Document:

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                                                                  EXHIBIT 10.6.1

                            FIRST AMENDMENT TO LEASE

         This First Amendment (this "FIRST AMENDMENT") to Lease is made as of
September 27, 2002, by and between ARE-2625/2627/2631 HANOVER, LLC, a Delaware
limited liability company ("LANDLORD"), and NANOSYS, INC., a Delaware
corporation ("TENANT").

                                    RECITALS

         A.       Landlord and Tenant have entered into that certain Lease
Agreement dated as of January 30, 2002 (the "LEASE").

         B.       Pursuant to the Lease, Tenant currently leases 8,424 rentable
square feet (the "2625 PREMISES") in the building located at 2625 Hanover
Street, Palo Alto, California 94301 (the "2625 BUILDING"), more particularly
described in the Lease. Capitalized terms used herein without definition shall
have the meanings defined for such terms in the Lease.

         C.       Tenant desires to extend the term of the Lease and expand the
Premises by adding 12,650 rentable square feet (the "2627 PREMISES") in the
building located at 2627 Hanover Street, Palo Alto, California 94301 (the "2627
BUILDING"), and, subject to the terms and conditions set forth below, Landlord
is willing to extend the term of the Lease and lease such additional portion of
the Project to Tenant.

                                    AGREEMENT

         NOW THEREFORE, in consideration of the foregoing recitals, the mutual
covenants and agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Landlord and Tenant agree, and amend the Lease, as follows:

         1.       BUILDING. Effective as of the 2627 Premises Commencement Date
(as hereinafter defined), the definition of "Building" on the first page of the
Lease is deleted in its entirety and replaced with the following:

         "BUILDING:        (a) 2625 Hanover Street, Palo Alto, California
                           94301 (the "2625 BUILDING"), and (b) 2627 Hanover
                           Street, Palo Alto, California 94301 (the "2627
                           BUILDING" and together with the 2625 Building,
                           collectively the "BUILDING")."

         2.       PREMISES. Effective as of the 2627 Premises Commencement Date,
the definition of "Premises" on the first page of the Lease is deleted in its
entirety and replaced with the following:

         "PREMISES:        The (a) 2625 Building containing approximately 8,424
                           rentable square feet, as determined by Landlord, as
                           shown on EXHIBIT A (the "2625 PREMISES"), and (b)
                           2627 Building containing approximately 12,650
                           rentable square feet, as determined by Landlord, as
                           shown on EXHIBIT A-l

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                                                                          Page-2

                           (the "2627 PREMISES" and together with the 2625
                           PREMISES, collectively the "PREMISES")."

         From and after the 2627 Premises Commencement Date, Landlord and Tenant
agree that the Premises shall consist of 21,074 rentable square feet of space.

         3.       BASE RENT.

         (a)      Effective as of the 2627 Premises Commencement Date, the
definition of "Base Rent" on the first page of the Lease is deleted in its
entirety and replaced with the following:

         "BASE RENT:       $64,904,00 per month, subject to adjustment as
                           provided for in Section 3 below."

         (b)      Effective as of the 2627 Premises Commencement Date, Section 3
OF THE LEASE is amended by adding the following at the end thereof:

         "Effective on (i) January 1, 2004, Base Rent shall be increased from
$64.904.00 to $67,175.64 per month, and (ii) January 1, 2005, Base Rent shall be
increased from $67,175.64 to $69,526.79 per month."

         4.       TENANT'S SHARE. Effective as of the 2627 Premises Commencement
Date, definition of Tenant's Share on the first page of the Lease is deleted in
its entirety and replaced with the following:

         "TENANT'S SHARE:           65.70%"

         5.       SECURITY DEPOSIT. The definition of Security Deposit on the
first page of the Lease is hereby deleted in its entirety and replaced with the
following:

         "SECURITY DEPOSIT:         $64,904.00"

         Concurrently with the delivery of an executed copy of this First
Amendment to Landlord, Tenant shall deposit $35,420.00 (such amount being the
portion of the Security Deposit attributable to the 2627 Premises (the "2627
SECURITY DEPOSIT") with Landlord, which 2627 Security Deposit shall be in cash.

         6.       TERM. Effective as of the 2627 Premises Commencement Date, the
definition of Term on the first page of the Lease is deleted in its entirety
and replaced with the following:

         "TERM:            Beginning on the Commencement Date and ending on
                           December 31, 2005."

         7.       DELIVERY; ACCEPTANCE OF 2627 PREMISES; COMMENCEMENT DATE.
Landlord shall use reasonable efforts to deliver the 2627 Premises to Tenant for
the conduct of Tenant's business on or before January 1, 2003 (the "2627 TARGET
COMMENCEMENT DATE") with

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Landlord's Work substantially completed ("DELIVERY" OR "DELIVER"). "LANDLORD'S
WORK" shall mean the construction of improvements in general accordance with the
Floor Plans attached hereto as EXHIBITS C-1 AND C-2. If Landlord fails to timely
Deliver the 2627 Premises, Landlord shall not be liable to Tenant for any loss
or damage resulting therefrom, and the Lease shall not be void or voidable
except as provided herein. If Landlord does not Deliver the 2627 Premises within
60 days of the 2627 Target Commencement Date for any reason other than Force
Majeure Delays (as hereinafter defined), then, for a period of 5 business days
after the end of such 60 day period, the Lease with respect only to the 2627
Premises shall be voidable by Tenant by written notice to Landlord, and if so
voided: (a) the 2627 Security Deposit, or any balance thereof (i.e., after
deducting therefrom all amounts to which Landlord is entitled under the
provisions of the Lease), shall be returned to Tenant, and (b) neither Landlord
nor Tenant shall have any further rights, duties or obligations with respect to
the 2627 Premises under the Lease. If Tenant does not elect to void the Lease
with respect to the 2627 Premises within 5 business days of the lapse of such 60
day period, such right to void the Lease with respect to the 2627 Premises shall
be waived and the Lease shall remain in full force and effect. The "2627
PREMISES COMMENCEMENT DATE" shall be the later of: (i) the 2627 Target
Commencement Date, or (ii) the date Landlord Delivers the 2627 Premises to
Tenant. Upon request of Landlord, Tenant shall execute and deliver a written
acknowledgment of the 2627 Premises Commencement Date when such date is
established in the form of the "Acknowledgement of Commencement Date" attached
hereto as EXHIBIT B; provided, however. Tenant's failure to execute and deliver
such acknowledgment shall not affect Landlord's rights hereunder. For purposes
hereof, (i) "FORCE MAJEURE DELAYS" shall mean delays arising by reason of any
Force Majeure, and (ii) "FORCE MAJEURE" shall mean, strikes, lockouts, labor
disputes, weather, natural disasters, inability to obtain labor or materials or
reasonable substitutes therefor, governmental restrictions, governmental
regulations, governmental- controls, delay in issuance of permits, enemy or
hostile governmental action, civil commotion, fire or other casualty, and other
causes beyond the reasonable control of Landlord.

         Effective as of the 2627 Premises Commencement Date, except as
otherwise expressly provided herein: (i) Tenant shall accept the 2627 Premises
in their condition as of such date, subject to all applicable Legal Requirements
(as defined in Section 6 of the Lease), (ii) Landlord shall have no obligation
for any defects in the 2627 Premises; and (iii) Tenant's taking possession of
the 2627 Premises shall be conclusive evidence that Tenant accepts the 2627
Premises and that the 2627 Premises were in good condition at the time of
Delivery. Landlord shall construct (a) the core and shell of the 2627 Building,
and (b) Landlord's Work in compliance with applicable law.

         For a period of 90 days after the 2627 Premises Commencement Date,
Landlord and Tenant shall jointly monitor the 2627 Building systems and the
roof, and Landlord will make any repairs deemed by the parties to be reasonably
necessary. During such 90 day period, the cost of any such repair shall be paid
by Landlord, unless Tenant was solely responsible for the cause of such repair,
in which case Tenant shall pay the cost.
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         Landlord, at its sole cost and expense (which shall not constitute an
Operating Expense (as defined in the Lease)) shall promptly balance the heating
and air conditioning system of the 2627 Premises if Tenant requests at any time
prior to August 31, 2003.

         8.       EXHIBIT A. Effective as of the 2627 Premises Commencement
Date, the Lease is amended to add Exhibit A-1 thereto in the form of Exhibits A
attached hereto.

         9.       FEE. As a material inducement for Landlord to enter into this
First Amendment, Tenant shall, concurrently with the delivery of an executed
copy of this First Amendment to Landlord, deposit $20,000.00 (the "FEE") with
Landlord, which Fee shall be in cash. Tenant acknowledges and agrees that the
Fee has been fully earned by Landlord on the 2627 Premises Commencement Date and
is nonrefundable. In the event Landlord fails to deliver the 2627 Premises in
accordance with the terms of this First Amendment, and Tenant voids the Lease
with respect to the 2627 Premises pursuant to Tenant's rights hereunder,
Landlord shall refund the Fee to Tenant. The Fee shall not be applied to any of
Tenant's obligations under the Lease and is in addition to Tenant's obligation
to pay all other amounts due under the Lease.

