Document:

Exhibit 10.1

                                GSE SYSTEMS, INC.
                          1995 LONG-TERM INCENTIVE PLAN
                (As Amended and Restated Effective April 5, 1999)

          1.  Restatement,  Purpose  and Types of Awards GSE  Systems,  Inc.,  a
     Delaware corporation (the "Corporation"),  maintained the GSE Systems, Inc.
     1995 Long-Term  Incentive Plan (As Amended through  November 20, 1998) (the
     "Prior Plan").  The Prior Plan has been amended and restated,  as set forth
     herein,   effective  April  5,  1999,   subject  to  the  approval  of  the
     shareholders of the Corporation within twelve months of such effective date
     (the "Plan").  Notwithstanding anything herein to the contrary,  nothing in
     this Plan shall adversely affect the rights or obligations, under any Award
     granted under the Prior Plan, of any grantee or holder of the Award without
     such person's approval.

          The  purpose  of the  Plan is to  promote  the  long-term  growth  and
     profitability  of  the  Corporation  by:   (i) providing  key  people  with
     incentives to improve stockholder value and to contribute to the growth and
     financial success of the Corporation;  and (ii) enabling the Corporation to
     attract, retain and reward the best-available persons. The Plan permits the
     granting of stock options  (including  incentive  stock options  qualifying
     under Code section 422 and nonqualified stock options),  stock appreciation
     rights, restricted or unrestricted stock awards, phantom stock, performance
     awards, or any combination of the foregoing.

     2. Definitions
          Under this Plan,  except where the context  otherwise  indicates,  the
     following definitions apply:

(a)  "Affiliate" shall mean any entity, whether now or hereafter existing, which
     controls,   is  controlled  by,  or  is  under  common  control  with,  the
     Corporation  (including,  but  not  limited  to,  joint  ventures,  limited
     liability companies, and partnerships).  For this purpose,  "control" shall
     mean ownership of 50% or more of the total  combined  voting power or value
     of all classes of stock or interests of the entity.

(b)  "Award" shall mean any stock option, stock appreciation right, stock award,
     phantom stock award, or performance award.

(c)  "Board" shall mean the Board of Directors of the Corporation.

(d)  "Code" shall mean the Internal  Revenue Code of 1986,  as amended,  and any
     regulations promulgated thereunder.

(e)  "Common Stock" shall mean shares of common stock of the  Corporation,  $.01
     par value.

(f)  "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
<PAGE>

(g)  "Fair Market  Value" of a share of the  Corporation's  Common Stock for any
     purpose on a particular  date shall mean the last  reported  sale price per
     share of Common  Stock,  regular way, on such date or, in case no such sale
     takes place on such date,  the average of the closing bid and asked prices,
     regular  way,  in either case as  reported  in the  principal  consolidated
     transaction  reporting system with respect to securities listed or admitted
     to trading on a national  securities  exchange or included for quotation on
     the  American  Stock  Exchange,  or if the Common Stock is not so listed or
     admitted to trading or included for quotation, the last quoted price, or if
     the  Common  Stock is not so  quoted,  the  average of the high bid and low
     asked prices,  regular way, in the over-the-counter  market, as reported by
     the  American  Stock  Exchange  or, if such system is no longer in use, the
     principal other automated  quotations system that may then be in use or, if
     the Common Stock is not quoted by any such organization, the average of the
     closing bid and asked prices,  regular way, as furnished by a  professional
     market  maker making a market in the Common Stock as selected in good faith
     by the  Administrator  or by such  other  source  or  sources  as  shall be
     selected  in good faith by the  Administrator.  If, as the case may be, the
     relevant date is not a trading day, the  determination  shall be made as of
     the next  preceding  trading day. As used herein,  the term  "trading  day"
     shall  mean a day on which  public  trading  of  securities  occurs  and is
     reported in the principal  consolidated reporting system referred to above,
     or if the Common  Stock is not listed or  admitted to trading on a national
     securities  exchange  or  included  for  quotation  on the  American  Stock
     Exchange, any business day.

(h)  "Grant Agreement" shall mean a written document memorializing the terms and
     conditions of an Award granted  pursuant to the Plan and shall  incorporate
     the terms of the Plan.

(i)  "Parent"  shall mean a  corporation,  whether  now or  hereafter  existing,
     within the meaning of the  definition of "parent  corporation"  provided in
     Code section 424(e), or any successor thereto.

(j)  "Subsidiary"   and   "subsidiaries"   shall  mean  only  a  corporation  or
     corporations,  whether now or hereafter existing, within the meaning of the
     definition of "subsidiary  corporation"  provided in  Section 424(f) of the
     Code, or any successor thereto.

3.   Administration

(a)  Administration  of the Plan. The Plan shall be administered by the Board or
     by such  committee or committees as may be appointed by the Board from time
     to time (the Board,  committee or committees hereinafter referred to as the
     "Administrator").

(b)  Powers of the  Administrator.  The Administrator  shall have all the powers
     vested in it by the terms of the Plan, such powers to include authority, in
     its sole and absolute discretion, to grant Awards under the Plan, prescribe
     Grant Agreements evidencing such Awards and establish programs for granting
     Awards.

     The Administrator shall have full power and authority to take allother
     Actions  necessary  to carry out the  purpose  and intent of the Plan,
     including,  but not limited to, the  authority to:  (i) determine  the
     eligible  persons to whom, and the time or times at which Awards shall
     be  granted;  (ii) determine  the  types  of  Awards  to  be  granted;
     (iii) determine  the  number of shares  to be  covered  by or used for
     reference   purposes   for  each   Award;   (iv) impose   such  terms,
     limitations,  restrictions  and conditions  upon any such Award as the
     Administrator  shall deem appropriate;  (v) modify,  amend,  extend or
     renew  outstanding  Awards,  or accept the  surrender  of  outstanding
     wards and substitute new Awards (provided  however,  that,  except as
     provided in  Section 7(d)  of the Plan,  any  modification  that would
     materially  adversely  affect any outstanding  Award shall not be made
     without  the  consent of the  holder);  (vi) accelerate  or  otherwise
     change the time in which an Award may be exercised or becomes  payable
     and to waive or  accelerate  the  lapse,  in whole or in part,  of any
     restriction  or condition with respect to such Award,  including,  but
     not limited  to, any  restriction  or  condition  with  respect to the
     vesting or  exercisability  of an Award  following  termination of any
     grantee's  employment or other relationship with the Corporation;  and
     (vii) establish  objectives and conditions, if any, for earning Awards
     and  determining  whether  Awards  will  be  paid  after  the end of a
     performance  period.  The  Administrator  shall  have  full  power and
     authority,  in its sole and absolute  discretion,  to  administer  and
     interpret the Plan and to adopt and interpret such rules, regulations,
     agreements,  guidelines and instruments for the  administration of the
     Plan and for the conduct of its  business as the  Administrator  deems
     necessary or advisable.
<PAGE>
(c)  Non-Uniform  Determinations.  The Administrator's  determinations under the
     Plan  (including  without  limitation,  determinations  of the  persons  to
     receive Awards,  the form, amount and timing of such Awards,  the terms and
     provisions of such Awards and the Grant Agreements  evidencing such Awards)
     need not be uniform and may be made by the Administrator  selectively among
     persons who  receive,  or are  eligible to receive,  Awards under the Plan,
     whether or not such persons are similarly situated.

(d)  Limited Liability. To the maximum extent permitted by law, no member of the
     Administrator shall be liable for any action taken or decision made in good
     faith relating to the Plan or any Award thereunder.

(e)  Indemnification.  To  the  maximum  extent  permitted  by  law  and  by the
     Corporation's  charter and by-laws,  the members of the Administrator shall
     be indemnified by the Corporation in respect of all their  activities under
     the Plan.

(f)  Effect of  Administrator's  Decision.  All actions  taken and decisions and
     determinations  made by the  Administrator  on all matters  relating to the
     Plan  pursuant  to  the  powers  vested  in it  hereunder  shall  be in the
     Administrator's  sole and absolute  discretion  and shall be conclusive and
     binding  on  all  parties   concerned,   including  the  Corporation,   its
     stockholders,  any  participants  in  the  Plan  and  any  other  employee,
     consultant, or director of the Corporation, and their respective successors
     in interest.

4.   Shares Available for the Plan; Maximum Awards

     Subject to  adjustments  as provided in Section 7(d),  the shares of Common
     Stock  that may be issued  with  respect to Awards  granted  under the Plan
     (including,  for  purposes  of this  Section 4, the Prior  Plan)  shall not
     exceed an aggregate of 1,175,000  shares of Common Stock.  The  Corporation
     shall  reserve such number of shares for Awards under the Plan,  subject to
     adjustments  as provided in Section  7(d).  If any Award,  or portion of an
     Award,   under  the  Plan  expires  or  terminates   unexercised,   becomes
     unexercisable  or is  forfeited  or otherwise  terminated,  surrendered  or
     canceled as to any shares, or if any shares of Common Stock are surrendered
     to the  Corporation  in  connection  with any  Award  (whether  or not such
     surrendered shares were acquired pursuant to any Award), the shares subject
     to such Award and the surrendered  shares shall thereafter be available for
     further Awards under the Plan; provided, however, that any such shares that
     are surrendered to the Corporation in connection with any Award or that are
     otherwise  forfeited  after  issuance  shall not be available  for purchase
     pursuant to incentive stock options intended to qualify under Code section
     422.
<PAGE>
     Subject to  adjustments  as  provided in Section  7(d),  the
     maximum number of shares of Common Stock subject to Awards of any
     combination that may be granted during any one fiscal year of the
     Corporation  to any one  individual  under  this  Plan  shall  be
     limited  to  400,000.  Such  per-individual  limit  shall  not be
     adjusted to effect a  restoration  of shares of Common Stock with
     respect to which the related Award is terminated,  surrendered or
     canceled. 5. Participation

     Participation  in the Plan shall be open to all  employees,  officers,
     directors, and consultants of the Corporation,  or of any Affiliate of
     the Corporation,  as may be selected by the Administrator from time to
     time.

6.   Awards

     The  Administrator,  in its sole discretion,  establishes the terms of
     all Awards granted under the Plan. Awards may be granted  individually
     or in tandem with other types of Awards. All Awards are subject to the
     terms and conditions provided in the Grant Agreement.

(a)  Stock Options.  The  Administrator  may from time to time grant to eligible
     participants  Awards of incentive  stock options as that term is defined in
     Code section 422 or nonqualified  stock options;  provided,  however,  that
     Awards of  incentive  stock  options  shall be limited to  employees of the
     Corporation  or of any Parent or  Subsidiary  of the  Corporation.  Options
     intended to qualify as incentive  stock options under Code section 422 must
     have an exercise  price at least equal to Fair Market  Value on the date of
     grant, but nonqualified stock options may be granted with an exercise price
     less than Fair Market  Value.  No stock option shall be an incentive  stock
     option unless so designated by the Administrator at the time of grant or in
     the Grant Agreement evidencing such stock option.

(b)  Stock Appreciation Rights. The Administrator may from time to time grant to
     eligible  participants  Awards of Stock Appreciation Rights ("SAR"). An SAR
     entitles the grantee to receive,  subject to the provisions of the Plan and
     the Grant  Agreement,  a payment  having an  aggregate  value  equal to the
     product of (i) the excess of (A) the Fair Market Value on the exercise date
     of one share of Common Stock over (B) the base price per share specified in
     the Grant Agreement,  times (ii) the number of shares specified by the SAR,
     or portion thereof,  which is exercised.  Payment by the Corporation of the
     amount  receivable  upon any exercise of an SAR may be made by the delivery
     of Common Stock or cash,  or any  combination  of Common Stock and cash, as
     determined in the sole discretion of the Administrator.  If upon settlement
     of the exercise of an SAR a grantee is to receive a portion of such payment
     in shares of Common  Stock,  the number of shares  shall be  determined  by
     dividing  such  portion by the Fair Market Value of a share of Common Stock
     on the exercise  date. No fractional  shares shall be used for such payment
     and the  Administrator  shall determine whether cash shall be given in lieu
     of such  fractional  shares or  whether  such  fractional  shares  shall be
     eliminated.

(c)  Stock Awards.  The  Administrator may from time to time grant restricted or
     unrestricted stock Awards to eligible participants in such amounts, on such
     terms  and   conditions,   and  for  such   consideration,   including   no
     consideration  or such minimum  consideration as may be required by law, as
     it shall determine.  A stock Award may be paid in Common Stock, in cash, or
     in a  combination  of  Common  Stock and cash,  as  determined  in the sole
     discretion of the Administrator.

(d)  Phantom  Stock.  The  Administrator  may from time to time grant  Awards to
     eligible  participants  denominated  in  stock-equivalent  units  ("phantom
     stock")  in such  amounts  and on such  terms  and  conditions  as it shall
     determine.  Phantom stock units granted to a participant  shall be credited
     to a bookkeeping  reserve account solely for accounting  purposes and shall
     not require a segregation of any of the  Corporation's  assets. An Award of
     phantom stock may be settled in Common Stock,  in cash, or in a combination
     of Common  Stock and cash,  as  determined  in the sole  discretion  of the
     Administrator.  Except  as  otherwise  provided  in  the  applicable  Grant
     Agreement,  the  grantee  shall not have the rights of a  stockholder  with
     respect to any shares of Common Stock  represented  by a phantom stock unit
     solely as a result of the grant of a phantom stock unit to the grantee.
 <PAGE>

(e)  Performance  Awards.  The  Administrator  may,  in  its  discretion,  grant
     performance  awards which become payable on account of attainment of one or
     more performance goals established by the Administrator. Performance awards
     may be paid by the delivery of Common Stock or cash, or any  combination of
     Common  Stock  and  cash,  as  determined  in the  sole  discretion  of the
     Administrator.  Performance  goals  established by the Administrator may be
     based on the  Corporation's  or an Affiliate's  operating  income or one or
     more other business criteria selected by the Administrator that apply to an
     individual or group of individuals,  a business unit, or the Corporation or
     an Affiliate as a whole, over such performance  period as the Administrator
     may designate.

7.   Miscellaneous

(a)  Withholding  of Taxes.  Grantees  and  holders  of Awards  shall pay to the
     Corporation  or  its  Affiliate,  or  make  provision  satisfactory  to the
     Administrator  for payment of, any taxes required to be withheld in respect
     of Awards  under the Plan no later than the date of the event  creating the
     tax  liability.  The  Corporation  or its  Affiliate  may,  to  the  extent
     permitted by law, deduct any such tax  obligations  from any payment of any
     kind otherwise due to the grantee or holder of an Award.  In the event that
     payment to the Corporation or its Affiliate of such tax obligations is made
     in shares of Common Stock, such shares shall be valued at Fair Market Value
     on the applicable date for such purposes.

(b)  Loans.  The  Corporation  or its Affiliate  may make or guarantee  loans to
     grantees  to assist  grantees  in  exercising  Awards  and  satisfying  any
     withholding tax obligations.

(c)  Transferability.  Except as otherwise determined by the Administrator,  and
     in  any  event  in  the  case  of an  incentive  stock  option  or a  stock
     appreciation  right granted with respect to an incentive  stock option,  no
     Award granted under the Plan shall be transferable  by a grantee  otherwise
     than by will or the laws of  descent  and  distribution.  Unless  otherwise
     determined  by the  Administrator  in  accord  with the  provisions  of the
     immediately  preceding  sentence,  an Award  may be  exercised  during  the
     lifetime of the  grantee,  only by the  grantee  or,  during the period the
     grantee is under a legal  disability,  by the  grantee's  guardian or legal
     representative.

(d)  Adjustments;  Business Combinations.  In the event of changes in the Common
     Stock  of the  Corporation  by  reason  of any  stock  dividend,  spin-off,
     split-up, recapitalization,  merger, consolidation, business combination or
     exchange  of  shares  and  the  like,  the  Administrator   shall,  in  its
     discretion,  make appropriate adjustments to the maximum number and kind of
     shares reserved for issuance or with respect to which Awards may be granted
     under the Plan as provided in Section 4 of the Plan and to the number, kind
     and price of shares  covered  by  outstanding  Awards,  and  shall,  in its
     discretion  and without  the  consent of holders of Awards,  make any other
     adjustments  in outstanding  Awards,  including but not limited to reducing
     the  number  of  shares   subject  to  Awards  or  providing  or  mandating
     alternative  settlement methods such as settlement of the Awards in cash or
     in shares of Common Stock or other  securities of the Corporation or of any
     other  entity,  or in any  other  matters  which  relate  to  Awards as the
     Administrator  shall, in its sole discretion,  determine to be necessary or
     appropriate.
<PAGE>

     Notwithstanding anything in the Plan to the contrary and without the
     consent of Holders of Awards, the Administrator, in its sole
     discretion, may make any modifications to any Awards, including but
     not limited to cancellation, forfeiture, surrender or other
     termination of the Awards in whole or in part regardless of the vested
     status of the Award, in order to facilitate any business combination
     that is authorized by the Board to comply with requirements for
     treatment as a pooling of interests transaction for accounting
     purposes under generally accepted accounting principles. The
     Administrator is authorized to make, in its discretion and without the
     consent of holders of Awards, adjustments in the terms and conditions
     of, and the criteria included in, Awards in recognition of unusual or
     nonrecurring events affecting the Corporation, or the financial
     statements of the Corporation or any Affiliate, or of changes in
     applicable laws, regulations, or accounting principles, whenever the
     Administrator determines that such adjustments are appropriate in
     order to prevent dilution or enlargement of the benefits or potential
     benefits intended to be made available under the Plan.
<PAGE>
(e)  Substitution of Awards in Mergers and  Acquisitions.  Awards may be granted
     under  the  Plan  from  time to time in  substitution  for  Awards  held by
     employees  or  directors  of  entities  who  become  or are about to become
     employees or directors of the  Corporation or an Affiliate as the result of
     a merger or  consolidation  of the employing entity with the Corporation or
     an Affiliate,  or the acquisition by the Corporation or an Affiliate of the
     assets or stock of the employing  entity.  The terms and  conditions of any
     substitute  Awards so granted  may vary from the terms and  conditions  set
     forth herein to the extent that the Administrator  deems appropriate at the
     time of grant to conform the  substitute  Awards to the  provisions  of the
     awards for which they are substituted.

     (f)  Termination,  Amendment and  Modification  of the Plan.  The Board may
          terminate,  amend or modify  the Plan or any  portion  thereof  at any
          time.

     (g)  Non-Guarantee of Employment or Service.  Nothing in the Plan or in any
          Grant Agreement  thereunder shall confer any right on an individual to
          continue in the service of the  Corporation or shall  interfere in any
          way with the right of the Corporation to terminate such service at any
          time with or without cause or notice.

     (h)  No Trust or Fund Created.  Neither the Plan nor any Award shall create
          or be  construed  to create a trust or separate  fund of any kind or a
          fiduciary  relationship  between the  Corporation and a grantee or any
          other person.  To the extent that any grantee or other person acquires
          a right to receive payments from the Corporation pursuant to an Award,
          such right shall be no greater than the right of any unsecured general
          creditor of the Corporation.

     (i)  Governing Law. The validity,  construction  and effect of the Plan, of
          Grant Agreements  entered into pursuant to the Plan, and of any rules,
          regulations,  determinations  or decisions  made by the  Administrator
          relating to the Plan or such Grant  Agreements,  and the rights of any
          and all persons  having or claiming  to have any  interest  therein or
          thereunder,   shall  be  determined  exclusively  in  accordance  with
          applicable  federal laws and the laws of the State of Maryland without
          regard to its conflict of laws principles.

     (j)  Effective Date; Termination Date. The Plan is effective as of April 5,
          1999,  the date on which the Plan, as an amendment and  restatement of
          the Prior Plan, was approved by the Board,  subject to the approval of
          the  stockholders  of the  Corporation  within  twelve  months of such
          effective  date.  No Award  shall be granted  under the Plan after the
          close  of  business  on June 30,  2005.  Subject  to other  applicable
          provisions  of the Plan,  all Awards made under the Plan prior to such
          termination  of the Plan shall remain in effect until such Awards have
          been satisfied or terminated in accordance with the Plan and the terms
          of such Awards.

Date Approved by the Stockholders:  May 27, 1999.Exhibit 10.2
                           LOAN AND SECURITY AGREEMENT

