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WORLDTALK COMMUNICATIONS CORPORATION                            EXHIBIT 10.01

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This LOAN AND SECURITY  AGREEMENT,  dated as of December  30,  1998,  is between
SILICON  VALLEY  BANK  ("Bank")  and  WORLDTALK  COMMUNICATIONS  CORPORATION,  a
Delaware corporation ("Borrower").


The parties agree as follows:

1.      DEFINITIONS AND CONSTRUCTION

        1.1. Definitions.  As used in this Agreement,  the following terms shall
have the following definitions:

               "Accounts"  means all presently  existing and  hereafter  arising
accounts,  contract rights, and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods (including,  without  limitation,  the
licensing  of software  and other  technology)  or the  rendering of services by
Borrower,  whether  or not  earned  by  performance,  and  any  and  all  credit
insurance,  guaranties,  and other security therefor, as well as all merchandise
returned to or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.

               "Affiliate"  means,  with respect to any Person,  any Person that
owns or controls directly or indirectly such Person, any Person that controls or
is controlled by or is under common  control with such Person,  and each of such
Person's senior executive officers, directors, partners and, for any Person that
is a limited liability company, such Persons, managers and members.

               "Bank Expenses" means all reasonable costs or expenses (including
reasonable  attorneys'  fees  and  expenses)  incurred  in  connection  with the
preparation, negotiation, administration, and enforcement of the Loan Documents;
and  Bank's  reasonable  attorneys'  fees and  expenses  incurred  in  amending,
enforcing  or  defending  the Loan  Documents,  (including  fees and expenses of
appeal or review, or those incurred in any Insolvency Proceeding) whether or not
suit is brought.

               "Borrower's  Books"  means all of  Borrower's  books and  records
including, without limitation:  ledgers; records concerning Borrower's assets or
liabilities, the Collateral, business operations or financial condition; and all
computer   programs,   or  tape  files,  and  the  equipment,   containing  such
information.

               "Borrowing  Base"  means  an  amount  equal  to 80%  of  Eligible
Accounts, as determined by Bank with reference to the most recent Borrowing Base
Certificate delivered by Borrower.

               "Business Day" means any day that is not a Saturday,  Sunday,  or
other day on which banks in the State of California  are  authorized or required
to close.

               "Closing Date" means the date of this Agreement.

               "Collateral"  means the property  described on Exhibit A attached
hereto.

               "Contingent  Obligation"  means,  as applied to any  Person,  any
direct or  indirect  liability,  contingent  or  otherwise,  of that Person with
respect  to (i) any  indebtedness,  lease,  dividend,  letter of credit or other
obligation  of  another,  including,  without  limitation,  any such  obligation
directly or

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indirectly guaranteed,  endorsed, co-made or discounted or sold with recourse by
that  Person,  or in respect  of which  that  Person is  otherwise  directly  or
indirectly  liable;  (ii) any  obligations  with  respect to undrawn  letters of
credit issued for the account of that Person; and (iii) all obligations  arising
under any interest rate, currency or commodity swap agreement, interest rate cap
agreement,  interest rate collar  agreement,  or other  agreement or arrangement
designated to protect a Person against  fluctuation in interest rates,  currency
exchange  rates  or  commodity  prices;   provided  that  the  term  "Contingent
Obligation"  shall not include  endorsements  for  collection  or deposit in the
ordinary course of business.  The amount of any Contingent  Obligation  shall be
deemed to be an amount equal to the stated or  determined  amount of the primary
obligation  in respect of which such  Contingent  Obligation  is made or, if not
stated or determinable,  the maximum reasonably anticipated liability in respect
thereof as  determined  by such Person in good faith;  provided that such amount
shall not in any event exceed the maximum  amount of the  obligations  under the
guarantee or other support arrangement.

               "Copyrights"  means  any  and  all  copyright  rights,  copyright
applications,  copyright  registrations  and like  protections  in each  work or
authorship and derivative  work thereof,  whether  published or unpublished  and
whether  or not the same  also  constitutes  a trade  secret,  now or  hereafter
existing, created, acquired or held.

               "Credit  Extension" means each Revolving Loan,  Letter of Credit,
Term Loan,  Exchange  Contract or any other  extension of credit by Bank for the
benefit of Borrower hereunder.

               "Current  Assets" means,  as of any applicable  date, all amounts
that  should,  in  accordance  with GAAP,  be included as current  assets on the
consolidated balance sheet of Borrower and its Subsidiaries as at such date.

               "Current  Liabilities"  means,  as of any  applicable  date,  all
amounts that should, in accordance with GAAP, be included as current liabilities
on the consolidated  balance sheet of Borrower and its Subsidiaries,  as at such
date, plus, to the extent not already included therein,  all outstanding  Credit
Extensions made under this Agreement, including all Indebtedness that is payable
upon  demand or within one year from the date of  determination  thereof  unless
such  Indebtedness  is renewable or  extendable at the option of Borrower or any
Subsidiary  to a date  more than one year  from the date of  determination,  but
excluding Subordinated Debt.

               "Default" means any condition or event which constitutes an Event
of Default  or which  with the giving of notice or lapse of time or both  would,
unless cured or waived, become an Event of Default.

               "Eligible  Accounts"  means  those  Accounts  that  arise  in the
ordinary  course of  Borrower's  business  that  comply  with all of  Borrower's
representations and warranties to Bank set forth in Section 5.4; provided,  that
standards of  eligibility  may be fixed and revised from time to time by Bank in
Bank's  reasonable  judgment  and upon 10 days  prior  notification  thereof  to
Borrower in accordance with the provisions hereof. Unless otherwise agreed to by
Bank in writing, Eligible Accounts shall not include the following:

               (a) Accounts that the account  debtor has failed to pay within 90
days of invoice date;

               (b)  Accounts  with  respect to an account  debtor,  50% of whose
Accounts the account debtor has failed to pay within 90 days of invoice date;

               (c)  Accounts  with  respect  to  an  account  debtor,  including
Affiliates,  whose total  obligations to Borrower  exceed 25% of all Accounts to
the extent such  obligations  exceed the  aforementioned  percentage,  except as
approved in writing by Bank;

               (d) Accounts  with  respect to which the account  debtor does not
have its principal place of business in the United States;

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               (e)  Accounts  with  respect  to which  the  account  debtor is a
federal,  state,  or local  governmental  entity or any department,  agency,  or
instrumentality thereof;

               (f)  Accounts  with  respect to which  Borrower  is liable to the
account  debtor,  but only to the  extent of any  amounts  owing to the  account
debtor  (sometimes  referred to as "contra"  accounts,  e.g.  accounts  payable,
customer deposits, credit accounts etc.);

               (g)   Accounts   with  respect  to  which  goods  are  placed  on
consignment,  guaranteed sale, sale or return, sale on approval,  bill and hold,
or other  terms by reason of which the  payment  by the  account  debtor  may be
conditional;

               (h)  Accounts  with  respect  to which the  account  debtor is an
Affiliate, officer, employee, or agent of Borrower;

               (i) Accounts  with respect to which the account  debtor  disputes
liability or makes any claim with respect thereto as to which Bank believes,  in
its sole  discretion,  that  there may be a basis for  dispute  (but only to the
extent of the  amount  subject to such  dispute or claim),  or is subject to any
Insolvency Proceeding, or becomes insolvent, or goes out of business; and

               (j) Accounts the collection of which Borrower or Bank  reasonably
determines to be doubtful.

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

               "ERISA" means the Employment  Retirement  Income  Security Act of
1974, as amended, and the regulations thereunder.

               "Event of Default" has the meaning set forth in Section 8.

               "Exchange Contract" has the meaning set forth in Section 2.1.3.

               "GAAP"  means  generally  accepted  accounting  principles  as in
effect in the United States from time to time.

               "Indebtedness"  means (a) all  indebtedness for borrowed money or
the  deferred  purchase  price  of  property  or  services,   including  without
limitation  reimbursement and other obligations with respect to surety bonds and
letters of credit, (b) all obligations evidenced by notes, bonds,  debentures or
similar  instruments,  (c) all capital lease  obligations and (d) all Contingent
Obligations.

               "Insolvency  Proceeding"  means any  proceeding  commenced  by or
against any person or entity under any provision of the United States Bankruptcy
Code, as amended,  or under any other  bankruptcy or insolvency  law,  including
assignments  for  the  benefit  of  creditors,  formal  or  informal  moratoria,
compositions,  extension  generally with its creditors,  or proceedings  seeking
reorganization, arrangement, or other relief.

               "Intellectual  Property  Collateral" means all right,  title, and
interest of Borrower in any of the following,  whether now existing or hereafter
acquired or created:

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

               (b) Any  and  all  trade  secrets,  and any and all  intellectual
property rights in computer software and computer software products;

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               (c) Any and all design rights;

               (d) Any and all claims for  damages by way of past,  present  and
future infringement of any of the rights included above, with the right, but not
the obligation, to sue for and collect such damages for said use or infringement
of the intellectual property rights identified above;

               (e) All  licenses or other  rights to use any of the  Copyrights,
Patents,  Trademarks,  or Mask Works, and all license fees and royalties arising
from such use to the extent permitted by such license or rights;

               (f)  All  amendments,  renewals  and  extensions  of  any  of the
Copyrights, Trademarks, Patents, or Mask Works; and

               (g) All proceeds and products of the foregoing, including without
limitation all payments under insurance or any indemnity or warranty  payable in
respect of any of the foregoing.

               "Inventory"  means all  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 at any time  hereafter  owned by or in the
custody or  possession,  actual or  constructive,  of Borrower,  including  such
inventory as is  temporarily  out of its 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.

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

               "IRC" means the Internal  Revenue Code of 1986,  as amended,  and
the regulations thereunder.

               "Letter  of   Credit"   means  a  letter  of  credit  or  similar
undertaking issued by Bank pursuant to Section 2.1.2.

               "Lien" means any mortgage,  lien, deed of trust, charge,  pledge,
security  interest or other  encumbrance  (or any  agreement to grant any of the
foregoing, whether or not contingent on the happening of any future event).

               "Loan" means a Revolving Loan or a Term Loan.

               "Loan Documents" means, collectively, this Agreement, any note or
notes executed by Borrower,  and any other present or future  agreement  entered
into between  Borrower  and/or for the benefit of Bank in  connection  with this
Agreement, all as amended, extended or restated from time to time.

               "Mask Works" means all mask work or similar rights  available for
the protection of semiconductor chips, now owned or hereafter acquired;

               "Material  Adverse Effect" means a material adverse effect on (i)
the business  operations  or condition  (financial or otherwise) of Borrower and
its  Subsidiaries  taken as a whole,  (ii) the  ability of Borrower to repay the
Obligations or otherwise perform its obligations under the Loan Documents, (iii)
the value or priority of Bank's security interests in the Collateral.

               "Negotiable  Collateral"  means  all of  Borrower's  present  and
future  letters  of  credit  of  which  it  is  a  beneficiary,  notes,  drafts,
instruments, securities, documents of title, and chattel paper held by Borrower.

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               "Obligations" means all debt, principal,  interest, Bank Expenses
and other  amounts  owed to Bank by Borrower  pursuant to this  Agreement or any
other  agreement,  whether  absolute or  contingent,  due or to become due,  now
existing or hereafter  arising,  including  any interest  that accrues after the
commencement of an Insolvency Proceeding and including any debt,  liability,  or
obligation  owing  from  Borrower  to  others  that  Bank may have  obtained  by
assignment or otherwise.

