EXHIBIT 10.7
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SILICON VALLEY BANK

                           LOAN AND SECURITY AGREEMENT


BORROWERS:      MICROLOG CORPORATION
                MICROLOG CORPORATION OF MARYLAND

ADDRESS:        20270 GOLDENROD LANE
                GERMANTOWN, MD 20876

DATE:           MARCH 24, 1999


THIS LOAN AND  SECURITY  AGREEMENT  is entered  into on the above  date  between
SILICON VALLEY BANK, COMMERCIAL FINANCE DIVISION  ("Silicon"),  whose address is
3003 Tasman Drive, Santa Clara, California 95054 and the borrower(s) named above
(jointly and severally, 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 sole  discretion,  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 any Reserves for accrued
interest and such other Reserves as Silicon deems proper from time to time.

   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. Regardless of the amount of
Obligations  that may be  outstanding  from  time to time,  Borrower  shall  pay
Silicon minimum monthly interest during the term of this Agreement in the amount
set forth on the Schedule (the "Minimum Monthly Interest").

   1.3  OVERADVANCES.  If at any  time  or  for  any  reason  the  total  of all
outstanding  Loans  and all  other  Obligations  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 on demand the amount of any Overadvance, Borrower agrees to pay
Silicon interest on the outstanding  amount of any Overadvance,  on demand, at a
rate equal to the  interest  rate which would  otherwise  be  applicable  to the
Overadvance, plus an additional 2% per annum.

   1.4 FEES. Borrower shall pay Silicon the fee(s) shown on the Schedule,  which
are in addition to all  interest  and other sums  payable to Silicon and are not
refundable.

   1.5 LETTERS OF CREDIT.  At the request of Borrower,  Silicon may, in its sole
discretion,  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  outstanding  Letters of Credit from time to time shall not exceed
the amount shown on the Schedule (the "Letter of Credit Sublimit"), and shall be
reserved  against Loans which would otherwise be available  hereunder.  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

                                      -1-

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SILICON VALLEY BANK                                  LOAN AND SECURITY AGREEMENT
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agrees to  indemnify,  save,  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 guarantied 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 present or future
documents or  agreements  between  Borrower  and Silicon  relating to Letters of
Credit are cumulative.

2.  SECURITY INTEREST.

   2.1 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  Borrower's  interest in the  following,  whether now owned or  hereafter
acquired, and wherever located (collectively,  the "Collateral"): All Inventory,
Equipment, Receivables, and General Intangibles*, including, without limitation,
all of Borrower's  Deposit  Accounts,  and all money, and all property now or at
any time in the  future in  Silicon's  possession  (including  claims and credit
balances),  and all  proceeds  (including  proceeds of any  insurance  policies,
proceeds of proceeds and claims  against  third  parties),  all products and all
books  and  records  related  to any of the  foregoing  (all  of the  foregoing,
together  with all other  property in which  Silicon may now or in the future be
granted a lien or security interest, is referred to herein, collectively, as the
"Collateral").

   *(TO THE  EXTENT PERMITTED  BY ANY  CONTRACTS  OR LICENSES  WHICH  CONSTITUTE
GENERAL INTANGIBLES OR RECEIVABLES)

3.  REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.

   In order to induce  Silicon to enter into this  Agreement  and to make Loans,
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:

   3.1 CORPORATE  EXISTENCE AND AUTHORITY.  Borrower,  if a corporation,  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  have  a  material  adverse  effect  on  Borrower.  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 material 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 on the Schedule are all
prior names of Borrower  and all of  Borrower's  present and prior trade  names.
Borrower  shall give Silicon 30 days' prior written  notice before  changing its
name or doing business under any other name. Borrower has complied,  and will in
the future  comply,  with all laws  relating to the conduct of business  under a
fictitious business name.

   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 on the  Schedule.  Borrower  will give  Silicon at least 30 days prior
written  notice before 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 on the Schedule.

   3.4 TITLE TO COLLATERAL;  PERMITTED  LIENS.  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 by 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.
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

                                      -2-
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SILICON VALLEY BANK                                  LOAN AND SECURITY AGREEMENT
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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  (whether as
owner,  mortgagee,  beneficiary  under a deed  of  trust,  lien  or  otherwise),
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,  so as to
ensure that  Silicon's  rights in the  Collateral  are, and will continue to be,
superior to the rights of any such third party. Borrower will keep in full force
and effect,  and will  comply with all the 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,  and Borrower will not use the  Collateral  for any unlawful
purpose.  Borrower will  immediately  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 generally accepted accounting principles.

   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  generally  accepted  accounting  principles and now and in the
future will  completely  and  accurately  reflect  the  financial  condition  of
Borrower, 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 in the  financial  condition  or  business of
Borrower. Borrower is now and will continue to be solvent.

