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(Working Capital Line of Credit)

LOAN AND SECURITY AGREEMENT

This LOAN AND SECURITY AGREEMENT (this “Agreement”) dated as of March 13, 2007,
among (i) SILICON VALLEY BANK, a California chartered bank, with its principal
place of business at 3003 Tasman Drive, Santa Clara, California 95054 and with a
loan production office located at One Newton Executive Park, Suite 200, 2221
Washington Street, Newton, Massachusetts 02462 (FAX 617-969-5965) (“Bank”) and
(ii) PARADIGM HOLDINGS, INC., a Wyoming corporation, with offices at 9715 Key
West Avenue, Rockville, Maryland 20850 (FAX (240) 235-4380) (“Holdings”) and
PARADIGM SOLUTIONS CORPORATION, a Maryland corporation, with offices at 9715 Key
West Avenue, Rockville, Maryland 20850 (FAX (240) 235-4380) (“Solutions”)
(hereinafter, Holdings and Solutions are jointly and severally, individually and
collectively, referred to as “Borrower”), provides the terms on which Bank shall
lend to Borrower and Borrower shall repay Bank. The parties agree as follows:

1 ACCOUNTING AND OTHER TERMS

Accounting terms not defined in this Agreement shall be construed following
GAAP. Calculations and determinations must be made following GAAP. The term
“financial statements” includes the notes and schedules. The terms “including”
and “includes” always mean “including (or includes) without limitation,” in this
or any Loan Document. Capitalized terms in this Agreement shall have the
meanings set forth in Section 13. 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.

2 LOAN AND TERMS OF PAYMENT

2.1 Promise to Pay. Borrower hereby unconditionally promises to pay Bank the
unpaid principal amount of all Advances hereunder with all interest, fees and
finance charges due thereon as and when due in accordance with this Agreement.

2.1.1 Financing of Accounts.

(a) Availability. Subject to the terms of this Agreement, Borrower may request
that Bank finance specific Federal Agency Accounts, Subcontractor Accounts,
Unbilled Accounts and HUD Accounts. Bank may, in its good faith business
discretion in each instance, finance such Federal Agency Accounts, Subcontractor
Accounts, Unbilled Accounts and HUD Accounts by extending credit to Borrower in
an amount equal to the result of the Advance Rate multiplied by the face amount
of the Federal Agency Account (a “Federal Agency Account Advance”),
Subcontractor Account (a “Subcontractor Account Advance”), Unbilled Account (an
“Unbilled Account Advance”), and/or HUD Account (a “HUD Account Advance”) (any
Federal Agency Account Advance, Subcontractor Account Advance, Unbilled Account
Advance, or HUD Account Advance shall be referred to as an “Advance”). Bank may,
in its sole discretion, change the percentage of the Advance Rate for a
particular Federal Agency Account, Subcontractor Account, Unbilled Account, or
HUD Account on a case by case basis. When Bank makes an Advance, the Federal
Agency Account, Subcontractor Account, Unbilled Account and/or HUD Account
becomes a “Financed Receivable.”

(b) Maximum Advances; Sublimits; Overadvance.

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(i) The aggregate face amount of all Financed Receivables outstanding at any
time based upon Federal Agency Accounts, Subcontractor Accounts and Unbilled
Accounts may not exceed the Facility Amount. In addition, the aggregate amount
of all Federal Agency Account Advances, Subcontractor Account Advances, and
Unbilled Account Advances outstanding at any time may not exceed Ten Million
Dollars ($10,000,000.00).

(ii) The aggregate face amount of all Financed Receivables outstanding at any
time based upon HUD Accounts may not exceed the HUD Facility Amount.
Accordingly, the aggregate amount of all HUD Account Advances outstanding at any
time may not exceed Five Million Dollars ($5,000,000.00). In addition, the
aggregate amount of all Unbilled HUD Account Advances outstanding at any time
may not exceed Four Million Dollars ($4,000,000.00); provided, that, after June
30, 2007, the aggregate amount of all Unbilled HUD Account Advances outstanding
at any time may not exceed One Million Dollars ($1,000,000.00). On and after
July 31, 2007, the aggregate amount of all HUD Account Advances outstanding at
any time may not exceed Two Million Dollars ($2,000,000.00).

(iii) The aggregate amount of all Unbilled Account Advances outstanding at any
time may not exceed Two Million Dollars ($2,000,000.00), provided, however, such
amount shall be Three Million Dollars ($3,000,000.00) at such time as when all
HUD Account Advances are repaid and Borrower has no ability to request that Bank
make any additional HUD Account Advances hereunder.

(iv) The aggregate amount of all Federal Agency Account Advances, Subcontractor
Account Advances, Unbilled Account Advances, and HUD Account Advances
outstanding at any time may not exceed Twelve Million Dollars ($12,000,000.00).

(v) Overadvances. If, at any time, Borrower’s Obligations exceed what is
permitted by this Section 2.1.1(b), then Borrower shall immediately pay to Bank
such excess, and Borrower hereby irrevocably authorizes Bank to debit any of
Borrower’s accounts for such payment.

(c) Borrowing Procedure. Borrower will deliver an Invoice Transmittal for each
Federal Agency Account, Subcontractor Account, Unbilled Account and HUD Accounts
it offers. Bank may rely on information set forth in or provided with the
Invoice Transmittal.

(d) Credit Quality; Confirmations. Bank may, at its option, conduct a credit
check of the Account Debtor for each Account requested by Borrower for financing
hereunder in order to approve any such Account Debtor’s credit before agreeing
to finance such Account. Bank may also, after consultation with Borrower, verify
directly with the respective Account Debtors the validity, amount and other
matters relating to the Accounts (including confirmations of Borrower’s
representations in Sections 5.3, 5.4 and/or 5.5) by means of mail, telephone or
otherwise, either in the name of Borrower or Bank from time to time in its sole
discretion.

(e) Accounts Notification/Collection. Bank may notify any Person owing Borrower
money of Bank’s security interest in the funds and verify and/or collect the
amount of the Account.

(f) 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 Bank; or (ii) by Bank at any time after the
occurrence of an Event of Default, without notice, effective immediately. If
this Agreement is terminated on or prior to the Anniversary Date (as hereinafter
defined) (A) by Bank in accordance with clause (ii) in the foregoing sentence,
or (B) by Borrower for any reason, Borrower shall pay to Bank a termination fee
in an amount equal to One Hundred Thousand Dollars ($100,000.00) (the “Early
Termination Fee”). The Early Termination Fee shall be due and payable on the
effective date of such termination and thereafter shall bear interest at a rate
equal to the highest rate applicable to any of the Obligations. Notwithstanding
the foregoing, Bank agrees to waive the Early Termination Fee if Bank agrees to
refinance and redocument this Agreement under another division of Bank (in its
sole and exclusive discretion) prior to the Maturity Date.

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(g) Maturity. This Agreement shall terminate and all Obligations outstanding
hereunder shall be immediately due and payable on the Maturity Date. In
addition, Borrower’s ability to request HUD Account Advances shall terminate on
the HUD Maturity Date, and all Obligations outstanding hereunder pertaining to
HUD Account Advances shall be immediately due and payable on the HUD Maturity
Date. In addition, Borrower’s ability to request Advances based upon Unbilled
IRS Accounts shall terminate on September 30, 2007, and all Obligations
outstanding hereunder pertaining to such Advances shall be immediately due and
payable on September 30, 2007.

(h) Suspension of Advances. Borrower’s ability to request that Bank finance
Federal Agency Accounts, Subcontractor Accounts, Unbilled Accounts and HUD
Accounts hereunder will terminate if there has been a material adverse change in
the general affairs, management, results of operation, condition (financial or
otherwise) or the prospect of repayment of the Obligations, or there has been
any material adverse deviation by Borrower from the most recent business plan of
Borrower presented to and accepted by Bank prior to the execution of this
Agreement.

2.2 Collections, Finance Charges, Remittances and Fees. The Obligations shall be
subject to the following fees and Finance Charges. Unpaid fees and Finance
Charges may, in Bank’s discretion, accrue interest and fees as described in
Section 9.2 hereof.

2.2.1 Collections. Collections will be credited to the Financed Receivable
Balance for such Financed Receivable, but if there is an Event of Default, Bank
may apply Collections to the Obligations in any order it chooses. If Bank
receives a payment for both a Financed Receivable and a non-Financed Receivable,
the funds will first be applied to the Financed Receivable and, if there is no
Event of Default then existing, the excess will be remitted to Borrower, subject
to Section 2.2.7.

2.2.2 Loan Fees.

(a) A fully earned, non-refundable facility fee of Seventy Five Thousand Dollars
($75.000.00) is due upon execution of this Agreement (the “Facility Fee”).

(b) A fully earned, non-refundable anniversary fee of Seventy Five Thousand
Dollars ($75.000.00) (the “Anniversary Fee”) shall be earned as of the date
hereof, and shall be payable on the earlier to occur of (i) the date that is one
year from the Closing Date (the “Anniversary Date”), (ii) the occurrence of an
Event of Default, or (iii) the early termination of this Agreement.

(c) A fully earned, non-refundable success fee of Seventy Five Thousand Dollars
($75.000.00) (the “Success Fee”) shall be earned as of the date hereof, and
shall be payable on the earlier to occur of (i) July 31, 2007, (ii) the
occurrence of an Event of Default, (iii) the early termination of this
Agreement, or (iv) the prepayment of all outstanding HUD Account Advances.

The Facility Fee, Anniversary Fee and the Success Fee are hereinafter
collectively referred to as the “Loan Fees”.

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2.2.3 Finance Charges. In computing Finance Charges on the Obligations under
this Agreement, all Collections received by Bank shall be deemed applied by Bank
on account of the Obligations three (3) Business Days after receipt of the
Collections. Borrower will pay a finance charge (the “Finance Charge”) on each
Financed Receivable which is equal to the Applicable Rate divided by 360
multiplied by the number of days each such Financed Receivable is outstanding
multiplied by the outstanding Financed Receivable Balance. The Finance Charge is
payable when the Advance made based on such Financed Receivable is payable in
accordance with Section 2.3 hereof. After an Event of Default, the Applicable
Rate will increase an additional four percent (4.0%) per annum effective
immediately upon the occurrence of such Event of Default. In the event that the
aggregate amount of Finance Charges and Collateral Handling Fees earned by Bank
in any Reconciliation Period based solely upon Federal Agency Account Advances,
Subcontractor Account Advances and Unbilled Account Advances is less than the
Minimum Finance Charge, Borrower shall pay to Bank an additional Finance Charge
equal to (i) the Minimum Finance Charge minus (ii) the aggregate amount of all
Finance Charges and Collateral Handling Fees earned by Bank in such
Reconciliation Period based solely upon Federal Agency Account Advances,
Subcontractor Account Advances and Unbilled Account Advances. Such additional
Finance Charge shall be payable on the first day of the next Reconciliation
Period.

2.2.4 Collateral Handling Fee. Borrower will pay to Bank a collateral handling
fee equal to (a) 0.125% per month of the Financed Receivable Balance for each
Financed Receivable outstanding based upon Federal Agency Accounts,
Subcontractor Accounts and Unbilled Accounts based upon a 360 day year, and (b)
0.25% per month of the Financed Receivable Balance for Financed Receivables
outstanding based upon HUD Accounts based upon a 360 day year (the “Collateral
Handling Fee”). This fee is charged on a daily basis which is equal to the
Collateral Handling Fee divided by 30, multiplied by the number of days each
such Financed Receivable is outstanding, multiplied by the outstanding Financed
Receivable Balance. The Collateral Handling Fee is payable when the Advance made
based on such Financed Receivable is payable in accordance with Section 2.3
hereof. In computing Collateral Handling Fees under this Agreement, all
Collections received by Bank shall be deemed applied by Bank on account of
Obligations three (3) Business Days after receipt of the Collections. After an
Event of Default, the Collateral Handling Fee will increase an additional 0.50%
effective immediately upon such Event of Default.