               "Patents  means  all  patents,   patent   applications  and  like
protections including without limitation improvements, divisions, continuations,
renewals, reissues, extensions and continuations-in-part of the same.

               "Payment Date" means the first day of each calendar month.

               "Permitted Indebtedness" means:

               (a)  Indebtedness of Borrower in favor of Bank arising under this
Agreement or any other Loan Document;

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

               (c) Subordinated Debt;

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

               (e) Indebtedness secured by Permitted Liens.

               "Permitted Investment" means:

               (a)  Investments  existing on the Closing  Date  disclosed in the
Schedule;

               (b) Loans to  employees  not at any time  exceeding  $200,000  in
aggregate amount; and

               (c) (i) marketable direct  obligations  issued or unconditionally
guaranteed  by the United  States of America or any agency or any State  thereof
maturing  within  one (1)  year  from  the  date of  acquisition  thereof,  (ii)
commercial  paper  maturing  no more than one (1) year from the date of creation
thereof and currently having the highest rating  obtainable from either Standard
& Poor's Corporation or Moody's Investors  Service,  Inc., (iii) certificates of
deposit  maturing no more than one (1) year from the date of investment  therein
issued by Bank, and (iv) any money market account maintained with a major mutual
fund investing in the foregoing or other liquid investments of equivalent credit
quality.

               "Permitted Liens" means the following:

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

               (b) Liens for  taxes,  fees,  assessments  or other  governmental
charges or levies,  either not  delinquent  or being  contested in good faith by
appropriate  proceedings  and as to which  adequate  reserves are  maintained on
Borrower's  Books in  accordance  with GAAP,  provided the same have no priority
over any of Bank's security interests;

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               (c)  Liens  (i)  upon  or in any  Equipment  acquired  or held by
Borrower  or any of its  Subsidiaries  to  secure  the  purchase  price  of such
Equipment  or  indebtedness  incurred  solely for the purpose of  financing  the
acquisition of such Equipment, or (ii) existing on such Equipment at the time of
its  acquisition,  provided that the Lien is confined  solely to the property so
acquired and improvements thereon, and the proceeds of such Equipment;

               (d) Leases or subleases  and licenses or  sublicenses  granted to
others in the ordinary  course of  Borrower's  business not  interfering  in any
material respect with the business of Borrower and its  Subsidiaries  taken as a
whole,  and any  interest  or title of a lessor,  licensor or under any lease or
license  provided that such leases,  subleases,  licenses and sublicenses do not
prohibit the grant of the security interest granted hereunder; and

               (e) Liens incurred in connection  with the extension,  renewal or
refinancing  of the  indebtedness  secured  by Liens of the  type  described  in
clauses  (a)  through  (c)  above,  provided  that  any  extension,  renewal  or
replacement  Lien shall be limited to the  property  encumbered  by the existing
Lien and the principal  amount of the  indebtedness  being extended,  renewed or
refinanced does not increase.

               "Person" means any individual, sole proprietorship,  partnership,
limited liability company, joint venture,  trust,  unincorporated  organization,
association,  corporation,  institution, public benefit corporation, firm, joint
stock company, estate, entity or governmental agency.

               "Prime Rate" means the variable rate of interest, per annum, most
recently  announced by Bank, as its "prime rate,"  whether or not such announced
rate is the lowest rate available from Bank.

               "Quick Assets" means, as of any applicable date, the consolidated
cash, cash equivalents, and accounts receivable, all as determined in accordance
with GAAP;  provided  that no asset shall be a "Quick Asset" if it is subject to
any Lien or  restriction  on use other  than liens or  restrictions  in favor of
Bank.

               "Responsible  Officer"  means each of the President and the Chief
Financial Officer of Borrower.

               "Revolving   Commitment"  means  a  credit  extension  of  up  to
$1,500,000.

               "Revolving  Loan"  means  a  loan  advance  under  the  Revolving
Commitment.

               "Revolving  Maturity  Date" means the last Business Day preceding
the first anniversary of the Closing Date.

               "Schedule" means the schedule of exceptions delivered to the Bank
in connection herewith, if any.

               "Subordinated  Debt" means any debt  incurred by Borrower that is
subordinated  to the debt owing by Borrower to Bank on terms  acceptable to Bank
(and identified as being such by Borrower and Bank).

               "Subsidiary"  means  with  respect  to any  Person,  corporation,
partnership, company association, joint venture, 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 such Person or one or more Affiliates of
such Person.

               "Tangible  Net  Worth"  means  as of  any  applicable  date,  the
consolidated  total  assets of  Borrower  and its  Subsidiaries  minus,  without
duplication,  (i) the  sum of 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) all reserves not already deducted from assets,
and (ii) Total Liabilities.

               "Term Loan" means a credit extension of $250,000.

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               "Term Loan Payment" has the meaning set forth in Section 2.1.5.

               "Total  Liabilities" means as of any applicable date, any date as
of which the amount thereof shall be determined, all obligations that should, in
accordance  with GAAP be classified as liabilities on the  consolidated  balance
sheet of Borrower,  including in any event all  Indebtedness,  but  specifically
excluding Subordinated Debt.

               "Trademarks" means any trademark and servicemark rights,  whether
registered or not,  applications to register and  registrations  of the same and
like protections,  and the entire goodwill of the business of Borrower connected
with and symbolized by such trademarks.

               "UCC" means the California Uniform Commercial Code.

               "Year 2000 Problem" means the inability of computers,  as well as
embedded microchips in non-computing devices, to properly perform date-sensitive
functions with respect to certain dates prior to and after December 31, 1999.

        1.2.  Accounting and Other Terms.  All accounting terms not specifically
defined herein shall be construed in accordance  with GAAP and all  calculations
and  determinations  made hereunder  shall be made in accordance with GAAP. When
used  herein,  the term  "financial  statements"  shall  include  the  notes and
schedules  thereto.  In the computation of periods of time from a specified date
to a later  specified  date,  the word "from" means "from and including" and the
words "to" and "until" each mean "to but excluding." Periods of days referred to
in this  Agreement  shall be counted in calendar days unless  otherwise  stated.
References  to the plural  include the singular and to the singular  include the
plural, references to any gender include any other gender, the part includes the
whole, the term "including" is not limiting, and the term "or" has, except where
otherwise  indicated,  the inclusive meaning represented by the phrase "and/or."
The words "hereof," "herein,"  "hereby,"  "hereunder," and similar terms in this
Agreement refer to this Agreement as a whole and not to any particular provision
of this Agreement.  Article, section,  subsection,  clause, exhibit and schedule
references  are  to  this  Agreement,  unless  otherwise  specified.  All of the
exhibits and schedules  attached hereto shall be deemed  incorporated  herein by
reference.  All  terms  contained  in this  Agreement  which  are not  otherwise
specifically  defined  herein  (including  the term "good faith") shall have the
meanings provided by the UCC to the extent the same are used or defined therein.

        1.3. No  Presumption  Against Any Party.  Neither this Agreement nor any
other Loan Document nor any uncertainty or ambiguity  herein or therein shall be
construed or resolved using any presumption against any party hereto or thereto,
whether  under any rule of  construction  or otherwise.  On the  contrary,  this
Agreement and the other Loan Documents have been reviewed by each of the parties
and their  counsel and, in the case of any  ambiguity or  uncertainty,  shall be
construed and interpreted according to the ordinary meaning of the words used so
as to fairly accomplish the purposes and intentions of all parties hereto.

2.      LOAN AND TERMS OF PAYMENT

        2.1. Credit  Extensions.  Borrower promises to pay to the order of Bank,
in lawful money of the United States of America,  the aggregate unpaid principal
amount of all Credit  Extensions  made by Bank to Borrower  hereunder.  Borrower
shall also pay interest on the unpaid principal amount of such Loans at rates in
accordance with the terms hereof.

               2.1.1.  (a) Subject to and upon the terms and  conditions of this
Agreement,  Bank agrees to make  Revolving  Loans to  Borrower  in an  aggregate
outstanding  amount not to exceed (i) the Revolving  Commitment or the Borrowing
Base,  whichever is less, minus (ii) the face amount of all outstanding  Letters
of Credit (including drawn but unreimbursed Letters of Credit amounts) and minus
(iii) the Foreign Exchange Reserve.  Subject to the


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terms and  conditions  of this  Agreement,  amounts  borrowed  pursuant  to this
Section  2.1 may be repaid and  reborrowed  at any time  during the term of this
Agreement.

                       (b) Whenever Borrower desires an Revolving Loan, Borrower
will notify Bank by facsimile  transmission or telephone no later than 3:00 p.m.
Pacific time, on the Business Day that such Revolving  Loan is to be made.  Each
such  notification  shall  be  promptly  confirmed  by a  Payment/Loan  Form  in
substantially  the form of Exhibit B hereto.  Bank is  authorized  to make Loans
under  this  Agreement,  based upon  instructions  received  from a  Responsible
Officer or a designee so  designated  by a  Responsible  Officer in writing,  or
without instructions if in Bank's reasonable discretion such Loans are necessary
to meet  Obligations  which have  become due and  remain  unpaid.  Bank shall be
entitled to rely on any telephonic  notice given by a person who Bank reasonably
believes to be a Responsible Officer or a written designee thereof, and Borrower
shall  indemnify and hold Bank harmless for any damages or loss suffered by Bank
as a result of such  reliance.  Bank will  credit the amount of Loans made under
this Section 2.1 to Borrower's deposit account.

                       (c) Interest Rate. Except as set forth in Section 2.3(b),
the outstanding  principal amount of the Revolving Loans shall bear interest, on
the average daily balance thereof,  at a per annum rate equal to 0.25 percentage
points above the Prime Rate.

                       (d)  The  Revolving  Commitment  shall  terminate  on the
Revolving  Maturity Date, at which time all Revolving Loans and accrued interest
thereon shall be immediately due and payable.

               2.1.2.  Letters of Credit.

                       (a)  Subject  to  the  terms  and   conditions   of  this
Agreement,  Bank agrees to issue or cause to be issued Letters of Credit for the
account of Borrower in an  aggregate  outstanding  face amount not to exceed (i)
the lesser of the Revolving Commitment or the Borrowing Base, whichever is less,
minus (ii) the then  outstanding  principal  balance of the Revolving  Loans and
minus (iii) the Foreign  Exchange  Reserve.  Each Letter of Credit shall have an
expiry date no later than the  Revolving  Maturity  Date.  All Letters of Credit
shall be, in form and substance,  acceptable to Bank in its sole  discretion and
shall be  subject  to the  terms  and  conditions  of  Bank's  form of  standard
Application and Letter of Credit Agreement.

                       (b) The obligation of Borrower to  immediately  reimburse
Bank for drawings made under Letters of Credit shall be absolute,  unconditional
and irrevocable, and shall be performed strictly in accordance with the terms of
this Agreement and such Letters of Credit,  under all circumstances  whatsoever.
Borrower shall indemnify, defend, protect, and hold Bank harmless from any loss,
cost, expense or liability, including, without limitation, reasonable attorneys'
fees,  arising out of or in  connection  with any  Letters of Credit  other than
those proximately caused by Bank's own gross negligence or wilful misconduct.

