIONS FROM DEFERRAL ACCOUNT. All distributions shall be
subtracted from a Participant's Deferral Account and the applicable subaccount
and subdivision thereof when made.

         3.4 CREDITING OF DEEMED EARNINGS TO DEFERRAL ACCOUNT.

         3.4(a) As of each Valuation Date, there shall be credited to each
Participant's Deferral Account and the applicable subaccount and subdivision
thereof an amount representing deemed earnings on the balance of such account
or subdivision since the last Valuation Date.

         3.4(b) Such earnings shall be determined as follows:

                  (i) Such earnings for the Cash Account shall be based on the
         applicable Rate of Return for the period since the last Valuation Date
         applied to the average daily balance in the subaccount and applicable
         subdivision thereof for the valuation period or portion thereof ending
         on the Valuation Date.

                  (ii) Such earnings for the Share Account shall consist of
         dividends which would have been paid on the number of shares credited
         to such subaccounts on the applicable record date and changes in Value
         of the shares of Stock considered held in the subaccount since the last
         Valuation Date.

         3.4(c) Normally, deemed earnings shall not be credited to benefit
payments made since the last Valuation Date. Notwithstanding the foregoing, in
the event that any payment of benefits under the Plan is made more than one
month after the most recent Valuation Date for which such benefits are adjusted
for deemed earnings, such payment shall be increased by additional deemed
earnings for each complete calendar month that has elapsed between such
Valuation Date and the date as of which the payment is made. Such additional
deemed earnings shall be determined and credited on the basis of the Rate of
Return as of such Valuation Date and as of any intervening Valuation Dates.

         3.5 EQUITABLE ADJUSTMENT IN CASE OF ERROR OR OMISSION. Where an error
or omission is discovered in the Deferral Account of a Participant, the
Administrator shall be authorized to make such equitable adjustment as the
Administrator deems appropriate.

         3.6 STATEMENT OF BENEFITS. Within a reasonable time after the end of
each Plan Year and at the date a Participant's Deferral Account (or a
subdivision thereof) becomes payable under the Plan, the Administrator shall
provide to each Participant (or, if deceased, to his Beneficiary) a statement of
the Participant's Deferral Account balance (or applicable subaccount and
subdivision thereof) under the Plan.

                                   ARTICLE IV

                                    VESTING
                                    -------

         4.1 VESTING. A Participant's Deferral Account shall be fully vested and
non-forfeitable at all times.

                                      -6-
<PAGE>

                                   ARTICLE V

                                 DEATH BENEFITS
                                 --------------

        5.1 DEATH AFTER BENEFIT COMMENCEMENT. If a Participant dies after a
separately maintained subdivision of his Deferral Account has begun to be paid
to him, the benefits payable under the Plan after his death with respect to such
subdivision shall be the remainder of such subdivision, if any, payable as
provided under the form of payment being made to him at his death. Such benefits
shall be paid to his Beneficiary at the time and in the manner described in
ARTICLE VI.

         5.2 DEATH BEFORE BENEFIT COMMENCEMENT. If a Participant dies before a
separately maintained subdivision of his Deferral Account has begun to be paid
to him, the benefits payable under the Plan after his death with respect to such
subdivision shall be paid to his Beneficiary at the time and in the manner
described in ARTICLE VI.

        5.3 BENEFICIARY DESIGNATION

        5.3(a) Each Participant shall have the right to notify the Administrator
in writing of any designation of a Beneficiary to receive, if alive, benefits
under the Plan in the event of his death. Such designation may be changed from
time to time by notice in writing to the Administrator.

        5.3(b) If a Participant dies without having designated a Beneficiary, or
if the Beneficiary so designated has predeceased the Participant or, except when
his Beneficiary is his spouse, cannot be located by the Administrator within one
year after the date when the Administrator commenced making a reasonable effort
to locate such Beneficiary, then his surviving spouse, or if none, then the
executor or the administrator of his estate shall be deemed to be his
Beneficiary.

         5.3(c) Any Beneficiary designation may include multiple, contingent or
successive Beneficiaries and may specify the proportionate distribution to each
Beneficiary. If a Beneficiary shall survive the Participant, but shall die
before the entire benefit payable to such Beneficiary has been distributed, then
absent any other provision by the Participant, the unpaid amount of such benefit
shall be distributed to the estate of the deceased Beneficiary. If multiple
Beneficiaries are designated, absent provisions by the Participant, those named
or the survivors of them shall share equally any benefits payable under the
Plan. Any Beneficiary, including the Participant's spouse, shall be entitled to
disclaim any benefit otherwise payable to him under the Plan.

                                   ARTICLE VI

                              PAYMENT OF BENEFITS
                              -------------------

        6.1 TIME AND FORM OF PAYMENT TO A PARTICIPANT.

        6.1(a) Except as provided in subparagraph 6.1(c), the subdivision of a
Participant's Deferral Account attributable to his Deferral Contributions made
with respect to a Deferred Compensation Election shall be payable in cash to the
Participant, if then alive, at the time and in the form elected by the
Participant in his Deferred Compensation Election.

        6.1(b) The Participant shall have the following election choices for the
time, form and manner of payment for his Deferral Account. The choices apply
separately to each subdivision of his Deferral Account attributable to his
Deferral Contributions made with respect to a Deferred Compensation Election:

                (i) Time of Payment -

                           (A) At the January 15th of the calendar year
                  following the calendar year in which the Participant ceases to
                  be a member of the Board.

                                       -7-

<PAGE>
                           (B) At the January 15th of a calendar year specified
                  by the Participant.

                           (C) At the later of (A) or (B).

                           (D) At the earlier of (A) or (B).

                  (ii) Form of Payment -

                           (A) In a lump sum payment as provided in paragraph
                  6.3.

                           (B) In periodic installments as provided in paragraph
                  6.3.

                  (iii) Manner of Payment -

                           (A) Payments from the Cash Account shall be made in
                  cash.

                           (B) Payments from the Share Account shall be made in
                  whole and fractional shares of Stock or, if fractional shares
                  are not permitted to be issued, in whole shares of Stock and
                  cash in lieu of fractional shares. Notwithstanding the
                  foregoing, a participant (or if deceased, his Beneficiary),
                  may elect that all or any portion of a payment from Share
                  Account shall be made in cash at its Value on the day before
                  the date of payment. Any such election shall be made in
                  writing and filed with the Administrator at least fifteen (15)
                  days (or shorter period as the Administrator may accept) prior
                  to the date of payment.

         6.1(c) Notwithstanding the foregoing, payment of the Deferral Account
or a subdivision thereof may be delayed for a reasonable period in the event the
Participant cannot be located or is not competent to receive the benefit
payment, there is a dispute as to the proper recipient of such benefit payment,
additional time is needed to complete the Plan allocations, or additional time
is needed for other administrative reasons.

         6.2 TIME OF AND FORM PAYMENT TO A BENEFICIARY.

         6.2(a) Except as provided in subparagraph 6.2(c), each subdivision of
the Deferral Account with respect to a deceased Participant payable pursuant to
paragraph 5.1 shall continue to be paid in accordance with the form of payment
in effect at the Participant's death.

         6.2(b) Except as provided in subparagraph 6.2(c), each subdivision of
the Deferral Account with respect to a deceased Participant payable pursuant to
paragraph 5.2 shall become payable in cash to his Beneficiary in the form of a
lump sum payment as soon as possible after the calendar month in which the
Participant dies.

         6.2(c) Notwithstanding the foregoing, payment of the Deferral Account
or a subdivision thereof may be delayed for a reasonable period in the event the
recipient cannot be located or is not competent to receive the benefit payment,
there is a dispute as to the proper recipient of such benefit payment,
additional time is needed to complete the Plan allocations, or additional time
is needed for other administrative reasons.

         6.3 LUMP SUM PAYMENTS AND PERIODIC INSTALLMENTS.

         6.3(a) The term "lump sum payment" generally means a single payment of
the Deferral Account or applicable subaccount and subdivision thereof. The
amount of a lump sum payment shall be the balance in the Deferral Account or
applicable subaccount and subdivision thereof determined at the last Valuation
Date immediately preceding payment. In the event a Deferral Account or
subdivision thereof is to be paid in a lump sum payment and the amount thereof
has not been determined, the Administrator is authorized to make one or more
interim payments prior to the time the amount of such lump sum payment is
finally determined.

                                      -8-
<PAGE>
         6.3(b) Periodic installments shall be paid in 2,3, 4 or 5 annual
periodic installments. Under this form of payment, the Deferral Account or
applicable subaccount and subdivision thereof will be paid in annual
installments over the selected number of years, subject to the following rules:

                  (i) The amount of each installment shall equal the balance in
         the Deferral Account or applicable subaccount and subdivision thereof
         determined at the last Valuation Date immediately preceding each
         installment payment divided by the remaining number of payments to be
         made therefrom.

                  (ii) Until paid out, each subdivision of the Participant's
         Deferral Account remaining in the Plan shall continue to be adjusted
         for deemed earnings thereon determined pursuant to paragraph 3.4.

                  (iii) If payment commences to the Participant, the balance of
         any periodic installments remaining at the Participant's death shall
         continue to his Beneficiary.

         6.4 BENEFIT DETERMINATION AND PAYMENT PROCEDURE. The Administrator
shall make all determinations concerning eligibility for benefits under the
Plan, the time or terms of payments, and the form or manner of payment to the
Participant or, in the event of the death of the Participant, the Participant's
Beneficiary. The Administrator shall promptly notify the Corporation of each
such determination that benefit payments are due and provide to the Corporation
all other information necessary to allow the Corporation to carry out said
determination, whereupon the Corporation shall pay such benefits in accordance
with the Administrator's determination.

         6.5 PAYMENTS TO MINORS AND INCOMPETENTS. If a Participant or
Beneficiary entitled to receive any benefits hereunder is a minor or is adjudged
to be legally incapable of giving valid receipt and discharge for such benefits,
or is deemed so by the Administrator, benefits will be paid to such person as
the Administrator designate for the benefit of such Participant or Beneficiary.
Such payments shall be considered a payment to such Participant or Beneficiary
and shall, to the extent made, be deemed a complete discharge of any liability
for such payments under the Plan.

         6.6 DISTRIBUTION OF BENEFIT WHEN DISTRIBUTEE CANNOT BE LOCATED. The
Administrator shall make all reasonable attempts to determine the identity
and/or whereabouts of a Participant or a Participant's Beneficiary entitled to
benefits under the Plan, including the mailing by certified mail of a notice to
the last known address shown on the Corporation's or the Administrator's
records. If the Administrator is unable to locate such a person entitled to
benefits hereunder, or if there has been no claim made for such benefits, the
Corporation shall continue to hold the benefit due such person, subject to any
applicable statute of escheats.

                                  ARTICLE VII

                                  WITHDRAWALS
                                  -----------

         7.1 NO WITHDRAWALS PERMITTED. No withdrawals or other distributions
shall be permitted from a Participant's Deferral Account except as provided in
ARTICLE VI.

                                  ARTICLE VII

                                    FUNDING
                                    -------

         8.1 Funding.

         8.1(a) The undertaking to pay benefits hereunder shall be an unfunded
obligation payable solely from the general assets of the Corporation and subject
to the claims of the Corporation's creditors. The Deferral Account shall be
maintained as a book reserve account solely for accounting purposes.

                                      -9-
<PAGE>

         8.1(b) Nothing contained in the Plan and no action taken pursuant to
the provisions of the Plan (including establishing a trust pursuant to paragraph
8.2) shall create or be construed to give any Participant or Beneficiary any
right, title or interest in any specific asset or assets of the Corporations or
the assets of any trust acquires a right to receive payments from the
Corporation under the Plan, such rights shall be no greater than the right of
any unsecured general creditor of the Corporation.

         8.1(c) Where more than one Corporation participates in the Plan, the
funding and payment provisions hereof shall apply separately to each such
Corporation, except that the Plan Sponsor shall guarantee payment of all
benefits due under the Plan.

         8.1(d) The Plan Sponsor may in its discretion make the payment of any
or all benefits under the Plan in lieu of payment by one or more Corporations.
Where the Plan Sponsor makes payments on behalf of other Corporations, the Plan
Sponsor may require contributions by participating Corporations to the Plan
Sponsor at such times (whether before, at or after the time of payment), in such
amounts and or such basis as it may from time to time determine in order to
defray the cost of benefits and administration of the Plan.

         8.2 USE OF TRUST

         8.2(a) Notwithstanding any provision herein to the contrary, the Plan
Sponsor may in its sore discretion establish and cause certain of assets to be
held pursuant to a trust agreement for the purpose of providing benefits under
the Plan.

