EXHIBIT 10.46

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Silicon Valley Bank

Loan and Security Agreement

          Borrower:   TELECOMMUNICATION SYSTEMS, INC.
(the “Company” or the “Borrower”)     Address:   275 West Street, Suite 400
Annapolis, Maryland 21401               Date:   May 1, 2002    

THIS LOAN AND SECURITY AGREEMENT is entered into on the above date (the “Closing
Date”) between SILICON VALLEY BANK (“Silicon”), whose address is 3003 Tasman
Drive, Santa Clara, California, 95054 and with a loan production office located
at 3343 Peachtree Road, N.W., Suite 312, Atlanta, Georgia 30326 and the borrower
named above (the “Borrower”), whose chief executive office is located at the
above address (“Borrower’s Address”). The Schedule to this Agreement (the
“Schedule”) shall for all purposes be deemed to be a part of this Agreement, and
the same is an integral part of this Agreement. (Definitions of certain terms
used in this Agreement are set forth in Section 8 below.)

1.      LOANS.

         1.1 Loans. Silicon will make loans to Borrower (the “Loans”), in
amounts determined by Silicon in its good faith business judgment, up to the
amounts (the “Credit Limit”) shown on the Schedule, provided no Default or Event
of Default has occurred and is continuing, and subject to deduction of Reserves
for accrued interest and such other Reserves as Silicon deems proper from time
to time in its good faith business judgment. The Borrower may from time to time,
by giving Silicon prior written notice (a “Non-Borrowing Notice”), elect to
cease requesting Loans under this Agreement and during such period, Silicon
shall have no further obligation to make any such Loans (such periods each being
called a “Non-Borrowing Period”). Each Non-Borrowing Notice shall be given to
Silicon in accordance with Section 9.5 of this Agreement and shall set forth the
date on which the Non-Borrowing Period shall commence, which date must be not
earlier than one (1) Business Days after the date on which Silicon receives such
notice and shall be signed by an officer of the Borrower. The Borrower may
terminate a Non-Borrowing Period by giving Silicon not less than thirty
(30) days prior written notice of its desire to terminate such Non-Borrowing
Period, which notice once received, is not revocable.

         1.2 Interest. All Loans and all other monetary Obligations shall bear
interest at the rate shown on the Schedule, except where expressly set forth to
the contrary in this Agreement. Interest shall be payable monthly, on the last
day of the month. Interest may, in Silicon’s discretion, be charged to
Borrower’s loan account, and the same shall thereafter bear interest at the same
rate as the other Loans. Silicon may, in its discretion, charge interest to
Borrower’s Deposit Accounts maintained with Silicon. Silicon will provide
Borrower with notice prior to any debit of Borrower’s loan account for any
regularly scheduled payment.

         1.3 Overadvances. If at any time or for any reason the total of all
outstanding Loans and all other monetary Obligations, including, without
limitation, the amount of all Equipment Loans, Exim Loans and the face amount of
all outstanding Letters of Credit, exceeds the Credit Limit (an “Overadvance”),
Borrower shall immediately pay the amount of the excess to Silicon, without
notice or demand. Without limiting Borrower’s obligation to repay to Silicon the
amount of any Overadvance, Borrower agrees to pay Silicon interest on the
outstanding amount of any Overadvance, on demand, at the Default Rate.

         1.4 Fees. Borrower shall pay Silicon the fees shown on the Schedule,
which are in addition to all interest and other sums payable to Silicon and are
not refundable.

         1.5 Loan Requests. To obtain a Loan, Borrower shall make a request to
Silicon by facsimile or telephone. Loan requests received after 12:00 Noon
(Pacific standard time) will not be considered by Silicon until the next
Business Day. Silicon may

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rely on any telephone request for a Loan given by a person whom Silicon believes
is an authorized representative of Borrower, and Borrower will indemnify Silicon
for any loss Silicon suffers as a result of that reliance.

   1.6 International Transactions (Letters of Credit and Foreign Exchange
Exposure).

         (a)       At the request of Borrower, Silicon may, in its good faith
business judgment, issue or arrange for the issuance of letters of credit for
the account of Borrower, in each case in form and substance satisfactory to
Silicon in its sole discretion (collectively, “Letters of Credit”). The
aggregate face amount of all Letters of Credit from time to time outstanding and
all FX Forward Contracts and the amount of all FX Reserves shall not exceed the
amount shown on the Schedule (the “International Transactions Sublimit”), and
shall be reserved against Loans which would otherwise be available hereunder,
and in the event at any time there are insufficient Loans available to Borrower
for such reserve, Borrower shall deposit and maintain with Silicon cash
collateral in an amount at all times equal to such deficiency, which shall be
held as Collateral for all purposes of this Agreement. Borrower shall pay all
bank charges (including charges of Silicon) for the issuance of Letters of
Credit, together with such additional fee as Silicon’s letter of credit
department shall charge in connection with the issuance of the Letters of
Credit. Any payment by Silicon under or in connection with a Letter of Credit
shall constitute a Loan hereunder on the date such payment is made. Each Letter
of Credit shall have an expiry date no later than thirty days prior to the
Maturity Date. Borrower hereby agrees to indemnify and hold Silicon harmless
from any loss, cost, expense, or liability, including payments made by Silicon,
expenses, and reasonable attorneys’ fees incurred by Silicon arising out of or
in connection with any Letters of Credit. Borrower agrees to be bound by the
regulations and interpretations of the issuer of any Letters of Credit
guaranteed by Silicon and opened for Borrower’s account or by Silicon’s
interpretations of any Letter of Credit issued by Silicon for Borrower’s
account, and Borrower understands and agrees that Silicon shall not be liable
for any error, negligence, or mistake, whether of omission or commission, in
following Borrower’s instructions or those contained in the Letters of Credit or
any modifications, amendments, or supplements thereto. Borrower understands that
Letters of Credit may require Silicon to indemnify the issuing bank for certain
costs or liabilities arising out of claims by Borrower against such issuing
bank. Borrower hereby agrees to indemnify and hold Silicon harmless with respect
to any loss, cost, expense, or liability incurred by Silicon under any Letter of
Credit as a result of Silicon’s indemnification of any such issuing bank. The
provisions of this Loan Agreement, as it pertains to Letters of Credit, and any
other Loan Documents relating to Letters of Credit are cumulative.

         (b)       To the extent there is availability under the International
Transactions Sublimit, the Borrower may enter in foreign exchange forward
contracts with Silicon under which Borrower commits to purchase from or sell to
Silicon a set amount of foreign currency more than one (1) Business Day after
the contract date (the “FX Forward Contract”). Silicon will subtract ten percent
(10%) of each outstanding FX Forward Contract (the “FX Reserve”) from the
International Transactions Sublimit. The total FX Forward Contracts at any one
time may not exceed ten (10) times the amount of the FX Reserve. Silicon may
terminate the FX Forward Contracts if a Default or an Event of Default occurs
and is continuing.

         1.7 Equipment Loans. At the request of Borrower, Silicon will make
equipment term loans to Borrower (the “Equipment Loans”), in amounts determined
by Silicon in its good faith business judgment, up to the Credit Limit shown on
the Schedule, provided no Default or Event of Default has occurred and is
continuing. Equipment Loans shall be repaid in accordance with the Schedule.

         1.8 EximBank Loans. At the request of Borrower, as part of the Loans,
Silicon may, subject to the satisfaction of cetain conditions set forth herein,
make certain Loans against Eligible Foreign Accounts (collectively, “Exim Loans”
and each an “Exim Loan”). The aggregate face amount of all Exim Loans from time
to time outstanding shall not exceed the amount shown on the Schedule (the “Exim
Loan Sublimit”), and shall be reserved against Loans which would otherwise be
available hereunder. Prior to making any Exim Loan, Silicon shall have received
(a) a fully executed Borrower Agreement in form and substance satisfactory to
Silicon, (b) a fully executed Loan Authorization Notice in form and substance
satisfactory to Silicon, (c) payment of the Exim Bank Loan Fee, (d) a fully
executed Exim Bank Loan and Security Agreement, and (e) such other documents as
Silicon may deem necessary in connection with the Exim Loans (collectively, the
“Exim Loan Documents”).

2.        SECURITY INTEREST. To secure the payment and performance of all of the
obligations when due, Borrower hereby grants to Silicon a security interest in
all of the following (collectively, the “Collateral”): all right, title and
interest of Borrower in and to all of the following, whether now owned or
hereafter arising or acquired and wherever located: all Accounts; all Inventory;
all Equipment; all Deposit Accounts; all General Intangibles; all Investment
Property; all other property; and any and all claims, rights and interests in
any of the above, and all guaranties and security for any of the above,

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and all substitutions and replacements for, additions, accessions, attachments,
accessories, and improvements to, and proceeds (including proceeds of any
insurance policies, proceeds of proceeds and claims against third parties) of,
any and all of the above, and all Borrower’s books relating to any and all of
the above. Notwithstanding the foregoing, the Collateral shall not be deemed to
include any Intellectual Property, except that the Collateral shall include the
proceeds of all the Intellectual Property that are Accounts of Borrower, or
General Intangibles consisting of rights to payment, 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 date hereof, include the Intellectual Property to the extent necessary to
permit perfection of Silicon’s security interest in such Accounts and General
Intangibles of Borrower that are proceeds of the Intellectual Property.

3.         REPRESENTATIONS, WARRANTIES AND COVENANTS OF BORROWER.

         In order to induce Silicon to enter into this Agreement and to make
Loans and other Obligations under the Loan Documents, Borrower represents and
warrants to Silicon as follows, and Borrower covenants that the following
representations will continue to be true, and that Borrower will at all times
comply with all of the following covenants, throughout the term of this
Agreement and until all Obligations have been paid and performed in full:

         3.1 Corporate Existence and Authority. Borrower is and will continue to
be, duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation. Borrower is and will continue to be qualified
and licensed to do business in all jurisdictions in which any failure to do so
would result in a Material Adverse Change. The execution, delivery and
performance by Borrower of this Agreement, and all other documents contemplated
hereby (i) have been duly and validly authorized, (ii) are enforceable against
Borrower in accordance with their terms (except as enforcement may be limited by
equitable principles and by bankruptcy, insolvency, reorganization, moratorium
or similar laws relating to creditors’ rights generally), and (iii) do not
violate Borrower’s articles or certificate of incorporation, or Borrower’s
by-laws, or any law or any material agreement or instrument which is binding
upon Borrower or its property, and (iv) do not constitute grounds for
acceleration of any material indebtedness or obligation under any agreement or
instrument which is binding upon Borrower or its property.

