Document:

SECOND
                AMENDMENT 

              TO
                LOAN AND SECURITY AGREEMENT

            
	 	 	 	 

    Date:
      September 28, 2007

     

    This
      Second Amendment to Loan and Security Agreement (this "Amendment") is made
      as of
      the above date
      by
      and between Sonic Solutions ("Borrower") and Union Bank of California, N.A.
      ("Bank"), with reference to the
      following facts:

     

    A. Borrower
      and Bank are parties to that certain Loan and Security Agreement dated as of
      December 13,
      2004,
      as amended from time to time, including by the First Amendment to Loan and
      Security Agreement dated as
      of
      December 20, 2005 (the "Agreement"). Pursuant to the Agreement, Bank has made
      loans and has extended other
      credit accommodations to Borrower for the purposes permitted under the
      Agreement.

     

    B. Borrower
      is currently in default of the Agreement for failing to comply with the Leverage
      Ratio financial
      covenant set forth in Section 6.7(b) of the Agreement for the quarter ending
      June 30, 2007 and for failing to
      comply
      with the minimum Net Profit financial covenant set forth in Section 6.7(c)
      of
      the Agreement for the quarter
      ending June 30, 2007 (the "Existing Defaults").

     

    C. Borrower
      has requested that Bank amend the Agreement to (I) waive the Existing Defaults,
      (ii) extend
      the maturity date for the Revolving Line, (ii) extend the Revolving Maturity
      Date, and (iii) make certain other
      revisions to the Agreement as more fully set forth herein.

     

    D. Although
      Bank is under no obligation to do so, Bank is willing to waive the Existing
      Defaults on the
      terms
      and conditions set forth in this Amendment, so long as Borrower complies with
      the terms, covenants and conditions
      set forth in this Amendment in a timely manner.

     

    F. Bank
      has
      agreed to so amend certain provisions of the Agreement, but only to the extent,
      in accordance
      with the terms, subject to the conditions and in reliance upon the
      representations and warranties set forth below and in the
      Agreement.

     

    Therefore,
      the parties hereto agree as follows:

     

    1. Amendments
      to the Agreement.

     

    1.1 Section
      1.1 of the Agreement is hereby amended by adding or revising the following
      defined
      terms in their entirety to read as follows:

     

    "Revolving
      Maturity Date" means March 31, 2008.

     

    "Revolving
      Line" means a credit extension of up to Thirty Million Dollars
      ($30,000,000).

     

    1.2 Section
      6.3(b) of the Agreement is hereby amended in its entirety to read as
      follows:

     

    (b)
      within ninety (90) days after the end of Borrower's fiscal year, audited
      consolidated financial statements of Borrower prepared in accordance with GAAP
      (subject to year-end adjustments and the
      absence of footnotes), consistently applied, together with an unqualified
      opinion on such financial
      statements of an independent certified public accounting firm (provided that
      Borrower's annual
      financial statements for the fiscal year ending March 31, 2007 shall be
      delivered by March 31,
      2008), and, copies of all reports on Forms 10-K and 10-Q filed with the
      Securities and Exchange
      Commission within 10 Business Days of filing;

    
       

      
        
          
          

        

        
          1

          
            

          

        

        
          
          

        

      

       

    

    1.3 Sections
      6.7(b) and (c) of the Agreement are hereby amended in their entirety to read
      as
follows:

     

    (b) Minimum
      Cash.
      Borrower shall maintain a balance of domestic, unrestricted cash
      and
      cash equivalents of Borrower of not less than the aggregate outstanding amount
      of the Obligations.

     

    (c) Minimum
      EBITDA.
      Borrower shall maintain an EBITDA of not less than: (i) ($3,200,000)
      for the quarter ending September 30, 2007, and (ii) $5,000,000 for the quarter
      ending December
      31, 2007 and each quarter thereafter.

     

    1.4 Section
      7.3 of the Agreement is hereby amended in its entirety to read as
      follows:

     

    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, other
      than transactions between Subsidiaries that are Guarantors.

     

    1.5 Section
      7.6 of the Agreement is hereby amended in its entirety to read as
      follows:

     

    7.6 Distributions.
      Pay any
      dividends or make any other distribution or payment on account
      of or in redemption, retirement or purchase of any capital stock or permit
      any
      of its Subsidiaries to do so except that Borrower or any of its Subsidiaries
      may
      (1) pay dividends in capital
      stock, (2) repurchase the stock of former employees pursuant to stock repurchase
      agreements
      as long as an Event of Default does not exist prior to such repurchase or would
      not exist
      after giving effect to such repurchase, or (3) pay any dividends to Borrower
      or
      any Guarantor.

    

    1.6
      Exhibit D
      to the
      Agreement is hereby amended and replaced in its entirety by Exhibit
      Dattached
      hereto.

     

    2. Limited
      Waivers of Existing Defaults.
      Subject
      to terms and conditions set forth herein, the Bank hereby
      waive its default rights with respect to the Existing Defaults, provided,
      however, that this waiver applies only to
      the
      specific instances described above and for the time periods stated, and is
      not a
      waiver of any subsequent breach
      of
      any provision of the Agreement, nor is it a waiver of any breach of any other
      provision of the Agreement. Borrower
      acknowledges and agrees that the Bank is not obligated to grant this or any
      other waiver. Further, the Bank reserves all of the rights, powers and remedies
      available to it under the Agreement and any other contracts or instruments
      executed by Borrower, including the right to cease making
      advances to Borrower and to accelerate any or all of Borrower's indebtedness
      to
      the Bank if any subsequent breach of the same provisions or any other provision
      of the Agreement should occur.