         8.2(b) The Corporations shall pay over Deferral Contributions to the
trustee of any such trust agreement as and when directed by the Plan Sponsor.

         8.2(c) The Corporations acknowledge that any such trust agreement may
be established by the Plan Sponsor for the benefit of one or more of the
participating Corporations, that execution of the Plan or an adoption agreement
relating to the Plan by a participating Corporation automatically makes the
Corporation a participating Corporation for purposes of any such trust agreement
(if and to the extent so provided in the trust agreement), and that any such
trust agreement may be amended by appropriate action of the Plan Sponsor or the
Benefits Committee (without any action required by the other participating
Corporations).

         8.2(d) The trustee of any such trust shall promptly follow the
direction of the Administrator regarding any payments which are to be made from
the trust.

                                   ARTICLE IX

                               PLAN ADMINISTRATOR
                               ------------------

         9.1 PLAN ADMINISTRATOR. The person serving as Treasurer of the Plan
Sponsor from time to time shall serve as the Plan Administrator (the
"Administrator") for the purpose of carrying out the duties specifically imposed
on the Administrator by the Plan and the Code.

         9.2 DUTIES AND RESPONSIBILITIES OF PLAN ADMINSTRATOR. The Administrator
shall have the following duties and responsibilities under the Plan:

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

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

                                      -10-
<PAGE>

         9.2(c) The Administrator shall make any elections for the Plan required
to be made by it under the Plan and the Code.

         9.2(d) The Administrator is empowered to settle claims against the Plan
and to make such equitable adjustments in a Participant's or Beneficiary's
rights or entitlements under the Plan as it deems appropriate in the event an
error or omission is discovered or claimed in the operation or administration of
the Plan.

         9.2(e) The Administrator may construe the Plan, correct defects, supply
omissions or reconcile inconsistencies to the extent necessary to effectuate the
Plan, and such action shall be conclusive.

         9.3 POWER AND AUTHORITY. The Administrator is hereby vested with all
the power and authority necessary in order to carry out its duties and
responsibilities imposed hereunder in connection with the administration of the
Plan. For such purpose, the Administrator shall have the power to adopt rules
and regulations consistent with the terms of the Plan.

         9.4 AVAILABILITY OF RECORDS. The Corporation shall, at the request of
the Administrator, make available necessary records or other information which
they possess which may be required by the Administrator in order to carry out
its duties hereunder.

                                   ARTICLE X

                        AMENDMENT OR TERMINATION OF PLAN
                        --------------------------------

         10.1 AMENDMENT OR TERMINATION OF THE PLAN.

         10.1(a) The Plan may be amended in whole or in part from time to time
by the Board of the Plan Sponsor effective as of any date specified. Any such
amendment to the Plan shall be in writing. The Plan may be terminated at any
time by the Board of the Plan Sponsor. No amendment or termination shall operate
to decrease a Participant's Deferral Account balance determined as of the
earlier of the date on which the amendment or termination is approved by the
Board of the Plan Sponsor or the date on which an instrument of amendment or
termination is signed on behalf of the Board of the Plan Sponsor. Any such
action to amend or terminate the Plan shall be adopted pursuant to action by the
Board of the Plan Sponsor (including pursuant to any standing authorization for
any officer, director or committee to adopt amendments) taken in accordance with
its applicable procedures, including where applicable by majority vote or
consent in writing.

         10.1(b) In addition, and as an alternative, to amendment of the Plan by
action of the Board of the Plan Sponsor, but subject to the limitations on
amendment contained in subparagraph 10.1(a), the Board hereby delegates to the
Benefits Committee the right to amend the Plan in whole or in part to make any
technical modification, alteration or amendment which in the opinion of counsel
for the Plan Sponsor is required by law and is deemed advisable by the Benefits
Committee, and to make any other modification, alteration or amendment which
does not, in the Benefits Committee's view, materially increase costs of the
Plan to the Corporation.

         10.1(c) Termination of the Plan shall mean termination of active
participation by Participants, but shall not mean immediate payment of all
Deferral Accounts unless the Board of the Plan Sponsor or the Benefits Committee
so directs.

         10.2 EFFECT OF CORPORATE MERGER, CONSOLIDATION OR LIQUIDATION.
Notwithstanding any other provision of the Plan, the merger or liquidation of
any Corporation into any other Corporation or Affiliate or the consolidation of
two (2) or more of the Corporations and/or Affiliate shall not cause the Plan to
terminate with respect to the merging, liquidating or consolidating
Corporation(s), provided that the Plan has been adopted or is continued by and
has not terminated with respect to the surviving or continuing corporation.

                                      -11-

<PAGE>

                                   ARTICLE XI

                                 MISCELLANEOUS
                                 -------------

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

         11.2 RIGHT TO REQUIRE INFORMATION AND RELIANCE THEREON. The Corporation
and the Administrator shall have the right to require any Participant,
Beneficiary or other person receiving benefit payments to provide it with such
information, in writing, and in such form as it may deem necessary to the
administration of the Plan. The Administrator may rely on such information in
carrying out its duties hereunder. Any payment to or on behalf of a Participant
or Beneficiary in accordance with the provisions of the Plan in good faith
reliance upon any such written information provided by a Participant or any
other person to whom such payment is made shall be in full satisfaction of all
claims by such Participant and his Beneficiary; and any payment to or on behalf
of a Beneficiary in accordance with a provision of the Plan in good faith
reliance upon any such written information provided by such Beneficiary or any
other person to whom such payment is made shall be in full satisfaction of all
claims by such Beneficiary.

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

         11.4 DELEGATION OF AUTHORITY. Whenever the Corporation is permitted or
required to perform any act, such act may be performed by its President or Chief
Executive Officer or other person duly authorized by its President or Chief
Executive Officer, its Board or the Benefits Committee.

         11.5 SERVICE OF PROCESS. The Administrator shall be the agent for
service of process on the Plan.

         11.6 GOVERNING LAW. The Plan shall be construed, enforced and
administered in accordance with the laws of the State of Virginia.

         11.7 BINDING EFFECT. The Plan shall be binding upon and inure to the
benefit of the Corporation, its successors and assigns, and each Participant and
his heirs, executors, administrators and legal representatives.

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

         11.9 NO EFFECT ON AGREEMENT. The Plan shall not be considered or
construed to modify, amend or supersede any agreement between the Corporation
and the Participant relating to the Participant's services as a member of the
Board heretofore or hereafter entered into unless so specifically provided.

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

         11.11 TITLES AND CAPTIONS. Titles and captions and headings herein have
been inserted for convenience of reference only and are to be ignored in any
construction of the provision hereof.

                                      -12-

<PAGE>

                                   ARTICLE XII

                     PARTICIPATION BY ADDITIONAL CORPORATION
                     ---------------------------------------

         12.1 ADOPTION BY ADDITIONAL CORPORATION.

         12.1(a) Any Affiliate may adopt the Plan with the consent of the Board
of the Plan Sponsor and its Board.

         12.1(b) In addition, and as alternative to the consent, authorization
and approval by the Board required under subparagraph 12.1(a) with respect to
the adoption of the Plan by an Affiliate, the Board of the Plan Sponsor hereby
delegates to the Benefits Committee the authority to consent to, authorize and
approve any such adoption of the Plan.

         12.2 TERMINATION EVENTS WITH RESPECT TO CORPORATIONS OTHER THAN THE
PLAN SPONSOR. The Plan shall terminate with respect to any Corporation other
than the Plan Sponsor, and such Corporation shall automatically cease to be a
participating Corporation in the Plan, upon the happening of any of the
following events:

                  (i) Action by the Corporation's Board terminating its
         participation in the Plan and specifying the date of such termination.
         Notice of such termination shall be delivered to the Administrator and
         the Plan Sponsor.

                  (ii) The Corporation's ceasing to be an Affiliate.

                  (iii) Action by the Board of the Plan Sponsor or the Benefits
         Committee terminating the Corporation's participation in the Plan and
         specifying the date of such termination. Notice of such termination
         shall be delivered to the Administrator and the former participating
         Corporation.

Termination of the Plan with respect to any Corporation shall mean termination
of active participation of the Participants employed by such Corporation, but
shall not mean immediate payment of all Deferral Account balances with respect
to the Participants of such Corporation unless the Board of the Plan Sponsor or
the Benefits Committee so directs.

                                      -13-
<PAGE>

         IN WITNESS WHEREOF, each Corporation has caused the Plan to be signed
on its behalf by its duly authorized officer of the 27th day of April, 1995.

                                       FAUQUIER BANKSHARES, INC.

                                       By: /s/ Fran Stringfellow
                                           ----------------------------
                                       Its       Secretary
                                           ----------------------------

Attest:

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

Its --------------------------

                                       FAUQUIER BANKSHARES, INC.

                                       By: /s/ Fran Stringfellow
                                           ----------------------------
                                       Its       Secretary
                                           ----------------------------

Attest:

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

Its --------------------------

                                      -14-Credit Agreement with Silicon Valley Bank

  
 EXHIBIT 10.12 
  
 LOAN AND SECURITY AGREEMENT 
  
 by and between

  
 SILICON VALLEY BANK 
 3003 Tasman Drive 
 Santa Clara, CA 95054 
 Attn: Loan Services 
 Facsimile No.: (650) 320-0016 
  
 and 
  
 SABA SOFTWARE, INC. 
 2400 Bridge Parkway 
 Redwood Shores, CA 94065 
 Attn: Chief Financial Officer 
 Facsimile No.: (650) 581-2545 

 
 TOTAL CREDIT AMOUNT: $7,000,000 
  

  
 TABLE OF CONTENTS 
  
 
	  	  	  	  	 Page
 

	 1.
 	  	 ACCOUNTING AND OTHER TERMS
 	  	 1
 
	 
	 2.
 	  	 LOAN AND TERMS OF PAYMENT
 	  	 1
 
	 
	  	  	 2.1    Credit Extensions
 	  	 1
 
	  	  	 2.2    Interest Rate, Payments
 	  	 2
 
	  	  	 2.3    Fees
 	  	 4
 
	  	  	 2.4    Termination of Commitment
 	  	 4
 
	 
	 3.
 	  	 CONDITIONS OF LOANS
 	  	 4
 
	 
	  	  	 3.1    Conditions Precedent to Initial Credit Extension
 	  	 4
 
	  	  	 3.2    Conditions Precedent to all Credit Extensions
 	  	 4
 
	 
	 4.
 	  	 CREATION OF SECURITY INTEREST
 	  	 5
 
	 
	  	  	 4.1    Grant of Security Interest
 	  	 5
 
	 
	 5.
 	  	 REPRESENTATIONS AND WARRANTIES
 	  	 5
 
	 
	  	  	 5.1    Due Organization and Authorization
 	  	 5
 
	  	  	 5.2    Collateral
 	  	 5
 
	  	  	 5.3    Litigation
 	  	 5
 
	  	  	 5.4    No Material Adverse Change in Financial Statements
 	  	 5
 
	  	  	 5.5    Solvency
 	  	 6
 
	  	  	 5.6    Regulatory Compliance
 	  	 6
 
	  	  	 5.7    Subsidiaries
 	  	 6
 
	  	  	 5.8    Full Disclosure
 	  	 6
 
	 
	 6.
 	  	 AFFIRMATIVE COVENANTS
 	  	 6
 
	 
	  	  	 6.1    Government Compliance
 	  	 6
 
	  	  	 6.2    Financial Statements, Reports, Certificates
 	  	 7
 
	  	  	 6.3    Inventory; Returns
 	  	 7
 
	  	  	 6.4    Taxes
 	  	 7
 
	  	  	 6.5    Insurance
 	  	 7
 
	  	  	 6.6    Loss; Destruction; or Damage
 	  	 8
 
	  	  	 6.7    Borrower’s Deposit and Investment Accounts
 	  	 8
 
	  	  	 6.8    Financial Covenants
 	  	 8
 
	  	  	 6.9    Intellectual Property
 	  	 8
 
	  	  	 6.10  Control Agreements
 	  	 9
 
	  	  	 6.11  Further Assurances
 	  	 9
 
	 
	 7.
 	  	 NEGATIVE COVENANTS
 	  	 9
 
	 
	  	  	 7.1    Dispositions
 	  	 9
 
	  	  	 7.2    Changes in Business, Ownership, Management or Business Locations
 	  	 9
 
	  	  	 7.3    Mergers or Acquisitions
 	  	 9
 
	  	  	 7.4    Indebtedness
 	  	 9
 
	  	  	 7.5    Encumbrance
 	  	 9
 

 

