FUSION MEDICAL TECHNOLOGIES INC
LOAN AND SECURITY AGREEMENT
<DOCUMENT>
<TYPE>EX-10.16
<SEQUENCE>3
<FILENAME>dex1016.txt
<DESCRIPTION>LOAN AND SECURITY AGREEMENT
<TEXT>
<PAGE>


                                                                   Exhibit 10.16

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                           LOAN AND SECURITY AGREEMENT
                        FUSION MEDICAL TECHNOLOGIES, INC.
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                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----

1     ACCOUNTING AND OTHER TERMS ...........................................   4
-     --------------------------

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

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

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

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

6     AFFIRMATIVE COVENANTS ................................................   8
-     ---------------------
      6.1   Government Compliance ..........................................   8
      6.2   Financial Statements, Reports, Certificates ....................   8
      6.3   Inventory; Returns .............................................   9
      6.4   Taxes ..........................................................   9
      6.5   Insurance ......................................................   9
      6.6   Primary Accounts ...............................................   9
      6.7   Financial Covenants ............................................   9
      6.8   Further Assurances .............................................  10

7     NEGATIVE COVENANTS ...................................................  10
-     ------------------
      7.1   Dispositions ...................................................  10
      7.2   Changes in Business, Ownership, Management or Locations of
            Collateral .....................................................  10
      7.3   Mergers or Acquisitions ........................................  10
      7.4   Indebtedness ...................................................  10
      7.5   Encumbrance ....................................................  10
      7.6   Distributions; Investments .....................................  11
      7.7   Transactions with Affiliates ...................................  11
      7.8   Subordinated Debt ..............................................  11
      7.9   Compliance .....................................................  11

8     EVENTS OF DEFAULT ....................................................  11
-     -----------------
      8.1   Payment Default ................................................  11
      8.2   Covenant Default ...............................................  11
      8.3   Material Adverse Change ........................................  12


                                        2

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      8.4   Attachment .....................................................  12
      8.5   Insolvency .....................................................  12
      8.6   Other Agreements ...............................................  12
      8.7   Judgments ......................................................  12
      8.8   Misrepresentations .............................................  12

9     BANK'S RIGHTS AND REMEDIES ...........................................  12
-     --------------------------
      9.1   Rights and Remedies ............................................  13
      9.2   Power of Attorney ..............................................  13
      9.3   Bank Expenses ..................................................  13
      9.4   Banks Liability for Collateral .................................  14
      9.5   Remedies Cumulative ............................................  14
      9.6   Demand Waiver ..................................................  14

10    NOTICES ..............................................................  14
--    -------

11    CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER ...........................  14
--    ------------------------------------------

12    GENERAL PROVISIONS ...................................................  14
--    ------------------
      12.1  Successors and Assigns .........................................  14
      12.2  Indemnification ................................................  15
      12.3  Time of Essence ................................................  15
      12.4  Severability of Provision ......................................  15
      12.5  Amendments in Writing, Integration .............................  15
      12.6  Counterparts ...................................................  15
      12.7  Survival .......................................................  15
      12.8  Confidentiality ................................................  15
      12.9  Attorneys' Fees, Costs and Expenses ............................  16

13    DEFINITIONS ..........................................................  16
--    -----------
      13.1  Definitions ....................................................  16


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<PAGE>


      This LOAN AND SECURITY AGREEMENT dated January 15, 2002, between SILICON
VALLEY BANK ("Bank"), whose address is 3003 Tasman Drive, Santa Clara,
California 95054 and FUSION MEDICAL TECHNOLOGIES, INC. ("Borrower"), whose
address is 34175 Ardenwood Blvd., Fremont, California 94555 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 (i) the lesser of (A) the
Committed Revolving Line or (B) the Borrowing Base, minus (ii) the amount of all
outstanding Letters of Credit (including drawn but unreimbursed Letters of
Credit), and minus (iii) the Cash Management Services Sublimit. 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
reasonably 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.

2.1.2 Letters of Credit Sublimit.

      Bank will issue or have issued Letters of Credit for Borrower's account
not exceeding (i) the lesser of the Committed Revolving Line or the Borrowing
Base minus (ii) the outstanding principal balance of the Advances, and minus
(iii) the Cash Management Services Sublimit; however, the face amount of
outstanding Letters of Credit (including drawn but unreimbursed Letters of
Credit) may not exceed $1,100,000. Each Letter of Credit will have an expiration
date of no later than 180 days after the Revolving Maturity Date, but Borrower's
reimbursement obligation will be secured by cash on terms reasonably acceptable
to Bank at any time after the Revolving Maturity Date if the term of this
Agreement is not extended by Bank. Borrower agrees to execute any further
documentation in connection with the Letters of Credit as Bank may reasonably
request.

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<PAGE>


2.1.3 Cash Management Services Sublimit.

      Borrower may use up to $100,000 for Bank's Cash Management Services, which
may include merchant services, direct deposit of payroll, business credit card,
and check cashing services identified in various cash management services
agreements related to such services (the "Cash Management Services"). All
amounts Bank pays for any Cash Management Services will be treated as Advances
under the Committed Revolving Line.

2.2   Overadvances.

      If Borrower's Obligations under Section 2.1.1, 2.1.2 and 2.1.3 exceed the
lesser of either (i) the Committed Revolving Line or (ii) the Borrowing Base,
Borrower must immediately pay Bank the excess.

2.3   Interest Rate, Payments.

      (a) Interest Rate. Advances accrue interest on the outstanding principal
balance at a per annum rate of 1.5 percentage points above the Prime Rate. After
the occurrence and continuance of an Event of Default, Obligations accrue
interest at 3 percent above the rate effective immediately before the occurrence
of 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 5th of each month. Bank may debit any of Borrower's deposit accounts
including Account Number 3300318605 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 fees or interest
accrue.

