CASTELLE \CA\
SVB LOAN AGREEMENT
<DOCUMENT>
<TYPE>EX-10
<SEQUENCE>2
<FILENAME>exhibit10_2.txt
<DESCRIPTION>SVB LOAN AGREEMENT
<TEXT>
                           LOAN AND SECURITY AGREEMENT
                                    CASTELLE


                                      E-3
<PAGE>




                                TABLE OF CONTENTS

                                                                           Page

1        ACCOUNTING AND OTHER TERMS...........................................6
         --------------------------

2        LOAN AND TERMS OF PAYMENT............................................6
         -------------------------
         2.1      Promise to Pay..............................................6
         2.2      Overadvances................................................6
         2.3      Interest Rate, Payments.....................................6
         2.4      Fees........................................................7

3        CONDITIONS OF LOANS..................................................7
         -------------------
         3.1      Conditions Precedent to Initial Credit Extension............7
         3.2      Conditions Precedent to all Credit Extensions...............7

4        CREATION OF SECURITY INTEREST........................................7
         -----------------------------
         4.1      Grant of Security Interest..................................7
         4.2      Authorization of File.......................................8

5        REPRESENTATIONS AND WARRANTIES.......................................8
         ------------------------------
         5.1      Due Organization and Authorization..........................8
         5.2      Collateral..................................................8
         5.3      Litigation..................................................8
         5.4      No Material Adverse Change in Financial Statements..........9
         5.5      Solvency....................................................9
         5.6      Regulatory Compliance.......................................9
         5.7      Investments in Subsidiaries.................................9
         5.8      Full Disclosure.............................................9

6        AFFIRMATIVE COVENANTS...............................................10
         ---------------------
         6.1      Government Compliance......................................10
         6.2      Financial Statements, Reports, Certificates................10
         6.3      Inventory; Returns.........................................10
         6.4      Taxes......................................................11
         6.5      Insurance..................................................11
         6.6      Primary Accounts...........................................11
         6.7      Financial Covenants........................................11
         6.8      Further Assurances.........................................11

7        NEGATIVE COVENANTS..................................................11
         ------------------
         7.1      Dispositions...............................................12
         7.2      Changes in Business, Ownership, Management or Locations of
                  Collateral.................................................12
         7.3      Mergers or Acquisitions....................................12
         7.4      Indebtedness...............................................12
         7.5      Encumbrance................................................12
         7.6      Distributions; Investments.................................13
         7.7      Transactions with Affiliates...............................13
         7.8      Subordinated Debt..........................................13
         7.9      Compliance.................................................13

8        EVENTS OF DEFAULT...................................................13
         -----------------
         8.1      Payment Default............................................13
         8.2      Covenant Default...........................................13

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<PAGE>

         8.3      Material Adverse Change....................................14
         8.4      Attachment.................................................14
         8.5      Insolvency.................................................14
         8.6      Other Agreements...........................................14
         8.7      Judgments..................................................14
         8.8      Misrepresentations.........................................15

9        BANK'S RIGHTS AND REMEDIES..........................................15
         --------------------------
         9.1      Rights and Remedies........................................15
         9.2      Power of Attorney..........................................15
         9.3      Bank Expenses..............................................16
         9.4      Bank's Liability for Collateral............................16
         9.5      Remedies Cumulative........................................16
         9.6      Demand Waiver..............................................16

10       NOTICES.............................................................16
         -------

11       CHOICE OF LAW , VENUE AND JURY TRIAL WAIVER.........................16
         -------------------------------------------

12       GENERAL PROVISIONS..................................................17
         ------------------
         12.1     Successors and Assigns.....................................17
         12.2     Indemnification............................................17
         12.3     Time of Essence............................................17
         12.4     Severability of Provision..................................17
         12.5     Amendments in Writing, Integration.........................17
         12.6     Counterparts...............................................18
         12.7     Survival...................................................18
         12.8     Confidentiality............................................18
         12.9     Attorneys' Fees, Costs and Expenses........................18

13       DEFINITIONS.........................................................18
         -----------
         13.1     Definitions................................................18


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<PAGE>



         This LOAN AND SECURITY AGREEMENT ("Agreement") dated as of the
Effective Date, between SILICON VALLEY BANK ("Bank"), whose address is 3003
Tasman Drive, Santa Clara, California 95054 and CASTELLE ("Borrower"), whose
address is 855 Jarvis Drive, Suite 100, Morgan Hill, California 95037 provides
the terms on which Bank will lend to Borrower and Borrower will repay Bank. The
parties agree as follows:

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

         Accounting terms not defined in this Agreement will be construed
following GAAP. Calculations and determinations must be made following GAAP. The
term "financial statements" includes the notes and schedules. The terms
"including" and "includes" always mean "including (or includes) without
limitation," in this or any Loan Document.


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

2.1               Promise to Pay.

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


2.1.1             Revolving Advances.

     (a) Bank will make  Advances not  exceeding the lesser of (A) the Committed
Revolving Line or (B) the Borrowing  Base.  Amounts  borrowed under this Section
may be repaid and reborrowed during the term of this Agreement.

     (b) To obtain  an  Advance,  Borrower  must  notify  Bank by  facsimile  or
telephone  by 12:00 p.m.  Pacific  time on the Business Day the Advance is to be
made.  Borrower must promptly confirm the notification by delivering to Bank the
Payment/Advance  Form  attached  as  Exhibit  B. Bank will  credit  Advances  to
Borrower's deposit account. Bank may make Advances under this Agreement based on
instructions  from a  Responsible  Officer  or his or her  designee  or  without
instructions if the Advances are necessary to meet Obligations which have become
due. Bank may rely on any telephone  notice given by a person whom Bank believes
is a Responsible Officer or designee.  Borrower will indemnify Bank for any loss
Bank suffers due to such reliance.

