Document:

LOAN
      AND SECURITY AGREEMENT

    

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

    

    1 ACCOUNTING
      AND OTHER TERMS

    

    Accounting
      terms not defined in this Agreement shall be construed following GAAP.
      Calculations and determinations must be made following GAAP. 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 Revolving
      Advances.

    

    (a)
      Availability.
      Subject
      to the terms and conditions of this Agreement and to deduction of Reserves,
      Bank
      will make Advances to Borrower up to the Availability Amount.
      Amounts borrowed under the Revolving Line may be repaid, and prior to the
      Revolving Line Maturity Date, reborrowed, subject to the applicable terms and
      conditions precedent herein.

    

    (b)
      Termination;
      Repayment.
      The
      Revolving Line terminates on the Revolving Line Maturity Date, when the
      principal amount of all Advances, the unpaid interest thereon, and all other
      Obligations relating to the Revolving Line shall be immediately due and
      payable.

    

    (c) Unbilled
      Accounts.
      In
      addition to any other provision of this Agreement which may require repayment
      on
      an earlier date, including, without limitation, Sections 2.1.1(b) and 6.3(c),
      Borrower shall repay any Advance made based upon Unbilled Accounts on the
      earliest of (i) the date on which the Unbilled Account with respect to which
      an
      Advance was made is no longer an Unbilled Account (including, without
      limitation, as a result of such Unbilled Account not being billed within thirty
      (30) days of the date of the applicable Advance), (ii) the date on which
      Borrower issues an invoice with respect to such Unbilled Account; (iii) the
      date
      on which any adjustment is asserted to the Unbilled Account (but only to the
      extent of the adjustment if the Unbilled Account remains otherwise an Unbilled
      Account), or (iv) the date on which there is a breach of any warranty or
      representation set forth in Section 5.4.

    

    2.1.2 Letters
      of Credit Sublimit.

    

    (a)
      As
      part
      of the Revolving Line and subject to deduction of Reserves, Bank shall issue
      or
      have issued Letters of Credit for Borrower’s account. The face amount of
      outstanding Letters of Credit (including drawn but unreimbursed Letters of
      Credit and any Letter of Credit Reserve) may not exceed Five Hundred Thousand
      Dollars ($500,000.00), inclusive of Credit Extensions relating to Sections
      2.1.3
      and 2.1.4. Such aggregate amounts utilized hereunder shall at all times reduce
      the amount otherwise available for Advances under the Revolving Line. If, on
      the
      Revolving Line Maturity Date, there are any outstanding Letters of Credit,
      then
      on such date Borrower shall provide to Bank cash collateral in an amount equal
      to 105% of the face amount of all such Letters of Credit plus all interest,
      fees, and costs due or to become due in connection therewith (as estimated
      by
      Bank in its good faith business judgment), to secure all of the Obligations
      relating to said Letters of Credit. All Letters of Credit shall be in form
      and
      substance acceptable to Bank in its sole discretion and shall be subject to
      the
      terms and conditions of Bank’s standard Application and Letter of Credit
      Agreement (the “Letter
      of Credit Application”).
      Borrower agrees to execute any further documentation in connection with the
      Letters of Credit as Bank may reasonably request. Borrower
      further agrees to be bound by the regulations and interpretations of the issuer
      of any Letters of Credit guarantied by Bank and opened for Borrower’s account or
      by Bank’s interpretations of any Letter of Credit issued by Bank for Borrower’s
      account, and Borrower understands and agrees that Bank shall not be liable
      for
      any error, negligence, or mistake, whether of omission or commission, in
      following Borrower’s instructions or those contained in the Letters of Credit or
      any modifications, amendments, or supplements thereto.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

    (b)
      The
      obligation of Borrower to immediately reimburse Bank for drawings made under
      Letters of Credit shall be absolute, unconditional, and irrevocable, and shall
      be performed strictly in accordance with the terms of this Agreement, such
      Letters of Credit, and the Letter of Credit Application. 

    

    (c)
      Borrower
      may request that Bank issue a Letter of Credit payable in a Foreign Currency.
      If
      a demand for payment is made under any such Letter of Credit, Bank shall treat
      such demand as an Advance to Borrower of the equivalent of the amount thereof
      (plus fees and charges in connection therewith such as wire, cable, SWIFT or
      similar charges) in Dollars at the then-prevailing rate of exchange in San
      Francisco, California, for sales of the Foreign Currency for transfer to the
      country issuing such Foreign Currency.

    

    (d)
      To
      guard
      against fluctuations in currency exchange rates, upon the issuance of any Letter
      of Credit payable in a Foreign Currency, Bank shall create a reserve (the
“Letter
      of Credit Reserve”)
      under
      the Revolving Line in an amount equal to ten percent (10%) of the face amount
      of
      such Letter of Credit. The amount of the Letter of Credit Reserve may be
      adjusted by Bank from time to time to account for fluctuations in the exchange
      rate. The availability of funds under the Revolving Line shall be reduced by
      the
      amount of such Letter of Credit Reserve for as long as such Letter of Credit
      remains outstanding.

    

    2.1.3 Foreign
      Exchange Sublimit.
      As part
      of the Revolving Line and subject to deduction of Reserves, Borrower
      may enter into foreign exchange contracts with Bank under which Borrower commits
      to purchase from or sell to Bank a specific amount of Foreign Currency (each,
      a
“FX
      Forward Contract”)
      on a
      specified date (the “Settlement
      Date”).
      FX
      Forward Contracts shall have a Settlement Date of at least one (1) FX Business
      Day after the contract date and shall be subject to a reserve of ten percent
      (10%) of each outstanding FX Forward Contract (the “FX
      Reserve”)
      inclusive of Credit Extensions relating to Sections 2.1.2 and 2.1.4.
      The
      aggregate amount of FX Forward Contracts at any one time may not exceed ten
      (10)
      times the amount of the FX Reserve. The Obligations of Borrower relating to
      this
      section may not exceed Five
      Hundred Thousand Dollars ($500,000.00),
      inclusive of Credit Extensions relating to Sections 2.1.2 and
      2.1.4.

    

    2.1.4 Cash
      Management Services Sublimit.
      Borrower may use up to Five Hundred Thousand Dollars ($500,000.00) (the
“Cash
      Management Services Sublimit”),
      inclusive of Credit Extensions relating to Sections 2.1.2 and 2.1.3, of the
      Revolving Line for Bank’s cash management services which may include merchant
      services, direct deposit of payroll, business credit card, and check cashing
      services identified in Bank’s various cash management services agreements
      (collectively, the “Cash
      Management Services”).
      Any
      amounts Bank pays on behalf of Borrower or any amounts that are not paid by
      Borrower for any Cash Management Services will be treated as Advances under
      the
      Revolving Line and will accrue interest at the interest rate applicable to
      Advances.

    

    2.2 Overadvances.
      If at
      any time or for any reason the total of all outstanding Advances and all other
      monetary Obligations exceeds the Availability Amount (an “Overadvance”),
      Borrower shall immediately pay the amount of the excess to Bank, without notice
      or demand. Without limiting Borrower’s obligation to repay to Bank the amount of
      any Overadvance, Borrower agrees to pay Bank interest on the outstanding amount
      of any Overadvance, on demand, at the Default Rate.