 
	  	  	 7.6    Distributions; Investments
 	  	 10
 
	  	  	 7.7    Transactions with Affiliates
 	  	 10
 
	  	  	 7.8    Subordinated Debt
 	  	 10
 
	  	  	 7.9    Compliance
 	  	 10
 
	 
	 8.
 	  	 EVENTS OF DEFAULT
 	  	 10
 
	 
	  	  	 8.1    Payment Default
 	  	 10
 
	  	  	 8.2    Covenant Default
 	  	 10
 
	  	  	 8.3    Material Adverse Change
 	  	 11
 
	  	  	 8.4    Attachment
 	  	 11
 
	  	  	 8.5    Insolvency
 	  	 11
 
	  	  	 8.6    Other Agreements
 	  	 11
 
	  	  	 8.7    Judgments
 	  	 11
 
	  	  	 8.8    Misrepresentations
 	  	 11
 
	  	  	 8.9    Guaranty
 	  	 11
 
	  	  	 8.10  Delisting from NASDAQ®
 	  	 12
 
	 
	 9.
 	  	 BANK'S RIGHTS AND REMEDIES
 	  	 12
 
	 
	  	  	 9.1    Rights and Remedies
 	  	 12
 
	  	  	 9.2    Power of Attorney
 	  	 12
 
	  	  	 9.3    Accounts Collection
 	  	 13
 
	  	  	 9.4    Bank Expenses
 	  	 13
 
	  	  	 9.5    Bank's Liability for Collateral
 	  	 13
 
	  	  	 9.6    Remedies Cumulative
 	  	 13
 
	  	  	 9.7    Demand Waiver
 	  	 13
 
	 
	 10.
 	  	 NOTICES
 	  	 13
 
	 
	 11.
 	  	 CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER
 	  	 14
 
	 
	 12.
 	  	 GENERAL PROVISIONS
 	  	 14
 
	 
	  	  	 12.1  Successors and Assigns
 	  	 14
 
	  	  	 12.2  Indemnification
 	  	 14
 
	  	  	 12.3  Time of Essence
 	  	 14
 
	  	  	 12.4  Severability of Provision
 	  	 14
 
	  	  	 12.5  Amendments in Writing, Integration
 	  	 14
 
	  	  	 12.6  Counterparts
 	  	 14
 
	  	  	 12.7  Survival
 	  	 15
 
	  	  	 12.8  Confidentiality
 	  	 15
 
	  	  	 12.9  Attorneys’ Fees, Costs and Expenses
 	  	 15
 
	 
	 13.
 	  	 DEFINITIONS
 	  	 15
 
	 
	  	  	 13.1  Definitions
 	  	 15
 

 

  
 This LOAN AND SECURITY AGREEMENT dated August 30, 2002, between SILICON
VALLEY BANK (“Bank”), whose address is 3003 Tasman Drive, Santa Clara, California 95054 and SABA SOFTWARE, INC., a Delaware corporation (“Borrower”), whose address is 2400 Bridge Parkway, Redwood Shores, CA 94065 provides the
terms on which Bank will lend to Borrower and Borrower will repay Bank. The parties agree as follows: 
  
 1.    
ACCOUNTING AND OTHER TERMS. 
  
 Accounting terms not defined in this Agreement will be
construed following GAAP. Calculations and determinations must be made following GAAP. The term “financial statements” includes the notes and schedules. The terms “including” and “includes” always mean “including
(or includes) without limitation,” in this or any Loan Document. 
  
 2.    
LOAN AND TERMS OF PAYMENT 
  
 
2.1    Credit Extensions. 
  
 Borrower will pay Bank the unpaid
principal amount of all Credit Extensions and interest on the unpaid principal amount of the Credit Extensions. 
  
 2.1.1    Revolving Advances. 
  
 (a)  Bank will make Advances
not exceeding the lesser of (A) the Committed Revolving Line or (B) the Borrowing Base, minus (i) the amount of all outstanding Letters of Credit (including drawn but unreimbursed Letters of Credit), minus (ii) the FX Reserve. Amounts
borrowed under this Section may be repaid and reborrowed during the term of this Agreement. 
  
 (b)  To
obtain an Advance, Borrower must notify Bank by facsimile or telephone by 12:00 noon. Pacific time on the Business Day the Advance is to be made. Borrower must promptly confirm the notification by delivering to Bank the Payment/Advance Form attached
as Exhibit B. Bank will credit Advances to Borrower’s deposit account specified by Borrower. 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 in good faith is a Responsible Officer or designee. Borrower will indemnify Bank for any loss Bank suffers
due to such reliance. 
  
 (c)  The Committed Revolving Line terminates on the Revolving Maturity Date, when
all Advances are immediately payable. 
  
 2.1.2    Letters of Credit Sublimit.

  
 Bank will issue Letters of Credit (each a “Letter of Credit” and collectively, the “Letters of
Credit”) for Borrower’s account not exceeding (i) the lesser of the Committed Revolving Line or the Borrowing Base minus (ii) the outstanding principal balance of the Advances minus the FX Reserve; however, the face amount of outstanding
Letters of Credit (including drawn but unreimbursed Letters of Credit) may not exceed the Committed Revolving Line. Each Letter of Credit will have an expiry date of no later than 90 days after the Revolving Maturity Date, but Borrower’s
reimbursement obligation will be secured by cash on terms acceptable to Bank at any time after the Revolving Maturity Date if the term of this Agreement is not extended by Bank. Borrower agrees to execute any further documentation in connection with
the Letters of Credit as Bank may reasonably request. If there is any conflict between the terms of this Agreement and the terms of such documentation, the terms of this Agreement shall control. 

 
 1 

  
 2.1.3    Foreign Exchange Sublimit. 

 
 If there is availability under the Committed Revolving Line and the Borrowing Base, then Borrower may enter in foreign exchange
forward contracts with the Bank under which Borrower commits to purchase from or sell to Bank a set amount of foreign currency more than one business day after the contract date (the “FX Forward Contract”). Bank will subtract 10% of each
outstanding FX Forward Contract from the foreign exchange sublimit which is a maximum of the Committed Revolving Line (the “FX Reserve”). The total FX Forward Contracts at any one time may not exceed 10 times the amount of the FX Reserve.
Bank may terminate the FX Forward Contracts if an Event of Default occurs and is continuing. 
  
 2.1.4    Equipment Facility. 
  
 (a)  Subject to the
terms and conditions of this Agreement, Bank agrees to lend to Borrower, from time to time prior to the Commitment Termination Date, equipment advances (each an “Equipment Advance” and collectively the “Equipment Advances”) in an
aggregate amount not to exceed the Committed Equipment Line. When repaid, the Equipment Advances may not be re-borrowed. The proceeds of the Equipment Advances will be used solely to reimburse Borrower for the purchase of Eligible Equipment
purchased within 180 days of the Equipment Advance, provided, however, that used Eligible Equipment may only be financed with the first Equipment Advance. Bank’s obligation to lend hereunder shall terminate on the earlier of (i)
the occurrence and continuance of an Event of Default, or (ii) the Commitment Termination Date. 
  
 (b)  To
obtain an Equipment Advance, Borrower must notify Bank (the notice is irrevocable) by facsimile no later than 12:00 p.m. Pacific time 5 Business Day before the day on which the Equipment Advance is to be made. With respect to Equipment Advances that
are Option 1 Loans, the notice in the form of Exhibit B (Payment/Advance Form) must be signed by a Responsible Officer or designee and include a copy of the invoice(s) for the Equipment being financed. With respect to Equipment Advances that are
Option 2 Loans, Borrower will complete a Loan Supplement substantially in the form of Exhibit E on the Funding Date. 
  
 (c)  If Borrower satisfies the conditions of each Equipment Advance specified in this Section 2.1.5, Bank will disburse such Equipment Advance by internal transfer to Borrower’s deposit account with Bank. Each
Equipment Advance may not exceed (i) 100% of the Original Stated Cost for Equipment Advances for the financing of Eligible Equipment purchased within 90 days of the Equipment Advance and (ii) 75% of the Original Stated Cost for Equipment Advances
for the financing of Eligible Equipment purchased more than 90 days but less than 180 days before the relevant Equipment Advance. 
  
 (d)  Bank’s obligation to lend the undisbursed portion of the Committed Equipment Line will terminate if, in Bank’s sole discretion, there has been a material adverse change in the general affairs, management,
results of operation, condition (financial or otherwise) or the prospects of Borrower, whether or not arising from transactions in the ordinary course of business, or there has been any material adverse deviation by Borrower from the most recent
business plan of Borrower presented to and accepted by Bank prior to the execution of this Agreement. 
  
 2.1.5    Overadvances. 
  
 If Borrower’s Obligations under Section
2.1.1, 2.1.2, 2.1.3 exceed the lesser of either (i) the Committed Revolving Line or (ii) the Borrowing Base, Borrower must immediately pay Bank the excess. 
  
 
2.2    Interest Rate, Payments. 
  
 (a)  Revolving Advances Interest Rate.    Advances accrue interest on the outstanding principal balance at a per annum rate of 100 basis points (1%) above the Prime Rate, provided, however, that
if Borrower maintains 85% or more of its Investable Funds with Bank or one of Bank’s affiliates, Advances will then accrue interest on the outstanding principal balance at a per annum rate of 50 basis points (.50%) above the Prime Rate for so
long as Borrower maintains such level of deposits with Bank and/or one of its affiliates. After an Event of Default, Obligations accrue interest at 5 percent above the rate effective immediately before the Event of Default. The 

 
 2 

  
 interest rate increases or decreases when the Prime Rate changes. Interest is computed on a 360 day year
for the actual number of days elapsed. 
  
 (b)  Equipment Advances Interest
Rate.     Equipment Advances accrue interest on the outstanding principal balance at a per annum rate equal to (at Borrower’s option) the Option 1 Basic Rate or the Option 2 Basic Rate. After an Event of Default,
Obligations accrue interest at 5 percent above the rate effective immediately before the Event of Default. The interest rate on the Option 1 Loans increases or decreases when the Prime Rate changes. The interest rate on the Option 2 Loans will be
determined on the Funding Date and shall remain fixed for the life of such loan. Interest is computed on a 360 day year for the actual number of days elapsed. 
  
 (c)  Principal and Interest Payments On Payment Dates.     Borrower will pay interest due on Advances under the Committed Revolving Line on the first Business Day
of each month. For Equipment Advances bearing the Option 1 Basic Rate (the “Option 1 Loans”), Borrower will make 36 equal monthly installments of principal plus accrued interest for each Option 1 Loan, calculated by multiplying the Option
1 Basic Rate by the outstanding Loan Amount plus principal due as of such Payment Date. For Equipment Advances bearing the Option 2 Basic Rate (the “Option 2 Loans”), Borrower will make payments monthly of principal in advance and accrued
interest for each Option 2 Loan, calculated by multiplying the Loan Factor by the Loan Amount for such Equipment Advance as of such Payment Date (payments on the Option 1 Loans and the Option 2 Loans are collectively referred to herein as
“Scheduled Payments”). Scheduled Payments are due on the first Business Day of the month following the Funding Date (or commencing on the Funding Date if the Funding Date is the first Business Day of the month) with respect to such
Equipment Advance and continuing thereafter during the Equipment Loan Repayment Period on the first Business Day of each calendar month (each a “Payment Date”). All unpaid principal and accrued interest is due and payable in full on the
last Payment Date with respect to such Equipment Advance. Payments received after 12:00 noon Pacific time are considered received at the opening of business on the next Business Day. An Equipment Advance may only be prepaid in accordance with
Sections 2.2(e), 2.2 (f), 2.2 (g), and 2.2 (h). 
  
 (d)  Interim Payment.     In
addition to the Scheduled Payments, on the Funding Date for each Equipment Advance (unless the Funding Date is the first Business Day of the month) Borrower shall pay to Bank the projected interest to accrue from the Funding Date to the first
Payment Date, pursuant to paragraph “(b)” of this Section. 
  
 (e)  Prepayment Upon an Event
of Loss.     If any Financed Equipment is subject to an Event of Loss and Borrower is required to or elects to prepay the Equipment Advance with respect to such Financed Equipment pursuant to Section 6.6, then such Equipment
Advance shall be prepaid to the extent and in the manner provided in such section. 
  
 (f)  Mandatory
Prepayment Upon an Acceleration.     If the Equipment Advances and the Advances are accelerated following the occurrence of an Event of Default (other than following an Event of Loss), then Borrower will immediately pay to
Bank (i) all accrued and unpaid Scheduled Payments (including principal and interest) with respect to each Equipment Advance, (ii) all remaining Scheduled Payments (including principal and interest unpaid) in accordance with the terms of Section
2.2(g) and 2.2(h) below, (iii) all principal and accrued interest with respect to the Advances, and (iv) all other sums, if any, that shall have become due and payable with respect to any Equipment Advance or Advance. 
  