     

    3.
      Additional
      Provisions.

     

    3.1
      Affirmation
      of Indebtedness.
      Borrower affirms and admits the indebtedness evidenced by
      the
      Agreement and the other Loan Documents. Borrower acknowledges that it has no
      claims, offsets or defenses with respect to the payments of sums due under
      the
      Agreement or the other Loan Documents. Borrower ratifies and confirms each
      and
      all of the terms, conditions and covenants of the Agreement and other Loan
      Documents as amended or modified by this Amendment and those provisions not
      so
      amended or modified and, except as specifically
      amended or modified hereby, the Loan Documents remain in full force and effect.
      The execution, delivery,
      and performance of this Amendment shall not operate as a waiver of, or as an
      amendment of, any right, power, or remedy of Bank under the Agreement or any
      other Loan Document, as in effect prior to the date hereof. Unless otherwise
      defined, all initially capitalized terms in this Amendment shall be as defined
      in the Agreement.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    3.2 Representations
      and Warranties.
      Borrower represents and warrants that the representations
      and warranties contained in the Agreement are true and correct in all material
      respects as of the date of
      this
      Amendment, and, with the exception of the Existing Defaults, that no Event
      of
      Default has occurred and is continuing.

     

    3.3 Effectiveness
      of Agreement.
      This
      Amendment shall become effective when the Bank has received
      the Agreement and all other required documents, including updated schedules
      and
      exhibits to intellectual property security agreements and executed guaranties
      and security agreements from Subsidiaries of Borrower, fully executed,
      all required title insurance endorsements, and sufficient funds to pay all
      fees
      and costs associated with this Amendment.

     

    3.4 Counterparts.
      This
      Amendment may be executed in counterparts, each of which shall be deemed
      an
      original but all of which together, shall constitute one and the same
      agreement.

     

    3.5 Successors.
      This
      Amendment shall inure to the successors and assigns of Bank and the permitted
      successors and assigns of Borrower.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    IN
      WITNESS WHEREOF, the parties hereto have executed this Amendment as of the
      date
      first written above.

     

    BORROWER:

    SONIC
      SOLUTIONS, a California corporation

    

    
      	 	 	 	 	 
	By: 		 	 	
            
	 	
              
                

              

              Name: A. CLAY LEIGHTON

              Title: EVP-CFO

              9/28/07

            	 	 	
            

    

     

    BANK:

    UNION BANK
      OF CALIFORNIA, N.A.

     

    
      	 	 	 	 	 
	By: 		 	 	
            
	 	
              
                

              

              Name: ALLAN B. MINER

              Title: VICE PRESIDENT

              9/28/07

            	 	 	
            

    

    

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    EXHIBIT
      D

     

    COMPLIANCE
      CERTIFICATE

     

    TO:
      UNION
      BANK OF CALIFORNIA, N.A. 

     

    FROM:
      SONIC SOLUTIONS

     

    The
      undersigned authorized officer, on behalf of Sonic Solutions hereby certifies
      that in accordance with the terms and conditions of the Loan and Security
      Agreement between Borrower and Bank (as amended, the "Agreement"), (i)
      Borrower is in complete compliance for the period ending ____________
with
      all
      required covenants except as noted below and (ii) all representations and
      warranties of Borrower stated in the Agreement are true and correct in all
      material
      respects as of the date hereof. Attached herewith are the required documents
      supporting the above certification. The Officer further certifies that these
      are
      prepared in accordance with Generally Accepted Accounting
      Principles (GAAP) and are consistently applied from one period to the next
      subject to year-end adjustments and except as explained in an accompanying
      letter or footnotes or the absence thereof.

     

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

     

    
      	
              Reporting
                Covenant

            	 	
              Required

            	 	 	 	
              Complies

            	 
	 	 	 	 	 	 	 	 	 	 
	
              Quarterly
                financial statements

            	 	
              Quarterly
                within 45 days

            	 	 	 	
              Yes

            	 	
              No

            	 
	 	 	 	 	 	 	 	 	 	 
	
              Annual
                financial statements

            	 	
              Annually
                within 90 days of fiscal year end

            	 	 	 	
              Yes

            	 	
              No

            	 
	 	 	 	 	 	 	 	 	 	 
	
              Financial
                Covenant

            	 	
              Required

            	 	
              Actual

            	 	
              Complies

            	 
	 	 	 	 	 	 	 	 	 	 
	
              Quick
                Ratio

            	 	
              0.75:1.0
                to 3/31/05;

            	 	
              _______:1.00

            	 	
              Yes

            	 	
              No

            	 
	 	 	
              1.0:1.0
                to

            	 	 	 	 	 	 	 
	 	 	
              12/31/05,1.25:1.0

            	 	 	 	 	 	 	 
	 	 	
              thereafter

            	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 
	
              Minimum
                Cash

            	 	
              Greater
                than amount of 

            	 	
              $_________

            	 	
              Yes

            	 	
              No

            	 
	 	 	
              outstanding
                Obligations

            	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 
	
              Minimum
                EBITDA

            	 	
              >
                ($3,200,000) for FQE 

            	 	
              
