July 10, 1998

Network Appliance, Inc.
2770 San Tomas Expressway
Santa Clara, CA 95051

Gentlemen:

         This letter is to confirm that Wells Fargo Bank, National Association
("Bank"), subject to all terms and conditions contained herein, has agreed to
make available to Network Appliance, Inc. ("Borrower") a revolving line of
credit under which Bank will make advances to Borrower from time to time up to
and including July 10, 1999, not to exceed at any time the maximum principal
amount of Five Million Dollars ($5,000,000.00) ("Line of Credit"), the proceeds
of which shall be used to finance Borrower's working capital requirements.


I.       CREDIT TERMS:

         1.       LINE OF CREDIT:

         (a) Line of Credit Note. Borrower's obligation to repay advances under
the Line of Credit shall be evidenced by a promissory note substantially in the
form of Exhibit A attached hereto ("Line of Credit Note"), all terms of which
are incorporated herein by this reference.

         (b) Letter of Credit Subfeature. As a subfeature under the Line of
Credit, Bank agrees from time to time during the term thereof to issue standby
and/or sight commercial letters of credit for the account of Borrower to finance
(each, a "Letter of Credit" and collectively, "Letters of Credit"); provided
however, that the form and substance of each Letter of Credit shall be subject
to approval by Bank, in its sole discretion; and provided further, that the
aggregate undrawn amount of all outstanding Letters of Credit shall not at any
time exceed Five Million Dollars ($5,000,000.00). No Letter of Credit shall have
an expiration date more than ninety (90) days beyond the maturity date of the
Line of Credit. The undrawn amount of all Letters of Credit shall be reserved
under the Line of Credit and shall not be available for borrowings thereunder.
Each Letter of Credit shall be subject to the additional terms and conditions of
the 

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Letter of Credit Agreement and related documents, if any, required by Bank in
connection with the issuance thereof. Each draft paid by Bank under a Letter of
Credit shall be deemed an advance under the Line of Credit and shall be repaid
by Borrower in accordance with the terms and conditions of this letter
applicable to such advances; provided however, that if advances under the Line
of Credit are not available, for any reason, at the time any draft is paid by
Bank, then Borrower shall immediately pay to Bank the full amount of such draft,
together with interest thereon from the date such amount is paid by Bank to the
date such amount is fully repaid by Borrower, at the rate of interest applicable
to advances under the Line of Credit. In such event Borrower agrees that Bank,
in its sole discretion, may debit any demand deposit account maintained by
Borrower with Bank for the amount of any such draft.

         (c) Borrowing and Repayment. Borrower may from time to time during the
term of the Line of Credit borrow, partially or wholly repay its outstanding
borrowings, and reborrow, subject to all of the limitations, terms and
conditions contained herein or in the Line of Credit Note; provided however,
that the total outstanding borrowings under the Line of Credit shall not at any
time exceed the maximum principal amount available thereunder, as set forth
above.


II.      INTEREST/FEES:

         1.(a) Interest. The outstanding principal balance of the Line of Credit
shall bear interest at the rate of interest set forth in the Line of Credit
Note.

           (b) Computation and Payment. Interest shall be computed on the basis
of a 360-day year, actual days elapsed. Interest shall be payable at the times
and place set forth in the Line of Credit Note.

           (c) Unused Commitment Fee. Borrower shall pay to Bank a fee equal to
fifteen one-hundredths percent (0.15%) per annum (computed on the basis of a
360-day year, actual days elapsed) on the average daily unused amount of the
Line of Credit, which fee shall be calculated on a calendar quarter basis by
Bank and shall be due and payable by Borrower in arrears within ten (10) days
after each billing is sent by Bank.

           (d) Collection of Payments. Borrower authorizes Bank to collect all
interest and fees due under the Line of Credit by charging Borrower's demand
deposit account number 4311-790562 with Bank, or any other demand deposit
account maintained by 

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Page 3


Borrower with Bank, for the full amount thereof. Should there be insufficient
funds in any such demand deposit account to pay all such sums when due, the full
amount of such deficiency shall be immediately due and payable by Borrower.


III.  REPRESENTATIONS AND WARRANTIES:

         Borrower makes the following representations and warranties to Bank,
which representations and warranties shall survive the execution of this letter
and shall continue in full force and effect until the full and final payment,
and satisfaction and discharge, of all obligations of Borrower to Bank subject
to this letter.