         3.2 Name; Trade Names and Styles. The name of Borrower set forth in the
heading to this Agreement is its correct name. Listed in the Representations are
all prior names of Borrower and all of Borrower’s present and prior trade names.
Borrower shall give Silicon ten (10) days’ prior written notice before changing
its name or doing business under any other name. Borrower has complied, and will
in the future comply, in all material respects, with all laws relating to the
conduct of business under a fictitious business name, except where the failure
to so comply would not reasonably be expected to result in a Material Adverse
Change.

         3.3 Place of Business; Location of Collateral. The address set forth in
the heading to this Agreement is Borrower’s chief executive office. In addition,
Borrower has places of business and Collateral is located only at the locations
set forth in the Representations. Borrower will notify Silicon within thirty
(30) days of opening any additional place of business, changing its chief
executive office, or moving any of the Collateral to a location other than
Borrower’s Address or one of the locations set forth in the Representations,
except that Borrower may maintain sales offices in the ordinary course of
business at which not more than a total of $10,000 fair market value of
Equipment is located.

         3.4 Title to Collateral; Perfection; Permitted Liens.

         (a)       Borrower is now, and will at all times in the future be, the
sole owner of all the Collateral, except for items of Equipment which are leased
to Borrower. The Collateral now is and will remain free and clear of any and all
liens, charges, security interests, encumbrances and adverse claims, except for
Permitted Liens. Silicon now has, and will continue to have, a first-priority
perfected and enforceable security interest in all of the Collateral, subject
only to the Permitted Liens, and Borrower will at all times defend Silicon and
the Collateral against all claims of others.

         (b)       Borrower has set forth in the Representations all of
Borrower’s Deposit Accounts, and Borrower will give Silicon three (3) Business
Days advance written notice before establishing any new Deposit Accounts and
will cause the institution where any such new Deposit Account is maintained to
execute and deliver to Silicon a control agreement in form sufficient to perfect
Silicon’s security interest in the Deposit Account and otherwise satisfactory to
Silicon in its good faith business judgment. Nothing herein limits any
requirements which may be set forth in the Schedule as to where Deposit Accounts
will be maintained.

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         (c)       In the event that Borrower shall at any time after the date
hereof have any commercial tort claims against others, which it is asserting or
intends to assert, and in which the potential recovery exceeds $500,000,
Borrower shall promptly notify Silicon thereof in writing and provide Silicon
with such information regarding the same as Silicon shall request (unless
providing such information would waive the Borrower’s attorney-client
privilege). Such notification to Silicon shall constitute a grant of a security
interest in the commercial tort claim and all proceeds thereof to Silicon, and
Borrower shall execute and deliver all such documents and take all such actions
as Silicon shall request in connection therewith.

         (d)       None of the Collateral now is or will be affixed to any real
property in such a manner, or with such intent, as to become a fixture. Borrower
is not and will not become a lessee under any real property lease pursuant to
which the lessor may obtain any rights in any of the Collateral and no such
lease now prohibits, restrains, impairs or will prohibit, restrain or impair
Borrower’s right to remove any Collateral from the leased premises. Whenever any
Collateral is located upon premises in which any third party has an interest,
Borrower shall, whenever requested by Silicon, use its best efforts to cause
such third party to execute and deliver to Silicon, in form acceptable to
Silicon, such waivers and subordinations as Silicon shall specify in its good
faith business judgment. Borrower will keep in full force and effect, and will
comply with all material terms of, any lease of real property where any of the
Collateral now or in the future may be located.

         3.5 Maintenance of Collateral. Borrower will maintain the Collateral in
good working condition (ordinary wear and tear excepted), and Borrower will not
use the Collateral for any unlawful purpose. Borrower will promptly advise
Silicon in writing of any material loss or damage to the Collateral.

         3.6 Books and Records. Borrower has maintained and will maintain at
Borrower’s Address complete and accurate books and records, comprising an
accounting system in accordance with GAAP.

         3.7 Financial Condition, Statements and Reports. All financial
statements now or in the future delivered to Silicon have been, and will be,
prepared in conformity with GAAP and now and in the future will fairly present
the results of operations and financial condition of Borrower, in accordance
with GAAP, at the times and for the periods therein stated. Between the last
date covered by any such statement provided to Silicon and the date hereof,
there has been no Material Adverse Change.

         3.8 Tax Returns and Payments; Pension Contributions. Borrower has
timely filed, and will timely file, all required tax returns and reports, and
Borrower has timely paid, and will timely pay, all foreign, federal, state and
local taxes, assessments, deposits and contributions now or in the future owed
by Borrower. Borrower may, however, defer payment of any contested taxes,
provided that Borrower (i) in good faith contests Borrower’s obligation to pay
the taxes by appropriate proceedings promptly and diligently instituted and
conducted, (ii) notifies Silicon in writing of the commencement of, and any
material development in, the proceedings, and (iii) posts bonds or takes any
other steps required to keep the contested taxes from becoming a lien upon any
of the Collateral. Borrower is unaware of any claims or adjustments proposed for
any of Borrower’s prior tax years which could result in additional taxes
becoming due and payable by Borrower. Borrower has paid, and shall continue to
pay all amounts necessary to fund all present and future pension, profit sharing
and deferred compensation plans in accordance with their terms, and Borrower has
not and will not withdraw from participation in, permit partial or complete
termination of, or permit the occurrence of any other event with respect to, any
such plan which could reasonably be expected to result in any liability of
Borrower, including any liability to the Pension Benefit Guaranty Corporation or
its successors or any other governmental agency.

         3.9 Compliance with Law. Borrower has, to the best of its knowledge,
complied, and will comply, in all material respects, with all provisions of all
foreign, federal, state and local laws and regulations applicable to Borrower,
including, but not limited to, those relating to Borrower’s ownership of real or
personal property, the conduct and licensing of Borrower’s business, and all
environmental matters.

         3.10 Litigation. Except as set forth in the Schedule, there is no
claim, suit, litigation, proceeding or investigation pending or (to best of
Borrower’s knowledge) threatened against or affecting Borrower in any court or
before any governmental agency (or any basis therefor known to Borrower) which
could reasonably be expected to result, either separately or in the aggregate,
in any Material Adverse Change. Borrower will promptly inform Silicon in writing
of any claim, proceeding, litigation or investigation in the future threatened
or instituted against Borrower involving any single claim of $50,000 or more, or
involving $100,000 or more in the aggregate.

         3.11 Use of Proceeds. All proceeds of all Loans shall be used solely
for lawful business purposes. Borrower is not purchasing or carrying any “margin
stock” (as defined in Regulation U of the Board of Governors of the Federal
Reserve

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System) and no part of the proceeds of any Loan will be used to purchase or
carry any “margin stock” or to extend credit to others for the purpose of
purchasing or carrying any “margin stock.”

         3.12 Operating Subsidiaries. All of Borrower’s operating Subsidiaries
are parties to this Agreement.

4.    Accounts.

         4.1 Representations Relating to Accounts. Borrower represents and
warrants to Silicon as follows: Each Account with respect to which Loans are
requested by Borrower shall, on the date each Loan is requested and made, (i)
represent an undisputed bona fide existing unconditional obligation of the
Account Debtor created by the sale, delivery, and acceptance of goods or the
rendition of services, or the non-exclusive licensing of Intellectual Property,
in the ordinary course of Borrower’s business, and (ii) meet the Minimum
Eligibility Requirements set forth in Section 8 below.

         4.2 Representations Relating to Documents and Legal Compliance.
Borrower represents and warrants to Silicon as follows: All statements made and
all unpaid balances appearing in all invoices, instruments and other documents
evidencing the Accounts are and shall be true and correct and all such invoices,
instruments and other documents and all of Borrower’s books and records are and
shall be genuine and in all respects what they purport to be. All sales and
other transactions underlying or giving rise to each Account shall comply in all
material respects with all applicable laws and governmental rules and
regulations. To the best of Borrower’s knowledge, all signatures and
endorsements on all documents, instruments, and agreements relating to all
Accounts are and shall be genuine, and all such documents, instruments and
agreements are and shall be legally enforceable in accordance with their terms.

         4.3 Schedules and Documents Relating to Accounts. Borrower shall
deliver to Silicon transaction reports and schedules of collections, as provided
in the Schedule, on Silicon’s standard forms; provided, however, that Borrower’s
failure to execute and deliver the same shall not affect or limit Silicon’s
security interest and other rights in all of Borrower’s Accounts, nor shall
Silicon’s failure to advance or lend against a specific Account affect or limit
Silicon’s security interest and other rights therein. If requested by Silicon in
its reasonable judgment, Borrower shall furnish Silicon with copies (or, at
Silicon’s request, originals) of all contracts, orders, invoices, and other
similar documents, and all shipping instructions, delivery receipts, bills of
lading, and other evidence of delivery, for any goods the sale or disposition of
which gave rise to such Accounts, and Borrower warrants the genuineness of all
of the foregoing. Borrower shall also furnish to Silicon an aged accounts
receivable trial balance as provided in the Schedule. In addition, Borrower
shall deliver to Silicon, on its request, the originals of all instruments,
chattel paper, security agreements, guarantees and other documents and property
evidencing or securing any Accounts, in the same form as received, with all
necessary endorsements, and copies of all credit memos.

         4.4 Collection of Accounts. Borrower shall have the right to collect
all Accounts, unless and until a Default or an Event of Default has occurred and
is continuing. Whether or not an Event of Default has occurred and is
continuing, Borrower shall hold all payments on, and proceeds of, Accounts in
trust for Silicon, and Borrower shall immediately deliver all such payments and
proceeds to Silicon in their original form, duly endorsed, to be applied to the
Obligations in such order as Silicon shall determine. Silicon may, in its good
faith business judgment, require that all proceeds of Collateral be deposited by
Borrower into a lockbox account, or such other “blocked account” as Silicon may
specify, pursuant to a blocked account agreement in such form as Silicon may
specify in its good faith business judgment.