 (g)  Permitted Prepayment of Option 1 Loans.     Borrower shall have the option to prepay all or any
portion of the Option 1 Loans, advanced by Bank under this Agreement, without penalty or premium, provided no Event of Default has occurred and is continuing and Borrower (i) provides written notice to Bank of its election to prepay the Option 1
Loans at least thirty (30) days prior to such prepayment, and (ii) pays, on the date of the prepayment (A) all due but unpaid Scheduled Payments as of the date of prepayment (including principal and interest) with respect to each Option 1 Loan and
(B) all other sums, if any, that shall have become due and payable hereunder relating to such Option 1 Loans with respect to this Agreement. 
  
 (h)  Permitted Prepayment of Option 2 Loans.     Borrower shall have the option to prepay all, but not less than all, of the Option 2 Loans, advanced by Bank under
this Agreement, provided no Event of Default has occurred and is continuing and Borrower (i) provides written notice to Bank of its election to prepay the Option 2 Loans at least thirty (30) days prior to such prepayment, and (ii) pays, on the date
of the prepayment (A) all 

 
 3 

  
 outstanding principal with respect to all of the Option 2 Loans, (B) all unpaid accrued interest with
respect to all of the Option 2 Loans, and (C) all other sums, if any, that shall have become due and payable hereunder relating to such Option 2 Loans with respect to this Agreement. 
  
 2.2.1    Request to Bill or Debit Accounts. 
  
 Borrower shall have the option to request that Bank (x) bill Borrower for principal and interest payments or any amounts Borrower owes Bank when due, or (z) debit any of Borrower’s deposit
accounts including Account Number              for principal and interest payments or any amounts Borrower owes Bank when due. Bank will notify Borrower when it debits Borrower’s
accounts. These debits are not a set-off. 
  
 
2.3    Fees. 
  
 Borrower will pay: 
  
 (a)  Bank Expenses.    All Bank Expenses (including reasonable attorneys’ fees
and reasonable expenses) incurred through and after the date of this Agreement, are payable the earlier of: (x) within 10 days after written demand therefore, or (z) upon the first Credit Extension hereunder. 
  
 (b)  Loan Fee.    A committed revolving line fee in the amount of $15,000 and an
equipment facility fee in the amount of $10,000, each fee shall be fully earned and payable on the Closing Date. 
  
 (c)  Letters of Credit.    A non-refundable letter of credit fee equal to 1.50% of the face amount of such Letter of Credit, payable on the issuance date of such Letter of Credit and thereafter
annually in advance and fully earned upon payment. 
  
 
2.4    Termination of Commitment.    So long as there are no outstanding Advances, Letters of Credit, FX Forward Contracts, or Equipment Advances outstanding, Borrower may at
any time with 5 days written notice to Bank, terminate the Committed Revolving Line and the Committed Equipment Line. Upon Borrower’s payment in full of all Obligations then due and payable, this Agreement shall terminate; provided,
however, that payments relating to Obligations arising out of Equipment Advances shall be in accordance with the terms of Section 2.2(g) and 2.2(h). 
  
 
3.    CONDITIONS OF LOANS 
  
 

3.1    Conditions Precedent to Initial Credit Extension. 
  
 Bank’s obligation to make the initial Credit Extension is subject to the condition precedent that it receive the agreements, documents and fees it requires. 
  
 
3.2    Conditions Precedent to all Credit Extensions. 
  
 Bank’s obligations to make each Credit Extension, including the initial Credit Extension, is subject to the following: 
  
 (a)  timely receipt of any Payment/Advance Form; 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 Credit Extension and no Event of Default may have occurred and be
continuing, or result from the Credit Extension. Each Credit Extension is Borrower’s representation and warranty on that date that the representations and warranties of Section 5 remain true in all material respects. 

 
 4 

 
4.    CREATION OF SECURITY INTEREST 
  
 
4.1    Grant of Security Interest. 
  
 Borrower grants Bank a
continuing security interest in all presently existing and later acquired Collateral to secure all Obligations and performance of each of Borrower’s duties under the Loan Documents. Except for Permitted Liens, any security interest will be a
first priority security interest in the Collateral. If an Event of Default occurs and continues, Bank may place a “hold” on any deposit account pledged as Collateral. If this Agreement is terminated, Bank’s lien and security interest
in the Collateral will continue until Borrower fully satisfies its Obligations. 
  
 
5.    REPRESENTATIONS AND WARRANTIES 
  
 Borrower represents
and warrants as follows: 
  
 
5.1    Due Organization and Authorization. 
  
 Borrower and
each Subsidiary is duly existing and in good standing in its state of formation and qualified and licensed to do business in, and in good standing in, any state in which the conduct of its business or its ownership of property requires that it be
qualified, except where the failure to do so could not reasonably be expected to cause a Material Adverse Change. 
  
 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, free of Liens except Permitted Liens. The Accounts are bona fide and existing obligations created pursuant to a contract between the Borrower or a Subsidiary of Borrower and its customers. Accounts relating to services to be provided by
Borrower to an account debtor have been performed and provided to the account debtor or its agent, except for such Accounts that have been recognized as Deferred Revenue. Borrower has no notice of any actual or imminent Insolvency Proceeding of any
account debtor whose accounts are an Eligible Account in any Borrowing Base Certificate. All Inventory is in all material respects of good and marketable quality, free from material defects. Borrower is the sole owner of its Intellectual Property.
Except as disclosed in periodic reports filed with the Securities and Exchange Commission, no claim has been made that any part of the Intellectual Property violates the rights of any third party, except to the extent such claim could not reasonably
be expected to cause a Material Adverse Change. 
  
 
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 and its general counsel, threatened by or against Borrower or any Subsidiary in which a likely adverse decision could reasonably be expected to cause
a Material Adverse Change. 
  
 
5.4    No Material Adverse Change in Financial Statements. 
  
 All consolidated financial statements for Borrower, and any Subsidiary, delivered to Bank fairly present in all material respects Borrower’s consolidated financial condition and Borrower’s consolidated results of
operations. There has not been any material deterioration in Borrower’s consolidated financial condition since the date of the most recent financial statements submitted to Bank. 

 
 5 

 
5.5    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 of 1940, as amended. 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 Borrower’s knowledge, by previous Persons, in disposing,
producing, storing, treating, or transporting any hazardous substance other than legally. Borrower and each Subsidiary has timely filed all required tax returns and paid, or made adequate provision to pay, all material taxes, except those being
contested in good faith with adequate reserves under GAAP. Borrower and each Subsidiary has obtained all consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all government authorities that are
necessary to continue its business as currently conducted, except where the failure to do so could not reasonably be expected to cause a Material Adverse Change. 
  
 
5.7    Subsidiaries. 
  
 Borrower does not own any stock,
partnership interest or other equity securities except for the Permitted Investments listed on the Closing Date. 
  
 
5.8    Full Disclosure. 
  
 No written representation,
warranty or other statement of Borrower in any certificate or written statement given to Bank (taken together with all such written certificates and written statements to Bank) contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained in the certificates or statements not misleading. It being recognized by Bank that the projections and forecasts provided by Borrower in good faith and based upon reasonable assumptions are
not viewed as facts and that actual results during the period or periods covered by such projections and forecasts may differ from the projected and forecasted results. 
  
 
6.    AFFIRMATIVE COVENANTS 
  
 Borrower will do all of the
following: 
  
 
6.1    Government Compliance. 
  
 Borrower will maintain its
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 maintain each of its Subsidiaries’ legal existence, good standing in such Subsidiary’s jurisdiction of formation, and qualification in each jurisdiction, in each case, where the failure to do so 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 

  
 
6.2    Financial Statements, Reports, Certificates. 
  
 (a)  Borrower will deliver to Bank: (i) as soon as available, but no later than 30 days after the last day of each month, a company prepared consolidated balance sheet and income statement covering Borrower’s
consolidated operations during the period, in a form and certified by a Responsible Officer acceptable to Bank; (ii) as soon as available, but no later than 120 days after the last day of Borrower’s fiscal year, audited consolidated financial
statements prepared under GAAP, consistently applied, together with an unqualified opinion on the financial statements from an independent certified public accounting firm reasonably acceptable to Bank; (iii) within 5 days of filing, copies of all
statements, reports and notices made available to Borrower’s security holders or to any holders of Subordinated Debt and all reports on Form 10-K, 10-Q and 8-K filed with the Securities and Exchange Commission (other than those reports on Form
10-K, 10-Q or 8-K (relating to certification) that are otherwise publicly available through the Securities and Exchange Commission’s EDGAR system); (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 $500,000 or more; and (v) any other financial information Bank reasonably requests. 
  
 (b)  Within 20 days after the last day of each month until the Revolving Maturity Date, Borrower will deliver to Bank a Borrowing Base Certificate signed by a
Responsible Officer in the form of Exhibit C, with aged listings of accounts receivable, accounts payable and Deferred Revenue aging. 
  
 (c)  Within 30 days after the last day of each month, Borrower will deliver to Bank with the monthly financial statements a Compliance Certificate signed by a Responsible Officer in the form of Exhibit D.

  
 (d)  Until the Revolving Maturity Date, Bank has the right to audit Borrower’s Collateral at
Borrower’s expense, but the audits will be conducted no more often than once every six months unless an Event of Default has occurred and is continuing at such reasonable times during normal business hours and upon reasonable advance notice to
Borrower. 
  
 
6.3    Inventory; Returns. 
  
 Borrower will keep all
Inventory in good and marketable condition, free from material defects. Returns and allowances between Borrower and its account debtors will follow Borrower’s customary practices as they exist at execution of this Agreement. Borrower must
promptly notify Bank of all returns, recoveries, disputes and claims, that involve more than $500,000. 
  
 
6.4    Taxes. 
  
 Borrower will make, and cause each
Subsidiary to make, timely payment of all material federal, state, and local taxes or assessments (except those being contested in good faith with adequate reserves under GAAP) and will deliver to Bank, on demand, appropriate certificates attesting
to the payment. 
  
 
6.5    Insurance. 
  
 Borrower will keep its business and the
Collateral insured for risks and in amounts as customarily carried by Persons engaged in the same or similar business as Borrower and with financially sound and reputable insurance companies. 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 all policies will provide that the insurer must give Bank at least 20 days notice before canceling its policy. At
Bank’s request, Borrower will deliver certified copies of policies and evidence of all premium payments. Subject to Section 6.6 (a) below, so long as no Event of Default has occurred and is continuing, Borrower shall have the option of applying
the proceeds of any casualty policy to the replacement or repair of destroyed or damaged property; provided that, after the occurrence and during the continuance of an Event of Default, all proceeds payable under any such casualty policy shall, at
the option of Bank, be payable to Bank on account of the Obligations. 

 
 7 

  
 
6.6    Loss; Destruction; or Damage. 
  
 Borrower will bear
the risk of the Financed Equipment being lost, stolen, destroyed, or damaged. If during the term of this Agreement any item of Financed Equipment is lost, stolen, destroyed, damaged beyond repair, rendered permanently unfit for use, or seized by a
governmental authority for any reason for a period equal to at least the remainder of the term of this Agreement (an “Event of Loss”), then in each case, Borrower: 
  
 (a)  Prior to the occurrence of an Event of Default, at Borrower’s option, will (i) pay to Bank on account of the Obligations with respect to
each item of Financed Equipment subject to such Event of Loss all accrued interest to the date of the prepayment, plus all outstanding principal; or (ii) repair or replace any Financed Equipment subject to an Event of Loss provided the repaired or
replaced Financed Equipment is of equal or like value to the Financed Equipment subject to an Event of Loss and provided further that Bank has a first priority perfected security interest in such repaired or replaced Financed Equipment.

  
 (b)  During the continuance of an Event of Default, on or before the Payment Date after
such Event of Loss for each such item of Financed Equipment subject to such Event of Loss, Borrower will, at Bank’s option, pay to Bank an amount equal to the sum of: (i) all accrued and unpaid Scheduled Payments (with respect to such Equipment
Advance related to the Event of Loss) due prior to the next such Payment Date, (ii) all Regularly Scheduled Payments (including principal and interest), plus (iii) all other sums (other than remaining Scheduled Payments), if any, that shall have
become due and payable with respect to such Equipment Advance, including interest at the Default Rate with respect to any past due amounts. 
  
