Document:

exv10w46

 

EXHIBIT 10.46

Silicon Valley Bank

Loan and Security Agreement

	 	 	 	 	 
	Borrower:	 	
TELECOMMUNICATION SYSTEMS, INC.

(the “Company” or the “Borrower”)
	 	 
	
	
	
	

	Address:	 	
275 West Street, Suite 400

Annapolis, Maryland 21401
	 	 
	
	
	
	

	 	 	 	 	 
	
	
	
	

	Date:	 	
May 1, 2002
	 	 

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

1.      LOANS.

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

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

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

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

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

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

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

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

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

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

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

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

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and all substitutions and replacements for, additions, accessions,
attachments, accessories, and improvements to, and proceeds (including
proceeds of any insurance policies, proceeds of proceeds and claims against
third parties) of, any and all of the above, and all Borrower’s books relating
to any and all of the above. Notwithstanding the foregoing, the Collateral
shall not be deemed to include any Intellectual Property, except that the
Collateral shall include the proceeds of all the Intellectual Property that are
Accounts of Borrower, or General Intangibles consisting of rights to payment,
if a judicial authority (including a U.S. Bankruptcy Court) holds that a
security interest in the underlying Intellectual Property is necessary to have
a security interest in such Accounts and General Intangibles of Borrower that
are proceeds of the Intellectual Property, then the Collateral shall
automatically, and effective as of the date hereof, include the Intellectual
Property to the extent necessary to permit perfection of Silicon’s security
interest in such Accounts and General Intangibles of Borrower that are proceeds
of the Intellectual Property.

3.         REPRESENTATIONS, WARRANTIES AND COVENANTS OF BORROWER.

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

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

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

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

         3.4 Title to Collateral; Perfection; Permitted Liens.

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

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

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

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

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

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

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

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

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

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

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

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

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

4.    Accounts.

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

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

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

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

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

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

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

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

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

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

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

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

5.         ADDITIONAL DUTIES OF BORROWER.

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

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

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

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

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

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

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

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

6.         TERM.

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

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

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

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

7.         EVENTS OF DEFAULT AND REMEDIES.

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

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

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

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

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

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

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

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

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

         “Account Debtor” means the obligor on an Account.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

         “GAAP” means generally accepted accounting principles consistently
applied.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

-13-

 

	 	 	 
	Silicon Valley

Bank	 	
Loan and Security Agreement

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

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

9.         GENERAL PROVISIONS.

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

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

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

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

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

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

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

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

-14-

 

	 	 	 
	Silicon Valley

Bank	 	
Loan and Security Agreement

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

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

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

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

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

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

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

-15-

 

	 	 	 
	Silicon Valley

Bank	 	
Loan and Security Agreement

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

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

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

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

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

[SIGNATURES APPEAR ON THE FOLLOWING PAGE]

-16-

 

	 	 	 
	Silicon Valley

Bank	 	
Loan and Security Agreement

	 	 	 
	Borrower:	 	
Silicon:
	
	
	
	

	 	 	 
	
	
	
	

	TELECOMMUNICATION SYSTEMS, INC	 	
SILICON VALLEY BANK
	
	
	
	

	 	 	 
	
	
	
	

	By	 	
By
	
	 	

	President or Vice President	 	
Title
	
	
	
	

	By	 	

	
	 	 
	Secretary or Ass’t Secretary	 	 

-17-

 

	 	 	 
	Silicon Valley

Bank	 	
Loan and Security Agreement

Silicon Valley Bank

Schedule to

Loan and Security Agreement

	 	 	 	 	 
	Borrower:	 	
TELECOMMUNICATION SYSTEMS, INC.
	 	 
	
	
	
	

	Address:	 	
275 West Street, Suite 400

Annapolis, Maryland 21401
	 	 
	
	
	
	

	Date:	 	
May 1, 2002
	 	 

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

	 	 	 	 	 
	1.	 	
CREDIT LIMIT

(Section 1.1):
	 	An amount not to exceed the lesser of: (i) Fifteen Million
Dollars ($15,000,000) at any one time outstanding (the “Maximum Credit
Limit”), less the amount of any outstanding Letters of Credit, FX
Forward Contracts, FX Reserves, Equipment Loans and Exim Loans; or
(ii) eighty percent (80%) (the “Advance Rate”) of the amount of
Borrower’s Eligible Receivables (as defined in Section 8 above), less
the amount of any outstanding Letters of Credit, FX Forward Contracts,
FX Reserves, Equipment Loans and Exim Loans.
	
	
	
	

	 	 	 	 	 
	
	
	
	

	 	 	 	 	Silicon may, from time to time, modify the Advance
Rate, in its good faith business judgment, upon
notice to the Borrower, based on changes in
collection experience with respect to Accounts or
other issues or factors relating to the Accounts or
other Collateral.
	
	
	
	

	 	 	 	 	 
	
	
	
	

	 	 	
International Transactions
Sublimit
(Section 1.6):
	 	Four Million
Dollars ($4,000,000).
	
	
	
	

	 	 	 	 	 
	
	
	
	

	 	 	
Equipment Loan Sublimit
(Section 1.7):
	 	Two Million
Dollars ($2,000,000).
	