         4.5. Remittance of Proceeds. All proceeds arising from the disposition
of any Collateral shall be delivered, in kind, by Borrower to Silicon in the
original form in which received by Borrower not later than the following
Business Day after receipt by Borrower, to be applied to the Obligations in such
order as Silicon shall determine; provided that, if no Default or Event of
Default has occurred and is continuing, Borrower shall not be obligated to remit
to Silicon the proceeds of the sale of worn out or obsolete Equipment disposed
of by Borrower in good faith in an arm’s length transaction for a purchase price
of $25,000 or less (for all such transactions in any fiscal year). Borrower
agrees that it will not commingle proceeds of Collateral with any of Borrower’s
other funds or property, but will hold such proceeds separate and apart from
such other funds and property and in an express trust for Silicon. Nothing in
this Section limits the restrictions on disposition of Collateral set forth
elsewhere in this Agreement.

         4.6 Disputes. Borrower shall notify Silicon promptly of all disputes or
claims relating to Accounts. Borrower shall not forgive (completely or
partially), compromise or settle any Account for less than payment in full, or
agree to do any of the foregoing, except that Borrower may do so, provided that:
(i) Borrower does so in good faith, in a commercially reasonable manner, in the
ordinary course of business, and in arm’s length transactions, which are
reported to Silicon on the regular

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reports provided to Silicon; (ii) no Default or Event of Default has occurred
and is continuing; and (iii) taking into account all such discounts, settlements
and forgiveness, the total outstanding Loans will not exceed the Credit Limit.

         4.7 Returns. Provided no Event of Default has occurred and is
continuing, if any Account Debtor returns any Inventory to Borrower, Borrower
shall promptly determine the reason for such return and promptly issue a credit
memorandum to the Account Debtor in the appropriate amount. In the event any
attempted return occurs after the occurrence and during the continuance of any
Event of Default, Borrower shall hold the returned Inventory in trust for
Silicon, and immediately notify Silicon of the return of the Inventory.

         4.8 Verification. Silicon may, from time to time, verify directly with
the respective Account Debtors the validity, amount and other matters relating
to the Accounts, by means of mail, telephone or otherwise, either in the name of
Borrower or Silicon or such other name as Silicon may choose. Silicon will
provide Borrower with notice of any such action.

         4.9 No Liability. Silicon shall not be responsible or liable for any
shortage or discrepancy in, damage to, or loss or destruction of, any goods, the
sale or other disposition of which gives rise to an Account, or for any error,
act, omission, or delay of any kind occurring in the settlement, failure to
settle, collection or failure to collect any Account, or for settling any
Account in good faith for less than the full amount thereof, nor shall Silicon
be deemed to be responsible for any of Borrower’s obligations under any contract
or agreement giving rise to an Account. Nothing herein shall, however, relieve
Silicon from liability for its own gross negligence or willful misconduct.

         4.10 Exim Insurance. If required by Silicon, at all times that any Exim
Loans are outstanding, Borrower will obtain, and pay when due all premiums with
respect to, and maintain uninterrupted foreign credit insurance. In addition,
Borrower will execute in favor of Silicon an assignment of proceeds of any
insurance policy obtained by Borrower and issued by Exim Bank insuring against
comprehensive commercial and political risk (the “EXIM Bank Policy”). The
insurance proceeds from the EXIM Bank Policy assigned or paid to Silicon will be
applied to the balance outstanding of Exim Loans made under this Agreement.
Borrower will immediately notify Bank and Exim Bank in writing upon submission
of any claim under the Exim Bank Policy. Then Silicon will not be obligated to
make any further Loans to Borrower without prior approval from Exim Bank.

         4.11 Subsidiaries. Borrower will cause any operating Subsidiaries in
existence after the date hereof, to promptly become parties to this Agreement.

5.         ADDITIONAL DUTIES OF BORROWER.

         5.1 Financial and Other Covenants. Borrower shall at all times comply
with the financial and other covenants set forth in the Schedule.

         5.2 Insurance. Borrower shall, at all times insure all of the tangible
personal property Collateral and carry such other business insurance, with
insurers reasonably acceptable to Silicon, in such form and amounts as Silicon
may reasonably require and that are customary and in accordance with standard
practices for Borrower’s industry and locations, and Borrower shall provide
evidence of such insurance to Silicon. All such insurance policies shall name
Silicon as an additional loss payee, and shall contain a lenders loss payee
endorsement in form reasonably acceptable to Silicon. Upon receipt of the
proceeds of any such insurance, Silicon shall apply such proceeds in reduction
of the Obligations as Silicon shall determine in its good faith business
judgment, except that, provided no Default or Event of Default has occurred and
is continuing, Silicon shall release to Borrower insurance proceeds with respect
to Equipment totaling less than $100,000, which shall be utilized by Borrower
for the replacement of the Equipment with respect to which the insurance
proceeds were paid. Silicon may require reasonable assurance that the insurance
proceeds so released will be so used. If Borrower fails to provide or pay for
any insurance, Silicon may, but is not obligated to, obtain the same at
Borrower’s expense. Borrower shall promptly deliver to Silicon copies of all
material reports made to insurance companies.

         5.3 Reports. Borrower, at its expense, shall provide Silicon with the
written reports set forth in the Schedule, and such other written reports with
respect to Borrower (including budgets and forecasts), as Silicon shall from
time to time specify in its good faith business judgment.

         5.4 Access to Collateral, Books and Records. At reasonable times, and
on one Business Day’s notice, Silicon, or its agents, shall have the right to
inspect the Collateral, and the right to audit and copy Borrower’s books and
records. Silicon shall take reasonable steps to keep confidential all
information obtained in any such inspection or audit, but Silicon shall have the
right to disclose any such information to its auditors, regulatory agencies, and
attorneys, and pursuant to any subpoena or

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other legal process. The foregoing inspections and audits shall be at Borrower’s
expense and the charge therefor shall be $750 per person per day (or such higher
amount as shall represent Silicon’s then current standard charge for the same),
plus reasonable out of pocket expenses, provided however that it is agreed that
the cost of the first inspection and audit will not exceed $7,500, and further
provided, that if at the time of such inspection and audit no Event of Default
has occurred and is continuing, the cost of such inspections and audits will not
exceed $15,000 in any twelve (12) month period and such inspections and audits
will not be conducted more frequently than once in any calendar quarter.

         5.5 Negative Covenants. Except as may be permitted in the Schedule,
Borrower shall not, without Silicon’s prior written consent (which shall be a
matter of its good faith business judgment), do any of the following: (i) merge
or consolidate with another corporation or entity (each an “Acquisition” and
collectively, the “Acquisitions”) during the existence of this Agreement unless
each of the following conditions precedent are in Silicon’s discretion
satisfied: [*] Borrower further understands and agrees that in the event any
Acquisition satisfies the foregoing conditions, Silicon shall not include any
Accounts of such Target in the Eligible Accounts unless and until Silicon has
performed an audit of such Accounts, the results of which are satisfactory to
Silicon; (ii) acquire any assets in excess of [*] in the aggregate , except in
the ordinary course of business; (iii) enter into any other transaction outside
the ordinary course of business; (iv) sell or transfer any Collateral, except
for the sale of finished Inventory in the ordinary course of Borrower’s
business, and except for the sale of obsolete or unneeded Equipment in the
ordinary course of business; (v) store any Inventory or other Collateral with
any warehouseman or other third party; (vi) sell any Inventory on a
sale-or-return, guaranteed sale, consignment, or other contingent basis; (vii)
make any loans of any money or other assets; (viii) incur any debts, outside the
ordinary course of business, which would result in a Material Adverse Change;
(ix) guarantee or otherwise become liable with respect to the obligations of
another party or entity; (x) pay or declare any dividends on Borrower’s stock
(except for dividends payable solely in stock of Borrower); (xi) redeem, retire,
purchase or otherwise acquire, directly or indirectly, any of Borrower’s stock
in an aggregate amount to exceed [*], provided that at the time of any such
redemption, retirement, purchase or other acquisition, and after giving effect
thereto, no Event of Default has occurred and is continuing; (xii) make any
change in Borrower’s capital structure which would result in a Material Adverse
Change; or (xiii) engage, directly or indirectly, in any business other than the
businesses currently engaged in by Borrower or reasonably related thereto;
(xiv) dissolve or elect to dissolve; (xv) at such times as any Exim Loans are
outstanding, violate or fail to comply with any provision of the Borrower
Agreement; (xvi) at such times as any Exim Loans are outstanding, take an
action, or permit any action to be taken, that causes, or could be expected to
cause, the Exim Guarantee to not be in full force and effect; or (xvii) make any
loans, advances or transfer any assets to any Affiliate or subsidiary of any
Borrower which has not become a party to this Agreement and the Loan Documents.
Transactions permitted by the foregoing provisions of this Section are only
permitted if no Default or Event of Default would occur as a result of such
transaction.

         5.6 Litigation Cooperation. Should any third-party suit or proceeding
be instituted by or against Silicon with respect to any Collateral or relating
to Borrower, Borrower shall, without expense to Silicon, make available Borrower
and its officers, employees and agents and Borrower’s books and records, to the
extent that Silicon may deem them reasonably necessary in order to prosecute or
defend any such suit or proceeding.

         5.7 Further Assurances. Borrower agrees, at its expense, on request by
Silicon, to execute all documents and take all actions, as Silicon, may, in its
good faith business judgment, deem necessary or useful in order to perfect and
maintain Silicon’s perfected first-priority security interest in the Collateral
(subject to Permitted Liens), and in order to fully consummate the transactions
contemplated by this Agreement.

6.         TERM.

         6.1 Maturity Date. This Agreement shall continue in effect until the
maturity date set forth on the Schedule (the “Maturity Date”), subject to
Section 6.3 below.