    

    2.3 Payment
      of Interest on the Credit Extensions.

    

    (a)
      Interest
      Rate.
      Subject
      to Section 2.3(b), the principal amount outstanding under the Revolving Line
      shall accrue interest at a floating per annum rate equal to the aggregate of
      the
      Prime Rate plus five-eighths of one percentage point (0.625%); provided,
      however, (i) if Borrower has Liquidity of equal to or greater than $2,500,000
      at
      all times during a particular month, then, during the next month and for each
      month thereafter in which Borrower has Liquidity of equal to or greater than
      $2,500,000 at all times, the principal amount outstanding under the Revolving
      Line shall accrue interest at a floating per annum rate equal to the aggregate
      of the Prime Rate plus three-eighths of one percentage point (0.375%), and
      (ii)
      if Borrower has Liquidity of equal to or greater than $3,500,000 at all times
      during a particular month, then, during the next month and for each month
      thereafter in which Borrower has Liquidity of equal to or greater than
      $3,500,000 at all times, the principal amount outstanding under the Revolving
      Line shall accrue interest at a floating per annum rate equal to the Prime
      Rate.
      Interest shall be payable monthly.

    

    
      
        
        

      

      
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    (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 four
      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 2.3(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)
      Minimum
      Monthly Interest.
      In the
      event the aggregate amount of interest earned by Bank in any month (exclusive
      of
      any collateral monitoring fees, unused line fees, or any other fees and charges
      hereunder) is less than the Minimum Monthly Interest,
      Borrower shall pay Bank an
      amount, payable on the last day of such month, in an amount equal to the
      (i) Minimum Monthly Interest minus (ii) the aggregate amount of all
      interest earned by Bank (exclusive of any collateral monitoring fees, unused
      line fees, or any other fees and charges hereunder) in such month.

    

    (g)
      Payment;
      Interest Computation; Float Charge.
      Interest is payable monthly on the last calendar day of each month. In computing
      interest on the Obligations, all Payments received after 12:00 p.m. Pacific
      time
      on any day shall be deemed received on the next Business Day. In addition,
      Bank
      shall be entitled to charge Borrower a “float” charge in an amount equal to
      three (3) Business Days interest, at the interest rate applicable to the
      Advances, on all Payments received by Bank. Said float charge is not included
      in
      interest for purposes of computing Minimum Monthly Interest (if any) under
      this
      Agreement. The float charge for each month shall be payable on the last day
      of
      the month. Bank shall not, however, be required to credit Borrower's account
      for
      the amount of any item of payment which is unsatisfactory to Bank in its good
      faith business judgment, and Bank may charge Borrower's Designated Deposit
      Account for the amount of any item of payment which is returned to Bank
      unpaid.

    

    2.4 Fees.
      Borrower shall pay to Bank: 

    

    (a) Commitment
      Fee.
      A fully
      earned, non-refundable commitment fee of Seventy
      Five Thousand Dollars ($75.000.00),
      on the
      Effective Date;

    

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

    

    (c)
      Letter
      of Credit Fee.
      Bank’s
      customary fees and expenses for the issuance or renewal of Letters of Credit,
      upon the issuance or renewal of such Letter of Credit by Bank;

    

    (d)
      Termination
      Fee.
      Subject
      to the terms of Section 4.1, a termination fee;

    

    (e) Collateral
      Monitoring Fee.
      A
      monthly collateral monitoring fee of One Thousand Dollars ($1,000.00), payable
      in arrears on the last day of each month (prorated for any partial month) at
      the
      beginning and upon termination of this Agreement; and

    

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

    

    
      
        
        

      

      
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    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, including, without
      limitation:

    

    (a) Evidence
      of the occurrence of the Trigger Event;

    

    (b) Completion
      of the Initial Audit;

    

    (c) Borrower
      shall have delivered duly executed original signatures to the Loan Documents
      to
      which it is a party;

    

    (d)
      Borrower
      shall have delivered duly executed original signatures to the Control
      Agreement[s];

    

    (e)
      Borrower
      shall have delivered its Operating Documents and a good standing certificate
      of
      Borrower certified by the Secretary of State of the State of Wyoming or
      Maryland, as applicable, as of a date no earlier than thirty (30) days prior
      to
      the Effective Date;
      

    

    (f)
      Borrower
      shall have delivered duly executed original signatures to the completed
      Borrowing Resolutions for Borrower;

    

    (g)
      Borrower
      shall have delivered the Subordination Agreement duly executed by __________
      in
      favor of Bank;

    

    (h)
      Borrower
      shall have delivered a payoff letter from Chevy Chase Bank;

    

    (i)
      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;

    

    (j)
      Borrower
      shall have delivered the Perfection Certificates executed by
      Borrower;

    

    (k)
      Borrower
      shall have delivered landlord’s consents executed by Borrower and the applicable
      landlord in favor of Bank with respect to each of Borrower’s leased
      locations;

    

    (l)
      Borrower
      shall have delivered a legal opinion of Borrower’s counsel dated as of the
      Effective Date together with the duly executed original signatures
      thereto;

    

    (m)
      Borrower
      shall have delivered evidence satisfactory to Bank that the insurance policies
      required by Section 6.7 hereof are in full force and effect, together with
      appropriate evidence showing loss payable and/or additional insured clauses
      or
      endorsements in favor of Bank; and

    

    (n)
      Borrower
      shall have paid the fees and Bank Expenses then due as specified in Section
      2.4
      hereof.

    

    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)
      timely
      receipt of an executed Transaction Report;

    

    (b)
      the
      representations and warranties in Section 5 shall be true in all material
      respects on the date of the Transaction Report 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

    

    
      
        
        

      

      
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    (c)
      there
      has
      not been any material impairment in the general affairs, management, results
      of
      operation, financial condition or the prospect of repayment of the Obligations,
      and 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
      in
      Bank’s sole discretion.

    

    3.4 Procedures
      for Borrowing.
      Subject
      to the prior satisfaction of all other applicable conditions to the making
      of an
      Advance set forth in this Agreement, to obtain an Advance (other than Advances
      under Sections 2.1.2 or 2.1.4), Borrower shall notify Bank (which notice shall
      be irrevocable) by electronic mail, facsimile, or telephone by 12:00 p.m.
      Pacific time on the Funding Date of the Advance. Together with such
      notification, Borrower must promptly deliver to Bank by electronic mail or
      facsimile a completed Transaction Report executed by a Responsible Officer
      or
      his or her designee. Bank shall credit Advances to the Designated Deposit
      Account. Bank may make Advances under this Agreement based on instructions
      from
      a Responsible Officer or his or her designee or without instructions if the
      Advances are necessary to meet Obligations which have become due. Bank may
      rely
      on any telephone notice given by a person whom Bank believes is a Responsible
      Officer or designee.

    

    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.

    

    This
      Agreement may be terminated prior to the Revolving Line Maturity Date by
      Borrower, effective three (3) Business Days after written notice of termination
      is given to Bank or if Bank’s obligation to fund Credit Extensions terminates
      pursuant to the terms of Section 2.1.1(b). Notwithstanding any such termination,
      Bank’s lien and security interest in the Collateral shall continue until
      Borrower fully satisfies its Obligations. If such termination is at Borrower’s
      election or at Bank’s election due to the occurrence and continuance of an Event
      of Default, Borrower shall pay to Bank, in addition to the payment of any other
      expenses or fees then-owing, a termination fee in an amount equal to One Hundred
      Thousand Dollars ($100,000.00), provided that no termination fee shall be
      charged if either (a) the credit facility hereunder is replaced with a new
      facility from another division of Silicon Valley Bank, or (b) such termination
      occurs after the Anniversary Date. Upon payment in full of the Obligations
      and
      at
      such time as Bank’s obligation to make Credit Extensions has terminated, Bank
      shall release its liens and security interests in 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. Without limiting the foregoing, Borrower
      hereby authorizes Bank to file financing statements which describe the
      collateral as “all assets” and/or “all personal property” of Borrower or words
      of similar import.

