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                                  EXHIBIT 10.1

                                   ENCAD, INC.

               CREDIT AGREEMENT BETWEEN SANWA BANK AND THE COMPANY

                                CREDIT AGREEMENT

                                (LINE OF CREDIT)

         This Agreement (the "Agreement") is made and entered into as of
April 26, 2000 by and between SANWA BANK CALIFORNIA (the "Bank") and ENCAD,
INC. (the "Borrower"), on the terms and conditions that follow:

                                     SECTION

                                        1

                                   DEFINITIONS

1.1      CERTAIN DEFINED TERMS: Unless elsewhere defined in this Agreement, the
         following terms shall have the following meanings (such meanings to be
         generally applicable to the singular and plural forms of the terms
         defined):

         1.1.1    "ACCEPTANCE FACILITY": shall mean the credit facility
                  described as such in Section 2.

         1.1.2    "ADVANCE": shall mean an advance to the Borrower under the
                  credit facility (ies) described in Section 2.

         1.1.3    "BUSINESS DAY": shall mean a day, other than a Saturday or
                  Sunday, on which commercial banks are open for business in
                  California.

         1.1.4    "CLOSE-OUT DATE": shall mean the Business Day on which the
                  Bank closes out and liquidates an FX Transaction.

         1.1.5    "CLOSING VALUE": has the meaning given to it in Section 8.6(i)
                  hereof.

         1.1.6    "CLOSING GAIN" AND "CLOSING LOSS": shall mean the amount
                  determined in accordance with Section 8.6(ii) hereof.

         1.1.7    "COLLATERAL": shall mean the property described in Section 3,
                  together with any other personal or real property in which the
                  Bank may be granted a lien or security interest to secure
                  payment of the Obligations.

         1.1.8    "COMPENSATING BALANCE REQUIREMENT": shall have the meaning
                  provided in Section 2.2 hereof.

         1.1.9    "CREDIT PERCENTAGE": shall mean 15%.

         1.1.10   "CURRENT LIABILITIES": shall mean current liabilities as
                  determined in accordance with generally accepted accounting
                  principles, including any negative cash balance on the

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                  Borrower's financial statement and Indebtedness for borrowed
                  money under lines of credit with the Bank used by the Borrower
                  for working capital purposes.

         1.1.11   "DEBT": shall mean all liabilities of the Borrower less
                  Subordinated Debt, if any.

         1.1.12   "EFFECTIVE TANGIBLE NET WORTH": shall mean the Borrower's
                  stated net worth plus Subordinated Debt but less all
                  intangible assets of the Borrower (i.e., goodwill, trademarks,
                  patents, copyrights, organization expense, and similar
                  intangible items including, but not limited to, investments in
                  and all amounts due from affiliates, officers or employees).

         1.1.13   "ENVIRONMENTAL CLAIMS": shall mean all claims, however
                  asserted, by any governmental authority or other person
                  alleging potential liability or responsibility for violation
                  of any Environmental Law or for release or injury to the
                  environment or threat to public health, personal injury
                  (including sickness, disease or death), property damage,
                  natural resources damage, or otherwise alleging liability or
                  responsibility for damages (punitive or otherwise), cleanup,
                  removal, remedial or response costs, restitution, civil or
                  criminal penalties, injunctive relief, or other type of
                  relief, resulting from or based upon (a) the presence,
                  placement, discharge, emission or release (including
                  intentional and unintentional, negligent and non-negligent,
                  sudden or non-sudden, accidental or non-accidental placement,
                  spills, leaks, discharges, emissions or releases) of any
                  Hazardous Material at, in, or from property, whether or not
                  owned by the Borrower, or (b) any other circumstances forming
                  the basis of any violation, or alleged violation, of any
                  Environmental Law.

         1.1.14   "ENVIRONMENTAL LAWS": shall mean all federal, state or local
                  laws, statutes, common law duties, rules, regulations,
                  ordinances and codes, together with all administrative orders,
                  directed duties, requests, licenses, authorizations and
                  permits of, and agreements with, any governmental authorities,
                  in each case relating to environmental, health, safety and
                  land use matters; including the Comprehensive Environmental
                  Response, Compensation and Liability Act of 1980 ("CERCLA"),
                  the Clean Air Act, the Federal Water Pollution Control Act of
                  1972, the Solid Waste Disposal Act, the Federal Resource
                  Conservation and Recovery Act, the Toxic Substances Control
                  Act, the Emergency Planning and Community Right-to-Know Act,
                  the California Hazardous Waste Control Law, the California
                  Solid Waste Management, Resource, Recovery and Recycling Act,
                  the California Water Code and the California Health and Safety
                  Code.

         1.1.15   "ENVIRONMENTAL PERMITS": shall have the meaning provided in
                  Section 5.11 hereof.

         1.1.16   "ERISA": shall mean the Employee Retirement Income Security
                  Act of 1974, as amended from time to time, including (unless
                  the context otherwise requires) any rules or regulations
                  promulgated thereunder.

         1.1.17   "EVENT OF DEFAULT": shall have the meaning set forth in
                  Section 7.

         1.1.18   "EXPIRATION DATE": shall mean April 15, 2002, or the date of
                  termination of the Bank's commitment to lend under this
                  Agreement pursuant to Section 8, whichever shall occur first.

         1.1.19   "FOREIGN CURRENCY": shall mean any legally traded currency
                  other than US dollars and which may be transferred by
                  paperless wire transfer or cash and in which the Bank
                  regularly trades.

         1.1.20   "FOREIGN EXCHANGE FACILITY": shall mean the credit facility
                  described as such in Section 2.

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         1.1.21   "FX RISK LIABILITY": shall mean the product of (a) the Credit
                  Percentage, times (b) the aggregate of the Notional Values of
                  all FX Transactions outstanding, net of any Offsetting
                  Transactions.

         1.1.22   "FX LIMIT":  shall mean $1,500,000.00.

         1.1.23   "FX TRANSACTION": shall mean any transaction between the Bank
                  and the Borrower pursuant to which the Bank has agreed to sell
                  to or to purchase from the Borrower a Foreign Currency of an
                  agreed amount at an agreed price in US dollars or such other
                  agreed upon Foreign Currency, deliverable and payable on an
                  agreed date.

         1.1.24   "HAZARDOUS MATERIALS": shall mean all those substances which
                  are regulated by, or which may form the basis of liability
                  under, any Environmental Law, including all substances
                  identified under any Environmental Law as a pollutant,
                  contaminant, hazardous waste, hazardous constituent, special
                  waste, hazardous substance, hazardous material, or toxic
                  substance, or petroleum or petroleum derived substance or
                  waste.

         1.1.25   "INDEBTEDNESS": shall mean, with respect to the Borrower, (i)
                  all indebtedness for borrowed money or for the deferred
                  purchase price of property or services in respect of which the
                  Borrower is liable, contingently or otherwise, as obligor,
                  guarantor or otherwise, or in respect of which the Borrower
                  otherwise assures a creditor against loss and (ii) obligations
                  under leases which shall have been or should be, in accordance
                  with generally accepted accounting principles, reported as
                  capital leases in respect of which the Borrower is liable,
                  contingently or otherwise, or in respect of which the Borrower
                  otherwise assures a creditor against loss.

         1.1.26   "LETTER OF CREDIT FACILITY": shall mean the credit facility
                  described as such in Section 2.

         1.1.27   "LIBOR ADVANCE": shall have the respective meaning as it is
                  defined for each facility under Section 2, hereof.

         1.1.28   "LIBOR INTEREST PERIOD": shall have the respective meaning as
                  it is defined for each facility under Section 2, hereof.

         1.1.29   "LIBOR RATE": shall have the respective meaning as it is
                  defined for each facility under Section 2, hereof.

         1.1.30   "LINE ACCOUNT": shall have the meaning provided in Section 2.6
                  hereof.

         1.1.31   "LINE OF CREDIT": shall mean the credit facility described as
                  such in Section 2.

         1.1.32   "NOTIONAL VALUE": shall mean the US Dollar equivalent of the
                  price at which the Bank agreed to purchase or sell to the
                  Borrower a Foreign Currency.

         1.1.33   "OBLIGATIONS": shall mean all amounts owing by the Borrower to
                  the Bank pursuant to this Agreement including, but not limited
                  to, the unpaid principal amount of Advances.

         1.1.34   "OFFSETTING TRANSACTION": shall mean a FX Transaction to
                  purchase a Foreign Currency and a FX Transaction to sell the
                  same Foreign Currency, each with the same Settlement Date and
                  designated as an Offsetting Transaction at the time of
                  entering into the FX Transaction.

         1.1.35   "ORDINARY COURSE OF BUSINESS": shall mean, with respect to any
                  transaction involving the Borrower or any of its subsidiaries
                  or affiliates, the ordinary course of the Borrower's business,
                  as conducted by the Borrower in accordance with past practice
                  and undertaken

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                  by the Borrower in good faith and not for the purpose of
                  evading any covenant or restriction in this Agreement or in
                  any other document, instrument or agreement executed in
                  connection herewith.

         1.1.36   "PERMITTED LIENS": shall mean: (i) liens and security
                  interests securing indebtedness owed by the Borrower to the
                  Bank; (ii) liens for taxes, assessments or similar charges not
                  yet due; (iii) liens of materialmen, mechanics, warehousemen,
                  or carriers or other like liens arising in the Ordinary Course
                  of Business and securing obligations which are not yet
                  delinquent; (iv) purchase money liens or purchase money
                  security interests upon or in any property acquired or held by
                  the Borrower in the Ordinary Course of Business to secure
                  Indebtedness outstanding on the date hereof or permitted to be
                  incurred herein; (v) liens and security interests which, as of
                  the date hereof, have been disclosed to and approved by the
                  Bank in writing; and (vi) those liens and security interests
                  which in the aggregate constitute an immaterial and
                  insignificant monetary amount with respect to the net value of
                  the Borrower's assets.

         1.1.37   "REFERENCE RATE": shall mean an index for a variable interest
                  rate which is quoted, published or announced by Bank as its
                  reference rate and as to which loans may be made by Bank at,
                  above or below such rate.

         1.1.38   "SETTLEMENT DATE": shall mean the Business Day on which the
                  Borrower has agreed to (a) deliver the required amount of
                  Foreign Currency, or (b) pay in US dollars the agreed upon
                  purchase price of the Foreign Currency.

         1.1.39   "SUBORDINATED DEBT": shall mean such liabilities of the
                  Borrower which have been subordinated to those owed to the
                  Bank in a manner acceptable to the Bank.

         1.1.40   "VARIABLE RATE ADVANCE": shall have the respective meaning as
                  it is defined for each facility under Section 2, hereof.

         1.1.41   "VARIABLE RATE": shall have the respective meaning as it is
                  defined for each facility under Section 2, hereof.

1.2      ACCOUNTING TERMS: All references to financial statements, assets,
         liabilities, and similar accounting items not specifically defined
         herein shall mean such financial statements or such items prepared or
         determined in accordance with generally accepted accounting principles
         consistently applied and, except where otherwise specified, all
         financial data submitted pursuant to this Agreement shall be prepared
         in accordance with such principles.

1.3      OTHER TERMS: Other terms not otherwise defined shall have the meanings
         attributed to such terms in the California Uniform Commercial Code.

                                     SECTION

                                        2

                                CREDIT FACILITIES

2.1      THE LINE OF CREDIT

         2.1.1    THE LINE OF CREDIT: On terms and conditions as set forth
                  herein, the Bank agrees to make Advances to the Borrower from
                  time to time from the date hereof to the Expiration Date,
                  provided the aggregate amount of such Advances outstanding at
                  any time does not exceed $15,000,000.00 (the "Line of
                  Credit"). Within the foregoing limits, the Borrower may
                  borrow, partially or wholly prepay, and reborrow under this
                  Section 2.1. Proceeds of the Line of

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                  Credit shall be used for working capital and general
                  corporate purposes.

         2.1.2    MAKING LINE ADVANCES: Each Advance shall be conclusively
                  deemed to have been made at the request of and for the benefit
                  of the Borrower (i) when credited to any deposit account of
                  the Borrower maintained with the Bank or (ii) when paid in
                  accordance with the Borrower's written instructions. Subject
                  to the requirements of Section 4 and provided such request is
                  made in a timely manner as provided in Section 2.1.5 below,
                  Advances shall be made by the Bank under the Line of Credit.