2.4   Fees.

      Borrower will pay:

      (a) Facility Fee. A fully earned, non-refundable Facility Fee of $21,000
due on the Closing Date; and

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

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

3.1   Conditions Precedent to Initial Credit Extension.

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

      Bank's completion of Borrower's Collateral audit with results satisfactory
to Bank.

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:

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      (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 materially 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 the Loan Documents. Except for Permitted
Liens, any security interest granted to Bank will be a first priority security
interest in the 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 currently 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

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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 and legal
counsel, threatened by or against Borrower or any Subsidiary in which a likely
adverse decision could reasonably be expected to cause a Material Adverse
Change.

5.4   No Material 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 as of the date thereof, and Borrower's
consolidated results of operations for periods ended. 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

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the period or periods covered by such projections and forecasts may differ from
the projected and forecasted results.

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) as soon as available, but no later
than 30 days after the last day of each month, a company prepared consolidated
balance sheet and income statement covering Borrower's consolidated operations
during the period certified by a Responsible Officer and in a form acceptable to
Bank; (ii) as soon as available, but no later than 90 days after the last day of
Borrower's fiscal year, audited consolidated financial statements prepared under
GAAP, consistently applied, together with an opinion which is unqualified or
otherwise consented to by Bank on the financial statements from an independent
certified public accounting firm reasonably acceptable to Bank; (iii) 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;
(iv) a prompt report of any legal actions pending or to Borrower's knowledge
threatened against Borrower or any Subsidiary that could result in damages or
costs to Borrower or any Subsidiary of $100,000 or more; and (v) budgets, sales
projections, operating plans or other financial information Bank reasonably
requests.

      (b) At such time as Advances are outstanding or prior to an Advance if no
Advances are outstanding, within 30 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) Within 30 days after the last day of each month, Borrower will deliver
to Bank with the monthly financial statements a Compliance Certificate signed by
a Responsible Officer in the form of Exhibit D.

      (d) Within 30 days after the last day of Borrower's fiscal year, Borrower
will deliver to Bank its annual Board of Directors approved financial
projections acceptable to Bank.

      (e) Upon prior reasonable notice during normal business hours of Borrower,
allow Bank to audit Borrower's Collateral at Borrower's expense not to exceed
$7,000 annually so long as Borrower's supporting records are in good condition.
The initial audit will be conducted prior to the initial Advance and all
subsequent audits will be conducted no more often than once every 6 months, at
Bank's discretion, unless an Event of Default has occurred and is continuing.

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<PAGE>

6.3   Inventory; Returns.

      Borrower will keep all Inventory in good and marketable condition, free
from material defects. Returns and allowances between Borrower and its account
debtors will follow Borrower's customary practices as they exist at execution of
this Agreement. Borrower must promptly notify Bank of all returns, recoveries,
disputes and claims, that involve more than $100,000.

6.4   Taxes.

      Borrower will make, and cause each Subsidiary to make, timely payment of
all material federal, state, and local taxes or assessments except those being
contested in good faith with adequate reserves in accordance to GAAP, 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. If no Event of Default has occurred and is continuing,
proceeds payable under any casualty policy will, at Borrower's option, be
payable to Borrower to replace the property subject to the claim, provided that
any such replacement property shall be deemed Collateral in which Bank has been
granted a first priority security interest. If an Event of Default has occurred
and is continuing, then, at Bank's option, proceeds payable under any policy
will 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 75% of all account balances of Borrower
at any financial institution.

6.7   Financial Covenants.

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

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

For calculation purposes, the amount of outstanding Letters of Credit issued
under the Committed Revolving Line are excluded.

            (ii)  Debt/Tangible Net Worth Ratio (Adjusted). A ratio of Total
Liabilities less Subordinated Debt plus the amount of outstanding Letters of
Credit issued under the Committed Revolving Line to Tangible Net Worth plus
Subordinated Debt of not more than 0.85 to 1.00.

            (iii) Tangible Net Worth. A Tangible Net Worth of at least
$7,000,000.

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<PAGE>

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.

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

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

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 exclusive licenses and similar arrangements for the
use of the property of Borrower or its Subsidiaries in the ordinary course of
business, provided such licensing limits the use and application of the
intellectual property to specific indications and geographic regions, and does
not impair Borrower's ability to commercialize its intellectual property in its
US business markets; or (iii) of worn-out or obsolete Equipment, and (iv) other
Transfers which in the aggregate do not exceed $50,000 in any fiscal year.

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 25% (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), or a change in the
Responsible Officer of greater than 25% per annum. 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 $5,000 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
          ---
25% 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.

                                       10

<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
other than dividends payable solely in Borrower's common stock or redeem, retire
or purchase any capital stock except for repurchases of stock from former
employees, consultants, or directors of Borrower under the terms of applicable
repurchase agreements in an aggregate amount not to exceed $50,000 in the
aggregate in any fiscal year, provided that no Event of Default has occurred, is
continuing or would exist after giving effect to the repurchases.

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, 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 Article 7 of this Agreement, or

      (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) Business Days after the occurrence thereof;

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<PAGE>

provided, however, that if the default cannot by its nature be cured within the
ten (10) Business 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 condition (financial or otherwise) 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, stayed or
dismissed 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 45 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
$150,000 or that could cause a Material Adverse Change;

8.7   Judgments.

      If a money judgment(s) in the aggregate of at least $100,000 is rendered
against Borrower and is unsatisfied and unstayed for 30 days (but no Credit
Extensions will be made before the judgment is stayed or satisfied); or

8.8   Misrepresentations.

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

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

                                       12

<PAGE>

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
(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

                                       13

<PAGE>

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.