    

    
      
        
        

      

      
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    5 REPRESENTATIONS
      AND WARRANTIES

    

    Borrower
      represents and warrants as follows: 

    

    5.1 Due
      Organization and Authorization.
      Borrower and each of its Subsidiaries, if any, 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
      a
      completed certificate substantially in the form attached hereto as signed by
      Borrower (the “Perfection Certificate”). Borrower represents and warrants to
      Bank that (a) Borrower’s exact legal name is that indicated on the Perfection
      Certificate and on the signature page hereof; (b) Borrower is an
      organization of the type and is organized in the jurisdiction set forth in
      the
      Perfection Certificate; (c) the Perfection Certificate accurately sets forth
      Borrower’s organizational identification number or accurately states that
      Borrower has none; (d) the Perfection Certificate accurately sets forth
      Borrower’s place of business, or, if more than one, its chief executive office
      as well as Borrower’s mailing address (if different than its chief executive
      office); (e) except as set forth on the Perfection Certificate, Borrower (and
      each of its predecessors) has not, in the past five (5) years, changed its
      jurisdiction of formation, organizational structure or type, or any
      organizational number assigned by its jurisdiction; and (f) all other
      information set forth on the Perfection Certificate pertaining to Borrower
      and
      each of its Subsidiaries is accurate and complete. 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 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 deposit accounts 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. 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
      is the sole owner of its intellectual property, except for non-exclusive
      licenses granted to its customers in the ordinary course of business. Each
      patent is valid and enforceable and no part of the intellectual property has
      been judged invalid or unenforceable, in whole or in part, and to the best
      of
      Borrower’s knowledge, no claim has been made that any part of the Intellectual
      Property violates the rights of any third party.

    

    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.

    

    
      
        
        

      

      
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    5.3 Accounts
      Receivable.
      

    

    (a) For
      each
      Account with respect to which Advances are requested, on the date each Advance
      is requested and made, such Account shall meet the Minimum Eligibility
      Requirements.

    (b) All
      statements made and all unpaid balances appearing in all invoices, instruments
      and other documents evidencing the Accounts are and shall be true and correct
      and all such invoices, instruments and other documents, and all of Borrower’s
      Books are genuine and in all respects what they purport to be. All sales and
      other transactions underlying or giving rise to each Account shall comply in
      all
      material respects with all applicable laws and governmental rules and
      regulations. Borrower has no knowledge of any actual or imminent Insolvency
      Proceeding of any Account Debtor whose accounts are an Eligible Account in
      any
      Borrowing Base Certificate. To the best of Borrower’s knowledge, all signatures
      and endorsements on all documents, instruments, and agreements relating to
      all
      Accounts are genuine, and all such documents, instruments and agreements are
      legally enforceable in accordance with their terms. 

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

    

    5.5 Litigation.
      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 Fifty Thousand Dollars
      ($50,000.00).

    

    5.6 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. There has not been any material deterioration in Borrower’s
      consolidated financial condition since the date of the most recent financial
      statements submitted to Bank.

    

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

    

    5.8 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.

    

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

    

    5.10 Tax
      Returns and Payments; Pension Contributions.
      Borrower has timely filed all required tax returns and reports, and Borrower
      and
      its Subsidiaries, if any, 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.

    

    
      
        
        

      

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

    

    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).

    

    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)
      Borrower shall provide Bank with the following: 

     

    (i)
      bi-weekly, and upon each request for a Credit Extension, a Transaction Report;
      

     

    (ii) within
      fifteen (15) days after the end of each month, (A) monthly accounts receivable
      agings, aged by invoice date, (B) monthly accounts payable agings, aged by
      invoice date, and outstanding or held check registers, if any, and (C) monthly
      reconciliations of accounts receivable agings (aged by invoice date),
      transaction reports, and general ledger;

     

    (iii) within
      thirty (30) days after the end of each month, a deferred revenue
      report;

     

    (iv)
      as
      soon as available, and in any event within thirty (30) days after the end of
      each month, monthly unaudited financial statements;

     

    (v) within
      thirty (30) days after the end of each month, a monthly Compliance Certificate
      signed by a Responsible Officer, certifying that as of the end of such month,
      Borrower was in full compliance with all of the terms and conditions of this
      Agreement, and setting forth calculations showing compliance with the financial
      covenants set forth in this Agreement and such other information as Bank shall
      reasonably request, including, without limitation, a statement that at the
      end
      of such month there were no held checks; 

     

    (vi) Board-approved
      financial projections no later than forty-five (45) days after Borrower’s fiscal
      year end, and immediately with respect to any amendments or updates
      thereto;

     

    (vii) within
      thirty (30) days after the end of each month, a schedule of Borrower’s unbilled
      accounts receivable; and

     

    (viii)
      as
      soon as available, and in any event within one hundred twenty (120) days
      following the end of Borrower's fiscal year, annual financial statements
      certified by, and with an unqualified opinion of, independent certified public
      accountants acceptable to Bank.

     

    (b) Within
      five (5) days after 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.

     

    (c) Prompt
      written notice of (i) any material change in the composition of the intellectual
      property, (ii) the registration of any copyright, including any subsequent
      ownership right of Borrower in or to any copyright, patent or trademark not
      previously disclosed to Bank, or (iii) Borrower’s knowledge of an event
      that materially adversely affects the value of the intellectual
      property.

     

    
      
        
        

      

      
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    6.3 Accounts
      Receivable.

    

    (a) Schedules
      and Documents Relating to Accounts.
      Borrower
      shall deliver to Bank transaction reports and schedules of collections, as
      provided in Section 6.2, on Bank’s standard forms; provided, however, that
      Borrower’s failure to execute and deliver the same shall not affect or limit
      Bank’s Lien and other rights in all of Borrower’s Accounts, nor shall Bank’s
      failure to advance or lend against a specific Account affect or limit Bank’s
      Lien and other rights therein. If requested by Bank, Borrower shall furnish
      Bank
      with copies (or, at Bank’s request, originals) of all contracts, orders,
      invoices, and other similar documents, and all shipping instructions, delivery
      receipts, bills of lading, and other evidence of delivery, for any goods the
      sale or disposition of which gave rise to such Accounts. In addition, Borrower
      shall deliver to Bank, on its request, the originals of all instruments, chattel
      paper, security agreements, guarantees and other documents and property
      evidencing or securing any Accounts, in the same form as received, with all
      necessary indorsements, and copies of all credit memos.

    

    (b) Disputes.
      Borrower shall promptly notify Bank of all disputes or claims relating to
      Accounts. Borrower may forgive (completely or partially), compromise, or settle
      any Account for less than payment in full, or agree to do any of the foregoing
      so long as (i) Borrower does so in good faith, in a commercially reasonable
      manner, in the ordinary course of business, in arm’s-length transactions, and
      reports the same to Bank in the regular reports provided to Bank; (ii) no
      Default or Event of Default has occurred and is continuing; and (iii) after
      taking into account all such discounts, settlements and forgiveness, the total
      outstanding Advances will not exceed the Availability
      Amount.
      