     (c) The Committed Revolving Line terminates on the Revolving Maturity Date,
when all Advances are immediately payable.

2.2               Overadvances.

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

2.3               Interest Rate, Payments.

     (a) Interest Rate.  Advances accrue  interest on the outstanding  principal
balance at a per annum rate equal to the  greater of (i) 0.50 of one  percentage
point above the Prime Rate or (ii)


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<PAGE>

4.50%. After an Event of Default, Obligations
accrue  interest at 5 percent above the rate  effective  immediately  before the
Event of Default.  The interest rate  increases or decreases when the Prime Rate
changes.  Interest is  computed on a 360 day year for the actual  number of days
elapsed.

     (b) Payments.  Interest due on the Committed  Revolving  Line is payable on
the 13th of each  month.  Bank may  debit  any of  Borrower's  deposit  accounts
including  Account Number 330823570 for principal and interest payments owing or
any amounts  Borrower  owes Bank.  Bank will  promptly  notify  Borrower when it
debits Borrower's  accounts.  These debits are not a set-off.  Payments received
after 12:00 noon Pacific time are considered received at the opening of business
on the next  Business Day. When a payment is due on a day that is not a Business
Day, the payment is due the next  Business  Day and  additional  interest  shall
accrue.

2.4               Fees.

         Borrower will pay:

     (a) Facility Fee. A fully earned, non-refundable Facility Fee of $2,000 due
on the Effective Date; and

     (b) Bank Expenses.  All Bank Expenses (including reasonable attorneys' fees
and reasonable  expenses) not to exceed $1,935 for documentation and negotiation
of this Agreement  (provided that document  negotiations  are minimal)  incurred
through the date of this Agreement, are payable when due.

3                 CONDITIONS OF LOANS

3.1               Conditions Precedent to Initial Credit Extension.

     Bank's  obligation to make the initial  Credit  Extension is subject to the
condition  precedent  that it  receive  the  agreements,  documents  and fees it
requires.

3.2               Conditions Precedent to all Credit Extensions.

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

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

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

4                 CREATION OF SECURITY INTEREST

4.1               Grant of Security Interest.

     Borrower  grants  Bank a  continuing  security  interest  in all  presently
existing and later acquired Collateral to secure all Obligations and performance
of each of  Borrower's  duties under


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<PAGE>

the Loan Documents.  Except for Permitted Liens, any security interest will be a
first priority security  interest in the Collateral.  Bank may place a "hold" on
any deposit  account  pledged as  Collateral.  If this  Agreement is terminated,
Bank's lien and security interest in the Collateral will continue until Borrower
fully satisfies its Obligations.

4.2              Authorization of File.

     Borrower  authorizes  Bank to file financing  statements  without notice to
Borrower,  with all appropriate  jurisdictions,  as Bank deems  appropriate,  in
order to perfect or protect Bank's interest in the Collateral.


5                 REPRESENTATIONS AND WARRANTIES

     Borrower represents and warrants as follows:

5.1               Due Organization and Authorization.

     Borrower and each  Subsidiary  is duly existing and in good standing in its
state of  formation  and  qualified  and licensed to do business in, and in good
standing in, any state in which the conduct of its business or its  ownership of
property requires that it be qualified,  except where the failure to do so could
not reasonably be expected to cause a Material Adverse Change.  Borrower has not
changed its state of  formation or its  organizational  structure or type or any
organizational number (if any) assigned by its jurisdiction of formation.

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

5.2               Collateral.

     Borrower has good title to the Collateral,  free of Liens except  Permitted
Liens or Borrower has Rights to each asset that is  Collateral.  Borrower has no
other  deposit  account,  other  than  the  deposit  accounts  described  in the
Schedule.  The Accounts are bona fide, existing obligations,  and the service or
property has been  performed or delivered to the account debtor or its agent for
immediate  shipment to and unconditional  acceptance by the account debtor.  The
Collateral  is not in the  possession  of any third party  bailee  (such as at a
warehouse).  In the event that Borrower, after the date hereof, intends to store
or otherwise deliver the Collateral to such a bailee, then Borrower will receive
the prior written  consent of Bank and such bailee must  acknowledge  in writing
that the bailee is holding such Collateral for the benefit of Bank. Borrower has
no notice of any actual or imminent Insolvency  Proceeding of any account debtor
whose accounts are an Eligible  Account in any Borrowing Base  Certificate.  All
Inventory is in all material respects of good and marketable quality,  free from
material defects.

5.3               Litigation.

     Except  as shown in the  Schedule,  there  are no  actions  or  proceedings
pending or, to the knowledge of Borrower's  Responsible Officers,  threatened by
or against  Borrower or any


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<PAGE>

Subsidiary in which a likely adverse  decision  could  reasonably be expected to
cause a Material Adverse Change.

5.4               No Material Adverse Change in Financial Statements.

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

5.5               Solvency.

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

5.6               Regulatory Compliance.

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

5.7               Investments in Subsidiaries.

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

5.8               Full Disclosure.

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

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<PAGE>

6                 AFFIRMATIVE COVENANTS

     Borrower will do all of the following for so long as Bank has an obligation
to lend, or there are outstanding Obligations:

6.1               Government Compliance.

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

6.2               Financial Statements, Reports, Certificates.

     (a) Borrower  will deliver to Bank:  (i) at such time as Credit  Extensions
are outstanding,  as soon as available, but no later than 30 days after the last
day of each month  (otherwise  within 5 days of filing of  Borrower's  Form 10-Q
with the Securities and Exchange  Commission),  a company prepared  consolidated
balance sheet and income statement covering Borrower's  consolidated  operations
during the period certified by a Responsible Officer and in a form acceptable to
Bank;  (ii)  within 5 days of  filing,  copies of all  statements,  reports  and
notices  made  available  to  Borrower's  security  holders or to any holders of
Subordinated  Debt  and all  reports  on Form  10-K  and  10-Q  filed  with  the
Securities and Exchange  Commission;  (iii) a prompt report of any legal actions
pending or threatened  against  Borrower or any Subsidiary  that could result in
damages  or costs to  Borrower  or any  Subsidiary  of  $500,000  or more;  (iv)
budgets,  projections and operating plans within 30 days of Borrower's  board of
directors  approval;   and  (v)  other  financial  information  Bank  reasonably
requests.