	
	
	

	 	 	 	 	 
	
	
	
	

	 	 	
Exim Loan Sublimit
(Section 1.8):
	 	Three Million
Dollars ($3,000,000).

 

 

	 	 	 
	Silicon Valley

Bank	 	
Loan and Security Agreement

2.   INTEREST.

	 	 	 
	Interest Rate (Section 1.2):	 	
 
	
	
	
	

	 	 	
Except as set forth below with respect to Equipment
Loans, all Loans shall bear interest at a rate
equal to [*] per annum.
	
	
	
	

	 	 	 
	
	
	
	

	 	 	
Interest on all Equipment Loans shall bear interest
at a rate equal to [*] per annum.
	
	
	
	

	 	 	 
	
	
	
	

	 	 	
“Prime Rate” means the rate announced from time to
time by Silicon as its “prime rate;” it is a base
rate upon which other rates charged by Silicon are
based, and it is not necessarily the best rate
available at Silicon. The interest rate applicable
to the Obligations shall change on each date there
is a change in the Prime Rate.
	
	
	
	

	 	 	 
	
	
	
	

	 	 	
Interest shall be calculated on the basis of a
360-day year for the actual number of days elapsed.

3. FEES (Section 1.4):

	 	 	 
	Loan Fee:	 	
[*], payable concurrently herewith. Upon the
closing of the Exim Loan Sublimit, Silicon will give
Borrower a pro-rata credit for the Exim Bank Loan
Fee due hereunder.
	
	
	
	

	 	 	 
	
	
	
	

	Collateral Monitoring

Fee:	 	
[*], per month, payable in arrears (prorated for any
partial month at the beginning and at termination of
this Agreement). Silicon agrees to waive the
Collateral Monitoring Fee for any month in which the
Borrower maintains monthly average balances in
deposit and investment accounts with Silicon in
excess of Ten Million Dollars ($10,000,000).
	
	
	
	

	 	 	 
	
	
	
	

	Unused Portion Fee:	 	
The Borrower shall pay to Silicon a fee
(collectively, the “Unused Line Fees” and
individually, a “Unused Line Fee”) in an amount
equal to [*] per annum of the average daily unused
and undisbursed portion of the Maximum Credit Limit
accruing during each month. The accrued and unpaid
portion of the Unused Line Fee shall be paid by the
Borrower to Silicon on the first day of each month,
commencing on the first such date following the date
hereof, and on the Maturity Date. Silicon agrees to
waive the Unused Line Fee for any month in which the
Borrower maintains monthly average balances in
deposit and investment accounts with Silicon in
excess of Ten Million Dollars ($10,000,000).

 

 

	 	 	 
	Silicon Valley

Bank	 	
Loan and Security Agreement

	 	 	 
	
	
	
	

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

4. REPAYMENT OF EQUIPMENT LOANS (Section 1.7):

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

	 	 	 
	
	
	
	

	 	 	
Interest accrues from the date of each Equipment
Loan at the rate in Section 1.2 and is payable
monthly. Equipment Loans are payable in thirty six
(36) equal monthly installments of principal, plus
accrued interest, beginning on the last day of the
first month following the making of the Equipment
Loan.

5. MATURITY DATE

	 	 	 
	(Section 6.1):	 	
 
	
	
	
	

	 	 	 
	
	
	
	

	Loans	 	
April 30, 2004
	
	
	
	

	 	 	 
	
	
	
	

	Exim Bank Loans	 	
April 30, 2003
	
	
	
	

	 	 	 
	
	
	
	

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

 

 

	 	 	 
	Silicon Valley

Bank	 	
Loan and Security Agreement

6. FINANCIAL COVENANTS

	 	 	 
	(Section 5.1):	 	
Borrower shall comply with each of the following covenants.
Compliance shall be determined as of the end of each month, except as
otherwise specifically provided below:
	
	
	
	

	 	 	 
	
	
	
	

	Minimum Tangible

Net Worth:	 	
Borrower shall maintain a Tangible Net Worth of not less than
the following amounts at the following times:

	 	 	 	 	 
	 	 	Period	 	Minimum Tangible Net Worth:
	 	 	
	 	

	 	 	
[*]
	 	                     [*]

	 	 	 
	Definitions.	 	
For purposes of the foregoing financial covenants, the
following term shall have the following meaning:
	
	
	
	

	 	 	 
	
	
	
	

	 	 	
“Tangible Net Worth” shall mean the excess of total assets
over total liabilities, determined in accordance with GAAP,
with the following adjustments:
	
	
	
	

	 	 	 
	
	
	
	

	 	 	
(A) there shall be excluded from assets: (i)
notes, accounts receivable and other obligations
owing to Borrower from its officers or other
Affiliates, except notes receivable from certain
employees, officers and directors of Borrower
(as more fully set forth on Exhibit A attached
hereto, in an aggregate amount not to exceed [*]
and which are not in default, and (ii) all
assets which would be classified as intangible
assets under GAAP, including without limitation
goodwill, licenses, patents, trademarks, trade
names, copyrights and organizational costs,
licenses and franchises, excluding capitalized
software costs (net of related accumulated
amortization) in an amount not to exceed at any
time, [*] in the aggregate;
	
	
	
	

	 	 	 
	
	
	
	

	 	 	
(B) there shall be excluded from liabilities:
all indebtedness which is subordinated to the
Obligations under a subordination agreement in
form specified by Silicon or by language in the
instrument evidencing the indebtedness which
Silicon agrees in writing is acceptable to
Silicon in its good faith business judgment.

