**EXHIBIT 10.27**

 

AMENDED AND RESTATED FINANCING AND SECURITY AGREEMENT

 

THIS AMENDEDAND RESTATED FINANCING AND SECURITY AGREEMENT (this “Agreement”) is made this27 day of June, 2003, by and between PEC SOLUTIONS, INC., a corporationorganized under the laws of the State of Delaware (the “Borrower”) and BANK OFAMERICA, N. A., a national banking association (the “Lender”).

 

RECITALS

 

A.            TheBorrower and the Lender entered into a Financing and Security Agreement datedas of April 30, 2001, as modified by a First Amendment to Financing andSecurity Agreement dated November 21, 2001 and a Second Amendment toFinancing and Security Agreement dated as of April 30, 2003 (the same, asamended, modified, restated, substituted, extended, and renewed from time totime, collectively, the “Original Financing Agreement”).  Under the terms of the Original FinancingAgreement, the Lender extended to the Borrower a revolving credit facility anda letter of credit facility in the aggregate maximum principal amount of SixMillion Dollars ($6,000,000).

 

B.            TheBorrower has applied to the Lender for an increase in the existing creditfacilities consisting of a revolving credit facility in the maximum principalamount of $10,000,000 and a letter of credit facility, as part of that revolvingcredit facility, to be used by the Borrower for the Permitted Uses described inthis Agreement.

 

C.            TheLender is willing to make the credit facilities available to the Borrower uponthe terms and subject to the conditions set forth in this Agreement.

 

AGREEMENTS

 

NOW,THEREFORE, in consideration of the premises and for other good and valuableconsideration, the receipt of which is hereby acknowledged, the parties herebyagree as follows:

 

ARTICLE I

DEFINITIONS

 

Section 1.1             CertainDefined Terms.

 

As used inthis Agreement, the terms defined in the Preamble and Recitals hereto shallhave the respective meanings specified therein, and the following terms shallhave the following meanings:

 

“Account”individually and “Accounts” collectively mean all presently existing orhereafter acquired or created accounts, accounts receivable, health-careinsurance receivables, contract rights, notes, drafts, instruments,acceptances, chattel paper, leases and writings evidencing a monetaryobligation or a security interest in, or a lease of, goods, all rights topayment of a monetary obligation or other consideration under present or futurecontracts

 

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(including,without limitation, all rights (whether or not earned by performance) toreceive payments under presently existing or hereafter acquired or createdletters of credit), or by virtue of property that has been sold, leased,licensed, assigned or otherwise disposed of, services rendered or to berendered, loans and advances made or other considerations given, by or setforth in or arising out of any present or future chattel paper, note, draft,lease, acceptance, writing, bond, insurance policy, instrument, document orgeneral intangible, and all extensions and renewals of any thereof, all rightsunder or arising out of present or future contracts, agreements or generalinterest in goods which gave rise to any or all of the foregoing, including allcommercial tort claims, other claims or causes of action now existing orhereafter arising in connection with or under any agreement or document or byoperation of law or otherwise, all collateral security of any kind (including,without limitation, real property mortgages and deeds of trust) SupportingObligations, letter-of-credit rights and letters of credit given by any Personwith respect to any of the foregoing, all books and records in whatever media(paper, electronic or otherwise) recorded or stored, with respect to any or allof the foregoing and all equipment and general intangibles necessary or beneficialto retain, access and/or process the information contained in those books andrecords, and all Proceeds of the foregoing.

 

“AccountDebtor” means any Person who is obligated on a Receivable and “Account Debtors”mean all Persons who are obligated on the Receivables.

 

“AdditionalBorrower” means each Person that has executed and delivered an AdditionalBorrower Joinder Supplement that has been accepted and approved by the Lender.

 

“AdditionalBorrower Joinder Supplement” means an Additional Borrower Joinder Supplement insubstantially the form attached hereto as EXHIBIT A, with the blanksappropriately completed and executed and delivered by the Additional Borrowerand the Borrower.

 

“Affiliate”means, with respect to any designated Person, any other Person, (a) directly orindirectly controlling, directly or indirectly controlled by, or under director indirect common control with the Person designated, (b) directly orindirectly owning or holding five percent (5%) or more of any equity interestin such designated Person, or (c) five percent (5%) or more of whose stock orother equity interest is directly or indirectly owned or held by suchdesignated Person.  For purposes of thisdefinition, the term “control” (including with correlative meanings, the terms“controlling”, “controlled by” and “under common control with”) means thepossession, directly or indirectly, of the power to direct or cause thedirection of the management and policies of a Person, whether through ownershipof voting securities or other equity interests or by contract or otherwise.

 

“Agreement”means this Amended and Restated Financing and Security Agreement, as amended,restated, supplemented or otherwise modified in writing in accordance with theprovisions of Section 8.2 (Amendments; Waivers).

 

“AssetDisposition” means the disposition of any or all of the Assets of the Borroweror any of its Subsidiaries, whether by sale, lease, transfer or otherdisposition (including any such

 

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disposition effected by way ofmerger or consolidation) other than (a) sales of Inventory, (b) licensing ofPatents, Trademarks and/or Copyrights, and (c) dispositions of worn, surplus orobsolete Equipment, all only to the extent made in the ordinary course ofbusiness.

 

“Assets” meansat any date all assets that, in accordance with GAAP consistently applied,should be classified as assets on a consolidated balance sheet of the Borrowerand its Subsidiaries.

 

“BankruptcyCode” means Title 11 of the United States Code, as amended from time to time,and any successor Laws.

 

“Borrower”means each Person defined as a “Borrower” in the preamble of this Agreement andeach Additional Borrower; “Borrowers” means the collective reference to allPersons defined as “Borrowers” in the preamble to this Agreement and allAdditional Borrowers.

 

“Business Day”means any day other than a Saturday, Sunday or other day on which commercialbanks in the State are authorized or required to close.

 

“CapitalAdequacy Regulation” means any guideline, request or directive of any centralbank or other Governmental Authority, or any other law, rule or regulation,whether or not having the force of law, in each case, regarding capitaladequacy of any bank or of any corporation controlling a bank.

 

“CapitalExpenditure” means an expenditure for Fixed or Capital Assets including,without limitation, the entering into of a Capital Lease.

 

“CapitalLease” means any lease of real or personal property, for which the relatedLease Obligations have been or should be, in accordance with GAAP consistentlyapplied, capitalized on the balance sheet.

 

“CashEquivalents” means (a) securities with maturities of one year or less from thedate of acquisition issued or fully guaranteed or insured by the United StatesGovernment or any agency thereof, (b) certificates of deposit with maturitiesof one (1) year or less from the date of acquisition of, or money marketaccounts maintained with, the Lender, any Affiliate of the Lender, or any otherdomestic commercial bank having capital and surplus in excess of One HundredMillion Dollars ($100,000,000.00) or such other domestic financial institutionsor domestic brokerage houses to the extent disclosed to, and approved by, theLender and (c) commercial paper of a domestic issuer rated at least either A-1by Standard & Poor’s Corporation or P-1 by Moody’s Investors Service, Inc.with maturities of six (6) months or less from the date of acquisition.

 

“Closing Date”means the Business Day, in any event not later than June 27, 2003, onwhich the Lender shall be satisfied that the conditions precedent set forth inSection 5.1 (Conditions to Initial Advance) have been fulfilled.

 

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“Collateral”means all property of the Borrower subject from time to time to the Liens ofthis Agreement, any of the Security Documents and/or any of the other FinancingDocuments, together with any and all cash and non-cash proceeds and productsthereof.

 

“Commitment”means the collective reference to the Revolving Credit Commitment and theLetter of Credit Commitment.

 

“CommittedAmount” means the Revolving Credit Committed Amount or the Letter of CreditCommitted Amount, as the case may be, and “Committed Amounts” meanscollectively the Revolving Credit Committed Amount and the Letter of CreditCommitted Amount.

 

“ComplianceCertificate” means a periodic Compliance Certificate described in Section 6.1.1(Financial Statements).

 

“CommonlyControlled Entity” means an entity, whether or not incorporated, which is undercommon control with the Borrower within the meaning of Section 414(b) or (c) ofthe Internal Revenue Code.

 

“CreditFacility” means the Revolving Credit Facility or the Letter of Credit Facility,as the case may be, and “Credit Facilities” means collectively the RevolvingCredit Facility, the Letter of Credit Facility and any and all other creditfacilities now or hereafter extended under or secured by this Agreement.

 

“Default”means an event which, with the giving of notice or lapse of time, or both,could or would constitute an Event of Default under the provisions of thisAgreement.

 

“Documents”means all documents of title or receipts, whether now existing or hereafteracquired or created, and all Proceeds of the foregoing.

 

“Earnings”means net income, less income or loss from discontinued operations andextraordinary items, plus income taxes, plus interest expense.

 

“EBITDA” meansnet income, less income or plus loss from discontinued operations andextraordinary items, plus income taxes, plus interest expense, plusdepreciation, depletion, amortization and other non-cash charges.

 

“EnforcementCosts” means all expenses, charges, costs and fees whatsoever (including,without limitation, reasonable outside and allocated in-house counselattorney’s fees and expenses) of any nature whatsoever paid or incurred by oron behalf of the Lender in connection with (a) any or all of the Obligations,this Agreement and/or any of the other Financing Documents, (b) the creation,perfection, collection, maintenance, preservation, defense, protection,realization upon, disposition, sale or enforcement of all or any part of theCollateral, this Agreement or any of the other Financing Documents, including,without limitation, those costs and expenses more specifically enumeratedSection 3.4 (Costs) and/or Section 8.8 (Enforcement Costs), and furtherincluding, without limitation, amounts paid to lessors, processors, bailees,warehousemen, sureties, judgment creditors and others in possession of or

 

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with a Lien against or claimedagainst the Collateral, and (c) the monitoring, administration, processingand/or servicing of any or all of the Obligations, the Financing Documents,and/or the Collateral.

 

“Equipment”means all equipment, machinery, computers, chattels, tools, parts, machinetools, furniture, furnishings, fixtures and supplies of every nature, presentlyexisting or hereafter acquired or created and wherever located, whether or notthe same shall be deemed to be affixed to real property, and all of such typesof property leased by the Borrower and all of the Borrower’s rights andinterests with respect thereto under such leases (including, withoutlimitation, options to purchase), together with all accessions, additions,fittings, accessories, special tools, and improvements thereto andsubstitutions therefor and all parts and equipment which may be attached to orwhich are necessary or beneficial for the operation, use and/or disposition ofsuch personal property, all licenses, warranties, franchises and GeneralIntangibles related thereto or necessary or beneficial for the operation, useand/or disposition of the same, together with all Accounts, Chattel Paper,Instruments and other consideration received by the Borrower on account of thesale, lease or other disposition of all or any part of the foregoing, andtogether with all rights under or arising out of present or future Documentsand contracts relating to the foregoing and all Proceeds of the foregoing.

 

“ERISA” meansthe Employee Retirement Income Security Act of 1974, as amended from time totime.

 

“Event ofDefault” has the meaning described in ARTICLE VII (Default and Rights andRemedies).

 

“Facilities”means the collective reference to the loan, letter of credit, interest rateprotection, foreign exchange risk, cash management, and other credit facilitiesnow or hereafter provided to the Borrower by the Lender whether under thisAgreement or otherwise.

 

“Fees” meansthe collective reference to each fee payable to the Lender under the terms ofthis Agreement or under the terms of any of the other Financing Documents.

 

“FinancingDocuments” means at any time collectively this Agreement, the Note, theSecurity Documents, the Letter of Credit Documents, and any other instrument,agreement or document previously, simultaneously or hereafter executed anddelivered by the Borrower, any Guarantor and/or any other Person, singly orjointly with another Person or Persons, evidencing, securing, guarantying or inconnection with this Agreement, any Note, any of the Security Documents, any ofthe Facilities, and/or any of the Obligations.

 

“Fixed orCapital Assets” of a Person at any date means all assets which would, inaccordance with GAAP consistently applied, be classified on the balance sheetof such Person as property, plant or equipment at such date.

 

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“Funded Debt”means all outstanding liabilities for borrowed money, letters of credit, syntheticleases and other interest-bearing liabilities, including current and long-termdebt, and guarantees of the foregoing, less the non-current portion ofSubordinated Liabilities.

 

“GAAP” meansgenerally accepted accounting principles in the United States of America ineffect from time to time.

 

“GeneralIntangibles” means all general intangibles of every nature, whether presentlyexisting or hereafter acquired or created, and without implying any limitationof the foregoing, further means all books and records, commercial tort claims,other claims (including without limitation all claims for income tax and otherrefunds), payment intangibles, Supporting Obligations, choses in action,claims, causes of action in tort or equity, contract rights, judgments, customerlists, software, Patents, Trademarks, licensing agreements, rights inintellectual property, goodwill (including goodwill of the Borrower’s businesssymbolized by and associated with any and all Trademarks, trademark licenses,Copyrights and/or service marks), royalty payments, licenses, letter-of-creditrights, letters of credit, contractual rights, the right to receive refunds ofunearned insurance premiums, rights as lessee under any lease of real orpersonal property, literary rights, Copyrights, service names, service marks,logos, trade secrets, amounts received as an award in or settlement of a suitin damages, deposit accounts, interests in joint ventures, general or limitedpartnerships, or limited liability companies or partnerships, rights inapplications for any of the foregoing, books and records in whatever media(paper, electronic or otherwise) recorded or stored, with respect to any or allof the foregoing, all Supporting Obligations with respect to any of theforegoing, and all Equipment and General Intangibles necessary or beneficial toretain, access and/or process the information contained in those books andrecords, and all Proceeds of the foregoing.

 

“GovernmentalAuthority” means any nation or government, any state or other politicalsubdivision thereof and any entity exercising executive, legislative, judicial,regulatory or administrative functions of or pertaining to government and anydepartment, agency or instrumentality thereof.

 

“HazardousMaterials” means (a) any “hazardous waste” as defined by the ResourceConservation and Recovery Act of 1976, as amended from time to time, andregulations promulgated thereunder; (b) any “hazardous substance” as defined bythe Comprehensive Environmental Response, Compensation and Liability Act of1980, as amended from time to time, and regulations promulgated thereunder; (c)any substance the presence of which on any property now or hereafter owned,acquired or operated by the Borrower is prohibited by any Law similar to thoseset forth in this definition; and (d) any other substance which by Law requiresspecial handling in its collection, storage, treatment or disposal.

 

“HazardousMaterials Contamination” means the contamination (whether presently existing oroccurring after the date of this Agreement) by Hazardous Materials of anyproperty owned, operated or controlled by the Borrower or for which theBorrower has responsibility, including, without limitation, improvements,facilities, soil, ground water, air or other elements on, or of, any propertynow or hereafter owned, acquired or operated by the Borrower, and any

 

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other contamination byHazardous Materials for which the Borrower is, or is claimed to be,responsible.

 

“Indebtedness”of a Person means at any date the total liabilities of such Person at such timedetermined in accordance with GAAP consistently applied.

 

“Indebtednessfor Borrowed Money” of a Person means at any time the sum at such time of (a)indebtedness of such Person for borrowed money or for the deferred purchaseprice of property or services, (b) any obligations of such Person in respect ofletters of credit, banker’s or other acceptances or similar obligations issuedor created for the account of such Person, (c) Lease Obligations of such Personwith respect to Capital Leases, (d) all liabilities secured by any Lien on anyproperty owned by such Person, to the extent attached to such Person’s interestin such property, even though such Person has not assumed or become personallyliable for the payment thereof, (e) obligations of third parties which arebeing guarantied or indemnified against by such Person or which are secured bythe property of such Person; (f) any obligation of such Person under anemployee stock ownership plan or other similar employee benefit plan; (g) anyobligation of such Person or a Commonly Controlled Entity to a Multi-employerPlan; and (h) any obligations, liabilities or indebtedness, contingent orotherwise, under or in connection with, any Swap Contract; but excluding tradeand other accounts payable in the ordinary course of business in accordancewith customary trade terms and which are not overdue (as determined inaccordance with customary trade practices) or which are being disputed in goodfaith by such Person and for which adequate reserves are being provided on thebooks of such Person in accordance with GAAP.

 

“IndemnifiedParties” has the meaning set forth in Section 8.17 (Indemnification).

 

“Instrument”means a negotiable instrument or any other writing which evidences a right topayment of a monetary obligation and is not itself a security agreement orlease and is of a type that in the ordinary course of business is transferredby delivery with any necessary endorsement or assignment, and all SupportingObligations with respect to any of the foregoing and all Proceeds with respectto any of the foregoing.

 

“InterestCoverage Ratio” means the ratio of Earnings to interest expense on allIndebtedness for Borrowed Money.

 

“InternalRevenue Code” means the Internal Revenue Code of 1986, as amended from time totime, and the Income Tax Regulations issued and proposed to be issuedthereunder.

 

“InvestmentProperty” means a security, whether certificated or uncertificated, securityentitlement, securities account, commodity contract or commodity account andall Proceeds of, and Supporting Obligations with respect to, the foregoing.

 

“Laws” meansall ordinances, statutes, rules, regulations, orders, injunctions, writs, ordecrees of any Governmental Authority.

 

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“LeaseObligations” of a Person means for any period the rental commitments of suchPerson for such period under leases for real and/or personal property (net ofrent from subleases thereof, but including taxes, insurance, maintenance andsimilar expenses which such Person, as the lessee, is obligated to pay underthe terms of said leases, except to the extent that such taxes, insurance,maintenance and similar expenses are payable by sublessees), including rentalcommitments under Capital Leases.

 

“Letter ofCredit” and “Letters of Credit” shall have the meanings described in Section2.2.1 (Letters of Credit).

 

“Letter ofCredit Agreement” means the collective reference to each letter of creditapplication and agreement substantially in the form of the Lender’s thenstandard form of application for letter of credit or such other form as may beapproved by the Lender, executed and delivered by the Borrower in connectionwith the issuance of a Letter of Credit, as the same may from time to time beamended, restated, supplemented or modified and “Letter of Credit Agreements”means all of the foregoing in effect at any time and from time to time.

 

“Letter ofCredit Commitment” means the agreement of the Lender relating to the issuanceof Letters of Credit subject to and in accordance with the provisions of thisAgreement.

 

“Letter ofCredit Documents” means any and all drafts under or purporting to be under aLetter of Credit, any Letter of Credit Agreement, and any other instrument,document or agreement executed and/or delivered by the Borrower or any otherPerson under, pursuant to or in connection with a Letter of Credit or anyLetter of Credit Agreement.

 

“Letter ofCredit Facility” means the facility established by the Lender pursuant toSection 2.2 (Letter of Credit Facility).

 

“Letter ofCredit Fee” and “Letter of Credit Fees” have the meanings described in Section2.2.2 (Letter of Credit Fees).

 

“Letter ofCredit Obligations” means the collective reference to all Obligations of theBorrower with respect to the Letters of Credit and the Letter of CreditAgreements.

 

“Letter-of-creditright” means a right to payment or performance under a letter of credit,whether or not the beneficiary has demanded or is at the time entitled todemand payment or performance.

 

“Liabilities”means at any date all liabilities that in accordance with GAAP consistentlyapplied should be classified as liabilities on a consolidated balance sheet ofthe Borrower and its Subsidiaries.