    

    (c) Collection
      of Accounts.
      Borrower shall have the right to collect all Accounts, unless and until a
      Default or an Event of Default has occurred and is continuing. Whether or not
      an
      Event of Default has occurred and is continuing, Borrower shall hold all
      Payments on, and proceeds of, Accounts in trust for Bank, and Borrower shall
      immediately deliver all such Payments and proceeds to Bank in their original
      form, duly endorsed, to be applied to the Obligations pursuant to the terms
      of
      Section 9.4 hereof. Accounts shall be deposited by Borrower into a lockbox
      account, or such other “blocked account” as Bank may specify, pursuant to a
      blocked account agreement in such form as Bank may specify in its good faith
      business judgment.

    

    (d) Returns.
      Provided
      no Event of Default has occurred and is continuing, if any Account Debtor
      returns any Inventory to Borrower, Borrower shall promptly (i) determine
      the reason for such return, (ii) issue a credit memorandum to the Account
      Debtor in the appropriate amount, and (iii) provide a copy of such credit
      memorandum to Bank, upon request from Bank. In the event any attempted return
      occurs after the occurrence and during the continuance of any Event of Default,
      Borrower shall hold the returned Inventory in trust for Bank,
      and immediately notify Bank of the return of the Inventory. 

    

    (e) Verification.
      Bank
      may, from time to time, verify directly with the respective Account Debtors
      the
      validity, amount and other matters relating to the Accounts, either in the
      name
      of Borrower or Bank or such other name as Bank may choose. 

    

    (f) No
      Liability.
      Bank
      shall not be responsible or liable for any shortage or discrepancy in, damage
      to, or loss or destruction of, any goods, the sale or other disposition of
      which
      gives rise to an Account, or for any error, act, omission, or delay of any
      kind
      occurring in the settlement, failure to settle, collection or failure to collect
      any Account, or for settling any Account in good faith for less than the full
      amount thereof, nor shall Bank be deemed to be responsible for any of Borrower’s
      obligations under any contract or agreement giving rise to an Account. Nothing
      herein shall, however, relieve Bank from liability for its own gross negligence
      or willful misconduct.

    

    6.4 Remittance
      of Proceeds.
      Except
      as otherwise provided in Section 6.3(c), deliver, in kind, all proceeds arising
      from the disposition of any Collateral to Bank in the original form in which
      received by Borrower not later than the following Business Day after receipt
      by
      Borrower, to be applied to the Obligations pursuant to the terms of Section
      9.4
      hereof; provided that, if no Default or Event of Default has occurred and is
      continuing, Borrower shall not be obligated to remit to Bank the proceeds of
      the
      sale of worn out or obsolete Equipment disposed of by Borrower in good faith
      in
      an arm’s length transaction for an aggregate purchase price of $25,000 or less
      (for all such transactions in any fiscal year). Borrower agrees that it will
      not
      commingle proceeds of Collateral with any of Borrower’s other funds or property,
      but will hold such proceeds separate and apart from such other funds and
      property and in an express trust for Bank. Nothing in this Section limits the
      restrictions on disposition of Collateral set forth elsewhere in this
      Agreement.

    

    
      
        
        

      

      
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    6.5 Taxes;
      Pensions.
      Make,
      and cause each of its Subsidiaries, if any, to make, timely payment of all
      foreign, federal, state and local taxes or assessments (other than taxes and
      assessment which Borrower is contesting pursuant to the terms of Section 5.10
      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.

    

    6.6
      Access
      to Collateral; Books and Records.
      At
      reasonable times, on one (1) Business Day’s notice (provided no notice is
      required if an Event of Default has occurred and is continuing), Bank, or its
      agents, shall have the right to inspect the Collateral and the right to audit
      and copy Borrower’s Books. The foregoing inspections and audits shall be at
      Borrower’s expense, and the charge therefor shall be $750 per person per day (or
      such higher amount as shall represent Bank’s then-current standard charge for
      the same), plus reasonable out-of-pocket expenses. In the event Borrower and
      Bank schedule an audit more than ten (10) days in advance, and Borrower cancels
      or seeks to reschedules the audit with less than ten (10) days written notice
      to
      Bank, then (without limiting any of Bank’s rights or remedies), Borrower shall
      pay Bank a fee of $1,000 plus any out-of-pocket expenses incurred by Bank to
      compensate Bank for the anticipated costs and expenses of the cancellation
      or
      rescheduling. As set forth in Section 3.1, no Advance will occur until the
      completion of the Initial Audit.

    

    6.7 Insurance.
      Keep
      its
      business and the Collateral insured for risks and in amounts standard for
      companies in Borrower’s industry and location and as Bank may reasonably
      request. Insurance
      policies shall be in a form, with companies, and in amounts that are
      satisfactory to Bank. All property policies shall have a lender’s loss payable
      endorsement showing Bank as the sole lender loss payee and waive subrogation
      against Bank, and all liability policies shall show, or have endorsements
      showing, Bank as an additional insured. All policies (or the loss payable and
      additional insured endorsements) shall provide that the insurer must give Bank
      at least thirty (30) days notice before canceling, amending, or declining to
      renew its policy. At Bank’s request, Borrower shall deliver certified copies of
      policies and evidence of all premium payments. Proceeds payable under any policy
      shall, at Bank’s option, be payable to Bank on account of the Obligations.
      Notwithstanding the foregoing, (a) so long as no Event of Default has occurred
      and is continuing, Borrower shall have the option of applying the proceeds
      of
      any casualty policy up to $50,000, in the aggregate, toward the replacement
      or
      repair of destroyed or damaged property; provided that any such replaced or
      repaired property (i) shall be of equal or like value as the replaced or
      repaired Collateral and (ii) shall be deemed Collateral in which Bank has
      been granted a first priority security interest, and (b) after the occurrence
      and during the continuance of an Event of Default, all proceeds payable under
      such casualty policy shall, at the option of Bank, be payable to Bank on account
      of the Obligations. If Borrower fails to obtain insurance as required under
      this
      Section 6.7 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 6.7, and take any action under
      the policies Bank deems prudent.

    

    6.8 Operating
      Accounts.

    

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

    

    (b)
      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 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.

    

    6.9 Financial
      Covenants.

    

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

    

    
      
        
        

      

      
        -10-

        
          

        

      

      
        
        

      

       

    

    (a) Liquidity.
      Liquidity of at least $1,000,000, to be tested by Bank as of any
      day.

    

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

    

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

    

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

    

    6.10 Protection
      and Registration of Intellectual Property Rights.
      Borrower shall: (a) protect, defend and maintain the validity and enforceability
      of its intellectual property; (b) promptly advise Bank in writing of material
      infringements of its intellectual property; 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.

    

    6.11 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.

    

    6.12 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:

    

    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 of (a) of Inventory in the ordinary course
      of business; (b) of worn-out or obsolete Equipment; (c) in connection with
      Permitted Liens and Permitted Investments; and (d) of non-exclusive
      licenses for the use of the property of Borrower or its Subsidiaries in the
      ordinary course of business. Borrower shall not enter into an agreement with
      any
      Person other than Bank which restricts the subsequent granting of a security
      interest in Borrower’s intellectual property.

    

    
      
        
        

      

      
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    7.2 Changes
      in Business, Management, Ownership, Control, or Business
      Locations.
      (a) Engage in or permit any of its Subsidiaries, if any, 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 a change in management or (ii) enter
      into any transaction or series of related transactions in which the stockholders
      of Borrower
      who were not stockholders immediately prior to the first such transaction own
      more than 40% 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.