         1. Legal Status. Borrower is a corporation, duly organized and existing
and in good standing under the laws of the state of California, and is qualified
or licensed to do business in all jurisdictions in which such qualification or
licensing is required or in which the failure to so qualify or to be so licensed
could have a material adverse effect on Borrower.

         2. Authorization and Validity. This letter, the Line of Credit Note,
and each other document, contract or instrument deemed necessary by Bank to
evidence any extension of credit to Borrower pursuant to the terms and
conditions hereof, or now or at any time hereafter required by or delivered to
Bank in connection with this letter (collectively, the "Loan Documents") have
been duly authorized, and upon their execution and delivery in accordance with
the provisions hereof will constitute legal, valid and binding agreements and
obligations of Borrower or the party which executes the same, enforceable in
accordance with their respective terms.

         3. No Violation. The execution, delivery and performance by Borrower of
each of the Loan Documents do not violate any provision of any law or
regulation, or contravene any provision of the Articles of Incorporation or
By-Laws of Borrower, or result in a breach of or constitute a default under any
contract, obligation, indenture or other instrument to which Borrower is a party
or by which Borrower may be bound.

         4. Litigation. There are no pending, or to the best of Borrower's
knowledge threatened, actions, claims, investigations, suits or proceedings by
or before any governmental authority, arbitrator, court or administrative agency
which could have a material adverse effect on the financial condition or
operation of Borrower other than those disclosed by Borrower to Bank in writing
prior to the date hereof.

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Page 4


         5. Correctness of Financial Statement. The financial statement of
Borrower dated January 23, 1998, a true copy of which has been delivered by
Borrower to Bank prior to the date hereof, (a) is complete and correct and
presents fairly the financial condition of Borrower, (b) discloses all
liabilities of Borrower that are required to be reflected or reserved against
under generally accepted accounting principles, whether liquidated or
unliquidated, fixed or contingent, and (c) has been prepared in accordance with
generally accepted accounting principles consistently applied. Since the date of
such financial statement there has been no material adverse change in the
financial condition of Borrower, nor has Borrower mortgaged, pledged, granted a
security interest in or otherwise encumbered any of its assets or properties
except in favor of Bank or as otherwise permitted by Bank in writing.

         6. Income Tax Returns. Borrower has no knowledge of any pending
assessments or adjustments of its income tax payable with respect to any year.

         7. No Subordination. There is no agreement, indenture, contract or
instrument to which Borrower is a party or by which Borrower may be bound that
requires the subordination in right of payment of any of Borrower's obligations
subject to this letter to any other obligation of Borrower.

         8. Permits, Franchises. Borrower possesses, and will hereafter possess,
all permits, consents, approvals, franchises and licenses required and all
rights to trademarks, trade names, patents and fictitious names, if any,
necessary to enable it to conduct the business in which it is now engaged in
compliance with applicable law.

         9. ERISA. Borrower is in compliance in all material respects with all
applicable provisions of the Employee Retirement Income Security Act of 1974, as
amended or recodified from time to time ("ERISA"); Borrower has not violated any
provision of any defined employee pension benefit plan (as defined in ERISA)
maintained or contributed to by Borrower (each, a "Plan"); no Reportable Event,
as defined in ERISA, has occurred and is continuing with respect to any Plan
initiated by Borrower; Borrower has met its minimum funding requirements under
ERISA with respect to each Plan; and each Plan will be able to fulfill its
benefit obligations as they come due in accordance with the Plan documents and
under generally accepted accounting principles.

         10. Other Obligations. Borrower is not in default on any obligation for
borrowed money, any purchase money obligation or 

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Page 5


any other material lease, commitment, contract, instrument or obligation.

         11. Environmental Matters. Except as disclosed by Borrower to Bank in
writing prior to the date hereof, Borrower is in compliance in all material
respects with all applicable federal or state environmental, hazardous waste,
health and safety statutes, and any rules or regulations adopted pursuant
thereto, which govern or affect any of Borrower's operations and/or properties,
including without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Superfund Amendments and
Reauthorization Act of 1986, the Federal Resource Conservation and Recovery Act
of 1976, and the Federal Toxic Substances Control Act, as any of the same may be
amended, modified or supplemented from time to time. None of the operations of
Borrower is the subject of any federal or state investigation evaluating whether
any remedial action involving a material expenditure is needed to respond to a
release of any toxic or hazardous waste or substance into the environment.
Borrower has no material contingent liability in connection with any release of
any toxic or hazardous waste or substance into the environment.


