Document:

<PAGE>

                                                                   Exhibit 10.29

                                                                          Virata
                                                2933 Bunker Hill Lane, Suite 201
                                                           Santa Clara, CA 95054
                                                              Phone 408-566-1000
                                                                Fax 408-980-8250

30 July, 1999

Mr. Dan Karr
30 Herndez Road
Los Gatos, CA 95030

Dear Dan,

I am pleased to offer you the position of Vice President of Worldwide Sale for
Virata. This offer will remain in effect until 7 August 1999, and can be
accepted by your signing this letter in the space indicated at the end of this
document. You will be an employee of Virata's Santa Clara-based subsidiary.

Your responsibility will be to manage the worldwide sales organization and you
will report directly to me.

During your term of employment with Virata, you shall devote your full time,
skill and attention to your duties and responsibilities, and shall perform them
faithfully in order to further the business goals of Virata and its affiliated
entities. In consideration of your services, you will be paid a base salary of
$220,000 per year ($18,333.34 per month, paid biweekly).

In addition to your salary compensation, you will participate in an annual
incentive bonus program from which you will be entitled to earn additional
annual compensation of up to $75,000 at 100% achievement. This bonus will be
based on objectives which you and I will determine. $20,000 of the annual bonus
amount will be guaranteed in the first year and the non-guaranteed portion of
the bonus and the guaranteed portion will be paid quarterly.

Subject to approval by the Board of Directors, you will receive a grant of 1.65
million ordinary share options in Virata. The shares vest over a four year
period, with one quarter vesting 12 months after your start date. From the one
year mark, vesting will be 1/48/th/ or 34,375 shares per month. The share
options will be granted under the Virata Corporation Incentive Stock Option
(ISO) plan to the extent allowed under applicable regulations. Any additional
options will be issued under the 'unapproved' share option plan.

Should you be asked to leave the company following a change in control, through
acquisition, merger or sale of all or substantially all of the assets, or if you
are terminated without cause, you will be entitled to salary continuation for 9
months. In addition, your share options will continue to vest through this 9-
month period. During this 9-month period Virata will provide you with
continuation of benefit coverage.

                                      Acceptance: /s/ MG Virata  /s/ DK Employee
                                                  ------         ------
<PAGE>

Offer Letter
Mr. Dan Karr
30 July, 1999
Page 2 or 2

In the event that Virata is acquired by or merged with another company, you will
be offered a position of equal status and conditions by Virata Inc, its parent
Company, or the newly merged company.

As a Virata employee you will eligible for the following as part of our
comprehensive benefits program:

 .  Medical benefits: Virata offers a medical and dental program through Aetna.
   Vision coverage is provided by VSP. Employee co-payments for premiums are
   deducted on a pre-tax basis as part of our Section 125 plan;

 .  Paid time off: You are eligible for three weeks (15 days) vacation and
   additional paid time off for sick and personal time;

 .  Holidays:  You are eligible for standard US holidays, which total ten (10) in
   1998;

 .  401(K): Virata offers employees a 401(K) savings plan. You will be eligible
   to participate in this plan immediately upon joining Virata providing all
   conditions of the Plan are complied with;

As an employee of Virata's Santa Clara-based subsidiary you should recognize
that some integration of benefits with the recently merged RSA Communications
unit will occur and the benefits listed above could be altered accordingly.

This offer of employment is contingent upon the following:

     .  As an employee of Virata you will be expected to abide by Company rules
        and regulations. You will also be expected to sign and comply with a
        proprietary information and non-disclosure agreement which requires,
        among other provisions, the assignment of patent rights to any invention
        made during your employment at Virata and non-disclosure of proprietary
        information;

     .  Employment with Virata is not for a specific term and can be terminated
        by you or Virata at any time for any reason, with or without cause. Any
        contrary representations which may have been made or which may be made
        to you are superseded by this offer.

     .  Your employment with Virata will be terminated for "cause" if terminated
        due to your habitual neglect of duties, which neglect continues
        uncorrected following written notice to you and a reasonable opportunity
        for you to cure such neglect; excessive absenteeism; violation of work
        rules or a policy set by the Board of Directors; insubordination; or for
        misconduct or malfeasance;

     .  The successful completion of required reference checks;

                                      Acceptance: /s/ MG Virata  /s/ DK Employee
                                                  ------         ------
<PAGE>

Offer Letter
Mr. Dan Karr
30 July, 1999
Page 2 or 3

Dan, I am excited about you joining Virata. I believe you will make an
outstanding contribution to Virata and am eager for your employment to begin as
soon as possible. I am confident that Virata can offer you the challenges,
opportunities and rewards for your contributions.

Please acknowledge your acceptance of the terms and conditions of this offer by
signing below and returning this letter as soon as you can.

I look forward to having you on the team.

Sincerely,

/s/ Mike Gulett<PAGE>

                                                                   EXHIBIT 10.17

                                             III.C.1(1)

                                         SILICON VALLEY BANK
--------------------------------------------------------------------------------

               AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
                          NATUS MEDICAL INCORPORATED

--------------------------------------------------------------------------------
<PAGE>

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                               Page
                                                                                               ----
<S>                                                                                            <C>
1 ACCOUNTING AND OTHER TERMS....................................................................  4
  --------------------------

2 LOAN AND TERMS OF PAYMENT.....................................................................  4
  -------------------------
       2.1 Credit Extensions....................................................................  4
       2.2 Overadvances.........................................................................  5
       2.3 Interest Rate, Payments..............................................................  5
       2.4 Fees.................................................................................  5

3 CONDITIONS OF LOANS...........................................................................  5
  -------------------
       3.1 Conditions Precedent to Initial Credit Extension.....................................  5
       3.2 Conditions Precedent to all Credit Extensions........................................  6

4 CREATION OF SECURITY INTEREST.................................................................  6
  -----------------------------
       4.1 Grant of Security Interest...........................................................  6