7. REPORTING.

      (Section 5.3):

	 	 	 	 	 
	 	 	 	 	Borrower shall provide Silicon with the following:

 

 

	 	 	 
	Silicon Valley

Bank	 	
Loan and Security Agreement

	 	 	 	 	 
	
	
	
	

	 	 	
1.
	 	  Weekly transaction
reports and schedules of collections, on
Silicon’s standard form shall be provided
weekly (and upon each Loan request), provided,
however, that during any Non-Borrowing
Period, the transaction shall be provided
monthly, within fifteen (15) days after the
end of each month.
	
	
	
	

	 	 	 	 	 
	
	
	
	

	 	 	
2.
	 	  Monthly accounts
receivable agings, aged by invoice date,
within fifteen days after the end of each
month.
	
	
	
	

	 	 	 	 	 
	
	
	
	

	 	 	
3.
	 	  Monthly accounts
payable agings, aged by invoice date, and
outstanding or held check registers, if any,
within fifteen days after the end of each
month.
	
	
	
	

	 	 	 	 	 
	
	
	
	

	 	 	
4.
	 	  Monthly
reconciliations of accounts receivable agings
(aged by invoice date), transaction reports,
and general ledger, within fifteen days after
the end of each month.
	
	
	
	

	 	 	 	 	 
	
	
	
	

	 	 	
5.
	 	  Monthly perpetual
inventory reports for the Inventory valued on
a first-in, first-out basis at the lower of
cost or market (in accordance with GAAP) or
such other inventory reports as are requested
by Silicon in its good faith business
judgment, all within fifteen days after the
end of each month.
	
	
	
	

	 	 	 	 	 
	
	
	
	

	 	 	
6.
	 	  Monthly unaudited
financial statements, as soon as available,
and in any event within thirty days after the
end of each month.
	
	
	
	

	 	 	 	 	 
	
	
	
	

	 	 	
7.
	 	  Monthly Compliance
Certificates, within thirty days after the end
of each month, in such form as Silicon shall
reasonably specify, signed by the Chief
Financial Officer, Vice President, Finance,
Treasurer or Corporate Controller of Borrower,
certifying that as of the end of such month
Borrower was in full compliance with all of
the terms and conditions of this Agreement,
and setting forth calculations showing
compliance with the financial covenants set
forth in this Agreement and such other
information as Silicon shall reasonably
request, including, without limitation, a
statement that at the end of such month there
were no held checks.
	
	
	
	

	 	 	 	 	 
	
	
	
	

	 	 	
8.
	 	  Quarterly
unaudited financial statements, as soon as
available, and in any event within forty-five
days after the end of each fiscal quarter of
Borrower.
	
	
	
	

	 	 	 	 	 
	
	
	
	

	 	 	
9.
	 	  Annual forecasts
prior to each fiscal year end of Borrower and
operating budgets (including income
statements, balance sheets and cash flow
statements, by

 

 

	 	 	 
	Silicon Valley

Bank	 	
Loan and Security Agreement

	 	 	 	 	 
	
	
	
	

	 	 	 	 	month) for the current fiscal
year of Borrower within sixty (60) days after
the end of each fiscal year of Borrower.
	
	
	
	

	 	 	 	 	 
	
	
	
	

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

8. BORROWER INFORMATION:

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

9. ADDITIONAL PROVISIONS

	 	 	 	 	 
	 	 	
1.
	 	Minimum Cash and
Excess Availability. The Borrower shall at
all times maintain a sum of (i) unencumbered
cash on deposit with Silicon and (ii)
availability under the Loans, of not less than
Ten Million Dollars ($10,000,000) As to any
Deposit Accounts and investment accounts
maintained with another institution, Borrower
shall cause such institution, within 30 days
after the date of this Agreement, to enter
into a control agreement in form acceptable to
Silicon in its good faith business judgment in
order to perfect Silicon’s first-priority
security interest in said Deposit Accounts and
investment accounts.
	
	
	
	

	 	 	 	 	 
	
	
	
	

	 	 	
2.
	 	Subordination of
Inside Debt. All present and future
indebtedness of Borrower to its officers,
directors and shareholders (“Inside Debt”)
shall, at all times, be subordinated to the
Obligations pursuant to a subordination
agreement on Silicon’s standard form.
Borrower represents and warrants that there is
no Inside Debt presently outstanding. Prior
to incurring any Inside Debt in the future,
Borrower shall cause the person to whom such
Inside Debt will be owed to execute and
deliver to Silicon a subordination agreement
on Silicon’s standard form.
	