 (c)  On the date of receipt by Bank of the amount specified above with respect to each such item of Financed Equipment subject to an Event of Loss, this Agreement shall terminate as to such
Financed Equipment. If any proceeds of insurance or awards received from governmental authorities are in excess of the amount owed under this Section 6.6, Bank shall promptly remit to Borrower the amount in excess of the amount owed to Bank.

  
 
6.7    Borrower’s Deposit and Investment Accounts. 
  
 Borrower will also maintain no less than 50% of its Investable Funds at Bank or one of Bank’s affiliates. 
  
 
6.8    Financial Covenants. 
  
 Borrower will maintain as of
the last day of each month: 
  
 (i)  Quick Ratio
(Adjusted).    A ratio of Quick Assets to Current Liabilities minus Deferred Revenue of at least 2.50 to 1.00, provided that this financial covenant will only be applicable in the event that the Committed Revolving Line is
not renewed or is cancelled, or has matured. 
  
 (ii)  Tangible Net
Worth.    A Tangible Net Worth of at least $14,000,000. 
  
 (iii)  Liquidity Coverage.    A ratio of unrestricted cash (and equivalents) plus Eligible Accounts set forth on line 16 of the Borrowing Base Certificate minus $6,000,000 divided by total
outstandings debt owing to Bank of not less than 2.50 to 1.00. 
  
 
6.9    Intellectual Property. 
  
 Borrower will as it deems
reasonably appropriate and consistent with past practice (i) protect, defend and maintain the validity and enforceability of its material Intellectual Property and (ii) not allow any Intellectual Property material to Borrower’s business to be
abandoned, forfeited or dedicated to the public without Bank’s written consent, which consent shall not be unreasonably withheld. 
  
 Borrower will promptly advise Bank in writing of any material infringements of Borrower’s Intellectual Property known by Borrower’s Responsible Officers or general counsel. 

 
 8 

  
 
6.10    Control Agreements. 
  
 With respect to deposit
accounts or investment accounts maintained at financial institutions other than Bank, within 7 days of the opening of any such deposit account or investment account, Borrower will execute and deliver to Bank, control agreements in form satisfactory
to Bank in order for Bank to perfect its security interest in Borrower’s deposit accounts or investment accounts. 
  
 
6.11    Further Assurances. 
  
 Borrower will execute any
further instruments and take further action as Bank reasonably requests to perfect or continue Bank’s security interest in the Collateral or to effect the purposes of this Agreement. 
  
 
7.    NEGATIVE COVENANTS 
  
 Borrower will not do any of the
following without Bank’s prior written consent, which will not be unreasonably withheld: 
  
 
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, other than Transfers (i) of Inventory in the ordinary course of business; (ii) of licenses and
similar arrangements for Intellectual Property of Borrower or its Subsidiaries in the ordinary course of business; (iii) of worn-out or obsolete Equipment other than Financed Equipment; (iv) subleases of real property; or (v) other Transfers not to
exceed $250,000 in the aggregate in any fiscal year. 
  
 
7.2    Changes in Business, Ownership, Management or Business Locations. 
  
 Engage in or permit any of its Subsidiaries to engage in any business other than the businesses currently engaged in by Borrower or reasonably related thereto or have a material change in its ownership (other than as permitted in
Section 7.3 or with respect to the sale of Borrower’s equity securities on a public market) of greater than 25%. Borrower will not, without at least 10 days prior written notice, relocate its chief executive office. 
  
 
7.3    Mergers or Acquisitions. 
  
 Without Bank’s
consent (which consent shall not be unreasonably withheld), merge or consolidate, or permit any of its Subsidiaries to merge or consolidate, with any other Person, or acquire, or permit any of its Subsidiaries to acquire, all or substantially all of
the capital stock or property of another Person, except where (i) no Event of Default has occurred and is continuing or would result from such action during the term of this Agreement and (ii) the value of such transaction would not exceed 25% of
Tangible Net Worth or the transaction is all stock and the total consideration does not exceed 33% of Borrowers total shares outstanding at time of transaction. A Subsidiary may merge or consolidate into another Subsidiary or into Borrower.

  
 
7.4    Indebtedness. 
  
 Create, incur, assume, or be liable
for any Indebtedness, or permit any Subsidiary to do so, other than Permitted Indebtedness. 
  
 
7.5    Encumbrance. 
  
 Create, incur, or allow any Lien on
any of its property, or assign or convey any right to receive income, including the sale of any Accounts, or permit any of its Subsidiaries to do so, except for Permitted Liens, or permit any Collateral not to be subject to the first priority
security interest granted here, subject to Permitted Liens. 

 
 9 

  
 
7.6    Distributions; Investments. 
  
 Except as set forth in
Section 7.3 and 7.4 above, directly or indirectly acquire or own any Person, or make any Investment in any Person, other than Permitted Investments, or permit any of its Subsidiaries to do so. Pay any dividends or make any distribution or payment or
redeem, retire or purchase any capital stock, except for repurchases of stock from consultants, former employees or directors of Borrower under the terms of applicable repurchase agreements in an aggregate amount not to exceed $500,000 in any fiscal
year, provided that no Event of Default has occurred, is continuing or would exist after giving effect to the repurchases. 
  
 
7.7    Transactions with Affiliates. 
  
 Directly or
indirectly enter into or permit any material transaction with any Affiliate except transactions that are in the ordinary course of Borrower’s business, on terms less favorable to Borrower than would be obtained in an arm’s length
transaction with a non-affiliated Person. 
  
 
7.8    Subordinated Debt. 
  
 Make or permit any payment on
any Subordinated Debt, except under the terms of the Subordinated Debt, or amend any provision in any document relating to the Subordinated Debt without Bank’s prior written consent. 
  
 
7.9    Compliance. 
  
 Become an “investment
company” or a company controlled by an “investment company,” under the Investment Company Act of 1940 or undertake as one of its important activities extending credit to purchase or carry margin stock, or use the proceeds of any
Credit Extension for that purpose; fail to meet the minimum funding requirements of ERISA, permit a Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the Federal Fair Labor Standards Act or violate any
other law or regulation, if the violation could reasonably be expected to have a material adverse effect on Borrower’s business or operations or would reasonably be expected to cause a Material Adverse Change, or permit any of its Subsidiaries
to do so. 
  
 
8.    EVENTS OF DEFAULT 
  
 Any one of the following is an
Event of Default: 
  
 
8.1    Payment Default. 
  
 If Borrower fails to pay any of
the Obligations within 3 days after their due date. During the additional period the failure to cure the default is not an Event of Default (but no Credit Extension will be made during the cure period); 
  
 
8.2    Covenant Default. 
  
 If Borrower does not perform any
obligation in Section 6 or violates any covenant in Section 7 or does not perform or observe any other material term, condition or covenant in this Agreement, any Loan Documents, or in any agreement between Borrower and Bank related thereto and as
to any default under an obligation, term, condition or covenant that can be cured, has not cured the default within 10 days after it occurs, or if the default cannot be cured within 10 days or cannot be cured after Borrower’s attempts within 10
day period, and the default may be cured within a reasonable time, then Borrower has an additional period (of not more than 30 days) to attempt to cure the default. During the additional time, the failure to cure the default is not an Event of
Default (but no Credit Extensions will be made during the cure period); 

 
 10 

  
 
8.3    Material Adverse Change. 
  
 If there (i) occurs a
material adverse change in the business operations, or condition (financial or otherwise) of the Borrower; or (ii) is a material impairment of the prospect of repayment of any portion of the Obligations; or (iii) is a material impairment of the
value or priority of Bank’s security interests in the Collateral. 
  
 
8.4    Attachment. 
  
 If any material portion of
Borrower’s assets is attached, seized, levied on, or comes into possession of a trustee or receiver and the attachment, seizure or levy is not removed in 10 days, or if Borrower is enjoined, restrained, or prevented by court order from
conducting a material part of its business or if a judgment or other claim becomes a Lien on a material portion of Borrower’s assets, or if a notice of lien, levy, or assessment is filed against any of Borrower’s assets by any government
agency and not paid within 10 days after Borrower receives notice. These are not Events of Default if stayed or if a bond is posted pending contest by Borrower (but no Credit Extensions will be made during the cure period); 
  
 
8.5    Insolvency. 
  
 If Borrower becomes insolvent or if
Borrower begins an Insolvency Proceeding or an Insolvency Proceeding is begun against Borrower and not dismissed or stayed within 30 days (but no Credit Extensions will be made before any Insolvency Proceeding is dismissed); 
  
 
8.6    Other Agreements. 
  
 If there is a default in any
agreement between Borrower and a third party that gives the third party the right to accelerate any Indebtedness exceeding $250,000 or that could cause a Material Adverse Change; 
  
 
8.7    Judgments. 
  
 If a money judgment(s) in the aggregate
of at least $500,000 is rendered against Borrower and is unsatisfied and unstayed for 10 days (but no Credit Extensions will be made before the judgment is stayed or satisfied); 
  
 
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. 

 
 11 

  
 
8.10    Delisting from NASDAQ®.    If Borrower is delisted from the NASDAQ®;
provided, however that a decline in Borrower’s NASDAQ® stock price shall not constitute an Event
of Default. 
  
 
9.    BANK’S RIGHTS AND REMEDIES 
  
 
9.1    Rights and Remedies. 
  
 When an Event of Default
occurs and continues Bank may, without notice or demand, do any or all of the following: 
  
 (a)  Declare all Obligations immediately due and payable (but if an Event of Default described in Section 8.5 occurs all Obligations are immediately due and payable without any action by Bank); 
  
 (b)  Stop advancing money or extending credit for Borrower’s benefit under this Agreement or under any
other agreement between Borrower and Bank; 
  
 (c)  Settle or adjust disputes and claims
directly with account debtors for amounts, on terms and in any order that Bank considers advisable; 
  
 (d)  Make any payments and do any acts it considers necessary or reasonable to protect its security interest in the Collateral. Borrower will assemble the Collateral if Bank requires and make it available as Bank
designates. Bank may enter premises where the Collateral is located, take and maintain possession of any part of the Collateral, and pay, purchase, contest, or compromise any Lien which appears to be prior or superior to its security interest and
pay all expenses incurred. Borrower grants Bank a license to enter and occupy any of its premises, without charge, to exercise any of Bank’s rights or remedies; 
  
 (e)  Apply to the Obligations any (i) balances and deposits of Borrower it holds, or (ii) any amount held by Bank owing to or for the credit or
the account of Borrower; 
  
 (f)  Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell the Collateral. Bank is granted a non-exclusive, royalty-free license or other right to use, without charge, Borrower’s labels, Patents, Copyrights, 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 then existing Collateral, in completing works in progress with respect to existing orders, advertising for sale, and selling any
Collateral and, in connection with Bank’s exercise of its rights under this Section, Borrower’s rights under all licenses and all franchise agreements inure to Bank’s benefit; and 
  

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

 
 12 

  
 
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. 
  
 So long as no Event of Default has
occurred and is continuing, if Borrower fails to pay any amount or furnish any required proof of payment to third persons, Bank may make all or part of the payment or obtain insurance policies required in Section 6.5, and take any action under the
policies, in each case, Bank deems prudent to protect the value or Bank’s security interests in the Collateral. If an Event of Default occurs and is continuing and if Borrower fails to pay any amount or furnish any required proof of payment to
third persons, Bank may make all or part of the payment or obtain insurance policies required in Section 6.5, and take any action under the policies Bank deems prudent. Any amounts paid by Bank to protect the value or Bank’s security interests
in the Collateral are Bank Expenses and immediately due and payable within 10 days of demand therefore, bearing interest at the then applicable rate for Advances and secured by the Collateral. Any other payments by Bank hereunder shall be paid by
Bank only after giving 2 days notice to Borrower and such payments shall be deemed Bank Expenses and immediately due and payable within 10 days of demand therefore, bearing interest at the then applicable rate for Advances and secured by the
Collateral. No payments by Bank are deemed an agreement to make similar payments in the future or Bank’s waiver of any Event of Default. 
  
 
9.5    Bank’s Liability for Collateral. 
  
 If Bank
complies with reasonable banking practices and Section 9-207 of the Code, it is not liable for: (a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral; (c) any diminution in the value of the Collateral; or (d) any act or
default of any carrier, warehouseman, bailee, or other person. Borrower bears all risk of loss, damage or destruction of the Collateral. 
  