                                     between

                               GSE SYSTEMS, INC.,
                             A Delaware Corporation,

                          GSE PROCESS SOLUTIONS, INC.,
                             A Delaware Corporation

                                       and

                            GSE POWER SYSTEMS, INC.,
                             A Delaware Corporation

                                    Borrowers

                                       and

                            NATIONAL BANK OF CANADA,
                           A Canadian Chartered Bank,

                                     Lender

                   ___________________________________________

                    $10,000,000.00 Revolving Credit Facility

                  ____________________________________________

                              Dated: March 23, 2000

TABLE OF CONTENTS                                                           Page

ARTICLE 1DEFINITIONS.........................................................-1-
Section 1.1. Account Debtor..................................................-1-
          Section 1.2. Accounts, Chattel Paper, Documents,  Equipment, Fixtures,
          General Intangibles, Goods, Instruments and
Investment Property .........................................................-2-
Section 1.3. Acquisition.....................................................-2-
Section 1.4. Acquisition Agreement...........................................-2-
Section 1.5. Additional Collateral Borrowing Base............................-2-
Section 1.6. Additional Collateral Credit Percentage.........................-2-
Section 1.7. Adjusted Base Rate..............................................-2-
Section 1.8. Adjusted LIBOR Rate.............................................-2-
Section 1.9. Affiliate. .....................................................-3-
Section 1.10. Agreement. ....................................................-3-
Section 1.11. Applicable Margin..............................................-3-
Section 1.12. Base Rate......................................................-3-
Section 1.13. Base Rate Borrowing............................................-3-
Section 1.14. Billed Commercial Accounts Borrowing Base......................-3-
Section 1.15. Billed Commercial Accounts Credit Percentage...................-3-
Section 1.16. Billed Government Accounts Borrowing Base......................-3-
Section 1.17. Billed Government Accounts Credit Percentage...................-4-
Section 1.18. Borrowing Base.................................................-4-
Section 1.19. Business Day. .................................................-4-
Section 1.20. Capital Adequacy Requirement. .................................-4-
Section 1.21. Capital Lease. ................................................-4-
Section 1.22. Capital Lease Obligations. ....................................-4-
Section 1.23. Capital Stock..................................................-4-
Section 1.24. Closing. ......................................................-4-
Section 1.25. Code. .........................................................-5-
Section 1.26. Collateral. ...................................................-5-
Section 1.27. Collection Account. ...........................................-5-
Section 1.28. Commercial Account. ...........................................-5-
Section 1.29. Credit Facility................................................-5-
Section 1.30. Default. ......................................................-5-
Section 1.31. Dollar Cap. ...................................................-5-
Section 1.32. Domestic Subsidiary. ..........................................-5-
Section 1.33. EBITDA.........................................................-5-
Section 1.34. Eligible Additional Collateral Value...........................-6-
Section 1.35. Eligible Billed Commercial Accounts. ..........................-6-
Section 1.36. Eligible Billed Government Accounts............................-7-
Section 1.37. Eligible Inventory. ...........................................-8-
Section 1.38. Eligible Unbilled Government Accounts..........................-9-
Section 1.39. Employee Benefit Plan. ........................................-9-
Section 1.40. Environmental Laws. ...........................................-9-
Section 1.41. EPA Permit. ..................................................-10-
Section 1.42. ERISA. .......................................................-10-
Section 1.43. ERISA Affiliate. .............................................-10-
Section 1.44. ERISA Liabilities. ...........................................-10-
Section 1.45. Event Of Default. ............................................-10-
Section 1.46. Facilities. ..................................................-10-
Section 1.47. Federal Funds Effective Rate..................................-10-
Section 1.48. Fiscal Year. .................................................-10-
Section 1.49. G.A.A.P. .....................................................-10-
Section 1.50. GSE Power Systems AB Note. ...................................-11-
Section 1.51. GSE Systems. .................................................-11-
Section 1.52. Guaranteed Pension Plan. .....................................-11-
Section 1.53. Guarantors. ..................................................-11-
Section 1.54. Guaranty Agreements. .........................................-11-
Section 1.55. Guaranty Indebtedness. .......................................-11-
Section 1.56. Government Contract...........................................-11-
Section 1.57. Indebtedness. ................................................-12-
Section 1.58. Insolvency Proceedings. ......................................-12-
Section 1.59. Intellectual Property.........................................-12-
Section 1.60. Interest Period...............................................-12-
Section 1.61. Interest Rate Protection Agreement............................-12-
Section 1.62. Inventory. ...................................................-12-
Section 1.63. Inventory Borrowing Base......................................-13-
Section 1.64. Inventory Credit Percentage...................................-13-
Section 1.65. Inventory Maximum Credit Amount...............................-13-
Section 1.66. Laws. ........................................................-13-
Section 1.67. L/C Exposure..................................................-13-
Section 1.68. Lender Expenses. .............................................-13-
Section 1.69. Letters Of Credit. ...........................................-14-
Section 1.70. LIBOR Borrowing...............................................-14-
Section 1.71. LIBOR Rate....................................................-14-
Section 1.72. Limited Guarantors............................................-14-
Section 1.73. Loan. ........................................................-14-
Section 1.74. Loan Documents. ..............................................-14-
Section 1.75. Lock Box. ....................................................-15-
Section 1.76. Material Adverse Event. ......................................-15-
Section 1.77. Maximum Credit Amount. .......................................-15-
Section 1.79. Net Profit After Taxes........................................-15-
Section 1.80. Note. ........................................................-15-
Section 1.81. Obligations. .................................................-15-
Section 1.82. Permitted Acquisitions........................................-16-
Section 1.83. Permitted Liens. .............................................-17-
Section 1.84. Person. ......................................................-17-
Section 1.85. Quarter.......................................................-17-
Section 1.86. Receivables. .................................................-17-
Section 1.87. Records. .....................................................-18-
Section 1.88. Regulated Substance. .........................................-18-
Section 1.89. Regulatory Change.............................................-18-
Section 1.90. Reimbursement Obligations.....................................-18-
Section 1.91. Release. .....................................................-18-
Section 1.92. Reserve Requirement...........................................-18-
Section 1.93. Restricted Payment. ..........................................-18-
Section 1.94. Solvent. .....................................................-19-
Section 1.95. Stated Amount.................................................-19-
Section 1.96. Subordinated Debt.............................................-19-
Section 1.97. Subsidiary. ..................................................-19-
Section 1.98. Tangible Net Worth............................................-19-
Section 1.99. Target........................................................-20-
Section 1.100. Termination Event. ..........................................-20-
Section 1.102. Total Assets.................................................-20-
Section 1.103. Total Current Assets.........................................-20-
Section 1.104. Total Current Liabilities....................................-20-
Section 1.105. Total Liabilities............................................-21-
Section 1.106. Unbilled Government Accounts Borrowing Base..................-21-
Section 1.107. Unbilled Government Accounts Credit Percentage...............-21-
Section 1.108. Unbilled Government Accounts Maximum Credit Amount...........-21-
Section 1.109. Working Capital..............................................-21-
Section 1.110. Year 2000 Compliant..........................................-21-
Section 1.111. Year 2000 Problem............................................-21-
ARTICLE 2TERMS OF THE CREDIT FACILITY.......................................-22-
Section 2.1. Agreement To Extend The Loan...................................-22-
Section 2.1.1. Note; Interest, And Lender=s Records.........................-22-
Section 2.1.2. Term.........................................................-22-
Section 2.1.3. Purpose......................................................-23-
Section 2.2. Letters Of Credit..............................................-23-
Section 2.2.1. Availability.................................................-23-
Section 2.2.2. Requests for Letters of Credit. .............................-23-
Section 2.2.3. Letter of Credit Fees And Other Charges. ....................-23-
Section 2.2.4. Payment of Reimbursement Obligations.........................-24-
Section 2.2.5. Conversion of Reimbursement Obligations to Loans.............-24-
Section 2.2.6. Payment of L/C Exposure Upon Termination Date. ..............-24-
Section 2.2.7. Payment Obligations Unconditional. ..........................-24-
Section 2.2.8. Suspension of Commitment to Issue Letters of Credit. ........-25-
Section 2.2.9. Rights And Remedies Of The Lender. ..........................-25-
Section 2.2.10. Indemnification. ...........................................-26-
Section 2.3. Interest Rates.................................................-26-
Section 2.3.1. Calculation Of Interest......................................-26-
Section 2.3.2. Adjusted Base Rate...........................................-26-
Section 2.3.3. Adjusted LIBOR Rate Option...................................-26-
Section 2.3.4. Default Rate.................................................-28-
Section 2.3.5. Maximum Rate Of Interest.....................................-28-
Section 2.4. Payments To Be Made To The Lender..............................-29-
Section 2.5. Application Of Payments........................................-29-
Section 2.6. Late Payment Charge............................................-29-
Section 2.7. Facility Fee. .................................................-29-
Section 2.8. Commitment Fee.................................................-30-
Section 2.9. Examination Fee................................................-30-
Section 2.10. Termination Fee...............................................-30-
Section 2.11. Capital Adequacy. ............................................-31-
Section 2.12. Payments. ....................................................-31-
Section 2.13. Advancements. ................................................-31-
Section 2.14. Cross-Guaranty; Waiver Of Suretyship Defenses; Subordination..-32-
Section 2.14.1. Cross-Guaranty. ............................................-32-
Section 2.14.2. Postponement of Subrogation. ...............................-32-
Section 2.14.3. Subordination. .............................................-32-
Section 2.14.4. Joint And Several Liability; Appointment Of Agent. .........-32-
ARTICLE 3SECURITY FOR THE OBLIGATIONS.......................................-33-
Section 3.1. Grant Of Security Interest. ...................................-33-
Section 3.2. Proceeds And Products. ........................................-33-
Section 3.3. Priority Of Security Interests. ...............................-33-
Section 3.4. Future Advances. ..............................................-33-
Section 3.5. Receivable Collections. .......................................-34-
Section 3.6. Collection Of Receivables By Lender. ..........................-34-
Section 3.7. Guaranty Agreements. ..........................................-35-
Section 3.8. Further Assurances. ...........................................-35-
Section 3.9. Fair Labor Standards Act. .....................................-36-
ARTICLE 4CONDITIONS PRECEDENT...............................................-36-
Section 4.1. Conditions to Closing..........................................-36-
Section 4.1.1. Organizational Documents.....................................-36-
Section 4.1.2. Opinion Of Counsel...........................................-36-
Section 4.1.3. Execution Of Loan Documents..................................-37-
Section 4.1.4. Submissions..................................................-37-
Section 4.1.5. Insurance....................................................-37-
Section 4.1.6. Record Searches..............................................-37-
Section 4.1.7. Absence Of Material Adverse Change...........................-37-
Section 4.1.8. Payment Of Closing Fees......................................-37-
Section 4.1.9. Payment Of Lender=s Closing Costs............................-37-
Section 4.1.10. Dime Commercial Corp. Facility..............................-37-
Section  4.2.  Conditions  Precedent  To All  Advances and Issuance of
  Letters of Credit.........................................................-37-
Section 4.2.1. No Defaults Or Events Of Default.............................-38-
Section 4.2.2. Continuing Accuracy Of Representations And Warranties........-38-
Section 4.2.3. Receipt Of Reports...........................................-38-
Section 4.2.4. No Illegalities..............................................-38-
Section 4.2.5. No Material Adverse Event....................................-38-
ARTICLE 5REPRESENTATIONS AND WARRANTIES.....................................-38-
Section 5.1. Accuracy Of Information. ......................................-38-
Section 5.2. No Litigation. ................................................-39-
Section 5.3. No Liability Or Adverse Change. ...............................-39-
Section 5.4. Title To Collateral. ..........................................-39-
Section 5.5. Authority; Approvals And Consents. ............................-39-
Section 5.5.1. Authority. ..................................................-39-
Section 5.5.2. Approvals. ..................................................-39-
Section 5.5.3. Consents. ...................................................-39-
Section 5.6. Binding Effect Of Documents, Etc. .............................-40-
Section 5.7. Other Names. ..................................................-40-
Section 5.8. No Events Of Default. .........................................-40-
Section 5.9. Guaranty Agreements. ..........................................-40-
Section 5.10. Taxes. .......................................................-40-
Section 5.11. Compliance With Laws. ........................................-40-
Section 5.12. Chief Place Of Business. .....................................-40-
Section 5.13. Location Of Inventory. .......................................-40-
Section 5.14. No Subsidiaries. .............................................-41-
Section 5.15. No Labor Agreements. .........................................-41-
Section 5.16. Eligible Accounts. ...........................................-41-
Section 5.17. Eligible Inventory. ..........................................-41-
Section 5.18. Eligible Additional Collateral Value. ........................-41-
Section 5.19. Approvals. ...................................................-41-
Section 5.20. Financial Statements. ........................................-41-
Section 5.21. Solvency. ....................................................-42-
Section 5.22. Fair Labor Standards Act. ....................................-42-
Section 5.23. Employee Benefit Plans. ......................................-42-
Section 5.23.1. Compliance. ................................................-42-
Section 5.23.2. Absence Of Termination Event. ..............................-42-
Section 5.23.3. Actuarial Value. ...........................................-42-
Section 5.23.4. No Withdrawal Liability. ...................................-42-
Section 5.24. Environmental Conditions. ....................................-42-
Section 5.24.1. Existence Of Permits. ......................................-42-
Section 5.24.2. Compliance With Permits. ...................................-43-
Section 5.24.3. No Litigation. .............................................-43-
Section 5.24.4. No Releases. ...............................................-43-
Section 5.24.5. Transportation. ............................................-43-
Section 5.24.6. No Violation Notices. ......................................-43-
Section 5.24.7. No Notice Of Violations.....................................-43-
ARTICLE 6AFFIRMATIVE COVENANTS..............................................-43-
Section 6.1. Payment. ......................................................-43-
Section 6.2. Insurance. ....................................................-44-
Section 6.3. Books And Records. ............................................-44-
Section 6.4. Collection Of Accounts; Sale Of Inventory. ....................-44-
Section 6.5. Notice Of Litigation And Proceedings. .........................-44-
Section 6.6. Payment Of Liabilities To Third Persons. ......................-45-
Section 6.7. Change Of Business Location. ..................................-45-
Section 6.8. Payment Of Taxes. .............................................-45-
Section 6.9. Inspections Of Records. .......................................-45-
Section 6.10.  Notice Of Events  Affecting  Collateral;  Compromise Of
Receivables; Returned Or Repossessed Goods................................. -46-
Section 6.11. Documentation Of Collateral. .................................-46-
Section 6.12. Reporting Requirements. ......................................-46-
Section 6.12.1. Inventory Reports. .........................................-46-
Section 6.12.2. Receivables And Accounts Payable Reports. ..................-47-
Section 6.12.3. Government Contracts Report. ...............................-47-
Section 6.12.4. Borrowing Base Report. .....................................-47-
Section 6.12.5. Quarterly Financial Statements. ............................-47-
Section 6.12.6. Annual Financial Statements. ...............................-47-
Section 6.12.7. Annual Business Plan and Financial Projections. ............-47-
Section 6.12.8. SEC And Other Filings.......................................-48-
Section 6.12.9. Management Letters. ........................................-48-
Section 6.12.10. Certificates Of No Default. ...............................-48-
Section 6.12.11. Reports To Other Creditors. ...............................-48-
Section 6.12.12. Management Changes. .......................................-49-
Section 6.12.13. General Information........................................-49-
Section 6.13. Employee Benefit Plans And Guaranteed Pension Plans. .........-49-
Section 6.14. Maintenance Of Fixed Assets. .................................-49-
Section 6.15. Consignments. ................................................-49-
Section 6.16. Foreign Receivables...........................................-50-
Section 6.17. Federal Assignment Of Claims Act. ............................-50-
Section 6.18. Compliance With Laws. ........................................-50-
Section 6.19. Formation of Subsidiaries.....................................-51-
Section 6.19.1. Domestic Subsidiaries.......................................-51-
Section 6.19.2. Foreign Subsidiaries........................................-51-
Section 6.20. Year 2000. ...................................................-52-
Section 6.21. Minimum EBITDA................................................-52-
Section 6.22. Minimum Tangible Net Worth Plus Subordinated Debt.............-52-
Section 6.23. Minimum Working Capital.......................................-53-
Section 6.24.  Ratio of Total  Liabilities  to Tangible Net Worth Plus
Subordinated Debt...........................................................-53-
ARTICLE 7NEGATIVE COVENANTS.................................................-53-
Section 7.1. No Change Of Name, Merger, Etc. ...............................-53-
Section 7.2. No Sale Or Transfer Of Assets. ................................-53-
Section 7.3. No Encumbrance Of Assets. .....................................-54-
Section 7.4. No Indebtedness. ..............................................-54-
Section 7.5. Restricted Payments. ..........................................-54-
Section 7.6. Transactions With Affiliates. .................................-54-
Section 7.7. Loans, Investments And Sale-Leaseback. ........................-54-
Section 7.8. No Acquisition Of Equity In Or Assets Of Third Persons. .......-55-
Section 7.9. No Assignment. ................................................-55-
Section 7.10. No Alteration Of Structure Or Operations. ....................-55-
Section 7.11. Unpermitted Uses Of Loan Proceeds. ...........................-55-
Section 7.12. Long Term Contracts. .........................................-55-
Section 7.13. Changes In Fiscal Year. ......................................-55-
Section 7.14. Limitation On Issuance Of Certain Equity Interests. ..........-55-
ARTICLE 8EVENTS OF DEFAULT..................................................-55-
Section 8.1. Failure To Pay. ...............................................-55-
Section 8.2. Representation Or Warranty. ...................................-56-
Section 8.3. Default Under Negative Covenants...............................-56-
Section 8.6. Default Under Loan Documents. .................................-56-
Section 8.7. Invalidity of any Loan Document; Failure of Lien...............-56-
Section 8.9. Judgments. ....................................................-56-
Section 8.10. Levy By Judgment Creditor. ...................................-57-
Section 8.11. Failure To Pay Liabilities. ..................................-57-
Section 8.12. Involuntary Insolvency Proceedings. ..........................-57-
Section 8.13. Voluntary Insolvency Proceedings. ............................-57-
Section 8.14. Insolvency Proceedings  Pertaining To Guarantors,  other
Subsidiaries or Limited Guarantors......................................... -57-
Section 8.15. Material Adverse Event. ......................................-57-
Section 8.16. Default By Guarantors. .......................................-57-
Section 8.17. Attempt To Terminate Guaranties. .............................-57-
Section 8.18. ERISA. .......................................................-57-
Section 8.19. Transfer Of Equity Interests. ................................-58-
Section 8.20. Change in Control.............................................-58-
Section 8.21. Indictment Of Borrowers, Guarantors or Limited Guarantors. ...-58-
Section 8.22. Injunction. ..................................................-58-
ARTICLE 9RIGHTS AND REMEDIES ON THE OCCURRENCEOF AN EVENT OF DEFAULT........-59-
Section 9.1. Lender=s Specific Rights And Remedies. ........................-59-
Section 9.2. Automatic Acceleration. .......................................-59-
Section 9.3. Sale Of Collateral. ...........................................-59-
Section 9.4. Letters Of Credit. ............................................-60-
Section 9.5. Remedies Cumulative. ..........................................-60-
ARTICLE 10GENERAL CONDITIONS AND TERMS......................................-60-
Section 10.1. Obligations Are Unconditional. ...............................-60-
Section 10.2. Indemnity. ...................................................-60-
Section 10.3. Lender Expenses. .............................................-61-
Section 10.4. Authorization To Obtain Financial Information. ...............-61-
Section 10.5. Incorporation; Construction Of Inconsistent Provisions. ......-61-
Section 10.6. Waivers. .....................................................-61-
Section 10.7. Continuing Obligation Of Borrowers. ..........................-61-
Section 10.8. Choice Of Law. ...............................................-61-
Section 10.9. Submission To Jurisdiction; Venue; Actions Against Lender. ...-62-
Section 10.9.1. Jurisdiction. ..............................................-62-
Section 10.9.2. Venue. .....................................................-62-
Section 10.9.3. Waiver Of Objections To Venue. .............................-62-
Section 10.10. Notices. ....................................................-63-
Section 10.12. Miscellaneous Provisions. ...................................-64-
Section 10.13. Waiver Of Trial By Jury. ....................................-64-

Schedules and Exhibits

Schedule 1.82            Permitted Liens
Schedule 5.2             Litigation
Schedule 5.7             Other Names
Schedule 5.10            Taxes
Schedule 5.12            Chief Place Of Business
Schedule 5.13            Location Of Inventory
Schedule 5.14            Foreign Subsidiaries
Schedule 5.15            Labor Agreements
Schedule 5.19            Liabilities  And Obligations Not Disclosed In Financial
                           Statements
Schedule 7.4             Existing Indebtedness
Schedule 7.7             Loans and Investments

Exhibit 2.3.3(b)         Notice of Election
Exhibit 4.1.2            Officers Certificate
Exhibit 4.1.3            Opinion of Counsel

,PAGE.

                                LOAN AND SECURITY AGREEMENT

          THIS LOAN AND SECURITY  AGREEMENT is dated as of March 23, 2000 by and
          between  GSE  SYSTEMS,  INC.,  a  Delaware  corporation,  GSE  PROCESS
          SOLUTIONS, INC., a Delaware corporation,  and GSE POWER SYSTEMS, INC.,
          a Delaware corporation (collectively, BORROWERS); and NATIONAL BANK OF
          CANADA, a Canadian chartered bank (LENDER).

                                        RECITALS

          The BORROWERS  have  requested  that the LENDER extend  various credit
          accommodations to the BORROWERS.  The LENDER is willing to provide the
          requested credit  accommodations upon the terms and conditions of this
          Loan And Security Agreement, and upon the granting by the BORROWERS to
          the LENDER of the security  interests,  liens, and other assurances of
          payment provided for in this Loan And Security Agreement.

          The BORROWERS  businesses are a mutual and  collective  enterprise and
          the BORROWERS  believe that the  consolidation of their facilities and
          other  financial  accommodations  in accordance with the terms of this
          Loan And  Security  Agreement  will  enhance the  aggregate  borrowing
          powers of the  BORROWERS and ease the  administration  of their credit
          relationship  with the  LENDER,  all to the  mutual  advantage  of the
          BORROWERS.  In order to utilize the financial  powers of the BORROWERS
          in  the  most  efficient  and  economical  manner,  and  in  order  to
          facilitate the  administration  of their financing  needs,  the LENDER
          will, at the request of a BORROWER, extend financial accommodations to
          all of the  BORROWERS  on a  combined  basis  in  accordance  with the
          provisions set forth in this Loan And Security Agreement.  The LENDERS
          willingness  to extend credit to the  BORROWERS and to administer  the
          collateral  security  therefor  on a combined  basis as more fully set
          forth  in this  Loan  And  Security  Agreement  is done  solely  as an
          accommodation  to the BORROWERS and at the BORROWERS joint request and
          in furtherance of the BORROWERS mutual and collective enterprise.

          NOW, THEREFORE,  in consideration of these premises and other good and
          valuable  consideration,  the  receipt  and  sufficiency  of which are
          hereby acknowledged, the parties hereto agree as follows:

                                          ARTICLE 1
                                         DEFINITIONS

          As used in this Loan And  Security  Agreement,  the terms set forth in
          this Article 1 have the meanings set forth below,  unless the specific
          context  of this  Loan  And  Security  Agreement  clearly  requires  a
          different  meaning.  Terms  defined in this  Article 1 or elsewhere in
          this Loan And Security Agreement are in all capital letters throughout
          this Loan And Security Agreement. The singular use of any defined term
          includes the plural and the plural use includes the singular.

          Section 1.1. Account Debtor. The term CCOUNT DEBTOR means collectively
          each PERSON: (a) to or for whom any or all of the BORROWERS has
          provided or has agreed to provide any goods or services;  or (b) which
          owes any or all of the  BORROWERS  any sum of money as a result  of
          goods  sold or services provided by any or all of the BORROWERS;  or
          (c) which is the maker  or  endorser  on any  INSTRUMENT  payable  to
          any or all of the BORROWERS or  otherwise  owes any or all of the
          BORROWERS  any sum of money on account of any loan or other payment
          obligation. With respect to each  RECEIVABLE  which is payable by any
          governmental  authority, ACCOUNT   DEBTOR includes,   without
          limitation, the  agency, instrumentality or official which has the
          on  such  ACCOUNT  or  other RECEIVABLE.

          Section 1.2.  Accounts, Chattel Paper, Documents, Equipment, Fixtures,
          General Intangibles,  Goods,  Instruments and Investment Property. The
          terms  ACCOUNTS,   CHATTEL  PAPER,   DOCUMENTS,   EQUIPMENT,   GENERAL
          INTANGIBLES,  GOODS,  INSTRUMENTS,  and INVESTMENT PROPERTY shall have
          the same  respective  meanings  as are given to those terms in the New
          York  Uniform  Commercial  Code-Secured  Transactions,  Article  9, as
          amended.  The term  FIXTURES  shall have the  meaning  provided by the
          common law of the state in which the fixtures are located.

          Section 1.3.  Acquisition. The term ACQUISITION means any transaction,
          or any series of related  transactions,  consummated after the date of
          this  AGREEMENT,  by means of which any of the  BORROWERS (a) acquires
          any going  business or all or  substantially  all of the assets of any
          PERSON,  whether through purchase of assets, merger or otherwise,  (b)
          directly or  indirectly  acquires  control of at least a majority  (in
          number  of  votes)  of the  securities  of a  corporation  which  have
          ordinary  voting power for the election of directors,  or (c) directly
          or indirectly acquires control of a majority ownership interest in any
          PERSON that is not a corporation.

          Section 1.4.  Acquisition  Agreement.  The term ACQUISITION  AGREEMENT
          means the  agreement  between a BORROWER and a TARGET or the seller or
          sellers of a TARGET, pursuant to which such BORROWER agrees to acquire
          substantially all of the assets or CAPITAL STOCK of a TARGET, or merge
          with a TARGET, together with all amendments to such agreement.

          Section 1.5. Additional Collateral Borrowing Base. The term ADDITIONAL
          COLLATERAL BORROWING BASE means, at any date of determination thereof,
          the product,  as at such time, of (a) ELIGIBLE  ADDITIONAL  COLLATERAL
          VALUE and (b) the ADDITIONAL COLLATERAL CREDIT PERCENTAGE.

          Section 1.6.   Additional  Collateral  Credit  Percentage.   The  term
          ADDITIONAL  COLLATERAL  CREDIT  PERCENTAGE  means one hundred  percent
          (100%).

          Section 1.7. Adjusted Base Rate. The term ADJUSTED BASE RATE means the
          BASE RATE plus the APPLICABLE MARGIN.

          Section 1.8.  Adjusted LIBOR Rate. The term ADJUSTED LIBOR RATE means,
          for any INTEREST PERIOD:  (a) the LIBOR RATE for such INTEREST PERIOD;
          plus (b) the APPLICABLE MARGIN.

          Section 1.9.  Affiliate.  The term AFFILIATE  means  collectively  any
          PERSON:  (a)  that  directly  or  indirectly,   through  one  or  more
          intermediaries,  controls  or is  controlled  by,  or is under  common
          control  with  any  or  all  of  the  BORROWERS,   including,  without
          limitation, the officers, managers and directors of the BORROWERS; (b)
          that directly or beneficially  owns or holds five percent (5%) or more
          of any equity  interests in any or all of the  BORROWERS;  or (c) five
          percent (5%) or more of whose equity  interests are owned  directly or
          controlled by any or all of the  BORROWERS.  As used herein,  the term
          control (including,  with correlative meanings,  the terms controlled
          by and under common control with) shall mean possession,  directly or
          indirectly,  of the power to direct the  management  or  policies of a
          PERSON, whether through ownership of equity interests,  by contract or
          otherwise.

          Section 1.10.  Agreement.  The  term  AGREEMENT  means  this  Loan And
          Security  Agreement,  as amended,  extended,  or modified from time to
          time by the parties  hereto,  as well as all  schedules,  exhibits and
          attachments hereto.

          Section 1.11. Applicable Margin. The term APPLICABLE MARGIN means that
          percentage  to be added to either  the BASE RATE or the LIBOR  RATE in
          order to determine an applicable  ADJUSTED BASE RATE or ADJUSTED LIBOR
          RATE,  which  percentage  shall be determined  in accordance  with the
          following schedule:

                             BASE RATE                        LIBOR  RATE

                             0.00%                               2.50%

          Section 1.12.  Base Rate. The term BASE RATE  means that  fluctuating
          rate of interest  publicly  announced by National Bank of Canada,  New
          York,  from  time to time as its  Prime  Rate  and as a base  rate for
          calculating  interest  on  certain  loans.  If and when the BASE  RATE
          changes, the interest rate will change automatically without notice to
          the BORROWERS, effective on the date of any such change.

          Section 1.13.  Base Rate Borrowing. The term BASE RATE BORROWING means
          any portion of the LOAN upon which  interest  accrues at the  ADJUSTED
          BASE RATE.

          Section 1.14.  Billed  Commercial  Accounts  Borrowing  Base. The term
          BILLED  COMMERCIAL  ACCOUNTS  BORROWING  BASE  means,  at any  date of
          determination  thereof,  the product, as at such time, of (a) ELIGIBLE
          BILLED  COMMERCIAL  ACCOUNTS  and (b) the BILLED  COMMERCIAL  ACCOUNTS
          CREDIT PERCENTAGE.

          Section 1.15.  Billed Commercial Accounts Credit Percentage.  The term
          BILLED COMMERCIAL ACCOUNTS CREDIT PERCENTAGE means eighty-five percent
          (85%).

          Section 1.16.  Billed  Government  Accounts  Borrowing  Base. The term
          BILLED  GOVERNMENT  ACCOUNTS  BORROWING  BASE  means,  at any  date of
          determination  thereof,  the product, as at such time, of (a) ELIGIBLE
          BILLED  GOVERNMENT  ACCOUNTS  and (b) the BILLED  GOVERNMENT  ACCOUNTS
          CREDIT PERCENTAGE.

          Section 1.17.  Billed Government Accounts Credit Percentage.  The term
          BILLED GOVERNMENT ACCOUNTS CREDIT PERCENTAGE means eighty-five (85%).

          Section 1.18.  Borrowing  Base. The term BORROWING BASE means,  at any
          date of determination  thereof,  the sum, as at such time, of: (a) the
          BILLED COMMERCIAL  ACCOUNTS  BORROWING BASE; (b) the BILLED GOVERNMENT
          ACCOUNTS  BORROWING  BASE;  (c)  the  UNBILLED   GOVERNMENT   ACCOUNTS
          BORROWING  BASE;  (d)  the  INVENTORY  BORROWING  BASE;  and  (e)  the
          ADDITIONAL  COLLATERAL  BORROWING BASE; minus (e) such reserves as the
          LENDER  deems  appropriate  from  time  to  time,   including  without
          limitation,  reserves  determined by the LENDER to be appropriate with
          respect to bankers acceptances,  GUARANTY INDEBTEDNESS,  INTEREST RATE
          PROTECTION  AGREEMENTS,  risks  under  ENVIRONMENTAL  LAWS,  and other
          obligations of any of the BORROWERS,  provided,  however, with respect
          to any such reserve  taken,  so long as no DEFAULT or EVENT OF DEFAULT
          shall have  occurred,  the LENDER  shall  release  such  reserve  upon
          receipt by the LENDER of  evidence  satisfactory  to the LENDER in its
          reasonable  credit  judgment  that the  event,  circumstance,  or risk
          giving rise to such reserve has been cured to the  satisfaction of the
          LENDER.

          Section 1.19.  Business Day. The term BUSINESS DAY means any day other
          than a  Saturday,  Sunday,  or other day on which  commercial  banking
          institutions  in the State of New York are  required to be closed and,
          if the applicable  BUSINESS DAY relates to any LOAN to which the LIBOR
          RATE applies,  such day must also be a day on which banks are open for
          dealings in dollar deposits in the London interbank market.

          Section 1.20. Capital Adequacy Requirement. The term CAPITAL ADEQUACY
          REQUIREMENT means any LAW imposing any capital adequacy requirement or
          any  other  similar  requirement  (including  but not  limited  to the
          capital  adequacy  regulations  contained  in  Parts 3, 208 and 225 of
          Title 12 of the Code of Federal Regulations,  as amended),  any change
          in such LAWS or in the interpretation or application  thereof, and any
          request or directive regarding capital adequacy (whether or not having
          the force of law) from any central bank or government authority.

          Section 1.21. Capital Lease. The term CAPITAL LEASE means a lease with
          respect  to which  the  lessee's  obligations  thereunder  should,  in
          accordance with G.A.A.P.,  be capitalized and reflected as a liability
          on the balance sheet of the lessee.

          Section 1.22.  Capital  Lease  Obligations.  The  term  CAPITAL  LEASE
          OBLIGATIONS means any indebtedness  incurred as a lessee pursuant to a
          CAPITAL LEASE.
          Section 1.23.  Capital Stock. The term CAPITAL STOCK means any and all
          shares, participations,  and other equivalents (however designated) of
          capital stock of a corporation, any and all other equivalent ownership
          interests  in a  PERSON  (other  than a  corporation)  and any and all
          warrants, or options to purchase any of the foregoing.

          Section 1.24.  Closing.  The term  CLOSING  means  the  execution  and
          delivery  of  this  AGREEMENT,   the  NOTE,  and  various  other  LOAN
          DOCUMENTS.  The date of CLOSING is the date written  above as the date
          of this AGREEMENT.

          Sectio 1.25.  Code. The term CODE means the Internal  Revenue Code of
          1986,  as amended,  and all  Treasury  regulations,  revenue  rulings,
          revenue procedures or announcements issued thereunder.

          Section 1.26.  Collateral.  The  term  COLLATERA  means  all  of  the
          tangible  and  intangible  assets  of any  or  all  of the  BORROWERS,
          wherever  located,  whether  now owned or  hereafter  acquired  by the
          BORROWERS,   together  with  all  substitutions   therefor,   and  all
          replacements  and renewals  thereof,  and all  accessions,  additions,
          replacement parts, manuals, warranties and packaging relating thereto,
          including  but not limited to the  following  tangible and  intangible
          assets and property rights of any of the BORROWERS:  (a) ACCOUNTS; (b)
          CHATTEL PAPER; (c) DOCUMENTS; (d) EQUIPMENT; (e) FIXTURES; (f) GENERAL
          INTANGIBLES, including, but not limited to, INTELLECTUAL PROPERTY; (g)
          GOODS; (h) INSTRUMENTS;  (i) INVENTORY,  including returned, rejected,
          or  repossessed  INVENTORY and rights of  reclamation  and stoppage in
          transit  with  respect to  INVENTORY;  (j)  INVESTMENT  PROPERTY;  (k)
          RECEIVABLES; (l) deposit accounts (including,  without limitation, the
          COLLECTION ACCOUNT);  (m) letter of credit rights; and (n) all RECORDS
          relating  to or  pertaining  to any of the  above  listed  COLLATERAL;
          provided,  however,  the COLLATERAL shall not include CAPITAL STOCK of
          any SUBSIDIARY which is not a DOMESTIC  SUBSIDIARY in excess of 65% of
          any series of such stock.

          Section 1.27.  Collection Account. The term COLLECTION ACCOUNT means a
          bank account  designated by the LENDER from which the LENDER alone has
          power of access and withdrawal.

          Section 1.28.  Commercial  Account.  The term COMMERCIAL ACCOUNT means
          the commercial  checking  account to be established  and maintained by
          any or all of the BORROWERS  with the LENDER and which may be utilized
          as the means of advancing funds under the LOAN.

          Sectio 1.29.  Credit  Facility.  The term CREDIT  FACILITY  means the
          credit facility  extended by the LENDER to the BORROWERS,  jointly and
          severally as co-obligors, pursuant to the terms and conditions of this
          AGREEMENT and the other LOAN  DOCUMENTS,  providing  for,  among other
          things, the LOAN and LETTERS OF CREDIT.

          Section 1.30. Default. The term DEFAULT means any event, occurrence or
          omission  which,  with the giving of notice,  the passage of time,  or
          both, would constitute an EVENT OF DEFAULT.

          Section  1.31.  Dollar  Cap.  The term  DOLLAR  CAP means Ten Million
          Dollars ($10,000,000.00).

          Section 1.32. Domestic Subsidiary.  The term DOMESTIC SUBSIDIARY means
          any  SUBSIDIARY  organized  under the laws of any State of the  United
          States.

          Section 1.33.  EBITDA.  The term EBITDA means, for any period, the sum
          of  the  following   determined  on  a  consolidated  basis,   without
          duplication,  for the BORROWERS and their consolidated SUBSIDIARIES in
          accordance with G.A.A.P.:  (a) net income for such period plus (b) the
          sum of the following to the extent  deducted in determining net income
          for such period: (i) income taxes; (ii) total interest expense;  (iii)
          amortization and depreciation;  and (iv) extraordinary  losses,  minus
          (c) the sum of the following if not deducted in determining net income
          for such  period:  (i)  interest  income;  and (ii) any  extraordinary
          gains,  including  but not limited to gains  arising  from the sale of
          assets not in the ordinary course of business.

          Section 1.34.  Eligible Additional Collateral Value. The term ELIGIBLE
          ADDITIONAL  COLLATERAL  VALUE  means,  at any  date of  determination
          thereof, the STATED AMOUNT of a duly issued irrevocable standby letter
          of credit  having an  original  undrawn  face  amount of Nine  Hundred
          Thousand Dollars ($900,000.00) naming the LENDER as beneficiary, which
          is issued on behalf of  ManTech  International  Corporation  by Mellon
          Bank,  First Union  National  Bank or another bank  acceptable  to the
          LENDER,  has terms and  provisions  acceptable  to the  LENDER  and an
          expiration date acceptable to the LENDER.

