Loan and Security Agreement


    EXHIBIT
      10.1


     

    LOAN
      AND SECURITY AGREEMENT

     

    THIS
      LOAN AND SECURITY AGREEMENT
      (this
“Agreement”)
      dated
      as of August 4, 2006 (the "Effective
      Date")
      among
      (i) SILICON
      VALLEY BANK,
      a
      California corporation and with a loan production office located at One Newton
      Executive Park, Suite 200, 2221 Washington Street, Newton, Massachusetts 02462
      (“Bank”),
      and
(ii)
      TECHNEST
      HOLDINGS, INC.,
      a
      Nevada corporation, with offices at 1 McKinley Sq., Fifth Floor, Boston,
      Massachusetts 02109 (“Technest”),
      E-OIR
      TECHNOLOGIES, INC.,
      a
      Virginia corporation, with offices at 10300 Spotsylvania Ave., Suite 220,
      Fredericksburg, Virginia 22408 (“EOIR”),
      and
GENEX
      TECHNOLOGIES INCORPORATED,
      a
      Maryland corporation, with offices at 10411 Motor City Drive, Suite 650,
      Bethesda, Maryland 20817 (“Genex”)
      (hereinafter, Technest, EOIR and Genex are jointly and severally, individually
      and collectively, referred to as “Borrower”),
      provides the terms on which Bank shall lend to Borrower and Borrower shall
      repay
      Bank. The parties agree as follows:

     

    1    ACCOUNTING
      AND OTHER TERMS

     

    Accounting
      terms not defined in this Agreement shall be construed following GAAP.
      Calculations and determinations must be made following GAAP. Capitalized terms
      not otherwise defined in this Agreement shall have the meanings set forth in
      Section 13. All other terms contained in this Agreement, unless otherwise
      indicated, shall have the meaning provided by the Code to the extent such terms
      are defined therein.

     

    2    LOAN
      AND TERMS OF PAYMENT

     

    2.1       
      Promise
      to Pay.
      Borrower hereby unconditionally promises to pay Bank the outstanding principal
      amount of all Credit Extensions and accrued and unpaid interest thereon as
      and
      when due in accordance with this Agreement.

     

    2.1.1    
      Term
      Loan.

     

    (a)    Availability.
      Subject
      to the terms and conditions of this Agreement, Bank agrees to lend to Borrower,
      from time to time prior to the February 15, 2007, term loan advances (each
      a
“Term
      Advance”
and
      collectively the “Term
      Advances”)
      in an
      aggregate amount not to exceed the Term Loan Amount. The first Term Advance,
      which shall be requested on the Effective Date, shall be in an amount equal
      to
      Three Million Dollars ($3,000,000.00) (the “Initial Term Advance”). In addition,
      subject to the Bank’s receipt of the various documents required to be delivered
      by Borrower to Bank on a monthly basis pursuant to Section 6.2 with respect
      to
      each month through and including the month ending December 31, 2006, and if
      no
      Event of Default has occurred or is continuing, the Borrower may request a
      second Term Advance in an amount not to exceed One Million Dollars
      ($1,000,000.00) (the “Second Term Advance”). The aggregate principal amount of
      the Initial Term Advance and the Second Term Advance shall not exceed the Term
      Loan Amount. When repaid, the Term Advances may not be re-borrowed. Bank’s
      obligation to lend hereunder shall terminate on the earlier of (i) the
      occurrence and continuance of an Event of Default, or (ii) February 15,
      2007.

     

    (b)   Repayment.
      Borrower shall repay: 

     

    (i)    the
      Initial
      Term Advance in thirty-six (36) equal installments of principal, plus monthly
      payments of accrued interest, commencing on September 1, 2006, (individually,
      the “Scheduled Payment”, and collectively the “Scheduled Payments”);
      and

     

    (ii)    the
      Second
      Term Advance (as applicable) in thirty-six (36) equal installments of principal,
      plus monthly payments of accrued interest, commencing on the first date of
      the
      month following the date of the Second Term Advance (the “Second Term Advance
      Scheduled Payments”), as applicable (the Scheduled Payments and the Second Term
      Advance Scheduled Payments, collectively, as applicable, the “Term
      Loan Payment”).
      

     

    Beginning
      on the first day of the month following the month in which the Funding Date
      occurs, each Term Loan Payment shall be payable on the first day of each month.
      Borrower’s final Term Loan Payment, due on the Commitment Termination Date,
      shall include all outstanding principal and accrued and unpaid interest under
      the Term Loan. 

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

     

    (c)    Prepayment
      Fee.
      Borrower
      will pay to Bank a Prepayment Fee equal to: (i) three percent (3.0%) of the
      amount of any Term Advance prepaid during the first year of the Term Loan and
      (ii) two percent (2.0%) of the amount of any Term Advance prepaid for each
      year
      thereafter, prior to the Commitment Termination Date. Notwithstanding the
      foregoing, Bank agrees to waive the Prepayment Fee if Bank refinances and
      re-documents this Agreement under another division of Bank (in its sole and
      exclusive discretion) prior to the Commitment Termination Date. 

     

    2.2         
      Payment
      of Interest on the Credit Extensions.

     

    (a)    Interest
      Rate.
      Subject
      to Section 2.2(b), the principal amount of Term Advances outstanding shall
      initially accrue interest at a floating per annum rate equal to two and
      three-quarters of one percentage points (2.75%) above the Prime Rate, which
      interest shall be payable monthly. Upon the Borrower’s achieving a Fixed Charge
      Coverage Ratio of at least 1.75 to 1.0 for three (3) consecutive fiscal quarters
      after the Effective Date, the principal amount of Term Advances outstanding
      shall accrue interest at a floating per annum rate equal to two percentage
      points (2.00%) above the Prime Rate, which interest shall be payable monthly.
      Upon the Borrower’s achieving a Fixed Charge Coverage Ratio of at least 2.0 to
      1.0 for three (3) consecutive fiscal quarters after the Effective Date, the
      principal amount of Term Advances outstanding shall accrue interest at a
      floating per annum rate equal to one and one-half of one percentage points
      (1.50%) above the Prime Rate, which interest shall be payable
      monthly.

     

    (b)    Default
      Rate.
      Immediately upon the occurrence and during the continuance of an Event of
      Default, Obligations shall bear interest at a rate per annum which is five
      percentage points above the rate effective immediately before the Event of
      Default (the “Default
      Rate”).
      Payment
      or acceptance of the increased interest rate provided in this Section 2.2(b)
      is
      not a permitted alternative to timely payment and shall not constitute a waiver
      of any Event of Default or otherwise prejudice or limit any rights or remedies
      of Bank.

     

    (c)    Adjustment
      to Interest Rate.
      Changes
      to the interest rate of any Credit Extension based on changes to the Prime
      Rate
      shall be effective on the effective date of any change to the Prime Rate and
      to
      the extent of any such change.

     

    (d)    360-Day
      Year.
      Interest shall be computed on the basis of a 360-day year for the actual number
      of days elapsed.

     

    (e)    Debit
      of Accounts.
      Bank
      may debit any of Borrower’s deposit accounts, including the Designated Deposit
      Account, for principal and interest payments or any other amounts Borrower
      owes
      Bank when due. These debits shall not constitute a set-off.

     

    (f)    Payments.
      Unless
      otherwise provided, interest is payable monthly on the first calendar day of
      each month. Payments of principal and/or interest received after 12:00 noon
      Eastern time are considered received at the opening of business on the next
      Business Day. When a payment is due on a day that is not a Business Day, the
      payment is due the next Business Day and additional fees or interest, as
      applicable, shall continue to accrue.

     

    2.3         
      Fees.
      Borrower shall pay to Bank: 

     

    (a)    Facility
      Fee.
      A fully
      earned, non-refundable facility fee of Twelve Thousand Five Hundred Dollars
      ($12,500.00), on the Effective Date; 

     

    (b)    Prepayment
      Fee.
      The
      Prepayment Fee, when due hereunder; and

     

    (c)    Bank
      Expenses.
      All
      Bank Expenses (including reasonable attorneys’ fees and expenses, plus expenses,
      for documentation and negotiation of this Agreement) incurred through and after
      the Effective Date, when due.

     

    3    
      CONDITIONS
      OF LOANS

     

    3.1        
      Conditions
      Precedent to Initial Credit Extension.
      Bank’s
      obligation to make the initial Credit Extension is subject to the condition
      precedent that Bank shall have received, in form and substance satisfactory
      to
      Bank, such documents, and completion of such other matters, as Bank may
      reasonably deem necessary or appropriate (with respect to each Borrower),
      including, without limitation:

     

     

    
      
        
        

      

      
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    (a)    Duly
      executed original signatures to the Loan Documents to which it is a
      party;

     

    (b)    Duly
      executed original signatures to the Control Agreements;

     

    (c)    Borrower
      shall have delivered its Operating Documents and a good standing certificate
      of
      Borrower certified by the Secretary of State of the state in which each Borrower
      is organized as of a date no earlier than thirty (30) days prior to the
      Effective Date;
      

     

    (d)   Duly
      executed original signatures to the completed Borrowing Resolutions for
      Borrower;

     

    (e)   Borrower
      shall have delivered the duly executed Subordination Agreements, as required
      by
      Bank;

     

    (f)    Bank
      shall have received certified copies, dated as of a recent date, of financing
      statement searches, as Bank shall request, accompanied by written evidence
      (including any UCC termination statements) that the Liens indicated in any
      such
      financing statements either constitute Permitted Liens or have been or, in
      connection with the initial Credit Extension, will be terminated or
      released;

     

    (g)   Intentionally
      omitted;

     

    (h)   Borrower
      shall have delivered a legal opinion of Borrower’s counsel dated as of the
      Effective Date;

     

    (i)    Borrower
      shall have delivered the duly
      executed original signatures to
      the
      Guaranty and Stock Pledge Agreement, together with the completed Borrowing
      Resolutions for Guarantor;

     

    (j)    Borrower
      shall have delivered a legal opinion of Guarantor’s counsel dated as of the
      Effective Date;

     