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

                                       14

<PAGE>

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, in each case for losses caused by Bank's gross negligence or willful
misconduct.

12.3  Time of Essence.

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

12.4  Severability of Provision.

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

12.5  Amendments in Writing, Integration.

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

12.6  Counterparts.

      This Agreement may be executed in any number of counterparts and by
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 present or prospective business relations 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 in exercising remedies under this Agreement. Confidential
information does not include information that either: (a) is in the public
domain or in Bank's possession when disclosed 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.

                                       15

<PAGE>

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.

      "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 75% of Domestic Eligible Accounts plus 75% of Foreign
Eligible Accounts (however, Foreign Eligible Accounts are limited to 10% of the
total Borrowing Base) 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.

      "Cash Management Services" are defined in Section 2.1.3.

      "Closing Date" is the date of this Agreement.

      "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 $2,100,000.

                                       16

<PAGE>

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

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

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

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

      "Domestic 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 standards by giving Borrower 30 days
           ---
prior written notice. Unless Bank agrees otherwise in writing, Domestic Eligible
Accounts will not include:

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

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

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

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

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

                                       17

<PAGE>

      (j) Accounts in which the account debtor disputes liability or makes any
      claim and Bank reasonably believes there is 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 after inquiry and
      consultation with Borrower 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, subject to the
same exclusions as Domestic Eligible Accounts above.

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

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

      "GAAP" is generally accepted accounting principles.

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

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

      "Intellectual Property" is:

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

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

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

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

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

      "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.

                                       18

<PAGE>

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

      "Letter of Credit" is defined in Section 2.1.2.

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

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

      "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 Closing Date and shown on the Schedule;

      (c) Subordinated Debt;

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

      (e) Indebtedness secured by Permitted Liens.

      (f) Indebtedness of Borrower to any Subsidiary and Contingent Obligations
of any Subsidiary with respect to obligations of Borrower (provided that the
primary obligations are not prohibited hereby), and Indebtedness of any
Subsidiary to any other Subsidiary and Contingent Obligations of any Subsidiary
with respect to obligations of any other Subsidiary (provided that the primary
obligations are not prohibited hereby);

      (g) Other Indebtedness not otherwise permitted by Section 7.4 not
exceeding Fifty Thousand Dollars ($50,000) in the aggregate outstanding at any
time; and

      (h) Extensions, refinancings, modifications, amendments and restatements
of any items of Permitted Indebtedness (a) through (f) above, provided that the
principal amount thereof is not increased or the terms thereof are not modified
to impose more burdensome terms upon Borrower or its Subsidiary, as the case may
be.

      "Permitted Investments" are:

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

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

                                       19

<PAGE>

Borrower's investment policy, as amended from time to time, provided that such
investment policy (and any such amendment thereto) has been approved by Bank;

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

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

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

      (f) Investments consisting of (i) travel advances and employee relocation
loans and other employee loans and advances in the ordinary course of business,
and (ii) loans to employees, officers or directors relating to the purchase of
equity securities of Borrower or its Subsidiaries pursuant to employee stock
purchase plans or agreements approved by Borrower's Board of Directors

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

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

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

      "Permitted Liens" are:

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

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

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

      (d) 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;

                                       20

<PAGE>

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

      (h) Liens in favor of other financial institutions arising in connection
with Borrower's deposit accounts held at such institutions, provided that Bank
has a perfected security interest in the amounts held in such deposit accounts;
and

      (i) Other Liens not described above arising in the ordinary course of
business and not having or not reasonably likely to have a material adverse
effect on Borrower and its Subsidiaries taken as a whole.

      "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 and net trade receivables with maturities of fewer than
12 months determined according to GAAP.

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

      "Revolving Maturity Date" is January 14, 2003.

      "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.

      "Trigger Date" is such date, if any, that Borrower's Tangible Net Worth
falls below $7,250,000, provided that concurrently therewith, the security
interest granted under the Intellectual Property Security Agreement shall become
effective and Bank shall have a security interest in Borrower's Intellectual
Property.

                                       21

<PAGE>

BORROWER:

FUSION MEDICAL TECHNOLOGIES INC.

By: /s/ [ILLEGIBLE]
   ----------------------------------

Title:  CFO
      -------------------------------


BANK:

SILICON VALLEY BANK

By:  /s/ [ILLEGIBLE]
   --------------------------------

Title:  Relationship Manager
      -------------------------------


                                       22

<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; 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.

      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, 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 Closing 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. Notwithstanding the foregoing, upon the
occurrence of the Trigger Date, as defined in the Loan Agreement between
Borrower and Bank, Bank shall be deemed to have a full security interest in all
Intellectual Property of Borrower, including the proceeds thereon.

                                        2

<PAGE>

                                    EXHIBIT B
                                    ---------

Loan Payment/Advance Request Form
Deadline for same day processing is 12:00 P.S.T.
Fax To:                                                 Date:___________________
--------------------------------------------------------------------------------
[_] Loan Payment:

                        FUSION MEDICAL TECHNOLOGIES, INC.
                        ---------------------------------

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 to on the date of the
telephone transfer request for and advance, but those representations and
warranties expressly referring to another date shall be true, correct and
complete in all material respects as of the date:

Authorized Signature:________________________ Phone Number:_____________________
--------------------------------------------------------------------------------
[_] 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 to on the date of the
telephone transfer request for and advance, but those representations and
warranties expressly referring to another date shall be true, correct and
complete in all material respects as of the 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 12:00 pm, P.S.T.