          Section 1.35.  Eligible Billed Commercial Accounts.  The term ELIGIBLE
          BILLED  COMMERCIAL  ACCOUNTS  means,  at  any  date  of  determination
          thereof,  the aggregate amount, as at such time, of bona fide ACCOUNTS
          (excluding  any  ACCOUNTS  that  arise out of a  GOVERNMENT  CONTRACT)
          created or acquired  by any  BORROWER  in the  ordinary  course of its
          business  which have been  billed to the  ACCOUNT  DEBTOR  thereon and
          which are payable in conformity with such billing,  and which are, but
          only in the amounts such ACCOUNTS are,  acceptable to the LENDER.  The
          criteria for eligibility as ELIGIBLE BILLED COMMERCIAL ACCOUNTS may be
          fixed and  revised  from time to time by the LENDER in its  reasonable
          discretion in accordance  with its internal credit  policies,  and any
          such determinations by the LENDER will be promptly communicated to the
          BORROWERS.  An ACCOUNT in no event shall be deemed an ELIGIBLE  BILLED
          COMMERCIAL ACCOUNT unless:  (a) the ACCOUNT is a bona fide,  existing,
          and legally enforceable obligation of the named ACCOUNT DEBTOR arising
          from goods sold or leased or from  services  performed in the ordinary
          course of  business  on terms  that are normal  and  customary  in the
          business of such  BORROWER,  the ACCOUNT is  actually  and  absolutely
          owing to such BORROWER and is not contingent for any reason,  and such
          BORROWER  has lawful  title to such  ACCOUNT;  (b) the delivery of the
          goods or the  performance of the services has been  completed;  (c) no
          return,  rejection,  or  repossession,  has  occurred (or if a return,
          rejection  or  repossession  has  occurred,  only to the  extent  such
          ACCOUNT is in excess of the maximum  amount of such return,  rejection
          or  repossession  and provided  the balance of such ACCOUNT  otherwise
          represents a valid,  uncontested and legally enforceable obligation of
          the ACCOUNT  DEBTOR and satisfies all of the other  criteria set forth
          herein);  (d) the goods delivered or the services  performed have been
          delivered or  performed,  as the case may be, in  accordance  with the
          terms of the contract between the applicable  BORROWER and the ACCOUNT
          DEBTOR,  without  dispute,  objection,   complaint,  offset,  defense,
          counterclaim,  adjustment or allowance  (including  without limitation
          discounts,  advertising  allowances,  or contra  accounts) (or if such
          ACCOUNT is subject to any such dispute, objection,  complaint, offset,
          defense,  counterclaim,  adjustment,  or allowance, only to the extent
          such  ACCOUNT  is in excess  of the  maximum  amount of such  dispute,
          objection,  complaint, offset, defense,  counterclaim,  adjustment, or
          allowance,   and  provided  the  balance  of  such  ACCOUNT  otherwise
          represents a valid,  uncontested and legally enforceable obligation of
          the ACCOUNT  DEBTOR and satisfies all of the other  criteria set forth
          herein);  (e) the ACCOUNT is not payable by an ACCOUNT  DEBTOR to whom
          any or all of the  BORROWERS  owes money (or if so, only to the extent
          that such  ACCOUNT is in excess of the total amount owed by any or all
          of the  BORROWERS  to the ACCOUNT  DEBTOR and  provided the balance of
          such ACCOUNT  otherwise  represents a valid,  uncontested  and legally
          enforceable  obligation of the ACCOUNT DEBTOR and satisfies all of the
          other criteria set forth herein);  (f) the ACCOUNT DEBTORS obligation
          to pay the  ACCOUNT is not  subject to any  repurchase  obligation  or
          return right, as with sales made on a bill-and-hold,  guaranteed sale,
          sale-and-return,  sale on  approval,  or  consignment  basis;  (g) the
          ACCOUNT is not  evidenced  by CHATTEL  PAPER or an  INSTRUMENT  or any
          kind;  (h) the ACCOUNT  has not been  turned over to any PERSON  other
          than a BORROWER  for  collection;  (i) the ACCOUNT is  evidenced by an
          invoice  and no more  than  ninety  (90) days  have  elapsed  from the
          billing or invoice date; (j) no prior, contemporaneous,  or subsequent
          assignment,  claim, lien, or security interest, other than that of the
          LENDER,  applies  to the  ACCOUNT;  (k) no  bankruptcy  or  insolvency
          proceedings  or payment  moratoriums of any kind apply to the ACCOUNT;
          (l) the ACCOUNT DEBTOR is not, in the LENDERS sole opinion,  unlikely
          to  pay  because  of  death,  incompetency,  disappearance,  financial
          inability, potential bankruptcy,  insolvency, damage to or disposition
          of the goods, default, or any other reason whatsoever;  (m) no bonding
          company or surety asserts or has the ability to assert any claim based
          upon the legal doctrine of equitable  subrogation,  or under any other
          right to claim a lien into or right to payment of the ACCOUNT; (n) the
          ACCOUNT  does not arise from or pertain  to any  transaction  with any
          employee,  officer,  agent,  director,  stockholder or other AFFILIATE
          unless  arising in the ordinary  course of business on an  arms-length
          basis;  (o) the ACCOUNT is not payable from any ACCOUNT DEBTOR located
          outside of the  geographic  boundaries of the United States of America
          or Canada  unless such ACCOUNT (i) is credit  guaranteed  in full by a
          policy of credit  insurance  insuring  comprehensive  (commercial  and
          political) risks, acceptable to the LENDER in its sole discretion,  or
          (ii) if approved  by the LENDER,  is payable in the full amount of the
          face  value of the  ACCOUNT  in U.S.  Dollars  and fully  secured by a
          perfected  assignment of proceeds of an  irrevocable  letter of credit
          acceptable  to the LENDER in form and substance and issued by a United
          States  financial  institution  satisfactory to the LENDER in its sole
          discretion; (p) a BORROWER is legally empowered to collect the ACCOUNT
          against the ACCOUNT  DEBTOR in the  jurisdiction  in which the ACCOUNT
          DEBTOR is located; (q) the ACCOUNT is not payable by an ACCOUNT DEBTOR
          with  respect  to which more than  fifty  percent  (50%) of the dollar
          amount  of  that  ACCOUNT  DEBTORS  RECEIVABLES  to any or all of the
          BORROWERS are more than ninety (90) days due from the date of invoice;
          (r) the ACCOUNT does not arise from any contract or agreement with any
          state, local or foreign government; and (s) the LENDER has a perfected
          first priority security  interest therein.  An ACCOUNT which otherwise
          satisfies the LENDERS  criteria for eligibility shall also be subject
          to the following  eligibility  limitations:  (A) if the ACCOUNT is due
          from  an  ACCOUNT  DEBTOR  whose  billed  ACCOUNTS  in  the  aggregate
          constitute in excess of fifteen  percent (15%) of all billed  ACCOUNTS
          of the  BORROWERS,  only the  portion of the  aggregate  amount of the
          billed ACCOUNTS from that ACCOUNT DEBTOR which does not exceed fifteen
          percent (15%) of all billed ACCOUNTS of the BORROWERS may be eligible;
          and (B) to the extent the ACCOUNT contains  finance charges,  delivery
          charges or sales taxes,  such  finance  charges,  delivery  charges or
          sales taxes shall not be eligible.

          Section 1.36.  Eligible Billed Government Accounts.  The term ELIGIBLE
          BILLED  GOVERNMENT  ACCOUNTS  means,  at  any  date  of  determination
          thereof,  the  aggregate  amount,  at such time, of bona fide ACCOUNTS
          arising  out of  GOVERNMENT  CONTRACTS  and created or acquired by any
          BORROWER  in the  ordinary  course of its  business,  which  have been
          billed  to the  ACCOUNT  DEBTOR  thereon  and  which  are  payable  in
          conformity  with such billing,  and which are, but only in the amounts
          such  ACCOUNTS  are,  acceptable  to  the  LENDER.  The  criteria  for
          eligibility as an ELIGIBLE BILLED GOVERNMENT  ACCOUNT may be fixed and
          revised from time to time by the LENDER in its  reasonable  discretion
          in  accordance  with  its  internal  credit  policies,  and  any  such
          determinations  by the LENDER  will be  promptly  communicated  to the
          BORROWERS.  An ACCOUNT shall in no event be deemed an ELIGIBLE  BILLED
          GOVERNMENT   ACCOUNT  unless:  (a)  the  ACCOUNT  and  the  respective
          GOVERNMENT  CONTRACT shall be in compliance with all applicable  LAWS,
          including  federal  procurement  LAWS  and  regulations;   (b)  if  so
          requested by the LENDER,  the applicable  BORROWER shall have complied
          with all provisions  necessary to protect the LENDERS  interest under
          the Assignment of Claims Act of 1940, as amended,  and all regulations
          promulgated thereunder;  (c) the LENDER is satisfied as to the absence
          of setoffs,  counterclaims,  and other defenses to payment on the part
          of the United States of America; (d) such ACCOUNT shall not constitute
          or include any  retainage;  (e) the LENDER is satisfied that funds for
          the  payment  of such  ACCOUNT  have been  appropriated  by the United
          States  of  America  or such  agency,  department  or  instrumentality
          thereof,  such ACCOUNT and GOVERNMENT CONTRACT are enforceable against
          the full faith and credit of the United  States of America,  and funds
          for the  payment of such  ACCOUNT are  available;  and (f) the ACCOUNT
          satisfies  and  continues  to satisfy  requirements  contained  in the
          definition of ELIGIBLE BILLED COMMERCIAL ACCOUNTS set forth in Section
          1.35 of this AGREEMENT;  provided, however, (i) in lieu of clause (i),
          the  ACCOUNT  shall be  evidenced  by an invoice  and no more than one
          hundred  twenty  (120)  days shall have  elapsed  from the  billing or
          invoice  date,  (ii) in lieu of clause (q), the ACCOUNT is not payable
          under a  GOVERNMENT  CONTRACT  with  respect  to which more than fifty
          percent (50%) of the aggregate  dollar amount of all ACCOUNTS  payable
          to any or all of the  BORROWERS  thereunder  are more than one hundred
          twenty  (120) days due from the date of invoice;  (iii) and in lieu of
          clause (A), if the ACCOUNT is payable  under a GOVERNMENT  CONTRACT as
          to  which  all  billed  ACCOUNTS  payable  to  any  of  the  BORROWERS
          thereunder  in the aggregate  constitute in excess of fifteen  percent
          (15%) of all billed ACCOUNTS of the BORROWERS, only the portion of the
          aggregate amount of the ACCOUNTS pursuant to such GOVERNMENT  CONTRACT
          which does not exceed fifteen  percent (15%) of all billed ACCOUNTS of
          the BORROWERS may be eligible.

          Section 1.37.  Eligible Inventory. The term ELIGIBLE INVENTORY means,
          at any date of determination thereof, the aggregate amount, as at such
          time,  of  INVENTORY  owned  by any or all of the  BORROWERS  which is
          acceptable  to the LENDER to be  included  in the  calculation  of the
          BORROWING  BASE. The criteria for eligibility may be fixed and revised
          by the  LENDER  from  time  to time in its  reasonable  discretion  in
          accordance   with  its  internal   credit   policies,   and  any  such
          determinations  by the LENDER  will be  promptly  communicated  to the
          BORROWERS.  INVENTORY  in no event  shall  be  deemed  to be  ELIGIBLE
          INVENTORY  unless:  (a)  the  LENDER  has a first  priority  perfected
          security  interest in its INVENTORY;  (b) it is normally and currently
          saleable  in the  ordinary  course  of  business  of any or all of the
          BORROWERS;  (c) it is not work in  process;  (d) it is  located on the
          premises of a BORROWER; (e) it does not consist of defective, damaged,
          obsolete,  returned or repossessed items of INVENTORY or used goods or
          goods taken in trade;  (f) it does not consist of slow moving items or
          items  determined by the LENDER in its sole  discretion to be stale or
          dated  merchandise;  (g) it does not  consist of packing or  packaging
          materials, general supplies, catalogs, promotion materials,  specialty
          inventory,   inventory   on  loan  to  any   PERSON,   items  used  as
          demonstrators,  prototypes,  or  salesman's  samples;  (h) it does not
          consist of an item  consigned  to any or all of the  BORROWERS or with
          respect  to  which  any  PERSON  claims  a lien;  (i) it has not  been
          consigned by any or all of the BORROWERS to a consignee; (j) it is not
          held by any  PERSON  (other  than a  BORROWER)  or  located  upon  any
          premises  not owned in fee simple by a BORROWER  unless such PERSON or
          the owner of such  premises  has  executed a lien waiver  agreement in
          form and substance satisfactory to the LENDER; and (k) it has not been
          deemed  unmerchantable  or otherwise  unsatisfactory by the LENDER for
          any reason, in the LENDERS sole discretion,  by written notice to the
          BORROWERS.  The value of any INVENTORY deemed to meet the criteria for
          ELIGIBLE  INVENTORY  shall be  determined  at the  least  of:  (i) the
          BORROWERS  net  purchase  or  manufacturing  cost;  (ii)  the  lowest
          then-existing market price; (iii) the BORROWERS lowest selling price,
          less estimated expenses for packing, selling and delivery; or (iv) any
          price  ceiling  which  may  be  established  by  governmental   order,
          regulation,  or  restriction.  The LENDER  shall be the  discretionary
          judge of the value of any INVENTORY, based upon such information as it
          deems, in its reasonable  discretion,  to be relevant or applicable in
          making that determination.
          Section 1.38. Eligible Unbilled Government Accounts. The term ELIGIBLE
          UNBILLED  GOVERNMENT  ACCOUNTS  means,  at any date of  determination
          thereof,  the  aggregate  amount,  at such  time,  of those  bona fide
          ACCOUNTS which would be ELIGIBLE BILLED GOVERNMENT  ACCOUNTS,  but for
          the fact  that such  ACCOUNTS  have not been  invoiced  as a result of
          normal frequency of billing under the particular GOVERNMENT CONTRACTS,
          and  which  ACCOUNTS  are  acceptable,  but only in the  amounts  such
          ACCOUNTS are acceptable to the LENDER. The criteria for eligibility as
          an ELIGIBLE  UNBILLED  GOVERNMENT  ACCOUNT may be fixed and revised by
          the  LENDER  in its  reasonable  discretion  in  accordance  with  its
          internal credit policies,  and any such  determinations  by the LENDER
          will be promptly communicated to the BORROWERS. An ACCOUNT shall in no
          event be deemed eligible  unless:  (a) such ACCOUNT  represents  costs
          incurred by or profits accrued to a BORROWER and  recoverable  under a
          GOVERNMENT CONTRACT;  (b) such ACCOUNT shall not constitute or include
          any retainage;  (c) no more than sixty (60) days have elapsed from the
          date services were completed or goods delivered;  (d) upon issuance of
          an invoice therefor an ELIGIBLE BILLED  GOVERNMENT  ACCOUNT will arise
          in favor of a  BORROWER;  and (e) such  ACCOUNT is not  simultaneously
          reported as an ELIGIBLE  BILLED  GOVERNMENT  ACCOUNT on any  Borrowing
          Base Certificate provided to the LENDER.
          Section 1.39.  Employee  Benefit Plan. The term EMPLOYEE BENEFIT PLAN
          means an employee benefit plans as defined in Section 3(3) of ERISA.

          Section 1.40.  Environmental  Laws. The term ENVIRONMENTAL LAWS means
          individually or collectively any local, state or federal LAW, statute,
          rule, regulation, order, ordinance, common law, permit or license term
          or  condition,  or  state  super-lien  or  environmental  clean-up  or
          disclosure  statutes pertaining to the environment or to environmental
          contamination,  regulation,  management,  control, treatment, storage,
          disposal,  containment,  removal, clean-up,  reporting, or disclosure,
          including,  but  not  limited  to,  the  Comprehensive   Environmental
          Response,  Compensation and Liability Act of 1980, as now or hereafter
          amended (including,  but not limited to, the Super-fund Amendments and
          Reauthorization  Act); the Resource  Conservation  and Recover Act, as
          now or hereafter amended (including, but not limited to, the Hazardous
          and Solid Waste Amendments of 1984); the Toxic Substances Control Act,
          as now or hereafter amended;  the Clean Water Act, as now or hereafter
          amended;  the Safe Drinking Water Act, as now or hereafter amended; or
          the Clean Air Act, as now or hereafter amended.

          Section 1.41.  EPA Permit.  The term EPA PERMITS has the meaning given
          that term in Section 5.23 of this AGREEMENT.

          Section 1.42. ERISA. The term  ERISAS  means the Employee  Retirement
          Income  Security Act of 1974 and  regulations  issued  thereunder,  as
          amended from time to time and any successor statute.

          Section 1.43. ERISA Affiliate.  The term ERISA  AFFILIATE  means, in
          relation  to  any  PERSON,  any  trade  or  business  (whether  or not
          incorporated)  which is a member of a group of which that  PERSON is a
          member and which is under  common  control  within the  meaning of the
          regulations promulgated under Section 414 of the CODE.

          Section 1.44. ERISA Liabilities.  The term ERISA  LIABILITIES  means
          the  aggregate  of all  unfunded  vested  benefits  under any employee
          pension benefit plan,  within the meaning of Section 3(2) of ERISA, of
          any of the  BORROWERS or any ERISA  AFFILIATE of any of the  BORROWERS
          under any plan covered by ERISA that is not a  MULTIEMPLOYER  PLAN and
          all potential  withdrawal  liabilities  of any of the BORROWERS or any
          ERISA AFFILIATE under all MULTIEMPLOYER PLANS.

          Section 1.45.  Event Of Default. The term EVENT OF DEFAULT  means any
          of the events set forth in Article 8 of this AGREEMENT,  provided that
          any requirement for the giving of notice,  the lapse of time, or both,
          or any other expressly stated condition, has been satisfied.

          Section 1.46. Facilities. The term FACILITIES means all real property
          and the improvements  thereon used or occupied or leased by any of the
          BORROWERS or otherwise used at any time by any of the BORROWERS in the
          operation of its business or for the manufacture, storage, or location
          of any of the COLLATERAL.

          Section 1.47.  Federal Funds  Effective  Rate.  The term FEDERAL FUNDS
          EFFECTIVE RATE means for any period, a fluctuating  interest rate per
          annum equal for each day during such period to the weighted average of
          the rates on overnight Federal funds  transactions with members of the
          Federal Reserve System arranged by Federal funds brokers, as published
          for such day (or, if such day is not a BUSINESS DAY, for the preceding
          BUSINESS DAY) by the Federal Reserve Bank of New York or, if such rate
          is not so published for any day that is a BUSINESS DAY, the average of
          the  quotations  for such  day on such  transactions  received  by the
          LENDER from three (3) Federal  funds  brokers of  recognized  standing
          selected by the LENDER.

          Section 1.48. Fiscal Year. The term FISCAL YEAR means the fiscal year
          of each of the  BORROWERS  which is the twelve  (12) month  accounting
          period  commencing  January 1 and ending  December 31 of each calendar
          year.

          Section 1.49.  G.A.A.P. The term G.A.A.P.  means, with respect to any
          date of determination,  generally  accepted  accounting  principles as
          used by the Financial  Accounting  Standards Board and/or the American
          Institute of Certified  Public  Accountants  consistently  applied and
          maintained throughout the periods indicated.

          Section 1.50.  GSE Power Systems AB Note.  The term GSE POWER SYSTEMS
          AB NOTE  means the Promissory Note dated May 1, 1999 from GSE SYSTEMS
          and  payable  to the order of GSE  Power  Systems  AB in the  original
          principal  amount  of  Eleven  Million,   Three  Hundred  Twenty-Seven
          Thousand,  One  Hundred  Thirty-Four  and 94/100  Swedish  kronor (SEK
          11.327.134,94).

          Section 1.51. GSE Systems.  The term GSE SYSTEMS  means GSE Systems,
          Inc., a Delaware corporation.

          Section 1.52.  Guaranteed  Pension Plan. The term GUARANTEED  PENSION
          PLAN  means any pension plan maintained by any of the BORROWERS or an
          ERISA  AFFILIATE  of any  of the  BORROWERS,  or to  which  any of the
          BORROWERS  or an  ERISA  AFFILIATE  contributes,  some  or  all of the
          benefits  under  which are  guaranteed  by the United  States  Pension
          Benefit Guaranty Corporation.

          Section 1.53. Guarantors. The term GUARANTORS means collectively GSE
          Systems  International,  Ltd., a Delaware  corporation,  MSHI, Inc., a
          Virginia   corporation,   GSE  Erudite  Software,   Inc.,  a  Delaware
          corporation,  GP  International  Engineering  &  Simulation,  Inc.,  a
          Delaware  corporation,  GSE Services Company,  LLC, a Delaware limited
          liability   company,   and  all  other  direct  or  indirect  DOMESTIC
          SUBSIDIARIES of any of the BORROWERS.

          Section 1.54.  Guaranty  Agreements.  The term GUARANTY  AGREEMENTS
          means collectively the Guaranty  Agreements executed from time to time
          by the  GUARANTORS  or the LIMITED  GUARANTORS  for the benefit of the
          LENDER.

          Section 1.55. Guaranty Indebtedness.  The term GUARANTY INDEBTEDNESS
          means any  obligation,  contingent  or  otherwise,  of any  referenced
          PERSON directly or indirectly  guaranteeing  any debt or obligation of
          any  other  PERSON  and,   without  limiting  the  generality  of  the
          foregoing,   any  obligation,   direct  or  indirect,   contingent  or
          otherwise,  of such  PERSON:  (a) to  purchase  or pay (or  advance or
          supply funds for the  purchase or payment of) such debt or  obligation
          (whether arising by virtue of partnership  arrangements,  by agreement
          to keep-well,  to purchase assets,  goods,  securities or services, to
          take-or-pay,   or  to  maintain  financial  statement   conditions  or
          otherwise,  other than agreements to purchase goods at an arms length
          price in the ordinary course of business); or (b) entered into for the
          purpose  of  assuring  in any other  manner the holder of such debt or
          obligation  of the payment  thereof or to protect such holder  against
          loss in  respect  thereof  (in  whole or in part).  The term  GUARANTY
          INDEBTEDNESS shall not include  endorsements for collection or deposit
          in the ordinary course of business.

          Section 1.56.  Government  Contract.  The term GOVERNMENT  CONTRACT
          means a contract  between any BORROWER and any agency,  department  or
          instrumentality of the United States of America where such BORROWER is
          the prime contractor.

          Section 1.57. Indebtedness.  The term INDEBTEDNESS  means, as to any
          referenced PERSON (determined without  duplication):  (a) indebtedness
          of such PERSON for borrowed money (whether by loan or the issuance and
          sale of debt securities),  or for the deferred purchase or acquisition
          price of property or services (other than accounts payable incurred in
          the ordinary  course of business);  (b)  obligations of such PERSON in
          respect of letters of credit or similar instruments issued or accepted
          by financial  institutions  for the account of such PERSON (whether or
          not such obligations are contingent); (c) CAPITAL LEASE OBLIGATIONS of
          such  PERSON;  (d)  obligations  of such PERSON to redeem or otherwise
          retire equity interests in such PERSON;  (e) indebtedness of others of
          the type  described in clause (a),  (b), (c) or (d) above secured by a
          lien  on any of the  property  of  such  PERSON,  whether  or not  the
          respective  obligation so secured has been assumed by such PERSON; and
          (f) GUARANTY INDEBTEDNESS.

          Section 1.58.    Insolvency   Proceedings.    The   term   INSOLVENCY
          PROCEEDINGS means, with respect to any referenced PERSON, any case or
          proceeding commenced by or against such PERSON, under any provision of
          the United  States  Bankruptcy  Code,  as amended,  or under any other
          federal or state  bankruptcy or insolvency law, or any assignments for
          the   benefit   of   creditors,   formal  or   informal   moratoriums,
          receiverships,  compositions  or extensions with some or all creditors
          with respect to any indebtedness of such PERSON.

          Section 1.59. Intellectual Property.  The term INTELLECTUAL PROPERTY
          means all  present  and future  designs,  patents,  patent  rights and
          applications  therefor,  trademarks and registrations or registrations
          therefor,  copyrights,  software or computer programs, license rights,
          trade secrets, methods, processes, know-how, drawings, specifications,
          descriptions, and all memoranda, notes and records with respect to any
          research and development, whether now owned or hereafter acquired, all
          goodwill associated with any of the foregoing, and all proceeds of all
          of the foregoing.

          Section 1.60.  Interest Period.  The term INTEREST PERIOD means with
          respect to any LIBOR  BORROWING,  each period  commencing  on the date
          such LIBOR  BORROWING is made or converted  to a LIBOR  BORROWING  and
          ending on the numerically  corresponding date in the first, second, or
          third  calendar  month  thereafter  (or,  if there  is no  numerically
          corresponding  day, on the last  BUSINESS DAY of such  month),  as the
          BORROWERS may select.

          Sectio 1.61.  Interest Rate Protection Agreement.  The term INTEREST
          RATE  PROTECTION  AGREEMENT  means,  for any  referenced  PERSON,  an
          interest rate swap, cap or collar agreement or similar arrangement and
          documentation   between   such  PERSON  and  one  or  more   financial
          institutions  providing  for the  transfer or  mitigation  of interest
          risks either generally or under specific contingencies.

          Section 1.62.  Inventory.  The term  INVENTORY  shall  have the same
          meaning as  provided to such term in the New York  Uniform  Commercial
          Code - Secured Transactions,  Article 9, as amended, together with all
          of the BORROWERS goods, merchandise,  materials, raw materials, goods
          in process,  finished goods,  work in progress,  bindings or component
          materials,  packaging  and shipping  materials  and other  tangible or
          intangible personal property, now owned or hereafter acquired and held
          for sale or lease or furnished or to be furnished  under  contracts of
          service or which  contribute  to the  finished  products  or the sale,
          promotion, storage and shipment thereof, whether located at facilities
          owned or leased by any of the BORROWERS, in the course of transport to
          or  from  ACCOUNT   DEBTORS,   used  for   demonstration,   placed  on
          consignment, or held at storage locations.

          Section 1.63.  Inventory Borrowing Base. The term INVENTORY BORROWING
          BASE means, at any date of determination  thereof,  the lesser, as at
          such time,  of (a) the product of (i) ELIGIBLE  INVENTORY and (ii) the
          INVENTORY  CREDIT  PERCENTAGE,  and (b) the INVENTORY  MAXIMUM  CREDIT
          AMOUNT.

          Section 1.64.  Inventory Credit Percentage. The termINVENTORY CREDIT
          PERCENTAGE means forty percent (40%).

          Section 1.65.  Inventory  Maximum Credit Amount.  The term  INVENTORY
          MAXIMUM CREDIT AMOUNT  means One Million Two Hundred Thousand Dollars
          ($1,200,000.00).

          Section 1.66.  Laws. The term LAWS  means all ordinances,  statutes,
          rules,  regulations,  orders,  injunctions,  writs or  decrees  of any
          government or political subdivision or agency thereof, or any court or
          similar entity established by any thereof.

          Section  1.67.   L/C  Exposure.   The  term  L/C   EXPOSURE   means,
          collectively,  at any time of  determination  the sum, as at such time
          of:  (a) the  STATED  AMOUNT  of all  LETTERS  OF  CREDIT  issued  and
          outstanding; and (b) all REIMBURSEMENT OBLIGATIONS.

          Section 1.68.  Lender Expenses.  The term LENDER EXPENSES  means the
          out-of-pocket expenses or costs incurred by the LENDER arising out of,
          pertaining to, or in any way connected with this AGREEMENT, any of the
          other LOAN DOCUMENTS or the OBLIGATIONS,  or any documents executed in
          connection  herewith  or  transactions  hereunder.  The  term  LENDER
          EXPENSES shall include, without limitation: (a) the costs or expenses
          required  to be paid by any or all of the  BORROWERS  pursuant to this
          AGREEMENT or any of the other LOAN  DOCUMENTS;  (b) costs and expenses
          in connection with COLLECTION ACCOUNTS;  (c) LETTER OF CREDIT fees and
          charges;  (d) taxes and insurance  premiums advanced or otherwise paid
          by the LENDER in connection with the COLLATERAL or on behalf of any or
          all  of  the  BORROWERS;  (e)  filing,  recording,   title  insurance,
          environmental  and consulting fees, audit fees,  search fees and other
          expenses  paid or  incurred  by the  LENDER  in  connection  with  the
          LENDERS transactions with any or all of the BORROWERS contemplated by
          this AGREEMENT or any of the other LOAN DOCUMENTS or otherwise related
          to the  CREDIT  FACILITY  or any of the  OBLIGATIONS;  (f)  costs  and
          expenses  incurred  by the LENDER in the  collection  of the  ACCOUNTS
          (with or without the  institution of legal action),  or to enforce any
          provision of this AGREEMENT, or in gaining possession of, maintaining,
          handling,   evaluating,   preserving,   storing,  shipping,   selling,
          preparing for sale and/or  advertising  to sell the  COLLATERAL or any
          other  property  of any  of the  BORROWERS  whether  or not a sale  is
          consummated;  (g) costs and  expenses  of  litigation  incurred by the
          LENDER, or any participant of the LENDER in any of the OBLIGATIONS, in
          enforcing or  defending  this  AGREEMENT  or any portion  hereof or in
          collecting any of the OBLIGATIONS;  (h) reasonable attorneys fees and
          expenses incurred by the LENDER in obtaining advice or the services of
          its attorneys with respect to the structuring,  drafting, negotiating,
          reviewing,  amending,  terminating,  enforcing  or  defending  of this
          AGREEMENT,  or any portion  hereof or any agreement or matter  related
          hereto,  whether  or not  litigation  is  instituted;  and  (i  travel
          expenses related to any of the foregoing.

          Section 1.69.  Letters Of Credit.  The term LETTERS OF CREDIT  means
          collectively standby letters of credit issued from time to time by the
          LENDER for the account or benefit of any or all of the BORROWERS.

          Section 1.70.  LIBOR Borrowing. The term LIBOR BORROWING  means each
          advance of proceeds of a LOAN which is  accruing  interest  based upon
          the ADJUSTED LIBOR RATE for a separate INTEREST PERIOD.

