Document:

EXHIBIT 10.39

                            COMMERCIAL LOAN AGREEMENT

This COMMERCIAL LOAN AGREEMENT ("Agreement") is entered into as of August 21,
2000, by and between NEUTRAL POSTURE ERGONOMICS, INC., a Texas corporation, with
its principal place of business in Brazos County, TX ("Borrower"), and COMPASS
BANK, an Alabama state chartered bank ("Lender").

SECTION 1. DEFINITIONS AND GENERAL RULES. The following definitions and general
rules will apply hereto:

      1.1   GENERAL RULES. For the purposes of this Agreement:

            (a) Whenever required by the context, any gender shall include any
      other gender, the singular shall include the plural and the plural shall
      include the singular. Additional definitions may be found in the preamble
      and throughout this Agreement;

            (b) All accounting terms not otherwise defined herein will have the
      meanings assigned to them in accordance with generally accepted accounting
      principles, consistently applied; and

            (c) The words "herein", "hereof", "hereunder" and words of similar
      import refer to this Agreement as a whole and not to a particular section,
      paragraph or other subdivision.

      1.2 DEFINITIONS. As used in this Agreement, the following terms will have
the following meanings unless the context requires otherwise:

            ACCOUNT shall mean all accounts, contract rights, general
      intangibles, and receivables and claims whether now or hereafter arising,
      all guaranties and security therefor and all of Borrower's right, title,
      and interest in the goods purchased and represented thereby including all
      of Borrower's rights in and to returned goods and rights of stoppage in
      transit, replevin and reclamation as unpaid vendor.

            AFFILIATE of any Person means any Person that, directly or
      indirectly, controls or is controlled by or is under common control with
      such Person and, without limiting the generality of the foregoing, shall
      include any Person that beneficially owns or holds five percent (5%) or
      more of any class or series of voting securities of such Person (or in the
      case of a Person that is not a corporation, five percent (5%) or more of
      the equity interest). For the purposes of this

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      definition, "control" (including, with correlative meanings, the terms
      "controlled by" and "under common control with"), as used with respect to
      any Person, means the possession, directly or indirectly, of the power to
      direct or cause the direction of the management or policies of such
      Person, whether through ownership of voting securities or by contract or
      otherwise.

            AGREEMENT means this Commercial Loan Agreement, as originally
      executed or hereafter amended.

            BORROWING BASE shall mean eighty percent (80%) of the aggregate
      outstanding principal balance of the Borrower's Eligible Accounts plus
      Fifty percent (50%) of Borrower's inventory as set forth in the most
      recent Borrowing Base Certificate but in no event in excess of the
      Commitment Amount.

            BORROWING BASE CERTIFICATE shall mean a certificate in the form of
      EXHIBIT "A" to this Agreement, completed in all appropriate respects and
      executed by the chief executive or chief financial officer of the Borrower
      and setting forth Borrower's computation of the Borrowing Base as of the
      date of such certificate.

            BUSINESS DAY means a day (other than Saturday, Sunday or a legal
      holiday) on which Lender is open for business.

            COLLATERAL means all accounts receivables and inventory now owned or
      hereafter acquired, including but not limited to those listed in EXHIBIT
      "B" and EXHIBIT "C" attached hereto and incorporated herein by this
      reference. The term "Collateral" shall also mean all or, where the the
      context permits or requires, any portion of the above, and all or, where
      the context permits or requires, any interest therein. The term
      "Collateral" as used in this Agreement shall further mean and include, all
      of the foregoing property, as well as any accessions, additions and
      attachments thereto and the proceeds and products thereof, including
      without limitation, all cash, equipment, general intangibles, accounts,
      inventory, fixtures, notes, drafts, acceptances, securities, instruments,
      chattel paper, insurance proceeds payable because of loss or damage, or
      other property, benefits or rights arising therefrom, and in and to all
      returned or repossessed goods arising from or relating to any of the
      property described herein or other proceeds of any sale or other
      disposition of such property.

            COMMITMENT AMOUNT means $2,500,000.

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            CORPORATION means corporations, S corporations, partnerships, joint
      ventures, joint stock associations, business trusts, individual trusts and
      other business entities, including for profit and non-profit entities.

            CURRENT ASSETS shall mean, as of any applicable date of
      determination, all cash, non-affiliated customer receivables, United
      States government securities, inventories and other assets of the Borrower
      that should be classified as current in accordance with GAAP.

            CURRENT LIABILITIES shall mean, as of any applicable date of
      determination, all liabilities of the Borrower that should be classified
      as current in accordance with GAAP, plus all amounts outstanding under the
      Revolving Credit Note.

            CURRENT RATIO shall mean Current Assets divided by Current
      Liabilities.

            DEBT shall mean, as of any applicable date of determination, all
      items of indebtedness, obligation or liability of the Borrower, whether
      matured or unmatured, liquidated or unliquidated, direct or indirect,
      absolute or contingent, joint or several, that should be classified as
      liabilities in accordance with GAAP.

            DEFAULT means any event specified in Section 7.1 of this Agreement,
      regardless of whether any requirement for the giving of notice or lapse of
      time or any other condition has been satisfied.

            ELIGIBLE ACCOUNT means an account as specified in Section 2.7 of
      this Agreement.

            EURODOLLAR RATE means a rate per annum which on any day is equal to
      the lesser of (a) the sum of (i) the LIBOR Rate for the relevant
      Eurodollar Interest Period plus (ii) applicable Margin, or (b) the Maximum
      Rate. The Eurodollar Rate shall be computed on the basis at the actual
      number of days elapsed in a year consisting of 360 days, unless such
      computation would result in an annualized effective rate greater than the
      Maximum Rate, in which case interest shall be calculated on the basis of a
      year of 365 days or 366 days, as the case may be.

            EURODOLLAR RATE BORROWING.  As defined in the Note.

            EVENT OF DEFAULT means any event specified in Section 7.1 of this
      Agreement, provided that any requirement in connection with such event for
      the giving of notice or lapse of time or any other condition has been
      satisfied.

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            FINANCING STATEMENTS means the Financing Statements executed by
      Borrower on even date herewith and to be executed in the future for the
      benefit of Lender to further secure the payment of the Loan and covering
      the accounts and inventory, to be filed in the Uniform Commercial Code
      Records of Brazos County, Texas, and the Office of the Secretary of State
      of Texas, respectively.

            FIXED CHARGE COVERAGE shall mean the sum of net income plus
      depreciation, plus amortization plus interest expense, divided by the sum
      of current maturities of long-term debt (the Revolving Credit Note being
      considered short-term debt for purposes hereof) plus current maturities of
      capital leases, plus interest expense.

            GAAP shall mean general accepted accounting principals then in
      effect.

            GOVERNMENTAL AUTHORITY means any foreign governmental authority, the
      United States of America, any state of the United States and any political
      subdivision of any of the foregoing, and any agency, department,
      commission, board, bureau, or court having jurisdiction over Lender, the
      Parties or their respective assets or property.

            INDEBTEDNESS means the total liabilities of a Person calculated in
      accordance with generally accepted accounting principles consistently
      applied.

            INDEX RATE shall mean shall mean on any day, the "Prime Rate" as
      published in THE WALL STREET JOURNAL on that day under the section "Money
      Rates", and being defined therein as "the base rate on corporate loans at
      large U.S. money center commercial banks." If this section of THE WALL
      STREET JOURNAL reflects more than one rate as being the "Prime Rate", then
      the highest rate shall be the Index Rate. On days when THE WALL STREET
      JOURNAL is not published, the Index Rate shall be the "Prime Rate" stated
      in the most recently published edition of THE WALL STREET JOURNAL. In the
      event that THE WALL STREET JOURNAL ceases to be published altogether, or
      ceases to publish the "Prime Rate", then Lender, its assigns or
      successors, shall establish and choose a substitute Index Rate which is
      based upon comparable information, in the exercise of its sole discretion,
      without any notice to Borrower or any person being required. The Index
      Rate shall automatically fluctuate, upward, downward, without notice to
      Borrower or any other person, as and in the amount the said published
      "Prime Rate" shall fluctuate. The Index Rate is a reference rate and does
      not necessarily represent Lender's best or lowest rate or a favored rate,
      and Lender disclaims any statement, representation or warranty to the
      contrary. The Index

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      Rate shall be calculated based upon days actually elapsed in a year
      consisting of 360 days.

            INVENTORY means all inventory, wherever located and whether now or
      hereafter existing (including, but not limited to raw materials and work
      in progress, finished goods and materials used or consumed in the
      manufacture or production thereof, goods in which Borrower has interest in
      mass or a joint order or other interest or rights of any kind, and goods
      which are returned to or repossessed by Borrower) and all accessions
      thereto and products thereof and documents therefor.

            LEGAL REQUIREMENT means any law, statute, ordinance, decree,
      requirement, order, judgment, rule, or regulation (or interpretation of
      any of the foregoing) of, and the terms of any license or permit issued
      by, any Governmental Authority.

            LETTER OF CREDIT means a letter of credit to be issued hereunder by
      Lender for the benefit of Borrower.

            LETTER OF CREDIT COMMITMENT means $250,000.00.

            LETTER OF CREDIT LIABILITIES means the amounts then owing to Lender
      drawn under the Letters of Credit.

            LEVEL I STATUS exists at any date on which the sum of (i) the
      aggregate outstanding amount of the Loan, (ii) all pending loan advance
      requests, and (iii) the aggregate Letter of Credit Liabilities is less
      than or equal to Seventy Percent (70%) of the Borrowing Base in effect at
      the end of the immediately preceding calendar month.

            LEVEL II STATUS exists at any date on which the sum of (i) the
      aggregate outstanding amount of the Loan, (ii) all pending loan advance
      requests, and (iii) the aggregate Letter of Credit Liabilities exceeds
      Seventy Percent (70%) of the Borrowing Base in effect at the end of the
      immediately preceding calendar month.

            LIEN shall mean any interest or security interest in property
      securing an obligation owed to, or a claim by, a Person other than the
      owner of the property, whether such interest is based on the common law,
      constitutional provision, statute or contract, and including but not
      limited to the security interest lien arising from a mortgage,
      encumbrance, pledge, conditional sale or trust receipt or a lease,
      consignment or bailment for security purposes. The term "Lien" shall

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      include exceptions, covenants, conditions, restrictions, leases and other
      exceptions and encumbrances affecting such property. For the purposes of
      this Agreement, a Person shall be deemed to be the owner of any property
      which it or he has acquired or holds subject to a conditional sale
      agreement, financing lease or other arrangement pursuant to which title to
      the property has been retained by or vested in some other Person for
      security purposes.

            LOAN shall refer to the combined principal amount due under the
      Revolving Promissory Note and the Letters of Credit.

            LOAN DOCUMENTS means this Agreement, the Note, all Security
      Instruments, all instruments, certificates and agreements now or hereafter
      executed or delivered to or by Lender pursuant to any of the foregoing,
      and all amendments, modifications, renewals, extensions, increases and
      rearrangements of, and substitutions for, any of the foregoing.

            LONDON INTERBANK OFFERED RATE OR LIBOR means, with respect to a
      LIBOR Borrowing for the relevant Interest Period, the annual interest rate
      appearing on Telerate page 3750 (or any successor page) as the London
      interbank offered rate for deposits in Dollars at approximately 11:00 a.m.
      (London time) two Business Days prior to the first day of such Interest
      Period for a term comparable to such Interest Period. If for any reason
      such rate is not available, the term "LIBOR" shall mean, for any LIBOR
      Borrowing for the relevant Interest Period, the annual interest rate
      appearing on the Reuters Screen LIBO Page as the London interbank offered
      rate for deposits in Dollars at approximately11:00 a.m. (London time) two
      Business Days prior to the first day of such Interest Period for a term
      comparable to such Interest Period, provided that, if more than one rate
      is specified on Reuters Screen LIBO Page, the applicable rate shall be the
      arithmetic mean of all such rates.

            MARGIN means (i) for any day on which Level I Status exists, 1.75%
      or (ii) for any day on which Level II Status exists 2.25%.

            MATURITY DATE means the earlier of (a) September 30, 2001, or (b)
      One Hundred Eighty (180) days after the issuance date of a Letter of
      Credit with respect to the Letter of Credit, as the case may be.
      Notwithstanding the foregoing, the Maturity Date may be sooner if
      otherwise accelerated as provided herein.

            MAXIMUM RATE shall have the meaning set forth in the Note.

COMMERCIAL LOAN AGREEMENT                                                 PAGE 6
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            NOTE means the Revolving Promissory Note issued pursuant to Section
      2.1 hereof, as the same may be amended, modified, supplemented, renewed,
      extended or rearranged at any time.