                       (c)  Borrower  may  request  that Bank  issue a Letter of
Credit payable in a currency other than United States  Dollars.  If a demand for
payment is made under any such Letter of Credit, Bank shall treat such demand as
a Revolving Loan to Borrower of the equivalent of the amount thereof (plus cable
charges) in United States  currency at the then  prevailing  rate of exchange in
San Francisco,  California,  for sales of that other currency for cable transfer
to the country of which it is the currency.

                       (d) Upon the issuance of any letter of credit  payable in
a currency other than United States  Dollars,  Bank shall create a reserve under
the Revolving  Commitment for letters of credit against fluctuations in currency
exchange  rates,  in an amount equal to ten percent  (10%) of the face amount of
such  letter of credit.  The amount of such  reserve may be amended by Bank from
time to time to account for  fluctuations in the exchange rate. The availability
of funds under the Revolving  Commitment  shall be reduced by the amount of such
reserve for so long as such letter of credit remains outstanding.

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               2.1.3.  Foreign Exchange Contract; Foreign Exchange Settlements.

                       (a) Subject to the terms of this Agreement,  Borrower may
enter into foreign exchange  contracts (the "Exchange  Contracts") not to exceed
in  total  amount  (the  "Contract  Limit")  (i)  the  lesser  of the  Revolving
Commitment  or the Borrowing  Base,  minus (ii) the then  outstanding  principal
balance of the Revolving Loans and minus (iii) the outstanding  amount under all
Letters of Credit (including drawn, but unpaid amounts),  pursuant to which Bank
shall sell to or purchase  from  Borrower  foreign  currency on a spot or future
basis.  Borrower shall not request any Exchange  Contracts at any time it is out
of  compliance  with  any of the  provisions  of this  Agreement.  All  Exchange
Contracts  must  provide for delivery of  settlement  on or before 90 days after
issuance or in any case by the Revolving  Maturity  Date.  The amount  available
under the  Revolving  Commitment  at any time shall be reduced by the  following
amounts (the "Foreign  Exchange  Reserve") on any given day (the  "Determination
Date"):  (i) on all  outstanding  Exchange  Contracts on which delivery is to be
effected  or   settlement   allowed  more  than  two  business  days  after  the
Determination Date, 10% of the gross amount of the Exchange Contracts; plus (ii)
on all  outstanding  Exchange  Contracts on which  delivery is to be effected or
settlement  allowed within two business days after the Determination  Date, 100%
of the gross amount of the Exchange Contracts.

                       (b) Bank may, in its  discretion,  terminate the Exchange
Contracts at any time (a) that an Event of Default  occurs and is  continuing or
(b) that there is no sufficient  availability under the Revolving Commitment and
Borrower  does not have  available  funds in its bank  account  to  satisfy  the
Foreign Exchange Reserve. If Bank terminates the Exchange Contracts, and without
limitation of any applicable indemnities,  Borrower agrees to reimburse Bank for
any and all fees,  costs and expenses  relating thereto or arising in connection
therewith.

                       (c)  Borrower  shall not permit the total gross amount of
all  Exchange  Contracts  on which  delivery  is to be effected  and  settlement
allowed in any two business day period to be more than $100,000 (the "Settlement
Limit")  nor shall  Borrower  permit  the  total  gross  amount of all  Exchange
Contracts to which  Borrower is a party,  outstanding at any one time, to exceed
the Contract Limit.  Notwithstanding the above, however, the amount which may be
settled in any 2 business day period may be increased above the Settlement Limit
up to, but in no event to exceed,  the amount of the Contract Limit under either
of the following circumstances:

                                (i) if there is  sufficient  availability  under
the  Revolving  Commitment in the amount of the Foreign  Exchange  Reserve as of
each  Determination  Date,  provided that Bank in advance shall reserve the full
amount of the Foreign Exchange Reserve against the Revolving Commitment; or

                                (ii) if there is insufficient availability under
the  Revolving  Commitment,  as to  settlements  within any two (2) business day
period,  provided that Bank, in its sole discretion,  may: (A) verify good funds
overseas prior to crediting Borrower's deposit account with Bank (in the case of
Borrower's sale of foreign  currency);  or (B) debit Borrower's  deposit account
with  Bank  prior  to  delivering  foreign  currency  overseas  (in the  case of
Borrower's purchase of foreign currency).

                       (d)  In  the  case  of  Borrower's  purchase  of  foreign
currency,  Borrower in advance  shall  instruct Bank upon  settlement  either to
treat the settlement amount as an advance under the Revolving Commitment,  or to
debit Borrower's account for the amount settled.

                       (e) Borrower shall execute all standard form applications
and agreements of Bank in connection  with the Exchange  Contracts and,  without
limiting any of the terms of such applications and agreements, Borrower will pay
all standard fees and charges of Bank in connection with the Exchange Contracts.

                       (f)  Without  limiting  any of the  other  terms  of this
Agreement or any such standard form applications and agreement of Bank, Borrower
agrees to  indemnify  Bank and hold it  harmless,  from and  

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<PAGE>

against any and all claims, debts, liabilities,  demands, obligations,  actions,
costs and expenses (including, without limitation, attorneys' fees of counsel of
Bank's choice),  of every nature and description  which it may sustain or incur,
based  upon,  arising  out of,  or in any way  relating  to any of the  Exchange
Contracts or any  transactions  relating  thereto or contemplated  thereby other
than  those  proximately  caused  by  Bank's  own  gross  negligence  or  wilful
misconduct.

               2.1.4.  Term Loan.

                       (a) Subject to and upon the terms and  conditions of this
Agreement, Bank shall make a Term Loan available to Borrower.

                       (b) Borrower shall pay 24 equal monthly  installments  of
principal in the amount of $10,416.67 each (the "Term Loan Payment").  Each Term
Loan Payment  shall be due and payable on the first day of each  calendar  month
during the term hereof,  commencing on February 1, 1999.  Borrower's  final Term
Loan Payment,  due on January 1, 2001,  shall include all outstanding  Term Loan
principal plus all accrued interest not yet paid.

                       (c) The Term Loan shall bear  interest at a rate equal to
0.50 percentage points above the Prime Rate.

        2.2.  Overadvances.  If, at any time or for any  reason,  the  amount of
Obligations owed by Borrower to Bank pursuant to Section 2.1.1,  2.1.2 and 2.1.3
of this Agreement is greater than the lesser of (i) the Revolving  Commitment or
(ii) the Borrowing  Base,  Borrower shall  immediately pay to Bank, in cash, the
amount of such excess.

        2.3.  Default Rates, Payments, and Calculations.

                       (a) Default Rate.  All  Obligations  shall bear interest,
from and after the occurrence and during the continuance of an Event of Default,
at a rate equal to five  percentage  points above the interest  rate  applicable
immediately prior to the occurrence of the Event of Default.

                       (b) Payments. Interest hereunder shall be due and payable
on each Payment Date. Borrower hereby authorizes Bank to debit any accounts with
Bank,  including,  without limitation,  Account Number 330104910 for payments of
principal  and interest due on the  Obligations  and any other  amounts owing by
Borrower to Bank.  Bank will promptly  notify  Borrower of all debits which Bank
has made  against  Borrower's  accounts.  Any  such  debits  against  Borrower's
accounts  in no way shall be deemed a set-off.  Any  interest  not paid when due
shall be  compounded  by becoming a part of the  Obligations,  and such interest
shall thereafter accrue interest at the rate then applicable hereunder.

                       (c)  Computation.  In the event the Prime Rate is changed
from time to time hereafter,  the applicable rate of interest hereunder shall be
increased or  decreased  effective as of 12:01 a.m. on the day the Prime Rate is
changed,  by an amount  equal to such  change in the Prime  Rate.  All  interest
chargeable  under the Loan Documents shall be computed on the basis of a 360-day
year for the actual number of days elapsed.

        2.4. Crediting Payments. Prior to the occurrence of an Event of Default,
Bank shall  credit a wire  transfer of funds,  check or other item of payment to
such deposit account or Obligation as Borrower  specifies.  After the occurrence
and during the  continuance  of an Event of Default,  the receipt by Bank of any
wire transfer of funds,  check,  or other item of payment,  whether  directed to
Borrower's  deposit account with Bank or to the Obligations or otherwise,  shall
be immediately  applied to conditionally  reduce  Obligations,  but shall not be
considered  a payment in respect of the  Obligations  unless such  payment is of
immediately available federal funds or unless and until such check or other item
of payment is honored when  presented for payment.  Notwithstanding 


                                       55
<PAGE>

anything to the contrary contained herein, any wire transfer or payment received
by Bank after 12:00 noon Pacific  time shall be deemed to have been  received by
Bank as of the opening of business on the  immediately  following  Business Day.
Whenever  any payment to Bank under the Loan  Documents  would  otherwise be due
(except by reason of  acceleration)  on a date that is not a Business  Day, such
payment shall instead be due on the next  Business Day, and  additional  fees or
interest, as the case may be, shall accrue and be payable for the period of such
extension.

        2.5.   Fees.  Borrower shall pay to Bank the following:

                       (a)  Financial  Examination  and Appraisal  Fees.  Bank's
customary  fees and  out-of-pocket  expenses  for  Bank's  audits of  Borrower's
Accounts,  and for each  appraisal  of  Collateral  and  financial  analysis and
examination of Borrower performed from time to time by Bank or its agents;

                       (b) Bank  Expenses.  Upon  demand  from Bank,  including,
without limitation, upon the date hereof, all Bank Expenses incurred through the
date hereof,  including reasonable  attorneys' fees and expenses , not in excess
of $5,000, and, after the date hereof, all Bank Expenses,  including  reasonable
attorneys' fees and expenses, as and when they become due.

        2.6. Term.  Except as otherwise set forth herein,  this Agreement  shall
become  effective  on the  Closing  Date and,  subject  to Section  12.7,  shall
continue in full force and effect until the Loans and all interest  thereon have
been fully and finally paid.  Notwithstanding the foregoing, Bank shall have the
right to terminate its obligation to make Loans under this Agreement immediately
and without notice upon the occurrence and during the continuance of an Event of
Default.

3.      CONDITIONS OF LOANS

        3.1. Conditions Precedent to Initial Credit Extension. The obligation of
Bank to make the initial Credit Extension is subject to the condition  precedent
that Bank shall have received,  in form and substance  satisfactory to Bank, the
following:

                       (a) this Agreement;

                       (b) a  certificate  of the  Secretary  of  Borrower  with
respect  to  articles,   bylaws,  incumbency  and  resolutions  authorizing  the
execution and delivery of this Agreement;

                       (c) an intellectual property security agreement;

                       (d) financing statements (Forms UCC-1);

                       (f) a warrant to  purchase  25,000  shares of  Borrower's
common  stock  in the form and upon  the  terms  previously  agreed  by Bank and
Borrower;

                       (e) insurance certificate;

                       (f)  payment  of the  fees  and  Bank  Expenses  then due
specified in Section 2.5 hereof;

                       (g)  completion  by the Bank of an  audit  of  Borrower's
accounts on a basis satisfactory to Bank, except that the condition set forth in
this  subsection (g) shall apply only to the first Revolving Loan and not to the
Term Loan;

                       (h) a  completed  report and survey  with  respect to the
vulnerability of Borrower to the Year 2000 Problem any remedial steps undertaken
by Borrower in connection with the Year 2000 Problem;

                                       56
<PAGE>

                       (i)   Certificate   of  Good   Standing  and  of  Foreign
Qualification  (if  applicable),   together  with  evidence  of  an  appropriate
fictitious name filing for each county,  if any, in which Borrower does business
using any d/b/a or other fictitious name; and

                       (j) such other  documents,  and  completion of such other
matters, as Bank may reasonably deem necessary or appropriate.