          Section 1.71. LIBOR Rate. The term LIBOR RATE means, with respect to
          any LIBOR  BORROWING  for any INTEREST  PERIOD,  the interest rate per
          annum  determined  by the LENDER by dividing (the  resulting  quotient
          rounded  upwards,  to the next whole multiple of  one-sixteenth of one
          percent (.0625%) (a) the rate of interest  determined by the LENDER in
          accordance  with  its  usual  procedures  to be the  weighted  average
          (rounded,  if necessary,  to the nearest  one-hundredth of one percent
          (.01%)) of the rate  quotation  offered to the LENDER by leading banks
          in the London  Interbank  Eurodollar  Market for Dollar  deposits  for
          amounts in immediately  available funds  comparable to the outstanding
          principal  amount of the LIBOR BORROWING for which an interest rate is
          then  being  determined  and  having a  borrowing  date and a maturity
          comparable  to such  INTEREST  PERIOD,  as of  11:00  a.m.  or as soon
          thereafter as  practicable,  two (2) BUSINESS DAYS preceding the first
          day of such  INTEREST  PERIOD by (b) a number  equal to 1.00 minus the
          RESERVE REQUIREMENT.  In each instance,  the LENDERS determination of
          the LIBOR RATE shall be conclusive, absent manifest error.

          Section 1.72.  Limited Guarantors. The term LIMITED GUARANTORS means
          collectively,  GP Strategies Corporation, a Delaware corporation,  and
          ManTech International Corporation, a New Jersey corporation.
          Section 1.73.  Loan. The term LOAN means the revolving loan extended
          by the LENDER to the  BORROWERS  as joint and several  co-obligors  in
          accordance with the terms set forth in this AGREEMENT.

          Section 1.74.  Loan  Documents.  The term LOAN  DOCUMENTS  means all
          agreements,  instruments  and documents,  together with all other loan
          agreements  (including  without  limitation  this  AGREEMENT),   notes
          (including   without  limitation  the  NOTE),   security   agreements,
          guarantees,   subordination   agreements,   intercreditor  agreements,
          pledges,  affidavits,  powers  of  attorney,  consents,   assignments,
          landlord  and  mortgage  waivers,  opinions,  collateral  assignments,
          reimbursement  agreements,   contracts,   notices,  leases,  financing
          statements,  mortgages,  deeds  of  trusts,  assignments  of  rents or
          contract proceeds,  intellectual property security agreements,  letter
          of  credit  applications  and  agreements,   cash  collateral  account
          agreements, INTEREST RATE PROTECTION AGREEMENTS, and all other written
          matter, whether heretofore,  now or hereafter executed by or on behalf
          of any or all of  the  BORROWERS,  any of the  GUARANTORS,  any of the
          LIMITED  GUARANTORS or by any other PERSON in  connection  with any of
          the OBLIGATIONS.

          Section 1.75. Lock Box. The term LOCK BOX has the meaning given that
          term in Section 3.5 of this AGREEMENT.

          Section 1.76.  Material  Adverse  Event.  The term  MATERIAL  ADVERSE
          EVENT means the occurrence of any event, condition, or omission which
          the  LENDER in the good  faith  reasonable  exercise  of the  LENDERS
          discretion  determines  could be expected  to have a material  adverse
          effect upon: (a) the condition  (financial or  otherwise),  results of
          operations,   properties,   assets,  liabilities  (including,  without
          limitation, tax liabilities, liabilities under ENVIRONMENTAL LAWS, and
          ERISA LIABILITIES),  businesses, operations,  capitalization,  equity,
          licenses,  franchises or prospects of any of the BORROWERS, any of the
          GUARANTORS,  or any of the LIMITED GUARANTORS;  (b) the ability of any
          of  the  BORROWERS,  any  of the  GUARANTORS,  or  any of the  LIMITED
          GUARANTORS to perform any of the  OBLIGATIONS  when and as required by
          the terms of the LOAN  DOCUMENTS;  (c) the rights and  remedies of the
          LENDER as provided by the LOAN DOCUMENTS; or (d) the value, condition,
          use,  or  availability  of any of the  COLLATERAL  or upon  any of the
          LENDERS liens and security interests securing the OBLIGATIONS.

          Section 1.77.  Maximum Credit Amount. The term MAXIMUM CREDIT AMOUNT
          means the lesser of the BORROWING BASE or the DOLLAR CAP.

          Section 1.78.  Multiemployer Plan. The term MULTIEMPLOYER PLAN means
          a multiemployer plan as defined in Section 4001(a)(3) of ERISA which
          is maintained for employees of the BORROWERS,  or any ERISA  AFFILIATE
          of the BORROWERS.

          Section  1.79.  Net Profit  After  Taxes.  The term NET PROFIT  AFTER
          TAXES  means,  for  any  period,  the  aggregate  net  income  of the
          BORROWERS  and  their   consolidated   SUBSIDIARIES  for  such  period
          determined in conformity with G.A.A.P.,  after payment of or provision
          for, or  distributions  with  respect  to,  taxes  applicable  to such
          period; provided,  however, in no event shall such amount be less than
          One Dollar ($1.00).

          Section 1.80.  Note. The term NOTE means the Promissory Note of even
          date herewith from the BORROWERS as co-makers thereof which is payable
          to the  order of the  LENDER  in the  stated  principal  amount of Ten
          Million Dollars ($10,000,000.00).

          Section 1.81.  Obligations. The term OBLIGATIONS  means collectively
          all of the  obligations of each of the BORROWERS to pay to the LENDER:
          (a) all sums due to the LENDER  arising out of or in  connection  with
          the LOAN or otherwise  pursuant to the terms of the LOAN DOCUMENTS and
          all renewals,  refinancings,  extensions,  substitutions,  amendments,
          restatements,  modifications,  supplements  or  replacements  thereof,
          whether direct or indirect, joint or several,  absolute or contingent,
          contemplated  or  uncontemplated,  now existing or hereafter  arising,
          including,  but not limited to, all  amounts of  principal,  interest,
          charges,  reimbursements,  advancements,  escrows and fees;  (b) other
          indemnification obligations owed by any or all of the BORROWERS to the
          LENDER in  accordance  with the terms of the LOAN  DOCUMENTS;  (c) all
          LENDER  EXPENSES;  (d all  overdrafts of any of the BORROWERS upon any
          accounts with the LENDER; (e) payments,  duties or obligations owed to
          the LENDER  arising from or with respect to INTEREST  RATE  PROTECTION
          AGREEMENTS,  foreign  exchange  facilities  or currency  transactions,
          existing or arising  from time to time;  (f) all sums  outstanding  on
          account of  REIMBURSEMENT  OBLIGATIONS  and any other sums owed to the
          LENDER arising out of or relating to any LETTERS OF CREDIT  including,
          without limitation,  all indemnification  obligations,  obligations to
          deposit cash  collateral,  and obligations to pay fees; (g) all duties
          of payment and  performance  owed to the LENDER in connection with any
          guaranties;  (h) all other  indebtedness  or  liability  of any of the
          BORROWERS to the LENDER, whether direct or indirect, joint or several,
          absolute or contingent,  contemplated  or not presently  contemplated,
          now  existing  or  hereafter  arising  in  connection  with the CREDIT
          FACILITY;  and (i) any  indebtedness  or liability  which may exist or
          arise as a result of any payment  made by or for the benefit of any of
          the  BORROWERS  being  avoided or set aside for any reason  including,
          without  limitation,  any payment being avoided as a preference  under
          Sections 547 and 550 of the United States Bankruptcy Code, as amended,
          or under any state law governing insolvency or creditors rights.

          Section 1.82. Permitted Acquisitions. The term PERMITTED ACQUISITION
          means  an  ACQUISITION  by any  BORROWER  pursuant  to an  ACQUISITION
          AGREEMENT  provided:  (a) no DEFAULT  or EVENT OF  DEFAULT  shall have
          occurred or shall occur after giving effect to such  ACQUISITION;  (b)
          the   BORROWERS   and  the   consolidated   SUBSIDIARIES   shall  have
          demonstrated in a writing delivered to the LENDER full compliance with
          all of the terms and provisions of this  AGREEMENT  (including but not
          limited to the financial  covenants set forth in Sections 6.21,  6.22,
          6.23, and 6.24 hereof) before giving effect to such  ACQUISITION  and,
          on a pro forma basis, after giving effect to such ACQUISITION; (c) the
          BORROWERS and the consolidated SUBSIDIARIES shall have demonstrated to
          the  LENDER  in  writing  that,   after  giving  full  effect  to  the
          ACQUISITION,   the  TANGIBLE  NET  WORTH  of  the  BORROWERS  and  the
          consolidated  SUBSIDIARIES  shall not be less than their  TANGIBLE NET
          WORTH  immediately  prior  to such  ACQUISITION;  (d)  the net  income
          (determined  in accordance  with  G.A.A.P.) of the TARGET for the most
          12-month  period most recently  preceding the  ACQUISITION is not less
          than  One  Dollar  ($1.00),  unless  the  ACQUISTION  is a true  asset
          purchase  only;  (e)  the  TARGET  is  a  going  concern  (unless  the
          ACQUISITION is a true asset purchase only), organized under one of the
          states of the  United  States  and  located  solely in (or if an asset
          purchase,  whose assets are located solely in), the United States, and
          is in  substantially  the same line of business as the  BORROWERS or a
          complementary  line of  business;  (f) a  BORROWER  is the  surviving,
          controlling corporation upon the consummation of such ACQUISITION; (g)
          such  ACQUISITION was not preceded by an unsolicited  tender offer for
          the CAPITAL STOCK of the TARGET that was not  recommended  or approved
          by the TARGETS board of directors or similar  governing body, and the
          BORROWER shall have delivered to the LENDER  evidence  satisfactory to
          the LENDER that the board of  directors or similar  governing  body of
          the  TARGET  has  approved  such  ACQUISITION;  (h) the  TARGET is not
          subject to any material  pending  litigation which could reasonably be
          expected to have a material  adverse  effect on the  BORROWERS  or any
          SUBSIDIARY;  (i) the BORROWERS  have given the LENDER at least fifteen
          (15)  BUSINESS  DAYS  prior  written  notice  of  the  closing  of the
          ACQUISITION;  and (j) if the  aggregate  value of cash and  securities
          paid and issued in connection  with such  transaction  (including  the
          maximum  amount  of  any  compensation  or  consideration  which  such
          BORROWER is  obligated to pay in  connection  therewith in addition to
          the purchase  price) is One Million Dollars  ($1,000,000.00)  or more,
          such transaction has been approved by the LENDER, which approval shall
          be  subject  to the  review  by the  LENDER of all  documentation  and
          financial  analysis  related to the  transaction  as the LENDER  shall
          reasonably require.

          Section 1.83.  Permitted Liens. The term PERMITTED LIENS  means: (a)
          liens for taxes,  assessments,  or  similar  charges  incurred  in the
          ordinary  course of  business  that are (i) not yet due and payable or
          (ii)  due and  payable  but are  being  contested  in  good  faith  by
          appropriate proceedings in accordance with the terms and conditions of
          Section 6.8  hereof,  provided  that,  in the case of liens under this
          clause  (ii),  a reserve  against the  BORROWING  BASE shall have been
          established   in  the  amount  of  the  claims  for  any  such  taxes,
          assessments, or similar charges; (b) liens in favor of the LENDER; (c)
          any existing liens specifically described on Schedule 1.82 hereof; (d)
          any lien on  specifically  allocated  money or  securities  to  secure
          payments under workers  compensation,  unemployment insurance, social
          security and other similar LAWS, or to secure the performance of bids,
          tenders or contracts  (other than for the repayment of borrowed money)
          or to  secure  statutory  obligations  or appeal  bonds,  or to secure
          leases,  or  indemnity,  performance  or  other  similar  bonds in the
          ordinary course of business; (e) purchase money security interests for
          EQUIPMENT  not to exceed in aggregate  amount  outstanding  at any one
          time the sum of Fifty  Thousand  Dollars  ($50,000.00),  provided that
          such  purchase  money  security  interests do not attach to any assets
          other  than  the  specific  item(s)  of  EQUIPMENT  acquired  with the
          proceeds  of  the  loan  secured  by  such  purchase   money  security
          interests; (f) statutory liens of landlords,  carriers,  warehousemen,
          mechanics,  materialmen  and other  similar liens imposed by LAW which
          are incurred in the ordinary course of business for sums not more than
          thirty  (30)  days  delinquent  or the  validity  of  which  is  being
          contested in good faith by appropriate proceedings promptly instituted
          and diligently conducted, the outcome of such contest proceedings,  if
          adversely determined,  could not have a material adverse effect on any
          of the BORROWERS or the GUARANTORS,  such contest proceedings have the
          effect of preventing the  forfeiture or sale of such property  subject
          to such liens,  and reserves  satisfactory  to the LENDER  against the
          BORROWING BASE shall have been  established  for payment of such sums,
          fees and  expenses for which any of the  BORROWERS  would be liable if
          unsuccessful in such contest;  and provided that such liens do not, in
          any case,  materially  detract from the value of the property  subject
          thereto or interfere with the ordinary  conduct of the business of any
          of the BORROWERS; (g) easements, rights-of-way, restrictions and other
          similar  charges or  encumbrances  which,  in the  aggregate,  are not
          material in amount,  and which in any case do not  materially  detract
          from the value of the property  subject  thereto or interfere with the
          ordinary  conduct of the business of any of the  BORROWERS;  (h) liens
          securing  judgments,  but only to the extent, for an amount, and for a
          period  not  resulting  in a DEFAULT or an EVENT OF  DEFAULT;  and (i)
          subsequently  arising liens which are expressly approved by the LENDER
          in writing in advance of the creation of any such liens.

          Section 1.84.   Person.  The  term  PERSON   means  any  individual,
          corporation,  partnership,  limited  liability  company,  association,
          joint-stock company, trust, estate, unincorporated organization, joint
          venture, court, government or political subdivision or agency thereof,
          or other legal entity.

          Section 1.85. Quarter. The term QUARTER means each of the periods of
          three  calendar  months  beginning on each January 1, April 1, July 1,
          and October 1 of each calendar year.

          Section 1.86.  Receivables.  The term  RECEIVABLES  means all of the
          ACCOUNTS, INSTRUMENTS,  DOCUMENTS, GENERAL INTANGIBLES, CHATTEL PAPER,
          notes, notes receivable, drafts, acceptances, and choses in action, of
          any or all of the  BORROWERS,  now  existing or  hereafter  created or
          acquired,  and all  proceeds  and  products  thereof,  and all  rights
          thereto,  arising  from  the  sale or  lease  of or the  providing  of
          INVENTORY,  GOODS,  or  services  by any of the  BORROWERS  to ACCOUNT
          DEBTORS, as well as all other rights, contingent or non-contingent, of
          any kind of any of the  BORROWERS  to  receive  payment,  benefit,  or
          credit from any PERSON,  including,  but not limited to contracts with
          customers  (including  but  not  limited  to  GOVERNMENT   CONTRACTS),
          deposits,  prepayments  and any  rights to receive  payment  under any
          policy of credit insurance.

          Section 1.87.   Records.  The  term  RECORDS  means  correspondence,
          memoranda,  tapes,  discs,  papers,  books  and  other  documents,  or
          transcribed  information of any type,  whether  expressed in ordinary,
          computer or machine language.

          Section 1.88.  Regulated  Substance.  The term  REGULATED  SUBSTANCE
          means any  substance  which,  pursuant  to any  ENVIRONMENTAL  LAW, is
          identified  as a hazardous  substance  (or other term  having  similar
          import) or is otherwise subject to special  requirements in connection
          with the use, storage,  transportation,  disposition or other handling
          thereof.

          Section 1.89.  Regulatory Change. The term REGULATORY  CHANGE  means
          any change  after the  CLOSING in the laws of the United  States,  any
          state  thereof,  or any foreign  nation or state,  or the  adoption or
          making after such date, of any interpretations, directives or requests
          applying to a class of depository institutions,  including the LENDER,
          of or under any law of the United States,  any states thereof,  or any
          foreign  nation  or state  (whether  or not any  such  interpretation,
          directive   or  request  has  the  force  of  law)  by  any  court  or
          governmental  authority  or monetary  authority  with  authority  with
          respect to the interpretation or administration of such law.

          Section 1.90.   Reimbursement  Obligations.  The  term REIMBURSEMENT
          OBLIGATIONS  means, at any particular  time, the aggregate  amount of
          all drawings made under LETTERS OF CREDIT which, as at such time, have
          not been reimbursed to the LENDER by the BORROWERS.

          Section 1.91. Release. The term RELEASE means a release as defined
          in  Section  101(22)  of  the  Comprehensive  Environmental  Response,
          Compensation and Liability Act of 1980, as now or hereafter amended.

          Section 1.92.  Reserve  Requirement.  The term  RESERVE  REQUIREMENT
          means,  for any INTEREST  PERIOD,  the average rate at which  reserves
          (including  any  marginal,  supplemental  or emergency  reserves)  are
          required to be maintained during such INTEREST PERIOD under Regulation
          D of the Board of Governors of the Federal Reserve  System,  from time
          to time in effect (or any  successor or other  regulation  relating to
          reserve requirements applicable to member banks of the Federal Reserve
          System) by member banks of the Federal  Reserve  System with  deposits
          exceeding One Billion Dollars  ($1,000,000,000)  against Eurocurrency
          Liabilities as currently defined in Regulation D.

          Section 1.93. Restricted Payment. The term RESTRICTED PAYMENT  means
          collectively:  (a) any  dividend  or other  payment  or  distribution,
          direct or  indirect,  on account of any equity  interest in any of the
          BORROWERS  or any of their  respective  SUBSIDIARIES  now or hereafter
          outstanding,  except a dividend or distribution  payable solely in the
          same class or type of equity  interest to the holders of that class or
          type; (b) any payment or prepayment of principal of, premium,  if any,
          or interest on, or any redemption,  conversion,  exchange, retirement,
          sinking fund or similar  payment,  purchase or other  acquisition  for
          value, direct or indirect, by any of the BORROWERS of any SUBORDINATED
          DEBT, the GSE POWER SYSTEMS AB NOTE, or any equity  interest in any of
          the BORROWERS or any of their respective SUBSIDIARIES now or hereafter
          outstanding;  (c) any payment  made by any of the  BORROWERS or any of
          their  respective  SUBSIDIARIES to retire,  or to obtain the surrender
          of,  any  outstanding  warrants,  options  or other  rights to acquire
          equity  interests in any of the  BORROWERS or any of their  respective
          SUBSIDIARIES now or hereafter  outstanding;  or (d) any payment by any
          of the  BORROWERS  or  any of  their  respective  SUBSIDIARIES  to any
          AFFILIATE or any other PERSON of any management, consulting or similar
          fees  outside  the  ordinary  course of  business  or which are not in
          amounts  comparable  to  sums  paid  in the  marketplace  for  similar
          services.

          Section 1.94.  Solvent. The term SOLVENT means, as to any referenced
          PERSON,  that as of the date of  determination  both: (a) (i) the then
          fair saleable value of the property of such PERSON is greater than the
          total amount of liabilities (including contingent liabilities) of such
          PERSON and is not less than the amount  that will be  required  to pay
          the probable  liabilities on such PERSONS then existing debts as they
          become absolute and matured considering all financing alternatives and
          potential asset sales reasonably  available to such PERSON;  (ii) such
          PERSONS capital is not unreasonably small in relation to its business
          or any contemplated or undertaken  transaction;  and (iii) such PERSON
          does not  intend to  incur,  or  believe  (nor  should  it  reasonably
          believe)  that it will  incur,  debts  beyond its  ability to pay such
          debts as they become due; and (b) such PERSON is solvent  within the
          meaning  given  that term and  similar  terms  under  applicable  laws
          relating to fraudulent transfers and conveyances. For purposes of this
          definition,  the amount of any contingent  liability at any time shall
          be  computed  as the  amount  that,  in  light  of all the  facts  and
          circumstances  existing at such time,  represents  the amount that can
          reasonably be expected to become an actual or matured liability.

          Section  1.95.  Stated  Amount.  The term STATED  AMOUNT  means with
          respect to each  LETTER OF CREDIT,  the lesser of (a) the face  amount
          thereof,  or (b) the amount remaining available for drawing thereunder
          (regardless  of  whether  any  conditions  for  drawing  could then be
          satisfied).

          Section 1.96.  Subordinated Debt. The term  SUBORDINATED  DEBT means
          the  INDEBTEDNESS  of any of the  BORROWERS  to any  PERSON  which  is
          expressly  subordinated  to  the  repayment  and  enforcement  of  the
          OBLIGATIONS pursuant to a written agreement acceptable to the LENDER.

          Section 1.97. Subsidiary. The term SUBSIDIARY means, with respect to
          any PERSON,  any other PERSON of which  securities or other  ownership
          interests  representing an aggregate of fifty percent (50%) or more of
          the equity or the  ordinary  voting power are, at the time as of which
          any  determination  is being made,  owned or controlled  directly,  or
          indirectly through one or more intermediaries, by such PERSON.

          Section 1.98. Tangible Net Worth. The term TANGIBLE NET WORTH means,
          as at the end of any period,  the  difference  obtained by subtracting
          (a)  TOTAL  LIABILITIES  as at the end of such  period  from (b) TOTAL
          ASSETS  as  at  the  end  of  such  period,   exclusive  of  goodwill,
          trademarks, tradenames, licenses and such other assets as are properly
          classified   as  intangible   assets  in   accordance   with  G.A.A.P.
          consistently  applied, and exclusive of all transactions with, and all
          amounts  due or to become  due to any of the  BORROWERS  or any of the
          consolidated  SUBSIDIARIES  from, and all investments in,  AFFILIATES.
          For purposes of this Section 1.98,  investments in AFFILIATES  shall
          not include the initial non-cash investment by GSE SYSTEMS in exchange
          for an equity interest in Avantium International BV.

          Section 1.99. Target.  The term TARGET  means any PERSON, a majority
          of the CAPITAL STOCK of which, a division or similar  business unit of
          which, or all or  substantially  all of the assets and business of any
          of the foregoing of which, are to be acquired by a BORROWER,  pursuant
          to the terms of an ACQUISITION AGREEMENT.

          Section 1.100.  Termination Event. The term TERMINATION EVENT means:
          (a) a  Reportable  Event  described in Section 4043 of ERISA and the
          regulations  issued  thereunder,  but not including any such event for
          which the 30-day  notice  requirement  has been  waived by  applicable
          regulation;  (b) the  withdrawal  of any of the  BORROWERS or an ERISA
          AFFILIATE  of any of the  BORROWERS  from a  GUARANTEED  PENSION  PLAN
          during a plan year in which it was a substantial employer as defined
          in Section  4001(a)(2) of ERISA;  (c) the filing of a notice of intent
          to  terminate  a  GUARANTEED  PENSION  PLAN  or  the  treatment  of  a
          GUARANTEED  PENSION PLAN amendment as a termination under Section 4041
          of ERISA; (d) the institution of proceedings to terminate a GUARANTEED
          PENSION  PLAN by the Pension  Benefit  Guaranty  Corporation;  (e) the
          withdrawal  or partial  withdrawal of any of the BORROWERS or an ERISA
          AFFILIATE of any of the BORROWERS  from a  MULTIEMPLOYER  PLAN; or (f)
          any other event or  condition  which might  reasonably  be expected to
          constitute  grounds  under  ERISA  for  the  termination  of,  or  the
          appointment of a trustee to administer, any GUARANTEED PENSION PLAN.

          Section 1.101.  Termination  Date. The term  TERMINATION  DATE means
          March 23, 2003

          Section 1.102. Total Assets. The term TOTAL ASSETS  means, as at the
          end of any period,  the  aggregate  amount which,  in accordance  with
          G.A.A.P.  consistently applied, would be included in a total assets or
          comparable  account  reflected in a balance sheet of the BORROWERS and
          their consolidated SUBSIDIARIES as at the end of such period.

          Section 1.103.  Total Current Assets.  The term TOTAL CURRENT ASSETS
          means,  as at the end of any period,  the aggregate  amount which,  in
          accordance with G.A.A.P.  consistently applied, would be included in a
          total  current  assets or  comparable  account  reflected in a balance
          sheet of the BORROWERS and their  consolidated  SUBSIDIARIES as at the
          end of such period,  exclusive  of deferred  assets other than prepaid
          items  such  as  insurance,  taxes,  interest,   commissions,   rents,
          royalties and the like,  and exclusive of all  transactions  with, and
          all  amounts  due or to become due to any of the  BORROWERS  and their
          consolidated SUBSIDIARIES from, and all investments in, AFFILIATES.

          Section  1.104.  Total Current  Liabilities.  The term TOTAL  CURRENT
          LIABILITIES  means, as at the end of any period, the aggregate amount
          which,  in accordance  with G.A.A.P.  consistently  applied,  would be
          included  in  a  total  current   liabilities  or  comparable  account
          reflected in a balance sheet of the  BORROWERS and their  consolidated
          SUBSIDIARIES  as at the end of such period,  including  all  reserves,
          accruals  and  deferred  charges and the  aggregate  amount of current
          indebtedness   of  persons   other  than  the   BORROWERS   and  their
          consolidated SUBSIDIARIES for which any BORROWER or their consolidated
          SUBSIDIARIES is liable, contingently or noncontingently,  or which are
          secured  by  property  of  any of the  BORROWERS  or any  consolidated
          SUBSIDIARIES.

          Section 1.105. Total Liabilities. The term TOTAL LIABILITIES  means,
          as at the end of any period, the aggregate amount which, in accordance
          with  G.A.A.P.  consistently  applied,  would be  included  in a total
          liabilities or comparable  account reflected in a balance sheet of the
          BORROWERS and their  consolidated  SUBSIDIARIES  as at the end of such
          period, including all reserves,  accruals and deferred charges and the
          aggregate  amount  of  the  liabilities  of  PERSONS  other  than  the
          BORROWERS  for  which  any of the  BORROWERS  and  their  consolidated
          SUBSIDIARIES is liable, contingently or noncontingently,  or which are
          secured  by  property  of  any of the  BORROWERS  or any  consolidated
          SUBSIDIARIES.

          Section 1.106.  Unbilled  Government Accounts Borrowing Base. The term
          UNBILLED  GOVERNMENT  ACCOUNTS  BORROWING BASE means, at any date of
          determination thereof, the lesser, as at such time, of (a) the product
          of (i)  ELIGIBLE  UNBILLED  GOVERNMENT  ACCOUNTS and (ii) the UNBILLED
          GOVERNMENT  ACCOUNTS CREDIT  PERCENTAGE,  and (b) UNBILLED  GOVERNMENT
          ACCOUNTS MAXIMUM CREDIT AMOUNT.

          Section 1.107.  Unbilled  Government  Accounts Credit Percentage.  The
          term UNBILLED  GOVERNMENT  ACCOUNTS  CREDIT  PERCENTAGE  means fifty
          percent (50%).

          Section 1.108. Unbilled Government Accounts Maximum Credit Amount. The
          term UNBILLED  GOVERNMENT  ACCOUNTS MAXIMUM CREDIT AMOUNT  means Two
          Million Two Hundred Fifty Thousand Dollars ($2,250,000.00).

          Section 1.109. Working Capital.  The term WORKING CAPITAL  means, as
          at the end of any period,  the difference  obtained by subtracting (a)
          TOTAL  CURRENT  LIABILITIES  as at the end of such  period,  plus  the
          aggregate  amount  of  all  outstanding   balances  under  the  CREDIT
          FACILITY,  as at the end of such period, from (b) TOTAL CURRENT ASSETS
          as at the end of such period.

          Section 1.110.  Year 2000  Compliant.  The term YEAR 2000  COMPLIANT
          means,  with  respect to any PERSON,  that all  computer  hardware and
          software  that are  material to the business  and  operations  of such
          PERSON   will  on  a  timely   basis  be  able  to  perform   properly
          date-sensitive  functions for all dates before,  on, and after January
          1, 2000, including functions with respect to any leap year.

          Section 1.111.  Year 2000 Problem. The term Year 2000 PROBLEM  shall
          have the meaning set forth in Section 6.20 hereof.

