EXHIBIT 10.15

This LOAN AND SECURITY  AGREEMENT is entered into as of August 25, 1999,  by and
between  VENTURE  BANKING GROUP, a division of Cupertino  National Bank ("Bank")
and VIDEONICS, INC. ("Borrower").



                                    RECITALS

Borrower  wishes to obtain credit from time to time from Bank,  and Bank desires
to extend credit to Borrower.  This Agreement sets forth the terms on which Bank
will advance  credit to Borrower,  and Borrower  will repay the amounts owing to
Bank.


                                   AGREEMENT

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.

                  "Advance" or "Advances"  means a cash advance or cash advances
under the Revolving Facility.

                  "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, and partners.

                  "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;  reasonable  Collateral audit fees; and Bank's reasonable  attorneys'
fees  and  expenses  incurred  in  amending,  enforcing  or  defending  the Loan
Documents (including fees and expenses of appeal),  incurred before,  during and
after an Insolvency Proceeding, whether or not suit is brought.

                  "Borrower's  Books" means all of Borrower's  books and records
including:  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 seventy-five percent
(80%) of Eligible  Accounts,  as determined  by Bank with  reference to the most
recent Borrowing Base Certificate delivered by Borrower.

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                  "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.

                  "Code" means the California Uniform Commercial Code.

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

                  "Committed  Revolving Line" means a credit  extension of up to
One Million Dollars ($1,000,000).

                  "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 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,  however,
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,  however,  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 Advance 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  extendible at the option of Borrower or any
Subsidiary to a date more than one year from the date of determination.

                  "Daily  Balance" means the amount of the  Obligations  owed at
the end of a given day.

                  "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 as a
consequence  of any  Collateral  audits  done  pursuant to Section 6.3 in Bank's
reasonable judgment and upon

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notification  thereof to  Borrower in  accordance  with the  provisions  hereof.
Unless  otherwise  agreed to by Bank,  Eligible  Accounts  shall not include the
following:

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

                           (b)  Accounts  with  respect  to an  account  debtor,
thirty  percent  (30%) of whose  Accounts  the account  debtor has failed to pay
within ninety (90) days of invoice date;

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

                           (d)  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;

                           (e) Accounts with respect to which the account debtor
is an Affiliate of Borrower;

                           (f) Accounts with respect to which the account debtor
does not have its  principal  place of business in the United  States,  with the
exception  of those  Accounts  which are  backed by either  letters of credit or
foreign credit insurance;

                           (g) Accounts with respect to which the account debtor
is the United States or any department, agency, or instrumentality of the United
States;

                           (h) Accounts with respect to which Borrower is liable
to the account debtor for goods sold or services  rendered by the account debtor
to Borrower,  but only to the extent of any amounts owing to the account  debtor
against amounts owed to Borrower;

                           (i)  Accounts  with  respect  to an  account  debtor,
including  Subsidiaries  and  Affiliates,  whose total  obligations  to Borrower
exceed  twenty  percent (20%) of all  Accounts,  to the extent such  obligations
exceed the aforementioned percentage, except as approved in writing by Bank;

                           (j) 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

                           (k) Accounts the collection of which 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 Employee  Retirement  Income Security Act of
1974, as amended, and the regulations thereunder.

                  "Event of Default" has the meaning assigned in Article 8.

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

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                  "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 of  Borrower's
right, title and interest in and to the following:

                           (a) Copyrights, Trademarks and Patents;

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

                           (c) Any and all design  rights which may be available
to Borrower now or hereafter existing, created, acquired or held;

                           (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 or Trademarks,  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 or Patents; 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, and Borrower's Books relating
to any of the foregoing.

                  "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.

                  "Lien"  means  any  mortgage,  lien,  deed of  trust,  charge,
pledge, security interest or other encumbrance.

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

                  "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 or (ii) the ability of Borrower to repay
the Obligations or otherwise perform its obligations under the Loan Documents.

                  "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, and Borrower's
Books relating to any of the foregoing.

                  "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.

                  "Periodic   Payments"   means  all   installments  or  similar
recurring payments that Borrower may now or hereafter become obligated to pay to
Bank pursuant to the terms and provisions of any instrument, or agreement now or
hereafter in existence between Borrower and Bank.

                  "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)  Indebtedness  secured  by a  lien  described  in
clause (c) of the defined term  "Permitted  Liens,"  provided such  Indebtedness
does not  exceed the lesser of the cost or fair  market  value of the  equipment
financed with such Indebtedness; and

                           (d) Subordinated Debt.

                  "Permitted Investment" means:

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

                           (b)  (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 rating of at least A-2 or P-2 from either
Standard & Poor's Corporation or Moody's Investors  Service,  (iii) certificates
of  deposit  maturing  no more  than  one (1) year  from the date of  investment
therein issued by Bank and (iv) Bank's money market accounts.

                  "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;

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                           (b)  Liens  for  taxes,  fees,  assessments  or other
governmental charges or levies, either not delinquent or being contested in good
faith by appropriate proceedings, provided the same have no priority over any of
Bank's security interests;

                           (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; and

                           (d) 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  published in the Western Edition of The Wall Street  Journal,  as
the "prime  rate,"  whether or not such rate is the lowest rate  available  from
Bank.

                  "Quick  Assets"  means,  at any  date as of which  the  amount
thereof  shall  be  determined,  the  unrestricted  cash  and  cash-equivalents,
accounts  receivable and  investments  with maturities not to exceed 90 days, of
Borrower determined in accordance with GAAP.

                  "Responsible  Officer"  means  each  of  the  Chief  Executive
Officer,  the Chief  Operating  Officer,  the Chief  Financial  Officer  and the
Controller of Borrower.

                  "Revolving  Facility"  means the facility under which Borrower
may request Bank to issue Advances, as specified in Section 2.1.1 hereof.

                  "Revolving Maturity Date" means August 25, 2001.

                  "Schedule"  means the schedule of exceptions  attached hereto,
if any.

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

                  "Subsidiary" means any corporation or partnership in which (i)
any general partnership  interest or (ii) more than 50% of the stock of which by
the  terms  thereof  ordinary  voting  power to elect  the  Board of  Directors,
managers or trustees of the entity, at the time as of which any determination is
being made, is owned by Borrower, either directly or through an Affiliate.