	
	
	

	 	 	 	 	 
	
	
	
	

	 	 	
3.
	 	Intellectual
Property Negative Pledge Agreement. As a
condition precedent to the effectiveness of
this Agreement, the Borrower shall have
executed and

 

 

	 	 	 
	Silicon Valley

Bank	 	
Loan and Security Agreement

	 	 	 	 	 
	
	
	
	

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

	 	 	 
	Borrower:	 	
Silicon:
	
	
	
	

	 	 	 
	
	
	
	

	TELECOMMUNICATION SYSTEMS, INC	 	
SILICON VALLEY BANK
	
	
	
	

	 	 	 
	
	
	
	

	By	 	
By
	
	 	

	President or Vice President	 	
Title
	
	
	
	

	By	 	

	
	 	 
	Secretary or Ass’t Secretary	 	 

*Redactedexv10w13

 

Exhibit 10.13

EMPLOYMENT AGREEMENT

This Employment Agreement (including Attachments A & B) is dated as of this 7th
day of August 2002, by and between General Dynamics Corporation (the
“Corporation”) and Nicholas D. Chabraja, (collectively the “Parties”) but
effective January 1, 2003.

Recitals

WHEREAS, Mr. Chabraja has been the Corporation’s Chief Executive Officer and
the Chairman of its Board of Directors (the “Board”) since June 1, 1997,
pursuant to an Employment Agreement dated as of November 12, 1996 which will
expire on December 31, 2002; and

WHEREAS, during the five years in which Mr. Chabraja has held the office of
Chairman and Chief Executive Officer shareholder value has increased
significantly; the Company’s market capitalization has increased from $4.7
billion to approximately $16 billion; the Company’s annual revenues have grown
from $4 billion to approximiately $14 billion; earnings per share have grown at
an annual compounded rate of 17%; and the Company’s total return to investors
has grown at an annual average rate of 18%; and

WHEREAS, the Board of Directors, on behalf of the Corporation’s shareholders,
in recognition of Mr. Chabraja’s exceptional performance and superb leadership,
strongly desires to see him continue as Chairman and Chief Executive Officer;
and

WHEREAS, Mr. Chabraja agrees to continue his employment in this capacity;

NOW THEREFORE, the Parties agree as follows:

	1.	 	Position and Term. The Corporation desires that Mr. Chabraja continue
his employment as Chairman and Chief Executive Officer, and Mr. Chabraja
agrees to continue his employment, for the period January 1, 2003 through
December 31, 2005. Either party may terminate this Agreement, subject to
the terms and conditions set forth herein, upon thirty (30) days written
notice to the other.
	 
	2.	 	Base Compensation. Mr. Chabraja will receive base compensation of not
less than $1,050,000. During this Agreement, the Compensation Committee
of the Board may from time to time increase Mr. Chabraja’s base
compensation as it, in its sole discretion, deems appropriate.
	 
	3.	 	Incentive Compensation. Mr. Chabraja will continue to be eligible for
annual bonuses and incentive compensation awards. In making this
determination, the Compensation Committee of the Board will annually
review the Corporation’s actual performance as compared to its strategic
and operational plans. The Compensation Committee of the Board will also
consider Mr. Chabraja’s total compensation in relationship to the
performance pay levels of other chief executive officers of industrial
concerns and in the aerospace and defense industry.

 

 

	4.	 	Other Benefits and Perquisites. Mr. Chabraja will be eligible for all
other benefits and perquisites the Corporation provides to its senior
executive officers. These benefits include participation in the
Corporation’s qualified and non-qualified retirement plans, the
Corporation’s qualified and non-qualified 401(k) Savings and Stock
Incentive plans, and group health, life and disability coverage.
Additionally, Mr. Chabraja will continue to have use of the Corporation’s
aircraft, consistent in all cases with the Corporation’s Board resolutions
and the Corporation’s policies regarding the use of aircraft.
	 
	5.	 	Termination of Employment between January 1, 2003 and December 31, 2005.

	 	a.	 	If Mr. Chabraja’s employment ends prior to December 31, 2005,
by reason of his Voluntary Resignation or death, the Corporation
agrees to provide him the following amounts and benefits:

	 	i.	 	The Corporation will pay Mr. Chabraja or his
designated beneficiary, as the case may be, his base
compensation earned through his last day of Active Employment
(including unused vacation and personal days); and
	 
	 	ii.	 	The Corporation will pay Mr. Chabraja or his
designated beneficiary, as the case may be, a pro rated
payment equal to his immediately prior year’s annual bonus or
100% of the current year’s target bonus, whichever is greater.
The pro-ration of such amount shall be from the first day of
the year in which he voluntarily resigned or died through his
last day of Active Employment (i.e., not including any period
attributable to the payment of unused vacation). Such
payments to Mr. Chabraja, or his designated beneficiary, as
the case may be, will be made at the same time and manner as
the Corporation makes similar payments to its other senior
executive officers.
	 
	 	iii.	 	The Corporation will provide Mr. Chabraja with
the benefits enumerated in Section 6 (c) through (i) listed
below.

	 	b.	 	Termination due to Disability, by the Corporation Without
Cause or as a Result of or Breach by the Corporation of Its
Obligations. In the event Mr. Chabraja’s employment terminates: (i)
due to his Disability; (ii) by the Corporation, without cause, or
(iii) by Mr. Chabraja as a result of a breach by the Corporation of
its obligations hereunder and its failure to cure such breach within
thirty (30) days of written notice thereof, the Corporation agrees
to provide Mr. Chabraja the following:

	 	i.	 	The Corporation will continue to pay Mr. Chabraja
an amount equal to the base compensation he is earning at the
time of his termination for the remaining term of this
Agreement; and
	 
	 	ii.	 	The Corporation will continue to pay Mr. Chabraja
an amount equal to the annual bonus and incentive compensation
he would have earned had he