         2.1.3    REPAYMENT: On the Expiration Date, the Borrower hereby
                  promises and agrees to pay to the Bank in full the aggregate
                  unpaid principal amount of all Advances then outstanding,
                  together with all accrued and unpaid interest thereon.

         2.1.4    INTEREST ON ADVANCES: Interest shall accrue from the date of
                  each Advance under the Line of Credit at one of the following
                  rates, as quoted by the Bank and as elected by the Borrower
                  pursuant to Subsection (i) or Subsection (ii) below:

                  (i)      VARIABLE RATE ADVANCES: A variable rate per annum
                           equivalent to the Reference Rate (the "Variable
                           Rate"). Interest shall be adjusted concurrently with
                           any change in the Reference Rate. An Advance based
                           upon the Variable Rate is hereinafter referred to as
                           a "Variable Rate Advance".

                  (ii)     LIBOR ADVANCES: A fixed rate quoted by the Bank for
                           1, 2, 3, or 6 months or for such other period of time
                           that the Bank may quote and offer (provided that any
                           such period of time does not extend beyond the
                           Expiration Date) (the "LIBOR Interest Period") for
                           Advances in the minimum amount of $500,000.00. Such
                           interest rate shall be a percentage approximately
                           equivalent to 1.25% in excess of the Bank's LIBOR
                           Rate which is that rate determined by the Bank's
                           Treasury Desk as being the arithmetic mean (rounded
                           upwards, if necessary, to the nearest whole multiple
                           of one-sixteenth of one percent (1/16%)) of the U. S.
                           dollar London Interbank Offered Rates for such period
                           appearing on page 3750 (or such other page as may
                           replace page 3750) of the Telerate screen at or about
                           11:00 a.m. (London time) on the second Business Day
                           prior to the first days of such period (adjusted for
                           any and all assessments, surcharges and reserve
                           requirements) (the "LIBOR Rate"). An Advance based
                           upon the LIBOR Rate is hereinafter referred to as a
                           "LIBOR Advance".

                           Interest on any Advance shall be computed on the
                           basis of 360 days per year, but charged on the actual
                           number of days elapsed.

                           The Borrower hereby promises and agrees to pay
                           interest in arrears on Variable Rate Advances on the
                           last calendar day of each month.

                           Interest on any LIBOR Advance with a LIBOR Interest
                           Period of 3 months or less shall be paid on the last
                           day of the LIBOR Interest Period. The Borrower
                           further promises and agrees to pay the Bank interest
                           on any LIBOR Advance with a LIBOR Interest Period in
                           excess of 3 months on a quarterly basis (i.e., on the
                           last day of each 3 month period occurring in such
                           LIBOR Interest Period) and on the last day of the
                           LIBOR Interest Period.

                           If interest is not paid as and when it is due, it
                           shall be added to the principal, become and be
                           treated as a part thereof, and shall thereafter bear
                           like interest.

         2.1.5    NOTICE OF BORROWING: Upon written or telephonic notice which
                  shall be received by the Bank at or before 2:00 p.m.
                  (California time) on a Business Day, the Borrower may borrow

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                  under the Line of Credit by requesting:

                  (i)      A Variable Rate Advance. A Variable Rate Advance may
                           be made on the day notice is received by the Bank;
                           provided, however, that if the Bank shall not have
                           received notice at or before 2:00 p.m. on the day
                           such Advance is requested to be made, such Variable
                           Rate Advance may, at the Bank's option, be made on
                           the next Business Day.

                  (ii)     A LIBOR Advance. Notice of any LIBOR Advance shall be
                           received by the Bank no later than two Business Days
                           prior to the day (which shall be a Business Day) on
                           which the Borrower requests such LIBOR Advance to be
                           made.

         2.1.6    NOTICE OF ELECTION TO ADJUST INTEREST RATE: The Borrower may
                  elect:

                  (i)      That interest on a Variable Rate Advance shall be
                           adjusted to accrue at the LIBOR Rate; provided,
                           however, that such notice shall be received by the
                           Bank no later than two Business Days prior to the day
                           (which shall be a Business Day) on which the Borrower
                           requests that interest be adjusted to accrue at the
                           LIBOR Rate.

                  (ii)     That interest on a LIBOR Advance shall continue to
                           accrue at a newly quoted LIBOR Rate or shall be
                           adjusted to commence to accrue at the Variable Rate;
                           provided, however, that such notice shall be received
                           by the Bank no later than two Business Days prior to
                           the last day of the LIBOR Interest Period pertaining
                           to such LIBOR Advance. If the Bank shall not have
                           received notice (as prescribed herein) of the
                           Borrower's election that interest on any LIBOR
                           Advance shall continue to accrue at the newly quoted
                           LIBOR Rate, the Borrower shall be deemed to have
                           elected that interest thereon shall be adjusted to
                           accrue at the Variable Rate upon the expiration of
                           the LIBOR Interest Period pertaining to such Advance.

         2.1.7    PREPAYMENT: The Borrower may prepay any Advance in whole or in
                  part, at any time and without penalty, provided, however,
                  that: (i) any partial prepayment shall first be applied, at
                  the Bank's option, to accrued and unpaid interest and next to
                  the outstanding principal balance; and (ii) during any period
                  of time in which interest is accruing on any Advance on the
                  basis of the LIBOR Rate, no prepayment shall be made except on
                  a day which is the last day of the LIBOR Interest Period
                  pertaining thereto. If the whole or any part of any LIBOR
                  Advance is prepaid by reason of acceleration or otherwise, the
                  Borrower shall, upon the Bank's request, promptly pay to and
                  indemnify the Bank for all costs, expenses and any loss
                  (including loss of future interest income) actually incurred
                  by the Bank and any loss (including loss of profit resulting
                  from the re-employment of funds) deemed sustained by the Bank
                  as a consequence of such prepayment.

                  The Bank shall be entitled to fund all or any portion of its
                  Advances in any manner it may determine in its sole
                  discretion, but all calculations and transactions hereunder
                  shall be conducted as though the Bank actually funded all
                  Advances through the purchase of dollar deposits bearing
                  interest at the same rate as U.S. Treasury securities in the
                  amount of the relevant Advance and in maturities corresponding
                  to the date of such purchase to the Expiration Date hereunder.

         2.1.8    INDEMNIFICATION FOR LIBOR RATE COSTS: During any period of
                  time in which interest on any Advance is accruing on the basis
                  of the LIBOR Rate, the Borrower shall, upon the Bank's
                  request, promptly pay to and reimburse the Bank for all costs
                  incurred and payments made by the Bank by reason of any future
                  assessment, reserve, deposit or similar requirement or any
                  surcharge, tax or fee imposed upon the Bank or as a result of
                  the Bank's compliance with any directive or requirement of any
                  regulatory authority pertaining or relating to funds used by
                  the Bank in quoting and determining the LIBOR Rate.

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         2.1.9    CONVERSION FROM LIBOR RATE TO VARIABLE RATE: In the event that
                  the Bank shall at any time determine that the accrual of
                  interest on the basis of the LIBOR Rate (i) is infeasible
                  because the Bank is unable to determine the LIBOR Rate due to
                  the unavailability of U.S. dollar deposits, contracts or
                  certificates of deposit in an amount approximately equal to
                  the amount of the relevant Advance and for a period of time
                  approximately equal to relevant LIBOR Interest Period or (ii)
                  is or has become unlawful or infeasible by reason of the
                  Bank's compliance with any new law, rule, regulation,
                  guideline or order, or any new interpretation of any present
                  law, rule, regulation, guideline or order, then the Bank shall
                  give telephonic notice thereof (confirmed in writing) to the
                  Borrower, in which event any Advance bearing interest at the
                  LIBOR Rate shall be deemed to be a Variable Rate Advance and
                  interest shall thereupon immediately accrue at the Variable
                  Rate.

         2.1.10   COMMITMENT FEE: The Borrower agrees to pay to the Bank a
                  commitment fee on the unused portion of the Line of Credit of
                  .125% per annum, payable quarterly in arrears, commencing June
                  30, 2000, and computed on a year of 360 days for actual days
                  elapsed.

2.2      COMPENSATING BALANCES:

         2.2.1    The Borrower covenants and agrees that, during the term hereof
                  and so long thereafter as the Borrower is indebted to the Bank
                  hereunder, the Borrower shall, unless the Bank otherwise
                  consents in writing, maintain demand deposits with the Bank
                  with net free compensating balances in an amount equivalent to
                  not less than $1,000,000.00 on an average daily basis during
                  each month (the "Compensating Balance Requirement"). If the
                  amount of average daily balances actually maintained by the
                  Borrower during any month shall be less than the Compensating
                  Balance Requirement, the Borrower shall pay to the Bank, on
                  the first day following the last day of each month, a fee of
                  $5,600.00.

                  For purposes hereof, the term "net free compensating balances"
                  mean balances excluding deposits for which funds have not yet
                  been collected by the Bank and less all fees and all service
                  and other charges.

     2.3     LETTER OF CREDIT SUB-FACILITY

         2.3.1    LETTER OF CREDIT SUB-FACILITY: The Bank agrees to issue
                  commercial and/or standby letters of credit (each a "Letter of
                  Credit") on behalf of the Borrower of up to $5,000,000.00. At
                  no time, however, shall the total principal amount of all
                  Advances outstanding under the Line of Credit Facility,
                  together with the total face amount of all Letters of Credit
                  outstanding, less any partial draws paid by the Bank, exceed
                  the Line of Credit.

                  (i)      Upon the Bank's request, the Borrower shall promptly
                           pay to the Bank issuance fees and such other fees,
                           commissions, costs and any out-of-pocket expenses
                           charged or incurred by the Bank with respect to any
                           Letter of Credit.

                  (ii)     The commitment by the Bank to issue Letters of Credit
                           shall, unless earlier terminated in accordance with
                           the terms of the Agreement, automatically terminate
                           on the Expiration Date of the Line of Credit and no
                           Standby Letter of Credit shall expire on a date which
                           is 365 days after the Expiration Date and commercial
                           Letters of Credit shall expire on the Expiration
                           Date.

                  (iii)    Each Letter of Credit shall be in form and substance
                           satisfactory to the Bank and in favor of
                           beneficiaries satisfactory to the Bank, provided that
                           the Bank may refuse to issue a Letter of Credit due
                           to the nature of the transaction or its terms or in
                           connection with any transaction where the Bank, due
                           to the beneficiary or the

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                           nationality or residence of the beneficiary, would be
                           prohibited by any applicable law, regulation or order
                           from issuing such Letter of Credit.

                  (iv)     Prior to the issuance of each Letter of Credit, but
                           in no event later than 10:00 a.m. (California time)
                           on the day such Letter of Credit is to be issued
                           (which shall be a Business Day), the Borrower shall
                           deliver to the Bank a duly executed form of the
                           Bank's standard form of application for issuance of a
                           Letter of Credit with proper insertions.

                  (v)      The Borrower shall, upon the Bank's request, promptly
                           pay to and reimburse the Bank for all costs incurred
                           and payments made by the Bank by reason of any future
                           assessment, reserve, deposit or similar requirement
                           or any surcharge, tax or fee imposed upon the Bank or
                           as a result of the Bank's compliance with any
                           directive or requirement of any regulatory authority
                           pertaining or relating to any Letter of Credit.

         In the event that the Borrower fails to pay any drawing under any
         Letter of Credit or the balances in the depository account or accounts
         maintained by the Borrower with Bank are insufficient to pay such
         drawing, without limiting the rights of Bank hereunder or waiving any
         Event of Default caused thereby, Bank may, and Borrower hereby
         authorizes Bank to create an Advance bearing interest at the rate or
         rates provided in Section 9.2 hereof to pay such drawing.

     2.4     ACCEPTANCE SUB-FACILITY

         2.4.1    ACCEPTANCE SUB-FACILITY: The Borrower may from time to time
                  request the Bank to accept one or more drafts drawn on the
                  Bank for the account of the Borrower (each an "Acceptance") of
                  up to 5,000,000.00. At no time, however, shall the total
                  principal balance of all Acceptances outstanding, together
                  with the total face amount of all outstanding Letters of
                  Credit less any partial draws paid by the Bank, exceed the sum
                  of $10,000,000.00 and, together with the total principal
                  balance of all Advances outstanding under the Letter of Credit
                  Facility, exceed the Line of Credit.