                  "Tangible  Net Worth" means at any date as of which the amount
thereof shall be determined, the sum of the capital stock and additional paid-in
capital plus retained  earnings (or minus  accumulated  deficit) of Borrower and
its  Subsidiaries  minus  intangible  assets,   plus  Subordinated  Debt,  on  a
consolidated basis determined in accordance with GAAP.

                  "Total  Liabilities"  means at 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.

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                  "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.

         1.2 Accounting  Terms. All accounting  terms not  specifically  defined
herein shall be  construed in  accordance  with GAAP and all  calculations  made
hereunder  shall be made in accordance  with GAAP.  When used herein,  the terms
"financial statements" shall include the notes and schedules thereto.

         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 Credit Extensions
at rates in accordance with the terms hereof.

         2.1.1 Revolving Facility.

                           (a) Subject to and upon the terms and  conditions  of
this Agreement, Borrower may request Advances in an aggregate outstanding amount
not to  exceed  the  lesser  of (i) the  Borrowing  Base or (ii)  the  Committed
Revolving Line.  Subject to the terms and conditions of this Agreement,  amounts
borrowed pursuant to this Section 2.1.1 may be repaid and reborrowed at any time
prior to the  Revolving  Maturity  Date,  at which time all Advances  under this
Section  2.1.1 shall be  immediately  due and  payable.  Borrower may prepay any
Advances without penalty or premium.

                           (b) Whenever  Borrower  desires an Advance,  Borrower
will notify Bank by facsimile  transmission or telephone no later than 3:00 p.m.
Pacific  time,  on the  Business  Day that the Advance is to be made.  Each such
notification  shall  be  promptly   confirmed  by  a  Payment/Advance   Form  in
substantially the form of Exhibit B hereto.  Bank is authorized to make Advances
under  this  Agreement,  based upon  instructions  received  from a  Responsible
Officer or a designee of a Responsible  Officer,  or without  instructions if in
Bank's  discretion  such Advances 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 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  Advances  made  under  this  Section  2.1.1 to
Borrower's deposit account.

                           (c)  Interest  hereunder  shall be due and payable on
the twenty-fifth  (25th) calendar day of each month during the term hereof. Bank
shall, at its option, charge such interest,  all Bank Expenses, and all Periodic
Payments  against any of  Borrower's  deposit  accounts or against the Committed
Revolving Line, in which case those amounts shall thereafter  accrue interest at
the rate then  applicable  hereunder.  Any  interest  not paid when due shall be
compounded by becoming a part of the  Obligations  and shall  thereafter  accrue
interest at the rate then applicable hereunder.

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         2.2  Overadvances.  If at any time the aggregate amount of the Advances
exceeds the lesser of (i) the  Borrowing  Base or (ii) the  Committed  Revolving
Line,  Borrower  shall  immediately  pay to Bank,  in cash,  the  amount of such
excess.

         2.3 Interest Rates, Payments, and Calculations.

                           (a) Interest Rates.

                                    (i) Advances. Except as set forth in Section
2.3(b),  the Advances  shall bear  interest,  on the  outstanding  daily balance
thereof,  at a rate equal to one and one-half  percent  (1.50%)  above the Prime
Rate.

                           (b)  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 (5)  percentage  points  above the interest
rate applicable immediately prior to the occurrence of the Event of Default.

                           (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 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 three
hundred sixty (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
of an Event of  Default,  the  receipt  by Bank of any wire  transfer  of funds,
check,  or other item of payment shall be immediately  applied to  conditionally
reduce Obligations, but shall not be considered a payment on account 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
anything to the contrary contained herein, any wire transfer or payment received
by Bank after 12:00 noon  California  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) Facility Fee. On the Closing Date, a Facility Fee
equal to Three  Thousand  Seven Hundred Fifty Dollars  ($3,750),  which shall be
nonrefundable;

                           (b) 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; and

                           (c) Bank  Expenses.  On the  Closing  Date,  all Bank
Expenses incurred through the Closing Date, including reasonable attorneys' fees
and  expenses  and,  after  the  Closing  Date,  all  Bank  Expenses,  including
reasonable attorneys' fees and expenses, as and when they become due.

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         2.6 Additional Costs. In case any law,  regulation,  treaty or official
directive  or the  interpretation  or  application  thereof  by any court or any
governmental authority charged with the administration thereof or the compliance
with  any  guideline  or  request  of any  central  bank or  other  governmental
authority (whether or not having the force of law):

                           (a) subjects Bank to any tax with respect to payments
of principal or interest or any other amounts  payable  hereunder by Borrower or
otherwise with respect to the transactions contemplated hereby (except for taxes
on the overall net income of Bank imposed by the United States of America or any
political subdivision thereof);

                           (b) imposes, modifies or deems applicable any deposit
insurance,  reserve,  special deposit or similar requirement against assets held
by, or deposits in or for the account of, or loans by, Bank; or

                           (c)  imposes  upon  Bank  any  other  condition  with
respect to its performance under this Agreement,

and the result of any of the  foregoing is to increase the cost to Bank,  reduce
the income  receivable  by Bank or impose any expense  upon Bank with respect to
the Obligations,  Bank shall notify Borrower thereof.  Borrower agrees to pay to
Bank the amount of such  increase  in cost,  reduction  in income or  additional
expense as and when such cost,  reduction or expense is incurred or  determined,
upon  presentation by Bank of a statement of the amount and setting forth Bank's
calculation  thereof,  all in reasonable detail, which statement shall be deemed
true and correct absent manifest error.

         2.7 Term.  This  Agreement  shall become  effective on the Closing Date
and, subject to Section 12.7, shall continue in full force and effect for a term
ending on the Revolving Maturity Date. Notwithstanding the foregoing, Bank shall
have the right to terminate its obligation to make Credit  Extensions under this
Agreement  immediately  and without  notice upon the  occurrence  and during the
continuance of an Event of Default.  Notwithstanding termination, Bank's Lien on
the  Collateral  shall  remain  in  effect  for so long as any  Obligations  are
outstanding.

