Document:

<PAGE>

                                                                    EXHIBIT 10.8

                              CURON MEDICAL,INC.

                                2000 STOCK PLAN

     1.  Purposes of the Plan.  The purposes of this 2000 Stock Plan are:
         --------------------

          .    to attract and retain the best available personnel for positions
               of substantial responsibility,

          .    to provide additional incentive to Employees, Directors and
               Consultants, and

          .    to promote the success of the Company's business.

          Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant.

     2.   Definitions.  As used herein, the following definitions shall
          -----------
apply:

          (a)  "Administrator" means the Board or any of its Committees as shall
                -------------
be administering the Plan, in accordance with Section 4 of the Plan.

          (b)  "Applicable Laws" means the requirements relating to the
                ---------------
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any other country or jurisdiction where Options are granted under the Plan.

          (c)  "Board" means the Board of Directors of the Company.
                -----

          (d)  "Code" means the Internal Revenue Code of 1986, as amended.
                ----

          (e)  "Committee" means a committee of Directors appointed by the Board
                ---------
in accordance with Section 4 of the Plan.

          (f)  "Common Stock" means the common stock of the Company.
                ------------

          (g)  "Company" means Curon Medical, inc., a Delaware Corporation.
                -------

          (h)  "Consultant" means any natural person, including an advisor,
                ----------
engaged by the Company or a Parent or Subsidiary to render services to such
entity.

          (i)  "Director" means a member of the Board.
                --------

          (j)  "Disability" means total and permanent disability as defined in
                ----------
Section 22(e)(3) of the Code.
<PAGE>

          (k)  "Employee" means any person, including Officers and Directors,
                --------
employed by the Company or any Parent or Subsidiary of the Company.  A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract.  If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, then three (3) months following the 91/st/ day of
such leave any Incentive Stock Option held by the Optionee shall cease to be
treated as an Incentive Stock Option and shall be treated for tax purposes as a
Nonstatutory Stock Option.  Neither service as a Director nor payment of a
director's fee by the Company shall be sufficient to constitute "employment" by
the Company.

          (l)  "Exchange Act" means the Securities Exchange Act of 1934, as
                ------------
amended.

          (m)  "Fair Market Value" means, as of any date, the value of Common
                -----------------
Stock determined as follows:

               (i)   If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system on
the day of determination, as reported in The Wall Street Journal or such other
source as the Administrator deems reliable;

               (ii)  If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the day of determination, as reported in The Wall
Street Journal or such other source as the Administrator deems reliable; or

               (iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.

          (n)  "Incentive Stock Option" means an Option intended to qualify as
                ----------------------
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.

          (o)  "Inside Director" means a Director who is an Employee.
                ---------------

          (p)  "IPO Effective Date" means the date upon which the Securities and
                ------------------
Exchange Commission declares the initial public offering of the Company's common
stock as effective.

          (q)  "Nonstatutory Stock Option" means an Option not intended to
                -------------------------
qualify as an Incentive Stock Option.

          (r)  "Notice of Grant" means a written or electronic notice evidencing
                ---------------
certain terms and conditions of an individual Option grant.  The Notice of Grant
is part of the Option Agreement.

                                      -2-
<PAGE>

          (s)  "Officer" means a person who is an officer of the Company within
                -------
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.

          (t)  "Option" means a stock option granted pursuant to the Plan.
                ------

          (u)  "Option Agreement" means an agreement between the Company and an
                ----------------
Optionee evidencing the terms and conditions of an individual Option grant.  The
Option Agreement is subject to the terms and conditions of the Plan.

          (v)  "Optioned Stock" means the Common Stock subject to an Option.
                --------------

          (w)  "Optionee" means the holder of an outstanding Option granted
                --------
under the Plan.

          (x)  "Outside Director" means a Director who is not an Employee.
                ----------------

          (y)  "Parent" means a "parent corporation," whether now or hereafter
                ------
existing, as defined in Section 424(e) of the Code.

          (z)  "Plan" means this 2000 Stock Plan.
                ----

          (aa) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
                ----------
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.

          (bb) "Section 16(b) " means Section 16(b) of the Exchange Act.
                -------------

          (cc) "Service Provider" means an Employee, Director or Consultant.
                ----------------

          (dd) "Share" means a share of the Common Stock, as adjusted in
                -----
accordance with Section 13 of the Plan.

          (ee) "Subsidiary" means a "subsidiary corporation", whether now or
                ----------
hereafter existing, as defined in Section 424(f) of the Code.

     3.   Stock Subject to the Plan.  Subject to the provisions of Section
          -------------------------
13 of the Plan, the maximum aggregate number of Shares that may be optioned and
sold under the Plan is 2,000,000 Shares plus (a) any Shares which were reserved
but unissued under the Company's 1997 Stock Plan ("1997 Plan") as of the date of
stockholder approval of the original adoption of this Plan, (b) any Shares
subsequently returned to the 1997 Plan as a result of termination of options or
repurchase of Shares issued under the 1997 Plan, and (c) an annual increase to
be added on the first day of the Company's fiscal year beginning in 2001, equal
to the lesser of (i) 2,000,000 shares of Common Stock, (ii) 5% of the
outstanding shares of Common Stock on such date or (iii) an amount determined by
the Board..  The Shares may be authorized, but unissued, or reacquired Common
Stock.

          If an Option expires or becomes unexercisable without having been
exercised in full, the unpurchased Shares which were subject thereto shall
become available for future grant or sale under the Plan (unless the Plan has
terminated); provided, however, that Shares that have actually been issued under
             --------
the Plan upon exercise of an Option shall not be returned to the Plan and shall
not

                                      -3-
<PAGE>

become available for future distribution under the Plan, except that if unvested
Shares are repurchased by the Company at their original purchase price, such
Shares shall become available for future grant under the Plan.