    

    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, 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 6.8(b)
      hereof.

    

    7.7 Investments;
      Distributions.
      (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.

    

    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.

    

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

    

    7.10 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.

    

    
      
        
        

      

      
        -12-

        
          

        

      

      
        
        

      

       

    

    8 EVENTS
      OF DEFAULT

    

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

    

    8.1 Payment
      Default.
      Borrower
      fails to make any payment of principal or interest on any Credit Extension
      or
      any other Obligations within three (3) Business Days after such Obligations
      are
      due and payable. 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, 6.8,
      or
      6.9 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) 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
      Borrower, or of any entity under control of Borrower (including a Subsidiary)
      on
      deposit with 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 Fifty Thousand Dollars ($50,000.00) 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.
      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 Fifty Thousand Dollars ($50,000.00) 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 Fifty Thousand Dollars ($50,000.00) (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;

    

    
      
        
        

      

      
        -13-

        
          

        

      

      
        
        

      

       

    

    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

    

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

    

    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) deposits 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)
      terminate
      any FX Forward Contracts;

    

    (e)
      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; 

    

    (f)
      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;

    

    (g)
      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;

    

    (h)
      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;

    

    (i)
      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;

    

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

    

    
      
        
        

      

      
        -14-

        
          

        

      

      
        
        

      

       

    

    (k)
      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).

    

    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 any security interest 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 Protective
      Payments.
      If
      Borrower fails to obtain the insurance called for by Section 6.7 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.

    

    9.4 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 to 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.

    

    9.5 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.

    

    9.6 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. 

    

    
      
        
        

      

      
        -15-

        
          

        

      

      
        
        

      

       

    

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

    

    10 NOTICES

    

    All
      notices, consents, requests, approvals, demands, or other communication
      (collectively, “Communication”),
      other
      than Advance requests made pursuant to Section 3.4, by any party to this
      Agreement or any other Loan Document must be in writing and be delivered or
      sent
      by facsimile at the addresses or facsimile numbers listed below. Bank or
      Borrower may change its notice address by giving the other party written notice
      thereof. Each such Communication shall be deemed to have been validly served,
      given, or delivered: (a) upon the earlier of actual receipt and three (3)
      Business Days after deposit in the U.S. mail, registered or certified mail,
      return receipt requested, with proper postage prepaid; (b) upon transmission,
      when sent by facsimile transmission (with such facsimile promptly confirmed
      by
      delivery of a copy by personal delivery or United States mail as otherwise
      provided in this Section 10); (c) one (1) Business Day after deposit with a
      reputable overnight courier with all charges prepaid; or (d) when delivered,
      if
      hand-delivered by messenger, all of which shall be addressed to the party to
      be
      notified and sent to the address or facsimile number indicated below. Advance
      requests made pursuant to Section 3.4 must be in writing and may be in the
      form
      of electronic mail, delivered to Bank by Borrower at the e-mail address of
      Bank
provided below and shall be deemed to have been validly served, given, or
      delivered when sent (with such electronic mail promptly confirmed by delivery
      of
      a copy by personal delivery or United States mail as otherwise provided in
      this
      Section 10). Bank or Borrower may change its address, facsimile number, or
      electronic mail address by giving the other party written notice thereof in
      accordance with the terms of this Section 10.

     

    
      	
            	If
              to Borrower:	
              Paradigm
                Holdings, Inc.

            

    

    9715
      Key
      West Avenue, Third Floor

    Rockville,
      Maryland 20850

    Attn:
      Mr.
      Richard Sawchak

    Fax:
      (24)
      235-4380

    Email:
      rsawchak@paradigmsolutions.com

    

    
      	
            	If
              to Bank:	
              Silicon
                Valley Bank 

            

    

    One
      Newton Executive Park, Suite 200

    2221
      Washington Street, Newton, MA 02462

    Attn:
      Mr.
      Michael Tramack 

    Fax:
      (617) 969-5962

    Email:
      mtramack@svb.com

     

    
      	
            	with
              a copy to:	
              Riemer
                & Braunstein LLP

            

    

    Three
      Center Plaza

    Boston,
      Massachusetts 02108

    Attn:
      David A. Ephraim, Esquire

    Fax:
      (617) 880-3456

    Email:
      DEphraim@riemerlaw.com

    

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

    

    California
      law governs the Loan Documents without regard to principles of conflicts of
      law.
      Borrower and Bank each submit to the exclusive jurisdiction of the State and
      Federal courts in California; provided, however, that nothing in this Agreement
      shall be deemed to operate to preclude Bank from bringing suit or taking other
      legal action in any other jurisdiction to realize on the Collateral or any
      other
      security for the Obligations, or to enforce a judgment or other court order
      in
      favor of Bank. Borrower expressly submits and consents in advance to such
      jurisdiction in any action or suit commenced in any such court, and Borrower
      hereby waives any objection that it may have based upon lack of personal
      jurisdiction, improper venue, or forum non conveniens and hereby consents to
      the
      granting of such legal or equitable relief as is deemed appropriate by such
      court. Borrower hereby waives personal service of the summons, complaints,
      and
      other process issued in such action or suit and agrees that service of such
      summons, complaints, and other process may be made by registered or certified
      mail addressed to Borrower at the address set forth in Section 10 of this
      Agreement and that service so made shall be deemed completed upon the earlier
      to
      occur of Borrower’s actual receipt thereof or three (3) days after deposit in
      the U.S. mails, proper postage prepaid.
      NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH HEREINABOVE, BANK SHALL
      SPECIFICALLY 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.

    

    
      
        
        

      

      
        -16-

        
          

        

      

      
        
        

      

       

    

    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.

    

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

    

    12 GENERAL
      PROVISIONS

    

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

    

    
      
        
        

      

      
        -17-

        
          

        

      

      
        
        

      

       

    

    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.

    

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

    

    12.10 Borrower
      Liability.
      Either
      Borrower may, acting singly, request Credit Extensions hereunder. Each Borrower
      hereby appoints the other as agent for the other for all purposes hereunder,
      including with respect to requesting Credit Extensions hereunder. Each Borrower
      hereunder shall be obligated to repay all Credit Extensions made hereunder,
      regardless of which Borrower actually receives said Credit Extension, as if
      each
      Borrower hereunder directly received all
      Credit
      Extensions. 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.

    

    12.11 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.

    

    
      
        
        

      

      
        -18-

        
          

        

      

      
        
        

      

       

    

    12.12 Effectiveness
      of this Agreement.
      This
      Agreement shall not be effective until the occurrence of the Trigger Event.
      Upon
      the occurrence of the Trigger Event, the Initial Loan Agreement shall be
      terminated and all amounts due and owing thereunder shall be refinanced
      hereunder. To the extent that Borrower does not have availability hereunder
      to
      refinance such amounts hereunder, any such excess shall be immediately repaid
      by
      Borrower to Bank, and Borrower hereby irrevocably authorizes Bank to debit
      any
      of its accounts in connection with same.

    

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

    

    13 DEFINITIONS

    

    13.1 Definitions.
      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 and all Federal Agency Accounts, Subcontractor
      Accounts and Unbilled Accounts.

    

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

    

    “Advance”
or
      “Advances”
means
      an advance (or advances) under the Revolving Line.

    

    “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.

    

    “Anniversary
      Date”
is
      defined in Section 2.4(b).