Page 2 of 11

 

	 	 	 	continued his employment for the remaining term of this
Agreement. Such amounts must be the greater of his prior
year’s annual bonus or 100% of the current year’s target
bonus. Payments to Mr. Chabraja will be made at the same
time and manner as the Corporation makes similar payments to
its other senior executive officers; and
	 
	 	iii.	 	The Corporation will provide Mr. Chabraja with
the benefits enumerated in Section 6 (c) through (i) listed
below.

	 	c.	 	Termination due to a Change in Control. In the event that
Mr. Chabraja’s employment is terminated (either in fact or
constructively) as a result of a “Change in Control”, the
Corporation agrees that Mr. Chabraja will be treated for purposes of
this Agreement as having terminated employment “Without Cause” under
Section 5 (b) above. Where the Severance Protection Agreement
between the Corporation and Mr. Chabraja dated April 12, 1999, as
may be hereafter amended from time to time, and this Agreement
provide for payment covering the same benefit, the Corporation will
provide Mr. Chabraja with the benefit most favorable to him,
otherwise, Mr. Chabraja is entitled to retain the benefits under
both agreements.
	 
	 	d.	 	Termination For Cause. In the event Mr. Chabraja’s
employment by the Corporation is terminated For Cause, in full
satisfaction of its obligations hereunder, the Corporation will

	 	i.	 	pay Mr. Chabraja his base compensation earned
through his last day of Active Employment (including unused
vacation and personal days);
	 
	 	ii.	 	provide to Mr. Chabraja the retirement benefits
enumerated in Attachment A, the 2002 Retirement Benefits
Agreement; and
	 
	 	iii.	 	provide to Mr. Chabraja such other benefits as
are required by law.

	6.	 	Expiration on or after December 31, 2005. If Mr. Chabraja maintains his
Active Employment through December 31, 2005, the Corporation, at its sole
expense, will:

	 	a.	 	pay Mr. Chabraja any remaining earned but unpaid base
compensation (including unused vacation and personal days); and
	 
	 	b.	 	pay Mr. Chabraja’s bonus for the 2005 calendar year, if the
Compensation Committee determines, in its sole discretion, that the
performance of the Corporation warrants such a payment. Any such
payment will be made at the same time and manner as the Corporation
makes similar payments to its other senior executive officers; and
	 
	 	c.	 	direct a buy-out of Mr. Chabraja’s residence located in
McLean, Virginia, in an amount which is equal to the greater of:

Page 3 of 11

 

	 	i.	 	the residence’s appraised value on or about
January 1, 2006, or
	 
	 	ii.	 	the residence’s original cost, plus all
subsequent improvements Mr. Chabraja made, as defined in the
Corporation’s Relocation Policy; and

	 	d.	 	reimburse Mr. Chabraja for the cost of transporting and
storing (up to six (6) months) his household furnishings and
personal effects from McLean, Virginia to anywhere in the 48
contiguous United States of America; and
	 
	 	e.	 	secure at its sole expense executive office space in the
Chicago, Illinois area with administrative support for a period of
not less than two (2) years; and
	 
	 	f.	 	provide Mr. Chabraja and his then eligible dependents with
continued participation in the Corporation’s medical plans at then
active employee cost for up to six (6) months, following which, Mr.
Chabraja will be eligible to elect continued coverage under the
Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), as
amended, by paying the full cost; and
	 
	 	g.	 	provide to Mr. Chabraja the retirement benefits enumerated in
Attachment A, the 2002 Retirement Benefits Agreement; and
	 
	 	h.	 	provide Mr. Chabraja with usage of a corporate provided
aircraft as stated in Attachment B; and
	 
	 	i.	 	in exchange for Mr. Chabraja’s active involvement in the
Corporation’s executive compensation determination in the year
following his termination of employment with the Corporation, add
twelve (12) full calendar months to Mr. Chabraja’s last day of
Active Employment for purpose of prorating any of Mr. Chabraja’s
unvested stock options and restricted stock. Notwithstanding the
prior sentence, if Mr. Chabraja’s termination of employment is due
to his Death or Disability, he will be vested in accordance with the
terms and conditions of the 1997 Incentive Compensation Plan, as
amended.

	7.	 	Definitions. For purposes of this Agreement, the terms below will have
the following definitions:

	 	a.	 	“Active Employment” means a period of employment during which
services are required to be performed. The continued payment of
amounts in lieu of base compensation, annual bonuses, unused
vacation, unused personal days will not be considered a period of
Active Employment.
	 
	 	b.	 	“Change in Control” means a change in control as defined in
Section 1 of the Severance Protection Agreement, as amended, dated
April 12, 1999, between the Corporation and Mr. Chabraja as such
agreement may be amended from time to time.