     (b) At such times as Credit Extensions are outstanding or prior to a Credit
Extension when there are no outstanding Credit Extensions,  within 20 days after
the last day of each  month,  Borrower  will  deliver to Bank a  Borrowing  Base
Certificate signed by a Responsible  Officer in the form of Exhibit C, with aged
listings  of accounts  receivable  (by invoice  date) and  accounts  payable (by
invoice date).

     (c) At such  times as Credit  Extensions  are  outstanding,  within 30 days
after  the  last  day of  each  month  (otherwise  within  5 days of  filing  of
Borrower's Form 10-Q with the Securities and Exchange Commission), Borrower will
deliver to Bank a Compliance  Certificate signed by a Responsible Officer in the
form of Exhibit D.

(d) Allow Bank to audit Borrower's Collateral at Borrower's expense (provided
that each audit does not exceed $750). Such audits will be conducted no more
often than once every year unless an Event of Default has occurred and is
continuing.

6.3               Inventory; Returns.

     Borrower will keep all  Inventory in good and  marketable  condition,  free
from material defects.  Returns and allowances  between Borrower and its account
debtors will follow Borrower's customary practices as they exist at execution of
this Agreement.  Borrower must


                                      E-10
<PAGE>

promptly  notify Bank of all  returns,  recoveries,  disputes  and claims,  that
involve more than $250,000.

6.4               Taxes.

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

6.5               Insurance.

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

6.6               Primary Accounts.

     Borrower will maintain its primary banking  relationship  with Bank,  which
relationship shall include Borrower maintaining account balances in any accounts
at or through Bank representing at least 85% of all account balances of Borrower
at any financial institution.

6.7               Financial Covenants.

     (a) At such  time as  Credit  Extensions  are  outstanding,  Borrower  will
maintain as of the last day of each month (otherwise quarterly):

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

     (b) Borrower will maintain as of the last day of each quarter:

          (ii) Revenues  and   Profitability.   Borrower  will  not  permit  its
               quarterly  revenues and profitability to negatively  deviate more
               than 25% of projected revenues and profitability for such quarter
               as provided in Borrower's board of directors  approved  financial
               projections submitted to and accepted by Bank.

6.8               Further Assurances.

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

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<PAGE>

7                 NEGATIVE COVENANTS

     For so long as Bank has an obligation to lend or there are any  outstanding
Obligations,  Borrower shall not,  without  Bank's prior written  consent (which
shall not be unreasonably withheld), do any of the following:

7.1               Dispositions.

     Convey,  sell,  lease,  transfer  or  otherwise  dispose  of  (collectively
"Transfer"),  or permit any of its Subsidiaries to Transfer,  all or any part of
its business or property,  except for Transfers (i) of Inventory in the ordinary
course of business;  (ii) of non-exclusive licenses and similar arrangements for
the use of the property of Borrower or its  Subsidiaries  in the ordinary course
of  business;  or  (iii) of  worn-out  or  obsolete  Equipment;  and (iv)  other
Transfers  which in the  aggregate do not exceed  $750,000 in any fiscal year or
would result in an Event of Default after giving effect to such Transfer.

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

     Engage in or permit any of its Subsidiaries to engage in any business other
than the  businesses  currently  engaged in by  Borrower or  reasonably  related
thereto or have a material  change in its  ownership  of greater than 35% (other
than by the sale of  Borrower's  equity  securities  in a public  offering or to
venture  capital  investors so long as Borrower  identifies the venture  capital
investors prior to the closing of the investment). Borrower will not, without at
least 30 days prior written notice,  relocate its chief executive office, change
its state of formation  (including  reincorporation),  change its organizational
number or name or add any new offices or business locations (such as warehouses)
in which Borrower maintains or stores over $250,000 in Collateral.

7.3               Mergers or Acquisitions.

     Merge  or  consolidate,  or  permit  any of its  Subsidiaries  to  merge or
consolidate,   with  any  other  Person,  or  acquire,  or  permit  any  of  its
Subsidiaries  to  acquire,  all or  substantially  all of the  capital  stock or
property of another  Person,  except  where (i) no Event of Default has occurred
and is  continuing  or would  result  from such  action  during the term of this
Agreement and (ii) such transaction  would not result in a decrease of more than
35% of Tangible Net Worth. A Subsidiary  may merge or  consolidate  into another
Subsidiary or into Borrower.

7.4               Indebtedness.

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

7.5               Encumbrance.

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

                                      E-12
<PAGE>

7.6               Distributions; Investments.

     Directly or indirectly acquire or own any Person, or make any Investment in
any Person, other than Permitted Investments,  or permit any of its Subsidiaries
to do so.  Pay any  dividends  or make any  distribution  or  payment or redeem,
retire or purchase any capital stock,  except for the purchases of capital stock
pursuant  to a board  of  directors  approved  10b-18  program  in  amounts  not
exceeding  $1,000,000 in any fiscal year,  provided that no Event of Default has
occurred, is continuing or would exist after giving effect to the purchases.