                  (i)      REQUESTS FOR ACCEPTANCES. Each request for an
                           Acceptance shall be made in writing or by telephone
                           confirmed in writing (each a "Request"), shall be
                           irrevocable, and shall involve one or more drafts as
                           described below. Each Request shall be delivered or
                           communicated to the Bank no later than 10:00 a.m.
                           (California time) on the day (which shall be a
                           business day) on which the creation of an Acceptance
                           is requested. By making any such Request, the
                           Borrower agrees that all matters relating to each
                           such Acceptance shall be governed hereby and the
                           Borrower restates all warranties and representations
                           made by the Borrower herein as if made on the date of
                           the Request and on the date that the Acceptance is
                           created.

                  (ii)     ACCEPTANCES. Each Acceptance shall be created upon a
                           Request by the Bank's acceptance of a draft in form
                           and substance satisfactory to the Bank (each a
                           "Draft"). Each Draft shall: (i) be drawn on the Bank
                           by or on behalf or for the account of the Borrower in
                           accordance with the provisions hereof; (ii) have a
                           minimum face amount of $100,000.00; (iii) be for the
                           purpose of financing only those transactions
                           permitted by Subsection 7 of Section 13 of the
                           Federal Reserve Act, as amended from time to time;
                           and (iv) mature not more than 90 days after the date
                           thereof (provided that, if such date is not a
                           Business Day, the maturity shall be extended to the
                           next succeeding Business Day). However, no Draft
                           shall mature after the Expiration Date. The Borrower
                           hereby warrants that any Acceptances relating to the
                           importation or exportation of goods or relating to
                           the domestic shipment of goods shall: (i) not have a
                           term in excess of the period of time which is

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                           usual and reasonably necessary to finance
                           transactions of the character of the underlying
                           import or export transaction or the underlying
                           domestic shipment; (ii) not, together with all
                           other Acceptances relating to any such shipment,
                           have an aggregate face amount exceeding the CIF
                           value of such shipment; and (iii) not be created
                           more than 30 days after the date of shipment of
                           goods to which such Acceptance relates.
                           Acceptances relating to the storage of goods shall
                           be subject to the further conditions that: (i) at
                           the time such Acceptance is created, the goods
                           being stored are covered by a warehouse receipt
                           issued by a bonded warehouse independent of the
                           Borrower and acceptable to the Bank; (ii) the
                           goods covered by the warehouse receipt are readily
                           marketable staples (as such term is defined in
                           Section 13 of the Federal Reserve Act by the Board
                           of Governors of the Federal Reserve System or by
                           Federal Reserve Bulletins) held pending a
                           reasonably immediate sale, distribution or
                           shipment; and (iii) the face amount of the
                           Acceptance relating to such goods does not exceed
                           the fair market value of the goods.

                  (iii)    ACCEPTANCE LIABILITY. The Borrower is obligated, and
                           hereby unconditionally promises and agrees, to pay
                           the Bank, on the maturity date of each Acceptance or
                           on such earlier date as may be required pursuant
                           hereto, the face amount of each such Acceptance.

                  (iv)     ACCEPTANCE COMMISSIONS. The Borrower agrees, upon
                           acceptance by the Bank of each Draft and as a
                           condition precedent to such Acceptance, to pay to the
                           Bank a fee (the "Commission") in an amount equal to
                           .25% per annum of the face amount of each Acceptance
                           calculated on the basis of 360 days per year for the
                           actual number of days (including the first day but
                           excluding the last day) during the period which is
                           for the term of the Draft.

                  (v)      DISCOUNT OF ACCEPTANCES. The Bank agrees to discount
                           any Acceptance that is created and presented to it
                           for discount at a rate quoted by the Bank at the time
                           the Acceptance is presented to the Bank for discount
                           and for a similar dollar amount and a similar
                           maturity as the Draft being presented to the Bank by
                           the Borrower for acceptance (the "Acceptance Discount
                           Rate"). On the date any such Acceptance is presented
                           for discount, the Bank shall: (i) cause the aggregate
                           discounted amount (less any Commission then payable
                           by the Borrower to the Bank hereunder) to be made
                           available to the Borrower by crediting such amount to
                           the Borrower's demand deposit account maintained with
                           the Bank, unless the Acceptance is created by a
                           beneficiary under a Letter of Credit, in which event
                           the Bank will cause the amount to be paid to such
                           beneficiary and will notify the Borrower as to the
                           creation of the Acceptance; and (ii) advise the
                           Borrower of the Acceptance Discount Rate at which the
                           Bank discounted such Acceptance. The Bank shall have
                           the right, in its sole discretion, to sell,
                           rediscount, hold or otherwise deal with or dispose of
                           any such Acceptance discounted by it.

                  (vi)     ACCEPTANCE COLLATERAL. Each Draft accepted by the
                           Bank shall be secured by a security interest in the
                           goods (as defined in the California Uniform
                           Commercial Code) involved in the transaction out of
                           which the Acceptance arose to the extent that such a
                           security interest is either required by the Bank or
                           in order that the relevant Acceptance conform to the
                           requirements of Section 13 of the Federal Reserve
                           Act.

                  (vii)    FUTURE ASSESSMENTS. The Borrower shall, upon the
                           Bank's request, promptly pay to and reimburse the
                           Bank for all costs incurred and payments made by the
                           Bank by reason of any future assessment, reserve,
                           deposit or similar requirement or any surcharge, tax
                           or fee imposed upon the Bank or as a result of the
                           Bank's

                                       9
<PAGE>

                           compliance with any directive or requirement of
                           any regulatory authority pertaining or relating to
                           any Acceptance.

    2.5      FOREIGN EXCHANGE SUB-FACILITY

         2.5.1    FOREIGN EXCHANGE SUB-FACILITY: The Bank agrees to enter into
                  FX Transactions with the Borrower, at the Borrower's request
                  therefor made prior to the Expiration Date, provided however,
                  that at no time shall the aggregate FX Risk Liability of the
                  Borrower exceed the FX Limit, and provided further, at no time
                  shall the aggregate FX Risk Liability combined with the total
                  face amount of all Letters of Credit outstanding, less any
                  partial draws paid by the Bank, together with the total
                  principal balance of all Acceptances outstanding, together
                  with the total principal amount of all outstanding Advances,
                  exceed the Line of Credit. Each FX Transaction shall be used
                  to hedge the Borrower's foreign exchange exposure.

                  (i)      REQUESTS. Each request for a FX Transaction shall be
                           made by telephone to the Bank's Treasury Department
                           ("Request"), shall specify the Foreign Currency to be
                           purchased or sold, the amount of such Foreign
                           Currency and the Settlement Date. Each Request shall
                           be communicated to the Bank no later than 3:00 p.m.
                           California time on the Business Day on which the FX
                           Transaction is requested.

                  (ii)     TENOR. No FX Transaction shall have a Settlement Date
                           which is more than 365 days after the date of entry
                           into such FX Transaction, and provided further, no FX
                           Transaction shall expire on a date which is more than
                           375 days after the Expiration Date.

                  (iii)    AVAILABILITY. Bank may refuse to enter into a FX
                           Transaction with the Borrower where the Bank, at its
                           sole discretion, determines that (1) the requested
                           Foreign Currency is unavailable, or (2) the Bank is
                           not then dealing in the requested Foreign Currency,
                           or (3) the Bank would be prohibited by any applicable
                           law, rule, regulation or order from purchasing such
                           Foreign Currency.

                  (iv)     PAYMENT. Payment is due on the Settlement Date of the
                           relevant FX Transaction. The Bank is hereby
                           authorized by the Borrower to charge the full
                           settlement price of any FX Transaction against the
                           depository account or accounts maintained by the
                           Borrower with the Bank on the Settlement Date. In the
                           event that the Borrower fails to pay the settlement
                           price of any FX Transaction on the Settlement Date or
                           the balances in the depository account or accounts
                           maintained with Bank are insufficient to pay the
                           settlement price, without limiting the rights of Bank
                           hereunder or waiving any Event of Default caused
                           thereby, Bank may, and Borrower hereby authorizes
                           Bank to, create an Advance bearing interest at the
                           Variable Rate to pay the settlement price on the
                           Settlement Date.

                  (v)      INCREASED COSTS. Borrower shall promptly pay to and
                           reimburse the Bank for all costs incurred and
                           payments made by the Bank by reason of any
                           assessment, reserve, deposit, capital maintenance or
                           similar requirement or any surcharge, tax or fee
                           imposed upon the Bank or as a result of the Bank's
                           compliance with any directive or requirement of any
                           regulatory authority pertaining or relating to any FX
                           Transaction.

                  (vi)     IMPOSSIBILITY OF PERFORMANCE. In the event that the
                           Borrower or the Bank cannot perform under a FX
                           Transaction due to force majeure or an act of State
                           or it becomes unlawful or impossible to perform, all
                           in the good faith judgement of the Borrower or the
                           Bank, then upon notice to the other party, the
                           Borrower or the Bank may require the close-out and
                           liquidation of the affected FX Transaction in
                           accordance with the provisions of this Agreement.

                                       10
<PAGE>

2.6      LINE ACCOUNT: The Bank shall maintain on its books a record of account
         in which the Bank shall make entries for each Advance and such other
         debits and credits as shall be appropriate in connection with the
         credit facilities granted hereunder (the "Line Account"). The Bank
         shall provide the Borrower with a statement of the Borrower's Line
         Account, which statement shall be considered to be correct and
         conclusively binding on the Borrower unless the Borrower notifies the
         Bank to the contrary within 30 days after the Borrower's receipt of any
         such statement which it deems to be incorrect.

2.7      PAYMENTS: If any payment required to be made by the Borrower hereunder
         becomes due and payable on a day other than a Business Day, the due
         date thereof shall be extended to the next succeeding Business Day and
         interest thereon shall be payable at the then applicable rate during
         such extension. All payments required to be made hereunder shall be
         made to the office of the Bank designated for the receipt of notices
         herein or such other office as Bank shall from time to time designate.

2.8      LATE PAYMENT: In addition to any other rights the Bank may have
         hereunder, if any payment of principal or interest or any portion
         thereof, under this Agreement is not paid within 5 days of when due, a
         late payment charge equal to five percent (5%) of such past due payment
         may be assessed and shall be immediately payable.

                                     SECTION

                                        3

                                   COLLATERAL

3.1      THE COLLATERAL: To secure payment and performance of all the Borrower's
         Obligations under this Agreement and all other liabilities, loans,
         guarantees, covenants and duties owed by the Borrower to the Bank,
         whether or not evidenced by this or by any other agreement, absolute or
         contingent, due or to become due, now existing or hereafter and
         howsoever created, the Borrower hereby grants the Bank a security
         interest in and to all of the following property ("Collateral"):

                  (i)      EQUIPMENT. All goods now owned or hereafter acquired
                           by the Borrower or in which the Borrower now has or
                           may hereafter acquire any interest, including, but
                           not limited to, all machinery, equipment, furniture,
                           furnishings, fixtures, tools, supplies and motor
                           vehicles of every kind and description, and all
                           additions, accessions, improvements, replacements and
                           substitutions thereto and thereof (the "Equipment").

                  (ii)     INVENTORY. All inventory now owned or hereafter
                           acquired by the Borrower, including, but not limited
                           to, all raw materials, work in process, finished
                           goods, merchandise, parts and supplies of every kind
                           and description, including inventory temporarily out
                           of the Borrower's custody or possession, together
                           with all returns on accounts (the "Inventory").

                  (iii)    ACCOUNTS. All accounts, contract rights and general
                           intangibles now owned or hereafter created or
                           acquired by the Borrower, including, but not limited
                           to, all receivables, goodwill, trademarks, trademark
                           applications, trade styles, trade names, patents,
                           patent applications, copyrights and copyright
                           applications, customer lists, business records and
                           computer programs, tapes, disks and related data
                           processing software that at any time evidence or
                           contain information relating to any of the
                           Collateral.

                                       11
<PAGE>

                  (iv)     DOCUMENTS. All documents, instruments and chattel
                           paper now owned or hereafter acquired by the
                           Borrower, including, but not limited to, warehouse
                           and other receipts, bills of sale and bills of
                           lading.

                  (v)      MONIES. All monies, deposit accounts, certificates of
                           deposit and securities of the Borrower now or
                           hereafter in the Bank's or its agents' possession.

The Bank's security interest in the Collateral shall be a continuing lien and
shall include the proceeds and products of the Collateral including, but not
limited to, the proceeds of any insurance thereon.