         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) an intellectual property security agreement;

                           (c) no later than  September  15,  1999, a warrant to
purchase stock;

                           (d) a  subordination  agreement in form and substance
acceptable to Bank for the One Million Dollars  ($1,000,000) which represent the
director loan;

                           (e) such documents required to effect the transfer of
ownership and proceeds of Borrower's  existing  lockbox from Wells Fargo Bank to
Bank.

                                       9
<PAGE>

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

                           (g)   a   promissory   note   evidencing   Borrower's
indebtedness to Bank under this Agreement in  substantially  the form of Exhibit
E;

                           (h) financing statement (Form UCC-1);

                           (i) insurance certificate;

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

                           (k) an  accounts  receivable  audit,  the  results of
which shall be satisfactory to Bank; and

                           (l) 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/Advance
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/Advance  Form  and on the  effective  date of each  Credit
Extension  as though  made at and as of each such date,  and no Event of Default
shall have  occurred and be  continuing,  or would exist after giving  effect to
such  Credit  Extension  (provided,  however,  that  those  representations  and
warranties  expressly  referring  to  another  date shall be true,  correct  and
complete in all  material  respects as of such date).  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  repayment  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.

         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

                                       10
<PAGE>

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  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.

         5.2 Due  Authorization;  No  Conflict.  The  execution,  delivery,  and
performance of the Loan Documents are within Borrower's  powers,  have been duly
authorized,  and are  not in  conflict  with  nor  constitute  a  breach  of any
provision  contained in Borrower's Articles 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.  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 property  giving rise to such Eligible  Accounts has
been  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 that is 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 Collateral. 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  is valid  and  enforceable,  and no part of the  Intellectual  Property
Collateral has been judged 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.

         5.7 Name;  Location of Chief Executive  Office.  Except as disclosed in
the  Schedule,  Borrower  has not done  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.

         5.8  Litigation.  Except  as set  forth in the  Schedule,  there are no
actions or proceedings  pending by or against Borrower or any Subsidiary  before
any court or  administrative  agency in which an adverse  decision  could have a
Material Adverse Effect or a material  adverse effect on Borrower's  interest or
Bank's security interest in the Collateral.

         5.9  No  Material   Adverse   Change  in  Financial   Statements.   All
consolidated  financial  statements  related to Borrower and any Subsidiary that
are  delivered  by  Borrower  to Bank fairly

                                       11
<PAGE>

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.

         5.10  Solvency,  Payment of Debts.  Borrower is solvent and able to pay
its debts (including trade debts) as they mature.

         5.11 Regulatory  Compliance.  Borrower and each Subsidiary have 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 the important activities, in the business of extending
credit for the  purpose of  purchasing  or  carrying  margin  stock  (within the
meaning of Regulations T and 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.

         5.12  Environmental  Condition.  None of Borrower's or any Subsidiary's
properties or assets has ever been used by Borrower or any Subsidiary or, to the
best of 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
the best of 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 releasing,  or otherwise
disposing of hazardous waste or hazardous substances into the environment.

         5.13 Taxes.  Borrower  and each  Subsidiary  have filed or caused to be
filed all tax returns required to be filed, and have paid, or have made adequate
provision for the payment of, all taxes reflected therein.

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

         5.15  Government  Consents.  Borrower and each Subsidiary have obtained
all 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.

         5.16 Year 2000.  Borrower and its Subsidiaries  have reviewed the areas
within their  operations and business which could be adversely  affected by, and
have  developed or are

                                       12
<PAGE>

developing  a program to address on a timely  basis,  the Year 2000  Problem and
have made related  appropriate  inquiry of material  suppliers and vendors,  and
based on such review and program, the Year 2000 Problem will not have a Material
Adverse  Effect  upon its  financial  condition,  operations  or business as now
conducted.   "Year  2000  Problem"  means  the  possibility  that  any  computer
applications  or  equipment  used by  Borrower  may be unable to  recognize  and
properly perform date sensitive  functions  involving certain dates prior to and
any dates on or after December 31, 1999.

         5.17 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.

         6. AFFIRMATIVE COVENANTS

                  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 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.  Borrower shall comply,  and shall
cause each  Subsidiary  to  comply,  with all  statutes,  laws,  ordinances  and
government  rules and  regulations  to which it is subject,  noncompliance  with
which could have a Material  Adverse Effect or a material  adverse effect on the
Collateral or the priority of Bank's Lien on the Collateral.

         6.3 Financial Statements, Reports, Certificates. Borrower shall deliver
to Bank:  (a) as soon as  available,  but in any event  within  twenty (20) days
after the end of each calendar month, a company  prepared  consolidated  balance
sheet and income statement covering  Borrower's  consolidated  operations during
such  period,  in a form  acceptable  to Bank  and  certified  by a  Responsible
Officer;  (b) as soon as  available,  but in any event  within  ninety (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; (c)
if  applicable,  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  Forms  10-K  and  10-Q  filed  with the
Securities and Exchange Commission; (d) 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  Fifty  Thousand  Dollars   ($50,000)  or  more;  (e)  such  budgets,   sales
projections,  operating  plans  or  other  financial  information  as  Bank  may
reasonably  request  from time to time  generally  prepared  by  Borrower in the
ordinary course of business;  and (f) within  twenty-five  (25) days of the last
day of each fiscal  quarter,  a report  signed by Borrower,  in form  reasonably
acceptable to Bank,  listing any

                                       13
<PAGE>

applications or registrations  that Borrower has made or filed in respect of any
Patents, Copyrights or Trademarks and the status of any outstanding applications
or  registrations,  as well as any material  change in  Borrower's  intellectual
property,  including  but not  limited  to any  subsequent  ownership  right  of
Borrower in or to any  Trademark,  Patent or Copyright not specified in Exhibits
A, B, and C of the Intellectual Property Security Agreement delivered to Bank by
Borrower in connection with this Agreement.

Within twenty (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.

Borrower  shall  deliver  to Bank  with  the  monthly  and  quarterly  financial
statements  a  Compliance   Certificate  signed  by  a  Responsible  Officer  in
substantially the form of Exhibit D hereto.

Bank shall have a right from time to time hereafter to audit Borrower's Accounts
and appraise Collateral at Borrower's expense, provided that such audits will be
conducted no more often than every six (6) 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 Fifty
Thousand Dollars ($50,000).