        3.2.  Conditions  Precedent to all Credit Extensions.  The obligation of
Bank to make each Credit Extension,  including the initial Credit Extension,  is
further subject to the following conditions:

                       (a) timely  receipt by Bank of the  Payment/Loan  Form as
provided in Section 2.1; and

                       (b)  the  representations  and  warranties  contained  in
Section 5 shall be true and  correct in all  material  respects on and as of the
date  of such  Payment/Loan  Form  and on the  effective  date  of  each  Credit
Extension as though made at and as of each such date,  and no Default shall have
occurred  and be  continuing,  or would result from such Credit  Extension.  The
making of each  Credit  Extension  shall be deemed  to be a  representation  and
warranty by Borrower on the date of such Credit  Extension as to the accuracy of
the facts referred to in this Section 3.2(b).

4.      CREATION OF SECURITY INTEREST

        4.1. Grant of Security  Interest.  Borrower grants and pledges to Bank a
continuing security interest in all presently existing and hereafter acquired or
arising  Collateral in order to secure prompt payment of any and all Obligations
and in order to secure prompt  performance  by Borrower of each of its covenants
and duties under the Loan Documents.  Except as set forth in the Schedule,  such
security interest  constitutes a valid,  first priority security interest in the
presently  existing  Collateral,  and will  constitute a valid,  first  priority
security  interest  in  Collateral  acquired  after  the date  hereof.  Borrower
acknowledges  that Bank may place a "hold" on any  Deposit  Account  pledged  as
Collateral  to  secure  the  Obligations.  Notwithstanding  termination  of this
Agreement,  Bank's Lien on the Collateral  shall remain in effect for so long as
any Obligations are outstanding.

        4.2. Delivery of Additional Documentation Required.  Borrower shall from
time to time execute and deliver to Bank, at the request of Bank, all Negotiable
Collateral,   all  financing  statements  and  other  documents  that  Bank  may
reasonably  request,  in form  satisfactory  to Bank,  to perfect  and  continue
perfected  Bank's  security  interests in the  Collateral  and in order to fully
consummate all of the transactions contemplated under the Loan Documents.

        4.3. Right to Inspect. Bank (through any of its officers,  employees, or
agents) shall have the right,  upon reasonable  prior notice,  from time to time
during Borrower's usual business hours, to inspect  Borrower's Books and to make
copies  thereof and to check,  test,  and  appraise the  Collateral  in order to
verify Borrower's financial condition or the amount,  condition of, or any other
matter relating to, the Collateral.

5.      REPRESENTATIONS AND WARRANTIES

        Borrower represents and warrants as follows:

        5.1. Due Organization and Qualification. Borrower and each Subsidiary is
a corporation  duly existing and in good standing under the laws of its state of
incorporation  and is  qualified  and licensed to do business in, and is in good
standing in, any state in which the conduct of its business or its  ownership of
property  requires  that it be so  qualified  and  where  the  failure  to be so
qualified would have a Material Adverse Effect.


                                       57
<PAGE>

        5.2.  Due  Authorization;  No Conflict.  The  execution,  delivery,  and
performance of the Loan Documents are within Borrower's  corporate powers,  have
been duly  authorized,  and are not in conflict with nor  constitute a breach of
any provision contained in Borrower's  Articles/Certificate  of Incorporation or
Bylaws,  nor will  they  constitute  an  event of  default  under  any  material
agreement to which  Borrower is a party or by which  Borrower is bound except to
the extent that certain intellectual property agreements prohibit the assignment
of the rights  thereunder  to a third  party  without  the  Borrower's  or other
party's consent and the Loan Documents constitute an assignment. Borrower is not
in default  under any  agreement to which it is a party or by which it is bound,
which default could have a Material Adverse Effect.

        5.3. No Prior Encumbrances.  Borrower has good and indefeasible title to
the Collateral, free and clear of Liens, except for Permitted Liens.

        5.4. Bona Fide Eligible  Accounts.  The Eligible  Accounts are bona fide
existing  obligations.  The  service or property  giving  rise to such  Eligible
Accounts has been performed or delivered to the account debtor or to the account
debtor's  agent for immediate  shipment to and  unconditional  acceptance by the
account  debtor.  Borrower  has  not  received  notice  of  actual  or  imminent
Insolvency  Proceeding of any account  debtor whose accounts are included in any
Borrowing Base Certificate as an Eligible Account.

        5.5. Merchantable  Inventory.  All Inventory is in all material respects
of good and marketable quality, free from all material defects.

        5.6.  Intellectual  Property.  Except  as set  forth  in  the  Schedule,
Borrower is the sole owner of the Intellectual  Property Collateral,  except for
non-exclusive  licenses  granted by Borrower to its  customers  in the  ordinary
course of  business.  Each of the Patents of Borrower is valid and  enforceable,
and no part of the Intellectual Property Collateral has been judged by any court
of competent  jurisdiction to be invalid or unenforceable,  in whole or in part,
and no claim has been made that any part of the Intellectual Property Collateral
violates the rights of any third party.  Except for and upon the filing with the
United  States  Patent and  Trademark  Office  with  respect to the  Patents and
Trademarks  of Borrower  and the  Register  of  Copyrights  with  respect to the
Copyrights  and  Mask  Works of  Borrower  necessary  to  perfect  the  security
interests created hereunder, and except as has been already made or obtained, no
authorization, approval or other action by, and no notice to or filing with, any
United  States  governmental  authority  or  United  States  regulatory  body is
required either (i) for the grant by Borrower of the security  interest  granted
hereby or for the  execution,  delivery  or  performance  of Loan  Documents  by
Borrower in the United States or (ii) for the perfection in the United States or
the exercise by Bank of its rights and remedies hereunder.

        5.7. Name;  Location of Chief Executive  Office.  Except as disclosed in
the  Schedule,  Borrower has not done  business and will not without at least 30
days prior  written  notice to Bank do  business  under any name other than that
specified on the signature page hereof.  The chief executive  office of Borrower
is located at the address indicated in Section 10 hereof.

        5.8.  Litigation.  Except  as set  forth in the  Schedule,  there are no
actions or proceedings  pending, or, to Borrower's  knowledge,  threatened by or
against Borrower or any Subsidiary before any court or administrative  agency in
which an adverse decision could have a Material Adverse Effect.

        5.9.  No  Material   Adverse   Change  in  Financial   Statements.   All
consolidated  financial  statements  related to Borrower and any Subsidiary that
have been delivered by Borrower to Bank fairly present in all material  respects
Borrower's   consolidated  financial  condition  as  of  the  date  thereof  and
Borrower's  consolidated  results of operations for the period then ended. There
has not been a material adverse change in the consolidated  financial  condition
of  Borrower  since  the date of the most  recent of such  financial  statements
submitted to Bank on or about the Closing Date.

                                       58
<PAGE>

        5.10.  Regulatory  Compliance.  Borrower and each Subsidiary has met the
minimum funding requirements of ERISA with respect to any employee benefit plans
subject to ERISA.  No event has occurred  resulting from  Borrower's  failure to
comply with ERISA that is reasonably  likely to result in  Borrower's  incurring
any  liability  that could have a Material  Adverse  Effect.  Borrower is not an
"investment company" or a company "controlled" by an "investment company" within
the  meaning of the  Investment  Company  Act of 1940.  Borrower  is not engaged
principally, or as one of its important activities, in the business of extending
credit for the  purpose of  purchasing  or  carrying  margin  stock  (within the
meaning  of  Regulation  U of the  Board of  Governors  of the  Federal  Reserve
System). Borrower has complied with all the provisions of the Federal Fair Labor
Standards Act. Borrower has not violated any statutes, laws, ordinances or rules
applicable to it, violation of which could have a Material Adverse Effect.

        5.11.  Environmental  Condition.  None of Borrower's or any Subsidiary's
properties  or assets has ever been used by  Borrower or any  Subsidiary  or, to
Borrower's knowledge, by previous owners or operators, in the disposal of, or to
produce,  store, handle,  treat,  release, or transport,  any hazardous waste or
hazardous  substance other than in accordance with applicable law; to Borrower's
knowledge,  none of Borrower's  properties or assets has ever been designated or
identified in any manner pursuant to any environmental  protection  statute as a
hazardous waste or hazardous substance disposal site, or a candidate for closure
pursuant to any  environmental  protection  statute;  no lien arising  under any
environmental  protection statute has attached to any revenues or to any real or
personal property owned by Borrower or any Subsidiary;  and neither Borrower nor
any Subsidiary has received a summons,  citation,  notice, or directive from the
Environmental   Protection   Agency  or  any  other  federal,   state  or  other
governmental  agency  concerning  any  action or  omission  by  Borrower  or any
Subsidiary  resulting in the release, or other disposition of hazardous waste or
hazardous  substances  into  the  environment  that  has  not  been  settled  or
determined without a Material Adverse Effect.

        5.12.  Taxes.  Borrower  and each  Subsidiary  has filed or caused to be
filed all tax returns  required to be filed on a timely basis,  and has paid, or
has made  adequate  provision for the payment of, all taxes  reflected  therein,
except those being contested in good faith by proper  proceedings  with adequate
reserves under GAAP.

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

        5.14. Government Consents. Borrower and each Subsidiary has obtained all
material  consents,  approvals and  authorizations  of, made all declarations or
filings with, and given all notices to, all  governmental  authorities  that are
necessary  for the  continued  operation  of  Borrower's  business as  currently
conducted.

        5.15.  Year 2000  Compliance.  Borrower  has  conducted a  comprehensive
review and assessment of Borrower's systems and equipment  applications and made
inquiry of Borrower's key  suppliers,  vendors and customers with respect to the
Year 2000 Problem.  Based on that review and inquiry,  Borrower does not believe
the Year 2000  Problem,  including  costs of  remediation,  will have a Material
Adverse  Effect.  Borrower has developed  adequate  contingency  plans to ensure
uninterrupted and unimpaired business operation in the event of a failure of its
own or a third  party's  systems  or  equipment  due to the Year  2000  Problem,
including  those of  vendors,  customers,  and  suppliers,  as well as a general
failure of or interruption in its communications and delivery infrastructure.

        5.16. Full Disclosure.  No  representation,  warranty or other statement
made by Borrower  in any  certificate  or written  statement  furnished  to Bank
contains any untrue  statement  of a material  fact or omits to state a material
fact necessary in order to make the statements contained in such certificates or
statements not misleading.

60      AFFIRMATIVE COVENANTS

                                       59
<PAGE>

        Borrower  covenants  and  agrees  that,  until  payment  in  full of all
outstanding Obligations, and for so long as Bank may have any commitment to make
a Credit Extension hereunder, Borrower shall do all of the following:

        6.1.  Good  Standing.  Borrower  shall  maintain  its  and  each  of its
Subsidiaries'  corporate  existence  and good  standing in its  jurisdiction  of
incorporation  and  maintain  qualification  in each  jurisdiction  in which the
failure to so  qualify  could have a Material  Adverse  Effect.  Borrower  shall
maintain,  and shall cause each of its  Subsidiaries to maintain,  to the extent
consistent  with  prudent  management  of  Borrower's  business,  in  force  all
licenses,  approvals  and  agreements,  the loss of which  could have a Material
Adverse Effect.