Page 4 of 11

 

	 	c.	 	“For Cause” means the termination of Mr. Chabraja’s
employment as a direct result of any of the following acts: (i) the
commission of a felony or a crime involving dishonesty or fraud
which materially and adversely affects the Corporation or any of its
affiliates, (ii) a material violation of the Corporation’s standards
of business ethics and conduct, or (iii) individually filing or
participating in a lawsuit against the Corporation during Active
Employment with the Corporation.
	 
	 	d.	 	“Disability” shall mean if, as a direct result of an illness
or injury, Mr. Chabraja is unable, in the sole opinion of the
Compensation Committee of the Corporation’s Board of Directors, to
adequately perform the tasks of his position for the entire balance
of his Employment Agreement.
	 
	 	e.	 	“Voluntary Resignation” or “Voluntarily Resigns” shall mean a
termination of Mr. Chabraja’s employment resulting from his decision
to cease performing services for the Corporation.

	8.	 	Tax Liability. Following Mr. Chabraja’s termination of employment (for
any reason other than a termination of employment “For Cause”), the
Corporation will provide Mr. Chabraja with one (1) round of federal and
state tax gross ups (determined using the top marginal rate and tax rates
for federal and applicable state taxes) for amounts imputed to Mr.
Chabraja pursuant to this Agreement (but specifically excluding base
compensation, bonuses, equity awards and amounts paid pursuant to
Attachment A). Any tax gross up will be included in Mr. Chabraja’s
taxable income and included in the Corporation’s tax reporting consistent
with its policies and procedures for other executives.
	 
	9.	 	Miscellaneous. This Agreement shall be construed and enforced in
accordance with the laws of the State of Delaware.
	 
	10.	 	Notice. Any notice required under this Agreement (or an Attachment
hereto) shall be made in writing addressed to the Corporation in care of
the Senior Vice President, Human Resources (with a copy to the Senior Vice
President and General Counsel) at the Corporation’s headquarters and to
Mr. Chabraja at his home address as noted in the Corporation’s employee
records.
	 
	11.	 	Effect of Prior Agreements. This Agreement (and its Attachments) will
not become effective unless Mr. Chabraja continues his Active Employment
beyond December 31, 2002. Therefore, all prior agreements between the
Corporation and Mr. Chabraja remain in effect. With Mr. Chabraja’s Active
Employment on and after January 1, 2003, this Agreement (including its
Attachments) shall become effective and his prior employment agreement
(including all attachments thereto) will at that time be superseded. This
Agreement does not supersede the Severance Protection Agreement between
Mr. Chabraja and the Corporation.

Page 5 of 11

 

	12.	 	Severability. Whenever possible, each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be
invalid, illegal or unenforceable in any respect under applicable law or
rule in any jurisdiction, such invalidity, illegality or unenforceability
shall not affect the validity, legality or enforceability of any other
provision of this Agreement or the validity, legality or enforceability of
such provision in any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
	 
	13.	 	Amendment and Waiver. The provisions of this Agreement may be amended or
waived only by the written agreement of the Corporation and Mr. Chabraja,
and no course of conduct or failure or delay in enforcing the provisions
of this Agreement shall affect the validity, binding effect or
enforceability of this Agreement.
	 
	14.	 	Counterparts. This Agreement may be executed in counterparts; each of
which shall be deemed to be an original and both of which together shall
constitute one and the same instrument.
	 
	15.	 	Assignability. This Agreement may not be assigned without the written
consent of each Party.
	 
	16.	 	Successorship. This Agreement shall inure to the benefit of Mr.
Chabraja’s estate.

IN WITNESS WHEREOF, pursuant to the authority granted by the Corporation’s
Board of Directors to the Corporation’s Senior Vice President — Human Resources
& Administration, the Corporation has caused this Employment Agreement to be
executed on behalf of itself and caused the Corporation’s seal to be hereunto
affixed and attested to by the Secretary of the Corporation. In like manner,
the Executive has executed this Agreement on his behalf. This Agreement is
effective as of the first date stated above.

	 	 	 	 	 
	ATTEST:	 	 	 	GENERAL DYNAMICS CORPORATION
	 	 	 	 	 
	
	 	
By:
	 	

Senior Vice President – Human Resources &

Administration
	 	 	 	 	 
	 	 	 	 	 
	ATTEST:	 	 	 	NICHOLAS D. CHABRAJA
	 	 	 	 	 
	
	 	 	 	

Page 6 of 11

 

Attachment A — Retirement Agreement

WHEREAS, on this 7th day of August, 2002, General Dynamics Corporation, a
Delaware corporation (the “Corporation”), and Nicholas D. Chabraja (the
“Executive”) (collectively the “Parties”) entered into an extension of Mr.
Chabraja’s Employment Agreement (the “2002 Employment Agreement”); and

WHEREAS, on November 12, 1996, the Corporation and Mr. Chabraja entered into an
Employment Agreement with an Addendum Retirement Benefit Agreement (the “1996
Retirement Agreement”); and

WHEREAS, the Corporation agreed to pay certain supplemental retirement benefits
in accordance with the terms of the 1996 Retirement Agreement; and

WHEREAS, absent an extension of Mr. Chabraja’s employment, Mr. Chabraja would
be entitled to begin receiving his retirement benefit under the 1996 Retirement
Agreement starting January 1, 2003; and

WHEREAS, Mr. Chabraja has earned retirement benefits under the Retirement Plan
for Salaried Executives, which is part of the General Dynamics Retirement Plan
(Government) (the “Retirement Plan”). And, to the extent that Section 415,
401(a)(4) or 401(a)(17) of the Internal Revenue Code of 1986, as amended, may
have limited Mr. Chabraja’s retirement benefits, Mr. Chabraja has earned
additional benefits under the General Dynamics Corporation Supplemental
Retirement Plan (the “Supplemental Retirement Plan”) (collectively the
“Retirement Program”).