2.2.5 Accounting. After each Reconciliation Period, Bank will provide an
accounting of the transactions for that Reconciliation Period, including the
amount of all Financed Receivables, all Collections, Adjustments, Finance
Charges, Collateral Handling Fee and the Loan Fees. If Borrower does not object
to the accounting in writing within thirty (30) days it shall be considered
accurate. All Finance Charges and other interest and fees are calculated on the
basis of a 360 day year and actual days elapsed.

2.2.6 Deductions. Bank may deduct fees, Finance Charges, Advances which become
due pursuant to Section 2.3, and other amounts due pursuant to this Agreement
from any Advances made or Collections received by Bank.

2.2.7 Lockbox; Account Collection Services.

(a) As and when directed by Bank from time to time, at Bank’s option and at the
sole and exclusive discretion of Bank (regardless of whether an Event of Default
has occurred), Borrower shall direct each Account Debtor (and each depository
institution where proceeds of Accounts are on deposit) to remit payments with
respect to the Accounts to a lockbox account established with Bank or to wire
transfer payments to a cash collateral account that Bank controls (collectively,
the “Lockbox”). It will be considered an immediate Event of Default if the
Lockbox is not set-up and operational within forty-five (45) days from Bank’s
request.

(b) Until such Lockbox is established, the proceeds of the Accounts shall be
paid by the Account Debtors to an address consented to by Bank. Upon receipt by
Borrower of such proceeds, Borrower shall immediately transfer and deliver same
to Bank, along with a detailed cash receipts journal. Provided no Event of
Default exists or an event that with notice or lapse of time will be an Event of
Default, within three (3) days of receipt of such amounts by Bank, Bank will
turn over to Borrower the proceeds of the Accounts other than Collections with
respect to Financed Receivables and the amount of Collections in excess of the
amounts for which Bank has made an Advance to Borrower, less any amounts due to
Bank, such as the Finance Charge, the Loan Fees, payments due to Bank, other
fees and expenses, or otherwise; provided, however, Bank may hold such excess
amount with respect to Financed Receivables as a reserve until the end of the
applicable Reconciliation Period if Bank, in its discretion, determines that
other Financed Receivable(s) may no longer qualify as a Federal Agency Account,
Subcontractor Account, Unbilled Account, or HUD Account at any time prior to the
end of the subject Reconciliation Period. This Section does not impose any
affirmative duty on Bank to perform any act other than as specifically set forth
herein. All Accounts and the proceeds thereof are Collateral and if an Event of
Default occurs, Bank may apply the proceeds of such Accounts to the Obligations.

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2.2.8 Good Faith Deposit. Borrower has paid to Bank a deposit of Fifty Thousand
Dollars ($50,000.00) (the “Good Faith Deposit”) to initiate Bank’s due diligence
review process. Any portion of the Good Faith Deposit not utilized to pay Bank
Expenses will be applied to the Facility Fee.

2.3 Repayment of Obligations; Adjustments.

2.3.1 Repayment.

(a) Borrower will repay each Federal Agency Account Advance and/or Subcontractor
Account Advance on the earliest of: (i) the date on which payment is received on
or with respect to the Financed Receivable with respect to which the Federal
Agency Account Advance or Subcontractor Account Advance was made, (ii) the date
on which the Financed Receivable is no longer a Federal Agency Account or a
Subcontractor Account, (iii) the date on which any Adjustment is asserted to the
Financed Receivable (but only to the extent of the Adjustment if the Financed
Receivable remains otherwise a Federal Agency Account or a Subcontractor
Account), (iv) the date on which there is a breach of any warranty or
representation set forth in Section 5.3, (v) with respect to Advances made based
upon Unbilled IRS Accounts, September 30, 2007, or (vi) the Maturity Date
(including any early termination). Each payment will also include all accrued
Finance Charges and Collateral Handling Fees with respect to such Federal Agency
Account Advance or Subcontractor Account Advance and all other amounts then due
and payable hereunder.

(b) Borrower will repay each Unbilled Account Advance on the earliest of: (i)
the date on which payment is received on or with respect to the Financed
Receivable with respect to which the Unbilled Account Advance was made, (ii) the
date on which the Financed Receivable is no longer an Unbilled Account
(including, without limitation, as a result of such Unbilled Account not being
billed within thirty (30) days of the applicable Unbilled Account Advance),
(iii) the date on which Borrower issues an invoice with respect to such Unbilled
Account; (iv) the date on which any Adjustment is asserted to the Financed
Receivable (but only to the extent of the Adjustment if the Financed Receivable
remains otherwise an Unbilled Account), (v) the date on which there is a breach
of any warranty or representation set forth in Section 5.4, or (vi) the Maturity
Date (including any early termination). Each payment will also include all
accrued Finance Charges and Collateral Handling Fees with respect to such
Unbilled Account Advance and all other amounts then due and payable hereunder.

(c) Borrower will repay each HUD Account Advance on the earliest of: (i) if the
HUD Account Advance is an Unbilled HUD Account Advance, upon Borrower’ s
issuance of an invoice based upon such contract, (ii) the date on which there is
a breach of any warranty or representation set forth in Section 5.5 or a breach
of any covenant in this Agreement, (iii) the Maturity Date (including any early
termination), or (iv) the applicable HUD Maturity Date (including any early
termination). Each payment will also include all accrued Finance Charges and
Collateral Handling Fees with respect to such HUD Account Advance and all other
amounts then due and payable hereunder.

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2.3.2 Repayment on Event of Default. When there is an Event of Default, Borrower
will, if Bank demands (or, upon the occurrence of an Event of Default under
Section 8.5, immediately without notice or demand from Bank) repay all of the
Advances. The demand may, at Bank’s option, include the Advance for each
Financed Receivable then outstanding and all accrued Finance Charges, the Early
Termination Fee, Collateral Handling Fee, attorneys’ and professional fees,
court costs and expenses, and any other Obligations.

2.3.3 Debit of Accounts. Bank may debit any of Borrower’s deposit accounts for
payments or any amounts Borrower owes Bank hereunder. Bank shall promptly notify
Borrower when it debits Borrower’s accounts. These debits shall not constitute a
set-off.

2.3.4 Adjustments. If at any time during the term of this Agreement any Account
Debtor asserts an Adjustment or if Borrower issues a credit memorandum or if any
of the representations, warranties or covenants set forth in Sections 5.3, 5.4
and 5.5 are no longer true in all material respects, Borrower will promptly
advise Bank.

2.4 Power of Attorney. Borrower irrevocably appoints Bank and its successors and
assigns as attorney-in-fact and authorizes Bank, to: (a) following the
occurrence of an Event of Default, (i) sell, assign, transfer, pledge,
compromise, or discharge all or any part of the Financed Receivables; (ii)
demand, collect, sue, and give releases to any Account Debtor for monies due and
compromise, prosecute, or defend any action, claim, case or proceeding about the
Financed Receivables, including filing a claim or voting a claim in any
bankruptcy case in Bank’s or Borrower’s name, as Bank chooses; and (iii)
prepare, file and sign Borrower’s name on any notice, claim, assignment, demand,
draft, or notice of or satisfaction of lien or mechanics’ lien or similar
document; and (b) regardless of whether there has been an Event of Default, (i)
notify all Account Debtors to pay Bank directly; (ii) receive, open, and dispose
of mail addressed to Borrower; (iii) endorse Borrower’s name on checks or other
instruments (to the extent necessary to pay amounts owed pursuant to this
Agreement); and (iv) execute on Borrower’s behalf any instruments, documents,
financing statements to perfect Bank’s interests in the Financed Receivables and
Collateral and do all acts and things necessary or expedient, as determined
solely and exclusively by Bank, to protect or preserve, Bank’s rights and
remedies under this Agreement, as directed by Bank.

3 CONDITIONS OF LOANS

3.1 Conditions Precedent to Initial Advance. Bank’s agreement to make the
initial Advance is subject to the condition precedent that each Borrower shall
consent to or shall have delivered, in form and substance satisfactory to Bank,
such documents, and completion of such other matters, as Bank may reasonably
deem necessary or appropriate, including, without limitation:

(a) a certificate of the Secretary of Borrower with respect to articles, bylaws,
incumbency and resolutions authorizing the execution and delivery of this
Agreement;

(b) an Intellectual Property Security Agreement;

(c) subordination agreements/intercreditor agreements by certain Persons;

(d) Perfection Certificate by Borrower;

(e) a legal opinion of Borrower’s counsel (authority/enforceability), in form
and substance acceptable to Bank;

(f) Trigger Event Agreement;

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(g) completion of the Initial Audit;

(h) Account Control Agreement/ Investment Account Control Agreement;

(i) evidence satisfactory to Bank that the insurance policies required by
Section 6.5 hereof are in full force and effect, together with appropriate
evidence showing lender loss payable and/or additional insured clauses or
endorsements in favor of Bank;

(j) payoff letter from Chevy Chase Bank;

(k) payment of the fees and Bank Expenses then due and payable;

(l) Certificates of Foreign Qualification (as applicable);

(m) Certificate of Good Standing/Legal Existence; and

(n) such other documents, and completion of such other matters, as Bank may
reasonably deem necessary or appropriate.

3.2 Conditions Precedent to all Advances. Bank’s agreement to make each Advance,
including the initial Advance, is subject to the following:

(a) receipt of the Invoice Transmittal;

(b) Bank shall have (at its option) conducted the confirmations and
verifications as described in Section 2.1.1(d); and

(c) each of the representations and warranties in Section 5 shall be true on the
date of the Invoice Transmittal and on the effective date of each Advance and no
Event of Default shall have occurred and be continuing, or result from the
Advance. Each Advance is Borrower’s representation and warranty on that date
that the representations and warranties in Section 5 remain true.

4 CREATION OF SECURITY INTEREST

4.1 Grant of Security Interest. Borrower hereby grants Bank, to secure the
payment and performance in full of all of the Obligations and the performance of
each of Borrower’s duties under the Loan Documents, a continuing security
interest in, and pledges and assigns to Bank, the Collateral, wherever located,
whether now owned or hereafter acquired or arising, and all proceeds and
products thereof. Borrower warrants and represents that the security interest
granted herein shall be a first priority security interest in the Collateral.

If the Agreement is terminated, Bank’s lien and security interest in the
Collateral shall continue until Borrower fully satisfies its Obligations. If
Borrower shall at any time, acquire a commercial tort claim, Borrower shall
promptly notify Bank in a writing signed by Borrower of the brief details
thereof and grant to Bank in such writing a security interest therein and in the
proceeds thereof, all upon the terms of this Agreement, with such writing to be
in form and substance satisfactory to Bank.

4.2 Authorization to File Financing Statements. Borrower hereby authorizes Bank
to file financing statements, without notice to Borrower, with all appropriate
jurisdictions in order to perfect or protect Bank’s interest or rights
hereunder, which financing statements may indicate the Collateral as “all assets
of the Debtor” or words of similar effect, or as being of an equal or lesser
scope, or with greater detail, all in Bank’s discretion, and may include a
notice that any disposition of the Collateral, by Borrower or any other Person,
shall be deemed to violate the rights of Bank under the Code.