 

“Lien” meansany mortgage, deed of trust, deed to secure debt, grant, pledge, securityinterest, assignment, encumbrance, judgment, lien, financing statement,hypothecation, provision in any instrument or other document for confession ofjudgment, cognovit or other similar right or other remedy, claim, charge,control over or interest of any kind in real or personal property

 

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securing any indebtedness,duties, obligations, and liabilities owed to, or a claimed to be owed to, aPerson, all whether perfected or unperfected, avoidable or unavoidable, basedon the common law, statute or contract or otherwise, including, withoutlimitation, any conditional sale or other title retention agreement, any leasein the nature thereof, and the filing of or agreement to give any financingstatement under the Uniform Commercial Code of any jurisdiction, excluding theprecautionary filing of any financing statement by any lessor in a true lease transaction,by any bailor in a true bailment transaction or by any consignor in a trueconsignment transaction under the Uniform Commercial Code of any jurisdictionor the agreement to give any financing statement by any lessee in a true leasetransaction, by any bailee in a true bailment transaction or by any consigneein a true consignment transaction.

 

“Loan” meanseach of the Revolving Loan.

 

“Loan Notice”has the meaning described in Section 2.1.2 (Procedure for Making Advances).

 

“Maximum Rate”has the meaning described in Section 2.3.4 (Maximum Interest Rate).

 

“Multi-employerPlan” means a Plan that is a Multi-employer plan as defined in Section4001(a)(3) of ERISA.

 

“Note” meansthe Revolving Credit and “Notes” means collectively the Revolving Credit Note,and any other promissory note which may from time to time evidence all or anyportion of the Obligations.

 

“Obligations”means all present and future indebtedness, duties, obligations, andliabilities, whether now existing or contemplated or hereafter arising, of theBorrower to the Lender under, arising pursuant to, in connection with and/or onaccount of the provisions of this Agreement, each Note, each Security Document,and/or any of the other Financing Documents, the Loan, any Swap Contract and/orany of the Facilities including, without limitation, the principal of, andinterest on, each Note, late charges, the Fees, Enforcement Costs, andprepayment fees (if any), letter of credit reimbursement obligations, letter ofcredit fees or fees charged with respect to any guaranty of any letter ofcredit; also means all other present and future indebtedness, duties,obligations, and liabilities, whether now existing or contemplated or hereafterarising, of the Borrower to the Lender of any nature whatsoever, regardless ofwhether such indebtedness, duties, obligations, and liabilities be direct,indirect, primary, secondary, joint, several, joint and several, fixed orcontingent; and also means any and all renewals, extensions, substitutions,amendments, restatements and rearrangements of any such indebtedness, duties,obligations, and liabilities.

 

“OutstandingLetter of Credit Obligations” has the meaning described in Section 2.2.3 (Termsof Letters of Credit).

 

“PBGC” meansthe Pension Benefit Guaranty Corporation.

 

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“PermittedLiens” means:  (a) Liens for Taxes whichare not delinquent or which the Lender has determined in the exercise of itssole and absolute discretion (i) are being diligently contested in good faithand by appropriate proceedings, and such contest operates to suspend collectionof the contested Taxes and enforcement of a Lien, (ii) the Borrower has thefinancial ability to pay, with all penalties and interest, at all times withoutmaterially and adversely affecting the Borrower, and (iii) are not, and willnot be with appropriate filing, the giving of notice and/or the passage oftime, entitled to priority over any Lien of the Lender; (b) deposits or pledgesto secure obligations under workers’ compensation, social security or similarlaws, or under unemployment insurance in the ordinary course of business; (c)Liens securing the Obligations; (d) judgment Liens to the extent the entry ofsuch judgment does not constitute a Default or an Event of Default under theterms of this Agreement or result in the sale or levy of, or execution on, anyof the Collateral; and (e) such other Liens, if any, as are set forth on Schedule4.1.16 attached hereto and made a part hereof.

 

“PermittedUses” means the payment of expenses incurred in the ordinary course of theBorrower’s business.

 

“Person” meansand includes an individual, a corporation, a partnership, a joint venture, alimited liability company or partnership, a trust, an unincorporated association,a Governmental Authority, or any other organization or entity.

 

“Plan” meansany pension plan that is covered by Title IV of ERISA and in respect of whichthe Borrower or a Commonly Controlled Entity is an “employer” as defined inSection 3 of ERISA.

 

“Prime Rate”means the rate of interest publicly announced from time to time by the Lenderas its prime rate.  It is a rate set bythe Lender based upon various factors including the Lender’s costs and desiredreturn, general economic conditions, and other factors, and is used as areference point for pricing some loans. However, the Lender may price loans at, above, or below such announcedrate.  Any changes in the Prime Rateshall take effect on the day specified in the public announcement of such change.

 

“Post-DefaultRate” means the Prime Rate in effect from time to time, plus three percent (3%)per annum.

 

“Prepayment”means a Revolving Loan Optional Prepayment as the case may be, and“Prepayments” mean collectively all Revolving Loan Optional Prepayments.

 

“Proceeds” hasthe meaning described in the Uniform Commercial Code as in effect from time totime.

 

“Receivable”means one of the Borrower’s now owned and hereafter owned, acquired or createdAccounts, Chattel Paper, General Intangibles and Instruments; and “Receivables”means all of the Borrower’s now or hereafter owned, acquired or createdAccounts, Chattel Paper, General Intangibles and Instruments, and all cash andnon-cash proceeds and products thereof.

 

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“RegisteredOrganization” means an organization organized solely under the law of a singlestate or the United States and as to which the state or the United States mustmaintain a public record showing the organization to have been organized.

 

“ReportableEvent” means any of the events set forth in Section 4043(c) of ERISA or theregulations thereunder.

 

“ResponsibleOfficer” means the chief executive officer of the Borrower or the president ofthe Borrower or, with respect to financial matters, the chief financial officerof the Borrower.

 

“RevolvingCredit Commitment” means the agreement of the Lender relating to the making ofthe Revolving Loan and advances thereunder subject to and in accordance withthe provisions of this Agreement.

 

“RevolvingCredit Commitment Period” means the period of time from the Closing Date to theBusiness Day preceding the Revolving Credit Termination Date.

 

“RevolvingCredit Committed Amount” has the meaning described in Section 2.1.1 (RevolvingCredit Facility).

 

“RevolvingCredit Expiration Date” means June 30, 2005.

 

“RevolvingCredit Facility” means the facility established by the Lender pursuant toSection 2.1 (Revolving Credit Facility).

 

“RevolvingCredit Note” has the meaning described in Section 2.1.3 (Revolving CreditNote).

 

“RevolvingCredit Termination Date” means the earlier of (a) the Revolving CreditExpiration Date, or (b) the date on which the Revolving Credit Commitment isterminated pursuant to Section 7.2 (Remedies) or otherwise.

 

“RevolvingCredit Fee” and “Revolving Credit Fees” have the meanings described in Section2.1.6 (Revolving Credit Fee).

 

“RevolvingLoan” has the meaning described in Section 2.1.1 (Revolving Credit Facility).

 

“RevolvingLoan Account” has the meaning described in Section 2.1.5 (Revolving LoanAccount).

 

“RevolvingLoan Optional Prepayment” and “Revolving Loan Optional Prepayments” have themeanings described in Section 2.1.4 (Optional Prepayment of Revolving Loan).

 

“SecurityDocuments” means collectively any assignment, pledge agreement, securityagreement, mortgage, deed of trust, deed to secure debt, financing statementand any similar

 

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instrument, document oragreement under or pursuant to which a Lien is now or hereafter granted to, orfor the benefit of, the Lender on any real or personal property of any Personto secure all or any portion of the Obligations, all as the same may from timeto time be amended, restated, supplemented or otherwise modified.

 

“State” meansthe Commonwealth of Virginia.

 

“SubordinatedLiabilities” means liabilities subordinated to Borrower’s obligations to Lenderin a manner acceptable to Lender in its sole discretion.

 

“Subsidiary”means any corporation the majority of the voting shares of which at the timeare owned directly by the Borrower and/or by one or more Subsidiaries of theBorrower.

 

“SupportingObligation” means a Letter-of-credit right, secondary obligation or obligationof a secondary obligor or that supports the payment or performance of anaccount, chattel paper, a document, a general intangible, an instrument orinvestment property.

 

“SwapContract” means any document, instrument or agreement between Borrower andLender or any affiliate of Lender, now existing or entered into in the future,relating to an interest rate swap transaction, forward rate transaction,interest rate cap, floor or collar transaction, any similar transaction, anyoption to enter into any of the foregoing, and any combination of the foregoing,which agreement may be oral or in writing, including, without limitation, anymaster agreement relating to or governing any or all of the foregoing and anyrelated schedule or confirmation, each as amended from time to time.

 

“Taxes” meansall taxes and assessments whether general or special, ordinary orextraordinary, or foreseen or unforeseen, of every character (including allpenalties or interest thereon), which at any time may be assessed, levied,confirmed or imposed by any Governmental Authority on the Borrower or any ofits properties or assets or any part thereof or in respect of any of itsfranchises, businesses, income or profits.

 

“UniformCommercial Code” means, unless otherwise provided in this Agreement, theUniform Commercial Code as adopted by and in effect from time to time in theState or in any other jurisdiction, as applicable.

 

“Wholly OwnedSubsidiary” means any domestic United States corporation all the shares ofstock of all classes of which (other than directors’ qualifying shares) at thetime are owned directly or indirectly by the Borrower and/or by one or moreWholly Owned Subsidiaries of the Borrower.

 

Section 1.2             AccountingTerms and Other Definitional Provisions.

 

Unlessotherwise defined herein, as used in this Agreement and in any certificate,report or other document made or delivered pursuant hereto, accounting termsnot otherwise defined herein, and accounting terms only partly defined herein,to the extent not defined, shall have the respective meanings given to themunder GAAP, as consistently applied to the applicable

 

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Person.  All terms used herein which are defined bythe Uniform Commercial Code shall have the same meanings as assigned to them bythe Uniform Commercial Code unless and to the extent varied by thisAgreement.  The words “hereof”, “herein”and “hereunder” and words of similar import when used in this Agreement shallrefer to this Agreement as a whole and not to any particular provision of thisAgreement, and article, section, subsection, schedule and exhibit referencesare references to articles, sections or subsections of, or schedules orexhibits to, as the case may be, this Agreement unless otherwisespecified.  As used herein, the singularnumber shall include the plural, the plural the singular and the use of themasculine, feminine or neuter gender shall include all genders, as the contextmay require.  Reference to any one ormore of the Financing Documents shall mean the same as the foregoing may fromtime to time be amended, restated, substituted, extended, renewed, supplementedor otherwise modified.

 

ARTICLE II

THE CREDIT FACILITIES

 

Section 2.1             TheRevolving Credit Facility.

 

2.1.1        Revolving CreditFacility.

 

Subject to andupon the provisions of this Agreement, the Lender establishes a revolvingcredit facility in favor of the Borrower. The aggregate of all advances under the Revolving Credit Facility issometimes referred to in this Agreement collectively as the “Revolving Loan”.

 

The principal amountof Ten Million Dollars ($10,000,000) is the “Revolving Credit CommittedAmount”.  If at any time the unpaidprincipal balance of the Revolving Loan exceeds the Revolving Credit CommittedAmount in effect from time to time, the Borrower shall pay such excess to theLender ON DEMAND.

 

Unless soonerpaid, the unpaid Revolving Loan, together with interest accrued and unpaidthereon, and all other Obligations shall be due and payable in full on theRevolving Credit Expiration Date.

 

2.1.2        Procedurefor Making Advances Under the Revolving Loan; Lender Protection Loans.

 

The Borrowermay borrow under the Revolving Credit Facility on any Business Day.  Advances under the Revolving Loan shall bedeposited to a demand deposit account of the Borrower with the Lender (or anAffiliate of the Lender) or shall be otherwise applied as directed by theBorrower, which direction the Lender may require to be in writing.  No later than 10:00 a.m. (Eastern Time) onthe date of the requested borrowing, the Borrower shall give the Lender oral orwritten notice (a “Loan Notice”) of the amount and (if requested by the Lender)the purpose of the requested borrowing. Any oral Loan Notice shall be confirmed in writing by the Borrowerwithin three (3) Business Days after the making of the requested advance underthe Revolving Loan.  Each Loan Noticeshall be irrevocable.

 

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In addition,the Borrower hereby irrevocably authorizes the Lender at any time and from timeto time, without further request from or notice to the Borrower, to makeadvances under the Revolving Loan, which the Lender, in its sole and absolutediscretion, deems necessary or appropriate to protect the interests of theLender under this Agreement, including, without limitation, advances andreserves under the Revolving Loan made to cover debit balances in the RevolvingLoan Account, principal of, and/or interest on, any Loan, the Obligations(including, without limitation, any Letter of Credit Obligations), and/or EnforcementCosts, prior to, on, or after the termination of other advances under thisAgreement, regardless of whether the outstanding principal amount of theRevolving Loan that the Lender may advance or reserve hereunder exceeds theRevolving Credit Committed Amount.  TheLender shall provide the Borrower written notice of any advances made underthis paragraph as soon as reasonably practicable after the making of theadvance.

 

2.1.3        Revolving Credit Note.

 

The obligationof the Borrower to pay the Revolving Loan, with interest, shall be evidenced bya promissory note (as from time to time extended, amended, restated,supplemented or otherwise modified, the “Revolving Credit Note”) substantiallyin the form of EXHIBIT B attached hereto and made a part hereof, withappropriate insertions.  The RevolvingCredit Note shall be dated as of the Closing Date, shall be payable to theorder of the Lender at the times provided in the Revolving Credit Note, andshall be in the principal amount of the Revolving Credit Committed Amount.  The Borrower acknowledges and agrees that,if the outstanding principal balance of the Revolving Loan outstanding fromtime to time exceeds the face amount of the Revolving Credit Note, the excess shallbear interest rates provided from time to time for advances under the RevolvingLoan evidenced by the Revolving Credit Note and shall be payable, with accruedinterest, ON DEMAND.  The RevolvingCredit Note shall not operate as a novation of any of the Obligations ornullify, discharge, or release any such Obligations or the continuingcontractual relationship of the parties hereto in accordance with theprovisions of this Agreement.

 

2.1.4        Optional Prepayments ofRevolving Loan.

 

The Borrowershall have the option, at any time and from time to time, to prepay (each a“Revolving Loan Optional Prepayment” and collectively the “Revolving LoanOptional Prepayments”) the Revolving Loan, in whole or in part without premiumor penalty.

 

2.1.5        Revolving Loan Account.

 

The Lenderwill establish and maintain a loan account on its books (the “Revolving LoanAccount”) to which the Lender will (a) debit (i) the principal amount ofeach advance of the Revolving Loan made by the Lender hereunder as of the datemade, (ii) the amount of any interest accrued on the Revolving Loan as and whendue, and (iii) any other amounts due and payable by the Borrower to the Lenderfrom time to time under the provisions of this Agreement in connection with theRevolving Loan, including, without limitation, Enforcement Costs, Fees, latecharges, and service, collection and audit fees, as and when due and payable,and (b) credit all payments made by the Borrower to the Lender onaccount of the

 

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Revolving Loan as of the date made.  The Lender may debit the Revolving LoanAccount for the amount of any Item of Payment that is returned to the Lenderunpaid.  All credit entries to theRevolving Loan Account are conditional and shall be readjusted as of the datemade if final and indefeasible payment is not received by the Lender in cash orsolvent credits.  Any and all periodicor other statements or reconciliations, and the information contained in thosestatements or reconciliations, of the Revolving Loan Account shall be final, bindingand conclusive upon the Borrower in all respects, absent manifest error, unlessthe Lender receives specific written objection thereto from the Borrower withinthirty (30) Business Days after such statement or reconciliation shall havebeen sent by the Lender.

 

2.1.6        Revolving Credit Fee.

 

The Borrowershall pay to the Lender an annual revolving credit facility fee (collectively,the “Revolving Credit Fees” and individually, a “Revolving Credit Fee”) in anamount equal to Five Thousand Dollars ($5,000).  The Revolving Credit Fee shall be paid by the Borrower to theLender in full and in advance on the Closing Date and annually thereafter onthe anniversary of the Closing Date. The Lender is authorized to deduct any payment due hereunder from theBorrower’s account #00000000079225641 issued by the Lender, on or after thedate the payment is due.

 

Section 2.2             TheLetter of Credit Facility.

 

2.2.1        Letters of Credit.

 

Subject to andupon the provisions of this Agreement, and as a part of the Revolving CreditCommitment, the Borrower, upon the prior approval of the Lender, may obtainstandby letters of credit (as the same may from time to time be amended,supplemented or otherwise modified, each a “Letter of Credit” and collectivelythe “Letters of Credit”) from the Lender from time to time from the ClosingDate until the Business Day preceding the Revolving Credit TerminationDate.  The Borrower will not be entitledto obtain a Letter of Credit hereunder unless after giving effect to therequest, the outstanding principal balance of the Revolving Loan and of theLetter of Credit Obligations would not exceed the Revolving Credit CommittedAmount.

 

2.2.2        Letter of Credit Fees.

 

Prior to orsimultaneously with the opening of each Letter of Credit, the Borrower shallpay to the Lender, a letter of credit fee (each a “Letter of Credit Fee” andcollectively the “Letter of Credit Fees”) in an amount equal to the greater of(a) one and one half of one percent (1-1/2%) per annum of the amount of theLetter of Credit or (b) $300.  Prior toor simultaneously with the renewal of a Letter of Credit, the Borrower shallpay to the Lender, a fee equal to the greater of (a) one percent (1%) per annumof the amount of the Letter of Credit or (b) $300.  In addition, the Borrower shall pay to the Lender any and alladditional issuance, negotiation, processing, transfer or other fees to theextent and as and when required by the provisions of any Letter of CreditAgreement; such additional fees are included in and a part of the “Fees”payable by the Borrower under the provisions of this Agreement.  The Lender is

 

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authorized to deduct anypayment due hereunder from the Borrower’s account #00000000079225641 issued bythe Lender, on or after the date the payment is due.

 

2.2.3        Terms of Letters ofCredit.

 

Each Letter ofCredit shall be opened pursuant to a Letter of Credit Agreement.  If any Letter of Credit has an expirationdate later than the Business Day preceding the Revolving Credit TerminationDate, as of the Business Day preceding the Revolving Credit Termination Date anadvance of the Letter of Credit Facility shall be made by the Lender in theface amount of such Letter of Credit (or Letters of Credit) and the Proceedsthereof shall be deposited in an account titled in the name of the Lender astrustee for the Borrower.  The proceedsof the trustee account referred to in the immediately preceding sentence shallbe held as collateral for the Letter of Credit (or Letters of Credit) and inthe event of a draw under the Letter of Credit (or Letters of Credit), used topay any such draw.  The aggregate faceamount of all Letters of Credit at any one time outstanding and issued by theLender pursuant to the provisions of this Agreement, plus the amount of anyunpaid Letter of Credit Fees accrued or scheduled to accrue thereon, and lessthe aggregate amount of all drafts issued under or purporting to have beenissued under such Letters of Credit that have been paid by the Lender, is hereincalled the “Outstanding Letter of Credit Obligations”.

 

2.2.4        Procedure for Lettersof Credit.

 

The Borrowershall give the Lender written notice at least three (3) Business Days prior tothe date on which a Letter of Credit is requested to be opened of their requestfor a Letter of Credit.  Such noticeshall be accompanied by a duly executed and delivered Letter of CreditAgreement.  Upon receipt of the Letterof Credit Agreement and the Letter of Credit Fee, the Lender shall process suchLetter of Credit Agreement in accordance with its customary procedures and opensuch Letter of Credit on the Business Day specified in such notice.