            OBLIGATIONS means the obligations and liabilities of Borrower to
      Lender evidenced by the Note and any and all other indebtedness,
      liabilities and obligations whatsoever of Borrower to Lender, whether
      direct or indirect, absolute or contingent, due or to become due, and
      whether now existing or hereafter arising, and howsoever evidenced or
      acquired, whether joint or several, and whether evidenced by note, draft,
      acceptance, guaranty, open account, letter of credit, surety agreement or
      otherwise; it being contemplated by the parties hereto that Borrower may
      become indebted to Lender in further sum or sums.

            PERMITTED LIENS means (i) liens created by the Security Instruments
      or this Agreement, (ii) liens for taxes, assessments and other
      governmental charges not yet payable (excluding any lien imposed pursuant
      to any of the provisions of ERISA), or the validity of which are being
      contested in good faith by appropriate proceedings and as to which
      adequate reserve have been set aside on the books of the Borrower in
      accordance with GAAP, (iii) deposits or pledges to secure the payment of
      workmen's compensation, unemployment insurance or other social security
      benefits or obligation, public or statutory obligations, surety or appeal
      bonds or other obligations of a like general nature incurred in the
      ordinary course of business, provided all such liens in the aggregate have
      no reasonable likelihood of causing a material adverse effect, (iv)
      landlords', mechanics', materialmen's, warehousemen's, carriers', vendors'
      or other like liens arising by operation of law in the ordinary course of
      business or which are being contested in good faith by appropriate
      proceedings and against which the Borrower has provided adequate reserves
      in accordance with GAAP, and (v) liens permitted in the Security
      Instruments or otherwise by the Lender in writing.

            PERSON means any Corporation, estate, individual, unincorporated
      business entity, Governmental Authority or any other form of entity.

            PRIME RATE BORROWING.  As defined in the Note.

            SECURITY AGREEMENT means the Security Agreement covering the
      Collateral and other property of Borrower as therein described, executed
      by Borrower in favor of Lender on even date herewith, as the same may be
      amended, modified, supplemented, renewed, extended or rearranged from time
      to time.

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            SECURITY INSTRUMENTS means the Financing Statements, the Security
      Agreement and all other documents securing the payment or performance of
      the Obligations, together with all financing statements and other
      documents necessary for recordation of the same or perfection of the Liens
      granted thereby.

            SUBSIDIARY means any Corporation of which more than fifty percent
      (50%) of the issued and outstanding securities having ordinary voting
      power is owned or controlled, directly or indirectly, by a Person and, or,
      one or more of its Subsidiaries.

            TANGIBLE NET WORTH means the total shareholder equity of Borrower
      less goodwill and all other intangible assets as defined by GAAP.

            UNUSED PORTION shall mean that portion of the Commitment Amount that
      is not used during a calendar quarter and shall be calculated by
      subtracting from the Commitment Amount the weighted average of the sum of
      (i) the daily aggregate outstanding amount of the Loan, and (ii) the daily
      aggregate Letter of Credit Liabilities.

SECTION 2.  THE LOAN.

      2.1 $2,500,000.00 LOAN. Subject to and upon the terms, conditions,
covenants and agreements contained in the Loan Documents, Lender agrees to loan
to Borrower an amount not to exceed $2,500,000.00 (the "Loan"), the proceeds of
which Loan shall be disbursed by Lender and utilized by Borrower solely for the
purposes described in Section 2.2, below. The Loan shall be evidenced by the
Note payable to the order of Lender in the form attached hereto as EXHIBIT "D"
and incorporated herein by reference. The principal of and interest to accrue on
the Loan shall be due and payable in the manner provided in the Note.

      All renewals, extensions, modifications and rearrangements of the Note, if
any, shall be deemed to be made pursuant to this Agreement and, accordingly,
shall be subject to the terms and provisions hereof, and Borrower shall be
deemed to have ratified, as of such renewal, extension, modification or
rearrangement date, all of the representations, warranties, covenants and
agreements set forth herein.

      2.2 PERMISSIBLE USES OF LOAN PROCEEDS. The sole purposes for which
Borrower shall be allowed to use the proceeds of the Loan are as follows:

            (a)   Finance short term working capital needs; and

COMMERCIAL LOAN AGREEMENT                                                 PAGE 8
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            (b)   Provide Letters of Credit for the benefit of Borrower up to a
                  $250,000.00 to facilitate Borrower's acquisitions and/or to
                  assist Borrower in establishing new credit with its trade
                  vendors.

      2.3 ADVANCES OF LOAN PROCEEDS. Funding by Lender to Borrower of advances
of the Loan proceeds may be made by Lender to Borrower, in the following manner
and only if:

            (a)   Borrower shall prepare and deliver to Lender a Borrowing Base
                  Certificate prepared using the most recent calendar month end
                  information;

            (b)   Borrower shall provide Lender with a completed and executed
                  Rate Designation Notice in the form attached to the Note as
                  Exhibit "A";

            (c)   Advances under the Loan shall be in increments of (i)
                  $500,000.00 for Eurodollar Rate Borrowings, (ii) $5,000.00 in
                  connection with Letters of Credit, and (iii) $50,000.00 for
                  Prime Rate Borrowings;

            (d)   If connection with a Eurodollar Rate based advance request,
                  Borrower currently has no more than three (3) outstanding
                  Eurodollar Rate Borrowings in effect;

            (e)   The sum of (i) the aggregate outstanding amount of the Loan,
                  (ii) the aggregate Letter of Credit Liabilities in effect, and
                  (iii) the requested advance shall not exceed the Borrowing
                  Base nor the Commitment Amount; and

            (f)   Borrower is not in default under this Agreement, the Note, or
                  the Security Instruments.

      2.4 PAYMENTS. All payments of principal or interest on the Note shall be
made to Lender at its office set forth in Section 8.8. Whenever any payment of
principal or interest on the Note shall be due on a day which is not a Business
Day, the date for payment thereof shall be extended to the next succeeding
Business Day and interest shall be payable for such extended time at the rate of
interest with respect thereto in effect at the due date.

      The Note shall be due and payable in monthly installments of interest
only, payable on or before last day of every month, beginning August 31, 2000,
and

COMMERCIAL LOAN AGREEMENT                                                 PAGE 9
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continuing regularly thereafter until the Maturity Date, when the entire
amount hereof, principal and interest remaining unpaid, shall be then due and
payable.

      In the event that the outstanding principal on the Loan exceeds Borrower's
Borrowing Base, Borrower shall make a principal payment within three (3)
Business Days in an amount sufficient to reduce the outstanding principal to the
Borrowing Base.

      2.5 COMPUTATION OF INTEREST. Borrower's liability for payment of principal
and interest provided in the Note shall be limited to and calculated on sums
actually advanced to Borrower from the date or dates of each such advance and
the Loan shall bear interest on the outstanding principal amount thereof, for
each day from the date such Loan is made until it becomes due at a rate per
annum equal to the Adjusted Prime Rate (as defined in the Note) or Eurodollar
Rate as selected by Borrower via the Rate Designation Notice. Such interest
shall be payable for each interest period as provided for in the Note.

      2.6 SECURITY. Payment of the Note and the performance of the Obligations
will be secured, directly or indirectly, by a perfected security interest, in
and upon, the Collateral herein described. Borrower agrees to execute,
acknowledge and deliver to Lender the Security Instruments, in form and
substance acceptable to Lender, as in the good faith and discretion of Lender
may be necessary to enforce, grant to Lender and perfect the security interests
in the Collateral. Borrower and Lender agree that all Collateral now or
hereafter securing any of the Obligations hereunder also shall secure any and
all other indebtedness and liabilities now or hereafter owing by Borrower to
Lender.

      2.7 ELIGIBLE ACCOUNTS. As to each Account represented by the Borrower to
be an "Eligible Account" on a Borrowing Base Certificate, as of the date of each
such Borrowing Base Certificate:

            (a) Such Account arose in the ordinary course of the business of
      Borrower out of either (i) a bona fide sale of Inventory by the Borrower,
      and in such case such Inventory has in fact been shipped to, and accepted
      and retained by, the appropriate account debtor or the sale has otherwise
      been consummated in accordance with such order, or (ii) services performed
      by the Borrower, under an enforceable contract, and in such case such
      services have in fact been performed for the appropriate account debtor in
      accordance with such contract.

            (b) Such Account represents a legally valid and enforceable claim
      which is due and owing to the Borrower, by such account debtor and for
      such amount as

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      is represented by the Borrower, to the Bank on such Borrowing Base
      Certificate, such Account is due and payable not more than thirty (30)
      days from the delivery of the related Inventory, or the performance of the
      related services, giving rise to such Account and such Account has not
      been due for more than ninety (90) days (from the date of invoice).

            (c) The unpaid balance of such Account is as represented by the
      Borrower, and not subject to any defense, counterclaim, setoff, credit,
      allowance or adjustment by the account debtor because of returned,
      inferior or damaged Inventory or services, or for any other reason, except
      for customary discounts allowed by Borrower, in the ordinary course of
      business for prompt payment, and there is no agreement between Borrower,
      the related account debtor and any other person for any rebate, discount,
      concession or release of liability, in whole or in part.

            (d) The transactions leading to the creation of such Account comply
      with all applicable state and federal laws and regulations.

            (e) The Borrower has granted to the Bank a perfected security
      interest in such Account (as an item of the Collateral) prior in right to
      all other persons (other than Permitted Liens), and such Account has not
      been sold, transferred or otherwise assigned by the Borrower, to any
      person, other than the Bank.

            (f) Such Account is not represented by any note, trade acceptance,
      draft or other negotiable instrument or by any chattel paper, except any
      such as have been endorsed and delivered by the Borrower, to the Bank on
      or prior to such Account's inclusion on such Borrowing Base Certificate.

            (g) The Borrower has not received, with respect to such Account, any
      notice of the death of the related account debtor or any partner thereof,
      nor of the dissolution, liquidation, termination of existence, insolvency,
      business failure, appointment of a receiver for any part of the property
      of, assignment for the benefit of creditors by, or the filing of a
      petition in bankruptcy or the commencement of any proceeding under any
      bankruptcy or insolvency laws by or against, such account debtor.

            (h) The account debtor on such Account is not:

                  (i)   an affiliate of the Borrower;

                  (ii)  the United States of America or any department, agency
                        or

COMMERCIAL LOAN AGREEMENT                                                PAGE 11
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                        instrumentality thereof;

                  (iii) a citizen or resident of any jurisdiction other than one
                        of the United States (unless such Foreign Account is
                        subject to a guaranty of payment in the form of a letter
                        of credit issued by a Bank which is acceptable to the
                        Bank); or

                  (iv)  an account debtor whom the Bank has, in the exercise of
                        such Bank's sole discretion, determined to be (based on
                        such factors as the Bank deems appropriate) an
                        ineligible account debtor and as to which the Bank has
                        notified the Borrower, PROVIDED, HOWEVER, that any such
                        notice shall not apply as to any Account of such account
                        debtor which has been included on a Borrowing Base
                        Certificate by the Borrower prior to the giving of such
                        notice by the Bank and which meets each and every other
                        requirement under this Agreement for the denomination of
                        such Account as an "Eligible Account."

NOTWITHSTANDING the foregoing, the Borrower may include in Eligible Accounts,
provided the Account is otherwise eligible hereunder, up to $100,000.00 of
Accounts where the account debtor is the United States of America or any
department, agency or instrumentality thereof.

            (i) Such Account is not payable by an account debtor for whom Ten
      percent (10%) or more of the total amount then owed to the Borrower and/or
      its Subsidiaries by that account debtor is ninety (90) days or more from
      invoice date.

SECTION 3. REPRESENTATIONS AND WARRANTIES. Borrower represents, warrants and
agrees as follows, with knowledge of Lender's intended reliance thereon in
making each advance of proceeds under the Note:

      3.1 LICENSE AND PERMITS. Borrower has filed all such assumed name
certificates and is duly licensed and has all permits necessary to do business
in each jurisdiction in which a failure to be such may have a material adverse
effect on Borrower, its business or its properties, and has all powers and has
satisfied all Legal Requirements necessary to own and operate its properties and
to carry on its business as contemplated under this Agreement.

      3.2 STOCK AND EQUITABLE SECURITIES. All of Borrower's issued and
outstanding stock and equitable securities and the holder's thereof of five
percent (5%) or more as

COMMERCIAL LOAN AGREEMENT                                                PAGE 12
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of the date of execution hereof are described on EXHIBIT "E" attached hereto and
incorporated herein.