                $_________

              

            	 	
              Yes

            	 	
              No

            	 
	 	 	
              9/30/2007;
                and

            	 	 	 	 	 	 	 
	 	 	
              >
                $5,000,000 for FQE

            	 	 	 	 	 	 	 
	 	 	
              12/31/2007
                and each

            	 	 	 	 	 	 	 
	 	 	
              FQE
                thereafter

            	 	 	 	 	 	 	 

    

     

    Comments
      Regarding Exceptions: See
      Attached

     

     

      
        

      

    

    SIGNATURE

     

    
      

    

    TITLE

     

    
      

    

    DATE

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    AFFIRMATION
      OF GUARANTY

     

    This
      AFFIRMATION OF GUARANTY is made as of September 28, 2007, by the undersigned
      ("Guarantor")
      for the benefit of Union Bank of California. N.A. ("Bank").

     

    RECITALS

    
       

      Bank
        and
        Sonic Solutions (“Borrower”) are parties to that certain Loan and Security
        Agreement dated as of December 13, 2004, as amended from time to time
        (collectively, the “Loan Agreement”). Guarantor executed for the benefit of Bank
        an Unconditional Guaranty dated as of even date with the Loan Agreement (the
        “Guaranty”), guarantying
        all amounts owing by Borrower to Bank. Borrower and Bank propose to enter
        into a
        Second Amendment to Loan and Security Agreement of even date herewith (the
        “Amendment”), which amends the Loan Agreement by, among other things, extending
        the term of the loan facilities provided by Bank, waiving certain specific
        financial covenant violations and modifying certain financial covenants.
        Bank
        has agreed to enter into the Amendment provided, among other things, that
        Guarantor consents to the entry by Borrower into the Amendment and related
        documents and agrees that the Guaranty will remain effective.

    

     

    AGREEMENT

     

    NOW,
      THEREFORE, Guarantor agrees as follows:

     

    1. Guarantor
      consents to the execution, delivery and performance by Borrower of the Amendment
      and
      the
      documents and instruments executed in connection therewith, as well as all
      other
      amendments, modifications and restatements to the Loan Agreement.

     

    2. The
      Guaranty is and shall remain in full force and effect with respect to all of
      Borrower's Obligations
      (as defined in the Loan Agreement) as modified by the Amendment and otherwise.
      Guarantor confirms that Guarantor has no defenses against its obligations under
      the Guaranty.

     

    3. Guarantor
      represents and warrants that the Representations and Warranties contained in
      the
      Guaranty are true and correct as of the date of this Affirmation. Unless
      otherwise defined, all capitalized terms in this
      Affirmation shall be as defined in the Guaranty.

     

    IN
      WITNESS WHEREOF, the undersigned Guarantor has executed this Affirmation of
      Guaranty as of the first date above written.

    
      	 	 	 	 
	 	 	 	
              INTERACTUAL
                TECHNOLOGIES, INC.,

              a
                California corporation

            
	 	 	 	 
	
            	 	 	
	
            	 	 	
              
By:
              A. CLAY LEIGHTON
	
            	 	 	Its:
              CFO

    

     

    
      
        
        

      

      
        6THIRD
      PARTY

    SECURITY
      AGREEMENT

    InterActual
      Technologies, Inc.

     

    This
      Third Party Security Agreement (this "Agreement") is made and entered into
      as of
      September 28, 2007 by and between the undersigned INTERACTUAL TECHNOLOGIES,
      INC., a California corporation ("Grantor"),
      and
      UNION BANK OF CALIFORNIA, N.A. (the "Bank").

     

    RECITALS

     

    Bank
      has
      entered into a transaction, and proposes to enter into further transactions,
      with SONIC SOLUTIONS, a California corporation ("Borrower"),
      which
      is the parent company of Grantor, pursuant to a Loan and Security Agreement
      dated as of December 13, 2004, as amended, modified, supplemented or restated
      from time to time (the "Loan
      Agreement").
      Grantor expects to derive economic benefit from Bank's doing so and dealing
      with
      Borrower in accordance with the Loan Agreement, and has entered into an
      Unconditional Guaranty dated as of December 13, 2004 with respect to the
      existing and future obligations of Borrower to Bank (as amended, modified,
      supplemented or restated from time to time, the "Guaranty").
      Grantor wishes to secure performance and payment of all obligations to Bank
      under the Guaranty and the prompt performance by Grantor of each of its
      covenants and duties under this Agreement, the Guaranty and the other the Loan
      Documents (the "Guarantor
      Obligations")
      with
      substantially all of its assets. All terms used without definition in this
      Agreement shall have the meaning assigned to them in the Loan Agreement;
      provided that, as used herein the terms "Accounts", "Equipment" "Intellectual
      Property", "Inventory", "Negotiable Collateral", and "Subsidiary" refer to
      assets, property, rights and subsidiaries of Grantor rather than Borrower.
      As
      used herein "Loan
      Documents"
      includes all Loan Documents (as that term is defined in the Loan Agreement),
      this Agreement, the Guaranty and any and all other agreements entered into
      between Grantor and Bank in connection with any of the foregoing, all as
      amended, modified, supplemented or restated from time to time. All terms used
      without definition in this Agreement or in the Loan Agreement shall have the
      meaning assigned to them in the California Uniform Commercial Code.