         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 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
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 contested in good faith by
appropriate proceedings and is reserved against (to the extent required by GAAP)
by Borrower.

         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 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

                                       14
<PAGE>

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
twenty (20) days notice to Bank before canceling its policy for any reason. Upon
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 Year 2000  Compliance.  Borrower shall perform all acts  reasonably
necessary to ensure that (a) Borrower and any business in which Borrower holds a
substantial  interest,  and (b) all  customers,  suppliers  and vendors that are
material to Borrower's business,  become Year 2000 Compliant in a timely manner.
Such acts shall include,  without limitation,  performing a comprehensive review
and  assessment of all  Borrower's  systems and adopting a detailed  plan,  with
itemized budget, for the remediation, monitoring and testing of such systems. As
used in this  paragraph,  "Year 2000  Compliant"  shall  mean,  in regard to any
entity,  that all  software,  hardware,  firmware,  equipment,  goods or systems
utilized by or material to the business  operations  or  financial  condition of
such entity, will properly perform date sensitive  functions before,  during and
after the year 2000.  Borrower shall  immediately upon request,  provide to Bank
such certifications or other evidence of Borrower's compliance with the terms of
this paragraph as Bank may from time to time require.

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

         6.9 Current Ratio.  Borrower shall maintain, as of the last day of each
calendar  month,  a ratio of Current  Assets to Current  Liabilities of at least
1.75 to 1.00.

         6.10 Tangible Net Worth. Borrower shall maintain, as of the last day of
each  calendar  month,  a Tangible  Net Worth of not less than Two Million  Five
Hundred  Thousand  Dollars  ($2,500,000)  plus fifty percent (50%) of Borrower's
quarterly net profits after tax.

         6.11 Profitability. Borrower shall show a profit of at least One Dollar
($1.00) for each fiscal  quarter,  commencing  with the quarter ending March 31,
2000.

         6.12 Registration of Intellectual Property Rights.

                           (a) Borrower shall register or cause to be registered
on an  expedited  basis (to the extent not already  registered)  with the United
States Patent and Trademark  Office or the United States  Copyright  Office,  as
applicable: (i) 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  thirty  (30) days of the date of this
Agreement,  (ii) all  registerable  intellectual  property  rights  Borrower has
developed as of the date of this  Agreement but  heretofore  failed to register,
within  thirty  (30)  days of the  date  of  this  Agreement,  and  (iii)  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,  and prior to  Borrower's  use of such product
(including  without  limitation major revisions or additions to the intellectual
property  rights listed on such Exhibits A, B and C).  Borrower  shall give Bank
notice of all such applications or registrations.

                                       15
<PAGE>

                           (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.

                           (c) Borrower  shall (i) protect,  defend and maintain
the validity and enforceability of the Trademarks,  Patents and Copyrights, (ii)
use its best  efforts to detect  infringements  of the  Trademarks,  Patents and
Copyrights  and  promptly  advise  Bank in  writing  of  material  infringements
detected and (iii) not allow any material  Trademarks,  Patents or Copyrights to
be abandoned,  forfeited or dedicated to the public without the written  consent
of Bank, which shall not be unreasonably withheld.

                           (d) Bank may audit Borrower's  Intellectual  Property
Collateral to confirm compliance with this Section 6.13, provided such audit may
not occur more often than once per year, unless an Event of Default has occurred
and is continuing.  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 6.13 to take but which Borrower fails to take,  after fifteen (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 6.13.

         6.13  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.

         7. NEGATIVE COVENANTS.

                  Borrower  covenants  and  agrees  that,  so long as any credit
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 Credit
Extensions, 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  (including  Intellectual  Property)
without Bank's prior written consent,  which shall not be unreasonably withheld,
other than: (i) Transfers of Inventory in the ordinary course of business;  (ii)
Transfers of non-exclusive  licenses and similar arrangements for the use of the
property  of  Borrower  or its  Subsidiaries;  or (iii)  Transfers  of  surplus,
worn-out or obsolete Equipment.

         7.2 Change in Business.  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 material change in Borrower's  ownership.
Borrower will not, without thirty (30) days prior written  notification to Bank,
relocate its chief executive office.

         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.

         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.

                                       16
<PAGE>

         7.5  Encumbrances.  Create,  incur,  assume or suffer to exist any Lien
with  respect  to  any  of  its  property   (including   Intellectual   Property
Collateral),  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, except that Borrower may make distributions to its Parent in an aggregate
amount  not to exceed Two  Hundred  Fifty  Thousand  Dollars  ($250,000)  in the
aggregate in any given year.

         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 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.

         7.9 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.

         7.10 Inventory and Equipment. Store the Inventory or the Equipment with
a bailee,  warehouseman,  or similar  party unless Bank has received a pledge of
the warehouse receipt covering such Inventory;  provided, however, that Borrower
may deposit  software  code in escrow for  customers in the  ordinary  course of
business.  Except for  Inventory  sold in the  ordinary  course of business  and
except for such other  locations as Bank may approve in writing,  Borrower shall
keep the Inventory  and  Equipment  only at the location 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.

         7.11 Compliance.  Become an "investment company" or be 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 Credit  Extension  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 law or
regulation,  which violation could have a Material  Adverse Effect or a material
adverse  effect  on the  Collateral  or  the  priority  of  Bank's  Lien  on the
Collateral, or permit any of its Subsidiaries to do any of the foregoing.

         7.12 Intellectual  Property  Agreements.  Borrower shall not permit the
inclusion in any material contract to which it becomes a party of any provisions
that could or might 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.

