Document:

CERTIFICATE OF DESIGNATIONS,
                           PREFERENCES, AND RIGHTS OF
                            SERIES B PREFERRED STOCK
                    (adopted by COYOTE NETWORK SYSTEMS, INC.)

                    CERTIFICATE OF DESIGNATIONS, PREFERENCES
                     AND RIGHTS OF SERIES B PREFERRED STOCK

                                       OF

                          COYOTE NETWORK SYSTEMS, INC.

               Pursuant to Section 151 of the General Corporation
                          Law of the State of Delaware

     COYOTE NETWORK SYSTEMS, INC., a Delaware corporation (the "Corporation"),
certifies that pursuant to the authority contained in Article IV of its
Certificate of Incorporation, and in accordance with the provisions of Section
151 of the General Corporation Law of the State of Delaware, its Board of
Directors has adopted the following resolution creating a series of its
Preferred Stock, par value $.01 per share, designated as Series B Preferred
Stock:

     RESOLVED, that a series of the class of authorized Preferred Stock, par
value $.01 per share, to be known as "Series B Preferred Stock", of the
Corporation be hereby created, and that the designation and amount thereof and
the voting powers, preferences and relative, participating, optional and other
special rights of the shares of such series, and the qualifications, limitations
or restrictions thereof are as follows:

     A. Designation and Amount. The shares of this series shall be designated as
"Series B Preferred Stock" (the "Series B Preferred Stock") and the number of
shares constituting such series shall be 3,157,895.

     B. Terms of Series B Preferred Stock.

     1.   Dividends.

     When and as declared by the Board of Directors and to the extent permitted
under the Delaware General Corporation Law, the Corporation shall pay
preferential dividends in cash to the holders of shares of Series B Preferred
Stock as provided in this Section 1. Dividends on each share of Series B
Preferred Stock shall accrue on a daily basis at the rate of 6% per annum of the
sum of the Face Amount thereof, plus all accumulated and unpaid dividends
thereon commencing on the 90th day after the Series B Preferred Original
Issuance Date of such shares of Series B Preferred Stock. No dividends shall
accrue prior to the 90th day after the Series B Preferred Original Issuance
Date. Such dividends shall accrue whether or not they have been declared and
whether or not there are profits, surplus

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or other funds of the Corporation legally available for the payment of
dividends; provided, however, that such dividends shall not be paid unless and
until all amounts then due to the holders of the Series A Preferred Stock have
theretofore been paid.

     The Corporation shall not declare or pay any dividend, or order or make any
other distribution, upon any Junior Stock or Liquidation Parity Stock (other
than a dividend payable in such Junior Stock or Liquidation Parity Stock) unless
the Corporation shall first pay, or simultaneously therewith declare and set
apart a sum sufficient for the payment of, all accrued and unpaid dividends upon
the Series B Preferred Stock.

     2. Liquidation Preference.

     In the event of any voluntary or involuntary liquidation, dissolution or
winding-up of the Corporation, the assets of the Corporation available for
distribution to its stockholders, whether from capital, surplus or earnings,
shall be distributed in the following order of priority:

     The holders of Series B Preferred Stock shall be entitled to receive, prior
and in preference to any distribution to the holders of any Junior Stock but
only after the holders of the Series A Preferred Stock have been paid in full
and pari passu with any distribution to the holder of any Liquidation Parity
Stock, an amount per share equal to the Series B Preferred Original Issuance
Price (subject to appropriate adjustment upon the occurrence of any stock split,
stock dividend or combination of the outstanding shares of Series B Preferred
Stock) and, in addition, an amount equal to any dividends declared but unpaid on
the Series B Preferred Stock. If the assets of the Corporation available for
distribution to the holders of Series B Preferred Stock shall be insufficient to
permit the payment of the full preferential amount set forth herein, then the
holders of shares of Series B Preferred Stock shall share ratably in any
distribution of the assets of the Corporation (A) as to any Liquidation Parity
Stock, in proportion to the respective liquidation preferences of the Series B
Preferred Stock and such Liquidation Parity Stock and (B) as to the other
holders of the Series B Preferred Stock, in proportion to their respective
number of shares of Series B Preferred Stock.

     3. Voting Rights.

     (a) Except as may otherwise be provided by law or in subparagraph (b)
below, the Series B Preferred Stock shall not be entitled to vote.