         6.2 Early Termination. This Agreement may be terminated prior to the
Maturity Date as follows: (i) by Borrower, effective three Business Days after
written notice of termination is given to Silicon; or (ii) by Silicon at any
time after the occurrence and during the continuance of an Event of Default,
without notice, effective immediately. If this Agreement is terminated by
Borrower or by Silicon under this Section 6.2, Borrower shall pay to Silicon a
termination fee in an amount equal to [*] of the Maximum Credit Limit, provided
that no termination fee shall be charged if the credit facility hereunder is
replaced with a new facility from another division of Silicon Valley Bank. The
termination fee shall be due and payable on

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the effective date of termination and thereafter shall bear interest at a rate
equal to the highest rate applicable to any of the Obligations.

         6.3 Payment of Obligations. On the Maturity Date or on any earlier
effective date of termination, Borrower shall pay and perform in full all
Obligations, including, without limitation all Exim Loans and all Equipment
Loans, whether evidenced by installment notes or otherwise, and whether or not
all or any part of such Obligations are otherwise then due and payable. Without
limiting the generality of the foregoing, if on the Maturity Date, or on any
earlier effective date of termination, there are any outstanding Letters of
Credit issued by Silicon or issued by another institution based upon an
application, guarantee, indemnity or similar agreement on the part of Silicon,
then on such date Borrower shall provide to Silicon cash collateral in an amount
equal to 105% of the face amount of all such Letters of Credit plus all
interest, fees and cost due or to become due in connection therewith (as
estimated by Silicon in its good faith business judgment), to secure all of the
Obligations relating to said Letters of Credit, pursuant to Silicon’s then
standard form cash pledge agreement. Notwithstanding any termination of this
Agreement, all of Silicon’s security interests in all of the Collateral and all
of the terms and provisions of this Agreement shall continue in full force and
effect until all Obligations have been paid and performed in full; provided that
Silicon may, in its sole discretion, refuse to make any further Loans after
termination. No termination shall in any way affect or impair any right or
remedy of Silicon, nor shall any such termination relieve Borrower of any
Obligation to Silicon, until all of the Obligations have been paid and performed
in full. Upon payment and performance in full of all the Obligations and
termination of this Agreement, Silicon shall promptly terminate its financing
statements with respect to the Borrower and deliver to Borrower such other
documents as may be required to fully terminate Silicon’s security interests.

7.         EVENTS OF DEFAULT AND REMEDIES.

         7.1 Events of Default. The occurrence of any of the following events
shall constitute an “Event of Default” under this Agreement, and Borrower shall
give Silicon immediate written notice thereof: (a) Any warranty, representation,
statement, report or certificate made or delivered to Silicon by Borrower or any
of Borrower’s officers, employees or agents, now or in the future, shall be
untrue or misleading in a material respect when made or deemed to be made; or
(b) Borrower shall fail to pay when due any Loan or any interest thereon or any
other monetary Obligation; or (c) the total Loans and other Obligations
outstanding at any time shall exceed the Credit Limit; or (d) Borrower shall
fail to comply with any of the financial covenants set forth in the Schedule, or
shall fail to perform any other non-monetary Obligation which by its nature
cannot be cured, or shall fail to permit Silicon to conduct an inspection or
audit as specified in Section 5.4 hereof; or (e) Borrower shall fail to perform
any other non-monetary Obligation, which failure is not cured within five
Business Days after the date due; or (f) any levy, assessment, attachment,
seizure, lien or encumbrance (other than a Permitted Lien) is made on all or any
part of the Collateral which is not cured within 10 days after the occurrence of
the same; or (g) any default or event of default occurs under any obligation
secured by a Permitted Lien, which is not cured within any applicable cure
period or waived in writing by the holder of the Permitted Lien; or (h) Borrower
breaches any material contract or obligation, which has resulted or may
reasonably be expected to result in a Material Adverse Change; or
(i) Dissolution, termination of existence, insolvency or business failure of
Borrower; or appointment of a receiver, trustee or custodian, for all or any
part of the property of, assignment for the benefit of creditors by, or the
commencement of any proceeding by Borrower under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, now or in the future in effect; or (j) the
commencement of any proceeding against Borrower or any guarantor of any of the
Obligations under any reorganization, bankruptcy, insolvency, arrangement,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction, now or in the future in effect, which is not cured by the
dismissal thereof within 30 days after the date commenced; or (k) revocation or
termination of, or limitation or denial of liability upon, any guaranty of the
Obligations or any attempt to do any of the foregoing, or commencement of
proceedings by any guarantor of any of the Obligations under any bankruptcy or
insolvency law; or (l) revocation or termination of, or limitation or denial of
liability upon, any pledge of any certificate of deposit, securities or other
property or asset of any kind pledged by any third party to secure any or all of
the Obligations, or any attempt to do any of the foregoing, or commencement of
proceedings by or against any such third party under any bankruptcy or
insolvency law; or (m) Borrower makes any payment on account of any indebtedness
or obligation which has been subordinated to the Obligations other than as
permitted in the applicable subordination agreement, or if any Person who has
subordinated such indebtedness or obligations terminates or in any way limits
his subordination agreement; or (n) Borrower shall generally not pay its debts
as they become due, or Borrower shall conceal, remove or transfer any part of
its property, with intent to hinder, delay or defraud its creditors, or make or
suffer any transfer of any of its property which may be fraudulent under any
bankruptcy, fraudulent conveyance or similar law; or (o) a Material Adverse
Change shall occur; or (p) Silicon, acting in good faith and in a commercially
reasonable manner, deems

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itself insecure because of the occurrence of an event prior to the effective
date hereof of which Silicon had no knowledge on the effective date or because
of the occurrence of an event on or subsequent to the effective date, or (q) if
the Exim Guarantee ceases for any reason to be in full force and effect, or
(r) if the Exim Bank declares the Exim Guarantee void or revokes any obligations
under the Exim Guarantee. Silicon may cease making any Loans hereunder during
any of the above cure periods, and thereafter if an Event of Default has
occurred and is continuing.

         7.2 Remedies. Upon the occurrence and during the continuance of any
Event of Default, and at any time thereafter, Silicon, at its option, and
without notice or demand of any kind (all of which are hereby expressly waived
by Borrower), may do any one or more of the following: (a) Cease making Loans or
otherwise extending credit to Borrower under this Agreement or any other Loan
Document; (b) Accelerate and declare all or any part of the Obligations to be
immediately due, payable, and performable, notwithstanding any deferred or
installment payments allowed by any instrument evidencing or relating to any
Obligation; (c) Take possession of any or all of the Collateral wherever it may
be found, and for that purpose Borrower hereby authorizes Silicon without
judicial process to enter onto any of Borrower’s premises without interference
to search for, take possession of, keep, store, or remove any of the Collateral,
and remain on the premises or cause a custodian to remain on the premises in
exclusive control thereof, without charge for so long as Silicon deems it
necessary, in its good faith business judgment, in order to complete the
enforcement of its rights under this Agreement or any other agreement; provided,
however, that should Silicon seek to take possession of any of the Collateral by
court process, Borrower hereby irrevocably waives: (i) any bond and any surety
or security relating thereto required by any statute, court rule or otherwise as
an incident to such possession; (ii) any demand for possession prior to the
commencement of any suit or action to recover possession thereof; and (iii) any
requirement that Silicon retain possession of, and not dispose of, any such
Collateral until after trial or final judgment; (d) Require Borrower to assemble
any or all of the Collateral and make it available to Silicon at places
designated by Silicon which are reasonably convenient to Silicon and Borrower,
and to remove the Collateral to such locations as Silicon may deem advisable;
(e) Complete the processing, manufacturing or repair of any Collateral prior to
a disposition thereof and, for such purpose and for the purpose of removal,
Silicon shall have the right to use Borrower’s premises, vehicles, hoists,
lifts, cranes, and other Equipment and all other property without charge;
(f) Sell, lease or otherwise dispose of any of the Collateral, in its condition
at the time Silicon obtains possession of it or after further manufacturing,
processing or repair, at one or more public and/or private sales, in lots or in
bulk, for cash, exchange or other property, or on credit, and to adjourn any
such sale from time to time without notice other than oral announcement at the
time scheduled for sale. Silicon shall have the right to conduct such
disposition on Borrower’s premises without charge, for such time or times as
Silicon deems reasonable, or on Silicon’s premises, or elsewhere and the
Collateral need not be located at the place of disposition. Silicon may directly
or through any affiliated company purchase or lease any Collateral at any such
public disposition, and if permissible under applicable law, at any private
disposition. Any sale or other disposition of Collateral shall not relieve
Borrower of any liability Borrower may have if any Collateral is defective as to
title or physical condition or otherwise at the time of sale; (g) Demand payment
of, and collect any Accounts and General Intangibles comprising Collateral and,
in connection therewith, Borrower irrevocably authorizes Silicon to endorse or
sign Borrower’s name on all collections, receipts, instruments and other
documents, to take possession of and open mail addressed to Borrower and remove
therefrom payments made with respect to any item of the Collateral or proceeds
thereof, and, in Silicon’s good faith business judgment, to grant extensions of
time to pay, compromise claims and settle Accounts and the like for less than
face value; (h) Offset against any sums in any of Borrower’s general, special or
other Deposit Accounts with Silicon against any or all of the Obligations; and
(i) Demand and receive possession of any of Borrower’s federal and state income
tax returns and the books and records utilized in the preparation thereof or
referring thereto. All reasonable attorneys’ fees, expenses, costs, liabilities
and obligations incurred by Silicon with respect to the foregoing shall be added
to and become part of the Obligations, shall be due on demand, and shall bear
interest at a rate equal to the highest interest rate applicable to any of the
Obligations. Without limiting any of Silicon’s rights and remedies, from and
after the occurrence and during the continuance of any Event of Default, the
interest rate applicable to the Obligations shall be increased by an additional
four percent per annum (the “Default Rate”).