 
9.6    Remedies Cumulative. 
  
 Bank’s rights and
remedies under this Agreement, the Loan Documents, and all other agreements where Bank is a party to such agreement are cumulative. Bank has all rights and remedies provided under the Code, by law, or in equity. Bank’s exercise of one right or
remedy is not an election, and Bank’s waiver of any Event of Default is not a continuing waiver. Bank’s delay is not a waiver, election, or acquiescence. No waiver is effective unless signed by Bank and then is only effective for the
specific instance and purpose for which it was given. 
  
 
9.7    Demand Waiver. 
  
 Except for sections in this
Agreement that provide for notice to Borrower, Borrower waives demand, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension, or renewal of
accounts, documents, instruments, chattel paper, and guarantees held by Bank on which Borrower is liable. 
  
 
10.    NOTICES 
  
 All notices or demands by any party about
this Agreement or any other related agreement must be in writing and be personally delivered or sent by an overnight delivery service, by certified mail, postage prepaid, return receipt requested, or by telefacsimile to the addresses set forth at
the beginning of this Agreement. A party may change its notice address by giving the other party written notice. 

 
 13 

  
 
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 THEREUNDER, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

  
 
12.    GENERAL PROVISIONS 
  
 
12.1    Successors and Assigns. 
  
 This Agreement binds and
is for the benefit of the successors and permitted assigns of each party. Borrower may not assign this Agreement or any rights 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 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, however, that Bank shall
notify Borrower promptly after any such sale, transfer or grant of participation. 
  
 
12.2    Indemnification. 
  
 Borrower will indemnify, defend
and hold harmless Bank and its officers, employees, and agents against: (a) all obligations, demands, claims, and liabilities asserted by any other party in connection with the transactions contemplated by the Loan Documents; and (b) all losses or
Bank Expenses incurred, or paid by Bank from, following, or consequential to transactions between Bank and Borrower (including reasonable attorneys fees and expenses in connection with the Loan Documents), except for losses caused by Bank’s
gross negligence or willful misconduct. 
  
 
12.3    Time of Essence. 
  
 Time is of the essence for the
performance of all obligations in this Agreement. 
  
 
12.4    Severability of Provision. 
  
 Each provision of this
Agreement is severable from every other provision in determining the enforceability of any provision. 
  
 
12.5    Amendments in Writing, Integration. 
  
 All amendments
to this Agreement must be in writing and signed by Borrower and Bank. This Agreement represents the entire agreement about this subject matter, and supersedes prior negotiations or agreements. All prior agreements, understandings, representations,
warranties, and negotiations between the parties about the subject matter of this Agreement merge into this Agreement and the Loan Documents. 
  
 
12.6    Counterparts. 
  
 This Agreement may be executed in
any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, are an original, and all taken together, constitute one Agreement. 

 
 14 

  
 
12.7    Survival. 
  
 All covenants, representations and
warranties made in this Agreement continue in full force while any Obligations remain outstanding. The obligations of Borrower in Section 12.2 to indemnify Bank will survive until all statutes of limitations for actions that may be brought against
Bank have run. 
  
 
12.8    Confidentiality. 
  
 In handling any confidential
information, Bank will exercise the same degree of care that it exercises for its own proprietary information, but disclosure of information may be made (i) to Bank’s subsidiaries or affiliates in connection with their business with Borrower,
(ii) to prospective transferees or purchasers of any interest in the loans, (iii) as required by law, regulation, subpoena, or other order, (iv) as required in connection with Bank’s examination or audit and (v) as Bank considers appropriate
exercising remedies under this Agreement. Confidential information does not include information that either: (a) is in the public domain or in Bank’s possession when disclosed to Bank, or becomes part of the public domain after disclosure to
Bank; or (b) is disclosed to Bank by a third party, if Bank does not know that the third party is prohibited from disclosing the information. 
  
 
12.9    Attorneys’ Fees, Costs and Expenses. 
  
 In any
action or proceeding between Borrower and Bank arising out of the Loan Documents, the prevailing party will be entitled to recover its reasonable attorneys’ fees and other reasonable costs and expenses incurred, in addition to any other relief
to which it may be entitled. 
  
 
13.    DEFINITIONS 
  
 
13.1    Definitions. 
  
 In this Agreement: 

 
 “Accounts” are all existing and later arising accounts, contract rights, and other obligations owed Borrower
in connection with its sale or lease of goods (including licensing software and other technology) or provision of services, all credit insurance, guaranties, other security and all merchandise returned or reclaimed by Borrower and Borrower’s
Books relating to any of the foregoing. 
  
 “Advance” or “Advances” is a loan
advance (or advances) under the Committed Revolving Line. 
  
 “Affiliate” of a Person is a Person
that owns or controls directly or indirectly the Person, any Person that controls or is controlled by or is under common control with the Person, and each of that Person’s senior executive officers, directors, partners and, for any Person that
is a limited liability company, that Person’s managers and members. 
  
 “Bank Expenses” are all
reasonable 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. 
  
 “Borrowing Base” is (i) 80% of Eligible Accounts as determined by Bank from Borrower’s most recent Borrowing Base
Certificate; provided, however, that Bank may lower the percentage of the Borrowing Base after performing an audit of Borrower’s Collateral. 
  
 “Business Day” is any day that is not a Saturday, Sunday or a day on which the Bank is closed. 

 
 15 

  
 “Closing Date” is the date of this Agreement. 

 
 “Code” is the California Uniform Commercial Code, as amended from time to time. 
  
 “Collateral” is the property described on Exhibit A. 
  
 “Commitment Termination Date” is May 30, 2003. 
  
 “Committed Equipment Line” is Bank’s commitment to make Equipment Advances of up to $1,000,000. 
  
 “Committed Revolving Line” is Bank’s commitment to made Advances of up to $6,000,000. 
  
 “Contingent Obligation” is, for any Person, any direct or indirect liability, contingent or not, of that Person for (i) any indebtedness, lease, dividend,
letter of credit or other obligation of another such as an obligation directly or indirectly guaranteed, endorsed, co-made, discounted or sold with recourse by that Person, or for which that Person is directly or indirectly liable; (ii) any
obligations for undrawn letters of credit for the account of that Person; and (iii) all obligations from any interest rate, currency or commodity swap agreement, interest rate cap or collar agreement, or other agreement or arrangement designated to
protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; but “Contingent Obligation” does not include endorsements in the ordinary course of business. The amount of a Contingent Obligation is the
stated or determined amount of the primary obligation for which the Contingent Obligation is made or, if not determinable, the maximum reasonably anticipated liability for it determined by the Person in good faith; but the amount may not exceed the
maximum of the obligations under the guarantee or other support arrangement. 
  
 “Copyrights” are
all copyright rights, applications or registrations and like protections in each work or authorship or derivative work, whether published or not (whether or not it is a trade secret) now or later existing, created, acquired or held. 

 
 “Credit Extension” is each Advance, Equipment Advance, Letter of Credit, FX Forward Contract, or any other
extension of credit by Bank for Borrower’s benefit. 
  
 “Current Assets” are amounts that under
GAAP should be included on that date as current assets on Borrower’s consolidated balance sheet. 
  
 “Current Liabilities” are the aggregate amount of Borrower’s Total Liabilities which mature within one (1) year plus all long-term portions of the aggregate amount of Equipment Advances. 
  
 “Deferred Revenue” is all amounts received in advance of performance and not yet recognized as revenue. 

 
 “Eligible Accounts” are Accounts in the ordinary course of Borrower’s business that meet all
Borrower’s representations and warranties in Section 5; but Bank may change eligibility standards by giving Borrower notice. Unless Bank agrees otherwise in writing, Eligible Accounts will not include: 
  
 (a)  Accounts that the account debtor has not paid within 90 days of invoice date; 
  
 (b)  Accounts for an account debtor, 50% or more of whose Accounts have not been paid within 90 days of invoice
date; 
  
 (c)  Credit balances over 90 days from invoice date; 
  
 (d)  Accounts for an account debtor, including Affiliates, whose total obligations to Borrower exceed 25% of all
Accounts, for the amounts that exceed that percentage, unless the Bank approves in writing; 
  
 (e)  Accounts for which the account debtor does not have its principal place of business in the United States except for Eligible Foreign Accounts; 

 
 16 

  
 (f)  Accounts for which the account debtor is a
federal, state or local government entity or any department, agency, or instrumentality; 
  
 (g)  Accounts for which Borrower owes the account debtor, but only up to the amount owed (sometimes called “contra” accounts, accounts payable, customer deposits or credit accounts); 
  
 (h)  Accounts for demonstration or promotional equipment, or in which goods are consigned, sales guaranteed,
sale or return, sale on approval, bill and hold, or other terms if account debtor’s payment may be conditional; 
  
 (i)  Accounts for which the account debtor is Borrower’s Affiliate, officer, employee, or agent; 
  
 (j)  Accounts for which Borrower has received payments in advance of performance, but only up the amount recognized as Deferred Revenue; 
  

(k)  Accounts in which the account debtor disputes liability or makes any claim and Bank believes there may be a basis for dispute (but only
up to the disputed or claimed amount), or if the Account Debtor is subject to an Insolvency Proceeding, or becomes insolvent, or goes out of business; and 
  
 (l)  Accounts for which Bank reasonably determines collection to be doubtful. 
  
 “Eligible Equipment” is new or used general purpose computer equipment, office equipment, test and laboratory equipment, furnishings, and, subject to the
limitations set forth below, Other Equipment that complies with all of Borrower’s representations and warranties to Bank and which is acceptable to Bank in all respects. 
  
 “Eligible Foreign Accounts” are Accounts for which the account debtor does not have its principal place of business in the United States but are approved
by Bank, in Bank’s sole discretion, on a case by case basis. 
  
 “Equipment” is all present and
future machinery, equipment, tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments in which Borrower has any interest. 
  
 “Equipment Advance” is defined in Section 2.1.5. 
  
 “Equipment Loan Repayment Period” is 36 months. 
  
 “ERISA” is the
Employment Retirement Income Security Act of 1974, and its regulations. 
  
 “Financed Equipment” is
any Equipment financed with an Equipment Advance. 
  
 “Funding Date” is any date on which an
Equipment Advance is made to or on account of Borrower. 
  
 “FX Forward Contract” is defined in
Section 2.1.3. 
  
 “FX Reserve” is defined in Section 2.1.3. 
  
 “GAAP” is generally accepted accounting principles. 
  
 “Guarantor” is any present or future guarantor of the Obligations. 
  
 “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. 

 
 17 

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

(a)  Copyrights, Trademarks, Patents, and Mask Works including amendments, renewals, extensions, and all licenses or other rights to use and
all license fees and royalties from the use; 
  
 (b)  Any trade secrets and any
intellectual property rights in computer software and computer software products now or later existing, created, acquired or held; 
  
 (c)  All design rights which may be available to Borrower now or later created, acquired or held; 
  
 (d)  Any claims for damages (past, present or future) for infringement of any of the rights above, with the right, but not the obligation, to sue
and collect damages for use or infringement of the intellectual property rights above; 
  
 All proceeds and products
of the foregoing, including all insurance, indemnity or warranty payments. 
  
 “Inventory” is
present and future inventory in which Borrower has any interest, including merchandise, raw materials, parts, supplies, packing and shipping materials, work in process and finished products intended for sale or lease or to be furnished under a
contract of service, of every kind and description now or later owned by or in the custody or possession, actual or constructive, of Borrower, including inventory temporarily out of its custody or possession or in transit and including returns on
any accounts or other proceeds (including insurance proceeds) from the sale or disposition of any of the foregoing and any documents of title. 
  
 “Investable Funds” is Borrower’s unrestricted cash and cash equivalents minus $3,000,000. 
  
 “Investment” is any beneficial ownership of (including stock, partnership interest or other securities) any Person, or any loan, advance or capital contribution to any Person.

  
 “Letter of Credit” is defined in Section 2.1.2. 
  
 “Lien” is a mortgage, lien, deed of trust, charge, pledge, security interest or other encumbrance. 

 
 “Loan Amount” is the aggregate amount of each Equipment Advance. 
  
 “Loan Factor” is the percentage which results from amortizing the Option 2 Loan over the Equipment Loan Repayment Period,
using the Option 2 Basic Rate as the interest rate as set forth in the applicable Loan Supplement. 
  
 “Loan
Documents” are, collectively, this Agreement, any note, or notes or guaranties executed by Borrower or Guarantor, and any other present or future agreement between Borrower and/or for the benefit of Bank in connection with this Agreement,
all as amended, extended or restated. 
  
 “Loan Supplement” is attached as Exhibit E. 

 
 “Mask Works” are all mask works or similar rights available for the protection of semiconductor chips, now
owned or later acquired. 
  
 “Material Adverse Change” is defined in Section 8.3. 