The security interest granted to Bank in the Collateral shall not secure or be
deemed to secure any Indebtedness of the Borrower to the Bank which is, at the
time of its creation, subject to the provisions of any state or federal consumer
credit or truth-in-lending disclosure statutes.

                                     SECTION

                                        4

                              CONDITIONS PRECEDENT

4.1      CONDITIONS PRECEDENT TO THE INITIAL ADVANCE: The obligation of the Bank
         to make the initial Advance and the first extension of credit to or on
         account of the Borrower hereunder is subject to the conditions
         precedent that the Bank shall have received before the date of such
         initial Advance and such first extension of credit all of the
         following, in form and substance satisfactory to the Bank:

                  (i)      AUTHORITY TO BORROW. Evidence that the execution,
                           delivery and performance by the Borrower of this
                           Agreement and any document, instrument or agreement
                           required hereunder have been duly authorized.

                  (ii)     FINANCING STATEMENTS. Executed UCC-1 financing
                           statement(s) describing the Collateral, which have
                           been filed with the Secretary of State or the county
                           recorder as a lien of first priority.

                  (iii)    GUARANTY AGREEMENTS. Guaranties of subsidiaries will
                           be required at such time subsidiaries achieve 10% of
                           consolidated assets or 10% of consolidated revenues.

                  (iv)     MISCELLANEOUS. Such other evidence as the Bank may
                           request to establish the consummation of the
                           transaction contemplated hereunder and compliance
                           with the conditions of this Agreement.

4.2      CONDITIONS PRECEDENT TO ALL ADVANCES: The obligation of the Bank to
         make each Advance and each other extension of credit to or on account
         of the Borrower (including the initial Advance and the first extension
         of credit) shall be subject to the further conditions precedent that,
         on the date of each Advance or each extension of credit and after the
         making of such Advance or extension of credit:

                  (i)      SUBSEQUENT APPROVALS. The Bank shall have received
                           such supplemental approvals, opinions or documents as
                           the Bank may reasonably request.

                  (ii)     REPRESENTATIONS AND WARRANTIES. The representations
                           contained in Section 5 and in any other document,
                           instrument or certificate delivered to the Bank
                           hereunder are true, correct and complete.

                                       12
<PAGE>

                  (iii)    EVENT OF DEFAULT. No event has occurred and is
                           continuing which constitutes, or with the lapse of
                           time or giving of notice or both, would constitute an
                           Event of Default.

                  (iv)     COLLATERAL. The security interest in the Collateral
                           has been duly authorized, created and perfected with
                           first priority and is in full force and effect.

The Borrower's acceptance of the proceeds of any loan, advance or extension of
credit or the Borrower's execution of any document or instrument evidencing or
creating any Obligation hereunder shall be deemed to constitute the Borrower's
representation and warranty that all of the above statements are true and
correct.

                                     SECTION

                                        5

                         REPRESENTATIONS AND WARRANTIES

         The Borrower hereby makes the following representations and warranties
to the Bank, which representations and warranties are continuing:

5.1      STATUS: The Borrower is a corporation duly organized and validly
         existing under the laws of the state of California and is properly
         licensed and is qualified to do business and in good standing in, and,
         where necessary to maintain the Borrower's rights and privileges, has
         complied with the fictitious name statute of every jurisdiction in
         which the Borrower is doing business.

5.2      AUTHORITY: The execution, delivery and performance by the Borrower of
         this Agreement and any instrument, document or agreement required
         hereunder have been duly authorized and do not and will not: (i)
         violate any provision of any law, rule, regulation, order, writ,
         judgment, injunction, decree, determination or award presently in
         effect having application to the Borrower; (ii) result in a breach of
         or constitute a default under any material indenture or loan or credit
         agreement or other material agreement, lease or instrument to which the
         Borrower is a party or by which it or its properties may be bound or
         affected; or (iii) require any consent or approval of its stockholders
         or violate any provision of its articles of incorporation or by-laws.

5.3      LEGAL EFFECT: This Agreement constitutes, and any instrument, document
         or agreement required hereunder when delivered hereunder will
         constitute, legal, valid and binding obligations of the Borrower
         enforceable against the Borrower in accordance with their respective
         terms.

5.4      FICTITIOUS TRADE STYLES: There are no fictitious trade styles used by
         the Borrower in connection with its business operations. The Borrower
         shall notify the Bank not less than 30 days prior to effecting any
         change in the matters described herein or prior to using any other
         fictitious trade style at any future date, indicating the trade style
         and state(s) of its use.

5.5      FINANCIAL STATEMENTS: All financial statements, information and other
         data which may have been or which may hereafter be submitted by the
         Borrower to the Bank are true, accurate and correct and have been or
         will be prepared in accordance with generally accepted accounting
         principles consistently applied and accurately represent the financial
         condition or, as applicable, the other information disclosed therein.
         Since the most recent submission of such financial information or data
         to the Bank, the Borrower represents and warrants that no material
         adverse change in the Borrower's financial condition or operations has
         occurred which has not been fully disclosed to the Bank in writing.

5.6      LITIGATION: Except as have been disclosed to the Bank in writing, there
         are no actions, suits or proceedings pending or, to the knowledge of
         the Borrower, threatened against or affecting the

                                       13
<PAGE>

         Borrower or the Borrower's properties before any court or
         administrative agency which, if determined adversely to the
         Borrower, would have a material adverse effect on the Borrower's
         financial condition or operations or on the Collateral.

5.7      TITLE TO ASSETS: The Borrower has good and marketable title to all of
         its assets (including, but not limited to, the Collateral) and the same
         are not subject to any security interest, encumbrance, lien or claim of
         any third person except for Permitted Liens.

5.8      ERISA: If the Borrower has a pension, profit sharing or retirement plan
         subject to ERISA, such plan has been and will continue to be funded in
         accordance with its terms and otherwise complies with and continues to
         comply with the requirements of ERISA.

5.9      TAXES: The Borrower has filed all tax returns required to be filed and
         paid all taxes shown thereon to be due, including interest and
         penalties, other than such taxes which are currently payable without
         penalty or interest or those which are being duly contested in good
         faith.

5.10     MARGIN STOCK. The proceeds of any loan or advance hereunder will not be
         used to purchase or carry margin stock as such term is defined under
         Regulation U of the Board of Governors of the Federal Reserve System.

5.11     ENVIRONMENTAL COMPLIANCE. The operations of the Borrower comply, and
         during the term of this Agreement will at all times comply, in all
         respects with all Environmental Laws; the Borrower has obtained all
         licenses, permits, authorizations and registrations required under
         any Environmental Law ("ENVIRONMENTAL PERMITS") and necessary for
         its ordinary course operations, all such Environmental Permits are
         in good standing, and the Borrower is in compliance with all
         material terms and conditions of such Environmental Permits; neither
         the Borrower nor any of its present property or operations is
         subject to any outstanding written order from or agreement with any
         governmental authority nor subject to any judicial or docketed
         administrative proceeding, respecting any Environmental Law,
         Environmental Claim or Hazardous Material; there are no Hazardous
         Materials or other conditions or circumstances existing, or arising
         from operations prior to the date of this Agreement, with respect to
         any property of the Borrower that would reasonably be expected to
         give rise to Environmental Claims; PROVIDED, however, that with
         respect to property leased from an unrelated third party, the
         foregoing representation is made to the best knowledge of the
         Borrower. In addition, (i) the Borrower does not have any
         underground storage tanks that are not properly registered or
         permitted under applicable Environmental Laws, or that are leaking
         or disposing of Hazardous Materials off-site, and (ii) the Borrower
         has notified all of their employees of the existence, if any, of any
         health hazard arising from the conditions of their employment and
         have met all notification requirements under Title III of CERCLA and
         all other Environmental Laws.

5.12     INVENTORY:

                  (i)      The Borrower keeps correct and accurate records.
                           (itemizing and describing the kind, type, quality and
                           quantity of inventory, the Borrower's cost therefor
                           and selling price thereof, and the daily withdrawals
                           therefrom and additions thereto).

                  (ii)     All inventory is of good and merchantable quality,
                           free from defects.

                  (iii)    The inventory is not stored with a bailee,
                           warehouseman or similar party.

                                       14
<PAGE>

                                     SECTION

                                        6

                                    COVENANTS

The Borrower covenants and agrees that, during the term of this Agreement, and
so long thereafter as the Borrower is indebted to the Bank under this Agreement,
the Borrower will, unless the Bank shall otherwise consent in writing:

6.1      REPORTING AND CERTIFICATION REQUIREMENTS: Deliver or cause to be
         delivered to the Bank in form and detail satisfactory to the Bank:

                  (i)      Not later than 120 days after the end of each of the
                           Borrower's fiscal years, a copy of the annual audited
                           consolidated financial report of the Borrower for
                           such year, prepared by a firm of certified public
                           accountants acceptable to Bank and accompanied by an
                           unqualified opinion of such firm and a copy of the
                           annual consolidating financial report of the Borrower
                           for such year.

                  (ii)     Not later than 45 days after the end of each quarter,
                           the Borrower's financial statement as of the end of
                           such period.

                  (iii)    Concurrently with the delivery of the financial
                           reports required hereunder, a compliance certificate
                           stating that the Borrower is in compliance with all
                           covenants contained herein and that no Event of
                           Default or potential Event of Default has occurred or
                           is continuing, and certified to by the chief
                           financial officer of the Borrower.

                  (iv)     Promptly upon the Bank's request, such other
                           information pertaining to the Borrower, the
                           Collateral or any guarantor hereunder as the Bank may
                           reasonably request.

6.2      FINANCIAL CONDITION: The Borrower promises and agrees, during the term
         of this Agreement and until payment in full of all of the Borrower's
         Obligations, the Borrower will maintain at all times:

                  (i)      A minimum Effective Tangible Net Worth of at least
                           $48,000,000.00.

                  (ii)     A ratio of Debt to Effective Tangible Net Worth of
                           not more than 0.75 to 1.

                  (iii)    A ratio of the sum of cash, cash equivalents and
                           accounts receivable to Current Liabilities of not
                           less than 1.25 to 1.

                  (iv)     A minimum net profit after tax of at least $1.00 at
                           each fiscal year end.

6.3      PRESERVATION OF EXISTENCE; COMPLIANCE WITH APPLICABLE LAWS: Maintain
         and preserve its existence and all rights and privileges now enjoyed;
         and conduct its business and operations in accordance with all
         applicable laws, rules and regulations.

6.4      MERGE OR CONSOLIDATE: Not liquidate or dissolve, merge or consolidate
         with or into, or acquire any other business organization.

6.5      MAINTENANCE OF INSURANCE: Keep and maintain the Collateral insured for
         not less than its full replacement value against all risks of loss and
         damage and maintain insurance in such amounts and covering such risks
         as is usually carried by companies engaged in similar businesses and
         owning similar properties in the same general areas in which the
         Borrower operates and maintain

                                       15
<PAGE>

         such other insurance and coverages as may be required by the Bank.
         All such insurance shall be in form and amount and with companies
         satisfactory to the Bank.

         With respect to insurance covering properties in which the Bank
         maintains a security interest or lien, such insurance shall name the
         Bank as loss payee pursuant to a loss payable endorsement satisfactory
         to the Bank and shall not be altered or canceled except upon 10 days'
         prior written notice to the Bank. Upon the Bank's request, the Borrower
         shall furnish the Bank with the original policy or binder of all such
         insurance.

6.6      MAINTENANCE OF COLLATERAL AND OTHER PROPERTIES: Except for Permitted
         Liens, keep and maintain the Collateral free and clear of all levies,
         liens, encumbrances and security interests (including, but not limited
         to, any lien of attachment, judgment or execution) and defend the
         Collateral against any such levy, lien, encumbrance or security
         interest; comply with all laws, statutes and regulations pertaining to
         the Collateral and its use and operation; execute, file and record such
         statements, notices and agreements, take such actions and obtain such
         certificates and other documents as necessary to perfect, evidence and
         continue the Bank's security interest in the Collateral and the
         priority thereof; maintain accurate and complete records of the
         Collateral which show all sales, claims and allowances; and properly
         care for, house, store and maintain the Collateral in good condition,
         free of misuse, abuse and deterioration, other than normal wear and
         tear. The Borrower shall also maintain and preserve all its properties
         in good working order and condition in accordance with the general
         practice of other businesses of similar character and size, ordinary
         wear and tear excepted.