         7.3 Standards for Determining Commercial Reasonableness. Borrower and
Silicon agree that a sale or other disposition (collectively, “sale”) of any
Collateral which complies with the following standards will conclusively be
deemed to be commercially reasonable: (i) Notice of the sale is given to
Borrower at least ten days prior to the sale, and, in the case of a public sale,
notice of the sale is published at least five days before the sale in a
newspaper of general circulation in the county where the sale is to be
conducted; (ii) Notice of the sale describes the collateral in general,
non-specific terms; (iii) The sale is conducted at a place designated by
Silicon, with or without the Collateral being present; (iv) The sale commences
at any time between 8:00 a.m. and 6:00 p.m.; (v) Payment of the purchase price
in cash or by cashier’s check or wire transfer is required;

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(vi) With respect to any sale of any of the Collateral, Silicon may (but is not
obligated to) direct any prospective purchaser to ascertain directly from
Borrower any and all information concerning the same. Silicon shall be free to
employ other methods of noticing and selling the Collateral, in its discretion,
if they are commercially reasonable.

         7.4 Power of Attorney. Upon the occurrence and during the continuance
of any Event of Default, without limiting Silicon’s other rights and remedies,
Borrower grants to Silicon an irrevocable power of attorney coupled with an
interest, authorizing and permitting Silicon (acting through any of its
employees, attorneys or agents) at any time, at its option, but without
obligation, with or without notice to Borrower, and at Borrower’s expense, to do
any or all of the following, in Borrower’s name or otherwise, but Silicon agrees
that if it exercises any right hereunder, it will do so in good faith and in a
commercially reasonable manner: (a) Execute on behalf of Borrower any documents
that Silicon may, in its good faith business judgment, deem advisable in order
to perfect and maintain Silicon’s security interest in the Collateral, or in
order to exercise a right of Borrower or Silicon, or in order to fully
consummate all the transactions contemplated under this Agreement, and all other
Loan Documents; (b) Execute on behalf of Borrower, any invoices relating to any
Account, any draft against any Account Debtor and any notice to any Account
Debtor, any proof of claim in bankruptcy, any Notice of Lien, claim of
mechanic’s, materialman’s or other lien, or assignment or satisfaction of
mechanic’s, materialman’s or other lien; (c) Take control in any manner of any
cash or non-cash items of payment or proceeds of Collateral; endorse the name of
Borrower upon any instruments, or documents, evidence of payment or Collateral
that may come into Silicon’s possession; (d) Endorse all checks and other forms
of remittances received by Silicon; (e) Pay, contest or settle any lien, charge,
encumbrance, security interest and adverse claim in or to any of the Collateral,
or any judgment based thereon, or otherwise take any action to terminate or
discharge the same; (f) Grant extensions of time to pay, compromise claims and
settle Accounts and General Intangibles for less than face value and execute all
releases and other documents in connection therewith; (g) Pay any sums required
on account of Borrower’s taxes or to secure the release of any liens therefor,
or both; (h) Settle and adjust, and give releases of, any insurance claim that
relates to any of the Collateral and obtain payment therefor; (i) Instruct any
third party having custody or control of any books or records belonging to, or
relating to, Borrower to give Silicon the same rights of access and other rights
with respect thereto as Silicon has under this Agreement; and (j) Take any
action or pay any sum required of Borrower pursuant to this Agreement and any
other Loan Documents. Any and all reasonable sums paid and any and all
reasonable costs, expenses, liabilities, obligations and attorneys’ fees
incurred by Silicon with respect to the foregoing shall be added to and become
part of the Obligations, shall be payable on demand, and shall bear interest at
a rate equal to the highest interest rate applicable to any of the Obligations.
In no event shall Silicon’s rights under the foregoing power of attorney or any
of Silicon’s other rights under this Agreement be deemed to indicate that
Silicon is in control of the business, management or properties of Borrower.

         7.5 Application of Proceeds. All proceeds realized as the result of any
sale of the Collateral shall be applied by Silicon first to the reasonable
costs, expenses, liabilities, obligations and attorneys’ fees incurred by
Silicon in the exercise of its rights under this Agreement, second to the
interest due upon any of the Obligations, and third to the principal of the
Obligations, in such order as Silicon shall determine in its sole discretion.
Any surplus shall be paid to Borrower or other persons legally entitled thereto;
Borrower shall remain liable to Silicon for any deficiency. If, Silicon, in its
good faith business judgment, directly or indirectly enters into a deferred
payment or other credit transaction with any purchaser at any sale of
Collateral, Silicon shall have the option, exercisable at any time, in its good
faith business judgment, of either reducing the Obligations by the principal
amount of purchase price or deferring the reduction of the Obligations until the
actual receipt by Silicon of the cash therefor.

         7.6 Remedies Cumulative. In addition to the rights and remedies set
forth in this Agreement, Silicon shall have all the other rights and remedies
accorded a secured party under the Maryland Uniform Commercial Code and under
all other applicable laws, and under any other instrument or agreement now or in
the future entered into between Silicon and Borrower, and all of such rights and
remedies are cumulative and none is exclusive. Exercise or partial exercise by
Silicon of one or more of its rights or remedies shall not be deemed an
election, nor bar Silicon from subsequent exercise or partial exercise of any
other rights or remedies. The failure or delay of Silicon to exercise any rights
or remedies shall not operate as a waiver thereof, but all rights and remedies
shall continue in full force and effect until all of the Obligations have been
fully paid and performed.

8.         Definitions. As used in this agreement, the following terms have the
following meanings:

         “Account Debtor” means the obligor on an Account.

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         “Accounts” means all present and future “accounts” as defined in the
Code in effect on the date hereof with such additions to such term as may
hereafter be made, and includes without limitation all accounts receivable and
other sums owing to Borrower.

         “Affiliate” means, with respect to any Person, a relative, partner,
shareholder, director, officer, or employee of such Person, or any parent or
subsidiary of such Person, or any Person controlling, controlled by or under
common control with such Person.

         “Borrower Agreement” means an Export-Import Bank of the United States
Working Capital Guarantee Program Borrower Agreement between Borrower and
Silicon, as amended, modified, supplemented or restated from time to time.

         “Business Day” means a day on which Silicon is open for business.

         “Buyer” shall mean a Person that has entered into one or more Export
Orders with Borrower.

         “Code” means the Uniform Commercial Code as adopted and in effect in
the State of Maryland from time to time.

         “Collateral” has the meaning set forth in Section 2 above.

         “continuing” and “during the continuance of” when used with reference
to a Default or Event of Default means that the Default or Event of Default has
occurred and has not been either waived in writing by Silicon or cured within
any applicable cure period.

         “Default” means any event which with notice or passage of time or both,
would constitute an Event of Default.

         “Default Rate” has the meaning set forth in Section 7.2 above.

         “Deposit Accounts” means all present and future “deposit accounts” as
defined in the Code in effect on the date hereof with such additions to such
term as may hereafter be made, and includes without limitation all general and
special bank accounts, demand accounts, checking accounts, savings accounts and
certificates of deposit.

         “Eligible Accounts” means Accounts and General Intangibles arising in
the ordinary course of Borrower’s business from the sale of goods or the
rendition of services, or the non-exclusive licensing of Intellectual Property,
which Silicon, in its good faith business judgment, shall deem eligible for
borrowing. Without limiting the fact that the determination of which Accounts
are eligible for borrowing is a matter of Silicon’s good faith business
judgment, the following (the “Minimum Eligibility Requirements”) are the minimum
requirements for an Account to be an Eligible Account: (i) the Account must not
be outstanding for more than 90 days from its invoice date (the “Eligibility
Period”), (ii) the Account must not represent progress billings, or be due under
a fulfillment or requirements contract with the Account Debtor, unless the
Account Debtor on any progress billing has agreed that payment of such invoice
is due and payable without offset or defense, (iii) the Account must not be
subject to any contingencies (including Accounts arising from sales on
consignment, guaranteed sale or other terms pursuant to which payment by the
Account Debtor may be conditional), (iv) the Account must not be owing from an
Account Debtor with whom Borrower has any dispute (whether or not relating to
the particular Account), (v) the Account must not be owing from an Affiliate of
Borrower, (vi) the Account must not be owing from an Account Debtor which is
subject to any insolvency or bankruptcy proceeding, or whose financial condition
is not acceptable to Silicon, or which, fails or goes out of a material portion
of its business, (vii) the Account must not be owing from the United States or
any department, agency or instrumentality thereof (unless there has been
compliance, to Silicon’s satisfaction, with the United States Assignment of
Claims Act), (viii) the Account must not be owing from an Account Debtor located
outside the United States or Canada (unless pre-approved by Silicon in its
discretion in writing, or backed by a letter of credit satisfactory to Silicon,
or FCIA insured satisfactory to Silicon), (ix) the Account must not be owing
from an Account Debtor to whom Borrower is or may be liable for goods purchased
from such Account Debtor or otherwise (but, in such case, the Account will be
deemed not eligible only to the extent of any amounts owed by Borrower to such
Account Debtor). Unless otherwise agreed to by Silicon, Accounts owing from one
Account Debtor will not be deemed Eligible Accounts to the extent they exceed
twenty five percent (25%) of the total Accounts outstanding. In addition, if
more than 50% of the Accounts owing from an Account Debtor are outstanding for a
period longer than their Eligibility Period (without regard to unapplied
credits) or are otherwise not eligible Accounts, then all Accounts owing from
that Account Debtor will be deemed ineligible for borrowing. Silicon may, from
time to time, in its good faith business judgment, revise the Minimum
Eligibility Requirements, upon written notice to Borrower.

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         “Equipment” means all present and future “equipment” as defined in the
Code in effect on the date hereof with such additions to such term as may
hereafter be made, and includes without limitation all machinery, fixtures,
goods, vehicles (including motor vehicles and trailers), and any interest in any
of the foregoing.

         “Exim Bank” is the Export-Import Bank of the United States.

         “Exim Borrowing Base” shall have the meaning set forth in the Exim Loan
Documents.

         “Exim Eligible Foreign Accounts” shall have the meaning set forth in
the Exim Loan Documents.

         “Exim Eligible Foreign Inventory” shall have the meaning set forth in
the Exim Loan Documents.

         “Exim Guarantee” is that certain Master Guarantee Agreement between
Exim Bank and Silicon dated August 11, 1999 or other agreement, as amended,
modified, supplemented or restated from time to time, the terms of which are
incorporated into this Exim Agreement.

         “Export Order” is a written export order or contract for the purchase
by the Buyer from the Borrower of any finished goods or services which are
intended for export.

         “Event of Default” means any of the events set forth in Section 7.1 of
this Agreement.