IV.       CONDITIONS:

         1. Conditions of Initial Extension of Credit. The obligation of Bank to
extend any credit contemplated by this letter is subject to fulfillment to
Bank's satisfaction of all of the following conditions:

         (a) Documentation. Bank shall have received each of the Loan Documents,
duly executed and in form and substance satisfactory to Bank.

         (b) Financial Condition. There shall have been no material adverse
change, as determined by Bank, in the financial condition or business of
Borrower, nor any material decline, as determined by Bank, in the market value
of any collateral required hereunder or a substantial or material portion of the
assets of Borrower.

         2. Conditions of Each Extension of Credit. The obligation of Bank to
make each extension of credit requested by Borrower hereunder shall be subject
to the fulfillment to Bank's satisfaction of each of the following conditions:

         (a) Compliance. The representations and warranties contained herein and
in each of the other Loan Documents shall be true on and as of the date of the
signing of this letter and on 

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July 10, 1998
Page 6


the date of each extension of credit by Bank pursuant hereto, with the same
effect as though such representations and warranties had been made on and as of
each such date, and on each such date, no default hereunder, and no condition,
event or act which with the giving of notice or the passage of time or both
would constitute such a default, shall have occurred and be continuing or shall
exist.

         (b) Documentation. Bank shall have received all additional documents
which may be required in connection with such extension of credit.


V.  COVENANTS:

         Borrower covenants that so long as Bank remains committed to extend
credit to Borrower pursuant hereto, or any liabilities (whether direct or
contingent, liquidated or unliquidated) of Borrower to Bank under any of the
Loan Documents remain outstanding, and until payment in full of all obligations
of Borrower subject hereto, Borrower shall, unless Bank otherwise consents in
writing:

         1. Punctual Payment. Punctually pay all principal, interest, fees or
other liabilities due under any of the Loan Documents at the times and place and
in the manner specified therein.

         2. Accounting Records. Maintain adequate books and records in
accordance with generally accepted accounting principles consistently applied,
and permit any representative of Bank, at any reasonable time, to inspect, audit
and examine such books and records, to make copies of the same, and inspect the
properties of Borrower.

         3. Financial Statements. Provide to Bank all of the following, in form
and detail satisfactory to Bank:

         (a) not later than 120 days after and as of the end of each fiscal
year, an audited financial statement of Borrower, prepared by a certified public
accountant acceptable to Bank, to include a balance sheet and income statement;

         (b) not later than 60 days after and as of the end of each fiscal
quarter, a unaudited financial statement of Borrower, prepared by Borrower, to
include a balance sheet and income statement;


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July 10, 1998
Page 7


         (c) from time to time such other information as Bank may reasonably
request.

         4. Compliance. Preserve and maintain all licenses, permits,
governmental approvals, rights, privileges and franchises necessary for the
conduct of its business; and comply with the provisions of all documents
pursuant to which Borrower is organized and/or which govern Borrower's continued
existence and with the requirements of all laws, rules, regulations and orders
of a governmental agency applicable to Borrower and/or its business.

         5. Insurance. Maintain and keep in force insurance of the types and in
amounts customarily carried in lines of business similar to that of Borrower,
including but not limited to fire, extended coverage, public liability, flood,
property damage and workers' compensation, with all such insurance carried with
companies and in amounts satisfactory to Bank, and deliver to Bank from time to
time at Bank's request schedules setting forth all insurance then in effect.

         6. Facilities. Keep all properties useful or necessary to Borrower's
business in good repair and condition, and from time to time make necessary
repairs, renewals and replacements thereto so that such properties shall be
fully and efficiently preserved and maintained.

         7. Taxes and Other Liabilities. Pay and discharge when due any and all
indebtedness, obligations, assessments and taxes, both real or personal,
including without limitation federal and state income taxes and state and local
property taxes and assessments, except (a) such as Borrower may in good faith
contest or as to which a bona fide dispute may arise, and (b) for which Borrower
has made provision, to Bank's satisfaction, for eventual payment thereof in the
event that Borrower is obligated to make such payment.