     

    NOW,
      THEREFORE, Grantor
      and the Bank agree as follows:

     

    1. Grant
      of Security Interest.
      In order
      to secure prompt repayment of any and all Guarantor Obligations, Grantor grants
      and pledges to Bank a continuing security interest in the Bank a security
      interest in the property described in Exhibit
      A
      (the
      "Collateral"). Grantor authorizes Bank to file with the California Secretary
      of
      State, or such other government office as Bank deems appropriate, one or more
      financing statements that (a) specifically describe the Collateral, describe
      the
      Collateral as all assets of Grantor of the kind pledged hereunder, include
      the
      description of the Collateral set forth on Exhibit
      A
      hereto,
      and (b) contain any other information required by the Code for the sufficiency
      of filing office acceptance of any financing statement, continuation statement,
      or amendment, including whether Grantor is an organization, the type of
      organization and any organizational identification number issued to Grantor,
      if
      applicable. Grantor farther authorizes Bank to take any other actions as Bank
      may deem appropriate to perfect its security interest. 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 thereof, subject in each case to Permitted
      Liens. Grantor shall from time to time, execute and deliver to Bank, at the
      request of Bank, all of Grantor's Negotiable Collateral, all financing
      statements and other documents that Bank may reasonably request, in form
      satisfactory to Bank, to perfect and continue the perfection of Bank's security
      interests in the Collateral and in order to fully consummate all of the
      transactions contemplated under this Agreement, the Guaranty and the other
      Loan
      Documents.

     

    2. Grantor's
      Representations and Warranties.
      Grantor
      represents and warrants as follows:

     

    (a)
      Due
      Organization and Qualification.
      Grantor
      and each Subsidiary is duly existing
      under the laws of the jurisdiction of its organization and qualified and
      licensed to do business in any state or other jurisdiction in which the failure
      to be so qualified or licensed could reasonably be expected to have a Material
      Adverse
      Effect.

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

    (b) Due
      Authorization; No Conflict.
      The
      execution, delivery, and performance of the Guaranty, this Agreement and the
      other Loan Documents are within Grantor's powers, have been duly authorized,
      and
      are not in conflict with nor constitute a breach of any provision contained
      in
      Grantor's Certificate of Incorporation or Bylaws, nor will they constitute
      an
      event of default under any material agreement to which Grantor is a party or
      by
      which Grantor is bound. Grantor is not in default under any agreement to which
      it is a party or by which it is bound except to the extent such default could
      not reasonably be expected to have a Material Adverse Effect.

     

    (c) No
      Prior Encumbrances.
      Grantor
      has good and marketable title to the Collateral, free and clear of Liens, except
      for Permitted Liens.

     

    (d) Bona
      Fide Accounts.
      The
      Accounts are bona fide existing obligations.

     

    (e) Merchantable
      Inventory.
      All
      Inventory is in all material respects of good quality, free from all material
      defects, except for Inventory for which adequate reserves have been
      made.

     

    (f) Name;
      Location of Chief Executive Office.
      Grantor
      has not done business under
      any
      name other than that specified on the signature page hereof. The chief executive
      office of Grantor is located at the address indicated in Section 10
      hereof.

     

    (g) Intellectual
      Property.
      Grantor
      is the sole owner of the Intellectual Property. Each
      of
      the Patents is valid and enforceable, and no claim has been made that any
      Intellectual Property violates or infringes upon the rights of any Person.
      Grantor's rights as licensee of another Person's Patents, Copyrights, Trademarks
      or other intellectual property do not give rise to more than 5% of Grantor's
      gross revenue in any fiscal quarter.

     

    (h)
      Litigation.
      Except
      as disclosed in writing to Bank and except to the extent such actions
      or proceedings could not reasonably be expected to have a Material Adverse
      Effect, there are no actions or proceedings pending by or against Grantor or
      any
      Subsidiary before any court or administrative agency. Except as disclosed to
      Bank in writing, Grantor does not have knowledge of any such pending or
      threatened actions or proceedings.

     

    (i) No
      Material Adverse Change in Financial Statements.
      All
      consolidated financial
      statements related to Grantor and any Subsidiary that are delivered by Grantor
      to Bank fairly present in all material respects Grantor's consolidated financial
      condition as of the date thereof and Grantor's consolidated results of
      operations for the period then ended. There has not been a material adverse
      change in the consolidated financial condition of Grantor since the date of
      the
      most recent of such financial statements submitted to Bank, other than as
      described in writing to Bank. No circumstance has occurred that has a Material
      Adverse Effect since the date of the most recent Compliance Certificate
      delivered to Bank, other than as consented to in writing by Bank.

     

    (j) Solvency,
      Payment of Debts.
      Grantor
      is not insolvent, as that term is defined in Section
      101 of the Bankruptcy Code. Grantor is able to pay its debts (including trade
      debts) as they mature.

     

    (k)
      Regulatory
      Compliance.
      Grantor
      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 Grantor's failure to comply with ERISA that is reasonably likely
      to result in Grantor's incurring any material liability. Grantor is not an
      "investment company" or a company "controlled'' by an "investment company"
      within the meaning of the Investment Company Act of 1940. Grantor 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 Regulation U of the Board of Governors of the Federal Reserve
      System). Grantor has complied with all material provisions of the Federal Fair
      Labor Standards Act. Grantor has not violated any statutes, laws, ordinances
      or
      rules applicable to it extent to the extent such violation could not reasonably
      be expected to have a Material Adverse Effect.