         “GAAP” means generally accepted accounting principles consistently
applied.

         “General Intangibles” means all present and future “general
intangibles” as defined in the Code in effect on the date hereof with such
additions to such term as may hereafter be made, and includes, without
limitation payment intangibles, royalties, contract rights, goodwill, franchise
agreements, purchase orders, customer lists, route lists, telephone numbers,
domain names, claims, income tax refunds, security and other deposits, options
to purchase or sell real or personal property, rights in all litigation
presently or hereafter pending (whether in contract, tort or otherwise),
insurance policies (including without limitation key man, property damage, and
business interruption insurance), payments of insurance and rights to payment of
any kind.

         “good faith business judgment” means honesty in fact and good faith (as
defined in Section 1201 of the Code) in the exercise of Silicon’s business
judgment.

         “including” means including (but not limited to).

         “Intellectual Property” means all present and future (a) copyrights,
copyright rights, copyright applications, copyright registrations and like
protections in each work of authorship and derivative work thereof, whether
published or unpublished, (b) trade secret rights, including all rights to
unpatented inventions and know-how, and confidential information; (c) mask work
or similar rights available for the protection of semiconductor chips; (d)
patents, patent applications and like protections including without limitation
improvements, divisions, continuations, renewals, reissues, extensions and
continuations-in-part of the same; (e) trademarks, servicemarks, trade styles,
and trade names, whether or not any of the foregoing are registered, and all
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
any such trademarks; (f) computer software and computer software products;
(g) designs and design rights; (h) technology; (i) all claims for damages by way
of past, present and future infringement of any of the rights included above;
(j) all licenses or other rights to use any property or rights of a type
described above.

         “Inventory” means all present and future “inventory” as defined in the
Code in effect on the date hereof with such additions to such term as may
hereafter be made, and includes without limitation all merchandise, raw
materials, parts, supplies, packing and shipping materials, work in process and
finished products, including without limitation such inventory as is temporarily
out of Borrower’s custody or possession or in transit and including any returned
goods and any documents of title representing any of the above.

         “Investment Property” means all present and future investment property,
securities, stocks, bonds, debentures, debt securities, partnership interests,
limited liability company interests, options, security entitlements, securities
accounts, commodity contracts, commodity accounts, and all financial assets held
in any securities account or otherwise, and all options and warrants to purchase
any of the foregoing, wherever located, and all other securities of every kind,
whether certificated or uncertificated.

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         “Loan Authorization Notice” is that certain Loan Authorization Notice
between Bank and Export-Import Bank of the United States; as amended, modified,
supplemented or restated from time to time.

         “Loan Documents” means, collectively, this Agreement, the
Representations, and all other present and future documents, instruments and
agreements between Silicon and Borrower, including, but not limited to those
relating to this Agreement, and all amendments and modifications thereto and
replacements therefor.

         “Material Adverse Change” means any of the following: (i) a material
adverse change in the business, operations, or financial or other condition of
the Borrower, or (ii) a material impairment of the prospect of repayment of any
portion of the Obligations; or (iii) a material impairment of the value or
priority of Silicon’s security interests in the Collateral.

         “Obligations” means all present and future Loans, advances, debts,
liabilities, obligations, guaranties, covenants, duties and indebtedness at any
time owing by Borrower to Silicon, whether evidenced by this Agreement or any
note or other instrument or document, or otherwise, whether arising from an
extension of credit, opening of a letter of credit, banker’s acceptance, loan,
guaranty, indemnification or otherwise, whether direct or indirect (including,
without limitation, those acquired by assignment and any participation by
Silicon in Borrower’s debts owing to others), absolute or contingent, due or to
become due, including, without limitation, all interest, charges, expenses,
fees, attorney’s fees, expert witness fees, audit fees, letter of credit fees,
collateral monitoring fees, closing fees, facility fees, termination fees,
minimum interest charges and any other sums chargeable to Borrower under this
Agreement or under any other Loan Documents.

         “Other Property” means the following as defined in the Code in effect
on the date hereof with such additions to such term as may hereafter be made,
and all rights relating thereto: all present and future “commercial tort claims”
(including without limitation any commercial tort claims identified in the
Representations), “documents”, “instruments”, “promissory notes”, “chattel
paper”, “letters of credit”, “letter-of-credit rights”, “fixtures”, “farm
products” and “money”; and all other goods and personal property of every kind,
tangible and intangible, whether or not governed by the Code.

         “Permitted Liens” means the following: (i) purchase money security
interests in specific items of Equipment; (ii) leases of specific items of
Equipment; (iii) liens for taxes not yet payable; (iv) additional security
interests and liens consented to in writing by Silicon, which consent may be
withheld in its good faith business judgment; (v) security interests being
terminated substantially concurrently with this Agreement; (vi) liens of
materialmen, mechanics, warehousemen, carriers, or other similar liens arising
in the ordinary course of business and securing obligations which are not
delinquent; (vii) liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by liens of the type described above in
clauses (i) or (ii) above, provided that any extension, renewal or replacement
lien is limited to the property encumbered by the existing lien and the
principal amount of the indebtedness being extended, renewed or refinanced does
not increase; (viii) Liens in favor of customs and revenue authorities which
secure payment of customs duties in connection with the importation of goods.
Silicon will have the right to require, as a condition to its consent under
subparagraph (iv) above, that the holder of the additional security interest or
lien sign an intercreditor agreement on Silicon’s then standard form,
acknowledge that the security interest is subordinate to the security interest
in favor of Silicon, and agree not to take any action to enforce its subordinate
security interest so long as any Obligations remain outstanding, and that
Borrower agree that any uncured default in any obligation secured by the
subordinate security interest shall also constitute an Event of Default under
this Agreement.

         “Person” means any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation,
government, or any agency or political division thereof, or any other entity.

         “Representations” means the written Representations and Warranties
provided by Borrower to Silicon referred to in the Schedule.

         “Reserves” means, as of any date of determination, such amounts as
Silicon may from time to time establish and revise in its good faith business
judgment, reducing the amount of Loans, Letters of Credit and other financial
accommodations which would otherwise be available to Borrower under the lending
formula(s) provided in the Schedule: (a) to reflect events, conditions,
contingencies or risks which, as determined by Silicon in its good faith
business judgment, do or may adversely affect (i) the Collateral or any other
property which is security for the Obligations or its value (including without
limitation any increase in delinquencies of Accounts), (ii) the assets, business
or prospects of Borrower or any Guarantor, or (iii) the security interests and
other rights of Silicon in the Collateral (including the enforceability,
perfection and priority thereof); or (b) to reflect Silicon’s good faith belief
that any collateral report or financial information furnished by or on behalf of
Borrower or any Guarantor to Silicon is or may have been incomplete, inaccurate
or misleading in any material respect; or (c)

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in respect of any state of facts which Silicon determines in good faith
constitutes an Event of Default or may, with notice or passage of time or both,
constitute an Event of Default.

         Other Terms. All accounting terms used in this Agreement, unless
otherwise indicated, shall have the meanings given to such terms in accordance
with GAAP, consistently applied. All other terms contained in this Agreement,
unless otherwise indicated, shall have the meanings provided by the Code, to the
extent such terms are defined therein.

9.         GENERAL PROVISIONS.

         9.1 Interest Computation. In computing interest on the Obligations, all
wire transfers shall be deemed applied on account of the Obligations on the day
of receipt by Silicon thereof and all checks and other items of payment received
by Silicon (including proceeds of Accounts and payment of the Obligations in
full) shall be deemed applied by Silicon on account of the Obligations two
(2) Business Days after receipt by Silicon. For purposes of the foregoing, any
such funds received after 12:00 Noon (Pacific standard time) on any day shall be
deemed received on the next Business Day. Silicon shall not, however, be
required to credit Borrower’s account for the amount of any item of payment
which is unsatisfactory to Silicon in its good faith business judgment, and
Silicon may charge Borrower’s loan account for the amount of any item of payment
which is returned to Silicon unpaid.

         9.2 Application of Payments. All payments with respect to the
Obligations may be applied, and in Silicon’s good faith business judgment
reversed and re-applied, to the Obligations, in such order and manner as Silicon
shall determine in its good faith business judgment.

         9.3 Charges to Accounts. Silicon may, in its discretion, require that
Borrower pay monetary Obligations in cash to Silicon, or charge them to
Borrower’s Loan account with notice, prior to the occurrence and continuance of
an Event of Default, but without notice thereafter, in which event they will
bear interest at the same rate applicable to the Loans. Silicon may also, in its
discretion, charge any monetary Obligations to Borrower’s Deposit Accounts
maintained with Silicon.

         9.4 Monthly Accountings. Silicon shall provide Borrower monthly with an
account of advances, charges, expenses and payments made pursuant to this
Agreement. Such account shall be deemed correct, accurate and binding on
Borrower and an account stated (except for reverses and reapplications of
payments made and corrections of errors discovered by Silicon), unless Borrower
notifies Silicon in writing to the contrary within 60 days after such account is
rendered, describing the nature of any alleged errors or omissions.

         9.5 Notices. All notices to be given under this Agreement shall be in
writing and shall be given either personally or by reputable private delivery
service or by fax or email or by regular first-class mail, or certified mail
return receipt requested, addressed to Silicon or Borrower at each of the
addresses shown in the heading to this Agreement, or at any other address
designated in writing by one party to the other party. Any notices given by fax
or email must be followed by notice by another of the means set forth above to
be effective. Notices to Silicon shall be directed to the Commercial Finance
Division, to the attention of the Division Manager or the Division Credit
Manager. All notices shall be deemed to have been given upon delivery in the
case of notices personally delivered, or at the expiration of one Business Day
following delivery to the private delivery service, or two Business Days
following the deposit thereof in the United States mail, with postage prepaid.

         9.6 Severability. Should any provision of this Agreement be held by any
court of competent jurisdiction to be void or unenforceable, such defect shall
not affect the remainder of this Agreement, which shall continue in full force
and effect.