        6.2.  Government  Compliance.  Borrower shall meet, and shall cause each
Subsidiary to meet, the minimum  funding  requirements  of ERISA with respect to
any employee  benefit plans  subject to ERISA and to comply,  with all statutes,
laws,  ordinances and government  rules and  regulations to which it is subject,
the failure to meet or  noncompliance  with which could have a Material  Adverse
Effect.

        6.3. Financial Statements, Reports, Certificates. Borrower shall deliver
to Bank: (a) as soon as available, but in any event within 90 days after the end
of Borrower's fiscal year, audited consolidated financial statements of Borrower
prepared  in  accordance  with  GAAP,  consistently  applied,  together  with an
unqualified  opinion on such financial  statements of an  independent  certified
public accounting firm reasonably acceptable to Bank; (b) within five days after
filing,  copies of all  statements,  reports and notices sent or made  available
generally by Borrower to its 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;  (c) promptly upon receipt of notice thereof,  a 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 $250,000.00 or
more;  (d)  prompt  notice  of any  material  change in the  composition  of the
Intellectual Property Collateral,  including, but not limited to, any subsequent
ownership  right of Borrower in or to any  Copyright,  Patent or  Trademark  not
specified in any intellectual  property security  agreement between Borrower and
Bank or knowledge of an event that materially adversely effects the value of the
Intellectual  Property  Collateral;  and (e) such  budgets,  sales  projections,
operating  plans or other financial  information as Bank may reasonably  request
from time to time.

               Within 20 days after the last day of each month,  Borrower  shall
deliver to Bank a Borrowing Base Certificate signed by a Responsible  Officer in
substantially  the form of  Exhibit C hereto,  together  with aged  listings  of
accounts receivable and accounts payable.

               At the time Borrower  delivers each of its 10-K and 10-Q to Bank,
Borrower shall deliver to Bank a Compliance  Certificate signed by a Responsible
Officer in  substantially  the form of Exhibit D hereto and  calculated  for the
relevant fiscal period and period end.

               Bank  shall  have a right  from time to time  hereafter  to audit
Borrower's  Accounts at  Borrower's  expense,  provided that such audits will be
conducted  no more often than  every six months  unless an Event of Default  has
occurred and is continuing.

        6.4. Inventory;  Returns.  Borrower shall keep all Inventory in good and
marketable condition, free from all material defects. Returns and allowances, if
any, as between  Borrower and its account debtors shall be on the same basis and
in accordance with the usual customary  practices of Borrower,  as they exist at
the  time of the  execution  and  delivery  of this  Agreement.  Borrower  shall
promptly  notify Bank of all  returns and  recoveries  and of all  disputes  and
claims,  where  the  return,  recovery,  dispute  or claim  involves  more  than
$50,000.00.

        6.5.  Taxes.  Borrower  shall make,  and shall cause each  Subsidiary to
make,  due and timely  payment or deposit of all material  federal,  state,  and
local  taxes,  assessments,  or  contributions  required of it by law,  and will
execute and deliver to Bank, on demand,  appropriate  certificates  attesting to
the payment or deposit  thereof;  and  Borrower  will make,  and will cause each
Subsidiary to make,  timely  payment or deposit of all material tax


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<PAGE>

payments and withholding taxes required of it by applicable laws, including, but
not limited to, those laws concerning F.I.C.A.,  F.U.T.A., state disability, and
local,  state,  and federal income taxes,  and will, upon request,  furnish Bank
with  proof  reasonably  satisfactory  to Bank  indicating  that  Borrower  or a
Subsidiary  has made such  payments or  deposits;  provided  that  Borrower or a
Subsidiary  need not make any payment if the amount or validity of such  payment
is (i)  contested in good faith by  appropriate  proceedings  , (ii) is reserved
against (to the extent  required  by GAAP) by  Borrower  and (iii) no lien other
than a Permitted Lien results.

        6.6.   Insurance.

                       (a) Borrower,  at its expense,  shall keep the Collateral
insured against loss or damage by fire, theft,  explosion,  sprinklers,  and all
other hazards and risks, and in such amounts,  as ordinarily  insured against by
other owners in similar  businesses  conducted in the locations where Borrower's
business is conducted on the date hereof. Borrower shall also maintain insurance
relating to Borrower's  ownership and use of the  Collateral in amounts and of a
type that are customary to businesses similar to Borrower's.

                       (b) All such policies of insurance shall be in such form,
with such companies, and in such amounts as are reasonably satisfactory to Bank.
All such  policies of property  insurance  shall contain a lender's loss payable
endorsement,  in a form satisfactory to Bank, showing Bank as an additional loss
payee thereof and all  liability  insurance  policies  shall show the Bank as an
additional  insured,  and shall  specify  that the insurer must give at least 20
days  notice to Bank  before  canceling  its  policy for any  reason.  At Bank's
request,  Borrower  shall deliver to Bank  certified  copies of such policies of
insurance  and evidence of the payments of all premiums  therefor.  All proceeds
payable under any such policy  shall,  at the option of Bank, be payable to Bank
to be applied on account of the Obligations.

        6.7.  Principal  Depository.   Borrower  shall  maintain  its  principal
depository and operating accounts with Bank.

        6.8.  Quick Ratio.  Borrower shall maintain as of the end of each fiscal
quarter,  a ratio of Quick Assets to Current  Liabilities minus deferred revenue
of at least 1.50 to 1.00.

        6.9. Tangible Net Worth.  Borrower shall maintain, as of the end of each
fiscal  quarter,  a  Tangible  Net  Worth of not less than  $2,000,000  plus the
cumulative  positive  net income (if any -- and  without  deduction  for any net
loss) for each fiscal quarter ending on or after September 30, 1998.

        6.10.  Registration of Intellectual Property Rights.

                       (a) Borrower shall register or cause to be registered (to
the extent not already  registered)  with the United States Patent and Trademark
Office or the United States Copyright Office, as applicable,  those intellectual
property  rights  listed on  Exhibits  A, B and C to the  Intellectual  Property
Security  Agreement  delivered  to Bank by  Borrower  in  connection  with  this
Agreement  within  30 days  after  the date of this  Agreement.  Borrower  shall
register or cause to be  registered  with the United States Patent and Trademark
Office or the United States Copyright  Office,  as applicable,  those additional
intellectual property rights developed or acquired by Borrower from time to time
in connection with any product prior to the sale or licensing of such product to
any third  party,  including  without  limitation  revisions or additions to the
intellectual property rights listed on such Exhibits A, B and C.

                       (b) Borrower  shall  execute and deliver such  additional
instruments and documents from time to time as Bank shall reasonably  request to
perfect Bank's security interest in the Intellectual Property Collateral.

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<PAGE>

                       (c) Borrower  shall (i) protect,  defend and maintain the
validity and enforceability of Borrower's Patents,  Copyrights,  and Mask Works,
(ii) use reasonable, diligent efforts to detect infringements of the Trademarks,
Patents,  Copyrights  and Mask  Works and  promptly  advise  Bank in  writing of
material  infringements  detected and (iii) not allow any Borrower's Trademarks,
Patents,  Copyrights,  or Mask Works to be abandoned,  forfeited or dedicated to
the public without the written consent of Bank,  which shall not be unreasonably
withheld or delayed,  unless Bank determines that reasonable  business practices
suggest that abandonment is appropriate.

                       (d) Bank shall have the right, but not the obligation, to
take, at Borrower's  sole expense,  any actions that Borrower is required  under
this  Section  6.10 to take but  which  Borrower  fails to take,  after 15 days'
notice  to  Borrower.  Borrower  shall  reimburse  and  indemnify  Bank  for all
reasonable costs and reasonable  expenses incurred in the reasonable exercise of
its rights under this Section 6.10.

        6.11.  Further  Assurances.  At any time and from time to time  Borrower
shall execute and deliver such further  instruments and take such further action
as may reasonably be requested by Bank to effect the purposes of this Agreement.

70      NEGATIVE COVENANTS

        Borrower  covenants  and agrees  that,  so long as any Credit  Extension
hereunder  shall be  available  and  until  payment  in full of the  outstanding
Obligations  or for so long as Bank may have any  commitment  to make any Loans,
Borrower will not do any of the following:

        7.1. Dispositions. Convey, sell, lease, transfer or otherwise dispose of
(collectively, a "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 non-exclusive  licenses and similar
arrangements  for the use of the property of Borrower or its Subsidiaries in the
ordinary course of business;  (iii) that constitute  payment of normal and usual
operating  expenses in the ordinary course of business;;  or (iv) of worn-out or
obsolete Equipment.

        7.2. Changes in Business, Ownership, or Management,  Business Locations.
Engage in any  business,  or  permit  any of its  Subsidiaries  to engage in any
business,  other than the  businesses  currently  engaged in by Borrower and any
business  substantially  similar or related thereto (or incidental thereto),  or
suffer a change in Borrower's  ownership of greater than 50%. Borrower will not,
without at least 30 days prior written  notification to Bank, relocate its chief
executive office or add any new offices or business locations.

        7.3. Mergers or Acquisitions. Merge or consolidate, or permit any of its
Subsidiaries  to  merge  or  consolidate,   with  or  into  any  other  business
organization,  or acquire, or permit any of its Subsidiaries to acquire,  all or
substantially  all of the capital stock or property of another Person except, so
long as no Event of Default has occurred and is  continuing or would exist after
giving  effect to such  action,  (i)  transactions  as to which  Borrower is the
surviving  corporation  and as to which Bank has consented  (which consent shall
not  unreasonable  be  withheld),  and  (ii)  merger  or  consolidation  of  one
Subsidiary into another Subsidiary or into Borrower.

        7.4.  Indebtedness.  Create,  incur,  assume or be or remain liable with
respect to any  Indebtedness,  or permit  any  Subsidiary  so to do,  other than
Permitted Indebtedness.

        7.5.  Encumbrances.  Create,  incur,  assume or suffer to exist any Lien
with respect to any of its property,  or assign or otherwise convey any right to
receive  income,  including  the  sale of any  Accounts,  or  permit  any of its
Subsidiaries so to do, except for Permitted Liens.

        7.6. Distributions.  Pay any dividends or make any other distribution or
payment on account of or in  redemption,  retirement  or purchase of any capital
stock other than repurchases at cost of stock held by any


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employee,  director,  or  consultant of Borrower  upon the  termination  of such
Person's employment or relationship with Borrower.

        7.7.  Investments.  Directly or  indirectly  acquire or own, or make any
Investment  in or to any  Person,  or permit any of its  Subsidiaries  so to do,
other than Permitted Investments.

        7.8. Transactions with Affiliates.  Directly or indirectly enter into or
permit to exist any material  transaction  with any Affiliate of Borrower except
for (a)  transactions  that are in the ordinary  course of Borrower's  business,
upon fair and reasonable terms that are no less favorable to Borrower than would
be obtained in an arm's length  transaction with a nonaffiliated  Person and (b)
Permitted Investments.