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5 REPRESENTATIONS AND WARRANTIES

Borrower represents and warrants as follows:

5.1 Due Organization and Authorization. Borrower and each of its Subsidiaries
are duly existing and in good standing as Registered Organizations in their
respective jurisdictions of formation and are qualified and licensed to do
business and are in good standing in any jurisdiction in which the conduct of
their respective business or ownership of property requires that they be
qualified except where the failure to do so could not reasonably be expected to
have a material adverse effect on Borrower’s business. In connection with this
Agreement, Borrower has delivered to Bank completed certificates signed by each
Borrower (the “Perfection Certificate”). Borrower represents and warrants to
Bank that: (a) Borrower’s exact legal name is that indicated on the Perfection
Certificate and on the signature page hereof; (b) Borrower is an organization of
the type and is organized in the jurisdiction set forth in the Perfection
Certificate; (c) the Perfection Certificate accurately sets forth Borrower’s
organizational identification number or accurately states that Borrower has
none; (d) the Perfection Certificate accurately sets forth Borrower’s place of
business, or, if more than one, its chief executive office as well as Borrower’s
mailing address (if different than its chief executive office); (e) except as
set forth on the Perfection Certificate, Borrower (and each of its predecessors)
has not, in the past five (5) years, changed its jurisdiction of formation,
organizational structure or type, or any organizational number assigned by its
jurisdiction; and (f) all other information set forth on the Perfection
Certificate pertaining to Borrower and each of its Subsidiaries is accurate and
complete (it being understood and agreed that Borrower may from time to time
update certain information in the Perfection Certificate after the Closing Date
to the extent permitted by one or more specific provisions in this Agreement).
If Borrower is not now a Registered Organization but later becomes one, Borrower
shall promptly notify Bank of such occurrence and provide Bank with Borrower’s
organizational identification number.

The execution, delivery and performance by Borrower of the Loan Documents to
which it is a party have been duly authorized, and do not (i) conflict with any
of Borrower’s organizational documents, (ii) contravene, conflict with,
constitute a default under or violate any material Requirement of Law,
(iii) contravene, conflict or violate any applicable order, writ, judgment,
injunction, decree, determination or award of any Governmental Authority by
which Borrower or any its Subsidiaries or any of their property or assets may be
bound or affected, (iv) require any action by, filing, registration, or
qualification with, or approval from any Governmental Authority (except such
approvals which have already been obtained and are in full force and effect), or
(v) constitute an event of default under any material agreement by which
Borrower is bound. Borrower is not in default under any agreement to which it is
a party or by which it is bound in which the default could have a material
adverse effect on Borrower’s business.

5.2 Collateral. Borrower has good title, has rights in, and the power to
transfer each item of the Collateral upon which it purports to grant a Lien
hereunder, free and clear of any and all Liens except Permitted Liens. Borrower
has no deposit accounts other than the deposit accounts with Bank, the deposit
accounts, if any, described in the Perfection Certificate delivered to Bank in
connection herewith, or of which Borrower has given Bank notice and taken such
actions as are necessary to give Bank a perfected security interest therein. The
Accounts are bona fide, existing obligations of the Account Debtors.

The Collateral is not in the possession of any third party bailee (such as a
warehouse) except as otherwise provided in the Perfection Certificate. None of
the components of the Collateral shall be maintained at locations other than as
provided in the Perfection Certificate or as Borrower has given Bank notice
pursuant to Section 7.2. In the event that Borrower, after the date hereof,
intends to store or otherwise deliver any portion of the Collateral to a bailee,
then Borrower will first receive the written consent of Bank and such bailee
must execute and deliver a bailee agreement in form and substance satisfactory
to Bank in its sole discretion.

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All Inventory is in all material respects of good and marketable quality, free
from material defects.

Borrower is the sole owner of its intellectual property, except for
non-exclusive licenses granted to its customers in the ordinary course of
business. Each patent is valid and enforceable, and no part of the intellectual
property has been judged invalid or unenforceable, in whole or in part, and to
the best of Borrower’s knowledge, no claim has been made that any part of the
intellectual property violates the rights of any third party except to the
extent such claim could not reasonably be expected to have a material adverse
effect on Borrower’s business. Except as noted on the Perfection Certificate,
Borrower is not a party to, nor is bound by, and license or other agreement with
respect to which Borrower is licensee that prohibits or otherwise restricts
Borrower from granting a security interest in Borrower’s interest in such
license or agreement or any other property. Borrower shall provide written
notice to Bank within ten (10) days of entering or becoming bound by any such
license or agreement which is reasonably likely to have a material impact on
Borrower’s business or financial condition (other than over-the-counter software
that is commercially available to the public). Borrower shall take such steps as
Bank requests to obtain the consent of, or waiver by, any person whose consent
or waiver is necessary for all such licenses or contract rights to be deemed
“Collateral” and for Bank to have a security interest in it that might otherwise
be restricted or prohibited by law or by the terms of any such license or
agreement (such consent or authorization may include a licensor’s agreement to a
contingent assignment of the license to Bank if Bank determines that is
necessary in its good faith judgment), whether now existing or entered into in
the future.

Without prior consent from Bank, Borrower shall not enter into, or become bound
by, any such license or agreement which is reasonably likely to have a material
impact on Borrower’s business or financial condition. Borrower shall take such
steps as Bank requests to obtain the consent of, or waiver by, any person whose
consent or waiver is necessary for all such licenses or contract rights to be
deemed “Collateral” and for Bank to have a security interest in it that might
otherwise be restricted or prohibited by law or by the terms of any such license
or agreement, whether now existing or entered into in the future.

5.3 Representations Regarding Financed Receivables Based Upon Federal Agency
Accounts and Subcontractor Accounts. Borrower represents and warrants for each
Financed Receivable based upon Federal Agency Accounts and Subcontractor
Accounts:

(a) Each Financed Receivable is an Federal Agency Account or Subcontractor
Account;

(b) Borrower is the owner with legal right to sell, transfer, assign and
encumber such Financed Receivable;

(c) The correct amount is on the Invoice Transmittal and is not disputed;

(d) Payment is not contingent on any obligation or contract and Borrower has
fulfilled all its obligations as of the Invoice Transmittal date;

(e) Each Financed Receivable is based on an actual sale and delivery of goods
and/or services rendered, is due to Borrower, is not past due or in default, has
not been previously sold, assigned, transferred, or pledged and is free of any
liens, security interests and encumbrances other than Permitted Liens;

(f) There are no defenses, offsets, counterclaims or agreements for which the
Account Debtor may claim any deduction or discount;

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(g) Borrower reasonably believes no Account Debtor is insolvent or subject to
any Insolvency Proceedings;

(h) Borrower has not filed or had filed against it Insolvency Proceedings and
does not anticipate any filing;

(i) Bank has the right to endorse and/ or require Borrower to endorse all
payments received on Financed Receivables and all proceeds of Collateral; and

(j) No representation, warranty or other statement of Borrower in any
certificate or written statement given to Bank contains any untrue statement of
a material fact or omits to state a material fact necessary to make the
statement contained in the certificates or statement not misleading.

5.4 Representations Regarding Financed Receivables Based Upon Unbilled Accounts.
Borrower represents and warrants for each Financed Receivable based upon
Unbilled Accounts that the estimated face value amount determined by Borrower is
based upon the best information available to Borrower and accurately and fully
(considering all known discounts available to each such Account Debtor) reflects
same. In addition, Borrower represents and warrants that there are no discounts,
offsets or other rights of any Account Debtor under any Unbilled Account.

5.5 Representations Regarding Financed Receivables Based Upon HUD
Accounts. Borrower represents and warrants for each Financed Receivable based
upon HUD Accounts that either (a) with respect to Financed Receivables based
upon Unbilled HUD Account Advances, the estimated face value amount determined
by Borrower is based upon the best information available to Borrower and
accurately and fully (considering all known discounts available to each such
Account Debtor) reflects same, and that there are no discounts, offsets or other
rights of any Account Debtor under any Unbilled Account, and (b) with respect to
Financed Receivables based upon Billed HUD Account Advances, such Billed HUD
Account is due and owing from the United States Department of Housing and Urban
Development pursuant to a binding contract between Borrower and the United
States Department of Housing and Urban Development and is an Eligible Account
hereunder.

5.6 Litigation. There are no actions or proceedings pending or, to the knowledge
of Borrower’s Responsible Officers or legal counsel, threatened by or against
Borrower or any Subsidiary in which an adverse decision could reasonably be
expected to cause a Material Adverse Change.

5.7 No Material Deviation in Financial Statements. All consolidated financial
statements for Borrower and any Subsidiary delivered to Bank fairly present in
all material respects Borrower’s consolidated financial condition and Borrower’s
consolidated results of operations. There has not been any material
deterioration in Borrower’s consolidated financial condition since the date of
the most recent financial statements submitted to Bank.

5.8 Solvency. The fair salable value of Borrower’s assets (including goodwill
minus disposition costs) exceeds the fair value of its liabilities; Borrower is
not left with unreasonably small capital after the transactions in this
Agreement; and Borrower is able to pay its debts (including trade debts) as they
mature.

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5.9 Regulatory Compliance. Borrower is not an “investment company” or a company
“controlled” by an “investment company” under the Investment Company Act.
Borrower is not engaged as one of its important activities in extending credit
for margin stock (under Regulations X, T and U of the Federal Reserve Board of
Governors). Borrower has complied in all material respects with the Federal Fair
Labor Standards Act. Borrower has not violated any laws, ordinances or rules,
the violation of which could reasonably be expected to cause a Material Adverse
Change. None of Borrower’s or any Subsidiary’s properties or assets has been
used by Borrower or any Subsidiary or, to the best of Borrower’s knowledge, by
previous Persons, in disposing, producing, storing, treating, or transporting
any hazardous substance other than legally. Borrower and each Subsidiary have
timely filed all required tax returns and paid, or made adequate provision to
pay, all material taxes, except those being contested in good faith with
adequate reserves under GAAP. Borrower and each Subsidiary have obtained all
consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all government authorities that are necessary to
continue its business as currently conducted except where the failure to obtain
or make such consents, declarations, notices or filings would not reasonably be
expected to cause a Material Adverse Change. Borrower and each of its
Subsidiaries have obtained all consents, approvals and authorizations of, made
all declarations or filings with, and given all notices to, all Government
Authorities that are necessary to continue their respective businesses as
currently conducted.

No certificate, authorization, permit, consent, approval, order, license,
exemption from, or filing or registration or qualification with, any
Governmental Authority or any Requirement of Law is or will be required to
authorize, or is otherwise required in connection with Borrower’s performance of
its obligations under the Loan Documents and the creation of the Liens described
in and granted by Borrower pursuant to the Loan Documents.

5.10 Subsidiaries. Borrower does not own any stock, partnership interest or
other equity securities except for Permitted Investments.

5.11 Full Disclosure. No written representation, warranty or other statement of
Borrower in any certificate or written statement given to Bank, as of the date
such representations, warranties, or other statements were made, taken together
with all such written certificates and written statements given to Bank,
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements contained in the certificates or
statements not misleading (it being recognized by Bank that projections and
forecasts provided by Borrower in good faith and based upon reasonable
assumptions are not viewed as facts and that actual results during the period or
periods covered by such projections and forecasts may differ from the projected
or forecasted results).