   3.8 TAX RETURNS AND  PAYMENTS;  PENSION  CONTRIBUTIONS.  Borrower  has timely
filed,  and will timely file,  all tax returns and reports  required by foreign,
federal, state and local law, 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 result
in any liability of Borrower,  including  any  liability to the Pension  Benefit
Guaranty  Corporation  or its  successors  or  any  other  governmental  agency.
Borrower shall, at all times, utilize the services of an outside payroll service
providing for the automatic deposit of all payroll taxes payable by Borrower.

   3.9  COMPLIANCE  WITH LAW.  Borrower has  complied,  and will comply,  in all
material respects, with all provisions of all foreign,  federal, state and local
laws and regulations relating 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  disclosed in the  Schedule,  there is no claim,
suit, litigation,  proceeding or investigation pending or (to best of Borrower's
knowledge) threatened by or against or affecting Borrower in any court or before
any  governmental  agency (or any basis  therefor  known to Borrower)  which may
result, either separately or in the aggregate, in any material adverse change in
the financial  condition or business of Borrower,  or in any material impairment
in the ability of Borrower to carry on its  business in  substantially  the same
manner as it is now being  conducted.  Borrower will promptly  inform Silicon in
writing of any claim,  proceeding,  litigation  or  investigation  in the future
threatened or instituted  by or 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 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."

4.  RECEIVABLES.

   4.1 REPRESENTATIONS RELATING TO RECEIVABLES. Borrower represents and warrants
to Silicon as follows: Each Receivable 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  in the  ordinary  course

                                      -3-

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SILICON VALLEY BANK                                  LOAN AND SECURITY AGREEMENT
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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  Receivables  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, and all  signatories  and  endorsers * have the
       capacity to  contract.  All sales and other  transactions  underlying  or
       giving rise to each  Receivable  shall fully  comply with all  applicable
       laws  and  governmental   rules  and  regulations.   All  signatures  and
       endorsements * on all documents,  instruments, and agreements relating to
       all  Receivables  are and  shall  be  genuine,  and all  such  documents,
       instruments  and  agreements  are and  shall be  legally  enforceable  in
       accordance with their terms.

   * , TO THE BEST OF BORROWER'S KNOWLEDGE,

   4.3 SCHEDULES AND DOCUMENTS  RELATING TO RECEIVABLES.  Borrower shall deliver
to Silicon transaction  reports and loan requests,  schedules and assignments of
all Receivables,  and schedules of collections, all 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 Receivables, nor shall Silicon's failure to advance or lend against a
specific Receivable affect or limit Silicon's security interest and other rights
therein.  Loan  requests  received  after 12:00 Noon will not be  considered  by
Silicon  until the next  Business  Day.  Together  with each such  schedule  and
assignment,  or later if requested by Silicon,  Borrower  shall furnish  Silicon
with copies (or, at Silicon's  request,  originals)  of all  contracts,  orders,
invoices,  and other similar documents,  and all original 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  Receivables,  and
Borrower  warrants the genuineness of all of the foregoing.  Borrower shall also
furnish to Silicon an aged accounts receivable trial balance in such form and at
such intervals as Silicon shall request. In addition,  Borrower shall deliver to
Silicon the originals of all instruments,  chattel paper,  security  agreements,
guarantees  and  other  documents  and  property   evidencing  or  securing  any
Receivables,  immediately upon receipt thereof and in the same form as received,
with all necessary indorsements,  all of which shall be with recourse.  Borrower
shall also provide Silicon with copies of all credit memos within two days after
the date issued.

   4.4 COLLECTION OF  RECEIVABLES.  Borrower shall have the right to collect all
Receivables,  unless and until a Default or an Event of  Default  has  occurred.
Borrower  shall hold all payments on, and proceeds of,  Receivables in trust for
Silicon,  and Borrower shall immediately  deliver all such payments and proceeds
to Silicon in their original form,  duly endorsed in blank, to be applied to the
Obligations  in such order as  Silicon  shall  determine.  Silicon  may,  in its
discretion,  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.
Silicon or its  designee  may,  at any time,  notify  Account  Debtors  that the
Receivables have been assigned to Silicon.

   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,  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 an aggregate  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  Receivables.  Borrower  shall not forgive  (completely  or
partially),  compromise or settle any  Receivable 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 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.  Silicon  may,  at any time after the
occurrence of an Event of Default,  settle or adjust disputes or claims directly
with  Account  Debtors  for  amounts  and upon  terms  which  Silicon  considers
advisable in its  reasonable  credit  judgment and, in all cases,  Silicon shall
credit  Borrower's Loan account with only the net amounts received by Silicon in
payment of any Receivables.