         8. EVENTS OF DEFAULT


                                       17
<PAGE>


                  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. If Borrower fails to perform any obligation under
Article  6 or  violates  any of the  covenants  contained  in  Article 7 of this
Agreement,  or 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 (10) days after Borrower receives notice thereof or
any officer of Borrower becomes aware thereof;  provided,  however,  that if the
default  cannot by its nature be cured  within the ten (10) day period or cannot
after  diligent  attempts by Borrower be cured  within such ten (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
thirty (30) days) to attempt to cure such  default,  and within such  reasonable
time period the failure to have cured such default  shall not be deemed an Event
of Default  (provided  that no Credit  Extensions  will be  required  to be made
during such cure period);

         8.3 Material Adverse Change.  If there occurs a material adverse change
in  Borrower's  business  or  financial  condition,  or if there  is a  material
impairment of the prospect of repayment of any portion of the  Obligations  or a
material impairment of the value or priority of Bank's security interests in the
Collateral;

         8.4  Attachment.  If any  material  portion  of  Borrower's  assets  is
attached, seized, 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 (10) 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 (10) 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 ten (10) days  (provided
that no Credit Extensions 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 Fifty Thousand  Dollars  ($50,000) or
that could have a Material Adverse Effect;

                                       18
<PAGE>

         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 Fifty Thousand Dollars
($50,000) shall be rendered  against  Borrower and shall remain  unsatisfied and
unstayed for a period of ten (10) 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  delivered  to  Bank by any  Responsible  Officer
pursuant to this Agreement or to induce Bank to enter into this Agreement or any
other Loan Document.

         9. 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:

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

                           (d)  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  owned premises,  Borrower hereby grants Bank a license to enter into
possession of 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;

                           (e) 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;

                           (f) 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 license or other  right,
solely  pursuant to the provisions of this Section 9.1, to use,  without charge,

                                       19
<PAGE>

Borrower's  labels,  patents,  copyrights,  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;

                           (g) 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 any proceeds to the Obligations
in whatever manner or order Bank deems appropriate;

                           (h) Bank may  credit bid and  purchase  at any public
sale; and

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

         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) dispose of any Collateral;  (e) make, settle, and adjust all claims
under and decisions with respect to Borrower's policies of insurance; (f) settle
and adjust  disputes and claims  respecting  the accounts  directly with account
debtors, for amounts and upon terms which Bank determines to be reasonable;  (g)
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 Exhibits A, B, and C,
thereof, as appropriate, to include reference to any right, title or interest in
any Copyrights,  Patents or Trademarks  acquired by Borrower after the execution
hereof or to  delete  any  reference  to any  right,  title or  interest  in any
Copyrights,  Patents or Trademarks in which  Borrower no longer has or claims to
have any right, title or interest;  (h) 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 (i) to transfer the Intellectual  Property  Collateral into the name of Bank
or a third party to the extent permitted under the California Uniform Commercial
Code;  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 advances hereunder is terminated.

         9.3 Accounts Collection. At any time during the term of this Agreement,
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 immediately deliver such payments to Bank in their original form as
received from the account debtor, with proper endorsements for deposit.

                                       20
<PAGE>

         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 Bank may do any or all of the following after
reasonable notice to Borrower: (a) make payment of the same or any part thereof;
(b) set up such reserves under the Revolving Facility 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  thereof;  or (d) any act or  default  of any  carrier,
warehouseman, bailee, forwarding agency, or other person whomsoever. All 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  inconsistent  herewith  as
provided under the Code, 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.

         10. 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,  certified mail,  postage prepaid,  return receipt
requested,  or by  telefacsimile  to Borrower or to Bank, as the case may be, at
its addresses set forth below:

                                       21
<PAGE>

                  If to Borrower:  Videonics, Inc.
                                   1370 Dell Avenue
                                   Campbell, CA 95008
                                   Attn: Gary Williams
                                   FAX: (408) 866-1748

                  If to Bank:      Venture Banking Group,
                                   a division of Cupertino National Bank
                                   Three Palo Alto Square, Suite 150
                                   Palo Alto, CA  94306
                                   Attn: Jason Hartmann
                                   FAX: (650) 843-6969

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.

         11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER

                  This  Agreement   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.

         12. 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, however, 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.

         12.2  Indemnification.   Borrower  shall  defend,  indemnify  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 this Agreement;  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  this  Agreement,  or
otherwise (including without limitation reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.

                                       22
<PAGE>

         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   orally.   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.

         12.8 Confidentiality. In handling any confidential information Bank and
all  employees  and agents of Bank,  including  but not limited to  accountants,
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
determine  in  connection  with  the  enforcement  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 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.

                                       23
<PAGE>

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






                                        VIDEONICS, INC.


                                        By: /s/ Gary Williams
                                            ------------------------------------

                                        Title: V.P. Finance and CFO
                                               ---------------------------------


                                        VENTURE BANKING GROUP,
                                        a division of Cupertino National Bank


                                        By: /s/ Jason Hartmann
                                            ------------------------------------

                                        Title: Commercial Loan Officer
                                               ---------------------------------


                                       24
<PAGE>

                                    EXHIBIT A


The Collateral shall consist of all right, title and interest of Borrower in and
to the following:

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

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

         (c) All contract rights and general  intangibles now owned or hereafter
acquired,  including, without limitation,  goodwill, leases, license agreements,
franchise agreements,  blueprints,  drawings,  purchase orders,  customer lists,
route lists, claims, literature, reports, catalogs, income tax refunds, payments
of insurance and rights to payment of any kind;

         (d) All now existing and hereafter arising  accounts,  contract rights,
royalties,  license rights and all other forms of obligations  owing to Borrower
arising out of the sale or lease of goods,  the  licensing of  technology or the
rendering of services by Borrower, 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;

         (e) All  documents,  cash,  deposit  accounts,  securities,  securities
accounts, security entitlements,  financial assets, investment property, letters
of credit,  certificates of deposit,  instruments and chattel paper now owned or
hereafter acquired 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, now owned or hereafter acquired;
all  trade  secret  rights,  including  all  rights  to  unpatented  inventions,
know-how,  operating  manuals,  license rights and  agreements and  confidential
information,  now owned or hereafter  acquired;  all mask work or similar rights
available for the  protection  of  semiconductor  chips,  now owned or hereafter
acquired;  all  claims  for  damages  by way of any  past,  present  and  future
infringement of any of the foregoing; and

         (g) Any and all claims,  rights and  interests  in any of the above and
all substitutions for, additions and accessions to and proceeds thereof.