 

2.2.5        Payments of Letters ofCredit.

 

The Borrowerhereby promises to pay to the Lender, ON DEMAND and in United States Dollars,the following which are herein collectively referred to as the “Current Letterof Credit Obligations”:

 

(a)           the amount which theLender has paid or will be required to pay under each draft or draw on a Letterof Credit, whether such demand be in advance of the Lender’s payment or forreimbursement for such payment;

 

(b)           any and all reasonablecharges and expenses which the Lender may pay or incur relative to the Letterof Credit and/or such draws or drafts; and

 

(c)           interest on the amountsdescribed in (a) and (b) not paid by the Borrower as and when due and payableunder the provisions of (a)

 

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and (b) abovefrom the day the same are due and payable until paid in full at thePost-Default Rate.

 

In addition,the Borrower hereby promises to pay any and all other Letter of CreditObligations as and when due and payable in accordance with the provisions ofthis Agreement and the Letter of Credit Agreements.  The obligation of the Borrower to pay Current Letter of CreditObligations and all other Letter of Credit Obligations shall be absolute andunconditional under any and all circumstances and irrespective of any setoff,counterclaim or defense to payment which the Borrower or any other account partymay have or have had against the beneficiary of such Letter of Credit, theLender, or any other Person, including, without limitation, any defense basedon the failure of any draft or draw to conform to the terms of such Letter ofCredit, or the legality, validity, regularity or enforceability of such Letterof Credit, any draft or other documents presented with any draft, any Letter ofCredit Agreement, this Agreement, or any of the other Financing Documents, allwhether or not the Lender had actual or constructive knowledge of the same, andirrespective of any Collateral, security or guarantee therefore or right ofoffset with respect thereto and irrespective of any other circumstanceswhatsoever which constitutes, or might be construed to constitute, an equitableor legal discharge of the Borrower for any Letter of Credit Obligations, inbankruptcy or otherwise; provided, however, that the Borrowershall not be obligated to reimburse the Lender for any wrongful payment undersuch Letter of Credit made as a result of the Lender ‘s willfulmisconduct.  The obligation of theBorrower to pay the Letter of Credit Obligations shall not be conditioned orcontingent upon the pursuit by the Lender or any other Person at any time ofany right or remedy against any Person which may be or become liable in respectof all or any part of such obligation or against any Collateral, security orguarantee therefore or right of offset with respect thereto.

 

The obligationof the Borrower to pay Current Letter of Credit Obligations and all otherLetter of Credit Obligations shall be absolute and unconditional under any andall circumstances and irrespective of any setoff, counterclaim or defense topayment which the Borrower or any other account party may have or have had againstthe beneficiary of such Letter of Credit, the Lender, or any other Person,including, without limitation, any defense based on the failure of any draft ordraw to conform to the terms of such Letter of Credit, any draft or otherdocument proving to be forged, fraudulent or invalid, or the legality,validity, regularity or enforceability of such Letter of Credit, any draft orother documents presented with any draft, any Letter of Credit Agreement, thisAgreement, or any of the other Financing Documents, all whether or not theLender had actual or constructive knowledge of the same, and irrespective ofany Collateral, security or guarantee therefor or right of offset with respectthereto and irrespective of any other circumstances whatsoever which constitutes,or might be construed to constitute, an equitable or legal discharge of theBorrower for any Letter of Credit Obligations, in bankruptcy or otherwise; provided,however, that the Borrower shall not be obligated to reimburse theLender for any wrongful payment under such Letter of Credit made as a result ofthe Lender’s willful misconduct or gross negligence.  The obligation of the Borrower to pay the Letter of CreditObligations shall not be conditioned or contingent upon the pursuit by theLender or any other Person at any time of any right or remedy against anyPerson which may be or become liable in respect of all or any part of suchobligation or against any Collateral, security or guarantee therefor or rightof offset with respect thereto.

 

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The Letter ofCredit Obligations shall continue to be effective, or be reinstated, as thecase may be, if at any time payment of all or any portion of the Letter ofCredit Obligations is rescinded or must otherwise be restored or returned bythe Lender upon the insolvency, bankruptcy, dissolution, liquidation orreorganization of any Person, or upon or as a result of the appointment of areceiver, intervenor, or conservator of, or trustee or similar officer for, anyPerson, or any substantial part of such Person’s property, all as though suchpayments had not been made.

 

2.2.6        Change in Law;Increased Cost.

 

If any changein any law or regulation or in the interpretation thereof by any court or otherGovernmental Authority charged with the administration thereof shall either (a)impose, modify or deem applicable any reserve, special deposit or similarrequirement against Letters of Credit issued by the Lender, or (b) impose onthe Lender any other condition regarding this Agreement or any Letter ofCredit, and the result of any event referred to in clauses (a) or (b) aboveshall be to increase the cost to the Lender of issuing, maintaining orextending the Letter of Credit or the cost to the Lender of funding any obligationunder or in connection with the Letter of Credit, then, upon demand by theLender, the Borrower shall immediately pay to the Lender from time to time asspecified by the Lender, additional amounts which shall be sufficient tocompensate the Lender for such increased cost, together with interest on eachsuch amount from the date demanded until payment in full thereof at a rate perannum equal to the rate of interest stated in the Note.  A certificate as to such increased costincurred by the Lender, submitted by the Lender to the Borrower, shall beconclusive, absent manifest error.

 

2.2.7        General Letter ofCredit Provisions.

 

The Borrowerhereby instructs the Lender to pay any draft complying with the terms of anyLetter of Credit irrespective of any instructions of the Borrower to thecontrary.  The Borrower assumes allrisks of the acts and omissions of the beneficiary and other users of anyLetter of Credit.  The Lender and itsrespective branches, Affiliates and/or correspondents shall not be responsiblefor and the Borrower hereby indemnifies and holds the Lender and its respectivebranches, Affiliates and/or correspondents harmless from and against allliability, loss and expense (including reasonable attorney’s fees and costs)incurred by the Lender and/or their respective branches, Affiliates and/orcorrespondents relative to and/or as a consequence of (a) any failure by theBorrower to perform the agreements hereunder and under any Letter of CreditAgreement, (b) any Letter of Credit Agreement, this Agreement, any Letter ofCredit and any draft, draw and/or acceptance under or purported to be under anyLetter of Credit, (c) any action taken or omitted by the Lender and/or any ofits respective branches, Affiliates and/or correspondents at the request of theBorrower, (d) any failure or inability to perform in accordance with the termsof any Letter of Credit by reason of any control or restriction rightfully orwrongfully exercised by any de facto or de jure GovernmentalAuthority, group or individual asserting or exercising governmental orparamount powers, and/or (e) any consequences arising from causes beyond thecontrol of the Lender and/or any of its respective branches, Affiliates and/orcorrespondents.

 

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Except forwillful misconduct or gross negligence, the Lender and its respective branches,Affiliates and/or correspondents, shall not be liable or responsible in anyrespect for any (a) error, omission, interruption or delay in transmission,dispatch or delivery of any one or more messages or advices in connection withany Letter of Credit, whether transmitted by cable, telegraph, mail orotherwise and despite any cipher or code which may be employed, and/or (b)action, inaction or omission which may be taken or suffered by it or them ingood faith or through inadvertence in identifying or failing to identify anybeneficiary or otherwise in connection with any Letter of Credit.

 

Any Letter ofCredit may be amended, modified or revoked only upon the receipt by the Lenderfrom the Borrower and the beneficiary (including any transferee and/or assigneeof the original beneficiary), of a written consent and request therefor.

 

If any Laws,order of court and/or ruling or regulation of any Governmental Authority of theUnited States (or any state thereof) and/or any country other than the UnitedStates permits a beneficiary under a Letter of Credit to require the Lenderand/or any of its respective branches, Affiliates and/or correspondents to paydrafts under or purporting to be under a Letter of Credit after the expirationdate of the Letter of Credit, the Borrower shall reimburse the Lender, asappropriate, for any such payment pursuant to provisions of Section 2.2.5(Change in Law; Increased Cost).

 

Except as mayotherwise be specifically provided in a Letter of Credit or Letter of CreditAgreement, the laws of the State and the Uniform Customs and Practice forDocumentary Credits, 1993 Revision, International Chamber of CommercePublication No. 500 shall govern the Letters of Credit.  The Laws, rules, provisions and regulationsof the Uniform Customs and Practice for Documentary Credits are herebyincorporated by reference.  In the eventof a conflict between the Uniform Customs and Practice for Documentary Creditsand the laws of the State, the Uniform Customs and Practice for DocumentaryCredits shall prevail.

 

Section 2.3             GeneralFinancing Provisions.

 

2.3.1        Borrower’sRepresentatives.

 

The Lender ishereby irrevocably authorized by the Borrower to make advances under the Loanto the Borrower pursuant to the provisions of this Agreement upon the written,oral or telephone request of any one of the Persons who is from time to time aResponsible Officer of the Borrower under the provisions of the most recent“Certificate” of corporate resolutions of the Borrower on file with the Lenderor who is an officer or employee of the Borrower whom a Responsible Officerfrom time to time authorizes in writing to do so.  The Lender does not and shall not assume any responsibility orliability for any errors, mistakes, and/or discrepancies in the oral,telephonic, written or other transmissions of any instructions, orders,requests and confirmations between the Lender and the Borrower in connectionwith the Credit Facilities, any Loan or any other transaction in connectionwith the provisions of this Agreement.

 

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2.3.2        Use of Proceeds of theLoan.

 

The proceedsof each advance under the Loan shall be used by the Borrower for PermittedUses, and for no other purposes except as may otherwise be agreed by the Lenderin writing.  The Borrower shall use theproceeds of the Loan promptly.

 

2.3.3        Computation of Interestand Fees.

 

All applicableFees and interest shall be calculated on the basis of a year of 360 days forthe actual number of days elapsed.  Anychange in the interest rate on any of the Obligations resulting from a changein the Prime Rate shall become effective as of the opening of business on theday on which such change in the Prime Rate is announced.

 

2.3.4        Maximum Interest Rate.

 

In no eventshall any interest rate provided for hereunder exceed the maximum ratepermissible for corporate borrowers under applicable law for loans of the typeprovided for hereunder (the “Maximum Rate”). If, in any month, any interest rate, absent such limitation, would haveexceeded the Maximum Rate, then the interest rate for that month shall be theMaximum Rate, and, if in future months, that interest rate would otherwise beless than the Maximum Rate, then that interest rate shall remain at the MaximumRate until such time as the amount of interest paid hereunder equals the amountof interest which would have been paid if the same had not been limited by theMaximum Rate.  In the event that, uponpayment in full of the Obligations, the total amount of interest paid oraccrued under the terms of this Agreement is less than the total amount ofinterest which would, but for this Section, have been paid or accrued if theinterest rates otherwise set forth in this Agreement had at all times been ineffect, then the Borrower shall, to the extent permitted by applicable law, paythe Lender, an amount equal to the excess of (a) the lesser of (i) the amountof interest which would have been charged if the Maximum Rate had, at alltimes, been in effect or (ii) the amount of interest which would have accruedhad the interest rates otherwise set forth in this Agreement, at all times,been in effect over (b) the amount of interest actually paid or accrued underthis Agreement.  In the event that acourt determines that the Lender has received interest and other chargeshereunder in excess of the Maximum Rate, such excess shall be deemed received onaccount of, and shall automatically be applied to reduce, the Obligations otherthan interest, in the inverse order of maturity, and if there are noObligations outstanding, the Lender shall refund to the Borrower such excess.

 

2.3.5        Payments.

 

All paymentsof the Obligations, including, without limitation, principal, interest,Prepayments, and Fees, shall be paid by the Borrower without setoff, recoupmentor counterclaim to the Lender in immediately available funds not later than12:00 noon (Eastern Time) on the due date of such payment.  All such payments shall be made to theLender’s principal office in McLean, Virginia or at such other location as theLender may at any time and from time to time notify the Borrower.  Alternatively, at its sole discretion, theLender may charge any deposit account of the Borrower at the Lender or anyAffiliate of the Lender with all or any part of any amount due to the Lenderunder this Agreement or any of the other Financing

 

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Documents to the extent thatthe Borrower shall have not otherwise tendered payment to the Lender.  All payments shall be applied first to anyunpaid Fees, second to any and all accrued and unpaid late charges andEnforcement Costs, third to any and all accrued and unpaid interest on theObligations, and then to the then unpaid principal balance of the Obligations,all in such order and manner as shall be determined by the Lender in its soleand absolute discretion.  The Lender isauthorized to deduct any payment due hereunder from the Borrower’s account#00000000079225641 issued by the Lender, on or after the date the payment isdue.

 

2.3.6        Liens; Setoff.

 

The Borrowerhereby grants to the Lender as additional collateral and security for all ofthe Obligations, a continuing Lien on any and all monies, Securities, and otherpersonal property of the Borrower and any and all proceeds thereof, now orhereafter held or received by, or in transit to, the Lender or any Affiliate ofthe Lender from, or for the account of, the Borrower, and also upon any and alldepository accounts (whether general or special) and credits of the Borrower,if any, with the Lender or any Affiliate of the Lender, at any time existing,excluding any depository accounts held by the Borrower in its capacity astrustee for Persons who are not Affiliates of the Borrower.  Without implying any limitation on any otherrights the Lender may have under the Financing Documents or applicable Laws,during the continuance of an Event of Default, the Lender is hereby authorizedby the Borrower at any time and from time to time at the Lender’s option,without notice to, or consent of, the Borrower, to set off, appropriate, seize,freeze and apply any or all items hereinabove referred to against allObligations then outstanding (whether or not then due), all in such order andmanner as shall be determined by the Lender in its sole and absolutediscretion.  The Lender shall providethe Borrower written notice of any action taken pursuant to this paragraph assoon as reasonably practicable after the making of the advance.

 

2.3.7        Requirements of Law.

 

In the eventthat the Lender shall have determined in good faith that (a) the adoption ofany Capital Adequacy Regulation, or (b) any change in any Capital AdequacyRegulation or in the interpretation or application thereof or (c) compliance bythe Lender or any corporation controlling the Lender with any request ordirective regarding capital adequacy (whether or not having the force of law)from any Governmental Authority or central bank, does or shall have the effectof reducing the rate of return on the capital of the Lender or such controllingcorporation as a consequence of the Lender’s obligations under this Agreementto a level below that which the Lender or such corporation would have achievedbut for such adoption, change or compliance (taking into consideration thepolicies of the Lender and its controlling corporation with respect to capitaladequacy) by an amount deemed by the Lender, in its discretion, to be material,then from time to time, after submission by the Lender to the Borrower of awritten request therefor and a statement of the basis for the Lender’sdetermination, the Borrower shall pay to the Lender ON DEMAND such additionalamount or amounts in order to compensate the Lender or its controllingcorporation for any such reduction.

 

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2.3.8        Swap Contracts.

 

The Borrowermay request and the Lender or its affiliates may, in their sole and absolutediscretion, provide Swap Contracts although the Borrower is not required to doso.  In the event the Borrower requestsLender or its affiliates to procure Swap Contracts, then the Borrower agrees toindemnify and hold the Lender or its affiliates harmless from any and allobligations now or hereafter owing to the Lender or its affiliates.  The Borrower agrees to pay the Lender or itsaffiliates all amounts owing to the Lender or its affiliates pursuant to SwapContracts.  In the event the Borrowershall not have paid to the Lender or its affiliates such amounts, the Lendermay cover such amounts by an advance under the Revolving Loan, which advanceshall be deemed to have been requested by the Borrower.  The Borrower acknowledges and agrees thatthe obtaining of Swap Contracts from the Lender or its affiliates (a) is in thesole and absolute discretion of the Lender or its affiliates and (b) is subjectto all rules and regulations of the Lender or its affiliates.

 

ARTICLE III

THE COLLATERAL

 

Section 3.1             Debtand Obligations Secured.

 

All propertyand Liens assigned, pledged or otherwise granted under or in connection withthis Agreement (including, without limitation, those under Section 3.2 (Grantof Liens)) or any of the Financing Documents shall secure (a) the payment ofall of the Obligations, and (b) the performance, compliance with and observanceby the Borrower of the provisions of this Agreement and all of the otherFinancing Documents or otherwise under the Obligations.

 

Section 3.2             Grantof Liens.

 

The Borrowerhereby assigns, pledges and grants to the Lender, and agrees that the Lendershall have a perfected and continuing security interest in, and Lien on, (a)all of the Borrower’s Accounts, (b) all insurance policies relating to theforegoing and the right to receive refunds of unearned insurance premiums underthose policies, (c) all books and records in whatever media (paper, electronicor otherwise) recorded or stored, with respect to the foregoing and allEquipment and General Intangibles necessary or beneficial to retain, accessand/or process the information contained in those books and records; and (d)all Proceeds and products of the foregoing. The Borrower further agrees that the Lender shall have in respectthereof all of the rights and remedies of a secured party under the UniformCommercial Code as well as those provided in this Agreement, under each of theother Financing Documents and under applicable Laws.

 

Section 3.3             RecordSearches.

 

As of theClosing Date and thereafter at the time any Financing Document is executed anddelivered by the Borrower pursuant to this Section, the Lender shall havereceived, in form and substance satisfactory to the Lender, such Lien or recordsearches with respect to the Borrower and/or any other Person, as appropriate,and the property covered by such Financing Document showing that the Lien ofsuch Financing Document will be a perfected first priority

 

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Lien on the property covered bysuch Financing Document subject only to Permi tted Liens or to such othermatters as the Lender may approve.

 

Section 3.4             Costs.

 

The Borroweragrees to pay, as part of the Enforcement Costs and to the fullest extentpermitted by applicable Laws, on demand all costs, fees and expenses incurredby the Lender in connection with the taking, perfection, preservation,protection and/or release of a Lien on the Collateral.

 

Section 3.5             Release.

 

Upon theindefeasible repayment in full in cash of the Obligations and performance ofall Obligations of the Borrower and all obligations and liabilities of eachother Person, other than the Lender, under this Agreement and all otherFinancing Documents and the termination and/or expiration of the Commitment andOutstanding Letter of Credit Obligations, upon the Borrower’s request and atthe Borrower’s sole cost and expense, the Lender shall release and/or terminateany Financing Document but only if and provided that there is no commitment orobligation (whether or not conditional) of the Lender to re-advance amounts whichwould be secured thereby.

 

Section 3.6             InconsistentProvisions.

 

In the eventthat the provisions of any Financing Document directly conflict with anyprovision of this Agreement, the provisions of this Agreement govern.

 

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

 

Section 4.1             Representationsand Warranties.

 

The Borrowerrepresents and warrants to the Lender, as follows:

 

4.1.1        Subsidiaries.

 

The Borrowerhas the Subsidiaries listed on the EXHIBIT D attached hereto and made apart hereof and no others.  Each of theSubsidiaries is a Wholly Owned Subsidiary except as shown on EXHIBIT D,which correctly indicates the nature and amount of the Borrower’s ownershipinterests therein.

 

4.1.2        Existence.

 

The Borrower(a) is a Registered Organization under the laws of the jurisdiction stated inthe Preamble of this Agreement, (b) is in good standing under the laws of thejurisdiction in which it is organized, (c) has the power to own its propertyand to carry on its business as now being conducted, and (d) is duly qualifiedto do business and is in good standing in each jurisdiction in which thecharacter of the properties owned by it therein or in which the

 

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transaction of its businessmakes such qualification necessary.  TheBorrower is organized under the laws of only one (1) jurisdiction.

 

4.1.3        Power and Authority.

 

The Borrowerhas full power and authority to execute and deliver this Agreement, the otherFinancing Documents to which it is a party, to make the borrowings under thisAgreement and to incur and perform the Obligations whether under thisAgreement, the other Financing Documents or otherwise, all of which have beenduly authorized by all proper and necessary action.  No consent or approval of shareholders or any creditors of theBorrower, and no consent, approval, filing or registration with or notice toany Governmental Authority on the part of the Borrower, is required as acondition to the execution, delivery, validity or enforceability of thisAgreement, the other Financing Documents or any of the Purchase AgreementDocuments, the performance by the Borrower of the Obligations.