     (b) The Corporation shall not, without the affirmative approval of the
holders of shares representing at least a majority of the voting power of the
shares of Series B Preferred Stock then outstanding (which voting power shall be
determined, for purposes of this paragraph (b), based upon the number of votes
per share that equals the number of shares of Common Stock (including fractional
shares) into which each such share of Series B Preferred Stock is then
convertible, rounded up to the nearest share), acting separately from the
holders of Common Stock and the holders of any other series or class of capital
stock of the Corporation, given by written consent in lieu of a meeting or by
vote at a meeting called for such purpose, for which meeting timely and specific
notice shall have been given to each holder of Series B Preferred Stock, in the
manner provided in the By-Laws of the Corporation:

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<PAGE>

     (i)  alter or change the powers, preferences or rights of any class or
          series of capital stock of the Corporation, or the qualifications,
          limitations or restrictions thereon, if any such alteration or change
          would adversely affect the rights of the holders of Series B Preferred
          Stock; provided, however, that the creation and issuance of another
          series of Preferred Stock shall not be deemed to require the consent
          of the holders of the Series B Preferred Stock pursuant to this clause
          (i) so long as the proposed terms do not require consent of the
          holders of the Series B Preferred Stock pursuant to clause (ii) below;
          or

     (ii) authorize, designate, create, issue or agree to issue any shares of
          Series B Preferred Stock other than the shares of Series B Preferred
          Stock referred to in A above.

4.   Optional Conversion.

     (a) The holder of any shares of Series B Preferred Stock shall have the
right, at such holder's option, at any time or from time to time commencing on
or after the date hereof, to convert any of such shares into such whole number
of fully paid and nonassessable shares of Common Stock as is equal to the
quotient obtained by dividing (A) the product obtained by multiplying the Series
B Preferred Original Issuance Price by the number of shares of Series B
Preferred Stock being converted, by (B) the Series B Preferred Conversion Price,
as last adjusted and then in effect, by surrender of the certificates
representing the shares of Series B Preferred Stock so to be converted in the
manner provided in Section 4(b) hereof. The holder of any shares of Series B
Preferred Stock exercising the aforesaid right to convert such shares into
shares of Common Stock shall be entitled to payment of any dividends declared
but unpaid with respect to such shares of Series B Preferred Stock.

     (b) The holder of any shares of Series B Preferred Stock may exercise the
conversion right pursuant to Section 4(a) hereof as to any part thereof at any
time after the Optional Conversion Date by delivering to the Corporation during
regular business hours, at the principal executive office of the Corporation or
any transfer agent of the Corporation for the Series B Preferred Stock as may be
designated by the Corporation, the certificate or certificates for the shares to
be converted, duly endorsed or assigned in blank or to the Corporation (if
required by it), accompanied by written notice stating that the holder elects to
convert such shares and stating the name or names (with addresses) in which the
certificate or certificates for the shares of Common Stock are to be issued.
Conversion shall be deemed to have been effected on the date when the aforesaid
delivery is made (the "Conversion Date"). As promptly as practicable thereafter,
the Corporation shall issue and deliver to or upon the written order of such
holder, to the place designated by such holder, a certificate or certificates
for the number of full shares of Common Stock to which such holder is entitled
and a check or cash in respect of any fractional interest in a share of Common
Stock as provided in Section 4(c) hereof and a check or cash in payment of all
dividends declared but unpaid, if any (to the extent permissible under law),
with respect to the shares of Series B Preferred Stock so converted. The Person
in whose name the certificate or certificates for Common Stock are to be issued
shall be deemed to have become a holder of record of Common Stock on the
applicable Conversion Date unless the transfer books of the Corporation are
closed on that date, in which event such Person

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<PAGE>

shall be deemed to have become a holder of record of Common Stock on the next
succeeding date on which the transfer books are open, but the Series B Preferred
Conversion Price shall be that in effect on the Conversion Date. Upon conversion
of only a portion of the number of shares covered by a certificate representing
shares of Series B Preferred Stock surrendered for conversion, the Corporation
shall issue and deliver to or upon the written order of the holder of the
certificate so surrendered for conversion, at the expense of the Corporation, a
new certificate covering the number of shares of Series B Preferred Stock
representing the unconverted portion of the certificate so surrendered, which
new certificate shall entitle the holder thereof to dividends on the shares of
Series B Preferred Stock represented thereby to the same extent as if the
portion of the certificate theretofore covering such unconverted shares had not
been surrendered for conversion.