     4.   Administration of the Plan.
          --------------------------

          (a)  Procedure.
               ---------

               (i)    Multiple Administrative Bodies. Different Committees with
                      ------------------------------
respect to different groups of Service Providers may administer the Plan.

               (ii)   Section 162(m). To the extent that the Administrator
                      --------------
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.

               (iii)  Rule 16b-3. To the extent desirable to qualify
                      ----------
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.

               (iv)   Other Administration. Other than as provided above, the
                      --------------------
Plan shall be administered by (A) the Board or (B) a Committee, which committee
shall be constituted to satisfy Applicable Laws.

          (b)  Powers of the Administrator.  Subject to the provisions of the
               ---------------------------
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:

               (i)    to determine the Fair Market Value;

               (ii)   to select the Service Providers to whom Options may be
granted hereunder;

               (iii)  to determine the number of shares of Common Stock to be
covered by each Option granted hereunder;

               (iv)   to approve forms of agreement for use under the Plan;

               (v)    to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Option granted hereunder. Such terms and
conditions include, but are not limited to, the exercise price, the time or
times when Options may be exercised (which may be based on performance
criteria), any vesting acceleration or waiver of forfeiture restrictions, and
any restriction or limitation regarding any Option or the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;

               (vi)   to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;

                                      -4-
<PAGE>

               (vii)  to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of satisfying applicable foreign laws;

               (viii) to modify or amend each Option (subject to Section 15(c)
of the Plan), including the discretionary authority to extend the post-
termination exercisability period of Options longer than is otherwise provided
for in the Plan;

               (ix)   to allow Optionees to satisfy withholding tax obligations
by electing to have the Company withhold from the Shares to be issued upon
exercise of an Option that number of Shares having a Fair Market Value equal to
the minimum amount required to be withheld. The Fair Market Value of the Shares
to be withheld shall be determined on the date that the amount of tax to be
withheld is to be determined. All elections by an Optionee to have Shares
withheld for this purpose shall be made in such form and under such conditions
as the Administrator may deem necessary or advisable;

               (x)    to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option previously
granted by the Administrator;

               (xi)   to make all other determinations deemed necessary or
advisable for administering the Plan.

          (c)  Effect of Administrator's Decision.  The Administrator's
               ----------------------------------
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Shares issued under the Plan.

     5.   Eligibility. Nonstatutory Stock Options may be granted to Service
          -----------
Providers. Incentive Stock Options may be granted only to Employees.

     6.   Limitations.
          -----------

          (a)  Each Option shall be designated in the Option Agreement as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.

          (b)  Neither the Plan nor any Option shall confer upon an Optionee any
right with respect to continuing the Optionee's relationship as a Service
Provider with the Company, nor shall they interfere in any way with the
Optionee's right or the Company's right to terminate such relationship at any
time, with or without cause.

          (c)  The following limitations shall apply to grants of Options:

                                      -5-
<PAGE>

                    (i)    No Service Provider shall be granted, in any fiscal
year of the Company, Options to purchase more than 1,000,000 Shares.

                    (ii)   In connection with his or her initial service, a
Service Provider may be granted Options to purchase up to an additional
2,000,000 Shares, which shall not count against the limit set forth in
subsection (i) above.

                    (iii)  The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 13.

          7.   Term of Plan.  Subject to Section 19 of the Plan, the Plan shall
               ------------
become effective upon its adoption by the Board.  It shall continue in effect
for a term of ten (10) years unless terminated earlier under Section 15 of the
Plan.

          8.   Term of Option.  The term of each Option shall be stated in the
               --------------
Option Agreement.  In the case of an Incentive Stock Option, the term shall be
ten (10) years from the date of grant or such shorter term as may be provided in
the Option Agreement.  Moreover, in the case of an Incentive Stock Option
granted to an Optionee who, at the time the Incentive Stock Option is granted,
owns stock representing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
term of the Incentive Stock Option shall be five (5) years from the date of
grant or such shorter term as may be provided in the Option Agreement.

          9.   Option Exercise Price and Consideration.
               ---------------------------------------

               (a)  Exercise Price. The per share exercise price for the Shares
                    --------------
to be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:

                    (i)    In the case of an Incentive Stock Option

                           (A)  granted to an Employee who, at the time the
Incentive Stock Option is granted, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant.

                           (B)  granted to any Employee other than an Employee
described in paragraph (A) immediately above, the per Share exercise price shall
be no less than 100% of the Fair Market Value per Share on the date of grant.

                    (ii)   In the case of a Nonstatutory Stock Option, the per
Share exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.

                    (iii)  Notwithstanding the foregoing, Options may be granted
with a per Share exercise price of less than 100% of the Fair Market Value per
Share on the date of grant pursuant to a merger or other corporate transaction.

                                      -6-
<PAGE>

          (b)  Waiting Period and Exercise Dates.  At the time an Option is
               ---------------------------------
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions that must be satisfied before the
Option may be exercised.

          (c)  Form of Consideration.  The Administrator shall determine the
               ---------------------
acceptable form of consideration for exercising an Option, including the method
of payment.  In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant.  Such
consideration may consist entirely of:

               (i)     cash;

               (ii)    check;

               (iii)   promissory note;

               (iv)    other Shares which, in the case of Shares acquired
directly or indirectly from the Company, (A) have been owned by the Optionee for
more than six (6) months on the date of surrender, and (B) have a Fair Market
Value on the date of surrender equal to the aggregate exercise price of the
Shares as to which said Option shall be exercised;

               (v)     consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;

               (vi)    a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;

               (vii)   any combination of the foregoing methods of payment; or

               (viii)  such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.

Notwithstanding the foregoing, the Administrator may permit an Option to be
exercised by delivery of a full-recourse promissory note secured by the
purchased shares.  All other terms of such promissory note shall be determined
by the Administrator in its sole discretion.