5 REPRESENTATIONS AND WARRANTIES................................................................  6
  ------------------------------
       5.1 Due Organization and Authorization...................................................  6
       5.2 Collateral...........................................................................  6
       5.3 Ligation.............................................................................  6
       5.4 No Material Adverse Change in Financial Statements...................................  7
       5.5 Solvency.............................................................................  7
       5.6 Regulatory Compliance................................................................  7
       5.7 Subsidiaries.........................................................................  7
       5.8 Full Disclosure......................................................................  7

6 AFFIRMATIVE COVENANTS.........................................................................  7
  ---------------------
       6.1 Government Compliance................................................................  7
       6.2 Financial Statements, Reports, Certificates..........................................  8
       6.3 Inventory; Returns...................................................................  8
       6.4 Taxes................................................................................  8
       6.5 Insurance............................................................................  8
       6.6 Primary Accounts.....................................................................  8
       6.7 Financial Covenants..................................................................  9
       6.8 Registration of Intellectual Property Rights.........................................  9
       6.9 Further Assurances...................................................................  9

7 NEGATIVE COVENANTS............................................................................  9
  ------------------
       7.1 Dispositions.........................................................................  9
       7.2 Changes in Business, Ownership, Management or Business Locations.....................  9
       7.3 Mergers or Acquisitions.............................................................. 10
       7.4 Indebtedness......................................................................... 10
       7.5 Encumbrance.......................................................................... 10
       7.6 Distributions; Investments........................................................... 10
       7.7 Transactions with Affiliates......................................................... 10
       7.8 Subordinated Debt.................................................................... 10
       7.9 Compliance........................................................................... 10

8 EVENTS OF DEFAULT............................................................................. 10
  -----------------
       8.1 Payment Default...................................................................... 10
</TABLE>

                                       2
<PAGE>

     8.2 Covenant Default.................................... 11
     8.3 Material Adverse Change............................. 11
     8.4 Attachment.......................................... 11
     8.5 Insolvency.......................................... 11
     8.6 Other Agreements.................................... 11
     8.7 Judgments........................................... 11
     8.8 Misrepresentations.................................. 11

9 BANK'S RIGHTS AND REMEDIES................................. 12
  --------------------------
     9.1 Rights and Remedies................................. 12
     9.2 Power of Attorney................................... 12
     9.3 Accounts Collection................................. 13
     9.4 Bank Expenses....................................... 13
     9.5 Bank's Liability for Collateral..................... 13
     9.6 Remedies Cumulative................................. 13
     9.7 Demand Waiver....................................... 13

10 NOTICES................................................... 13
   -------

11 CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER................ 13
   ------------------------------------------

12 GENERAL PROVISIONS........................................ 14
   ------------------
     12.1 Successors and Assigns............................. 14
     12.2 Indemnification.................................... 14
     12.3 Time of Essence.................................... 14
     12.4 Severability of Provision.......................... 14
     12.5 Amendments in Writing, Integration................. 14
     12.6 Counterparts....................................... 14
     12.7 Survival........................................... 14
     12.8 Confidentiality.................................... 15
     12.9 Effect of Amendment and Restatement................ 15
     12.10 Attorney's Fees, Costs and Expenses............... 15

13 DEFINITIONS............................................... 15
   -----------
     13.1 Definitions........................................ 15

                                       3
<PAGE>

       This AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT dated April 2,
1998, between SILICON VALLEY BANK ("Bank"), whose address is 3003 Tasman Drive,
Santa Clara, California 95054 with a loan production office located at 1731
Embarcadero, Ste. 220, Palo Alto, California 94303 and NATUS MEDICAL
INCORPORATED ("Borrower"), whose address is 1501 Industrial Road, San Carlos,
California 94070.

                                   RECITALS

       A.   Bank and Borrower are parties to, among other documents, a
Promissory Note, Business Loan Agreement, and Commercial Security Agreement,
each dated May 18, 1994, as amended (collectively, the "Original Agreement").

       B.   Bank and Borrower are also parties to a Collateral Assignment,
Patent Mortgage and Security Agreement dated May 18, 1994 (the "IP Agreement").
The IP Agreement shall remain in full force and effect and shall be incorporated
herein by this reference.

       C.   Borrower and Bank desire in this Agreement to set forth their
agreement with respect to a working capital loan and to amend and restate in its
entirety without novation the Original Agreement in accordance with the
provisions herein.

                                   AGREEMENT

       The parties agree as follows:

1      ACCOUNTING AND OTHER TERMS
       --------------------------

       Accounting terms not defined in this Agreement will be construed
following GAAP Calculations and determinations must be made following GAAP. The
term "financial statements" includes the notes and schedules. The terms
"including" and "includes" always mean "including (or includes) without
limitation," in this or any Loan Document. This Agreement shall be construed to
impart upon Bank a duty to act reasonably at all times.

2      LOAN AND TERMS OF PAYMENT
       -------------------------

2.1    Credit Extensions.

       Borrower will pay Bank the unpaid principal amount of all Credit
Extensions and interest on the unpaid principal amount of the Credit Extensions.

2.11   Revolving Advances.

       (a)  Bank will make Advances not exceeding (i) the lesser of (A) the
Committed Revolving Line or (B) the Borrowing Base, whichever is less, minus
(ii) the amount of all outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit).  Amounts borrowed under this Section may be
repaid and reborrowed during the term of this Agreement.

       (b)  To obtain an Advance, Borrower must notify Bank by facsimile or
telephone by 3:00 p.m. Pacific time on the Business Day the Advance is to be
made. Borrower must promptly confirm the notification by delivering to Bank the
Payment/Advance Form attached as Exhibit B. Bank will credit Advances to
Borrower's deposit account. Bank may make Advances under this Agreement based on
Instructions from a Responsible Officer or his or her designee or without
instructions if the Advances are necessary to meet Obligations which have become
due. Bank may rely on any telephone notice given by a person whom Bank believes
is a Responsible Officer or designee. Borrower will Indemnify Bank for any loss
Bank suffers due to reliance.

                                       4
<PAGE>

       (c)  The Committed Revolving Line terminates on the Revolving Maturity
Date, when all Advances and other amounts due under this Agreement are
immediately payable.