         9.7 Integration. This Agreement and such other written agreements,
documents and instruments as may be executed in connection herewith are the
final, entire and complete agreement between Borrower and Silicon and supersede
all prior and contemporaneous negotiations and oral representations and
agreements, all of which are merged and integrated in this Agreement. There are
no oral understandings, representations or agreements between the parties which
are not set forth in this Agreement or in other written agreements signed by the
parties in connection herewith.

         9.8 Waivers; Indemnity. The failure of Silicon at any time or times to
require Borrower to strictly comply with any of the provisions of this Agreement
or any other Loan Document shall not waive or diminish any right of Silicon
later to demand and receive strict compliance therewith. Any waiver of any
default shall not waive or affect any other default, whether prior or
subsequent, and whether or not similar. None of the provisions of this Agreement
or any other Loan Document shall be deemed to have been waived by any act or
knowledge of Silicon or its agents or employees, but only by a specific written
waiver signed by an authorized officer of Silicon and delivered to Borrower.
Borrower waives the benefit of all statutes of limitations relating to any of
the Obligations or this Agreement or any other Loan Document, and Borrower

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waives demand, protest, notice of protest and notice of default or dishonor,
notice of payment and nonpayment, release, compromise, settlement, extension or
renewal of any commercial paper, instrument, account, General Intangible,
document or guaranty at any time held by Silicon on which Borrower is or may in
any way be liable, and notice of any action taken by Silicon, unless expressly
required by this Agreement. Borrower hereby agrees to indemnify Silicon and its
affiliates, subsidiaries, parent, directors, officers, employees, agents, and
attorneys, and to hold them harmless from and against any and all claims, debts,
liabilities, demands, obligations, actions, causes of action, penalties, costs
and expenses (including reasonable attorneys’ fees), of every kind, which they
may sustain or incur based upon or arising out of any of the Obligations, or any
relationship or agreement between Silicon and Borrower, or any other matter,
relating to Borrower or the Obligations; provided that this indemnity shall not
extend to damages proximately caused by the indemnitee’s own gross negligence or
willful misconduct and further provided that in any action or proceeding between
Borrower and Silicon arising out of this Agreement or any 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. Notwithstanding any provision in this Agreement to the
contrary, the indemnity agreement set forth in this Section shall survive any
termination of this Agreement and shall for all purposes continue in full force
and effect.

         9.9 No Liability for Ordinary Negligence. Neither Silicon, nor any of
its directors, officers, employees, agents, attorneys or any other Person
affiliated with or representing Silicon shall be liable for any claims, demands,
losses or damages, of any kind whatsoever, made, claimed, incurred or suffered
by Borrower or any other party through the ordinary negligence of Silicon, or
any of its directors, officers, employees, agents, attorneys or any other Person
affiliated with or representing Silicon, but nothing herein shall relieve
Silicon from liability for its own gross negligence or willful misconduct.

         9.10 Amendment. The terms and provisions of this Agreement may not be
waived or amended, except in a writing executed by Borrower and a duly
authorized officer of Silicon.

         9.11 Time of Essence. Time is of the essence in the performance by
Borrower of each and every obligation under this Agreement.

         9.12 Attorneys Fees and Costs. Borrower shall reimburse Silicon for all
reasonable attorneys’ fees and all filing, recording, search, title insurance,
appraisal, audit, and other reasonable costs incurred by Silicon, pursuant to,
or in connection with, or relating to this Agreement (whether or not a lawsuit
is filed), including, but not limited to, any reasonable attorneys’ fees and
costs Silicon incurs in order to do the following: prepare and negotiate this
Agreement and all present and future documents relating to this Agreement;
obtain legal advice in connection with this Agreement or Borrower; enforce, or
seek to enforce, any of its rights; prosecute actions against, or defend actions
by, Account Debtors; commence, intervene in, or defend any action or proceeding;
initiate any complaint to be relieved of the automatic stay in bankruptcy; file
or prosecute any probate claim, bankruptcy claim, third-party claim, or other
claim; examine, audit, copy, and inspect any of the Collateral or any of
Borrower’s books and records; protect, obtain possession of, lease, dispose of,
or otherwise enforce Silicon’s security interest in, the Collateral; and
otherwise represent Silicon in any litigation relating to Borrower. In
satisfying Borrower’s obligation hereunder to reimburse Silicon for attorneys
fees, Borrower may, for convenience, issue checks directly to Silicon’s
attorneys, Troutman Sanders LLP, but Borrower acknowledges and agrees that
Troutman Sanders LLP is representing only Silicon and not Borrower in connection
with this Agreement. If either Silicon or Borrower files any lawsuit against the
other predicated on a breach of this Agreement, the prevailing party in such
action shall be entitled to recover its reasonable costs and attorneys’ fees,
including (but not limited to) reasonable attorneys’ fees and costs incurred in
the enforcement of, execution upon or defense of any order, decree, award or
judgment. All attorneys’ fees and costs to which Silicon may be entitled
pursuant to this Paragraph shall immediately become part of Borrower’s
Obligations, shall be due on demand, and shall bear interest at a rate equal to
the highest interest rate applicable to any of the Obligations.

         9.13 Benefit of Agreement. The provisions of this Agreement shall be
binding upon and inure to the benefit of the respective successors, assigns,
heirs, beneficiaries and representatives of Borrower and Silicon; provided,
however, that Borrower may not assign or transfer any of its rights under this
Agreement without the prior written consent of Silicon, and any prohibited
assignment shall be void. No consent by Silicon to any assignment shall release
Borrower from its liability for the Obligations.

         9.14 Joint and Several Liability. If Borrower consists of more than one
Person, their liability shall be joint and several, and the compromise of any
claim with, or the release of, any Borrower shall not constitute a compromise
with, or a release of, any other Borrower.

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         9.15 Limitation of Actions. Any claim or cause of action by Borrower
against Silicon, its directors, officers, employees, agents, accountants or
attorneys, based upon, arising from, or relating to this Loan Agreement, or any
other Loan Document, or any other transaction contemplated hereby or thereby or
relating hereto or thereto, or any other matter, cause or thing whatsoever,
occurred, done, omitted or suffered to be done by Silicon, its directors,
officers, employees, agents, accountants or attorneys, shall be barred unless
asserted by Borrower by the commencement of an action or proceeding in a court
of competent jurisdiction by the filing of a complaint within one year after the
first act, occurrence or omission upon which such claim or cause of action, or
any part thereof, is based, and the service of a summons and complaint on an
officer of Silicon, or on any other person authorized to accept service on
behalf of Silicon, within thirty (30) days thereafter. Borrower agrees that such
one-year period is a reasonable and sufficient time for Borrower to investigate
and act upon any such claim or cause of action. The one-year period provided
herein shall not be waived, tolled, or extended except by the written consent of
Silicon in its sole discretion. This provision shall survive any termination of
this Loan Agreement or any other Loan Document.

         9.16 Paragraph Headings; Construction. Paragraph headings are only used
in this Agreement for convenience. Borrower and Silicon acknowledge that the
headings may not describe completely the subject matter of the applicable
paragraph, and the headings shall not be used in any manner to construe, limit,
define or interpret any term or provision of this Agreement. This Agreement has
been fully reviewed and negotiated between the parties and no uncertainty or
ambiguity in any term or provision of this Agreement shall be construed strictly
against Silicon or Borrower under any rule of construction or otherwise.

         9.17 Governing Law; Jurisdiction; Venue. This Agreement and all acts
and transactions hereunder and all rights and obligations of Silicon and
Borrower shall be governed by the laws of the State of Maryland. As a material
part of the consideration to Silicon to enter into this Agreement, Borrower
(i) agrees that all actions and proceedings relating directly or indirectly to
this Agreement shall, at Silicon’s option, be litigated in courts located within
Maryland, and that the exclusive venue therefor shall be Santa Clara County;
(ii) consents to the jurisdiction and venue of any such court and consents to
service of process in any such action or proceeding by personal delivery or any
other method permitted by law; and (iii) waives any and all rights Borrower may
have to object to the jurisdiction of any such court, or to transfer or change
the venue of any such action or proceeding.

         9.18 Mutual Waiver of Jury Trial. Borrower and Silicon each hereby
waives the right to trial by jury in any action or proceeding based upon,
arising out of, or in any way relating to, this Agreement or any other present
or future instrument or agreement between Silicon and Borrower, or any conduct,
acts or omissions of Silicon or Borrower or any of their directors, officers,
employees, agents, attorneys or any other persons affiliated with Silicon or
Borrower, in all of the foregoing cases, whether sounding in contract or tort or
otherwise.

         9.19 Exim Notification. Silicon has the right to immediately notify
Exim Bank in writing if it has knowledge of any of the following events: (1) any
failure to pay any amount due under this Agreement; (2) the Exim Borrowing Base
is less than the sum of the outstanding Exim Loans; (3) any failure to pay when
due any amount payable to Silicon under any Loan owing by Borrower to Silicon;
(4) the filing of an action for debtor’s relief by, against or on behalf of
Borrower; (5) any threatened or pending material litigation against Borrower, or
any dispute involving Borrower. If Silicon sends a notice to Exim Bank, Silicon
has the right to send Exim Bank a written report on the status of events covered
by the notice every thirty (30) days after the date of the original
notification, until Silicon files a claim with Exim Bank or the defaults have
been cured (but no Loans may be required during the cure period unless Exim Bank
gives its written approval). If directed by Exim Bank, Silicon will have the
right to exercise any rights it may have against Borrower to demand the
immediate repayment of all amount outstanding under the Loans.

[SIGNATURES APPEAR ON THE FOLLOWING PAGE]

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      Borrower:   Silicon:       TELECOMMUNICATION SYSTEMS, INC   SILICON VALLEY
BANK       By   By

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President or Vice President   Title By  

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    Secretary or Ass’t Secretary    

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Silicon Valley Bank

Schedule to

Loan and Security Agreement

          Borrower:   TELECOMMUNICATION SYSTEMS, INC.     Address:   275 West
Street, Suite 400
Annapolis, Maryland 21401     Date:   May 1, 2002    

This Schedule forms an integral part of the Loan and Security Agreement between
Silicon Valley Bank and the above-borrower of even date.