         10.      MISCELLANEOUS.

                  (a)      This First Amendment is the entire agreement between
the parties with respect to the subject matter hereof and supersedes all prior
and contemporaneous oral and written agreements and discussions. This First
Amendment may be amended only by an agreement in writing, signed by the parties
hereto.

                  (b)      This First Amendment is binding upon and shall inure
to the benefit of the parties hereto, their respective agents, employees,
representatives, officers, directors, divisions, subsidiaries, affiliates,
assigns, heirs, successors in interest and shareholders

                  (c) This First Amendment may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which when
taken together shall constitute one and the same instrument. The signature page
of any counterpart may be detached therefrom without impairing the legal effect
of the signature(s) thereon provided such signature page is attached to any
other counterpart identical thereto except having additional signature pages
executed by other parties to this First Amendment attached thereto.

                  (d)      Landlord and Tenant each represent and warrant that
it has not dealt with any broker, agent or other person (collectively "BROKER")
in connection with this transaction, and that no Broker brought about this
transaction other than Cornish & Carey Commercial. Landlord and Tenant each
hereby agree to indemnify and hold the other harmless from and against any
claims by any Broker, other than Cornish and Carey Commercial, claiming a
commission or other form of compensation by virtue of having dealt with Tenant
or Landlord, as applicable, with regard to this leasing transaction.

                  (e)      Except as amended and/or modified by this First
Amendment, the Lease is hereby ratified and confirmed and all other terms of the
Lease shall remain in full force and

                                                          [2627 HANOVER/NANOSYS]
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effect, unaltered and unchanged by this First Amendment. In the event of any
conflict between the provisions of this First Amendment and the provisions of
the Lease, the provisions of this First Amendment shall prevail. Whether or not
specifically amended by this First Amendment, all of the terms and provisions of
the Lease are hereby amended to the extent necessary to give effect to the
purpose and intent of this First Amendment.

                                                          [2627 HANOVER/NANOSYS]
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         IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment as of the day and year first above written.

                                       TENANT:

                                       NANOSYS, INC.,
                                       a Delaware corporation

                                       By: /s/ Karen Vergura
                                           ----------------------
                                       Its: VP, Finance

                                       LANDLORD:

                                       ARE-2625/2627/2631 HANOVER, LLC,
                                       a Delaware limited liability company

                                       By: ALEXANDRIA REAL ESTATE EQUITIES,
                                           L.P., a Delaware limited partnership,
                                           managing member

                                           By: ARE-QRS CORP.,
                                               a Maryland corporation,
                                               general partner

                                               By:  /s/ Joel S. Marcus
                                                    ------------------
                                               its: CEO

                                                      [2627  HANOVER/NANOSYS]
              (c) ALL RIGHTS RESERVED 2001 ALEXANDRIA REAL ESTATE EQUITIES, INC.
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                                    EXHIBIT A

                          Description of 2627 Premises

                                 [FLOOR PLANS]

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                                    EXHIBIT B

                       ACKNOWLEDGMENT OF COMMENCEMENT DATE

         This ACKNOWLEDGMENT OF COMMENCEMENT DATE is made this___________ day of
____, 2002, between ARE-2625/2627/2631 HANOVER, LLC, a Delaware limited
liability company ("LANDLORD"), and NANOSYS, INC, a Delaware corporation
("TENANT"), and is attached to and made a part of the Lease dated January 30,
2002 (the "LEASE"), by and between Landlord and Tenant. Any initially
capitalized terms used but not defined herein shall have the meanings given them
in the Lease.

         Landlord and Tenant hereby acknowledge and agree, for all purposes of
the Lease, that the 2627 Premises Commencement Date of the Term of the Lease is
_____________ and the termination date of the term for the 2627 Premises shall
be midnight on December 31, 2005.

         IN WITNESS WHEREOF, Landlord and Tenant have executed this
ACKNOWLEDGMENT OF COMMENCEMENT DATE to be effective on the date first above
written.

                                           TENANT:

                                           NANOSYS, INC,
                                           a Delaware corporation

                                           By:___________________________
                                           Its:__________________________

                                           LANDLORD:

                                           ARE-2625/2627/2631 HANOVER, LLC,
                                           a Delaware limited liability company

                                           By: ALEXANDRIA REAL ESTATE EQUITIES,
                                           L.P.,
                                                a Delaware limited partnership,
                                                managing member

                                                By: ARE-QRS CORP.,
                                                    a Maryland corporation,
                                                    general partner

                                                    By:_________________________
                                                    Its:________________________

                                                          [2627 HANOVER/NANOSYS]
              (c) ALL RIGHTS RESERVED 2001 ALEXANDRIA REAL ESTATE EQUITIES, INC.
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                                   EXHIBIT C-1

                             FLOOR PLANS (1ST FLOOR)

                                   [Attached]

                                                          [2627 HANOVER/NANOSYS]
              (c) ALL RIGHTS RESERVED 2001 ALEXANDRIA REAL ESTATE EQUITIES, INC.
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                                 [FLOOR PLANS]

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                                   EXHIBIT C-2

                            FLOOR PLANS (2ND FLOOR)

                                   [Attached]

                                                          [2627 HANOVER/NANOSYS]
              (c) ALL RIGHTS RESERVED 2001 ALEXANDRIA REAL ESTATE EQUITIES, INC.
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                                 [FLOOR PLAN]<PAGE>

                                                                    EXHIBIT 10.7

                               LOAN AND SECURITY AGREEMENT

         This LOAN AND SECURITY AGREEMENT (This "Agreement") dated as of May 17,
2002, between SILICON VALLEY BANK, a California chartered bank, with its
principal place of business at 3003 Tasman Drive, Santa Clara, California 95054
and with a loan production office located at One Newton Executive Park, Suite
200,2221 Washington Street, Newton, Massachusetts 02462, doing business under
the name "Silicon Valley East" ("Bank") and NANOSYS, INC., a Delaware
corporation ("Borrower"), provides the terms on which Bank shall lend to
Borrower and Borrower shall repay Bank. The parties agree as follows:

         1.       ACCOUNTING AND OTHER TERMS

         Accounting terms not defined in this Agreement shall be construed
following GAAP. Calculations and determinations must be made following GAAP. The
term "financial statements" includes the terms "including" and "includes"
always mean "including (or includes) without limitation," in this or any Loan
Document. Capitalized terms in this Agreement shall have the meanings set forth
in Section 13.

         2        LOAN AND TERMS OF PAYMENT

         2.1      PROMISE TO PAY. Borrower hereby unconditionally promises to
pay Bank the unpaid principal amount of all Credit Extensions and interest on
the unpaid principal amount of the Credit Extensions as and when due in
accordance with this Agreement.

                  2.1.1 VENTURE EQUIPMENT FACILITY.

                  (a)      Subject to the terms and conditions of this
Agreement, Bank agrees to lend to Borrower, from time to time prior to the
Commitment Termination Date, equipment advances (each an "Equipment Advance"
and collectively the "Equipment Advances") in an aggregate amount not to exceed
the Committed Equipment Line. When repaid, the Equipment Advances may not be
re-borrowed. The proceeds of the Equipment Advances shall be used solely to
reimburse Borrower for the purchase of Eligible Equipment purchased within
ninety (90) days (determined based upon the applicable invoice date of such
Eligible Equipment) of the Equipment Advance and to purchase new Eligible
Equipment. Bank's obligation to lend hereunder shall terminate, at Bank's
option, on the earlier of (i) the occurrence and continuance of an Event of
Default, or (ii) the Commitment Termination Date. For purposes of this Section,
the minimum amount of each Equipment Advance is Fifty Thousand Dollars
($50,000.00). Subject to the foregoing conditions, the initial Equipment Advance
hereunder may include invoices dated on or after November 1, 2001, provided such
initial Equipment Advance is requested on the Closing Date (the "Initial
Advance"). The Borrower may only request, in the aggregate, six (6) Equipment
Advances provided that Borrower may borrow less than Fifty Thousand Dollars
($50,000.00) if the available amount remaining under the Committed Equipment
Line is less than Fifty Thousand Dollars ($50,000.00).

                  (b)      To obtain an Equipment Advance, Borrower shall
deliver to Bank a completed supplement in substantially the form attached as
EXHIBIT B ("Loan Supplement"), together with a UCC Financing Statement covering
the Financed Equipment described on Annex A to the applicable Loan Supplement
and such additional information as Bank may reasonably request at least five (5)
Business Days before the proposed funding date (the "Funding Date"). On each
Funding Date, Bank shall specify in the Loan Supplement for each Equipment
Advance, the Basic Rate, and the Payment Dates. If Borrower satisfies the
conditions of each Equipment Advance, Bank shall disburse such Equipment Advance
by internal transfer to Borrower's deposit account with Bank. Each Equipment
Advance may not exceed 100% of the Original Stated Cost of the Financed
Equipment.

         2.1.2    UNDISBURSED CREDIT EXTENSIONS. The Bank's obligation to lend
the undisbursed portion of the Credit Extensions shall terminate if there has
been a material adverse change in the general affairs, management, results of

<PAGE>

operation, financial condition or the prospects of Borrower, whether or not
arising from transactions in the ordinary course of business, or there has been
any material adverse deviation by Borrower from the most recent business plan of
Borrower presented to and accepted by Bank prior to the execution of this
Agreement.