                                       25
<PAGE>

                                    EXHIBIT B

                   LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM

           DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., PACIFIC TIME


TO:  VENTURE BANKING GROUP              DATE:___________________________________

FAX #:  (650) 843-6969                  TIME:___________________________________

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

   FROM:  Videonics, Inc.
          ----------------------------------------------------------------------
                             CLIENT NAME (BORROWER)

   REQUESTED BY: _______________________________________________________________
                            AUTHORIZED SIGNER'S NAME

   AUTHORIZED SIGNATURE: _______________________________________________________

   PHONE NUMBER: _______________________________________________________________

   FROM ACCOUNT # ________________   TO ACCOUNT # ______________________________

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

   PRINCIPAL INCREASE (ADVANCE)                 $_______________________________
   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  Advance  confirmed  by this
   Payment / Advance Form;  provided,  however,  that those  representations and
   warranties  expressly  referring to another  date shall be true,  correct and
   complete in all material respects as of such date.
--------------------------------------------------------------------------------


--------------------------------------------------------------------------------
                                  BANK USE ONLY
   TELEPHONE REQUEST:
   ------------------

   The following person is authorized to request the loan payment  transfer/loan
   advance on the advance designated account and is known to me.

   ------------------------------------      -----------------------------------
          Authorized Requester                            Phone #

   ------------------------------------      -----------------------------------
          Authorized Requester                            Phone #


                  ---------------------------------------------
                           Authorized Signature (Bank)
--------------------------------------------------------------------------------

                                       26
<PAGE>

                                    EXHIBIT C


                           BORROWING BASE CERTIFICATE

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

Borrower:  Videonics, Inc.

Lender:  Venture Banking Group, a division of Cupertino National Bank

Commitment Amount:  $1,000,000
--------------------------------------------------------------------------------

ACCOUNTS RECEIVABLE
     1.  Accounts Receivable Book Value as of ___                   $___________
     2.  Additions (please explain on reverse)                      $___________
     3.  TOTAL ACCOUNTS RECEIVABLE                                  $___________

ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
     4.  Amounts over 90 days due                                   $___________
     5.  Balance of 30% over 90 day accounts                        $___________
     6.  Concentration Limits
     7.  Foreign Accounts not backed by letters of credit or
         foreign credit insurance                                   $___________
     8.  Governmental Accounts                                      $___________
     9.  Contra Accounts                                            $___________
     10. Demo Accounts                                              $___________
     11. Intercompany/Employee Accounts                             $___________
     12. Other (please explain on reverse)                          $___________
     13. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS                       $___________
     14. Eligible Accounts (#3 minus #13)                           $___________
     15. LOAN VALUE OF ACCOUNTS (80% of #14)                        $___________

BALANCES
     16. Maximum Loan Amount                                        $1,000,000
     17. Total Funds Available [Lesser of #16 or #15]               $___________
     18. Present balance owing on Line of Credit                    $___________
     19. RESERVE POSITION (#17 minus #18)                           $___________

                                       27
<PAGE>

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 Venture Banking Group, a division
of Cupertino National Bank.

VIDEONICS, INC.


By:__________________________________________
             Authorized Signer

                                       28
<PAGE>

                                    EXHIBIT D



                             COMPLIANCE CERTIFICATE


TO:                VENTURE BANKING GROUP

FROM:              VIDEONICS, INC.

The undersigned  authorized officer of Videonics,  Inc. 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.

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

<CAPTION>
           Reporting Covenant                                   Required                                              Complies
           ------------------                                   --------                                              --------
<S>                                                             <C>                                                  <C>
           Monthly financial statements                         Monthly within 20 days                               Yes     No
           Annual (CPA Audited)                                 FYE within 90 days                                   Yes     No
           A/R and A/P Agings, Borrowing Base Cert.             Monthly within 20 days                               Yes     No
           A/R Audit                                            Initial and Semi-annual                              Yes     No

           Financial Covenant                                   Required                Actual                        Complies
           ------------------                                   --------                ------                        --------
           On a monthly basis for Borrower:
               Current Ratio                                    1.75:1.00               _____:1.0                    Yes     No
               Minimum TNW*                                     $________               $________                    Yes     No
               Profitability (quarterly) **                     $1.00                   $________                    Yes     No

<FN>
*    $2,500,000 plus 50% of quarterly NPAT.
**   Commencing with quarter ending March 31, 2000.
</FN>
</TABLE>


Comments Regarding Exceptions: See Attached

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

Sincerely,                                            BANK USE ONLY

___________________________________       Received By:_________________________
SIGNATURE                                                AUTHORIZED SIGNER

___________________________________       Date:________________________________
TITLE
                                           Verified:____________________________
___________________________________                      AUTHORIZED SIGNER
DATE
                                           Date:________________________________

                                           Compliance Status:    Yes      No

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

                                                                 29
<PAGE>

                                    EXHIBIT E

                            REVOLVING PROMISSORY NOTE

$1,000,000                                                 Palo Alto, California
                                                                 August 25, 1999

VIDEONICS, INC. ("Borrower"),  for value received, hereby promises to pay to the
order of VENTURE BANKING GROUP, a division of Cupertino  National Bank ("Bank"),
in lawful money of the United  States of America,  pursuant to that certain Loan
and Security  Agreement dated as of the date hereof, by and between Borrower and
Bank (the "Loan  Agreement"),  (i) the principal  amount of One Million  Dollars
($1,000,000), or, if lesser, (ii) the aggregate principal amount of all Advances
(the "Revolving Advances") outstanding as of the maturity date hereof.

This Note is the Note  referred to in the Loan  Agreement.  All terms defined in
the Loan  Agreement  shall have the same  definitions  when used herein,  unless
otherwise defined herein.

Borrower further promises to pay interest on each Revolving Advance hereunder in
like funds on the principal amount hereof from time to time outstanding from the
date hereof until paid in full,  at a rate or rates per annum and payable on the
dates determined pursuant to the Loan Agreement.

Payment  on this  Note  shall be  applied  in the  manner  set forth in the Loan
Agreement.  The Loan  Agreement  contains  provisions  for  acceleration  of the
maturity of Revolving  Advances  hereunder upon the occurrence of certain stated
events and also  provides for optional and  mandatory  prepayments  of principal
hereof  prior to any  stated  maturity  upon the  terms and  conditions  therein
specified.