Beneficiary Name:______________________       Amount of Wire: $_________________

Beneficiary Bank:______________________       Account Number:___________________

City and State: ________________________________

<TABLE>
<S>                                                      <C>
Beneficiary Bank Transit (ABA) #: __ __ __ __ __ __ __      Beneficiary Bank Code (Swift, Sort, Chip, etc.): ___________
                                                         (For International Wire Only)
</TABLE>

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: _______________ 2/nd/ Signature (If Required):____________

Print Name/Title:____________________ Print Name/Title:_________________________

Telephone #__________________________ Telephone #_______________________________
--------------------------------------------------------------------------------

                                        3

<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):______________________________

Borrower's State of formation:_____________________________________

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 Closing Date and disclosed to and accepted by Bank in
writing:

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

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

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

Subordinated Debt:

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

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

The following is a list of the Borrower's copyrights (including copyrights of
software) which are registered with the United States Copyright Office. (Please
include name of the copyright and registration number and attach a copy of the
registration):

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

The following is a list of all software which the Borrower sells, distributes or
licenses to others, which is not registered with the United States Copyright
                             ---
Office. (Please include versions which are not registered):

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

The following is a list of all of the Borrower's patents which are registered
with the United States Patent Office. (Please include name of the patent and
registration number and attach a copy of the registration.):

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

The following is a list of all of the Borrower's patents which are pending with
the United States Patent Office. (Please include name of the patent and a copy
of the application.):

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

The following is a list of all of the Borrower's registered trademarks. (Please
include name of the trademark and a copy of the registration.):

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

                                        4

<PAGE>

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___________________________________________

Organizational Number, if any:__________________________


                                        5

<PAGE>

                                    EXHIBIT C
                           BORROWING BASE CERTIFICATE

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

Borrower: FUSION MEDICAL TECHNOLOGIES, INC.          Bank: Silicon Valley Bank
                                                           3003 Tasman Drive
                                                           Santa Clara, CA 95054
Commitment Amount: $2,100,000

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

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

DOMESTIC 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.             25% Concentration Limits                                         $__________
8.             Governmental Accounts                                            $__________
9.             Contra Accounts                                                  $__________
10.            Promotion or Demo Accounts                                       $__________
11.            Intercompany/Employee Accounts                                   $__________
12.            Other (please explain on reverse)                                $__________
13.            TOTAL DOMESTIC ACCOUNTS RECEIVABLE DEDUCTIONS                    $__________
14.            Domestic Eligible Accounts (#3 minus #14)                                        $__________
15.            LOAN VALUE OF DOMESTIC ACCOUNTS (75% of #15)                                     $__________

FOREIGN ACCOUNTS RECEIVABLE
16.            Foreign Accounts Receivable Book Value as of ____                                $__________
17.            Additions (please explain on reverse)                                            $__________
18.            TOTAL FOREIGN ACCOUNTS RECEIVABLE                                                $__________

FOREIGN ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
19.            Amounts over 90 days due                                         $__________
20.            Balance of 5O% over 90 day accounts                              $__________
21.            Credit balances over 90 day accounts                             $__________
22.            25% Concentration Limits                                         $__________
23.            Governmental Accounts                                            $__________
24.            Contra Accounts                                                  $__________
25.            Promotion or Demo Accounts                                       $__________
26.            Intercompany/Employee Accounts                                   $__________
27.            Ineligible Foreign Accounts                                      $__________
28.            Other (please explain on reverse)                                $__________
29.            TOTAL FOREIGN ACCOUNTS RECEIVABLE
               DEDUCTIONS                                                       $__________
30.            Eligible Foreign Accounts (#18 minus #29)                                        $__________
31.            LOAN VALUE OF ELIGIBLE FOREIGN ACCOUNTS (75% of #30)                             $__________
32.            Maximum Eligible Foreign Accounts (Lesser of #31 or (10% of #15)                 $__________

BALANCES

33.            Maximum Loan Amount                                              $__________
34.            Total Funds Available [Lesser of #33 or (#15 plus #32)]          $__________
35.            Present Balance owing on Line of Credit                          $__________
36.            Outstanding under Sublimits (LC and CM)                          $__________
28.            RESERVE POSITION (#34 minus #35 and #36)                                         $__________
</TABLE>

                                        6

<PAGE>

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

FUSION MEDICAL TECHNOLOGIES, INC.                Rec'd By:_______________
                                                          Auth. Signer

By:_________________________________             Date:___________________
        Authorized Signer
                                                 Verified:_______________
                                                          Auth. Signer

                                                 Date:___________________

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

                                        7

<PAGE>


                                    EXHIBIT D
                             COMPLIANCE CERTIFICATE

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

FROM:       FUSION MEDICAL TECHNOLOGIES, INC.

         The undersigned authorized officer of FUSION MEDICAL TECHNOLOGIES, INC.
("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.
Attached are the required documents supporting the certification. The Officer
certifies that these are prepared in accordance with Generally Accepted
Accounting Principles (GAAP) consistently applied from one period to the next
except as explained in an accompanying letter or footnotes. The Officer
acknowledges that no borrowings may be requested at any time or date of
determination that Borrower is not in compliance with any of the terms of the
Agreement, and that compliance is determined not just at the date this
certificate is delivered.