     (c) No fractional shares of Common Stock or scrip shall be issued upon
conversion of shares of Series B Preferred Stock. If more than one share of
Series B Preferred Stock shall be surrendered for conversion at any one time by
the same holder, the number of full shares of Common Stock issuable upon
conversion thereof shall be computed on the basis of the aggregate number of
shares of Series B Preferred Stock so surrendered. Instead of any fractional
shares of Common Stock which would otherwise be issuable upon conversion of any
shares of Series B Preferred Stock, the Corporation shall pay a cash adjustment
in respect of such fractional interest in an amount equal to the then Current
Market Price of a share of Common Stock multiplied by such fractional interest.
Fractional interests shall not be entitled to dividends, and the holders of
fractional interests shall not be entitled to any rights as stockholders of the
Corporation in respect of such fractional interest. (d) The Series B Preferred
Conversion Price shall be subject to adjustment from time to time as follows:

     (i)  If, at any time after such Series B Preferred Original Issuance Date,
          the number of shares of Common Stock outstanding is increased by a
          stock dividend payable in shares of Common Stock or by a subdivision
          or split-up of shares of Common Stock, then, following the record date
          fixed for the determination of holders of Common Stock entitled to
          receive such stock dividend, subdivision or split-up, the Series B
          Preferred Conversion Price shall be appropriately decreased so that
          the number of shares of Common Stock issuable on conversion of each
          share of Series B Preferred Stock shall be increased in proportion to
          such increase in outstanding shares.

     (ii) If, at any time after the Series B Preferred Original Issuance Date,
          the number of shares of Common Stock outstanding is decreased by a
          combination of the outstanding shares of Common Stock, then, following
          the record date for such combination, the Series B Preferred
          Conversion Price shall be appropriately increased so that the number
          of shares of Common Stock issuable on conversion of each share of
          Series B Preferred Stock shall be decreased in proportion to such
          decrease in outstanding shares.

                                       4
<PAGE>

     (iii) In case, at any time after the Series B Preferred Original Issuance
          Date, of any capital reorganization, or any reclassification of the
          stock of the Corporation (other than a change in par value or from par
          value to no par value or from no par value to par value or as a result
          of a stock dividend or subdivision, split-up or combination of
          shares), or the consolidation or merger of the Corporation with or
          into another Person (other than a consolidation or merger in which the
          Corporation is the continuing company and which does not result in any
          change in the Common Stock) or of the sale or other disposition of all
          or substantially all the properties and assets of the Corporation as
          an entirety to any other Person, each share of Series B Preferred
          Stock shall, after such reorganization, reclassification,
          consolidation, merger, sale or other disposition, be convertible into
          the kind and number of shares of stock or other securities or property
          of the Corporation or of the company resulting from such consolidation
          or surviving such merger or to which such properties and assets shall
          have been sold or otherwise disposed to which the holder of the number
          of shares of Common Stock deliverable (immediately prior to the time
          of such reorganization, reclassification, consolidation, merger, sale
          or other disposition) upon conversion of such share of Series B
          Preferred Stock would have been entitled upon such reorganization,
          reclassification, consolidation, merger, sale or other disposition.
          The provisions of this Section 4 shall similarly apply to successive
          reorganizations, reclassifications, consolidations, mergers, sales or
          other dispositions.

     (e) Whenever the Series B Preferred Conversion Price shall be adjusted as
provided in Section 4(d) hereof, the Corporation shall forthwith file, at the
office of Corporation or any transfer agent designated by the Corporation for
the Series B Preferred Stock, a statement, signed by its Chief Financial
Officer, showing in detail the facts requiring such adjustment and the Series B
Preferred Conversion Price then in effect. The Corporation shall also cause a
copy of such statement to be sent by first-class certified mail, return receipt
requested, postage prepaid, to each holder of shares of Series B Preferred Stock
at such Person's address appearing on the Corporation's records. Where
appropriate, such copy may be given in advance and may be included as part of a
notice required to be mailed under the provisions of Section 4(f) hereof.

     (f) In the event the Corporation shall propose to take any action of the
types described in clauses (i), (ii) or (iii) of Section 4(d) hereof, the
Corporation shall give notice to each holder of shares of Series B Preferred
Stock, in the manner set forth in Section 4(e) above, which notice shall specify
the record date, if any, with respect to any such action and the date on which
such action is to take place. Such notice shall also set forth such facts with
respect thereto as shall be reasonably necessary to indicate the effect of such
action (to the extent such effect may be known at the date of such notice) on
the Series B Preferred Conversion Price and the number, kind or class of shares
or other securities or property which shall be deliverable or purchasable upon
the occurrence of such action or deliverable upon conversion of shares of Series
B Preferred Stock. In the case of any action which would require the fixing of a
record date, such notice shall be given at least ten (10) days prior to the date
so fixed, and in case of any other action, such notice shall be given at least
fifteen (15) days prior to the taking of such proposed action. Failure to give
such notice, or any defect therein, shall not affect the legality or validity of
any such action.

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<PAGE>
     (g) The Corporation shall pay all documentary, stamp or other transactional
taxes attributable to the issuance or delivery of shares of Common Stock upon
conversion of any shares of Series B Preferred Stock, except for any transfer
taxes.

     (h) The Corporation shall reserve, free from preemptive rights, out of its
authorized but unissued shares of Common Stock a sufficient number of shares of
Common Stock to provide for the conversion of all outstanding shares of Series B
Preferred Stock.