7.7               Transactions with Affiliates.

     Directly  or  indirectly  enter  into  or  permit  to  exist  any  material
transaction with any Affiliate of Borrower except for  transactions  that are in
the ordinary course of Borrower's business,  upon fair and reasonable terms that
are no less  favorable  to Borrower  than would be  obtained in an arm's  length
transaction with a nonaffiliated Person.

7.8               Subordinated Debt.

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

7.9               Compliance.

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

8                 EVENTS OF DEFAULT

     Any one of the following is an Event of Default:

8.1               Payment Default.

     If Borrower fails to pay any of the  Obligations  within 3 days after their
due date. During the additional period the failure to cure the default is not an
Event of Default. However, during such period no Credit Extensions will be made;

8.2               Covenant Default.


     (a) If Borrower fails to perform any  obligation  under Sections 6.2 or 6.7
or violates any of the covenants contained in Section 7 of this Agreement, or

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<PAGE>

     (b) If Borrower  fails or neglects to perform,  keep,  or observe any other
material term,  provision,  condition,  covenant, or agreement contained in this
Agreement,  in any of the Loan  Documents,  or in any  other  present  or future
agreement between Borrower and Bank and as to any default under such other term,
provision,  condition,  covenant or agreement  that can be cured,  has failed to
cure such default within ten (10) days after the occurrence  thereof;  provided,
however,  that if the default  cannot by its nature be cured within the ten (10)
day period or cannot  after  diligent  attempts by Borrower be cured within such
ten (10) day period,  and such default is likely to be cured within a reasonable
time, then Borrower shall have an additional  reasonable period (which shall not
in any case exceed thirty (30) days) to attempt to cure such default, and within
such  reasonable time period the failure to have cured such default shall not be
deemed an Event of  Default  (provided  that no Credit  Extensions  will be made
during such cure period);

8.3               Material Adverse Change.

     If there (i) occurs a material adverse change in the business,  operations,
or financial condition of the Borrower,  or (ii) is a material impairment of the
prospect of repayment of any portion of the Obligations;  or (iii) is a material
impairment  of the  value  or  priority  of  Bank's  security  interests  in the
Collateral (the foregoing being defined as a "Material Adverse Change").

8.4               Attachment.

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

8.5               Insolvency.

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

8.6               Other Agreements.

     If there is a default in any agreement  between  Borrower and a third party
that gives the third party the right to accelerate  any  Indebtedness  exceeding
$500,000 or that could cause a Material Adverse Change;
8.7               Judgments.

     If a money  judgment(s)  in the aggregate of at least  $250,000 is rendered
against  Borrower  and is  unsatisfied  and  unstayed for 10 days (but no Credit
Extensions will be made before the judgment is stayed or satisfied); or

                                      E-14
<PAGE>

8.8               Misrepresentations.

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

9                 BANK'S RIGHTS AND REMEDIES

9.1               Rights and Remedies.

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

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

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

     (c) Settle or adjust  disputes and claims directly with account debtors for
amounts,  on terms and in any order that Bank  considers  advisable;  notify any
Person owing Borrower money of Bank's security interest in the funds and verify
the amount of the Account. Borrower must collect all payments in trust for Bank
and, if requested by Bank, immediately deliver the payments to Bank in the form
received from the account debtor, with proper endorsements for deposit;

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

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

     (f) Ship, reclaim,  recover, store, finish,  maintain,  repair, prepare for
sale, advertise for sale, and sell the Collateral; and

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

9.2               Power of Attorney.

     Effective  only when an Event of  Default  occurs and  continues,  Borrower
irrevocably appoints Bank as its lawful attorney to: (i) endorse Borrower's name
on any checks or other forms of payment or security;  (ii) sign  Borrower's name
on any  invoice or bill of lading  for any  Account  or drafts  against  account
debtors,  (iii) make, settle,  and adjust all claims under Borrower's  insurance
policies; (iv) settle and adjust disputes and claims about the Accounts directly
with account debtors, for amounts and on terms Bank determines  reasonable;  and

                                      E-15
<PAGE>

(v) transfer the  Collateral  into the name of Bank or a third party as the Code
permits.  Bank may exercise the power of attorney to sign Borrower's name on any
documents  necessary  to perfect or  continue  the  perfection  of any  security
interest  regardless  of  whether  an  Event of  Default  has  occurred.  Bank's
appointment as Borrower's attorney in fact, and all of Bank's rights and powers,
coupled with an interest,  are irrevocable until all Obligations have been fully
repaid  and  performed  and  Bank's  obligation  to  provide  Credit  Extensions
terminates.

9.3               Bank Expenses.

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

9.4               Bank's Liability for Collateral.

     If Bank complies with reasonable banking practices and Section 9-207 of the
Code, it is not liable for: (a) the safekeeping of the Collateral;  (b) any loss
or damage to the Collateral;  (c) any diminution in the value of the Collateral;
or (d) any act or default of any carrier, warehouseman, bailee, or other person.
Except as provided above, Borrower bears all risk of loss, damage or destruction
of the Collateral.

9.5               Remedies Cumulative.

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

9.6               Demand Waiver.

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

10                NOTICES

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

                                      E-16
<PAGE>

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

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

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

12                GENERAL PROVISIONS

12.1              Successors and Assigns.

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

12.2              Indemnification.

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

12.3              Time of Essence.

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

12.4              Severability of Provision.

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

12.5              Amendments in Writing, Integration.

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

                                      E-17
<PAGE>

12.6              Counterparts.

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

12.7              Survival.

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

12.8              Confidentiality.

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

12.9              Attorneys' Fees, Costs and Expenses.

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

13                DEFINITIONS

13.1              Definitions.

     In this Agreement:

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

     "Advance" or "Advances" is a loan advance (or advances) under the Committed
Revolving Line.