All Revolving  Advances made by Bank to Borrower  pursuant to the Loan Agreement
shall be recorded by Bank on the books and records of Bank.  The failure of Bank
to record any Revolving  Advance or any prepayment or payment made on account of
the principal  balance hereof shall not limit or otherwise affect the obligation
of Borrower  under this Note and under the Loan  Agreement to pay the principal,
interest and other amounts due and payable under the Revolving Advances.

Any  principal or interest  payments on this Note not paid when due,  whether at
stated  maturity,  by  acceleration  or  otherwise,  shall bear  interest at the
Default Rate. Upon the occurrence of a default  hereunder or an Event of Default
under the Loan  Agreement,  all unpaid  principal,  accrued  interest  and other
amounts owing hereunder shall, at the option of Bank, be immediately collectible
by or on behalf of Bank pursuant to the Loan Agreement and applicable law.

Except as otherwise provided in the Loan Agreement,  Borrower waives presentment
and demand for  payment,  notice of  dishonor,  protest and notice of protest of
this  Note,  and shall  pay all costs of  collection  when  incurred,  including
reasonable  attorneys' fees, costs and expenses.  The right to plead any and all
statutes of limitations as a defense to any demand hereunder is hereby waived to
the full extent permitted by law.

The amount of this Note is secured by the Collateral identified and described as
security  therefor in the Loan  Agreement.  This Note shall be governed  by, and
construed and enforced in accordance  with, the laws of the State of California,
excluding  conflict of laws  principles  that would cause the application of the
laws of any other  jurisdiction.  The provisions of this Note shall inure to the
benefit of and be binding upon any successor to Borrower and shall extend to any
holder hereof.

                                        VIDEONICS, INC.

                                        By: ____________________________________

                                        Title: _________________________________


<PAGE>


                     DISBURSEMENT REQUEST AND AUTHORIZATION

Borrower:  VIDEONICS, INC.

================================================================================

LOAN TYPE. This is a variable rate,  line of credit of a principal  amount up to
$1,000,000.

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

SPECIFIC  PURPOSE.  The specific  purpose of this loan is: to support  growth in
trading assets.

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:

        Charges Paid in Cash:
             $3,750            Loan Fee
             $                 Accounts Receivables Audit
             $                 UCC Search Fees
             $                 UCC Filing Fees
             $                 Patent Filing Fees
             $                 Trademark Filing Fees
             $                 Copyright Filing Fees
             $                 Outside Counsel Fees and Expenses (Estimate)

        Total Charges Paid in Cash                       $__________

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  ADVERSE  CHANGE IN  BORROWER'S  FINANCIAL  CONDITION  AS
DISCLOSED  IN  BORROWER'S  MOST  RECENT   FINANCIAL   STATEMENT  TO  BANK.  THIS
AUTHORIZATION IS DATED AS OF AUGUST 25, 1999.

VIDEONICS, INC.


/s/ Gary Williams
-------------------
Authorized Officer
================================================================================

<PAGE>

                         AGREEMENT TO PROVIDE INSURANCE


Grantor:  Videonics, Inc.                           Bank:  Venture Banking Group

================================================================================

INSURANCE  REQUIREMENTS.  The undersigned ("Grantor") understands that insurance
coverage is required in connection with the extending of a loan or the providing
of other financial accommodations to Grantor 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   cancelled   or
                                diminished  without  a minimum  of  twenty  (20)
                                days' prior written notice to Bank.

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

FAILURE TO PROVIDE  INSURANCE.  Grantor  agrees to deliver to Bank, on or before
closing, evidence of the required insurance as provided above, with an effective
date of the Closing Date, or earlier.  Grantor  acknowledges  and agrees that if
Grantor  fails to provide  any  required  insurance  or fails to  continue  such
insurance  in force,  Bank may do so at  Grantor's  expense as  provided  in the
Amended and Restated Loan and Security 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 security document.  GRANTOR 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,  GRANTOR'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,  Grantor
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.

GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS AGREEMENT TO PROVIDE
INSURANCE AND AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AUGUST 25, 1999.

Videonics, Inc.


X /s/ Gary Williams
  ------------------
  Authorized Officer

================================================================================
                                FOR BANK USE ONLY
                             INSURANCE VERIFICATION
  DATE: _________________________               PHONE: _________________________

  AGENT'S NAME:_________________________________________________________________

  INSURANCE COMPANY: ___________________________________________________________


<PAGE>


  POLICY NUMBER: _______________________________________________________________

  EFFECTIVE DATES: _____________________________________________________________

  COMMENTS: ____________________________________________________________________

================================================================================

<PAGE>

                         CORPORATE RESOLUTIONS TO BORROW

================================================================================

Borrower:         VIDEONICS, INC.

================================================================================

I, the  undersigned  Secretary or Assistant  Secretary of  Videonics,  Inc. (the
"Corporation"),  HEREBY  CERTIFY that the  Corporation is organized and existing
under and by virtue of the laws of the State of Calfornia.

I FURTHER  CERTIFY  that  attached  hereto as  Attachments  1 and 2 are true and
complete copies of the Articles of Incorporation  and Bylaws of the Corporation,
each of which is in full force and effect on the date hereof.

I FURTHER  CERTIFY that at a meeting of the Directors of the  Corporation,  duly
called  and held,  at which a quorum  was  present  and voting (or by other duly
authorized  corporate  action in lieu of a meeting),  the following  resolutions
were adopted.

BE IT RESOLVED, that any one (1) of the following named officers,  employees, or
agents of this Corporation, whose actual signatures are shown below:

        Name                   POSITIONS                ACTUAL SIGNATURES

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

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

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

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

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

acting for an on behalf of this Corporation and as its act and deed be, and they
hereby are, authorized and empowered:

Borrow Money. To borrow from time to time from Venture Banking Group, a division
of Cupertino National Bank ("Bank"), on such terms as may be agreed upon between
the  officers,  employees,  or agents and Bank,  such sum or sums of money as in
their judgment should be borrowed,  without  limitation,  including such sums as
are specified in that certain Loan and Security Agreement dated as of August 25,
1999 (as amended or modified from time to time the "Loan Agreement").