      3.3 CORPORATE INDEBTEDNESS. All of the debts, excluding trade payables
incurred in the ordinary court of business, owed directly or indirectly by
Borrower on loan date herewith are described on EXHIBIT "F" attached hereto and
incorporated herein.

      3.4 AUTHORIZATION; CONFLICT; ENFORCEABILITY. The execution, delivery and
performance of the Loan Documents by Borrower: (a) will not contravene, or
constitute a material default under, any Legal Requirement, or any mortgage,
indenture, contract, agreement or other instrument, binding upon Borrower; (b)
will not require the obtaining of any consents, approvals, permits, or
registrations from any Governmental Authority or other Person; and (c) except as
may be limited by bankruptcy, insolvency and other similar laws affecting
creditors' rights generally and by general equitable principles, when duly
executed and delivered in accordance with this Agreement, will constitute legal,
valid and binding obligations of Borrower in accordance with their respective
terms.

      3.5 LITIGATION. There is no action, suit or proceeding pending or, to the
knowledge of Borrower, threatened against Borrower before any Governmental
Authority in which there is a reasonable possibility of an adverse decision
which, if such action, suit or proceeding were adversely determined: (i) would
subject Borrower to any liability not fully covered by insurance; or (ii) would
materially adversely affect the financial position or the results of operations
of Borrower or its businesses or the ability of Borrower to perform its
obligations under the Loan Documents. Borrower is not in default with respect to
any material Legal Requirement. Borrower agrees to notify Lender in writing of
any such action, suit or proceeding hereafter filed against within five (5) days
after Borrower's first knowledge thereof, and to explain in reasonable detail in
such notice the facts and circumstances surrounding, the cause of action alleged
in such action, suit or proceeding. Current litigation is disclosed in EXHIBIT
"G" attached hereto and incorporated herein.

      3.6 NO EVENT OF DEFAULT. No Default or Event of Default has occurred and
is continuing.

      3.7 USE OF PROCEEDS. The proceeds of the Loan will be used by Borrower
solely for the purposes described in Section 2.2. The Loan is and shall be a
"business loan", as such term is used in the Depository Institutions
Deregulation and Monetary Control Act of 1980, as amended, and the Loan is for
business, commercial, investment

COMMERCIAL LOAN AGREEMENT                                                PAGE 13
<PAGE>
or other similar purpose and not primarily for personal, family, household or
agricultural use, as such terms are used in Chapter One of the Texas Credit
Code.

      3.8 TAX RETURNS. Borrower has filed all federal, state and local tax
returns required to be filed by it. Borrower has paid or caused to be paid all
taxes required to be paid in connection with its organization, and Borrower has
no knowledge of any actual or proposed assessments for additional federal, state
or other taxes for any fiscal periods.

      3.9 LIENS AND SECURITY INTERESTS. The security interests, mortgages and
liens attaching to the Collateral pursuant to the Loan will constitute at all
times valid, perfected and enforceable security interests, mortgages and liens
in favor of Lender, subject to no prior or superior Lien (other than Permitted
Liens). Before and after funding under the Note, Borrower will have taken, or
will have participated with Lender in taking, all necessary action (including
making all necessary filings) to provide Lender with first priority perfected
security interests, mortgages and liens in the Collateral under the laws of all
applicable jurisdictions.

      3.10 SOLVENCY. Borrower: (i) is solvent with assets of a value that
exceeds the amount of its liabilities; (ii) is able to and anticipates that it
will be able to meet its debts as they mature; and (iii) has adequate capital to
conduct its business.

      3.11 LEGALITY. To the best of Borrower's knowledge, the making of the Loan
is not prohibited by, or will not subject Lender to any penalty or onerous
condition under, any Legal Requirement.

      3.12 REPRESENTATIONS AND WARRANTIES. No representation or warranty made by
Borrower in any Loan Document contains any untrue statement of a material fact
or omits to state any material fact necessary to make such representation or
warranty not misleading.

SECTION 4.  CONDITIONS TO LENDER'S OBLIGATIONS.

      Any obligation of Lender to make any advances of proceeds under the Note
is subject to the performance by Borrower of all of its obligations under this
or any other agreement between Borrower and Lender, and to the satisfaction of
the following further conditions (but no advance made before satisfaction of any
such condition shall be deemed to be a waiver of such conditions in respect of
any subsequent advance):

COMMERCIAL LOAN AGREEMENT                                                PAGE 14
<PAGE>
      4.1 ACCURACY OF REPRESENTATIONS. The representations and warranties
contained in the Loan Documents are true and correct in all material respects on
and as of the applicable date of borrowing. A Loan request by Borrower will be
deemed to be a representation and warranty by Borrower on the date of such Loan
request as to the matters specified in this Section 4.1.

      4.2   DELIVERY  OF  LOAN  DOCUMENTS.   Receipt  by  Lender  of  all  the
documents  required or contemplated  hereunder from the  appropriate  parties,
including the following:

            (a) The Loan Documents; and

            (b) All documents Lender may reasonably request relating to
      Borrower's possession of all licenses and permits from all Governmental
      Authorities necessary to enable Borrower to lawfully conduct its business
      in all jurisdictions where Borrower now conducts or may during the term of
      the Loan conduct its business.

      4.3 PAYMENT OF EXPENSES. Borrower shall have paid or made provision for
the payment of all expenses of the type described in Section 8.7.

      4.4 FILING OF FINANCING STATEMENTS. The Financing Statements shall have
been executed by Borrower and shall have been recorded in the Uniform Commercial
Code Records of Brazos County, Texas, and the Office of the Secretary of State
of Texas, with all filing fees therefor paid.

SECTION 5. AFFIRMATIVE COVENANTS. During the term of this Agreement and until
the Loan and all of the Obligations have been paid and performed in full, unless
compliance with the provisions of the following subsections shall have been
waived in writing by Lender, Borrower agrees as follows:

      5.1 FINANCIAL STATEMENTS. Borrower will furnish the following to Lender:

            (a) As soon as available, but in any event, within forty-five (45)
      days after the end of each calendar quarter, beginning with Borrower's
      fiscal year ending June 30, 2000, (i) a copy of unaudited interim
      financial statements of Borrower prepared and certified by Borrower and
      prepared in conformity with generally accepted accounting principles
      (subject to normal year-end audit adjustments), and consisting of at least
      balance sheets as of the close of such period and profit and loss
      statements for the quarter then ended and for the

COMMERCIAL LOAN AGREEMENT                                                PAGE 15
<PAGE>
      period from the beginning of the fiscal year to the close of such period;
      and (ii) a No Default Certificate (as described in part e of this Section
      5.1 below) executed by an authorized officer of Borrower;

            (b) As soon as available, but in any event within one hundred twenty
      (120) days after the end of each fiscal year, beginning with Borrower's
      fiscal year ending June 30, 2000, a copy of Borrower's audited financial
      statement and audit report;

            (c) If there is Indebtedness due and owing on the Note, as soon as
      available, but in any event, within twenty (20) days after the end of each
      month, or if there is no Indebtedness due and owing on the Note then
      within forty-five (45) days after the end of each calendar quarter, the
      following:

                  (i)   a detailed listing and aging report signed by an
                        authorized officer of Borrower certifying and detailing
                        the then existing accounts receivables and a detailed
                        aging report thereof; and

                  (ii)  furnish to Lender a Borrowing Base Certificate
                        confirming that the aggregate unpaid principal amount of
                        the Loan does not exceed the lesser of the Commitment
                        Amount or the Borrowing Base as then in effect (or, if
                        such is not the case, accompanied by a prepayment of the
                        Note in accordance with Section 2.4 of this Agreement).

            (d) Such other financial and other information concerning Borrower
      as Lender shall reasonably request from time to time;

            (e) Together with each delivery of the financial statements required
      in this Section 5.1, furnish to Lender a certificate of its chief
      executive or financial officer stating that no Event of Default or Default
      has occurred, or if any such Event of Default or Default exists, stating
      the nature thereof, the period of existence thereof and what action
      Borrower proposes to take with respect thereto. Such certificate shall
      also demonstrate, by showing the applicable ratio or other calculation,
      with such supporting information as Lender may require, that Borrower is
      in compliance with this Agreement.

COMMERCIAL LOAN AGREEMENT                                                PAGE 16
<PAGE>
      5.2   FINANCIAL RATIOS.

            (a)   TANGIBLE NET WORTH. Borrower shall maintain a minimum Tangible
                  Net Worth of $7,500,000.00;

            (b)   DEBT RATIO. Borrower shall maintain the ratio of Debt to
                  Tangible Net Worth of not more than .75 to 1.0;

            (c)   CURRENT RATIO. Borrower shall maintain a Current Ratio of not
                  less than 1.5; and

            (d)   FIXED CHARGE COVERAGE. Borrower shall maintain a Fixed Charge
                  Coverage ratio of not less than 1.5 to 1.0 to be calculated
                  quarterly on a rolling quarterly basis.

      5.3 ACCOUNTS RECEIVABLE AUDIT. Allow Lender to conduct, at least once per
year, and as of such dates as Lender shall designate upon reasonable notice to
the Borrower, an audit and verification of the Borrower's Accounts, to be
performed by the Bank or such other party as the Bank shall designate, and to be
performed in such form and detail as the Bank shall reasonably require.

      5.4 PAYMENT OF OBLIGATIONS. Borrower will pay and discharge when due all
Obligations.

      5.5 NOTICE; LITIGATION. Borrower shall promptly give written notice to
Lender of: (i) the occurrence of any Default or Event of Default; (ii) any
legal, judicial or regulatory proceedings affecting Borrower or any of its
properties or assets in which the amount involved is material, is not covered
(subject to normal deductibles) by insurance and is likely to have a material
adverse effect on the business or the financial condition of Borrower; (iii) any
dispute between Borrower and any Governmental Authority or other Person that is
likely to materially interfere with the normal business operations of Borrower;
(iv) any substantial damage to any material part of the Collateral, specifying
the nature and extent of damage and whether such damage is being repaired in due
course, or total loss or destruction of any material part of the Collateral; (v)
any other action, event or condition of any nature of which it has knowledge
which may have, or lead to, or result in, any material adverse effect upon the
business, assets or financial condition of Borrower, all taken as a whole; or
(vi) the voluntary or involuntary bankruptcy of, or any assignment for the
benefit of creditors or the seeking of any relief under any bankruptcy or other
similar laws by, Borrower.

COMMERCIAL LOAN AGREEMENT                                                PAGE 17
<PAGE>
      5.6 MAINTENANCE OF PROPERTIES. Borrower will: (i) keep and maintain all
franchises, licenses, permits and properties useful and necessary in the conduct
of its business in good order and condition; and (ii) duly observe and conform
to all Legal Requirements relative to the conduct of its business or the
operation of its properties or assets. In the event of any failure on the part
of Borrower to maintain all requisite franchises, licenses, or permits, or to
properly observe and conform to all Legal Requirements, Borrower shall have a
period of twenty (20) days from the date of written notice from Lender to obtain
any required franchise, license or permit, or cure any such violation of Legal
Requirement. In the event that Borrower fails to effect such a cure, then the
same shall constitute an Event of Default hereunder, cumulative of and in
addition to the provisions of Section 7.1 hereof, and Lender shall thereafter be
authorized to take such actions as Lender may deem in its own discretion to be
necessary to remedy or cure such failure or violation, and any funds expended by
Lender in such regard shall constitute additional indebtedness evidenced by the
Note and secured by the Deed of Trust, bearing interest as provided for in the
Note. Should Lender elect to cure any such failure or violation in accordance
with the provisions hereof, such shall not be considered a cure of Borrower's
Default hereunder. The foregoing actions by Lender shall be cumulative of and in
addition to such other remedies as may be provided elsewhere in this Agreement.

      5.7 INSURANCE. Borrower will maintain insurance with financially sound and
responsible companies, in such form, in such amounts and against such risks
(including, without limitation, public liability and property damage insurance)
as is customarily carried by companies engaged in the same or similar
businesses, operating like properties and similarly situated, plus any
additional insurance, if any, required in the Security Instruments. Borrower
will have the right to place any such insurance with any insurance carrier
reasonably acceptable to Lender. Upon execution of this Agreement, Borrower will
furnish to Lender: (i) a summary of the insurance coverage of Borrower, together
with certificates, as to insurance covering any of the Collateral, showing
Lender as loss payee to the extent its interest may appear, all such policies to
be noncancellable without 15 days' prior written notice to Lender, and will
supplement such summary from time to time as the amounts or terms of such
insurance coverage change; and (ii) copies of the applicable policies and proof
of payment of the premiums therefor.