                                      E-18
<PAGE>

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

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

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

     "Borrowing  Base" is the sum of (i)  $250,000,  plus  (ii) 80% of  Eligible
Accounts  as  determined  by Bank from  Borrower's  most recent  Borrowing  Base
Certificate;  provided,  however,  that  Bank may lower  the  percentage  of the
Borrowing Base after performing an audit of Borrower's Collateral.

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

     "Code" is the California Uniform Commercial Code, as applicable.

     "Collateral" is the property described on Exhibit A.

     "Committed Revolving Line" is an Advance of up to $4,000,000.

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

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

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

     "Effective Date" is the date Bank executes this Agreement.

     "Eligible  Accounts"  are  Accounts in the  ordinary  course of  Borrower's
business that meet all Borrower's  representations  and warranties in Section 5;
but Bank may change eligibility


                                      E-19
<PAGE>

standards by giving Borrower  notice.  Unless Bank agrees  otherwise in writing,
Eligible Accounts will not include:
         (a) Accounts that the account debtor has not paid within 90 days of
         invoice date;

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

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

         (d) Accounts for an account debtor, including Affiliates, whose total
         obligations to Borrower exceed 25% of all Accounts, for the amounts
         that exceed that percentage, unless the Bank approves in writing,
         except for those certain Accounts from Ingram Micro and Tech Data, for
         which the percentage may be 50% or $800,000 each;

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

         (f) Accounts for which the account debtor is a federal, state or local
         government entity or any department, agency, or instrumentality;

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

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

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

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

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

     "Eligible  Foreign Accounts" are Accounts for which the account debtor does
not have its  principal  place of  business  in the United  States and that Bank
approves in writing of up to $500,000 in the aggregate.

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

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

     "GAAP" is generally accepted accounting principles.

                                      E-20
<PAGE>

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

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

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

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

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

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

     "Material Adverse Change" is defined in Section 8.3.

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

     "Permitted Indebtedness" is:

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

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

     (c) Subordinated Debt;

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

     (e) Indebtedness secured by Permitted Liens.

                                      E-21
<PAGE>

     "Permitted Investments" are:

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

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

     "Permitted Liens" are:

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

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

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

     (d) Licenses or  sublicenses  granted in the ordinary  course of Borrower's
business  and any  interest  or title of a  licensor  or under  any  license  or
sublicense, if the licenses and sublicenses permit granting Bank a security
interest;

     (e)  Leases or  subleases  granted  in the  ordinary  course of  Borrower's
business,  including in connection  with  Borrower's  leased  premises or leased
property;

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

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

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

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

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

                                      E-22
<PAGE>

     "Revolving Maturity Date" is one day prior to the first anniversary date of
the Effective Date.

     "Rights",  as applied to the  Collateral,  means the Borrower's  rights and
interests in, and powers with respect to, that Collateral, whatever the nature
of those rights, interests and powers and, in any event, including Borrower's
power to transfer rights in such Collateral to Bank.

     "Schedule" is any attached schedule of exceptions.

     "Subordinated Debt" is debt incurred by Borrower subordinated to Borrower's
indebtedness  owed to Bank and which is  reflected  in a written  agreement in a
manner and form acceptable to Bank and approved by Bank in
writing.

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

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

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


BORROWER:

Castelle

By: /s/ Scott C. McDonald

Title: President and CEO


BANK:

SILICON VALLEY BANK

By: /s/ Frederick "Buzz" Kreppel

Title: Senior V.P and Senior Relationship Manager

Effective Date: August 2, 2004_____________________


                                      E-23
<PAGE>



                                    EXHIBIT A


         The Collateral consists of all of Borrower's right, title and interest
in and to the following whether owned now or hereafter arising and whether the
Borrower has rights now or hereafter has rights therein and wherever located:

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

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

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

         All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower (as such definitions may be amended from time
to time according to the Code) whether or not earned by performance, and any and
all credit insurance, insurance (including refund) claims and proceeds,
guaranties, and other security therefor, as well as all merchandise returned to
or reclaimed by Borrower;

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

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

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

         Notwithstanding the foregoing, the Collateral shall not be deemed to
include any copyrights, copyright applications, copyright registration and like
protection in each work of authorship and derivative work thereof, whether
published or unpublished, now owned or hereafter acquired; any patents, patent
applications and like protections including without limitation improvements,
divisions, continuations, renewals, reissues, extensions and
continuations-in-part of the same, trademarks,


                                      E-24
<PAGE>

servicemarks  and  applications  therefor,  whether  registered  or not, and the
goodwill of the  business  of Borrower  connected  with and  symbolized  by such
trademarks,  any  trade  secret  rights,  including  any  rights  to  unpatented
inventions,  know-how,  operating  manuals,  license  rights and  agreements and
confidential  information,  now owned or hereafter  acquired;  or any claims for
damage  by  way of any  past,  present  and  future  infringement  of any of the
foregoing  (collectively,   the  "Intellectual   Property"),   except  that  the
Collateral shall include the proceeds of all the Intellectual Property including
proceeds  from the sale,  licensing  or other  disposition  of the  Intellectual
Property and proceeds that are accounts, (e.g., accounts receivable of Borrower,
or  general   intangibles   consisting  of  proceeds  and  rights  to  payment).
Notwithstanding  the prior sentence,  if a judicial authority  (including a U.S.
Bankruptcy Court) holds that a security interest in the underlying  Intellectual
Property is necessary to have a security  interest in such  accounts and general
intangibles of Borrower that are proceeds of the Intellectual Property, then the
Collateral shall automatically,  and effective as of the Effective Date, include
the Intellectual Property to the extent necessary to permit perfection of Bank's
security interest in such accounts and general  intangibles of Borrower that are
proceeds of the Intellectual Property.