    

    “Anniversary
      Fee”
is
      defined in Section 2.4(b).

    

    “Availability
      Amount”
is
      (a)
      the lesser of (i) the Revolving Line or (ii) the Borrowing Base, minus
      (b) the amount of all outstanding Letters of Credit (including drawn but
      unreimbursed Letters of Credit) plus an amount equal to the Letter of Credit
      Reserves, minus (c) the FX Reserve, and minus (d) the outstanding principal
      balance of any Advances (including any amounts used for Cash Management
      Services).

    

    “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.

    

    “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.

    

    
      
        
        

      

      
        -19-

        
          

        

      

      
        
        

      

       

    

    “Borrowing
      Base”
is
      (a)
      ninety percent (90.0%) of Federal Agency Accounts, plus (b) eighty percent
      (80.0%) of Subcontractor Accounts, plus (c) the lesser of (i) eighty percent
      (80.0%) of Unbilled Accounts and (ii) $3,000,000.00, as determined by Bank
      from
      Borrower’s most recent Borrowing Base Certificate, provided, however, that Bank
      may decrease the foregoing percentages in
      its
      good faith business judgment based on events, conditions, contingencies, or
      risks which, as determined by Bank, may adversely affect
      Collateral.

    

    “Borrowing
      Base Certificate”
is
      that
      certain certificate included within each Transaction Report.

    

    “Borrowing
      Resolutions”
are,
      with respect to any Person, those resolutions adopted by such Person’s Board of
      Directors or other appropriate body 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.

    

    “Cash
      Management Services” is
      defined in Section 2.1.4.

    

    “Cash
      Management Services Sublimit”
is
      defined in Section 2.1.4.

    

    “Code”
is
      the
      Uniform Commercial Code, as the same may, from time to time, be enacted and
      in
      effect in the State of California; 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 State of California, 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.

    

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

    

    “Communication”
is
      defined in Section 10.

    

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

    

    “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.

    

    
      
        
        

      

      
        -20-

        
          

        

      

      
        
        

      

       

    

    “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 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
      Advance, Letter of Credit, FX Forward Contract, amount utilized for Cash
      Management Services, or any other extension of credit by Bank for Borrower’s
      benefit.

    

    “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 2.3(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.

    

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

    

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

    

    “EBITDA
      Losses”
is
      defined in Section 6.7.

    

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

    

    “Eligible
      Accounts”
are
      Accounts which arise in the ordinary course of Borrower’s business that meet all
      Borrower’s representations and warranties in Section 5.3. Bank reserves the
      right at any time and from time to time after the Effective Date upon notice
      to
      Borrower, to adjust any of the criteria set forth below and to establish new
      criteria in its good faith business judgment. Without limiting the fact that
      the
      determination of which Accounts are eligible for borrowing is a matter of Bank’s
      good faith judgment, the following (“Minimum Eligibility Requirements”) are the
      minimum requirements for an Account to be an Eligible Account. Unless Bank
      agrees otherwise in writing, Eligible Accounts shall not include:

    

    (a) Accounts
      for which the Account Debtor has not been invoiced;

    

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

    

    (c) Accounts
      owing
      from an Account Debtor, fifty percent (50%) or more of whose Accounts have
      not
      been paid within ninety (90) days of invoice date;

    

    (d) Credit
      balances over ninety (90) days from invoice date;

    

    (e) Accounts
      owing from an Account Debtor, including Affiliates, whose total obligations
      to
      Borrower exceed twenty-five (25%) of all Accounts, except for Accounts for
      which
      the Account Debtor is an agency of the United States Government, for which
      such
      percentage is thirty-five
      percent (35.0%), for
      the
      amounts that exceed that percentage, unless Bank approves in
      writing;

    

    
      
        
        

      

      
        -21-

        
          

        

      

      
        
        

      

       

    

    (f) Represent
      progress billings, or be due under a fulfillment or requirements
      contract;

    

    (g) Accounts
      owing from an Account Debtor which does not have its principal place of business
      in the United States;

    

    (h) Accounts
      owing from the United States or any department, agency, or instrumentality
      thereof except for Accounts of the United States if Borrower has assigned its
      payment rights to Bank and the assignment has been acknowledged under the
      Federal Assignment of Claims Act of 1940, as amended;

    

    (i) Accounts
      owing from an Account Debtor to the extent that Borrower is indebted or
      obligated in any manner to the Account Debtor (as creditor, lessor, supplier
      or
      otherwise - sometimes called “contra” accounts, accounts payable, customer
      deposits or credit accounts), with the exception of customary credits,
      adjustments and/or discounts given to an Account Debtor by Borrower in the
      ordinary course of its business;

    

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

    

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

    

    (l) Accounts
      in which the Account Debtor disputes liability or makes any claim (but only
      up
      to the disputed or claimed amount), or if the Account Debtor is subject to
      an
      Insolvency Proceeding, or becomes insolvent, or goes out of
      business;

    

    (m) Accounts
      owing from an Account Debtor with respect to which Borrower has received
      deferred revenue (but only to the extent of such deferred revenue);

    

    (n) Accounts
      for which Bank in its good faith business judgment determines collection to
      be
      doubtful; and

    

    (o) other
      Accounts Bank deems ineligible in the exercise of its good faith business
      judgment.

    

    “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.

    

    “Expenses”
is
      defined in Section 6.9.

    

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

    

    “Foreign
      Currency”
      means
      lawful money of a country other than the United States.

    

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

    

    “FX
      Business Day”
      is
      any day
      when (a) Bank’s Foreign Exchange Department is conducting its normal business
      and (b) the Foreign Currency being purchased or sold by Borrower is available
      to
      Bank from the entity from which Bank shall buy or sell such Foreign
      Currency.

    

    
      
        
        

      

      
        -22-

        
          

        

      

      
        
        

      

       

    

    “FX
      Forward Contract” is
      defined in Section 2.1.3.

    

    “FX
      Reserve” is
      defined in Section 2.1.3.

    

    “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.

    

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

    

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

    

    “Initial
      Loan Agreement”
is
      that
      certain Loan and Security Agreement (Working Capital Line of Credit) dated
      as of
      the Effective Date between Borrower and Bank.

    

    “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.

    

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

    

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

    

    “Investment”
is
      any
      beneficial ownership 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.

    

    “Letter
      of Credit”
      means a
      standby letter of credit issued by Bank or another institution based upon an
      application, guarantee, indemnity or similar agreement on the part of Bank
      as
      set forth in Section 2.1.2.

    

    
      
        
        

      

      
        -23-

        
          

        

      

      
        
        

      

       

    

    “Letter
      of Credit Application”
is
      defined in Section 2.1.2(a).

    

    “Letter
      of Credit Reserve”
has
      the
      meaning set forth in Section 2.1.2(d).

    

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

    

    “Liquidity”
is
      the
      aggregate amount of Borrower’s unrestricted and unencumbered cash at Bank plus
      availability under the Revolving Line.

    

    “Loan
      Documents”
are,
      collectively, this Agreement, 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.

    

    “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;
      (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.

    

    “Minimum
      Eligibility Requirements”
      is
      defined in the defined term “Eligible Accounts”.

    

    “Minimum
      Monthly Interest”
is
      an
      amount equal to the amount interest
      Bank would have earned (exclusive of any collateral monitoring fees, unused
      line
      fees, or any other fees and charges hereunder) in
      any
      month if Borrower’s Advances outstanding during such month period averaged Three
      Million Three Hundred Thirty Three Thousand Three Hundred Thirty Three and
      33/100 Dollars ($3,333,333.33).