 

4.1.4        Binding Agreements.

 

This Agreementand the other Financing Documents executed and delivered by the Borrower havebeen properly executed and delivered and constitute the valid and legallybinding obligations of the Borrower and are fully enforceable against theBorrower in accordance with their respective terms, subject to bankruptcy,insolvency, reorganization, moratorium and other laws of general applicationaffecting the rights and remedies of creditors and secured parties, and generalprinciples of equity regardless of whether applied in a proceeding in equity orat law.

 

4.1.5        No Conflicts.

 

Neither theexecution, delivery and performance of the terms of this Agreement or of any ofthe other Financing Documents executed and delivered by the Borrower nor theconsummation of the transactions contemplated by this Agreement will conflictwith, violate or be prevented by (a) the Borrower’s organizational or governingdocuments, (b) any existing mortgage, indenture, contract or agreement bindingon the Borrower or affecting its property, or (c) any Laws.

 

4.1.6        No Defaults,Violations.

 

(a)           No Default or Event of Default has occurredand is continuing.

 

(b)           Neither the Borrower nor any of itsSubsidiaries is in default under or with respect to any obligation under anyexisting mortgage, indenture, contract or agreement binding on it or affectingits property in any respect which could be materially adverse to the business,operations, property or financial condition of the Borrower, or which couldmaterially adversely affect the ability of the Borrower to perform itsobligations under this Agreement or the other Financing Documents, to which theBorrower is a party.

 

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4.1.7        Compliance with Laws.

 

Neither theBorrower nor any of its Subsidiaries is in violation of any applicable Laws(including, without limitation, any Laws relating to employment practices, toenvironmental, occupational and health standards and controls) or order, writ,injunction, decree or demand of any court, arbitrator, or any GovernmentalAuthority affecting the Borrower or any of its properties, the violation ofwhich, considered in the aggregate, could materially adversely affect thebusiness, operations or properties of the Borrower and/or its Subsidiaries.

 

4.1.8        Margin Stock.

 

None of theproceeds of the Loan will be used, directly or indirectly, by the Borrower orany Subsidiary for the purpose of purchasing or carrying, or for the purpose ofreducing or retiring any indebtedness which was originally incurred to purchaseor carry, any “margin stock” within the meaning of Regulation U (12 CFR Part221), of the Board of Governors of the Federal Reserve System or for any otherpurpose which might make the transactions contemplated in this Agreement a“purpose credit” within the meaning of Regulation U, or cause this Agreement toviolate any other regulation of the Board of Governors of the Federal ReserveSystem or the Securities Exchange Act of 1934 or the Small Business InvestmentAct of 1958, as amended, or any rules or regulations promulgated under any ofsuch statutes.

 

4.1.9        Investment Company Act;Margin Stock.

 

Neither theBorrower nor any of its Subsidiaries is an “investment company” within themeaning of the Investment Company Act of 1940, as amended, nor is it, directlyor indirectly, controlled by or acting on behalf of any Person which is aninvestment company within the meaning of said Act.  Neither the Borrower nor any of its Subsidiaries is engagedprincipally, or as one of its important activities, in the business ofextending credit for the purpose of purchasing or carrying “margin stock”within the meaning of Regulation U (12 CFR Part 221), of the Board of Governorsof the Federal Reserve System.

 

4.1.10      Litigation.

 

Except asotherwise disclosed to the Lender on Schedule 4.1.10 attached hereto andmade a part hereof, there are no proceedings, actions or investigations pendingor, so far as the Borrower knows, threatened before or by any court, arbitratoror any Governmental Authority which, in any one case or in the aggregate, ifdetermined adversely to the interests of the Borrower or any Subsidiary, wouldhave a material adverse effect on the business, properties, condition(financial or otherwise) or operations, present or prospective, of theBorrower.

 

4.1.11      Financial Condition.

 

Theconsolidated financial statements of the Borrower dated December 31, 2002,are complete and correct and fairly present the financial position of theBorrower and its Subsidiaries and the results of their operations andtransactions in their surplus accounts as of the date and for the period referredto and have been prepared in accordance with GAAP applied on a consistent basisthroughout the period involved.  Thereare no liabilities, direct or indirect,

 

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fixed or contingent, of theBorrower or its Subsidiaries as of the date of such financial statements thatare not reflected therein or in the notes thereto.  There has been no adverse change in the financial condition oroperations of the Borrower or its Subsidiaries since the date of such financialstatements and to the Borrower’s knowledge no such adverse change is pending orthreatened.  Neither the Borrower norany Subsidiary has guaranteed the obligations of, or made any investment in oradvances to, any Person, except as disclosed in such financial statements.

 

4.1.12      Full Disclosure.

 

The financialstatements referred to in Section 4.1.11 (Financial Condition), the FinancingDocuments (including, without limitation, this Agreement), and the statements,reports or certificates furnished by the Borrower in connection with theFinancing Documents (a) do not contain any untrue statement of a material factand (b) when taken in their entirety, do not omit any material fact necessaryto make the statements contained therein not misleading.  There is no fact known to the Borrower whichthe Borrower has not disclosed to the Lender in writing prior to the date ofthis Agreement with respect to the transactions contemplated by the FinancingDocuments which materially and adversely affects or in the future could, in thereasonable opinion of the Borrower materially adversely affect the condition,financial or otherwise, results of operations, business, or assets of theBorrower or of any Subsidiary.

 

4.1.13      Indebtedness for BorrowedMoney.

 

Except for theObligations and except as set forth in Schedule 4.1.13 attached heretoand made a part hereof, the Borrower has no Indebtedness for Borrowed Money.

 

4.1.14      Taxes.

 

Each of theBorrower and its Subsidiaries has filed all returns, reports and forms forTaxes which, to the knowledge of the Borrower, are required to be filed, andhas paid all Taxes as shown on such returns or on any assessment received byit, to the extent that such Taxes have become due, unless and to the extentonly that such Taxes, assessments and governmental charges are currentlycontested in good faith and by appropriate proceedings by the Borrower, suchTaxes are not the subject of any Liens other than Permitted Liens, and adequatereserves therefor have been established as required under GAAP.  All tax liabilities of the Borrower were asof the date of audited financial statements referred to in Section 4.1.11(Financial Condition), and are now, adequately provided for on the books of theBorrower or its Subsidiaries, as appropriate. No tax liability has been asserted by the Internal Revenue Service orany state or local authority against the Borrower for Taxes in excess of thosealready paid.

 

4.1.15      ERISA.

 

With respectto any “pension plan” as defined in SECTION 3(2) of ERISA, which plan is now orpreviously has been maintained or contributed to by the Borrower and/or by anycommonly controlled entity: (a) no “accumulated funding deficiency” as definedin Code §412 or ERISA §302 has occurred, whether or not that accumulatedfunding deficiency has been waived; (b) no Reportable Event has occurred; (c)no termination of any plan subject to

 

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Title IV of ERISA has occurred;(d) neither the Borrower nor any commonly controlled entity (as defined underERISA) has incurred a “complete withdrawal” within the meaning of ERISA §4203from any  Multi-employer Plan; (e)neither the Borrower nor any commonly controlled entity has incurred a “partialwithdrawal” within the meaning of ERISA §4205 with respect to any  Multi-employer Plan; (f) no Multi-employerPlan to which the Borrower or any commonly controlled entity has an obligationto contribute is in “reorganization” within the meaning of ERISA §4241 nor has noticebeen received by the Borrower or any commonly controlled entity that sucha  Multi-employer Plan will be placed in“reorganization”.

 

4.1.16      Title to Properties.

 

The Borrowerhas good and marketable title to all of its properties, including, withoutlimitation, the Collateral and the properties and assets reflected in thebalance sheets described in Section 4.1.11 (Financial Condition).  The Borrower has legal, enforceable anduncontested rights to use freely such property and assets.  All of such properties, including, withoutlimitation, the Collateral which were purchased, were purchased for fairconsideration and reasonably equivalent value in the ordinary course ofbusiness of both the seller and the Borrower and not, by way of example only,as part of a bulk sale.

 

4.1.17      Employee Relations.

 

Except asdisclosed on Schedule 4.1.17 attached hereto and made a part hereof, (a)neither the Borrower nor any Subsidiary thereof nor any of the Borrower’s orSubsidiary’s employees is subject to any collective bargaining agreement, (b)no petition for certification or union election is pending with respect to theemployees of the Borrower or any Subsidiary and no union or collectivebargaining unit has sought such certification or recognition with respect tothe employees of the Borrower, (c) there are no strikes, slowdowns, workstoppages or controversies pending or, to the best knowledge of Borrower afterdue inquiry, threatened between the Borrower and its employees, and (d) neitherthe Borrower nor any Subsidiaries is subject to an employment contract,severance agreement, commission contract, consulting agreement or bonusagreement.  Hours worked and paymentsmade to the employees of the Borrower have not been in violation of the FairLabor Standards Act or any other applicable law dealing with such matters.  All payments due from the Borrower or forwhich any claim may be made against the Borrower, on account of wages andemployee and retiree health and welfare insurance and other benefits have beenpaid or accrued as a liability on its books. The consummation of the transactions contemplated by the FinancingAgreement or any of the other Financing Documents, will not give rise to aright of termination or right of re-negotiation on the part of any union underany collective bargaining agreement to which the Borrower is a party or bywhich it is bound.

 

4.1.18      Presence of HazardousMaterials or Hazardous Materials Contamination.

 

To the best ofthe Borrower’s knowledge, (a) no Hazardous Materials are located on any realproperty owned, controlled or operated by of the Borrower or for which theBorrower is, or is claimed to be, responsible, except for reasonable quantitiesof necessary

 

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supplies for use by theBorrower in the ordinary course of its current line of business and stored,used and disposed in accordance with applicable Laws; and (b) no propertyowned, controlled or operated by the Borrower or for which the Borrower has, oris claimed to have, responsibility has ever been used as a manufacturing,storage, or dump site for Hazardous Materials nor is affected by HazardousMaterials Contamination at any other property.

 

4.1.19      Perfection and Priorityof Collateral.

 

The Lenderhas, or upon execution and recording of this Agreement and the SecurityDocuments will have, and will continue to have as security for the Obligations,a valid and perfected Lien on and security interest in all Collateral, free ofall other Liens, claims and rights of third parties whatsoever except PermittedLiens, including, without limitation, those described on Schedule 4.1.19attached hereto and made a part hereof.

 

4.1.20      Business Names andAddresses.

 

In the five(5) years preceding the date hereof, the Borrower has not changed its name,identity or corporate structure, has not conducted business under any nameother than its current name, and has not conducted its business in anyjurisdiction other than those disclosed on the EXHIBIT D.

 

4.1.21      Accounts.

 

With respectto all Accounts and to the best of the Borrower’s knowledge (a) they aregenuine, and in all respects what they purport to be, and are not evidenced bya judgment, an Instrument, or Chattel Paper (unless such judgment has beenassigned and such Instrument or Chattel Paper has been endorsed and deliveredto the Lender); (b) they represent bona fide transactions completed inaccordance with the terms and provisions contained in the invoices, purchaseorders and other contracts relating thereto, and the underlying transactiontherefor is in accordance with all applicable Laws; (c) the amounts shown onthe Borrower’s books and records, with respect thereto are actually andabsolutely owing to the Borrower and are not contingent or subject to reductionfor any reason other than regular discounts, credits or adjustments allowed bythe Borrower in the ordinary course of its business; (d) no payments have beenor shall be made thereon except payments turned over to the Lender by theBorrower; (e) all Account Debtors thereon have the capacity to contract; and(f) the goods sold, leased or transferred or the services furnished giving risethereto are not subject to any Liens except the security interest granted tothe Lender by this Agreement and Permitted Liens.

 

Section 4.2             Survival;Updates of Representations and Warranties.

 

Allrepresentations and warranties contained in or made under or in connection withthis Agreement and the other Financing Documents shall survive the ClosingDate, the making of any advance under the Loan and extension of credit made hereunder,and the incurring of any other Obligations and shall be deemed to have beenmade at the time of each request for, and again at the time the making of, eachadvance under the Loan or the issuance of each Letter of Credit, except thatthe representations and warranties which relate to financial statements whichare referred to in Section 4.1.11 (Financial Condition), shall also be deemedto cover financial

 

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statements furnished from timeto time to the Lender pursuant to Section 6.1.1 (Financial Statements).

 

ARTICLE V

CONDITIONS PRECEDENT

 

Section 5.1             Conditionsto the Initial Advance and Initial Letter of Credit.

 

The making ofthe initial advance under the Loan and the issuance of the initial Letter ofCredit is subject to the fulfillment on or before the Closing Date of thefollowing conditions precedent in a manner satisfactory in form and substanceto the Lender and its counsel:

 

5.1.1        OrganizationalDocuments - Borrower.

 

The Lender shall have received:

 

(a)           a certificate of goodstanding for the Borrower certified by the Secretary of State, or otherappropriate Governmental Authority, of the state of formation for the Borrower;

 

(b)           a certified copy fromthe appropriate Governmental Authority under which the Borrower is organized,of the Borrower’s organizational documents and all recorded amendments thereto;

 

(c)           a certificate ofqualification to do business for the Borrower certified by the Secretary ofState or other Governmental Authority of each jurisdiction in which theBorrower conducts business; and

 

(d)           a certificate by theSecretary or an Assistant Secretary of the Borrower in form and substancesatisfactory to the Lender.

 

5.1.2        Consents, Licenses,Approvals, Etc.

 

The Lendershall have received copies of all consents, licenses and approvals, required inconnection with the execution, delivery, performance, validity andenforceability of the Financing Documents, and such consents, licenses andapprovals shall be in full force and effect.

 

5.1.3        Note.

 

The Lendershall have received the Revolving Credit Note conforming to the requirementshereof and executed by a Responsible Officer of the Borrower and attested by aduly authorized representative of the Borrower.

 

5.1.4        Financing Documents andCollateral.

 

The Borrowershall have executed and delivered the Financing Documents to be executed by it,and shall have delivered original Chattel Paper, Instruments and related

 

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Collateral and all opinions,title insurance, and other documents contemplated by ARTICLE III (Collateral).

 

5.1.5        Other FinancingDocuments.

 

In addition tothe Financing Documents to be delivered by the Borrower, the Lender shall havereceived the Financing Documents duly executed and delivered by Persons otherthan the Borrower.

 

5.1.6        Other Documents, Etc.

 

The Lendershall have received such other certificates, opinions, documents andinstruments confirmatory of or otherwise relating to the transactionscontemplated hereby as may have been reasonably requested by the Lender.

 

5.1.7        Payment of Fees.

 

The Lendershall have received payment of any Fees due on or before the Closing Date.

 

5.1.8        Recordings and Filings.

 

The Borrowershall have: (a) executed and delivered all Financing Documents required to befiled, registered or recorded in order to create, in favor of the Lender, aperfected Lien in the Collateral (subject only to the Permitted Liens) in formand in sufficient number for filing, registration, and recording in each officein each jurisdiction in which such filings, registrations and recordations arerequired, and (b) delivered such evidence as the Lender require that allnecessary filing fees and all recording and other similar fees, and all Taxesand other expenses related to such filings, registrations and recordings willbe or have been paid in full.

 

5.1.9        Insurance Certificate.

 

The Lendershall have received an insurance certificate in accordance with the provisionsof Section 6.1.8 (Insurance).

 

Section 5.2             Conditionsto all Extensions of Credit.

 

The making ofall advances under the Loan and the issuance of all Letters of Credit issubject to the fulfillment of the following conditions precedent in a mannersatisfactory in form and substance to the Lender and its counsel:

 

5.2.1        Compliance.

 

The Borrowershall have complied and shall then be in compliance with all terms, covenants,conditions and provisions of this Agreement and the other Financing Documentsthat are binding upon it.

 

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5.2.2        Default.

 

There shallexist no Event of Default or Default hereunder.

 

5.2.3        Representations andWarranties.

 

Therepresentations and warranties of the Borrower contained among the provisionsof this Agreement shall be true and with the same effect as though suchrepresentations and warranties had been made at the time of the making of, andof the request for, each advance under the Loan or the issuance of each Letterof Credit, except that the representations and warranties which relate tofinancial statements which are referred to in Section 4.1.11 (FinancialCondition), shall also be deemed to cover financial statements furnished fromtime to time to the Lender pursuant to Section 6.1.1 (Financial Statements).

 

5.2.4        Adverse Change.

 

No adversechange shall have occurred in the condition (financial or otherwise),operations or business of the Borrower that would, in the good faith judgmentof the Lender, materially impair the ability of the Borrower to pay or performany of the Obligations.

 

5.2.5        Legal Matters.

 

All legaldocuments incident to each advance under the Loan and each of the Letters ofCredit shall be reasonably satisfactory to counsel for the Lender.

 

ARTICLE VI

COVENANTS OF THE BORROWER

 

Section 6.1             AffirmativeCovenants.

 

So long as anyof the Obligations or the Commitment shall be outstanding hereunder, theBorrower agrees with the Lender as follows:

 

6.1.1        Financial Statements.

 

The Borrowershall furnish to the Lender:

 

(a)           Annual Statements and Certificates.  The Borrower shall furnish to the Lender assoon as available, but in no event more than ninety (90) days after the closeof each fiscal year of the Borrower, (i) a copy of the annual audited financialstatement in reasonable detail satisfactory to the Lender relating to theBorrower, prepared in accordance with GAAP and examined and certified byindependent certified public accountants satisfactory to the Lender, whichfinancial statement shall include a balance sheet of the Borrower as of the endof such fiscal year and statements of income, cash flows and changes inshareholders equity of the Borrower for such fiscal year, (ii) a ComplianceCertificate, in substantially the form attached to this Agreement as EXHIBITC, as may be amended by the Lender from time to time, containing a detailedcomputation of each financial covenant which is applicable for the periodreported and a certification that no material change has occurred to theinformation contained in EXHIBIT D

 

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(except as set forth in aschedule attached to the certification), each prepared by a Responsible Officerof the Borrower in a format acceptable to the Lender, and (iii) a managementletter in the form prepared by the Borrower’s independent certified publicaccountants.

 

(b)           Annual Opinion of Accountant.  The Borrower shall furnish to the Lender assoon as available, but in no event more than ninety (90) days after the closeof the Borrower’s fiscal years, a letter or opinion of the accountant whoexamined and certified the annual financial statement relating to the Borrower(i) stating whether anything in such accountant’s examination has revealed theoccurrence of a Default or an Event of Default hereunder, and, if so, statingthe facts with respect thereto and (ii) acknowledging that the Lender will relyon the statement and that the Borrower knows of the intended reliance by theLender.

 

(c)           Quarterly Statements and Certificates.  The Borrower shall furnish to the Lender assoon as available, but in no event more than forty five (45) days after theclose of the Borrower’s fiscal quarters, balance sheets of the Borrower as ofthe close of such period, income, cash flows and changes in shareholders equitystatements for such period and a Compliance Certificate, in substantially theform attached to this Agreement as EXHIBIT C, containing a detailedcomputation of each financial covenant which is applicable for the periodreported and a certification that no change has occurred to the informationcontained in EXHIBIT D (except as set forth on any schedule attached tothe certification), each prepared by a Responsible Officer of the Borrower in aformat acceptable to the Lender, all as prepared and certified by a ResponsibleOfficer of the Borrower and accompanied by a certificate of that officerstating whether any event has occurred which constitutes a Default or an Eventof Default hereunder, and, if so, stating the facts with respect thereto.