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

<TABLE>
<CAPTION>

         Reporting Covenant                      Required                                Complies
         ------------------                      --------                                --------
         <S>                                     <C>                                     <C>
         Monthly financial statements + CC       Monthly within 30 days                  Yes   No
         Annual (Audited)                        FYE within 90 days                      Yes   No
         10-Q and 10-K                           Within 5 days after filing with SEC     Yes   No
         A/R & A/P Agings (by invoice date)      Monthly within 30 days                  Yes   No
         Borrowing Base Certificate              Monthly within 30 days                  Yes   No
         Board approved financial projections    FYE within 30 days                      Yes   No
</TABLE>


<TABLE>
<CAPTION>
         Financial Covenant                           Required           Actual          Complies
         ------------------                           --------           ------          --------
         <S>                                          <C>                <C>             <C>
         Maintain on a Monthly Basis:

          Minimum Quick Ratio                         1.25:1.00          _______:1.00    Yes   No
          Minimum Tangible Net Worth                  $7,000,000        $____________    Yes   No
          Maximum Debt/Tangible Net Worth (Adjusted)  0.85:1.00          _______:1.00    Yes   No
</TABLE>

Have there been updates to Borrower's intellectual property?      Yes/No

Borrower only has deposit accounts located at the following institutions:_______

Comments Regarding Exceptions: See Attached.


Sincerely,                               ---------------------------------------
                                                         BANK USE ONLY

FUSION MEDICAL TECHNOLOGIES, INC.          Received by:_________________________
                                                           AUTHORIZED SIGNER
----------------------------------
Signature                                  Date:________________________________

----------------------------------         Verified:____________________________
Title                                                      AUTHORIZED SIGNER

                                           Date:________________________________
----------------------------------
Date                                       Compliance Status:          Yes   No

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


<PAGE>


[LOGO]

                               SILICON VALLEY BANK

                       PRO FORMA INVOICE FOR LOAN CHARGES

BORROWER:               FUSION MEDICAL TECHNOLOGIES, INC.

LOAN OFFICER:           Dean Chu

DATE:                   January 15, 2002

                        Revolving Loan Fee                       $21,000.00
                        Credit Report                                 35.00
                        UCC Search Fee                               300.00
                        UCC Filing Fee                               100.00
                        Documentation Fee                          1,500.00
                        Legal Fee                                    500.00

                        Good Faith Deposit                       (15,000.00)

                        L/C Commitment Fee for the first year     13,593.75
                        L/C Courier Fee                               20.00
                        L/C Origination Fee                          250.00

                        L/C Payment Received                     (13,593.75)

                        TOTAL FEE DUE                             $8,705.00
                        -------------                            ==========

Please indicate the method of payment:

         [_] A check for the total amount is attached.

         [_] Debit DDA # _________________ for the total amount.

         [_] Loan proceeds

Borrower:

By:  /s/ [ILLEGIBLE]
   ---------------------------------------
   (Authorized Signer)

/s/ Dean Chu                    1/15/02
------------------------------------------
Silicon Valley Bank             (Date)
Account Officer's Signature

<PAGE>

                         CORPORATE BORROWING RESOLUTION

Borrower:     FUSION MEDICAL TECHNOLOGIES,      Bank: Silicon Valley Bank
              INC.                                    3003 Tasman Drive
              34175 Ardenwood Blvd.                   Santa Clara, CA 95054-1191
              Fremont, CA 94555

I, the Secretary or Assistant Secretary of FUSION MEDICAL TECHNOLOGIES, INC.
("Borrower"), CERTIFY that Borrower is a corporation existing under the laws of
the State of Delaware.

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:

<TABLE>
<CAPTION>

              NAMES                             POSITIONS                      ACTUAL SIGNATURES
              -----                             ---------                      -----------------
<S>                                <C>                                 <C>

--------------------------------   ---------------------------------   -----------------------------------
--------------------------------   ---------------------------------   -----------------------------------
--------------------------------   ---------------------------------   -----------------------------------
--------------------------------   ---------------------------------   -----------------------------------
</TABLE>

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
      contracts.

      Issue Warrants. Issue warrants for Borrower's stock.

      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.

<PAGE>

CERTIFIED TO AND ATTESTED BY:

X _______________________________________________
  *Secretary or Assistant Secretary

X _______________________________________________
*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.

                                       2

<PAGE>

                            NEGATIVE PLEDGE AGREEMENT

      This Negative Pledge Agreement is made as of January 15, 2002 by and
between FUSION MEDICAL TECHNOLOGIES, INC. ("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, or exclusive licenses granted in
            the ordinary course of business, provided such licensing limits the
            use and application of the Intellectual Property to specific
            indications and geographic regions, and does not impair Borrower's
            ability to commercialize its Intellectual Property in its US
            business markets, or as permitted in subletter (g) under Permitted
            Liens, as defined in the Loan Agreement between Borrower and Bank,
            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,
                  including without limitation;

            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

<PAGE>


            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.

      4.    Notwithstanding the foregoing, Borrower may, in the ordinary course
            of business, license its intellectual property on an exclusive
            basis, provided such licensing limits the use and application of the
            intellectual property to specific geographic regions and does not
            impair Borrower's ability to commercialize its intellectual property
            in its US business markets.

      5.    In addition, Borrower shall not execute any negative pledge
            agreement related to any and all intellectual property as described
            above to any third Person so long as the Loan Documents are in
            effect, Bank has an obligation to lend and there are any outstanding
            Obligations.

BORROWER:

FUSION MEDICAL TECHNOLOGIES, INC.

By: /s/ Larry J. Strauss
   -------------------------------------
Name:   LARRY J. STRAUSS
     -----------------------------------
Title:        CFO
      ----------------------------------


BANK:

SILICON VALLEY BANK

By: /s/ Dean J. Chu
   -------------------------------------
Name:   Dean J. Chu
     -----------------------------------
Title: Relationship Manager
      ----------------------------------

                                        2

<PAGE>

                    INTELLECTUAL PROPERTY SECURITY AGREEMENT

      This Intellectual Property Security Agreement (this "IP Agreement") is
made as of the 8th day of January 2002 by and between Fusion Medical
Technologies, Inc. ("Grantor"), and Silicon Valley Bank, a California banking
corporation ("Bank").