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    (l) Environmental
      Condition.
      None of
      Grantor's or any Subsidiary's properties or assets
      has ever been used by Grantor or any Subsidiary or, to the best of Grantor'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. None of Grantor'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 Grantor or any Subsidiary. Neither Grantor 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 Grantor or any Subsidiary resulting in
      the
      releasing, or otherwise disposing of hazardous waste or hazardous substances
      into the environment.

     

    (m)
      Taxes.
      Grantor
      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.

     

    (n)
      Subsidiaries.
      Grantor
      does not own any stock, partnership interest or other equity securities of
      any
      Person.

     

    (o)
      Government
      Consents.
      Grantor
      and each Subsidiary has obtained all material consents, approvals and
      authorizations of, made all declarations or filings with, and given all notices
      to, all governmental authorities that are necessary for the continued operation
      of Grantor's business as currently conducted except to the extent the failure
      to
      do so could not reasonably be expected to have a Material Adverse
      Effect.

     

    (p)
      Full
      Disclosure.
      No
      representation, warranty or other statement made by Grantor
      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.

     

    3. Affirmative
      Covenants.
      Grantor
      covenants and agrees that, until payment in full of all outstanding Obligations
      (other than in respect of contingent indemnities), and for so long as Bank
      may
      have any commitment to make a Credit Extension hereunder, such Grantor shall
      do
      all of the following:

     

    (a) Good
      Standing.
      Grantor
      shall maintain its and each of its Subsidiaries' corporate
      existence in its jurisdiction of organization and maintain qualification in each
      jurisdiction in which such qualification is required for the operation of
      Grantor's business, unless the failure to so maintain such qualification could
      not reasonably be expected to have a Material Adverse Effect, provided that
      this
      Section shall not prohibit any transaction permitted by Section 7.3 of the
      Loan
      Agreement. Grantor shall maintain, and shall cause each of its Subsidiaries
      to
      maintain in force all licenses, approvals and agreements, the loss of which
      could reasonably be expected to have a Material Adverse Effect.

     

    (b) Government
      Compliance.
      Grantor
      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. Grantor shall comply, and shall cause each Subsidiary
      to
      comply, with all statutes, laws, ordinances and government rules and regulations
      to which it is subject, except (i) where the failure to so comply could not
      reasonably be expected to have a Material Adverse Effect or (ii) to the extent
      contested in good faith by appropriate proceedings.

     

    (c) Taxes.
      Grantor
      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 Grantor 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
      Grantor or a Subsidiary has made such payments or deposits; provided that
      Grantor or a Subsidiary need not make any payment or deposit if the amount
      or
      validity of such payment or deposit is contested in good faith by appropriate
      proceedings and is reserved against (to the extent required by GAAP) by
      Grantor.

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    (d) Insurance.
      Grantor, at its expense, shall keep (or cause to be kept) the Collateral
insured
      against loss or damage by fire, theft, explosion and 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 Grantor's business
      is conducted on the date hereof. Grantor shall also maintain insurance relating
      to Grantor's ownership and use of the Collateral in amounts and of a type that
      are customary to businesses similar to Grantor's. All such policies of property
      insurance shall contain a Bank's loss payable endorsement, in a form reasonably
      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, Grantor
      shall deliver to Bank certified copies of such policies of insurance and
      evidence of the payments of all premiums therefor. After the occurrence and
      during the continuance of an Event of Default, 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.

     

    (e) Bank
      Accounts.
      Grantor
      shall maintain its primary operating and deposit accounts with Bank and/or
      an
      Affiliate of Bank.

     

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

     

    (g) Subsidiaries.
      Grantor
      shall cause any wholly-owned Subsidiary organized in the United States or any
      subdivision thereof or therein promptly upon Bank's request to enter into a
      Guaranty and to secure such Guaranty with a security interest, subject only
      to
      Permitted Liens, in substantially all of its assets and properties.

     

    4. Negative
      Covenants.
      Grantor
      covenants and agrees that, until payment in full of the outstanding Obligations
      (other than in respect of contingent indemnities) or for so long as Bank may
      have any commitment to make any Credit Extensions, Grantor will not do any
      of
      the following:

     

    (a) 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 Permitted Transfers.

     

    (b) 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 Grantor and any business
      substantially similar or related thereto (or incidental thereto), or cease
      to
      have Borrower own and control all of its equity securities.

     

    (c) Mergers
      or Acquisitions.
      Merge
      or consolidate, or permit any of its Subsidiaries to
      merge
      or consolidate, with or into any other Person, or acquire, or permit any of
      its
      Subsidiaries to acquire, all or substantially all of the capital stock of
      property of another Person other than as permitted in the Loan
      Agreement.

     

    (d) 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.

     

    (e) Encumbrances.
      Create,
      incur, assume or suffer to exist any Lien with respect to any
      of
      its property, or assign or sell any Accounts, or permit any of its Subsidiaries
      so to do, except for Permitted Liens, or agree with any Person other than Bank
      not to grant a security interest in, or otherwise encumber, any of its property,
      or permit any Subsidiary to do so.

     

    (f) Distributions.
      Pay any
      dividends or make any other distribution or payment on account of or in
      redemption, retirement or purchase of any of its capital stock (any such
      payment, a "Restricted Payment," other than to Borrower.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    (g) 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.