6 AFFIRMATIVE COVENANTS

Borrower shall do all of the following:

6.1 Government Compliance. Maintain its and all its Subsidiaries’ legal
existence and good standing in their respective jurisdictions of formation and
maintain qualification in each jurisdiction in which the failure to so qualify
would reasonably be expected to have a material adverse effect on Borrower’s
business or operations. Borrower shall comply, and have each Subsidiary comply,
with all laws, ordinances and regulations to which it is subject, noncompliance
with which could have a material adverse effect on Borrower’s business or
operations or would reasonably be expected to cause a Material Adverse Change.

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6.2 Financial Statements, Reports, Certificates.

(a) Deliver to Bank: (i) as soon as available, but no later than thirty (30)
days after the last day of each month, a company prepared consolidated balance
sheet and income statement covering Borrower’s consolidated operations during
the period certified by a Responsible Officer and in a form acceptable to Bank;
(ii) as soon as available, but no later than one hundred twenty (120) days after
the last day of Borrower’s fiscal year, audited consolidated financial
statements prepared under GAAP, consistently applied, together with an
unqualified opinion on the financial statements from an independent certified
public accounting firm reasonably acceptable to Bank; (iii) within five (5) days
of filing, copies of all statements, reports and notices made available to
Borrower’s security holders or to any holders of Subordinated Debt and all
reports on Form 10-K, 10-Q and 8-K filed with the Securities and Exchange
Commission; (iv) a prompt report of any legal actions pending or threatened
against Borrower or any Subsidiary that could result in damages or costs to
Borrower or any Subsidiary of One Hundred Thousand Dollars ($100,000.00) or
more; (v) prompt notice of any material change in the composition of the
Intellectual Property Collateral, or the registration of any copyright,
including any subsequent ownership right of Borrower in or to any copyright,
patent or trademark not shown in the IP Agreement or knowledge of an event that
materially adversely affects the value of the Intellectual Property
Collateral;(vi) Board-approved financial projections no later than forty-five
(45) days after Borrower’s fiscal year end, and immediately with respect to any
amendments or updates thereto; and (vii) budgets, sales projections, operating
plans or other financial information reasonably requested by Bank.

(b) Within thirty (30) days after the last day of each month, deliver to Bank
with the monthly financial statements a Compliance Certificate signed by a
Responsible Officer in the form of Exhibit B.

(c) Allow Bank to audit Borrower’s Collateral, including, but not limited to,
Borrower’s Accounts at Borrower’s expense, upon reasonable notice to Borrower;
provided, however, prior to the occurrence of an Event of Default, Borrower
shall be obligated to pay for not more than one (1) audit per year. As set forth
in Section 3.1, no Advance will occur until the completion of the Initial Audit.
After the occurrence of an Event of Default, Bank may audit Borrower’s
Collateral, including, but not limited to, Borrower’s Accounts and accounts
receivable at Borrower’s expense and at Bank’s sole and exclusive discretion and
without notification and authorization from Borrower. The charge to Borrower for
the foregoing inspections and audits shall be $750 per person per day (or such
higher amount as shall represent Bank’s then-current standard charge for the
same), plus reasonable out-of-pocket expenses.

(d) Upon Bank’s request, provide a written report respecting any Financed
Receivable, if payment of any Financed Receivable does not occur by its due date
and include the reasons for the delay.

(e) Provide Bank with, as soon as available, but no later than fifteen (15) days
following each Reconciliation Period, an aged listing of accounts receivable and
accounts payable by invoice date, in form acceptable to Bank.

(f) Provide Bank with, as soon as available, but no later than thirty (30) days
following each Reconciliation Period, a Deferred Revenue report, in form
acceptable to Bank.

(g) Provide Bank with, as soon as available, but no later than thirty (30) days
following each Reconciliation Period, a schedule of Borrower’s unbilled accounts
receivable, in form acceptable to Bank.

6.3 Inventory; Returns. Keep all Inventory in good and marketable condition,
free from material defects. Returns and allowances between Borrower and its
Account Debtors shall follow Borrower’s customary practices as they exist at the
Closing Date. Borrower must promptly notify Bank of all returns, recoveries,
disputes and claims that involve more than One Hundred Thousand Dollars
($100,000.00).

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6.4 Taxes. Borrower shall make, and cause each Subsidiary to make, timely
payment of all material federal, state, and local taxes or assessments (other
than taxes and assessments which Borrower is contesting in good faith, with
adequate reserves maintained in accordance with GAAP) and will deliver to Bank,
on demand, appropriate certificates attesting to such payments.

6.5 Insurance. Keep its business and the Collateral insured for risks and in
amounts standard for companies in Borrower’s industry and location, and as Bank
may reasonably request. Insurance policies shall be in a form, with companies,
and in amounts that are satisfactory to Bank. All property policies shall have a
lender’s loss payable endorsement showing Bank as lender loss payee and waive
subrogation against Bank, and all liability policies shall show, or have
endorsements showing, Bank as an additional insured .All policies (or the loss
payable and additional insured endorsements) shall provide that the insurer must
give Bank at least twenty (20) days notice before canceling, amending, or
declining to renew its policy. At Bank’s request, Borrower shall deliver
certified copies of policies and evidence of all premium payments. Proceeds
payable under any policy shall, at Bank’s option, be payable to Bank on account
of the Obligations. If Borrower fails to obtain insurance as required under this
Section 6.5 or to pay any amount or furnish any required proof of payment to
third persons and Bank, Bank may make all or part of such payment or obtain such
insurance policies required in this Section 6.5, and take any action under the
policies Bank deems prudent.

6.6 Accounts.

(a) To permit Bank to monitor Borrower’s financial performance and condition,
Borrower, and all Borrower’s domestic Subsidiaries, shall maintain Borrower’s
and such domestic Subsidiaries’, depository and operating accounts and
securities accounts with Bank and Bank’s affiliates. Any Guarantor shall
maintain all depository, operating and securities accounts with Bank, or SVB
Securities.

(b) Borrower shall identify to Bank, in writing, any deposit or securities
account opened by Borrower or Guarantor with any institution other than Bank. In
addition, for each such account that Borrower or Guarantor at any time opens or
maintains, Borrower shall, at Bank’s request and option, pursuant to an
agreement in form and substance acceptable to Bank, cause the depository bank or
securities intermediary to agree that such account is the collateral of Bank
pursuant to the terms hereunder. The provisions of the previous sentence shall
not apply to deposit accounts exclusively used for payroll, payroll taxes and
other employee wage and benefit payments to or for the benefit of Borrower’s
employees.

6.7 Financial Covenants.

Borrower shall maintain at all times, to be tested as of the last day of each
month, unless otherwise noted, on a consolidated basis with respect to Borrower
and its Subsidiaries:

(a) EBITDA Loss. EBITDA minus unfunded capital expenditures loss as of and for
the three month periods ending on January 31, 2007 and February 28, 2007 of not
more than $1,000,000.

(b) EBITDA Gain. EBITDA minus unfunded capital expenditures as of and for the
three month period (or periods) ending on (i) March 31, 2007, April 30, 2007 and
May 31, 2007, of at least $1.00, (ii) June 30, 2007, July 31, 2007, August 31,
2007, September 30, 2007, October 31, 2007 and November 30, 2007, of at least
$250,000.00, (iii) December 31, 2007 and as of and for the three month period
ending of the last day of each month thereafter, of at least $500,000.00.

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Notwithstanding the foregoing, (a) EBITDA Losses incurred from January 1, 2007
through February 28, 2007 will be excluded from the EBITDA calculation with
respect to the three month periods ending on February 28, 2007 and March 31,
2007, and (b) EBITDA Losses incurred from February 1, 2007 through February 28,
2007 will be excluded from the EBITDA calculation with respect to the three
month period ending on April 30, 2007. As used herein, “EBITDA Losses” shall be
defined as the lesser of (i) $275,000.00, and (ii) the actual expenses incurred
by the discontinued commercial business of Borrower during the period(s)
referenced above.

6.8 Further Assurances. Borrower shall execute any further instruments and take
further action as Bank reasonably requests to perfect or continue Bank’s
security interest in the Collateral or to effect the purposes of this Agreement.

7 NEGATIVE COVENANTS

Borrower shall not do any of the following without Bank’s prior written consent.

7.1 Dispositions. Convey, sell, lease, transfer, assign or otherwise dispose of
(collectively a “Transfer”), or permit any of its Subsidiaries to Transfer, all
or any part of its business or property, except for Transfers (a) of Inventory
in the ordinary course of business; (b) of worn-out or obsolete Equipment; (c)
in connection with Permitted Liens and Permitted Investments; and (d) of
non-exclusive licenses for the use of the property of Borrower or its
Subsidiaries in the ordinary course of business.

7.2 Changes in Business, Ownership, Management or Business Locations. Engage in
or permit any of its Subsidiaries to engage in any business other than the
businesses currently engaged in by Borrower or reasonably related thereto, or
have a material change in its ownership (other than by the sale of Borrower’s
equity securities in a public offering or to venture capital investors so long
as Borrower identifies to Bank the venture capital investors prior to the
closing of the investment), or management. Borrower shall not, without at least
thirty (30) days prior written notice to Bank: (a) relocate its chief executive
office, or add any new offices or business locations, including warehouses
(unless such new offices or business locations contain less than Five Thousand
Dollars ($5,000.00) in Borrower’s assets or property), or (b) change its
jurisdiction of organization, or (c) change its organizational structure or
type, or (d) change its legal name, or (e) change any organizational number (if
any) assigned by its jurisdiction of organization.

7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of its
Subsidiaries to merge or consolidate, with any other Person, or acquire, or
permit any of its Subsidiaries to acquire, all or substantially all of the
capital stock or property of another Person. A Subsidiary may merge or
consolidate into another Subsidiary or into Borrower.

7.4 Indebtedness. Create, incur, assume, or be liable for any Indebtedness, or
permit any Subsidiary to do so, other than Permitted Indebtedness.

7.5 Encumbrance. Create, incur, or allow any Lien on any of its property, or
assign or convey any right to receive income, including the sale of any
Accounts, or permit any of its Subsidiaries to do so, except for Permitted
Liens, or permit any Collateral not to be subject to the first priority security
interest granted herein, or enter into any agreement, document, instrument or
other arrangement (except with or in favor of Bank) with any Person which
directly or indirectly prohibits or has the effect of prohibiting Borrower or
any Subsidiary from assigning, mortgaging, pledging, granting a security
interest in or upon, or encumbering any of Borrower’s or any Subsidiary’s
intellectual property, except as is otherwise permitted in Section 7.1 hereof
and the definition of “Permitted Liens” herein. The Collateral may also be
subject to Permitted Liens.

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7.6 Distributions; Investments. (a) Directly or indirectly acquire or own any
Person, or make any Investment in any Person, other than Permitted Investments,
or permit any of its Subsidiaries to do so; or (b) pay any dividends or make any
distribution or payment or redeem, retire or purchase any capital stock.

7.7 Transactions with Affiliates. Directly or indirectly enter into or permit to
exist any material transaction with any Affiliate of Borrower, except for
transactions that are in the ordinary course of Borrower’s business, upon fair
and reasonable terms that are no less favorable to Borrower than would be
obtained in an arm’s length transaction with a non-affiliated Person.

7.8 Subordinated Debt. (a) Make or permit any payment on any Subordinated Debt,
except under the terms of the subordination, intercreditor, or other similar
agreement to which such Subordinated Debt is subject, or (b) amend any provision
in any document relating to the Subordinated Debt which would increase the
amount thereof or adversely affect the subordination thereof to Obligations owed
to Bank.