    

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

    

    “Obligations”
are
      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, (a) if such Person is a corporation,
      its bylaws in current form, (b) if such Person is a limited liability company,
      its limited liability company agreement (or similar agreement), and (c) if such
      Person is a partnership, its partnership agreement (or similar agreement),
      each
      of the foregoing with all current amendments or modifications
      thereto.

    

    “Payment”
means
      all checks, wire transfers and other items of payment received by Bank
      (including proceeds of Accounts and payment of all the Obligations in full)
      for
      credit to Borrower’s outstanding Credit Extensions or, if the balance of the
      Credit Extensions has been reduced to zero, for credit to its Deposit
      Accounts.

    

    “Perfection
      Certificate”
is
      defined in Section 5.1.

    

    “Permitted
      Indebtedness”
      is:

    

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

    

    (b) Subordinated
      Debt;

    

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

    

    
      
        
        

      

      
        -24-

        
          

        

      

      
        
        

      

       

    

    (d) Indebtedness
      secured by Permitted Liens.

    

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

    

    “Permitted
      Liens”
      are:

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

    “Reserves”
      means,
      as of any date of determination, such amounts as Bank may from time to time
      establish and revise in good faith reducing the amount of Advances, Letters
      of
      Credit and other financial accommodations which would otherwise be available
      to
      Borrower under the lending formulas: (a) to reflect events, conditions,
      contingencies or risks which, as determined by Bank in good faith, do or may
      affect (i) the Collateral or any other property which is security for the
      Obligations or its value (including without limitation any increase in
      delinquencies of Accounts), (ii) the assets or business of Borrower or any
      guarantor, or (iii) the security interests and other rights of Bank in the
      Collateral (including the enforceability, perfection and priority thereof);
      or
      (b) to reflect Bank’s good faith belief that any collateral report or financial
      information furnished by or on behalf of Borrower or any guarantor to Bank
      is or
      may have been incomplete, inaccurate or misleading in any material respect;
      or
      (c) in respect of any state of facts which Bank determines in good faith
      constitutes an Event of Default or may, with notice or passage of time or both,
      constitute an Event of Default.

    

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

    

    “Revolving
      Line”
is
      an
      Advance or Advances in an aggregate amount of up to Ten Million Dollars
      ($10,000,000.00) outstanding at any time.

    

    “Revolving
      Line Maturity Date” is
      two
      (2) years from the Effective Date.

    

    
      
        
        

      

      
        -25-

        
          

        

      

      
        
        

      

       

    

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

    

    “Settlement
      Date” is
      defined in Section 2.1.3.

    

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

    

    “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.

    

    “Transaction
      Report”
      is that
      certain form attached hereto as Exhibit
      B.

    

    “Transfer”
is
      defined in Section 7.1. 

    

    “Trigger
      Event”
has
      the
      meaning set forth in the Initial Loan Agreement.

    

    “Unbilled
      Accounts”
      is
      the
      estimated face value amount (as determined by Borrower, subject to Section
      5.4
      hereof) of an invoice for a receivable that will be generated (but has not
      yet
      been generated) within thirty (30) days of the date of a request for an Advance
      based upon Unbilled Accounts pursuant to a binding contract signed by an Account
      Debtor and deemed acceptable by Bank in its sole discretion. Notwithstanding
      the
      foregoing, Unbilled Accounts shall not include Federal Agency Accounts or
      Subcontractor Accounts.

    

    [Signature
      page follows.]

    

    
      
        
        

      

      
        -26-

        
          

        

      

      
        
        

      

    

    

    IN
      WITNESS WHEREOF,
      the
      parties hereto have caused this Agreement to be executed as of the Effective
      Date.

    

    BORROWER:

    

    PARADIGM
      HOLDINGS, INC.

    

    By:
      /s/ Peter B.
      LaMontagne                                

    Name:
      Peter B. LaMontagne

    Title:
      President and CEO

    

    

    PARADIGM
      SOLUTIONS CORPORATION

    

    By:
      /s/ Peter B.
      LaMontagne                                

    Name:
      Peter B. LaMontagne

    Title:
      President and CEO

    

    

    BANK:

    

    SILICON
      VALLEY BANK

    

    By
/s/
      Laura
      Scott                                                   

    Name:
      Laura
      Scott

    Title:

    

    

    
      
        [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

    

    Transaction
      Report

     

    [EXCEL
      spreadsheet to be provided separately from lending officer.]

    

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

    EXHIBIT
      C

    

    COMPLIANCE
      CERTIFICATE

    

    
      	
              TO:

            	
              SILICON
                VALLEY BANK

            	
              Date:
                _________________________

            
	
              FROM:

            	
              PARADIGM
                HOLDINGS, INC.

            	 
	 	
              PARADIGM
                SOLUTIONS CORPORATION

            	 

    

    

    The
      undersigned authorized officer of Paradigm Holdings, Inc. and Paradigm Solutions
      Corporation (individually and collectively, jointly and severally, “Borrower”)
      certifies that under the terms and conditions of the Loan and Security 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 5.10 of the Agreement,
      and (5) no Liens have been levied or claims made against Borrower or any of
      its
      Subsidiaries, if any, 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)

            	
              FYE
                within 120 days

            	
              
                Yes     
                  No

              

            
	
              10-Q,
                10-K and 8-K

            	
              Within
                5 days after filing with SEC

            	
              
                Yes     
                  No

              

            
	
              A/R
                & A/P Agings

            	
              Monthly
                within 15 days

            	
              
                Yes     
                  No

              

            
	
              Deferred
                Revenue report

            	
              Monthly
                within 30 days

            	
              
                Yes     
                  No

              

            
	
              Board
                projections

            	
              Annually
                within 45 days and as updated/amended

            	
              
                Yes     
                  No

              

            
	
              Transaction
                report

            	
              Bi-weekly

            	
              
                Yes     
                  No

              

            
	
              Unbilled
                Receivables schedule

            	
              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:

            	 	 	 
	 	 	 	 
	
              Liquidity

            	
              $1,000,000

            	
              $_________

            	
              
                Yes     
                  No

              

            
	
              EBITDA

            	
              $_______*

            	
              
                $_________

              

            	
              
                Yes     
                  No

              

            

    

    

    *As
      set
      forth in Sections 6.9(b) and 6.9(c) of the Agreement.

    
      
        
        

      

      
        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.”)

     

      
        

      

    

    
      

      

    
      	
              Paradigm
                Holdings, Inc.

              Paradigm
                Solutions Corporation

               

               

              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: ____________________

    

    
      	I.	
              Liquidity
                (Section 6.9(a))

            

    

     

    
      	
              Required:

            	
              $1,000,000

            
	 	 
	
              Actual:

            	
              $________

            

    

    

    

      __________
      No, not in compliance        __________
      Yes, in compliance

    

    

    
      	II.	
              EBITDA
                (Sections 6.9(b) and 6.9(c))

            

    

    

    
      	
              Required:

            	
              $____________
                (as set forth in Sections 6.9(b) and 6.9(c))

            
	 	 
	
              Actual:

            	
              $____________

            

    

    

    

      __________
      No, not in compliance        __________
      Yes, in compliance

    

    

     

     

    
      
        
        

      

      
        3(Working
      Capital Line of Credit)

    

    LOAN
      AND SECURITY AGREEMENT

    

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

    

    1 ACCOUNTING
      AND OTHER TERMS

    

    Accounting
      terms not defined in this Agreement shall be construed following GAAP.
      Calculations and determinations must be made following GAAP. The term “financial
      statements” includes the notes and schedules. The terms “including” and
“includes” always mean “including (or includes) without limitation,” in this or
      any Loan Document. Capitalized terms in this Agreement shall have the meanings
      set forth in Section 13. All other terms contained in this Agreement, unless
      otherwise indicated, shall have the meanings provided by the Code, to the extent
      such terms are defined therein.