NOW, THEREFORE, in consideration for Mr. Chabraja’s entering into the 2002
Employment Agreement, the Parties agree to the following terms and conditions
(hereinafter the “2002 Retirement Agreement”) which is incorporated by reference
into Mr. Chabraja’s Employment Agreement as follows:

	1.	 	Agreement Benefit. The Corporation agrees to pay Mr. Chabraja a monthly
single-life benefit at retirement equal to a percentage of his Final
Average Monthly Salary, as defined within the Corporation’s Retirement
Program. This percentage will be twenty-two percent (22.0%) plus one-half
percentage point (0.50%) for each completed calendar month of employment
on and after January 1, 2003 (such that by December 31, 2005, the
percentage will be forty percent (40.0%)). The single-life benefit if Mr.
Chabraja remains Actively Employed and retires on December 31, 2005, will
not be less than $1,200,000 per annum.
	 
	2.	 	Payment of Benefits.

	 	a.	 	If prior to December 31, 2005, Mr. Chabraja (a) Voluntarily
Resigns, (b) retires, or (c) is terminated “For Cause,” he will be
entitled to receive the benefit he earned under Section 1 through
the end of the month in which such separation or retirement occurs.
Mr. Chabraja will begin receiving his benefit under this
subparagraph as of the first day of the month following his
separation or retirement.

Page 7 of 11

 

	 	b.	 	If Mr. Chabraja’s employment with the Corporation terminates
at any time prior to December 31, 2005, due to (a) his “Disability,”
(b) termination “Without Cause,” or (c) a “Change in Control”, Mr.
Chabraja will be entitled to receive the benefit under Section 1
above as if Mr. Chabraja had maintained his Active Employment and
pensionable earnings through December 31, 2005. Mr. Chabraja will
begin receiving his benefit under this subparagraph as of January 1,
2006.

	3.	 	Survivor Benefit in the Case of Death Prior to Benefit Commencement. If
Mr. Chabraja dies during the term of this 2002 Retirement Agreement, but
prior to separating from employment and does not leaving a surviving
spouse, no benefit shall be paid under this Agreement. If Mr. Chabraja
dies during the term of this 2002 Retirement Agreement, but prior to
separating from employment and leaves a surviving spouse, his surviving
spouse shall receive a 50% Contingent Annuitant benefit with a 10-Year
Certain feature. In the event that Mrs. Chabraja dies prior to the 10th
anniversary of Mr. Chabraja’s death, payments shall continue to Mrs.
Chabraja’s designated beneficiary or estate. Payment will commence on the
first day of the month following Mr. Chabraja’s death.
	 
	4.	 	Form of Payment. All retirement benefits payable pursuant to this 2002
Retirement Agreement will be paid in such form and at such time as Mr.
Chabraja’s elects under the Retirement Program. The Corporation may, in
its sole discretion, accelerate the payment of some or all of the benefits
under this 2002 Retirement Agreement in a form of actuarial equivalent
value. In addition to all of forms of payment under the Retirement
Program, Mr. Chabraja may elect a 100% Contingent Annuitant option with a
10-Year Certain feature.
	 
	5.	 	No Assignment. No benefit under this 2002 Retirement Agreement will be
subjected in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance or charge, and any attempt so to
anticipate, alienate, sell, transfer, assign, pledge, encumber or charge
the same will be void, and no such benefit will in any manner be liable
for or subject to the debts, liabilities, engagements or torts of the
person entitled to such benefit, except as specifically provided in the
Retirement Program or pursuant to a Qualified Domestic Relations Order as
described in Code Section 414(p).
	 
	6.	 	Payment from General Assets.

	 	a.	 	To the extent a benefit under this 2002 Retirement Agreement
is not otherwise payable from a Retirement Program (or unless
otherwise determined by the Corporation), all benefits payable to
Mr. Chabraja hereunder will be paid by the Corporation from its
general assets. The Corporation will not be obliged to acquire,
designate or set aside any specific assets for payment of the
Supplement. Further, Mr. Chabraja will have no claim whatsoever to
any specific assets or group assets of the Corporation.
	 
	 	b.	 	The Corporation may, in its discretion, designate that the
some or all the benefits payable hereunder will be satisfied from
the assets of a trust, fund, or other

Page 8 of 11

 

	 	 	 	segregated group of assets. But, should these assets prove to be
insufficient to satisfy payment of such benefits or other
post-retirement benefits, the Corporation will remain liable for
payment thereof.

	7.	 	Prior Agreement. The 1996 Retirement Agreement will become null and void
as of January 1, 2003. Notwithstanding anything in this 2002 Retirement
Agreement to the contrary, if Mr. Chabraja’ employment with the
Corporation terminates on or after the date first written above but before
January 1, 2003, Mr. Chabraja will be entitled to only those benefits
payable under the terms and conditions of the 1996 Retirement Agreement.
	 