                                     ARTICLE 2
                             TERMS OF THE CREDIT FACILITY

          Section 2.1.  Agreement  To Extend The Loan.  Subject to the terms and
          conditions stated in this AGREEMENT and the LOAN DOCUMENTS, the LENDER
          agrees to extend the LOAN to the BORROWERS as co-obligors.  The LENDER
          shall advance proceeds of the LOAN to the BORROWERS by depositing into
          the COMMERCIAL  ACCOUNT or in accordance with such other procedures as
          may be agreed to between  the LENDER and the  BORROWERS,  such sums as
          any of the BORROWERS may request  during the period from and including
          the  date  of  CLOSING  to but not  including  the  TERMINATION  DATE;
          provided that the aggregate  outstanding principal balance of the LOAN
          plus the L/C  EXPOSURE  shall  never  exceed  at any time the  MAXIMUM
          CREDIT AMOUNT. All requests for advances of proceeds of the LOAN shall
          be in minimum  amounts of not less than One Hundred  Thousand  Dollars
          ($100,000.00).  The BORROWERS  shall not request or permit any advance
          of  proceeds of the LOAN which  would  cause the  aggregate  amount of
          advances made to or for the BORROWERS and  outstanding  under the LOAN
          DOCUMENTS  to exceed the  limitations  herein set forth.  In the event
          that the  principal  balance  outstanding  under the LOAN plus the L/C
          EXPOSURE  ever  exceeds  the  MAXIMUM  CREDIT  AMOUNT  (or  any of the
          percentages  or  sublimits  set forth  therein)  the  BORROWERS  shall
          immediately,  upon demand of the LENDER, pay to the LENDER in cash the
          amount of such excess and prior to such  repayment  such over advances
          shall bear interest at the highest rate provided under this AGREEMENT.
          Subject  to the  terms  and  conditions  of the  LOAN  DOCUMENTS,  the
          BORROWERS  may  borrow,  repay and  reborrow  advances  under the LOAN
          during  the  above-described  period.  Any  termination  of the CREDIT
          FACILITY by the LENDER,  whether on the  TERMINATION  DATE or upon and
          after the occurrence of an EVENT OF DEFAULT,  shall relieve the LENDER
          of  the  LENDERS  obligation  to  lend  money  or to  make  financial
          accommodations  to or  for  any  or  all  of  the  BORROWERS  and  the
          BORROWERS accounts, and shall in no way release, terminate, discharge
          or  excuse  any of the  BORROWERS  from  its  absolute  duty to pay or
          perform  the  OBLIGATIONS.  All  repayments  shall be  credited to the
          balance due from the  BORROWERS  pursuant to the normal and  customary
          practices of the LENDER.  All amounts received by LENDER in payment of
          RECEIVABLES shall be credited to the BORROWERS account after allowing
          the LENDERS  customary  period of time for  collection and clearance,
          but shall be conditional upon final payment to the LENDER.

          Section 2.1.1.  Note; Interest,  And Lenders Records. The obligations
          of the BORROWERS,  jointly and  severally,  to repay to the LENDER the
          LOAN shall be  evidenced  by the NOTE.  Interest  shall  accrue on the
          unpaid principal balance of the LOAN at the rate or rates described in
          Section 2.3 of this  AGREEMENT.  The date and amounts of each  advance
          made by the LENDER and each payment made by any of the BORROWERS shall
          be recorded by the LENDER on the books and records of the LENDER,  but
          any failure to record  such dates or amounts  shall not relieve any of
          the BORROWERS of its duties and obligations  under the LOAN DOCUMENTS.
          Interest  accrued  upon the  LOAN  shall be  computed  on  outstanding
          balances as reflected on the LENDERS books and records.

          Section 2.1.2. Term. All sums due under the LOAN shall be paid in full
          on TERMINATION DATE.

          Section 2.1.3.  Purpose. The proceeds of the LOAN shall be used by the
          BORROWERS  solely  for  the  BORROWERS  general  corporate  purposes,
          including working capital needs.

          Section 2.2.        Letters Of Credit.

          Section 2.2.1.  Availability.  Subject to the terms and  conditions of
          this  AGREEMENT and the LOAN  DOCUMENTS,  including but not limited to
          the  terms of all  reimbursement  agreements,  applications  and other
          documents required by the LENDER in the issuance of LETTERS OF CREDIT,
          the CREDIT  FACILITY may be used by the BORROWERS  for, and the LENDER
          agrees  to  issue,  LETTERS  OF  CREDIT  as  requested  by  any of the
          BORROWERS  for the account of the  BORROWERS  on any BUSINESS DAY from
          the date of CLOSING  through but not including the  TERMINATION  DATE;
          and  provided  (a)  the  L/C  EXPOSURE  (after  giving  effect  to any
          requested  issuance)  shall not at any time exceed Two Million Dollars
          ($2,000,000.00);  (b) the sum of the L/C EXPOSURE (after giving effect
          to the requested issuance) plus the aggregate unpaid principal balance
          of the LOAN shall not exceed the MAXIMUM CREDIT AMOUNT;  (c) no LETTER
          OF CREDIT (including any extension or renewal thereof,  whether or not
          automatic)  shall  expire on a date  which is later  than one (1) year
          from the date of issuance thereof;  (d) no LETTER OF CREDIT (including
          any  extension or renewal  thereof,  whether or not  automatic)  shall
          expire on a date  which is on or after  thirty  (30) days prior to the
          TERMINATION  DATE,  unless  such  LETTER OF CREDIT is  secured by cash
          collateral  satisfactory  to the  LENDER  in an  amount  equal  to one
          hundred  percent  (100%)  of  the  STATED  AMOUNT,  to be  applied  in
          accordance  with  Section  9.4  hereof;  and (e) the  issuance  of any
          requested LETTER OF CREDIT shall not conflict with or cause the LENDER
          to exceed any limits imposed by any LAWS applicable to the LENDER.  If
          at any time the L/C EXPOSURE exceeds any such permitted  amounts,  the
          BORROWERS shall furnish to the LENDER cash collateral  satisfactory to
          the  LENDER  in an  amount  equal  to such  excess  to be  applied  in
          accordance with Section 9.4 hereof.

          Section 2.2.2.  Requests for Letters of Credit.  Each LETTER OF CREDIT
          shall be issued only in accordance with the then current  practices of
          the LENDER  relating  to its  issuance  of standby  letters of credit,
          including  the payment by the  BORROWERS  of all  applicable  fees and
          charges in  connection  therewith.  Each LETTER OF CREDIT  shall be in
          such form as may be  approved  from time to time by the  LENDER.  Each
          request for a LETTER OF CREDIT shall be made to the LENDER pursuant to
          a written  application  and agreement  for letter of credit  complying
          with  the  LENDERS  then  current  requirements,  at  least  five (5)
          BUSINESS  DAYS before the proposed  date of issuance of such LETTER OF
          CREDIT.

          Section 2.2.3. Letter of Credit Fees And Other Charges. The BORROWERS,
          jointly and  severally,  shall pay to the LENDER a fee with respect to
          each outstanding  LETTER OF CREDIT computed on the face amount of such
          LETTER  OF  CREDIT  at an  annual  percentage  rate  equal  to two and
          one-half  percent (2.5%).  The aforesaid letter of credit fee shall be
          payable  quarterly in arrears on the last BUSINESS DAY of each QUARTER
          and on the TERMINATION DATE. In addition,  the BORROWERS,  jointly and
          severally,  shall pay to the LENDER  such other  normal and  customary
          fees, costs and expenses that may be charged or incurred by the LENDER
          in  connection  with  issuing,   effecting  payment  under,  amending,
          continuing,  extending,  or renewing or  otherwise  administering  any
          LETTER OF CREDIT including,  without  limitation,  correspondent  bank
          fees,  amendment fees,  reissuance  costs,  cancellation  fees and all
          reasonable out-of-pocket costs and expenses. Each LETTER OF CREDIT fee
          shall be  non-refundable,  even if the LETTER OF CREDIT is surrendered
          or drawn before the expiration date thereof.

          Section 2.2.4.  Payment of  Reimbursement  Obligations.  REIMBURSEMENT
          OBLIGATIONS,  together  with any  taxes,  charges  or  other  costs or
          expenses incurred by LENDER in connection with such payment,  shall be
          due and payable by the BORROWERS,  jointly and severally,  immediately
          upon the payment by the LENDER of the draw giving rise  thereto.  Each
          of the BORROWERS  acknowledges and agrees that it shall be jointly and
          severally,  irrevocably  and  unconditionally  obligated  forthwith to
          reimburse the LENDER, immediately upon any drawing under any LETTER OF
          CREDIT,  without presentment,  demand, protest or other formalities or
          notices of any kind.

          Section  2.2.5.  Conversion  of  Reimbursement  Obligations  to Loans.
          Immediately  upon the payment of each drawing or acceptance  under any
          LETTER OF CREDIT,  unless the amount of such drawing or  acceptance is
          immediately  reimbursed to the LENDER, by one or more of the BORROWERS
          from its separate  funds:  (a) the  BORROWERS  shall be deemed to have
          made an irrevocable  request for a BASE RATE BORROWING  under the LOAN
          in an  amount  equal  to  such  drawing  or  acceptance;  and  (b) the
          REIMBURSEMENT  OBLIGATION  resulting from the payment by the LENDER of
          such drawing or acceptance shall be converted to a BASE RATE BORROWING
          under the LOAN in a corresponding  principal  amount.  Anything to the
          contrary  in  this  AGREEMENT  notwithstanding,  except  as  otherwise
          provided  above in this  subsection,  each advance which is to be made
          pursuant to this  subsection  shall be made  regardless of whether the
          conditions  precedent  required of any of the BORROWERS  under Section
          4.2 are satisfied at the time thereof.

          Section 2.2.6.  Payment of L/C Exposure Upon Termination  Date. If any
          LETTERS OF CREDIT remain  outstanding  on the  TERMINATION  DATE,  the
          BORROWERS  shall,  without demand or the taking of any other action by
          the LENDER, pay to the LENDER an amount in immediately available funds
          equal to 100% of the L/C  EXPOSURE,  which  funds shall be held by the
          LENDER in a restricted  collateral account maintained by the LENDER in
          its own name.  Such funds shall be applied in accordance  with Section
          9.4 hereof.

          Section  2.2.7.   Payment  Obligations   Unconditional.   The  payment
          obligations of the BORROWERS under this Section 2.2 shall be absolute,
          unconditional,   and   irrevocable  and  shall  be  paid  strictly  in
          accordance  with  this  AGREEMENT  regardless  of  the  circumstances.
          Without  limiting the foregoing,  none of the following  circumstances
          shall reduce, discharge, stay, defer or impair in any other manner the
          payment obligations of any of the BORROWERS under this Section 2.2:

          a. any lack of validity or  enforceability  of any LETTER OF CREDIT or
          any LOAN DOCUMENT;

          b. any amendment,  waiver, release or termination of or any consent to
          departure from the terms of any LETTER OF CREDIT or any LOAN DOCUMENT;

          c.  any  extension  of time or other  modification  or the  terms  and
          conditions  governing  the making and honoring of any drawing,  or any
          extension of time or other  modification  of the terms and  conditions
          for any other  act to be  performed  under the terms of any  LETTER OF
          CREDIT;

          d. the  existence of any  dispute,  claim,  set-off,  defense or other
          right  which any of the  BORROWERS  may have at any time  against  any
          beneficiary  under, or any transferee of, any LETTER OF CREDIT (or any
          PERSONS for whom any such  beneficiary or transferee may hold a LETTER
          OF CREDIT or any interest therein), or the LENDER or any other PERSON,
          regardless of whether such dispute,  claim, set-off,  defense or other
          right is held or asserted in  connection  with this  AGREEMENT  or any
          unrelated transaction;

          e. the surrender or impairment of any security for the OBLIGATIONS;

          f.  any  question  of  form,  validity,  accuracy,  legal  effect,  or
          genuineness of drafts, endorsements, documents or required statements,
          even if such drafts,  endorsements,  documents or statements should in
          fact  prove  to  be  in  any  or  all  respects  invalid,  inaccurate,
          fraudulent or forged or any failure of any draft to bear any reference
          or adequate reference to any LETTER OF CREDIT;

          g.  payment  by  the  LENDER  under  any  LETTER  OF  CREDIT   against
          presentation of a draft, certificate or other documentation which does
          not  comply  with the terms of such  LETTER OF  CREDIT,  except to the
          extent  that  such  payment  constitutes  gross  negligence  or wilful
          misconduct of the LENDER; or

          h. any other  circumstance  or occurrence  whatsoever,  whether or not
          similar to any of the foregoing,  except to the extent  resulting from
          the gross negligence or wilful misconduct of the LENDER.

          Section 2.2.8. Suspension of Commitment to Issue Letters of Credit. In
          the event any provision of any LAW ever would prohibit or restrict the
          LENDER from issuing any LETTER OF CREDIT,  the agreement of the LENDER
          to issue LETTERS OF CREDIT  hereunder  shall  immediately be suspended
          until such  restrictions  cease to be applicable.  In the event of any
          such  suspension,  the BORROWERS may continue to obtain advances under
          the LOAN, subject to the terms and conditions of this AGREEMENT.

          Section 2.2.9.  Rights And Remedies Of The Lender.  In the event that,
          coincident  with or  subsequent to the  occurrence  of, and during the
          continuance of, a DEFAULT or an EVENT OF DEFAULT (but without limiting
          any right and  remedies of the LENDER  arising as a result of any such
          EVENT OF DEFAULT),  the LENDER  becomes aware of the  possibility of a
          draw, or  enforcement of the LENDERs  obligations,  under a LETTER OF
          CREDIT, the LENDER, at its option,  may, but shall not be required to,
          make an advance  (regardless  of whether the  conditions  precedent to
          advances or  issuances  of LETTERS OF CREDIT have been  satisfied)  of
          proceeds of the LOAN in an amount  equal to the STATED  AMOUNT of such
          LETTER  OF  CREDIT,  together  with any  LENDER  EXPENSES  charged  or
          incurred  or  reasonably   expected  to  be  charged  or  incurred  in
          connection  therewith in accordance  with Section 2.2.2 hereof,  to be
          deposited  in the cash  collateral  account  described  in Section 9.4
          hereof and applied in accordance therewith. All such advances shall be
          secured  by all of the  COLLATERAL  and  shall  bear  interest  and be
          payable at the same rate  (including the default rate of interest) and
          in the same manner as the LOAN.  If any LETTER OF CREDIT is drawn upon
          to discharge any obligation of any of the BORROWERS to the beneficiary
          of such  LETTER OF CREDIT,  in whole or in part,  the LENDER  shall be
          fully subrogated to the rights of such beneficiary with respect to the
          obligations owed by such BORROWER to such beneficiary  discharged with
          the proceeds of the LETTER OF CREDIT.

          Section 2.2.10.  Indemnification.  The BORROWERS jointly and severally
          and  unconditionally and irrevocably agree to indemnify the LENDER and
          to hold  the  LENDER  harmless  from  any and all  losses,  claims  or
          liabilities  arising from any transactions or occurrences  relating to
          LETTERS OF CREDIT  issued,  established,  opened or  accepted  for the
          account  of  any of the  BORROWERS,  and  any  drafts  or  acceptances
          thereunder,  and all  OBLIGATIONS  incurred in  connection  therewith,
          other  than  losses,  claims  or  liabilities  arising  from the gross
          negligence or willful misconduct of the LENDER.

          Section 2.3.  Interest  Rates.  Interest  shall  accrue on the  unpaid
          principal balances of the LOAN and on all REIMBURSEMENT OBLIGATIONS at
          the rate or rates described in this Section 2.3.

          Section 2.3.1.  Calculation Of Interest.  Interest shall be calculated
          on the basis of a 360 days per year  factor  applied to actual days in
          which  there  exists  unpaid   principal   balances  of  the  LOAN  or
          REIMBURSEMENT OBLIGATIONS.

          Section 2.3.2.   Adjusted   Base   Rate.   Except   as   provided   in
          Section 2.3.3.   of  this  AGREEMENT,   the  LOAN,  and  each  advance
          thereunder,  shall bear interest on the unpaid principal balances at a
          fluctuating  annual rate which  shall at all times equal the  ADJUSTED
          BASE  RATE.  Changes  in the  interest  rate shall be made when and as
          changes  in the BASE RATE  occur.  For each BASE RATE  BORROWING,  all
          accrued and unpaid interest shall be payable monthly in arrears on the
          1st calendar day of each month,  commencing on April 1, 2000. Payments
          made upon the LOAN shall be first applied to BASE RATE  BORROWINGS and
          then  to  any  LIBOR  BORROWING   outstanding   under  the  LOAN.  All
          REIMBURSEMENT  OBLIGATIONS  shall bear interest on the unpaid balances
          thereof at a  fluctuating  annual  rate which shall at all times equal
          the  ADJUSTED   BASE  RATE.   All  accrued  and  unpaid   interest  on
          REIMBURSEMENT  OBLIGATIONS shall be payable immediately upon demand of
          the LENDER.

          Section 2.3.3.  Adjusted  LIBOR Rate  Option.  Subject to the terms of
          this  Section,  interest may accrue,  at the election of the BORROWERS
          during INTEREST  PERIODS  selected by the BORROWERS on portions of the
          outstanding  principal  balances  of the  LOAN for  which  such a rate
          election is not then in effect,  at a rate equal to the ADJUSTED LIBOR
          RATE. Any LIBOR BORROWING or election for a LIBOR  BORROWING  pursuant
          to the  provisions of this  Section shall  be subject to the following
          terms and conditions:

          a. Repayment Of Interest.  For each of the LIBOR  BORROWINGS,  accrued
          interest  shall  be  paid  in  arrears  on (i)  the  last  day of each
          applicable  INTEREST PERIOD,  and (ii) as to any INTEREST PERIOD which
          is longer than three (3) months,  on the ninetieth  (90th) day of each
          such INTEREST PERIOD and on the last day of each such INTEREST PERIOD.

          b. Notice Of Election. By 10:00 a.m. on that BUSINESS DAY which occurs
          three  (3)  BUSINESS  DAYS  prior to the  BUSINESS  DAY on  which  the
          BORROWERS desire that an INTEREST PERIOD commence, the BORROWERS shall
          deliver  written  notice to the LENDER in the form attached  hereto as
          Exhibit 2.3.3(b)  specifying:  (i) the commencement date of and length
          of the relevant  INTEREST  PERIOD,  and (ii) the dollar amount of that
          portion of the total aggregate principal amount of the particular LOAN
          identified by the BORROWERS, which is to bear interest at the ADJUSTED
          LIBOR  RATE,  which  amount  shall be not be less  than  Five  Hundred
          Thousand Dollars  ($500,000).  If no notice of election is received in
          respect  of an  outstanding  LIBOR  BORROWING  that is  expiring,  the
          interest rate shall, at the end of the INTEREST PERIOD,  accrue at the
          ADJUSTED BASE RATE.

          c.  Interest  Periods.  There  shall be no more than six (6)  INTEREST
          PERIODS  outstanding  at any one time.  No INTEREST  PERIOD may expire
          after the TERMINATION DATE.

          d.  Availability.  If the LENDER  should  determine at any time that a
          REGULATORY  CHANGE  or a  change  in  market  conditions  has  made it
          impractical  for the  LENDER to offer  pricing  based on the  ADJUSTED
          LIBOR  RATE,   the  LENDER   shall   forthwith   give  notice  of  its
          determination  to the  BORROWERS,  and all  advances  which  are  then
          accruing  interest at an ADJUSTED LIBOR RATE shall, on the last day(s)
          of the then applicable  current INTEREST  PERIOD(S)  automatically and
          without further notice,  begin to accrue interest at the ADJUSTED BASE
          RATE.  Until such time as the LENDER shall determine that a REGULATORY
          CHANGE or a change in market  conditions  has again made it  practical
          for the LENDER to offer pricing on the ADJUSTED LIBOR RATE, the LENDER
          shall  not be  obligated  to  further  offer  pricing  based  upon the
          ADJUSTED LIBOR RATE, and any notice from the BORROWERS requesting such
          a rate option shall be ineffective.

          e.  Additional  Costs.  The BORROWERS,  jointly and  severally,  shall
          compensate the LENDER from time to time, upon demand,  for all losses,
          expenses, costs and liabilities (including, without limitation, in the
          event of any  repayment or  prepayment  described in clause (i) below,
          all interest paid to lenders of funds  borrowed by the LENDER to carry
          LIBOR  BORROWINGS) which the LENDER shall sustain if (i) any repayment
          or  prepayment of any LIBOR  BORROWING  shall occur on a date which is
          not the last day of the  applicable  INTEREST  PERIOD(S),  or (ii) any
          REGULATORY  CHANGE (A) subjects the LENDER to additional  taxes of any
          kind with  respect to LIBOR  BORROWING,  other than changes in federal
          income tax rates  applicable to the LENDER,  (B) imposes,  modifies or
          deems applicable any reserve,  special deposit or similar  requirement
          against  assets  held by or the  deposits in or for the account of, or
          loans by,  the  LENDER  (other  than such  reserves  as are taken into
          account as of the date of CLOSING in  calculating  the ADJUSTED  LIBOR
          RATE), or (C) imposes on the LENDER, directly or indirectly, any other
          conditions  affecting the LIBOR  BORROWINGS or the cost of U.S. dollar
          deposits  obtained by the LENDER in obtaining the funds to carry LIBOR
          BORROWINGS;  and the result of any of the foregoing is to increase the
          costs to the LENDER of making or maintaining  loans accruing  interest
          at the ADJUSTED  LIBOR RATE or decrease the yields of the LENDER.  The
          LENDER shall, upon the request of the BORROWERS, provide the BORROWERS
          with a  certificate  as to any  amounts  payable  under this  Section,
          showing in reasonable  detail the basis for the  calculation  thereof,
          which  calculation,  absent  manifest  error,  shall be presumed to be
          correct.

          f. Prepayment And Termination. No LIBOR BORROWING may be prepaid prior
          to the  expiration  of  the  applicable  INTEREST  PERIOD  unless  the
          BORROWERS  have  fully  compensated  the LENDER as  provided  above in
          Section 2.3.3.e. of this AGREEMENT.

          g.  Termination  Of Right To Elect LIBOR  Borrowings.  Notwithstanding
          anything  to the  contrary  set forth in this  AGREEMENT,  and without
          limiting  any  other  rights  and  remedies  of the  LENDER,  upon the
          occurrence of an EVENT OF DEFAULT which is then continuing, the LENDER
          may  suspend  the  right of the  BORROWERS  to  convert  any BASE RATE
          BORROWING into a LIBOR  BORROWING or to permit any LIBOR  BORROWING to
          continue  as a LIBOR  BORROWING,  in  which  case  (i) all  BASE  RATE
          BORROWINGS  shall be  continued as BASE RATE  BORROWINGS  and (ii) all
          LIBOR  BORROWINGS  having  thirty (30) days or more  remaining  in the
          respective INTEREST PERIODS may, in the sole discretion of the LENDER,
          be converted  immediately or at any time to BASE RATE BORROWINGS,  but
          shall,  in any event,  be converted on the last days of the respective
          INTEREST PERIODS therefor,  and (iii) all LIBOR BORROWINGS having less
          than thirty (30) days  remaining in the  respective  INTEREST  PERIODS
          shall be converted on the last days of the respective INTEREST PERIODS
          therefor.

          Section 2.3.4.  Default  Rate.  Upon  the  occurrence  of an  EVENT OF
          DEFAULT,  and even if the LOAN or the  REIMBURSEMENT  OBLIGATIONS have
          not been  accelerated,  the  interest  rate  payable on the LOAN,  the
          REIMBURSEMENT  OBLIGATIONS and the other  OBLIGATIONS may be increased
          by the LENDER to a rate equal to two percentage  points (2%) above the
          rate of interest otherwise in effect,  until such EVENT OF DEFAULT has
          been cured to the  satisfaction  of the LENDER or waived.  The default
          rate set forth in this Section shall  continue to apply whether or not
          judgment shall be entered on any of the OBLIGATIONS.

          Section 2.3.5.  Maximum Rate Of Interest.  Any provision  contained in
          the LOAN DOCUMENTS to the contrary notwithstanding,  the holder of the
          NOTE shall not be entitled to receive or collect, nor shall any of the
          BORROWERS be obligated to pay,  interest  thereunder  in excess of the
          maximum rate of interest permitted by the laws of any state determined
          to be  applicable  thereto or the laws of the United States of America
          applicable  to loans in such  applicable  state or states,  and if any
          provision  of this  AGREEMENT,  the NOTE or of any of the  other  LOAN
          DOCUMENTS  shall ever be  construed  or held to permit or require  the
          charging, collection or payment of any amount of interest in excess of
          that permitted by such laws applicable thereto, the provisions of this
          Section shall control and shall override any contrary or  inconsistent
          provision.  The  intention  of the parties is to at all times  conform
          strictly with all  applicable  usury laws, and other  applicable  laws
          limiting the maximum rates of interest  which may be lawfully  charged
          upon the LOANS and REIMBURSEMENT OBLIGATIONS.  The interest to be paid
          pursuant to the NOTE shall be held  subject to reduction to the amount
          allowed  under said usury or other laws as now or hereafter  construed
          by the  courts  having  jurisdiction,  and any sums of  money  paid in
          excess of the interest rate allowed by applicable law shall be applied
          in reduction of the principal  amount owing pursuant to the NOTE. EACH
          OF  THE  BORROWERS  EXPRESSLY  ACKNOWLEDGES  AND  UNCONDITIONALLY  AND
          IRREVOCABLY  STIPULATES FOR ALL PURPOSES THAT IT HAS BEEN CONTEMPLATED
          AT ALL  TIMES BY THE  PARTIES  THAT THE LAWS OF THE  STATE OF NEW YORK
          WILL GOVERN THE MAXIMUM RATE OF INTEREST  THAT IT IS  PERMISSIBLE  FOR
          THE LENDER TO CHARGE THE BORROWERS.

          Section 2.4.  Payments To Be Made To The Lender.  Except as  expressly
          provided to the contrary in any of the LOAN DOCUMENTS, all payments of
          principal,  interest,  fees and other sums to be paid by the BORROWERS
          to the LENDER in accordance with the terms of the LOAN DOCUMENTS shall
          be made in U.S.  Dollars,  in  immediately  available  funds,  without
          deduction,  set-off or counterclaim to the LENDER not later than 10:00
          a.m.  (Eastern  time) on the date on which such payments  shall become
          due (each  such  payment  made  after such time on such due date to be
          deemed to be made on the next  succeeding  BUSINESS  DAY).  If the due
          date of any payment under the LOAN DOCUMENTS would otherwise fall on a
          day that is not a BUSINESS  DAY,  such date shall be  extended  to the
          next  succeeding  BUSINESS DAY, and interest  shall be payable for any
          principal so extended from the period of such extension.

          Section 2.5.   Application   Of  Payments.   All  payments   upon  the
          OBLIGATIONS  shall be applied first to charges,  if any, next to fees,
          next to  interest,  and then to  principal  or in such other  order or
          proportion  as the  LENDER,  in the  discretion  of  the  LENDER,  may
          determine.

          Section 2.6. Late Payment Charge. Any payment of principal,  interest,
          or fees due from time to time upon or in  connection  with the LOAN or
          the  REIMBURSEMENT  OBLIGATIONS  which is  received by the LENDER more
          than fifteen (15)  calendar days after its due date shall incur a late
          payment charge equal to five percent (5%) of the amount of the payment
          due. All late payment  charges shall be payable upon the demand of the
          LENDER.  The  existence  of the right by the  LENDER to receive a late
          payment  charge  shall not  constitute  a grace  period or provide any
          right to any of the  BORROWERS  to make a payment  other  than on such
          payments scheduled due date.  Notwithstanding the foregoing,  no late
          charge  shall be payable in  connection  with any  delinquent  payment
          resulting  from the  failure  of the  LENDER to debit  any  COLLECTION
          ACCOUNT of the  BORROWERS  in which  sufficient  collected  funds were
          present to satisfy any required payment,  if the LENDER was authorized
          to make such debit.

          Section 2.7.  Facility Fee. For each QUARTER or portion thereof during
          which the CREDIT FACILITY is in existence and has not been terminated,
          until the payment in full and termination of the CREDIT FACILITY,  the
          BORROWERS  shall pay to the LENDER a facility fee equal to one quarter
          of one percent  (0.25%) per annum on that sum obtained by  subtracting
          the average  daily  disbursed  principal  balance of the LOAN plus the
          aggregate STATED AMOUNT outstanding under all LETTERS OF CREDIT during
          such QUARTER or portion  thereof from the DOLLAR CAP. The facility fee
          shall be  payable  quarterly  in  arrears,  on the  first  day of each
          succeeding  April,  July,  October and January or on the last day of a
          portion of a QUARTER  commencing with the first of such payments to be
          made on April 1, 2000.  The facility fee is not to be considered a fee
          being  paid by the  BORROWERS  to the LENDER as an  inducement  to the
          LENDER to make  advances or issue  LETTERS OF CREDIT,  nor shall it be
          considered  to modify or limit the ability of the LENDER to  terminate
          in accordance with the provisions of this AGREEMENT the ability of the
          BORROWERS to borrow under the LOAN, or obtain LETTERS OF CREDIT but is
          instead  intended as part of the  compensation  which is earned by the
          LENDER for agreeing to provide the CREDIT  FACILITY in accordance with
          the terms of the LOAN DOCUMENTS.  The facility fee shall be calculated
          on the basis of three hundred sixty (360) days per year factor.

          Section 2.8.  Commitment  Fee. The  BORROWERS,  jointly and severally,
          shall  pay to the  LENDER on or before  CLOSING a  non-refundable  and
          unconditional fee of Fifty Thousand Dollars ($50,000.00),  which shall
          be the absolute  property of the LENDER upon  payment.  This fee shall
          not be  considered  to be a payment  of any of the  LENDERS  expenses
          incurred in connection with the LOAN and shall be paid  independent of
          the  amount  of  proceeds  of  the  LOAN  ultimately  advanced  to the
          BORROWERS,  even if that  amount  is less  than the  stated  principal
          amount of the LOAN.

          Section 2.9.  Examination  Fee. The BORROWERS,  jointly and severally,
          shall pay to the LENDER,  as billed by the LENDER,  an examination fee
          equal to Two Thousand Dollars  ($2,000.00) for each field  examination
          by the LENDER of the BORROWERS books and records. The BORROWERS shall
          not  be  billed  for  more  than  one  (1)  field  examination  in any
          consecutive  ninety  (90) day  period,  unless an EVENT OF DEFAULT has
          occurred and continues for more than thirty (30) days.