2.1.2  Letters of Credit.

       Bank will issue or have issued Letters of Credit for Borrower's account
not exceeding (i) the lesser of the Committed Revolving Line or the Borrowing
Base minus (ii) the outstanding principal balance of the Advances; however, the
face amount of outstanding Letters of Credit (including drawn but unreimbursed
Letters of Credit and any Letter of Credit Reserve) may not exceed $200,000.
Each Letter of Credit will have an expiry date of no later than 180 days after
the Revolving Maturity Date, but Borrower's reimbursement obligation will be
secured by cash on terms acceptable to Bank at any time after the Revolving
Maturity Date if the term of this Agreement is not extended by Bank.

2.2    Overadvances.

       If Borrower's Obligations under Section 2.1.1 and 2.1.2 exceed the lesser
of either (i) the Committed Revolving Line or (ii) the Borrowing Base, Borrower
must immediately pay Bank the excess.

2.3    Interest Rate, Payments.

       (a)  Interest Rate.  Advances accrue interest on the outstanding
principal balance at a per annum rate of 1.00 percentage point above the Prime
Rate.  After an Event of Default, Obligations accrue interest at 5.00 percent
above the rate effective immediately before the Event of Default.  The interest
rate increases or decreases when the Prime Rate changes.  Interest is computed
on a 360 day year for the actual number of days elapsed.

       (b)  Payments.  Interest due on the Committed Revolving Line is payable
on the last day of each month. Bank may debit any of Borrower's deposit accounts
including Account Number __________________________ for principal and interest
payments or any amounts Borrower owes Bank. Bank will notify Borrower when it
debits Borrower's accounts. These debits are not a set-off. Payments received
after 12:00 noon Pacific time are considered received at the opening of business
on the next Business Day. When a payment is due on a day that is not a Business
Day, the payment is due the next Business Day and additional fees or interest
accrue.

2.4    Fees.

       Borrower will pay:

       (a)  Facility Fee.  A fully earned, non-refundable Facility Fee of $6,028
due on the Closing Date; and

       (b)  Bank Expenses.  All Bank Expenses (including reasonable attorney's
fees and expenses) incurred through and after the date of this Agreement, are
payable when due.

3.     CONDITIONS OF LOANS
       -------------------

3.1    Conditions Precedent to Initial Credit Extension.

       Bank's obligation to make the Initial Credit Extension is subject to the
conditions precedent that Bank receive satisfactory results from an audit of
Borrowers Accounts and it receive the agreements, documents and fees it
requires.

                                       5
<PAGE>

3.2    Conditions Precedent to all Credit Extensions.

       Bank's obligations to make each Credit Extension, including the initial
Credit Extension, is subject to the following:

       (a)  timely receipt of any Payment/Advance Form; and

       (b)  the representations and warranties in Section 5 must be materially
true on the date of the Payment/Advance Form and on the effective date of each
Credit Extension and no Event of Default may have occurred and be continuing, or
result from the Credit Extension.  Each Credit Extension is Borrower's
representation and warranty on that date that the representations and warranties
of Section 5 remain true.

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

4.1    Grant of Security Interest.

       Borrower continues to grant to Bank a continuing security interest in all
presently existing and later acquired Collateral to secure all Obligations and
performance of each of Borrower's duties under the Loan Documents.  Except for
Permitted Liens, any security interest will be a first priority security
interest in the Collateral.  Bank may place a "hold" on any deposit account
pledge as Collateral.

5      REPRESENTATIONS AND WARRANTIES
       ------------------------------

       Borrower represents and warrants as follows:

5.1    Due Organization and Authorization.

       Borrower and each Subsidiary is duly existing and in good standing in its
state of formation and qualified and licensed to do business in, and in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be qualified.

       The execution, delivery and performance of the Loan Documents have been
duly authorized, and do not conflict with Borrower's formation documents, nor
constitute an event of default under any material agreement by which Borrower is
bound.  Borrower is not in default under any agreement to which or by which it
is bound in which the default could cause a Material Adverse Change.

5.2    Collateral.

       Borrower has good title to the Collateral, free of Liens except Permitted
Liens.  The Accounts are bona fide, existing obligations, and the service or
property has been performed or delivered to the account debtor or its agent for
immediate shipment to and unconditional acceptance by the account debtor.
Borrower has no notice of any actual or imminent Insolvency Proceeding of any
account debtor whose accounts are Eligible Account in any Borrowing Base
Certificate.  All Inventory is in all material respects of good and marketable
quality, free from material defects.  Borrower is the sole owner of the
Intellectual Property, except for non-exclusive licenses granted to its
customers in the ordinary course of business.  Each Patent is valid and
enforceable and no part of the Intellectual Property has been judged invalid or
unenforceable, in whole or in part, and no claim has been made that any part of
the Intellectual Property violates the rights of any third party.

5.3    Litigation.

       Except as shown in the Schedule, there are no actions or proceedings
pending or, to Borrower's knowledge, threatened by or against Borrower or any
Subsidiary in which an adverse decision could cause a Material Adverse Change.

                                       6
<PAGE>

  5.4  No Material Adverse Change in Financial Statements.

       All consolidated financial statements for Borrower, and any Subsidiary,
  delivered to Bank fairly present in all material respects Borrower's
  consolidated financial condition and Borrower's consolidated results of
  operations. There has not been any material deterioration in Borrower's
  consolidated financial condition since the date of the most recent financial
  statements submitted to Bank.

  5.5  Solvency.

       The fair salable value of Borrower's assets (including goodwill minus
  disposition costs) exceeds the fair value of its liabilities; the Borrower is
  not left with unreasonably small capital after the transactions in this
  Agreement; and Borrower is able to pay its debts (including trade debts) as
  they mature.

  5.6  Regulatory Compliance.

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

  5.7  Subsidiaries.

       Borrower does not own any stock, partnership interest or other equity
  securities except for Permitted Investments.