     

    (h)
      Transactions
      with Affiliates.
      Directly or indirectly enter into or permit to exist any
      material transaction with any Affiliate of Grantor except for transactions
      that
      are upon fair and reasonable terms that are no less favorable to Grantor than
      would be obtained in an arm's length transaction with a nonaffiliated
      Person.

     

    (i) 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
      Subordination Agreement signed in connection with this Agreement or with the
      terms of such Subordinated Debt, or amend any provision contained in any
      documentation relating to the Subordinated Debt in a manner adverse to Bank's
      interest (as reasonably determined by Bank).

     

    (j) Compliance.
      Become
      an "investment company" or be controlled by an "investment
      company"
      within
      the meaning of the Investment Company Act of 1940, or become principally engaged
      in, or undertake as one of its important activities, the business of extending
      credit for the purpose of purchasing or carrying margin stock, or use the
      proceeds of any Credit Extension for such purpose, or fail to meet the minimum
      funding requirements of ERISA with respect to any employee benefit plan subject
      to ERISA, permit a Reportable Event or Prohibited Transaction, as defined in
      ERISA, to occur, fail to comply with the material provisions of the Federal
      Fair
      Labor Standards Act or violate any law or regulation to which Grantor is
      subject, except to the extent such violation could not reasonably be expected
      to
      have a Material Adverse Effect.

     

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

     

    5.1 Loan
      Agreement Default.
      If an
      Event of Default occurs under the Loan Agreement;

     

    5.2 Covenant
      Default.
      If
      Grantor violates any of the covenants contained in Sections 3 or 4 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 other Loan Documents, or in any other present or future agreement
      between Grantor 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 thirty (30) Business Days after Grantor receives notice thereof
      or any officer of Grantor becomes aware thereof.

     

    5.3 Attachment.
      If any
      material portion of Grantor'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 thirty (30) days, or if Grantor 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 Grantor's assets, or if a notice of
      lien, levy, or assessment is filed of record with respect to any material
      portion of Grantor'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 thirty (30) days after
      Grantor 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
      Grantor;

     

    5.4 Insolvency.
      If
      Grantor becomes insolvent, or if an Insolvency Proceeding is commenced by
      Grantor, or if an Insolvency Proceeding is commenced against Grantor (other
      than
      by Grantor) and is not dismissed or stayed within thirty (30) days;

     

    5.5 Other
      Agreements.
      If
      there is a default in any agreement to which Grantor 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 Million Dollars ($1,000,000) or that would be reasonably expected
      to have a Material Adverse Effect;

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    5.6 Judgments.
      If a
      judgment or judgments for the payment of money in an amount, individually
      or in the aggregate, of at least One Million Dollars ($1,000,000) shall be
      rendered against Grantor and shall remain unsatisfied and unstayed for a period
      of thirty (30) days;

     

    5.7 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 as of the date such representation or warranty was made by any
      Responsible Officer pursuant to this Agreement or to induce Bank to enter into
      this Agreement or any other Loan Document.

     

    6. Bank's
      Rights and Remedies.

     

    6.1 Rights
      and Remedies.
      Upon
      the occurrence and during the continuance of an Event of Default,
      Bank may, at its election, upon notice of its election and demand, do any one
      or
      more of the following, all of which are authorized by Grantor:

     

    (a) Declare
      all Obligations and Guarantor Obligations, whether evidenced by the Loan
      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 5.4 all Obligations and Guarantor Obligations shall become immediately
      due and payable without any action by Bank);

     

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

     

    (c) Set
      off
      and apply to the Obligations any and all (i) balances and deposits of
Grantor
      held by Bank, or (ii) indebtedness at any time owing to or for the credit or
      the
      account of Grantor held by Bank;

     

    (d) Make
      such
      payments and do such acts as Bank considers necessary or reasonable
      to protect its security interest in the Collateral. Grantor agrees to assemble
      the Collateral if Bank so requires, and to make the Collateral available to
      Bank
      as Bank may designate. Grantor 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 Grantor's owned premises, Grantor hereby grants Bank
      a
      license to enter into possession of such premises and to occupy the same,
      without charge, in order to exercise any of Bank's rights or remedies provided
      herein, at law, in equity, or otherwise;

     

    (e) 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 6.1, to use, without charge, Grantor'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 6.1, Grantor's rights under all licenses and all franchise
      agreements shall inure to Bank's benefit except to the extent such license
      or
      other right would result in a breach of such agreement;

     

    (f) Dispose
      of 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 Grantor's premises) as Bank determines is commercially
      reasonable, and apply any proceeds to the Obligations in whatever manner or
      order Bank deems appropriate;

     

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

     

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

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    6.2 Power
      of Attorney.
      Grantor
      irrevocably appoints Bank (and any of Bank's designated officers or employees)
      as Grantor's true and lawful attorney to, upon and during the continuance of
      an
      Event of Default: (a) send requests for verification of Accounts or notify
      account debtors of Bank's security interest in the Accounts; (b) endorse
      Grantor's name on any checks or other forms of payment or security that may
      come
      into Bank's possession; (c) sign Grantor's name on any invoice or bill of lading
      relating to any Account, drafts against account
      debtors, schedules and assignments of Accounts, verifications of Accounts,
      and
      notices to account debtors; (d)
      dispose of any Collateral; (e) make, settle, and adjust all claims under and
      decisions with respect to Grantor's policies of insurance; and (f) settle and
      adjust disputes and claims respecting the accounts directly with account
debtors,
      for amounts and upon terms which Bank determines to be reasonable; provided
      Bank
      may exercise such power
      of
      attorney to sign the name of Grantor on any of the documents described in
      Section 4.2 regardless of whether an Event of Default has occurred. The
      appointment of Bank as Grantor'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 (other than contingent obligations in respect of
      indemnities) have been fully repaid and performed and Bank's obligation to
      provide advances hereunder is terminated.