    

    2 LOAN
      AND TERMS OF PAYMENT

    

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

    

    2.1.1 Financing
      of Accounts.

    

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

    

    (b) Maximum
      Advances; Sublimits; Overadvance.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

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

    

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

    

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

    

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

    

    2.2.2 Loan
      Fees.

    

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

    

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

    

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

    

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

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

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

    

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

    

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

    

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

    

    2.2.7 Lockbox;
      Account Collection Services.
      

    

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

    

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

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

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

    

    2.3 Repayment
      of Obligations; Adjustments.

    

    2.3.1 Repayment.

    

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

    

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

    

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

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

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

    

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

    

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

    

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

    

    3 CONDITIONS
      OF LOANS

    

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

    

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

    

    (b) an
      Intellectual Property Security Agreement;

    

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

    

    (d) Perfection
      Certificate by Borrower;

    

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

    

    (f) Trigger
      Event Agreement;

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

    (g) completion
      of the Initial Audit;

    

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

    

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

    

    (j) payoff
      letter from Chevy Chase Bank;

    

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

    

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

    

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

    

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

    

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

    

    (a) receipt
      of the Invoice Transmittal;

    

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

    

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

    

    4 CREATION
      OF SECURITY INTEREST

    

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

    

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

    

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

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    5 REPRESENTATIONS
      AND WARRANTIES

    

    Borrower
      represents and warrants as follows: 

    

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

    

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

    

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

    

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

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

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

    

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

    

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

    

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

    

    6 AFFIRMATIVE
      COVENANTS

    

    Borrower
      shall do all of the following:

    

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

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

    6.2 Financial
      Statements, Reports, Certificates.

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

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

    

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

    

    6.6 Accounts.

    

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

    

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

    

    6.7 Financial
      Covenants.

    

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

    

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

    

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

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

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

    

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

    

    7 NEGATIVE
      COVENANTS

    

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

    

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

    

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

    

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

    

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

    

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

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

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

    

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

    

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

    

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

    

    8 EVENTS
      OF DEFAULT

    

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

    

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

    

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

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    8.3 Material
      Adverse Change.
      A
      Material Adverse Change occurs;

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

    9 BANK’S
      RIGHTS AND REMEDIES

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

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

    

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

    

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

    

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

    

    10 NOTICES.

    

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

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	
            	If
              to Borrower:	
              Paradigm
                Holdings, Inc.

            

    

    9715
      Key
      West Avenue, Third Floor

    Rockville,
      Maryland 20850

    Attn:
      Mr.
      Richard Sawchak

    Fax:
      (240) 235-4380

    Email:
      rsawchak@paradigmsolutions.com

     

    
      	
            	If
              to Bank:	
              Silicon
                Valley Bank

            

    

    One
      Newton Executive Park, Suite 200

    2221
      Washington Street, Newton, MA 02462

    Attn:
      Mr.
      Michael Tramack 

    Fax:
      (617) 969-5962

    Email:
      mtramack@svb.com

     

    
      	
            	with
              a copy to:	
              Riemer
                & Braunstein LLP

            

    

    Three
      Center Plaza

    Boston,
      Massachusetts 02108

    Attn:
      David A. Ephraim, Esquire

    Fax:
      (617) 880-3456

    Email:
      DEphraim@riemerlaw.com

    

    11 CHOICE
      OF LAW, VENUE AND JURY TRIAL WAIVER

    

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

    

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

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

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

    

    12 GENERAL
      PROVISIONS

    

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

    

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

    

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

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

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

    

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

    

    13 DEFINITIONS

    

    13.1 Definitions.
      In this
      Agreement:

    

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

    

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

    

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

    

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

    

    “Advance”
      is
      defined in Section 2.1.1.

    

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

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

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

    

    “Anniversary
      Date”
is
      defined in Section 2.2.2.

    

    “Anniversary
      Fee”
is
      defined in Section 2.2.2.

    

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

    

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

    

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

    

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

    

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

    

    “Closing
      Date”
is
      the
      date of this Agreement.

    

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

    

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

    

    “Collateral
      Handling Fee” is
      defined in Section 2.2.4.

    

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

    

    “Compliance
      Certificate”
is
      attached as Exhibit
      B.
      

    

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

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

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

    

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

    

    “Early
      Termination Fee”
is
      defined in Section 2.1.1.

    

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

    

    “EBITDA
      Losses”
is
      defined in Section 6.7.

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

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

    

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

    

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

    

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

    

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

    

    “Facility
      Fee”
      is
      defined in Section 2.2.2.

    

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

    

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

    

    “Finance
      Charges”
      is
      defined in Section 2.2.3.

    

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

    

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

    

    “GAAP”
is
      generally accepted accounting principles.

    

    “Good
      Faith Deposit”
is
      defined in Section 2.2.8.

    

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

    

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

    

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

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

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

    

    “Loan
      Fees”
is
      defined in Section 2.2.2.

    

    “Lockbox”
      is
      defined in Section 2.2.7.

    

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

    

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

    

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

    

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

    

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

    

    “Perfection
      Certificate”
is
      defined in Section 5.1.

    

    “Permitted
      Indebtedness”
      is:

    

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

    

    (b) Subordinated
      Debt;

    

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

    

    (d) Indebtedness
      secured by Permitted Liens.

    

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

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

    “Permitted
      Liens”
      are:

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

    “Reconciliation
      Period”
is
      each
      calendar month.

    

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

    

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

    

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

    

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

    

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

    

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

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

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

    

    “Success
      Fee”
is
      defined in Section 2.2.2.

    

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

    

    “Trigger
      Event Agreement”
is
      defined in Section 12.11.

    

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

    

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

    

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

    

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

    

    [Signature
      pages follows.]

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

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

    

    

    BORROWER:

    

    PARADIGM
      HOLDINGS, INC.

    

    By:
      /s/ Peter B.
      LaMontagne                               

    Name:
      Peter B. LaMontagne

    Title:
      President and CEO

    

    

    PARADIGM
      SOLUTIONS CORPORATION

    

    By:
      /s/ Peter B.
      LaMontagne                               

    Name:
      Peter B. LaMontagne

    Title:
      President and CEO

    

    

    BANK:

    

    SILICON
      VALLEY BANK

    

    By:
      /s/ Laura
      Scott                                                

    Name:
      Laura Scott

    Title:

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    EXHIBIT
      A

    

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

    

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

    

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

    
       

       

      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    EXHIBIT
      B

    

    

    

    SPECIALTY
      FINANCE DIVISION

    Compliance
      Certificate

    

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

    

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

    

    Each
      Financed Receivable is an Eligible Account.

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

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

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

    

    Additionally,
      Borrower represents and warrants as follows:

    

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

    

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

    

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

    

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

    

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

    

    

    Sincerely,
      

    

    _________________________

    

    ________________________

    Signature

    ________________________

    Title

    ________________________
      

    

    Date

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