                                    RECITALS

      A.    Bank will make credit extensions to Grantor as described in the Loan
and Security Agreement (the "Loan Agreement"), but only if Grantor grants Bank a
security interest in its Copyrights, Trademarks and Patents effective as of the
Trigger Date. Defined terms used but not defined herein shall have the same
meanings as in the Loan Agreement.

      B.    Pursuant to the terms of the Loan Agreement, Grantor has granted to
Bank a security interest in all of Grantor's right title and interest, whether
presently existing or hereafter acquired in, to and under all of the Collateral.

      NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged and intending to be legally bound, as collateral security
for the prompt and complete payment when due of Grantor's Indebtedness under the
Loan Agreement, Grantor hereby represents, warrants, covenants and agrees as
follows:

Beginning with the date when Borrower's Tangible Net Worth (as defined in the
Loan Agreement) falls below $7,250,000 (the "Trigger Date"), the security
interest granted under this Agreement shall spring into existence and
accordingly, shall remain in full force and effect until the Obligations (as
defined in the Loan Agreements) are paid in full. Bank shall not be required to
provide notice to Grantor of its Intent to file this Agreement with the United
States Patent and Trademark Office or with the Register of Copyrights. Any
failure by Bank to so file this Agreement shall not be deemed a waiver by Bank
of the rights granted to Bank and Grantor hereunder.

      1.    Grant of Security Interest. As collateral security for the prompt
            ---------------------------
and complete payment and performance of all of Grantor's present or future
Indebtedness, obligations and liabilities to Bank, effective as of the Trigger
Date, Grantor hereby grants a security interest in all of Grantor's right, title
and interest in, to and under its Intellectual Property Collateral (all of which
shall collectively be called the "Intellectual Property Collateral"), 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, including without limitation those set forth on Exhibit A attached hereto
                                                      ---------
(collectively, the "Copyrights");

            (b) 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;

            (c) Any and all design rights which may be available to Grantor now
or hereafter existing, created, acquired or held;

            (d) 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 set forth on Exhibit B attached hereto
                                                 ---------
(collectively, the "Patents");

            (e) 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 Grantor

<PAGE>

connected with and symbolized by such trademarks, including without limitation
those set forth on Exhibit C attached hereto (collectively, the "Trademarks")
                   ---------

            (f) 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;

            (g) All licenses or other rights to use any of the Copyrights,
Patents, or Trademarks and all license fees and royalties arising from such use
to the extent permitted by such license or rights; and

            (h) All amendments, extensions, renewals and extensions of any of
the Copyrights, Trademarks, or Patents; and

            (i) 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.

            (j) If this Agreement is terminated, Bank's lien and security
interest in the Collateral will continue until Borrower fully satisfies its
Obligations.

      2.    Authorization and Request. Grantor authorizes and requests that the
            --------------------------
Register of Copyrights and the Commissioner of Patents and Trademarks record
this IP Agreement.

      3.    Covenants and Warranties. Grantor represents, warrants, covenants
            -------------------------
and agrees as follows:

            (a) Grantor is now the sole owner of or has rights to the
Intellectual Property Collateral, except for non-exclusive licenses, or
exclusive licenses granted in the ordinary course of business, provided such
licensing limits the use and application of the Intellectual Property to
specific indications and geographic regions, and does not impair Borrower's
ability to commercialize its Intellectual Property in its US business markets,
or as permitted in subletter (g) under Permitted Liens, as defined in the Loan
Agreement between Grantor and Bank.

            (b) Performance of this IP Agreement does not conflict with or
result in a breach of any intellectual property agreement to which Grantor is
bound, except to the extent that certain intellectual property agreements
prohibit the assignment of the rights thereunder to a third party without the
licensor's or other party's consent and this IP Agreement constitutes a security
interest.

            (c) During the term of this IP Agreement, Grantor will not transfer
or otherwise encumber any interest in the Intellectual Property Collateral,
except for non-exclusive licenses, or exclusive licenses granted in the ordinary
course of business, provided such licensing limits the use and application of
the Intellectual Property to specific indications and geographic regions, and
does not impair Grantor's ability to commercialize its Intellectual Property in
its US business markets, or as permitted in subletter (g) under Permitted Liens,
as defined in the Loan Agreement between Grantor and Bank, or as set forth in
this IP Agreement;

            (d) To its knowledge, each of the Patents is valid and enforceable,
and no part of the Intellectual Property Collateral has been judged invalid or
unenforceable, in whole or in part, and no claim has been made that any part of
the Intellectual Property Collateral violates the rights of any third party
except as noted in the Schedule under Litigation;

            (e) Effective as of the Trigger Date, Grantor shall promptly advise
Bank of any material adverse change in the composition of the IP Collateral,
including but not limited to any subsequent ownership right of the Grantor in or
to any Trademark, Patent, or Copyright specified in this IP Agreement;

            (f) Grantor shall (i) protect, defend and maintain the validity and
enforceability of the Trademarks, Patents, and Copyrights, (ii) use its best
efforts to detect infringements of the Trademarks, Patents, and Copyrights and
promptly advise Bank in writing of material infringements detected and (iii) not

                                        2

<PAGE>

allow any Trademarks, Patents, or Copyrights to be abandoned, forfeited or
dedicated to the public without the written consent of Bank, which shall not be
unreasonably withheld, unless Grantor determines that reasonable business
practices suggest that abandonment is appropriate.