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          1.   CREDIT LIMIT
(Section 1.1):   An amount not to exceed the lesser of: (i) Fifteen Million
Dollars ($15,000,000) at any one time outstanding (the “Maximum Credit Limit”),
less the amount of any outstanding Letters of Credit, FX Forward Contracts, FX
Reserves, Equipment Loans and Exim Loans; or (ii) eighty percent (80%) (the
“Advance Rate”) of the amount of Borrower’s Eligible Receivables (as defined in
Section 8 above), less the amount of any outstanding Letters of Credit, FX
Forward Contracts, FX Reserves, Equipment Loans and Exim Loans.                
  Silicon may, from time to time, modify the Advance Rate, in its good faith
business judgment, upon notice to the Borrower, based on changes in collection
experience with respect to Accounts or other issues or factors relating to the
Accounts or other Collateral.               International Transactions Sublimit
(Section 1.6):   Four Million Dollars ($4,000,000).               Equipment Loan
Sublimit (Section 1.7):   Two Million Dollars ($2,000,000).               Exim
Loan Sublimit (Section 1.8):   Three Million Dollars ($3,000,000).

 

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2.   INTEREST.

      Interest Rate (Section 1.2):         Except as set forth below with
respect to Equipment Loans, all Loans shall bear interest at a rate equal to [*]
per annum.           Interest on all Equipment Loans shall bear interest at a
rate equal to [*] per annum.           “Prime Rate” means the rate announced
from time to time by Silicon as its “prime rate;” it is a base rate upon which
other rates charged by Silicon are based, and it is not necessarily the best
rate available at Silicon. The interest rate applicable to the Obligations shall
change on each date there is a change in the Prime Rate.           Interest
shall be calculated on the basis of a 360-day year for the actual number of days
elapsed.

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3. FEES (Section 1.4):

      Loan Fee:   [*], payable concurrently herewith. Upon the closing of the
Exim Loan Sublimit, Silicon will give Borrower a pro-rata credit for the Exim
Bank Loan Fee due hereunder.       Collateral Monitoring
Fee:   [*], per month, payable in arrears (prorated for any partial month at the
beginning and at termination of this Agreement). Silicon agrees to waive the
Collateral Monitoring Fee for any month in which the Borrower maintains monthly
average balances in deposit and investment accounts with Silicon in excess of
Ten Million Dollars ($10,000,000).       Unused Portion Fee:   The Borrower
shall pay to Silicon a fee (collectively, the “Unused Line Fees” and
individually, a “Unused Line Fee”) in an amount equal to [*] per annum of the
average daily unused and undisbursed portion of the Maximum Credit Limit
accruing during each month. The accrued and unpaid portion of the Unused Line
Fee shall be paid by the Borrower to Silicon on the first day of each month,
commencing on the first such date following the date hereof, and on the Maturity
Date. Silicon agrees to waive the Unused Line Fee for any month in which the
Borrower maintains monthly average balances in deposit and investment accounts
with Silicon in excess of Ten Million Dollars ($10,000,000).

 

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      Exim Bank Loan Fee   [*] of the Exim Bank Loan Sublimit is due and payable
in accordance with Section 1.8 of the Agreement, and annually thereafter.

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4. REPAYMENT OF EQUIPMENT LOANS (Section 1.7):

          Borrower may request Equipment Loans from the Closing Date through
September 30, 2002 (the “Equipment Availability End Date”), and Silicon will
make Equipment Loans not exceeding the Equipment Sublimit. To obtain an
Equipment Loan, Borrower will deliver to Silicon copies of invoices for the
Equipment being financed, together with a UCC Financing Statement, if requested
by Silicon, covering the Equipment described thereon, and such additional
information as Bank may request at least five (5) Business Days before the
proposed funding date. The Equipment Loans may only be used to finance or
refinance Equipment purchased on or after ninety (90) days before the date of
each Equipment Loan and may not exceed one hundred percent (100%) of the
equipment invoice, excluding taxes, shipping, warranty charges, freight
discounts and installation expense. Software may constitute up to twenty five
percent (25%) of the aggregate Equipment Loans. Each Equipment Loan must be for
a minimum of One Hundred Thousand Dollars ($100,000). The number of Equipment
Loans is limited to four (4).           Interest accrues from the date of each
Equipment Loan at the rate in Section 1.2 and is payable monthly. Equipment
Loans are payable in thirty six (36) equal monthly installments of principal,
plus accrued interest, beginning on the last day of the first month following
the making of the Equipment Loan.

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5. MATURITY DATE

      (Section 6.1):           Loans   April 30, 2004       Exim Bank Loans  
April 30, 2003       Equipment Loans   Thirty six (36) months from the date of
each Equipment Loan, provided, however, if the Maturity Date for the Loans is
not extended, the then unpaid principal balance, together with all accrued and
unpaid interest thereon, shall be due and payable in full on the Maturity Date.

 

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6. FINANCIAL COVENANTS

      (Section 5.1):   Borrower shall comply with each of the following
covenants. Compliance shall be determined as of the end of each month, except as
otherwise specifically provided below:       Minimum Tangible
Net Worth:   Borrower shall maintain a Tangible Net Worth of not less than the
following amounts at the following times:

              Period   Minimum Tangible Net Worth:    

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    [*]                        [*]

      Definitions.   For purposes of the foregoing financial covenants, the
following term shall have the following meaning:           “Tangible Net Worth”
shall mean the excess of total assets over total liabilities, determined in
accordance with GAAP, with the following adjustments:           (A) there shall
be excluded from assets: (i) notes, accounts receivable and other obligations
owing to Borrower from its officers or other Affiliates, except notes receivable
from certain employees, officers and directors of Borrower (as more fully set
forth on Exhibit A attached hereto, in an aggregate amount not to exceed [*] and
which are not in default, and (ii) all assets which would be classified as
intangible assets under GAAP, including without limitation goodwill, licenses,
patents, trademarks, trade names, copyrights and organizational costs, licenses
and franchises, excluding capitalized software costs (net of related accumulated
amortization) in an amount not to exceed at any time, [*] in the aggregate;    
      (B) there shall be excluded from liabilities: all indebtedness which is
subordinated to the Obligations under a subordination agreement in form
specified by Silicon or by language in the instrument evidencing the
indebtedness which Silicon agrees in writing is acceptable to Silicon in its
good faith business judgment.

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7. REPORTING.
      (Section 5.3):

                  Borrower shall provide Silicon with the following:

 

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              1.     Weekly transaction reports and schedules of collections, on
Silicon’s standard form shall be provided weekly (and upon each Loan request),
provided, however, that during any Non-Borrowing Period, the transaction shall
be provided monthly, within fifteen (15) days after the end of each month.      
        2.     Monthly accounts receivable agings, aged by invoice date, within
fifteen days after the end of each month.               3.     Monthly accounts
payable agings, aged by invoice date, and outstanding or held check registers,
if any, within fifteen days after the end of each month.               4.  
  Monthly reconciliations of accounts receivable agings (aged by invoice date),
transaction reports, and general ledger, within fifteen days after the end of
each month.               5.     Monthly perpetual inventory reports for the
Inventory valued on a first-in, first-out basis at the lower of cost or market
(in accordance with GAAP) or such other inventory reports as are requested by
Silicon in its good faith business judgment, all within fifteen days after the
end of each month.               6.     Monthly unaudited financial statements,
as soon as available, and in any event within thirty days after the end of each
month.               7.     Monthly Compliance Certificates, within thirty days
after the end of each month, in such form as Silicon shall reasonably specify,
signed by the Chief Financial Officer, Vice President, Finance, Treasurer or
Corporate Controller of Borrower, certifying that as of the end of such month
Borrower was in full compliance with all of the terms and conditions of this
Agreement, and setting forth calculations showing compliance with the financial
covenants set forth in this Agreement and such other information as Silicon
shall reasonably request, including, without limitation, a statement that at the
end of such month there were no held checks.               8.     Quarterly
unaudited financial statements, as soon as available, and in any event within
forty-five days after the end of each fiscal quarter of Borrower.              
9.     Annual forecasts prior to each fiscal year end of Borrower and operating
budgets (including income statements, balance sheets and cash flow statements,
by

 

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                  month) for the current fiscal year of Borrower within sixty
(60) days after the end of each fiscal year of Borrower.               10.  
  Annual financial statements, as soon as available, and in any event within
120 days following the end of Borrower’s fiscal year, certified by, and with an
unqualified opinion of, independent certified public accountants acceptable to
Silicon.

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8. BORROWER INFORMATION:

          Borrower represents and warrants that the information set forth in the
Representations and Warranties of the Company dated April 5, 2002, previously
submitted to Silicon (the “Representations”) is true and correct as of the date
hereof.

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9. ADDITIONAL PROVISIONS

              1.   Minimum Cash and Excess Availability. The Borrower shall at
all times maintain a sum of (i) unencumbered cash on deposit with Silicon and
(ii) availability under the Loans, of not less than Ten Million Dollars
($10,000,000) As to any Deposit Accounts and investment accounts maintained with
another institution, Borrower shall cause such institution, within 30 days after
the date of this Agreement, to enter into a control agreement in form acceptable
to Silicon in its good faith business judgment in order to perfect Silicon’s
first-priority security interest in said Deposit Accounts and investment
accounts.               2.   Subordination of Inside Debt. All present and
future indebtedness of Borrower to its officers, directors and shareholders
(“Inside Debt”) shall, at all times, be subordinated to the Obligations pursuant
to a subordination agreement on Silicon’s standard form. Borrower represents and
warrants that there is no Inside Debt presently outstanding. Prior to incurring
any Inside Debt in the future, Borrower shall cause the person to whom such
Inside Debt will be owed to execute and deliver to Silicon a subordination
agreement on Silicon’s standard form.               3.   Intellectual Property
Negative Pledge Agreement. As a condition precedent to the effectiveness of this
Agreement, the Borrower shall have executed and

 

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      Silicon Valley Bank   Loan and Security Agreement

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                  delivered an Intellectual Property Negative Pledge Agreement
(the “IP Negative Pledge Agreement”), substantially in the form attached hereto
as Exhibit B.

      Borrower:   Silicon:       TELECOMMUNICATION SYSTEMS, INC   SILICON VALLEY
BANK       By   By

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President or Vice President   Title By  

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    Secretary or Ass’t Secretary    

*Redacted