   4.7 RETURNS.  Provided no Event of Default has occurred and is continuing, if
any Account Debtor  returns any Inventory to Borrower in the ordinary  course of
its business,  Borrower shall promptly  determine the reason for such return and
promptly  issue a credit  memorandum  to the Account  Debtor in the  appropriate
amount  (sending a copy to Silicon).  In the event any  attempted  return occurs
after  the  occurrence  of any  Event of

                                      -4-
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SILICON VALLEY BANK                                  LOAN AND SECURITY AGREEMENT
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Default,  Borrower  shall (i) hold the returned  Inventory in trust for Silicon,
(ii)  segregate all returned  Inventory from all of Borrower's  other  property,
(iii) conspicuously label the returned Inventory as Silicon's property, and (iv)
immediately notify Silicon of the return of any Inventory, specifying the reason
for such return,  the location and condition of the returned  Inventory,  and on
Silicon's request deliver such returned Inventory to Silicon.

   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 Receivables, by means of mail, telephone or otherwise, either in the name of
Borrower or Silicon or such other name as Silicon may choose.

   4.9 NO LIABILITY. Silicon shall not under any circumstances 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 a Receivable, or
for any error, act, omission,  or delay of any kind occurring in the settlement,
failure to settle,  collection  or failure  to collect  any  Receivable,  or for
settling any Receivable 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 a  Receivable.  Nothing  herein
shall,  however,  relieve Silicon from liability for its own gross negligence or
willful misconduct.

5.  ADDITIONAL DUTIES OF THE 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 Borrower shall provide evidence of such insurance to
Silicon,  so that Silicon is satisfied that such insurance is, at all times,  in
full force and effect.  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 sole discretion, 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 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,  sales projections,  operating plans and other
financial documentation), as Silicon shall from time to time reasonably specify.

   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 other legal  process.  The foregoing
inspections  and audits shall be at Borrower's  expense and the charge  therefor
shall be $500 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.  Borrower will not enter into any agreement with any accounting
firm,  service bureau or third party to store Borrower's books or records at any
location  other than  Borrower's  Address,  without  first  obtaining  Silicon's
written consent,  which may be conditioned  upon such accounting  firm,  service
bureau or other  third  party  agreeing  to give  Silicon  the same  rights with
respect to access to books and records  and related  rights as Silicon has under
this Loan  Agreement.  Borrower  waives  the  benefit  of any  accountant-client
privilege or other evidentiary  privilege precluding or limiting the disclosure,
divulgence  or delivery of any of its books and records  (except  that  Borrower
does not waive any attorney-client privilege).

   5.5 NEGATIVE COVENANTS.  Except as may be permitted in the Schedule, Borrower
shall not, without Silicon's prior written consent, do any of the following: (i)
merge or  consolidate  with  another  corporation  or entity;  (ii)  acquire any
assets,  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 have a material,  adverse  effect on
Borrower or on the prospect of repayment of the  Obligations;  (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

                                      -5-

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SILICON VALLEY BANK                                  LOAN AND SECURITY AGREEMENT
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payable solely in stock of Borrower); (xi) redeem, retire, purchase or otherwise
acquire, directly or indirectly,  any of Borrower's stock; (xii) make any change
in Borrower's  capital  structure which would have a material  adverse effect on
Borrower or on the prospect of repayment of the Obligations; or (xiii) pay total
compensation,  including  salaries,  fees, bonuses,  commissions,  and all other
payments,  whether directly or indirectly,  in money or otherwise, to Borrower's
executives,  officers and  directors  (or any relative  thereof) in an amount in
excess of the amount set forth on the  Schedule;  or (xiv)  dissolve or elect to
dissolve. 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 in any manner
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 deem
reasonably  necessary  or  useful in order to  perfect  and  maintain  Silicon's
perfected security interest in the Collateral,  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"); provided that the Maturity
Date shall automatically be extended, and this Agreement shall automatically and
continuously  renew, for successive  additional terms of one year each, * unless
one party gives written  notice to the other,  not less than sixty days prior to
the next  Maturity  Date,  that such party  elects to terminate  this  Agreement
effective on the next Maturity Date.

   * AND BORROWER  SHALL,  UPON EACH SUCH RENEWAL,  PAY SILICON A RENEWAL FEE IN
THE AMOUNT OF ONE HALF PERCENT (0.5%) OF THE MAXIMUM  CREDIT,  AS DEFINED IN THE
SCHEDULE, IN EFFECT AS OF THE EFFECTIVE DATE OF SUCH RENEWAL,  WHICH SHALL BE IN
ADDITION  TO  ALL  INTEREST  AND  OTHER  SUMS  PAYABLE  TO  SILICON  AND  IS NOT
REFUNDABLE,

   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 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 The
termination  fee shall be due and payable on the effective  date of  termination
and  thereafter  shall  bear  interest  at a  rate  equal  to the  highest  rate
applicable to any of the Obligations.