     (i) All shares of Common Stock which may be issued in connection with the
conversion provisions set forth herein will, upon issuance by the Corporation,
be validly issued, fully paid and nonassessable, with no personal liability
attaching to the ownership thereof, and free from all taxes, liens or charges
with respect thereto.

5.   Redemption.

     (a) At any time after the Trading Price of the Common Stock equals or
exceeds $10 for a period of 20 consecutive trading days, the Corporation may, at
its option, redeem all or any portion of the shares of Series B Preferred Stock
then outstanding. Any shares of Series B Preferred Stock redeemed pursuant to
Section 6(a) shall be redeemed at the Redemption Price, which shall be payable
in cash.

     (b) If fewer than all of the outstanding shares of Series B Preferred Stock
are to be redeemed, then, subject to the right of any holder to convert any
shares of Series B Preferred Stock, the number of shares to be redeemed held by
each holder of record of the Series B Preferred Stock shall be determined on a
pro rata basis in the same proportion to the aggregate number of shares to be
redeemed as the number of shares held by such holder bears to the aggregate
number of outstanding shares of Series B Preferred Stock.

     (c) If the Corporation shall exercise its option to redeem shares of Series
B Preferred Stock, notice of redemption will be mailed by first-class mail,
postage prepaid, at least 30 days but not more than 60 days prior to the
applicable Redemption Date, to each holder of record of the shares of Series B
Preferred Stock to be redeemed as of the close of business on such date, not
more than 25 nor less than 10 days prior to the date such notice is so given, as
the Board of Directors of the Corporation, in its sole discretion, may select as
the record date for such redemption, at such holder's address as the same
appears on the stock register of the Corporation. Each such notice shall state:
(i) the applicable Redemption Date; (ii) the number of shares to be redeemed
and, if fewer than all the shares held by such holder are to be redeemed, the
number of shares to be redeemed from such holder; (iii) the Redemption Price;
(iv) the place or places where certificates for such shares are to be
surrendered for payment of the Redemption Price; and (v) that dividends on the
shares to be redeemed will cease to accrue on such Redemption Date except to the
extent the Corporation fails to make payment of the Redemption Price for such
shares when they are duly surrendered for redemption as herein provided.

     (d) Notice having been mailed as aforesaid, from and after the applicable
Redemption Date (unless the Corporation shall default in the payment of the
Redemption Price on any shares, in which case, such shares shall continue to be

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<PAGE>
outstanding), dividends on the shares of the Series B Preferred Stock so called
for redemption shall cease to accrue, said shares shall no longer be deemed to
be outstanding (notwithstanding that any certificate therefor shall not have
been surrendered for cancellation), the holder thereof shall cease to be a
stockholder with respect to such shares and all rights with respect to such
shares shall forthwith cease and terminate, except the right to receive from the
Corporation the Redemption Price therefor, without interest, upon the surrender
of certificates representing the same. Upon surrender in accordance with said
notice of the certificates for any shares to be so redeemed (properly endorsed
or assigned for transfer, if the Board shall so require and the notice shall so
state), such shares shall be redeemed by the Corporation at the Redemption Price
aforesaid. In the event that fewer than the total number of the shares of Series
B Preferred Stock represented by any such certificate are redeemed, a new
certificate shall be issued representing the number of unredeemed shares without
cost to the holder thereof. Such new certificate shall contain any such legend
as was set forth on the surrendered certificate, unless such legend is no longer
necessary or appropriate.

     (e) In the event that the Corporation exercises its option to redeem shares
of Series B Preferred Stock pursuant to this Section 6, the rights of any holder
of Series B Preferred Stock to convert such shares pursuant to Section 4 will
terminate at the close of business on the business day preceding the Redemption
Date for such Series B Preferred Stock (unless the Corporation shall default in
paying the Redemption Price when due, in which case the conversion right shall
terminate at the close of business on the date such default is cured and such
Series B Preferred Stock is redeemed).

6.   Definitions. As used herein, the following terms shall have the following
     meanings:

     (a) The term "Common Stock" shall mean the Corporation's common stock,
$1.00 par value per __________ share.

     (b) The term "Current Market Price" shall mean, as of the day in question,
the fair market value of a share of Common Stock on such date, as determined in
good faith by the Board of Directors of the Corporation.

     (c) The term "Face Amount" of each share of Series B Preferred Stock shall
be $4.75, as the Series B Preferred Stock is presently constituted, such amount
to be proportionately adjusted as hereinafter provided.

     (d) The term "Junior Stock" shall mean the Common Stock and any class or
series of capital stock of the Corporation ranking, as to payment of dividends
or distribution of assets, junior to the Series B Preferred Stock.