6.7      PAYMENT OF OBLIGATIONS AND TAXES: Make timely payment of all
         assessments and taxes and all of its liabilities and obligations
         including, but not limited to, trade payables, unless the same are
         being contested in good faith by appropriate proceedings with the
         appropriate court or regulatory agency. For purposes hereof, the
         Borrower's issuance of a check, draft or similar instrument without
         delivery to the intended payee shall not constitute payment.

6.8      INSPECTION RIGHTS AND ACCOUNTING RECORDS: The Borrower will maintain
         adequate books and records in accordance with generally accepted
         accounting principles consistently applied and in a manner otherwise
         acceptable to Bank, and, at any reasonable time and from time to time,
         permit the Bank or any representative thereof to examine and make
         copies of the records and visit the properties of the Borrower and
         discuss the business and operations of the Borrower with any employee
         or representative thereof. If the Borrower shall maintain any records
         (including, but not limited to, computer generated records or computer
         programs for the generation of such records) in the possession of a
         third party, the Borrower hereby agrees to notify such third party to
         permit the Bank free access to such records at all reasonable times and
         to provide the Bank with copies of any records which it may request,
         all at the Borrower's expense, the amount of which shall be payable
         immediately upon demand.

6.9      PAYMENT OF DIVIDENDS: Not declare or pay any dividends on any class of
         stock now or hereafter outstanding except dividends payable solely in
         the Borrower's capital stock.

6.10     REDEMPTION OR REPURCHASE OF STOCK: Not redeem or repurchase any class
         of the Borrower's stock now or hereafter outstanding.

6.11     ADDITIONAL INDEBTEDNESS: Not, after the date hereof, create, incur or
         assume, directly or indirectly, any additional Indebtedness other than
         (i) Indebtedness owed or to be owed to the Bank or (ii) Indebtedness to
         trade creditors incurred in the Ordinary Course of Business.

6.12     LOANS: Not make any loans or advances or extend credit to any third
         person, including, but not limited to, directors, officers,
         shareholders, partners, employees, affiliated entities and subsidiaries
         of the Borrower, except for credit extended in the Ordinary Course of
         the Borrower's business as presently conducted and except up to
         $100,000.00 in any one fiscal year.

                                       16
<PAGE>

6.13     LIENS AND ENCUMBRANCES: Not create, assume or permit to exist any
         security interest, encumbrance, mortgage, deed of trust, or other lien
         (including, but not limited to, a lien of attachment, judgment or
         execution) affecting any of the Borrower's properties, or execute or
         allow to be filed any financing statement or continuation thereof
         affecting any of such properties, except for Permitted Liens or as
         otherwise provided in this Agreement.

6.14     TRANSFER ASSETS: Not, after the date hereof, sell, contract for sale,
         convey, transfer, assign, lease or sublet, any of its assets
         (including, but not limited to, the Collateral) except in the Ordinary
         Course of Business and, then, only for full, fair and reasonable
         consideration.

6.15     CHANGE IN NATURE OF BUSINESS: Not make any material change in its
         financial structure or the nature of its business as existing or
         conducted as of the date hereof.

6.16     COMPENSATION OF EMPLOYEES: Compensate its employees for services
         rendered at an hourly rate at least equal to the minimum hourly rate
         prescribed by any applicable federal or state law or regulation.

6.17     RENTALS: Not incur liability for the payment of, or pay, rentals for
         the renting, leasing or use of real or personal property in an
         aggregate amount exceeding $2,500,000.00 in any one fiscal year.

6.18     CAPITAL EXPENSE: Not make any fixed capital expenditure or any
         commitment therefor, including, but not limited to, incurring liability
         for leases which would be, in accordance with generally accepted
         accounting principles, reported as capital leases, or purchase any real
         or personal property in an aggregate amount exceeding $5,000,000.00 in
         any one fiscal year.

6.19     NOTICE: Give the Bank prompt written notice of any and all (i) Events
         of Default; (ii) litigation, arbitration or administrative proceedings
         to which the Borrower is a party and in which the claim or liability
         exceeds $100,000.00 or which affects the Collateral; (iii) other
         matters which have resulted in, or might result in a material adverse
         change in the Collateral or the financial condition or business
         operations of the Borrower, and (iv) any enforcement, cleanup, removal
         or other governmental or regulatory actions instituted, completed or
         threatened against the Borrower or any of its properties.

6.20     ENVIRONMENTAL COMPLIANCE: The Borrower shall conduct its operations and
         keep and maintain all of its property in compliance with all
         Environmental Laws and, upon the written request of the Bank, the
         Borrower shall submit to the Bank, at the Borrower's sole cost and
         expense, at reasonable intervals, a report providing the status of any
         environmental, health or safety compliance, hazard or liability.

6.21     INVENTORY:

                  (i)      Except as provided herein below, the Borrower's
                           inventory shall, at all times, be in the Borrower's
                           physical possession, shall not be held by others on
                           consignment, sale on approval, or sale or return and
                           shall be kept only at: 6059 Cornerstone Court West,
                           San Diego, CA 92121, 5959 Cornerstone Court West, San
                           Diego, CA 92121 and 9455 Waples Street, San Diego, CA
                           92121.

                  (ii)     The Borrower shall keep correct and accurate records.

                  (iii)    All inventory shall be of good and merchantable
                           quality, free from defects.

                  (iv)     The inventory shall not at any time or times
                           hereafter be stored with a bailee, warehouseman or
                           similar party without the Bank's prior written
                           consent and, in such event, the Borrower will
                           concurrently therewith cause any such bailee,
                           warehouseman or similar party to issue and deliver to
                           the Bank, in form acceptable

                                       17
<PAGE>

                           to the Bank, warehouse receipts in the Bank's name
                           evidencing the storage of inventory.

                  (v)      At any reasonable time and from time to time, allow
                           Bank to have the right, upon demand, to inspect and
                           examine inventory and to check and test the same as
                           to quality, quantity, value and condition and the
                           Borrower agrees to reimburse the Bank for the Bank's
                           reasonable costs and expenses in so doing.

6.22     LOCATION AND MAINTENANCE OF EQUIPMENT:

                  (i)      The Equipment shall at all times be in the Borrower's
                           physical possession, shall not be held for sale or
                           lease, and shall be kept only at the following
                           location(s): 6059 Cornerstone Court West, San Diego,
                           CA 92121, 5959 Cornerstone Court West, San Diego, CA
                           92121 and 9455 Waples Street, San Diego, CA 92121.

                           The Borrower shall not secrete, abandon or remove, or
                           permit the removal of, the Equipment, or any part
                           thereof, from the location(s) shown above or remove
                           or permit to be removed any accessories now or
                           hereafter placed upon the Equipment.

                  (ii)     Upon the Bank's demand, the Borrower shall
                           immediately provide the Bank with a complete and
                           accurate description of the Equipment including, as
                           applicable, the make, model, identification number
                           and serial number of each item of Equipment. In
                           addition, the Borrower shall immediately notify the
                           Bank of the acquisition of any new or additional
                           Equipment or the replacement of any existing
                           Equipment and shall supply the Bank with a complete
                           description of any such additional or replacement
                           Equipment.

                  (iii)    The Borrower shall, at the Borrower's sole cost and
                           expense, keep and maintain the Equipment in a good
                           state of repair and shall not destroy, misuse, abuse,
                           illegally use or be negligent in the care of the
                           Equipment or any part thereof. The Borrower shall not
                           remove, destroy, obliterate, change, cover, paint,
                           deface or alter the name plates, serial numbers,
                           labels or other distinguishing numbers or
                           identification marks placed upon the Equipment or any
                           part thereof by or on behalf of the manufacturer, any
                           dealer or rebuilder thereof, or the Bank. The
                           Borrower shall not be released from any liability to
                           the Bank hereunder because of any injury to or loss
                           or destruction of the Equipment. The Borrower shall
                           allow the Bank and its representatives free access to
                           and the right to inspect the Equipment at all times
                           and shall comply with the terms and conditions of any
                           leases covering the real property on which the
                           Equipment is located and any orders, ordinances,
                           laws, regulations or rules of any federal, state or
                           municipal agency or authority having jurisdiction of
                           such real property or the conduct of the business of
                           the persons having control or possession of the
                           Equipment.

                  (iv)     The Equipment is not now and shall not at any time
                           hereafter be so affixed to the real property on which
                           it is located as to become a fixture or a part
                           thereof. The Equipment is now and shall at all times
                           hereafter be and remain personal property of the
                           Borrower.

                                       18
<PAGE>

                                     SECTION

                                        7

                                EVENTS OF DEFAULT

         Any one or more of the following described events shall constitute an
         event of default (an "Event of Default") under this Agreement:

7.1      NON-PAYMENT: Any Borrower shall fail to pay the principal amount of any
         Obligations when due or interest on the Obligations within 5 days of
         when due.

7.2      PERFORMANCE UNDER THIS AGREEMENT: The Borrowers shall fail in any
         material respect to perform or observe any term, covenant or agreement
         contained in this Agreement or in any document, instrument or agreement
         relating to this Agreement or any other document or agreement executed
         by the Borrowers with or in favor of Bank and any such failure shall
         continue unremedied for more than 30 days after the occurrence thereof.

7.3      REPRESENTATIONS AND WARRANTIES; FINANCIAL STATEMENTS: Any
         representation or warranty made by the Borrower under or in connection
         with this Agreement or any financial statement given by the Borrower or
         any guarantor shall prove to have been incorrect in any material
         respect when made or given or when deemed to have been made or given.

7.4      OTHER AGREEMENTS: If there is a default under any other agreement with
         Bank or under an agreement to which Borrower is a party with Bank or
         with a third party or parties resulting in a right by the Bank or by
         such third party or parties, whether or not exercised, to accelerate
         the maturity of any Indebtedness.

7.5      INSOLVENCY: The Borrower or any guarantor shall: (i) become insolvent
         or be unable to pay its debts as they mature; (ii) make an assignment
         for the benefit of creditors or to an agent authorized to liquidate any
         substantial amount of its properties and assets; (iii) file a voluntary
         petition in bankruptcy or seeking reorganization or to effect a plan or
         other arrangement with creditors; (iv) file an answer admitting the
         material allegations of an involuntary petition relating to bankruptcy
         or reorganization or join in any such petition; (v) become or be
         adjudicated a bankrupt; (vi) apply for or consent to the appointment
         of, or consent that an order be made, appointing any receiver,
         custodian or trustee, for itself or any of its properties, assets or
         businesses; or (vii) in an involuntary proceeding, any receiver,
         custodian or trustee shall have been appointed for all or substantial
         part of the Borrower's or guarantor's properties, assets or businesses
         and shall not be discharged within 30 days after the date of such
         appointment.

7.6      EXECUTION: Any writ of execution or attachment or any judgment lien
         shall be issued against any property of the Borrower and shall not be
         discharged or bonded against or released within 30 days after the
         issuance or attachment of such writ or lien.

7.7      SUSPENSION: The Borrower shall voluntarily suspend the transaction of
         business or allow to be suspended, terminated, revoked or expired any
         permit, license or approval of any governmental body necessary to
         conduct the Borrower's business as now conducted.

7.8      MATERIAL ADVERSE CHANGE: If there occurs a material adverse change in
         the Borrower's business or financial condition, or if there is a
         material impairment of the prospect of repayment of any portion of the
         Obligations or there is a material impairment of the value or priority
         of the Bank's security interest in the Collateral.

7.9      CHANGE IN OWNERSHIP: There shall occur a sale, transfer, disposition or
         encumbrance (whether voluntary or involuntary to), or an agreement
         shall be entered into to do so, with any Person or

                                       19
<PAGE>

         group of Persons (as such terms are defined pursuant to Federal
         securities laws) with respect to more than 10% of the issued and
         outstanding capital stock of the Borrower and, as a result thereof,
         such Person or group of Persons has the ability to direct or cause
         the direction of the management and policies of the Borrower.

7.10     IMPAIRMENT OF COLLATERAL. There shall occur any injury or damage to all
         or any part of the Collateral or all or any part of the Collateral
         shall be lost, stolen or destroyed.

                                     SECTION

                                        8

                               REMEDIES ON DEFAULT

Upon the occurrence of any Event of Default, the Bank may, at its sole and
absolute election, without demand and only upon such notice as may be required
by law:

8.1      ACCELERATION: Declare any or all of the Borrower's indebtedness owing
         to the Bank, whether under this Agreement or any other document,
         instrument or agreement, immediately due and payable, whether or not
         otherwise due and payable.