 

(d)           Quarterly reports.  The Borrower shall furnish to the Lender within forty five (45)days after the end of each fiscal quarter, a report containing the followinginformation:

 

(i)            a detailed agingschedule of all Receivables by Account Debtor, in such detail, and accompaniedby such supporting information, as the Lender may from time to time reasonablyrequest;

 

(ii)           a current status report(Backlog Report, a form of which is attached hereto as EXHIBIT E) inform satisfactory to the Lender, including listing of new contracts orinstallations added during the period, including the name of the contractingofficer at the agency, certified by a Responsible Officer of the Borrower; and

 

(iii)          suchother information as the Lender may reasonably request.

 

(e)           Additional Reports and Information.  The Borrower shall furnish to the Lenderpromptly, such additional information, reports or statements as the Lender mayfrom time to time reasonably request.

 

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6.1.2        Reports to SEC and toStockholders.

 

If requested,the Borrower will furnish to the Lender, promptly upon the filing or makingthereof, at least one (1) copy of all financial statements, reports, noticesand proxy statements sent by the Borrower to its stockholders, and of allregular and other reports filed by the Borrower with any securities exchange orwith the Securities and Exchange Commission.

 

6.1.3        Recordkeeping, Rightsof Inspection, Field Examination, Etc.

 

(a)           The Borrower shall, and shall cause each ofits Subsidiaries to, maintain (i) a standard system of accounting in accordancewith GAAP, and (ii) proper books of record and account in which full, true andcorrect entries are made of all dealings and transactions in relation to itsproperties, business and activities.

 

(b)           The Borrower shall, and shall cause each ofits Subsidiaries to, permit authorized representatives of the Lender to visitand inspect the properties of the Borrower and its Subsidiaries, to review,audit, check and inspect the Collateral at any time with or without notice, toreview, audit, check and inspect the Borrower’s other books of record at anytime with or without notice and to make abstracts and photocopies thereof, andto discuss the affairs, finances and accounts of the Borrower and/or anySubsidiaries, with the officers, directors, employees and other representativesof the Borrower and/or any Subsidiaries and their respective accountants, allat such times during normal business hours and other reasonable times and asoften as the Lender may reasonably request.

 

(c)           The Borrower hereby irrevocably authorizesand directs all accountants and auditors employed by the Borrower and/or anySubsidiaries at any time prior to the repayment in full of the Obligations toexhibit and deliver to the Lender copies of any and all of the financialstatements, trial balances, management letters, or other accounting records ofany nature of the Borrower and/or any Subsidiaries in the accountant’s orauditor’s possession, and to disclose to the Lender any information they mayhave concerning the financial status and business operations of the Borrowerand its Subsidiaries.  Further, theBorrower hereby authorizes all Governmental Authorities to furnish to theLender copies of reports or examinations relating to the Borrower and/or anySubsidiaries, whether made by the Borrower or otherwise.

 

(d)           Any and all costs and expenses incurred by,or on behalf of, the Lender in connection with the conduct of any of theforegoing, including, without limitation, travel, lodging, meals, and otherexpenses together with an allocated charge of $750 per day for each auditoremployed by the Lender for inspections of the Collateral and the Borrower’soperations, shall be part of the Enforcement Costs and shall be payable to theLender upon demand.  The Borroweracknowledges and agrees that such expenses may include, but shall not belimited to, any and all out-of-pocket costs and expenses of the Lender’semployees and agents in, and when, traveling to the Borrower’s facilities.

 

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6.1.4        Existence.

 

The Borrowershall (a) maintain, and cause each of its Subsidiaries to maintain, itsexistence in good standing in the jurisdiction in which it is organized and ineach other jurisdiction where it is required to register or qualify to dobusiness if the failure to do so in such other jurisdiction might have amaterial adverse effect on the ability of the Borrower to perform theObligations, on the conduct of the Borrower’s operations, on the Borrower’s financialcondition, or on the value of, or the ability of the Lender to realize upon,the Collateral and (b) remain a Registered Organization under the laws of thejurisdiction stated in the Preamble of this Agreement.

 

6.1.5        Compliance with Laws.

 

The Borrowershall comply, and cause each of its Subsidiaries to comply, with all applicableLaws and observe the valid requirements of Governmental Authorities, thenoncompliance with or the nonobservance of which might have a material adverseeffect on the ability of the Borrower to perform the Obligations, the conductof the Borrower’s operations, the Borrower’s financial condition, or the valueof, or the ability of the Lender to realize upon, the Collateral.

 

6.1.6        Preservation ofProperties.

 

The Borrower will,and will cause each of its Subsidiaries to, at all times (a) maintain,preserve, protect and keep its properties, whether owned or leased, in goodoperating condition, working order and repair (ordinary wear and tearexcepted), and from time to time will make all proper repairs, maintenance,replacements, additions and improvements thereto needed to maintain suchproperties in good operating condition, working order and repair, and (b) do orcause to be done all things necessary to preserve and to keep in full force andeffect its material franchises, leases of real and personal property, tradenames, Patents, Trademarks, Copyrights and permits which are necessary for theorderly continuance of its business.

 

6.1.7        Line of Business.

 

The Borrowerwill continue to engage substantially only in the business of computer systemsdesign and engineering services.

 

6.1.8        Insurance.

 

The Borrowerwill, and will cause each of its Subsidiaries to, at all times maintain withA-or better rated insurance companies such insurance as is required byapplicable Laws and such other insurance, all in such amounts not less than theLender shall reasonably determine from time to time, of such types and againstsuch risks, hazards, liabilities, casualties and contingencies as are usuallyinsured against in the same geographic areas by business entities engaged inthe same or similar business.  Withoutlimiting the generality of the foregoing, the Borrower will, and will causeeach of its Subsidiaries to, keep adequately insured all of its propertyagainst loss or damage resulting from fire or other risks insured against byextended coverage and maintain public liability insurance against claims forpersonal injury, death or

 

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propertydamage occurring upon, in or about any properties occupied or controlled by it,or arising in any manner out of the businesses carried on by it.  The Borrower shall deliver to the Lender onthe Closing Date (and thereafter on each date there is a material change in theinsurance coverage) a certificate of a Responsible Officer of the Borrowercontaining a detailed list of the insurance then in effect and stating thenames of the insurance companies, the types, the amounts and rates of theinsurance, dates of the expiration thereof and the properties and risks coveredthereby.  Within thirty (30) days afternotice in writing from the Lender, the Borrower will obtain such additionalinsurance as the Lender may reasonably request.

 

6.1.9        Taxes.

 

Except to theextent that the validity or amount thereof is being contested in good faith andby appropriate proceedings, the Borrower will, and will cause each of itsSubsidiaries to, pay and discharge all Taxes prior to the date when anyinterest or penalty would accrue for the nonpayment thereof.  The Borrower shall furnish to the Lender atsuch times as the Lender may require proof satisfactory to the Lender of themaking of payments or deposits required by applicable Laws.

 

6.1.10      ERISA.

 

The Borrowerwill, and will cause each of its Subsidiaries and Affiliates to, comply withthe funding requirements of ERISA with respect to employee pension benefitplans for its respective employees.  TheBorrower will not permit with respect to any employee benefit plan or planscovered by Title IV of ERISA (a) any prohibited transaction or transactionsunder ERISA or the Internal Revenue Code, which results, or may result, in anymaterial liability of the Borrower and/or any Subsidiary and/or Affiliate, or(b) any Reportable Event if, upon termination of the plan or plans with respectto which one or more such Reportable Events shall have occurred, there is orwould be any material liability of the Borrower and/or any Subsidiary and/orAffiliate to the PBGC.  Upon the Lender’srequest, the Borrower will deliver to the Lender a copy of the most recentactuarial report, financial statements and annual report completed with respectto any “defined benefit plan”, as defined in ERISA.

 

6.1.11      Notification of Events ofDefault and Adverse Developments.

 

The Borrowershall promptly notify the Lender upon obtaining knowledge of the occurrence of:

 

(a)           any Event of Default;

 

(b)           any Default;

 

(c)           any litigationinstituted or threatened against the Borrower or its Subsidiaries and of theentry of any judgment or Lien (other than any Permitted Liens) against any ofthe assets or properties of the Borrower or any Subsidiary where the claimsagainst the Borrower or any of its Subsidiaries exceed One Million Dollars($1,000,000) and are not covered by insurance;

 

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(d)           any event, development or circumstancewhereby the financial statements furnished hereunder fail in any materialrespect to present fairly, in accordance with GAAP, the financial condition andoperational results of the Borrower or any of its Subsidiaries;

 

(e)           any judicial,administrative or arbitral proceeding pending against the Borrower or any ofits Subsidiaries and any judicial or administrative proceeding known by theBorrower to be threatened against it or any of its Subsidiaries which, ifadversely decided, could materially adversely affect its financial condition oroperations (present or prospective);

 

(f)            the receipt by theBorrower or any of its Subsidiaries of any notice, claim or demand from anyGovernmental Authority which alleges that the Borrower or any Subsidiary is inviolation of any of the terms of, or has failed to comply with any applicableLaws regulating its operation and business, including, but not limited to, theOccupational Safety and Health Act and the Environmental Protection Act; and

 

(g)           any other developmentin the business or affairs of the Borrower and any of its Subsidiaries whichmay be materially adverse;

 

in each case describing indetail satisfactory to the Lender the nature thereof and the action theBorrower proposes to take with respect thereto.

 

6.1.12      Hazardous Materials;Contamination.

 

The Borroweragrees to:

 

(a)           give notice to theLender immediately upon the Borrower’s acquiring knowledge of the presence ofany Hazardous Materials and of any Hazardous Materials Contamination on anyproperty owned or controlled by the Borrower or for which the Borrower is, oris claimed to be, responsible (provided that such notice shall not be requiredfor Hazardous Materials placed or stored on such property in accordance withapplicable Laws in the ordinary course (including, without limitation,quantity)  of the Borrower’s line ofbusiness expressly described in this Agreement) or of any Hazardous MaterialsContamination, with a full description thereof;

 

(b)           promptly comply withany Laws requiring the removal, treatment or disposal of Hazardous Materials orHazardous Materials Contamination and provide the Lender with satisfactoryevidence of such compliance;

 

(c)           provide the Lender,within thirty (30) days after a demand by the Lender, with a bond, letter ofcredit or similar financial assurance evidencing to the Lender’s satisfactionthat the necessary funds are available to pay the cost of removing, treating,and disposing of such Hazardous Materials or

 

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HazardousMaterials Contamination and discharging any Lien which may be established as aresult thereof on any property owned or controlled by the Borrower or for whichthe Borrower is, or is claimed to be, responsible; and

 

(d)           as part of theObligations, defend, indemnify and hold harmless the Lender and its agents,employees, trustees, successors and assigns from any and all claims which may nowor in the future (whether before or after the termination of this Agreement) beasserted as a result of the presence of any Hazardous Materials or of anyHazardous Materials Contamination on any property owned or controlled by theBorrower or for which the Borrower is, or is claimed to be, responsible.  The Borrower acknowledges and agrees thatthis indemnification shall survive the termination of this Agreement and theCommitment and the payment and performance of all of the other Obligations.

 

6.1.13      Financial Covenants.

 

(a)           Net Worth. The Borrower will maintain on a consolidated basis, tested as of thelast day of each of the Borrower’s fiscal quarters, a Net Worth of not lessthan an amount equal to $122,000,000 increasing annually by the sum of(i) 50% of the Borrower’s consolidated net income (without regard to any loss)plus (ii) 100% of the proceeds of any issue of new shares of its common stockor other equity interests, from each fiscal year of the Borrower commencingwith the fiscal year ending in 2003.

 

(b)           Funded Debt to EBITDA Ratio.  The Borrower will maintain on a consolidatedbasis a ratio of Funded Debt to EBITDA not exceeding 2.75:1.0.  This ratio will be calculated quarterly,using the results of the twelve-month period ending with that reporting period.

 

(c)           Interest Coverage Ratio.  The Borrower will maintain on a consolidatedbasis an Interest Coverage Ratio of not less than 2.5 to 1.0.  This ratio will be calculated quarterly, usingthe results of the twelve-month period ending with that reporting period.

 

6.1.14      Collection ofReceivables.

 

Until suchtime that the Lender shall notify the Borrower of the revocation of suchprivilege, the Borrower and each of the Subsidiaries shall at its own expensehave the privilege for the account of, and in trust for, the Lender ofcollecting its Receivables and receiving in respect thereto all Items ofPayment and shall otherwise completely service all of the Receivables including(a) the billing, posting and maintaining of complete records applicablethereto, (b) the taking of such action with respect to the Receivables as theLender may request or in the absence of such request, as the Borrower and eachof the Subsidiaries may deem advisable; and (c) the granting, in the ordinarycourse of business, to any Account Debtor, any rebate, refund or adjustment towhich the Account Debtor may be lawfully entitled, and may accept, inconnection therewith, the return of goods, the sale or lease of which shallhave given rise to a Receivable and may take such other actions relating to thesettling of any Account

 

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Debtor’s claim as may becommercially reasonable.  The Lendermay, at its option, at any time or from time to time after and during thecontinuance of an Event of Default hereunder, revoke the collection privilegegiven in this Agreement to the Borrower and any one or more of the Subsidiariesby either giving notice of its assignment of, and lien on the Collateral to theAccount Debtors or giving notice of such revocation to the Borrower.  The Lender shall not have any duty to, andthe Borrower hereby releases the Lender from all claims of loss or damagecaused by the delay or failure to collect or enforce any of the Receivables orto preserve any rights against any other party with an interest in theCollateral. The Lender shall be entitled at any time and from time to time toconfirm and verify Receivables.

 

6.1.15      Assignments ofReceivables.

 

Upon request,the Borrower shall execute and deliver to the Lender written assignments, inform and content acceptable to the Lender, of specific Receivables or groups ofReceivables; provided, however, the Lien and/or security interest granted tothe Lender under this Agreement shall not be limited in any way to or by theinclusion or exclusion of Receivables within such assignments.  Receivables so assigned shall secure paymentof the Obligations and are not sold to the Lender whether or not any assignmentthereof, which is separate from this Agreement, is in form absolute.  The Borrower agrees that neither anyassignment to the Lender nor any other provision contained in this Agreement orany of the other Financing Documents shall impose on the Lender any obligationor liability of the Borrower with respect to that which is assigned and theBorrower hereby agrees to indemnify the Lender and hold the Lender harmlessfrom any and all claims, actions, suits, losses, damages, costs, expenses,fees, obligations and liabilities which may be incurred by or imposed upon theLender by virtue of the assignment of and Lien on the Borrower’s rights, titleand interest in, to, and under the Collateral. The Lender agrees that if it makes a request for assignments asdescribed herein that it will provided the Borrower with a reasoned explanationfor such request.

 

6.1.16      Government Accounts.

 

The Borrowerwill upon request by the Lender execute any instruments and take any stepsrequired by the Lender in order that all moneys due and to become due undersuch contracts shall be assigned to the Lender and notice thereof given to theGovernmental Authority under the Federal Assignment of Claims Act or any otherapplicable Laws.  The Lender agrees thatif it makes a request as described herein that it will provided the Borrower witha reasoned explanation for such request.

 

6.1.17      Maintenance of theCollateral.

 

The Borrowerwill maintain the Collateral in good working order, saving and exceptingordinary wear and tear, and will not permit anything to be done to theCollateral that may materially impair the value thereof.  The Lender, or an agent designated by theLender, shall be permitted to enter the premises of the Borrower and theSubsidiaries and examine, audit and inspect the Collateral at any reasonabletime and from time to time without notice. The Lender shall not have any duty to, and the Borrower hereby releasesthe Lender from all claims

 

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of loss ordamage caused by the delay or failure to collect or enforce any of theReceivables or to, preserve any rights against any other party with an interestin the Collateral.

 

6.1.18      Defense of Title andFurther Assurances.

 

At itsexpense, the Borrower will defend the title to the Collateral (and any partthereof), and will immediately execute, acknowledge and deliver any renewal,affidavit, deed, assignment, security agreement, certificate or other documentwhich the Lender may require in order to perfect, preserve, maintain, continue,protect and/or extend the Lien granted to the Lender under this Agreement orunder any of the other Financing Documents and the first priority of that Lien,subject only to the Permitted Liens. The Borrower hereby authorizes the filing of any financing statement orcontinuation statement required under the Uniform Commercial Code.  The Borrower will from time to time dowhatever the Lender may require by way of obtaining, executing, delivering,and/or filing landlords’ or mortgagees’ or bailees’ waivers, notices ofassignment and other notices and amendments and renewals thereof and theBorrower will take any and all steps and observe such formalities as the Lendermay require, in order to create and maintain a valid Lien upon, pledge of, orparamount security interest in, the Collateral, subject to the PermittedLiens.  The Borrower shall pay to theLender on demand all taxes, costs and expenses incurred by the Lender inconnection with the preparation, execution, recording and filing of any suchdocument or instrument.  To the extentthat the proceeds of any of the Accounts or Receivables of the Borrower areexpected to become subject to the control of, or in the possession of, a partyother than the Borrower or the Lender, the Borrower shall cause all suchparties to execute and deliver on the Closing Date security documents or otherdocuments as requested by the Lender and as may be necessary to evidence and/orperfect the security interest of the Lender in those proceeds.  The Borrower hereby irrevocably appoints theLender as the Borrower’s attorney-in-fact, with power of substitution, in thename of the Lender or in the name of the Borrower or otherwise, for the use andbenefit of the Lender, but at the cost and expense of the Borrower and withoutnotice to the Borrower, to execute and deliver any and all of the instrumentsand other documents and take any action which the Lender may require pursuantthe foregoing provisions of this Section 6.1.18.

 

6.1.19      Use of Premises andEquipment.

 

The Borroweragrees that until the Obligations are fully paid and this Agreement has beenterminated, the Lender (a) after and during the continuance of an Event ofDefault, may use any of the Borrower’s owned or leased lifts, hoists, trucksand other facilities or equipment for handling or removing the Collateral; and(b) shall have, and is hereby granted, a right of ingress and egress to theplaces where the Collateral is located, and may proceed over and through any ofthe Borrower’s owned or leased property.

 

6.1.20      Protection of Collateral.

 

The Borroweragrees that the Lender may at any time following an Event of Default take suchsteps as the Lender deems reasonably necessary to protect the Lender’s interestin, and to preserve the Collateral, including, the hiring of such securityguards or the placing of other security protection measures as the Lender deemsappropriate, may employ and

 

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maintain at any of theBorrower’s premises a custodian who shall have full authority to do all actsnecessary to protect the Lender’s interests in the Collateral and may leasewarehouse facilities to which the Lender may move all or any part of theCollateral to the extent commercially reasonable.  The Borrower agrees to cooperate fully with the Lender’s effortsto preserve the Collateral and will take such actions to preserve theCollateral as the Lender may reasonably direct.  All of the Lender’s expenses of preserving the Collateral,including any reasonable expenses relating to the compensation and bonding of acustodian, shall be part of the Enforcement Costs.

 

Section 6.2             NegativeCovenants.

 

So long as anyof the Obligations or the Commitment shall be outstanding hereunder, theBorrower agrees with the Lender as follows:

 

6.2.1        Capital Structure,Merger, Acquisition or Sale of Assets.

 

The Borrowerwill not enter into any merger or consolidation or amalgamation, windup ordissolve itself (or suffer any liquidation or dissolution) or acquire all orsubstantially all the assets of any Person, or sell, lease or otherwise disposeof any of its assets (except Inventory disposed of in the ordinary course ofbusiness prior to an Event of Default). Any consent of the Lender to the disposition of any assets may beconditioned on a specified use of the proceeds of disposition.