7.9 Compliance. Become an “investment company” or a company controlled by an
“investment company”, under the Investment Company Act of 1940, as amended, or
undertake as one of its important activities extending credit to purchase or
carry margin stock (as defined in Regulation U of the Board of Governors of the
Federal Reserve System), or use the proceeds of any Advance for that purpose;
fail to meet the minimum funding requirements of ERISA or permit a Reportable
Event or Prohibited Transaction, each as defined in ERISA, to occur; fail to
comply with the Federal Fair Labor Standards Act or violate any other law or
regulation, if the violation could reasonably be expected to have a material
adverse effect on Borrower’s business, or permit any of its Subsidiaries to do
so; withdraw or permit any Subsidiary to withdraw from participation in, permit
partial or complete termination of, or permit the occurrence of any other event
with respect to, any present pension, profit sharing and deferred compensation
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.

8 EVENTS OF DEFAULT

Any one of the following shall constitute an event of default (an “Event of
Default”) under this Agreement:

8.1 Payment Default. Borrower fails to pay any of the Obligations when due;

8.2 Covenant Default. Borrower fails or neglects to perform any obligation in
Section 6 or violates any covenant in Section 7 or fails or neglects to perform,
keep, or observe any other term, provision, condition, covenant or agreement
contained in this Agreement, any Loan Documents, and as to any default (other
than those specified in this Section 8) under such other term, provision,
condition, covenant or agreement that can be cured, has failed to cure the
default within ten (10) days after the occurrence thereof; provided, however,
that if the default cannot by its nature be cured within the ten (10) day period
or cannot after diligent attempts by Borrower be cured within such ten (10) day
period, and such default is likely to be cured within a reasonable time, then
Borrower shall have an additional period (which shall not in any case exceed
thirty (30) days) to attempt to sure such default, and within such reasonable
time period the failure to cure the default shall not be deemed an Event of
Default (but no Credit Extensions shall be made during such cure period). Grace
periods provided under this section shall not apply, among other things, to
financial covenants or any other covenants that are required to be satisfied,
completed or tested by a date certain;

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8.3 Material Adverse Change. A Material Adverse Change occurs;

8.4 Attachment. (i) Any portion of Borrower’s assets is attached, seized, levied
on, or comes into possession of a trustee or receiver and the attachment,
seizure or levy is not removed in ten (10) days; (ii) the service of process
upon Bank or Borrower seeking to attach, by trustee or similar process, any
funds of Borrower on deposit with Bank, or any entity under the control of Bank
(including a subsidiary); (iii) Borrower is enjoined, restrained, or prevented
by court order from conducting any part of its business; (iv) a judgment or
other claim becomes a Lien on a portion of Borrower’s assets; or (v) a notice of
lien, levy, or assessment is filed against any of Borrower’s assets by any
government agency and not paid within ten (10) days after Borrower receives
notice;

8.5 Insolvency. (a) Borrower is unable to pay its debts (including trade debts)
as they become due or otherwise becomes insolvent; (b) Borrower begins an
Insolvency Proceeding; or (c) an Insolvency Proceeding is begun against Borrower
and not dismissed or stayed within thirty (30) days (but no Advances shall be
made while of any of the conditions described in clause (a) exist and/or until
any Insolvency Proceeding is dismissed);

8.6 Other Agreements. If there is a default in any agreement to which Borrower
is a party with a third party or parties resulting in a right by such third
party or parties, whether or not exercised, to accelerate the maturity of any
Indebtedness in an amount in excess of One Hundred Thousand Dollars ($100,000)
or that could result in a Material Adverse Change;

8.7 Judgments. A judgment or judgments for the payment of money in an amount,
individually or in the aggregate, of at least Fifty Thousand Dollars
($50,000.00) (not covered by independent third-party insurance as to which
liability has been accepted by the insurance carrier) shall be rendered against
Borrower and shall remain unsatisfied and unstayed for a period of ten (10) days
(provided that no Advances will be made prior to the satisfaction or stay of
such judgment);

8.8 Misrepresentations. Borrower or any Person acting for Borrower makes any
representation, warranty, or other statement now or later in this Agreement, any
Loan Document or in writing delivered to Bank or to induce Bank to enter this
Agreement or any Loan Document, and such representation, warranty, or other
statement is incorrect in any material respect when made;

8.9 Subordinated Debt. A default or breach occurs under any agreement between
Borrower and any creditor of Borrower that signed a subordination agreement,
intercreditor, or other similar agreement with Bank, or any creditor that has
signed subordination agreement with Bank breaches any terms of the subordination
agreement; or

8.10 Guaranty. (a) Any guaranty of any Obligations terminates or ceases for any
reason to be in full force and effect; or (b) any Guarantor does not perform any
obligation or covenant under any guaranty of the Obligations; or (c) any
material misrepresentation or material misstatement exists now or later in any
warranty or representation in any guaranty of the Obligations or in any
certificate delivered to Bank in connection with the guaranty; or (iv) any
circumstance described in Section 7, or Sections 8.3, 8.4, 8.5 or 8.7 occurs
with respect to any Guarantor or in the value of such collateral, or (v) the
liquidation, winding up, termination of existence, or insolvency of any
Guarantor.

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9 BANK’S RIGHTS AND REMEDIES

9.1 Rights and Remedies. When an Event of Default occurs and continues Bank may,
without notice or demand, do any or all of the following:

(a) Declare all Obligations immediately due and payable (but if an Event of
Default described in Section 8.5 occurs all Obligations are immediately due and
payable without any action by Bank);

(b) Stop advancing money or extending credit for Borrower’s benefit under this
Agreement or under any other agreement between Borrower and Bank;

(c) Demand that Borrower (i) deposit cash with Bank in an amount equal to the
aggregate amount of any letters of credit that are outstanding but undrawn, as
collateral security for the repayment of any future drawings under such letters
of credit, and Borrower shall forthwith deposit and pay such amounts, and (ii)
pay in advance all letter of credit fees scheduled to be paid or payable over
the remaining term of any letters of credit;

(d) Settle or adjust disputes and claims directly with Account Debtors for
amounts, on terms and in any order that Bank considers advisable and notify any
Person owing Borrower money of Bank’s security interest in such funds and verify
the amount of such account. Borrower shall collect all payments in trust for
Bank and, if requested by Bank, immediately deliver the payments to Bank in the
form received from the Account Debtor, with proper endorsements for deposit;

(e) Make any payments and do any acts it considers necessary or reasonable to
protect its security interest in the Collateral. Borrower shall assemble the
Collateral if Bank requests and make it available as Bank designates. Bank may
enter premises where the Collateral is located, take and maintain possession of
any part of the Collateral, and pay, purchase, contest, or compromise any Lien
which appears to be prior or superior to its security interest and pay all
expenses incurred. Borrower grants Bank a license to enter and occupy any of its
premises, without charge, to exercise any of Bank’s rights or remedies;

(f) Apply to the Obligations any (i) balances and deposits of Borrower it holds,
or (ii) any amount held by Bank owing to or for the credit or the account of
Borrower;

(g) Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale,
advertise for sale, and sell the Collateral. Bank is hereby granted a
non-exclusive, royalty-free license or other right to use, without charge,
Borrower’s labels, patents, copyrights, mask works, rights of use of any name,
trade secrets, trade names, trademarks, service marks, and advertising matter,
or any similar property as it pertains to the Collateral, in completing
production of, advertising for sale, and selling any Collateral and, in
connection with Bank’s exercise of its rights under this Section, Borrower’s
rights under all licenses and all franchise agreements inure to Bank’s benefit;

(h) Place a “hold” on any account maintained with Bank and/or deliver a notice
of exclusive control, any entitlement order, or other directions or instructions
pursuant to any control agreement or similar agreements providing control of any
Collateral;

(i) Exercise all rights and remedies and dispose of the Collateral according to
the Code; and

(j) Demand and receive possession of Borrower’s Books.

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9.2 Bank Expenses; Unpaid Fees. If Borrower fails to obtain insurance called for
by Section 6.5 or fails to pay any premium thereon or fails to pay any other
amount which Borrower is obligated to pay under this Agreement or by any other
Loan Document, Bank may obtain such insurance or make such payment, and all
amounts so paid by Bank are Bank Expenses and immediately due and payable,
bearing interest at the then highest applicable rate, and secured by the
Collateral. Bank will make reasonable effort to provide Borrower with notice of
Bank obtaining such insurance at the time it is obtained or within a reasonable
time thereafter. No payments by Bank are deemed an agreement to make similar
payments in the future or Bank’s waiver of any Event of Default.

9.3 Bank’s Liability for Collateral. So long as Bank complies with reasonable
banking practices regarding the safekeeping of Collateral in possession or under
the control of Bank, Bank shall not be liable or responsible for: (a) the
safekeeping of the Collateral; (b) any loss or damage to the Collateral; (c) any
diminution in the value of the Collateral; or (d) any act or default of any
carrier, warehouseman, bailee, or other Person. Borrower bears all risk of loss,
damage or destruction of the Collateral.

9.4 Remedies Cumulative. Bank’s rights and remedies under this Agreement, the
Loan Documents, and all other agreements are cumulative. Bank has all rights and
remedies provided under the Code, by law, or in equity. Bank’s exercise of one
right or remedy is not an election, and Bank’s waiver of any Event of Default is
not a continuing waiver. Bank’s delay is not a waiver, election, or
acquiescence. No waiver hereunder shall be effective unless signed by Bank and
then is only effective for the specific instance and purpose for which it was
given.

9.5 Demand Waiver. Borrower waives demand, notice of default or dishonor, notice
of payment and nonpayment, notice of any default, nonpayment at maturity,
release, compromise, settlement, extension, or renewal of accounts, documents,
instruments, chattel paper, and guarantees held by Bank on which Borrower is
liable.

10 NOTICES.

All notices, consents, requests, approvals, demands, or other communication
(collectively, “Communication”), other than Advance requests made pursuant to
Sections 2.1.1(c) and 3.2, by any party to this Agreement or any other Loan
Document must be in writing and be delivered or sent by facsimile at the
addresses or facsimile numbers listed below. Bank or Borrower may change its
notice address by giving the other party written notice thereof. Each such
Communication shall be deemed to have been validly served, given, or delivered:
(a) upon the earlier of actual receipt and three (3) Business Days after deposit
in the U.S. mail, registered or certified mail, return receipt requested, with
proper postage prepaid; (b) upon transmission, when sent by facsimile
transmission (with such facsimile promptly confirmed by delivery of a copy by
personal delivery or United States mail as otherwise provided in this Section
10); (c) one (1) Business Day after deposit with a reputable overnight courier
with all charges prepaid; or (d) when delivered, if hand-delivered by messenger,
all of which shall be addressed to the party to be notified and sent to the
address or facsimile number indicated below. Advance requests made pursuant to
Sections 2.1.1(c) and 3.2 must be in writing and may be in the form of
electronic mail, delivered to Bank by Borrower at the e-mail address of Bank
provided below and shall be deemed to have been validly served, given, or
delivered when sent (with such electronic mail promptly confirmed by delivery of
a copy by personal delivery or United States mail as otherwise provided in this
Section 10). Bank or Borrower may change its address, facsimile number, or
electronic mail address by giving the other party written notice thereof in
accordance with the terms of this Section 10.
 

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If to Borrower:
Paradigm Holdings, Inc.