            (g) Grantor shall register the most recent version of any of
Grantor's Copyrights which its Board of Directors of Borrower deems, in good
faith, appropriate for the development of Borrower's business, and shall, from
time to time, execute and file such other instruments, and take such further
actions as Bank may reasonably request from time to time to perfect or continue
the perfection of Bank's interest in the Intellectual Property Collateral;

            (h) This IP Agreement creates, and in the case of after acquired
Intellectual Property Collateral, this IP Agreement will create at the time
Grantor first has rights in such after acquired Intellectual Property
Collateral, in favor of Bank a valid and perfected first priority security
interest in the intellectual Property Collateral in the United States securing
the payment and performance of the obligations evidenced by the Loan Agreement
upon making the filings referred to in clause (i) below;

            (i) To its knowledge (except for, and upon, the filing with the
United States Patent and Trademark office with respect to the Patents and
Trademarks and the Register of Copyrights with respect to the Copyrights
necessary to perfect the security interests created hereunder, and except as has
been already made or obtained) no authorization, approval or other action by,
and no notice to or filing with, any U.S. governmental authority of U.S.
regulatory body is required either (i) for the grant by Grantor of the security
interest granted hereby or for the execution, delivery or performance of this IP
Agreement by Grantor in the U.S. or (ii) for the perfection in the United States
or the exercise by Bank of its rights and remedies thereunder;

            (j) All information heretofore, herein or hereafter supplied to Bank
by or on behalf of Grantor with respect to the Intellectual Property Collateral
is accurate and complete in all material respects.

            (k) Grantor shall not enter into any agreement that would materially
impair or conflict with Grantor's obligations hereunder without Bank's prior
written consent, which consent shall not be unreasonably withheld. Grantor shall
not permit the inclusion in any material contract to which it becomes a party of
any provisions that could or might in any way prevent the creation of a security
interest in Grantor's rights and interest in any property included within the
definition of the Intellectual property Collateral acquired under such
contracts, except that certain contracts may contain anti-assignment provisions
that could in effect prohibit the creation of a security interest in such
contracts.

            (l) Upon any executive officer of Grantor obtaining actual knowledge
thereof, Grantor will promptly notify Bank in writing of any event that
materially adversely affects the value of any material Intellectual Property
Collateral, the ability of Grantor to dispose of any material Intellectual
Property Collateral of the rights and remedies of Bank in relation thereto,
including the levy of any legal process against any of the Intellectual Property
Collateral.

      4.    Bank's Rights. Effective as of the Trigger Date, Bank shall have the
            --------------
right, but not the obligation, to take, at Grantor's sole expense, any actions
that Grantor is required under this IP Agreement to take but which Grantor fails
to take. Grantor shall reimburse and indemnify Bank for all reasonable costs and
reasonable expenses incurred in the reasonable exercise of its rights under this
section 4.

      5.    Inspection Rights. Effective as of the Trigger Date, Grantor hereby
            ------------------
grants to Bank and its employees, representatives and agents the right to visit,
during reasonable hours upon prior reasonable notice to Grantor, and any of
Grantor's plants and facilities that manufacture, install or store products (or
that have done so during the prior six-month period) that are sold utilizing any
of the Intellectual Property Collateral, and to inspect the products and quality
control records relating thereto upon reasonable written notice to Grantor and
as often as may be reasonably requested, but not more than one (1) in every six
(6) months; provided, however, nothing herein shall entitle Bank access to
Grantor's trade secrets and other proprietary information.

                                        3

<PAGE>


      6. Further Assurances: Attorney in Fact.
         -------------------------------------

         Effective as of the Trigger Date:

         (a)    On a continuing basis, Grantor will, subject to any prior
licenses, encumbrances and restrictions and prospective licenses, make, execute,
acknowledge and deliver, and file and record in the proper filing and recording
places in the United States, all such instruments, including appropriate
financing and continuation statements and collateral agreements and filings with
the United States Patent and Trademarks Office and the Register of Copyrights,
and take all such action as may reasonably be deemed necessary or advisable, or
as requested by Bank, to perfect Bank's security interest in all Copyrights,
Patents, and Trademarks and otherwise to carry out the intent and purposes of
this IP Agreement, or for assuring and confirming to Bank the grant or
perfection of a security interest in all Intellectual Property Collateral.

         (b)    Upon the occurrence and continuance of an Event of Default
hereunder, Grantor hereby irrevocably appoints Bank as Grantor's
attorney-in-fact, with full authority in the place and stead of Grantor and in
the name of Grantor, Bank or otherwise, from time to time in Bank's discretion,
upon Grantor's failure or inability to do so, to take any action and to execute
any instrument which Bank may deem necessary or advisable to accomplish the
purposes of this IP Agreement, including:

                (i)  To modify, in its sole discretion, this IP Agreement
without first obtaining Grantor's approval of or signature to such modification
by amending Exhibit A, Exhibit B, Exhibit C, and Exhibit D hereof, as
appropriate, to include reference to any right, title or interest in any
Copyrights, Patents, or Trademarks acquired by Grantor after the execution
hereof or to delete any reference to any right, title or interest in any
Copyrights, Patents, or Trademarks in which Grantor no longer has or claims any
right, title or interest; and

                (ii) To file, in its sole discretion, one or more financing or
continuation statements and amendments thereto, relative to any of the
Intellectual Property Collateral without the signature of Grantor where
permitted by law.

      7. Events of Default. Effective as of the Trigger Date, the occurrence of
         ------------------
any of the following shall constitute an Event of Default under this IP
Agreement:

         (a)    An Event of Default occurs under the Loan Agreement; or

         (b)    Grantor breaches any material warranty or agreement made by
Grantor in this IP Agreement.