 

6.2.2        Subsidiaries.

 

Unless theSubsidiary executes an Additional Borrower Joinder Supplement in the form of EXHIBITA, the Borrower will not create or acquire any Subsidiaries.

 

6.2.3        Purchase or Redemptionof Securities, Dividend Restrictions.

 

The Borrowerwill not purchase, redeem or otherwise acquire any shares of its capital stockor warrants now or hereafter outstanding, declare or pay any dividends thereon(other than stock dividends), apply any of its property or assets to thepurchase, redemption or other retirement of, set apart any sum for the paymentof any dividends on, or for the purchase, redemption, or other retirement of,make any distribution by reduction of capital or otherwise in respect of, anyshares of any class of capital stock of the Borrower, or any warrants, permitany Subsidiary to purchase or acquire any shares of any class of capital stockof, or warrants issued by, the Borrower, make any distribution to stockholdersor set aside any funds for any such purpose, and not prepay, purchase or redeemany Indebtedness for Borrowed Money other than the Obligations.

 

6.2.4        Indebtedness.

 

The Borrowerwill not, and will not permit any Subsidiary to, create, incur, assume orsuffer to exist any Indebtedness for Borrowed Money, or permit any Subsidiaryso to do, except:

 

(a)           theObligations;

 

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(b)           currentaccounts payable arising in the ordinary course;

 

(c)           Indebtedness secured by Permitted Liens;

 

(d)           Subordinated Liabilities; and

 

(e)           Indebtedness of theBorrower existing on the date hereof and reflected on the financial statementsfurnished pursuant to Section 4.1.11 (Financial Condition).

 

6.2.5        Investments, Loans andOther Transactions.

 

Except asotherwise provided in this Agreement and except for investment in a limitedliability company that will own the building in which the Borrower’sheadquarters is to be located, the Borrower will not, and will not permit anyof its Subsidiaries to, (a) make, assume, acquire or continue to hold anyinvestment in any real property (unless used in connection with its businessand treated as a Fixed or Capital Asset of the Borrower or the Subsidiary) orany Person, whether by stock purchase, capital contribution, acquisition ofindebtedness of such Person or otherwise (including, without limitation,investments in any joint venture or partnership), (b) guaranty or otherwisebecome contingently liable for the indebtedness or obligations of any Person inexcess of One Million Dollars ($1,000,000), or (c) make any loans or advances,or otherwise extend credit to any Person, except:

 

(i)            any advance to anofficer of the Borrower or of any Subsidiary for travel or other businessexpenses in the ordinary course of business an any advance to an officer of theBorrower in accordance with standard practices;

 

(ii)           the endorsement ofnegotiable instruments for deposit or collection or similar transactions in theordinary course of business;

 

(iii)          anyinvestment in Cash Equivalents, w hich are pledged to the Lender as collateraland security for the Obligations; and

 

(iv)          tradecredit extended to customers in the ordinary course of business.

 

6.2.6        Stock of Subsidiaries.

 

The Borrowerwill not sell or otherwise dispose of any shares of capital stock of anySubsidiary (except in connection with a merger or consolidation of a WhollyOwned Subsidiary into the Borrower or another Wholly Owned Subsidiary or withthe dissolution of any Subsidiary) or permit any Subsidiary to issue anyadditional shares of its capital stock except pro rata to itsstockholders.

 

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6.2.7        SubordinatedIndebtedness.

 

The Borrowerwill not, and will not permit any Subsidiary to make:

 

(a)           any payment of principal of, or interest on,any of the Subordinated Liabilities, if a Default or an Event of Default thenexists hereunder or would result from such payment;

 

(b)           any payment of theprincipal or interest due on the Subordinated Liabilities as a result ofacceleration thereunder or a mandatory prepayment thereunder;

 

(c)           any amendment ormodification of or supplement to the documents evidencing or securing theSubordinated Liabilities; or

 

(d)           payment of principal orinterest on the Subordinated Liabilities other than when due (without givingeffect to any acceleration of maturity or mandatory prepayment).

 

6.2.8        Liens; ConfessedJudgment.

 

The Borroweragrees that it (a) will not create, incur, assume or suffer to exist any Lienupon any of its properties or assets, whether now owned or hereafter acquired,or permit any Subsidiary so to do, except for Liens securing the Obligationsand Permitted Liens, (b) will not agree to, assume or suffer to exist anyprovision in any instrument or other document for confession of judgment,cognovit or other similar right or remedy, (c) will not allow or suffer toexist any Permitted Liens to be superior to Liens securing the Obligations, (d)will not enter into any contracts for the consignment of goods to the Borrower,(e) will not execute or suffer the filing of any financing statements or theposting of any signs giving notice of consignments to the Borrower, (f) willnot, as a material part of its business, engage in the sale of goods belongingto others, and (g) will not allow or suffer to exist the failure of any Liendescribed in the Security Documents to attach to, and/or remain at all timesperfected on, any of the property described in the Security Documents.

 

6.2.9        Transactions withAffiliates.

 

The Borrowerand its Subsidiaries will not enter into or participate in any transaction withany Affiliate or, except in the ordinary course of business, with the officers,directors, employees and other representatives of the Borrower and/or anySubsidiary.

 

6.2.10      Other Businesses.

 

The Borrowerand its Subsidiaries will not engage directly or indirectly in any businessother than its current line of business described elsewhere in this Agreement.

 

6.2.11      ERISA Compliance.

 

Neither theBorrower nor any Commonly Controlled Entity shall:  (a) engage in or permit any “prohibited transaction” (as definedin ERISA); (b) cause any

 

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“accumulated fundingdeficiency” as defined in ERISA and/or the Internal Revenue Code; (c) terminateany pension plan in a manner which could result in the imposition of a lien onthe property of the Borrower pursuant to ERISA; (d) terminate or consent to thetermination of any  Multi-employer Plan;or (e) incur a complete or partial withdrawal with respect to any  Multi-employer Plan.

 

6.2.12      Prohibition on HazardousMaterials.

 

The Borrowershall not place, manufacture or store or permit to be placed, manufactured orstored any Hazardous Materials on any property owned, operated or controlled bythe Borrower or for which the Borrower is responsible other than HazardousMaterials placed or stored on such property in accordance with applicable Lawsin the ordinary course.

 

6.2.13      Method of Accounting;Fiscal Year.

 

The Borrowerwill not change the method of accounting employed in the preparation of anyfinancial statements furnished to the Lender under the provisions of Section4.1.11 (Financial Statements), unless required to conform to GAAP and on thecondition that the Borrower’s accountants shall furnish such information as theLender may request to reconcile the changes with the Borrower’s prior financialstatements.

 

6.2.14      Disposition ofCollateral.

 

The Borrowerwill not sell, discount, allow credits or allowances, transfer, assign, extendthe time for payment on, convey, lease, assign, transfer or otherwise disposeof the Collateral, except, prior to an Event of Default, dispositions expresslypermitted elsewhere in this Agreement, the sale of Inventory in the ordinarycourse of business, and the sale of unnecessary or obsolete Equipment, but onlyif the proceeds of the sale of such Equipment are used to purchase similarEquipment to replace the unnecessary or obsolete Equipment.

 

ARTICLE VII

DEFAULT AND RIGHTS AND REMEDIES

 

Section 7.1             Eventsof Default.

 

The occurrenceof any one or more of the following events shall constitute an “Event ofDefault” under the provisions of this Agreement:

 

7.1.1        Failure to Pay.

 

The failure ofthe Borrower to pay any of the Obligations as and when due and payable inaccordance with the provisions of this Agreement, the Notes and/or any of theother Financing Documents.

 

7.1.2        Breach ofRepresentations and Warranties.

 

Anyrepresentation or warranty made in this Agreement or in any report, statement,schedule, certificate, opinion (including any opinion of counsel for theBorrower),

 

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financial statement or otherdocument furnished in connection with this Agreement, any of the otherFinancing Documents, or the Obligations, shall prove to have been false ormisleading when made (or, if applicable, when reaffirmed) in any materialrespect.

 

7.1.3        Failure to Comply withCovenants.

 

The failure ofthe Borrower to perform, observe or comply with any covenant, condition oragreement contained in this Agreement.

 

7.1.4        Default Under OtherFinancing Documents or Obligations.

 

A defaultshall occur under any of the other Financing Documents or under any otherObligations, and such default is not cured within any applicable grace periodprovided therein.

 

7.1.5        Receiver; Bankruptcy.

 

The Borroweror any Subsidiary shall (a) apply for or consent to the appointment of areceiver, trustee or liquidator of itself or any of its property, (b) admit inwriting its inability to pay its debts as they mature, (c) make a generalassignment for the benefit of creditors, (d) be adjudicated a bankrupt orinsolvent, (e) file a voluntary petition in bankruptcy or a petition or ananswer seeking or consenting to reorganization or an arrangement with creditorsor to take advantage of any bankruptcy, reorganization, insolvency,readjustment of debt, dissolution or liquidation law or statute, or an answeradmitting the material allegations of a petition filed against it in anyproceeding under any such law, or take corporate action for the purposes ofeffecting any of the foregoing, or (f) by any act indicate its consent to,approval of or acquiescence in any such proceeding or the appointment of anyreceiver of or trustee for any of its property, or suffer any suchreceivership, trusteeship or proceeding to continue undischarged for a periodof sixty (60) days, or (g) by any act indicate its consent to, approval of oracquiescence in any order, judgment or decree by any court of competentjurisdiction or any Governmental Authority enjoining or otherwise prohibitingthe operation of a material portion of the Borrower’s or any Subsidiary’sbusiness or the use or disposition of a material portion of the Borrower’s orany Subsidiary’s assets.

 

7.1.6        Involuntary Bankruptcy,etc.

 

An order forrelief shall be entered in any involuntary case brought against the Borrower orany Subsidiary under the Bankruptcy Code, or (b) any such case shall becommenced against the Borrower or any Subsidiary and shall not be dismissedwithin sixty (60) days after the filing of the petition, or (c) an order,judgment or decree under any other Law is entered by any court of competentjurisdiction or by any other Governmental Authority on the application of aGovernmental Authority or of a Person other than the Borrower or any Subsidiary(i) adjudicating the Borrower, or any Subsidiary  bankrupt or insolvent, or (ii) appointing a receiver, trustee orliquidator of the Borrower or of any Subsidiary, or of a material portion ofthe Borrower’s or any Subsidiary’s assets, or (iii) enjoining, prohibiting orotherwise limiting the operation of a material portion of the Borrower’s or anySubsidiary’s business or the use or disposition of a material portion of theBorrower’s or any Subsidiary’s assets, and such

 

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order, judgment or decreecontinues unstayed and in effect for a period of thirty (30) days from the dateentered.

 

7.1.7        Judgment.

 

Unlessadequately insured in the opinion of the Lender, the entry of a final judgmentfor the payment of money involving more than $500,000 against the Borrower orany Subsidiary, and the failure by the Borrower or such Subsidiary to dischargethe same, or cause it to be discharged, within thirty (30) days from the dateof the order, decree or process under which or pursuant to which such judgmentwas entered, or to secure a stay of execution pending appeal of such judgment.

 

7.1.8        Execution; Attachment.

 

Any executionor attachment shall be levied against the Collateral, or any part thereof, andsuch execution or attachment shall not be set aside, discharged or stayedwithin thirty (30) days after the same shall have been levied.

 

7.1.9        Default Under OtherBorrowings.

 

Default shallbe made with respect to any Indebtedness for Borrowed Money (other than theLoan) if the default is a failure to pay at maturity or if the effect of suchdefault is to accelerate the maturity of such Indebtedness for Borrowed Moneyor to permit the holder or obligee thereof or other party thereto to cause anysuch Indebtedness for Borrowed Money to become due prior to its statedmaturity.

 

7.1.10      Challenge to Agreements.

 

The Borroweror any of the Guarantors shall challenge the validity and binding effect of anyprovision of any of the Financing Documents or shall state its intention tomake such a challenge of any of the Financing Documents or any of the FinancingDocuments shall for any reason (except to the extent permitted by its expressterms) cease to be effective or to create a valid and perfected first priorityLien (except for Permitted Liens) on, or security interest in, any of theCollateral purported to be covered thereby.

 

7.1.11      Liquidation, Terminationor Dissolution

 

The Borrowershall liquidate, dissolve or terminate its existence or shall suspend orterminate a substantial portion of its business operations without the priorwritten consent of the Lender.

 

7.1.12      Swap Default.

 

An eventoccurs which gives the Lender the right or option to terminate any SwapContract which is secured by the Collateral.

 

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Section 7.2             Remedies.

 

Upon theoccurrence of any Event of Default, the Lender may at any time thereafterexercise any one or more of the following rights, powers or remedies:

 

7.2.1        Acceleration.

 

The Lender maydeclare the Obligations to be immediately due and payable, notwithstandinganything contained in this Agreement or in any of the other Financing Documentsto the contrary, without presentment, demand, protest, notice of protest or ofdishonor, or other notice of any kind, all of which the Borrower hereby waives.

 

7.2.2        Further Advances.

 

The Lender mayfrom time to time without notice to the Borrower suspend, terminate or limitany further loans or other extensions of credit under this Agreement and underany of the other Financing Documents. Further, upon the occurrence of an Event of Default or Default specifiedin Sections 7.1.5 (Receiver; Bankruptcy) or 7.1.6 (Involuntary Bankruptcy,etc.), the Commitments and any agreement in any of the Financing Documents toprovide additional credit shall immediately and automatically terminate and theunpaid principal amount of the Notes (with accrued interest thereon) and allother Obligations then outstanding, shall immediately become due and payable withoutfurther action of any kind and without presentment, demand, protest or noticeof any kind, all of which are hereby expressly waived by the Borrower.

 

7.2.3        Uniform CommercialCode.

 

The Lendershall have all of the rights and remedies of a secured party under theapplicable Uniform Commercial Code and other applicable Laws.  Upon demand by the Lender, the Borrowershall assemble the Collateral and make it available to the Lender, at a placedesignated by the Lender.  The Lender orits agents may without notice from time to time enter upon the Borrower’spremises to take possession of the Collateral, to remove it, to render itunusable, to process it or otherwise prepare it for sale, or to sell orotherwise dispose of it.

 

Any writtennotice of the sale, disposition or other intended action by the Lender withrespect to the Collateral which is sent by regular mail, postage prepaid, tothe Borrower at the address set forth in Section 8.1 of this Agreement, or suchother address of the Borrower which may from time to time be shown on theLender’s records, at least ten (10) days prior to such sale, disposition orother action, shall constitute commercially reasonable notice to theBorrower.  The Lender may alternativelyor additionally give such notice in any other commercially reasonablemanner.  Nothing in this Agreement shallrequire the Lender to give any notice not required by applicable Laws.

 

If anyconsent, approval, or authorization of any state, municipal or othergovernmental department, agency or authority or of any person, or any person,corporation, partnership or other entity having any interest therein, should benecessary to effectuate any sale or other disposition of the Collateral, theBorrower agrees to execute all such applications and

 

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other instruments, and to takeall other action, as may be required in connection with securing any suchconsent, approval or authorization.

 

The Borrowerrecognizes that the Lender may be unable to effect a public sale of all or apart of the Collateral consisting of Investment Property by reason of certainprohibitions contained in the Securities Act of 1933, as amended, and otherapplicable federal and state Laws.  TheLender may, therefore, in its discretion, take such steps as it may deemappropriate to comply with such Laws and may, for example, at any sale of theCollateral consisting of securities restrict the prospective bidders orpurchasers as to their number, nature of business and investment intention,including, without limitation, a requirement that the Persons making suchpurchases represent and agree to the satisfaction of the Lender that they arepurchasing such securities for their account, for investment, and not with aview to the distribution or resale of any thereof.  The Borrower covenants and agrees to do or cause to be donepromptly all such acts and things as the Lender may request from time to timeand as may be necessary to offer and/or sell the securities or any part thereofin a manner which is valid and binding and in conformance with all applicableLaws.  Upon any such sale ordisposition, the Lender shall have the right to deliver, assign and transfer tothe purchaser thereof the Collateral consisting of securities so sold.

 

7.2.4        Specific Rights WithRegard to Collateral.

 

In addition toall other rights and remedies provided hereunder or as shall exist at law or inequity from time to time, the Lender may (but shall be under no obligation to),without notice to the Borrower, and the Borrower hereby irrevocably appointsthe Lender as its attorney-in-fact, with power of substitution, in the name ofthe Lender or in the name of the Borrower or otherwise, for the use and benefitof the Lender, but at the cost and expense of the Borrower and without noticeto the Borrower:

 

(a)           request any AccountDebtor obligated on any of the Accounts to make payments thereon directly tothe Lender, with the Lender taking control of the Proceeds thereof;

 

(b)           compromise, extend orrenew any of the Collateral or deal with the same as it may deem advisable;

 

(c)           make exchanges,substitutions or surrenders of all or any part of the Collateral;

 

(d)           copy, transcribe, orremove from any place of business of the Borrower or any Subsidiary all books,records, ledger sheets, correspondence, invoices and documents, relating to orevidencing any of the Collateral or without cost or expense to the Lender, makesuch use of the Borrower’s or any Subsidiary’s place(s) of business as may bereasonably necessary to administer, control and collect the Collateral;

 

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(e)           repair, alter or supply goods if necessaryto fulfill in whole or in part the purchase order of any Account Debtor;

 

(f)            demand, collect,receipt for and give renewals, extensions, discharges and releases of any ofthe Collateral;

 

(g)           institute and prosecutelegal and equitable proceedings to enforce collection of, or realize upon, anyof the Collateral;

 

(h)           settle, renew, extend,compromise, compound, exchange or adjust claims in respect of any of theCollateral or any legal proceedings brought in respect thereof;

 

(i)            endorse or sign thename of the Borrower upon any Items of Payment, certificates of title,Instruments, Securities, stock powers, documents, documents of title, financingstatements, assignments, notices, or other writing relating to or part of theCollateral and on any Proof of Claim in Bankruptcy against an Account Debtor;

 

(j)            clear Inventorythrough customs in the Lender’s or the Borrower’s name and to sign and deliverto customs officials powers of attorney in the Borrower’s name for suchpurpose;

 

(k)           notify the Post Officeauthorities to change the address for the delivery of mail to the Borrower tosuch address or Post Office Box as the Lender may designate and receive andopen all mail addressed to the Borrower; and

 

(l)            take any other actionnecessary or beneficial to realize upon or dispose of the Collateral or tocarry out the terms of this Agreement.

 

7.2.5        Application of Proceeds.

 

Any proceedsof sale or other disposition of the Collateral will be applied by the Lender tothe payment of the Enforcement Costs, and any balance of such proceeds will beapplied by the Lender to the payment of the balance of the Obligations in suchorder and manner of application as the Lender may from time to time in its soleand absolute discretion determine.  Ifthe sale or other disposition of the Collateral fails to fully satisfy theObligations, the Borrower shall remain liable to the Lender for any deficiency.

 

7.2.6        Performance by Lender.

 

Upon theoccurrence and continuation of an Event of Default, the Lender without noticeto or demand upon the Borrower and without waiving or releasing any of theObligations or any Default or Event of Default, may (but shall be under noobligation to) at any time thereafter make such payment or perform such act forthe account and at the expense of the

 

48

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Borrower, andmay enter upon the premises of the Borrower for that purpose and take all suchaction thereon as the Lender may consider necessary or appropriate for suchpurpose and the Borrower hereby irrevocably appoints the Lender as itsattorney-in-fact to do so, with power of substitution, in the name of theLender or in the name of the Borrower or otherwise, for the use and benefit ofthe Lender, but at the cost and expense of the Borrower and without notice tothe Borrower.  All sums so paid oradvanced by the Lender together with interest thereon from the date of payment,advance or incurring until paid in full at the Post-Default Rate and all costsand expenses, shall be deemed part of the Enforcement Costs, shall be paid bythe Borrower to the Lender on demand, and shall constitute and become a part ofthe Obligations.