   * $10,000

   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,
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 the face amount of all such Letters of Credit plus all  interest,  fees
and cost due or to become  due in  connection  therewith,  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,  without  limiting  the fact that Loans are subject to the  discretion  of
Silicon,  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  deliver to  Borrower
termination  statements,  requests for reconveyances and 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;  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

                                      -6-
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SILICON VALLEY BANK                                  LOAN AND SECURITY AGREEMENT
--------------------------------------------------------------------------------

cured; or (e) Borrower shall fail to perform any other non-monetary  Obligation,
which failure is not cured within 5 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 or may reasonably be expected to have a material  adverse
effect on  Borrower's  business  or  financial  condition;  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)  there  shall  be a change  in the  record  or  beneficial  ownership  of an
aggregate of more than 20% of the  outstanding  shares of stock of Borrower,  in
one or more  transactions,  compared to the ownership of  outstanding  shares of
stock of  Borrower  in  effect on the date  hereof,  without  the prior  written
consent of Silicon;  or (o) 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 (p) there  shall be a
material adverse change in Borrower's  business or financial  condition;  or (q)
Silicon,  acting in good faith and in a commercially  reasonable  manner,  deems
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.  Silicon
may cease making any Loans hereunder  during any of the above cure periods,  and
thereafter if an Event of Default has occurred.

   7.2 REMEDIES.  Upon the  occurrence 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 document or agreement; (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 reasonably  necessary 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,  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

                                      -7-
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SILICON VALLEY BANK                                  LOAN AND SECURITY AGREEMENT
--------------------------------------------------------------------------------

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  Receivables  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 sole discretion,
to grant extensions of time to pay, compromise claims and settle Receivables 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;  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 of any Event of Default,  the interest rate  applicable to
the Obligations shall be increased by an additional four percent per annum.

   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
seven days prior to the sale,  and, in the case of a public sale,  notice of the
sale is  published at least seven 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;  (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 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 to exercise  the  following
powers in a commercially  reasonable  manner:  (a) Execute on behalf of Borrower
any documents that Silicon may, in its sole discretion,  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
present and future  agreements;  (b) Execute on behalf of Borrower  any document
exercising,  transferring or assigning any option to purchase, sell or otherwise
dispose of or to lease (as lessor or lessee) any real or personal property which
is part of Silicon's Collateral or in which Silicon has an interest; (c) Execute
on behalf of  Borrower,  any  invoices  relating  to any  Receivable,  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; (d) 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;  (e) Endorse all checks and other forms of  remittances  received by
Silicon;  (f) 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;  (g)
Grant extensions of time to pay,  compromise  claims and settle  Receivables and
General  Intangibles for less than face value and execute all releases and other
documents  in  connection  therewith;  (h) Pay any sums  required  on account of
Borrower's  taxes or to secure the release of any liens  therefor,  or both; (i)
Settle and adjust, and give releases of, any insurance claim that relates to any
of the  Collateral  and obtain  payment  therefor;  (j) 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 (k) Take any action or pay any
sum required of Borrower  pursuant to this  Agreement  and any other  present or
future  agreements.  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

                                      -8-
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SILICON VALLEY BANK                                  LOAN AND SECURITY AGREEMENT
--------------------------------------------------------------------------------

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  sole
discretion,  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 sole  discretion,  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.

   * REASONABLE

   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 California  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 a Receivable.

   "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.

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

   "Code"  means the  Uniform  Commercial  Code as adopted  and in effect in the
State of California from time to time.

   "Collateral" has the meaning set forth in Section 2.1 above.

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

   "Deposit Account" has the meaning set forth in Section 9105 of the Code.

   "Eligible Inventory"  [NOT APPLICABLE].