         2.2      INTEREST RATE; PAYMENTS.

                  (a)      Principal and Interest Payments On Payment Dates.
Borrower shall repay each Equipment Advance pursuant to the terms set forth in
the corresponding Loan Supplement. For each Equipment Advance, Borrower shall
make equal monthly payments of principal and interest, in advance, calculated by
the Bank based upon: (1) the amount of the Equipment Advance, (2) the Basic
Rate, and (3) an amortization schedule equal to the Repayment Period
(individually, the "Scheduled Payment", and collectively, "Scheduled Payments"),
on the first Business Day of the month following the month in which the Funding
Date occurs (or commencing on the Funding Date if the Funding Date is the first
Business Day of the month) with respect to such Equipment Advance and continuing
thereafter during the Repayment Period on the first Business Day of each
successive calendar month (each a "Payment Date"). All unpaid principal and
accrued interest is due and payable in full on the last Payment Date with
respect to such Equipment Advance. Payments received after 12:00 noon Eastern
time are considered received at the opening of business on the next Business
Day. An Equipment Advance may only be prepaid in accordance with Sections 2.2(e)
and 2.2(g).

                  (b)      Interest Rate. Borrower shall pay interest on the
unpaid principal amount of each Equipment Advance until the Equipment Advance
has been paid in full, fixed at the per annum rate of interest equal to the
Basic Rate determined by Bank as of the Funding Date for each Equipment Advance
in accordance with the definition of the Basic Rate. Any amounts outstanding
during the continuance of an Event of Default shall bear interest at a per annum
rate equal to the Basic Rate plus five percent (5%)(the "Default Rate").

                  (c)      Interim Payment. In addition to the Scheduled
Payments, on the Funding Date for each Equipment Advance (unless the Funding
Date is the first Business Day of the month) Borrower shall pay to the Bank,
interest on the amount of the Equipment Advance at the applicable Basic Rate
calculated for the number of days from the actual Funding Date of the Equipment
Advance until the first day of the month following such Equipment Advance.

                  (d)      Final Payment. On the Maturity Date with respect to
each Equipment Advance, Borrower shall pay, in addition to the unpaid principal
and accrued interest end all other amounts due on such date with respect to such
Equipment Advance, an amount equal to the Final Payment.

                  (e)      Prepayment Upon an Event of Loss. If any Financed
Equipment is subject to an Event of Loss and Borrower is required to or elects
to prepay the Equipment Advance with respect to such Financed Equipment pursuant
to Section 6.8, then such Equipment Advance shall be prepaid to the extent and
in the manner provided in such section.

                  (f)      Mandatory Prepayment Upon an Acceleration. If the
Equipment Advances are accelerated following the occurrence and continuance of
an Event of Default, Borrower shall immediately pay to Bank an amount equal to
the sum of; (i) all outstanding principal plus accrued interest, (ii) the Final
Payment plus (iii) all other sums, if any, that shall have become due and
payable, including interest at the Default Rate from the date of such Event of
Default with respect to any past due amounts.

                  (g)      Permitted Prepayment of Loans. Borrower shall have
the option to prepay all, but not less then all, of the Equipment Advances
advanced by Bank under this Agreement, provided Borrower (i) provides written
notice to Bank of its election to prepay the Equipment Advances at least five
(5) days prior to such prepayment, and (ii) pays, on the date of such prepayment
(A) all outstanding principal plus accrued interest, (B) the Final Payment plus
(C) all other sums, if any, that shall have become due and payable with respect
to such Equipment Advances, including interest at the Default Rate from the date
of such Event of Default with respect to any past due amounts.

                                       2
<PAGE>

         2.3      FEES. Borrower shall pay 10 Bank:

                  (a)      Final Payment. Each Final Payment as and when due in
accordance with the terms of this Agreement; and

                  (b)      Bank Expenses. All Bank Expenses (including
reasonable attorneys' fees and expenses incurred through and after the Closing
Date) when due.

         2.4      ADDITIONAL COSTS. If any new law or regulation increases
Bank's costs or reduces its income for any loan, Borrower shall pay the increase
in cost or reduction in income or additional expense; provided, however, that
Borrower shall not be liable for any amount attributable to any period before
180 days prior to the date Bank notifies Borrower of such increased costs. Bank
agrees that it shall allocate any increased costs among its customers similarly
affected in good faith and in a manner consistent with Bank's customary
practice.

         3        CONDITIONS OF LOANS

         3.1      CONDITIONS PRECEDENT TO INITIAL CREDIT EXTENSION. The
obligation of Bank to make the initial Credit Extension is subject to the
condition precedent that Bank shall have received, in form and substance
reasonably satisfactory to Bank, the following;

                  (a)      this Agreement;

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

                  (c)      Negative Pledge Agreement covering Intellectual
         Property;

                  (d)      a legal opinion of Borrower's counsel, in form end
         substance reasonably acceptable to Bank;

                  (e)      Warrant to Purchase Stock;

                  (f)      Investors' Rights Agreement;

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

                  (h)      insurance certificate;

                  (i)      payment of the fees and Bank Expenses then due
         specified in Section 2.3 hereof;

                  (j)      Certificate of Foreign Qualification (if applicable);

                  (k)      Certificate of Good Standing/Legal Existence; and

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

         3.2      CONDITIONS PRECEDENT TO ALL CREDIT EXTENSIONS. Bank's
obligations to make each Credit Extension, including the initial Credit
Extension, is subject to the following:

                                       3
<PAGE>

                  (a)      timely receipt of a completed Loan Supplement and UCC
financing statement covering the Financed Equipment described on Annex A to the
Loan Supplement; and

                  (b)      the representations and warranties in Section 5 must
be materially true when taken as a whole on the date of the Loan Supplement and
on the effective date of each Credit Extension and no Event of Default shall
have occurred and be continuing as of such effective date, or result from the
Credit Extension. Each Credit Extension is Borrower's representation warranty on
that date that the representations and warranties in Section 5 remain true in
all material respects, except that any representation or warranties made as of a
specified earlier date shall be true as of such earlier date.

                  (c)      the Bank shall have the opportunity to confirm that
upon filing the UCC-1 financing statement covering the Equipment described on
the Loan Supplement, that the Bank shall have first perfected security interest
in such Equipment.

         4        CREATION OF SECURITY INTEREST

         4.1      GRANT OF SECURITY INTEREST. Borrower hereby grants Bank, to
secure the payment and performance in full of all of the Obligations and the
performance of each of Borrower's duties under the Loan Documents, a continuing
security interest in, and pledges and assigns to the Bank, the Collateral,
wherever located, whether now owned or hereafter acquired or arising, and all
proceeds and products thereof. Borrower warrants and represents that the
security interest granted herein shall be a first priority security interest in
the Collateral.

Borrower agrees that any disposition of the Collateral in violation of this
Agreement, by either the Borrower or any other Person, shall be deemed to
violate the rights of the Bank under the Code. If the Agreement is terminated,
Bank's lien and security interest in the Collateral shall continue until
Borrower fully satisfies its Obligations. If Borrower shall at any time, acquire
a commercial fort claim, Borrower shall promptly notify Bank in a writing signed
by Borrower of the brief details thereof and grant to Bank in such writing a
security interest therein and in the proceeds thereof, all upon the terms of
this Agreement, with such writing to be in form and substance reasonably
satisfactory to Bank.

         5        REPRESENTATIONS AND WARRANTIES

         Borrower represents and warrants as follows:

         5.1      DUE ORGANIZATION AND AUTHORIZATION. Borrower and each
Subsidiary is duly existing and in good standing in its state of formation and
qualified and licensed to do business in, and in good standing in, any state in
which the conduct of its business or its ownership of property requires that it
be qualified except where the failure to do so could not resonably be expected
to cause a Material Adverse Change. In connection with this Agreement, the
Borrower delivered to the Bank a certificate signed by the Borrower and entitled
"Perfection Certificate". The Borrower represents and warrants to the Bank that,
as of the Closing Date and as of the date of each Credit Extension: (a) the
Borrower's exact legal name is that indicated on the Perfection Certificate and
on the signature page hereof; and (b) the Borrower is an organization of the
type, and is organized in the jurisdiction, set forth in the Perfection
Certificate; and (c) the Perfection Certificate accurately sets forth the
Borrower's organizational identification number or accurately states that the
Borrower has none; and (d) the Perfection Certificate accurately sets forth the
Borrower's place of business, or if more than one, its chief executive office as
well as the Borrower's mailing address if different, and (e) all other
information set forth on the Perfection Certificate pertaining to the Borrower
is accurate and complete. If the Borrower does not now have an organizational
identification number, but later obtains one, Borrower shall forthwith notify
the Bank of such organizational identification number.

         The execution, delivery and performance of the Loan Documents have been
duly authorized, and do not conflict with Borrower's organizational documents,
nor constitute an event of default under any material agreement by

                                       4
<PAGE>

which Borrower is bound. Borrower is not in default under any agreement to which
or by which it is bound in which the default could reasonably be expected to
cause a Material Adverse Change.