          Section 2.10.  Termination  Fee. In the event the BORROWERS  terminate
          the CREDIT FACILITY and repay the LOAN in full with funds derived from
          any source other than revenues  from the  BORROWERS  normal  business
          operations,  the BORROWERS,  jointly and  severally,  shall pay to the
          LENDER termination fee equal to the following percentage of the DOLLAR
          CAP: (a) one and one-half  percent  (1.5%) if the  prepayment  in full
          occurs  at any time on or  before  March  22,  2001;  (b) one  percent
          (1.00%) if the prepayment  occurs at any time after March 22, 2001 but
          on or before  March 22, 2002;  (c) one-half of one percent  (0.50%) if
          the  prepayment  occurs at any time after  March 22,  2002,  but on or
          before March 22, 2003; (d) zero percent (0%) if the prepayment in full
          occurs  after  March 22,  2003.  Notwithstanding  the  foregoing,  the
          termination fee described in this Section 2.10 shall not be due if the
          prepayment  and  termination  of the  CREDIT  FACILITY  occurs  in the
          absence of any DEFAULT or EVENT OF DEFAULT and the BORROWERS  elect to
          prepay  and  terminate  the  CREDIT  FACILITY  as a  result  of  (a) a
          determination  by the LENDER  that,  pursuant  to 2.2.3.d.  hereof,  a
          REGULATORY  CHANGE has occurred and made it impractical for the LENDER
          to offer pricing  based on the ADJUSTED  LIBOR RATE or (b) having been
          billed by the LENDER  for  additional  costs  arising as a result of a
          REGULATORY CHANGE pursuant to subsections 2.3.3.e (ii)(A),  (B) or (C)
          hereof,  provided  such  REGULATORY  CHANGE and the  additional  costs
          arising as a result thereof are applicable  only to the LENDER and not
          to a class of lenders,  banks or financial  institutions including the
          LENDER  or  any  corporation  controlling  the  LENDER,  and  are  not
          applicable to the LENDER as a result of its obligations hereunder, the
          creditworthiness  of any of the  BORROWERS,  or the  occurrence of any
          DEFAULT or EVENT OF DEFAULT; and provided further that nothing in this
          clause  (b) shall  affect or alter the  obligation  of the  BORROWERS,
          jointly  and  severally,  to pay to the LENDER the full  amount of all
          such additional costs.

          Sectio 2.11.  Capital Adequacy.  If the LENDER determines at any time
          that  the  adoption  or   implementation   of  any  CAPITAL   ADEQUACY
          REQUIREMENT,  or  the  compliance  therewith  by  the  LENDER  or  any
          corporation or other PERSON controlling the LENDER, affects the amount
          of capital to be  maintained  by the LENDER or any PERSON  controlling
          the LENDER as a result of its  obligations  hereunder,  or reduces the
          effective rate of return on the LENDERS or such controlling  PERSONS
          capital to a level  below  that  which the LENDER or such  controlling
          PERSON would have achieved but for such CAPITAL  ADEQUACY  REQUIREMENT
          as  a  consequence   of  its   obligations   hereunder   (taking  into
          consideration the LENDERS or such controlling  PERSONS policies with
          respect to capital  adequacy),  then after submission by the LENDER to
          the  BORROWERS  of a written  request  therefor and a statement of the
          basis for such  determination,  the BORROWERS  shall pay to the LENDER
          such  additional   amounts  as  will  compensate  the  LENDER  or  the
          controlling  PERSON for the cost of maintaining the increased  capital
          or for the  reduction in the rate of return on capital,  together with
          interest  thereon at the highest rate of interest then in effect under
          the NOTE from the date the LENDER  requests  such  additional  amounts
          until those amounts are paid in full.

          Section 2.12.  Payments. All payments received by the LENDER which are
          to be applied  to reduce  the  OBLIGATIONS  shall be  credited  to the
          balances due from any or all of the  BORROWERS  pursuant to the normal
          and customary  practices of the LENDER,  but shall be provisional  and
          shall not be  considered  final  unless and until such  payment is not
          subject  to  avoidance  under  any  provision  of  the  United  States
          Bankruptcy  Code, as amended,  including  Sections 547 and 550, or any
          state law governing insolvency or creditors rights. If any payment is
          avoided  or  set  aside  under  any  provision  of the  United  States
          Bankruptcy  Code,  including  Sections  547 and 550,  or any state law
          governing  insolvency  or  creditors  rights,  the  payment  shall be
          considered  not to have been made for all  purposes of this  AGREEMENT
          and the LENDER  shall  adjust its records to reflect the fact that the
          avoided  payment  was not made and has not been  credited  against the
          OBLIGATIONS.

          Section 2.13.  Advancements.  If any of the BORROWERS fails to perform
          any of its  agreements or covenants  contained in this AGREEMENT or if
          any of the  BORROWERS  fails to protect or preserve the  COLLATERAL or
          the status and priority of the security  interest of the LENDER in the
          COLLATERAL, the LENDER may make advances to perform the same on behalf
          of such  BORROWER to protect or preserve the  COLLATERAL or the status
          and priority of the security interest of the LENDER in the COLLATERAL,
          and all sums so advanced shall immediately upon advance become secured
          by the security interests granted in this AGREEMENT,  and shall become
          part of the  principal  amount owed to the LENDER with  interest to be
          assessed at the  applicable  rate thereon and subject to the terms and
          provisions  of this  AGREEMENT  and  all of the  LOAN  DOCUMENTS.  The
          BORROWERS shall repay on demand all sums so advanced on any BORROWERS
          behalf,  plus all expenses or costs incurred by the LENDER,  including
          reasonable  legal fees,  with  interest  thereon at the  highest  rate
          authorized  in the NOTE.  The  provisions of this Section shall not be
          construed to prevent the institution of the rights and remedies of the
          LENDER upon the occurrence of an EVENT OF DEFAULT.  The  authorization
          contained  in this  Section  is not  intended  to  impose  any duty or
          obligation on the LENDER to perform any action or make any advancement
          on behalf of any or all of the BORROWERS and is intended to be for the
          sole benefit and protection of the LENDER.

          Section 2.14.   Cross-Guaranty;   Waiver   Of   Suretyship   Defenses;
          Subordination.

          Section 2.14.1. Cross-Guaranty. Each BORROWER guarantees to the LENDER
          the payment in full of all of the  OBLIGATIONS of the other  BORROWERS
          and further  guarantees the due  performance by the other BORROWERS of
          their  respective  duties  and  covenants  made in favor of the LENDER
          hereunder and under the other LOAN  DOCUMENTS.  Each  BORROWER  agrees
          that neither this cross  guaranty nor the joint and several  liability
          of the BORROWERS provided in this AGREEMENT nor the LENDERs liens and
          rights in any of the  COLLATERAL  shall be impaired or affected by any
          modification,  supplement,  extension  or amendment of any contract or
          agreement to which the parties hereto may hereafter  agree, nor by any
          modification,  release or other alteration of any of the rights of the
          LENDER  with  respect  to  any of the  COLLATERAL,  nor by any  delay,
          extension of time, renewal,  compromise or other indulgence granted by
          the LENDER with  respect to any of the  OBLIGATIONS,  nor by any other
          agreements or  arrangements  whatever with the other BORROWERS or with
          any other PERSON,  each BORROWER hereby waiving all notice of any such
          delay, extension, release, substitution,  renewal, compromise or other
          indulgence,  and hereby  consenting  to be bound  thereby as fully and
          effectively  as if it had  expressly  agreed  thereto in advance.  The
          liability of each BORROWER hereunder is direct and unconditional as to
          all of the  OBLIGATIONS,  and may be enforced  without  requiring  the
          LENDER first to resort to any other right, remedy or security.

          Section 2.14.2.   Postponement  of  Subrogation.   Until  all  of  the
          OBLIGATIONS  are paid in full,  no  BORROWER  shall  have any right of
          subrogation,  reimbursement or indemnity whatsoever,  nor any right of
          recourse to security  for any of the  OBLIGATIONS,  and nothing  shall
          discharge or satisfy the liability of a BORROWER hereunder,  until the
          full,  final  and  absolute  payment  and  performance  of  all of the
          OBLIGATIONS at any time after all commitments of the LENDER under this
          AGREEMENT  are  terminated.  Any and all present and future  debts and
          obligations of each BORROWER to each of the other BORROWERS are hereby
          waived and postponed in favor of and  subordinated to the full payment
          and  performance  of all  present  and future  OBLIGATIONS;  provided,
          however, so long as no DEFAULT or EVENT OF DEFAULT has occurred,  each
          of the  BORROWERS  may  repay  debts  and  obligations  to  any  other
          BORROWER.

          Section 2.14.3.  Subordination.  Each BORROWER hereby subordinates any
          claims (other than claims  evidenced by notes which have been assigned
          and delivered to the LENDER), including, without limitation, any other
          right of payment, subrogation,  contribution and indemnity that it may
          have from or against the other BORROWERS,  and any successor or assign
          of the other BORROWERS,  including,  without limitation,  any trustee,
          receiver or debtor-in-possession,  howsoever arising, due or owing and
          whether  heretofore,   now  or  hereafter  existing,  to  all  of  the
          OBLIGATIONS of the other BORROWERS to the LENDER;  provided,  however,
          so long as no DEFAULT or EVENT OF DEFAULT  has  occurred,  each of the
          BORROWERS may accept payments from any other BORROWER.

          Section 2.14.4.  Joint And Several  Liability;  Appointment  Of Agent.
          Notwithstanding   anything  to  the  contrary  contained  herein,  the
          BORROWERS shall be jointly and severally  liable to the LENDER for all
          OBLIGATIONS,  regardless of whether such OBLIGATIONS arise as a result
          of credit  extensions to one BORROWER,  it being stipulated and agreed
          that the LOAN, the LETTERS OF CREDIT, and all of the credit extensions
          hereunder to one BORROWER inure to the benefit of all  BORROWERS,  and
          that the LENDER is relying on the joint and several  liability  of the
          BORROWERS in  extending  the LOAN and in issuing any of the LETTERS OF
          CREDIT  and  in  providing   credit   hereunder.   To  facilitate  the
          administration of the LOAN, each of GSE Process  Solutions,  Inc., and
          GSE Power Systems,  Inc., hereby  irrevocably  appoints GSE SYSTEMS as
          its true and  lawful  agent and  attorney-in-fact  with full power and
          authority to execute,  deliver and  acknowledge,  as appropriate,  all
          LOAN DOCUMENTS or certificates  from time to time deemed  necessary or
          appropriate by the LENDER in connection  with the LOAN, any LETTERS OF
          CREDIT,  or the  issuance  or  administration  of  any  of  the  other
          OBLIGATIONS.  This  power-of-attorney  is coupled with an interest and
          cannot be  revoked,  modified  or amended  without  the prior  written
          consent of the LENDER.  Upon the  request of the  LENDER,  GSE Process
          Solutions,   Inc.  and  GSE  Power  Systems,   Inc.,   shall  execute,
          acknowledge  and  deliver  to the  LENDER a form of power of  attorney
          confirming and restating the power-of-attorney granted herein.

                                       ARTICLE 3
                               URITY FOR THE OBLIGATIONS

          The payment,  performance and satisfaction of the OBLIGATIONS shall be
          secured by the following assurances of payment and security.

          Section 3.1.  Grant Of  Security  Interest.  In order  to  secure  the
          repayment and performance of all OBLIGATIONS,  both currently existing
          and arising in the future,  each of the BORROWERS grants to the LENDER
          an  immediate  and  continuing   security   interest  in  and  to  the
          COLLATERAL.  Each of the BORROWERS  further pledges,  hypothecates and
          grants to the LENDER a  continuing  security  interest  in and to, all
          amounts  that may be  owing  at any time and from  time to time by the
          LENDER to any of the  BORROWERS  in any  capacity,  including  but not
          limited to any balance or share  belonging to any of the  BORROWERS of
          any deposit or other account with the LENDER,  which security interest
          shall be  independent  of and in  addition  to any right of set-off to
          which the LENDER may be entitled.

          Sectio 3.2.  Proceeds And Products.  The LENDERS security  interests
          provided for herein  shall apply to the  proceeds,  including  but not
          limited to insurance proceeds, and the products of the COLLATERAL.

          Section 3.3.  Priority Of  Security  Interests.  Each of the  security
          interests,  pledges, and liens granted by each of the BORROWERS to the
          LENDER  pursuant to any of the LOAN DOCUMENTS shall be perfected first
          priority security interests,  pledges,  and liens (except for security
          interests  in  motor  vehicles  for  which  a  notation  of  lien on a
          certificate of title is required).

          Section 3.4.  Future  Advances.  The security  interests,  liens,  and
          pledges granted by each of the BORROWERS to the LENDER pursuant to the
          LOAN DOCUMENTS  shall secure all current and all future  advances made
          by the LENDER to the  BORROWERS,  or for the account or benefit of any
          of the  BORROWERS,  and the  LENDER  may  advance  or  readvance  upon
          repayment  by any of the  BORROWERS  all or any  portion  of the  sums
          loaned to the  BORROWERS  and any such advance or  readvance  shall be
          fully secured by the security interests, liens, and pledges created by
          the LOAN DOCUMENTS.

          Section 3.5.  Receivable Collections.  The BORROWERS shall establish a
          COLLECTION  ACCOUNT  arrangement  acceptable  to the  LENDER at a bank
          acceptable to the LENDER. Each of the BORROWERS shall deposit or cause
          to be deposited into the COLLECTION ACCOUNT,  immediately upon receipt
          thereof,  all cash,  checks,  drafts,  and other  instruments  for the
          payment of money, properly endorsed, which have been received by it in
          full or partial payment of any  RECEIVABLE.  Prior to any such deposit
          by any of the  BORROWERS  into  the  COLLECTION  ACCOUNT,  none of the
          BORROWERS  will  commingle such items of payment with any of its other
          funds or  property  but will hold them  separate  and apart.  Upon the
          written request of the LENDER each of the BORROWERS shall instruct all
          of its ACCOUNT  DEBTORS to make all payments on its  RECEIVABLES  to a
          post  office box in which the  LENDER  alone  shall  have sole  access
          (LOCK BOX).  If payment of any  BORROWERS  RECEIVABLES is paid into
          the LOCK BOX the LENDER  shall,  on each  BUSINESS  DAY,  withdraw the
          items  of  payment  from  the  LOCK  BOX and  deposit  them  into  the
          COLLECTION ACCOUNT.  The LENDER, from time to time, shall apply all of
          the collected  funds held in the COLLECTION  ACCOUNT toward payment of
          all or any part of the  OBLIGATIONS,  whether or not then due, in such
          order of  application  as the LENDER may  determine.  The LENDER shall
          have no obligation to provide any  provisional or other credit for any
          deposited  funds which are not  collected  funds free of any rights of
          return.

          Section 3.6.  Collection Of  Receivables  By Lender.  The LENDER shall
          have the right during any continuing  EVENT OF DEFAULT to send notices
          of assignment or notices of the LENDERS  security interest to any and
          all ACCOUNT DEBTORS or any third party holding or otherwise  concerned
          with any of the  COLLATERAL,  and thereafter the LENDER shall have the
          sole right to collect the  RECEIVABLES  and to take  possession of the
          COLLATERAL  and  RECORDS  relating   thereto.   All  of  the  LENDERS
          collection  expenses shall be charged to the  BORROWERS  accounts and
          added to the  OBLIGATIONS.  During any continuing EVENT OF DEFAULT the
          LENDER shall have the right to receive, indorse, assign and deliver in
          the LENDERS  name or any of the  BORROWERS  name any and all checks,
          drafts and other  instruments for the payment of money relating to the
          RECEIVABLES,  and  each  of the  BORROWERS  hereby  waives  notice  of
          presentment, protest and non-payment of any instrument so endorsed. If
          the LENDER is collecting the RECEIVABLES, each of the BORROWERS hereby
          constitutes   the   LENDER   or   the   LENDERS   designee   as   its
          attorney-in-fact  with power with respect to the  RECEIVABLES:  (a) to
          indorse its name upon all notes,  acceptances,  checks,  drafts, money
          orders or other  evidences of payment of COLLATERAL that may come into
          the LENDERS possession; (b) to sign its name on any invoices relating
          to any of the RECEIVABLES, drafts against ACCOUNT DEBTORS, assignments
          and  verifications of RECEIVABLES and notices to ACCOUNT DEBTORS;  (c)
          to send  verifications  of RECEIVABLES to any ACCOUNT  DEBTOR;  (d) to
          notify the Post  Office to change the  address  for  delivery  of mail
          addressed  to it to such address as the LENDER may  designate;  (e) to
          receive and open all mail addressed to it and to remove  therefrom all
          cash,  checks,  drafts and other payments of money;  and (f) to do all
          other acts and things  necessary,  proper,  or convenient to carry out
          the terms and  conditions  and purposes and intent of this  AGREEMENT.
          All  acts of  such  attorney  or  designee  are  hereby  ratified  and
          approved,  and such  attorney or designee  shall not be liable for any
          acts of  omission  or  commission,  nor for any error of  judgment  or
          mistake of fact or law in  accordance  with this  AGREEMENT,  with the
          exception  of acts  arising  from  actual  fraud or gross  and  wanton
          negligence.  The power of attorney hereby granted,  being coupled with
          an  interest,  is  irrevocable  while  any of the  OBLIGATIONS  remain
          unpaid.  During any continuing EVENT OF DEFAULT,  the LENDER,  without
          notice  to or  consent  from  any of the  BORROWERS,  may sue  upon or
          otherwise  collect,  extend the time of payment  of or  compromise  or
          settle  for  cash,  credit or  otherwise  upon any  terms,  any of the
          RECEIVABLES or any  securities,  instruments or insurances  applicable
          thereto or release the obligor thereon. During any continuing EVENT OF
          DEFAULT,  the LENDER is authorized  and empowered to accept the return
          of the goods represented by any of the RECEIVABLES,  without notice to
          or  consent  by any of the  BORROWERS;  provided,  however in no event
          (whether  during the  continuance of an EVENT OF DEFAULT or otherwise)
          shall  acceptance of returned goods by the LENDER  discharge or in any
          way  affect  the  liability  of any of the  BORROWERS  under  the LOAN
          DOCUMENTS.  The  LENDER  does  not,  by  anything  herein  or  in  any
          assignment or otherwise,  assume any of the  obligations of any of the
          BORROWERS under any contract or agreement  assigned to the LENDER, and
          the LENDER shall not be responsible in any way for the  performance by
          any of the BORROWERS of any of the terms and conditions thereof.

          Section 3.7. Guaranty Agreements. Each of the GUARANTORS shall execute
          and deliver a GUARANTY  AGREEMENT which shall  guarantee,  among other
          things,  the absolute full payment and performance by the BORROWERS of
          the  OBLIGATIONS.  Each of the LIMITED  GUARANTORS  shall  execute and
          deliver a  GUARANTY  AGREEMENT  which  shall  guarantee,  among  other
          things,  the absolute full payment and performance by the BORROWERS of
          the  OBLIGATIONS,  subject to the limitation as to monetary amount set
          forth therein.

          Section 3.8.  Further  Assurances.  Each of the BORROWERS will, at its
          expense,  promptly  execute and deliver  all further  instruments  and
          documents  and take  all  further  action  that  may be  necessary  or
          desirable or that the LENDER may reasonably  request from time to time
          in order:  (a) to perfect  and protect the  security  interests  to be
          created  hereby;  (b) to enable the LENDER to exercise and enforce its
          rights and  remedies  hereunder in respect of the  COLLATERAL;  or (c)
          otherwise to effect the purposes of this AGREEMENT, including, without
          limitation:  (i) upon such BORROWERS acquisition thereof,  delivering
          to the LENDER each item of CHATTEL PAPER of the BORROWER,  (ii) if any
          RECEIVABLES are evidenced by an INSTRUMENT  delivering and pledging to
          the LENDER such  INSTRUMENT  duly endorsed and accompanied by executed
          instruments  of  transfer  or  assignment,  all in form and  substance
          satisfactory to the LENDER,  (iii) executing and filing such financing
          statements or  amendments  thereto as may be necessary or desirable or
          that the LENDER  may  request in order to  perfect  and  preserve  the
          security  interests  purported  to be  created  hereby,  (iv) upon the
          acquisition  after the date hereof by such  BORROWER of any  EQUIPMENT
          covered by a certificate of title or ownership, cause the LENDER to be
          listed as the lienholder on such certificate of title and within sixty
          (60) days of the acquisition  thereof deliver  evidence of the same to
          the LENDER,  and (v) upon the acquisition after the date hereof of any
          asset for which an assignment,  pledge, mortgage, or other document is
          required  to be filed in order to grant or perfect a lien  therein for
          the  benefit of the  LENDER,  execute  and  deliver to the LENDER such
          assignment,  pledge,  mortgage, or other INSTRUMENT within thirty (30)
          days of the  acquisition  thereof.  If any of the  BORROWERS  fails to
          execute any  instrument  or document  described  above within five (5)
          BUSINESS DAYS of being  requested to do so by the LENDER,  each of the
          BORROWERS  hereby  appoints the LENDER or any officer of the LENDER as
          such  BORROWERS  attorney  in fact for  purposes  of  executing  such
          instruments  or documents in such  BORROWERS  name,  place and stead,
          which  power  of  attorney  shall be  considered  as  coupled  with an
          interest and irrevocable.

          Section 3.9.  Fair Labor  Standards  Act. As further  security for the
          OBLIGATIONS,  each  of the  BORROWERS  shall  comply  in all  material
          respects with the Fair Labor Standards Act of 1938, as amended.

                                       ARTICLE 4
                                CONDITIONS PRECEDENT

          Any  obligation  of the LENDER to  perform  any duty  imposed  upon or
          assumed  by the  LENDER  in  accordance  with  the  terms  of the LOAN
          DOCUMENTS or  otherwise  with respect to the LOAN or LETTERS OF CREDIT
          shall be  conditioned  upon the  satisfaction  by the BORROWERS of the
          conditions precedent set forth in this Article 4.

          Section 4.1.  Conditions to Closing.  Each of the following conditions
          precedent shall be satisfied prior to the date of CLOSING:

          Section 4.1.1. Organizational Documents. The delivery to the LENDER by
          each of the BORROWERS,  the  GUARANTORS and the LIMITED  GUARANTORS of
          the following documents, each certified as indicated below: (a) a copy
          of its the Articles of Incorporation  or Articles of Organization,  as
          the case may be, as  amended  and in  effect  on the date of  CLOSING,
          certified  as of a  recent  date  by the  Secretary  of  State  of its
          jurisdiction of formation,  a certificate from such Secretary of State
          dated  as of a  recent  date as to the good  standing  of and  charter
          documents  filed by each of the  BORROWERS,  the  GUARANTORS,  and the
          LIMITED GUARANTORS,  as applicable,  and certificates of good standing
          for each  jurisdiction  in which each of the BORROWERS and each of the
          GUARANTORS is required by the nature of its business or assets qualify
          to do  business;  (b) a  certificate  of the  Secretary  or  Assistant
          Secretary of each of the  BORROWERS,  the  GUARANTORS  and the LIMITED
          GUARANTORS,  dated as of the date of CLOSING and certifying:  (i) that
          attached  thereto  is a  true  and  accurate  copy  of the  Bylaws  or
          operating agreement (as the case may be) of each of the BORROWERS, the
          GUARANTORS and the LIMITED GUARANTORS,  as applicable,  as amended and
          in effect at all times from the date on which the resolutions referred
          to in clause (ii) hereto were adopted and  including  the date of such
          certificate; (ii) that attached thereto is a true and complete copy of
          resolutions  duly  adopted  by the Board of  Directors  of each of the
          BORROWERS,  the GUARANTORS and the LIMITED GUARANTORS,  as applicable,
          authorizing  the  execution,  delivery and  performance of each of the
          LOAN  DOCUMENTS  to  which  such  BORROWER,   GUARANTOR,   or  LIMITED
          GUARANTOR,  as applicable,  is or is intended to be a party,  and that
          such resolutions have not been modified, rescinded, or amended and are
          in full force and effect;  and (iii) as to the incumbency and specimen
          signature of each officer of the  BORROWERS,  the  GUARANTORS,  or the
          LIMITED  GUARANTORS,  as  applicable,  executing the LOAN DOCUMENTS to
          which such BORROWER,  GUARANTOR,  or LIMITED GUARANTOR, as applicable,
          is intended to be a party.

          Section 4.1.2.  Opinion Of Counsel.  The  delivery to the LENDER of an
          opinion  of  counsel  to  the  BORROWERS,   GUARANTORS,   and  LIMITED
          GUARANTORS  addressed  to the  LENDER  and  dated  as of the  date  of
          CLOSING,  in  substantially  the same form as Exhibit 4.1.3.  attached
          hereto.

          Sectio 4.1.3. Execution Of Loan Documents. The execution and delivery
          of all of the LOAN DOCUMENTS.

          Section 4.1.4.  Submissions.  The  delivery  to  the  LENDER  of  such
          certificates,  submissions,  and  supporting  documents  as have  been
          previously requested by the LENDER

          Section 4.1.5.  Insurance.  The delivery to the LENDER of certificates
          of insurance  evidencing the existence of all insurance required to be
          maintained by the BORROWERS and the  GUARANTORS  pursuant to the terms
          and  conditions of the LOAN DOCUMENTS and evidence that such insurance
          is in full force and effect and that all premiums then due and payable
          thereon have been paid.

          Sectio 4.1.6. Record Searches. The receipt and satisfactory review by
          the LENDER of such Uniform  Commercial Code, tax,  pending  litigation
          and judgment searches as have been requested by the LENDER

          Section 4.1.7.  Absence Of Material Adverse Change. The absence of the
          occurrence of any material adverse change in the financial  conditions
          or business  affairs of any of the BORROWERS,  the GUARANTORS,  or the
          LIMITED GUARANTORS.

          Section 4.1.8.  Payment Of Closing Fees.  The payment by the BORROWERS
          of  each of the  closing  fees  agreed  in  writing  to be paid by the
          BORROWERS  to the  LENDER,  which  fees  shall be  nonrefundable  upon
          payment.  Such  closing  fees  paid  by  the  BORROWERS  shall  not be
          considered to be a payment of any of the LENDERS EXPENSES,  and shall
          be paid independently of the amount of proceeds of the LOAN ultimately
          advanced to the BORROWERS.

          Section 4.1.9.  Payment Of Lenders  Closing Costs. The payment by the
          BORROWERS of all of the reasonable  costs,  fees and expenses incurred
          by  the  LENDER  in  connection  with  the  negotiation,  preparation,
          execution,  and  delivery  of the LOAN  DOCUMENTS,  including  but not
          limited to reasonable  attorneys  fees, the cost of any public record
          searches,   recording   costs,  and  other  reasonable  and  necessary
          out-of-pocket costs and expenses incurred by the LENDER.

          Section4.1.10.  Dime  Commercial  Corp.  Facility.  On  the  date  of
          CLOSING:  (a)  there  shall  have  been  paid  in  cash  in  full  all
          outstanding  principal  balances and all accrued but unpaid  interest,
          fees and  charges  due on the  loans  outstanding  to Dime  Commercial
          Corp.;   and  (b)  the  LENDER   shall  have   received  an  agreement
          satisfactory  to the LENDER  from Dime  Commercial  Corp.  to promptly
          terminate all liens and security  interests  against the BORROWERS and
          to forward to the LENDER all  outstanding  promissory  notes issued by
          the BORROWERS to Dime Commercial Corp. marked paid in full.

          Section  4.2.  Conditions  Precedent  To All  Advances and Issuance of
          Letters of Credit.  The  obligation of the LENDER to make any advances
          of the proceeds of the LOAN,  including the initial  advance,  and the
          obligation  of the LENDER to issue any  LETTERS  OF  CREDIT,  shall be
          subject to the satisfaction,  concurrently  therewith,  of each of the
          following conditions precedent:

          Section4.2.1.  No Defaults Or Events Of Default.  No event shall have
          occurred on or prior to such date and be continuing on such date,  and
          no condition shall exist on such date, which  constitutes a DEFAULT or
          EVENT OF DEFAULT.

          Section4.2.2.  Continuing Accuracy Of Representations And Warranties.
          Each of the representations and warranties made by or on behalf of the
          BORROWERS,  or by the  GUARANTORS or by the LIMITED  GUARANTORS to the
          LENDER in the LOAN DOCUMENTS shall be true and correct in all material
          respects  when  made  and  shall be  deemed  to be  repeated  as true,
          accurate  and  complete as of the date of the  BORROWERS  request for
          each  advance  of  proceeds  of the LOAN or  issuance  of a LETTER  OF
          CREDIT, unless otherwise agreed to by the LENDER in writing.

          Section4.2.3.  Receipt Of Reports.  The LENDER shall be in receipt of
          all reports, financial statements, financial information and financial
          disclosures required by the LOAN DOCUMENTS,  except to the extent that
          the LENDER has waived the receipt thereof.

          Section4.2.4.  No  Illegalities.  It shall  not be  unlawful  for the
          LENDER to perform any of the  agreements or  obligations  imposed upon
          the LENDER by any of the LOAN  DOCUMENTS or for any of the  BORROWERS,
          the  GUARANTORS  or the  LIMITED  GUARANTORS  to perform  any of their
          respective   agreements  or   obligations  as  provided  by  the  LOAN
          DOCUMENTS.