     10.  Exercise of Option.
          ------------------

          (a)  Procedure for Exercise; Rights as a Stockholder.  Any Option
               -----------------------------------------------
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement.  Unless the Administrator provides otherwise,
vesting of Options granted hereunder shall be suspended during any unpaid leave
of absence.  An Option may not be exercised for a fraction of a Share.

               An Option shall be deemed exercised when the Company receives:
(i) written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the

                                      -7-
<PAGE>

Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a stockholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 13 of the Plan.

               Exercising an Option in any manner shall decrease the number of
Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.

          (b)  Termination of Relationship as a Service Provider. If an
               -------------------------------------------------
Optionee ceases to be a Service Provider, other than upon the Optionee's death
or Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that the Option is
vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). In the absence of
a specified time in the Option Agreement, the Option shall remain exercisable
for three (3) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified by the Administrator, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.

          (c)  Disability of Optionee. If an Optionee ceases to be a Service
               ----------------------
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
to the extent the Option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If, on the date of termination, the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall revert to the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.

          (d)  Death of Optionee. If an Optionee dies while a Service
               -----------------
Provider, the Option may be exercised following Optionee's death within such
period of time as is specified in the Option Agreement to the extent that the
Option is vested on the date of death (but in no event may the option be
exercised later than the expiration of the term of such Option as set forth in
the Option Agreement) by the Optionee's designated beneficiary, provided such
beneficiary has been designated prior to Optionee's death in a form acceptable
by the Administrator. If no such beneficiary has been designated by the
Optionee, then such Option may be exercised by the personal representative of
the Optionee's estate or by the person(s) to whom the Option is transferred
pursuant to the Optionee's will or in accordance with the laws of descent and
distribution. In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months

                                      -8-
<PAGE>

following Optionee's death. If, at the time of death, the Optionee is not vested
as to his or her entire Option, the Shares covered by the unvested portion of
the Option shall immediately revert to the Plan. If the Option is not so
exercised within the time specified herein, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.

          11.  Formula Option Grants to Outside Directors.  Outside Directors
               ------------------------------------------
shall automatically be granted Options in accordance with the following
provisions:

               (a)  All Options granted pursuant to this Section shall be
Nonstatutory Stock Options and, except as otherwise provided herein, shall be
subject to the other terms and conditions of the Plan.

               (b)  Each Outside Director shall be automatically granted an
Option to purchase 30,000 Shares (the "First Option") on the date on which the
later of the following events occurs: (A) the effective date of this Plan, as
determined in accordance with Section 7 hereof, or (B) the date on which such
person first becomes an Outside Director, whether through election by the
stockholders of the Company or appointment by the Board to fill a vacancy;
provided, however, that an Inside Director who ceases to be an Inside Director
but who remains a Director shall not receive a First Option.

               (c)  Each Outside Director shall be automatically granted an
Option to purchase 10,000 Shares (a "Subsequent Option") following each annual
meeting of the stockholders of the Company, except in the case of the first such
annual meeting after the IPO Effective Date if such annual meeting is held
within six (6) months of the IPO Effective Date, if as of such date, he or she
shall continue to serve on the Board and shall have served on the Board for at
least the preceding six (6) months.

               (d)  Notwithstanding the provisions of subsections (b) and (c)
hereof, any exercise of an Option granted before the Company has obtained
stockholder approval of the Plan in accordance with Section 19 hereof shall be
conditioned upon obtaining such stockholder approval of the Plan in accordance
with Section 19 hereof.

               (e)  The terms of a First Option granted pursuant to this Section
shall be as follows:

                    (i)   the term of the First Option shall be ten (10) years.

                    (ii)  the First Option shall be exercisable only while the
Outside Director remains a Director of the Company.

                    (iii) the exercise price per Share shall be 100% of the Fair
Market Value per Share on the date of grant of the First Option.

                    (iv)  subject to Section 13, the First Option shall become
exercisable as to 25% of the Shares subject to the First Option on each
anniversary of its date of grant, provided that the Optionee continues to serve
as a Director on such dates.

               (f)  The terms of a Subsequent Option granted hereunder shall be
as follows:

                                      -9-
<PAGE>

                    (i)   the term of the Subsequent Option shall be ten (10)
years.

                    (ii)  the Subsequent Option shall be exercisable only while
the Outside Director remains a Director of the Company.

                    (iii) the exercise price per Share shall be 100% of the Fair
Market Value per Share on the date of grant of the Subsequent Option.

                    (iv)  subject to Section 13 hereof, the Subsequent Option
shall become exercisable as to 25% of the Shares subject to the Subsequent
Option on each anniversary of its date of grant, provided the Optionee continues
to serve as a Director on such dates.

          12.  Limited Transferability of Options.  Unless determined otherwise
               ----------------------------------
by the Administrator, an Option may not be sold, pledged, assigned,
hypothecated, transferred, or disposed of in any manner other than by will or by
the laws of descent or distribution and may be exercised, during the lifetime of
the Optionee, only by the Optionee.  If the Administrator makes an Option
transferable, such Option shall contain such additional terms and conditions as
the Administrator deems appropriate.

          13.  Adjustments Upon Changes in Capitalization, Dissolution, Merger
               ---------------------------------------------------------------
or Asset Sale.
-------------

               (a)  Changes in Capitalization. Subject to any required action by
                    -------------------------
the stockholders of the Company, the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, the number of Shares that may be added annually to the
Plan pursuant to Section 3(i), the number of shares granted under First Options
and Subsequent Options under Section 11, and the number of shares of Common
Stock covered by each outstanding Option as well as the price per share of
Common Stock covered by each such outstanding Option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.