        7.9.  Intellectual  Property  Agreements.  Borrower shall not permit the
inclusion in any material contract to which it becomes a party of any provisions
that would in any way prevent the creation of a security  interest in Borrower's
rights and  interests  in any property  included  within the  definition  of the
Intellectual  Property Collateral  acquired under such contracts,  except to the
extent  that  such  provisions  are  necessary  in  Borrower's  exercise  of its
reasonable business judgement upon notice to Bank.

        7.10. Subordinated Debt. Make any payment in respect of any Subordinated
Debt,  or permit any of its  Subsidiaries  to make any such  payment,  except in
compliance  with the terms of such  Subordinated  Debt,  or amend any  provision
contained in any documentation  relating to the Subordinated Debt without Bank's
prior written consent.

        7.11.  Inventory.  Store the Inventory with a bailee,  warehouseman,  or
similar  party  unless  Bank has  received  a pledge  of any  warehouse  receipt
covering such  Inventory.  Except for Inventory  sold in the ordinary  course of
business and software  media and  documentation  maintained at Borrower's  sales
offices in the ordinary  course of business and except for such other  locations
as Bank may approve in writing,  Borrower  shall keep the Inventory  only at the
locations  set forth in  Section 10 hereof  and such  other  locations  of which
Borrower  gives Bank prior  written  notice and as to which  Borrower  signs and
files a financing statement where needed to perfect Bank's security interest.

        7.12. Compliance. Become an "investment company" or a company controlled
by an "investment  company," within the meaning of the Investment Company Act of
1940,  or become  principally  engaged in, or undertake as one of its  important
activities,  the business of extending  credit for the purpose of  purchasing or
carrying margin stock, or use the proceeds of any Loan for such 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,  which
violation  could  have  a  Material  Adverse  Effect;   or  permit  any  of  its
Subsidiaries to do any of the foregoing.

80      EVENTS OF DEFAULT

        Any one or more of the  following  events shall  constitute an "Event of
Default" by Borrower under this Agreement:

        8.1.  Payment  Default.  If Borrower  fails to pay, when due, any of the
Obligations.

        8.2.   Covenant Default.

                       (a) If  Borrower  fails to perform any  obligation  under
Sections 6.3,  6.6, 6.7, 6.8, or 6.9 or violates any of the covenants  contained
in Article 7 of this Agreement, or


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<PAGE>

                       (b) If Borrower  fails or neglects to perform,  keep,  or
observe any other material term,  provision,  condition,  covenant, or agreement
contained  in this  Agreement,  in any of the Loan  Documents,  or in any  other
present or future  agreement  between  Borrower  and Bank and as to any  default
under such other term, provision,  condition,  covenant or agreement that can be
cured,  has failed to cure such  default  within  ten days after the  occurrence
thereof;  provided that if the default  cannot by its nature be cured within the
ten day period or cannot  after  diligent  attempts by Borrower be cured  within
such 10 day period,  and such  default is likely to be cured within a reasonable
time, then Borrower shall have an additional  reasonable period (which shall not
in any case  exceed 30 days) to attempt to cure such  default,  and within  such
reasonable  time  period the  failure to have  cured such  default  shall not be
deemed an Event of Default  (provided  that no Loans will be required to be made
during such cure period);

        8.3. Material Adverse Effect. If there any Material Adverse Effect;

        8.4.  Attachment.  If any  material  portion  of  Borrower's  assets  is
attached, seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any trustee, receiver or person acting in a similar
capacity and such attachment,  seizure, writ or distress warrant or levy has not
been  removed,  discharged  or  rescinded  within ten days,  or if  Borrower  is
enjoined,  restrained, or in any way prevented by court order from continuing to
conduct all or any material  part of its business  affairs,  or if a judgment or
other  claim  becomes  a lien  or  encumbrance  upon  any  material  portion  of
Borrower's  assets,  or if a notice of lien,  levy,  or  assessment  is filed of
record with respect to any of Borrower's assets by the United States Government,
or any department,  agency, or instrumentality thereof, or by any state, county,
municipal,  or  governmental  agency,  and the same is not paid  within ten days
after  Borrower  receives  notice  thereof,  provided that none of the foregoing
shall  constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contest by Borrower (provided
that no Credit Extensions will be required to be made during such cure period);

        8.5.  Insolvency.  If Borrower  becomes  insolvent,  or if an Insolvency
Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced
against Borrower and is not dismissed or stayed within 60 days (provided that no
Loans will be made prior to the dismissal of such Insolvency Proceeding);

        8.6. Other  Agreements.  If there is a default in any agreement to which
Borrower is a party with a third party or parties  resulting  in a right by such
third party or parties,  whether or not exercised, to accelerate the maturity of
any  Indebtedness  in an amount in excess of  $100,000.00  or that  could have a
Material Adverse Effect;

        8.7.  Subordinated  Debt.  If  Borrower  makes any payment on account of
Subordinated  Debt,  except to the extent  such  payment  is  allowed  under any
subordination agreement entered into with Bank;

        8.8.  Judgments.  If a judgment or judgments for the payment of money in
an amount,  individually or in the aggregate, of at least $100,000.00 (in excess
of any applicable  insurance  coverage) shall be rendered  against  Borrower and
shall remain unsatisfied and unstayed for a period of ten days (provided that no
Credit  Extensions  will  be  made  prior  to the  satisfaction  or stay of such
judgment); or

        8.9.  Misrepresentations.  If any material misrepresentation or material
misstatement exists now or hereafter in any warranty or representation set forth
herein or in any  certificate  or writing  delivered  to Bank by Borrower or any
Person acting on Borrower's  behalf pursuant to this Agreement or to induce Bank
to enter into this Agreement or any other Loan Document.

90      BANK'S RIGHTS AND REMEDIES

        9.1. Rights and Remedies. Upon the occurrence and during the continuance
of an Event of  Default,  Bank  may,  at its  election,  without  notice  of its
election and without demand,  do any one or more of the following,  all of which
are authorized by Borrower:

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<PAGE>


                       (a) Declare all  Obligations,  whether  evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due and
payable  (provided that upon the occurrence of an Event of Default  described in
Section 8.5 all Obligations shall become immediately due and payable without any
action by Bank);

                       (b) Cease advancing  money or extending  credit to or for
the  benefit of  Borrower  under  this  Agreement  or under any other  agreement
between Borrower and Bank;

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

                       (d) Liquidate any Exchange  Contracts not yet settled and
demand that Borrower  immediately deposit cash with Bank in an amount sufficient
to  cover  any  losses  incurred  by Bank  due to  liquidation  of the  Exchange
Contracts at the then prevailing market price;

                       (e) Settle or adjust  disputes and claims  directly  with
account  debtors  for  amounts,  upon  terms  and in  whatever  order  that Bank
reasonably considers advisable;

                       (f) Without notice to or demand upon Borrower,  make such
payments and do such acts as Bank  considers  necessary or reasonable to protect
its  security  interest  in the  Collateral.  Borrower  agrees to  assemble  the
Collateral if Bank so requires,  and to make the Collateral available to Bank as
Bank may  designate.  Borrower  authorizes  Bank to enter the premises where the
Collateral is located, to take and maintain possession of the Collateral, or any
part of it,  and to pay,  purchase,  contest,  or  compromise  any  encumbrance,
charge, or lien which in Bank's determination appears to be prior or superior to
its security interest and to pay all expenses incurred in connection  therewith.
With  respect to any of  Borrower's  premises,  Borrower  hereby  grants  Bank a
license to enter such premises and to occupy the same,  without  charge in order
to exercise any of Bank's rights or remedies provided herein, at law, in equity,
or otherwise;

                       (g) Without  notice to Borrower  set off and apply to the
Obligations  any and all (i) balances and deposits of Borrower  held by Bank, or
(ii)  indebtedness  at any time  owing to or for the  credit or the  account  of
Borrower held by Bank;

                       (h) Ship,  reclaim,  recover,  store,  finish,  maintain,
repair,  prepare for sale,  advertise for sale, and sell (in the manner provided
for herein) the Collateral. Bank is hereby granted a non-exclusive, royalty-free
license or other right,  solely  pursuant to the provisions of this Section 9.1,
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  property of a similar  nature,  as it
pertains to the Collateral,  in completing  production of, advertising for sale,
and selling any Collateral and, in connection with Bank's exercise of its rights
under this Section 9.1,  Borrower's  rights under all licenses and all franchise
agreements shall inure to Bank's benefit;

                       (i) Sell the  Collateral  at either a public  or  private
sale, or both, by way of one or more contracts or  transactions,  for cash or on
terms, in such manner and at such places (including Borrower's premises) as Bank
determines is  commercially  reasonable,  and apply the proceeds  thereof to the
Obligations in whatever manner or order it deems appropriate;

                       (j) Bank may credit bid and  purchase at any public sale,
or at any private sale as permitted by law; and

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<PAGE>

                       (k) Any deficiency  that exists after  disposition of the
Collateral as provided above will be paid immediately by Borrower.

                       (l) Bank shall have a non-exclusive, royalty-free license
to use the Intellectual  Property Collateral to the extent reasonably  necessary
to permit Bank to exercise its rights and  remedies  upon the  occurrence  of an
Event of Default.

        9.2.  Power of Attorney.  Effective  only upon the occurrence and during
the  continuance of an Event of Default,  Borrower hereby  irrevocably  appoints
Bank (and any of Bank's  designated  officers,  or employees) as Borrower's true
and lawful attorney to: (a) send requests for verification of Accounts or notify
account  debtors  of Bank's  security  interest  in the  Accounts;  (b)  endorse
Borrower's  name on any checks or other  forms of payment or  security  that may
come into Bank's possession;  (c) sign Borrower's name on any invoice or bill of
lading relating to any Account,  drafts against account  debtors,  schedules and
assignments  of  Accounts,  verifications  of  Accounts,  and notices to account
debtors;  (d) make,  settle,  and  adjust all claims  under and  decisions  with
respect to Borrower's policies of insurance;  and (e) settle and adjust disputes
and claims  respecting the accounts  directly with account debtors,  for amounts
and upon terms which Bank  determines to be  reasonable;  (f) to modify,  in its
sole  discretion,  any intellectual  property  security  agreement  entered into
between  Borrower and Bank without  first  obtaining  Borrower's  approval of or
signature to such  modification by amending Exhibit A, Exhibit B, Exhibit C, and
Exhibit D, thereof, as appropriate,  to include reference to any right, title or
interest in any Copyrights, Patents, Trademarks, Mask Works acquired by Borrower
after the  execution  hereof or to delete any  reference to any right,  title or
interest in any Copyrights, Patents, Trademarks, or Mask Works in which Borrower
no longer has or claims any right,  title or interest;  (g) to file, in its sole
discretion,  one or more  financing or  continuation  statements  and amendments
thereto,  relative to any of the  Collateral  without the  signature of Borrower
where permitted by law; and (h) to transfer the Intellectual Property Collateral
into the name of Bank or a third  party to the  extent  permitted  under the UCC
provided  Bank may exercise  such power of attorney to sign the name of Borrower
on any of the documents  described in Section 4.2 regardless of whether an Event
of Default has occurred. The appointment of Bank as Borrower's attorney in fact,
and each and  every one of Bank's  rights  and  powers,  being  coupled  with an
interest, is irrevocable until all of the Obligations have been fully repaid and
performed and Bank's obligation to provide Loans hereunder is terminated.