          Section4.2.5.  No Material  Adverse Event. No MATERIAL  ADVERSE EVENT
          shall have occurred and be then continuing.

          Each  borrowing  request by a BORROWER  hereunder or a request for the
          issuance of a LETTER OF CREDIT shall constitute a  representation  and
          warranty by each of the  BORROWERS  as of the date of such LOAN or the
          date  of  issuance  of such  LETTER  OF  CREDIT  that  the  conditions
          contained in this Section 4.2 have been satisfied.

                                      ARTICLE 5
                              EPRESENTATIONS AND WARRANTIES

          To induce the LENDER to extend the CREDIT  FACILITY  and to enter into
          this AGREEMENT,  each of the BORROWERS makes the  representations  and
          warranties  set  forth  in  this  Article  5.  Each  of the  BORROWERS
          acknowledges  the  LENDERS  justifiable  right  to  rely  upon  these
          representations and warranties.

          SectioN 5.1.  Accuracy Of Information. All information submitted by or
          on behalf of any of the BORROWERS,  any of the  GUARANTORS,  or any of
          the LIMITED  GUARANTORS in connection  with any of the  OBLIGATIONS is
          true,  accurate and  complete in all material  respects as of the date
          made  and  contains  no  knowingly  false,  incomplete  or  misleading
          statements.

          Section5.2.  No  Litigation.  Except  as  specifically  disclosed  on
          Schedule 5.2 attached hereto,  there are no material  actions,  suits,
          investigations,  or proceedings pending or, to the knowledge of any of
          the BORROWERS,  threatened  against any of the BORROWERS or the assets
          of any of the BORROWERS

          Section5.3. No Liability Or Adverse Change. None of the BORROWERS has
          any direct or contingent  liability  known to any of the BORROWERS and
          not  previously  disclosed to the LENDER,  nor do any of the BORROWERS
          know of or have any reason to expect any  material  adverse  change in
          any  BORROWERS  assets,   liabilities,   properties,   business,   or
          condition, financial or otherwise.

          Section5.4.  Title To Collateral.  Each of the BORROWERS has good and
          marketable  title to the COLLATERAL.  The liens granted by each of the
          BORROWERS  to the  LENDER in the  COLLATERAL  will  have the  priority
          required by the LOAN DOCUMENTS.

          Section 5.5. Authority; Approvals And Consents.

          Section 5.5.1.   Authority.  Each  of  the  BORROWERS  has  the  legal
          authority  to enter into each of the LOAN  DOCUMENTS  and to  perform,
          observe  and  comply  with  all  of  such  BORROWERS  agreements  and
          obligations thereunder,  including,  without limitation the borrowings
          contemplated hereby.

          Section 5.5.2.  Approvals.  The  execution and delivery by each of the
          BORROWERS of each of the LOAN  DOCUMENTS,  the  performance by each of
          the BORROWERS of all of its agreements and obligations  under the LOAN
          DOCUMENTS,  and the borrowings  contemplated by this  AGREEMENT,  have
          been  duly  authorized  by all  necessary  action  on the part of each
          BORROWER and do not and will not (i)  contravene  any provision of the
          organizational documents of any of the BORROWERS;  (ii) conflict with,
          or result in a breach of the terms,  conditions or  provisions  of, or
          constitute a default under, or result in the creation of any lien upon
          any  of the  property  of any of  the  BORROWERS  under  any  material
          agreement,  trust deed,  indenture,  mortgage or other  instrument  to
          which any of the BORROWERS is a party or by which any of the BORROWERS
          or any property of any of the  BORROWERS is bound or affected  (except
          for liens  created for the benefit of the  LENDER);  (iii)  violate or
          contravene  any provision of any LAW,  rule or regulation  (including,
          without limitation, Regulations G, T, U or X of the Board of Governors
          of the Federal Reserve System) or any order,  ruling or interpretation
          thereunder  or  any  decree,   order  of  judgment  of  any  court  or
          governmental or regulatory authority,  bureau, agency or official (all
          as  from  time  to  time  in  effect  and  applicable  to  any  of the
          BORROWERS);  or (iv) require any waivers, consents or approvals by any
          of the creditors of any of the BORROWERS.

          Section  5.6.  Binding  Effect  Of  Documents,  Etc.  Each of the LOAN
          DOCUMENTS  which each of the  BORROWERS  has executed and delivered as
          contemplated  and required to be executed and delivered as of the date
          of CLOSING by this AGREEMENT,  has been duly executed and delivered by
          each BORROWER and is the legal,  valid and binding  obligation of each
          BORROWER and is enforceable  against each BORROWER in accordance  with
          all stated terms.

          Section 5.7.  Other Names. None of the BORROWERS has changed its name,
          been the surviving entity in a merger,  or changed the location of its
          chief executive office within the last twelve (12) years, except as is
          disclosed on Schedule 5.7 attached  hereto.  No BORROWER  trades under
          any trade or fictitious names except as set forth on Schedule 5.7.

          Sectio 5.8. No Events Of Default. There is not currently existing any
          action,  event, or condition which presently  constitutes a DEFAULT or
          an EVENT OF DEFAULT

          Section 5.9.  Guaranty  Agreements.  The GUARANTY  AGREEMENTS  are the
          valid  and  binding  obligation  of the  GUARANTORS  and  the  LIMITED
          GUARANTORS,  as the case may be, and are fully enforceable against the
          respective  GUARANTORS and the LIMITED  GUARANTORS in accordance  with
          their terms.

          Section 5.10. Taxes. Each of the BORROWERS: (a) has filed all federal,
          state and local tax returns and other  reports  which such BORROWER is
          required  by LAW to file  prior  to the  date  hereof  and  which  are
          material to the conduct of the business of such BORROWER; (b) has paid
          or caused to be paid all  taxes,  assessments  and other  governmental
          charges that are due and payable  prior to the date hereof,  except as
          disclosed on Schedule 5.10 attached hereto;  and (c) has made adequate
          provision for the payment of such taxes,  assessments or other charges
          accruing but not yet payable.  None of the BORROWERS has any knowledge
          of any  deficiency  or additional  assessment  in connection  with any
          taxes,  assessments  or charges not  provided  for on such  BORROWERS
          books of account or reflected in such BORROWERS financial statements.

          Section 5.11.

          Compliance  With  Laws.  Each of the  BORROWERS  has  complied  in all
          material respects with all applicable LAWS, including, but not limited
          to, all LAWS with respect to: (a) all restrictions, specifications, or
          other  requirements  pertaining  to  products  that it sells or to the
          services it  performs;  (b) the conduct of its  business;  and (c) the
          use,  maintenance,  and operation of the real and personal  properties
          owned or leased by it in the conduct of its business.

          Section 5.12.  Chief Place Of Business.  The chief  executive  office,
          chief place of  business,  and the place  where each of the  BORROWERS
          keeps its RECORDS  concerning  the COLLATERAL is set forth on Schedule
          5.12 attached hereto.

          Section 5.13.  Location Of  Inventory.  The  INVENTORY is and shall be
          kept solely at the  BORROWERS  locations  set forth on Schedule  5.13
          attached hereto, and shall not be moved, sold or otherwise disposed of
          without  prior  notification  to  the  LENDER,  except  for  sales  of
          INVENTORY to ACCOUNT  DEBTORS in the ordinary course of the BORROWERS
          businesses.  None of the INVENTORY is stored with or in the possession
          of any  bailee,  warehouseman,  or other  similar  PERSON,  except  as
          specifically disclosed on Schedule 5.13 attached hereto.

          Section 5.14. No Subsidiaries. None of the BORROWERS has any direct or
          indirect  DOMESTIC  SUBSIDIARIES  except for the GUARANTORS  listed by
          name in Section 1.53 of this AGREEMENT.  None of the BORROWERS has any
          direct or indirect  SUBSIDIARIES which are not DOMESTIC  SUBSIDIARIES,
          except for the SUBSIDIARIES listed on Schedule 5.14 attached hereto.
          Section 5.15.

          No Labor Agreements. Except as described in Schedule 5.15 hereto, none
          of the BORROWERS is subject to any collective  bargaining agreement or
          any agreement,  contract,  decree or order  requiring it to recognize,
          deal with or employ any PERSONS  organized as a collective  bargaining
          unit or other form of organized labor

          Section 5.16.  Eligible  Accounts.  Each  ACCOUNT  which  any  of  the
          BORROWERS  contends  should  be  included  in the  calculation  of the
          BORROWING BASE from time to time will be an ELIGIBLE BILLED COMMERCIAL
          ACCOUNT,  ELIGIBLE BILLED  GOVERNMENT  ACCOUNT or an ELIGIBLE UNBILLED
          GOVERNMENT  ACCOUNT, as the case may be. At the time each is listed on
          or included  in (whether  singularly  or in the  aggregate  with other
          eligible  accounts) a schedule or report delivered to the LENDER to be
          included  in  the  calculation  of the  BORROWING  BASE,  all of  such
          ELIGIBLE  BILLED  COMMERCIAL  ACCOUNTS,   ELIGIBLE  BILLED  GOVERNMENT
          ACCOUNTS or ELIGIBLE UNBILLED GOVERNMENT ACCOUNTS, as the case may be,
          will have been  generated in compliance  with such  BORROWERS  normal
          credit policies as historically in effect (or as modified from time to
          time  on  prior  written  notice  of the  LENDER),  or on  such  other
          reasonable  terms disclosed in writing to the LENDER in advance of the
          creation of such ACCOUNTS, and such terms shall be expressly set forth
          on the face of all invoices.

          Section 5.17.  Eligible Inventory. Each item of INVENTORY which any of
          the  BORROWERS  from time to time  contends  should be included in the
          calculation of the BORROWING BASE shall be ELIGIBLE INVENTORY.

          Section 5.18.  Eligible  Additional  Collateral  Value.  Any letter of
          credit which any of the  BORROWERS  contend  should be included in the
          calculation  of  ELIGIBLE  ADDITIONAL  COLLATERAL  VALUE shall have an
          expiry date which is not less than one year from issuance and shall be
          considered  eligible  only  if,  at the  time  of  determination  of
          eligibility,  there shall be no less than  thirty (30) days  remaining
          from such date of  determination  to the expiry  date of the letter of
          credit.  Failure  to  maintain  such  letter  of  credit  as  ELIGIBLE
          ADDITIONAL  COLLATERAL VALUE for at least one year from issuance shall
          constitute an EVENT OF DEFAULT.

          Section 5.19.   Approvals.   Each  of  the  BORROWERS   possesses  all
          franchises,  approvals,  licenses,  contracts,  INTELLECTUAL PROPERTY,
          merchandising  agreements,  merchandising  contracts and  governmental
          approvals,  registrations and exemptions  necessary for it lawfully to
          conduct its business  and  operation  as  presently  conducted  and as
          anticipated to be conducted after CLOSING.

          Section 5.20.  Financial Statements.  The financial statements of each
          of the BORROWERS  which have been delivered to the LENDER prior to the
          date of this AGREEMENT,  fairly present the financial condition of the
          BORROWERS  as of the  respective  dates  thereof  and the  results and
          operations  of the  BORROWERS  for the  fiscal  periods  ended on such
          respective  dates,  all  in  accordance  with  G.A.A.P.  None  of  the
          BORROWERS has any direct or contingent  liability or obligation  known
          to any of the BORROWERS and not disclosed on the financial  statements
          delivered to the LENDER or disclosed  on Schedule  5.19 hereto.  There
          has been no adverse  change in the  financial  condition of any of the
          BORROWERS  since  the  financial  statements  of the  BORROWERS  dated
          December  31,  1999,  and none of the  BORROWERS  knows of or have any
          reason  to  expect  any  material   adverse   change  in  the  assets,
          liabilities,   properties,   business,  or  condition,   financial  or
          otherwise, of any of the BORROWERS.

          Section 5.21.  Solvency.  Each of the  BORROWERS  will be SOLVENT both
          before and after CLOSING,  after giving full effect to the OBLIGATIONS
          and all of the BORROWERS respective liabilities.

          Section 5.22.  Fair Labor  Standards  Act.  Each of the  BORROWERS has
          complied in all material respects with the Fair Labor Standards Act of
          1938, as amended.

          Section 5.23. Employee Benefit Plans.

          Section  5.23.1.  Compliance.  Each of the  BORROWERS  and  its  ERISA
          AFFILIATES  are  in  compliance  in all  material  respects  with  all
          applicable  provisions of ERISA and the regulations  thereunder and of
          the CODE with respect to all EMPLOYEE BENEFIT PLANS.

          Section 5.23.2. Absence Of Termination Event. No TERMINATION EVENT has
          occurred  or is  reasonably  expected  to occur  with  respect  to any
          GUARANTEED PENSION PLAN.

          Section  5.23.3.  Actuarial  Value.  The  actuarial  present value (as
          defined  in  Section  4001 of ERISA) of all  benefit  commitments  (as
          defined in Section 4001 of ERISA) under each  GUARANTEED  PENSION PLAN
          does not exceed the assets of that plan.

          Section 5.23.4. No Withdrawal Liability. None of the BORROWERS nor any
          of their ERISA AFFILIATES has incurred or reasonably  expects to incur
          any  withdrawal   liability   under  ERISA  in  connection   with  any
          MULTIEMPLOYER PLANS.

          Section 5.24. Environmental Conditions.

          Section  5.24.1.  Existence  Of  Permits.  Each of the  BORROWERS  has
          obtained all legally required permits, licenses, variances, clearances
          and all other necessary  approvals  (collectively,  the EPA PERMITS)
          for  use of the  FACILITIES  and  the  operation  and  conduct  of its
          business from all applicable  federal,  state, and local  governmental
          authorities,   utility  companies  or   development-related   entities
          including,  but not  limited  to, any and all  appropriate  Federal or
          State  environmental  protection  agencies  and  other  county or city
          departments,  public water works and public utilities in regard to the
          use of the FACILITIES,  the operation and conduct of its business, and
          the handling, transporting, treating, storage, disposal, discharge, or
          RELEASE  of  REGULATED  SUBSTANCES,  if  any,  into,  on or  from  the
          environment (including, but not limited to, any air, water, or soil).

          Section 5.24.2.  Compliance With Permits. Each issued EPA PERMIT is in
          full force and effect,  has not expired or been  suspended,  denied or
          revoked,  and is  not  under  challenge  by any  PERSON.  Each  of the
          BORROWERS is in  compliance  in all material  aspects with each issued
          EPA PERMIT.

          Section  5.24.3.  No Litigation.  None of the BORROWERS nor any of the
          FACILITIES is subject to any private or governmental litigation, or to
          the knowledge of any of the BORROWERS,  threatened litigation, lien or
          judicial or  administrative  notice,  order or action involving any of
          the  BORROWERS  or  any  of  the  FACILITIES   relating  to  REGULATED
          SUBSTANCES or environmental problems, impairments or liabilities

          Section  5.24.4.  No  Releases.  To the best  knowledge of each of the
          BORROWERS,  there  has  been no  RELEASE  into,  on or from any of the
          FACILITIES  and no  REGULATED  SUBSTANCES  are located on or have been
          treated, stored, processed,  disposed of, handled or transported to or
          from, any of the FACILITIES in violation of any ENVIRONMENTAL LAWS. To
          the best knowledge of each of the BORROWERS,  no REGULATED  SUBSTANCES
          have been treated, stored, disposed,  RELEASED,  located,  discharged,
          possessed,  managed,  processed, or otherwise handled in the operation
          or  conduct  of  any   BORROWERS   business  in   violation   of  any
          ENVIRONMENTAL LAWS. Each of the BORROWERS has complied in all material
          respects with all ENVIRONMENTAL LAWS affecting the FACILITIES and each
          BORROWERS business.

          Section 5.24.5.  Transportation.  None of the BORROWERS transports, in
          any manner, any REGULATED  SUBSTANCES except in the ordinary course of
          such BORROWERS business in material compliance with all ENVIRONMENTAL
          LAWS.

          Section  5.24.6.  No Violation  Notices.  No BORROWER has received any
          notices that any REGULATED  SUBSTANCES  transported  from any FACILITY
          have been disposed of in violation of any ENVIRONMENTAL LAWS.

          Section  5.24.7.  No Notice Of  Violations.  No BORROWER  has received
          written notice of any circumstances which would be likely to result in
          any obligation under any ENVIRONMENTAL LAW to investigate or remediate
          any REGULATED SUBSTANCES in, on or under any of the FACILITIES.

                                     ARTICLE 6
                               FFIRMATIVE COVENANTS

          Each of the  BORROWERS  agrees  during the term of this  AGREEMENT and
          while any  OBLIGATIONS  are  outstanding  and unpaid to do and perform
          each of the acts and promises set forth in this Article 6:

          Section 6.1.  Payment.  All OBLIGATIONS shall be paid in full when and
          as due.

          Section 6.2.  Insurance.  Each  of  the  BORROWERS  shall  obtain  and
          maintain such  insurance  coverages as are  reasonable,  customary and
          prudent for businesses  engaged in activities  similar to the business
          activities of the BORROWERS. Without limitation to the foregoing, each
          of the BORROWERS  shall maintain for all of its assets and properties,
          whether real, personal,  or mixed and including but not limited to the
          COLLATERAL,  fire and extended coverage casualty  insurance in amounts
          satisfactory to the LENDER and sufficient to prevent any  co-insurance
          liability  (which  amount  shall  be the full  insurable  value of the
          assets and properties insured unless the LENDER in writing agrees to a
          lesser  amount),  naming the LENDER as loss payee with  respect to the
          COLLATERAL,  with insurance companies and upon policy forms containing
          standard loss payee and mortgagee  clauses which are acceptable to and
          approved  by the LENDER.  Each of the  BORROWERS  shall  submit to the
          LENDER,  upon request,  duplicate  originals of the casualty insurance
          policies and paid receipts  evidencing  payment of the premiums due on
          the same. The casualty  insurance  policies shall be endorsed so as to
          make them  noncancellable  unless  thirty  (30) days  prior  notice of
          cancellation  or material  alteration  is provided to the LENDER.  The
          proceeds  of any  insured  loss  shall be applied by the LENDER to the
          OBLIGATIONS, in such order of application as determined by the LENDER,
          unless the LENDER in its sole  discretion  permits  the use thereof to
          repair or replace damaged or destroyed  COLLATERAL.  The LENDER agrees
          that the BORROWERS will be permitted to use all or such portion of the
          loss  proceeds as may be  necessary  for the  purposes  of  repairing,
          restoring, renovating or replacing the damaged property, provided: (a)
          no EVENT OF DEFAULT shall exist or occur and be continuing  during the
          course of such repair, restoration, renovation or replacement; (b) the
          amount  of  the  loss  is  less  than  One  Hundred  Thousand  Dollars
          ($100,000.00);  and (c) the  schedule  for  the  repair,  restoration,
          renovation  or  replacement  indicates  a full  and  complete  repair,
          restoration,  renovation  or  replacement  within a reasonable  period
          after  the  date  of  receipt  of any  such  loss  proceeds;  (d)  the
          applicable   insurance  carriers  shall  have  waived  any  rights  of
          subrogation  against the BORROWERS in connection  with such loss;  and
          (e) the amount of the insurance  proceeds and any separate funds to be
          contributed by the BORROWERS are sufficient in the reasonable business
          judgment  of  the  LENDER  to  accomplish  such  repair,  restoration,
          replacement  or renovation in a reasonably  satisfactory  manner.  The
          BORROWERS  shall also maintain  public  liability and property  damage
          insurance in such amounts,  with insurance companies,  and upon policy
          forms  acceptable to and approved by the LENDER,  naming the LENDER as
          additional insured. In addition,  the BORROWERS shall maintain workers
          compensation  insurance  in such  amounts,  with  insurance  companies
          acceptable to and approved by the LENDER.  The BORROWERS  shall submit
          to the LENDER satisfactory evidence of all such insurance.

          Section 6.3. Books And Records. Each of the BORROWERS shall notify the
          LENDER in  writing if any of the  BORROWERS  modifies  or changes  its
          method of  accounting  or enters into,  modifies,  or  terminates  any
          agreement  presently  existing,  or at any time hereafter entered into
          with  any  third  party  accounting  firm for the  preparation  and/or
          storage of any BORROWERS accounting records.

          Section 6.4.  Collection Of Accounts;  Sale Of Inventory.  Each of the
          BORROWERS shall only collect its RECEIVABLES and sell its INVENTORY in
          the ordinary course of its business.

          Section 6.5.  Notice  Of  Litigation  And  Proceedings.  Each  of  the
          BORROWERS shall give prompt notice to the LENDER of any action,  suit,
          citation, violation,  direction, notice or proceeding before any court
          or  governmental  department,  commission,  board,  bureau,  agency or
          instrumentality,  domestic or foreign, affecting any of the BORROWERS,
          or the assets or properties thereof, which, if determined adversely to
          any of the BORROWERS: (a) could require any or all of the BORROWERS to
          pay more than One Hundred  Thousand  Dollars  ($100,000.00) or deliver
          assets the value of which  exceeds  that sum (whether or not the claim
          is considered to be covered by insurance);  or (b) could reasonably be
          expected  to  have  a  material  adverse  effect  upon  the  financial
          condition or business operations of any of the BORROWERS.
          Section 6.6.  Payment Of  Liabilities  To Third  Persons.  Each of the
          BORROWERS  shall  pay  when and as due,  or  within  applicable  grace
          periods, all liabilities due to third persons,  except when the amount
          thereof is being  contested in good faith by  appropriate  proceedings
          and with adequate reserves therefor being set aside

          Section 6.7.  Change Of Business Location. Each of the BORROWERS shall
          notify the LENDER  thirty  (30) days in advance  of: (a) any change in
          the  location of its existing  offices or place of  business;  (b) the
          establishment  of any new,  or the  discontinuation  of any  existing,
          place of business;  and (c) any change in or addition to the locations
          at which the COLLATERAL is kept. Prior to moving any COLLATERAL to any
          location not owned by it (other than  deliveries to ACCOUNT DEBTORS of
          sold or leased items),  each of the BORROWERS shall obtain and deliver
          to the LENDER an agreement,  in form and  substance  acceptable to the
          LENDER,  pursuant  to which  the  owner of such  location  shall:  (a)
          subordinate any rights which it may have, or thereafter may obtain, in
          any of the  COLLATERAL  to the rights and  security  interests  of the
          LENDER  in the  COLLATERAL;  and (b) allow  the  LENDER  access to the
          COLLATERAL in order to remove the COLLATERAL  from such  location.  In
          the  event  any  COLLATERAL  is stored  with a  warehousemen  or other
          bailee,  and the  COLLATERAL is evidenced by a negotiable  document of
          title, each of the BORROWERS shall immediately deliver the document of
          title to the LENDER.

          Section 6.8.  Payment  Of Taxes.  Each of the  BORROWERS  shall pay or
          cause to be paid when and as due all taxes, assessments and charges or
          levies  imposed  upon  it or on any of its  property  or  which  it is
          required to withhold and pay over to the taxing  authority or which it
          must pay on its income,  except  where  contested  in good  faith,  by
          appropriate  proceedings  and at its own cost and  expense;  provided,
          however,  that the  BORROWERS  shall not be deemed to be contesting in
          good faith by appropriate  proceedings  unless:  (a) such  proceedings
          operate to prevent the taxing authority from attempting to collect the
          taxes,  assessments  or charges;  (b) the COLLATERAL is not subject to
          sale, forfeiture or loss during such proceedings;  (c) such BORROWERS
          contest  does not  subject  the  LENDER  to any  claim  by the  taxing
          authority  or  any  other  person;   (d)  such  BORROWER   establishes
          appropriate   reserves,   satisfactory  to  the  LENDER  in  its  sole
          discretion,  for  the  payment  of all  taxes,  assessments,  charges,
          levies,  legal  fees,  court costs and other  expenses  for which such
          BORROWER  would be liable if  unsuccessful  in the  contest;  (e) such
          BORROWER prosecutes the contest  continuously to its final conclusion;
          and (f) at the conclusion of the proceedings,  such BORROWER  promptly
          pays all amounts  determined to be payable,  including but not limited
          to all  taxes,  assessments,  charges,  levies,  legal  fees and court
          costs.

          Section 6.9.  Inspections  Of  Records.  Each of the  BORROWERS  shall
          permit  representatives of the LENDER access to each BORROWERS places
          of  business,  at  intervals  and at such times as  determined  by the
          LENDER, to inspect the COLLATERAL and to review and make extracts from
          or photocopies of the books and records of each of the BORROWERS. Each
          of the BORROWERS  agrees to pay to the LENDER the  examination fee set
          forth in Section  2.9 hereof  and shall  reimburse  the LENDER for any
          other  reasonable  out-of-pocket  expenses  incurred  by the LENDER in
          connection with such examinations,  audits,  inspections,  extractions
          and  verifications.expenses  incurred by the LENDER in connection with
          such examinations, audits, inspections, extractions and verifications.

          Section 6.10.  Notice Of Events  Affecting  Collateral;  Compromise Of
          Receivables;  Returned Or  Repossessed  Goods.  Each of the  BORROWERS
          shall promptly report to the LENDER:  (a) any  reclamation,  return or
          repossession  of goods;  (b) all claims or  disputes  asserted  by any
          ACCOUNT  DEBTOR or other  obligor  involving  in excess of One Hundred
          Thousand Dollars ($100,000.00);  provided, however, the BORROWER shall
          report all claims or disputes asserted by any ACCOUNT DEBTOR affecting
          COLLATERAL  included  in the  BORROWING  BASE;  and  (c)  all  matters
          materially  affecting the value,  enforceability  or collectibility of
          any of the  COLLATERAL.  Without  the  LENDERS  consent,  none of the
          BORROWERS shall compromise or adjust any of the RECEIVABLES which have
          been  included by any of the  BORROWERS  in the  determination  of the
          BORROWING  BASE,  extend the time for  payment  thereof,  or grant any
          additional  discounts,   allowances  or  credits  thereon;   provided,
          however,  that any of the BORROWERS may grant,  in the ordinary course
          of business,  to any party  obligated on any of the  RECEIVABLES,  any
          rebate,  refund,  or  adjustment  to which such party may be  lawfully
          entitled,  and may  accept,  in  connection  therewith,  the return of
          goods,  sale,  or  lease  of  which  shall  have  given  rise  to such
          RECEIVABLES.  If  any  goods,  the  sale  of  which  has  resulted  in
          RECEIVABLES  included in determining  the BORROWING BASE, are returned
          by  the  ACCOUNT  DEBTOR  for  credit  or  repossessed  by  any of the
          BORROWERS,  the BORROWERS shall receive and hold such goods as trustee
          for the  LENDER  and as  additional  security  for the  payment of the
          OBLIGATIONS, and make disposition thereof as required by the LENDER.

          Section 6.11.  Documentation  Of  Collateral.  Each  of the  BORROWERS
          agrees that upon the request of the LENDER, each of the BORROWERS will
          provide  the  LENDER  with:   (a)  written   statements  or  schedules
          identifying  and  describing  the   COLLATERAL,   and  all  additions,
          substitutions,  and replacements thereof, in such detail as the LENDER
          may  require;  (b)  copies of  ACCOUNT  DEBTORS  invoices  or billing
          statements;   (c)  evidence  of  shipment  or  delivery  of  goods  or
          merchandise to or performance of services for ACCOUNT DEBTORS; and (d)
          such other  schedules and  information  as the LENDER  reasonably  may
          require.  The items to be provided under this Section shall be in form
          satisfactory to the LENDER and are to be executed and delivered to the
          LENDER  from  time to time  solely  for the  LENDERS  convenience  in
          maintaining  RECORDS  of the  COLLATERAL.  The  failure  of any of the
          BORROWERS  to give any of such items to the LENDER  shall not  affect,
          terminate,  modify or otherwise limit the LENDERS security  interests
          in the  COLLATERAL.  The LENDER shall have the right,  at any time and
          from  time to  time,  to  verify  the  eligibility  of the  BORROWERS
          RECEIVABLES,   including,  in  connection  with  its  quarterly  field
          examinations of the BORROWERS books and records or at any time during
          any continuing DEFAULT or EVENT OF DEFAULT,  obtaining verification of
          the RECEIVABLES directly from ACCOUNT DEBTORS.

          Section 6.12.  Reporting Requirements.  The BORROWERS shall submit the
          following items to the LENDER:

          Section 6.12.1.  Inventory Reports.  On or before the 20th day of each
          calendar  month,  reports of INVENTORY on such reporting  forms as are
          required by the LENDER from time to time, certified to be accurate and
          correct by the chief financial officer of each of the BORROWERS, which
          reports shall be compiled in a manner acceptable to the LENDER.

          Section 6.12.2. Receivables And Accounts Payable Reports. On or before
          the 20th day of each  calendar  month:  (i) a  RECEIVABLES  report and
          aging;  and (ii) an accounts  payable  report and aging,  both in form
          reasonably acceptable to the LENDER and containing such information as
          the  LENDER  may  specify  from time to time.  Such  reports  shall be
          accompanied  by such  reports,  copies of sales  journals,  remittance
          reports,  and other documentation as the LENDER may reasonably request
          from time to time.

          Section 6.12.3. Government Contracts Report. On or before the 20th day
          of each calendar month, a status report with respect to all GOVERNMENT
          CONTRACTS of the BORROWERS,  in form and substance satisfactory to the
          LENDER.

          Section 6.12.4.  Borrowing  Base Report.  Once each calendar  week, or
          more  frequently  if  requested by the LENDER,  a collateral  and loan
          report in such form and context as may be specified by the LENDER from
          time to time.