               (b)  Dissolution or Liquidation.  In the event of the proposed
                    --------------------------
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction.  The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable.  In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option shall lapse as to all such Shares,
provided the proposed dissolution or liquidation takes place at the time

                                      -10-
<PAGE>

and in the manner contemplated. To the extent it has not been previously
exercised, an Option will terminate immediately prior to the consummation of
such proposed action.

               (c)  Merger or Asset Sale. In the event of a merger of the
                    --------------------
Company with or into another corporation, or the sale of substantially all of
the assets of the Company, each outstanding Option and Stock Purchase Right
shall be assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. With respect
to Options granted to an Outside Director pursuant to Section 11 that are
assumed or substituted for, if following such assumption or substitution the
Optionee's status as a Director or a director of the successor corporation, as
applicable, is terminated other than upon a voluntary resignation by the
Optionee, then the Optionee shall fully vest in and have the right to exercise
the Option as to all of the Optioned Stock, including Shares as to which it
would not otherwise be vested or exercisable.

                    In the event that the successor corporation refuses to
assume or substitute for the Option or Stock Purchase Right, the Optionee shall
fully vest in and have the right to exercise the Option or Stock Purchase Right
as to all of the Optioned Stock, including Shares as to which it would not
otherwise be vested or exercisable. If an Option or Stock Purchase Right becomes
fully vested and exercisable in lieu of assumption or substitution in the event
of a merger or sale of assets, the Administrator shall notify the Optionee in
writing or electronically that the Option or Stock Purchase Right shall be fully
vested and exercisable for a period of fifteen (15) days from the date of such
notice, and the Option or Stock Purchase Right shall terminate upon the
expiration of such period.

                    For the purposes of this paragraph, the Option or Stock
Purchase Right shall be considered assumed if, following the merger or sale of
assets, the option or right confers the right to purchase or receive, for each
Share of Optioned Stock subject to the Option or Stock Purchase Right
immediately prior to the merger or sale of assets, the consideration (whether
stock, cash, or other securities or property) received in the merger or sale of
assets by holders of Common Stock for each Share held on the effective date of
the transaction (and if holders were offered a choice of consideration, the type
of consideration chosen by the holders of a majority of the outstanding Shares);
provided, however, that if such consideration received in the merger or sale of
assets is not solely common stock of the successor corporation or its Parent,
the Administrator may, with the consent of the successor corporation, provide
for the consideration to be received upon the exercise of the Option or Stock
Purchase Right, for each Share of Optioned Stock subject to the Option or Stock
Purchase Right, to be solely common stock of the successor corporation or its
Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger or sale of assets.

          14.  Date of Grant.  The date of grant of an Option shall be, for all
               -------------
purposes, the date on which the Administrator makes the determination granting
such Option, or such other later date as is determined by the Administrator.
Notice of the determination shall be provided to each Optionee within a
reasonable time after the date of such grant.

          15.  Amendment and Termination of the Plan.
               -------------------------------------

               (a)  Amendment and Termination.  The Board may at any time amend,
                    -------------------------
alter, suspend or terminate the Plan.

                                      -11-
<PAGE>

          (b)  Stockholder Approval.  The Company shall obtain stockholder
               --------------------
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.

          (c)  Effect of Amendment or Termination.  No amendment, alteration,
               ----------------------------------
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.

     16.  Conditions Upon Issuance of Shares.
          ----------------------------------

          (a)  Legal Compliance.  Shares shall not be issued pursuant to the
               ----------------
exercise of an Option unless the exercise of such Option and the issuance and
delivery of such Shares shall comply with Applicable Laws and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.

          (b)  Investment Representations.  As a condition to the exercise of an
               --------------------------
Option, the Company may require the person exercising such Option to represent
and warrant at the time of any such exercise that the Shares are being purchased
only for investment and without any present intention to sell or distribute such
Shares if, in the opinion of counsel for the Company, such a representation is
required.

     17.  Inability to Obtain Authority.  The inability of the Company to
          -----------------------------
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.

     18.  Reservation of Shares. The Company, during the term of this Plan, will
          ---------------------
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.

     19.  Stockholder Approval. The Plan shall be subject to approval by the
          --------------------
stockholders of the Company within twelve (12) months after the date the Plan is
adopted. Such stockholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.

                                      -12-<PAGE>

                                                                   EXHIBIT 10.11

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

                          CONWAY-STUART MEDICAL, INC.

                              AMENDED AND RESTATED
                          LOAN AND SECURITY AGREEMENT

================================================================================
<PAGE>

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                       Page
                                                                       ----
<S>                                                                    <C>
1.     DEFINITIONS AND CONSTRUCTION.................................     1
       1.1    Definitions...........................................     1
       1.2    Accounting Terms......................................     5

2.     LOAN AND TERMS OF PAYMENT....................................     5
       2.1    Equipment Loan Facility...............................     5
       2.1.1  Term Loan Facility....................................     6
       2.2    Interest Rates, Payments, and Calculations............     6
       2.3    Crediting Payments....................................     7
       2.4    Fees..................................................     7
       2.5    Additional Costs......................................     7
       2.6    Term..................................................     8

3.     CONDITIONS OF LOANS..........................................     8
       3.1    Conditions Precedent to Initial Advance...............     8
       3.2    Conditions Precedent to all Advances..................     8

4.     CREATION OF SECURITY INTEREST................................     8
       4.1    Grant of Security Interest............................     8
       4.2    Delivery of Additional Documentation Required.........     8
       4.3    Right to Inspect......................................     8

5.     REPRESENTATIONS AND WARRANTIES...............................     9
       5.1    Due Organization and Qualification....................     9
       5.2    Due Authorization; No Conflict........................     9
       5.3    Bona Fide Eligible Accounts...........................     9
       5.4    Merchantable Inventory................................     9
       5.5    Name; Location of Chief Executive Office..............    10
       5.6    Litigation............................................    10
       5.7    No Material Adverse Change in Financial Statements....    10
       5.8    Solvency..............................................    10
       5.9    Regulatory Compliance.................................    10
       5.10   Environmental Condition...............................    10
       5.11   Taxes.................................................    10
       5.12   Subsidiaries..........................................    10
       5.13   Government Consents...................................    10
       5.14   Full Disclosure.......................................    11