  5.8. Full Disclosure.

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

  6    AFFIRMATIVE COVENANTS
       ---------------------

       Borrower will do all of the following:

  6.1  Government Compliance.

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

                                       7
<PAGE>

  6.2  Financial Statements, Reports, Certificates.

       (a)  Borrower will deliver to Bank: (i) as soon as available, but no
  later than 30 days after the last day of each month, a company prepared
  consolidated balance sheet and income statement covering Borrower's
  consolidated operations during the period, in a form and certified by a
  Responsible Officer acceptable to Bank; (ii) as soon as available, but no
  later than 120 days after the last day of Borrower's fiscal year, audited
  consolidated financial statements prepared under GAAP, consistently applied,
  together with an unqualified opinion on the financial statements from an
  independent certified public accounting firm acceptable to Bank; (iii) a
  prompt report of any legal actions pending or threatened against Borrower or
  any Subsidiary that could result in damages or costs to Borrower or any
  Subsidiary of $100,000 or more; (iv) budgets, sales projections, operating
  plans or other financial information Bank requests; and (v) prompt notice of
  any material change in the composition of the Intellectual Property, including
  any subsequent ownership right of Borrower in or to any Copyright, Patent or
  Trademark not shown in any intellectual property security agreement between
  Borrower and Bank or knowledge of an event that materially adversely affects
  the value of the Intellectual Property.

       (b)  Within 20 days after the last day of each month, when there are
  outstanding Advances or with the initial Advance, Borrower will deliver to
  Bank a Borrowing Base Certificate signed by a Responsible Officer in the form
  of Exhibit C, with aged listings of accounts receivable and accounts payable.

       (c)  Within 30 days after the last day of each month, Borrower will
  deliver to Bank with the monthly financial statements a Compliance Certificate
  signed by a Responsible Officer in the form of Exhibit D.

       (d)  Bank has the right to audit Borrower's Accounts at Borrower's
  expense, but the audits will be conducted no more often than every year unless
  an Event of Default has occurred and is continuing.

  6.3  Inventory; Returns.

       Borrower will keep all Inventory in good and marketable condition, free
  from material defects. Returns and allowances between Borrower and its account
  debtors will follow Borrower's customary practices as they exist at execution
  of this Agreement. Borrower must promptly notify Bank of all returns,
  recoveries, disputes and claims, that involve more than $50,000.

  6.4  Taxes.

       Borrower will make, and cause each Subsidiary to make, timely payment of
  all material federal, state, and local taxes or assessments and will deliver
  to Bank, on demand, appropriate certificates attesting to the payment.

  6.5  Insurance.

       Borrower will keep its business and the Collateral insured for risks and
  in amounts, as Bank requests. Insurance policies will be in a form, with
  companies, and in amounts that are satisfactory to Bank. All property policies
  will have a lender's loss payable endorsement showing Bank as an additional
  loss payee and all liability policies will show the Bank as an additional
  insured and provide that the insurer must give Bank at least 20 days notice
  before canceling its policy. At Bank's request, Borrower will deliver
  certified copies of policies and evidence of all premium payments. Proceeds
  payable under any policy will, at Bank's option, be payable to Bank on account
  of the Obligations.

  6.6  Primary Accounts.

       Borrower will maintain its primary depository and operating accounts
  with Bank.

                                       8

<PAGE>

6.7  Financial Covenants.

     Borrower will maintain as of the last day of each month:

               (i)   Quick Ratio. A ratio of Quick Assets to Current Liabilities
of at least 1.25 to 1.00.

               (ii)  Debt/Tangible Net Worth Ratio. A ratio of Total Liabilities
less Subordinated Debt to Tangible Net Worth plus Subordinated Debt of not more
than 1.00 to 1.00.

               (iii) Tangible Net Worth plus Subordinated Debt. A Tangible Net
Worth plus Subordinated Debt of at least $3,500,000.

               (iv)  Profitability.  Borrower will be profitable each quarter,
except that Borrower may suffer a loss not to exceed $150,000 for the quarter
ended March 31, 1998, $150,000 for the quarter ending June 30, 1998, and $50,000
for the quarter ending September 30, 1998.

6.8  Registration of Intellectual Property Rights.

     Borrower will register with the United States Patent and Trademark Office
or the United States Copyright Office Intellectual Property rights on Exhibits
A, B, C, and D to the Intellectual Property Security Agreement within 30 days of
the date of this Agreement, and additional Intellectual Property rights
developed or acquired including revisions or additions with any product before
the sale or licensing of the product to any third party.

     Borrower will (i) protect, defend and maintain the validity and
enforceability of the Intellectual Property and promptly advise Bank in writing
of material infringements and (ii) not allow any Intellectual Property to be
abandoned, forfeited or dedicated to the public without Bank's written consent.

6.9  Further Assurances.

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

7    NEGATIVE COVENANTS
     ------------------

     Borrower will not do any of the following:

7.1  Dispositions.

     Convey, sell, lease, transfer or otherwise dispose of (collectively
"Transfer"), or permit any of its Subsidiaries to Transfer, all or any part of
its business or property, other than Transfers (i) of Inventory in the ordinary
course of business; (ii) of non-exclusive licenses and similar arrangements for
the use of the property of Borrower or its Subsidiaries in the ordinary course
of business; or (iii) of worn-out or obsolete Equipment.

7.2  Changes in Business, Ownership, Management or Business Locations.

     Engage in or permit any of its Subsidiaries to engage in any business other
than the businesses currently engaged in by Borrower or have a material change
in its ownership of greater than 25%. Borrower will not, without at least 30
days prior written notice, relocate its chief executive office or add any new
offices or business locations.

                                       9

<PAGE>

7.3  Mergers or Acquisitions.

     (i)  Merge or consolidate, or permit any of its Subsidiaries to merge or
consolidate, with any other Person, or acquire, or permit any of its
Subsidiaries to acquire, all or substantially all of the capital stock or
property of another Person, if no Event of Default has occurred and is
continuing or would result from such action during the term of this Agreement or
result in a decrease of more than 25% of Tangible Net Worth; or (ii) merge or
consolidate a Subsidiary into another Subsidiary or into Borrower.

7.4  Indebtedness.

     Create, incur, assume, or be liable for any indebtedness, or permit any
Subsidiary to do so, other than Permitted Indebtedness.