 

7.2.7        OtherRemedies.

 

The Lender mayfrom time to time proceed to protect or enforce its rights by an action oractions at law or in equity or by any other appropriate proceeding, whether forthe specific performance of any of the covenants contained in this Agreement orin any of the other Financing Documents, or for an injunction against theviolation of any of the terms of this Agreement or any of the other FinancingDocuments, or in aid of the exercise or execution of any right, remedy or powergranted in this Agreement, the Financing Documents, and/or applicableLaws.  The Lender is authorized tooffset and apply to all or any part of the Obligations all moneys, credits andother property of any nature whatsoever of the Borrower now or at any timehereafter in the possession of, in transit to or from, under the control orcustody of, or on deposit with, the Lender.

 

ARTICLE VIII

MISCELLANEOUS

 

Section 8.1             Notices.

 

All notices,requests and demands to or upon the parties to this Agreement shall be inwriting and shall be deemed to have been given or made when delivered by handon a Business Day, or two (2) days after the date when deposited in the mail,postage prepaid by registered or certified mail, return receipt requested, or whensent by overnight courier, on the Business Day next following the day on whichthe notice is delivered to such overnight courier, addressed as follows:

 
| Borrower: |   | PEC Solutions, Inc.  12730 Fair Lakes Circle  Fairfax, Virginia 22102                                |
|-----------|--------|------------------------------------------------------------------------------------------------------|
|      |   | Attention:                                                                                           | Stuart Lloyd |
|      |   |                                                                                                 |
| Lender:   |   | Bank of  America, N. A.  Commercial Bank  1101 Wootton Parkway, Suite 400  Rockville, Maryland 20852 |
|      |   | Attention:                                                                                           | Michael J.  Landini |
|           |        |                                                                                                      |  |  |

 

49

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| with a copy  to: |   | Kathleen M.  Donahue, Esquire  Troutman Sanders LLP  1660 International Drive, Suite 600  McLean, Virginia 22102 |
|------------------|--------|------------------------------------------------------------------------------------------------------------------|

 

By writtennotice, each party to this Agreement may change the address to which notice isgiven to that party, provided that such changed notice shall include a streetaddress to which notices may be delivered by overnight courier in the ordinarycourse on any Business Day.

 

Section 8.2             Amendments;Waivers.

 

This Agreementand the other Financing Documents may not be amended, modified, or changed inany respect except by an agreement in writing signed by the Lender and theBorrower.  No waiver of any provision ofthis Agreement or of any of the other Financing Documents, nor consent to anydeparture by the Borrower therefrom, shall in any event be effective unless thesame shall be in writing.  No course ofdealing between the Borrower and the Lender and no act or failure to act fromtime to time on the part of the Lender shall constitute a waiver, amendment ormodification of any provision of this Agreement or any of the other FinancingDocuments or any right or remedy under this Agreement, under any of the otherFinancing Documents or under applicable Laws.

 

Section 8.3             CumulativeRemedies.

 

The rights,powers and remedies provided in this Agreement and in the other Financing Documentsare cumulative, may be exercised concurrently or separately, may be exercisedfrom time to time and in such order as the Lender shall determine and are inaddition to, and not exclusive of, rights, powers and remedies provided byexisting or future applicable Laws.  Inorder to entitle the Lender to exercise any remedy reserved to it in thisAgreement, it shall not be necessary to give any notice, other than such noticeas may be expressly required in this Agreement.

 

Section 8.4             Severability.

 

In case one ormore provisions, or part thereof, contained in this Agreement or in the otherFinancing Documents shall be invalid, illegal or unenforceable in any respectunder any Law, then without need for any further agreement, notice or action:

 

(a)           the validity, legalityand enforceability of the remaining provisions shall remain effective andbinding on the parties thereto and shall not be affected or impaired thereby;

 

(b)           the obligation to befulfilled shall be reduced to the limit of such validity;

 

(c)           if such provision orpart thereof pertains to repayment of the Obligations, then, at the sole andabsolute discretion of the

 

50

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Lender, all ofthe Obligations of the Borrower to the Lender shall become immediately due andpayable; and

 

(d)           if the affectedprovision or part thereof does not pertain to repayment of the Obligations, butoperates or would prospectively operate to invalidate this Agreement in wholeor in part, then such provision or part thereof only shall be void, and theremainder of this Agreement shall remain operative and in full force andeffect.

 

Section 8.5             Assignments byLender.

 

The Lendermay, without notice to, or consent of, the Borrower, sell, assign or transferto or participate with any Person or Persons all or any part of theObligations, and each such Person or Persons shall have the right to enforcethe provisions of this Agreement and any of the other Financing Documents asfully as the Lender, provided that the Lender shall continue to have theunimpaired right to enforce the provisions of this Agreement and any of theother Financing Documents as to so much of the Obligations that the Lender hasnot sold, assigned or transferred.  Inconnection with the foregoing, the Lender shall have the right to disclose toany such actual or potential purchaser, assignee, transferee or participant allfinancial records, information, reports, financial statements and documentsobtained in connection with this Agreement and any of the other FinancingDocuments or otherwise.  The Lendershall provide the Borrower written notice of any assignments made as soon asreasonably practicable after the making thereof.

 

Section 8.6             Successors andAssigns.

 

This Agreementand all other Financing Documents shall be binding upon and inure to thebenefit of the Borrower and the Lender and their respective successors andassigns, except that the Borrower shall not have the right to assign its rightshereunder or any interest herein without the prior written consent of theLender.

 

Section 8.7             ContinuingAgreements.

 

All covenants,agreements, representations and warranties made by the Borrower in thisAgreement, in any of the other Financing Documents, and in any certificatedelivered pursuant hereto or thereto shall survive the making by the Lender ofthe Loan, the issuance of Letters of Credit and the execution and delivery ofthe Notes, shall be binding upon the Borrower regardless of how long before orafter the date hereof any of the Obligations were or are incurred, and shallcontinue in full force and effect so long as any of the Obligations areoutstanding and unpaid.  From time totime upon the Lender’s request, and as a condition of the release of any one ormore of the Security Documents, the Borrower and other Persons obligated withrespect to the Obligations shall provide the Lender with such acknowledgmentsand agreements as the Lender may require to the effect that there exists nodefenses, rights of setoff or recoupment, claims, counterclaims, actions orcauses of action of any kind or nature whatsoever against the Lender, itsagents and others, or to the extent there are, the same are waived andreleased.

 

51

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Section 8.8                                      EnforcementCosts.

 

The Borrowershall pay to the Lender on demand all Enforcement Costs, together with interestthereon from the date incurred or advanced until paid in full at a per annumrate of interest equal at all times to the Post-Default Rate.  Enforcement Costs shall be immediately dueand payable at the time advanced or incurred, whichever is earlier.  The provisions of this Section shall survivethe execution and delivery of this Agreement, the repayment of the otherObligations and shall survive the termination of this Agreement.

 

Section 8.9                                      ApplicableLaw; Jurisdiction.

 

8.9.1        Applicable Law.

 

As a materialinducement to the Lender to enter into this Agreement, the Borroweracknowledges and agrees that the Financing Documents, including, thisAgreement, shall be governed by the Laws of the State, as if each of theFinancing Documents and this Agreement had each been executed, delivered,administered and performed solely within the State even though for theconvenience and at the request of the Borrower, one or more of the FinancingDocuments may be executed elsewhere. The Lender acknowledges, however, that remedies under certain of theFinancing Documents that relate to property outside the State may be subject tothe laws of the state in which the property is located.

 

8.9.2        Jurisdiction.

 

The Borrowerirrevocably submits to the jurisdiction of any state or federal court sittingin the State over any suit, action or proceeding arising out of or relating tothis Agreement or any of the other Financing Documents.  The Borrower irrevocably waives, to thefullest extent permitted by law, any objection that it may now or hereafterhave to the laying of the venue of any such suit, action or proceeding broughtin any such court and any claim that any such suit, action or proceedingbrought in any such court has been brought in an inconvenient forum.  Final judgment in any such suit, action orproceeding brought in any such court shall be conclusive and binding upon theBorrower and may be enforced in any court in which the Borrower is subject tojurisdiction, by a suit upon such judgment, provided that service of process iseffected upon the Borrower in one of the manners specified in this Section oras otherwise permitted by applicable Laws.

 

8.9.3        Appointment of Agentfor Service of Process.

 

The Borrowerhereby irrevocably designates and appoints Commonwealth Legal ServicesCorporation, 4701 Cox Road, Suite 301, Glen Allen, VA 23060-6802, as theBorrower’s authorized agent to receive on the Borrower’s behalf service of anyand all process that may be served in any suit, action or proceeding of thenature referred to in this Section in any state or federal court sitting in theState.  If such agent shall cease so toact, the Borrower shall irrevocably designate and appoint without delay anothersuch agent in the State satisfactory to the Lender and shall promptly deliverto the Lender evidence in writing of such other agent’s acceptance of suchappointment and its agreement that such appointment shall be irrevocable.

 

52

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8.9.4        Service of Process.

 

The Borrowerhereby consents to process being served in any suit, action or proceeding ofthe nature referred to in this Section by (a) the mailing of a copy thereof byregistered or certified mail, postage prepaid, return receipt requested, to theBorrower at the Borrower’s address designated in or pursuant to Section 8.1(Notices), and (b) serving a copy thereof upon the agent, if any, designatedand appointed by the Borrower as the Borrower’s agent for service of process byor pursuant to this Section.  TheBorrower irrevocably agrees that such service (y) shall be deemed in everyrespect effective service of process upon the Borrower in any such suit, actionor proceeding, and (z) shall, to the fullest extent permitted by law, be takenand held to be valid personal service upon the Borrower.  Nothing in this Section shall affect theright of the Lender to serve process in any manner otherwise permitted by lawor limit the right of the Lender otherwise to bring proceedings against theBorrower in the courts of any jurisdiction or jurisdictions.

 

Section 8.10           Duplicate Originalsand Counterparts.

 

This Agreementmay be executed in any number of duplicate originals or counterparts, each ofsuch duplicate originals or counterparts shall be deemed to be an original andall taken together shall constitute but one and the same instrument.

 

Section 8.11           Headings.

 

The headingsin this Agreement are included herein for convenience only, shall not constitutea part of this Agreement for any other purpose, and shall not be deemed toaffect the meaning or construction of any of the provisions hereof.

 

Section 8.12           No Agency.

 

Nothing hereincontained shall be construed to constitute the Borrower as the Lender’s agentfor any purpose whatsoever or to permit the Borrower to pledge any of theLender’s credit.  The Lender shall notbe responsible nor liable for any shortage, discrepancy, damage, loss ordestruction of any part of the Collateral wherever the same may be located andregardless of the cause thereof.  TheLender shall not, by anything herein or in any of the Financing Documents orotherwise, assume any of the Borrower’s obligations under any contract or agreementassigned to the Lender, and the Lender shall not be responsible in any way forthe performance by the Borrower of any of the terms and conditions thereof.

 

Section 8.13           Date of Payment.

 

Should theprincipal of or interest on any of the Notes become due and payable on otherthan a Business Day, the maturity thereof shall be extended to the nextsucceeding Business Day and in the case of principal, interest shall be payablethereon at the rate per annum specified in the Notes during such extension.

 

53

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Section 8.14           Entire Agreement.

 

This Agreementis intended by the Lender and the Borrower to be a complete, exclusive andfinal expression of the agreements contained herein.  Neither the Lender nor the Borrower shall hereafter have anyrights under any prior agreements pertaining to the matters addressed by thisAgreement but shall look solely to this Agreement for definition anddetermination of all of their respective rights, liabilities andresponsibilities under this Agreement.

 

Section 8.15           Waiver of Trial byJury.

 

**THEBORROWER AND THE LENDER HEREBY JOINTLY AND SEVERALLY WAIVE TRIAL BY JURY IN ANYACTION OR PROCEEDING TO WHICH THE BORROWER AND THE LENDER MAY BE PARTIES,ARISING OUT OF OR IN ANY WAY PERTAINING TO (A) THIS AGREEMENT, (B) ANY OF THEFINANCING DOCUMENTS, OR (C) THE COLLATERAL. THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY JURY OF ALL CLAIMS AGAINSTALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS, INCLUDING CLAIMS AGAINST PARTIESWHO ARE NOT PARTIES TO THIS AGREEMENT.**

 

This waiver isknowingly, willingly and voluntarily made by the Borrower and the Lender, andthe Borrower and the Lender hereby represent that no representations of fact oropinion have been made by any individual to induce this waiver of trial by juryor to in any way modify or nullify its effect. The Borrower and the Lender further represent that they have beenrepresented in the signing of this Agreement and in the making of this waiverby independent legal counsel, selected of their own free will, and that theyhave had the opportunity to discuss this waiver with counsel.

 

Section 8.16           Liability of theLender.

 

The Borrowerhereby agrees that the Lender shall not be chargeable for any negligence,mistake, act or omission of any accountant, examiner, agency or attorney employedby the Lender in making examinations, investigations or collections, orotherwise in perfecting, maintaining, protecting or realizing upon any lien orsecurity interest or any other interest in the Collateral or other security forthe Obligations.

 

By inspectingthe Collateral or any other properties of the Borrower or by accepting orapproving anything required to be observed, performed or fulfilled by theBorrower or to be given to the Lender pursuant to this Agreement or any of theother Financing Documents, the Lender shall not be deemed to have warranted orrepresented the condition, sufficiency, legality, effectiveness or legal effectof the same, and such acceptance or approval shall not constitute any warrantyor representation with respect thereto by the Lender.

 

Section 8.17           Indemnification.

 

The Borroweragrees to indemnify and hold harmless, the Lender, the Lender’s parent andAffiliates and the Lender’s parent’s and Affiliates’ officers, directors,shareholders, employees and agents (each an “Indemnified Party,” andcollectively, the “Indemnified Parties”),

 

54

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from and against any and allclaims, liabilities, losses, damages, costs and expenses (whether or not suchIndemnified Party is a party to any litigation) incurred by any IndemnifiedParty with respect to, arising out of or as a consequence of (a) this Agreementor any of the other Financing Documents, including without limitation, anyfailure of the Borrower to pay when due (at maturity, by acceleration orotherwise) any principal, interest, fee or any other amount due under thisAgreement or the other Financing Documents, or any other Event of Default (b)the use by the Borrower of any proceeds advanced hereunder; (c) the transactionscontemplated hereunder; or (d) any claim, demand, action or cause of actionbeing asserted against (i) the Borrower or any of its Affiliates by any otherPerson, or (ii) any Indemnified Party by the Borrower in connection with thetransactions contemplated hereunder. Notwithstanding anything herein or elsewhere to the contrary, theBorrower shall not be obligated to indemnify or hold harmless any IndemnifiedParty from any liability, loss or damage resulting from the gross negligence,willful misconduct or unlawful actions of such Indemnified Party.  Any amount payable to the Lender under thisSection will bear interest at the Post-Default Rate from the due date untilpaid.

 

IN WITNESSWHEREOF, each of the parties hereto have executed and delivered this Agreementunder their respective seals as of the day and year first written above.

 
| WITNESS OR  ATTEST:   | PEC  SOLUTIONS, INC.    |                                                                                                                     |
|-----------------------|-------------------------|--------------------------------------------------------------------------------------------------------------------------|
|                  |                    |                                                                                                                     |
|                  |                    |                                                                                                                     |
| /s/ SHARON  L. CLARKE |                    | By:                                                                                                                      | /s/ STUART  R. LLOYD | (Seal) |
|                  |                    | Name:STUART  R. LLOYD                                                                                                    |
|                  |                    | Title:  SENIOR VICE PRESIDENT            CHIEF FINANCIAL  OFFICER |   |
| WITNESS:              | BANK OF  AMERICA, N. A. |                                                                                                                     |
|                  |                    |                                                                                                                     |
|                  |                    |                                                                                                                     |
| /s/ DERINDA  HAMMOND  |                    | By:                                                                                                                      | MICHAEL J.  LANDINI | (Seal) |
|                  |                    | Michael J.  Landini                                                                                                      |   |
|                  |                    | Senior Vice  President                                                                                                   |   |
|                       |                         |                                                                                                                          |  |  |  |

 

55

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LIST OF EXHIBITS

 
| A.     |   | Additional  Borrower Joinder Supplement |
|--------|--------|-----------------------------------------|
|   |   |                                    |
| B.     |   | Revolving  Credit Note                  |
|   |   |                                    |
| C.     |   | Form of  Compliance Certificate         |
|   |   |                                    |
| D.     |   | Business  Information                   |
|   |   |                                    |
| E.     |   | Backlog  Report Form                    |

 

56

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EXHIBIT C

 

COMPLIANCECERTIFICATE

 

This ComplianceCertificate  (the “Certificate”) isdelivered pursuant to the Financing and Security Agreement dated as ofJune 27, 2003 (together with all amendments and modifications, if any,from time to time made thereto, the “Financing Agreement”), between PEC Solutions,Inc. (the “Borrower”) and Bank of America, N.A (“Lender”).  Unless otherwise defined, terms used herein(including the exhibits hereto) have the meanings provided in the LoanAgreement.

 

Theundersigned, being the duly elected, qualified and acting                 of the Borrower, on behalf of the Borrower and solely in his or her capacity asan officer of the Borrower, hereby certifies and warrants that:

 

He or she isthe                      of the Borrower and that, as such, he or she is authorized to execute thisCertificate on behalf of the Borrower.]

 

As of                      ,                      :

 

Borrower wasnot in default of any of the provisions of the Financing Agreement during theperiod to which this Certificate relates;

 

Net Worth.  Borrower’s Net Worth was$                      as computed on the Net Worth Exhibit attached hereto.

 

Funded Debt toEBITDA. Borrower’s consolidated Funded Debt to EBITDA Ratio was                      to 1.0 as computed on the Funded Debt to EBITDA Exhibit attached hereto;

 

InterestCoverage Ratio. Borrower’s consolidated Quick Ratio was                      to 1.0 as computed on the Interest Coverage Ratio Exhibit attached hereto.

 

IN WITNESSWHEREOF, the undersigned has executed and delivered this certificate, this             day of                      ,20    .

 
|   | PEC  SOLUTIONS, INC. |
|--------|----------------------|
|   |                 |
|   |                 |
|   | By:                  |   |   |
|   |                 | Name: |
|   |                 | Title: |

 

----

 

NET WORTH EXHIBIT

 

**Periodending                           **

 

NET WORTH (ON A CONSOLIDATED BASIS)

 
| 1.                      | Net Worth                                          |   |   |
|-------------------------|----------------------------------------------------|--------|--------|
|                    |                                               |   |   |
|                    | On Closing  Date                                   |   | $      |   |
|                    |                                               |   |   |   |
|                    | + 50% of net  income (no deduction for net losses) |   | $      |   |
|                    |                                               |   |   |   |
|                    | + 100% of  the proceeds of equity issuances        |   | $      |   |
|                    |                                               |   |   |   |
|                    | TOTAL                                              |   | $      |   |
|                    |                                               |   |   |
| **Net Worth:**          |                                               | $      |   |
|                    |                                               |   |   |
| Required Net  Worth is: |                                               | $      |   |

 

2

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SCHEDULE 1

 

FUNDED DEBT TOEBITDA RATIO EXHIBIT

 

12 MonthPeriod ending

 
| **Funded Debt to EBITDA Ratio****(on a consolidated basis)** |                                                                                          |                    |   |    |
|--------------------------------------------------------------|-----------------------------------------------------------------------------------------------|-------------------------|--------|---------|
|                                                         |                                                                                          |                    |   |    |
| 1.                                                           | Funded Debt:                                                                                  |                    |   |    |   |
|                                                         | all outstanding liabilities for borrowed money including capital  leases                      |                    | $      |    |   |
|                                                         | + other interest-bearing liabilities, including current and long-term  debt                   |                    | $      |    |   |
|                                                         | + letters of  credit                                                                          |                    | $      |    |   |
|                                                         |                                                                                          |                    |   |    |
|                                                         | **LESS**                                                                                      |                    |   |    |   |
|                                                         |                                                                                          |                    |   |    |
|                                                         | The non-current portion of liabilities subordinated to Borrower’s  obligations to Lender |                    | $(     |    | ) |
|                                                         |                                                                                          |                    |   |    |
|                                                         | (A)                                                                                           | = Funded  Debt          |   | $       |   |   |
|                                                         |                                                                                          |                    |   |    |
| 2.                                                           | EBITDA:                                                                                       |                    |   |    |   |
|                                                         |                                                                                          | net income              |   | $       |   |   |
|                                                         | [**LESS**income] [or **PLUS** loss] from discontinued operations  and extraordinary items     |                    | $(     |    | ) |
|                                                         | +                                                                                             | income tax              |   | $       |   |   |
|                                                         | +                                                                                             | interest  expense       |   | $       |   |   |
|                                                         | +                                                                                             | depreciation            |   | $       |   |   |
|                                                         | +                                                                                             | depletion               |   | $       |   |   |
|                                                         | +                                                                                             | amortization            |   | $       |   |   |
|                                                         | +                                                                                             | other non-cash  charges |   | $       |   |   |
|                                                         | (B)                                                                                           | = EBITDA                |   |    |   |   |
|                                                         |                                                                                          |                    | $      |    |   |
|                                                         |                                                                                          |                    |   |    |
| **Funded Debt to EBITDA Ratio = 1(A) ÷ 2(B):**          |                                                                                          |                    |   | to 1.0. |
|                                                         |                                                                                          |                    |   |    |
| Required  ratio is:                                          |                                                                                          | 2.75 to 1.0             |   |

 

3

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INTEREST COVERAGE RATIO (EARNINGS TO INTEREST EXPENSE)

 
| Calculation  for Applicable Period: |                                                                                                                                                                                                                                                                                                                                             |   |
|-------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                |                                                                                                                                                                                                                                                                                                                                             |   |
| Earnings is  the sum of:            |                                                                                                                                                                                                                                                                                                                                             |   |
|                                |                                                                                                                                                                                                                                                                                                                                             |   |
|                                | Net Income                                                                                                                                                                                                                                                                                                                                       |   | $ |   |
|                                | PLUS or  MINUS                                                                                                                                                                                                                                                                                                                                   |   |   |   |
|                                | Income or  loss on Discontinued Operations                                                                                                                                                                                                                                                                                                       |   | $ |   |
|                                | Extraordinary  Items                                                                                                                                                                                                                                                                                                                             |   | $ |   |
|                                | PLUS                                                                                                                                                                                                                                                                                                                                             |   |   |   |
|                                | Income Taxes                                                                                                                                                                                                                                                                                                                                     |   | $ |   |
|                                | Interest  Expense                                                                                                                                                                                                                                                                                                                                |   | $ |   |
|                                | TOTAL:                                                                                                                                                                                                                                                                                                                                           |   | $ |   |
|                                |                                                                                                                                                                                                                                                                                                                                             |   |   |
| Divided by                          |                                                                                                                                                                                                                                                                                                                                             |   |   |
|                                | Interest  Expense                                                                                                                                                                                                                                                                                                                                |   | $ |   |
|                                |                                                                                                                                                                                                                                                                                                                                             |   |   |
| Calculation  for Applicable Period: |                                                                                                                                                                                                                                                                                                                                             |   |
|                                |                                                                                                                                                                                                                                                                                                                                             |   |
|                                | Required  Minimum Interest Coverage Ratio = 2.5 to 1.0                                                                                                                                                                                                                                                                                           |   |   |
|                                |                                                                                                                                                                                                                                                                                                                                             |   |
|                                | Earnings  divided by Interest Expense =                                                                                                                                                                                                                                                                                                          |   |   |
|                                |                                                                                                                                                                                                                                                                                                                                             |   |   |
|                                | $                     divided  by  $                    =             to 1.0 |   |   |

 

4

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Schedule 2

 

 

5

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EXHIBIT D

 

BUSINESSINFORMATION

 

1.             The following is alist of all Subsidiaries of the Borrower:

 

 

2.             TheBorrower has not conducted business under any name other than its current nameand Performance Engineering Corp. other than:

 

 

3.             The following is alist of all places of business of the Borrower:

 

(a)           ChiefExecutive Office:

 

 

(b)           OtherPlaces of Business:

 

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EXHIBIT E

 

FORM OF BACKLOG REPORT

 

----

 

LIST OF SCHEDULES

 
| Schedule  2.2.1  |   | Outstanding  Letters of Credit |
|------------------|--------|--------------------------------|
|             |   |                           |
| Schedule  4.1.10 |   | Litigation                     |
|             |   |                           |
| Schedule  4.1.13 |   | Other  Indebtedness            |
|             |   |                           |
| Schedule  4.1.17 |   | Employee  Relations            |
|             |   |                           |
| Schedule  4.1.19 |   | Permitted  Liens               |

 

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Schedule 2.2.1

 

OUTSTANDINGLETTERS OF CREDIT

 
| **Beneficiary**         |   | **Letter of  Credit No.** |   | **Expiration  Date** |   | **2003**     |   | **2004**     |   | **2005**     |   | **2006**     |   | **2007**   |   | **2008**   |   |
|-------------------------|--------|---------------------------|--------|----------------------|--------|--------------|--------|--------------|--------|--------------|--------|--------------|--------|------------|--------|------------|--------|
| Metropolitan  Life      |   |                      |   |                 |   |         |   |         |   |         |   |         |   |       |   |       |   |
| Insurance  Company      |   | 934551                    |   | 12/31/2003           |   | 800,000.00   |   | 600,000.00   |   | 400,000.00   |   |         |   |       |   |       |   |
| Building  IV Assoc LP   |   | 0934837                   |   | 12/31/2003           |   | 129,275.55   |   | 129,275.55   |   | 129,275.55   |   |         |   |       |   |       |   |
| Building  VII Assoc, LC |   | 3038919                   |   | 12/31/2003           |   | 1,800,000.00 |   | 1,800,000.00 |   | 1,500,000.00 |   | 1,200,000.00 |   | 900,000.00 |   | 600,000.00 |   |
| WXI/CMD  Real Estate LP |   | 3032591                   |   | 11/30/2003           |   | 52,733.58    |   | 52,733.58    |   | 52,733.58    |   |         |   |       |   |       |   |
|                    |   |                      |   |                 |   |         |   |         |   |         |   |         |   |       |   |       |   |
| TOTAL                   |   |                      |   |                 |   | 2,782,009.13 |   | 2,582,009.13 |   | 2,082,009.13 |   | 1,200,000.00 |   | 900,000.00 |   | 600,000.00 |   |

 

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Schedule4.1.10

 

LITIGATION

 

PEC andcertain officers are defendants in several class action lawsuits (nowconsolidated) filed in the Eastern District of Virginia alleging violations ofsections 10(b) and 20 of the Securities Exchange Act of 1934.  The consolidated case is in its initialstages.  Damages have not yet beendetermined.

 

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Schedule 4.1.13

 

OTHER INDEBTEDNESS

 

 

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Schedule4.1.17

 

EMPLOYEE RELATIONS

 

 

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Schedule4.1.19

 

| LIENS ON COLLATERAL   |
|-----------------------|
|                  |   |   |   |   |   |   |
| **Unpaid  Principal** |   | **Asset Covered** |   | **Lienholder** |   | **Balance** |
|                  |   |   |   |   |   |   |
|                  |   |   |   |   |   |   |
|                  |   |   |   |   |   |   |
|                  |   |   |   |   |   |   |
|                  |   |   |   |   |   |   |

 

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**TABLE OF CONTENTS**

 
| **ARTICLE  I DEFINITIONS**                     |                                                                              |
|------------------------------------------------|-----------------------------------------------------------------------------------|
| Section  1.1                                   | Certain  Defined Terms.                                                           |   |
| Section  1.2                                   | Accounting  Terms and Other Definitional Provisions.                              |   |
|                                           |                                                                              |   |
| **ARTICLE  II THE CREDIT FACILITIES**          |                                                                              |
| Section  2.1                                   | The  Revolving Credit Facility.                                                   |   |
| 2.1.1                                          | Revolving Credit Facility.                                                        |   |
| 2.1.2                                          | Procedure for Making Advances Under the Revolving  Loan; Lender Protection Loans. |   |
| 2.1.3                                          | Revolving Credit Note.                                                            |   |
| 2.1.4                                          | Optional Prepayments of Revolving Loan.                                           |   |
| 2.1.5                                          | Revolving Loan Account.                                                           |   |
| 2.1.6                                          | Revolving Credit Fee.                                                             |   |
| Section  2.2                                   | The  Letter of Credit Facility.                                                   |   |
| 2.2.1                                          | Letters of Credit.                                                                |   |
| 2.2.2                                          | Letter of Credit Fees.                                                            |   |
| 2.2.3                                          | Terms of Letters of Credit.                                                       |   |
| 2.2.4                                          | Procedure for Letters of Credit.                                                  |   |
| 2.2.5                                          | Payments of Letters of Credit.                                                    |   |
| 2.2.6                                          | Change in Law; Increased Cost.                                                    |   |
| 2.2.7                                          | General Letter of Credit Provisions.                                              |   |
| Section  2.3                                   | General  Financing Provisions.                                                    |   |
| 2.3.1                                          | Borrower’s Representatives.                                                  |   |
| 2.3.2                                          | Use of Proceeds of the Loan.                                                      |   |
| 2.3.3                                          | Computation of Interest and Fees.                                                 |   |
| 2.3.4                                          | Maximum Interest Rate.                                                            |   |
| 2.3.5                                          | Payments.                                                                         |   |
| 2.3.6                                          | Liens; Setoff.                                                                    |   |
| 2.3.7                                          | Requirements of Law.                                                              |   |
| 2.3.8                                          | Swap Contracts.                                                                   |   |
|                                           |                                                                              |   |
| **ARTICLE  III THE COLLATERAL**                |                                                                              |
| Section  3.1                                   | Debt  and Obligations Secured.                                                    |   |
| Section  3.2                                   | Grant  of Liens.                                                                  |   |
| Section  3.3                                   | Record  Searches.                                                                 |   |
| Section  3.4                                   | Costs.                                                                            |   |
| Section  3.5                                   | Release.                                                                          |   |
| Section  3.6                                   | Inconsistent  Provisions.                                                         |   |
|                                           |                                                                              |   |
| **ARTICLE  IV REPRESENTATIONS AND WARRANTIES** |                                                                              |
| Section  4.1                                   | Representations  and Warranties.                                                  |   |
| 4.1.1                                          | Subsidiaries.                                                                     |   |
| 4.1.2                                          | Existence.                                                                        |   |
| 4.1.3                                          | Power and Authority.                                                              |   |
| 4.1.4                                          | Binding Agreements.                                                               |   |
| 4.1.5                                          | No Conflicts.                                                                     |   |
| 4.1.6                                          | No Defaults, Violations.                                                          |   |
| 4.1.7                                          | Compliance with Laws.                                                             |   |
| 4.1.8                                          | Margin Stock.                                                                     |   |
| 4.1.9                                          | Investment Company Act; Margin Stock.                                             |   |
|                                                |                                                                                   |  |  |  |  |  |  |

 

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| 4.1.10                                    | Litigation.                                                            |
|-------------------------------------------|------------------------------------------------------------------------|
| 4.1.11                                    | Financial Condition.                                                   |
| 4.1.12                                    | Full Disclosure.                                                       |
| 4.1.13                                    | Indebtedness for Borrowed Money.                                       |
| 4.1.14                                    | Taxes.                                                                 |
| 4.1.15                                    | ERISA.                                                                 |
| 4.1.16                                    | Title to Properties.                                                   |
| 4.1.17                                    | Employee Relations.                                                    |
| 4.1.18                                    | Presence of Hazardous Materials or Hazardous  Materials Contamination. |
| 4.1.19                                    | Perfection and Priority of Collateral.                                 |
| 4.1.20                                    | Business Names and Addresses.                                          |
| 4.1.21                                    | Accounts.                                                              |
| Section  4.2                              | Survival;  Updates of Representations and Warranties.                  |
|                                      |                                                                   |
| **ARTICLE  V CONDITIONS PRECEDENT**       |
| Section  5.1                              | Conditions  to the Initial Advance and Initial Letter of Credit.       |
| 5.1.1                                     | Organizational Documents - Borrower.                                   |
| 5.1.2                                     | Consents, Licenses, Approvals, Etc.                                    |
| 5.1.3                                     | Notes.                                                                 |
| 5.1.4                                     | Financing Documents and Collateral.                                    |
| 5.1.5                                     | Other Financing Documents.                                             |
| 5.1.6                                     | Other Documents, Etc.                                                  |
| 5.1.7                                     | Payment of Fees.                                                       |
| 5.1.8                                     | Recordings and Filings.                                                |
| 5.1.9                                     | Insurance Certificate.                                                 |
| Section  5.2                              | Conditions  to all Extensions of Credit.                               |
| 5.2.1                                     | Compliance.                                                            |
| 5.2.2                                     | Default.                                                               |
| 5.2.3                                     | Representations and Warranties.                                        |
| 5.2.4                                     | Adverse Change.                                                        |
| 5.2.5                                     | Legal Matters.                                                         |
|                                      |                                                                   |
| **ARTICLE  VI COVENANTS OF THE BORROWER** |
| Section  6.1                              | Affirmative  Covenants.                                                |
| 6.1.1                                     | Financial Statements.                                                  |
| 6.1.2                                     | Reports to SEC and to Stockholders.                                    |
| 6.1.3                                     | Recordkeeping, Rights of Inspection, Field  Examination, Etc.          |
| 6.1.4                                     | Existence.                                                             |
| 6.1.5                                     | Compliance with Laws.                                                  |
| 6.1.6                                     | Preservation of Properties.                                            |
| 6.1.7                                     | Line of Business.                                                      |
| 6.1.8                                     | Insurance.                                                             |
| 6.1.9                                     | Taxes.                                                                 |
| 6.1.10                                    | ERISA.                                                                 |
| 6.1.11                                    | Notification of Events of Default and Adverse  Developments.           |
| 1.1.12                                    | Hazardous Materials; Contamination.                                    |
| 6.1.13                                    | Financial Covenants.                                                   |
| 6.1.14                                    | Collection of Receivables.                                             |
| 6.1.15                                    | Assignments of Receivables.                                            |
| 6.1.16                                    | Government Accounts.                                                   |
| 6.1.17                                    | Maintenance of the Collateral.                                         |
| 6.1.18                                    | Defense of Title and Further Assurances.                               |
| 6.1.19                                    | Use of Premises and Equipment.                                         |
| 6.1.20                                    | Protection of Collateral.                                              |
|                                           |                                                                        |  |

 

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| Section  6.2                                     | Negative  Covenants.                                          |
|--------------------------------------------------|---------------------------------------------------------------|
| 6.2.1                                            | Capital Structure, Merger, Acquisition or Sale of  Assets.    |
| 6.2.2                                            | Subsidiaries.                                                 |
| 6.2.3                                            | Purchase or Redemption of Securities, Dividend  Restrictions. |
| 6.2.4                                            | Indebtedness.                                                 |
| 6.2.5                                            | Investments, Loans and Other Transactions.                    |
| 6.2.6                                            | Stock of Subsidiaries.                                        |
| 6.2.7                                            | Subordinated Indebtedness.                                    |
| 6.2.8                                            | Liens; Confessed Judgment.                                    |
| 6.2.9                                            | Transactions with Affiliates.                                 |
| 6.2.10                                           | Other Businesses.                                             |
| 6.2.11                                           | ERISA Compliance.                                             |
| 6.2.12                                           | Prohibition on Hazardous Materials.                           |
| 6.2.13                                           | Method of Accounting; Fiscal Year.                            |
| 6.2.14                                           | Disposition of Collateral.                                    |
|                                             |                                                          |
| **ARTICLE  VII DEFAULT AND RIGHTS AND REMEDIES** |
| Section  7.1                                     | Events  of Default.                                           |
| 7.1.1                                            | Failure to Pay.                                               |
| 7.1.2                                            | Breach of Representations and Warranties.                     |
| 7.1.3                                            | Failure to Comply with Covenants.                             |
| 7.1.4                                            | Default Under Other Financing Documents or  Obligations.      |
| 7.1.5                                            | Receiver; Bankruptcy.                                         |
| 7.1.6                                            | Involuntary Bankruptcy, etc.                                  |
| 7.1.7                                            | Judgment.                                                     |
| 7.1.8                                            | Execution; Attachment.                                        |
| 7.1.9                                            | Default Under Other Borrowings.                               |
| 7.1.10                                           | Challenge to Agreements.                                      |
| 7.1.11                                           | Liquidation, Termination or Dissolution                       |
| Section  7.2                                     | Remedies.                                                     |
| 7.2.1                                            | Acceleration.                                                 |
| 7.2.2                                            | Further Advances.                                             |
| 7.2.3                                            | Uniform Commercial Code.                                      |
| 7.2.4                                            | Specific Rights With Regard to Collateral.                    |
| 7.2.5                                            | Application of Proceeds.                                      |
| 7.2.6                                            | Performance by Lender.                                        |
| 7.2.7                                            | Other Remedies.                                               |
|                                             |                                                          |
| **ARTICLE  VIII MISCELLANEOUS**                  |
| Section 8.1                                      | Notices.                                                      |
| Section 8.2                                      | Amendments; Waivers.                                          |
| Section 8.3                                      | Cumulative Remedies.                                          |
| Section 8.4                                      | Severability.                                                 |
| Section 8.5                                      | Assignments by Lender.                                        |
| Section 8.6                                      | Successors and Assigns.                                       |
| Section 8.7                                      | Continuing Agreements.                                        |
| Section 8.8                                      | Enforcement Costs.                                            |
| Section 8.9                                      | Applicable Law; Jurisdiction.                                 |
| 8.9.1                                            | Applicable  Law.                                              |
| 8.9.2                                            | Jurisdiction.                                                 |
| 8.9.3                                            | Appointment  of Agent for Service of Process.                 |
| 8.9.4                                            | Service  of Process.                                          |
| Section 8.10                                     | Duplicate Originals and Counterparts.                         |
|                                                  |                                                               |  |  |

 

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| Section 8.11 | Headings.                |
|--------------|--------------------------|
| Section 8.12 | No Agency.               |
| Section 8.13 | Date of Payment.         |
| Section 8.14 | Entire Agreement.        |
| Section 8.15 | Waiver of Trial by Jury. |
| Section 8.16 | Liability of the Lender. |
| Section 8.17 | Indemnification.         |

 

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**FINANCINGAND SECURITY AGREEMENT**

 

**Dated**

 

**June 27,2003**

 

**By andBetween**

 

**PECSOLUTIONS, INC.**

** **

**And**

 

**BANK OFAMERICA, N. A.**

 

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