         Borrower and Bank are parties to that certain Negative Pledge
Agreement, whereby Borrower, in connection with Bank's loan or loans to
Borrower, has agreed, among other things, not to sell, transfer, assign,
mortgage, pledge, lease grant a security interest in, or encumber any of its
intellectual property, without Bank's prior written consent.



                                      E-25
<PAGE>




                                    EXHIBIT B

LOAN PAYMENT/ADVANCE REQUEST FORM DEADLINE FOR SAME DAY PROCESSING IS 12:00
P.S.T.
Fax To:                                        Date:

O    LOAN PAYMENT:
                               Castelle (Borrower)

From Account #                                        To Account #
--------------------------                            --------------------------
   (Deposit Account #)                                   (Loan Account #)
Principal $                     and/or Interest $
--------------------------      ------------------------------------------------

    All Borrower's representation and warranties in the Loan and Security
    Agreement are true, correct and complete in all material respects up to and
    including the date of the transfer request for a loan payment, but those
    representations and warranties expressly referring to another date shall be
    true, correct and complete in all material respects as of that date:

Authorized Signature:                         Phone Number:
---------------------------------------------              ---------------------

O     LOAN ADVANCE:
    Complete Outgoing Wire Request section below if all or a portion of the
funds from this loan advance are for an outgoing wire.

From Account #                                        To Account #
--------------------------                            --------------------------
   (Loan Account #)                                     (Deposit Account #)

Amount of Advance $
                  ---------------------

    All Borrower's representation and warranties in the Loan and Security
    Agreement are true, correct and complete in all material respects up to and
    including the date of the transfer request for an advance, but those
    representations and warranties expressly referring to another date shall be
    true, correct and complete in all material respects as of that date:

Authorized Signature:                          Phone Number:
---------------------------------------------              ---------------------


   OUTGOING WIRE REQUEST
   Complete only if all or a portion of funds from the loan advance above are to
be wired. Deadline for same day processing is 12:00pm, P.S.T.

Beneficiary Name:                                     Amount of Wire: $
--------------------------------                      --------------------------
Beneficiary Bank:                                     Account Number:
--------------------------------                      --------------------------
City and State:
--------------------------------
Beneficiary Bank Transit (ABA) #:_________
Beneficiary Bank Code (Swift, Sort, Chip, etc.):________________
(For International Wire Only)

Intermediary Bank:                                    Transit (ABA) #:
-------------------------------                       --------------------------
For Further Credit to:
--------------------------------------------------------------------------------
Special Instruction:
--------------------------------------------------------------------------------
By signing  below,  I (we)  acknowledge  and agree that my (our) funds  transfer
request  shall be  processed  in  accordance  with and  subject to the terms and
conditions set forth in the  agreements(s)  covering funds transfer  service(s),
which agreements(s) were previously received and executed by me (us).

Authorized Signature:                 2nd Signature (If Required):
-------------------------------------                 --------------------------
Print Name/Title:                     Print Name/Title:
-------------------------------------                 --------------------------
Telephone #                           Telephone #
-------------------------------------                 --------------------------

                                      E-26
<PAGE>

                     Schedule to Loan and Security Agreement

     The exact  correct  corporate  name of  Borrower  is  (attach a copy of the
     formation documents, e.g., articles, partnership agreement): Castelle

     Borrower's State of formation: California

     Borrower has operated  under only the  following  other names (if none,  so
     state):
     ---------------------------------------------------------------------------

     All other  address  at which the  Borrower  does  business  are as  follows
     (attach   additional   sheets  if  necessary   and  include  all  warehouse
     addresses):
     ---------------------------------------------------------------------------

     Borrower has deposit  accounts and/or  investment  accounts located only at
     the following institutions:
     ---------------------------------------------------------------------------
     List Acct. Numbers:________________________________________________________

     Liens  existing on the Effective Date and disclosed to and accepted by Bank
     in writing:
     ___________________________________________________________________________


     Investments existing on the Effective Date and disclosed to and accepted by
     Bank in writing:
     ___________________________________________________________________________

     Subordinated Debt:

     Indebtedness  on the  Effective  Date and  disclosed to and consented to by
     Bank in writing:
     __________________________________________________________________________

     Borrower is not subject to litigation  which would have a material  adverse
     effect on the Borrower's financial condition,  except the following (attach
     additional comments, if needed):
     ___________________________________________________________________________

     Tax ID Number 77-0164056

     Organizational Number, if any:______________________________

     Potential Litigation:

     In  1999,  AudioFax  of  Atlanta  Georgia  contacted  Castelle  to  offer a
royalty-bearing  license in certain fax-related  technology patents. Upon review
of the patens and  consultation  with  counsel,  Castelle  declined  the offered
license. Castelle has not been contacted by AudioFax for approximately two years
or more,  and  litigation  was never  threatened  or brought  against  Castelle.


                                      E-27
<PAGE>

However,  we understand that litigation was threatened or brought against others
and it is  possible  that it  could  later  be  initiated  by  AudioFax  against
Castelle. Thus we are disclosing that possibility hereunder.  Castelle also have
reserved funds for that possibility.