6.     AFFIRMATIVE COVENANTS........................................    11
       6.1    Good Standing.........................................    11
       6.2    Government Compliance.................................    11
       6.3    Financial Statements, Reports, Certificates...........    11
       6.4    Inventory; Returns....................................    11
       6.5    Taxes.................................................    12
       6.6    Insurance.............................................    12
       6.7    Principal Depository..................................    12
       6.8    Quick Ratio...........................................    12
       6.9    Debt-Net Worth Ratio..................................    12
       6.10   Tangible Net Worth....................................    12
       6.11   Minimum Liquidity/Debt Service Coverage...............    12
</TABLE>

                                       i
<PAGE>

<TABLE>
<S>                                                                     <C>
       6.11   Financial Projection..................................    12
       6.12   Year 2000.............................................    13
       6.13   Registration of Intellectual Property Rights..........    13
       6.14   Further Assurances....................................    13

7.     NEGATIVE COVENANTS...........................................    13
       7.1    Dispositions..........................................    13
       7.2    Change in Business....................................    13
       7.3    Mergers or Acquisitions...............................    13
       7.4    Indebtedness..........................................    13
       7.5    Encumbrances..........................................    14
       7.6    Distributions.........................................    14
       7.7    Advances to Employees or Shareholders.................    14
       7.8    Investments...........................................    14
       7.9    Transactions with Affiliates..........................    14
       7.10   Subordinated Debt.....................................    14
       7.11   Inventory.............................................    14
       7.12   Compliance............................................    14

8.     EVENTS OF DEFAULT............................................    14
       8.1    Payment Default.......................................    14
       8.2    Covenant Default......................................    14
       8.3    Material Adverse Change...............................    15
       8.4    Attachment............................................    15
       8.5    Insolvency............................................    15
       8.6    Other Agreements......................................    15
       8.7    Subordinated Debt.....................................    15
       8.8    Judgments.............................................    15
       8.9    Misrepresentations....................................    15

9.     BANK'S RIGHTS AND REMEDIES...................................    16
       9.1    Rights and Remedies...................................    16
       9.2    Power of Attorney.....................................    16
       9.3    Accounts Collection...................................    17
       9.4    Bank Expenses.........................................    17
       9.5    Bank's Liability for Collateral.......................    17
       9.6    Remedies Cumulative...................................    17
       9.7    Demand; Protest.......................................    17

10.    NOTICES......................................................    18

11.    CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER...................    18

12.    GENERAL PROVISIONS...........................................    18
       12.1   Successors and Assigns................................    18
       12.2   Indemnification.......................................    18
       12.3   Time of Essence.......................................    19
       12.4   Severability of Provisions............................    19
       12.5   Amendments in Writing, Integration....................    19
       12.6   Counterparts..........................................    19
       12.7   Survival..............................................    19
       12.8   Effect of Amendment and Restatement...................    19
       12.9   Confidentiality.......................................    19
</TABLE>

                                      ii
<PAGE>

     This AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT ("Agreement") is
entered into as of August 12, 1998, by and between Conway-Stuart Medical, Inc.
("Borrower") and Venture Banking Group, a division of Cupertino National Bank
("Bank").

                                   RECITALS
                                   --------

     Bank and Borrower are parties to that certain Loan and Security Agreement
dated as of January 8, 1998, as may have been amended. Borrower wishes to
continue to obtain credit from time to time from Bank, and Bank desires to
continue to extend credit to Borrower. This Agreement sets forth the terms on
which Bank will advance credit to Borrower, and Borrower will repay the amounts
owing to Bank.

                                   AGREEMENT
                                   ---------

     The parties agree as follows:

     1.   DEFINITIONS AND CONSTRUCTION
          ----------------------------

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

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

               "Advance" or" Advances" means a cash advance made under the
Equipment Loan Facility 2.1 and/or the Term Loan Facility 2.1.1.

               "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, 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.

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

               "Closing Date" means the date of this Agreement.

               "Code" means the California Uniform Commercial Code.

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

                                       1
<PAGE>

               "Committed Equipment Loan" means Seven Hundred Fifty Thousand
Dollars ($750,000).

               "Contingent Obligation" means, as applied to any Person, any
direct or indirect liability, contingent or otherwise, of that Person with
respect to (i) any indebtedness, lease, dividend, letter of credit or other
obligation of another, including, without limitation, any such obligation
directly or indirectly guaranteed, endorsed, co-made or discounted or sold with
recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable; (ii) any obligations with respect to undrawn
letters of credit issued for the account of that Person; and (iii) all
obligations arising under any interest rate, currency or commodity swap
agreement, interest rate cap agreement, interest rate collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; provided, however,
that the term "Contingent Obligation" shall not include endorsements for
collection or deposit in the ordinary course of business. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determined amount of the primary obligation in respect of which such Contingent
Obligation is made or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof as determined by such Person in good
faith provided, however, that such amount shall not in any event exceed the
maximum amount of the obligations under the guarantee or other support
arrangement.

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

               "Current Liabilities" means, as of any applicable date, all
amounts that should, in accordance with GAAP, be included as current liabilities
on the consolidated balance sheet of Borrower and its Subsidiaries, as at such
date, plus, to the extent not already included therein, all outstanding 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.

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

               "Equipment Loan Facility" means the facility under which Borrower
may request Bank to issue cash advances, as specified in Section 2.1 hereof.

               "Equipment Loan Maturity Date" means August 18, 2002.