     

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

     

    6.4 Bank
      Expenses.
      If
      Grantor 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 3(d) of this Agreement, and take any action with respect to
      such
      policies as Bank deems reasonably 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.

     

    6.5 Bank's
      Liability for Collateral.
      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, except to the extent
      resulting from Bank's gross
      negligence or willful misconduct. All risk of loss, damage, or destruction
      of
      the Collateral shall be borne by Grantor.

     

    6.6 Remedies
      Cumulative.
      Bank's
      rights and remedies under this Agreement, the Guaranty and
      the
      other 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 Grantor'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.

     

    6.7 Demand;
      Protest.
      Grantor
      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
      Grantor may in any way be liable.

     

    7. Amendment
      of Loan Documents.
      Grantor
      authorizes Bank, without notice or demand and without affecting
      its liability hereunder, from time to time to (a) renew, extend, or otherwise
      change the terms of any Loan Document,
      or any part thereof; (b) take and hold security for the payment of any Loan
      Document, and exchange, enforce,
      waive and release any such security; and (c) apply such security and direct
      the
      order or manner of sale thereof
      as Bank in its sole discretion may determine.

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    8. Grantor
      Waivers.
      Grantor
      waives any right to require Bank to (a) proceed against Borrower, any
other
      guarantor or any other person; (b) proceed against or exhaust any security
      held
      from Borrower; (c) marshal any
      assets of Borrower; or (d) pursue any other remedy in Bank's power whatsoever.
      Bank may, at its election, exercise
      or decline or fail to exercise any right or remedy it may have against Borrower
      or any security held by Bank, including without limitation the right to
      foreclose upon any such security by judicial or nonjudicial sale, without
      affecting or impairing in any way the liability of Grantor hereunder. Grantor
      waives any defense arising by reason
      of
      any disability or other defense of Borrower or by reason of the cessation from
      any cause whatsoever of the liability
      of Borrower. Grantor waives any setoff, defense or counterclaim that Borrower
      may have against Bank. Grantor
      waives any defense arising out of the absence, impairment or loss of any right
      of reimbursement or subrogation
      or any other rights against Borrower. Until all obligations under the Guaranty
      have been satisfied, Grantor
      shall have no right of subrogation or reimbursement, contribution or other
      rights against Borrower, and Grantor waives any right to enforce any remedy
      that
      Bank now has or may hereafter have against Borrower. Grantor
      waives all rights to participate in any security now or hereafter held by Bank.
      Grantor waives all presentments,
      demands for performance, notices of nonperformance, protests, notices of
      protest, notices of dishonor, and notices of acceptance of this Agreement and
      of
      the existence, creation, or incurring of new or additional indebtedness. Grantor
      assumes the responsibility for being and keeping itself informed of the
      financial condition of Borrower and of all other circumstances bearing upon
      the
      risk of nonpayment of any indebtedness or nonperformance of any obligation
      of
      Borrower, warrants to Bank that it will keep so informed, and agrees that absent
      a request for particular information by Grantor, Bank shall have no duty to
      advise Grantor of information known
      to
      Bank regarding such condition or any such circumstances. Until all Obligations
      have been satisfied, Grantor
      waives the benefits of California Civil Code sections 2809, 2810, 2819, 2845,
      2847, 2848, 2849, 2850, 2899 and
      3433.
      The provisions of this Section 8, and of Sections 9 and 10 below shall be in
      addition to, and shall not in any
      way
      limit, the provisions of the Guranty.

     

    9. Borrower
      Insolvency.
      If
      Borrower becomes insolvent or is adjudicated bankrupt or files a petition for
      reorganization, arrangement, composition or similar relief under any present
      or
      future provision of the United States Bankruptcy Code, or if such a petition
      is
      filed against Borrower, and in any such proceeding some or all of any
      indebtedness or obligations under the Loan Documents are terminated or rejected
      or any obligation of Borrower is modified or abrogated, or if Borrower's
      obligations are otherwise avoided for insolvency, bankruptcy or any similar
      reason, Grantor agrees that Grantor's liability hereunder shall not thereby
      be
      affected or modified and such liability
      shall continue in full force and effect as if no such action or proceeding
      had
      occurred. This Agreement shall continue to be effective or be reinstated, as
      the
      case may be, if any payment must be returned by Bank upon the insolvency,
      bankruptcy or reorganization of Borrower, Grantor, any other person, or
      otherwise, as though such payment
      had not been made.

     

    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 Grantor or to Bank, as the case may be, at its addresses set forth
below:

     

    
      	 	
              If
                to Grantor:

            	 	
              InterActual
                Technologies, Inc.