         8. Financial Condition. Maintain Borrower's financial condition as
follows using generally accepted accounting principles consistently applied and
used consistently with prior practices (except to the extent modified by the
definitions herein):

         (a) Tangible Net Worth not at any time less than $57,000,000.00, with
"Tangible Net Worth" defined as the aggregate of total stockholders' equity plus
subordinated debt less any intangible assets.

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July 10, 1998
Page 8

         (b) Total Liabilities divided by Tangible Net Worth not at any time
greater than 0.75 to 1.0, with "Total Liabilities" defined as the aggregate of
current liabilities and non-current liabilities less subordinated debt, and with
"Tangible Net Worth" as defined above.

         (c) Quick Ratio not at any time less than 1.5 to 1.0, with "Quick
Ratio" defined as the aggregate of unrestricted cash, unrestricted marketable
securities and receivables convertible into cash divided by total current
liabilities.

         (d) Net income after taxes not less than $1.00 on an annual basis,
determined as of each fiscal year end, and pre-tax profit not less than $1.00 on
a quarterly basis, determined as of each fiscal quarter end; irrespective of the
profitability requirement noted above, Borrower may post one quarterly pre-tax
loss per fiscal year as an exclusive result of acquisition related non-cash
write-offs and associated cash expenses (such as legal, accounting, or M&A
advising fees).

         9. Capital Expenditures. Not make any additional investment in fixed
assets in any fiscal year in excess of an aggregate of $20,000,000.00.

         10. Other Indebtedness. Not create, incur, assume or permit to exist
any indebtedness or liabilities resulting from borrowings, loans or advances,
whether secured or unsecured, matured or unmatured, liquidated or unliquidated,
joint or several, except (a) the liabilities of Borrower to Bank, and (b) any
other liabilities of Borrower existing as of, and disclosed to Bank prior to,
the date hereof, (c) to the extent not included in clause (b), indebtedness
incurred in the ordinary course of business for the purpose of purchasing
inventory, equipment and/or real estate not to exceed $10,000,000.00 outstanding
at any time, and (d) subordinated indebtedness pursuant to subordination
agreements in form and content acceptable to Bank; and (e) extensions,
modifications, refinancings and refundings of the foregoing, so long as the
maximum principal amount is not increased.

         11. Merger, Consolidation, Transfer of Assets. Not merge into or
consolidate with any other entity; unless Borrower is the surviving entity and
remains in compliance of all provisions of this Agreement, nor make any
substantial change in the nature of Borrower's business as conducted as of the
date hereof; nor sell, lease, transfer or otherwise dispose of all or a
substantial or material portion of Borrower's assets except in the ordinary
course of its business.


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July 10, 1998
Page 9


         12. Loans, Advances, Investments. Not make any loans or advances to or
investments in any person or entity, except (a) any of the foregoing existing as
of, and disclosed to Bank prior to, the date hereof, (b) loans to employees for
travel advances, relocation loans and other loans in the ordinary course of
business, (c) investments in accordance with Borrower's investment policy, as in
effect from time to time, (d) existing investments in subsidiaries and joint
ventures which have been disclosed to Bank in writing prior to the date hereof,
and new investments in subsidiaries and joint ventures in amounts up to an
aggregated of $10,000,000.00 (e) loans to employees, officers, directors to
finance or refinance the purchase of equity securities of Borrower.

         13. Dividends, Distributions. Not declare or pay any dividend or
distribution either in cash, stock or any other property on Borrower's stock now
or hereafter outstanding, nor redeem, retire, repurchase or otherwise acquire
any shares of any class of Borrower's stock now or hereafter outstanding.

         14. Pledge of Assets. Not mortgage, pledge, grant or permit to exist a
security interest in, or lien upon, all or any portion of Borrower's assets now
owned or hereafter acquired, except (a) purchase money security interests in
real property, inventory or equipment securing indebtedness permitted under
Section V.10(b) and (c), (b) any of the foregoing in favor of Bank, (c) liens
for taxes, assessments or other governmental charges which are not due and which
remain payable without penalty or which are being contested in good faith,
provided that adequate reserves therefor have been established, which reserves
in accordance with generally accepted accounting principles, consistently
applied, (d) liens in connection with insurance or compensation funds, pensions,
social security obligations, bids, tender, leases, statutory obligations, surety
and appeal bonds and other liens arising in the ordinary course of Borrower's
business, including mechanics and materialman's which do not adversely affect
Borrower's business operations, (e) liens reflected in Borrower's financial
statements dated January 23, 1998, previously submitted to Bank, (f) liens
(otherwise permitted in this section) on assets that existed at the time such
assets were acquired by Borrower or any of its subsidiaries, and (g) liens on
deposit accounts in the nature of set off rights, banker's liens or other
customary rights.