               "Equity Event" means the receipt by Borrower of not less than Six
Million Dollars ($6,000,000) of proceeds from the sale or issuance of Borrower's
equity securities or Subordinated Debt.

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

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

                                       2
<PAGE>

               "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.

               "Inventory" means all present and future inventory in which
Borrower has any interest, including merchandise, raw materials, parts,
supplies, packing and shipping materials, work in process and finished products
intended for sale or lease or to be furnished under a contract of service, of
every kind and description now or at any time hereafter owned by or in the
custody or possession, actual or constructive, of Borrower, including such
inventory as is temporarily out of its custody or possession or in transit and
including any returns upon any accounts or other proceeds, including insurance
proceeds, resulting from the sale or disposition of any of the foregoing and any
documents of title representing any of the above, and Borrower's Books relating
to any of the foregoing.

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

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

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

               "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.

               "Original Agreement" has the meaning set forth in the Recitals
above and in Section 12.8 herein.

               "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.

               "Payment Date" means the eighteenth (18) calendar day of each
month.

                                       3
<PAGE>

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

               "Permitted Indebtedness" means:

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

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

               (c)  Subordinated Debt;

               (d)  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;

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

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

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

               "Prime Rate" means the variable rate of interest, per annum, most
recently published in The Wall Street Journal, as the "prime rate," whether or
                      -----------------------
not such punished rate is the lowest rate available from Bank.

                                       4
<PAGE>

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

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

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

               "Software" means the programs, routines, and symbolic languages
that control the operations of computer hardware.

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

               "Subsidiary" means 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.
                                  ---

               "Term Loan Facility" means the facility as described in Section
2.1.1 hereof.

               "Term Loan Maturity Date" means December 18, 2001.

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

          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  Equipment Loan Facility.
               -----------------------

               (a)  Subject to and upon the terms and conditions of this
Agreement, at any time from the Closing Date through February 18, 1999, and
August 18, 1999, (the "Equipment Availability End Date"), Bank agrees to make
advances (each an "Equipment Advance" and, collectively, the "Equipment
Advances") to Borrower in an aggregate outstanding amount not to exceed Three
Hundred Fifty Thousand Dollars ($350,000). Upon the completion of the Equity
Event, Borrower may request additional Equipment Advances in an amount not to
exceed Seven Hundred Fifty Thousand Dollars $750,000 less the aggregate
principal amount of Equipment Advances previously advanced under this Section
2.1. To evidence each Equipment Advance or Equipment Advances, Borrower shall
deliver to Bank, at the time of

                                       5
<PAGE>

each Equipment Advance request, an invoice for the equipment to be purchased.
The Equipment Advances shall be used only to (i) purchase new Equipment
purchased within ninety days prior to the date of the Equipment Advance
financing such Equipment or (ii) refinance purchased Equipment in an aggregate
outstanding amount not to exceed One Hundred Thousand Dollars ($100,000) from
Advanced Closure Systems, Inc. and/or CardioSynopsis, Inc. Equipment Advances
approved from time to time by Bank and shall not exceed one hundred percent
(100%) of the cost of such Equipment, excluding installation expense, freight
discounts, warranty charges and taxes. Total Equipment Advances for the purchase
of Software shall not exceed Fifty Thousand Dollars ($50,000).

                 (b)  Interest shall accrue from the date of each Equipment
Advance at the rate specified in Section 2.3(a), and shall be payable monthly.
The Equipment Advance or Equipment Advances that are outstanding on February 18,
1999, will be payable in thirty-six (36) equal monthly installments of
principal, plus accrued interest, beginning on March 18, 1999, and continuing on
the Payment Date of each month thereafter through February 18, 2002. The
Equipment Advance or Equipment Advances that are outstanding on August 18, 1999,
and that are not already being amortized in accordance with the immediately
preceding sentence) will be payable in thirty-six (36) equal consecutive monthly
installments of principal, plus accrued interest, beginning on September 18,
1999, and continuing on the through August 18, 2002, on which date the entire
principal balance of the outstanding Equipment Advances and all accrued but
unpaid interest shall be due and payable.

                 (c)  When Borrower desires to obtain an Equipment Advance,
Borrower shall notify Bank (which notice shall be irrevocable) by facsimile
transmission received no later than 3:00 p.m. California time one (1) Business
Day before the day on which the Equipment Advance is to be made. Each such
notice shall be in substantially the form of Exhibit B. Bank is authorized to
                                             ---------
make Equipment Advances under this Agreement, based upon instructions received
from a Responsible Officer. The notice shall be signed by a Responsible Officer
and include a copy of the invoice for the Equipment or Software to be financed.

                 (d)  The Equipment Loan Facility shall terminate on the
Equipment Loan Maturity Date, at which time all amount due under this Section
2.1 and any other amounts due under the Agreement, shall be immediately due and
payable. The Equipment Loan Facility will be evidenced by this Agreement and a
promissory note in substantially the form of Exhibit C attached hereto.
                                             ---------

          2.1.1  Term Loan Facility.
                 ------------------

                      (a)  On the Closing Date, there is an outstanding Term
Loan previously made by Bank to Borrower. The current outstanding principal
balance is Eighty Three Thousand Eight Hundred Seventy Nine Dollars and Twelve
Cents ($83,879.12). Borrower acknowledges that Borrower shall continue to make
monthly principal payments of Two Thousand Forty Five Dollars and Eight Three
Cents ($2,045.83) on account through December 18, 2001, plus accrued interest,
and that the entire principal balance and all accrued interest thereon shall be
due and payable on such date. Except as set forth in Section 2.3(b), interest on
such previous Term Loan Advances shall accrue at a rate equal to two and one-
half (2.5) percentage points above the Prime Rate.

                 (c)  The Term Loan shall terminate on the Term Loan Maturity
Date, at which time the Term Loan Advances under this Section 2.1.1 shall be
immediately due and payable.