         5.2      COLLATERAL. Borrower has good title to the Collateral, free of
Liens except Permitted Liens. As of the Closing Date, Borrower has no deposit
account, other than the deposit accounts with Bank and deposit accounts
described in the Perfection Certificate delivered to the Bank in connection
herewith. As of the Closing Date, the Collateral is not in the possession of any
third party bailee (such as a warehouse). In the event that Borrower, after the
date hereof, intends to store or otherwise deliver any portion of the Collateral
to a bailee, then Borrower will first receive the written consent of Bank and
such bailee must acknowledge in writing that the bailee is holding such
Collateral for the benefit of Bank.

         5.3      LITIGATION. Except as shown in the Schedule, as of the Closing
Date there are no actions or proceedings pending or, to the knowledge of
Borrower's Responsible Officers, threatened by or against Borrower or any
Subsidiary in which a likely adverse decision could reasonably be expected to
cause a Material Adverse Change.

         5.4      NO MATERIAL DEVIATION IN FINANCIAL STATEMENTS. All
consolidated financial statements for Borrower and any Subsidiary delivered to
Bank fairly present in all material respects Borrower's consolidated financial
condition and Borrower's consolidated results of operations. There has not been
any material deterioration in Borrower's consolidated financial condition since
the date of the most recent financial statements submitted to Bank.

         5.5      SOLVENCY. As of the Closing Date, Borrower is able to pay its
debts (including trade debts) as they mature.

         5.6      REGULATORY COMPLIANCE. Borrower is not an "investment company"
or a company "controlled" by an "investment company" under the Investment
Company Act. Borrower is not engaged as one of its important activities in
extending credit for margin stock (under Regulations T and U of the Federal
Reserve Board of Governors). Borrower has complied in all material respects with
the Federal Fair Labor Standards Act. Borrower has not violated any laws,
ordinances or rules, the violation of which could reasonably be expected to
cause a Material Adverse Change. None of Borrower's or any Subsidiary's
properties or assets has been used by Borrower or any Subsidiary or, to the best
of Borrower's knowledge, by previous Persons, in disposing, producing, storing,
treating, or transporting any hazardous substance other than legally, Borrower
and each Subsidiary has timely filed all required tax returns and paid, or made
adequate provision to pay, all material taxes, except those being contested in
good faith with adequate reserves under GAAP. Borrower and each Subsidiary has
obtained all consents, approvals and authorizations of, made all declarations or
filings with, and given all notices to, all government authorities that are
necessary to continue its business as currently conducted except where the
failure to make such declarations, notices or filings would not reasonably be
expected to cause a Material Adverse Change.

         5.7      SUBSIDIARIES. As of the Closing Date, Borrower does not own
any stock, partnership interest or other equity securities except for Permitted
Investments.

         5.8      FULL DISCLOSURE. As of the Closing Date, to Borrower's
knowledge, no written representation, warranty or other statement of Borrower in
any certificate or written statement given to Bank taken together with all such
written certificates and written statements given to Bank contains any untrue
statement of a material fact or omits to state a material fact necessary to make
the statements contained in the certificates or statements not misleading (it
being recognized by Bank that the projections and forecasts provided by Borrower
in good faith and based upon reasonable assumptions are not viewed as facts and
that actual results during the period or periods covered by such projections and
forecasts may differ from the projected or forecasted results).

                                       5
<PAGE>

         6        AFFIRMATIVE COVENANTS

         Borrower shall do all of the following:

         6.1      GOVERNMENT COMPLIANCE. Borrower shall maintain its and all
Subsidiaries, legal existence and good standing in its jurisdiction of formation
and maintain qualification in each jurisdiction in which the failure to so
qualify would reasonably be expected to have a material adverse effect on
Borrower's business or operations. Borrower shall comply, and have each
Subsidiary comply, with all laws, ordinances and regulations to which it is
subject, noncompliance with which could have a material adverse effect on
Borrower's business or operations or be expected to cause a Material Adverse
Change.

         6.2      FINANCIAL STATEMENTS, REPORTS, CERTIFICATES.

                  (a)      Borrower shall deliver to Bank: (i)as soon as
available, but no later than thirty (30) days after the last day of each month,
a company prepared consolidated balance sheet and income statement covering
Borrower's consolidated operations during the period certified by a Responsible
Officer and in a form reasonably acceptable to Bank; (ii) as soon as available,
but no later than one hundred twenty (120) days after the last day of Borrower's
fiscal year, audited consolidated financial statements prepared under GAAP,
consistently applied, together with an unqualified opinion on the financial
statements from an independent certified public accounting firm reasonably
acceptable to Bank; (iii) in the event that the Borrower's stock becomes
publicly held, within five (5) days of filing, copies of all statements, reports
and notices made available to Borrower's security holders or to any holders of
Subordinated Debt and all reports on Form 10-K, 10-Q and 8-K filed with the
Securities and Exchange Commission; (iv) a prompt 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 Two Hundred Thousand Dollars
($200,000.00) or more; and (v) other financial information reasonably requested
by Bank.

                  (b)      Within thirty (30) days after the last day of each
month, Borrower shall deliver to Bank with the monthly financial statements a
Compliance Certificate signed by a Responsible Officer in the form of EXHIBIT
C.

         6.3      INVENTORY; RETURNS. Borrower shall keep all Inventory in good
and marketable condition, free from material defects. Returns and allowances
between Borrower and its account debtors shall follow Borrower's customary
practices as they exist at the Closing Date. Borrower must promptly notify Bank
of all returns, recoveries, disputes and claims that involve more than One
Hundred Thousand Dollars ($100,000.00).

         6.4      TAXES. Borrower shall make, and cause each Subsidiary to make,
timely payment of all material federal, state, and local taxes or assessments
(other than taxes and assessments which Borrower is contesting in good faith,
with adequate reserves maintained in accordance with GAAP) and will deliver to
Bank, on demand, appropriate certificates attesting to such payments.

         6.5      INSURANCE. Borrower shall keep its business and the Collateral
insured for risks and in amounts, standard for Borrower's industry, and as Bank
may reasonably request in Bank's reasonable discretion., Insurance policies
shall be in a form, with companies, and in amounts that are reasonably
satisfactory to Bank. All property policies shall have a lender's loss payable
endorsement showing Bank as an additional loss payee and all liability policies
shall show the Bank as an additional insured and all policies shall provide that
the insurer must give Bank at least twenty (20) days notice before canceling its
policy. At Bank's request, Borrower shall deliver certified copies of policies
and evidence of all premium payments. Proceeds payable under any policy shall,
at Bank's option, be payable to Bank on account of the Obligations.
Notwithstanding the foregoing, so long as no Event of Default has occurred and
is continuing, Borrower shall have the option of applying the proceeds of any
casualty policy up to $25,000.00, in the aggregate, toward the replacement or
repair of destroyed or damaged property; provided that (i) any such replaced or
repaired property (a) shall be of equal or like value as the replaced or
repaired Collateral and (b) Shall be deemed

                                       6
<PAGE>

Collateral in which Bank has been granted a first priority security interest and
(ii) after the occurrence and during the continuation of an Event of Default all
proceeds payable under such casualty policy shall, at the option of the Bank, be
payable to Bank on account of the Obligations. If Borrower fails to obtain
insurance as required under Section 6.5 or to pay any amount or furnish any
required proof of payment to third persons and the Bank, Bank may make all or
part of such payment or obtain such insurance policies required in Section 6.5,
and take any action under the policies Bank deems reasonably prudent in
connection with the foregoing.

         6.6      PRIMARY ACCOUNTS. In order to permit the Bank to monitor the
Borrower's financial performance and condition, Borrower shall (i) maintain its
primary depository, operating, and securities accounts with Bank, and (ii)
maintain or administer through the Bank at all times cash or securities in an
amount not less than 100% of the amount of cash or securities held by Borrower
as of the Closing Date, less any amounts used for the Borrower's operations on a
going forward basis. The provisions of this paragraph shall not apply to deposit
accounts exclusively used for payroll, payroll taxes and other employee wage and
benefit payments to or for the benefit of the Borrower's employees.

         6.7      FURTHER ASSURANCES. Borrower shall execute any further
instruments and take further action as Bank reasonably requests to perfect or
continue Bank's security interest in the Collateral or to effect the purposes of
this Agreement.

         6.8      LOSS; DESTRUCTION; OR DAMAGE. Borrower shall bear the risk of
the Financed Equipment being lost, stolen, destroyed, or damaged. If during the
term of this Agreement any item of Financed Equipment becomes obsolete or is
lost, stolen, destroyed, damaged beyond repair, rendered permanently unfit for
use, or seized by a governmental authority for any reason for a period equal to
at least the remainder of the term of this Agreement (an "Event of Loss"), then
in each case, Borrower:

                  (a)      prior to the occurrence and continuance of an Event
of Default, at Borrower's option, shall (i) pay to Bank on account of the
Obligations (with respect to such Equipment Advance related to an Event of Loss)
all accrued interest to the date of the prepayment, plus all outstanding
principal, plus the Final Payment; or (ii) repair or replace any Financed
Equipment subject to an Event of Loss provided the repaired or replaced Financed
Equipment is of equal or like value to the Financed Equipment subject to an
Event of Loss and provided further that Bank has a firm priority perfected
security interest in such repaired or replaced Financed Equipment

                  (b)      during the continuance of an Event of Default, on or
before the next Payment Date following such Event of Loss, for each such item of
Financed Equipment subject to such Event of Loss, Borrower shall, at Bank's
option, pay to Bank an amount equal to the sum of: (i) all outstanding principal
plus accrued interest, (ii) the Final Payment plus (iii) all other sums, if any,
that shall have become due and payable, including interest at the Default Rate
from the date of an Event of Default with respect to any past due amounts.