         15. Year 2000 Compliance. Perform all acts reasonably necessary to
ensure that (a) Borrower and any business in which Borrower holds a substantial
interest, and (b) all customers, suppliers and vendors that are material to
Borrower's business, become Year 2000 Compliant in a timely manner. Such acts
shall 


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July 10, 1998
Page 10


include, without limitation, performing a comprehensive review and assessment of
all of Borrower's systems and adopting a detailed plan, with itemized budget,
for the remediation, monitoring and testing of such systems. As used herein,
"Year 2000 Compliant" shall mean, in regard to any entity, that all software,
hardware, firmware, equipment, goods or systems utilized by or material to the
business operations or financial condition of such entity, will properly perform
date sensitive functions before, during and after the year 2000. Borrower shall,
immediately upon request, provide to Bank such certifications or other evidence
of Borrower's compliance with the terms hereof as Bank may from time to time
require.


VI.  DEFAULT, REMEDIES:

         1. Default, Remedies. Upon the violation of any term or condition of
any of the Loan Documents, or upon the occurrence of any default or defined
event of default under any of the Loan Documents: (a) all indebtedness of
Borrower under each of the Loan Documents, any term thereof to the contrary
notwithstanding, shall at Bank's option and without notice become immediately
due and payable without presentment, demand, protest or notice of dishonor, all
of which are expressly waived by Borrower; (b) the obligation, if any, of Bank
to extend any further credit under any of the Loan Documents shall immediately
cease and terminate; and (c) Bank shall have all rights, powers and remedies
available under each of the Loan Documents, or accorded by law, including
without limitation the right to resort to any or all security for any credit
extended by Bank to Borrower under any of the Loan Documents and to exercise any
or all of the rights of a beneficiary or secured party pursuant to the
applicable law. All rights, powers and remedies of Bank may be exercised at any
time by Bank and from time to time after the occurrence of any such breach or
default, are cumulative and not exclusive, and shall be in addition to any other
rights, powers or remedies provided by law or equity.

         2. No Waiver. No delay, failure or discontinuance of Bank in exercising
any right, power or remedy under any of the Loan Documents shall affect or
operate as a waiver of such right, power or remedy; nor shall any single or
partial exercise of any such right, power or remedy preclude, waive or otherwise
affect any other or further exercise thereof or the exercise of any other right,
power or remedy. Any waiver, permit, consent or approval of any kind by Bank of
any breach of or default under any of the Loan Documents must be in writing and
shall be effective only to the extent set forth in such writing.

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Page 11


VII.  MISCELLANEOUS:

         1. Notices. All notices, requests and demands which any party is
required or may desire to give to any other party under any provision of this
letter must be in writing delivered to each party at its address first set forth
above, or to such other address as any party may designate by written notice to
all other parties. Each such notice, request and demand shall be deemed given or
made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by
mail, upon the earlier of the date of receipt or three (3) days after deposit in
the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy,
upon receipt.

         2. Costs, Expenses and Attorneys' Fees. Borrower shall pay to Bank
immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of Bank's in-house counsel), expended or
incurred by Bank in connection with (a) the negotiation and preparation of this
letter and the other Loan Documents, Bank's continued administration hereof and
thereof, and the preparation of amendments and waivers hereto and thereto, (b)
the enforcement of Bank's rights and/or the collection of any amounts which
become due to Bank under any of the Loan Documents, and (c) the prosecution or
defense of any action in any way related to any of the Loan Documents, including
without limitation, any action for declaratory relief, whether incurred at the
trial or appellate level, in an arbitration proceeding or otherwise, and
including any of the foregoing incurred in connection with any bankruptcy
proceeding (including without limitation, any adversary proceeding, contested
matter or motion brought by Bank or any other person) relating to any Borrower
or any other person or entity.