          2.2    Interest Rates, Payments, and Calculations.
                 ------------------------------------------

                 (a)  Interest Rate. Except as set forth in Section 2.3(b), any
                      -------------
Advances under Section 2.1 shall bear interest, on the average Daily Balance, at
a rate equal to two (2) percentage points above the Prime Rate.

                                       6
<PAGE>

               (b)  Default Rate. All Obligations shall bear interest, from and
                    ------------
 after the occurrence of an Event of Default, at a rate equal to five (5)
percentage points above the interest race applicable immediately prior to the
occurrence of the Event of Default.

               (c)  Payment. Interest hereunder shall be due and payable on the
                    -------
Payment Date 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. Borrower hereby authorizes Bank to debit any of
its deposit accounts with Bank for payment of any amounts owing by Borrower to
Bank. Bank will notify Borrower of all debits which Bank makes against
Borrower's accounts. Any such debits shall in no way be deemed a set-off. Any
interest not paid when due shall be compounded by becoming a part of the
Obligations, and such interest shall thereafter accrue interest at the rate then
applicable hereunder.

               (d)  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.

          2.3  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.

          2.4  Fees. Borrower shall pay to Bank the following:
               ----

               (a)  Facility Fee. A Facility Fee for the Equipment Loan
                    ------------
Facility equal to Seven Thousand Five Hundred Dollars ($7,500), which fee shall
be due on the Closing Date and shall be fully earned and nonrefundable;

               (b)  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.

          2.5  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);

                                       7
<PAGE>

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

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

and the result of any of the foregoing is to increase the cost to Bank, reduce
the income receivable by Bank or impose any expense upon Bank with respect to
any loans, 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.

          2.6  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 Loan 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)  promissory note made by Borrower in favor of Bank in the
form attached hereto as Exhibit C,

               (d)  a warrant agreement;

               (e)  a collateral assignment and patent mortgage;

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

               (g)  insurance certificate;

               (h)  payment of the fees and Bank Expenses then due specified in
Section 2.4 hereof; and

               (i)  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:

                                       8
<PAGE>

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

               (b)  The representations and warranties contained in Section 5
shall be true and correct in all material respects on and as of the date of such
Payment/Advance Form and on the effective date of each 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(b).

     4.   CREATION OF SECURITY INTEREST
          -----------------------------

          4.1  Grant of Security Interest. Borrower grants and pledges to Bank a
               --------------------------
continuing security interest in all presently existing and hereafter acquired or
arising Collateral in order to secure prompt repayment of any and all
Obligations and in order to secure prompt performance by Borrower of each of its
covenants and duties under the Loan Document. 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.

          5.2  Due Authorization; No Conflict. The execution, delivery, and
               ------------------------------
performance of the Loan Documents are within Borrower's powers, have been duly
authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Articles of Incorporation or Bylaws, nor will
they constitute an event of default under any material agreement to which
Borrower is a party or by which Borrower is bound. Borrower is not in default
under any agreement in 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  Merchantable Inventory. All Inventory is in all material respects
               ----------------------
of good and marketable quality, free from all material defects.

                                       9
<PAGE>

          5.5  Name; Location of Chief Executive Office. Except as disclosed in
               ----------------------------------------
the Schedule, Borrower has not done business under any name other than that
specified on the signature page hereof. The chief executive office of Borrower
is located at the address indicated in Section 10 hereof.

          5.6  Litigation. Except as set forth in the Schedule, there are no
               ----------
actions or proceedings pending by or against Borrower or any Subsidiary before
any court or administrative agency in which an adverse decision could have a
Material Adverse Effect or a material adverse effect on Borrower's interest or
Bank's security interest in the Collateral. Borrower does not have knowledge of
any such pending or threatened actions or proceedings.

          5.7  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.

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

          5.9  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 the 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.

          5.10 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.

          5.11 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.

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

          5.13 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

                                       10
<PAGE>

governmental authorities that are necessary for the continued operation of
Borrower's business as currently conducted.

          5.14 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.

          6.3  Financial Statements Reports, Certificates. Borrower shall
               ------------------------------------------
deliver to Bank: (a) as soon as available, but in any event within fifteen (15)
days after the end of each month, a company prepared consolidated balance sheet
and income statement coveting 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 five (5) 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; and (e) such budgets, sales projections, operating plans or other
financial information as Bank may reasonably request from time to time.

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

          6.4  Inventory; Returns. Borrower shall keep all Inventory in good and
               ------------------
marketable condition, free from all material defects. Returns and allowances, if
any, as between Borrower and its account debtors shall be on the same basis and
in accordance with the usual customary practices of Borrower, as they exist at
the time of the execution and delivery of this Agreement. Borrower shall
promptly notify Bank of all returns and recoveries and of all disputes and
claims, where the return, recovery, dispute or claim involves more than Fifty
Thousand Dollars ($50,000).

                                       11
<PAGE>

          6.5  Taxes. Borrower shall make, and shall cause each Subsidiary to
               -----
make, due and timely payment or deposit of all material federal, state, and
local taxes, assessments, or contributions required of it by law, and will
execute and deliver to Bank, on demand, appropriate certificates attesting to
the payment or deposit thereof; and Borrower will make, and will cause each
Subsidiary to make, timely payment or deposit of all material tax payments and
withholding taxes required of it by applicable laws, including, but not limited
to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local,
state, and federal income taxes, and will, upon request, furnish Bank with proof
satisfactory to Bank indicating that Borrower or a Subsidiary has made such
payments or deposits; provided that Borrower or a Subsidiary need not make any
payment if the amount or validity of such payment is contested in good faith by
appropriate proceedings and is reserved against (to the extent required by GAAP)
by Borrower.