Execute Notes.  To execute and deliver to Bank the  promissory  note or notes of
the Corporation, on Bank's forms, at such rates of interest and on such terms as
may be agreed upon, evidencing the sums of money so borrowed or any indebtedness
of the  Corporation  to Bank (the  "Notes"),  and also to execute and deliver to
Bank   one  or   more   renewals,   extensions,   modifications,   refinancings,
consolidations, or substitutions for one or more of the notes, or any portion of
the Notes.

Execute Loan  Documents.  To execute and deliver to Bank the Loan  Agreement and
any other  agreement  entered into between  Borrower and Bank in connection with
the Loan Agreement,  all as amended or extended from time to time (collectively,
with the Loan  Agreement  and the  Notes,  the  "Loan  Documents"),  and also to
execute and  deliver to Bank one or more  renewals,  extensions,  modifications,
refinancings,  consolidations,  or substitutions for the Loan Documents,  or any
portion thereof.

                                       1
<PAGE>

Grant Security. To grant a security interest to Bank in the Collateral described
in  the  Loan  Documents,  which  security  interest  shall  secure  all  of the
Corporation's Obligations, as described in the Loan Documents.

Negotiate  Items.  To draw,  endorse,  and discount with Bank all drafts,  trade
acceptances,  promissory notes, or other evidences of indebtedness payable to or
belonging to the  Corporation or in which the  Corporation may have an interest,
and either to receive cash for the same or to cause such proceeds to be credited
to the account of the Corporation with Bank, or to cause such other  disposition
of the proceeds derived therefrom as they may deem advisable.

Further  Acts.  In the case of lines  of  credit,  to  designate  additional  or
alternate individuals as being authorized to request advances thereunder, and in
all cases, to do and perform such other acts and things, to pay any and all fees
and costs,  and to execute and deliver such other  documents  and  agreements as
they may in their  discretion  deem  reasonably  necessary or proper in order to
carry into effect the provisions of these Resolutions.

BE IT  FURTHER  RESOLVED,  that any and all acts  authorized  pursuant  to these
resolutions and performed  prior to the passage of these  resolutions are hereby
ratified and  approved,  that these  Resolutions  shall remain in full force and
effect  and Bank may rely on these  Resolutions  until  written  notice of their
revocation  shall have been  delivered to and received by Bank.  Any such notice
shall not affect any of the Corporation's agreements or commitments in effect at
the time notice is given.

I FURTHER CERTIFY that the officers,  employees, and agents named above are duly
elected,  appointed, or employed by or for the Corporation,  as the case may be,
and occupy the positions set forth opposite  their  respective  names;  that the
foregoing  Resolutions now stand of record on the books of the Corporation;  and
that the  Resolutions are in full force and effect and have not been modified or
revoked in any manner whatsoever.

IN WITNESS  WHEREOF,  I have  hereunto set my hand on August 25, 1999 and attest
that the  signatures  set  opposite  the names  listed  above are their  genuine
signatures.



                                        CERTIFIED TO AND ATTESTED BY:


                                        X /s/ Gary Williams
                                          -----------------

                                       2
<PAGE>

                            REVOLVING PROMISSORY NOTE

$1,000,000                                                 Palo Alto, California
                                                           Date: August 25, 1999

VIDEONICS, INC. ("Borrower"),  for value received, hereby promises to pay to the
order of VENTURE BANKING GROUP, a division of Cupertino  National Bank ("Bank"),
in lawful money of the United  States of America,  pursuant to that certain Loan
and Security  Agreement dated as of the date hereof, by and between Borrower and
Bank (the "Loan  Agreement"),  (i) the  principal  amount of Seven Hundred Fifty
Thousand  Dollars  ($1,000,000),  or, if lesser,  (ii) the  aggregate  principal
amount of all Advances (the "Revolving Advances") outstanding as of the maturity
date hereof.

This Note is the Note  referred to in the Loan  Agreement.  All terms defined in
the Loan  Agreement  shall have the same  definitions  when used herein,  unless
otherwise defined herein.

Borrower further promises to pay interest on each Revolving Advance hereunder in
like funds on the principal amount hereof from time to time outstanding from the
date hereof until paid in full,  at a rate or rates per annum and payable on the
dates determined pursuant to the Loan Agreement.

Payment  on this  Note  shall be  applied  in the  manner  set forth in the Loan
Agreement.  The Loan  Agreement  contains  provisions  for  acceleration  of the
maturity of Revolving  Advances  hereunder upon the occurrence of certain stated
events and also  provides for optional and  mandatory  prepayments  of principal
hereof  prior to any  stated  maturity  upon the  terms and  conditions  therein
specified.

All Revolving  Advances made by Bank to Borrower  pursuant to the Loan Agreement
shall be recorded by Bank on the books and records of Bank.  The failure of Bank
to record any Revolving  Advance or any prepayment or payment made on account of
the principal  balance hereof shall not limit or otherwise affect the obligation
of Borrower  under this Note and under the Loan  Agreement to pay the principal,
interest and other amounts due and payable under the Revolving Advances.

Any  principal or interest  payments on this Note not paid when due,  whether at
stated  maturity,  by  acceleration  or  otherwise,  shall bear  interest at the
Default Rate. Upon the occurrence of a default  hereunder or an Event of Default
under the Loan  Agreement,  all unpaid  principal,  accrued  interest  and other
amounts owing hereunder shall, at the option of Bank, be immediately collectible
by or on behalf of Bank pursuant to the Loan Agreement and applicable law.

Except as otherwise provided in the Loan Agreement,  Borrower waives presentment
and demand for  payment,  notice of  dishonor,  protest and notice of protest of
this  Note,  and shall  pay all costs of  collection  when  incurred,  including
reasonable  attorneys' fees, costs and expenses.  The right to plead any and all
statutes of limitations as a defense to any demand hereunder is hereby waived to
the full extent permitted by law.

The amount of this Note is secured by the Collateral identified and described as
security  therefor in the Loan  Agreement.  This Note shall be governed  by, and
construed and enforced in accordance  with, the laws of the State of California,
excluding  conflict of laws  principles  that would cause the application of the
laws of any other  jurisdiction.  The provisions of this Note shall inure to the
benefit of and be binding upon any successor to Borrower and shall extend to any
holder hereof.

                                        VIDEONICS, INC.

                                        By: /s/ Gary Williams
                                            -----------------

                                        Title: V.P. Finance and CFO
                                               --------------------