        9.3. Accounts Collection. Upon the occurrence and during the continuance
of an Event of  Default,  Bank may notify any Person  owing funds to Borrower of
Bank's  security  interest in such funds and verify the amount of such  Account.
Borrower shall collect all amounts owing to Borrower for Bank,  receive in trust
all  payments  as  Bank's  trustee,  and  if  requested  or  required  by  Bank,
immediately  deliver such  payments to Bank in their  original  form as received
from the account debtor, with proper endorsements for deposit.

        9.4. Bank Expenses.  If Borrower fails to pay any amounts or furnish any
required  proof of payment due to third persons or entities,  as required  under
the terms of this Agreement,  then, as so long as such failure  continues,  Bank
may do any or all of the  following:  (a) make  payment  of the same or any part
thereof;  (b) set up such reserves under the Revolving  Commitment as Bank deems
necessary  to protect  Bank from the exposure  created by such  failure;  or (c)
obtain and maintain  insurance  policies of the type discussed in Section 6.6 of
this Agreement,  and take any action with respect to such policies as Bank deems
prudent.  Any  amounts  so  paid or  deposited  by Bank  shall  constitute  Bank
Expenses,  shall be immediately due and payable,  and shall bear interest at the
then  applicable  rate  hereinabove  provided,  and  shall  be  secured  by  the
Collateral.  Any payments made by Bank shall not constitute an agreement by Bank
to make  similar  payments  in the  future  or a waiver  by Bank of any Event of
Default under this Agreement.

        9.5.  Bank's  Liability  for  Collateral.  So long as Bank complies with
reasonable banking  practices,  Bank shall not in any way or manner be liable or
responsible  for: (a) the safekeeping of the Collateral;  (b) any loss or damage
thereto  occurring or arising in any manner or fashion  from any cause;  (c) any
diminution  in the value  


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<PAGE>

thereof;  or (d)  any  act or  default  of any  carrier,  warehouseman,  bailee,
forwarding agency, or other person whomsoever.  All such risk of loss, damage or
destruction of the Collateral shall be borne by Borrower.

        9.6.  Remedies  Cumulative.   Bank's  rights  and  remedies  under  this
Agreement,  the Loan Documents,  and all other  agreements  shall be cumulative.
Bank shall have all other rights and remedies not  expressly set forth herein as
provided  under the UCC, by law, or in equity.  No exercise by Bank of one right
or remedy  shall be deemed  an  election,  and no waiver by Bank of any Event of
Default on Borrower's part shall be deemed a continuing waiver. No delay by Bank
shall  constitute a waiver,  election,  or acquiescence by it. No waiver by Bank
shall be effective  unless made in a written  document  signed on behalf of Bank
and then shall be effective  only in the specific  instance and for the specific
purpose for which it was given.

        9.7.  Demand;  Protest.  Borrower  waives  demand,  protest,  notice  of
protest, 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 at any time held by Bank on which Borrower may in any way be liable.

100     NOTICES

        Unless otherwise  provided in this Agreement,  all notices or demands by
any party  relating to this  Agreement  or any other  agreement  entered into in
connection herewith shall be in writing and (except for financial statements and
other  informational  documents which may be sent by first-class  mail,  postage
prepaid)  shall  be  personally  delivered  or  sent by a  recognized  overnight
delivery service, by certified mail, postage prepaid,  return receipt requested,
or by  telefacsimile  (with  receipt  confirmed by  telephone) to Borrower or to
Bank, as the case may be, at its addresses set forth below for such party on the
signature pages hereof.  The parties hereto may change the address at which they
are to receive notices  hereunder,  by notice in writing in the foregoing manner
given to the other.

110     CHOICE OF LAW AND VENUE

        The Loan  Documents  shall be governed by, and  construed in  accordance
with, the internal laws of the State of California, without regard to principles
of conflicts of law.  Each of Borrower and Bank hereby  submits to the exclusive
jurisdiction  of the state and  Federal  courts  located  in the County of Santa
Clara, State of California. BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE  TRANSACTIONS  CONTEMPLATED  THEREIN,
INCLUDING  CONTRACT CLAIMS,  TORT CLAIMS,  BREACH OF DUTY CLAIMS,  AND ALL OTHER
COMMON LAW OR  STATUTORY  CLAIMS.  EACH  PARTY  RECOGNIZES  AND AGREES  THAT THE
FOREGOING  WAIVER  CONSTITUTES A MATERIAL  INDUCEMENT  FOR IT TO ENTER INTO THIS
AGREEMENT.  EACH PARTY  REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER
WITH ITS LEGAL  COUNSEL AND THAT IT KNOWINGLY  AND  VOLUNTARILY  WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.

120     GENERAL PROVISIONS

        12.1. Successors and Assigns. This Agreement shall bind and inure to the
benefit  of the  respective  successors  and  permitted  assigns  of each of the
parties;  provided that neither this  Agreement nor any rights  hereunder may be
assigned by Borrower without Bank's prior written consent,  which consent may be
granted or withheld in Bank's sole discretion. Bank shall have the right without
the  consent of or notice to  Borrower to sell,  transfer,  negotiate,  or grant
participation  in all or any part of, or any  interest in,  Bank's  obligations,
rights and benefits hereunder.

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<PAGE>

        12.2.  Indemnification.  Borrower shall , indemnify ,defend, protect and
hold harmless  Bank and its officers,  employees,  and agents  against:  (a) all
obligations,  demands,  claims, and liabilities claimed or asserted by any other
party in connection  with the  transactions  contemplated by the Loan Documents;
and (b) all losses or Bank  Expenses in any way suffered,  incurred,  or paid by
Bank as a result of or in any way arising out of, following, or consequential to
transactions  between Bank and Borrower  whether  under the Loan  Documents,  or
otherwise (including without limitation reasonable attorneys fees and expenses),
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 set forth in this Agreement.

        12.4. Severability of Provisions. Each provision of this Agreement shall
be severable  from every other  provision of this  Agreement  for the purpose of
determining the legal enforceability of any specific provision.

        12.5.  Amendments  in Writing,  Integration.  This  Agreement  cannot be
amended or terminated except by a writing signed by Borrower and Bank. All prior
agreements,  understandings,   representations,   warranties,  and  negotiations
between the parties hereto with respect to the subject matter of this Agreement,
if any, are merged 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,  shall be deemed to be an  original,  and all of
which, when taken together, shall constitute but one and the same Agreement.

        12.7.  Survival.  All covenants,  representations and warranties made in
this  Agreement  shall  continue  in  full  force  and  effect  so  long  as any
Obligations  remain  outstanding.  The obligations of Borrower to indemnify Bank
with respect to the expenses,  damages,  losses, costs and liabilities described
in Section  12.2  shall  survive  until all  applicable  statute of  limitations
periods  with  respect to actions  that may be brought  against  Bank have run ;
provided that so long as the  Obligations  referred to in the first  sentence of
this Section 12.7 have been  satisfied,  and Bank has no  commitment to make any
Credit Extensions or to make any other loans to Borrower, Bank shall release all
security  interests granted hereunder and redeliver all Collateral held by it in
accordance with applicable law.

        12.8.  Confidentiality.  In handling any  confidential  information Bank
shall exercise the same degree of care that it exercises with respect to its own
proprietary information of the same types to maintain the confidentiality of any
non-public  information  thereby received or received pursuant to this Agreement
except that disclosure of such  information may be made (i) to the  subsidiaries
or affiliates of Bank in connection  with their present or prospective  business
relations  with Borrower,  (ii) to prospective  transferees or purchasers of any
interest  in the  Loans,  provided  that they  have  entered  into a  comparable
confidentiality  agreement  in favor of  Borrower  and have  delivered a copy to
Borrower,  (iii) as  required  by law,  regulations,  rule or  order,  subpoena,
judicial order or similar order,  (iv) as may be required in connection with the
examination,  audit or similar  investigation  of Bank, and (v) as Bank may deem
appropriate  in  connection  with  the  exercise  of  any  remedies   hereunder.
Confidential  information  hereunder shall not include  information that either:
(a) is in the  public  domain or in the  knowledge  or  possession  of Bank when
disclosed to Bank, or any time after such information becomes part of the public
domain after disclosure to Bank through no fault of Bank; or (b) is disclosed to
Bank by a third party,  provided Bank does not have actual  knowledge  that such
third party is prohibited from disclosing such information.


                                       68
<PAGE>

        IN WITNESS WHEREOF,  the parties hereto have caused this Agreement to be
executed as of the date first above written.


WORLDTALK COMMUNICATIONS CORPORATION
doing business as WORLDTALK CORPORATION


By      /s/ Todd Hagen                                                 
    ------------------------------------------

Title:  CFO                                                   
       ---------------------------------------

Address for Notices:

Attn: Chief Financial Officer or President
5155 Old Ironsides Drive
Santa Clara, CA 95054


SILICON VALLEY BANK


By:     /s/ John China                                                 
    ------------------------------------------

Title:  Vice President                                                 
       ---------------------------------------

Address for Notices:

Attn: John China
3003 Tasman Drive
Santa Clara, CA 95054


                                       69
<PAGE>


                                    EXHIBIT A

        The  Collateral  shall  consist  of all  right,  title and  interest  of
Borrower,  whether now  existing or  hereafter  acquired or created and wherever
located, in and to the following:

        (a) All goods, equipment, 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;

        (b) All inventory,  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;

        (c) All contract  rights,  general  intangibles,  goodwill,  trademarks,
servicemarks,  trade styles, trade names, patents, patent applications,  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;

        (d) All accounts,  contract  rights,  royalties,  license rights and all
other forms of obligations owing to Borrower,  whether or not arising out of the
sale or lease of goods, the licensing of technology or the rendering of services
by Borrower,  and whether or not earned by  performance,  and any and all credit
insurance,  guaranties,  and other security therefor, as well as all merchandise
returned to or reclaimed by Borrower;

        (e)  All  documents,  cash,  deposit  accounts,  securities,  investment
property,  letters of credit,  certificates of deposit,  instruments and chattel
paper and Borrower's Books relating to the foregoing;

        (f)   All   copyright   rights,   copyright   applications,    copyright
registrations  and like  protections  in each work of authorship  and derivative
work  thereof,  whether  published  or  unpublished;  all trade  secret  rights,
including  all rights to unpatented  inventions,  know-how,  operating  manuals,
license  rights and agreements and  confidential  information;  all mask work or
similar rights available for the protection of  semiconductor  chips; all claims
for damages by way of any past,  present and future  infringement  of any of the
foregoing; and

        (g) 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.

                                      -1-

<PAGE>


                                    EXHIBIT B

        LOAN PAYMENT/LOAN ADVANCE TELEPHONE REQUEST FORM
        DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.