   "Eligible  Receivables"  means Receivables  arising in the ordinary course of
Borrower's  business  from the sale of goods or  rendition  of  services,  which
Silicon, in its sole judgment, shall deem eligible for borrowing,  based on such
considerations  as  Silicon  may from  time to time  deem  appropriate.  Without
limiting the fact that the  determination of which  Receivables are eligible for
borrowing is a matter of  Silicon's  discretion,  the  following  (the  "Minimum
Eligibility  Requirements") are the minimum  requirements for a Receivable to be
an Eligible Receivable: (i) the Receivable must not be outstanding for more than
90 days from its invoice date, (ii) the Receivable  must not represent  progress
billings,  or be due  under a  fulfillment  or  requirements  contract  with the
Account Debtor,  (iii) the Receivable  must not be subject to any  contingencies
(including  Receivables  arising from sales on  consignment,  guaranteed sale or
other terms pursuant to which payment by the Account Debtor may be conditional),
(iv) the  Receivable  must not be owing  from an  Account  Debtor  with whom the
Borrower has any dispute (whether or not relating to the particular Receivable),
(v) the  Receivable  must not be owing from an Affiliate  of Borrower,  (vi) the
Receivable  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 Receivable  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 Receivable  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 Receivable 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. Receivables owing from one Account Debtor will
not be deemed  Eligible  Receivables  to the extent they exceed 25% of the total
Receivables  outstanding.  * In  addition,  if more than 25% of the  Receivables
owing  from an  Account  Debtor  are  outstanding  more than 90 days from  their
invoice date (without regard to unapplied credits) or are otherwise not

                                      -9-
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SILICON VALLEY BANK                                  LOAN AND SECURITY AGREEMENT
--------------------------------------------------------------------------------

eligible  Receivables,  then all Receivables owing from that Account Debtor will
be deemed  ineligible  for  borrowing.  Silicon may,  from time to time,  in its
discretion, revise the Minimum Eligibility Requirements,  upon written notice to
the Borrower.

   * RECEIVABLES  ARISING FROM THE SALE OF MAINTENANCE OR SUPPORT CONTRACTS WILL
NOT BE DEEMED ELIGIBLE  RECEIVABLES TO THE EXTENT THEY EXCEED THE LESSER OF: (A)
$500,000, OR (B) 25% OF THE AMOUNT AVAILABLE FOR LOANS TO BORROWER UNDER SECTION
1 OF THE SCHEDULE.

   "Equipment" means all of Borrower's present and hereafter acquired machinery,
molds, machine tools, motors, furniture, equipment, furnishings, fixtures, trade
fixtures,  motor vehicles,  tools,  parts,  dyes, jigs, goods and other tangible
personal  property (other than Inventory) of every kind and description  used in
Borrower's  operations  or  owned by  Borrower  and any  interest  in any of the
foregoing,   and  all  attachments,   accessories,   accessions,   replacements,
substitutions,  additions  or  improvements  to any of the  foregoing,  wherever
located.

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

   "General Intangibles" means all general intangibles of Borrower,  whether now
owned  or  hereafter  created  or  acquired  by  Borrower,   including,  without
limitation,  all choses in action, causes of action, corporate or other business
records, Deposit Accounts, inventions,  designs, drawings, blueprints,  patents,
patent  applications,  trademarks  and the goodwill of the  business  symbolized
thereby, names, trade names, trade secrets, goodwill, copyrights, registrations,
licenses, franchises, customer lists, security and other deposits, rights in all
litigation  presently  or hereafter  pending for any cause or claim  (whether in
contract,  tort  or  otherwise),  and all  judgments  now or  hereafter  arising
therefrom,  all claims of Borrower against  Silicon,  rights to purchase or sell
real or  personal  property,  rights  as a  licensor  or  licensee  of any kind,
royalties, telephone numbers, proprietary information,  purchase orders, and all
insurance policies and claims (including without limitation life insurance,  key
man insurance,  credit insurance,  liability  insurance,  property insurance and
other insurance),  tax refunds and claims,  computer programs,  discs, tapes and
tape files,  claims under guaranties,  security interests or other security held
by or  granted  to  Borrower,  all  rights  to  indemnification  and  all  other
intangible property of every kind and nature (other than Receivables).

   "Inventory"  means all of Borrower's now owned and hereafter  acquired goods,
merchandise or other personal property,  wherever located, to be furnished under
any contract of service or held for sale or lease (including  without limitation
all raw materials,  work in process,  finished goods and goods in transit),  and
all materials and supplies of every kind,  nature and  description  which are or
might be used or consumed in Borrower's  business or used in connection with the
manufacture, packing, shipping, advertising, selling or finishing of such goods,
merchandise or other personal property, and all warehouse receipts, documents of
title and other documents representing any of the foregoing.

   "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,  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  present  or future  instrument  or  agreement  between  Borrower  and
Silicon.

   "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  shall  not  be
unreasonably  withheld;  (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   organiza-

                                      -10-

<PAGE>

SILICON VALLEY BANK                                  LOAN AND SECURITY AGREEMENT
--------------------------------------------------------------------------------

tion, association,  corporation, government, or any agency or political division
thereof, or any other entity.