      5.8 PAYMENT OF TAXES. Borrower will pay and discharge when due all taxes,
assessments and other liabilities, except those being contested in good faith by
appropriate proceedings, and against which Borrower has set up adequate
reserves, in accordance with generally accepted accounting principles.

COMMERCIAL LOAN AGREEMENT                                                PAGE 18
<PAGE>
      5.9 FURTHER ASSURANCES. Borrower, at any time and from time to time, will
execute and deliver such further instruments and take such further action as may
reasonably be requested by Lender, in order to cure any defects in the execution
and delivery of, or to comply with or accomplish the covenants and agreements
contained in, the Loan Documents.

      5.10 AVAILABILITY OF RECORDS. Borrower will permit any representative,
accountant, officer, employee, or attorney of Lender to: (i) visit and inspect
any of the properties of Borrower; (ii) examine and/or audit the books and
financial records of Borrower; (iii) verify the due investment and application
of the proceeds of the Note in accordance with Section 3.5 hereof; and (iv)
discuss the business affairs, finances and accounts of Borrower with its
officers and independent certified public accountants, all at such reasonable
times and during reasonable business hours, and as often as Lender may deem
reasonably necessary.

      5.11 INSPECTION OF COLLATERAL. Borrower will permit Lender (and any Person
appointed by Lender to act for and on its behalf) to inspect the Collateral,
wherever located, at any time and from time to time.

SECTION 6. NEGATIVE COVENANTS. During the term of this Agreement and until the
Loan and all of the Obligations have been paid and performed in full, unless
compliance with the following subsections shall have been waived in writing by
Lender, Borrower agrees as follows:

      6.1 LIMITATIONS ON LIENS. Without Lender's prior approval, Borrower will
not create, assume or suffer to exist any Lien (other than Permitted Liens) upon
any of the Collateral, whether now owned or hereafter acquired.

      6.2 NATURE OF BUSINESS. Borrower will not: (i) change or allow to be
changed in any material respect its present methods of operation or manner of
doing business; (ii) carry on or allow to be carried on its business at any
location or locations other than those presently in existence; (iii) change or
allow to be changed its name or its identity; or (iv) change or allow to be
changed its structure, without the prior written consent of Lender.

      6.3 SALE OF PROPERTY. Except in the ordinary course of business, Borrower
will not convey or otherwise dispose of (whether voluntarily or involuntarily)
or encumber (whether voluntarily or involuntarily) the Collateral or any portion
thereof in any manner without the prior written consent of Lender.

COMMERCIAL LOAN AGREEMENT                                                PAGE 19
<PAGE>
      6.4 USE OF LOAN PROCEEDS. Borrower shall not use any of the proceeds of
the Loan to defray living expenses, for other personal use, or for any other
purpose not expressly authorized by this Agreement.

      6.5 FUTURE INDEBTEDNESS. Borrower shall not, without the prior written
consent of Lender: (i) encumber, or permit to be encumbered, any portion of the
Collateral or other property owned by the Borrower; or (ii) procure any other
debt, excluding trade payables incurred in the ordinary course of business.

      6.6 NO DIVIDENDS. Without Lender's prior approval, Borrower will not
declare or pay any dividends.

SECTION 7.  DEFAULT.

      7.1 EVENTS OF DEFAULT. The occurrence of any of the following events or
conditions shall constitute an "Event of Default":

            (a) Failure of Borrower to pay any installment of principal or
            interest on the Note within ten (10) days of receipt of written
            notice from Lender of such failure. Notwithstanding the foregoing,
            Lender shall not be required to send such notice of failure to pay
            more than one time during any calendar year;

            (b) Any  representation  or  warranty  made by any Party in any of
            the Loan  Documents  is untrue in any  material  respect as of the
            date made or furnished;

            (c) Default in the observance or performance of any of the
            covenants, terms or agreements of the Loan Documents or any other
            agreements, now or hereafter existing, with Lender;

            (d) Borrower: (i) is generally not paying its Indebtedness as it
            becomes due; (ii) fails to pay any principal or interest on any
            obligation or obligations for borrowed money beyond the period of
            grace, if any, provided for in the instrument or agreement under
            which the same was created; or (iii) fails to observe or perform any
            other term, condition or agreement contained in any obligation or
            obligations for borrowed money or in any instrument or agreement
            evidencing, securing or relating thereto if the effect thereof is to
            permit or cause the holder or holders of such obligation (or a
            trustee or an agent on behalf of such holder or holders) to

COMMERCIAL LOAN AGREEMENT                                                PAGE 20
<PAGE>
            cause any such obligation to become due prior to its stated maturity
            and such failure shall continue for a period of twenty (20) days
            after notice to Borrower by Lender of the same, subject to an
            additional thirty (30) day cure period if, (i) the non-monetary
            default is not cureable within the prescribed twenty (20) day period
            and (ii) the Borrower has initiated steps to cure said violation in
            a diligent and continuous manner within the twenty (20) day period
            and continues to take steps to cure in a diligent and continuous
            manner within the thirty (30) day period;

            (e) Filing by Borrower of a voluntary petition or any answer seeking
            reorganization, arrangement or readjustment of its debts or for any
            other relief under any applicable bankruptcy act or law, or under
            any other insolvency act or law, now or hereafter existing, or any
            action by Borrower for, or the appointment by consent or
            acquiescence of, a receiver or trustee for Borrower or for all or a
            substantial part of its property; the making by Borrower of an
            assignment for the benefit of creditors, the inability of Borrower,
            or the admission in writing by Borrower of its inability to pay its
            debts as they mature (the term "acquiescence" means the failure to
            file a petition or motion in opposition to such petition or
            proceeding or to vacate or discharge any order, judgment or decree
            providing for such appointment within twenty (20) days after the
            appointment of a receiver or trustee);

            (f) Filing of an involuntary petition against Borrower in bankruptcy
            or seeking reorganization, arrangement or readjustment of its debts
            or for any other relief under any applicable bankruptcy act or law,
            or under any other insolvency act or law, now or hereafter existing
            and such petition remains undismissed or unanswered for a period of
            thirty (30) days from such filing; or the involuntary appointment of
            a receiver or trustee for Borrower for all or a substantial part of
            its property and such appointment remains unvacated or unopposed for
            a period of ten (10) days from such appointment; or the issuance of
            a writ of attachment, execution or similar process against any
            substantial part of the property of Borrower and such writ remains
            unbended or undismissed for a period of ten (10) days from notice to
            Borrower of its issuance;

            (g) Final judgment for the payment of money in excess of One Hundred
            Thousand ($100,000) shall be rendered against Borrower and the same
            shall remain undischarged for a period of thirty (30) days, during
            which execution shall not be effectively stayed;

COMMERCIAL LOAN AGREEMENT                                                PAGE 21
<PAGE>
            (h) Any substantial impairment of value, loss, damage or destruction
            (not covered by insurance) of the Collateral occurs; or

            (i) Lender shall reasonably and in good faith deem repayment or
            performance of the Note or any of the Obligations to be insecure.

      7.2 OPTIONAL ACCELERATION. Upon the occurrence of any Event of Default (as
defined in Section 7.1 above) set forth in Subsection 7.1(a), (b), (c), (d),
(g), (h), or (i), hereof, any obligation of Lender to make any further advances
of proceeds under the Loan to Borrower pursuant hereto shall immediately
terminate and the holder of the Note, at its option, without notice to any party
may declare the principal of and interest accrued on the Note to be forthwith
due and payable, whereupon the same shall become due and payable without any
presentment, demand, protest, notice of protest, notice of intention to
accelerate, notice of acceleration or notice of any kind (except notice required
pursuant to this Agreement or otherwise by law), all of which are hereby waived
by Borrower, on behalf of itself and all other sureties, endorsers and
guarantors of the Note.

      7.3 AUTOMATIC ACCELERATION. Upon the occurrence of any Event of Default
(as defined in Section 7.1 above) set forth in Subsection 7.1, (e) or (f)
hereof, any obligation of Lender to make any further advances of proceeds under
the Loan shall automatically terminate and the principal of and interest accrued
on the Note shall be immediately and automatically due and payable without
notice or demand of any kind, and the same shall be due and payable immediately
without any presentment, acceleration, demand, protest, notice of acceleration,
notice of protest or notice of any kind (except notice required pursuant to this
Agreement or otherwise by law), all of which are hereby waived by Borrower, on
behalf of itself and all other sureties, endorsers and guarantors of the Note.

SECTION 8.  MISCELLANEOUS.

      8.1 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and no delay in
exercising, on the part of Lender, any right, power or privilege hereunder or in
any of the Loan Documents shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, power or privilege hereunder or under
any of the Loan Documents preclude any other or further exercise thereof or the
exercise of any other right, power or privilege; nor shall any release of any
security for the repayment of the Loan, or release of any party primarily or
secondarily liable for the repayment of the Loan, or the grant by Lender of any
indulgence with respect to the Loan affect any other security for

COMMERCIAL LOAN AGREEMENT                                                PAGE 22
<PAGE>
the Loan or the liability of any other party for the repayment of the Loan. The
rights and remedies herein provided are cumulative and not exclusive of any
rights or remedies provided by law, or in any of the Loan Documents or in any
other agreement.

      8.2 SURVIVAL OF AGREEMENTS. All agreements and covenants made herein shall
survive the delivery of the Loan Documents and the making and renewal thereof.

      8.3 SUCCESSORS; ASSIGNABILITY. This Agreement shall be binding upon each
of the parties and their respective successors, permitted assigns, heirs and
legal representatives, and shall inure to the benefit of Lender and its
successors and assigns. Borrower's rights and benefits under this Agreement
shall not be assigned by Borrower without Lender's express prior written consent
and any attempted assignment without such consent by Lender shall be null and
void.

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

      8.5 SEVERABILITY. In case any one or more of the provisions contained in
the Loan Documents or any other documents executed in connection therewith or
herewith should be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein and therein shall not be affected in any way thereby.

      8.6 INTEREST. It is the intention of Lender and Borrower to comply with
applicable usury laws; accordingly, it is agreed that, notwithstanding any
provisions to the contrary in the Loan Documents, or in any of the documents
securing payment thereof or otherwise relating thereto, in no event shall the
Loan Documents require the payment or permit the collection of interest, as
defined under applicable usury laws, in excessive the maximum amount permitted
by such laws. If any such excessive interest is contracted for, charged or
received under the Loan Documents, or under the terms of any of the documents
securing payment thereof or otherwise relating thereto, or if the maturity of
the indebtedness evidenced by the Note is accelerated in whole or in part, or in
the event that all or part of the principal of or interest on the Note shall be
prepaid, so that under any of such circumstances the amount of interest
contracted for, charged or received under the Loan Documents or under any of the
documents securing payment thereof or otherwise relating thereto, on the amount
of principal actually outstanding from time to time exceeds the amount allowable
under applicable usury laws, then in any such event: (a) the provisions of this
Section 8.6 shall govern and control; (b) neither Borrower nor any other Person
now or hereafter liable under the Loan

COMMERCIAL LOAN AGREEMENT                                                PAGE 23
<PAGE>
Documents for the payment of the Note shall be obligated to pay the amount of
such interest to the extent that it is in excess of the maximum amount of
interest permitted to be contracted for by, charged to or received from the
Person obligated thereon under applicable usury laws; (c) any such excess which
may have been collected either shall be applied as a credit against the then
unpaid principal amount on the Note or refunded to the Person paying the same,
at the noteholder's option; and (d) the effective rate of interest on the Note
shall be automatically reduced to the maximum lawful rate of interest permitted
under applicable usury laws as now or hereafter construed by the courts having
jurisdiction thereof.

      8.7   EXPENSES;  DOCUMENTARY  TAXES. In further  consideration to Lender
for the  agreements  herein  made by Lender,  Borrower  will pay to or for the
account of Lender:

            (a) within thirty (30) days after the end of each calendar quarter,
      a fee on the Unused Portion of the Commitment Amount for the quarter then
      ended equal to .15% per annum. This fee shall be calculated by multiplying
      the Unused Portion by .15% by 90/360;

            (b) upon the  issuance  of each  Letter of Credit a  issuance  fee
      equal to 1.0% of the face amount of the letter of credit;

            (c) all out-of-pocket expenses of Lender (including reasonable fees,
      expenses and disbursements of counsel for Lender) in connection with the
      preparation, enforcement, operation and administration of the Loan
      Documents or any waiver or amendment of any provision hereof;

            (d) if an Event of Default occurs, all court costs and costs of
      collection, including, without limitation, reasonable fees, expenses and
      disbursements of counsel employed in connection with any and all
      collection efforts; and

            (e)Borrower agrees to indemnify Lender from and hold it harmless
      against any documentary taxes, assessments or charges made by any
      Governmental Authority by reason of the execution and delivery by Borrower
      of the Loan Documents and any documents executed in connection therewith.

