T/R SYSTEMS INC
LOAN MODIFICATION AGREEMENT
<DOCUMENT>
<TYPE>EX-10.26
<SEQUENCE>3
<FILENAME>g75663ex10-26.txt
<DESCRIPTION>LOAN MODIFICATION AGREEMENT
<TEXT>
<PAGE>

                          LOAN MODIFICATION AGREEMENT

         This Loan Modification Agreement is entered into as of January 8,
2002, effective as of October 15, 2001, by and between T/R Systems, Inc. (the
"Borrower") and Silicon Valley Bank ("Bank").

1.       DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which
may be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to,
among other documents, a Promissory Note and Loan and Security Agreement dated
October 17, 1997, as amended (collectively, the "Loan Agreement"). The Loan
Agreement provided for, among other things, a Committed Revolving Line in the
original principal amount of One Million Dollars ($1,000,000). The Loan
Agreement was modified, pursuant to, among other documents, a Fourth Loan
Modification Agreement pursuant to which, among other things, the Committed
Revolving Line was increased to Three Million Dollars ($3,000,000). Defined
terms used but not otherwise defined herein shall have the same meanings as in
the Loan Agreement.

Hereinafter, all indebtedness owing by Borrower to Bank shall be referred to as
the "Indebtedness."

2.       DESCRIPTION OF COLLATERAL. Repayment of the Indebtedness is secured by
the Collateral as described in the Loan Agreement.

Hereinafter, the above-described security documents and guaranties, together
with all other documents securing repayment of the Indebtedness shall be
referred to as the "Security Documents". Hereinafter, the Security Documents,
together with all other documents evidencing or securing the Indebtedness shall
be referred to as the "Existing Loan Documents".

3.       DESCRIPTION OF CHANGE IN TERMS.

         A.       Modification(s) to Loan Agreement.

                  1.       The following defined terms under Section 1.1
                           entitled "Definitions" are hereby amended and/or
                           incorporated to read as follows:

                           "Cash Management Services" are defined in Section
                           2.1.3.

                           "Committed Revolving Line" is a Credit Extension of
                           up to $5,000,000.

                           "Revolving Maturity Date" is October 15, 2002.

                  2.       Sub-section (3) of the defined term "Eligible
                           Foreign Accounts" as set forth in Section 1.1
                           entitled "Definitions" is hereby amended in part to
                           incorporate Accounts owing from Canon, Inc. and its
                           subsidiaries, MGI, IKON House, IKON Gmbh and Ricoh
                           Europe.

                  3.       Sub-section (a) of Section 2.1.2 entitled "Letters
                           of Credit" is amended in part to provide that the
                           face amount of outstanding Letters of Credit
                           (including drawn but unreimbursed Letters of Credit
                           and any Letter of Credit Reserve) shall not exceed
                           $500,000.

                  4.       The following is hereby incorporated into the Loan
                           Agreement as Section 2.1.3 to read as follows:

                           2.1.3 Cash Management Services Sublimit. Borrower
                           may use up to $500,000 for Bank's Cash Management
                           Services, which may include merchant services,
                           direct deposit of payroll, business credit card, and
                           check cashing services identified in various cash
                           management services agreements related to such
                           services (the "Cash Management Services"). All
                           amounts Bank pays for any Cash Management Services
                           will be treated as Advances under the Committed
                           Revolving Line.
<PAGE>

                  5.       Section 2.2 entitled "Overadvances" is amended in
                           its entirety to read as follows:

                                    If at any time or for any reason, the
                           amount of Obligations owed by Borrower to Bank
                           pursuant to Sections 2.1.1, 2.1.2 and Section 2.1.3
                           of this Agreement is greater than the lesser of (i)
                           the Committed Revolving Line or (ii) the Borrowing
                           Base, Borrower shall immediately pay to Bank, in
                           cash the amount of such excess. Notwithstanding the
                           foregoing, outstandings under Section 2.1.2 and
                           Section 2.1.3 at no time may exceed $500,000 in the
                           aggregate.