7.5  Encumbrance.

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

7.6  Distributions; Investments.

     Directly or indirectly acquire or own any Person, or make any Investment in
any Person, other than Permitted Investments, or permit any of its Subsidiaries
to do so. Pay any dividends or make any distribution or payment or redeem,
retire or purchase any capital stock.

7.7  Transactions with Affiliates.

     Directly or indirectly enter or permit any material transaction with any
Affiliate except transactions that are in the ordinary course of Borrower's
business, on terms less favorable to Borrower than would be obtained in an arm's
length transaction with a non-affiliated Person.

7.8  Subordinated Debt.

     Make or permit any payment on any Subordinated Debt, except under the terms
of the Subordinated Debt, or amend any provision in any document relating to the
Subordinated Debt without Bank's prior written consent.

7.9  Compliance.

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

8    EVENTS OF DEFAULT
     -----------------

     Any one of the following is an Event of Default:

8.1  Payment Default.

     If Borrower fails to pay any of the Obligations;

                                      10

<PAGE>

8.2  Covenant Default.

     If Borrower does not perform any obligation in Section 6 or violates any
covenant in Section 7 or does not perform or observe any other material term,
condition or covenant in this Agreement, any Loan Documents, or in any agreement
between Borrower and Bank and as to any default under a term, condition or
covenant that can be cured, has not cured the default within 10 days after it
occurs, or if the default cannot be cured within 10 days or cannot be cured
after Borrower's attempts within 10 day period, and the default may be cured
within a reasonable time, then Borrower has an additional period (of not more
than 30 days) to attempt to cure the default. During the additional time, the
failure to cure the default is not an Event of Default (but no Credit Extensions
will be made during the cure period);

8.3  Material Adverse Change.

     (i) If there occurs a material impairment in the perfection or priority of
the Bank's security interest in the Collateral or in the value of such
Collateral which is not covered by adequate insurance or (ii) if the Bank
determines, based upon information available to it and in its reasonable
judgment, that there is a reasonable likelihood that Borrower will fail to
comply with one or more of the financial covenants in Section 6 during the next
succeeding financial reporting period.

8.4  Attachment.

     If any material portion of Borrower's assets is attached, seized, levied
on, or comes into possession of a trustee or receiver and the attachment,
seizure or levy is not removed in 10 days, or if Borrower is enjoyed,
restrained, or prevented by court order from conducting a material part of its
business or if a judgment or other claim becomes a Lien on a material portion of
Borrower's assets, or if a notice a lien, levy, or assessment is filed against
any of Borrower's assets by any government agency and not paid within 10 days
after Borrower receives notice. These are not Events of Default if stayed or if
a bond is posted pending contest by Borrower (but no Credit Extensions will be
made during the cure period);

8.5  Insolvency.

     If Borrower becomes insolvent or if Borrower begins an Insolvency
Proceeding or an Insolvency Proceeding is begun against Borrower and not
dismissed or stayed within 30 days (but no Credit Extensions will be made before
any Insolvency Proceeding is dismissed);

8.6  Other Agreements.

     If there is a default in any agreement between Borrower and a third party
that gives the third party the right to accelerate any Indebtedness exceeding
$100,000 or that could cause a Material Adverse Change;

8.7  Judgments.

     If a money judgment(s) in the aggregate of at least $50,000 is rendered
against Borrower and is unsatisfied and unstayed for 10 days (but no Credit
Extensions will be made before the judgment is stayed or satisfied); or

8.8  Misrepresentations.

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

                                      11

<PAGE>

9    BANK'S RIGHTS AND REMEDIES
     --------------------------

9.1  Rights and Remedies.

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

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

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

     (c)  Settle or adjust disputes and claims directly with account debtors for
amounts, on terms and in any order that Bank considers advisable;

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

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

     (f)  Ship, reclaim, recover, store, finish, maintain, repair, prepare for
sale, advertise for sale, and sell the Collateral. Bank is granted a non-
exclusive, royalty-free license or other right to use, without charge,
Borrower's labels, Patents, Copyrights, Mask Works, rights of use of any name,
trade secrets, trade names, Trademarks, service marks, and advertising matter,
or any similar property as it pertains to the Collateral, in completing
production of, advertising for sale, and selling any Collateral and, in
connection with Bank's exercise of its rights under this Section, Borrower's
rights under all licenses and all franchise agreements inure to Bank's benefit;
and

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

9.2  Power of Attorney.

     Effective only when an Event of Default occurs and continues, Borrower
irrevocably appoints Bank as its lawful attorney to: (i) endorse Borrower's name
on any checks or other forms of payment or security; (ii) sign Borrower's name
on any invoice or bill of lading for any Account or drafts against account
debtors; (iii) make, settle, and adjust all claims under Borrower's insurance
policies; (iv) settle and adjust disputes and claims about the Accounts directly
with account debtors, for amounts and on terms Bank determines reasonable;
and (v) transfer the Collateral into the name of Bank or a third party as the
Code permits. Bank may exercise the power of attorney to sign Borrower's name on
any documents necessary to perfect or continue the perfection of any security
interest regardless of whether an Event of Default has occurred. Bank's
appointment as Borrower's attorney in fact, and all of Bank's rights and powers,
coupled with an interest, are irrevocable until all Obligations have been fully
repaid and performed and Bank's obligation to provide Credit Extensions
terminates.

                                      12

<PAGE>

9.3  Accounts Collection.

     When an Event of Default occurs and continues, Bank may notify any Person
owing Borrower money of Bank's security interest in the funds and verify the
amount of the Account. Borrower must collect all payments in trust for Bank and,
if requested by Bank, immediately deliver the payments to Bank in the form
received from the account debtor, with proper endorsements for deposit.

9.4  Bank Expenses.

     If Borrower fails to pay any amount or furnish any required proof of
payment to third persons Bank may make all or part of the payment or obtain
insurance policies required in Section 6.5, and take any action under the
policies Bank deems prudent. Any amounts paid by Bank are Bank Expenses and
immediately due and payable, bearing interest at the then applicable rate and
secured by the Collateral. No payments by Bank are deemed an agreement to make
similar payments in the future or Bank's waiver of any Event of Default.