     (e) The term "Liquidation Parity Stock" shall mean any class or series of
capital stock of the Corporation ranking, as to distribution of assets, pari
passu to the Series B Preferred Stock.

     (f) The term "Redemption Date" shall mean any date on which any shares of
Series B Preferred Stock are to be redeemed.

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<PAGE>

     (g) The term "Redemption Price" shall mean an amount per share equal to the
Series B Preferred Original Issuance Price (subject to appropriate adjustment
upon the occurrence of any stock split, stock dividend or combination of the
outstanding shares of Series B Preferred Stock), plus, an amount equal to any
dividends declared but unpaid on the Series B Preferred Stock.

     (h) The term "Series B Preferred Conversion Price" shall mean $4.75 as
adjusted from time to time pursuant to the provisions of Section 4(d) hereof.

     (i) The term "Series B Preferred Original Issuance Date" shall mean the
date on which the first share of Series B Preferred Stock has been issued.

     (j) The term "Series B Preferred Original Issuance Price" shall mean $4.75
per share of Series B Preferred Stock.

     (k) The term "Trading Price" shall mean the last reported sale price of the
Common Stock or, in case no such reported sale takes place on such day, the
average of the reported closing bid and asked prices, in either case, as
reported by the principal United States securities exchange registered under the
Securities and Exchange Act of 1934, as amended, on which the Common Stock are
listed or admitted to trading.

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<PAGE>

     IN WITNESS WHEREOF, said COYOTE NETWORK SYSTEMS, INC. has caused this
Certificate of Designations, Preferences and Rights of Series B Preferred Stock
to be duly executed by its Chief Executive Office and attested to by its
Secretary and has caused its corporate seal to be affixed hereto, this ____ day
of __________, 2000.

                                    COYOTE NETWORK SYSTEMS, INC.

                                    By:   _________________________________
                                          Name:   _________________________
                                          Title:  _________________________
(Corporate Seal)

ATTEST:

Name:  __________________________
Title: __________________________PNC Bank, N.A.
1600 Market Street
Philadelphia, PA 19103
215 585 5000 Tel

February 3, 2000                                                        PNC BANK

Peter W. Knipe
Vice President and Chief Financial Officer
STV GROUP, INCORPORATED
205 West Welsh Drive
Douglassville, Pennsylvania 19518

Re:      $12,000,000 Committed Line of Credit

Dear Pete:

         We are pleased to inform you that PNC Bank,  National  Association (the
"Bank"),  has approved your request for a committed  line of credit (the "Loan")
to STV Group,  Incorporated and STV Incorporated and its subsidiaries  listed on
the attached Schedule A (individually and collectively, the "Borrower"). We look
forward  to this  opportunity  to help  you  meet  the  financing  needs of your
business.  All the details  regarding  your Loan are  outlined in the  following
sections of this  letter.  If these terms are  satisfactory,  please  follow the
instructions for proceeding with your Loan provided at the end of this letter.

1. Facility and Use of Proceeds.  This is a committed  revolving  line of credit
under which the  Borrower  may  request  and the Bank,  subject to the terms and
conditions of this letter,  will make advances to the Borrower from time to time
until the Expiration Date, in an amount in the aggregate at any time outstanding
not to exceed  $12,000,000 (the "Line of Credit").  The "Expiration  Date" means
December  31,  2001,  or such  later  date as may be  designated  by the Bank by
written  notice to the Borrower.  Advances under the Line of Credit will be used
for working  capital,  acquisitions  or other general  business  purposes of the
Borrower.

         The Borrower may request that the Bank, in lieu of cash advances, issue
standby letters of credit  (individually,  a "Letter of Credit" and collectively
the "Letters of Credit") under the Line of Credit having expiration dates not to
exceed the earlier of one (1) year from the date of issuance and the  Expiration
Date; provided,  however, that the total amount of outstanding Letters of Credit
issued  hereunder (in the Bank's sole  discretion  and subject to  documentation
satisfactory to the Bank) shall not exceed  $2,000,000.00.  The  availability of
advances  under the Line of Credit  shall be reduced by the face  amount of each
Letter of Credit issued and outstanding  (whether or not drawn). Each payment by
the Bank under a Letter of Credit shall in the Bank's  discretion  constitute an
advance of principal under the Line of Credit and shall be

<PAGE>
STV Group, Incorporated
February 3, 2000
Page 2

evidenced  by the Note (as  defined  below).  The  Letters  of  Credit  shall be
governed by one or more reimbursement  agreements  executed by the Borrower (the
"Reimbursement Agreement").  Each request for the issuance of a Letter of Credit
must be accompanied by the Borrower's  execution of an application on the Bank's
standard  forms,  together  with all  supporting  documentation.  Each Letter of
Credit will be issued in the Bank's sole  discretion and in a form acceptable to
the Bank.  The Borrower shall pay the Bank a per annum issuance fee in an amount
equal to 1.5% of the face amount of each Letter of Credit,  payable quarterly in
arrears on a basis of a year of 360 days,  together  with such  other  customary
fees,  commissions and expenses  therefor as shall be required by the Bank. This
letter is not a  pre-advice  for the  issuance  of a letter of credit and is not
irrevocable.