8.2      CEASE EXTENDING CREDIT: Cease making Advances or otherwise extending
         credit to or for the account of the Borrower under this Agreement or
         under any other agreement now existing or hereafter entered into
         between the Borrower and the Bank.

8.3      TERMINATION: Terminate this Agreement as to any future obligation of
         the Bank without affecting the Borrower's obligations to the Bank or
         the Bank's rights and remedies under this Agreement or under any other
         document, instrument or agreement.

8.4      LETTERS OF CREDIT: Require the Borrower to pay immediately to the Bank,
         for application against drawings under any outstanding Letters of
         Credit, the outstanding principal amount of any such Letters of Credit
         which have not expired. Any portion of the amount so paid to the Bank
         which is not applied to satisfy draws under any such Letters of Credit
         or any other obligations of the Borrower to the Bank shall be repaid to
         the Borrower without interest.

8.5      ACCEPTANCES: Require the Borrower to pay immediately to the Bank, for
         application against outstanding Acceptances, the outstanding principal
         amount of any such Acceptances which have not matured. Any portion of
         the amount so paid to the Bank which is not applied to repayments on
         any such matured Acceptances or any other obligations of the Borrower
         to the Bank shall be repaid to the Borrower without interest.

8.6      CLOSE-OUT AND LIQUIDATION: Close-out and liquidate each outstanding FX
         Transaction so that each FX Transaction is canceled in accordance with
         the following:

                  (i)      CLOSING VALUE. The Bank shall calculate value of such
                           canceled FX Transaction by converting (1) in the case
                           of a FX Transaction whose Settlement Date is the same
                           as or later than the Close-Out Date, the amount of
                           Foreign Currency into US dollars at a rate of
                           exchange at which the Bank can buy or sell US dollars
                           with or against the Foreign Currency for delivery on
                           the Settlement Date of the relevant FX Transaction;
                           or (2) in the case of a FX Transaction whose
                           Settlement Date precedes the Close-Out Date, the
                           amount of the Foreign Currency adjusted by adding
                           interest with respect thereto at the Variable Rate
                           from the Settlement Date to the Close-Out Date, into
                           US Dollars at a rate of exchange at which the Bank
                           can buy or sell US dollars with or against the
                           Foreign Currency for delivery on the Close-Out Date.

                                       20
<PAGE>

                  (ii)     CLOSING GAIN OR LOSS. (1) For a FX Transaction for
                           which the Bank agreed to purchase a Foreign Currency,
                           the amount by which the Closing Value exceeds the
                           Notional Value shall be a Closing Loss and the amount
                           by which the Closing Value is less than the Notional
                           Value shall be a Closing Gain; and (2) For a FX
                           Transaction for which the Bank agreed to sell a
                           Foreign Currency, the amount by which the Closing
                           Value exceeds the Notional Value shall be a Closing
                           Gain and the amount by which the Closing Value is
                           less than the Notional Value shall be a Closing Loss.

                  (iii)    NET PRESENT VALUE. The Closing Gain or Closing Loss
                           for each Settlement Date falling after the Close-out
                           Date will be discounted by the Bank to it net present
                           value.

                  (iv)     PAYMENT. To the extent that the net amount of the
                           aggregate Closing Gains exceeds the Closing Losses,
                           such amount shall be payable by the Bank to the
                           Borrower. To the extent that the aggregate net amount
                           of the Closing Losses exceeds the Closing Gains, such
                           amount shall be payable by the Borrower to the Bank.

8.7      PROTECTION OF SECURITY INTEREST: Make such payments and do such acts as
         the Bank, in its sole judgment, considers necessary and reasonable to
         protect its security interest or lien in the Collateral. The Borrower
         hereby irrevocably authorizes the Bank to pay, purchase, contest or
         compromise any encumbrance, lien or claim which the Bank, in its sole
         judgment, deems to be prior or superior to its security interest.
         Further, the Borrower hereby agrees to pay to the Bank, upon demand
         therefor, all expenses and expenditures (including attorneys' fees)
         incurred in connection with the foregoing.

8.8      FORECLOSURE: Enforce any security interest or lien given or provided
         for under this Agreement or under any security agreement, mortgage,
         deed of trust or other document, in such manner and such order, as to
         all or any part of the properties subject to such security interest or
         lien, as the Bank, in its sole judgment, deems to be necessary or
         appropriate and the Borrower hereby waives any and all rights,
         obligations or defenses now or hereafter established by law relating to
         the foregoing. In the enforcement of its security interest or lien, the
         Bank is authorized to enter upon the premises where any Collateral is
         located and take possession of the Collateral or any part thereof,
         together with the Borrower's records pertaining thereto, or the Bank
         may require the Borrower to assemble the Collateral and records
         pertaining thereto and make such Collateral and records available to
         the Bank at a place designated by the Bank. The Bank may sell the
         Collateral or any portions thereof, together with all additions,
         accessions and accessories thereto, giving only such notices and
         following only such procedures as are required by law, at either a
         public or private sale, or both, with or without having the Collateral
         present at the time of the sale, which sale shall be on such terms and
         conditions and conducted in such manner as the Bank determines in its
         sole judgment to be commercially reasonable. Any deficiency which
         exists after the disposition or liquidation of the Collateral shall be
         a continuing liability of the Borrower to the Bank and shall be
         immediately paid by the Borrower to the Bank.

8.9      NON-EXCLUSIVITY OF REMEDIES: Exercise one or more of the Bank's rights
         set forth herein or seek such other rights or pursue such other
         remedies as may be provided by law, in equity or in any other agreement
         now existing or hereafter entered into between the Borrower and the
         Bank, or otherwise.

8.10     APPLICATION OF PROCEEDS: All amounts received by the Bank as proceeds
         from the disposition or liquidation of the Collateral shall be applied
         to the Borrower's indebtedness to the Bank as follows: first, to the
         costs and expenses of collection, enforcement, protection and
         preservation of the Bank's lien in the Collateral, including court
         costs and reasonable attorneys' fees, whether or not suit is commenced
         by the Bank; next, to those costs and expenses incurred by the Bank in
         protecting,

                                       21
<PAGE>

         preserving, enforcing, collecting, liquidating, selling or disposing
         of the Collateral; next, to the payment of accrued and unpaid
         interest on all of the Obligations; next, to the payment of the
         outstanding principal balance of the Obligations; and last, to the
         payment of any other indebtedness owed by the Borrower to the Bank.

                                     SECTION

                                        9

                                  MISCELLANEOUS

9.1      AMOUNTS PAYABLE ON DEMAND: If the Borrower shall fail to pay on demand
         any amount so payable under this Agreement, the Bank may, at its option
         and without any obligation to do so and without waiving any default
         occasioned by the Borrower having so failed to pay such amount, create
         an Advance under this Agreement in an amount equal to the amount so
         payable, which Advance shall thereafter bear interest as provided
         hereunder.

9.2      DEFAULT INTEREST RATE: If an Event of Default, or an event which, with
         notice or passage of time could become an Event of Default, has
         occurred or is continuing, the Borrower shall pay to the Bank interest
         on any Indebtedness or amount payable under this Agreement at a rate
         which is 3% in excess of the rate or rates then in effect under this
         Agreement.

9.3      RELIANCE AND FURTHER ASSURANCES: Each warranty, representation,
         covenant, obligation and agreement contained in this Agreement shall be
         conclusively presumed to have been relied upon by the Bank regardless
         of any investigation made or information possessed by the Bank and
         shall be cumulative and in addition to any other warranties,
         representations, covenants and agreements which the Borrower now or
         hereafter shall give, or cause to be given, to the Bank. Borrower
         agrees to execute all documents and instruments and to perform such
         acts as the Bank may reasonably deem necessary to confirm and secure to
         the Bank all rights and remedies conferred upon the Bank by this
         agreement and all other documents related thereto.

9.4      ATTORNEYS' FEES: Borrower shall pay to the Bank all costs and expenses,
         including but not limited to reasonable attorneys fees, incurred by
         Bank in connection with the administration, enforcement, including any
         bankruptcy, appeal or the enforcement of any judgment or any
         refinancing or restructuring of this Agreement or any document,
         instrument or agreement executed with respect to, evidencing or
         securing the indebtedness hereunder.

9.5      NOTICES: All notices, payments, requests, information and demands which
         either party hereto may desire, or may be required to give or make to
         the other party hereto, shall be given or made to such party by hand
         delivery or through deposit in the United States mail, postage prepaid,
         or by facsimile delivery, or to such other address as may be specified
         from time to time in writing by either party to the other.

         TO THE BORROWER:                            TO THE BANK:

         ENCAD, INC.                                 SANWA BANK CALIFORNIA
         6059 Cornerstone Court West                 San Diego Main (CBC)
         San Diego, CA 92121                         1280 4th Avenue
         Attn:   Chuck Covington                     San Diego, CA 92101
                                                     Attn:
         FAX:    (858) 452-7229                           ----------------

                                                     FAX:    (619) 595-1918

9.6      WAIVER: Neither the failure nor delay by the Bank in exercising any
         right hereunder or under any document, instrument or agreement
         mentioned herein shall operate as a waiver thereof, nor shall

                                       22
<PAGE>

         any single or partial exercise of any right hereunder or under any
         other document, instrument or agreement mentioned herein preclude
         other or further exercise thereof or the exercise of any other
         right; nor shall any waiver of any right or default hereunder, or
         under any other document, instrument or agreement mentioned herein,
         constitute a waiver of any other right or default or constitute a
         waiver of any other default of the same or any other term or
         provision.

9.7      CONFLICTING PROVISIONS: To the extent the provisions contained in this
         Agreement are inconsistent with those contained in any other document,
         instrument or agreement executed pursuant hereto, the terms and
         provisions contained herein shall control. Otherwise, such provisions
         shall be considered cumulative.

9.8      BINDING EFFECT; ASSIGNMENT: This Agreement shall be binding upon and
         inure to the benefit of the Borrower and the Bank and their respective
         successors and assigns, except that the Borrower shall not have the
         right to assign its rights hereunder or any interest herein without the
         prior written consent of the Bank. The Bank may sell, assign or grant
         participation in all or any portion of its rights and benefits
         hereunder. The Borrower agrees that, in connection with any such sale,
         grant or assignment, the Bank may deliver to the prospective buyer,
         participant or assignee financial statements and other relevant
         information relating to the Borrower and any guarantor.

9.9      JURISDICTION: This Agreement, any notes issued hereunder, the rights of
         the parties hereunder to and concerning the Collateral, and any
         documents, instruments or agreements mentioned or referred to herein
         shall be governed by and construed according to the laws of the State
         of California without regard to conflict of law principles, to the
         jurisdiction of whose courts the parties hereby submit.

9.10     WAIVER OF JURY TRIAL: THE BORROWER AND THE BANK EACH WAIVE THEIR
         RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION
         BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER
         LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN
         ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY
         OF THE PARTIES AGAINST ANY OTHER PARTY OR PARTIES, WHETHER WITH RESPECT
         TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE BORROWER AND THE
         BANK EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED
         BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE
         PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS
         WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR
         OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE
         VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN
         DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY
         TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO
         THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.

9.11     TELEPHONE RECORDING: The Borrower agrees that the Bank may
         electronically record all telephone conversations between the Borrower
         and the Bank with respect to any FX Transaction and that any such
         recording may be submitted in evidence in any arbitration or other
         legal proceeding. Such recording shall be deemed to be conclusive
         evidence as to the terms of any FX Transaction in the event of a
         dispute.

9.12     COUNTERPARTS: This Agreement may be executed in any number of
         counterparts and all such counterparts taken together shall be deemed
         to constitute one and the same instrument.

9.13     HEADINGS: The headings herein set forth are solely for the purpose of
         identification and have no legal significance.

                                       23
<PAGE>

9.14     ENTIRE AGREEMENT AND AMENDMENTS: This Agreement and all documents,
         instruments and agreements mentioned herein constitute the entire and
         complete understanding of the parties with respect to the transactions
         contemplated hereunder. All previous conversations, memoranda and
         writings between the parties pertaining to the transactions
         contemplated hereunder not incorporated or referenced in this Agreement
         or in such documents, instruments and agreements are superseded hereby.
         This Agreement may be amended only by an instrument in writing signed
         by the Borrower and the Bank.

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

BANK:                                 BORROWER:

SANWA BANK CALIFORNIA                 ENCAD, INC.