                                      E-28
<PAGE>


                                    EXHIBIT C
                           BORROWING BASE CERTIFICATE


Borrower: Castelle                       Bank:            Silicon Valley Bank
                                                          3003 Tasman Drive
                                                          Santa Clara, CA 95054
Commitment Amount:         *$4,000,000

*Advances in the aggregate up to $250,000 may be made without regard to the
Borrowing Base.
<TABLE>
<CAPTION>

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

ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4.                Amounts over 90 days due                                              $
                                                                                         ----------------------
5.                Balance of 50% over 90 day accounts                                   $
                                                                                         ----------------------
6.                Credit balances over 90 days                                          $
                                                                                         ----------------------
7.                Concentration Limits**                                                $
                                                                                         ----------------------
8.                Foreign Accounts***                                                   $
                                                                                         ----------------------
9.                Governmental Accounts                                                 $
                                                                                         ----------------------
10.               Contra Accounts                                                       $
                                                                                         ----------------------
11.               Promotion or Demo Accounts                                            $
                                                                                         ----------------------
12.               Intercompany/Employee Accounts                                        $
                                                                                         ----------------------
13.               Other (please explain on reverse)                                     $
                                                                                         ----------------------
14.               TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS                                                        $
                                                                                                              ---------------------
15.               Eligible Accounts (#3 minus #14)                                                            $
                                                                                                              ----------------------
16.               LOAN VALUE OF ACCOUNTS (80% of #15)                                                         $
                                                                                                              ----------------------
** 50% for Ingram Micro and Tech Data
*** allowance up to $500,000

BALANCES
17. Maximum Loan Amount                                                                 $
                                                                                        ----------------------
18.               Total Funds Available [Lesser of #17 or (#16 plus $250,000)]                                $
                                                                                                              ----------------------
19.               Present balance owing on Line of Credit                               $
                                                                                         ----------------------
20.               Outstanding under Sublimits (None)                                    $
                                                                                         ----------------------
21.               RESERVE POSITION (#18 minus #19 and #20)                                                    $
                                                                                                              ----------------------
</TABLE>
The undersigned represents and warrants that this is true, complete and correct,
and that the information in this Borrowing Base Certificate complies with the
representations and warranties in the Loan and Security Agreement between the
undersigned and Silicon Valley Bank.

COMMENTS:




Castelle


By:
    -------------------------------------------------
         Authorized Signer


                                      E-29
<PAGE>


                                    EXHIBIT D
                             COMPLIANCE CERTIFICATE


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

FROM:             CASTELLE


         The undersigned Responsible Officer of Castelle ("Borrower") certifies
that under the terms and conditions of the Loan and Security Agreement between
Borrower and Bank (the "Agreement"), (i) Borrower is in complete compliance for
the period ending _______________ with all required covenants except as noted
below and (ii) all representations and warranties in the Agreement are true and
correct in all material respects on this date. In addition, the undersigned
certifies that Borrower, and each Subsidiary, has timely filed all required tax
returns and paid, or made adequate provision to pay, all material taxes, except
those being contested in good faith with adequate reserves under GAAP. Attached
are the required documents supporting the certification. The Officer certifies
that these are prepared in accordance with Generally Accepted Accounting
Principles (GAAP) consistently applied from one period to the next except as
explained in an accompanying letter or footnotes. The Responsible Officer
acknowledges that no borrowings may be requested at any time or date of
determination that Borrower is not in compliance with any of the terms of the
Agreement, and that compliance is determined not just at the date this
certificate is delivered.

Please indicate compliance status by circling Yes/No under "Complies" column.
<TABLE>
<CAPTION>

Reporting Covenant                           Required                               Complies

<S>                                          <C>                                    <C>     <C>
Monthly financial statements (or 10Q) + CC*  Monthly within 30 days                 Yes     No
10-K                                         Within 5 days after filing with SEC    Yes     No
A/R & A/P Agings (by invoice date)**         Monthly within 20 days                 Yes     No
Borrowing Base Certificate**                 Monthly within 20 days                 Yes     No
Operating plans, projections and budgets     Within 30 days of Board's approval     Yes     No
</TABLE>

*when there are outstanding  Credit Extensions  otherwise within 5 days of after
filing with SEC.
**at  such  time as  Credit  Extensions  are  outstanding  or  prior to a Credit
Extension when there are no outstanding Credit Extension.

Financial Covenant      Required          Actual                     Complies

      a) At such time as Credit Extensions are outstanding, Borrower
     will maintain as of the last day of each month (otherwise
     quarterly):

Minimum Quick Ratio      1.00:1.00        _____:1.00                 Yes     No

     b) Borrower will maintain as of the last day of each quarter:

Revenues and                ***          $_________                  Yes     No
Profitability


                                      E-30
<PAGE>

***Borrower will not permit its quarterly revenues and profitability to
negatively deviate more than 25% of projected revenues and profitability for
such quarter as provided in Borrower's board of directors approved financial
projections submitted to and accepted by Bank

Borrower only has deposit accounts located at the following institutions:
_______________________________________________________________________________.





--------------------------------------------------------------------------------
                    BANK USE ONLY
Received by:
             ---------------------------------------
                 AUTHORIZED SIGNER
Date:
      ----------------------------------------------
Verified:
          ------------------------------------------
                 AUTHORIZED SIGNER
Date:
      ----------------------------------------------
Compliance Status:                        Yes     No
--------------------------------------------------------------------------------


Comments Regarding Exceptions:  See Attached.


Sincerely,


Castelle


SIGNATURE


TITLE


DATE


                                      E-31
<PAGE>
]
                               SILICON VALLEY BANK


                       PRO FORMA INVOICE FOR LOAN CHARGES



BORROWER:     Castelle

LOAN OFFICER: Buzz Kreppel

DATE:         June 14, 2004


              Revolving Loan Fee                            $2,000.00
              Credit Report                                     35.00
              UCC Search Fee                                   300.00
              UCC Filing Fee                                   100.00
              Documentation Fee                              1,500.00

              TOTAL FEE DUE                                 $3,935.00



Please indicate the method of payment:

         {   }   A check for the total amount is attached.

         { x }   Debit DDA # 330823570 for the total amount.