                  6.       Sub-section (a) entitled "Interest Rate" of Section
                           2.3 entitled "Interest Rates, Payments, and
                           Calculations" is amended in part to read as follows:

                           Except for as set forth in Section 2.3(b), effective
                           as of this date, Advances shall bear interest, on
                           the average daily balance thereof, at a per annum
                           rate equal to .50 of a percentage point above the
                           Prime Rate.

                           7.       Section 6.9 entitled "Tangible Net Worth"
                           is hereby amended to read as follows:

                           Borrower shall maintain as of the last day of each
                           quarter, a Tangible Net Worth of not less than
                           $20,000,000.

                           8.       Notwithstanding anything to the contrary
                           contained in Section 7.3 entitled "Mergers or
                           Acquisitions," Borrower shall not enter into any
                           acquisition transaction where there is a change of
                           ownership in excess of 20% of the outstanding shares
                           without Bank's prior written consent, which consent
                           shall not be unreasonably withheld.

                           9.       Notwithstanding anything to the contrary
                           contained in Section 7.6 entitled "Distributions,"
                           Borrower shall not declare any dividends without
                           Bank's prior written consent.

4.       CONSISTENT CHANGES. The Existing Loan Documents are hereby amended
wherever necessary to reflect the changes described above.

5.       NO DEFENSES OF BORROWER. Borrower (and each guarantor and pledgor
signing below) agrees that, as of the date hereof, it has no defenses against
the obligations to pay any amounts under the Indebtedness.

6.       PAYMENT OF LOAN FEE. Borrower shall pay Bank a fee in the amount of
Five Thousand and 00/100 Dollars ($5,000.00) ("Loan Fee") plus all
out-of-pocket expenses as of the date hereof. Upon Borrower requesting a Credit
Extension, Borrower shall pay Bank an additional fee in the amount of Five
Thousand and 00/100 Dollars ($5,000.00). In the event that the amount
outstanding under the Committed Revolving Line exceeds $2,000,000, Borrower
shall pay Bank a fee in the amount of Seven Thousand Five Hundred and 00/100
Dollars ($7,500.00).

7.       CONTINUING VALIDITY. Borrower (and each guarantor and pledgor signing
below) understands and agrees that in modifying the existing Indebtedness, Bank
is relying upon Borrower's representations, warranties, and agreements, as set
forth in the Existing Loan Documents. Except as expressly modified pursuant to
this Loan Modification Agreement, the terms of the Existing Loan Documents
remain unchanged and in full force and effect. Bank's agreement to
modifications to the existing Indebtedness pursuant to this Loan Modification
Agreement in no way shall obligate Bank to make any future modifications to the
Indebtedness. Nothing in this Loan Modification Agreement shall constitute a
satisfaction of the Indebtedness. It is the intention of Bank and Borrower to
retain as liable parties all makers and endorsers of Existing Loan Documents,
unless the party is expressly released by Bank in writing. No maker, endorser,
or
<PAGE>

guarantor will be released by virtue of this Loan Modification Agreement. The
terms of this paragraph apply not only to this Loan Modification Agreement, but
also to all subsequent loan modification agreements.
<PAGE>

         This Loan Modification Agreement is executed as of the date first
written above.

<TABLE>
<S>                                                 <C>
BORROWER:                                           BANK:

T/R SYSTEMS, INC.                                   SILICON VALLEY BANK

By:          /s/ Lyle W. Newkirk                    By:           /s/ Alan P. Spurgin
   -------------------------------------               -----------------------------------------
Name:          Lyle W. Newkirk                      Name:    Alan P. Spurgin
     -----------------------------------                 ---------------------------------------
Title:  Senior Vice President and CFO               Title:     Senior Vice President
       ---------------------------------                  --------------------------------------
</TABLE>

</TEXT>
</DOCUMENT>