BY: /s/ Robert A. Jondall             BY:
    -----------------------------       --------------------------------------
NAME:   Robert A. Jondall             NAME:   Todd Schmidt, Vice President/Chief
        Vice President                Financial Officer

                                      BY: /s/ Terry E. Vandewarker
                                         -------------------------------------
                                      NAME:   Terry Vandewarker, Vice President
                                      of Operations

                                      BY:
                                         ---------------------------------------
                                      NAME:   Thomas Green, Vice President/
                                      General Counsel/Secretary<PAGE>

                                  EXHIBIT 10.2

                                   ENCAD, INC.

                  SETTLEMENT AND PATENT CROSS-LICENSE AGREEMENT

         This Agreement is effective as of 24th April 2000 ("Effective Date")
between Hewlett-Packard Company ("HP"), incorporated under the laws of the
State of Delaware, with a place of business at 3000 Hanover Street, Palo
Alto, California 94304, U.S.A., and ENCAD, Inc. ("ENCAD"), incorporated under
the laws of the State of Delaware, with a place of business at 6059
Cornerstone Court West, San Diego, California 92121. HP and ENCAD may each be
referred to herein individually as a "Party" and collectively as the
"Parties".

         WHEREAS, HP and ENCAD each own or control, and have the right to
license, certain patents and patent applications;

         WHEREAS, HP has filed suit against ENCAD asserting certain HP
patents against certain ENCAD products;

         WHEREAS, ENCAD has brought certain ENCAD patents to HP's attention
in connection with certain HP products;

         WHEREAS, HP and ENCAD each desire to obtain a license under certain
patents and patent applications of the other Party;

         WHEREAS, HP and ENCAD each desire to obtain greater design freedom
for their own respective products and to avoid infringement of the other
Party's patents;

         WHEREAS, ENCAD has filed suit against HP regarding certain HP
marketing and sales programs;

         WHEREAS, both Parties wish to cease all current and avoid future
litigation between the Parties;

         NOW, THEREFORE, in consideration of the mutual promises and
covenants contained herein, the sufficiency and adequacy of which are
expressly agreed to, the Parties agree as follows:

1.       DEFINITIONS

1.1      "Subsidiary" means any corporation or other business entity in which
either Party now or hereafter owns or controls * of the outstanding voting
stock, equity securities or

----------------------------
* Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.

                                       1
<PAGE>

other voting rights entitled to elect directors or other managing authority,
but such corporation or entity shall be deemed to be a Subsidiary only so
long as such ownership or control exists.

1.2      "Capture Period" means the time period * .

1.3      "Patent(s)" means (i) patents and patent applications, including
utility models (but not including design patents, industrial designs or
design registrations) whether foreign or domestic, all patents arising from
such applications, and all patents and patent applications based on, or
claiming the priority dates, of any of the foregoing and (ii) any renewals,
reissues, extensions (or other governmental actions that provide exclusive
rights to the owner thereof in the patented subject matter beyond the
original patent date), substitutions, confirmations, registrations,
revalidations, reexaminations, additions, continuations, continued
prosecutions, continuations-in-part or divisions of or to any of the
foregoing, including, without limitation, supplementary protection
certificates or the equivalent thereof.

1.4      "Captured Patents" means any and all Patents having an issue date or
publication date (including the publication date of an application published
prior to grant or issue) during the Capture Period under which Patents either
Party (as a Licensor) or any of its Subsidiaries has or hereafter during the
Capture Period obtains the right to grant the rights, covenants or licenses
contemplated hereunder to the other Party (as a Licensee) of or within the
scope granted herein without such grant or the exercise of rights thereunder
resulting in the payment of royalties or other consideration (other than de
minimus royalties or other consideration) by a Licensor or its Subsidiaries
to third parties.

1.5      "Previously Notified Patents" of HP means only U.S. Patent No.
5,488,397, U.S. Patent No. 5,376,958 and U.S. Patent No. 4,967,207 and all
foreign equivalent patents or applications claiming a right of priority from
these patents and all divisions, reissues, reexaminations, term extensions,
continuations and continuations-in-part of these patents.

1.6      "Previously Notified Patents" of ENCAD means only U.S. Patent No.
5,610,635 and U.S. Patent No. 5,686,947 and all foreign equivalent patents or
applications claiming a right of priority from these patents and all
divisions, reissues, reexaminations, term extensions, continuations and
continuations-in-part of these patents.

1.7      "Elected Patents" means one or more un-expired Captured Patents
under which one of the Parties has elected to take a license pursuant to the
terms of this Agreement, or under which it is determined that one of the
Parties requires a license * .

1.8      "Current Products" means all products ever sold and shipped in
commercial quantities by a Party as of the Effective Date of this Agreement.
For the purposes of this Agreement alteration of any Current Product sold on
or after the Effective Date, where such activities have been undertaken, even
if after the Effective Date, solely to permit

----------------------------
* Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.

                                       2
<PAGE>

operation within a particular jurisdiction or locale, shall not cause an
article of manufacture to cease being a Current Product.

1.9      "Valid Claim" means a claim that has not expired or been held
invalid or unenforceable by a court or administrative agency of competent
jurisdiction.

1.10     "Licensed Products" in relation to ENCAD means * .

1.11     "Licensed Products" in relation to HP means * .

1.12 "Elected Product" means any Licensed Product as to which a Party elects
to take a license under any or all Valid Claims of an Elected Patent.

1.13     "Net Selling Price" means the invoiced price from a Party to a
non-affiliated third party (e.g., to a dealer, OEM customer, or end user),
after deduction of regular trade and quantity discounts but before deduction
of any other items, including but not limited to freight allowances, cash
discounts, and agents' commissions. For products transferred other than by
sale, the "Net Selling Price" means the selling price at which products of
similar kind, sold in similar quantities, are currently being offered for
sale by each Party. For Licensed Products transferred by each Party to its
Subsidiaries or other internal entities, the Net Selling Price shall mean the
average Net Selling Price for each such Licensed Product as if it were sold
to a non-affiliated third party.

1.14     "Total Net Revenue" means * .

1.15     "Current Litigation" means the litigation identified in Appendix A.

1.16     "Change of Control" shall be deemed to occur in respect of a Party if
any of the following events take place in respect of that Party:

         (a)      The Party becomes insolvent, or voluntarily or otherwise
         enters into liquidation, or has a receiver or trustee appointed to
         administer its property or affairs; or

         (b)      * of the assets or outstanding shares or securities
         (representing the right to vote for the election of directors or other
         managing authority) of the Party hereafter becomes owned or controlled,
         directly or indirectly, by a third party.

If the Party does not have outstanding shares or securities, such Change of
Control shall be deemed to occur if * of its assets are, or an ownership
interest representing the right to make decisions for it is, acquired by or
merged into a third party.

1.17     "Acquiring Entity" means a third party who has acquired control,
amounting to a Change of Control, of one of the Parties to this Agreement.

2.       RELEASES AND COVENANTS

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2.1      Each Party (as a Releasing Party) forever releases and discharges
the other Party (as a Released Party), its Subsidiaries and all purchasers
and users of the Released Party's Licensed Products sold by the Released
Party or any of its Subsidiaries before the Effective Date of this Agreement
from all claims and liabilities for any infringement of the Captured Patents
prior to the Effective Date of this Agreement with respect to those products.

2.2      Each Party (as a Covenantor) hereby covenants not to sue the other
Party (as a Covenantee), its Subsidiaries and all purchasers and users of the
Covenantee's Current Products, for patent infringement relating to the
manufacture, use and sale of the Covenantee's Current Products, which are
Licensed Products, with respect to the Captured Patents for the full term of
the Captured Patents. This covenant not to sue shall also extend to any
elements of a Licensed Product developed, manufactured and sold by the
Covenantee as a successor to a Current Product, provided that the elements
and their implementation are functionally identical with respect to the
corresponding elements and their implementation used in the Current Product.

2.3      Each Party on behalf of itself and on behalf of each of its
respective parent corporations and entities, divisions, subsidiaries,
affiliates, predecessors, successors and assigns, hereby releases and forever
discharges the other Party and each of its respective parent corporations and
entities, divisions, subsidiaries, affiliates, predecessors, successors,
assigns, officers, directors, attorneys, employees and agents, from any and
all actions, causes of action, claims, counterclaims, cross claims, third
party claims, debts, demands, liabilities, lawsuits, accounts, covenants,
contracts, promises, agreements, doings, omissions, obligations, costs,
attorneys' fees, expenses, damages, and claims of every name and nature,
known and unknown, in law and in equity, arising, which may have existed,
and/or which could have been asserted from the beginning of the world to the
Effective Date, relating, arising out of or in any way pertaining to the
factual and legal allegations of the Current Litigation.

2.4      The Parties also hereby waive any rights that they may have under
Section 1542 of the California Civil Code (and/or any similar statute or law
of any other jurisdiction), which provides:

         Section 1542. A general release does not extend to claims which the
         creditor does not know or suspect to exist in his favor at the time of
         executing the release, which if known by him must have materially
         affected his settlement with the debtor.

The Parties knowingly and voluntarily waive any right under any other
comparable provisions or principles of the state or federal law, or the
common law, and acknowledge and agree that this waiver is an essential
material term of this Agreement and the release provisions contained herein,
and that without such waiver this Agreement would not have been entered into.

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<PAGE>

2.5      Each Party covenants never to sue, commence, assist in any way,
prosecute or cause, permit, or advise to be commenced or prosecuted against
the other Party any action or proceeding based on any claims, demands,
transactions, representations, causes of action, obligations, damages, or
liabilities of any nature whatsoever, whether or not now known, suspected, or
claimed which arise out of or relate to the Current Litigation.

2.6      The Parties agree that within three (3) business days after the
execution of this Agreement, the necessary papers will be filed to effect
dismissal of the Current Litigation with prejudice. Each Party shall bear its
own attorney's fees and costs in connection with the Current Litigation.

3.       LICENSE GRANTS

3.1      Each Party (as a Licensor) grants to the other Party (as a Licensee)
and its subsidiaries a worldwide, non-exclusive, royalty-free and irrevocable
license (without the right to sublicense) under the Previously Notified
Patents, to make, have made (but only to the extent set forth in paragraph
3.3 below), use, import, offer for sale, sell, lease or otherwise transfer
Licensed Products.

3.2      Each Party (as a Licensor) grants to the other Party (as a Licensee)
the option to elect, at any time within the Capture Period, a worldwide,
non-exclusive, royalty-bearing license (without the right to sublicense)
under * , to make, have made (but only to the extent set forth in paragraph
3.3 below), use, import, offer for sale, sell, lease or otherwise transfer
Licensed Products. Such licenses under Elected Patents shall be for the full
term of the Elected Patents, unless such license is otherwise terminated
under this Agreement.

3.3      Any license granted under any of the above provisions to have
Licensed Products made by a third-party manufacturer for the use,
importation, offer for sale, sale, lease or other transfer by a party or any
of its Subsidiaries requesting such making ("the Requesting Party") shall be
restricted to all of the following conditions:

         (a)      The designs, specifications and working drawings for the
         manufacture of such products must be owned by, furnished by, and
         originate with the Requesting Party;

         (b)      The designs, specifications and working drawings must be in
         sufficient detail that substantially no additional designing by the
         third-party manufacturer is required other than minor adaptation to the
         production processes and standards normally used by the third-party
         manufacturer, which adaptation changes the characteristics of such
         products only to a negligible extent; and

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         (c)      Any products made pursuant to this have-made right by a third
         party manufacturer shall be purchased by the Requesting Party.

4.       ELECTION OF PATENTS

4.1      Each Party shall exercise the option to take a license under an
Elected Patent by giving written notice to the other Party, identifying the
Elected Patent, the Licensed Product in respect of which the election is made
(Elected Product) and the date of first sale of the Elected Product. Should
further Licensed Products require a license under a previously Elected
Patent, written notice shall be given identifying the further Elected
Product(s) and the date of first sale of each such further Elected Product.

4.2      The number of Captured Patents under which a license, in accordance
with paragraph 3.2 above, may be elected by a first Party shall be * .

5.       ROYALITIES UNDER ELECTED PATENTS

5.1      The royalty payable by a first Party to the second Party under
licenses to Elected Patents shall be * .

5.2      Where the total number of Elected Patents ever elected by a first
Party * .

5.3      Notwithstanding paragraph 5.2 above, the maximum royalty payable by one
Party to the other Party shall * .

5.4      Notwithstanding paragraphs 5.2 and 5.3 above, the maximum total
royalty payable by one Party to the other in any one Payment Period (as
defined in paragraph 5.6) shall * .