      8. Remedies. Upon the occurrence and continuance of an Event of Default,
         ---------
Bank shall have the right to exercise all the remedies of a secured party under
the California Uniform Commercial Code, including without limitation the right
to require Grantor to assemble the Intellectual Property Collateral and any
tangible property in which Bank has a security interest and to make it available
to Bank at a place designated by Bank. Bank shall have a nonexclusive, royalty
free license to use the Copyrights, Patents, and Trademarks to the extent
reasonably necessary to permit Bank to exercise its rights and remedies upon the
occurrence of an Event of Default. Grantor will pay any expenses (including
reasonable attorney's fees) incurred by Bank in connection with the exercise of
any of Bank's rights hereunder, including without limitation any expense
incurred in disposing of the Intellectual Property Collateral. All of Bank's
rights and remedies with respect to the Intellectual Property Collateral shall
be cumulative.

                                        4

<PAGE>

      9. Indemnity. Grantor agrees to defend, indemnify and hold harmless Bank
         ----------
and its officers, employees, and agents against: (a) all obligations, demands,
claims, and liabilities claimed or asserted by any other party in connection
with the transactions contemplated by this IP Agreement, and (b) all losses or
expenses in any way suffered, incurred, or paid by Bank as a result of or in any
way arising out of, following or consequential to transactions between Bank and
Grantor, whether under this IP Agreement or otherwise (including without
limitation, reasonable attorneys fees and reasonable expenses), except, in each
case for losses arising from or out of Bank's gross negligence or willful
misconduct.

      10. Reassignment. At such time as Grantor shall completely satisfy all of
          -------------
the obligations secured hereunder, Bank shall execute and deliver to Grantor all
deed, assignments, and other instruments as may be necessary or proper to
reinvest in Grantor full title to the property assigned hereunder, subject to
any disposition thereof which may have been made by Bank pursuant hereto.

      11. Course of Dealing. No course of dealing, nor any failure to exercise,
          ------------------
nor any delay in exercising any right, power or privilege hereunder shall
operate as a waiver thereof.

      12. Attorneys' Fees. If any action relating to this IP Agreement is
          ----------------
brought by either party hereto against the other party, the prevailing party
shall be entitled to recover reasonable attorneys fees, costs and disbursements.

      13. Amendments. This IP Agreement may be amended only by a written
          -----------
instrument signed by both parties hereto.

      14. Counterparts. This IP Agreement may be executed in two or more
          -------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute the same instrument.

      15. Law and Jurisdiction. This IP Agreement shall be governed by and
          ---------------------
construed in accordance with the laws of the State of California, without regard
for choice of law provisions. Grantor and Bank consent to the nonexclusive
jurisdiction of any state or federal court located in Santa Clara County,
California.

      16. Confidentiality. In handling any confidential information, Bank shall
          ----------------
exercise the same degree of care that it exercises with respect to its own
proprietary information of the same types to maintain the confidentiality of any
non-public information thereby received or received pursuant to this IP
Agreement except that the disclosure of this information may be made (i) to the
affiliates of the Bank, (ii) to prospective transferee or purchasers of an
interest in the obligations secured hereby, provided that they have entered into
comparable confidentiality agreement in favor of Grantor and have deliver a copy
to Grantor, (iii) as required by law, regulation, rule or order, subpoena
judicial order or similar order and (iv) as may be required in connection with
the examination, audit or similar investigation of Bank.

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

Address of Grantor:                     GRANTOR:

34175 Ardenwood Blvd.                   FUSION MEDICAL TECHNOLOGIES, INC.
Fremont, CA 94555
                                        By: /s/ Larry J. Strauss
                                           -------------------------------------
                                        Name: LARRY J. STRAUSS
                                             -----------------------------------
                                        Title:      CFO
                                              ----------------------------------


                                        5

<PAGE>

Exhibit "A" attached to that certain Intellectual Property Security Agreement
dated January 15, 2002.

                                   EXHIBIT "A"

                                   COPYRIGHTS

SCHEDULE A - ISSUED COPYRIGHTS
------------------------------



COPYRIGHT                      REGISTRATION                       DATE OF
DESCRIPTION                       NUMBER                         ISSUANCE
-----------                    ------------                      --------



SCHEDULE B - PENDING COPYRIGHT APPLICATIONS
-------------------------------------------
                                                               FIRST DATE
COPYRIGHT       APPLICATION       DATE OF                       OF PUBLIC
DESCRIPTION       NUMBER          FILING        CREATION       DISTRIBUTION
-----------     -----------       -------       --------       ------------

SCHEDULE C - UNREGISTERED COPYRIGHTS (Where No Copyright Application is Pending)
--------------------------------------------------------------------------------

                                                                 DATE AND
                                                                 RECORDATION
                                                                 NUMBER OF
                                                                 IP AGREEMENT TO
                                                                 OWNER OF
                                              ORIGINAL           GRANTOR (IF
                                              AUTHOR OR          ORIGINAL AUTHOR
                                              OWNER OF           OR OWNER OF
                             FIRST DATE       COPYRIGHT          COPYRIGHT IS
COPYRIGHT       DATE OF           OF          (IF DIFFERENT      DIFFERENT ROM
DESCRIPTION     CREATION     DISTRIBUTION     FROM GRANTOR)      GRANTOR)
-----------     --------     ------------     -------------      ---------------


                                        6

<PAGE>

Exhibit "B" attached to that certain Intellectual Property Security Agreement
dated January 15, 2002.

                                   EXHIBIT "B"

                                     PATENTS

PATENT
DESCRIPTION     DOCKET NO.     COUNTRY     SERIAL NO.     FILING DATE     STATUS
-----------     ----------     -------     ----------     -----------     ------


                                        7

<PAGE>

Exhibit "C" attached to that certain Intellectual Property Security Agreement
dated January 15, 2001.

                                   EXHIBIT "C"

                                   TRADEMARKS

TRADEMARK
DESCRIPTION          COUNTRY          SERIAL NO.          REG. NO         STATUS
-----------          -------          ----------          -------         ------







                                        8

</TEXT>
</DOCUMENT>