         3. Successors, Assignment. This letter shall be binding upon and inure
to the benefit of the heirs, executors, administrators, legal representatives,
successors and assigns of the parties; provided however, that Borrower may not
assign or transfer its interest hereunder without Bank's prior written consent.
Bank reserves the right to sell, assign, transfer, negotiate or grant
participations in all or any part of, or any interest in, Bank's rights and
benefits under each of the Loan Documents. In connection therewith Bank may
disclose all documents and information which Bank now has or hereafter may
acquire relating to any credit extended by Bank to Borrower, Borrower or its
business, or any collateral required hereunder.


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Page 12


         4. Entire Agreement; Amendment. This letter and the other Loan
Documents constitute the entire agreement between Borrower and Bank with respect
to any extension of credit by Bank subject hereto and supersede all prior
negotiations, communications, discussions and correspondence concerning the
subject matter hereof. This letter may be amended or modified only in writing
signed by each party hereto.

         5. No Third Party Beneficiaries. This letter is made and entered into
for the sole protection and benefit of the parties hereto and their respective
permitted successors and assigns, and no other person or entity shall be a third
party beneficiary of, or have any direct or indirect cause of action or claim in
connection with, this letter or any other of the Loan Documents to which it is
not a party.

         6. Severability of Provisions. If any provision of this letter shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or any remaining provisions of this
letter.

         7. Governing Law. This letter shall be governed by and construed in
accordance with the laws of the State of California.

         8.  Arbitration.

         (a) Arbitration. Upon the demand of any party, any Dispute shall be
resolved by binding arbitration (except as set forth in (e) below) in accordance
with the terms of this letter. A "Dispute" shall mean any action, dispute, claim
or controversy of any kind, whether in contract or tort, statutory or common
law, legal or equitable, now existing or hereafter arising under or in
connection with, or in any way pertaining to, any of the Loan Documents, or any
past, present or future extensions of credit and other activities, transactions
or obligations of any kind related directly or indirectly to any of the Loan
Documents, including without limitation, any of the foregoing arising in
connection with the exercise of any self-help, ancillary or other remedies
pursuant to any of the Loan Documents. Any party may by summary proceedings
bring an action in court to compel arbitration of a Dispute. Any party who fails
or refuses to submit to arbitration following a lawful demand by any other party
shall bear all costs and expenses incurred by such other party in compelling
arbitration of any Dispute.

         (b) Governing Rules. Arbitration proceedings shall be administered by
the American Arbitration Association ("AAA") or such other administrator as the
parties shall mutually agree upon 

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Page 13


in accordance with the AAA Commercial Arbitration Rules. All Disputes submitted
to arbitration shall be resolved in accordance with the Federal Arbitration Act
(Title 9 of the United States Code), notwithstanding any conflicting choice of
law provision in any of the Loan Documents. The arbitration shall be conducted
at a location in California selected by the AAA or other administrator. If there
is any inconsistency between the terms hereof and any such rules, the terms and
procedures set forth herein shall control. All statutes of limitation applicable
to any Dispute shall apply to any arbitration proceeding. All discovery
activities shall be expressly limited to matters directly relevant to the
Dispute being arbitrated. Judgment upon any award rendered in an arbitration may
be entered in any court having jurisdiction; provided however, that nothing
contained herein shall be deemed to be a waiver by any party that is a bank of
the protections afforded to it under 12 U.S.C. Section 91 or any similar
applicable state law.

         (c) No Waiver; Provisional Remedies, Self-Help and Foreclosure. No
provision hereof shall limit the right of any party to exercise self-help
remedies such as setoff, foreclosure against or sale of any real or personal
property collateral or security, or to obtain provisional or ancillary remedies,
including without limitation injunctive relief, sequestration, attachment,
garnishment or the appointment of a receiver, from a court of competent
jurisdiction before, after or during the pendency of any arbitration or other
proceeding. The exercise of any such remedy shall not waive the right of any
party to compel arbitration or reference hereunder.