9.5  Bank's Liability for Collateral.

     If Bank complies with reasonable banking practices it is not liable for:
(a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral;
(c) any diminution in the value of the Collateral; or (d) any act or default of
any carrier, warehouseman, bailee, or other person. Borrower bears all risk of
loss, damage or destruction of the Collateral.

9.6  Remedies Cumulative.

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

9.7  Demand Waiver.

     Borrower waives demand, notice of default or dishonor, notice of payment
and nonpayment, notice of any default, nonpayment at maturity, release,
compromise, settlement, extension, or renewal of accounts, documents,
instruments, chattel paper, and guarantees held by Bank on which Borrower is
liable.

10   NOTICES
     -------

     All notices or demands by any party about this Agreement or any other
related agreement must be in writing and be personally delivered or sent by an
overnight delivery service, by certified mail, postage prepaid, return receipt
requested, or by telefacsimile to the addresses set forth at the beginning of
this Agreement. A Party may change its notice address by giving the other Party
written notice.

11   CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER
     ------------------------------------------

     California law governs the Loan Documents without regard to principles of
conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction of
the State and Federal courts in Santa Clara County, California.

BORROWER AND BANK EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY CONTEMPLATED
TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS.

                                      13

<PAGE>

THIS WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS
AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

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

12.1  Successors and Assigns.

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

12.2  Indemnification.

      Borrower will indemnify, defend and hold harmless Bank and its officers,
employees, and agents against: (a) all obligations, demands, claims, and
liabilities asserted by any other party in connection with the transactions
contemplated by the Loan Documents; and (b) all losses or Bank Expenses
incurred, or paid by Bank from, following, or consequential to transactions
between Bank and Borrower (including reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence or willful misconduct.

12.3  Time of Essence.

      Time is of the essence for the performance of all obligations in this
Agreement.

12.4  Severability of Provision.

      Each provision of this Agreement is severable from every other provision
in determining the enforceability of any provision.

12.5  Amendments in Writing, Integration.

      All amendments to this Agreement must be in writing and signed by Borrower
and Bank. This Agreement represents the entire agreement about this subject
matter, and supersedes prior negotiations or agreements. All prior agreements,
understandings, representations, warranties, and negotiations between the
parties about the subject matter of this Agreement merge into this Agreement and
the Loan Documents.

12.6  Counterparts.

      This Agreement may be executed in any number of counterparts and by
parties on separate counterparts, each of which, when executed and delivered,
are an original, and all taken together, constitute one Agreement.

12.7  Survival.

      All covenants, representations and warranties made in this agreement
continue in full force while any Obligations remain outstanding. The obligations
of Borrower in Section 12.2 to indemnify Bank will survive until all statutes of
limitations for actions that may be brought against Bank have run.

                                      14

<PAGE>

12.8  Confidentiality.

      In handling any confidential information, Bank will exercise the same
degree of care that it exercises for its own proprietary information, but
disclosure of information may be made (i) to Bank's subsidiaries or affiliates
in connection with their business with Borrower, (ii) to prospective transferees
or purchasers of any interest in the Loans, (iii) as required by law,
regulation, subpoena, or other order, (iv) as required in connection with Bank's
examination or audit and (v) as Bank considers appropriate exercising remedies
under this Agreement. Confidential information does not include information that
either: (a) is in the public domain or in Bank's possession when disclosed to
Bank, or becomes part of the public domain after disclosure to Bank; or (b) is
disclosed to Bank by a third party, if Bank does not know that the third party
is prohibited from disclosing the information.

12.9  Effect of Amendment and Restatement.

      This Agreement is intended to and does completely amend and restate,
without novation, the Original Agreement. All credit extensions or loans
outstanding under the Original Agreement are and shall continue to be
outstanding under this Agreement. All security interests granted under the
Original Agreement are hereby confirmed and ratified and shall continue to
secure all Obligations under this Agreement.

12.10 Attorneys' Fees, Costs and Expenses.

      In any action or proceeding between Borrower and Bank arising out of the
Loan Documents, the prevailing party will be entitled to recover its reasonable
attorneys' fees and other costs and expenses incurred, in addition to any other
relief to which it may be entitled.

13    DEFINITIONS
      -----------

13.1  Definitions.

      In this Agreement:

      "Accounts" are all existing and later arising accounts, contract rights,
and other obligations owed Borrower in connection with its sale or lease of
goods (including licensing software and other technology) or provision of
services, all credit insurance, guaranties, other security and all merchandise
returned or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.

      "Advance" or "Advances" means an advance or advances under the Committed
Revolving Line.

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

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

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

                                      15

<PAGE>

     "Borrowing Base" is (i) 75% of Eligible Accounts as determined by Bank from
Borrower's most recent Borrowing Base Certificate plus 100% of Accounts backed
by Letters of Credit with terms acceptable to Bank and issued by financial
institutions satisfactory to Bank.

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

     "Closing Date" is the date of this Agreement.

     "Code" is the California Uniform Commercial Code.

     "Collateral" is the property described on Exhibit A.
                                               ---------

     "Committed Revolving Line" is an Advance of up to $1,000,000.

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

     "Copyrights" are all copyright rights, applications or registrations and
like protections in each work or authorship or derivative work, whether
published or not (whether or not it is a trade secret) now or later existing,
created, acquired or held.

     "Credit Extension" is each Advance, Letter of Credit, or any other
extension of credit by Bank for Borrower's benefit.

     "Current Liabilities" are the aggregate amount of Borrower's Total
Liabilities which mature within one (1) year.