 
 18 

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

  
 “Obligations” are debts, principal, interest, Bank Expenses and other amounts Borrower owes Bank
now or later pursuant to the Loan Documents, including 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.

  
 “Option 1 Basic Rate” is, a rate of interest equal to the per annum rate of interest (based on a
year of 360 days) equal to the sum of (a) Prime Rate, plus (b) the Option 1 Loan Margin. 
  
 “Option 2 Basic
Rate” is, a rate of interest equal to the per annum rate of interest (based on a year of 360 days) equal to the sum of (a) the U.S. Treasury note yield to maturity for a term equal to the Treasury Note Maturity as quoted in The Wall Street
Journal as of the Funding Date, plus (b) the Option 2 Loan Margin. 
  
 “Option 1 Loan” is defined in
Section 2.2. 
  
 “Option 2 Loan” is defined in Section 2.2. 
  
 “Option 1 Loan Margin” is 125 basis points. 
  
 “Option 2 Loan Margin” is 325 basis points. 
  
 “Original Stated Cost” is (i), the original cost to the Borrower of the item of new Equipment net of any and all freight, installation, tax or (ii) the fair market value assigned to such item of used
Equipment by mutual agreement of Borrower and Bank at the time of making of the Equipment Advance. 
  
 “Other
Equipment” is leasehold improvements, intangible property such as computer software and software licenses, equipment specifically designed or manufactured for Borrower, other intangible property, limited use property and other similar
property and sales tax, freight, maintenance, and installation costs. Unless otherwise agreed to by Bank not more than 30% of the Equipment financed with the proceeds of each Equipment Advance shall consist of Other Equipment. 

 
 “Patents” are patents, patent applications and like protections, including improvements, divisions,
continuations, renewals, reissues, extensions and continuations-in-part of the same. 
  
 “Payment
Date” is defined in Section 2.2 (c). 
  
 “Permitted Indebtedness” is: 

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

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

 
 (c)  Subordinated Debt; 
  
 (d)  Indebtedness to trade creditors incurred in the ordinary course of business; 
  
 (e)  Indebtedness secured by Permitted Liens; and 
  
 (f)  Indebtedness to finance insurance premiums and to finance trade payables. 
  
 “Permitted Investments” are: 

 
 19 

  
 (a)  Investments shown on the Schedule and existing on
the Closing Date; 
  
 (b)  Investments in accordance with Borrower’s investment policy
furnished to Bank prior to the Closing Date; 
  
 (c)  Investments in Subsidiaries after the
Closing Date not to exceed $500,000 in the aggregate outstanding at any time; and 
  
 (d)  Other investments after the Closing Date not set forth in (a) through (c) above in the aggregate amount not to exceed $250,000 outstanding at any one time. 
  
 “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)  Carriers’, warehousemen’s and mechanics and other similar liens imposed by law arising in the ordinary course of business which are not delinquent or which are being contested
in good faith and by appropriate proceedings for which adequate reserves are being maintained; 
  
 (d)  Liens incurred or deposits made in the ordinary course of business in connection with workers’ compensation, unemployment insurance and other types of social security legislation and other Liens to secure the
performance and return of money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money) incurred in the ordinary course of business, whether pursuant to statutory requirements, common law or consensual
arrangements; 
  
 (e)  Purchase money Liens (i) on Equipment acquired or held by Borrower
or its Subsidiaries incurred for financing the acquisition of the Equipment, or (ii) existing on equipment when acquired, if the Lien is confined to the property and improvements and the proceeds of the equipment; 
  
 (f)  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; 
  
 (g)  Leases or subleases
granted in the ordinary course of Borrower’s business, including in connection with Borrower’s leased premises or leased property; and 
  
 (h)  Liens incurred in the extension, renewal or refinancing of the indebtedness secured by Liens described in (a), (b), and (e) above, but any extension, renewal or replacement Lien must be
limited to the property encumbered by the existing Lien and the principal amount of the indebtedness may not increase. 
  
 “Person” is any individual, sole proprietorship, partnership, limited liability company, joint venture, company association, trust, unincorporated organization, association, corporation, institution, public benefit
corporation, firm, joint stock company, estate, entity or government agency. 
  
 “Prime Rate” is
Bank’s most recently announced “prime rate,” even if it is not Bank’s lowest rate. 
  
 “Quick Assets” is, on any date, the Borrower’s consolidated, unrestricted cash, cash equivalents, 50% of net billed accounts receivable and investments with maturities of fewer than 12 months determined
according to GAAP. 

 
 20 

  
 “Responsible Officer” is each of the Chief Executive
Officer, the President, and the Chief Financial Officer of Borrower. 
  
 “Revolving Maturity Date”
is August 29, 2003. 
  
 “Schedule” is any attached schedule of exceptions. 
  
 “Scheduled Payments” is defined in Section 2.2 (c). 
  
 “Subordinated Debt” is debt incurred by Borrower subordinated to Borrower’s indebtedness owed to Bank and which is reflected in a written agreement in
a manner and form acceptable to Bank and approved by Bank in writing. 
  
 “Subsidiary” is for any
Person, or any other business entity of which more than 50% of the voting stock or other equity interests is owned or controlled, directly or indirectly, by the Person. 
  
 “Tangible Net Worth” is, on any date, the consolidated total assets of Borrower and its Subsidiaries minus, (i) any amounts attributable to (a)
goodwill, (b) intangible items such as unamortized debt discount and expense, Patents, trade and service marks and names, Copyrights and research and development expenses except prepaid expenses, and (c) reserves not already deducted from assets,
and (ii) Total Liabilities. 
  
 “Total Liabilities” is on any day, obligations that
should, under GAAP, be classified as liabilities on Borrower’s consolidated balance sheet, including all Indebtedness, and current portion Subordinated Debt allowed to be paid, but excluding all other Subordinated Debt. 
  
 “Trademarks” are trademark and servicemark rights, registered or not, applications to register and registrations and like
protections, and the entire goodwill of the business of Borrower connected with the trademarks. 
  
 “Treasury
Note Maturity” is 36 months. 
  
 BORROWER: 
  
 SABA SOFTWARE, INC. 
  
 
	 
	 By:
 	 	  
	 	
	

	 
	 Title:
 	 	  
	 	
	

 
  
 BANK: 
  
 SILICON VALLEY BANK 
  
 
	 
	 By:
 	 	  
	 	
	

	 
	 Title:
 	 	  
	 	
	

 
  

 
 21 

  
 EXHIBIT A 
  
 The Collateral consists of all of Borrower’s right, title and interest in and to the following whether owned now or hereafter arising and whether the Borrower has
rights now or hereafter has rights therein and wherever located: 
  
 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 (as such definitions may be amended from time to time according to the Code), now owned or
hereafter acquired, including, without limitation, leases, license agreements, franchise agreements, blueprints, drawings, purchase orders, customer lists, route lists, infringements, claims, computer programs, computer discs, computer tapes,
literature, reports, catalogs, design rights, income tax refunds, payments of insurance and rights to payment of any kind,; 
  
 All now existing and hereafter arising accounts, contract rights, royalties, license rights and all other forms of obligations owing to Borrower arising out of the sale or lease of goods, the licensing of technology or the rendering
of services by Borrower (as such definitions may be amended from time to time according to the Code) 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, cash, deposit
accounts, securities, securities entitlements, securities accounts, investment property, financial assets, letters of credit, letter of credit rights, certificates of deposit, instruments and chattel paper and electronic chattel paper now owned or
hereafter acquired and Borrower’s Books relating to the foregoing; 
  
 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. 
  
 The Collateral shall not be deemed to include any of the Intellectual Property of Borrower, including 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, 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 Closing Date, 

 
 22 

  
 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. 
  
 In
addition the Collateral shall not be deemed to include (i) any right, title, interest, claim or demand of Borrower in and to any agreement, document or instrument which relates to the foregoing Collateral to the extent such agreement, document or
instrument is not assignable or capable of being encumbered as a matter of law or under the terms of the agreement, document or instrument applicable thereto or such grant would result in a breach of the terms of such agreement, document or
instrument (but, in each case, solely to the extent that any such restriction shall be enforceable under applicable law) without the consent of the applicable party thereto, and, in each case, only to the extent that any such term would not be
rendered ineffective pursuant to Section 9406, 9407, 9408 or 9409 of the Uniform Commercial Code of any relevant jurisdiction. 
  
 In
connection with Borrower’s Intellectual Property, Borrower and Bank are parties to that certain Negative Pledge Agreement, dated as of August 30, 2002. 
  

 
 23 

  
 EXHIBIT B 
  
 LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM 
  
 DEADLINE FOR SAME DAY PROCESSING IS 12 NOON, P.S.T. 
  
 TO:  CENTRAL CLIENT SERVICE DIVISION 
 DATE:
                                        
         
  
 FAX#: (650) 320-0016 
 TIME:
                                        
         
  
 FROM:  SABA SOFTWARE,
INC.                                        
                                        
                                        
     
 CLIENT NAME (BORROWER) 
  
 REQUESTED BY:
                                        
                                        
                                        
                              
 AUTHORIZED SIGNER’S NAME 
  
 AUTHORIZED SIGNATURE:
                                        
                                        
                                        
           
  
 PHONE NUMBER:
                                        
                                        
                                        
                             
  
 FROM ACCOUNT #
                                 TO ACCOUNT #
                                        
                         
  
 
	 REQUESTED TRANSACTION TYPE
 	  	 REQUESTED DOLLAR AMOUNT
 
	 
	 PRINCIPAL INCREASE (REVOLVING ADVANCE)
 	  	 $                                     
                       
 
	 
	 PRINCIPAL PAYMENT (REVOLVING ADVANCE ONLY)
 	  	 $                                     
                       
 
	 
	 INTEREST PAYMENT—REVOLVING ADVANCES (ONLY)
 	  	 $                                     
                       
 
	 
	 PRINCIPAL AND INTEREST—REVOLVING LINE (PAYMENT)
 	  	 $                                     
                       
 
	 
	 PRINCIPAL INCREASE (OPTION 1 LOAN)
 	  	 $                                     
                       
 
	 
	 PRINCIPAL PAYMENT—OPTION 1 LOAN (ONLY)
 	  	 $                                     
                       
 
	 
	 INTEREST PAYMENT—OPTION 1 LOAN (ONLY)
 	  	 $                                     
                       
 
	 
	 PRINCIPAL AND INTEREST—OPTION 1 LOAN (PAYMENT)
 	  	 $                                     
                       
 

 
  
 OTHER INSTRUCTIONS:
                                        
                                        
                                        
                 
  
 All
Borrower’s representations and warranties in the Loan and Security Agreement are true, correct and complete in all material respects on the date of the telephone request for and Advance confirmed by this Borrowing Certificate; but those
representations and warranties expressly referring to another date shall be true, correct and complete in all material respects as of that date. 
  
 BANK USE ONLY 
  
 TELEPHONE REQUEST: 
  
 The following person is authorized to request the loan payment transfer/loan advance on the advance designated account and is known to me.