         {   }   Loan proceeds

Borrower:

By:______________________________
     (Authorized Signer)



_________________________________
Silicon Valley Bank        (Date)
Account Officer's Signature





                                      E-32
<PAGE>

                            NEGATIVE PLEDGE AGREEMENT

         This Negative Pledge Agreement is made as of the Effective Date by and
between Castelle ("Borrower") and Silicon Valley Bank ("Bank").

In connection with, among other documents, the Loan and Security Agreement (the
"Loan Documents") being concurrently executed herewith between Borrower and
Bank, Borrower agrees as follows:

         1.       Except for non-exclusive licenses granted in the ordinary
                  course of business, Borrower shall not sell, transfer, assign,
                  mortgage, pledge, lease, grant a security interest in, or
                  encumber any of Borrower's intellectual property, including,
                  without limitation, the following:

                  a.       Any and all copyright rights, copyright applications,
                           copyright registrations and like protections in each
                           work or authorship and derivative work thereof,
                           whether published or unpublished and whether or not
                           the same also constitutes a trade secret, now or
                           hereafter existing, created, acquired or held;

                  b.       All mask works or similar rights available for the
                           protection of semiconductor chips, now owned or
                           hereafter acquired;

                  c.       Any and all trade secrets, and any and all
                           intellectual property rights in computer software and
                           computer software products now or hereafter existing,
                           created, acquired or held;

                  d.       Any and all design rights which may be available to
                           Borrower now or hereafter existing, created, acquired
                           or held;

                  e.       All patents, patent applications and like protections
                           including, without limitation, improvements,
                           divisions, continuations, renewals, reissues,
                           extensions and continuations-in-part of the same,
                           including without limitation the patents and patent
                           applications;

                  f.       Any trademark and servicemark rights, whether
                           registered or not, applications to register and
                           registrations of the same and like protections, and
                           the entire goodwill of the business of Borrower
                           connected with and symbolized by such trademarks;

                  g.       Any and all claims for damages by way of past,
                           present and future infringements of any of the rights
                           included above, with the right, but not the
                           obligation, to sue for and collect such damages for
                           said use or infringement of the intellectual property
                           rights identified above;

                  h.       All licenses or other rights to use any of the
                           Copyrights, Patents, Trademarks or Mask Works, and
                           all license fees and royalties arising from such use
                           to the extent permitted by such license or rights;
                           and

                  i.       All amendments, extensions, renewals and extensions
                           of any of the Copyrights, Trademarks, Patents, or
                           Mask Works; and

                  j.       All proceeds and products of the foregoing, including
                           without limitation all payments under insurance or
                           any indemnity or warranty payable in respect of any
                           of the foregoing;

         2.       It shall be an event of default under the Loan Documents
                  between Borrower and Bank if there is a breach of any term of
                  this Negative Pledge Agreement.

         3.       Capitalized terms used but not otherwise defined herein shall
                  have the same meaning as in the Loan Documents.

                                      E-33
<PAGE>

BORROWER:

Castelle


By: /s/ Paul Cheng
                  --------------------------
Name: Paul Cheng
                ----------------------------
Title: Chief Financial Officer
                              --------------


BANK:

SILICON VALLEY BANK


By: /s/ Frederick "Buzz" Kreppel
                                ------------
Name: Frederick "Buzz" Kreppel
                              --------------
Title: Senior Vice President
                            ----------------



                                      E-34
<PAGE>


                         CORPORATE BORROWING RESOLUTION

Borrower:        Castelle                      Bank:  Silicon Valley Bank
                 855 Jarvis Drive, Suite 100          3003 Tasman Drive
                 Morgan Hill, CA 95037                Santa Clara, CA 95054-1191

I, the Secretary or Assistant Secretary of Castelle ("Borrower"), CERTIFY that
Borrower is a corporation existing under the laws of the State of California.

I certify that at a meeting of Borrower's Directors (or by other authorized
corporate action) duly held the following resolutions were adopted.

It is resolved that any one of the following officers of Borrower, whose name,
title and signature is below:

     NAMES                              POSITIONS             ACTUAL SIGNATURES
     -----                              ---------             -----------------

Scott C. McDonald                      President & CEO
--------------------------------------                ----------------------
Paul Cheng                             CFO & Secretary
--------------------------------------                ----------------------

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

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


may act for Borrower and:

  Borrow Money.  Borrow money from Silicon Valley Bank ("Bank").

  Execute Loan Documents.  Execute any loan documents Bank requires.

  Grant Security.Grant Bank a security interest in any of Borrower's assets.

  Negotiate Items. Negotiate or discount all drafts, trade acceptances,
  promissory notes, or other indebtedness in which Borrower has an
  interest and receive cash or otherwise use the proceeds.

  Letters of Credit.  Apply for letters of credit from Bank.

  Foreign Exchange Contracts.  Execute spot or forward foreign exchange c
  ontracts.

  Further Acts. Designate other individuals to request advances, pay fees
  and costs and execute other documents or agreements (including
  documents or agreement that waive Borrowers right to a jury trial) they
  think necessary to effectuate these Resolutions.

Further resolved that all acts authorized by these Resolutions and performed
before they were adopted are ratified. These Resolutions remain in effect and
Bank may rely on them until Bank receives written notice of their revocation.

I certify that the persons listed above are Borrower's officers with the titles
and signatures shown following their names and that these resolutions have not
been modified are currently effective.

                                      E-35
<PAGE>

CERTIFIED TO AND ATTESTED BY:

X /s/ Paul Cheng
   *Secretary or Assistant Secretary

X /s/ Scott C. McDonald

*NOTE: In case the Secretary or other certifying officer is designated by the
foregoing resolutions as one of the signing officers, this resolution should
also be signed by a second Officer or Director of Borrower.



                                      E-36
<PAGE>

</TEXT>
</DOCUMENT>