         7        NEGATIVE COVENANTS

         Borrower shall not do any of the following without the Bank's prior
written consent which shall not be unreasonably withheld.

         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, except for Transfers (i)
of Inventory in the ordinary course of business; (ii) of non-exclusive licenses
and similar arrangements for the use of the property of Borrower or its
Subsidiaries in the ordinary course of business; (iii) of worn-out or obsolete
Equipment; (iv) other Transfers which in the aggregate do not exceed Two Hundred
Fifty Thousand Dollars ($250,000.00) in any fiscal year, or (v) other Transfers
expressly permitted under Section 7 hereof.

         7.2      CHANGE IN BUSINESS, OWNERSHIP, MANAGEMENT OR BUSINESS
LOCATION. Engage in or permit any of its Subsidiaries to engage in any business
other than the businesses currently engaged in by Borrower of have a

                                       7
<PAGE>

material change in its ownership (other than by the sale of Borrower's equity
securities in a public offering or to venture capital investors so long as
Borrower identifies to Bank the venture capital investors prior to the closing
of the investment), or management. Borrower shall not, without at least thirty
(30) days prior written notice to Bank: (i) relocate its chief executive office,
or add any new offices or business locations (unless such new offices or
business locations contain less than Twenty-Five Thousand Dollars ($25,000.00)
in Borrower's assets property), or (ii) change its jurisdiction of organization,
or (iii) change its organizational structure or type, or (iv) change its legal
name, or (v) change any organizational number (if any) assigned by its
jurisdiction of organization.

         7.3      MERGERS OR ACQUISITIONS. Merge or consolidate, or permit any
of its Subsidiaries to merge or consolidate, with any other Person, or acquire,
or permit any of its Subsidiaries to acquire, all or substantially all of the
capital stock or property of another Person, except where: (i) such transactions
do not in the aggregate result in a decrease of more than 25% of Borrower's
Tangible Net Worth from that which existed as of (A) the Closing Date or (B) the
date prior to such transaction, whichever is greater; (ii) no Event of Default
has occurred and is continuing or would exist after giving effect to the
transactions; and (iii) the Borrower is the surviving legal entity. A Subsidiary
of Borrower may merge or consolidate into another Subsidiary of Borrower or into
Borrower.

         7.4      (INTENTIONALLY DELETED)

         7.5      ENCUMBRANCE. Create, incur, or allow any Lien on any of its
property, or assign or convey any right to receive income, including the sale of
any Accounts, or permit any of its Subsidiaries to do so, except for Permitted
Liens, or permit any Collateral not to be subject to the first priority security
interest granted herein. The Collateral may also be subject to Permitted Liens.

         7.6      DISTRIBUTION; INVESTMENT. (i) Directly or indirectly acquire
or own any Person, or make any Investment in any Person, other than Permitted
Investments, or permit any of its Subsidiaries to do so; or (ii) pay any
dividends or make any distribution or payment or redeem, retire or purchase any
capital stock, except for (A) repurchases of stock from former employees,
consultants, or directors of Borrower under the terms of applicable repurchase
agreements in an aggregate amount not to exceed ($100,000.00) in the aggregate
in any fiscal year, provided that no Event of Default has occurred, is
continuing or would exist after giving effect to the repurchases, (B)
distributions payable solely in Borrower's capital stock, and (C) Borrower may
convert any of its convertible securities into other securities pursuant to the
terms of such convertible securities or otherwise in exchange therefor.

         7.7      TRANSACTIONS WITH AFFILIATES. Directly Or indirectly enter or
permit any material transaction with any Affiliate, except 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 non-affiliated Person.

         7.8      (INTENTIONALLY DELETED)

         7.9      COMPLIANCE. Become an "investment company" or a company
controlled by an "investment company", under the Investment Company Act of 1940
or undertake as one of its important activities extending credit to purchase or
carry margin stock, or use the proceeds of any Credit Extension for that
purpose; fail to meet the minimum funding requirements of ERISA, permit a
Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail
to comply with the Federal Fair Labor Standards Act or violate any other law or
regulation, if the violation could reasonably be expected to have a material
adverse effect on Borrower's business or operations or would reasonably be
expected to cause a Material Adverse Change, or permit any of its Subsidiaries
to do so.

         8        EVENTS OF DEFAULT

         Any one of the following is an Event of Default:

                                       8
<PAGE>

         8.1      PAYMENT DEFAULT. Borrower fails to pay any of the Obligations
within three (3) Business Days after their due date. During the additional
period the failure to cure the default is not an Event of Default (but no Credit
Extension shall be made during the cure period);

         8.2      COVENANT DEFAULT. Borrower does not perform any obligation in
Section 6 or violates any covenant in Section 7 or does not perform or observe
any other material term, condition or covenant in this Agreement, any Loan
Documents, or in any agreement between Borrower and Bank and as to any default
under a term, condition or covenant that can be cured, has not cured the default
within ten (10) Business Days after it occurs, or if the default. cannot be
cured within ten (10) Business Days or cannot be cured after Borrower's attempts
in the ten (10) Business Day period, and the default may be cured within a
reasonable time, then Borrower shall have additional time, (of not more than
thirty (30) days) to attempt to cure the default. Grace periods provided under
this section shall not apply, among other things, to financial covenants or any
other covenants that are required to be satisfied, completed or tested by a date
certain. During the additional period the failure to cure the default is not an
Event of Default (but no Credit Extensions shall be made during the cure
period);

         8.3      MATERIAL ADVERSE CHANGE. A Material Adverse Change occurs;

         8.4      ATTACHMENT. (i) Any material portion of Borrower's assets is
attached, seized, levied on, or comes into possession of a trustee or receiver
and the attachment, seizure or levy is not removed in ten (10) days; (ii) the
service of process upon the Borrower seeking to attach, by trustee or similar
process any funds of the Borrower on deposit with the Bank; (iii) Borrower is
enjoined, restrained, or prevented by court order from conducting a material
part of its business; (iv) a judgment or other claim becomes a Lien on a
material portion of Borrower's assets; or (v) a notice of lien, levy, or
assessment is filed against any of Borrower's assets by any government agency
and not paid within ten (10) days after Borrower receives notice. These are not
Events of Default if stayed or if a bond is posted pending contest by Borrower
(but no Credit Extensions shall be made during the cure period);

         8.5      INSOLVENCY. (i) Borrower becomes insolvent; (ii) Borrower
begins an Insolvency Proceeding or (iii) an Insolvency Proceeding is begun
against Borrower and not dismissed or stayed within forty-five (45) days (but no
Credit Extensions shall be made before any Insolvency Proceeding is dismissed);

         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 Two Hundred Fifty
Thousand Dollars ($250,000) or that could result in a Material Adverse Change;

         8.7      JUDGMENTS. If a judgment or judgments for the payment of
money in an amount, individually or in the aggregate, of at least Three Hundred
Thousand Dollars ($300,000) shall be rendered against Borrower and is not
covered by insurance and shall remain unsatisfied and unstayed for a period of
fifteen (15) days (provided that no Credit Extensions will be made prior to the
satisfaction or stay of such judgment);

         8.8      MISREPRESENTATIONS. If Borrower or any Person acting for
Borrower makes any material misrepresentation or material misstatement now or
later in any warranty or representation in this Agreement or in any writing
delivered to Bank or to induce Bank to enter this Agreement or any Loan
Document.

         8.9      GUARANTY. (i) Any guaranty of any Obligations terminates or
ceases for any reason to be in full force; or (ii) any Guarantor does not
perform any obligation under any guaranty of the Obligations; or (iii) any
material misrepresentation or material misstatement exists now or later in any
warranty or representation in any guaranty of the Obligations or in any
certificate delivered to Bank in connection with the guaranty; or (iv) any
circumstance described in Section 7, or Sections 8.4, 8.5 or 8.7 occurs to any
Guarantor, or (v) the death, liquidation, winding up, termination of existence,
or insolvency of any Guarantor.