2. Note.  The  obligation  of the Borrower to repay  advances  under the Line of
Credit shall be evidenced by a promissory  note (the "Note") in form and content
satisfactory to the Bank.

         This  letter  (the  "Letter  Agreement"),  the Note and the other  loan
documents  delivered  pursuant  hereto  will  constitute  the "Loan  Documents."
Capitalized  terms not defined herein shall have the meaning ascribed to them in
the Loan Documents.

3. Interest Rate.  Interest on the unpaid balance of the Line of Credit advances
will be charged at the rates,  and be payable on the dates and times,  set forth
in the Note evidencing the Loan.

4. Repayment.  Subject to the terms and conditions of this letter,  the Borrower
may borrow,  repay and reborrow  under the Line of Credit  until the  Expiration
Date, on which date the outstanding principal balance and any accrued but unpaid
interest shall be due and payable.

5. Security.  The Borrower must cause or has previously  caused the following to
be executed and  delivered to the Bank in form and content  satisfactory  to the
Bank as security for the Loan:

         (a) a security  agreement  granting the Bank a first priority perfected
lien on the Borrower's existing and future personal property,  including but not
limited to accounts, inventory,  equipment, general intangibles,  chattel paper,
documents and instruments.

         If all or any portion of the tangible collateral is located on property
which is not owned by the Borrower or which is subject to a mortgage in favor of
another lender,  the Borrower will deliver to the Bank Landlord's or Mortgagee's
Waivers,  as  applicable,  acceptable in form and substance to the Bank for each
such location.

<PAGE>
STV Group, Incorporated
February 3, 2000
Page 3

         Hazard insurance must be maintained on all inventory, equipment or real
property  securing  the Loan in such  amounts  and with  such  coverages  as are
acceptable to the Bank,  containing a standard  lender loss payable or mortgagee
clause in favor of the Bank.

         The Loan  will be  cross-collateralized  and  cross-defaulted  with all
other present and future Obligations of the Borrower to the Bank.

6.  Covenants.  Unless  compliance  is  waived in  writing  by the Bank or until
payment in full of the Loan and  termination  of the  commitment for the Line of
Credit:

         (a) The  Borrower  will  promptly  submit to the Bank such  information
relating  to the  Borrower's  affairs  (including  but  not  limited  to  annual
financial  statements for the Borrower) or any security for the Loan as the Bank
may reasonably request.

         (b) The Borrower  will notify the Bank in writing of the  occurrence of
an Event of Default or an act or condition which,  with the passage of time, the
giving of notice or both might become an Event of Default.

         (c) The Borrower  will comply with the  financial  and other  covenants
included in Exhibit "A" hereto.

7.  Representations  and  Warranties.  To induce the Bank to extend the Loan and
upon the making of any  advance to the  Borrower  under the Line of Credit,  the
Borrower represents and warrants as follows:

         (a) The Borrower's latest consolidated financial statements provided to
the Bank are true,  complete and  accurate in all  material  respects and fairly
present  the  financial  condition,  assets and  liabilities,  whether  accrued,
absolute,  contingent or otherwise, and the results of the Borrower's operations
for  the  period  specified  therein.  The  Borrower's   consolidated  financial
statements  have been prepared in accordance  with GAAP (as defined in Exhibit A
hereto)  consistently  applied  from  period  to period  subject  in the case of
interim statements to normal year-end adjustments.  Since the date of the latest
financial  statements  provided to the Bank,  the  Borrower has not suffered any
damage,  destruction  or  loss  which  has  materially  adversely  affected  its
business, assets, operations, financial condition or results of operations.

         (b)  There  are  no  actions,   suits,   proceedings  or   governmental
investigations pending or, to the knowledge of the Borrower,  threatened against
the  Borrower,  including  without  limitation  those  described on the attached
Exhibit B, which  could  result in a material  adverse  change in its  business,
assets, operations, financial condition or results of operations and there is

<PAGE>
STV Group, Incorporated
February 3, 2000
Page 4

no basis known to the Borrower or its officers,  directors or  shareholders  for
any such action, suit, proceedings or investigation.

         (c) The Borrower has filed all returns and reports that are required to
be filed by it in  connection  with any  federal,  state or local  tax,  duty or
charge levied, assessed or imposed upon the Borrower or its property,  including
unemployment,  social security and similar taxes and all of such taxes have been
either paid or adequate reserve or other provision has been made therefor.