9715 Key West Avenue, Third Floor
Rockville, Maryland 20850
Attn: Mr. Richard Sawchak
Fax: (240) 235-4380
Email: rsawchak@paradigmsolutions.com
 

If to Bank:
Silicon Valley Bank

One Newton Executive Park, Suite 200
2221 Washington Street, Newton, MA 02462
Attn: Mr. Michael Tramack
Fax: (617) 969-5962
Email: mtramack@svb.com
 

with a copy to:
Riemer & Braunstein LLP

Three Center Plaza
Boston, Massachusetts 02108
Attn: David A. Ephraim, Esquire
Fax: (617) 880-3456
Email: DEphraim@riemerlaw.com

11 CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER

California law governs the Loan Documents without regard to principles of
conflicts of law. Borrower and Bank each submit to the exclusive jurisdiction of
the State and Federal courts in California. NOTWITHSTANDING THE FOREGOING, BANK
SHALL HAVE THE RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST BORROWER OR ITS
PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION WHICH BANK DEEMS NECESSARY OR
APPROPRIATE IN ORDER TO REALIZE ON THE COLLATERAL OR TO OTHERWISE ENFORCE BANK’S
RIGHTS AGAINST BORROWER OR ITS PROPERTY. Borrower expressly submits and consents
in advance to such jurisdiction in any action or suit commenced in any such
court, and Borrower hereby waives any objection that it may have based upon lack
of personal jurisdiction, improper venue, or forum non conveniens and hereby
consents to the granting of such legal or equitable relief as is deemed
appropriate by such court. Borrower hereby waives personal service of the
summons, complaints, and other process issued in such action or suit and agrees
that service of such summons, complaints, and other process may be made by
registered or certified mail addressed to Borrower at the address set forth in
Section 10 of this Agreement and that service so made shall be deemed completed
upon the earlier to occur of Borrower’s actual receipt thereof or three (3) days
after deposit in the U.S. mails, proper postage prepaid.

TO THE EXTENT PERMITTED BY APPLICABLE LAW, BORROWER AND BANK EACH WAIVE THEIR
RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED
UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION,
INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A
MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT. EACH PARTY
HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

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WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES’ AGREEMENT TO WAIVE THEIR
RESPECTIVE RIGHT TO A TRIAL BY JURY, if the above waiver of the right to a trial
by jury is not enforceable, the parties hereto agree that any and all disputes
or controversies of any nature between them arising at any time shall be decided
by a reference to a private judge, mutually selected by the parties (or, if they
cannot agree, by the Presiding Judge of the Santa Clara County, California
Superior Court) appointed in accordance with California Code of Civil Procedure
Section 638 (or pursuant to comparable provisions of federal law if the dispute
falls within the exclusive jurisdiction of the federal courts), sitting without
a jury, in Santa Clara County, California; and the parties hereby submit to the
jurisdiction of such court. The reference proceedings shall be conducted
pursuant to and in accordance with the provisions of California Code of Civil
Procedure §§ 638 through 645.1, inclusive. The private judge shall have the
power, among others, to grant provisional relief, including without limitation,
entering temporary restraining orders, issuing preliminary and permanent
injunctions and appointing receivers. All such proceedings shall be closed to
the public and confidential and all records relating thereto shall be
permanently sealed. If during the course of any dispute, a party desires to seek
provisional relief, but a judge has not been appointed at that point pursuant to
the judicial reference procedures, then such party may apply to the Santa Clara
County, California Superior Court for such relief. The proceeding before the
private judge shall be conducted in the same manner as it would be before a
court under the rules of evidence applicable to judicial proceedings. The
parties shall be entitled to discovery which shall be conducted in the same
manner as it would be before a court under the rules of discovery applicable to
judicial proceedings. The private judge shall oversee discovery and may enforce
all discovery rules and order applicable to judicial proceedings in the same
manner as a trial court judge. The parties agree that the selected or appointed
private judge shall have the power to decide all issues in the action or
proceeding, whether of fact or of law, and shall report a statement of decision
thereon pursuant to the California Code of Civil Procedure § 644(a). Nothing in
this paragraph shall limit the right of any party at any time to exercise
self-help remedies, foreclose against collateral, or obtain provisional
remedies. The private judge shall also determine all issues relating to the
applicability, interpretation, and enforceability of this paragraph.

12 GENERAL PROVISIONS

12.1 Successors and Assigns. This Agreement binds and is for the benefit of the
successors and permitted assigns of each party. Borrower may not assign this
Agreement or any rights or Obligations under it without Bank’s prior written
consent which may be granted or withheld in Bank’s discretion. Bank has the
right, without the consent of or notice to Borrower, to sell, transfer,
negotiate, or grant participation in all or any part of, or any interest in,
Bank’s obligations, rights and benefits under this Agreement, the Loan Documents
or any related agreement.

12.2 Indemnification. Borrower agrees to indemnify, defend, and hold Bank and
its officers, directors, employees, agents, attorneys or any other Person
affiliated with or representing Bank harmless against: (a) all obligations,
demands, claims, and liabilities (collectively, “Claims”) asserted by any other
party in connection with the transactions contemplated by the Loan Documents;
and (b) all losses or Bank Expenses incurred, or paid by Bank from, following,
or arising from transactions between Bank and Borrower (including reasonable
attorneys’ fees and expenses), except for Claims and/or losses directly caused
by Bank’s gross negligence or willful misconduct.

12.3 Right of Set-Off. Borrower hereby grants to Bank, a lien, security interest
and right of set-off as security for all Obligations to Bank, whether now
existing or hereafter arising upon and against all deposits, credits, collateral
and property, now or hereafter in the possession, custody, safekeeping or
control of Bank or any entity under the control of Bank (including a Bank
subsidiary) or in transit to any of them. At any time after the occurrence and
during the continuance of an Event of Default, without demand or notice, Bank
may set off the same or any part thereof and apply the same to any liability or
obligation of Borrower even though unmatured and regardless of the adequacy of
any other collateral securing the Obligations. ANY AND ALL RIGHTS TO REQUIRE
BANK TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL
WHICH SECURES THE OBLIGATIONS, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH
RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF BORROWER, ARE HEREBY
KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.

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12.4 Time of Essence. Time is of the essence for the performance of all
Obligations in this Agreement.

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

12.6 Amendments in Writing; Integration. All amendments to this Agreement must
be in writing signed by both Bank and Borrower. This Agreement and the Loan
Documents represent the entire agreement about this subject matter, and
supersede prior negotiations or agreements. All prior agreements,
understandings, representations, warranties, and negotiations between the
parties about the subject matter of this Agreement and the Loan Documents merge
into this Agreement and the Loan Documents.

12.7 Counterparts. This Agreement may be executed in any number of counterparts
and by different parties on separate counterparts, each of which, when executed
and delivered, are an original, and all taken together, constitute one
Agreement.

12.8 Borrower Liability. Either Borrower may, acting singly, request Advances
hereunder. Each Borrower hereby appoints the other as agent for the other for
all purposes hereunder, including with respect to requesting Advances hereunder.
Each Borrower hereunder shall be obligated to repay all Advances made hereunder,
regardless of which Borrower actually receives said Advance, as if each Borrower
hereunder directly received all Advances. Each Borrower waives any right to
require Bank to: (i) proceed against any Borrower or any other person; (ii)
proceed against or exhaust any security; or (iii) pursue any other remedy. Bank
may exercise or not exercise any right or remedy it has against any Borrower or
any security it holds (including the right to foreclose by judicial or
non-judicial sale) without affecting any Borrower’s liability. Notwithstanding
any other provision of this Agreement or other related document, each Borrower
irrevocably waives all rights that it may have at law or in equity (including,
without limitation, any law subrogating Borrower to the rights of Bank under
this Agreement) to seek contribution, indemnification or any other form of
reimbursement from any other Borrower, or any other Person now or hereafter
primarily or secondarily liable for any of the Obligations, for any payment made
by Borrower with respect to the Obligations in connection with this Agreement or
otherwise and all rights that it might have to benefit from, or to participate
in, any security for the Obligations as a result of any payment made by Borrower
with respect to the Obligations in connection with this Agreement or otherwise.
Any agreement providing for indemnification, reimbursement or any other
arrangement prohibited under this Section shall be null and void. If any payment
is made to a Borrower in contravention of this Section, such Borrower shall hold
such payment in trust for Bank and such payment shall be promptly delivered to
Bank for application to the Obligations, whether matured or unmatured.

12.9 Survival. All covenants, representations and warranties made in this
Agreement continue in full force until this Agreement has terminated pursuant to
its terms and all Obligations (other than inchoate indemnity obligations and any
other obligations which, by their terms, are to survive the termination of this
Agreement) have been satisfied. The obligation of Borrower in Section 12.2 to
indemnify Bank shall survive until the statute of limitations with respect to
such claim or cause of action shall have run.

12.10 Confidentiality. In handling any confidential information, Bank shall
exercise the same degree of care that it exercises for its own proprietary
information, but disclosure of information may be made: (a) to Bank’s
Subsidiaries or Affiliates; (b) to prospective transferees or purchasers of any
interest in the Advances (provided, however, Bank shall use commercially
reasonable efforts to obtain such prospective transferee’s or purchaser’s
agreement to the terms of this provision); (c) as required by law, regulation,
subpoena, or other order, (d) to Bank’s regulators or as otherwise in connection
with Bank’s examination or audit; and (e) as Bank considers appropriate in
exercising remedies under this Agreement. Confidential information does not
include information that either: (i) is in the public domain or in Bank’s
possession when disclosed to Bank, or becomes part of the public domain after
disclosure to Bank; or (ii) is disclosed to Bank by a third party, if Bank does
not know that the third party is prohibited from disclosing the information.

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12.11 Trigger Event. Upon the occurrence of the Trigger Event, this Agreement
shall be immediately terminated. Any Obligations outstanding related to HUD
Account Advances shall be immediately due and payable. Any Obligations
outstanding related to Federal Agency Accounts, Subcontractor Accounts and
Unbilled Accounts shall be refinanced under the Loan and Security Agreement
attached hereto as Exhibit C (the “Trigger Event Agreement”), which shall only
become effective after the Trigger Event. To the extent that Borrower does not
have sufficient availability under the Trigger Event Agreement with respect to
such Obligations, Borrower shall immediately pay to Bank such excess amount.

12.12 Attorneys’ Fees, Costs and Expenses. In any action or proceeding between
Borrower and Bank arising out of or related to the Loan Documents, the
prevailing party will be entitled to recover its reasonable attorneys’ fees and
other reasonable costs and expenses incurred, in addition to any other relief to
which it may be entitled.

13 DEFINITIONS

13.1 Definitions. In this Agreement:

“Account” is any “account” as defined in the Code with such additions to such
term as may hereafter be made, and includes, without limitation, all accounts
receivable and other sums owing to Borrower.

“Account Debtor” is as defined in the Code and shall include, without
limitation, any person liable on any Financed Receivable, such as, a guarantor
of the Financed Receivable and any issuer of a letter of credit or banker’s
acceptance.

“Adjusted Quick Ratio” is the ratio of Quick Assets to Current Liabilities minus
Deferred Revenue.

“Adjustments” are all discounts, allowances, returns, disputes, counterclaims,
offsets, defenses, rights of recoupment, rights of return, warranty claims, or
short payments, asserted by or on behalf of any Account Debtor for any Financed
Receivable.

“Advance” is defined in Section 2.1.1.

“Advance Rate” is (a) with respect to Federal Agency Accounts, ninety percent
(90.0%), net of any offsets related to each specific Account Debtor, including,
without limitation, Deferred Revenue, or such other percentage as Bank
establishes under Section 2.1.1, (b) with respect to Subcontractor Accounts,
Unbilled Accounts (except for Unbilled IRS Accounts), and HUD Accounts, eighty
percent (80.0%), net of any offsets related to each specific Account Debtor,
including, without limitation, Deferred Revenue, or such other percentage as
Bank establishes under Section 2.1.1, and (c) with respect to Unbilled IRS
Accounts, sixty percent (60.0%), net of any offsets related to each specific
Account Debtor, including, without limitation, Deferred Revenue, or such other
percentage as Bank establishes under Section 2.1.1.