                                       9
<PAGE>

         9        BANK'S RIGHTS AND REMEDIES

         9.1      RIGHTS AND REMEDIES. When an Event of Default occurs and
continues Bank may, without notice or demand, do any or all of the following:

                  (a)      Declare all Obligations immediately due and payable
         (but if an Event of Default described in Section 8.5 occurs all
         Obligations are immediately due and payable without any action by
         Bank);

                  (b)      Stop advancing money or extending credit for
         Borrower's benefit under this Agreement or under any other agreement
         between Borrower and Bank;

                  (c)      Make any payments and do any acts it considers
         necessary and reasonable to protect its security interest in the
         Collateral. Borrower shall assemble the Collateral if Bank requests and
         make it available as Bank designates. Bank may enter premises where the
         Collateral is located, take and maintain possession of any part of the
         Collateral, and pay, purchase, contest, or compromise any Lien which
         appears to be prior or superior to its security interest and pay all
         expenses incurred. Borrower grants Bank a license to enter and occupy
         any of its premises, without charge, to exercise any of Bank's rights
         or remedies;

                  (d)      Apply to the Obligations any (i) balances and
         deposits of Borrower it holds, or (ii) any amount held by Bank owing to
         or for the credit or the account of Borrower;

                  (e)      Ship, reclaim, recover, store, finish, maintain,
         repair, prepare for sale, advertise for sale, and sell the Collateral
         Bank is granted a non-exclusive, royalty-free license or other right to
         use, without charge, Borrower's labels, patents, copyrights, mask
         works, rights of use of any name, trade secrets, trade names,
         trademarks, service marks, and advertising matter, or any similar
         property 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, Borrower's
         rights under all licenses and all franchise agreements inure to Bank's
         benefit; and

                  (f)      Dispose of the Collateral according to the Code.

         9.2      POWER OF ATTORNEY. Borrower hereby irrevocably appoints Bank
as its lawful attorney-in-fact, to be effective upon the occurrence and during
the continuance of an Event of Default, to: (i) sign Borrower's name on any
invoice or bill of lading for any Account or drafts against account debtors;
(ii) make, settle, and adjust all claims under Borrower's insurance policies;
and (iii) transfer the Collateral into the name of Bank or a third party as the
Code permits. Borrower hereby appoints Bank as its lawful attorney-in-fact to
sign Borrower's name on any documents necessary to perfect or continue the
perfection of any security interest regardless of whether an Event of Default
has occurred until all Obligations have been satisfied in full and Bank is under
no further obligation to make Credit Extensions hereunder. Bank's foregoing
appointment as Borrower's attorney in fact, and all of Bank's rights and powers,
coupled with an interest, are irrevocable until all Obligations have been fully
repaid and performed and Bank's obligation to provide Credit Extensions
terminates. Notwithstanding the foregoing, this Section 9.2 and clauses (i) to
(iii) shall only apply as it relates to the Collateral.

         9.3      [INTENTIONALLY DELETED]

         9.4      BANK EXPENSES. Any amounts paid by Bank as provided herein are
Bank Expenses and are immediately due and payable, and shall bear interest at
the then applicable rate and be secured by the Collateral. No payments by Bank
shall be deemed an agreement to make similar payments in the future or Bank's
waiver of any Event of Default.

                                       10
<PAGE>

         9.5      BANK'S LIABILITY FOR COLLATERAL. So long as the Bank complies
with reasonable banking practices regarding the safekeeping of collateral, the
Bank shall not be liable or responsible for: (a) the safekeeping of the
Collateral; (b) any loss or damage to the Collateral; (c) any diminution in the
value of the Collateral; or (d) any act or default of any carrier, warehouseman,
bailee, or other person. Borrower bears all risk of loss, damage or destruction
of the Collateral.

         9.6      REMEDIES CUMULATIVE: Bank's rights and remedies under this
Agreement, the Loan Documents, and all other agreements are cumulative. Bank has
all rights and remedies provided under the Code, by law, or in equity. Bank's
exercise of one right or remedy is not an election, and Bank's waiver of any
Event of Default is not a continuing waiver. Bank's delay is not a waiver,
election, or acquiescence. No waiver hereunder shall be effective unless signed
by Bank and then is only effective for the specific instance and purpose for
which it was given.

         9.7      DEMAND WAIVER. Borrower waives demand, 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 held by Bank on which
Borrower is liable.

         10       NOTICES

         All notices or demands by any party to this Agreement or any other
related agreement must be in writing and be personally delivered or sent by an
overnight delivery service, by certified mail, postage prepaid, return receipt
requested, or by telefacsimile at the addresses listed below. Either Bank or
Borrower may change its notice address by giving the other written notice.

                  If to Borrower:   Nanosys, Inc.
                                    _________________________
                                    _________________________
                                    Attn: ___________________
                                    FAX: ____________________

                  If to Bank:       Silicon Valley Bank
                                    One Newton Executive Park, Suite 200
                                    2221 Washington Street
                                    Newton, Massachusetts 02462
                                    Attn: Ms. Jane Braun
                                    Fax: (617) 969-4395

                  with a copy to:   Riemer & Braunstein LLP
                                    Three Center Plaza
                                    Boston, Massachusetts 02108
                                    Attn: David A. Ephraim, Esquire
                                    FAX: (617) 880-3456

         11       CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER

          Massachusetts law governs the Loan Documents without regard to
principles of conflicts of law. Borrower and Bank each submit to the exclusive
jurisdiction of the State and Federal courts in Massachusetts: provided,
however, that if for any reason Bank cannot avail itself of such courts in the
Commonwealth of Massachusetts, Borrower accepts jurisdiction of the courts and
venue in Santa Clara County, California. NOTWITHSTANDING THE FOREGOING, THE BANK
SHALL HAVE THE RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST THE

                                       11
<PAGE>

BORROWER OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION WHICH THE BANK
DEEMS NECESSARY OR APPROPRIATE IN ORDER TO REALIZE ON THE COLLATERAL OR TO
OTHERWISE ENFORCE THE BANK'S RIGHTS AGAINST THE BORROWER OR ITS PROPERTY.

BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY
CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER
CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS
AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

         12       GENERAL PROVISIONS

         12.1     SUCCESSORS AND ASSIGNS. This Agreement binds and is for the
benefit of the successors and permitted assigns of each party. Borrower may not
assign this Agreement or any rights or Obligations under it without Bank's prior
written consent which may be granted or withheld in Bank's discretion. Bank has
the right, without the consent of or notice to Borrower, to sell, transfer,
negotiate, or grant participation in all or any part of, or any interest in,
Bank's obligations, rights and benefits under this Agreement, the Loan Documents
or any related agreement.

         12.2     INDEMNIFICATION. Borrower hereby indemnifies, defends end
holds the Bank and its officers, employees and agents harmless against: (a) all
obligations, demands, claims, and liabilities asserted by any other party in
connection with the transactions contemplated by the Loan Documents; and (b) all
losses or Bank Expenses incurred, or paid by Bank from, following, or
consequential to transactions between Bank and Borrower (including 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 in this Agreement

         12.4     SEVERABILITY OF PROVISION. Each provision of this Agreement
severable from every other provision in determining the enforecability of any
provision.

         12.5     AMENDMENTS IN WRITING; INTEGRATION. All amendments to this
Agreement must be writing signed by both Bank and Borrower. This Agreement and
the Loan Documents represent the entire agreement about this subject matter, and
supersede prior negotiations or agreements. All prior agreements,
understanding), representations, warranties, and negotiations between the
parties about the subject matter of this Agreement and the Loan Documents merge
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, are an original, and all taken together, constitute
one Agreement.

         12.7     SURVIVAL. All covenants, representations and warranties made
in this Agreement continue in full force while any Obligations remain
outstanding. The obligation of Borrower in Section 12.2 to indemnify Bank shall
survive until the statute of limitations with respect to such claim or cause of
action shall have run.

         12.8     CONFIDENTIALITY. In handling any confidential information,
Bank shall exercise the same degree of care that it exercises for its own
proprietary information, but disclosure of information may be made: (i) to
Bank's subsidiaries or affiliates in connection with their present or
prospective business relations with Borrower; (ii) to prospective transferees or
purchasers of any interest in the Credit Extensions (provided, however, Bank
shall use commercially reasonable efforts in obtaining such prospective
transferee's or purchaser's agreement to the terms of this provision); (iii) as
required by law, regulation, subpoena, or other order, (iv) as required in
connection with Bank's examination or audit; and (v) as Bank considers
appropriate in exercising remedies under this Agreement. Confidential
information does not include information that either: (a) is in the public
domain or in Bank's possession when disclosed

                                       12
<PAGE>

to Bank, or becomes part of the public domain after disclosure to Bank; or (b)
is disclosed to Bank by a third party, if Bank does not know that the third
party is prohibited from disclosing the information.

         13       DEFINITIONS

         13.1     DEFINITIONS.

         "ACCOUNTS" are all existing and later arising accounts, contact rights,
and other obligations owed Borrower in connection with its sale or lease of
goods (including licensing software and other technology) or provision of
services, all credit insurance, guaranties, other security and all merchandise
returned or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing, as such definition may be amended from time to time according to the
Code.

         "AFFILIATE" of a Person is a Person that owns or controls directly or
indirectly the Person, any Person that controls or is controlled by or is under
common control with the Person, and each of that Person's senior executive
officers, directors, partners and, for any Person that is a limited liability
company, that Person's managers and members,

         "BANK EXPENSES" are all audit fees and expenses and reasonable costs or
expenses (including reasonable attorneys' fees and expenses) for preparing,
negotiating, administering, defending and enforcing the Loan Documents
(including appeals or Insolvency Proceedings).