         (d)  The  Borrower  is duly  organized,  validly  existing  and in good
standing under the laws of the state of its  incorporation  or organization  and
has the power and  authority  to own and  operate  its assets and to conduct its
business as now or proposed  to be carried on, and is duly  qualified,  licensed
and in good standing to do business in all jurisdictions  where its ownership of
property or the nature of its business requires such qualification or licensing.

         (e) The  Borrower  has full  power  and  authority  to  enter  into the
transactions  provided for in this Letter Agreement and has been duly authorized
to do so by all necessary and appropriate action and when executed and delivered
by the  Borrower,  this  Letter  Agreement  and the other  Loan  Documents  will
constitute the legal, valid and binding obligations of the Borrower, enforceable
in accordance with their terms.

         (f) There does not exist any default or violation by the Borrower of or
under any of the terms,  conditions or  obligations  of: (i) its  organizational
documents;  (ii) any  indenture,  mortgage,  deed of trust,  franchise,  permit,
contract,  agreement,  or other instrument to which it is a party or by which it
is bound;  or (iii) any law,  regulation,  ruling,  order,  injunction,  decree,
condition or other requirement applicable to or imposed upon the Borrower by any
law or by any governmental authority, court or agency.

         (g) The  Borrower  has  reviewed  the areas  within  its  business  and
operations  which  could be  adversely  affected  by,  and has  developed  or is
developing a program to address on a timely basis the risk that certain computer
applications  used by the  Borrower  may be  unable  to  recognize  and  perform
properly  date-sensitive  functions  involving dates prior to and after December
31, 1999 (the "Year 2000 Problem").  The Year 2000 Problem will not result,  and
is not  reasonably  expected to result,  in any material  adverse  effect on the
business,  properties,  assets,  financial  condition,  results of operations or
prospects of the Borrower, or the ability of the Borrower to duly and punctually
pay or perform its obligations hereunder and under the other Loan Documents.

8. Fees.  Beginning  on the first day of the quarter  after the date of the Note
and continuing on the first day of each quarter  thereafter until the Expiration
Date, the Borrower shall pay a

<PAGE>
STV Group, Incorporated
February 3, 2000
Page 5

commitment fee to the Bank, in arrears,  at the rate of .375 percent (.375%) per
annum on the average  daily  balance of the Line of Credit which is  undisbursed
and uncancelled during the preceding quarter. For the purpose of calculating the
commitment  fee,  the face amount of any  outstanding  Letters of Credit  issued
under the Line of Credit shall be deemed to be  disbursed.  The  commitment  fee
shall be  computed  on the  basis  of a year of 360 days and paid on the  actual
number of days elapsed.

9.  Expenses.  The Borrower will  reimburse  the Bank for the Bank's  reasonable
out-of-pocket  expenses  incurred or to be incurred in conducting UCC, title and
other  public  record  searches,  and in filing and  recording  documents in the
public records to perfect the Bank's liens and security interests.  The Borrower
shall also reimburse the Bank for the Bank's expenses  (including the reasonable
fees and expenses of the Bank's outside and in-house counsel) in documenting and
closing this  transaction,  in connection with any amendments,  modifications or
renewals  of the  Loan,  and in  connection  with the  collection  of all of the
Borrower's  obligations  to the Bank,  including but not limited to  enforcement
actions relating to the Loan.

10.  Depository.  The  Borrower  will  establish  and  maintain  at the Bank the
Borrower's primary depository accounts.

11. Additional Provisions. Before the first advance under the Loan, the Borrower
shall execute and deliver to the Bank the Note and other required Loan Documents
and such other  instruments  and documents as the Bank may  reasonably  request,
such as certified  resolutions,  incumbency  certificates  or other  evidence of
authority.  The Bank will not be obligated to make any advance under the Line of
Credit  if any  Event of  Default  or event  which  with  the  passage  of time,
provision  of notice or both would  constitute  an Event of  Default  shall have
occurred and be continuing.

12.  Other  Conditions  to  Advances.  The Bank will not be obligated to make an
advance under the Line of Credit until the Borrower has provided the  following,
all in form and content  satisfactory  to the Bank:  evidence of cancellation of
all  commitments  from and evidence of repayment in full of all  indebtedness to
First Union  National  Bank except for  obligations  relating to four letters of
credit outstanding on the date hereof, which are listed on the attached Schedule
B, which shall be replaced no later than June 30, 2000;  evidence of termination
of all  existing  liens in  favor of First  Union  National  Bank;  transfer  of
Borrower's primary operating accounts to the Bank.