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“Affiliate” is a Person that owns or controls directly or indirectly the Person,
any Person that controls or is controlled by or is under common control with the
Person, and each of that Person’s senior executive officers, directors, partners
and, for any Person that is a limited liability company, that Person’s managers
and members.

“Anniversary Date” is defined in Section 2.2.2.

“Anniversary Fee” is defined in Section 2.2.2.

“Applicable Rate” is (a) with respect to Financed Receivables based upon Federal
Agency Accounts, Subcontractor Accounts and Unbilled Accounts, a per annum rate
equal to the Prime Rate plus one percent (1.0%), and (b) with respect to
Financed Receivables based upon HUD Accounts, a per annum rate equal to the
Prime Rate plus two percent (2.0%).

“Bank Expenses” are all audit fees and expenses and reasonable costs or expenses
(including reasonable attorneys’ fees and expenses) for preparing, negotiating,
administering, defending and enforcing the Loan Documents (including appeals or
Insolvency Proceedings).

“Billed HUD Account Advance” is defined in the definition of “HUD Account”.

“Borrower’s Books” are all Borrower’s books and records including ledgers,
records regarding Borrower’s assets or liabilities, the Collateral, business
operations or financial condition and all computer programs or discs or any
equipment containing the information.

“Business Day” is any day that is not a Saturday, Sunday or a day on which Bank
is closed.

“Closing Date” is the date of this Agreement.

“Code” is the Uniform Commercial Code as adopted in California, as amended and
as may be amended and in effect from time to time.

“Collateral” is any and all properties, rights and assets of Borrower granted by
Borrower to Bank or arising under the Code, now, or in the future, in which
Borrower obtains an interest, or the power to transfer rights, as described on
Exhibit A.

“Collateral Handling Fee” is defined in Section 2.2.4.

“Collections” are all funds received by Bank from or on behalf of an Account
Debtor for Financed Receivables.

“Compliance Certificate” is attached as Exhibit B.

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

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“Credit Extension” is any Advance, or any other extension of credit by Bank for
Borrower’s benefit.

“Deferred Revenue” is all amounts received or invoiced, as appropriate, in
advance of performance under contracts and not yet recognized as revenue.

“Early Termination Fee” is defined in Section 2.1.1.

“EBITDA” shall mean (a) Net Income, plus (b) Interest Expense, plus (c) to the
extent deducted in the calculation of Net Income, depreciation expense and
amortization expense (including FAS123r expenses and goodwill impairments), plus
(d) income tax expense, plus (e) severance and restructuring expenses not to
exceed $250,000.00 in any calendar year.

“EBITDA Losses” is defined in Section 6.7.

“Eligible Accounts” are billed Accounts in the ordinary course of Borrower’s
business that meet all Borrower’s representations and warranties in Section 5.3,
have been, at the option of Bank, confirmed in accordance with Section 2.1.1(d),
and are due and owing from Account Debtors deemed creditworthy by Bank. Without
limiting the fact that the determination of which Accounts are eligible
hereunder is a matter of Bank discretion in each instance, Eligible Accounts
shall not include the following Accounts (which listing may be amended or
changed in Bank’s discretion with notice to Borrower):

(a) Accounts that the Account Debtor has not paid within ninety (90) days of
invoice date;

(b) Accounts for which the Account Debtor does not have its principal place of
business in the United States, unless agreed to by Bank in writing, in its sole
discretion, on a case-by-case basis;

(c) Accounts for which the Account Debtor is a federal, state or local
government entity or any department, agency, or instrumentality thereof except
for Accounts of the United States if the payee has assigned its payment rights
to Bank and the assignment has been acknowledged under the Assignment of Claims
Act of 1940 (31 U.S.C. 3727);

(d) Accounts for which Borrower owes the Account Debtor, but only up to the
amount owed (sometimes called “contra” accounts, accounts payable, pre-bill,
customer deposits or credit accounts);

(e) Accounts for demonstration or promotional equipment, or in which goods are
consigned, sales guaranteed, sale or return, sale on approval, bill and hold, or
other terms if the Account Debtor’s payment may be conditional;

(f) Accounts for which the Account Debtor is Borrower’s Affiliate, officer,
employee, or agent;

(g) Accounts in which the Account Debtor disputes liability or makes any claim
and Bank believes there may be a basis for dispute (but only up to the disputed
or claimed amount), or if the Account Debtor is subject to an Insolvency
Proceeding, or becomes insolvent, or goes out of business;

(h) Accounts owing from an Account Debtor, including Affiliates, whose total
obligations to Borrower exceed twenty-five percent (25.0%) (thirty-five percent
(35.0%) if the Account Debtor is an agency of the United States government) of
all Accounts, for the amounts that exceed that percentage, unless Bank approves
in writing;

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(i) Accounts for which the Account Debtor is the United States Department of
Housing and Urban Development; and

(j) Accounts for which Bank reasonably determines collection to be doubtful or
any Accounts which are unacceptable to Bank for any reason in its reasonable
discretion.

“ERISA” is the Employee Retirement Income Security Act of 1974, and its
regulations.

“Events of Default” are set forth in Article 8.

“Facility Amount” is Twelve Million Five Hundred Thousand Dollars
($12,500,000.00).

“Facility Fee” is defined in Section 2.2.2.

“Federal Agency Account Advance” is defined in Section 2.1.1(a).

“Federal Agency Accounts” are Accounts which satisfy (a), (b), and (c) below,
which require such Accounts to be (a) due and owing from an Account Debtor which
is an agency of the United States government, and (b) earned by Borrower in
connection with Borrower’s provision of services as a prime contractor, and (c)
Eligible Accounts hereunder. Notwithstanding the foregoing, Federal Agency
Accounts shall not include Unbilled Accounts, Subcontractor Accounts, or HUD
Accounts.

“Finance Charges” is defined in Section 2.2.3.

“Financed Receivables” are all those Federal Agency Accounts, Subcontractor
Accounts, Unbilled Accounts, and HUD Accounts, including their proceeds upon
which Bank finances and makes an Advance, as set forth in Section 2.1.1. A
Financed Receivable stops being a Financed Receivable (but remains Collateral)
when the Advance made for the Financed Receivable has been fully paid.

“Financed Receivable Balance” is the total outstanding gross face amount, at any
time, of any Financed Receivable.

“GAAP” is generally accepted accounting principles.

“Good Faith Deposit” is defined in Section 2.2.8.

“Governmental Authority” is any nation or government, any state or other
political subdivision thereof, any agency, authority, instrumentality,
regulatory body, court, central bank or other entity exercising executive,
legislative, judicial, taxing, regulatory or administrative functions of or
pertaining to government, any securities exchange and any self-regulatory
organization.

“Guarantor” is any present or future guarantor of the Obligations.

“HUD Account” is either (a) the estimated face value amount (as determined by
Borrower, subject to Section 5.5 hereof) of an invoice for a receivable that
will be generated (but has not yet been generated) pursuant to a binding
contract between Borrower and the United States Department of Housing and Urban
Development and deemed acceptable by Bank in its sole discretion (any HUD
Account Advance made based upon this subsection (a) shall be an “Unbilled HUD
Account Advance”), or (b) an Account due and owing from the United States
Department of Housing and Urban Development pursuant to a binding contract
between Borrower and the United States Department of Housing and Urban
Development which is an Eligible Account hereunder and which is (i) with respect
to any Advance requested on or prior to June 30, 2007, in connection with a
“statement of work” dated on or prior to February 1, 2007, and (ii) with respect
to any Advance requested after June 30, 2007, in connection with a “statement of
work” dated after February 1, 2007 (any HUD Account Advance made based upon this
subsection (b) shall be a “Billed HUD Account Advance”). Notwithstanding the
foregoing, HUD Accounts shall not include Federal Agency Accounts, Subcontractor
Accounts, or Unbilled Accounts.

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“HUD Account Advance” is defined in Section 2.1.1(a).

“HUD Facility Amount” is Six Million Two Hundred Fifty Thousand Dollars
($6,250,000.00).

“HUD Maturity Date” is (a) with respect to Unbilled HUD Account Advances, June
30, 2007, provided, however, such date shall be November 30, 2007, if, as of
June 30, 2007, all accounts receivable owing to Borrower in connection with any
“statement of work” have been billed, and (b) with respect to Billed HUD Account
Advances, November 30, 2007.

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

“Initial Audit” shall be the receipt by Bank of the results of a complete audit
of Borrower’s Collateral, with results satisfactory to Bank in its sole and
absolute discretion.

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

“Intellectual Property Collateral” is defined in the IP Agreement.

“Interest Expense” means for any fiscal period, interest expense (whether cash
or non-cash) determined in accordance with GAAP for the relevant period ending
on such date, including, in any event, interest expense with respect to any
Credit Extension and other Indebtedness of Borrower and its Subsidiaries,
including, without limitation or duplication, all commissions, discounts, or
related amortization and other fees and charges with respect to letters of
credit and bankers’ acceptance financing and the net costs associated with
interest rate swap, cap, and similar arrangements, and the interest portion of
any deferred payment obligation (including leases of all types).

“Inventory” is all “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” is any beneficial ownership of (including stock, partnership
interest or other securities) any Person, or any loan, advance or capital
contribution to any Person.

“Invoice Transmittal” shows Federal Agency Accounts, Subcontractor Accounts,
Unbilled Accounts, or HUD Accounts which Bank may finance and, for each such
Account, includes the Account Debtor’s, name, address, invoice amount, invoice
date and invoice number.

“IP Agreement” is that certain Intellectual Property Security Agreement executed
and delivered by Borrower to Bank.

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

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

“Loan Fees” is defined in Section 2.2.2.

“Lockbox” is defined in Section 2.2.7.

“Material Adverse Change” is: (i) A material impairment in the perfection or
priority of Bank’s security interest in the Collateral or in the value of such
Collateral; (ii) a material adverse change in the business, operations, or
condition (financial or otherwise) of Borrower; (iii) a material impairment of
the prospect of repayment of any portion of the Obligations; or (iv) Bank
determines, based upon information available to it and in its reasonable
judgment, that there is a reasonable likelihood that Borrower shall fail to
comply with one or more of the financial covenants in Section 6 during the next
succeeding financial reporting period.

“Maturity Date” is two (2) years from the Closing Date, subject to Section 12.11
hereunder.

“Minimum Finance Charge” is an amount equal to the amount of Finance Charges and
Collateral Handling Fees Bank would have earned in any Reconciliation Period if
Borrower’s Federal Agency Account Advances, Subcontractor Account Advances and
Unbilled Account Advances outstanding during such Reconciliation period averaged
Four Million Dollars ($4,000,000.00).

“Net Income” means, as calculated on a consolidated basis for Borrower and its
Subsidiaries for any period as at any date of determination, the net profit (or
loss), after provision for taxes, of Borrower and its Subsidiaries for such
period taken as a single accounting period.

“Obligations” are all advances, liabilities, obligations, covenants and duties
owing, arising, due or payable by Borrower to Bank now or later under this
Agreement or any other document, instrument or agreement, account (including
those acquired by assignment) primary or secondary, such as all Advances,
Finance Charges, Loan Fees, Early Termination Fee, Collateral Handling Fee,
interest, fees, expenses, professional fees and attorneys’ fees, or other
amounts now or hereafter owing by Borrower to Bank.