   "Receivables"  means  all of  Borrower's  now owned  and  hereafter  acquired
accounts  (whether or not earned by  performance),  letters of credit,  contract
rights, chattel paper, instruments,  securities, securities accounts, investment
property,  documents  and all other  forms of  obligations  at any time owing to
Borrower,  all guaranties and other security therefor,  all merchandise returned
to or  repossessed  by  Borrower,  and all rights of stoppage in transit and all
other rights or remedies of an unpaid vendor, lienor or secured party.

   "Reserves"  means, as of any date of  determination,  such amounts as Silicon
may from time to time  establish and revise in good faith reducing the amount of
Loans and Letters of Credit 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 good
faith, do or may affect either (i) the Collateral or any other property which is
security  for the  Obligations  or its  value,  (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) 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
generally accepted accounting principles,  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
checks, wire transfers and other items of payment received by Silicon (including
proceeds of Receivables  and payment of the Obligations in full) shall be deemed
applied  by Silicon on account  of the  Obligations  three  Business  Days after
receipt by Silicon of  immediately  available  funds,  and,  for purposes of the
foregoing,  any such funds  received after 12:00 Noon 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 sole  discretion,  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 sole discretion  reversed and  re-applied,  to the
Obligations,  in such order and manner as Silicon  shall  determine  in its sole
discretion.

   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, 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  thirty  days after each
account is rendered, describing the nature of any alleged errors or admissions.

   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 regular  first-class  mail,  or  certified  mail  return  receipt  requested,
addressed to Silicon or Borrower at the  addresses  shown in the heading to this
Agreement,  or at any other  address  designated  in writing by one party to the
other  party.  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.

                                      -11-

<PAGE>

   9.8 WAIVERS.  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
present or future  agreement  between  Borrower  and Silicon  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  agreement  now or in the  future
executed  by  Borrower  and  delivered  to Silicon  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 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.

   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 the 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, Levy, Small & Lallas,
but Borrower  acknowledges  and agrees that Levy, Small & Lallas 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.

   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
present or future document or agreement,  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

                                      -12-

<PAGE>

SILICON VALLEY BANK                                  LOAN AND SECURITY AGREEMENT
--------------------------------------------------------------------------------

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
present or future agreement.

   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.  The  term
"including",  whenever used in this  Agreement,  shall mean  "including (but not
limited to)". 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 California.  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
California,  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 WAIVE 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 SORT OR OTHERWISE.

   BORROWER:

         MICROLOG CORPORATION


         BY         /S/ STEVEN R. DELMAR
                    --------------------
                  PRESIDENT OR VICE PRESIDENT

         BY         /S/ ARLENE A. FRANCE
                    --------------------
                  SECRETARY OR ASS'T SECRETARY



         MICROLOG CORPORATION OF MARYLAND


         BY         /S/ STEVEN R. DELMAR
                    --------------------
                  PRESIDENT OR VICE PRESIDENT

         BY         /S/ ARLENE A. FRANCE
                    --------------------
                  SECRETARY OR ASS'T SECRETARY



   SILICON:

         SILICON VALLEY BANK


         BY         /S/ PETER BENDORIS
                    ------------------
                  TITLE ASSISTANT VICE PRESIDENT


                                      -13-

<PAGE>


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

                              LEVY, SMALL & LALLAS
                                815 Moraga Drive
                          Los Angeles, California 90049
                            Telephone (310) 471-3000
                            Telecopier (310) 471-7990

                                TRANSMITTAL NOTE


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

SILICON VALLEY BANK

                                   SCHEDULE TO

                           LOAN AND SECURITY AGREEMENT

BORROWERS:                 MICROLOG CORPORATION
                           MICROLOG CORPORATION OF MARYLAND

ADDRESS:                   20270 GOLDENROD LANE
                           GERMANTOWN, MD 20876

DATE:                      MARCH 24, 1999

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

================================================================================

1.  CREDIT LIMIT
     (Section 1.1):                    An amount  not to exceed  the  lesser of:
                                       (i)    $2,000,000   at   any   one   time
                                       outstanding (the "Maximum Credit Limit");
                                       or (ii) 75% of the  amount of  Borrower's
                                       Eligible   Receivables   (as  defined  in
                                       Section 8 above).

     LETTER OF CREDIT SUBLIMIT
     (Section 1.5):                     $500,000

================================================================================

2.  INTEREST.

         INTEREST RATE (Section 1.2):


                                       A rate  equal  to  the  "Prime  Rate"  in
                                       effect from time to time,  plus 2.25% per
                                       annum.  Interest  shall be  calculated on
                                       the  basis  of a  360-day  year  for  the
                                       actual  number  of days  elapsed.  "Prime
                                       Rate" means

<PAGE>

LEVY, SMALL & LALLAS
TRANSMITTAL NOTE

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                                                                          Page 2

                                       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.