         "BASIC RATE" is, as of the Funding Date the per annum rate of interest
(based on a year of 360 days) equal to the greater of: (i) the Bank's Prime Rate
plus one-quarter of one percent (0.25%), and (ii) five percent (5.00%).

         "BORROWER'S BOOKS" are all Borrower's books and records including
ledgers, records regarding Borrower's assets or liabilities, the Collateral,
business operations or financial condition and all computer programs or discs or
any equipment containing the information.

         "BUSINESS DAY" is any day that is not a Saturday, Sunday or a day on
which the Bank is closed.

         "Closing Date" is the date of this Agreement

         "CODE" is the Uniform Commercial Code as adopted in Massachusetts, as
amended and as may be amended and in effect from time to time.

         "COLLATERAL" is all equipment set forth on Exhibit A and in the Loan
Supplements delivered from time to time under the terms of this Agreement and
financed by the Bank, together with all present and future additions, parts,
accessories, attachments, substitutions, repairs, improvements, embedded
computer programs and supporting information and replacements thereof or
thereto, and any and all proceeds thereof.

         "COMMITTED EQUIPMENT LINE" is an Equipment Advance or Equipment
Advances of up to Two Million Five Hundred Thousand Dollars ($2,500,000.00).

         "COMMITMENT TERMINATION DATE" is March 1, 2003.

         "CONTINGENT OBLIGATION" is, for any Person, any direct or indirect
liability, contingent or not, of that Person for (i) any indebtedness, lease,
dividend, letter of credit or other obligation of another such as an obligation
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse by that Person, or for which that Person is directly or indirectly
liable; (ii) any obligations for undrawn letters of credit for the account of
that Person; and (iii) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; but "Contingent
Obligation" does not include endorsements in the ordinary course of business.

                                       13
<PAGE>

The amount of a Contingent Obligation is the stated or determined amount of the
primary obligation for which the Contingent Obligation is made or, if not
determinable, the maximum reasonably anticipated liability for it determined by
the Person in good faith; but the amount may not exceed the maximum of the
obligations under the guarantee or other support arrangement.

         "CREDIT EXTENSION" is each Equipment Advance or any other extension of
credit by Bank for Borrower's benefit.

         "ELIGIBLE EQUIPMENT" is (a) general purpose computer equipment, office
equipment, test and laboratory equipment, furnishings, subject to the
limitations set forth herein, and (b) Other Equipment that complies with all of
Borrower's representations and warranties to Bank and which is reasonably
acceptable to Bank in all respects.

         "EQUIPMENT" is all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachment in
which Borrower has any interest.

         "EQUIPMENT ADVANCE" is defined in Section 2.1.1(a).

         "ERISA" is the Employment Retirement Income Security Act of 1974, and
its regulations.

         "EVENT OF LOSS" is defined in Section 6.8.

         "FINAL PAYMENT" is a payment (in addition to and not a substitution for
the regular monthly payments of principal plus accrued interest) due on the
Maturity Date for such Equipment Advance equal to the Loan Amount for-such
Equipment Advance multiplied by the Final Payment Percentage.

         "FINAL PAYMENT PERCENTAGE" is, for each Equipment Advance, eight and
one-half of one percent (8.50%).

         "FINANCED EQUIPMENT" is all present and future Eligible Equipment in
which Borrower has any interest, the purchase of which is financed by an
Equipment Advance.

         "FUNDING DATE" is any date on which an Equipment Advance is made to or
on account of Borrower.

         "GAAP" is generally accepted accounting principles.

         "GUARANTOR" is any present or future guarantor of the Obligations.

         "INDEBTEDNESS" is (a) indebtedness for borrowed money or the deferred
price of property or services, such as reimbursement and other obligations for
surety bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations and (d)
Contingent Obligations.

         "INITIAL ADVANCE" is defined in Section 2.1.1.

         "INSOLVENCY PROCEEDING" is any proceeding by or against any Person
under the United States Bankruptcy Code, or any other bankruptcy or insolvency
law, including assignments for the benefit of creditors, compositions,
extensions generally with its Creditors, or proceedings seeking reorganization,
arrangement, or other relief.

         "INTELLECTUAL PROPERTY" is any copyright rights, copyright
applications, copyright registrations and like protections in each work of
authorship and derivative work, whether published or unpublished, now owned or
later acquired; any patents, trademarks, service marks and applications
therefor; any trade secret rights, including any rights to unpatented
inventions, now owned or hereafter acquired.

                                       14
<PAGE>

         "INVENTORY" is 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 famished under a contract of service, of every kind and
description now or later owned by or in the custody or possession, actual or
constructive, of Borrower, including inventory temporarily out of its custody or
possession or in transit and including returns on any accounts or other proceeds
(including insurance proceeds) from the sale or disposition of any of the
foregoing and any documents of title.

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

         "LIEN" is a mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.

         "LOAN AMOUNT" in respect of each Equipment Advance is the original
principal amount of such Equipment Advance.

         "LOAN DOCUMENTS" are, collectively, this Agreement, any note, or notes
or guaranties executed by Borrower or Guarantor, and any other present or future
agreement between Borrower and/or for the benefit of Bank in connection with
this Agreement, all as amended, extended or restated.

         "LOAN SUPPLEMENT" is defined in Section 2.1.1 (b) and attached as
EXHIBIT B.

         "MATERIAL ADVERSE CHANGE" is: (i) A material impairment in the
perfection or priority of Bank's security interest in the Collateral or in the
value of such Collateral; (ii) a material adverse change in the business,
operations, or financial condition of the Borrower, or(iii) a material
impairment of the prospect of repayment of any portion of the Obligations.

         "MATURITY DATE" is, with respect to each Equipment Advance, the last
day of the Repayment Period for such Equipment Advance, or if earlier, the date
of prepayment or the date of acceleration of such Equipment Advance by Bank
following an Event of Default.

         "OBLIGATIONS" are debts, principal, interest, Bank Expenses and other
amounts Borrower owes Bank now or later, including letters of credit, cash
management services, and foreign exchange contracts, if any, end including
interest accruing after Insolvency Proceedings begin and debts, liabilities, or
obligations of Borrower assigned to Bank.

         "ORIGINAL STATED COST" is (i), the Original cost to the Borrower of the
item of new Equipment net of any and all freight, installation, tax, or (ii) the
fair market value assigned to such item of used Equipment by mutual agreement of
Borrower and Bank at the time of making of the Equipment Advance.

         "OTHER EQUIPMENT" is leasehold improvements, transferable software
licenses, and soft costs approved by the Bank, including sales tax, freight and
installation expenses. Unless otherwise agreed to by Bank, not more than 25% of
the proceeds of the Committed Equipment Line shall be used to finance Other
Equipment.

         "PAYMENT DATE" is defined in Section 2.2(a).

         "PERMITTED INVESTMENTS" ARE:

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

                  (b)      (i) marketable direct obligations issued or
         unconditionally guaranteed by the United States or its agency or any
         state maturing within 1 year from its acquisition, (ii) commercial
         paper maturing no more than 1 year after its creation and having the
         highest rating from either Standard & Poor's Corporation or

                                       15
<PAGE>

         Moody's Investors Service, Inc., (iii) Bank's certificates of deposit
         issued maturing no more than 1 year after issue, (iv) any other
         investments administered through the Bank, and (v) Investment
         permitted by Borrower's investment policy, as amended from time to
         time, provided such investment policy (and any such amendment thereto)
         has been approved by Bank;

                  (c)      Investments consisting of the endorsement of
         negotiable instruments for deposit or collection or similar
         transactions in the ordinary course of Borrower's business;

                  (d)      Investments accepted in connection with Transfers
         permitted by Section 7.1;

                  (e)      Investments of Borrower's Subsidiaries in or to other
         Subsidiaries of Borrower or in or to Borrower and Investments by
         Borrower in Borrower's Subsidiaries not to exceed $50,000 in the
         aggregate in any fiscal year;

                  (f)      Investments (including debt obligations) received in
         connection with the bankruptcy or reorganization of customers or
         suppliers and in settlement of delinquent obligations of, and other
         disputes with, customers or suppliers arising in the ordinary course of
         business;

                  (g)      Investments consisting of notes receivable of, or
         prepaid royalties and other credit extensions, to customers and
         suppliers who are not Affiliates, in the ordinary course of business;
         provided that this paragraph (g) shall not apply to Investments of
         Borrower in any Subsidiary of Borrower;

                  (h)      Joint ventures or strategic alliances (in the
         ordinary course of Borrower's business) consisting of the non-exclusive
         licencing of technology, the development of technology or the providing
         of technical support, provided that any cash investments by Borrower do
         not exceed $50,000 in the aggregate in any fiscal year; and

                  (i)      Other Investments permitted pursuant to Section 7.3
         and Transfers permitted by Section 7.1.