“Perfection Certificate” is defined in Section 5.1.

“Permitted Indebtedness” is:

(a) Borrower’s indebtedness to Bank under this Agreement or the Loan Documents;

(b) Subordinated Debt;

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

(d) Indebtedness secured by Permitted Liens.

“Permitted Investments” are: (i) marketable direct obligations issued or
unconditionally guaranteed by the United States or its agency or any state
maturing within 1 year from its acquisition, (ii) commercial paper maturing no
more than 1 year after its creation and having the highest rating from either
Standard & Poor’s Corporation or Moody’s Investors Service, Inc., (iii) Bank’s
certificates of deposit issued maturing no more than 1 year after issue, and
(iv) any other investments administered through Bank.

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“Permitted Liens” are:

(a) Liens arising under this Agreement or other Loan Documents;

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

(c) Purchase money Liens securing no more than One Hundred Thousand Dollars
($100,000.00) in the aggregate amount outstanding (i) on equipment acquired or
held by Borrower incurred for financing the acquisition of the equipment, or
(ii) existing on equipment when acquired, if the Lien is confined to the
property and improvements and the proceeds of the equipment;

(d) Leases or subleases and non-exclusive licenses or sublicenses granted in the
ordinary course of Borrower’s business, if the leases, subleases, licenses and
sublicenses permit granting Bank a security interest; and

(e) Liens incurred in the extension, renewal or refinancing of the indebtedness
secured by Liens described in (a) through (d), but any extension, renewal or
replacement Lien must be limited to the property encumbered by the existing Lien
and the principal amount of the indebtedness may not increase.

“Person” is any individual, sole proprietorship, partnership, limited liability
company, joint venture, company, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or government agency.

“Prime Rate” is Bank’s most recently announced “prime rate,” even if it is not
Bank’s lowest rate.

“Reconciliation Period” is each calendar month.

“Registered Organization” is any “registered organization” as defined in the
Code with such additions to such term as may hereafter be made.

“Requirement of Law” is as to any Person, the organizational or governing
documents of such Person, and any law (statutory or common), treaty, rule or
regulation or determination of an arbitrator or a court or other Governmental
Authority, in each case applicable to or binding upon such Person or any of its
property or to which such Person or any of its property is subject.

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

“Subcontractor Account Advance” is defined in Section 2.1.1(a).

“Subcontractor Accounts” are Accounts (a) earned by Borrower in connection with
Borrower’s provision of services as a subcontractor, and (b) that are Eligible
Accounts hereunder. Notwithstanding the foregoing, Subcontractor Accounts shall
not include Federal Agency Accounts, Unbilled Accounts, or HUD Accounts.

“Subordinated Debt” is debt incurred by Borrower subordinated to Borrower’s debt
to Bank (pursuant to a subordination agreement entered into between Bank,
Borrower and the subordinated creditor), on terms acceptable to Bank.

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“Subsidiary” is any Person, corporation, partnership, limited liability company,
joint venture, or any other business entity of which more than 50% of the voting
stock or other equity interests is owned or controlled, directly or indirectly,
by the Person or one or more Affiliates of the Person.

“Success Fee” is defined in Section 2.2.2.

“Trigger Event” occurs when both (a) Borrower fully repays all Obligations
related to HUD Account Advances, and (b) commencing with the quarter ending on
March 31, 2007, Borrower has two (2) consecutive quarters of EBITDA minus
unfunded capital expenditures of at least Five Hundred Thousand Dollars
($500,000.00) during each such quarter.

“Trigger Event Agreement” is defined in Section 12.11.

“Unbilled Account Advance” is defined in Section 2.1.1(a).

“Unbilled Accounts” is (a) the estimated face value amount (as determined by
Borrower, subject to Section 5.4 hereof) of an invoice for a receivable that
will be generated (but has not yet been generated) within thirty (30) days of
the date of a request for an Unbilled Accounts Advance pursuant to a binding
contract signed by an Account Debtor and deemed acceptable by Bank in its sole
discretion, and (b) the estimated face value amount (as determined by Borrower,
subject to Section 5.4 hereof) of an invoice for a receivable that will be
generated (but has not yet been generated) later than thirty (30) days but
within sixty (60) days after the date of a request for an Unbilled Accounts
Advance pursuant to a binding contract signed by the Internal Revenue Services
and deemed acceptable by Bank in its sole discretion. Any Account which is an
Unbilled Account as described in subsection (b) of the immediately preceding
sentence shall be an “Unbilled IRS Account”. Notwithstanding the foregoing,
Unbilled Accounts shall not include Federal Agency Accounts, Subcontractor
Accounts, or HUD Accounts.

“Unbilled HUD Account Advance” is defined in the definition of “HUD Account”.

“Unbilled IRS Account” is defined in the definition of “Unbilled Accounts”.

[Signature pages follows.]

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date first above written.

BORROWER:

PARADIGM HOLDINGS, INC.

By: /s/ Peter B. LaMontagne                               
Name: Peter B. LaMontagne
Title: President and CEO

PARADIGM SOLUTIONS CORPORATION

By: /s/ Peter B. LaMontagne                               
Name: Peter B. LaMontagne
Title: President and CEO

BANK:

SILICON VALLEY BANK

By: /s/ Laura Scott                                                
Name: Laura Scott
Title:

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EXHIBIT A

The Collateral consists of all of Borrower’s right, title and interest in and to
the following:

All goods, equipment, inventory, contract rights or rights to payment of money,
leases, license agreements, franchise agreements, general intangibles (including
payment intangibles) accounts (including health-care receivables), documents,
instruments (including any promissory notes), chattel paper (whether tangible or
electronic), cash, deposit accounts, fixtures, letters of credit rights (whether
or not the letter of credit is evidenced by a writing), commercial tort claims,
securities, and all other investment property, supporting obligations, and
financial assets, whether now owned or hereafter acquired, wherever located; and
any copyright rights, copyright applications, copyright registrations and like
protections in each work of authorship and derivative work, whether published or
unpublished, now owned or later acquired; any patents, trademarks, service marks
and applications therefor; trade styles, trade names, any trade secret rights,
including any rights to unpatented inventions, know-how, operating manuals,
license rights and agreements and confidential information, now owned or
hereafter acquired; or any claims for damages by way of any past, present and
future infringement of any of the foregoing; and

All Borrower’s books relating to the foregoing and any and all claims, rights
and interests in any of the above and all substitutions for, additions,
attachments, accessories, accessions and improvements to and replacements,
products, proceeds and insurance proceeds of any or all of the foregoing.
 
 

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EXHIBIT B

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SPECIALTY FINANCE DIVISION
Compliance Certificate

I, an authorized officer of Paradigm Holdings, Inc. and Paradigm Solutions
Corporation (individually and collectively, jointly and severally, “Borrower”)
certify under the Loan and Security Agreement (the “Agreement”) between Borrower
and Silicon Valley Bank (“Bank”) as follows (all capitalized terms used herein
shall have the meaning set forth in the Agreement):

Borrower represents and warrants for each Financed Receivable based upon Federal
Agency Accounts and Subcontractor Accounts:

Each Financed Receivable is an Eligible Account.

Borrower is the owner with legal right to sell, transfer, assign and encumber
such Financed Receivable;

The correct amount is on the Invoice Transmittal and is not disputed;

Payment is not contingent on any obligation or contract and Borrower has
fulfilled all its obligations as of the Invoice Transmittal date;

Each Financed Receivable is based on an actual sale and delivery of goods and/or
services rendered, is due to Borrower, is not past due or in default, has not
been previously sold, assigned, transferred, or pledged and is free of any
liens, security interests and encumbrances other than Permitted Liens;

There are no defenses, offsets, counterclaims or agreements for which the
Account Debtor may claim any deduction or discount;

It reasonably believes no Account Debtor is insolvent or subject to any
Insolvency Proceedings;

It has not filed or had filed against it Insolvency Proceedings and does not
anticipate any filing;

Bank has the right to endorse and/ or require Borrower to endorse all payments
received on Financed Receivables and all proceeds of Collateral.

No representation, warranty or other statement of Borrower in any certificate or
written statement given to Bank contains any untrue statement of a material fact
or omits to state a material fact necessary to make the statement contained in
the certificates or statement not misleading.

With respect to Financed Receivables based upon Unbilled Accounts, Borrower
represents and warrants that the estimated face value amount determined by
Borrower is based upon the best information available to Borrower and accurately
and fully (considering all known discounts available to each such Account
Debtor) reflects same. In addition, Borrower represents and warrants that there
are no discounts, offsets or other rights of any Account Debtor under any
Unbilled Account.

With respect to Financed Receivables based upon HUD Accounts, Borrower
represents and warrants that either (a) with respect to Financed Receivables
based upon Unbilled HUD Account Advances, the estimated face value amount
determined by Borrower is based upon the best information available to Borrower
and accurately and fully (considering all known discounts available to each such
Account Debtor) reflects same, and that there are no discounts, offsets or other
rights of any Account Debtor under any Unbilled Account, and (b) with respect to
Financed Receivables based upon Billed HUD Account Advances, such Billed HUD
Account is due and owing from the United States Department of Housing and Urban
Development pursuant to a binding contract between Borrower and the United
States Department of Housing and Urban Development and is an Eligible Account
hereunder.

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Additionally, Borrower represents and warrants as follows:

Borrower and each Subsidiary is duly existing and in good standing in its state
of formation and qualified and licensed to do business in, and in good standing
in, any state in which the conduct of its business or its ownership of property
requires that it be qualified except where the failure to do so could not
reasonably be expected to cause a Material Adverse Change. The execution,
delivery and performance of the Loan Documents have been duly authorized, and do
not conflict with Borrower’s organizational documents, nor constitute an event
of default under any material agreement by which Borrower is bound. Borrower is
not in default under any agreement to which or by which it is bound in which the
default could reasonably be expected to cause a Material Adverse Change.

Borrower has good title to the Collateral, free of Liens except Permitted Liens.
All inventory is in all material respects of good and marketable quality, free
from material defects.

Borrower is not an “investment company” or a company “controlled” by an
“investment company” under the Investment Company Act. Borrower is not engaged
as one of its important activities in extending credit for margin stock (under
Regulations X, T and U of the Federal Reserve Board of Governors). Borrower has
complied in all material respects with the Federal Fair Labor Standards Act.
Borrower has not violated any laws, ordinances or rules, the violation of which
could reasonably be expected to cause a Material Adverse Change. None of
Borrower’s or any Subsidiary’s properties or assets has been used by Borrower or
any Subsidiary or, to the best of Borrower’s knowledge, by previous Persons, in
disposing, producing, storing, treating, or transporting any hazardous substance
other than legally. Borrower and each Subsidiary has timely filed all required
tax returns and paid, or made adequate provision to pay, all material taxes,
except those being contested in good faith with adequate reserves under GAAP.
Borrower and each Subsidiary has obtained all consents, approvals and
authorizations of, made all declarations or filings with, and given all notices
to, all government authorities that are necessary to continue its business as
currently conducted except where the failure to obtain or make such consents,
declarations, notices or filings would not reasonably be expected to cause a
Material Adverse Change.

Borrower is in compliance with the Financial Covenant(s) set forth in Section
6.7 of the Agreement.

All representations and warranties in the Agreement are true and correct in all
material respects on this date, and Borrower represents that there is no
existing Event of Default.

Sincerely,

_________________________

________________________
Signature
________________________
Title
________________________

Date

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