          6.6  Insurance.
               ---------

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

               (b)  All such policies of insurance shall be in such form, with
such companies, and in such amounts as reasonably satisfactory to Bank. All such
policies of property insurance shall contain a lender's loss payable
endorsement, in a form satisfactory to Bank, showing Bank as an additional 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
               -----------
fiscal month, a ratio of Quick Assets to Current Liabilities of at least 1.0,
commencing with month ending July 31, 1998 and increasing to 1.5 to 1.0 at
October 15, 1998.

          6.9  Debt-Net Worth Ratio. Borrower shall maintain, as of the last day
               --------------------
of each fiscal month, a ratio of Total Liabilities less Subordinated Debt to
Tangible Net Worth plus Subordinated Debt of not more than 2.5 to 1.0,
commencing with month ending July 31, 1998 and decreasing to not more than 1.5
to 1.0 at October 15, 1998.

          6.10 Tangible Net Worth. Borrower shall maintain, as of the last day
                ------------------
of each fiscal month, a Tangible Net Worth of not less than Two Hundred Fifty
Thousand Dollars ($250,000), commencing with month ending July 31, 1998 and
increasing to not less than One Million Dollars ($1,000,000) at October 15,
1998.

          6.11 Minimum Liquidity/Debt Service Coverage. Subject to the remainder
               ---------------------------------------
of this Section, Borrower shall maintain, as of the last day of each fiscal
month, a ratio of (a) the sum of cash and cash equivalents to (b) all
outstanding Bank Obligations, of at least 1.25 to 1.0, commencing with month
ending July 31, 1998. Notwithstanding the foregoing, from and after the time
Borrower achieves two consecutive fiscal quarters of Net Profit After Tax,
Borrower shall not be subject to the Minimum Liquidity set forth above. However,
Borrower shall then be subject to a Debt Service Coverage ratio of at least 1.5
to 1.0. Debt Service Coverage means, as measured monthly as of the last day of
each fiscal month of Borrower, on a consolidated basis determined in accordance
with GAAP, a ration of (a) an amount equal to

                                       12
<PAGE>

the sum of (i) net income, plus (ii) depreciation, amortization of intangible
assets and other non-cash charges to income to (b) an amount equal to the sum of
all scheduled repayments for such quarter (or month, as applicable) and
mandatory prepayments of principal on account of long-term debt.

          6.12 Year 2000. Borrower has and will take all actions that are
                ---------
reasonable necessary to maintain its principal business operations and to
correct any problems arising from the conversion of computer systems or other
circumstances related to the year 2000. Borrower will provide Bank such
information relating to the year 2000 as Bank may reasonable request from time
to time.

          6.13 Registration of Intellectual Property Rights. 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 Collateral Assignment, Patent Mortgage and 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. 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 such additional
intellectual property rights.

          6.14 Further Assurances. At any time and from time to time Borrower
               ------------------
shall execute and deliver such further instruments and cake 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.

          7.2  Change in Business. Engage in any business, or permit any of its
               ------------------
Subsidiaries to engage in any business, other than the businesses currently
engaged in by Borrower and any business substantially similar or related thereto
(or incidental thereto), or suffer a material change in Borrower's ownership.
Borrower will not, without thirty (30) days prior written notification to Bank,
relocate its chief executive office.

          7.3  Mergers or Acquisitions. Merge or consolidate, or permit any of
               -----------------------
its Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person.

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

                                       13
<PAGE>

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

          7.7  Advances to Employees or Shareholders. Advance by way of payment,
               -------------------------------------
credit or other manner, any unearned funds to employees or shareholders of
Borrower

          7.8  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.

          7.9  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.

          7.10 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 and files a financing statement where
needed to perfect Bank's security interest.

          7.12 Compliance. Become an "investment company" controlled by an
               ----------
"investment company," within the meaning of the Investment Company Act of 1940,
or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying margin stock, or use the proceeds of any 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, or 6.12 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

                                       14
<PAGE>

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);

          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 in 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.

                                       15
<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, for up to one hundred twenty (120) days 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.

          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

                                       16
<PAGE>

employees) as Borrower's true and lawful attorney to: (a) send requests for
verification of Accounts or notify account debtors of Bank's security interest
in the Accounts; (b) endorse Borrower's name on any checks or other forms of
payment or security that may come into Bank's possession; (c) sign Borrower's
name on any invoice or bill of lading relating to any Account, drafts against
account debtors, schedules and assignments of Accounts, verifications of
Accounts, and notices to account debtors; (d) make, settle, and adjust all
claims under and decisions with respect to Borrower's policies of insurance; and
(e) settle and adjust disputes and claims respecting the accounts directly with
account debtors, for amounts and upon terms which Bank determines to be
reasonable; 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.

          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 or 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.

                                       17
<PAGE>

     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:     Conway-Stuart Medical, Inc.
                         910 W. Maude Avenue
                         Sunnyvale, CA 94086
                         Attn: Stuart Edwards
                         FAX: (408) 773-9137

     If to Bank:         Venture Banking Group
                         Three Palo Alto Square, Suite 150
                         Palo Alto, California 94306
                         Attn: Dan Pistone
                         FAX: (415) 843-6969

     The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.

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

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

     12.  GENERAL PROVISIONS
          ------------------

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

                                       18
<PAGE>

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.

          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.

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

                                       19
<PAGE>

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

                                    CONWAY-STUART MEDICAL, INC.

                                    By: /s/ Stuart D. Edwards
                                       -----------------------------

                                    Title: President & CEO
                                          --------------------------

                                    By:-----------------------------

                                    Title:--------------------------

                                    VENTURE BANKING GROUP, a division of
                                    CUPERTINO NATIONAL BANK

                                    By: /s/ Daniel Pistone
                                       -----------------------------

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

                                       20

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00013-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00013-of-00352.parquet"}]]