         (d) Arbitrator Qualifications and Powers; Awards. Arbitrators must be
active members of the California State Bar or retired judges of the state or
federal judiciary of California, with expertise in the substantive law
applicable to the subject matter of the Dispute. Arbitrators are empowered to
resolve Disputes by summary rulings in response to motions filed prior to the
final arbitration hearing. Arbitrators (i) shall resolve all Disputes in
accordance with the substantive law of the state of California, (ii) may grant
any remedy or relief that a court of the state of California could order or
grant within the scope hereof and such ancillary relief as is necessary to make
effective any award, and (iii) shall have the power to award recovery of all
costs and fees, to impose sanctions and to take such other actions as they deem
necessary to the same extent a judge could pursuant to the Federal Rules of
Civil Procedure, the California Rules of Civil Procedure or other applicable
law. Any Dispute in which the amount in controversy is $5,000,000 or less shall
be decided by a single arbitrator who shall not render an award of greater than
$5,000,000 (including damages, costs, fees 


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Page 14

and expenses). By submission to a single arbitrator, each party expressly waives
any right or claim to recover more than $5,000,000. Any Dispute in which the
amount in controversy exceeds $5,000,000 shall be decided by majority vote of a
panel of three arbitrators; provided however, that all three arbitrators must
actively participate in all hearings and deliberations.

         (e) Judicial Review. Notwithstanding anything herein to the contrary,
in any arbitration in which the amount in controversy exceeds $25,000,000, the
arbitrators shall be required to make specific, written findings of fact and
conclusions of law. In such arbitrations (i) the arbitrators shall not have the
power to make any award which is not supported by substantial evidence or which
is based on legal error, (ii) an award shall not be binding upon the parties
unless the findings of fact are supported by substantial evidence and the
conclusions of law are not erroneous under the substantive law of the state of
California, and (iii) the parties shall have in addition to the grounds referred
to in the Federal Arbitration Act for vacating, modifying or correcting an award
the right to judicial review of (A) whether the findings of fact rendered by the
arbitrators are supported by substantial evidence, and (B) whether the
conclusions of law are erroneous under the substantive law of the state of
California. Judgment confirming an award in such a proceeding may be entered
only if a court determines the award is supported by substantial evidence and
not based on legal error under the substantive law of the state of California.

         (f) Real Property Collateral; Judicial Reference. Notwithstanding
anything herein to the contrary, no Dispute shall be submitted to arbitration if
the Dispute concerns indebtedness secured directly or indirectly, in whole or in
part, by any real property unless (i) the holder of the mortgage, lien or
security interest specifically elects in writing to proceed with the
arbitration, or (ii) all parties to the arbitration waive any rights or benefits
that might accrue to them by virtue of the single action rule statute of
California, thereby agreeing that all indebtedness and obligations of the
parties, and all mortgages, liens and security interests securing such
indebtedness and obligations, shall remain fully valid and enforceable. If any
such Dispute is not submitted to arbitration, the Dispute shall be referred to a
referee in accordance with California Code of Civil Procedure Section 638 et
seq., and this general reference agreement is intended to be specifically
enforceable in accordance with said Section 638. A referee with the
qualifications required herein for arbitrators shall be selected pursuant to the
AAA's selection procedures. 


<PAGE>   15

Network Appliance, Inc.
July 10, 1998
Page 15


Judgment upon the decision rendered by a referee shall be entered in the court
in which such proceeding was commenced in accordance with California Code of
Civil Procedure Sections 644 and 645.

         (g) Miscellaneous. To the maximum extent practicable, the AAA, the
arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the Dispute with the
AAA. No arbitrator or other party to an arbitration proceeding may disclose the
existence, content or results thereof, except for disclosures of information by
a party required in the ordinary course of its business, by applicable law or
regulation, or to the extent necessary to exercise any judicial review rights
set forth herein. If more than one agreement for arbitration by or between the
parties potentially applies to a Dispute, the arbitration provision most
directly related to the Loan Documents or the subject matter of the Dispute
shall control. This arbitration provision shall survive termination, amendment
or expiration of any of the Loan Documents or any relationship between the
parties.

         Your acknowledgment of this letter shall constitute acceptance of the
foregoing terms and conditions. Bank's commitment to extend any credit to
Borrower pursuant to the terms of this letter shall terminate on August 10,
1998, unless this letter is acknowledged by Borrower and returned to Bank on or
before that date.

                                        Sincerely,

                                        WELLS FARGO BANK,
                                           NATIONAL ASSOCIATION

                                        By: __________________________
                                             Gus Martin
                                             Vice President



Acknowledged and accepted as of _______________:

NETWORK APPLIANCE, INC.


By: __________________________

Title: _______________________

Source: OneCLE Business Contracts.