      8.8 NOTICES. All notices, requests and demands shall be given to or made
upon the respective parties shall be in writing and shall be deemed effective if
hand delivered, or if sent by United States certified or registered mail, return
receipt requested, postage prepaid, or if sent by private, receipted carrier
guaranteeing same-day or next-day delivery, addressed as follows:

COMMERCIAL LOAN AGREEMENT                                                PAGE 24
<PAGE>
                If to Borrower:  Neutral Posture Ergonomics, Inc.
                                 3904 N. Texas Avenue
                                 Bryan, TX 77803
                                 Attn:  Gregory A. Katt, Chief Financial Officer

                If to Lender:    Compass Bank
                                 2405 Texas Avenue South
                                 College Station, TX 77840
                                 Attn: Mr. Jerry Fox, City President

If sent by U.S. certified mail, in accordance with this Section 8.8, such
notices shall be deemed given and received on the earlier of (i) actual receipt
of the above specified address of the named addressee, or (ii) on the third
(3rd) business day after deposit with the United States Postal Service. Notice
given by any other means shall be deemed given and received only upon actual
receipt at the above specified address of the named addressee.

      8.9 MERGER OF PRIOR REPRESENTATIONS. Borrower acknowledges and agrees that
it has not, in the execution of this Agreement or any of the other Loan
Documents, relied upon (and that it shall not be entitled to rely upon) any
representations or statements of Lender or any other party, whether written or
oral, made prior to the execution of this Agreement and the other Loan
Documents, other than any such statements or representations expressly set forth
in writing in this Agreement and the other Loan Documents; and that this
Agreement and the other Loan Documents represent all of the terms of the
agreements of Borrower and Lender in connection with the Loan.

      8.10 CONTROLLING DOCUMENT. In the event of actual conflict among the terms
and provisions of the Loan Documents, the terms and provisions of this Agreement
will control.

      8.11 AMENDMENT. This Agreement may not be amended except in writing signed
by Lender and Borrower.

      8.12 DESCRIPTIVE HEADINGS. Descriptive headings of the several sections of
this Agreement are inserted for convenience only and do not constitute a part of
this Agreement.

      8.13 GOVERNING LAW. The Loan Documents shall be governed by, construed and
interpreted in accordance with the laws of the State of Texas, except to the
extent that the federal laws of the United States of America may apply.

COMMERCIAL LOAN AGREEMENT                                                PAGE 25
<PAGE>
      8.14 ASSIGNABILITY; LIMITATIONS. Lender shall have the right to assign all
or any portion of the Loan Documents to any person or entity, without any prior
notice to the prior consent of Borrower.

      8.15 NO ORAL AGREEMENTS. THIS WRITTEN AGREEMENT, THE NOTE, THE OTHER LOAN
DOCUMENTS, AND THE INSTRUMENTS AND DOCUMENTS EXECUTED HEREWITH, REPRESENT THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

      IN WITNESS WHEREOF, the parties hereunto have caused this Agreement to be
duly executed in College Station, Texas, as of the date first above mentioned.

                                    LENDER:

                                    COMPASS BANK,
                                    a national banking association

                                    By:  /S/ JERRY E. FOX
                                             JERRY E. FOX, City President

                                    BORROWER:

                                    NEUTRAL POSTURE ERGONOMICS, INC.,
                                    a Texas corporation

                                    By:   /S/ REBECCA BOENIGK
                                              REBECCA BOENIGK, Chairman and CEO

Exhibits:
      "A" - Borrowing Base Certificate
      "B" - July 31, 2000 Detailed Accounts Receivable Aging Report
      "C" - July 31, 2000 Inventory Report
      "D" - Form of Note
      "E" - Borrower's issued and outstanding stock and holder's thereof
      "F" - List of Corporation's Indebtedness
      "G" - Existing Litigation

COMMERCIAL LOAN AGREEMENT                                                PAGE 26<PAGE>   1

                                                                 Exhibit 10.8.15

                               AVANEX CORPORATION
                                 1998 STOCK PLAN
                       RESTRICTED STOCK PURCHASE AGREEMENT

Unless otherwise defined herein, the terms defined in the 1998 Stock Plan shall
have the same defined meanings in this Restricted Stock Purchase Agreement (the
"Agreement").

I.       NOTICE OF GRANT OF STOCK PURCHASE RIGHT

         W. BRIAN KINARD

You have been granted the right to purchase Common Stock of the Company, subject
to the terms and conditions of the Plan and this Agreement, as follows:

Date of Grant:                                     October 22, 1999
Vesting Commencement Date:                         October 22, 1999
Exercise Price Per Share:                          $1.50
Total Number of Shares Subject                     100,000
        to This Stock Purchase Right:
Total Exercise Price:                              $150,000.00
Expiration Date:                                   January 20, 2000

YOU MUST EXERCISE THIS STOCK PURCHASE RIGHT BEFORE THE EXPIRATION DATE OR IT
WILL TERMINATE AND YOU WILL HAVE NO FURTHER RIGHT TO PURCHASE THE SHARES.

Non-Transferability of Stock Purchase Right.
This Stock Purchase Right may not be transferred in any manner otherwise than by
will or by the laws of descent or distribution and may be exercised during the
lifetime of Optionee only by Optionee. The terms of the Plan and this Agreement
shall be binding upon the executors, administrators, heirs, successors and
assigns of the Optionee.

II.      AGREEMENT

Sale of Stock. The Company hereby agrees to sell to the individual named in the
Notice of Grant of Stock Purchase Right (the "Purchaser"), and the Purchaser
hereby agrees to purchase the number of Shares set forth in the Notice of Grant
of Stock Purchase Right, at the exercise price per share set forth in the Notice
of Grant of Stock Purchase Right (the "Exercise Price"), and subject to the
terms and conditions of the Plan, which is incorporated herein by reference.
Subject to 14(c) of the Plan, in the event of a conflict between the terms and
conditions of the Plan and this Agreement, the terms and conditions of the Plan
shall prevail.

Payment of Purchase Price. Purchaser herewith delivers to the Company the
aggregate Exercise Price for the Shares by cash or check or promissory note in
the form of Exhibit C secured by the shares pursuant to a Security Agreement in
the form of Exhibit D.

Purchaser's Representations. In the event the Shares have not been registered
under the Securities Act of 1933, as amended, at the time this Stock Purchase
Right is exercised, the Optionee shall, if required by the Company, concurrently
with the exercise of all or any portion of this Stock Purchase Right, deliver to
the Company his or her Investment Representation Statement in the form attached
hereto as Exhibit B.

Repurchase Option. In the event the Purchaser's continuous status as a Service
Provider terminates for any or no reason (including death or Disability), the
Company shall, upon the date of such termination (as reasonably fixed and
determined by the Company), have an irrevocable, exclusive option for a period
of ninety (90) days from such date to repurchase up to that number of shares
which constitute the Unreleased Shares (as defined in Section 5) at the Exercise
Price per share (the "Repurchase Price") (the "Repurchase Option").

The Repurchase Option shall be exercised by the Company by delivering written
notice to the Purchaser or the Purchaser's executor (with a copy to the Escrow
Holder (as defined in Section 7)) AND, at the Company's option, (i) by
delivering to the Purchaser or the Purchaser's executor a check in the amount of
the aggregate Repurchase Price, or (ii) by the Company canceling an amount of
the Purchaser's indebtedness to the Company equal to the aggregate Repurchase
Price, or (iii) by a combination of (i) and (ii) so that the combined payment
and cancellation of indebtedness equals such aggregate Repurchase Price. Upon
delivery of such notice and the payment of the aggregate Repurchase Price in any
of the ways described above, the Company shall become the legal and beneficial
owner of the Unreleased

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<PAGE>   2

Shares being repurchased and all rights and interests therein or relating
thereto, and the Company shall have the right to retain and transfer to its own
name the number of Unreleased Shares being repurchased by the Company.

Whenever the Company shall have the right to repurchase the Unreleased Shares
hereunder, the Company may designate and assign one or more employees, officers,
directors or shareholders of the Company or other persons or organizations to
exercise all or a part of the Company's Repurchase Option to purchase all or a
part of the Unreleased Shares. If the Fair Market Value of the Unreleased Shares
to be repurchased on the date of such designation or assignment (the "Repurchase
FMV") exceeds the aggregate Repurchase Price of the Unreleased Shares, then each
such designee or assignee shall pay the Company cash equal to the difference
between the Repurchase FMV and the aggregate Repurchase Price of Unreleased
Shares to be purchased.

If the Company or its assignee does not elect to exercise the Repurchase Option
conferred above by giving the requisite notice within ninety (90) days following
Purchaser's termination as a Service Provider, the Repurchase Option shall
terminate.

Release of Shares From Repurchase Option. As of the date of this Agreement, all
of the Shares shall be subject to the Company's Repurchase Option. The Shares
shall be released from the Repurchase Option as follows:

         One quarter (1/4) of the Shares shall be released from the Repurchase
         Option on October 22, 2000; and

         One forty-eighth (1/48) shall be released from the Repurchase Option
         each full calendar month elapsing thereafter during all of which
         Purchaser was a full time employee of the Company.

Any of the Shares which, from time to time, have not yet been released from the
Repurchase Option are referred to herein as "Unreleased Shares."

The Shares which have been released from the Repurchase Option shall be
delivered to the Purchaser at the Purchaser's request (see Section 7).

Notwithstanding the foregoing, upon a Change of Control, as defined below, for
any reason that occurs while Purchaser is an employee of the Company, that
number of Unreleased Shares, if any, which, when aggregated with any Shares
previously released from the Repurchase Option, are required to equal fifty
percent (50%) of the Shares shall be released from the Repurchase Option on the
date the event constituting a Change of Control is consummated. The balance of
the Shares subject to the Repurchase Option shall continue to be released from
the Repurchase Option on the same schedule (i.e., the same number of shares
shall vest each month) as existed prior to the Change of Control. For example,
if a Change of Control occurs on a date where 25% of Purchaser's Shares have
been released from the Company's Purchase Option, then an additional 25% of the
Shares shall be released from the Purchase Option pursuant hereto. The remaining
50% of the Shares shall vest at the rate of 1/48th of the Shares per month
thereafter, such that all Shares are fully vested after an additional 24-month
period. If a Change of Control occurs on a date where more than 50% of
Purchaser's Shares have already been released from the Company's Purchase
Option, then no additional Shares shall be released from the Purchase Option.

For the purposes of the foregoing, a Change of Control shall mean the occurrence
of any of the following events:

         Any "person" (as such term is used in Sections 13(d) and 14(d) of the
         Securities Exchange Act of 1934, as amended) is or becomes the
         "beneficial owner" (as defined in Rule 13d-3 under said Act), directly
         or indirectly, of securities of the Company representing 50% or more of
         the total voting power represented by the Company's then outstanding
         voting securities other than in a private financing transaction
         approved by the Board of Directors;

         the direct or indirect sale or exchange by the shareholders of the
         Company of all or substantially all of the stock of the Company;

         a merger or consolidation in which the Company is a party and in which
         the shareholders of the Company before such merger or consolidation do
         not retain, directly or indirectly, at a least majority of the
         beneficial interest in the voting stock of the Company after such
         transaction; or

         the sale or disposition by the Company of all or substantially all the
         Company's assets.

Acceleration Upon Termination of Employment. In addition to the Shares released
from the Company's Repurchase Option pursuant to Section 4(d) above, in the
event the Purchaser's employment terminates as a result of an Involuntary
Termination other than for Cause upon or within 12 months after a Change of
Control, all Unreleased Shares shall be released from the Company's Purchase
Option upon the date of such termination.

For the purposes of this Section 5(e), the following terms referred to in this
Agreement shall have the following meanings:

                                       68
<PAGE>   3

                  Cause. "Cause" shall mean (i) any act of personal dishonesty
                      taken by the Purchaser in connection with his
                      responsibilities as an employee and intended to result in
                      substantial personal enrichment of the Purchaser, (ii)
                      conviction of a felony that is injurious to the Company,
                      and (iii) a willful act by the Purchaser which constitutes
                      gross misconduct and which is injurious to the Company.