	8.	 	Plan Administration. The Board of Directors hereby delegates to the
Senior Vice President, Human Resources and Administration (or his
authorized designee) the power to interpret this Agreement in his sole
discretion and such interpretations will be binding on the Corporation and
Mr. Chabraja. The Retirement Programs actuary shall determine all values
and payments required under this 2002 Retirement Agreement based on the
actuarial assumptions used under the Corporation’s Retirement Program.
	 
	9.	 	Income Taxes. Mr. Chabraja and the Corporation agree that all payments
made pursuant to this 2002 Retirement Agreement will be treated as “wages”
for federal and state income tax and employment tax purposes (including
FICA) at such time and in such manner as prescribed by law. Each Party to
this 2002 Retirement Agreement is responsible for the payment of its own
taxes.
	 
	10.	 	Incorporation by Reference. This 2002 Retirement Agreement is be
incorporated by reference into Mr. Chabraja’s Employment Agreement with
the Corporation. The defined terms in this 2002 Retirement Agreement will
have the same meaning provided in Mr. Chabraja’s 2002 Employment
Agreement.

Page 9 of 11

 

Attachment B – Aircraft Usage

	1.	 	Flight Hours Earned. Mr. Chabraja shall earn fourteen (14.0) Flight
Hours for each full month of service under his Active Employment with the
Corporation between January 1, 2003, and December 31, 2005 to a maximum of
Five Hundred (500) Flight Hours.

	 	a.	 	Termination “For Cause”. Notwithstanding anything in this
Attachment B or Mr. Chabraja’s Employment Agreement to the contrary,
if Mr. Chabraja’s employment with the Corporation is terminated “For
Cause” (as defined in his Employment Agreement) all Flight Hours
will be forfeited.
	 
	 	b.	 	Termination “Without Cause”, Change in Control or
“Disability”. Notwithstanding anything in this Attachment B or Mr.
Chabraja’s Employment Agreement to the contrary, if Mr. Chabraja’s
employment with the Corporation is terminated “Without Cause”, due
to a “Change in Control”, or as a result of a “Disability”, Mr.
Chabraja shall be entitled to Five Hundred (500) Flight Hours
regardless of his length of employment.

	2.	 	Acceptable Aircraft. The Corporation will make available to Mr. Chabraja
a Super Midsize aircraft or larger (e.g., Gulfstream 200) along with fuel,
trained personnel and basic snack and beverage service. Mr. Chabraja will
be responsible for all food and beverage costs in excess of basic snack
and beverage service.
	 
	3.	 	Right to Use Aircraft. Mr. Chabraja’s right to use the Corporation’s
aircraft is personal in nature and will not inure to the benefit of his
surviving spouse or estate. All of Mr. Chabraja’s rights under this
Attachment B expire upon the earlier to occur of:

	 	a.	 	his death;
	 
	 	b.	 	one hundred and twenty (120) months after his last day of
Active Employment; or
	 
	 	c.	 	the exhaustion of all his Flight Hours, including any
carryover.

	4.	 	Usage of Flight Hours.

	 	a.	 	Annual Limit. Following Mr. Chabraja’s termination of
employment entitled to any amount of Flight Hours, Mr. Chabraja may
use up to one hundred (100) Flight Hours in any calendar year. If
Mr. Chabraja separates employment in the middle of a calendar year,
the one hundred (100) Credited Flight Hour maximum will be prorated
by the number of completed calendar months remaining in that year.
	 
	 	b.	 	Carryover of Unused Flight Hours. If, for any reason Mr.
Chabraja does not use his entire allotment of Flight Hours within
any calendar year, the unused number of Flight Hours will be carried
over to the subsequent calendar year (subject to an overall maximum
usage of one hundred (100) Flight Hours in any calendar year).

Page 10 of 11

 

	 	c.	 	Ten (10) Year Maximum Carryover. Mr. Chabraja may carryover
any unused Flight Hours for a maximum of one hundred and twenty
(120) complete calendar months following his last day of Active
Employment.

	5.	 	Protocol for Aircraft Usage.

	 	a.	 	In order to obtain the use of a Corporation aircraft, Mr.
Chabraja must request the use of such aircraft at least 24 hours
prior to the requested flight departure for flights that will depart
and arrive within the 48 contiguous United States of America and at
least 48 hours prior to the requested flight departure for all other
flights. Such request must be made to an agreed upon contact at the
Corporation and must specify the requested departure and arrival
locations and the amount of people in the flight party.

	 	i.	 	The Corporation will supply Mr. Chabraja with an
aircraft based upon Corporation aircraft availability. The
size of Mr. Chabraja’s flight party shall be limited by
aircraft size and availability.
	 
	 	ii.	 	If a corporate aircraft is available, it will
pick up Mr. Chabraja and his flight party at the nearest
suitable location for that aircraft. The flights shall
include the particular aircraft’s basic flight service.

	6.	 	Usage of Flight Hours.

	 	a.	 	Mr. Chabraja shall be charged against his bank of Flight
Hours for each hour or fraction of an hour Mr. Chabraja’s requested
aircraft is airborne.

	 	i.	 	Aircraft flight time to arrive at a requested
pick-up location within the 48 contiguous United States of
America will not count against Mr. Chabraja’s Flight Hours.
Aircraft flight time to all other pick up locations shall
count towards Mr. Chabraja’s 500-hour aircraft time limit.

Page 11 of 11

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