         MINIMUM MONTHLY
         INTEREST (Section 1.2):       N/A.
================================================================================

3.  FEES (Section 1.4):

         Loan Fee:                     $20,000, payable concurrently herewith.

         Collateral Monitoring
         Fee:                          $1,000  per  calendar  month,  payable in
                                       arrears   (prorated   for   any   partial
                                       calendar  month at the  beginning  and at
                                       termination of this Agreement).

         Unused Line Fee.              In the event,  in any calendar  month (or
                                       portion  thereof at the beginning and end
                                       of the term  hereof),  the average  daily
                                       principal    balance    of   the    Loans
                                       outstanding during the month is less than
                                       the   amount  of  the   Maximum   Credit,
                                       Borrower shall pay Silicon an unused line
                                       fee in an amount equal to 0.25% per annum
                                       on the  difference  between the amount of
                                       the Maximum  Credit and the average daily
                                       principal    balance    of   the    Loans
                                       outstanding   during  the  month,   which
                                       unused  line fee  shall be  computed  and
                                       paid  monthly,  in arrears,  on the first
                                       day of the following month.

================================================================================

4.  MATURITY DATE
     (Section 6.1):                    One year from the date of this Agreement,
                                       subject to automatic  renewal as provided
                                       in   Section   6.1   above,   and   early
                                       termination  as  provided  in Section 6.2
                                       above.

================================================================================

5.  FINANCIAL COVENANTS
     (Section 5.1):                    Borrower  shall comply with the following
                                       covenant:

     PROFITABILITY                     With respect to Borrower's fiscal quarter
                                       ending April 30, 1999, Borrower shall not
                                       incur a loss (before  taxes) in excess of
                                       $1,320,000.

                                       With respect to Borrower's fiscal quarter
                                       ending July 31, 1999,  Borrower shall not
                                       incur a loss (before  taxes) in excess of
                                       the lesser of (a) or (b) below:

<PAGE>

LEVY, SMALL & LALLAS
TRANSMITTAL NOTE

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                                                                          Page 3

                                           (a)  $625,000  plus  the   difference
                                                between      $1,320,000      and
                                                Borrower's  actual loss  (before
                                                taxes)  for its  fiscal  quarter
                                                ending April 30, 1999; or

                                           (b)  $1,250,000.

                                       Borrower shall not incur any loss (before
                                       taxes) for any fiscal  quarter  beginning
                                       with the fiscal  quarter  ending  October
                                       31, 1999.

================================================================================

6.    REPORTING.
        (Section 5.3):              Borrower  shall  provide  Silicon  with  the
                                    following:

                                    1.  Monthly  Receivable   agings,   aged  by
                                        invoice date,  within fifteen days after
                                        the end of each month.

                                    2.  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.

                                    3.  Monthly  reconciliations  of  Receivable
                                        agings    (aged   by   invoice    date),
                                        transaction reports, and general ledger,
                                        within  fifteen  days  after  the end of
                                        each month.

                                    5.  Monthly unaudited financial  statements,
                                        as soon as  available,  and in any event
                                        within thirty days after the end of each
                                        month.

                                    6.  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 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.

                                    7.  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.

                                    8.  Annual  operating   budgets   (including
                                        income  statements,  balance  sheets and
                                        cash flow statements,  by month) for the
                                        upcoming  fiscal
<PAGE>

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                                                                          Page 4

                                        year  of  Borrower  within  thirty  days
                                        prior to the end of each  fiscal year of
                                        Borrower.

                                    9.  Annual financial statements,  as soon as
                                        available,  and in any event  within 120
                                        days  following  the  end of  Borrower's
                                        fiscal year,  certified  by  independent
                                        certified public accountants  acceptable
                                        to Silicon.

================================================================================

7.  COMPENSATION
       (Section 5.5):                   Without Silicon's prior written consent,
                                        Borrower    shall    not    pay    total
                                        compensation,     including    salaries,
                                        withdrawals, fees, bonuses, commissions,
                                        drawing  accounts  and  other  payments,
                                        whether directly or indirectly, in money
                                        or otherwise,  during any fiscal year to
                                        all of Borrower's  executives,  officers
                                        and directors (or any relative  thereof)
                                        as a  group  in  excess  of  115% of the
                                        total amount thereof in the prior fiscal
                                        year.

================================================================================

8.  BORROWER INFORMATION:

         PRIOR NAMES OF
         BORROWER
         (Section 3.2):                 See  Representations  and  Warranties of
                                        Borrower   dated   March  5,  1999  (the
                                        "Representations and Warranties").

         PRIOR TRADE
         NAMES OF BORROWER
         (Section 3.2):                 See the Representations and Warranties.