                  Disability. "Disability" shall mean that the Purchaser has
                      been unable to substantially perform his duties as the
                      result of his incapacity due to physical or mental
                      illness, and such inability, at least 26 weeks after its
                      commencement, is determined to be total and permanent by a
                      physician selected by the Company or its insurers and
                      acceptable to the Purchaser or the Purchaser's legal
                      representative (such agreement as to acceptability not to
                      be unreasonably withheld).

                  Involuntary Termination. "Involuntary Termination" shall mean
                      (i) without the Purchaser's express written consent, the
                      significant reduction of the Purchaser's duties or
                      responsibilities relative to the Purchaser's duties or
                      responsibilities in effect immediately prior to such
                      reduction; provided, however, that a reduction in duties
                      or responsibilities solely by virtue of the Company being
                      acquired and made part of a larger entity (as, for
                      example, when the Chief Financial Officer of Company
                      remains as such following a Change of Control and is not
                      made the Chief Financial Officer of the acquiring
                      corporation) shall not constitute an "Involuntary
                      Termination"; (ii) without the Purchaser's express written
                      consent, a substantial reduction, without good business
                      reasons, of the facilities and perquisites (including
                      office space and location) available to the Purchaser
                      immediately prior to such reduction; (iii) without the
                      Purchaser's express written consent, a material reduction
                      by the Company in the base compensation of the Purchaser
                      as in effect immediately prior to such reduction, or the
                      ineligibility of the Purchaser to continue to participate
                      in any long-term incentive plan of the Company; (iv) a
                      material reduction by the Company in the kind or level of
                      employee benefits to which the Purchaser is entitled
                      immediately prior to such reduction with the result that
                      the Purchaser's overall benefits package is significantly
                      reduced; (v) the relocation of the Purchaser to a facility
                      or a location more than 50 miles from the Purchaser's then
                      present location, without the Purchaser's express written
                      consent; (vi) any purported termination of the Purchaser
                      by the Company which is not effected for death or
                      Disability or for Cause, or any purported termination for
                      which the grounds relied upon are not valid; or (vii) the
                      failure of the Company to obtain the assumption of this
                      agreement by any successors contemplated in Section 4(f)
                      below.

The Shares which have been released from the Company's Repurchase Option shall
be delivered to the Purchaser at the Purchaser's request.

Restriction on Transfer. Except for the escrow described in Section 7 or
transfer of the Shares to the Company or its assignees contemplated by this
Agreement, none of the Shares or any beneficial interest therein shall be
transferred, encumbered or otherwise disposed of in any way until the release of
such Shares from the Company's Repurchase Option in accordance with the
provisions of this Agreement, other than by will or the laws of descent and
distribution.

Escrow of Shares. To ensure the availability for delivery of the Purchaser's
Unreleased Shares upon exercise of the Repurchase Option by the Company, the
Purchaser shall, upon execution of this Agreement, deliver and deposit with an
escrow holder designated by the Company (the "Escrow Holder") the share
certificates representing the Unreleased Shares, together with the Assignment
Separate from Certificate (the "Stock Assignment") duly endorsed in blank,
attached hereto as Exhibit A-1. The Unreleased Shares and Stock Assignment shall
be held by the Escrow Holder, pursuant to the Joint Escrow Instructions of the
Company and Purchaser attached as Exhibit A-2 hereto, until such time as the
Company's Repurchase Option expires. As a further condition to the Company's
obligations under this Agreement, the spouse of Purchaser, if any, shall execute
and deliver to the Company the Consent of Spouse attached hereto as Exhibit A-3.
The Escrow Holder shall not be liable for any act it may do or omit to do with
respect to holding the Unreleased Shares in escrow and while acting in good
faith and in the exercise of its judgment and the Company shall hold Escrow
Holder harmless from any and all such liability, including attorney's fees and
other expenses of defending against the assertion of any such claim. If the
Company or any assignee exercises its Repurchase Option hereunder, the Escrow
Holder, upon receipt of written notice of such option exercise from the proposed
transferee, shall take all steps necessary to accomplish such transfer.

                                       69
<PAGE>   4

When the Repurchase Option has been exercised or expires unexercised or a
portion of the Shares has been released from such Repurchase Option, upon
Purchaser's request the Escrow Holder shall promptly cause a new certificate to
be issued for such released Shares and shall deliver such certificate to the
Company or the Purchaser, as the case may be. Subject to the terms hereof, the
Purchaser shall have all the rights of a shareholder with respect to such Shares
while they are held in escrow, including without limitation, the right to vote
the Shares and receive any cash dividends declared thereon. If, from time to
time during the term of the Company's Repurchase Option, there is (i) any stock
dividend, stock split or other change in the Shares, or (ii) any merger or sale
of all or substantially all of the assets or other acquisition of the Company,
any and all new, substituted or additional securities to which the Purchaser is
entitled by reason of the Purchaser's ownership of the Shares shall be
immediately subject to this escrow, deposited with the Escrow Holder and
included thereafter as "Shares" for purposes of this Agreement and the Company's
Repurchase Option.

Company's Right of First Refusal. Before any Shares held by Purchaser or any
transferee (either being sometimes referred to herein as the "Holder") may be
sold or otherwise transferred (including transfer by gift or operation of law),
the Company or its assignee(s) shall have a right of first refusal to purchase
the Shares on the terms and conditions set forth in this (the "Right of First
Refusal").

Notice of Proposed Transfer. The Holder of the Shares shall deliver to the
Company a written notice (the "Notice") stating: (i) the Holder's bona fide
intention to sell or otherwise transfer such Shares; (ii) the name of each
proposed purchaser or other transferee ("Proposed Transferee"); (iii) the number
of Shares to be transferred to each Proposed Transferee; and (iv) the bona fide
cash price or other consideration for which the Holder proposes to transfer the
Shares (the "Offered Price"), and the Holder shall offer the Shares at the
Offered Price to the Company or its assignee(s).

Exercise of Right of First Refusal. At any time within thirty (30) days after
receipt of the Notice, the Company and/or its assignee(s) may, by giving written
notice to the Holder, elect to purchase all, but not less than all, of the
Shares proposed to be transferred to any one or more of the Proposed
Transferees, at the purchase price determined in accordance with subsection (c)
below.

Purchase Price. The purchase price ("Purchase Price") for the Shares purchased
by the Company or its assignee(s) under this Section shall be (i) the Offered
Price in the case of Shares that are not Unreleased Shares, or (ii) in the case
of Shares that are Unreleased Shares, the lower of the Offered Price or the
Repurchase Price as defined in Section 4(a) hereof. If the Offered Price
includes consideration other than cash, the cash equivalent value of the
non-cash consideration shall be determined by the Board of Directors of the
Company in good faith.

Payment. Payment of the Purchase Price shall be made, at the option of the
Company or its assignee(s), (i) by cash or check, (ii) by cancellation of all or
a portion of any outstanding indebtedness of the Holder to the Company (or, in
the case of repurchase by an assignee, to the assignee), or (iii) by any
combination thereof within thirty (30) days after receipt of the Notice or in
the manner and at the times set forth in the Notice.

Holder's Right to Transfer. If all of the Shares proposed in the Notice to be
transferred to a given Proposed Transferee are not purchased by the Company
and/or its assignee(s) as provided in this Section, then the Holder may sell or
otherwise transfer such Shares to that Proposed Transferee at the Offered Price
or at a higher price, provided that such sale or other transfer is consummated
within one hundred twenty (120) days after the date of the Notice and provided
further that any such sale or other transfer is effected in accordance with any
applicable securities laws and the Proposed Transferee agrees in writing that
the provisions of this Section shall continue to apply to the Shares in the
hands of such Proposed Transferee. If the Shares described in the Notice are not
transferred to the Proposed Transferee within such period, a new Notice shall be
given to the Company, and the Company and/or its assignees shall again be
offered the Right of First Refusal before any Shares held by the Holder may be
sold or otherwise transferred.

Exception for Certain Family Transfers. Anything to the contrary contained in
this Section notwithstanding, the transfer of any or all of the Shares during
the Purchaser's lifetime or on the Purchaser's death by will or intestacy to the
Purchaser's immediate family or a trust for the benefit of the Purchaser's
immediate family shall be exempt from the provisions of this Section, provided
that the Purchaser notifies the Company in writing within thirty (30) days of
said transfer. "Immediate Family" as used herein shall mean spouse, lineal
descendant or antecedent, father, mother, brother or sister. In such case, the
transferee or other recipient shall receive and hold the Shares so transferred
subject to the provisions of this Agreement, including but not limited to this
Section and Section 4, and there shall be no further transfer of such Shares
except in accordance with the terms of this Section.

Termination of Right of First Refusal. The Right of First Refusal shall
terminate as to any Shares upon the date of the first sale of Common Stock of
the Company to the general public pursuant to a registration statement filed
with and declared effective by the Securities and Exchange Commission under the
1933 Act.

Restrictive Legends; Stop-Transfer Orders; Refusal to Transfer.

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<PAGE>   5

Purchaser understands and agrees that the Company shall cause the legends set
forth below or legends substantially equivalent thereto, to be placed upon any
certificate(s) evidencing ownership of the Shares together with any other
legends that may be required by the Company or by applicable state or federal
securities laws:

         THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
         SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
         OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
         REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL SATISFACTORY TO
         THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR
         HYPOTHECATION IS IN COMPLIANCE THEREWITH.

         THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
         RESTRICTIONS ON TRANSFER, A RIGHT OF FIRST REFUSAL, AND A REPURCHASE
         OPTION HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE
         RESTRICTED STOCK PURCHASE AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL
         HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE
         PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS, RIGHT OF
         FIRST REFUSAL AND REPURCHASE OPTION ARE BINDING ON TRANSFEREES OF THESE
         SHARES.

Stop-Transfer Notices. Purchaser agrees that, in order to ensure compliance with
the restrictions referred to herein, the Company may issue appropriate "stop
transfer" instructions to its transfer agent, if any, and that, if the Company
transfers its own securities, it may make appropriate notations to the same
effect in its own records.

Refusal to Transfer. The Company shall not be required (i) to transfer on its
books any Shares that have been sold or otherwise transferred in violation of
any of the provisions of this Agreement or (ii) to treat as owner of such Shares
or to accord the right to vote or pay dividends to any purchaser or other
transferee to whom such Shares shall have been so transferred.

Lock-Up Period. Purchaser hereby agrees that, if so requested by the Company or
any representative of the underwriters (the "Managing Underwriter") in
connection with any registration of the offering of any securities of the
Company under the Securities Act, Purchaser shall not sell or otherwise transfer
any Shares or other securities of the Company during the 180-day period (or such
other period as may be requested in writing by the Managing Underwriter and
agreed to in writing by the Company) (the "Market Standoff Period") following
the effective date of a registration statement of the Company filed under the
Securities Act. Such restriction shall apply only to the first registration
statement of the Company to become effective under the Securities Act that
includes securities to be sold on behalf of the Company to the public in an
underwritten public offering under the Securities Act. The Company may impose
stop-transfer instructions with respect to securities subject to the foregoing
restrictions until the end of such Market Standoff Period.

Tax Consequences. Set forth below is a brief summary as of the date of grant of
this Stock Purchase Right of some of the federal tax consequences of exercise of
this Stock Purchase Right and disposition of the Shares. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.

Exercise of Stock Purchase Right. Generally, no income will be recognized by
Purchaser in connection with the exercise of the stock purchaser right for
shares subject to the Repurchase Option, unless an election under Section 83(b)
of the Code is filed with the Internal Revenue Service within 30 days of the
date of exercise of the right to purchase stock. The form for making this
election is attached as Exhibit A-4 hereto. Otherwise, as the Company's
repurchase right lapses, Purchaser will recognize compensation income in an
amount equal to the difference between the Fair Market Value of the stock at the
time the Company's repurchase right lapses and the amount paid for the stock, if
any (the "Spread"). If Purchaser is an Employee or former Employee, the Spread
will be subject to tax withholding by the Company, and the Company will be
entitled to a tax deduction in the amount at the time the Purchaser recognizes
ordinary income with respect to a Stock Purchase Right.

Disposition of Shares. Upon disposition of the Shares, any gain or loss is
treated as capital gain or loss. If the Shares are held for at least one year,
any gain realized on disposition of the shares will be treated as long-term
capital gain for federal income tax purposes. Long-term capital gains are
grouped and netted by holding periods. Net capital gains on assets held for more
than 12 months is capped at 20%. Capital losses are allowed in full against
capital gains, and up to $3,000 against other income.