  
 
	 
	 	 

	 Authorized Requester
 	 	 Phone #
 
	 
	 
	 	 

	 Received By (Bank)
 	 	 Phone #
 
	  	 	  
	 
	  	 	 

	  	 	 Authorized Signature (Bank)
 

 

  
 EXHIBIT C 
 BORROWING BASE CERTIFICATE 
  
 
	 Borrower:
 	 	 SABA SOFTWARE, INC.
 	 	 Bank:
 	 	 Silicon Valley Bank
 
	
	
	
	
	
	
	

	  	 	 2400 Bridge Parkway Redwood Shores,
 California 94065
 	 	  	 	 3003 Tasman Drive
 Santa Clara, CA 95054
 
	 
	 Commitment Amount: $6,000,000
 	 	  	 	  
	
	
	
	
	

	 
	 ACCOUNTS RECEIVABLE
 	 	  	 	  
	 1.        Accounts Receivable Book Value as of
 	 	  	 	 $                
 
	 2.        Additions (please explain on reverse)
 	 	  	 	 $
 
	 3.        TOTAL ACCOUNTS RECEIVABLE
 	 	  	 	 $
 
	 
	 ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
 	 	  	 	  
	 4.        Amounts over 90 days due
 	 	 $
 	 	  
	 5.        Balance of 50% over 90 day accounts
 	 	 $
 	 	  
	 6.        Credit balances over 90 days
 	 	 $
 	 	  
	 7.        Concentration Limits*
 	 	 $
 	 	  
	 8.        Foreign Accounts**
 	 	 $
 	 	  
	 9.        Governmental Accounts
 	 	 $
 	 	  
	 10.      Contra Accounts
 	 	 $
 	 	  
	 11.      Deferred Revenue
 	 	 $
 	 	  
	 12.      Promotion or Demo Accounts
 	 	 $
 	 	  
	 13.      Intercompany/Employee Accounts
 	 	 $
 	 	  
	 14.      Other (please explain on reverse)
 	 	 $
 	 	  
	 15.      TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS

	 	  	 	 $
 
	 16.      Eligible Accounts (#3 minus #15)
 	 	 $
 	 	  
	 17.      LOAN VALUE OF ACCOUNTS (80% of #16)
 	 	  	 	 $
 
	 
	 FOREIGN ACCOUNTS RECEIVABLE DEDUCTIONS
 	 	  	 	  
	 18.      Accounts Receivable Book Value as of
 	 	 $
 	 	  
	 19.      Additions (please explain on reverse)
 	 	 $
 	 	  
	 20.      TOTAL FOREIGN ACCOUNTS RECEIVABLE
 	 	  	 	 $
 
	             a.        Amounts over 90 days due
 	 	  	 	  
	             b.        Balance of 50% over 90 day accounts
 	 	 $
 	 	  
	             c.        Concentration Limits
 	 	 $
 	 	  
	             d.        Governmental Accounts
 	 	 $
 	 	  
	             e.        Contra Accounts
 	 	 $
 	 	  
	             f.         Promotion or Demo Accounts
 	 	 $
 	 	  
	             g.        Intercompany/Employee Accounts
 	 	 $
 	 	  
	             h.        Other (please explain on reverse)
 	 	 $
 	 	  
	 21.      TOTAL FOREIGN ACCOUNTS RECEIVABLE
 	 	  	 	  
	            DEDUCTIONS (approved by Bank in its sole discretion)
 	 	 $
 	 	  
	 22.      Eligible Accounts (#20 minus #21)
 	 	 $
 	 	  
	 23.      LOAN VALUE OF FOREIGN ACCOUNTS (80% of #22)
 	 	 $
 	 	  

 

  
 
	 BALANCES
 	 	  	 	  	 	  
	 24.      Maximum Loan Amount
 	 	 $
 	 	  
	 25.      Total Funds Available [Lesser of #24 or (#17 plus #23)]
 	 	  	 	 $
 
	 26.      Present balance owing on Line of Credit
 	 	 $
 	 	  
	 27.      Outstanding under Sublimits (LC or FX)
 	 	 $
 	 	  
	            RESERVE POSITION (#25 minus #26 and
#27)
 	 	  	 	 $
 

 
  
 The undersigned represents and warrants that this is true, complete
and correct, and that the information in this Borrowing Base Certificate complies with the representations and warranties in the Loan and Security Agreement between the undersigned and Silicon Valley Bank. 
  
 COMMENTS: 
  
 
	 BANK USE ONLY
 
	 
	 Rec'd By
 	 	  
 

	  	 	 Auth. Signer
 
	 Date:
 	 	  
	 Verified:
 	 	  
 

	  	 	 Auth. Signer
 
	 Date:
 	 	  
 

 
  
  
 
	 
	 SABA SOFTWARE, INC.
 
	 
	 By:
 	 	  
 

	  	 	 Authorized Signer
 

 
  
  

 
 27 

 EXHIBIT D 
  
 COMPLIANCE CERTIFICATE 
  
 TO:         SILICON VALLEY BANK 
                3003 Tasman Drive 
                Santa Clara, CA 95054 
  
 FROM:  SABA SOFTWARE, INC. 
                2400 Bridge Parkway 
                Redwood Shores, CA 94065 
  
 The undersigned authorized officer of SABA SOFTWARE, 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 Officer certifies that these are prepared in accordance with Generally Accepted Accounting Principles (GAAP)
consistently applied from one period to the next except as explained in an accompanying letter or footnotes. The Officer acknowledges that no borrowings may be requested at any time or date of determination that Borrower is not in compliance with
any of the terms of the Agreement, and that compliance is determined not just at the date this certificate is delivered. 
  
 Please indicate compliance status by circling Yes/No under “Complies” column. 
  
 
	 Reporting Covenant
 
	  	 Required
 
	  	 Complies
 

	 Monthly financial statements + CC
 	  	 Monthly within 30 days
 	  	 Yes
 	  	 No
 
	 Annual (Audited)
 	  	 FYE within 120 days
 	  	 Yes
 	  	 No
 
	 8-K except with respect to certifications
 	  	 Within 5 days after filing with SEC
 	  	 Yes
 	  	 No
 
	 A/R & A/P Agings
 	  	 Monthly within 20 days
 	  	 Yes
 	  	 No
 
	 Borrowing Base Certificate
 	  	 Monthly within 20 days
 	  	 Yes
 	  	 No
 

 
  
 
	 Financial Covenant
 
	  	 Required
 
	  	 Actual
 
	  	 Complies
 

	 Maintain on a Monthly Basis:
 	  	  	  	  	  	  	  	  	  	  
	 Minimum Quick Ratio (Adjusted) only if the events described in Section 6.8(i) of the Agreement occur
 	  	  
 	 2.50:1.00
 	  	  
 	         :1.00
 	  	 Yes
 	  	 No
 
	 Minimum Tangible Net Worth
 	  	 $
 	 14,000,000
 	  	 $
 	                 
 	  	 Yes
 	  	 No
 
	 Minimum Liquidity Coverage
 	  	  
 	 2.50:1.00
 	  	  
 	         :1.00
 	  	 Yes
 	  	 No
 

 

  
 
	 Comments Regarding Exceptions: See Attached.
 	 	  	 	 BANK USE ONLY
 
	 
	 Sincerely,
 	 	  	 	 Received
by:                                       
                                      
 
 
	  	 	  	 	 Authorized Signer
 
	 
	 SABA SOFTWARE, INC.
 	 	  	 	 Date:                                    
                                        
                
 
	  	 	  	 	  
	 
	                                      
                                        
                          
 	 	  	 	 Verified:                                    
                                        
         
 
	 Signature
 	 	  	 	 Authorized Signer
 
	 
	                                      
                                        
                          
 	 	  	 	 Date:                                    
                                        
                
 
	 Title
 	 	  	 	  
	 
	                                      
                                        
                          
 	 	  	 	 Compliance
Status:                         Yes         No
 
	 Date
 	 	  	 	  

 
  
  

 
 29 

  
 EXHIBIT E 
 FORM OF LOAN AGREEMENT SUPPLEMENT 
  
 LOAN AGREEMENT SUPPLEMENT No. [    ]

  
 LOAN AGREEMENT SUPPLEMENT No. [_], dated
            , 200_ (“Supplement”), to the Loan and Security Agreement dated August 30, 2002 (the “Loan Agreement”) by and between the undersigned (“Borrower”),
and Silicon Valley Bank (“Bank”). 
  
 Capitalized terms used herein but not otherwise defined herein are
used with the respective meanings given to such terms in the Loan Agreement. 
  
 To secure the prompt payment by
Borrower of all amounts from time to time outstanding under the Loan Agreement, and the performance by Borrower of all the terms contained in the Loan Agreement, Borrower grants Bank, a first priority security interest in each item of equipment and
other property described in Annex A hereto, which equipment and other property shall be deemed to be additional Financed Equipment and Collateral. The Loan Agreement is hereby incorporated by reference herein and is hereby ratified, approved and
confirmed. 
  
 Annex A (Equipment Schedule) and Annex B (Loan Terms Schedule) are attached hereto. 

 
 The proceeds of the Loan should be transferred to Borrower’s account with Bank set forth below: 
  
 Bank Name:         Silicon Valley Bank 
 Account No.: 
  
 Borrower hereby certifies that (a) the foregoing
information is true and correct and authorizes Bank to endorse in its respective books and records, the Option 2 Basic Rate applicable to the Funding Date of the Option 2 Loan contemplated in this Loan Agreement Supplement and the principal amount
set forth in the Loan Terms Schedule; (b) the representations and warranties made by Borrower in the Loan Agreement are true and correct in all material respects on the date hereof and will be true and correct in all material respects on such
Funding Date. No Event of Default has occurred and is continuing under the Loan Agreement. This Supplement may be executed by Borrower and Bank in separate counterparts, each of which when so executed and delivered shall be an original, but all such
counterparts shall together constitute but one and the same instrument. 
  
 This Supplement is delivered as of this
day and year first above written. 
  
 
	 SILICON VALLEY BANK
 	 	  	 	 SABA SOFTWARE, INC.
 
	 
	 By:
 	 	 
	 	  	 	 By:
 	 	 

	 Name:
 	 	 
	 	  	 	 Name:
 	 	 

	 Title:
 	 	 
	 	  	 	 Title:
 	 	 

 
  
 Annex A—Description of Financed Equipment

 Annex B—Loan Terms Schedule 

 
 30 

  
 ANNEX A TO EXHIBIT E 
  
 The Financed Equipment being financed with the Equipment Advance which this Loan Agreement Supplement is being executed is listed below. Upon the funding of such Equipment
Advance, this schedule automatically shall be deemed to be a part of the Collateral. 
  
 
	 Description of Equipment
 
	  	 Make
 
	  	 Model
 
	  	 Serial #
 
	  	 Invoice #
 

 
  

 
 31 

  
 ANNEX B TO EXHIBIT E 
  
 LOAN TERMS SCHEDULE #             
  
 Loan Funding Date:
                        , 200   
 Original Loan Amount: $             
 Option 2 Basic
Rate:     % 
 Loan Factor:     % 
 Scheduled Payment Dates and Amounts*: 
  
 One (1) payment of
$                             due             

  
                              payment of
$                             due monthly in advance from
                             through
                            . 
  
 One (1) payment of
$                             due
                            . 
  
 Maturity Date:              
  
 
	 Payment No.
 
	    	 Payment Date
 

	 1
 	    	  
	 2
 	    	  
	 3
 	    	  
	 4
 	    	  
	 ...
 	    	  
	 35
 	    	  
	 [36]
 	    	  
	 ...
 	    	  

 

	*/
	 
	The amount of each Scheduled Payment will change as the Loan Amount changes. 
 

 
 32 

  
 CORPORATE BORROWING RESOLUTION 
  
 
	 Borrower:
 	 	 SABA SOFTWARE, INC.
 2400 Bridge Parkway
 Redwood Shores, CA 94065
 	 	 Bank:
 	 	 Silicon Valley Bank
 3003 Tasman Drive
 Santa Clara CA 95054-1191
 

 
  
 I, the Secretary or Assistant Secretary of SABA SOFTWARE, INC.
(“Borrower”), CERTIFY that Borrower is a corporation existing under the laws of the State of Delaware. 
  
 I certify that at a meeting of Borrower’s Directors (or by other authorized corporate action) duly held the following resolutions were adopted. 
  
 It is resolved that any one of the following officers of Borrower, whose name, title and signature is below: 
  

	 NAMES
 
	    	 POSITIONS
 
	    	 ACTUAL SIGNATURES
 

	 
	    	 
	    	 

	 
	    	 
	    	 

	 
	    	 
	    	 

 
  
 may act for Borrower and: 
  
 Borrow Money.    Borrow money from Silicon Valley Bank (“Bank”). 
  
 Execute Loan Documents.    Execute any loan documents Bank requires. 
  
 Grant Security.    Grant Bank a security interest in any of Borrower’s assets. 
  
 Negotiate Items.    Negotiate or discount all drafts, trade acceptances, promissory notes, or other
indebtedness in which Borrower has an interest and receive cash or otherwise use the proceeds. 
  
 Letters of
Credit.    Apply for letters of credit from Bank. 
  
 Foreign Exchange
Contracts.    Execute spot or forward foreign exchange contracts. 
  
 Further
Acts.    Designate other individuals to request advances, pay fees and costs and execute other documents or agreements (including documents or agreement that waive Borrowers right to a jury trial) they think necessary to
effectuate these Resolutions. 
  
 Further resolved that all acts authorized by these Resolutions and performed
before they were adopted are ratified. These Resolutions remain in effect and Bank may rely on them until Bank receives written notice of their revocation. 
  
 I certify that the persons listed above are Borrower’s officers with the titles and signatures shown following their names and that these resolutions have not been modified are currently
effective. 
  
 CERTIFIED TO AND ATTESTED BY: 
  
 X
                                        
                                        
                     
  
 *Secretary or Assistant Secretary 
  
 X
                                        
                                        
                     
  
 *NOTE: In
case the Secretary or other certifying officer is designated by the foregoing resolutions as one of the signing officers, this resolution should also be signed by a second Officer or Director of Borrower. 

 
 33

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