5.5      If at a certain time the total number of Elected Patents ever
elected by a first Party is * .

5.6      Payment Periods will be each calendar quarter during the term of
this Agreement. Payments for royalties accrued during a Payment Period shall
be due and payable forty-five (45) days after the first day of each January,
April, July and October during the term of this Agreement. Each Party shall
be liable for interest on any overdue payment at the prime rate effective on
January 1 of that year as quoted in the Wall Street Journal plus 4%. Royalty
payments shall be forwarded to the following address for each Party, or as
otherwise specified in writing by each Party:

         TO HP:
         Director, Intellectual Property

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         Legal Department
         Hewlett-Packard Company
         3000 Hanover Street
         Palo Alto CA  94304

         TO ENCAD:
         General Counsel
         ENCAD
         6059 Cornerstone Ct. West
         San Diego, CA 92121

5.7      Each Party (as a Licensee) shall keep adequate records to accurately
determine the payments due under this Agreement. Once each calendar year and
upon reasonable advance written notice to the Licensee, each Party (as a
Licensor) may have an independent auditor audit the applicable records of the
Licensee during normal business hours, at the Licensor's expense, to verify
the accuracy of the royalty calculations. All such records shall be treated
as confidential information by said independent auditor and shall not be
disclosed to the Licensor except insofar as necessary to verify to the
Licensor the accuracy of the Licensee's payments. Should any payment be
underpaid by at least 10%, then the Licensee shall pay the reasonable expense
of such audit. Any underpayment or overpayment shall be included or credited
with the next payment under this Agreement.

6.       PATENT DISPUTE RESOLUTION PROCESS

6.1      NOTIFICATION. In the event that one Party (Notifying Party) believes
the other Party (Accused Party) requires a license under a Captured Patent
for any Licensed Product, the Notifying Party shall provide written notice
(Notification) to the Accused Party, including identification of the
Patent(s) asserted by the Notifying Party (Notified Patent(s)), the accused
product(s) or allegedly infringing activity, and a claim chart for each and
every claim asserted by the Notifying Party which identifies specific
components of the accused product(s) or infringing activity which are
believed to correspond to specific elements of the patent claims asserted by
the Notifying Party.

6.2      STANDSTILL PERIOD. During a period of sixty (60) days from the date
of Notification, as set forth in paragraph 6.1 above, neither Party shall
file any court action based on or relating to any Patent identified in said
Notification. During this Standstill Period, the Parties agree to use
reasonable business efforts to negotiate in good faith to attempt to resolve
issues raised in said Notification without resort to litigation * . The
Accused Party shall not file any claim for declaratory judgement under the
Notified Patent(s) for a further period of ten (10) days after the expiration
of the sixty (60) day Standstill Period. Any action filed in violation of the
Notification and Standstill Period provisions of this

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Section shall be
dismissible without prejudice at the option of the non-filing Party, and the
non-filing Party shall be entitled to all costs and attorneys fees incurred
in seeking dismissal under this paragraph 6.2.

6.3      *

7.       WARRANTY AND DISCLAIMER

7.1      EACH PARTY WARRANTS THAT IT HAS THE RIGHT TO GRANT THE LICENSES,
COVENANTS AND RELEASES SET FORTH HEREIN. WITH RESPECT TO SUCH LICENSES,
COVENANTS AND RELEASES , NEITHER PARTY MAKES ANY OTHER REPRESENTATIONS OR
WARRANTIES, EXPRESS OR IMPLIED. NOR DOES EITHER PARTY ASSUME ANY OF THE
FOLLOWING: ANY LIABILITY WITH REPSECT TO ANY INFRINGEMENT OF PATENTS OR OTHER
RIGHTS OF THIRD PARTIES DUE TO THE OTHER PARTY'S OPERATION UNDER THE LICENSES
GRANTED HEREIN; ANY RESPONSIBILITY FOR THE ENFORCEMENT OF ITS PATENTS AGAINST
THIRD PARTIES; OR ANY LIABILITY FOR SPECIAL, CONSEQUENTIAL, INDIRECT,
INCIDENTAL, OR PUNITIVE DAMAGES OR LOST PROFITS, WHETHER OR NOT A PARTY HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

8.       NO EFFECT ON PRIOR AGREEMENTS

The Parties expressly agree that this Agreement shall not expand, reduce, or
affect in any way the respective rights and obligations of the Parties under
preexisting agreements relating to HP's US Patents Nos. 4,384,298 to Labarre,
et al and 5,276,970 to Wilcox et al.

9.       FUTURE DISPUTES

With regard to disputes between the Parties, other than those subject to
Section 6 of this Agreement, the Parties hereto shall use commercially
reasonable efforts to settle such disputes without resorting to litigation.
If any dispute remains unsettled, a Party hereto may deliver a written notice
of such a dispute to the other Party and the Chief Operating Officer of ENCAD
and the General Manager of HP's Large Format Printer Division shall attempt
to meet in person or by telephone within five (5) business days after the
date of such notice to attempt to negotiate in good faith a timely resolution
of the dispute. Should the Parties fail to reach agreement with respect to
the dispute or fail to meet within five days, either Party shall be free to
seek all available legal and equitable remedies.

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<PAGE>

10.      CONFIDENTIALITY

10.1     The Parties agree that although the existence of this Agreement is
not confidential, the terms of this Agreement are confidential and each Party
shall use the same degree of care to prevent disclosure of the terms of this
Agreement to third parties as it uses to protect its own confidential
information of a similar nature. In no event will this obligation of
confidentiality preclude any disclosure required by law or by a regulatory
authority, provided that prior to making any such disclosure of the terms of
this Agreement a Party shall promptly consult in advance with the other Party
and shall use all commercially reasonable efforts to obtain written assurance
that confidential treatment will be accorded to such information.

10.2     Furthermore, the Parties agree that neither Party, nor their
attorneys, experts and consultants shall directly or indirectly issue any
oral or written statement to the press or public relating to the existence or
terms of this Agreement, or to any aspect of the Current Litigation, except
in the exact form as may hereafter be mutually agreed upon in writing by the
Parties. Both Parties shall notify their attorneys, experts and consultants
of the agreement with respect to confidentiality under this Section 11 and
shall obtain a written undertaking from their attorneys, experts and
consultants to also abide by the confidentiality obligations of this
Agreement.

11.      TERM AND TERMINATION

11.1     The term of this Agreement shall be from the Effective Date hereof
until the expiration of the last to expire of the Captured Patents.

11.2     CHANGE OF CONTROL
         11.2.1 In the event of the Change of Control of a first Party, the
         first Party shall promptly give notice of such Change of Control to the
         second Party. The second Party shall have the option to terminate all
         licenses, covenants and other rights granted to the first Party under
         this Agreement.

         11.2.2 Notwithstanding any termination under paragraph 11.2.1, the
         first Party's covenant not to sue in paragraph 2.2 above will be
         binding on the Acquiring Entity in relation to the first Party's
         Patents . Any license to Elected Patents taken by the second Party
         prior to the Change of Control shall continue for the full term of the
         Elected Patents, provided any necessary royalties continue to be paid.

         11.2.3 Notwithstanding any termination under paragraph 11.2.1, the
         second Party's covenant not to sue with respect to the first Party's
         Current Products and any license to Elected Patents taken by the first
         Party prior to the Change of Control shall pass to the Acquiring Entity
         for * from the date of the Change of

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         Control, provided that any necessary royalties continue to be paid .
         The covenant not to sue and the license under Elected Patents with
         respect to the Acquiring Entity shall strictly apply only to the
         identical Licensed Products being sold and shipped in commercial
         quantities by the first Party prior to the date of the Change of
         Control and will not apply in any manner to other products (for
         example, products introduced to the market after that date, having a
         different model number or name, or originating from the Acquiring
         Entity).

         11.2.4 All covenants and licenses from the second Party to the
         Acquiring Entity will be in respect of Licensed Products as defined for
         the first Party and subject to any and all other restrictions of this
         Agreement.

11.3     Any termination of licenses shall not relieve the Party whose
licenses are terminated of any obligation or liability accrued hereunder.
Such termination shall not diminish in any manner any licenses or other
rights granted to the other Party under this Agreement.

12.      MISCELLANEOUS

12.1     This Agreement (including any attached exhibits) constitutes the
entire agreement between the Parties relating to the subject matter hereof,
and supersedes all prior proposals, agreements, representations and other
communications between the Parties with respect to the same.

12.2     No change in the provisions of this Agreement shall be valid unless
in writing and signed by both Parties.

12.3     Each Party shall be responsible for and guarantee the performance by
its Subsidiaries of any and all of its obligations hereunder and shall cause
such Subsidiaries to comply with the provisions of this Agreement.

12.4     Neither Party may assign, sublicense, or otherwise transfer its
rights and obligations under this Agreement to any party at any time under
any circumstances, without the prior written consent of the other Party,
including, without limitation, in the event of a Change of Control or by
operation of law. If any such assignment is consented to, any such successors
or assigns of either Party shall be bound by the terms and conditions of this
Agreement.

12.5     Neither Party shall assign or convey any of its Captured Patents
unless such assignment or conveyance is made subject to the terms and
conditions of this Agreement.

12.6     The failure or delay of either Party in exercising any of its rights
hereunder, including any rights with respect to a breach or default by the other
Party, shall in no way

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operate as a waiver of such rights or prevent the assertion of such rights
with respect to any later breach or default by the other Party.

12.7     Any exhibits referred to herein shall be construed with and as an
integral part of this Agreement to the same extent as if they were set forth
verbatim herein.

12.8     The headings used in this Agreement are for reference and
convenience only and shall not be used in interpreting the provisions of this
Agreement.

12.9     Nothing contained in this Agreement shall be deemed to grant, either
directly or by implication, estoppel, or otherwise, any licenses under
patents or other intellectual property rights other than as specifically
provided in this Agreement. In particular, nothing in this Agreement shall be
read to license the copyrights, mask works, trademarks, trade names, trade
dress or trade secrets (or other confidential information) of either Party to
the other Party.

12.10    If any term or other provision of this Agreement is invalid, illegal
or incapable of being enforced by any rule of law or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner materially
adverse to either Party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the Parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the Parties as closely as possible in an acceptable
manner to the end that the transactions contemplated hereby are fulfilled to
the fullest extent possible.

12.11    Any notice or acceptance provided for in this Agreement shall be in
writing and shall be deemed to have been given on the date such communication
is deposited in certified or registered first class mail, in an appropriately
stamped envelope, addressed as follows (or to such other address as a Party
shall designate by written notice given to the other Party):

         TO HP:
         Director, Intellectual Property
         Legal Department
         Hewlett-Packard Company
         3000 Hanover Street
         Palo Alto CA  94304

         TO ENCAD:
         General Counsel
         ENCAD
         6059 Cornerstone Ct. West
         San Diego, CA 92121

                                      11

<PAGE>

12.12  The Parties agree that this Agreement shall be governed by and construed
in accordance with the laws of the State of California, without regard to choice
of law provisions.

         IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed by their duly authorized representatives:

<TABLE>

ENCAD                                                   HP

<S>                                                     <C>
By: /s/ Michael J.t. Steep                              By:  /s/ Ignacio Fonts Cavestany
    -----------------------------------------                -------------------------------------

Typed Name:  Michael J.T. Steep                         Typed Name: Ignacio Fonts Cavestany

Title: Executive VP and COO                             Title:  GM Inkjet Comercial Division

Date: *                                                 Date:  *

</TABLE>

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<PAGE>

                         APPENDIX A -- CURRENT LITIGATION

1.       Hewlett-Packard Company v. ENCAD, Inc., Civ. No. 99-0178-S-BLW, United
States District Court for the District of Idaho;

2.       Hewlett-Packard Company v. ENCAD, Inc., Civ. No. 98-0073-S-BLW, United
States District Court for the District of Idaho; and

3.       ENCAD, Inc. v. Hewlett-Packard Company, and DOES 1 through 10,
inclusive, Civ. No. 300735, San Francisco County Superior Court.

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<PAGE>

                                 APPENDIX B -- *

(To be mutually agreed upon.)

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<PAGE>

                                 APPENDIX C -- *

(To be mutually agreed upon.)

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