THE PURCHASER ACKNOWLEDGES THAT IT IS THE PURCHASER'S SOLE RESPONSIBILITY AND
NOT THE COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF THE
PURCHASER

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<PAGE>   6

REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON THE
PURCHASER'S BEHALF.

No Guarantee of Continued Service. PURCHASER ACKNOWLEDGES AND AGREES THAT THE
RELEASE OF SHARES FROM THE REPURCHASE OPTION OF THE COMPANY PURSUANT TO SECTION
5 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS SERVICE PROVIDER AT THE WILL OF
THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED OR PURCHASING SHARES HEREUNDER).
PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS
CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT
CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE
PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT
INTERFERE WITH PURCHASER'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE PURCHASER'S
RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.

Notices. Any notice, demand or request required or permitted to be given by
either the Company or the Purchaser pursuant to the terms of this Agreement
shall be in writing and shall be deemed given when delivered personally or
deposited in the U.S. mail, First Class with postage prepaid, and addressed to
the parties at the addresses of the parties set forth at the end of this
Agreement or such other address as a party may request by notifying the other in
writing. Any notice to the Escrow Holder shall be sent to the Company's address
with a copy to the other party not sending the notice.

No Waiver. Either party's failure to enforce any provision or provisions of this
Agreement shall not in any way be construed as a waiver of any such provision or
provisions, nor prevent that party from thereafter enforcing each and every
other provision of this Agreement. The rights granted both parties herein are
cumulative and shall not constitute a waiver of either party's right to assert
all other legal remedies available to it under the circumstances.

Successors and Assigns. The Company may assign any of its rights under this
Agreement to single or multiple assignees, and this Agreement shall inure to the
benefit of the successors and assigns of the Company. Subject to the
restrictions on transfer herein set forth, this Agreement shall be binding upon
Purchaser and his or her heirs, executors, administrators, successors and
assigns.

Interpretation. Any dispute regarding the interpretation of this Agreement shall
be submitted by Purchaser or by the Company forthwith to the Administrator which
shall review such dispute at its next regular meeting. The resolution of such a
dispute by the Administrator shall be final and binding on all parties.

Governing Law; Severability. This Agreement is governed by the internal
substantive laws but not the choice of law rules, of California.

Entire Agreement. The Plan is incorporated herein by reference. This Agreement
(including the exhibits referenced herein), the Plan, and the Investment
Representation Statement constitute the entire agreement of the parties with
respect to the subject matter hereof and supersede in their entirety all prior
undertakings and agreements of the Company and Purchaser with respect to the
subject matter hereof, and may not be modified adversely to the Purchaser's
interest except by means of a writing signed by the Company and Purchaser.

                                       72

<PAGE>   7

By Purchaser's signature below, Purchaser represents that he or she is familiar
with the terms and provisions of the Plan, and hereby accepts this Agreement
subject to all of the terms and provisions thereof. Purchaser has reviewed the
Plan and this Agreement in their entirety, has had an opportunity to obtain the
advice of counsel prior to executing this Agreement and fully understands all
provisions of this Agreement. Purchaser agrees to accept as binding, conclusive
and final all decisions or interpretations of the Administrator upon any
questions arising under the Plan or this Agreement. Purchaser further agrees to
notify the Company upon any change in the residence indicated in the Notice of
Grant of Stock Purchase Right.

PURCHASER:                                 AVANEX CORPORATION

/s/ BRIAN KINARD                           By: /s/ WALTER ALESSANDRINI
----------------------------------            ---------------------------------
Signature

Brian Kinard                               Title: President & CEO
----------------------------------               -------------------------------
Print Name

Date: October 22, 1999

                                       73
<PAGE>   8

                                   EXHIBIT A-1
                      ASSIGNMENT SEPARATE FROM CERTIFICATE

FOR VALUE RECEIVED I, W. Brian Kinard, hereby sell, assign and transfer unto
_________________________ (__________) shares of the Common Stock of Avanex
Corporation standing in my name of the books of said corporation represented by
Certificate No. _____ herewith and do hereby irrevocably constitute and appoint
____________________________ to transfer the said stock on the books of the
within named corporation with full power of substitution in the premises. This
Stock Assignment may be used only in accordance with the Restricted Stock
Purchase Agreement between Avanex Corporation and the undersigned dated October
22, 1999.

Dated: OCTOBER 22, 1999                   Signature: /s/ BRIAN KINARD
       ----------------                              --------------------------

INSTRUCTIONS: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise its
Repurchase Option as set forth in the Agreement, without requiring additional
signatures on the part of the Purchaser.

<PAGE>   9

                                   EXHIBIT A-2

                            JOINT ESCROW INSTRUCTIONS
                                October 22, 1999

Corporate Secretary
Avanex Corporation
40915 Encyclopedia Circle
Fremont, CA 94538-2436

Dear Sirs:

As Escrow Agent for both Avanex Corporation, a California corporation (the
"Company"), and the undersigned purchaser of stock of the Company (the
"Purchaser"), you are hereby authorized and directed to hold the documents
delivered to you pursuant to the terms of that certain Restricted Stock Purchase
Agreement ("Agreement") between the Company and the undersigned, in accordance
with the following instructions:

        1. In the event the Company and/or any assignee of the Company (referred
to collectively for convenience herein as the "Company") exercises the Company's
repurchase option set forth in the Agreement (the "Repurchase Option"), the
Company shall give to Purchaser and you a written notice specifying the number
of shares of stock to be purchased, the purchase price, and the time for a
closing hereunder at the principal office of the Company. Purchaser and the
Company hereby irrevocably authorize and direct you to close the transaction
contemplated by such notice in accordance with the terms of said notice.

        2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to the Company or its
assignee, against the simultaneous delivery to you of the purchase price (by
cash, a check, or some combination thereof) for the number of shares of stock
being purchased pursuant to the exercise of the Company's Repurchase Option.

        3. Purchaser irrevocably authorizes the Company to deposit with you any
certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement.
Purchaser does hereby irrevocably constitute and appoint you as Purchaser's
attorney-in-fact and agent for the term of this escrow to execute with respect
to such securities all documents necessary or appropriate to make such
securities negotiable and to complete any transaction herein contemplated,
including but not limited to the filing with any applicable state blue sky
authority of any required applications for consent to, or notice of transfer of,
the securities. Subject to the provisions of this paragraph 3, Purchaser shall
exercise all rights and privileges of a shareholder of the Company while the
stock is held by you.

        4. Upon written request of the Purchaser, but no more than once per
calendar year, unless the Company's Repurchase Option has been exercised, you
will deliver to Purchaser a certificate or certificates representing so many
shares of stock as are not then subject to the Company's Repurchase Option.
Within ninety (90) days after cessation of Purchaser's continuous employment by
or services to the Company, or any parent or subsidiary of the Company, you will
deliver to Purchaser a certificate or certificates representing the aggregate
number of shares held or issued pursuant to the Agreement and not purchased by
the Company or its assignees pursuant to exercise of the Company's Repurchase
Option.

        5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Purchaser,
you shall deliver all of the same to Purchaser and shall be discharged of all
further obligations hereunder.

        6. Your duties hereunder may be altered, amended, modified or revoked
only by a writing signed by all of the parties hereto.

        7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
<PAGE>   10

genuine and to have been signed or presented by the proper party or parties. You
shall not be personally liable for any act you may do or omit to do hereunder as
Escrow Agent or as attorney-in-fact for Purchaser while acting in good faith,
and any act done or omitted by you pursuant to the advice of your own attorneys
shall be conclusive evidence of such good faith.

        8. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court. In
case you obey or comply with any such order, judgment or decree, you shall not
be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance, notwithstanding any such order,
judgment or decree being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.

        9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.

        10. You shall not be liable for the outlawing of any rights under the
Statute of Limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.

        11. You shall be entitled to employ such legal counsel and other experts
as you may deem necessary properly to advise you in connection with your
obligations hereunder, may rely upon the advice of such counsel, and may pay
such counsel reasonable compensation therefor.

        12. Your responsibilities as Escrow Agent hereunder shall terminate if
you shall cease to be an officer or agent of the Company or if you shall resign
by written notice to each party. In the event of any such termination, the
Company shall appoint a successor Escrow Agent.

        13. If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.

        14. It is understood and agreed that should any dispute arise with
respect to the delivery and/or ownership or right of possession of the
securities held by you hereunder, you are authorized and directed to retain in
your possession without liability to anyone all or any part of said securities
until such disputes shall have been settled either by mutual written agreement
of the parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.

        15. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by registered or certified mail with postage and
fees prepaid, addressed to each of the other parties thereunto entitled at the
following addresses or at such other addresses as a party may designate by ten
(10) days' advance written notice to each of the other parties hereto.

COMPANY:                     Avanex Corporation
                             40915 Encyclopedia Circle
                             Fremont, CA 94538-2436

PURCHASER:                   W. Brian Kinard

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

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

ESCROW AGENT:                Corporate Secretary
                             Avanex Corporation
                             40915 Encyclopedia Circle
                             Fremont, CA 94538-2436

        16. By signing these Joint Escrow Instructions, you become a party
hereto only for the purpose of said Joint Escrow Instructions; you do not become
a party to the Agreement.

                                       2
<PAGE>   11

        17. This instrument shall be binding upon and inure to the benefit of
the parties hereto, and their respective successors and permitted assigns.

        18. The Restricted Stock Purchase Agreement is incorporated herein by
reference. These Joint Escrow Instructions, the 1998 Stock Plan, and the
Restricted Stock Purchase Agreement (including the exhibits referenced therein)
constitute the entire agreement of the parties with respect to the subject
matter hereof and supersede in their entirety all prior undertakings and
agreements of the Escrow Agent, the Purchaser and the Company with respect to
the subject matter hereof, and may not be modified except by means of a writing
signed by the Escrow Agent, the Purchaser and the Company.

        19. These Joint Escrow Instructions shall be governed by, and construed
and enforced in accordance with, the laws of the State of California.

                             Very truly yours,

                             AVANEX CORPORATION

                             By: /s/ WALTER ALESSANDRINI
                                --------------------------------------

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

                             PURCHASER

                             /s/ BRIAN KINARD
                             ------------------------------------------
                             (Signature)

                             W. Brian Kinard
                             ------------------------------------------
                             (Typed or Printed Name)

                             ESCROW AGENT:

                             /s/ JUDITH M. O'BRIEN
                             ------------------------------------------
                             Corporate Secretary

                                       3
<PAGE>   12

                                   EXHIBIT A-3
                                CONSENT OF SPOUSE

I, _________________________, spouse of W. Brian Kinard, have read and approve
the foregoing Restricted Stock Purchase Agreement (the "Agreement"). In
consideration of granting of the right to my spouse to purchase shares of Avanex
Corporation, as set forth in the Agreement, I hereby appoint my spouse as my
attorney-in-fact in respect to the exercise of any rights under the Agreement
and agree to be bound by the provisions of the Agreement insofar as I may have
any rights in said Agreement or any shares issued pursuant thereto under the
community property laws or similar laws relating to marital property in effect
in the state of our residence as of the date of the signing of the foregoing
Agreement.

Dated:   October 22, 1999                          Signature:
                                                             -------------------

<PAGE>   13

                                   EXHIBIT A-4
                          ELECTION UNDER SECTION 83(b)
                      OF THE INTERNAL REVENUE CODE OF 1986

The undersigned taxpayer hereby elects, pursuant to Internal Revenue Code of
1986, to include in his gross income for the current taxable year, the amount of
any compensation taxable to him in connection with his receipt of the property
described below:

1. The name, address, taxpayer identification number and taxable year of the
undersigned are as follows:
<TABLE>
<CAPTION>

                          TAXPAYER                           SPOUSE
                          --------                           ------
<S>                       <C>                                <C>
NAME:                     Brian Kinard
                          -------------------------------    -------------------------------
ADDRESS:
                          -------------------------------    -------------------------------
IDENTIFICATION NO.
                          -------------------------------    -------------------------------
TAXABLE YEAR:             1999                               1999
                          -------------------------------    -------------------------------
</TABLE>

2. The property with respect to which the election is made is described as
follows:

3. The date on which the property was transferred is: October 22, 1999

4. The property is subject to the following restrictions: 100,000 shares of
Common Stock of Avanex Corporation

        The Shares may not be transferred and are subject to forfeiture under
        the terms of an agreement between the taxpayer and the Company. These
        restrictions lapse upon the satisfaction of certain conditions contained
        in such agreement.

5. The fair market value at the time of transfer, determined without regard to
any restriction other than a restriction which by its terms will never lapse, of
such property is: $__________

6. The amount (if any) paid for such property: $__________

The undersigned has submitted a copy of this statement to the person for whom
the services were performed in connection with the undersigned's receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said property.