     "Eligible Accounts" are Accounts in the ordinary course of Borrower's
business that meet all Borrower's representations and warranties in Section 5.2;
but Bank may change eligibility standards by giving Borrower notice.  Unless
---
Bank agrees otherwise in writing, Eligible Accounts will not include:

     (a)  Accounts that the account debtor has not paid within 90 days of
     invoice date;

     (b)  Accounts for an account debtor, 50% or more of whose Accounts have not
     been paid within 90 days of invoice date;

     (c)  Credit balances over 90 days from invoice date;

     (d)  Accounts for an account debtor, including Affiliates, whose total
     obligations to Borrower exceed 25% of all Accounts, for the amounts that
     exceed that percentage, unless the Bank approves in writing;

     (e)  Accounts for which the account debtor does not have its principal
     place of business in the United States;

                                      16
<PAGE>

     (f) Accounts for which the account debtor is a federal, state or local
     government entity or any department, agency, or instrumentality except for
     Accounts from government hospitals and government clinics up to an
     aggregate of $200,000;

     (g) Accounts for which Borrower owes the account debtor, but only up to the
     amount owed (sometimes called "contra" accounts, accounts payable, customer
     deposits or credit accounts);

     (h) Accounts for demonstration or promotional equipment, or in which goods
     are consigned, sales guaranteed, sale or return, sale on approval, bill and
     hold, or other terms if account debtor's payment may be conditional;

     (i) Accounts for which the account debtor is Borrower's Affiliate, officer,
     employee, or agent;

     (j) Accounts in which the account debtor disputes liability or makes any
     claim and Bank believes there may be a basis for dispute (but only up to
     the disputed or claimed amount), or if the Account Debtor is subject to an
     insolvency Proceeding, or becomes insolvent, or goes out of business;

     (k) Accounts for which Bank reasonably determines collection to be
     doubtful.

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

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

     "GAAP" is generally accepted accounting principles.

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

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

     "Intellectual Property" is:

     (a) Copyrights, Trademarks, Patents, and Mask Works including amendments,
renewals, extensions, and all licenses or other rights to use and all license
fees and royalties from the use;

     (b) Any trade secrets and any intellectual property rights in computer
software and computer software products now or later existing, created, acquired
or held;

     (c) All design rights which may be available to Borrower now or later
created, acquire or held;

     (d) Any claims for damages (past, present or future) for infringement of
any of the rights above, with the right, but not the obligation, to sue and
collect damages for use or infringement of the intellectual property rights
above;

     All proceeds and products of the foregoing, including all insurance,
indemnity or warranty payments.

                                      17

<PAGE>

     "Inventory" is present and future inventory in which Borrower has any
interest, including merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products intended for sale or
lease or to be furnished under a contract of service, of every kind and
description now or later owned by or in the custody or possession, actual or
constructive, of Borrower, including inventory temporarily out of its custody
or possession or in transit and including returns on any accounts or other
proceeds (including insurance proceeds) from the sale or disposition of any of
the foregoing and any documents of title.

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

     "Letter of Credit" is defined in Section 2.1.2.

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

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

     "Mask Works" are all mask works or similar rights available for the
protection of semiconductor chips, now owned or later acquired.

     "Material Adverse Change" is defined in Section 8.3.

     "Obligations" are debts, principal, interest, Bank Expenses and other
amounts Borrower owes Bank now or later, including letters of credit and
exchange contracts and including interest accruing after Insolvency Proceedings
begin and debts, liabilities, or obligations of Borrower assigned to Bank.

     "Original Agreement" has the meaning set forth in recital paragraph A.

     "Patents" are patents, patent applications and like protections, including
improvements, divisions, continuations, renewals, reissues, extensions and
continuations-in-part of the same.

     "Permitted Indebtedness" is:

     (a)  Borrower's indebtedness to Bank under this Agreement or any other Loan
          Document;

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

     (c)  Subordinated Debt;

     (d)  Indebtedness to trade creditors incurred in the ordinary course of
          business; and

     (e)  Indebtedness secured by Permitted Liens.

     "Permitted Investments" are:

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

     (b)  (i)  marketable direct obligations issued or unconditionally
guaranteed by the United States or its agency or any State maturing within 1
year from its acquisition, (ii) commercial paper maturing no more than 1 year
after its creation and having the highest rating from either Standard & Poor's
Corporation or Moody's Investors Service, Inc., and (iii) Bank's certificates of
deposit issued maturing no more than 1 year after issue.

                                      18
<PAGE>

     "Permitted Liens" are:

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

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

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

     (d)  Leases or subleases and licenses or sublicenses in the ordinary course
of Borrower's business and any interest or title of a lessor, licensor or under
any lease or license, if the leases, subleases, licenses and sublicenses permit
                      --
granting Bank a security interest;

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

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

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

     "Quick Assets" is, on any date, the Borrower's consolidated, unrestricted
cash, cash equivalents, net billed accounts receivable and investments with
maturities of fewer than 12 months determined according to GAAP.

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

     "Revolving Maturity Date" is March 31, 1999.

     "Schedule" is any attached schedule of exceptions.

     "Subordinated Debt" is debt incurred by Borrower subordinated to Borrower's
debt to Bank (and identified as subordinated by Borrower and Bank).

     "Subsidiary" is for any Person, or any other business entity of which more
than 50% of the voting stock or other equity interests is owned or controlled,
directly or indirectly, by the Person or one or more Affiliates of the Person.

     "Tangible Net Worth" is, on any date, the consolidated total assets of
Borrower and its Subsidiaries minus, (i) any amounts attributable to (a)
                              -----
goodwill, (b) intangible items such as unamortized debt discount and expense,
Patents, trade and service marks and names, Copyrights and research and
development expenses except prepaid expenses, and (c) reserves not already
deducted from assets, and (ii) Total Liabilities plus Subordinated Debt.
                      ---

                                      19

<PAGE>

          "Total Liabilities" is on any day, obligations that should, under
GAAP, be classified as liabilities on Borrower's consolidated balance sheet,
including all indebtedness, and current portion Subordinated Debt allowed to be
paid, but excluding all other Subordinated Debt.

          "Trademarks" are trademark and servicemark rights, registered or not,
applications to register and registrations and like protections, and the entire
goodwill of the business of Assignor connected with the trademarks.