         Prior to execution of the final Loan Documents,  the Bank may terminate
this Letter  Agreement if a material  adverse  change occurs with respect to the
Borrower,  any  guarantor,  any  collateral  for the Loan or any other person or
entity connected in any way with the Loan, or if the

<PAGE>
STV Group, Incorporated
February 3, 2000
Page 6

Borrower  fails to comply  with any of the terms and  conditions  of this Letter
Agreement,  or if the Bank  reasonably  determines  that  any of the  conditions
cannot be met.

         This Letter  Agreement is governed by the laws of the  Commonwealth  of
Pennsylvania.  No modification,  amendment or waiver of any of the terms of this
Letter  Agreement,  nor any consent to any departure by the Borrower  therefrom,
will be  effective  unless made in a writing  signed by the party to be charged,
and then such waiver or consent shall be effective only in the specific instance
and for the purpose for which given.  When accepted,  this Letter  Agreement and
the other Loan Documents will constitute the entire  agreement  between the Bank
and  the   Borrower   concerning   the  Loan,   and  shall   replace  all  prior
understandings,  statements,  negotiations and written materials relating to the
Loan.

         THE BORROWER AND THE BANK IRREVOCABLY WAIVE ANY AND ALL RIGHTS THEY MAY
HAVE TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM OF ANY NATURE ARISING
OUT OF THIS  LETTER  AGREEMENT  AND THE  TRANSACTIONS  CONTEMPLATED  HEREBY  AND
ACKNOWLEDGE THAT THE FOREGOING WAIVER IS KNOWING AND VOLUNTARY.

         If and when a loan closing occurs,  this Letter  Agreement (as the same
may be amended  from time to time)  shall  survive the closing and will serve as
our loan agreement throughout the term of the Loan.

         To accept  these terms,  please sign the  enclosed  copy of this Letter
Agreement as set forth below and the Loan  Documents and return them to the Bank
within  ten (10) days from the date of this  Letter  Agreement,  or this  Letter
Agreement may be terminated  at the Bank's option  without  liability or further
obligation of the Bank.

         Thank  you for  giving  PNC Bank  this  opportunity  to work  with your
business.  We look  forward  to other ways in which we may be of service to your
business or to you personally.

Very truly yours,

PNC BANK, NATIONAL ASSOCIATION

By:      /s/ Amy T. Petersen

Title:   Vice President

<PAGE>
STV Group, Incorporated
February 3, 2000
Page 7

                                   ACCEPTANCE

With the intent to be legally bound hereby,  the above terms and  conditions are
hereby agreed to and accepted as of this 3rd day of February, 2000.

                                    BORROWER:

                                    STV GROUP, INCORPORATED

                                    By:  /s/ Peter W. Knipe   (SEAL)
                                    Print Name:  Peter W. Knipe
                                    Title: CFO

                                    STV INCORPORATED

                                    By:  /s/ Peter W. Knipe   (SEAL)
                                    Print Name:  Peter W. Knipe
                                    Title: CFO

                                    STV CONSTRUCTION SERVICES, INC.

                                    By:  /s/ Peter W. Knipe   (SEAL)
                                    Print Name:  Peter W. Knipe
                                    Title: CFO

                                    STV INTERNATIONAL, INC.

                                    By:  /s/ Peter W. Knipe   (SEAL)
                                    Print Name:  Peter W. Knipe
                                    Title: CFO

                [SIGNATURES ARE CONTINUED ON THE FOLLOWING PAGE]

<PAGE>
STV Group, Incorporated
February 3, 2000
Page 8

                                    STV/ENVIRONMENTAL, INC.

                                    By:  /s/ Peter W. Knipe   (SEAL)
                                    Print Name:  Peter W. Knipe
                                    Title: CFO

                                    STV SURVEYING, INC.

                                    By:  /s/ Peter W. Knipe   (SEAL)
                                    Print Name:  Peter W. Knipe
                                    Title: CFO

                                    STV CONSTRUCTION, INC.

                                    By:  /s/ Peter W. Knipe   (SEAL)
                                    Print Name:  Peter W. Knipe
                                    Title: CFO

                                    STV ARCHITECTS, INC.

                                    By:  /s/ Peter W. Knipe   (SEAL)
                                    Print Name:  Peter W. Knipe
                                    Title:  Secretary

                                    STV SILVER & ZISKIND ARCHITECTS, P.C.

                                    By:  /s/ Peter W. Knipe   (SEAL)
                                    Print Name:  Peter W. Knipe
                                    Title:  Secretary

                [SIGNATURES ARE CONTINUED ON THE FOLLOWING PAGE]

<PAGE>
STV Group, Incorporated
February 3, 2000
Page 9

                                    STV ARCHITECTS, P.C.

                                    By:  /s/ Michael D. Garz  (SEAL)
                                    Print Name:  Michael D. Garz
                                    Title:  President

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