    (k)   Borrower
      shall have delivered a duly executed registration rights agreement in form
      and
      substance reasonably acceptable to Bank;

     

    (l)    Borrower
      shall have delivered the insurance policies and/or endorsements required
      pursuant to Section 6.5 hereof; 

     

    (m)         
      Borrower
      shall have paid the fees and Bank Expenses then due as specified in Section
      2.3
      hereof; 

     

    (n)   Borrower
      shall have delivered satisfactory evidence of the release of all claims held
      by
      and the termination of any litigation brought by Joseph Moulton against each
      Borrower, in form and substance satisfactory to Bank; 

     

    (o)   payoff
      letter from existing lienholders; 

     

    (p)   the
      Initial Audit; and

     

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

     

    3.2         
      Conditions
      Precedent to all Credit Extensions.
      Bank’s
      obligations to make each Credit Extension, including the initial Credit
      Extension, is subject to the following:

     

    (a)    except
      as
      otherwise provided in Section 3.4, timely receipt of an executed Payment/Advance
      Form;

     

     

    
      
        
        

      

      
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    (b)    the
      representations and warranties in Section 5 shall be true in all material
      respects on the date of the Payment/Advance Form and on the Funding Date of
      each
      Credit Extension; provided, however, that such materiality qualifier shall
      not
      be applicable to any representations and warranties that already are qualified
      or modified by materiality in the text thereof; and provided, further
that
      those representations and warranties expressly referring to a specific date
      shall be true, accurate and complete in all material respects as of such
      date,
      and no
      Default or Event of Default shall have occurred and be continuing or result
      from
      the Credit Extension. Each Credit Extension is Borrower’s representation and
      warranty on that date that the representations and warranties in Section 5
      remain true in all material respects; provided, however, that such materiality
      qualifier shall not be applicable to any representations and warranties that
      already are qualified or modified by materiality in the text thereof; and
      provided, further that
      those representations and warranties expressly referring to a specific date
      shall be true, accurate and complete in all material respects as of such
      date;
      and

     

    (c)    in
      Bank’s
      determination at Bank’s sole discretion, there has not been a Material Adverse
      Change in the general affairs, management, results of operation, financial
      condition or the prospect of repayment of the Obligations, or there has not
      been
      any material adverse deviation by Borrower from the most recent business plan
      of
      Borrower presented to and accepted by Bank.

     

    3.3         
      Covenant
      to Deliver.
      

     

    Borrower
      agrees to deliver to Bank each item required to be delivered to Bank under
      this
      Agreement as a condition to any Credit Extension. Borrower expressly agrees
      that
      the extension of a Credit Extension prior to the receipt by Bank of any such
      item shall not constitute a waiver by Bank of Borrower’s obligation to deliver
      such item, and any such extension in the absence of a required item shall be
      at
      Bank’s sole discretion.

     

    3.4         
      Procedures
      for Borrowing.
      Subject
      to the prior satisfaction of all other applicable conditions to the making
      of
      the Term Loan set forth in this Agreement, if any portion of the proceeds of
      the
      Term Loan shall be used to purchase or finance Equipment, Borrower shall deliver
      to Bank by electronic mail or facsimile a copy of the invoice for the Equipment
      to be purchased and the request for the Term Loan.

     

    4    
      CREATION
      OF SECURITY INTEREST

     

    4.1        
      Grant
      of Security Interest.
      Borrower hereby grants Bank, to secure the payment and performance in full
      of
      all of the Obligations, a continuing security interest in, and pledges to Bank,
      the Collateral, wherever located, whether now owned or hereafter acquired or
      arising, and all proceeds and products thereof. Borrower represents, warrants,
      and covenants that the security interest granted herein is and shall at all
      times continue to be a first priority perfected security interest in the
      Collateral (subject only to Permitted Liens that may have superior priority
      to
      Bank’s Lien under this Agreement). If Borrower shall acquire a commercial tort
      claim, Borrower shall promptly notify Bank in a writing signed by Borrower
      of
      the general details thereof and grant to Bank in such writing a security
      interest therein and in the proceeds thereof, all upon the terms of this
      Agreement, with such writing to be in form and substance reasonably satisfactory
      to Bank.

     

    If
      this
      Agreement is terminated, Bank’s Lien on the Collateral shall continue until the
      Obligations (other than inchoate indemnity obligations) are repaid in full
      in
      cash. Upon payment in full in cash of the Obligations and
      at
      such time as Bank’s obligation to make Credit Extensions shall have terminated,
      Bank shall, at Borrower’s sole cost and expense, release its Liens on the
      Collateral and all rights therein shall revert to Borrower.

     

    4.2         
      Authorization
      to File Financing Statements.
      Borrower hereby authorizes Bank to file financing statements, without notice
      to
      Borrower, with  all appropriate jurisdictions to perfect or protect Bank’s
      interest or rights hereunder, including a notice that any disposition of the
      Collateral, by either Borrower or any other Person, shall be deemed to violate
      the rights of Bank under the Code. 

     

    5    
      REPRESENTATIONS
      AND WARRANTIES

     

    Borrower
      represents and warrants as follows: 

     

     

    
      
        
        

      

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

     

    The
      execution, delivery and performance of the Loan Documents have been duly
      authorized, and do not conflict with Borrower’s organizational documents, nor
      constitute an event of default under any material agreement by which Borrower
      is
      bound. Borrower is not in default under any agreement to which it is a party
      or
      by which it is bound in which the default could have a material adverse effect
      on Borrower’s business.

     

    5.2          
      Collateral.
      Borrower has good title to, has rights in, and the power to transfer each item
      of the Collateral upon which it purports to grant a Lien hereunder, free and
      clear of any and all Liens except Permitted Liens. Borrower has no deposit
      accounts other than the deposit accounts with Bank and the deposit accounts,
      if
      any, described in the Perfection Certificate delivered to Bank in connection
      herewith.

     

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

     

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

     

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

     

    5.3          
      Litigation.
      Except
      as set forth on the Disclosure Schedule attached hereto, there are no actions
      or
      proceedings pending or, to the knowledge of the Responsible Officers, threatened
      in writing by or against Borrower or any of its Subsidiaries involving more
      than
      Two Hundred and Fifty Thousand Dollars ($250,000.00).

     

    5.4          
      No
      Material Deviation in Financial Statements.
      All
      consolidated financial statements for Borrower and any of its Subsidiaries
      delivered to Bank fairly present in all material respects Borrower’s
      consolidated financial condition and Borrower’s consolidated results of
      operations in accordance with GAAP. There has not been any material
      deterioration in Borrower’s consolidated financial condition since the date of
      the most recent financial statements submitted to Bank.

     

     

    
      
        
        

      

      
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    5.5          
      Solvency.
      The
      fair salable value of Borrower’s assets (including goodwill minus disposition
      costs) exceeds the fair value of its liabilities; Borrower will not be left
      with
      unreasonably small capital after the transactions contemplated by this
      Agreement; and Borrower is able to pay its debts (including trade debts) as
      they
      mature.

     

    5.6          
      Regulatory
      Compliance.
      Borrower is not an “investment company” or a company “controlled” by an
“investment company” under the Investment Company Act. Borrower is not engaged
      as one of its important activities in extending credit for margin stock (under
      Regulations T and U of the Federal Reserve Board of Governors). Borrower has
      complied in all material respects with the Federal Fair Labor Standards Act.
      Borrower has not violated any laws, ordinances or rules, the violation of which
      could reasonably be expected to have a material adverse effect on its business.
      None of Borrower’s or any of its Subsidiaries’ properties or assets has been
      used by Borrower or any Subsidiary or, to the best of Borrower’s knowledge, by
      previous Persons, in disposing, producing, storing, treating, or transporting
      any hazardous substance other than legally. Borrower and each of its
      Subsidiaries have obtained all consents, approvals and authorizations of, made
      all declarations or filings with, and given all notices to, all government
      authorities that are necessary to continue its business as currently
      conducted.

     

    5.7          
      Investments.
      Borrower does not own any stock, partnership interest or other equity securities
      except for Permitted Investments and except for Technest’s ownership of EOIR and
      Genex.

     

    5.8          
      Tax
      Returns and Payments; Pension Contributions.
      Borrower has timely filed all required tax returns and reports, and Borrower
      and
      its Subsidiaries have timely paid all foreign, federal, state and local taxes,
      assessments, deposits and contributions owed by Borrower. Borrower may defer
      payment of any contested taxes, provided that Borrower (a) in good faith
      contests its obligation to pay the taxes by appropriate proceedings promptly
      and
      diligently instituted and conducted, (b) notifies Bank in writing of the
      commencement of, and any material development in, the proceedings, (c) posts
      bonds or takes any other steps required to prevent the governmental authority
      levying such contested taxes from obtaining a Lien upon any of the Collateral
      that is other than a “Permitted Lien”. Borrower is unaware of any claims or
      adjustments proposed for any of Borrower's prior tax years which could result
      in
      additional taxes becoming due and payable by Borrower. Borrower has paid all
      amounts necessary to fund all present pension, profit sharing and deferred
      compensation plans in accordance with their terms, and Borrower has not
      withdrawn from participation in, and has not permitted partial or complete
      termination of, or permitted the occurrence of any other event with respect
      to,
      any such plan which could reasonably be expected to result in any liability
      of
      Borrower, including any liability to the Pension Benefit Guaranty Corporation
      or
      its successors or any other governmental agency.

     

    5.9          
      Use
      of Proceeds.
      Borrower shall use the proceeds of the Credit Extensions solely to fund its
      general business requirements and not for personal, family, household or
      agricultural purposes.

     

    5.10         Inactive
      Subsidiary.
      Argus
      Sensors, Inc. a Delaware corporation, and a Subsidiary of Technest, does not
      and
      will not conduct any business or own any assets and will remain an inactive
      entity.

     

    5.11         Litigation
      with Joseph Moulton.
      The
      litigation matter with Joseph Moulton described on the Disclosure Schedule
      has
      been settled in full (with respect to each Borrower), contingent only upon
      certain payments being made as described on the Disclosure Schedule. Aside
      from
      the making of the payments described on the Disclosure Schedule, all other
      conditions precedent to the Settlement Agreement have been satisfied in full.
      

     

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

     

     

    
      
        
        

      

      
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    6    
      AFFIRMATIVE
      COVENANTS

     

    Borrower
      shall do all of the following:

     

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

     

    6.2       
      Financial
      Statements, Reports, Certificates.

     

     
      (a)    Deliver
      to Bank: (i) as soon as available, but no later than thirty (30) days after
      the
      last day of each month, a company prepared consolidated balance sheet and income
      statement covering Borrower’s and each of its Subsidiary’s operations during the
      period certified by a Responsible Officer and in a form acceptable to Bank;
      (ii) as soon as available, but no later than one hundred twenty (120) days
      after the last day of Borrower’s fiscal year, audited consolidated financial
      statements prepared under GAAP, consistently applied, together with an
      unqualified opinion on the financial statements from an independent certified
      public accounting firm acceptable to Bank in its reasonable discretion;
      (iii) within five (5) days of delivery, copies of all statements, reports
      and notices made available to Borrower’s security holders or to any holders of
      Subordinated Debt; (iv) in the event that Borrower becomes subject to the
      reporting requirements under the Securities Exchange Act of 1934, as amended,
      within five (5) days of filing, all reports on Form 10-K, 10-Q and 8-K filed
      with the Securities and Exchange Commission or a link thereto on Borrower’s or
      another website on the Internet; (v) a prompt report of any legal actions
      pending or threatened against Borrower or any of its Subsidiaries that is likely
      to result in damages or costs to Borrower or any of its Subsidiaries of Fifty
      Thousand Dollars ($50,000.00) or more; (vi) prompt notice of an event that
      materially and adversely affects the value of Borrower’s intellectual property;
      and (vii) budgets, sales projections, operating plans, and other financial
      information reasonably requested by Bank. 

     

    (b)       
      Within
      thirty (30) days after the last day of each month, deliver to Bank an aged
      listings of accounts receivable and accounts payable (by invoice
      date).

     

    (c)        
      Within
      thirty (30) days after the last day of each month, deliver to Bank with the
      monthly financial statements, a duly completed Compliance Certificate signed
      by
      a Responsible Officer setting forth calculations showing compliance with the
      financial covenants set forth in this Agreement.

     

    (d)        
      Allow
      Bank to audit Borrower’s Collateral at Borrower’s expense. Such audits shall be
      conducted no more often than once every twelve (12) months unless a Default
      or
      an Event of Default has occurred and is continuing. Notwithstanding the
      foregoing, no Credit Extension may be requested prior to the Initial
      Audit.

     

    (e)        
      Within
      thirty (30) days after the last day of each month, deliver to Bank a funded
      backlog schedule, in form acceptable to Bank.

     

    (f)          Within
      thirty (30) days after the last day of each month, deliver to Bank a deferred
      revenue report, in form acceptable to Bank.

     

    6.3      Inventory;
      Returns.
      Keep
      all Inventory in good and marketable condition, free from material defects.
      Returns and allowances between Borrower and its Account Debtors shall follow
      Borrower’s customary practices as they exist at the Effective Date. Borrower
      must promptly notify Bank of all returns, recoveries, disputes and claims that
      involve more than Two Hundred Fifty Thousand Dollars ($250,000.00) in the
      aggregate.

     

    6.4      Taxes.
      Make,
      and cause each of its Subsidiaries to make, timely payment of all foreign,
      federal, state, and local taxes or assessments (other than taxes and assessments
      which Borrower is contesting pursuant to the terms of Section 5.8 hereof) and
      shall deliver to Bank, on demand, appropriate certificates attesting to such
      payments, and pay
      all
      amounts necessary to fund all present pension, profit sharing and deferred
      compensation plans in accordance with their terms.

     

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

     

     

    
      
        
        

      

      
        -7-

        
          

        

      

      
        
        

      

    

     

     

    6.6      Operating
      Accounts.

     

    (a)    Maintain
      its and its Subsidiaries’ primary operating accounts and securities accounts
      with Bank and Bank’s affiliates and
      a
      majority of Borrower’ s and such Subsidiaries’ cash or securities in excess of
      that amount used for Borrower’ s or such Subsidiaries’ current operations shall
      be maintained at Bank and Bank’s affiliates.
       Notwithstanding
      the termination of the Receivables Loan and Security Agreement, Borrower shall
      at all times maintain the Lockbox (as such term is defined therein) required
      by
      the Receivables Loan and Security Agreement. 

     

    (b)    Provide
      Bank five (5) days prior written notice before establishing any Collateral
      Account at or with any bank or financial institution other than Bank or its
      Affiliates. In addition, for each Collateral Account that Borrower or Guarantor
      at any time maintains, Borrower shall cause the applicable bank or financial
      institution (other than Bank) at or with which any Collateral Account is
      maintained to execute and deliver a Control Agreement or other appropriate
      instrument with respect to such Collateral Account to perfect Bank’s Lien in
      such Collateral Account in accordance with the terms hereunder. The provisions
      of the previous sentence shall not apply to deposit accounts exclusively used
      for payroll, payroll taxes and other employee wage and benefit payments to
      or
      for the benefit of Borrower’s employees and identified to Bank by Borrower as
      such.

     

    6.7      Financial
      Covenants.

     

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

     

    (a)    Quick
      Ratio.
      If for
      any one or more of the monthly reporting periods set forth herein the Borrower
      reports that the ratio of Quick Assets to Current Liabilities is less than:
      

     

    
      	
              Reporting
                Period End Dates

            	
              Minimum
                Quick Ratio

            
	
              Effective
                Date through November 30, 2006

            	
              0.70
                to 1.0

            
	
              December
                31, 2006 through May 31, 2007

            	
              0.85
                to 1.0

            
	
              June
                30, 2007 through August 31, 2007

            	
              1.0
                to 1.0

            
	
              September
                30, 2007 and all monthly reporting periods thereafter

            	
              1.20
                to 1.0

            


    

    


     

    then
      the
      sum of (a) Borrower’s unrestricted cash at the Bank, plus
      (b)
      eighty percent (80.0%) of the Borrower’s Eligible Accounts, minus
      (c) the
      Borrower’s outstanding Obligations as defined in the Receivables Loan and
      Security Agreement, must exceed $2,000,000.00.

     

    (b)    Fixed
      Charge Coverage Ratio.
      A
      monthly Fixed Charge Coverage Ratio measured on the last day of every month,
      for
      the three (3) month period ending on the last day of such month, of at least
      1:0
      to 1:0 through periods ending November 30, 2006; at least 1.25:1.0 for periods
      ending on December 31, 2006 through May 31, 2007; and at least 1.50:1.0 for
      all
      periods thereafter.

     

    6.8      Protection
      and Registration of Intellectual Property Rights.
      Borrower shall: (a) protect, defend and maintain the validity and enforceability
      of its intellectual property material to its business; (b) promptly advise
      Bank
      in writing of material infringements of any of its intellectual property
      material to its business; and (c) not allow any intellectual property material
      to Borrower’s business to be abandoned, forfeited or dedicated to the public
      without Bank’s written consent. If Borrower decides to register any copyrights
      or mask works in the United States Copyright Office, Borrower shall: (x) provide
      Bank with at least fifteen (15) days prior written notice of its intent to
      register such copyrights
      or mask works together with a copy of the application it intends to file with
      the United States Copyright Office (excluding exhibits thereto); (y) execute
      an
      intellectual property security agreement or such other documents as Bank may
      reasonably request to maintain the perfection and priority of Bank’s security
      interest in the copyrights or mask works intended to be registered with the
      United States Copyright Office; and (z) record such intellectual property
      security agreement with the United States Copyright Office contemporaneously
      with filing the copyright or mask work application(s) with the United States
      Copyright Office. Borrower shall promptly provide to Bank a copy of the
      application(s) filed with the United States Copyright Office together with
      evidence of the recording of the intellectual property security agreement
      necessary for Bank to maintain the perfection and priority of its security
      interest in such copyrights or mask works. Borrower shall provide written notice
      to Bank of any application filed by Borrower in the United States Patent and
      Trademark Office for a patent or to register a trademark or service mark within
      30 days after any such filing.

     

    
      
         

      

      
        -8-

        
          

        

      

      
         

      

    

     

     

    6.9      Litigation
      Cooperation.
      From
      the date hereof and continuing through the termination of this Agreement,
      make
      available to Bank, without expense to Bank, Borrower and its officers, employees
      and agents and Borrower's books and records, to the extent that Bank may deem
      them reasonably necessary to prosecute or defend any third-party suit or
      proceeding instituted by or against Bank with respect to any Collateral or
      relating to Borrower.

     

    6.10  
      Landlord’s
      Waivers.
      Borrower shall deliver to Bank, on or before the date that is fourteen (14)
      calendar days from the Effective Date, a fully-executed landlord’s waiver, in
      form and substance acceptable to Bank in its reasonable discretion, with respect
      to Borrower’s location at 10300 Spotsylvania Avenue, Suite 220, Fredericksburg,
      Virginia 22408. Borrower shall use its best efforts to deliver to Bank, on
      or
      before the date that is fourteen (14) calendar days from the Effective Date,
      a
      fully-executed landlord’s waiver, in form and substance acceptable to Bank in
      its reasonable discretion, with respect to the following locations: (a) Jackson
      Square Office Park, 4701 Carr Drive, Fredericksburg, Virginia 22408, and (b)
      Jackson Square Office Park, 4324 Carr Drive, Fredericksburg, Virginia
      22408.

     

    6.11  
      Further
      Assurances.
      Borrower shall execute any further instruments and take further action as Bank
      reasonably requests to perfect or continue Bank’s Lien in the Collateral or to
      effect the purposes of this Agreement.

     

    7        
      NEGATIVE
      COVENANTS

     

    Borrower
      shall not do any of the following without Bank’s prior written consent, which
      consent shall not be unreasonably withheld:

     

    7.1    
      Dispositions.
      Convey,
      sell, lease, transfer or otherwise dispose of (collectively, “Transfer”),
      or
      permit any of its Subsidiaries to Transfer, all or any part of its business
      or
      property, except for Transfers (a) of Inventory in the ordinary course of
      business; (b) of worn-out or obsolete Equipment; and (c) in connection with
      Permitted Liens and Permitted Investments. Borrower shall not enter into an
      agreement with any Person other than Bank which restricts the subsequent
      granting of a security interest in the Intellectual Property.

     

    7.2    
      Changes
      in Business, Management, Ownership, Control, or Business
      Locations.
      Except
      as permitted by Section 7.3 hereof, (a) engage in or permit any of its
      Subsidiaries to engage in any business other than the businesses currently
      engaged in by Borrower and such Subsidiary, as applicable, or reasonably related
      thereto; (b) liquidate or dissolve; or (c) (i) have the departure of
      any Key Person, or (ii) enter
      into any transaction or series of related transactions in which the stockholders
      of Borrower immediately prior to the first such transaction own less than 50%
      of
      the voting stock of Borrower immediately after giving effect to such transaction
      or related series of such transactions
      (other
      than by the sale of Borrower’s equity securities in a public offering or to
      venture capital investors so long as Borrower identifies to Bank the venture
      capital investors prior to the closing of the transaction). Borrower shall
      not,
      without at least thirty (30) days prior written notice to Bank: (1) add any
      new offices or business locations, including warehouses (unless such new offices
      or business locations contain less than Ten Thousand Dollars ($10,000.00) in
      Borrower’s assets or property), (2) change its jurisdiction of organization,
      (3) change its organizational structure or type, (4) change its legal name,
      or (5) change any organizational number (if any) assigned by its
      jurisdiction of organization.

     

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

     

     

    
      
        
        

      

      
        -9-

        
          

        

      

      
        
        

      

    

     

     

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

     

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

     

    7.6    
      Maintenance
      of Collateral Accounts.
      Maintain any Collateral Account except pursuant to the terms of Section 6.6(b)
      hereof.

     

    7.7    
      Distributions;
      Investments.
      (a)
      Directly or indirectly make any Investment other than Permitted Investments,
      or
      permit any of its Subsidiaries to do so; or (b) pay any dividends or make any
      distribution or payment or redeem, retire or purchase any capital stock.
Borrower
      may repurchase the stock of former employees or consultants pursuant to stock
      repurchase agreements so long as an Event of Default does not exist at the
      time
      of such repurchase and would not exist after giving effect to such repurchase,
      provided such repurchase does not exceed in the aggregate of $200,000 per fiscal
      year. 

     

    7.8    
      Transactions
      with Affiliates.
      Directly or indirectly enter into or permit to exist any material transaction
      with any Affiliate of Borrower, except for transactions that are in the ordinary
      course of Borrower’s business, upon fair and reasonable terms that are no less
      favorable to Borrower than would be obtained in an arm’s length transaction with
      a non-affiliated Person. Notwithstanding the foregoing, the Borrower may not
      make any direct or indirect payment, transfer or other distribution to Markland,
      except for (a) loan payments to Markland made in accordance with the Disclosure
      Schedule, (b) payments to Markland pursuant to the Stockholder Agreement in
      effect on the Effective Date and as set forth on the Disclosure Schedule, and
      (c) payments for services rendered by Markland in the ordinary course of
      business, provided, that, in the case of (a) through (b) above, Borrower
      provides prior written notice to Bank within thirty (30) days of any such
      payment, which notice contains the amount of such payment, the purpose of such
      payment, and a specific reference to this Section 7.8, and provided further,
      that, in the case of (a) through (c) above, no Event of Default exists or would
      result at any time after giving effect to such transaction, either immediately
      or solely as a result of the passage of time.

     

    7.9    
      Subordinated
      Debt.
      Make or
      permit any payment on any Subordinated Debt, except under the terms of the
      Subordinated Debt or amend any provision in any document relating to the
      Subordinated Debt, without Bank’s prior written consent.

     

    7.10  
      Compliance.
      Become
      an “investment company” or a company controlled by an “investment company”,
      under the Investment Company Act of 1940 or undertake as one of its important
      activities extending credit to purchase or carry margin stock (as defined in
      Regulation U of the Board of Governors of the Federal Reserve System), or use
      the proceeds of any Credit Extension for that purpose; fail to meet the minimum
      funding requirements of ERISA, permit a Reportable Event or Prohibited
      Transaction, as defined in ERISA, to occur; fail to comply with the Federal
      Fair
      Labor Standards Act or violate any other law or regulation, if the violation
      could reasonably be expected to have a material adverse effect on Borrower’s
      business, or permit any of its Subsidiaries to do so; withdraw
      or permit any Subsidiary to withdraw from participation in, permit partial
      or
      complete termination of, or permit the occurrence of any other event with
      respect to, any present pension, profit sharing and deferred compensation plan
      which could reasonably be expected to result in any liability of Borrower,
      including any liability to the Pension Benefit Guaranty Corporation or its
      successors or any other governmental agency.

     

    8         EVENTS
      OF DEFAULT

     

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

     

     

    
      
        
        

      

      
        -10-

        
          

        

      

      
        
        

      

    

     

     

    8.1    
      Payment
      Default.
      Borrower
      fails to (a) make any payment of principal or interest on any Credit
      Extension on its due date, or (b) pay any other Obligations within three
      (3) Business Days after such Obligations are due and payable (which three day
      grace period will not apply to payments due on the Maturity Date). During the
      cure period, the failure to cure the payment default is not an Event of Default
      (but no Credit Extension will be made during the cure period);

     

    8.2    
      Covenant
      Default.
      

     

    (a)    Borrower
      fails or neglects to perform any obligation in Sections 6.2, 6.6, 6.7 or
      violates any covenant in Section 7; or

     

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

     

    8.3    
      Material
      Adverse Change.
      A
      Material Adverse Change occurs;

     

    8.4    
      Attachment.
      (a) Any
      material portion of Borrower’s assets is attached, seized, levied on, or comes
      into possession of a trustee or receiver and the attachment, seizure or levy
      is
      not removed in ten (10) days; (b) the service of process upon Bank (or
      Bank’s Affiliate) seeking to attach, by trustee or similar process, any funds
      of, or of any entity under control of Borrower (including a Subsidiary) on
      deposit with the Bank; (c) Borrower is enjoined, restrained, or prevented by
      court order from conducting a material part of its business; (d) a judgment
      or
      other claim in excess of One Hundred Thousand Dollars ($100,000.00) becomes
      a
      Lien on any of Borrower’s assets; or (e) a notice of lien, levy, or assessment
      is filed against any of Borrower’s assets by any government agency and not paid
      within ten (10) days after Borrower receives notice. These are not Events of
      Default if stayed or if a bond is posted pending contest by Borrower (but no
      Credit Extensions shall be made during the cure period);

     

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

     

    8.6    
      Other
      Agreements.
      There
      is a default in any agreement to which Borrower or any Guarantor is a party
      with
      a third party or parties resulting in a right by such third party or parties,
      whether or not exercised, to accelerate the maturity of any Indebtedness in
      an
      amount in excess of One Hundred Thousand Dollars ($100,000.00) or that could
      have a material adverse effect on Borrower’s or any Guarantor’s
      business;

     

    8.7    
      Judgments.
      A
      judgment or judgments for the payment of money in an amount, individually or
      in
      the aggregate, of at least One Hundred Thousand Dollars ($100,000.00) (not
      covered by independent third-party insurance) shall be rendered against Borrower
      and shall remain unsatisfied and unstayed for a period of ten (10) days after
      the entry thereof (provided that no Credit Extensions will be made prior to
      the
      satisfaction or stay of such judgment);

     

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

     

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

     

     

    
      
        
        

      

      
        -11-

        
          

        

      

      
        
        

      

    

     

     

    8.10    
      Guaranty.
      (a) Any
      guaranty of any Obligations terminates or ceases for any reason to be in full
      force and effect except pursuant to its terms as agreed to by Bank in writing;
      (b) any Guarantor does not perform any obligation or covenant under any guaranty
      of the Obligations; (c) any circumstance described in Sections 8.4, 8.5, 8.7,
      or
      8.8. occurs with respect to any Guarantor, (d) the liquidation, winding up,
      or termination of existence of any Guarantor; or (e) (i) a material
      impairment in the perfection or priority of Bank’s Lien in the collateral
      provided by Guarantor or in the value of such collateral or (ii) a material
      adverse change in the prospect of repayment of the Obligations occurs with
      respect to any Guarantor.

     

           
      8.11     Receivables
      Loan and Security Agreement.
      An
      Event of Default (as such term is defined in the  Receivables
      Loan and Security Agreement) occurs under the Receivables Loan and Security
      Agreement.

     

    9    BANK’S
      RIGHTS AND REMEDIES

     

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

     

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

     

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

     

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

     

     
      (d)    settle
      or
      adjust disputes and claims directly with Account Debtors for amounts on terms
      and in any order that Bank considers advisable, notify any Person owing Borrower
      money of Bank’s security interest in such funds, and verify the amount of such
      account; 

     

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

     

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

     

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

     

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

     

     
      (i)    demand
      and receive possession of Borrower’s Books; and

     

     
(j)    exercise
      all rights and remedies available to Bank under the Loan Documents or at law
      or
      equity, including all remedies provided under the Code (including disposal
      of
      the Collateral pursuant to the terms thereof).

     

     

    
      
        
        

      

      
        -12-

        
          

        

      

      
        
        

      

    

     

     

    9.2       
      Power
      of Attorney.
      Borrower hereby irrevocably appoints Bank as its lawful attorney-in-fact,
      exercisable upon the occurrence and during the continuance of an Event of
      Default, to: (a) endorse Borrower’s name on any checks or other forms of payment
      or security; (b) sign Borrower’s name on any invoice or bill of lading for any
      Account or drafts against Account Debtors; (c) settle and adjust disputes and
      claims about the Accounts directly with Account Debtors, for amounts and on
      terms Bank determines reasonable; (d) make, settle, and adjust all claims under
      Borrower’s insurance policies; (e) pay, contest or settle any Lien, charge,
      encumbrance, security interest, and adverse claim in or to the Collateral,
      or
      any judgment based thereon, or otherwise take any action to terminate or
      discharge the same; and (f) transfer the Collateral into the name of Bank or
      a
      third party as the Code permits. Borrower hereby appoints Bank as its lawful
      attorney-in-fact to sign Borrower’s name on any documents necessary to perfect
      or continue the perfection of Bank’s security interest in the Collateral
      regardless of whether an Event of Default has occurred until all Obligations
      have been satisfied in full and Bank is under no further obligation to make
      Credit Extensions hereunder. Bank’s foregoing appointment as Borrower’s attorney
      in fact, and all of Bank’s rights and powers, coupled with an interest, are
      irrevocable until all Obligations have been fully repaid and performed and
      Bank’s obligation to provide Credit Extensions terminates.

     

    9.3       
      Accounts
      Verification; Collection.
      Whether
      or not an Event of Default has occurred and is continuing, Bank may notify
      any
      Person owing Borrower money of Bank’s security interest in such funds and verify
      the amount of such account. After the occurrence of an Event of Default and
      while it is continuing, any amounts received by Borrower shall be held in trust
      by Borrower for Bank, and, if requested by Bank, Borrower shall immediately
      deliver such receipts to Bank in the form received from the Account Debtor,
      with
      proper endorsements for deposit.

     

    9.4       
      Protective
      Payments.
      If
      Borrower fails to obtain the insurance called for by Section 6.5 or fails to
      pay
      any premium thereon or fails to pay any other amount which Borrower is obligated
      to pay under this Agreement or any other Loan Document, Bank may obtain such
      insurance or make such payment, and all amounts so paid by Bank are Bank
      Expenses and immediately due and payable, bearing interest at the then highest
      applicable rate, and secured by the Collateral. Bank will make reasonable
      efforts to provide Borrower with notice of Bank obtaining such insurance at
      the
      time it is obtained or within a reasonable time thereafter. No payments by
      Bank
      are deemed an agreement to make similar payments in the future or Bank’s waiver
      of any Event of Default.

     

    9.5       
      Application
      of Payments and Proceeds.
      Unless
      an Event of Default has occurred and is continuing, Bank shall apply any funds
      in its possession, whether from Borrower account balances, payments, or proceeds
      realized as the result of any collection of Accounts or other disposition of
      the
      Collateral, first, to Bank Expenses, including without limitation, the
      reasonable costs, expenses, liabilities, obligations and attorneys’ fees
      incurred by Bank in the exercise of its rights under this Agreement; second,
      to
      the interest due upon any of the Obligations; and third, to the principal of
      the
      Obligations and any applicable fees and other charges, in such order as Bank
      shall determine in its sole discretion. Any surplus shall be paid to Borrower
      or
      other Persons legally entitled thereto; Borrower shall remain liable to Bank
      for
      any deficiency. If an Event of Default has occurred and is continuing, Bank
      may
      apply any funds in its possession, whether from Borrower account balances,
      payments, proceeds realized as the result of any collection of Accounts or
      other
      disposition of the Collateral, or otherwise, to the Obligations in such order
      as
      Bank shall determine in its sole discretion. Any surplus shall be paid to
      Borrower or other Persons legally entitled thereto; Borrower shall remain liable
      to Bank for any deficiency. If Bank, in its good faith business judgment,
      directly or indirectly enters into a deferred payment or other credit
      transaction with any purchaser at any sale of Collateral, Bank shall have the
      option, exercisable at any time, of either reducing the Obligations by the
      principal amount of the purchase price or deferring the reduction of the
      Obligations until the actual receipt by Bank of cash therefor.

     

    9.6       
      Bank’s
      Liability for Collateral.
      So long
      as Bank complies with reasonable banking practices regarding the safekeeping
      of
      the Collateral in the possession or under the control of Bank, Bank shall not
      be
      liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss
      or damage to the Collateral; (c) any diminution in the value of the Collateral;
      or (d) any act or default of any carrier, warehouseman, bailee, or other Person.
      Borrower bears all risk of loss, damage or destruction of the
      Collateral.

     

    9.7       
      No
      Waiver; Remedies Cumulative.
      Bank’s
      failure, at any time or times, to require strict performance by Borrower of
      any
      provision of this Agreement or any other Loan Document shall not waive, affect,
      or diminish any right of Bank thereafter to demand strict performance and
      compliance herewith or therewith. No waiver hereunder shall be effective unless
      signed by Bank and then is only effective for the specific instance and purpose
      for which it is given. Bank’s rights and remedies under this Agreement and the
      other Loan Documents are cumulative. Bank has all rights and remedies provided
      under the Code, by law, or in equity. Bank’s exercise of one right or remedy is
      not an election, and Bank’s waiver of any Event of Default is not a continuing
      waiver. Bank’s delay in exercising any remedy is not a waiver, election, or
      acquiescence.

     

     

    
      
        
        

      

      
        -13-

        
          

        

      

      
        
        

      

    

     

     

    9.8       
      Demand
      Waiver.
      Borrower waives demand, notice of default or dishonor, notice of payment and
      nonpayment, notice of any default, nonpayment at maturity, release, compromise,
      settlement, extension, or renewal of accounts, documents, instruments, chattel
      paper, and guarantees held by Bank on which Borrower is liable.

     

    10        
      NOTICES

     

    All
      notices, consents, requests, approvals, demands, or other communication by
      any
      party to this Agreement or any other Loan Document must be in writing and shall
      be deemed to have been validly served, given, or delivered: (a) upon the earlier
      of actual receipt and three (3) Business Days after deposit in the U.S. mail,
      first class, registered or certified mail return receipt requested, with proper
      postage prepaid; (b) upon transmission, when sent by electronic mail or
      facsimile transmission; (c) one (1) Business Day after deposit with a reputable
      overnight courier with all charges prepaid; or (d) when delivered, if
      hand-delivered by messenger, all of which shall be addressed to the party to
      be
      notified and sent to the address, facsimile number, or email address indicated
      below. Bank or Borrower may change its address or facsimile number by giving
      the
      other party written notice thereof in accordance with the terms of this Section
      10.

     

    If
      to
      Borrower:       Technest
      Holdings, Inc.

     1
      McKinley Square, 5th
      Floor

     Boston,
      Massachusetts 02109

     Attn:
      Co-General Counsel

     Fax:
      (617) 722-9809

     Email:
      soconnor@technestinc.com

    


     E-OIR
      Technologies, Inc.

     10300
      Spotsvlvania Ave., Suite 220

     Fredericksburg,
      Virginia 22408

     Attn:
      Co-General Counsel

     Fax: 
      (540) 834-4889

     Email:
      soconnor@technestinc.com

    


     Genex
      Technologies Incorporated

     10411
      Motor City Drive, Suite 650

     Bethesda,
      Maryland 20817

     Attn:
      Co-General Counsel

     Fax:
      (301) 767-2811

     Email:
      soconnor@technestinc.com

    


     

    If
      to
      Bank:         
Silicon
      Valley Bank 

    One
      Newton Executive Park, Suite 200

    2221
      Washington Street

    Newton,
      Massachusetts 02462

    Attn:
      Mr.
      Michael Tramack 

    Fax:
      (617) 969-5962

    Email:  mtramack@svb.com

     

    
 

    
      
        
        

      

      
        -14-

        
          

        

      

      
        
        

      

    

    


     

    with
      a
      copy
      to:                     
Riemer
      & Braunstein LLP

    Three
      Center Plaza

    Boston,
      Massachusetts 02108

    Attn:
      David A. Ephraim, Esquire

    Fax:
      (617) 880-3456

    Email:
      DEphraim@riemerlaw.com

     

     

     

     

     

     

     

    
      
        
        

      

      
        -15-

        
          

        

      

      
        
        

      

       

       

      CHOICE
        OF LAW, VENUE AND JURY TRIAL WAIVER AND JUDICIAL
        REFERENCE

    

     

    Massachusetts
      law governs the Loan Documents without regard to principles of conflicts of
      law.
      Borrower and Bank each submit to the exclusive jurisdiction of the State and
      Federal courts in Massachusetts; provided, however, that if for any reason
      Bank
      cannot avail itself of such courts in the Commonwealth of Massachusetts,
      Borrower accepts jurisdiction of the courts and venue in Santa Clara County,
      California. NOTWITHSTANDING THE FOREGOING, BANK SHALL HAVE THE RIGHT TO BRING
      ANY ACTION OR PROCEEDING AGAINST BORROWER OR ITS PROPERTY IN THE COURTS OF
      ANY
      OTHER JURISDICTION WHICH BANK DEEMS NECESSARY OR APPROPRIATE IN ORDER TO REALIZE
      ON THE COLLATERAL OR TO OTHERWISE ENFORCE BANK’S RIGHTS AGAINST BORROWER OR ITS
      PROPERTY.

     

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

     

    12    GENERAL
      PROVISIONS

     

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

     

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

     

    12.3       
      Time
      of Essence.
      Time is
      of the essence for the performance of all Obligations in this
      Agreement.

     

    12.4       
      Severability
      of Provisions.
      Each
      provision of this Agreement is severable from every other provision in
      determining the enforceability of any provision.

     

    12.5       
      Amendments
      in Writing; Integration.
      All
      amendments to this Agreement must be in writing signed by both Bank and
      Borrower. This Agreement and the Loan Documents represent the entire agreement
      about this subject matter and supersede prior negotiations or agreements. All
      prior agreements, understandings, representations, warranties, and negotiations
      between the parties about the subject matter of this Agreement and the Loan
      Documents merge into this Agreement and the Loan Documents.

     

    12.6       
      Counterparts.
      This
      Agreement may be executed in any number of counterparts and by different parties
      on separate counterparts, each of which, when executed and delivered, are an
      original, and all taken together, constitute one Agreement.

     

    12.7       
      Survival.
      All
      covenants, representations and warranties made in this Agreement continue in
      full force until this Agreement has terminated pursuant to its terms and all
      Obligations (other than inchoate indemnity obligations and any other obligations
      which, by their terms, are to survive the termination of this Agreement) have
      been satisfied. The obligation of Borrower in Section 12.2 to indemnify Bank
      shall survive until the statute of limitations with respect to such claim or
      cause of action shall have run.

     

     

    
      
        
        

      

      
        -16-

        
          

        

      

      
        
        

      

    

     

     

    12.8       
      Confidentiality.
      In
      handling any confidential information, Bank shall exercise the same degree
      of
      care that it exercises for its own proprietary information, but disclosure
      of
      information may be made: (a) to Bank’s Subsidiaries or Affiliates; (b) to
      prospective transferees or purchasers of any interest in the Credit Extensions
      (provided, however, Bank shall use commercially reasonable efforts to obtain
      such prospective transferee’s or purchaser’s agreement to the terms of this
      provision); (c) as required by law, regulation, subpoena, or other order;
      (d) to Bank’s regulators or as otherwise required in connection with Bank’s
      examination or audit; and (e) as Bank considers appropriate in exercising
      remedies under this Agreement. Confidential information does not include
      information that either: (i) is in the public domain or in Bank’s possession
      when disclosed to Bank, or becomes part of the public domain after disclosure
      to
      Bank; or (ii) is disclosed to Bank by a third party, if Bank does not know
      that
      the third party is prohibited from disclosing the information.

     

    12.9       
      Borrower
      Liability.
      Any
      Borrower may, acting singly, request Advances hereunder. Each Borrower hereby
      appoints the other as agent for the other for all purposes hereunder, including
      with respect to requesting Advances hereunder. Each Borrower hereunder shall
      be
      obligated to repay all Advances made hereunder, regardless of which Borrower
      actually receives said Advance, as if each Borrower hereunder directly received
      all
      Advances. Each Borrower waives any suretyship defenses available to it under
      the
      Code or any other applicable law. Each Borrower waives any right to require
      Bank
      to: (i) proceed against any Borrower or any other person; (ii) proceed against
      or exhaust any security; or (iii) pursue any other remedy. Bank may exercise
      or
      not exercise any right or remedy it has against any Borrower or any security
      it
      holds (including the right to foreclose by judicial or non-judicial sale)
      without affecting any Borrower’s liability. Notwithstanding any other provision
      of this Agreement or other related document, each Borrower irrevocably waives
      all rights that it may have at law or in equity (including, without limitation,
      any law subrogating Borrower to the rights of Bank under this Agreement) to
      seek
      contribution, indemnification or any other form of reimbursement from any other
      Borrower, or any other Person now or hereafter primarily or secondarily liable
      for any of the Obligations, for any payment made by Borrower with respect to
      the
      Obligations in connection with this Agreement or otherwise and all rights that
      it might have to benefit from, or to participate in, any security for the
      Obligations as a result of any payment made by Borrower with respect to the
      Obligations in connection with this Agreement or otherwise. Any agreement
      providing for indemnification, reimbursement or any other arrangement prohibited
      under this Section shall be null and void. If any payment is made to a Borrower
      in contravention of this Section, such Borrower shall hold such payment in
      trust
      for Bank and such payment shall be promptly delivered to Bank for application
      to
      the Obligations, whether matured or unmatured.

     

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

     

    13    DEFINITIONS

     

    13.1       
      Definitions.
      As used
      in this Agreement, the following terms have the following meanings:

     

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

     

    “Account
      Debtor”
is
      any
“account debtor” as defined in the Code with such additions to such term as may
      hereafter be made.

     

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

     

    “Agreement”
is
      defined in the preamble hereof.

     

     

    
      
        
        

      

      
        -17-

        
          

        

      

      
        
        

      

    

     

     

    “Bank”
is
      defined in the preamble hereof.

     

    “Bank
      Expenses”
are
      all
      audit fees and expenses, costs, and expenses (including reasonable attorneys’
fees and expenses) for preparing, negotiating, administering, defending and
      enforcing the Loan Documents (including, without limitation, those incurred
      in
      connection with appeals or Insolvency Proceedings) or otherwise incurred with
      respect to Borrower.

     

    “Board”
is
      Borrower’s board of directors.

     

    “Borrower”
is
      defined in the preamble hereof

     

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

     

    “Borrowing
      Resolutions”
are,
      with respect to any Person, those resolutions adopted by such Person’s Board and
      delivered by such Person to Bank approving the Loan Documents to which such
      Person is a party and the transactions contemplated thereby, together with
      a
      certificate executed by its secretary on behalf of such Person certifying that
      (a) such Person has the authority to execute, deliver, and perform its
      obligations under each of the Loan Documents to which it is a party,
      (b) that attached as Exhibit A to such certificate is a true, correct, and
      complete copy of the resolutions then in full force and effect authorizing
      and
      ratifying the execution, delivery, and performance by such Person of the Loan
      Documents to which it is a party, (c) the name(s) of the Person(s) authorized
      to
      execute the Loan Documents on behalf of such Person, together with a sample
      of
      the true signature(s) of such Person(s), and (d) that Bank may conclusively
      rely on such certificate unless and until such Person shall have delivered
      to
      Bank a further certificate canceling or amending such prior
      certificate.

     

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

     

    “Cash
      Equivalents” means
      (a) marketable
      direct obligations issued or unconditionally guaranteed by the United States
      or
      any agency or any State thereof having maturities of not more than one (1)
      year
      from the date of acquisition; (b) commercial paper maturing no more than
      one (1) year after its creation and having the highest rating from either
      Standard & Poor’s Ratings Group or Moody’s Investors Service, Inc., (c)
      Bank’s certificates of deposit issued maturing no more than one (1) year after
      issue; and (d) money market funds at least ninety-five percent (95%) of the
      assets of which constitute Cash Equivalents of the kinds described in clauses
      (a) through (c) of this definition.

     

    “Code”
is
      the
      Uniform Commercial Code, as the same may, from time to time, be enacted and
      in
      effect in the Commonwealth of Massachusetts; provided, that, to the extent
      that
      the Code is used to define any term herein or in any Loan Document and such
      term
      is defined differently in different Articles or Divisions of the Code, the
      definition of such term contained in Article or Division 9 shall govern;
      provided further, that in the event that, by reason of mandatory provisions
      of
      law, any or all of the attachment, perfection, or priority of, or remedies
      with
      respect to, Bank’s Lien on any Collateral is governed by the Uniform Commercial
      Code in effect in a jurisdiction other than the Commonwealth of Massachusetts,
      the term “Code”
shall
      mean the Uniform Commercial Code as enacted and in effect in such other
      jurisdiction solely for purposes on the provisions thereof relating to such
      attachment, perfection, priority, or remedies and for purposes of definitions
      relating to such provisions.

    


    “Collateral”
is
      any
      and all properties, rights and assets of Borrower described on Exhibit
      A.

     

    “Collateral
      Account”
is
      any
      Deposit Account, Securities Account, or Commodity Account.

     

    “Commitment
      Termination Date”
is
      for
      each Term Advance, the first day of the month that is the thirty-sixth month
      after the month in which such Term Advance was made.

     

    “Commodity
      Account”
      is
      any
“commodity account” as defined in the Code with such additions to such term as
      may hereafter be made.

     

    “Compliance
      Certificate”
is
      that
      certain certificate in the form attached hereto as Exhibit
      C.

     

     

    
      
        
        

      

      
        -18-

        
          

        

      

      
        
        

      

    

     

     

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

     

    “Control
      Agreement”
is
      any
      control agreement entered into among the depository institution at which
      Borrower maintains a Deposit Account or the securities intermediary or commodity
      intermediary at which Borrower (or Guarantor, with respect to the assets subject
      to the Stock Pledge Agreement) maintains a Securities Account or a Commodity
      Account, Borrower, and Bank pursuant to which Bank obtains control (within
      the
      meaning of the Code) over such Deposit Account, Securities Account, or Commodity
      Account.

     

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

     

    “Current
      Liabilities”
are
      all
      obligations and liabilities of Borrower to Bank under the Receivables Loan
      and
      Security Agreement, plus, without duplication, the aggregate amount of
      Borrower’s Total Liabilities that mature within one (1) year (including the
      current portion of the Term Loan Obligations), but excluding Subordinated Debt
      for borrowed money from Affiliates.

     

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

     

    “Default
      Rate”
is
      defined in Section 2.2(b).

     

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

     

    “Deposit
      Account”
is
      any
“deposit account” as defined in the Code with such additions to such term as may
      hereafter be made.

     

    “Designated
      Deposit Account”
is
      Borrower’s deposit account, account number _____________, maintained with
      Bank.

     

    “Disclosure
      Schedule”
is
      that
      certain schedule, in form reasonably acceptable to Bank, attached
      hereto as Exhibit
      D.

     

    “Dollars,” “dollars”
and
      “$”
each
      mean lawful money of the United States.

     

    “EBITDA”
shall
      mean earnings before interest, taxes, depreciation and amortization.


     

    “Effective
      Date”
is
      defined in the preamble of this Agreement.

     

    “Eligible
      Accounts”
are
      those accounts receivable owing to the Borrower that are not more than ninety
      (90) days from their respective invoice dates.

     

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

     

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

     

    “Event
      of Default”
is
      defined in Section 8.

     

     

    
      
        
        

      

      
        -19-

        
          

        

      

      
        
        

      

    

     

     

    “Facility
      Fee”
is
      defined in Section 2.3(a).

     

    “Fixed
      Charge Coverage Ratio”
means
      the result of dividing (i) Borrower’s EBITDA, plus non-cash stock compensation
      expenses and other non-cash expenses as reasonably determined  by Borrower
      and allowed by Bank, by (ii) the sum of Borrower’s principal and interest
      payments on all debt, cash taxes, dividends and unfunded capital expenditures
      (not including amounts
      paid to Markland pursuant to clause (c) of Section 7.8).

     

    “Funding
      Date”
is
      any
      date on which a Credit Extension is made to or on account of Borrower which
      shall be a Business Day.

     

    “GAAP”
is
      generally accepted accounting principles set forth in the opinions and
      pronouncements of the Accounting Principles Board of the American Institute
      of
      Certified Public Accountants and statements and pronouncements of the Financial
      Accounting Standards Board or in such other statements by such other Person
      as
      may be approved by a significant segment of the accounting profession, which
      are
      applicable to the circumstances as of the date of determination.

     

    “General
      Intangibles”
is
      all
      “general intangibles” as defined in the Code in effect on the date hereof with
      such additions to such term as may hereafter be made, and includes without
      limitation, all copyright
      rights, copyright applications, copyright registrations and like protections
      in
      each work of authorship and derivative work, whether published or unpublished,
      any patents, trademarks, service marks and, to the extent permitted under
      applicable law, any applications therefor, whether registered or not, any trade
      secret rights, including any rights to unpatented inventions,
      payment
      intangibles, royalties, contract rights, goodwill, franchise agreements,
      purchase orders, customer lists, route lists, telephone numbers, domain names,
      claims, income and other tax refunds, security and other deposits, options
      to
      purchase or sell real or personal property, rights in all litigation presently
      or hereafter pending (whether in contract, tort or otherwise), insurance
      policies (including without limitation key man, property damage, and business
      interruption insurance), payments of insurance and rights to payment of any
      kind.

     

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

     

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

     

    "Initial
      Audit"
      shall
      be the receipt by Bank of the results of a complete audit of Borrower's
      Accounts, with results satisfactory to Bank in its sole and absolute
      discretion.

     

    “Initial
      Term Advance”
is
      defined in Section 2.1.1(a).

     

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

     

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

     

    “Investment”
is
      any
      beneficial ownership interest in any Person (including stock, partnership
      interest or other securities), and any loan, advance or capital contribution
      to
      any Person.

     

    “IP
      Agreement”
is
      that
      certain Intellectual Property Security Agreement executed and delivered by
      Borrower to Bank dated as of the Effective Date.

     

    “Key
      Person”
shall
      mean the Chief Financial Officer or the Chief Executive Officer.

     

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

     

     

    
      
        
        

      

      
        -20-

        
          

        

      

      
        
        

      

    

     

     

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

     

    “Markland”
is
      Markland Technologies, Inc., a Florida corporation and the parent company of
      Technest.

     

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

     

    “Obligations”
are
      Borrower’s obligation to pay when due any debts, principal, interest, Bank
      Expenses and other amounts Borrower owes Bank now or later, whether under this
      Agreement, the Loan Documents, or otherwise, including, without limitation,
      all
      obligations relating to letters of credit, cash management services, and foreign
      exchange contracts, if any, and including interest accruing after Insolvency
      Proceedings begin and debts, liabilities, or obligations of Borrower assigned
      to
      Bank, and the performance of Borrower’s duties under the Loan
      Documents.

     

    “Operating
      Documents”
      are, for
      any Person, such Person’s formation documents, as certified with the Secretary
      of State of such Person’s state of formation on a date that is no earlier than
      30 days prior to the Effective Date, and, its bylaws in current form, each
      of
      the foregoing with all current amendments or modifications thereto.

     

    “Payment/Advance
      Form”
is
      that
      certain form attached hereto as Exhibit
      B.

     

    “Perfection
      Certificate”
is
      defined in Section 5.1.

     

    “Permitted
      Indebtedness”
      is:

     

    (a)    Borrower’s
      Indebtedness to Bank under this Agreement and the other Loan
      Documents;

     

    (b)    Indebtedness
      existing on the Effective Date and shown on the Perfection
      Certificate;

     

    (c)    Subordinated
      Debt;

     

    (d)   unsecured
      Indebtedness to trade creditors incurred in the ordinary course of business;
      

    


    (e)    Indebtedness
      secured by Permitted Liens; and

    


    (f)    extensions,
      refinancings, modifications, amendments and restatements of any items of
      Permitted Indebtedness (a) through (e) above, provided that the principal amount
      thereof is not increased or the terms thereof are not modified to impose more
      burdensome terms upon Borrower or its Subsidiary, as the case may
      be.

     

    “Permitted
      Investments”
      are:

     

    (a)    Investments
      shown on the Perfection Certificate and existing on the Effective Date;
      and

     

    (b)    Cash
      Equivalents.

     

    “Permitted
      Liens”
      are:

     

    (a)    Liens
      existing on the Effective Date and shown on the Perfection Certificate or
      arising under this Agreement and the other Loan Documents;

     

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

     

     

    
      
        
        

      

      
        -21-

        
          

        

      

      
        
        

      

    

     

     

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

     

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

     

    (e)    Liens
      under Article 2 of the Uniform Commercial Code that are special property
      interests in goods identified as goods to which a contract refers;

     

    (f)    Pledges
      of or liens on manufactured products as security for any drafts or bills of
      exchange drawn in connection with the importation of such manufactured products
      in the ordinary course of business; and

     

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

     

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

     

    “Prepayment
      Fee”
is
      defined in Section 2.1.1(c).

     

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

     

    “Quick
      Assets”
is,
      on
      any date, Borrower’s consolidated, unrestricted cash at the Bank, Cash
      Equivalents and net billed accounts receivable determined according to
      GAAP.

     

    “Receivables
      Loan and Security Agreement”
is
      that
      certain Loan and Security Agreement (Working Capital Line of Credit) by and
      between Borrower and Bank as of even date herewith, as amended from time to
      time.

     

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

     

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

     

    “Scheduled
      Payments”
is
      defined in Section 2.1.1(b).

     

    “Second
      Term Advance”
is
      defined in Section 2.1.1(a).

     

    “Second
      Term Advance Scheduled Payments”
is
      defined in Section 2.1.1(b).

     

    “Securities
      Account”
      is
      any
“securities account” as defined in the Code with such additions to such term as
      may hereafter be made.

     

    “Settlement
      Agreement”
is
      that
      certain Settlement Agreement and Release between Joseph R. Moulton, Sr, EOIR
      and
      Technest, and dated as of the Effective Date.

     

    “Stock
      Pledge Agreement”
is
      that
      certain Stock Pledge Agreement of even date herewith by and among Bank and
      Guarantor in which Guarantor pledges to Bank certain stock of Technest with
      a
      market value of at least $6,000,000.00 as of the Effective Date. Such Stock
      Pledge Agreement shall terminate in two (2) years from the Effective Date if
      no
      Event of Default has occurred and is continuing hereunder.

     

    “Stockholder
      Agreement”
is
      that
      certain Stockholder Agreement by and among Technest and Markland and dated
      as of
      March 13, 2006.

     

     

    
      
        
        

      

      
        -22-

        
          

        

      

      
        
        

      

    

     

     

    “Subordinated
      Debt”
is
      indebtedness incurred by Borrower subordinated to all of Borrower’s now or
      hereafter indebtedness to Bank (pursuant to a subordination, intercreditor,
      or
      other similar agreement in form and substance satisfactory to Bank entered
      into
      between Bank and the other creditor), on terms acceptable to Bank.

     

    “Subsidiary”
means,
      with respect to any Person, any Person of which more than 50% of the voting
      stock or other equity interests is owned or controlled, directly or indirectly,
      by such Person or one or more Affiliates of such Person.

     

    “Term
      Loan”
      is a
      loan made by Bank pursuant to the terms of Section 2.1.1 hereof.

     

    “Term
      Loan Amount” is
      an
      aggregate amount equal to $4,000,000.00 outstanding at any time.

     

    “Term
      Loan Payment”
is
      defined in Section 2.1.1(b).

     

    “Total
      Liabilities”
is
      on
      any day, obligations that should, under GAAP, be classified as liabilities
      on
      Borrower’s consolidated balance sheet, including all Indebtedness. 

     

    “Transfer”
is
      defined in Section 7.1. 

     

    “Warrant”
is
      that
      certain Warrant to Purchase Stock dated as of the Effective Date executed by
      Borrower in favor of Bank.

     

    [Signature
      page follows.]

     

     

     

     

    
      
        
        

      

      
        -23-

        
          

        

      

      
        
        

      

    



    IN
      WITNESS WHEREOF,
      the
      parties hereto have caused this Agreement to be executed as a sealed instrument
      under the laws of the Commonwealth of Massachusetts as of the Effective
      Date.

     

    BORROWER:

     

    TECHNEST
      HOLDINGS, INC.

     

    


     

    By:
      /s/
      Gino
      Pereira                                        

    Name:
      Gino
      Pereira                                         

    Title:
      Chief
      Financial
      Officer                        
 

     

    E-OIR
      TECHNOLOGIES, INC.

     

    By:
      /s/
      Joseph P.
      Mackin                              

    Name:
      Joseph
      P.
      Mackin                                 

    Title:
      Chief
      Executive
      Officer                        

     

    GENEX
      TECHNOLOGIES INCORPORATED

     

    
      By:
        /s/
        Joseph P.
        Mackin                              

      Name:
        Joseph
        P.
        Mackin                                 

      Title:
        Chief
        Executive
        Officer                        

    

    BANK:

     

    SILICON
      VALLEY BANK

     

    By:
      /s/
      Michael
      Tramack                               

    Name:
      Michael
      Tramack                                

    Title:
      Senior
      Vice
      President                           

     

     

     

     

     

     

     

    
      [Signature
        page to Loan and Security Agreement]



      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

    

     

     

    EXHIBIT
      A

    


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

     

    All
      goods, Accounts (including health-care receivables), Equipment, Inventory,
      contract rights or rights to payment of money, leases, license agreements,
      franchise agreements, General Intangibles, commercial tort claims, documents,
      instruments (including any promissory notes), chattel paper (whether tangible
      or
      electronic), cash, deposit accounts, fixtures, letters of credit rights (whether
      or not the letter of credit is evidenced by a writing), securities, and all
      other investment property, supporting obligations, and financial assets, whether
      now owned or hereafter acquired, wherever located; and

     

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

     

    


    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

    EXHIBIT
      B

    


    Loan
      Payment/Advance Request Form

    


    Deadline
      for same day processing is Noon E.S.T.* 

     

    
      	Fax To:  	
              Date:
                _____________________

            


    

     

    
      	
              LOAN
                PAYMENT:

              
                Technest
                  Holdings, Inc.

                Genex
                  Technologies Incorporated

                E-OIR
                  Technologies, Inc.

                


                From
                  Account #___________________________           To
                  Account #________________________________

                               
                  (Deposit Account #)                  
(Loan
                  Account #)

                Principal
                  $_______________________________            and/or
                  Interest $______________________________

                


                Authorized
                  Signature:_____________________            
                  Phone
                  Number:_______________________________

                Print
                  Name/Title:__________________________

              

            


    

     

    
      	
              
                Loan
                  Advance:

                


                Complete
                  Outgoing
                  Wire Request
                  section below if all or a portion of the funds from this loan advance
                  are
                  for an outgoing wire.

                


                
                  From
                    Account #___________________________           To
                    Account #________________________________

                                 
                    (Deposit Account #)                  
(Loan
                    Account #)



                Amount
                  of Advance $______________________

                


                All
                  Borrower’s representations and warranties in the Agreement are true,
                  correct and complete in all material respects on the date of the
                  request
                  for an advance; provided, however, that such materiality qualifier
                  shall
                  not be applicable to any representations and warranties that already
                  are
                  qualified or modified by materiality in the text thereof; and provided,
                  further that
                  those representations and warranties expressly referring to a specific
                  date shall be true, accurate and complete in all material respects
                  as of
                  such date:

                


                
                  Authorized
                    Signature:_____________________            
                    Phone
                    Number:_______________________________

                  Print
                    Name/Title:__________________________

                

              

            


    

     

    
      	
              
                Outgoing
                  Wire Request:

                Complete
                  only if all or a portion of funds from the loan advance above is
                  to be
                  wired.

                Deadline
                  for same day processing is noon, E.S.T. 

                


                Beneficiary
                  Name: ___________________________       Amount
                  of Wire: $_____________________________

                Beneficiary
                  Bank: ____________________________             
                  Account
                  Number: _____________________________ 

                City
                  and State:  

                


                Beneficiary
                  Bank Transit (ABA) #: _______________             
Beneficiary
                  Bank Code (Swift, Sort, Chip, etc.): ________

                                                                (For
                  International Wire Only)

                


                Intermediary
                  Bank: ___________________________            
Transit
                  (ABA) #: ______________________________ 

                For
                  Further Credit to:
                  _________________________________________________________________________________

                


                Special
                  Instruction:
                  __________________________________________________________________________________

              

            


    

    


    ___________________________________

    *
      Unless
      otherwise provided for an Advance bearing interest at
      LIBOR.


     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

     

    
      	
              By
                signing below, I (we) acknowledge and agree that my (our) funds transfer
                request shall be processed in accordance with and subject to the
                terms and
                conditions set forth in the agreements(s) covering funds transfer
                service(s), which agreements(s) were previously received and executed
                by
                me (us).

              


              Authorized
                Signature: ___________________________    2nd
                Signature (if required): ___________________________________

              Print
                Name/Title: _______________________________    Print
                Name/Title: __________________________________________

              Telephone
                #: __________________________________   Telephone
                #:
                _____________________________________________

            


    

     

    

 

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

     

    EXHIBIT
      C

    


    COMPLIANCE
      CERTIFICATE

    
 

    
      	TO:  
SILICON
              VALLEY BANK	
              Date:
                ____________________________

            
	
              FROM:   
                (A)
                TECHNEST HOLDINGS, INC.

               (B)
                E-OIR TECHNOLOGIES, INC.

               (C)
                GENEX TECHNOLOGIES INCORPORATED

            	 


    

               

    The
      undersigned authorized officer of Technest Holdings, Inc., E-OIR Technologies,
      Inc. and Genex Technologies Incorporated (“Borrower”) certifies that under the
      terms and conditions of the Agreement between Borrower and Bank (the
“Agreement”), (1) Borrower is in complete compliance for the period ending
      _______________ with all required covenants except as noted below, (2) there
      are
      no Events of Default, (3) all representations and warranties in the
      Agreement are true and correct in all material respects on this date except
      as
      noted below; provided, however, that such materiality qualifier shall not be
      applicable to any representations and warranties that already are qualified
      or
      modified by materiality in the text thereof; and provided, further that
      those representations and warranties expressly referring to a specific date
      shall be true, accurate and complete in all material respects as of such
      date,
      (4)
      Borrower, and each of its Subsidiaries, has timely filed all required tax
      returns and reports, and Borrower
      has timely paid all foreign, federal, state and local taxes, assessments,
      deposits and contributions owed by Borrower
      except
      as otherwise permitted pursuant to the terms of Section 5.8 of the Agreement,
      and (5) no Liens have been levied or claims made against Borrower or any of
      its
      Subsidiaries relating to unpaid employee payroll or benefits of which Borrower
      has not previously provided written notification to Bank. Attached are the
      required documents supporting the certification. The undersigned certifies
      that
      these are prepared in accordance with generally GAAP consistently applied from
      one period to the next except as explained in an accompanying letter or
      footnotes. The undersigned acknowledges that no borrowings may be requested
      at
      any time or date of determination that Borrower is not in compliance with any
      of
      the terms of the Agreement, and that compliance is determined not just at the
      date this certificate is delivered. Capitalized terms used but not otherwise
      defined herein shall have the meanings given them in the Agreement.

     

    

      
        	
                Please
                  indicate compliance status by circling Yes/No under “Complies”
                  column.

              
	
                 

              
	
                Reporting
                  Covenant

              	
                Required

              	
                Complies

              
	
                 

              	
                 

              	
                 

              
	
                Monthly
                  financial statements with 

                Compliance
                  Certificate

              	
                Monthly
                  within 30 days

              	
                Yes
                  No

              
	
                Annual
                  financial statement (CPA Audited) + CC

              	
                FYE
                  within 120 days

              	
                Yes
                  No

              
	
                10-Q,
                  10-K and 8-K

              	
                Within
                  5 days after filing with SEC 

              	
                Yes
                  No

              
	
                Deferred
                  Revenue Report, Funded Backlog schedules,

                A/R
                  & A/P Agings

              	
                Monthly
                  within 30 days

              	
                Yes
                  No

              
	
                 

              
	
                The
                  following Intellectual Property was registered after the Effective
                  Date
                  (if no registrations, state “None”)

                ____________________________________________________________________________

              


      

    

     

     

    
      	
              Financial
                Covenant

            	
              Required

            	
              Actual

            	
              Complies

            
	 	 	 	 
	
              Maintain
                on a Monthly Basis:

            	 	 	 
	
              Minimum
                Quick Ratio

            	
              _____:1.0

            	
              _____:1.0

            	
              Yes
                No

            
	
              Minimum
                Fixed Charge Coverage Ratio

            	
              _____:1.0

            	
              _____:1.0

            	
              Yes
                No

            


    

     

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

     

     

    The
      following financial covenant analyses and information set forth in Schedule
      1
      attached hereto are true and accurate as of the
      date
      of this Certificate.

    


    The
      following are the exceptions with respect to the certification above: (If no
      exceptions exist, state “No exceptions to note.”)

    ________________________________________________________________________________________________________________________

    ________________________________________________________________________________________________________________________

    ________________________________________________________________________________________________________________________

     

    


    


    
      	
              Technest
                Holdings, Inc.

               

              By:
                ____________________________________

              Name:
                __________________________________

              Title:
                ___________________________________

               

              E-OIR
                Technologies, Inc.

               

              
                By:
                  ____________________________________

                Name:
                  __________________________________

                Title:
                  ___________________________________

              

               

              Genex
                Technologies Incorporated

               

              
                By:
                  ____________________________________

                Name:
                  __________________________________

                Title:
                  ___________________________________

              

               

            	
              BANK
                USE ONLY

               

              Received
                by: _____________________

              authorized
                signer

              Date:
                 __________________________

               

              Verified:
                ________________________

              authorized
                signer

              Date:
                 __________________________

               

              Compliance
                Status:    Yes  No

            


    

     

    
 

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

    


    


    Schedule
      1 to Compliance Certificate

    


    Financial
      Covenants of Borrower

    


    


    


    Dated: ____________________

    


    In
      the
      event of a conflict between this Schedule and the Loan Agreement, the terms
      of
      the Loan Agreement shall control.

    


    I.    Quick
      Ratio
      (Section
      6.7(a))

     

    Required: _____:1.00

    


    Actual:

    


    
      	
              A.

            	
              Aggregate
                value of the unrestricted cash at Bank and cash equivalents of Borrower
                

            	
              $_______ 

            
	 	 	 
	
              B.

            	
              Aggregate
                value of the net billed accounts receivable of Borrower 

            	
              $_______ 

            
	 	 	 
	
              C.

            	
              Quick
                Assets (the sum of lines A and B)

            	
              $_______ 

            
	 	 	 
	
              D.

            	
              Aggregate
                value of liabilities of Borrower (including all Indebtedness) but
                excluding Subordinated Debt permitted by Bank to be paid by Borrower
                to
                Affiliates

            	
               

              $_______ 

            
	 	 	 
	
              E.

            	
              Current
                Liabilities (line D) 

            	
              $_______ 

            
	 	 	 
	
              F.

            	
              Quick
                Ratio (line C divided by line E)

            	 ________ 



    

    


    Is
      line F
      equal to or greater than ___:1:00?

    


    ________
No,
      not in compliance        ________
Yes,
      in compliance

    


    II.    Fixed
      Charge Coverage Ratio (See
      definitions and Section 6.7(b)) 

    


    Required:    _______

    


    Actual:

    


    
      	
              A.

            	
              Borrower’s
                EBITDA, plus non-cash stock compensation expenses and other non-cash
                expenses as reasonably determined  by Borrower and allowed by
                Bank

            	
               

              $_______
                

            
	
              B.

            	
              The
                sum of Borrower’s
                principal and interest payments on all debt, cash taxes, dividends
                and
                unfunded capital expenditures (not including amounts
                paid to Markland pursuant to clause (c) of Section 7.8)

            	
               

              $_______

            
	
              C.

            	
              Fixed
                Charge Coverage Ratio (line A divided by Line B)

            	
               
                ____:1.00

            


    

    


    Is
      line C
      less than or equal to ____:1.00?

    


    ________
No,
      not in compliance        ________
Yes,
      in compliance

     

     

    
 

    3