The undersigned understands that the foregoing election may not be revoked
except with the consent of the Commissioner.

Dated: October 22, 1999
       -------------------------------      -----------------------------------
                                            Taxpayer Signature

The undersigned spouse of taxpayer joins in this election.

Dated:
      ---------------------------------     ------------------------------------
                                            Spouse of Taxpayer Signature

<PAGE>   14
                                    EXHIBIT B
                       INVESTMENT REPRESENTATION STATEMENT

PURCHASER:                   W. BRIAN KINARD
COMPANY:                     AVANEX CORPORATION
SECURITY:                    COMMON STOCK
AMOUNT:                      100,000
DATE:                        OCTOBER 22, 1999

In connection with the purchase of the above-listed Securities, the undersigned
Purchaser represents to the Company the following:

        (a) Purchaser is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to

        (b) reach an informed and knowledgeable decision to acquire the
Securities. Purchaser is acquiring these Securities for investment for
Purchaser's own account only and not with a view to, or for resale in connection
with, any "distribution" thereof within the meaning of the Securities Act of
1933, as amended (the "Securities Act").

        (c) Purchaser acknowledges and understands that the Securities
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of Purchaser's investment intent as expressed herein. In this connection,
Purchaser understands that, in the view of the Securities and Exchange
Commission, the statutory basis for such exemption may be unavailable if
Purchaser's representation was predicated solely upon a present intention to
hold these Securities for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one (1) year or any other
fixed period in the future. Purchaser further understands that the Securities
must be held indefinitely unless they are subsequently registered under the
Securities Act or an exemption from such registration is available. Purchaser
further acknowledges and understands that the Company is under no obligation to
register the Securities.

        (d) Purchaser is familiar with the provisions of Rule 701 and Rule 144,
each promulgated under the Securities Act, which, in substance, permit limited
public resale of "restricted securities" acquired, directly or indirectly from
the issuer thereof, in a non-public offering subject to the satisfaction of
certain conditions. Rule 701 provides that if the issuer qualifies under Rule
701 at the time of the grant of the Stock Purchase Right to the Purchaser, the
exercise will be exempt from registration under the Securities Act. In the event
the Company becomes subject to the reporting requirements of Section 13 or 15(d)
of the Securities Exchange Act of 1934, ninety (90) days thereafter (or such
longer period as any market stand-off agreement may require) the Securities
exempt under Rule 701 may be resold, subject to the satisfaction of certain of
the conditions specified by Rule 144, including: (1) the resale being made
through a broker in an unsolicited "broker's transaction" or in transactions
directly with a market maker (as said term is defined under the Securities
Exchange Act of 1934); and, in the case of an affiliate, (2) the availability of
certain public information about the Company, (3) the amount of Securities being
sold during any three (3) month period not exceeding the limitations specified
in Rule 144(e), and (4) the timely filing of a Form 144, if applicable.

                                       4
<PAGE>   15

In the event that the Company does not qualify under Rule 701 at the time of
grant of the Stock Purchase Right, then the Securities may be resold in certain
limited circumstances subject to the provisions of Rule 144, which requires the
resale to occur not less than one (1) year after the later of the date the
Securities were sold by the Company or the date the Securities were sold by an
affiliate of the Company, within the meaning of Rule 144; and, in the case of
acquisition of the Securities by an affiliate, or by a non-affiliate who
subsequently holds the Securities less than two (2) years, the satisfaction of
the conditions set forth in sections (1), (2), (3) and (4) of the paragraph
immediately above.

        (e) Purchaser further understands that in the event all of the
applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk. Purchaser understands that no assurances can be given that
any such other registration exemption will be available in such event.

                                Signature of Purchaser: /s/ BRIAN KINARD
                                                       -------------------------
Date: October 22, 1999
      -----------------

<PAGE>   16

                               SECURITY AGREEMENT

               This Security Agreement is made as of October 22, 1999 between
Avanex Corporation ("Pledgee"), W. Brian Kinard ("Pledgor") and the Secretary of
Pledgee as "Pledgeholder."

                                    Recitals

               A. Pledgor has incurred payment obligations (the "Payment
Obligations") to Pledgee set forth in a Promissory Note of even date herewith.

               B. Pledgor desires to provide a security interest in all of the
Pledgor's shares of Common Stock of the Pledgee, all options, and similar rights
to acquire such capital stock or interests, and all rights to receive profits or
surplus or other dividends or distributions from the Pledgee to its
shareholders, in each case whether now owned or existing or hereafter acquired
or arising, wherever located, together with all substitutions, replacements,
(the "Shares") to secure performance by Pledgor of the Payment Obligations, all
as more specifically set forth in this Pledge Agreement.

               NOW, THEREFORE, it is agreed as follows:

        (1) Creation and Description of Security Interest. In consideration of
the transfer of the Shares to Pledgor under the Stock Purchase Agreement (the
"Agreement), Pledgor, pursuant to the California Commercial Code, hereby pledges
all of such Shares (herein sometimes referred to as the "Collateral")
represented by certificate number __, duly endorsed in blank or with executed
stock powers, and herewith delivers said certificate to the Secretary of Pledgee
("Pledgeholder"), who shall hold said certificate subject to the terms and
conditions of this Security Agreement.

               The pledged stock (together with an executed blank stock
assignment for use in transferring all or a portion of the Shares to Pledgee if,
as and when required pursuant to this Security Agreement) shall be held by the
Pledgeholder as security for the repayment of the Note, and any extensions or
renewals thereof, to be executed by Pledgor pursuant to the terms of the
Agreement, and the Pledgeholder shall not encumber or dispose of such Shares
except in accordance with the provisions of this Security Agreement.

<PAGE>   17

        (2) Pledgor's Representations and Covenants. To induce Pledgee to enter
into this Security Agreement, Pledgor represents and covenants to Pledgee, its
successors and assigns, as follows:

                (a) Payment of Indebtedness. Pledgor will pay the principal sum
                of the Note secured hereby, together with interest thereon, at
                the time and in the manner provided in the Note.

                (b) Encumbrances. The Shares are free of all other encumbrances,
                defenses and liens, and Pledgor will not further encumber the
                Shares without the prior written consent of Pledgee.

                (c) Margin Regulations. In the event that Pledgee's Common Stock
                is now or later becomes margin-listed by the Federal Reserve
                Board and Pledgee is classified as a "lender" within the meaning
                of the regulations under Part 207 of Title 12 of the Code of
                Federal Regulations ("Regulation G"), Pledgor agrees to
                cooperate with Pledgee in making any amendments to the Note or
                providing any additional collateral as may be necessary to
                comply with such regulations.

        (3) Voting Rights. During the term of this pledge and so long as all
payments of principal and interest are made as they become due under the terms
of the Note, Pledgor shall have the right to vote all of the Shares pledged
hereunder.

        (4) Stock Adjustments. In the event that during the term of the pledge
any stock dividend, reclassification, readjustment or other changes are declared
or made in the capital structure of Pledgee, all new, substituted and additional
shares or other securities issued by reason of any such change shall be
delivered to and held by the Pledgee under the terms of this Security Agreement
in the same manner as the Shares originally pledged hereunder. In the event of
substitution of such securities, Pledgor, Pledgee and Pledgeholder shall
cooperate and execute such documents as are reasonable so as to provide for the
substitution of such Collateral and, upon such substitution, references to
"Shares" in this Security Agreement shall include the substituted shares of
capital stock of Pledgor as a result thereof.

        (5) Options and Rights. In the event that, during the term of this
pledge, subscription Options or other rights or options shall be issued in
connection with the pledged Shares, such rights, Options and options shall be
the property of Pledgor and, if exercised by Pledgor, all new stock or other
securities so acquired by Pledgor as it relates to the pledged Shares then held
by Pledgeholder shall be immediately delivered to Pledgeholder, to be held under
the terms of this Security Agreement in the same manner as the Shares pledged.

<PAGE>   18

        (6) Default. Pledgor shall be deemed to be in default of the Note and of
this Security Agreement in the event:

               a. Payment of principal or interest on the Note shall be
delinquent for a period of 10 days or more; or

               b. Pledgor fails to perform any of the covenants set forth in the
Agreement or contained in this Security Agreement for a period of 10 days after
written notice thereof from Pledgee.

               In the case of an event of Default, as set forth above, Pledgee
shall have the right to accelerate payment of the Note upon notice to Pledgor,
and Pledgee shall thereafter be entitled to pursue its remedies under the
California Commercial Code.

        (7) Release of Collateral. Subject to any applicable contrary rules
under Regulation G, there shall be released from this pledge a portion of the
pledged Shares held by Pledgeholder hereunder upon payments of the principal of
the Note. The number of the pledged Shares which shall be released shall be that
number of full Shares which bears the same proportion to the initial number of
Shares pledged hereunder as the payment of principal bears to the initial full
principal amount of the Note.

        (8) Withdrawal or Substitution of Collateral. Pledgor shall not sell,
withdraw, pledge, substitute or otherwise dispose of all or any part of the
Collateral without the prior written consent of Pledgee.

        (9) Term. The within pledge of Shares shall continue until the payment
of all indebtedness secured hereby, at which time the remaining pledged stock
shall be promptly delivered to Pledgor, subject to the provisions for prior
release of a portion of the Collateral as provided in paragraph 7 above.

        (10) Insolvency. Pledgor agrees that if a bankruptcy or insolvency
proceeding is instituted by or against it, or if a receiver is appointed for the
property of Pledgor, or if Pledgor makes an assignment for the benefit of
creditors, the entire amount unpaid on the Note shall become immediately due and
payable, and Pledgee may proceed as provided in the case of default.

        (11) Pledgeholder Liability. In the absence of willful or gross
negligence, Pledgeholder shall not be liable to any party for any of his acts,
or omissions to act, as Pledgeholder.

        (12) Invalidity of Particular Provisions. Pledgor and Pledgee agree that
the enforceability or invalidity of any provision or provisions of this Security
Agreement shall not render any other provision or provisions herein contained
unenforceable or invalid.

        (13) Successors or Assigns. Pledgor and Pledgee agree that all of the
terms of this Security Agreement shall be binding on their respective successors
and assigns, and that the term "Pledgor" and the term "Pledgee" as used herein
shall be deemed to include, for all purposes, the respective designees,
successors, assigns, heirs, executors and administrators.

        (14) Governing Law. This Security Agreement shall be interpreted and
governed under the laws of the State of California.

               IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.

     "PLEDGOR"                   By: /s/ BRIAN KINARD
                                    --------------------------------------------
                                 Address:
     "PLEDGEE"                   Avanex Corporation

                                 By: /s/ WALTER ALESSANDRINI
                                    --------------------------------------------
                                        Walter Alessandrini, President

     "PLEDGEHOLDER"              /s/ JUDITH M. O'BRIEN
                                 -----------------------------------------------
                                    Secretary of Avanex Corporation

<PAGE>   19
                                 PROMISSORY NOTE

$150,000.00                                                    OCTOBER 22, 1999

        FOR VALUE RECEIVED, W. Brian Kinard ("Borrower") promises to pay to
Avanex Corporation (the "Company"), or order, the principal sum of One Hundred
Fifty Thousand and 00/100 dollars, together with interest on the unpaid
principal hereof from the date hereof at the rate of 6.02% per annum, compounded
semiannually.

        Principal and interest shall be due and payable on October 22, 2004.
Should the undersigned fail to make full payment of principal or interest for a
period of 10 days or more after the due date thereof, the whole unpaid balance
on this Note of principal and interest shall become immediately due at the
option of the holder of this Note. Payments of principal and interest shall be
made in lawful money of the United States of America.

        The undersigned may at any time prepay all or any portion of the
principal or interest owing hereunder.

        This Note is subject to the terms of the Stock Purchase Agreement
between Borrower and the Company and dated as of October 22, 1999. This Note is
secured in part by a pledge of the Company's Common Stock under the terms of a
Security Agreement of even date herewith and is subject to all the provisions
thereof.

        The holder of this Note shall have full recourse against the
undersigned, and shall not be required to proceed against the collateral
securing this Note in the event of default.

        In the event the undersigned shall cease to be an employee or consultant
of the Company for any reason, this Note shall, at the option of the Company, be
accelerated, and the whole unpaid balance on this Note of principal and accrued
interest shall be due and payable thirty days after the date of such
termination.

        Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid by the
undersigned.

                                     /s/ W. BRIAN KINARD
                                     -------------------
                                     W. Brian Kinard

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