TO:  CENTRAL CLIENT SERVICE DIVISION                 DATE: ____________________

FAX#:  (408) ____________________                    TIME: ____________________

FROM:   WORLDTALK COMMUNICATIONS CORPORATION


        AUTHORIZED SIGNER'S NAME


        AUTHORIZED SIGNATURE

PHONE:  ____________________________

FROM ACCOUNT #________________________  TO ACCOUNT#__________________________

REQUESTED TRANSACTION TYPE                                REQUEST DOLLAR AMOUNT
--------------------------                                ---------------------

PRINCIPAL INCREASE (Loan)                                     $        
                                                               --------
PRINCIPAL PAYMENT (ONLY)                                      $        
                                                               --------
INTEREST PAYMENT (ONLY)                                       $        
                                                               --------
PRINCIPAL AND INTEREST (PAYMENT)                                       $        
                                                                        --------

OTHER INSTRUCTIONS: ___________________________________________________________

        All  representations  and warranties of Borrower  stated in the Loan and
Security Agreement are true, correct and complete in all material respects as of
the date of the telephone  request for and Loan  confirmed by this Loan Request;
provided  that those  representations  and  warranties  expressly  referring  to
another date shall be true,  correct and complete in all material respects as of
such 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:  ________________________________________


        Authorized Signature (Bank)
        Phone #  _______________________________________________


                                      -1-
<PAGE>


                                    EXHIBIT C
                           BORROWING BASE CERTIFICATE

TO:            SILICON VALLEY BANK
FROM:   WORLDTALK COMMUNICATIONS CORPORATION

Commitment Amount:     $

ACCOUNTS RECEIVABLE
        10 Accounts Receivable Book Value as of            $                   
                                                --------    -------------------
        20 Additions (please explain on reverse)           $                   
                                                            -------------------
        30 TOTAL ACCOUNTS RECEIVABLE                       $                   
                                                            -------------------

ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
        40 Amounts over 90 days due                        $                   
                                                            -------------------
        5. Balance of 50% over 90 day accounts             $                   
                                                            -------------------
        6. Concentration Limits                            $                   
                                                            -------------------
        7. Foreign Accounts                                $                   
                                                            -------------------
        8. Governmental Accounts                           $                   
                                                            -------------------
        9. Contra Accounts                                 $                   
                                                            -------------------
        10.  Promotion or Demo Accounts                    $                   
                                                            -------------------
        11. Intercompany/Employee Accounts                 $                   
                                                            -------------------
        12. Other (please explain on reverse)              $                   
                                                            -------------------
        13. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS           $                   
                                                            -------------------

CALCULATION OF LOAN VALUE
        14. Eligible Accounts (#3 minus #13)               $                   
                                                            -------------------
        15. LOAN VALUE OF ACCOUNTS (____% of #14)          $                   
                                                            -------------------

BALANCES
        16. Maximum Loan Amount                            $                   
                                                            -------------------
        17. Total Funds Available  [Lesser of #16 or #15]  $                   
                                                            -------------------
        18. Present balance owing on Line of Credit        $                   
                                                            -------------------
        19. Outstanding under Sublimits ( )                $                   
                                                            -------------------
        20. RESERVE POSITION (#17 minus #18 and #19)       $                   
                                                            -------------------

The undersigned represents and warrants that the foregoing is true, complete and
correct,  and that the information  reflected in this Borrowing Base Certificate
complies  with the  representations  and  warranties  set  forth in the Loan and
Security Agreement between the undersigned and Silicon Valley Bank.

BORROWER: WORLDTALK COMMUNICATIONS CORPORATION

               By: _______________________
                       Authorized Signer


                                      -1-
<PAGE>


COMMENTS (FOR BANK USE ONLY):
Received By:____________________
Date:________________
Reviewed By:____________________
Compliance Status:  Yes / No___________________________







                                      -2-
<PAGE>


                                    EXHIBIT C
                             COMPLIANCE CERTIFICATE

TO:     SILICON VALLEY BANK
FROM:   WORLDTALK COMMUNICATIONS CORPORATION ("Borrower")

        The  undersigned   authorized  officer  of  the  above  Borrower  hereby
certifies  that in  accordance  with 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 of Borrower stated in
the  Agreement  are true and  correct in all  material  respects  as of the date
hereof.  Attached  herewith  are the  required  documents  supporting  the above
certification.  The  Officer  further  certifies  that  these  are  prepared  in
accordance  with  Generally  Accepted  Accounting   Principles  (GAAP)  and  are
consistently  applied  from one  period to the next  except as  explained  in an
accompanying  letter or footnotes.  The Officer  expressly  acknowledges that no
borrowings  may be  requested  by Borrower at any time or date of  determination
that Borrower is not in compliance  with any specified  terms of the  Agreement,
and that such compliance is determined not just at the date this  certificate is
delivered.
<TABLE>

        Please indicate  compliance  status by circling Yes/No under  "Complies"
column.
<CAPTION>

         Reporting Covenant               Required                              Complies
         ------------------               --------                              --------
<S>                                       <C>                                  <C>
         Quarterly financial statements   Upon filing of 10-Q                  Yes      No
         Annual (CPA Audited)             FYE within 90 days                   Yes      No

         Financial Covenant                 Required           Actual           Complies
         ------------------                 --------           ------           --------

         Minimum Quick Ratio              1.50:1.00          _____:1.00        Yes     No
         Minimum Tangible Net Worth       $__________*      $__________        Yes     No
<FN>

* $2,000,000 plus positive net income in each FQ ending on or after 9/30/98.
</FN>
</TABLE>

Sincerely,

_______________________    Date:_______________
SIGNATURE

_______________________
TITLE

         BANK USE ONLY
Received By:____________________
Date:________________
Reviewed By:____________________
Compliance Status:  Yes / No



                                      -1-
<PAGE>

<TABLE>

                     DISBURSEMENT REQUEST AND AUTHORIZATION
<CAPTION>

<S>                                                                                      <C>   
TO:               SILICON VALLEY BANK

FROM:    WORLDTALK COMMUNICATIONS CORPORATION ("Borrower")

LOAN TYPE.  This is a Variable Rate, Revolving Line of Credit of a principal amount up to $              .
                                                                                           --------------

PRIMARY PURPOSE OF LOAN.  The primary purpose of this loan is for business.

SPECIFIC PURPOSE.  The specific purpose of this loan is:  _______________.

DISBURSEMENT  INSTRUCTIONS.  Borrower  understands that no loan proceeds will be
disbursed  until  all of  Bank's  conditions  for  making  the  loan  have  been
satisfied. Please disburse the loan proceeds as follows:
                                                                                          Revolving Line
                                                                                          --------------
         Amount paid to Borrower directly:           $        
                                                      --------
         Undisbursed Funds                           $        
                                                      --------
         Principal                                   $        
                                                      --------

CHARGES PAID IN CASH.  Borrower has paid or will pay in cash as agreed the following charges:

         Prepaid  Finance Charges Paid in Cash:      $        
                                                      --------
                  $                 Loan Fee
                    --------------
                  $                 Accounts Receivables Audit
                    --------------


         Other Charges Paid in Cash:                  $        
                                                       -------

                  $                 UCC Search Fees
                   ---------------
                  $                 UCC Filing Fees
                   ---------------
                  $                 Patent Filing Fees
                   ---------------
                  $                 Trademark Filing Fees
                   ---------------
                  $                 Copyright Filing Fees
                   ---------------
                  $                 Outside Counsel Fees and Expenses
                   ---------------          [ESTIMATE, DO NOT LEAVE BLANK]

         Total Charges Paid in Cash                  $        
                                                      --------
</TABLE>

AUTOMATIC PAYMENTS. Borrower hereby authorizes Bank automatically to deduct from
Borrower's account numbered _____________ the amount of any loan payment. If the
funds in the account are  insufficient  to cover any payment,  Bank shall not be
obligated to advance funds to cover the payment.

FINANCIAL  CONDITION.  BY SIGNING THIS  AUTHORIZATION,  BORROWER  REPRESENTS AND
WARRANTS  TO BANK THAT THE  INFORMATION  PROVIDED  ABOVE IS TRUE AND CORRECT AND
THAT THERE HAS BEEN NO MATERIAL ADVERSE CHANGE IN BORROWER'S FINANCIAL CONDITION
AS  DISCLOSED  IN  BORROWER'S  MOST RECENT  FINANCIAL  STATEMENT  TO BANK.  THIS
AUTHORIZATION IS DATED AS OF __________________ , 19___.

BORROWER:

By:____________________________________
            Authorized Officer

                                      -2-
<PAGE>


                         AGREEMENT TO PROVIDE INSURANCE

TO:               SILICON VALLEY BANK
FROM:    WORLDTALK COMMUNICATIONS CORPORATION ("Borrower")

         INSURANCE REQUIREMENTS. Borrower understands that insurance coverage is
required in  connection  with the  extending of a loan or the providing of other
financial  accommodations to Borrower by Bank. These  requirements are set forth
in the  Loan  Documents.  The  following  minimum  insurance  coverages  must be
provided on the following described collateral (the "Collateral"):

     Collateral:         All Inventory, Equipment and Fixtures.

     Type:               All risks, including fire, theft and liability.

     Amount:             Full insurable value.

     Basis:              Replacement value.

     Endorsements:       Loss  payable  clause  to Bank  with  stipulation  that
                         coverage will not be canceled or  diminished  without a
                         minimum of 20 days prior written notice to Bank.

         INSURANCE  COMPANY.  Borrower may obtain  insurance  from any insurance
company  Borrower may choose that is  reasonably  acceptable  to Bank.  Borrower
understands  that  credit may not be denied  solely  because  insurance  was not
purchased through Bank.

         FAILURE TO PROVIDE INSURANCE. Borrower agrees to deliver to Bank, on or
before closing,  evidence of the required  insurance as provided above,  with an
effective date of , 19___, or earlier.  Borrower acknowledges and agrees that if
Borrower  fails to provide any  required  insurance  or fails to  continue  such
insurance in force, Bank may do so at Borrower's expense as provided in the Loan
and Security  Agreement (the  "Agreement").  The cost of such insurance,  at the
option of Bank, shall be payable on demand or shall be added to the indebtedness
as provided in the Agreement.  BORROWER  ACKNOWLEDGES  THAT IF BANK SO PURCHASES
ANY SUCH  INSURANCE,  THE  INSURANCE  WILL PROVIDE  LIMITED  PROTECTION  AGAINST
PHYSICAL  DAMAGE TO THE  COLLATERAL,  UP TO THE  BALANCE  OF THE LOAN;  HOWEVER,
BORROWER'S  EQUITY  IN THE  COLLATERAL  MAY NOT BE  INSURED.  IN  ADDITION,  THE
INSURANCE   MAY  NOT  PROVIDE   ANY  PUBLIC   LIABILITY   OR   PROPERTY   DAMAGE
INDEMNIFICATION   AND  MAY  NOT  MEET   THE   REQUIREMENTS   OF  ANY   FINANCIAL
RESPONSIBILITY LAWS.

         AUTHORIZATION.  For purposes of insurance coverage on the Collateral in
accordance with the Agreement, Borrower authorizes Bank to provide to any person
(including  any  insurance  agent  or  company)  all   information   Bank  deems
appropriate,  whether  regarding  the  Collateral,  the loan or other  financial
accommodations, or both.

         BORROWER  ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS AGREEMENT
TO  PROVIDE  INSURANCE  AND  AGREES  TO  ITS  TERMS.  THIS  AGREEMENT  IS  DATED
_______________________ , 19___.

BORROWER: WORLDTALK COMMUNICATIONS CORPORATION

By:______________________________
         Authorized Officer

                                      -3-
<PAGE>



         FOR BANK USE ONLY
         INSURANCE VERIFICATION
DATE:                                        PHONE:
AGENT'S NAME:
INSURANCE COMPANY:
POLICY NUMBER:
EFFECTIVE DATES:
COMMENTS: