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                                                                   Exhibit 10.38
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                                 INNERDYNE, INC.


                AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT


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                                TABLE OF CONTENTS

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1.   DEFINITIONS AND CONSTRUCTION. . . . . . . . . . . . . . . . . . . . . .   1
     1.1    Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . .   1
     1.2    Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . .   8

2.   LOAN AND TERMS OF PAYMENT . . . . . . . . . . . . . . . . . . . . . . .   8
     2.1    Revolving and Equipment Facilities . . . . . . . . . . . . . . .   8
     2.1.2  Equipment Facility . . . . . . . . . . . . . . . . . . . . . . .   9
     2.2    Overadvances . . . . . . . . . . . . . . . . . . . . . . . . . .   9
     2.3    Interest Rates, Payments, and Calculations . . . . . . . . . . .  10
     2.4    Crediting Payments . . . . . . . . . . . . . . . . . . . . . . .  10
     2.5    Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  10
     2.6    Additional Costs . . . . . . . . . . . . . . . . . . . . . . . .  11

3.   CONDITIONS OF LOANS . . . . . . . . . . . . . . . . . . . . . . . . . .  11
     3.1    Conditions Precedent to Initial Advance. . . . . . . . . . . . .  11
     3.2    Conditions Precedent to all Advances . . . . . . . . . . . . . .  12

4.   CREATION OF SECURITY INTEREST . . . . . . . . . . . . . . . . . . . . .  12
     4.1    Grant of Security Interest . . . . . . . . . . . . . . . . . . .  12
     4.2    Delivery of Additional Documentation Required. . . . . . . . . .  12
     4.3    Right to Inspect . . . . . . . . . . . . . . . . . . . . . . . .  12

5.   REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . . . .  13
     5.1    Due Organization and Qualification . . . . . . . . . . . . . . .  13
     5.2    Due Authorization; No Conflict . . . . . . . . . . . . . . . . .  13
     5.3    No Prior Encumbrances. . . . . . . . . . . . . . . . . . . . . .  13
     5.4    Bona Fide Eligible Accounts. . . . . . . . . . . . . . . . . . .  13
     5.5    Merchantable Inventory . . . . . . . . . . . . . . . . . . . . .  13
     5.6    Intellectual Property. . . . . . . . . . . . . . . . . . . . . .  13
     5.7    Name; Location of Chief Executive Office . . . . . . . . . . . .  14
     5.8    Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . .  14
     5.9    No Material Adverse Change in Financial Statements . . . . . . .  14
     5.10   Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . .  14
     5.11   Regulatory Compliance. . . . . . . . . . . . . . . . . . . . . .  14
     5.12   Environmental Condition. . . . . . . . . . . . . . . . . . . . .  14
     5.13   Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  15
     5.14   Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . .  15
     5.15   Government Consents. . . . . . . . . . . . . . . . . . . . . . .  15
     5.16   Full Disclosure. . . . . . . . . . . . . . . . . . . . . . . . .  15

6.   AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . .  15
     6.1    Good Standing. . . . . . . . . . . . . . . . . . . . . . . . . .  15
     6.2    Government Compliance. . . . . . . . . . . . . . . . . . . . . .  15
     6.3    Financial Statements, Reports, Certificates. . . . . . . . . . .  16
     6.4    Inventory; Returns . . . . . . . . . . . . . . . . . . . . . . .  16
     6.5    Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  16
     6.6    Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . .  17
     6.7    Principal Depository . . . . . . . . . . . . . . . . . . . . . .  17
     6.8    Quick Ratio. . . . . . . . . . . . . . . . . . . . . . . . . . .  17

                                       i
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     6.9    Debt-Net Worth Ratio . . . . . . . . . . . . . . . . . . . . . .  17
     6.10   Tangible Net Worth . . . . . . . . . . . . . . . . . . . . . . .  17
     6.11   Minimum Liquidity. . . . . . . . . . . . . . . . . . . . . . . .  17
     6.12   Minimum Debt Service . . . . . . . . . . . . . . . . . . . . . .  17
     6.13   Profitability. . . . . . . . . . . . . . . . . . . . . . . . . .  18
     6.14   Registration of Intellectual Property Rights . . . . . . . . . .  18
     6.15   Further Assurances . . . . . . . . . . . . . . . . . . . . . . .  18

7.   NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . .  18
     7.1    Dispositions . . . . . . . . . . . . . . . . . . . . . . . . . .  19
     7.2    Change in Business . . . . . . . . . . . . . . . . . . . . . . .  19
     7.3    Mergers or Acquisitions. . . . . . . . . . . . . . . . . . . . .  19
     7.4    Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . .  19
     7.5    Encumbrances . . . . . . . . . . . . . . . . . . . . . . . . . .  19
     7.6    Distributions. . . . . . . . . . . . . . . . . . . . . . . . . .  19
     7.7    Investments. . . . . . . . . . . . . . . . . . . . . . . . . . .  19
     7.8    Transactions with Affiliates . . . . . . . . . . . . . . . . . .  19
     7.9    Intellectual Property Agreements . . . . . . . . . . . . . . . .  20
     7.10   Subordinated Debt. . . . . . . . . . . . . . . . . . . . . . . .  20
     7.11   Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . .  20
     7.12   Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . .  20

8.   EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . .  20
     8.1    Payment Default. . . . . . . . . . . . . . . . . . . . . . . . .  20
     8.2    Covenant Default . . . . . . . . . . . . . . . . . . . . . . . .  20
     8.3    Material Adverse Change. . . . . . . . . . . . . . . . . . . . .  21
     8.4    Attachment . . . . . . . . . . . . . . . . . . . . . . . . . . .  21
     8.5    Insolvency . . . . . . . . . . . . . . . . . . . . . . . . . . .  21
     8.6    Other Agreements . . . . . . . . . . . . . . . . . . . . . . . .  21
     8.7    Subordinated Debt. . . . . . . . . . . . . . . . . . . . . . . .  21
     8.8    Judgments. . . . . . . . . . . . . . . . . . . . . . . . . . . .  22
     8.9    Misrepresentations . . . . . . . . . . . . . . . . . . . . . . .  22

9.   BANK'S RIGHTS AND REMEDIES. . . . . . . . . . . . . . . . . . . . . . .  22
     9.1    Rights and Remedies. . . . . . . . . . . . . . . . . . . . . . .  22
     9.2    Power of Attorney. . . . . . . . . . . . . . . . . . . . . . . .  23
     9.3    Accounts Collection. . . . . . . . . . . . . . . . . . . . . . .  23
     9.4    Bank Expenses. . . . . . . . . . . . . . . . . . . . . . . . . .  23
     9.5    Bank's Liability for Collateral. . . . . . . . . . . . . . . . .  24
     9.6    Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . .  24
     9.7    Demand; Protest. . . . . . . . . . . . . . . . . . . . . . . . .  24

10.  NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  24

11.  CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. . . . . . . . . . . . . . .  25

12.  GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . .  25
     12.1   Successors and Assigns . . . . . . . . . . . . . . . . . . . . .  25
     12.2   Indemnification. . . . . . . . . . . . . . . . . . . . . . . . .  25
     12.3   Time of Essence. . . . . . . . . . . . . . . . . . . . . . . . .  25
     12.4   Severability of Provisions . . . . . . . . . . . . . . . . . . .  26
     12.5   Amendments in Writing, Integration . . . . . . . . . . . . . . .  26
     12.6   Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . .  26

                                       ii
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     12.7   Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . .  26
     12.8   Effect of Amendment and Restatement. . . . . . . . . . . . . . .  26


                                       iii
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     This LOAN AND SECURITY AGREEMENT is entered into as of June 19, 1997, by 
and between SILICON VALLEY BANK ("Bank") and INNERDYNE, INC. ("Borrower").

                                    RECITALS

     A.   Borrower and Bank are parties to that certain Loan and Security 
Agreement dated as of February 23, 1995, as amended by that certain Amendment 
to Loan and Security Agreement dated as of February 29, 1996, and as may have 
been further amended (the "Original Loan Agreement", the Original Loan 
Agreement and all other documents or instruments executed in connection 
therewith are collectively referred to herein as the "Original Loan 
Documents").

     B.   Borrower and Bank wish to amend and restate the terms of the 
Original Loan Agreement as stated herein.  This Agreement sets forth the 
terms on which Bank will loan money 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 or a cash advance or cash advances under the 
Equipment 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; and Bank's reasonable attorneys' fees and expenses incurred 
in amending, enforcing or defending the Loan Documents (including fees and 
expenses of appeal), 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" has the meaning set forth in Section 2.1.1 
hereof.

               "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.

                                       1
<PAGE>

               "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.

               "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.

               "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 Advances made under this Agreement, including all 
Indebtedness that is payable upon demand or within one year from the date of 
determination thereof unless such Indebtedness is renewable or extendable at 
the option of Borrower or any Subsidiary to a date more than one year from 
the date of determination, but excluding Subordinated Debt.

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

               "Debt Service Coverage" means, as measured quarterly as of the 
last day of each fiscal quarter of Borrower, on a consolidated basis 
determined in accordance with GAAP, the ratio of (a) an amount equal to the 
sum of (i) net income, PLUS (ii) depreciation and amortization of intangible 
assets and other non-cash charges to income to (b) an amount equal to the sum 
of (i) all scheduled repayments and mandatory prepayments of principal on 
account of long-term Debt for such quarter PLUS (ii) quarterly interest 
expense.

               "Eligible Accounts" means those Accounts that arise in the 
ordinary course of Borrower's business that comply with all of Borrower's 
representations and warranties to Bank set forth in Section 5.4; PROVIDED, 
that standards of eligibility may be fixed and revised from time to time by 
Bank in Bank's reasonable judgment and upon 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, fifty percent
(50%) of whose Accounts the account debtor has failed to pay within ninety (90)
days of invoice date;

                                       2
<PAGE>

               (c)  Accounts with respect to which the account debtor is an 
officer, employee, or agent of Borrower unless pre-approved by Bank;

               (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 (other than by virtue of being directly or indirectly under common 
ownership or control with Borrower) of Borrower;

               (f)  Accounts with respect to which the account debtor does 
not have its principal place of business in the United States, except for 
Eligible Foreign Accounts, and Accounts arising from products shipped to or 
services provided to branches or offices located in the United States of any 
account debtor that does not have its principal place of business in the 
United States;

               (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-five percent (25%) 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 after reasonable consultation with Borrower to be doubtful.

               "Eligible Equipment" means scientific, laboratory, 
manufacturing and test equipment, computer equipment, office equipment and 
furnishings and other machines and office equipment as approved by Bank in 
its sole discretion (i) in which the Bank has a valid perfected security 
interest, and (ii) delivered to Borrower by the manufacturer or vendor after, 
upon or not more than one hundred twenty (120) days prior to the date of the 
Closing Date, which equipment is new and has not previously been used by any 
Person. Notwithstanding subsection (ii) of the previous sentence, Eligible 
Equipment shall include Equipment delivered to Borrower more than 120 days 
prior to the Closing Date to the extent the value of such Equipment does not 
exceed Fifty Thousand Dollars ($50,000).

               "Eligible Foreign Accounts" means Accounts with respect to 
which the account debtor does not have its principal place of business in the 
United States and that are:  (1) covered by credit insurance in form and 
amount, and by an insurer satisfactory to Bank less the amount of any 
deductible(s) which may be or become owing thereon; or (2) supported by one 
or more letters of credit in favor of Bank as beneficiary, in an amount and 
of a tenor, and issued by a financial institution, acceptable to Bank; or (3) 
that Bank approves on a case-by-case basis.

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

                                       3
<PAGE>

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

               "Equipment Availability Date" means June 18, 1998.

               "Equipment Committed Line" means Five Hundred Thousand Dollars 
($500,000).

               "Equipment Facility" means the facility under which Borrower 
may request Bank to issue cash advances, as specified in Section 2.1.2.

               "Equipment Maturity Date" means June 18, 2002.

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

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

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

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

               "Intellectual Property Collateral" means all 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, 

                                       4
<PAGE>

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.

               "Liquidity" means the sum of (i) cash, cash-equivalents and 
marketable securities on hand PLUS (ii) an amount equal to (a) the lesser of 
the Borrowing Base or the Revolving Committed Line LESS (b) the principal 
amount of Revolving Advances outstanding at the measurement date.

               "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.

               "Original Loan Agreement" has the meaning set forth in the 
Recitals, above.

               "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.

                                       5

<PAGE>

               "Permitted Indebtedness" means:

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

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

               (c)  Subordinated Debt;

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

               (e)  Indebtedness to trade creditors incurred in the ordinary 
course of business.

               "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 the highest rating obtainable 
from either Standard & Poor's Corporation or Moody's Investors Service, Inc., 
and (iii) certificates of deposit maturing no more than one (1) year from the 
date of investment therein issued by Bank.

               "Permitted Liens" means the following:

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

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

               (c)  Liens (i) upon or in any Equipment, other than Equipment 
financed hereunder, 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, other than Equipment financed hereunder, at 
the time of its acquisition, PROVIDED that the Lien is confined solely to the 
property so acquired and improvements thereon, and the proceeds of such 
Equipment;

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

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

               "Person" means any individual, sole proprietorship, partnership,
limited liability 

                                       6
<PAGE>

company, joint venture, trust, unincorporated organization, association, 
corporation, institution, public benefit corporation, firm, joint stock 
company, estate, entity or governmental agency.

               "Prepayment Fee" means a fee on any portion of the Obligations 
with a fixed interest rate (the "Fixed Obligations") that is paid before the 
payment due date.  The Prepayment Fee is calculated as follows:  First, Bank 
determines a "Current Market Rate" based on what the Bank would receive if it 
loaned the amount on the on the prepayment date in a wholesale funding market 
matching maturity, principal amount and principal and interest payment dates, 
such rate to be equivalent to what Bank would charge its other customers 
(such aggregate payments received being deemed the "Current Market Rate 
Amount"). Bank, in its sole discretion, amy select any wholesale funding 
market rate as the Current Market Rate.  Second, Bank will take the 
prepayment amount and calculate the present value of each principal and 
interest payment which, without prepayment, the Bank would have received 
during the term of the Fixed Obligations using the applicable interest rate 
set forth in this Agreement.  The sum of the present value calculations is 
the "Mark to Market Amount".  Third, the Bank will subtract the Mark to 
Market Amount from the Current Market Rate Amount.  Any amount greater than 
zero is the Prepayment Fee.  

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

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

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

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

               "Revolving Committed Line" means Two Million Dollars 
($2,000,000).

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

               "Revolving Maturity Date" means June 18, 1998.

               "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 shall, at the time as of which any 
determination is being made, be 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 consolidated total assets of Borrower and 
its Subsidiaries MINUS, without duplication, (i) the sum of any amounts 
attributable to (a) goodwill, (b) intangible items such as unamortized debt 
discount and expense, patents, trade and service marks and names, copyrights 
and research and development expenses except prepaid expenses, and (c) all 
reserves not already deducted from assets, AND (ii) Total Liabilities.

               "Total Liabilities" means at any date as of which the amount
thereof shall be determined, 

                                       7
<PAGE>

all obligations that should, in accordance with GAAP be classified as 
liabilities on the consolidated balance sheet of Borrower, including in any 
event all Indebtedness, but specifically excluding Subordinated Debt.

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

          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  REVOLVING AND EQUIPMENT FACILITIES.

               2.1.1     REVOLVING FACILITY.

                    (a)  ADVANCES.  Subject to and upon the terms and 
conditions of this Agreement, Bank agrees to make Revolving Advances to 
Borrower in an aggregate amount not to exceed the lesser of the Revolving 
Committed Line or the Borrowing Base.  For purposes of this Agreement, 
"Borrowing Base" shall mean an amount equal to seventy-five percent (75%) of 
Eligible Accounts.  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.

                    (b)  PROCEDURES.  Whenever Borrower desires a Revolving 
Advance, Borrower will notify Bank by facsimile transmission or telephone no 
later than 3:00 p.m. California time, on the Business Day that the Revolving 
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 Revolving Advances under this Agreement, based upon 
instructions received from a Responsible Officer, or without instructions if 
in Bank's discretion such Revolving 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, 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 Revolving Advances made under this 
Section 2.1.1 to Borrower's deposit account.

                    (c)  PAYMENTS.  Interest hereunder shall be due and 
payable on the eighteenth (18th) 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 Revolving Committed 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 such interest shall thereafter accrue interest at the rate 
then applicable hereunder.

                    (d)  MATURITY.  The Revolving Facility shall terminate on 
the Revolving Maturity Date, at which time all Revolving Advances under this 
Section 2.1.1 shall be immediately due and payable.

               2.1.2     EQUIPMENT FACILITY.

               (a)  ADVANCES.  Subject to and upon the terms and conditions 
of this Agreement, Bank agrees, at any time from the Closing Date through the 
Equipment Availability Date, to make Equipment Advances to Borrower in an 
aggregate principal amount of up to the Equipment Committed Line.  On the 
date of 

                                       8
<PAGE>

each Equipment Advance, Borrower shall provide invoices and other documents 
as reasonably requested by Bank, in form and content reasonably satisfactory 
to Bank, demonstrating that the Equipment Advances then outstanding (A) shall 
be used to finance or refinance, as the case may be, Eligible Equipment and 
(B) shall not exceed one hundred percent (100%) of the cost of such Eligible 
Equipment, excluding any and all installation, freight or warranty expenses 
or sales taxes.  Amounts borrowed pursuant to this Section 2.1.2 may not be 
reborrowed once repaid.
  
               (b)  PROCEDURES.  Whenever Borrower desires an Equipment 
Advance, Borrower shall notify Bank by facsimile transmission or telephone no 
later than 3:00 p.m. California time, one (1) Business Day before the day on 
which the Equipment Advance is requested to be made.  Each such notification 
shall be promptly confirmed by a Payment/Advance Form in substantially the 
form of EXHIBIT B hereto.  The notice shall be signed by a Responsible 
Officer and include a copy of the invoice for the Eligible Equipment to be 
financed.  Bank is authorized to make Equipment Advances under this 
Agreement, based upon instructions received from a Responsible Officer, or 
without instructions if in Bank's discretion such Equipment 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, 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 Equipment Advances made 
under this Section 2.1.2 to Borrower's deposit account.  

               (c)  PAYMENTS.  Interest shall accrue from the date of each 
Equipment Advance at the rate specified in Section 2.3(a), and shall be 
payable monthly on the eighteenth (18th) calendar day of the month for each 
month through the month in which the Equipment Availability Date falls.  All 
Equipment Advances that are outstanding on the Equipment Availability Date 
will be payable in forty-eight (48) equal monthly installments of principal, 
plus accrued interest, on the eighteenth (18th) calendar day of the month for 
each month through the Equipment Maturity Date. 

               (d)  MATURITY.  The Equipment Facility shall terminate on the 
Equipment Maturity Date, at which time all Equipment Advances under this 
Section 2.1.2, and all other amounts due under this Agreement, shall be 
immediately due and payable.

          2.2  OVERADVANCES.

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

          2.3  INTEREST RATES, PAYMENTS, AND CALCULATIONS.

               (a)  INTEREST RATE.  Except as set forth in Section 2.3(b), 
any Revolving Advances shall bear interest, on the average Daily Balance, at 
a rate equal to one percentage point (1.0%) above the Prime Rate.  Except as 
set forth in Section 2.3(b) and subject to the following sentence, all 
outstanding Equipment Advances shall bear interest at a floating rate equal 
to one percentage point (1.0%) above the Prime Rate.  Except as set forth in 
Section 2.3(b), Borrower shall have a one-time option on the Equipment 
Availability Date, exercisable by written notice to Bank, to elect that all 
outstanding Equipment Advances shall bear interest at a rate equal to three 
and one-half (3.5) percentage points above the forty-eight (48) month 
Treasury Note Yield to maturity for four (4) year treasury bills, as such 
rate is quoted by Bank.  Such fixed rate option, once elected, shall continue 
for the term of the Equipment Facility.  If Borrower elects such fixed rate 
option, any amounts prepaid by Borrower shall be accompanied by a Prepayment 
Fee on the date of prepayment. 

               (b)  DEFAULT RATE.  All Obligations shall bear interest, from 
and after the occurrence 

                                       9
<PAGE>

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 12:01 a.m. on the day the Prime Rate 
is changed, by an amount equal to such change in the Prime Rate.  All 
interest chargeable under the Loan Documents shall be computed on the basis 
of a 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 FEES.  A revolving facility fee equal to Five 
Thousand Dollars ($5,000), which fee shall be due on the Closing Date and 
shall be fully earned and nonrefundable and an equipment facility fee equal 
to Five Thousand Dollars ($5,000) which fee shall be due on the Closing Date 
and shall be fully earned and 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;

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

          2.6  ADDITIONAL COSTS.

               In case any change in 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), in each case 
after the date of this Agreement:

               (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 

                                       10
<PAGE>

deposit or similar requirement against assets held by, or deposits in or for 
the account of, or loans by, Bank in connection with this Agreement; 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 any loans made under this Agreement, 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 Equipment Maturity Date.  Notwithstanding the foregoing, Bank 
shall have the right to terminate its obligation to make Advances 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 ADVANCE.

               The obligation of Bank to make the initial Advance is subject 
to the condition precedent that Bank shall have received, in form and 
substance satisfactory to Bank, the following:

               (a)  this Agreement;

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

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

               (d)  insurance certificate;

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

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

          3.2  CONDITIONS PRECEDENT TO ALL ADVANCES.

               The obligation of Bank to make each Advance, including the 
initial Advance, is further subject to the following conditions:

               (a)  timely receipt by Bank of the Payment/Advance Form as 
provided in Sections 2.1.1 and 2.1.2;

               (b)  timely receipt by Bank of the invoices and other documents
required by Section 

                                       11
<PAGE>

2.1.2; and

               (c)  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 Advance as though 
made at and as of each such date, and no Event of Default shall have occurred 
and be continuing, or would result from such Advance.  The making of each 
Advance shall be deemed to be a representation and warranty by Borrower on 
the date of such Advance as to the accuracy of the facts referred to in this 
Section 3.2(c).

     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 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 except where the failure to qualify would 
not have a Material Adverse Effect.

                                       12
<PAGE>

          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 Certificate of Incorporation or Bylaws, nor will they constitute 
an event of default under any material agreement to which Borrower is a party 
or by which Borrower is bound except to the extent that certain intellectual 
property agreements prohibit the assignment of the rights thereunder to a 
third party without the Borrower's or other party's consent and the Loan 
Documents constitute an assignment.  Borrower is not in default under any 
agreement to which it is a party or by which it is bound, which default could 
have a Material Adverse Effect.

          5.3  NO PRIOR ENCUMBRANCES.

               Borrower has good and indefeasible title to the Collateral, 
free and clear of Liens, except for Permitted Liens.

          5.4  BONA FIDE ELIGIBLE ACCOUNTS.

               The Eligible Accounts are bona fide existing obligations.  The 
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.

               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.  To Borrower's knowledge, 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.  Except for and upon the 
filing with the United States Patent and Trademark Office with respect to the 
Patents and Trademarks and the Register of Copyrights with respect to the 
Copyrights necessary to perfect the security interests created hereunder, and 
except as has been already made or obtained, no authorization, approval or 
other action by, and no notice to or filing with, any United States 
governmental authority or United States regulatory body is required either 
(i) for the grant by Borrower of the security interest granted hereby or for 
the execution, delivery or performance of the Loan Documents by Borrower in 
the United States or (ii) for the perfection in the United States or the 
exercise by Bank of its rights and remedies hereunder.

          5.7  NAME; LOCATION OF CHIEF EXECUTIVE OFFICE.

               Except as disclosed in the Schedule, Borrower has not done 
business 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.

                                       13
<PAGE>

          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.  Borrower does not have knowledge of any such pending or 
threatened actions or proceedings.

          5.9  NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS.

               All consolidated financial statements related to Borrower and 
any Subsidiary that have been delivered by Borrower to Bank fairly present in 
all material respects Borrower's consolidated financial condition as of the 
date thereof and Borrower's consolidated results of operations for the period 
then ended.  There has not been a material adverse change in the consolidated 
financial condition of Borrower since the date of the most recent of such 
financial statements submitted to Bank.

          5.10 SOLVENCY.

               Borrower is solvent and able to pay its debts (including trade 
debts) as they mature.

          5.11 REGULATORY COMPLIANCE.

               Borrower and each Subsidiary has met the minimum funding 
requirements of ERISA with respect to any employee benefit plans subject to 
ERISA.  No event has occurred resulting from Borrower's failure to comply 
with ERISA that is reasonably likely to result in Borrower's incurring any 
liability that could have a Material Adverse Effect.  Borrower is not an 
"investment company" or a company "controlled" by an "investment company" 
within the meaning of the Investment Company Act of 1940.  Borrower is not 
engaged principally, or as one of its important activities, in the business 
of extending credit for the purpose of purchasing or carrying margin stock 
(within the meaning of Regulations G, 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 has filed or caused to be filed 
all tax returns required to be filed, and has paid, or has made adequate 
provision for the payment of, all taxes reflected therein.

                                       14
<PAGE>

          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 has 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 except 
where failure to do so would not have a Material Adverse Effect.

          5.16 FULL DISCLOSURE.

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

     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 an Advance hereunder, Borrower shall do all of the following:

          6.1  GOOD STANDING.

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

          6.2  GOVERNMENT COMPLIANCE.

               Borrower shall meet, and shall cause each Subsidiary to meet, 
the minimum funding requirements of ERISA with respect to any employee 
benefit plans subject to ERISA.  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.

                                       15

<PAGE>

          6.3  FINANCIAL STATEMENTS, REPORTS, CERTIFICATES.

               Borrower shall deliver to Bank:  (a) as soon as available, but 
in any event within thirty (30) days after the end of each month, a company 
prepared consolidated balance sheet and income statement covering Borrower's 
consolidated operations during such period, 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) within ten (10) days upon becoming available, copies of all 
statements, reports and notices sent or made available generally by Borrower 
to its security holders or to any holders of Subordinated Debt and all 
reports on Form 10-K 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 One Hundred 
Thousand Dollars ($100,000) or more; (e) prompt notice of any material change 
in the composition of the Intellectual Property Collateral, including, but 
not limited to, any subsequent ownership right of the Borrower in or to any 
Copyright, Patent or Trademark not specified in any intellectual property 
security agreement between Borrower and Bank or knowledge of an event that 
materially adversely effects the value of the Intellectual Property 
Collateral; and (f) such budgets, sales projections, operating plans or other 
financial information as Bank may reasonably request from time to time.

               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.

               Within thirty (30) days after the last day of each month, 
Borrower shall deliver to Bank with the monthly financial statements and 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 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 One 
Hundred Thousand Dollars ($100,000).

          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.


                                      16

<PAGE>


          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 
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  PRINCIPAL DEPOSITORY.

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

          6.8  QUICK RATIO.

               Borrower shall maintain, as of the last day of each calendar 
month, a ratio of Quick Assets to Current Liabilities of at least 1.5 to 1.0.

          6.9  DEBT-NET WORTH RATIO.

               Borrower shall maintain, as of the last day of each calendar 
month, a ratio of Total Liabilities to Tangible Net Worth of not more than 
1.0 to 1.0.

          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 Four Million Dollars 
($4,000,000).

          6.11 MINIMUM LIQUIDITY.  Until such time as Borrower shall have 
complied with Section 6.12 for a period of six consecutive months, Borrower 
shall maintain as of the last day of each calendar month minimum Liquidity of 
2.0 times the outstanding aggregate principal balance of the Equipment 
Advances.

          6.12 MINIMUM DEBT SERVICE.  Borrower shall maintain on a monthly 
basis minimum Debt Service of 2.0 to 1.0 provided, however, that this 
covenant shall not apply until such time as Borrower shall be in compliance 
with such covenant for a period of six consecutive months.

          6.13 PROFITABILITY.

               Borrower shall have a minimum net profit of One Dollar ($1.00) 
for each fiscal quarter, except Borrower may sustain (a) cumulative losses 
not exceeding:  One Million Four Hundred Thousand Dollars ($1,400,000) as of 
the fiscal quarter ending June 30, 1997; One Million Nine Hundred Thousand 
Dollars ($1,900,000) as of the fiscal quarter ending September 30, 1997; and 
Two Million Four Hundred Thousand Dollars ($2,400,000) as of the fiscal 
quarter ending December 31, 1997; and (b)  Borrower may sustain a loss not 
exceeding Two Hundred Fifty Thousand Dollars for the fiscal quarter ending 
March 31, 1998.


                                      17

<PAGE>

          6.14 REGISTRATION OF INTELLECTUAL PROPERTY RIGHTS.  

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

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

               (c)  Borrower shall (i) protect, defend and maintain the 
validity and enforceability of the Trademarks, Patents and Copyrights, (ii) 
use commercially reasonable 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 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, unless 
commercially reasonable business practices suggest that abandonment is 
appropriate.

               (d)  Bank shall have the right, but not the obligation, to 
take, at Borrower's sole expense, any actions that Borrower is required under 
this Section 6.14 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 6.14.

          6.15 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 Advances, Borrower 
will not do any of the following:

          7.1  DISPOSITIONS.

               Convey, sell, lease, transfer or otherwise dispose of 
(collectively, a "Transfer"), or permit any of its Subsidiaries to Transfer, 
all or any part of its business or property, other than: (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 worn-out or obsolete Equipment.


                                      18

<PAGE>

          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 of 
more than thirty percent (30%) acquired or sold by any one (1) Person.  
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 unless no Event of 
Default has occurred or is continuing or would result from such action.

          7.4  INDEBTEDNESS.

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

          7.5  ENCUMBRANCES.

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

          7.6  DISTRIBUTIONS.

               Pay any dividends or make any other distribution or payment on 
account of or in redemption, retirement or purchase of any capital stock.

          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  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.


                                      19

<PAGE>

          7.10 SUBORDINATED DEBT.

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

          7.11 INVENTORY.

               Store the Inventory with a bailee, warehouseman, or similar 
party unless Bank has received a pledge of the warehouse receipt covering 
such Inventory.  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 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 a financing statement where needed to perfect 
Bank's security interest.

          7.12 COMPLIANCE.

               Become an "investment company" or become "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 Advance 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.

     8.   EVENTS OF DEFAULT

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

          8.1  PAYMENT DEFAULT.

               If Borrower fails to pay the principal of, or any interest on, 
any Advances when due and payable; or fails to pay any portion of any other 
Obligations not constituting such principal or interest, including without 
limitation Bank Expenses, within thirty (30) days of receipt by Borrower of 
an invoice for such other Obligations;

          8.2  COVENANT DEFAULT.

               If Borrower fails to perform any obligation under Sections 
6.7, 6.8, 6.9, 6.10, 6.11, 6.12, 6.13 or 6.14 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 Advances will be required to be 
made during such cure period);

                                      20

<PAGE>

          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 Advances 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 Advances 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 One Hundred Thousand Dollars 
($100,000) or that could have a Material Adverse Effect;

          8.7  SUBORDINATED DEBT.

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

          8.8  JUDGMENTS.

               If a judgment or judgments for the payment of money in an 
amount, individually or in the aggregate, of at least 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 Advances 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.

                                      21

<PAGE>


     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)  Without notice to or demand upon Borrower, make such 
payments and do such acts as Bank considers necessary or reasonable to 
protect its security interest in the Collateral.  Borrower agrees to assemble 
the Collateral if Bank so requires, and to make the Collateral available to 
Bank as Bank may designate.  Borrower authorizes Bank to enter the premises 
where the Collateral is located, to take and maintain possession of the 
Collateral, or any part of it, and to pay, purchase, contest, or compromise 
any encumbrance, charge, or lien which in Bank's determination appears to be 
prior or superior to its security interest and to pay all expenses incurred 
in connection therewith. With respect to any of Borrower's 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)  Without notice to Borrower set off and apply to the 
Obligations any and all (i) balances and deposits of Borrower held by Bank, 
or (ii) indebtedness at any time owing to or for the credit or the account of 
Borrower held by Bank;

               (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, 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.


                                      22

<PAGE>

          9.2  POWER OF ATTORNEY.

               Effective only upon the occurrence and during the continuance 
of an Event of Default, Borrower hereby irrevocably appoints Bank (and any of 
Bank's designated officers, or employees) as Borrower's true and lawful 
attorney to:  (a) send requests for verification of Accounts or notify 
account debtors of Bank's security interest in the Accounts; (b) endorse 
Borrower's name on any checks or other forms of payment or security that may 
come into Bank's possession; (c) sign Borrower's name on any invoice or bill 
of lading relating to any Account, drafts against account debtors, schedules 
and assignments of Accounts, verifications of Accounts, and notices to 
account debtors; (d) make, settle, and adjust all claims under and decisions 
with respect to Borrower's policies of insurance; (e) settle and adjust 
disputes and claims respecting the accounts directly with account debtors, 
for amounts and upon terms which Bank determines to be reasonable; (f) to 
modify, in its sole discretion, any intellectual property security agreement 
entered into between Borrower and Bank without first obtaining Borrower's 
approval of or signature to such modification by amending Exhibit A, Exhibit 
B and Exhibit 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 any right, title or interest; (g) to file, in its 
sole discretion, one or more financing or continuation statements and 
amendments thereto, relative to any of the Collateral without the signature 
of Borrower where permitted by law; and (h) to transfer the Intellectual 
Property Collateral into the name of Bank or a third party to the extent 
permitted under the 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 from the date 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.

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

                                      23

<PAGE>


          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:

     If to Borrower:          InnerDyne, Inc.
                              1244 Reamwood Avenue         
                              Sunnyvale, CA 94089          
                              Attn:     Robert Stern, CFO  
                              FAX: (408) 745-6570          

     If to Bank:              Silicon Valley Bank
                              1731 Embarcadero Road   
                              Palo Alto, CA 94303     
                              Attn:     Gary Reagan   
                              FAX: (415) 812-0640     

     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.

                                      24

<PAGE>

     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.

          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, except that any financing statements or other agreements or 
instruments filed by Bank with respect to Borrower shall remain in full force 
and effect.


                                      25

<PAGE>

          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 EFFECT OF AMENDMENT AND RESTATEMENT.  This Agreement is 
intended to and does completely amend and restate, without novation, the 
Original Loan Documents.  All security interests granted under the Original 
Loan Documents are hereby confirmed and ratified and shall continue to secure 
all Obligations under this Agreement.

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

                                   INNERDYNE, INC.                    


                                   By: /s/ Robert A. Stern
                                       ---------------------------------------

                                   Title: Vice President & CFO
                                          ------------------------------------



                                   SILICON VALLEY BANK


                                   By: /s/ Gary Reagan
                                       ---------------------------------------

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


                                      26

<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, trademarks, servicemarks, 
trade styles, trade names, patents, patent applications, leases, license 
agreements, franchise agreements, blueprints, drawings, purchase orders, 
customer lists, route lists, infringements, claims, computer programs, 
computer discs, computer tapes, literature, reports, catalogs, design rights, 
income tax refunds, payments of insurance and rights to payment of any kind;

     (d)  All 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, financial 
assets, securities accounts, securities entitlements, 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.


                                      27

<PAGE>

                                    EXHIBIT B
                   LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM

              DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.

TO:  CENTRAL CLIENT SERVICE DIVISION              DATE:   
                                                        -------------------

FAX#:  (408) 496-2426                             TIME:   
                                                        -------------------



FROM:  INNERDYNE, 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 (REVOLVING ADVANCE)  $
                                          ------------------------------------
PRINCIPAL INCREASE (EQUIPMENT ADVANCE)  $
                                          ------------------------------------
PRINCIPAL PAYMENT (ONLY)                $
                                          ------------------------------------
INTEREST PAYMENT (ONLY)                 $
                                          ------------------------------------
PRINCIPAL AND INTEREST (PAYMENT)        $
                                          ------------------------------------

OTHER INSTRUCTIONS: ----------------------------------------------------------

------------------------------------------------------------------------------
     All representations and warranties of Borrower stated in the Amended and
Restated 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 Borrowing Certificate; 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 #

------------------------------                         -----------------------
      Received By (Bank)                                       Phone #


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


                                      28

<PAGE>

                                    EXHIBIT C
                           BORROWING BASE CERTIFICATE


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

Borrower:  InnerDyne, Inc.                        Lender:   Silicon Valley Bank


Commitment Amount:  $2,000,000

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

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

ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
     4.   Amounts over 90 days due          $
                                               --------
     5.   Balance of 50% over 90 day accounts            $
                                                           --------
     6.   Concentration Limits                           $
                                                           --------
     7.   Foreign Accounts                  $
                                               -------- 
     8.   Governmental Accounts             $           
                                               -------- 
     9.   Contra Accounts                   $           
                                               -------- 
     10.  Promotion or Demo Accounts                      $
                                                           --------
     11.  Intercompany/Employee Accounts    $
                                              --------
     12.  Other (please explain on reverse) $
                                              --------
     13.  TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS                      $
                                                                      --------
     14.  Eligible Accounts (#3 minus #13)                $
                                                           --------
     15.  LOAN VALUE OF ACCOUNTS (75% of #14)                       $
                                                                      --------
BALANCES
     16.  Maximum Loan Amount                             $
                                                           --------
     17.  Total Funds Available (Lesser of #15 or 16)               $
                                                                      --------
     18.  Present balance owing on Line of Credit                   $
                                                                      --------
     19.  RESERVE POSITION (#17 minus #18)                          $
                                                                      --------


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 
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT BETWEEN THE UNDERSIGNED AND 
SILICON VALLEY BANK.

COMMENTS:                                            BANK USE ONLY      
                                                                        
                                                 Rec'd By:              
By:                                                        ------------ 
    --------------------------------                       Auth. Signer 
        Authorized Signer                        Date:                  
                                                       ---------------- 
                                                 Verified:              
                                                          ------------- 
                                                           Auth. Signer 
                                                 Date:                  
                                                       ---------------- 



                                      29


<PAGE>


                                    EXHIBIT D
                             COMPLIANCE CERTIFICATE


TO:       SILICON VALLEY BANK

FROM:     INNERDYNE, INC.

     The undersigned authorized officer of InnerDyne, Inc. ("Borrower") 
hereby certifies that in accordance with the terms and conditions of the 
Amended and Restated 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.

  PLEASE INDICATE COMPLIANCE STATUS BY CIRCLING YES/NO UNDER "COMPLIES" COLUMN.

    REPORTING COVENANT            REQUIRED                      COMPLIES
    ------------------            --------                      --------

    Monthly financial statements  Monthly within 30 days        Yes  No
    Annual (CPA Audited)          FYE within 90 days            Yes  No
    A/R & A/P Agings              Monthly within 20 days        Yes  No
    A/R Audit                     Initial and Semi-Annual       Yes  No

    FINANCIAL COVENANT            REQUIRED       ACTUAL         COMPLIES
    ------------------            --------       ------         --------

    Maintain on a Monthly Basis:
     Minimum Quick Ratio         1.5:1.0        _____:1.0      Yes  No
     Minimum Liquidity1          2.0:1.0        _____:1.0      Yes  No
     Debt Service Coverage2      2.0:1.0        _____:1.0      Yes  No
     Minimum Tangible Net Worth  $4,000,000     $________      Yes  No
     Maximum Debt/Tangible
       Net Worth                 1.0:1.0        _____:1.0      Yes  No

     Profitability: Quarterly    $1.00(3)       $________      Yes  No

(1) Maintain until Borrower maintains 6 consecutive months of DSC of 2.0:1.0.
(2) Tested upon release of Minimum Liquidity covenant.
(3) Except (a) cumulative quarterly losses not exceeding:  $1,400,000 as of 
    QE 6/30/97; $1,900,000 as of QE 9/30/97; and $2,400,000 as of QE 
    12/31/97; and (b) $250,000 for QE 3/31/98.

COMMENTS REGARDING EXCEPTIONS:                     BANK USE ONLY             
See Attached.                                                                
                                             Received by:                    
Sincerely,                                                -------------------
                                                          AUTHORIZED SIGNER  
----------------------------------                                           
SIGNATURE                                    Date:                           
                                                  ---------------------------
----------------------------------           Verified:                       
TITLE                                                   ---------------------
                                                          AUTHORIZED SIGNER  
----------------------------------                                           
DATE                                         Date:                           
                                                  ---------------------------

                                             Compliance Status:    Yes     No


                                      30

<PAGE>




                     DISBURSEMENT REQUEST AND AUTHORIZATION


Borrower:                                              Bank:     Silicon Valley
Bank

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

LOAN TYPE.  This is a variable rate, revolving line of credit of a principal 
amount up to $2,000,000, and an equipment line of credit of a principal 
amount of up to $500,000.

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

SPECIFIC PURPOSE.  The specific purpose of this loan is:  Short Term Working 
Capital and Acquisition of Equipment.

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      Equipment Line

     Amount paid to Borrower directly:       $ ____         $__________
     Undisbursed Funds                       $ ____         $__________
     Principal                               $ ____         $__________

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

     Prepaid Finance Charges Paid in Cash:             $____
          $10,0000  Loan Fee
          $    TBD  Accounts Receivables Audit

     Other Charges Paid in Cash:                       $____
          $     TBD UCC Search Fees
          $     TBD UCC Filing Fees
          $     TBD Patent Filing Fees
          $     TBD Trademark Filing Fees
          $     TBD Copyright Filing Fees
          $     TBD 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 JUNE 19, 1997.

BORROWER:

INNERDYNE, INC.

_____________________________________
Authorized Officer

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

<PAGE>
                         AGREEMENT TO PROVIDE INSURANCE


GRANTOR:  InnerDyne, Inc.                         BANK:  Silicon Valley Bank

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

     INSURANCE REQUIREMENTS.  InnerDyne, Inc. ("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 June 19, 1997, 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 JUNE 19, 
1997.

GRANTOR:

INNERDYNE, INC.


x 
  Authorized Officer

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


<PAGE>

                         CORPORATE RESOLUTIONS TO BORROW

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

BORROWER:   InnerDyne, Inc.

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

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

     I FURTHER CERTIFY that the Certificate of Incorporation and Bylaws of 
the Corporation previously delivered to Bank remain in full force and effect 
on the date hereof and have not been amended, restated, modified or otherwise 
changed.

     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:

     NAMES                    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 Silicon Valley 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 Amended and Restated Loan and Security Agreement dated as of 
June 19, 1997 (the "Loan Agreement").

     EXECUTE NOTES.  To execute and deliver to Bank the promissory note or 
notes of the Corporation, on Lender'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, and also to execute and deliver 
to Lender one or more renewals, extensions, modifications, refinancings, 
consolidations, or substitutions for one or more of the notes, or any portion 
of the notes.

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

     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.


                                      1

<PAGE>


     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 June 19, 1997 and 
attest that the signatures set opposite the names listed above are their 
genuine signatures.

                                        CERTIFIED TO AND ATTESTED BY:


                                        X 

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

                                      2