            
	 	 	 	
              101
                Rowland Way 

            
	 	 	 	
              Novato,
                CA 94945 

            
	 	 	 	
              Attn:
                Mr. Clay Leighton, CFO 

            
	 	 	 	
              Fax:
                (415) 893-8008

            

    

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    
      	 	If to Bank: 	 	Union Bank of California,
              N.
              A.
	 	 	 	
              99 Almaden Blvd., Suite 200 

              San
                Jose, CA 95113 

              Attn:
                Allan Miner and James Goudy 

              FAX:
                (408) 280-7163

            

    

     

    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.
      Failure to deliver any notice or demand to a Person not a party to this
      Agreement shall not invalidate a notice or demand otherwise delivered to a
      party
      hereto in accordance with this Section 10.

     

    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 Grantor and Bank
      hereby submits to the non-exclusive
      jurisdiction of the state and Federal courts located in the County of Santa
      Clara, State of California. GRANTOR
      AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM
      OR CAUSE OF ACTION BASED UPON OR APJSING OUT OF THIS AGREEMENT OR 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. IF FOR ANY REASON THE
JURY
      WAJVER IN THIS AGREEMENT IS NOT ENFORCEABLE, THE PARTIES AGREE THAT ANY
DISPUTE,
      CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY
OF
      THE
      TRANSACTIONS CONTEMPLATED HEREIN SHALL BE SETTLED BY FINAL AND BINDING
      ARBITRATION TO BE HELD IN SANTA CLARA COUNTY, CALIFORNIA AND IN ACCORDANCE
      WITH
      THE THEN CURRENT COMMERCIAL ARBITRATION RULES OF THE AMERICAN ARBITRATION
ASSOCIATION.
      JUDGMENT UPON ANY AWARD RESULTING FROM ARBITRATION MAY BE ENTERED
      INTO AND ENFORCED BY ANY STATE OR FEDERAL COURT HAVING JURISDICTION THEREOF.

     

    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 Grantor 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 Grantor to
      sell,
      transfer, negotiate, or grant participation in all or any part of, or any
      interest in, Bank's obligations, rights and benefits
      hereunder.

     

    12.2 Indemnification.
      Grantor
      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 Grantor's
      failure to comply with the terms of this Agreement; and (b) all losses or Bank
      Expenses (as defined in the Loan Agreement) in any way suffered, incurred,
      or
      paid by Bank as a result of or
      in any
      way arising out of, following, or consequential to Grantor's failure to comply
      with the terms of this Agreement
      or the other Loan Documents (including without limitation reasonable attorneys
      fees and expenses), except for losses caused by Bank's gross negligence, willful
      misconduct or bad faith.

     

    12.3 Time
      of Essence.
      Time is
      of the essence for the performance of all obligations set forth in
      this
      Agreement.

    

    
      
        
        

      

      
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    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, any
      Guarantor Obligations remain outstanding,
      or Bank has any obligation to make Credit Extensions to Borrower. The
      obligations of Grantor to indemnify
      Bank with respect to the expenses, damages, losses, costs and liabilities
      described in Section shall survive until
      all
      applicable statute of limitations periods with respect to actions that may
      be
      brought against Bank have run.

     

    12.8 Confidentiality.
      In
      handling any confidential information Bank and all employees and agents
      of
      Bank, including but not limited to accountants, shall exercise the same degree
      of care that it exercises with respect
      to its own proprietary information of the same types to maintain the
      confidentiality of any non-public information
      thereby received or received pursuant to this Agreement except that disclosure
      of such information may be
      made
      (I) to the subsidiaries, affiliates or service providers of Bank in connection
      with their present or prospective business
      relations with Borrower, (ii) to prospective transferees or purchasers of any
      interest in the Loan Documents,
      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.

     

    IN
      WITNESS WHEREOF, the
      parties have executed this Agreement on the date set forth above.

     

    
      	GRANTOR:	 	BANK:
	 	 	 
	INTERACTUAL
              TECHNOLOGIES, INC..	 	UNION BANK
              OF
              CALIFORNIA, N.A.
	 	 	 	 	 
	 	 	 	 	 
	By:		 	By:	
	
               

              Name:

            	
              
A.
              CLAY LEIGHTON	 	
              Name:

            	
              
ALLAN
              B. MINER
	Title:	
              CFO

            	 	Title:	
              VICE
                PRESIDENT

            

    

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    
      	DEBTOR:	INTERACTUAL
              TECHNOLOGIES, INC.
	SECURED
              PARTY:	UNION BANK
              OF
              CALIFORNIA, N.A.

    

     

    EXHIBIT
      A

    COLLATERAL
      DESCRIPTION ATTACHMENT 

    TO
      THIRD
      PARTY SECURITY AGREEMENT

     

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

     

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

     

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

     

    (c) All
      commercial tort claims, contract rights and general intangibles now owned or
      hereafter acquired,
      including, without limitation, goodwill, trademarks, servicemarks, trade styles,
      trade names, patents, patent applications,
      leases, license agreements, franchise agreements, blueprints, drawings, purchase
      orders, customer lists, route
      lists, infringements, claims, computer programs, computer discs, computer tapes,
      literature, reports, catalogs, design
      rights, income tax refunds, payments of insurance and rights to payment of
      any
      kind;

     

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

     

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

     

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

     

    (g) All
      Borrower's Books relating to the foregoing and any and all claims, rights and
      interests in any of
      the
      above and all substitutions for, additions and accessions to and proceeds
      thereof.

     

    
      
        
        

      

      
        11

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