BORROWER:

NATUS MEDICAL INCORPORATED

By: /s/ Tim Johnson
   -------------------------------

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

BANK:

SILICON VALLEY BANK

By:  /s/ D Bowman
    -------------------------------
Title: Vice President
       ----------------------------

                                      20
<PAGE>

                                   EXHIBIT A
                                   ---------

     The Collateral consists of all of Borrower's right, title and interest in
and to the following:

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

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

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

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

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

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

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

<PAGE>

                                   EXHIBIT B
                                   ---------

                  LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM

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

TO: CENTRAL CLIENT SERVICE DIVISION                DATE: _________________

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

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

FROM: NATUS MEDICAL INCORPORATED
      -------------------------------------------------------------------------
                            CLIENT NAME (BORROWER)

REQUESTED BY: _________________________________________________________________
                           AUTHORIZED SIGNER'S NAME

AUTHORIZED SIGNATURE: _________________________________________________________

PHONE NUMBER:__________________________________________________________________

FROM ACCOUNT # _________________ TO ACCOUNT # _________________________________

REQUESTED TRANSACTION TYPE               REQUESTED DOLLAR AMOUNT
--------------------------               -----------------------

PRINCIPAL INCREASE (ADVANCE)            $______________________________________
PRINCIPAL PAYMENT (ONLY)                $______________________________________
INTEREST PAYMENT (ONLY)                 $______________________________________
PRINCIPAL AND INTEREST (PAYMENT)        $______________________________________

OTHER INSTRUCTIONS:____________________________________________________________

_______________________________________________________________________________

All Borrower's representations and warranties in the Amended and Restated Loan
and Security Agreement are true, correct and complete in all material respects
on the date of the telephone request for and Advance confirmed by this Borrowing
Certificate; but those representations and warranties expressly referring to
another date shall be true, correct and complete in all material respects as of
that date.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                                 BANK USE ONLY

TELEPHONE REQUEST:
------------------

The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.

____________________________                       ____________________________
    Authorized Requester                                      Phone #

____________________________                       ____________________________
     Received By (Bank)                                       Phone #

                          _________________________________
                             Authorized Signature (Bank)

--------------------------------------------------------------------------------
<PAGE>

                                   EXHIBIT C
                          BORROWING BASE CERTIFICATE
--------------------------------------------------------------------------------

Borrower:  NATUS MEDICAL INCORPORATED           BANK:    Silicon Valley Bank
                                                         3003 Tasman Drive
                                                         Santa Clara, CA 95054

Commitment Amount     $1,000,000
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
ACCOUNTS RECEIVABLE
<S>                                                                                        <C>
1.         Accounts Receivable Book Value as of _______                                    $_________
2.         Additions (please explain on reverse)                                           $_________
3.         TOTAL ACCOUNTS RECEIVABLE                                                       $_________

ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4.         Amounts over 90 days due                                       $_________
5.         Balance of 50% over 90 day accounts                            $_________
6.         Credit balances                                                $_________
7.         Concentration Limits                                           $_________
8.         Foreign Accounts                                               $_________
9.         Governmental Accounts*                                         $_________
10.        Contra Accounts                                                $_________
11.        Promotion or Demo Accounts                                     $_________
12.        Intercompany/Employee Accounts                                 $_________
13.        Other (please explain on reverse)                              $_________
14.        TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS                                            $_________
15.        Eligible Accounts (#3 minus #14)                                                $_________
16.        LOAN VALUE OF ACCOUNTS (75% of #15)                                             $_________

BALANCES
17.        Maximum Loan Amount                                            $_________
18.        Total Funds Available [Lesser of #17 or #16]                                    $_________
19.        Present balance owing on Line of Credit                        $_________
20.        Outstanding under Sublimits (LC)                               $_________
21.        RESERVE POSITION (#18 minus #19 and #20)                                        $_________
</TABLE>

The undersigned represents and warrants that this is true, complete and correct,
and that the information in this Borrowing Base Certificate complies with the
representations and warranties in the Amended and Restated Loan and Security
Agreement between the undersigned and Silicon Valley Bank.

COMMENTS:

                                                     -------------------------
                                                           BANK USE ONLY
                                                           ---- --- ----

                                                       Rec'd By:__________
                                                                Auth. Signer

NATUS MEDICAL INCORPORATED                             Date:______________

                                                       Verified:__________
                                                                Auth. Signer
By:____________________________________
       Authorized Signer                               Date:______________

                                                       ___________________

                                                     -------------------------
<PAGE>

                                   EXHIBIT D
                            COMPLIANCE CERTIFICATE

TO:       SILICON VALLEY BANK
          3003 Tasman Drive
          Santa Clara, CA 95054

FROM:     NATUS MEDICAL INCORPORATED

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

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

<TABLE>
<CAPTION>
     Reporting Covenant                                 Required                               Complies
     ------------------                                 --------                               --------
     <S>                                                <C>                                    <C>
     Monthly financial statements + CC                  Monthly within 30 days                 Yes   No
     Annual (Audited)                                   FYE within 120 days                    Yes   No
     A/R & A/P Agings + BBC*                            Monthly within 120 days                Yes   No
</TABLE>

* when there are outstanding Advances or with the initial Advance

<TABLE>
<CAPTION>
     Financial Covenant                                 Required           Actual              Complies
     ------------------                                 --------           ------              --------
     <S>                                                <C>                <C>                 <C>
     Maintain on a Monthly Basis:
      Minimum Quick Ratio                               1.25:1.00          _____:1.00          Yes   No
      Minimum Tangible Net Worth + Sub. Debt            $3,500,000         $_________          Yes   No
      Maximum Debt/Tangible Net Worth                   1.00:1.00          _____:1.00          Yes   No

     Profitability:                                     Quarterly          $_________          Yes   No

                    Losses not to exceed:               $150,000 for the quarter ended March   Yes   No
                                                        31, 1998, $150,000 for the quarter
                                                        ending June 30, 1998, and $150,000 for
                                                        the quarter ending September 30, 1998
</TABLE>

<PAGE>

                                               ---------------------------------
Comments Regarding Exceptions: See Attached.              BANK USE ONLY

Sincerely,                                      Received by: ___________________
                                                              AUTHORIZED SIGNER
NATUS MEDICAL INCORPORATED
                                                Date: __________________________
_____________________________
Signature                                       Verified: ______________________
                                                            AUTHORIZED SIGNER
_____________________________
Title                                           Date: __________________________

_____________________________                   Compliance Status:        Yes No
Date                                           ---------------------------------

                                       2

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