         EXISTING TRADE
         NAMES OF BORROWER
         (Section 3.2):                 See the Representations and Warranties.

         OTHER LOCATIONS AND
         ADDRESSES (Section 3.3):       See the Representations and Warranties.

         MATERIAL ADVERSE
         LITIGATION (Section 3.10):     None

================================================================================

9.  OTHER COVENANTS
       (Section 5.1):                   Borrower  shall at all times comply with
                                        all   of   the   following    additional
                                        covenants:

                                        (1)   BANKING   RELATIONSHIP.   Borrower
                                              shall at all  times  maintain  its
                                              primary banking  relationship with
                                              Silicon.

                                        (2)   SUBSIDIARIES.
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                                                                          Page 5


                                        The     following     constitute     all
                                        subsidiaries of Microlog Corporation:

                                        (i)   Microlog  Corporation of Maryland,
                                              a Maryland corporation; and

                                        (ii)  Old Dominion Systems  Incorporated
                                              of     Maryland,     a    Maryland
                                              corporation ("ODSM").

                                        The     following     constitute     all
                                        subsidiaries of Microlog  Corporation of
                                        Maryland:

                                        (iii) Systems   Financial,   a  Maryland
                                              corporation;

                                        (iv)  Microlog   Europe,  a  Netherlands
                                              corporation; and

                                        (iii) Microlog   U.K.   Ltd.,  a  United
                                              Kingdom corporation.

                                    (3) GUARANTIES.    Concurrently   with   the
                                        execution  of this  Agreement,  Borrower
                                        shall cause the  following  companies to
                                        execute  and  deliver  to  Silicon,   on
                                        Silicon's   standard  form,  a  guaranty
                                        containing   terms  and   conditions  as
                                        Silicon may require,  together with such
                                        other   documentation   as  Silicon  may
                                        require in connection therewith:

                                        (i)   Microlog Corporation;

                                        (ii)  Microlog Corporation of Maryland;

                                        (iii) ODSM; and

                                        (iv)  Systems Financial.

                                        Within  sixty  (60) days  following  the
                                        execution  of this  Agreement,  Borrower
                                        shall cause Microlog Europe and Microlog
                                        U.K. Ltd. to each execute and deliver to
                                        Silicon,  on Silicon's  standard form, a
                                        guaranty and debenture  containing terms
                                        and  conditions  as Silicon may require,
                                        together  with such other  documentation
                                        as Silicon  may  require  in  connection
                                        therewith.

                                    (5) SECURITY AGREEMENT BY ODSM. Concurrently
                                        with the  execution  of this  Agreement,
                                        Borrower shall cause ODSM to execute and
                                        deliver   to   Silicon,   on   Silicon's
                                        standard  form,  a  security   agreement
                                        containing   terms  and   conditions  as
                                        Silicon may require,  together with such
                                        other   documentation   as  Silicon  may
                                        require in connection therewith

                                    (4) PATENTS,   TRADEMARKS  AND   COPYRIGHTS.
                                        Concurrently  with the execution of this
                                        Agreement,  Borrower  shall  execute and
                                        deliver   to   Silicon,   on   Silicon's
                                        standard    form(s),     any    security

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TRANSMITTAL NOTE

--------------------------------------------------------------------------------
                                                                          Page 6

                                        agreement(s)  and  other   documentation
                                        which Silicon deems necessary for filing
                                        in  the   United   States   Patent   and
                                        Trademark  Office,   the  United  States
                                        Copyright   Office,    and   any   other
                                        governmental  office,  with  respect  to
                                        Borrower's     copyrights,      patents,
                                        trademarks   and   related   collateral.
                                        Within  ninety  (90) days after the date
                                        hereof,  Borrower shall (i) cause all of
                                        its computer software,  the licensing of
                                        which  results  in  Receivables,  to  be
                                        registered   with  the   United   States
                                        Copyright Office,  and (ii) execute such
                                        additional  security   agreement(s)  and
                                        other  documentation which Silicon deems
                                        necessary  for  filing  with  respect to
                                        such additional registered copyright(s)

Borrower:                                       Silicon:

MICROLOG CORPORATION                            SILICON VALLEY BANK

By /s/ Richard A. Thompson                      By /s/ Peter Bendoris
   -----------------------                         ------------------
   President or Vice President                  Title  Assistant Vice President

By /s/ Arlene A. France
   --------------------
   Secretary or Ass't Secretary



MICROLOG CORPORATION OF
MARYLAND


By /s/ Richard A. Thompson
   -----------------------
   President or Vice President


By /s/ Arlene A. France
   --------------------
   Secretary or Ass't Secretary