         "PERMITTED LIENS" ARE:

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

                  (b)      Liens for taxes, fees, assessments or other
         government charges or levies, either not delinquent or being contested
         in good faith and for which Borrower maintains adequate reserves on its
         Books, if they have no priority over any of Bank's security interests;

                  (c)      Purchase money Liens (i) on Equipment acquired or
         held by Borrower incurred for financing the acquisition of the
         Equipment, or (ii) existing on equipment when acquired, if the Lien is
         confined to the property and improvements and the proceeds of the
         equipment;

                  (d)      Leases or subleases and non-exclusive licenses or
         sublicenses granted in the ordinary course of Borrower's business, if
         the leases, subleases, licenses and sublicenses permit granting Bank a
         security interest;

                  (e)      Liens incurred in the extension, renewal or
         refinancing of the indebtedness secured by Liens described in (a)
         through (d), but any extension, renewal or replacement Lien must be
         limited to the property encumbered by the existing Lien and the
         principal amount of the indebtedness may not increase;

                                       16
<PAGE>

                  (f)      Liens arising from judgments, decrees, or attachments
         in circumstances not constituting an Event of Default under Section 8.4
         or 8.7; and

                  (g)      other Liens pot described above arising in the
         ordinary course of business and not having or not reasonably likely to
         have a material adverse effect on Borrower and its Subsidiaries taken
         as a whole including Liens of customs and revenue authorities arising
         as a matter of law to secure payments of customs duties in connection
         with the importations of goods.

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

         "PRIME RATE" is Bank's most recently announced "prime rate," even if it
is not Bank's lowest rate.

         "REPAYMENT PERIOD" as to each Equipment Advance, is a period of time
equal to thirty-six (36) consecutive months commencing on the first Business Day
of the month following the month in which the Funding Date occurs (or commencing
on the Funding Date if the Funding Date is the first Business Day of the month).

         "RESPONSIBLE OFFICER" is each of the Chief Executive Officer,
President, Chief Financial Officer and Controller of Borrower.

         "SCHEDULE" is any attached schedule of exceptions.

         "SCHEDULED PAYMENT" is defined in Section 2.2(a).

         "SUBORDINATED DEBT" is debt incurred by Borrower subordinated to
Borrower's indebtedness owed to Bank (pursuant to a subordination agreement
entered into between the Bank, the Borrower and (he subordinated creditor), on
terms acceptable to Bank.

         "SUBSIDIARY" of any Person, corporation, partnership, limited liability
company, joint venture, or any other business entity of which more than 50% of
the voting stock or other equity interests is owned or controlled, directly or
indirectly, by the Person or one or more Affiliates of the Person.

         "TOTAL LIABILITIES" is on any day, obligations that should, under GAAP,
be classified as liabilities on Borrower's consolidated balance sheet, including
all Indebtedness, and current portion of Subordinated Debt permitted by Bank to
be paid by Borrower, but excluding all other Subordinated Debt.

         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as a sealed instrument under the laws of the Commonwealth of
Massachusetts as of the date first above written.

                                       17
<PAGE>
       IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as a sealed instrument under laws of the Commonwealth of Massachusetts
as of the day first written above.

BORROWER:

By: /s/ Karen L. Vergura
    -------------------------
Name: KAREN L. VERGURA
    -------------------------
Title: VP, Finance
    -------------------------

BANK:

 By: /s/ Michael J. Harevich
    -------------------------
Name: MICHAEL J. HAREVICH
    -------------------------
Title: SF VP
    -------------------------

SILICON VALLEY BANK:

By: /s/ Michelle Giannini
    -------------------------
Name: MICHELLE GIANNINI
    -------------------------
Title: AVP
    -------------------------

                                       17
<PAGE>

                                    EXHIBIT A

         The Financed Equipment being financed with the Equipment Advance as
listed below from time to time. Upon the funding of such Equipment Advance, this
schedule automatically shall be deemed to be a part of the Collateral.

<TABLE>
<S>                             <C>      <C>       <C>           <C>
Description of Equipment        Make     Model     Serial #      Invoice#
</TABLE>

                                       19
<PAGE>

                                    EXHIBIT B

                        FORM OF LOAN AGREEMENT SUPPLEMENT

                        LOAN AGREEMENT SUPPLEMENT NO. [ ]

         LOAN AGREEMENT SUPPLEMENT No, [ ], dated _______________________, 2002
("Supplement"), to the Loan and Security Agreement dated as of
______________________, 2002 (the "Loan Agreement) by and between the
undersigned NANOSYS, INC. ("Borrower"), and Silicon Valley Bank ("Bank").

         Capitalized terms used herein but not otherwise defined herein are used
with the respective meanings given to such terms in the Loan Agreement.

To secure the prompt payment by Borrower of all amounts from time to time
outstanding under the Loan Agreement, and the performance by Borrower of all the
terms contained in the Loan Agreement, Borrower grants Bank, a first priority
security interest in each item of equipment and other property described in
Exhibit A hereto, which equipment and other property shall be deemed to be
additional Financed Equipment and Collateral. The Loan Agreement is hereby
incorporated by reference herein and is hereby ratified, approved and confirmed.
Exhibit A (Equipment Schedule) and Annex B (Loan Terms Schedule) are attached
hereto. The proceeds of the Loan should be transferred to Borrower's account
with Bank set forth below:

                  Bank Name:        Silicon Valley Bank
                  Account No.:      ____________________________

Borrower hereby certifies that (a) the foregoing information is true and correct
in all material respects and authorizes Bank to endorse in its respective books
and records, the Basic Rate applicable to the Funding Date of the Loan
contemplated in this Loan) Agreement Supplement and the principal amount set
forth in the Loan Terms Schedule; (b) the representations and warranties made by
Borrower in the Loan Agreement are true and correct in all material respects on
the date hereof and shall be true and correct in all material respects on such
Funding Date except that any representation or warranties made as of a specified
earlier date shall be true as of such earlier date. No Event of Default has
occurred and is continuing under the Loan Agreement. This Supplement may be
executed by Borrower and Bank in separate counterparts, each of which when so
executed and delivered shall be an original, but all such counterparts shall
together constitute but one and the same instrument.

         This Supplement is delivered as of this day and year first above
written.

SILICON VALLEY BANK                         NANOSYS, INC.

By:_________________________________        By:_________________________________
   Name:____________________________           Name:____________________________
   Title:___________________________           Title:___________________________

Exhibit A - Description of Financed Equipment
Annex B - Loan Terms Schedule

                                       20
<PAGE>

                              ANNEX A TO EXHIBIT B

         The Financed Equipment being financed with the Equipment Advance which
this Loan Agreement Supplement is being executed is listed below. Upon the
funding of such Equipment Advance, this schedule automatically shall be deemed
to be a part of the Collateral.

<TABLE>
<S>                             <C>        <C>        <C>           <C>
Description of Equipment        Make       Model      Serial #      Invoice#
</TABLE>

                                       21
<PAGE>

                              ANNEX B TO EXHIBIT B

                        LOAN TERMS SCHEDULE #____________

Loan Funding Date: ___________________, 2002

Original Loan Amount: $2,500,000.00

Basic Rate: The Greater of (i) Prime Rate, and one-quarter of one percent (.25%)
and (ii) five percent (5.00%)

Scheduled Payment Dates and Amounts :

         One (1) payment of $_______ due_________________________
         _______ payment of $_______ due monthly in advance from_____through___.
         One (1) payment of $_______ due  _______________________

Final Payment:    An additional amount equal to the Final Payment Percentage
                  multiplied by the Loan Amount, shall be paid on the Maturity
                  Date with respect to such Loan.

<TABLE>
<CAPTION>
Payment No.       Payment Date
<S>               <C>
  1
  2
  3
  4
---
 35
[36]
---
</TABLE>

*/       The amount of each Scheduled Payment shall change as the Loan Amount
         changes.

                                       22
<PAGE>

                                    EXHIBIT C
                             COMPLIANCE CERTIFICATE

TO: SILICON VALLEY BANK

FROM: NANOSYS, INC.

         The undersigned authorized officer of Nanosys, Inc. certifies that
under the terms and conditions of the Loan and Security Agreement between
Borrower and Bank (the "Agreement"), (i) Borrower is in complete compliance for
the period ending___________________________ with all required covenants except
as noted below and (ii) all representations and warranties in the Agreement art
true and correct in all material respects on this date. Attached are the
required documents supporting the certification. The Officer certifies that
these are prepared in accordance with Generally Accepted Accounting Principles
(GAAP) consistently applied from one period to the next except as explained in
an accompanying letter or footnotes. The Officer acknowledges that no borrowings
may be requested at any time or date of determination that Borrower is not in
compliance with any of the terms of the Agreement, and that compliance is
determined not just at the date this certificate is delivered.

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

<TABLE>
<CAPTION>
        REPORTING COVENANT                     REQUIRED             COMPLIES
        ------------------                     --------             --------
<S>                                      <C>                        <C>
Monthly financial statements with CC     Monthly within 30 days      Yes No
Annual (CPA Audited)                     FYE within 120 days         Yes No
</TABLE>

COMMENTS REGARDING EXCEPTIONS: See Attached.
                                                        BANK USE ONLY

Sincerely,                                        Received by: _________________
                                                              AUTHORIZED SIGNER
___________________________
SIGNATURE                                         Date: ________________________

___________________________                       Verified: ____________________
TITLE                                                         AUTHORIZED SIGNER

___________________________                       Date: ________________________
DATE

                                       23

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