          Sectio 6.12.5.  Quarterly Financial Statements.  As soon as available
          and in any event within forty-five (45) calendar days after the end of
          each of the first three  QUARTERS of each FISCAL YEAR,  the  BORROWERS
          shall submit to the LENDER a consolidated  and  consolidating  balance
          sheet of the  BORROWERS and their  SUBSIDIARIES  as of the end of such
          quarter,  a  consolidated  and  consolidating  statement of income and
          retained  earnings of the  BORROWERS  and their  SUBSIDIARIES  for the
          period  commencing  at the end of the previous  FISCAL YEAR and ending
          with the end of such  quarter,  and a  consolidated  statement of cash
          flow of the  BORROWERS and their  SUBSIDIARIES  for the portion of the
          FISCAL YEAR ended with the last day of such quarter, all in reasonable
          detail and stating in comparative form the respective consolidated and
          consolidating  figures  for the  corresponding  date and period in the
          prior FISCAL YEAR and all prepared in  accordance  with  G.A.A.P.  and
          certified  by the chief  financial  officer  of each of the  BORROWERS
          (subject to year-end adjustments).

          Section 6.12.6.  Annual Financial Statements. As soon as available and
          in any event within  ninety (90)  calendar  days after the end of each
          FISCAL YEAR of each of the  BORROWERS,  the BORROWERS  shall submit to
          the  LENDER a  consolidated  and  consolidating  balance  sheet of the
          BORROWERS and their SUBSIDIARIES as of the end of such FISCAL YEAR and
          a  consolidated  and  consolidating  statement  of income and retained
          earnings of the BORROWERS and their SUBSIDIARIES for such FISCAL YEAR,
          and a  consolidated  statement of cash flow of the BORROWERS and their
          SUBSIDIARIES  for such  FISCAL  YEAR,  all in  reasonable  detail  and
          stating  in   comparative   form  the  respective   consolidated   and
          consolidating  figures  for the  corresponding  date and period in the
          prior FISCAL YEAR and all prepared in accordance with G.A.A.P. and, as
          to the consolidated financial statements described above,  accompanied
          by an audited opinion thereon  acceptable to the LENDER by independent
          accountants selected by the BORROWERS and acceptable to the LENDER.

          Section 6.12.7.  Annual  Business Plan and Financial  Projections.  As
          soon as available  and in any event within  ninety (90)  calendar days
          after the  beginning  of each FISCAL YEAR of the  BORROWERS  beginning
          with the 2000 FISCAL YEAR, the BORROWERS  shall submit to the LENDER a
          business plan of the BORROWERS and their  SUBSIDIARIES for the ensuing
          FISCAL YEAR, such plan to be prepared in accordance with G.A.A.P.  and
          to include a capital budget, projected income statement,  statement of
          cash flows and balance  sheet,  and a report  containing  managements
          discussion  and  analysis  of  such  projections,   accompanied  by  a
          certificate from the chief financial  officer of each of the BORROWERS
          to the effect  that,  to the best of such  officers  knowledge,  such
          projections  are good faith  estimates of the financial  condition and
          operations  of the BORROWERS  and their  SUBSIDIARIES  for such FISCAL
          YEAR

          Section 6.12.8.  SEC And Other Filings. Within five (5) days after the
          sending,  filing,  or receipt  thereof,  copies of: (a) all  financial
          statements,  reports,  notices and proxy  statements  that each of the
          BORROWERS sends to its shareholders; and (b) all regular, periodic and
          special reports, registration statements and prospectuses that each of
          the  BORROWERS  renders to or files with the  Securities  And Exchange
          Commission,  the National  Association of Securities Dealers,  Inc. or
          any national securities exchange, including without limitation each of
          the  Forms  10-K and  10-Q  filed  by each of the  BORROWERS  with the
          Securities And Exchange Commission.

          Section 6.12.9.  Management  Letters.  Promptly upon receipt  thereof,
          each of the BORROWERS shall submit to the LENDER copies of any reports
          submitted to any of the  BORROWERS or any  SUBSIDIARY  by  independent
          certified public accountants in connection with the examination of the
          financial  statements of the BORROWERS or any SUBSIDIARY  made by such
          accountants.

          Section 6.12.10.  Certificates  Of  No  Default.  Within  thirty  (30)
          calendar  days after the end of each of the  QUARTERS  of each  FISCAL
          YEAR of each of the BORROWERS,  each of the BORROWERS  shall submit to
          the LENDER certificates of the chief financial officers of each of the
          BORROWERS  certifying  that:  (i) there  exists no DEFAULT or EVENT OF
          DEFAULT, or if a DEFAULT or an EVENT OF DEFAULT exists, specifying the
          nature thereof,  the period of existence  thereof and what action such
          BORROWER  proposes  to take with  respect  thereto;  (ii) no  material
          adverse  change in the  condition,  financial or otherwise,  business,
          property or results of operations of such BORROWER has occurred  since
          the previous  certificate  was sent to the LENDER by such BORROWER or,
          if any such change has  occurred,  specifying  the nature  thereof and
          what action such  BORROWER  has taken or proposes to take with respect
          thereto;  (iii) all insurance  premiums then due have been paid;  (iv)
          all taxes then due have been paid or, for those  taxes  which have not
          been paid, a statement of the taxes not paid and a description of such
          BORROWERS  rationale  therefor;  (v) no litigation,  investigation or
          proceedings,  or injunction,  writ or restraining  order is pending or
          threatened  or,  if any such  litigation,  investigation,  proceeding,
          injunction,  writ or order is pending,  describing the nature thereof;
          and (vi) stating  whether or not the  GUARANTORS and the BORROWERS are
          in  compliance  with the  covenants  in this  AGREEMENT,  including  a
          calculation  of the  financial  covenants in the schedule  attached to
          such officers certificates in form satisfactory to the LENDER.

          Section  6.12.11.  Reports  To  Other  Creditors. Promptly  after  the
          furnishing  thereof,  each of the BORROWERS shall submit to the LENDER
          copies of any  statement  or  report  furnished  to any  other  PERSON
          pursuant  to the terms of any  indenture,  loan,  or credit or similar
          agreement  and not  otherwise  required to be  furnished to the LENDER
          pursuant to any other provisions of this AGREEMENT.

          Section 6.12.12.  Management  Changes.  Each  of the  BORROWERS  shall
          notify the LENDER  immediately of any changes in the personnel holding
          the positions of either President or Chief Financial Officer of any of
          the BORROWERS

          Section 6.12.13.  General  Information.  In  addition to the items set
          forth  in  subsections  6.12.1  through  6.12.12  above,  each  of the
          BORROWERS agrees to submit to the LENDER,  or cause to be submitted to
          the LENDER (a) such other  information  respecting  the  condition  or
          operations,  financial or  otherwise,  of each of the BORROWERS as the
          LENDER may reasonably request from time to time and (b) such financial
          statements   and  other   information   respecting  the  condition  or
          operations,  financial or otherwise, of each of the GUARANTORS and the
          LIMITED GUARANTORS as may be required pursuant to the LOAN DOCUMENTS
          Section 6.13.  Employee  Benefit Plans And  Guaranteed  Pension Plans.
          Each  of the  BORROWERS  will,  and  will  cause  each  of  its  ERISA
          AFFILIATES to: (a) comply with all  requirements  imposed by ERISA and
          the  CODE,  applicable  from  time to  time  to any of its  GUARANTEED
          PENSION PLANS or EMPLOYEE  BENEFIT  PLANS;  (b) make full payment when
          due of all amounts  which,  under the  provisions of EMPLOYEE  BENEFIT
          PLANS  or  under   applicable   LAW,   are  required  to  be  paid  as
          contributions   thereto;   (c)  not  permit  to  exist  any   material
          accumulated funding  deficiency,  whether or not waived; (d) file on a
          timely basis all reports,  notices and other  filings  required by any
          governmental  agency  with  respect  to any of its  EMPLOYEE  BENEFITS
          PLANS;  (e) make any payments to  MULTIEMPLOYER  PLANS  required to be
          made under any  agreement  relating to such  MULTIEMPLOYER  PLANS,  or
          under any LAW pertaining thereto; (f) not amend or otherwise alter any
          GUARANTEED  PENSION PLAN if the effect would be to cause the actuarial
          present value of all benefit  commitments under any GUARANTEED PENSION
          PLAN  to be  less  than  the  current  value  of the  assets  of  such
          GUARANTEED  PENSION PLAN  allocable to such benefit  commitments;  (g)
          furnish to all participants,  beneficiaries and employees under any of
          the EMPLOYEE BENEFIT PLANS,  within the periods prescribed by LAW, all
          reports,  notices  and other  information  to which they are  entitled
          under  applicable LAW; and (h) take no action which would cause any of
          the  EMPLOYEE  BENEFIT  PLANS  to  fail  to  meet  any   qualification
          requirement  imposed by the CODE.  As used in this  Section,  the term
          accumulated funding deficiency  has the meaning specified in Section
          302 of ERISA and  Section  412 of the CODE,  and the terms  actuarial
          present value,  benefit  commitments  and current value  have the
          meaning specified in Section 4001 of ERISA.

          Section 6.14. Maintenance Of Fixed Assets. Each of the BORROWERS shall
          maintain  and  preserve all of its fixed assets in a state of good and
          efficient working order, normal wear and tear excepted.

          Section 6.15.  Consignments.  Each of the  BORROWERS  shall advise the
          LENDER of all PERSONS to whom it has  consigned or assigned  INVENTORY
          for sale or distribution, and the location of the INVENTORY subject to
          any such consignment or assignment arrangement.  Each of the BORROWERS
          shall:  (a)  duly  and  properly  file  financing  statements  in  all
          applicable  places  of  public  record  with  respect  to each of such
          consignments or  assignments,  which filings shall comply with Section
          9-114 of the 1972 version of the Uniform  Commercial  Code, as amended
          from time to time, and with all other requirements  necessary for such
          BORROWER to protect its interests  therein under  applicable LAWS; (b)
          supply  the  LENDER  with  prior  evidence  of such  filing and with a
          financing  statement,  judgment and tax lien search in the name of the
          consignee or assignee in all applicable  places of public record;  and
          (c)  provide  written  notification  to any  holder  of  any  security
          interests in the  inventory of the consignee or assignee who has filed
          a  financing  statement  before  such  BORROWER  files  its  financing
          statement,  which  notice  shall state that such  BORROWER  expects to
          deliver goods or assignments, shall describe the goods by item or type
          and which  notification  shall be received  by any such holder  within
          five (5) years before the consignee  receives  possession of the goods
          and at five (5) year intervals thereafter.

          Section 6.16.  Foreign  Receivables.  As to  any  RECEIVABLE  from  an
          ACCOUNT  DEBTOR not domiciled in the United States of America or which
          otherwise  arises in  connection  with  INVENTORY  for export sales or
          export accounts  receivable and contract  rights,  the BORROWERS shall
          execute  all  documents  and  instruments  and shall take all steps or
          actions  as  may be  required  by  the  LENDER  to  ensure  that  such
          RECEIVABLE   is   covered   by  export   credit   insurance   insuring
          comprehensive  (commercial and political) risks as the LENDER may deem
          necessary or advisable, or if approved by the LENDER, fully secured by
          a perfected assignment of proceeds of an irrevocable  confirmed letter
          of credit  issued by a United  States  bank  fully  acceptable  to the
          LENDER in form and substance.

          Section 6.17.  Federal Assignment Of Claims Act. Each of the BORROWERS
          shall  notify  the LENDER if any  RECEIVABLE  arises out of a contract
          with the  United  States  of  America,  or any  department,  agency or
          instrumentality   thereof,   and  shall   execute  all   documents  or
          instruments  and shall take all steps or actions as may be required by
          the LENDER so that all monies due or to become due under such contract
          are  assigned  to the LENDER and  notice  given  thereof to the United
          States in accordance with the  requirements of the Federal  Assignment
          of Claims Act, as amended.

          Section 6.18. Compliance With Laws. Each of the BORROWERS shall comply
          in all material respects with all applicable LAWS, including,  but not
          limited  to,  all  LAWS  with   respect  to:  (a)  all   restrictions,
          specifications,  or other requirements  pertaining to products that it
          sells or to the services it performs; (b) the conduct of its business;
          (c) the use,  maintenance,  and  operation  of the  real and  personal
          properties  owned or leased by it in the conduct of its business;  and
          (d)  the  obtaining  and   maintenance  of  all  necessary   licenses,
          franchises,  permits and  governmental  approvals,  registrations  and
          exemptions  necessary to engage in its business.  Without limiting the
          generality of the preceding Section,  each of the BORROWERS shall: (i)
          comply in all material  respects with,  and ensure such  compliance by
          all tenants and subtenants, if any, with, all applicable ENVIRONMENTAL
          LAWS and obtain and comply in all material respects with and maintain,
          and ensure that all tenants and subtenants  obtain and comply with and
          maintain,   any   and   all   licenses,   approvals,    notifications,
          registrations  or permits required by applicable  ENVIRONMENTAL  LAWS;
          (ii) conduct and complete all  investigations,  studies,  sampling and
          testing,  and all remedial,  removal and other actions  required under
          ENVIRONMENTAL  LAWS,  and promptly  comply with all lawful  orders and
          directives of any governmental authority regarding ENVIRONMENTAL LAWS;
          and (iii)  defend,  indemnify  and hold  harmless the LENDER,  and its
          employees,  agents,  officers  and  directors,  from and  against  any
          claims, demands, penalties, fines, liabilities,  settlements, damages,
          costs  and  expenses  of  whatever  kind or nature  known or  unknown,
          contingent or otherwise, arising out of, or in any way relating to the
          violation of,  noncompliance with or liability under any ENVIRONMENTAL
          LAWS  applicable to the  operations of each of the  BORROWERS,  or any
          orders,  requirements or demands of governmental  authorities  related
          thereto,  including,  without  limitation,  reasonable  attorneys and
          consultants fees,  investigation and laboratory fees, response costs,
          court costs and litigation expenses,  except to the extent that any of
          the  foregoing  directly  result from the gross  negligence or willful
          misconduct of the party seeking indemnification  therefor. Each of the
          BORROWERS  agrees to  promptly  notify the LENDER of any  RELEASE of a
          REGULATED  SUBSTANCE  on, to or from any  FACILITY in violation of any
          ENVIRONMENTAL  LAWS or of any notice  received by such  BORROWER  that
          such  BORROWER  or  any  FACILITY  is  not  in  compliance   with  any
          ENVIRONMENTAL LAWS.

          Section 6.19.  Formation of Subsidiaries. The BORROWERS shall deliver,
          or cause to be delivered  to the LENDER,  the  following  (but without
          implying  the  LENDERS  consent  to  the  formation  of  same  unless
          specifically granted) :

          Section 6.19.1.   Domestic  Subsidiaries.  Each  DOMESTIC  SUBSIDIARY,
          promptly upon its  acquisition or creation,  shall execute and deliver
          to  the  LENDER:  (a) a  guaranty  agreement  in  form  and  substance
          satisfactory  to the LENDER  pursuant to which such  SUBSIDIARY  shall
          guarantee,   among  other  things,   the  absolute  full  payment  and
          performance by the BORROWERS of the  OBLIGATIONS;  (b) a complete copy
          of such SUBSIDIARYS  charter, or other organizational  document filed
          of  public  record,  with all  amendments  thereto,  certified  by the
          Secretary of State of the  jurisdiction  of  formation;  (c) a copy of
          such  SUBSIDIARYs  bylaws,   operating   agreement,   or  partnership
          agreement,   as  applicable,   with  all  amendments  thereto;  (d)  a
          certificate  of good  standing  dated  as of a  recent  date  from the
          jurisdiction  of  formation  and  each   jurisdiction  in  which  such
          SUBSIDIARY  is  required  by the nature of its  business  or assets to
          qualify to do business;  (e) a certificate  of corporate  resolutions,
          partnership or limited liability company  certificate,  as applicable,
          and incumbency from the duly authorized and appropriate representative
          of such  SUBSIDIARY in form and substance  satisfactory to the LENDER;
          and (f) an opinion of counsel satisfactory to the LENDER opining as to
          such matters in connection  with such  SUBSIDIARY as may be reasonably
          requested  by  the  LENDER.  The  repayment  and  performance  of  the
          OBLIGATIONS  and of the  obligations  of the  SUBSIDIARY to the LENDER
          shall be secured by (i) the pledge of one  hundred  percent  (100%) of
          the issued and outstanding  CAPITAL STOCK of the SUBSIDIARY,  pursuant
          to the terms and  conditions of a pledge  agreement,  stock powers and
          financing  statements,  all in form and  substance  acceptable  to the
          LENDER and (ii) a first priority  perfected lien and security interest
          in all real and personal  property  (both  tangible  and  intangible),
          whether  now  existing  or  hereafter  arising,  of  such  SUBSIDIARY,
          pursuant to security agreements in form and substance  satisfactory to
          the LENDER, subject only to PERMITTED LIENS.

          Section 6.19.2.  Foreign  Subsidiaries.  Each direct SUBSIDIARY of the
          BORROWERS  or of  any  DOMESTIC  SUBSIDIARY  that  is  not a  DOMESTIC
          SUBSIDIARY  (FIRST  TIER  FOREIGN  SUBSIDIARY),  promptly  upon  its
          acquisition or creation,  shall execute and deliver to the LENDER: (a)
          a complete copy of such FIRST TIER FOREIGN  SUBSIDIARYS  charter,  or
          other  organizational  document  filed  of  public  record,  with  all
          amendments  thereto,  certified  by  the  Secretary  of  State  of the
          jurisdiction  of  formation;  (b) a copy of such  FIRST  TIER  FOREIGN
          SUBSIDIARYs bylaws, operating agreement, or partnership agreement, as
          applicable,  with all  amendments  thereto;  (c) if such  jurisdiction
          generally issues such a certification,  a certificate of good standing
          dated as of a recent date from the  jurisdiction of formation and each
          jurisdiction  in which such FIRST TIER FOREIGN  SUBSIDIARY is required
          by the nature of its business or assets to qualify to do business; and
          (d) an  opinion of counsel  satisfactory  to the LENDER  opining as to
          such matters in connection with such FIRST TIER FOREIGN  SUBSIDIARY as
          may  be  reasonably   requested  by  the  LENDER.  The  repayment  and
          performance of the  OBLIGATIONS and of the obligations of the BORROWER
          OR DOMESTIC SUBSIDIARY to the LENDER shall be secured by the pledge of
          sixty-five  percent (65%) of the issued and outstanding  CAPITAL STOCK
          of the  FIRST  TIER  FOREIGN  SUBSIDIARY,  pursuant  to the  terms and
          conditions of a pledge agreement,  stock powers, financing statements,
          registration and  acknowledgment of pledge by issuer,  all in form and
          substance acceptable to the LENDER. The BORROWERS, DOMESTIC SUBSIDIARY
          and  FIRST  TIER  FOREIGN   SUBSIDIARY  shall  execute  all  documents
          necessary to effectuate the Pledge.

          Section 6.20.  Year 2000. Each of the BORROWERS has initiated a review
          and  assessment of all areas within its and each of its  SUBSIDIARIES
          businesses  and  operations  that could be  adversely  affected by the
          YEAR 2000  PROBLEM  (that is, the risk that  computer  hardware  and
          software  used  by any of the  BORROWERS  or any  SUBSIDIARIES  may be
          unable to operate, recognize, effectively process and perform properly
          date-sensitive functions involving certain dates prior to and any date
          after December 31, 1999 (including recognizing and performing properly
          date-sensitive  functions in leap years)).  All computer  applications
          that are material to the  businesses  and  operations of the BORROWERS
          and  SUBSIDIARIES  are YEAR 2000 COMPLIANT.  Each of the BORROWERS and
          the  SUBSIDIARIES  has  made  inquiry  of each  of its key  suppliers,
          vendors  and  customers  as to  whether  such  persons  are YEAR  2000
          COMPLIANT in all  material  respects.  Key  suppliers,  vendors,  and
          customers refers to those suppliers, vendors and customers of each of
          the  BORROWERS  and the  SUBSIDIARIES,  the business  failure of which
          could result in a material  adverse change in the financial  condition
          or  business   operations   of  any  of  the   BORROWERS   and/or  the
          SUBSIDIARIES, or harm or deterioration to the COLLATERAL. In addition,
          the BORROWERS will promptly notify the LENDER in the event that any of
          the BORROWERS  discovers or determines  that any computer  hardware or
          software (including that of its suppliers, vendors and customers) that
          is material to any BORROWERS or any SUBSIDIARYS  financial condition
          or business operations is not YEAR 2000 COMPLIANT.

          Section 6.21.  Minimum  EBITDA.  The EBITDA of the BORROWERS and their
          respective consolidated SUBSIDIARIES on a consolidated basis, measured
          at the end of each QUARTER for the trailing four-QUARTER period ending
          on the date of  determination  shall be: (a) as at the QUARTER  ending
          December  31, 1999,  not less than Four  Million Two Hundred  Thousand
          Dollars  ($4,200,000.00)  and  (b)  as at  the  end  of  each  QUARTER
          thereafter,  not less than Four Million Five Hundred  Thousand Dollars
          ($4,500,000.00).

          Section 6.22. Minimum Tangible Net Worth Plus Subordinated Debt. As of
          the end of each QUARTER set forth below, the sum of TANGIBLE NET WORTH
          plus   SUBORDINATED   DEBT  of  the  BORROWERS  and  their  respective
          consolidated  SUBSIDIARIES  on a consolidated  basis shall be not less
          than the  respective  amount  set forth for such  QUARTER  (each  such
          amount,  calculated as set forth in clauses (a), (b), and (c) below, a
          Minimum TNW Requirement):

          (a) for the QUARTER ending December 31, 1999: $8,800,000.00;

          (b) for each of the QUARTERS ending March 31, 2000, June 30, 2000, and
          September 30, 2000: $9,500,000.00;

          (c) for the QUARTERS  ending  December 31, 2000,  March 31, 2001, June
          30, 2001, and September 30, 2001: $9,500,000.00 plus 50% of NET PROFIT
          AFTER TAX of the  BORROWERS  for the FISCAL YEAR ending  December  31,
          2000;

          (d) for the QUARTERS  ending  December 31, 2001,  March 31, 2002, June
          30,  2002,  and  September  30,  2002:  the  Minimum  TNW  Requirement
          calculated in accordance  with the immediately  preceding  clause (c),
          plus 50% of NET PROFIT AFTER TAX of the  BORROWERS for the FISCAL YEAR
          ending December 31, 2001;

          (e)  for the  QUARTER  ending  December  31,  2002:  the  Minimum  TNW
          Requirement  calculated in accordance with the  immediately  preceding
          clause (d),  plus 50% of NET PROFIT AFTER TAX of the BORROWERS for the
          FISCAL YEAR ending December 31, 2002.

          Section  6.23.  Minimum  Working  Capital.  The  BORROWERS  and  their
          respective  consolidated  SUBSIDIARIES  on a consolidated  basis shall
          maintain  at all times  WORKING  CAPITAL of not less than One  Million
          Dollars ($1,000,000.00).

          Section 6.24.  Ratio of Total  Liabilities  to Tangible Net Worth Plus
          Subordinated  Debt.  The BORROWERS and their  respective  consolidated
          SUBSIDIARIES  on a consolidated  basis shall maintain as of the end of
          each  QUARTER a ratio of (a) TOTAL  LIABILITIES  to (b)  TANGIBLE  NET
          WORTH plus SUBORDINATED DEBT of not greater than 4.50 to 1.00

          Section  6.25.  Notice of Existence of Default.  Each of the BORROWERS
          shall promptly  advise the LENDER of the existence of any condition or
          event of which it has knowledge, which is or which will be with notice
          and/or the passage of time a DEFAULT or an EVENT OF DEFAULT.

                                     ARTICLE 7
                                NEGATIVE COVENANTS

          Each of the BORROWERS  covenants while any OBLIGATIONS are outstanding
          and  unpaid  not to do or to  permit to be done or to occur any of the
          acts or  occurrences  set forth in this  Article  7 without  the prior
          written authorization of the LENDER.

          Section 7.1.  No Change Of Name,  Merger,  Etc.  None of the BORROWERS
          shall  change  its  name or  enter  into  any  merger,  consolidation,
          reorganization or recapitalization.

          Section 7.2.  No Sale Or  Transfer  Of Assets.  None of the  BORROWERS
          shall sell, transfer, lease or otherwise dispose of all or any part of
          the COLLATERAL,  or all or any part of any of its other assets, except
          that (a)  INVENTORY  may be sold to ACCOUNT  DEBTORS  in the  ordinary
          course of a  BORROWERS  business and (b) provided no DEFAULT or EVENT
          OF  DEFAULT  has  occurred,   INVENTORY  not  qualifying  as  ELIGIBLE
          INVENTORY or included in the BORROWING BASE in an amount not to exceed
          One Hundred Thousand Dollars ($100,000.00),  in the aggregate,  may be
          sold to PERSONS other than ACCOUNT DEBTORS.

          Section 7.3.  No  Encumbrance Of Assets.  None of the BORROWERS  shall
          mortgage,  pledge,  grant or permit to exist a security interest in or
          lien  upon any of its  assets  of any  kind,  now  owned or  hereafter
          acquired, except for PERMITTED LIENS.

          Sectio 7.4.  No  Indebtedness.  None of the  BORROWERS  shall  incur,
          create,  assume, or permit to exist any INDEBTEDNESS  except:  (a) the
          OBLIGATIONS;  (b) INDEBTEDNESS secured by PERMITTED LIENS; (c) the GSE
          POWER  SYSTEMS  AB  NOTE;  (d)  INDEBTEDNESS  existing  on the date of
          CLOSING  and   described  on  Schedule  7.4   attached   hereto;   (e)
          intercompany INDEBTEDNESS among the BORROWERS and the GUARANTORS;  (f)
          indebtedness  in  favor  of  the  seller  thereof  securing  PERMITTED
          ACQUISITIONS   in  an  amount  not  to  exceed  One  Million   Dollars
          ($1,000,000.00)  in the aggregate,  provided the same is unsecured and
          subordinated  to the  OBLIGATIONS  in  writing  pursuant  to a written
          subordination  agreement  satisfactory  to  the  LENDER  in  form  and
          substance.

          Section 7.5. Restricted Payments. None of the BORROWERS shall make any
          RESTRICTED  PAYMENTS,  except  that  provided  no  DEFAULT or EVENT OF
          DEFAULT shall have occurred or shall occur after giving effect to such
          RESTRICTED  PAYMENT and provided  the total amount of such  RESTRICTED
          PAYMENTS in any given FISCAL YEAR do not exceed fifty percent (50%) of
          its NET PROFIT AFTER TAX for such FISCAL YEAR: (a) With respect to the
          GSE  POWER  SYSTEMS  AB  NOTE,  GSE  SYSTEMS  may (i)  make  regularly
          scheduled  payments of interest in accordance with the stated terms of
          such note, or (ii) permit GSE Power Systems AB to offset dividends due
          GSE  SYSTEMS to repay  regularly  scheduled  payments  of  interest in
          accordance with the stated terms of such note or payments of principal
          in accordance  with the stated terms of such note,  when and as any of
          the same become due (but without giving effect to any  acceleration or
          any amendment which would have the effect of increasing such payments)
          under  such  note;   (b)  GSE  SYSTEMS  may  pay   dividends   to  its
          shareholders;  (c) the other  BORROWERS may pay cash  dividends to GSE
          SYSTEMS; and (d) a BORROWER may make payments to other BORROWERS.
          Section 7.6. Transactions With Affiliates. None of the BORROWERS shall
          make any contract for the purchase of any items from any  AFFILIATE or
          the performance of any services (including employment services) by any
          AFFILIATE,  unless such  contract is on terms which  fairly  represent
          generally  available terms to be obtained in transactions of a similar
          nature with independent third PERSONS.

          Section 7.7.  Loans,  Investments  And  Sale-Leaseback.  None  of  the
          BORROWERS  shall  make any (i)  advance,  loan  (except  for  loans to
          BORROWERS or  GUARANTORS  provided  such loans are evidenced by a note
          which  is  pledged  to the  LENDER),  investment  (including,  without
          limitation any advance or loan to, or investment in, a SUBSIDIARY that
          is not a DOMESTIC  SUBSIDIARY),  except as set forth on  Schedule  7.7
          hereto;  (ii)  material  acquisition  of assets other than a PERMITTED
          ACQUISITION; or (iii) enter into any sale-leaseback transactions.

          Section 7.8.  No  Acquisition Of Equity In Or Assets Of Third Persons.
          None of the BORROWERS shall acquire any equity interests in, or all or
          substantially  all of the assets of, any PERSON  except for  PERMITTED
          ACQUISITIONS.  None  of  the  BORROWERS  shall  form  or  acquire  any
          SUBSIDIARIES, without LENDERS prior written consent.

          Section 7.9.  No  Assignment.  None of the  BORROWERS  shall assign or
          attempt to assign its rights under this AGREEMENT.

          Section 7.10.  No Alteration Of Structure Or  Operations.  None of the
          BORROWERS  shall amend or change  materially its capital  structure or
          its  line or scope of  business,  nor  shall  it  engage  in  business
          ventures other than those in which it is presently engaged, except for
          compatible lines of business.

          Section 7.11. Unpermitted Uses Of Loan Proceeds. None of the BORROWERS
          shall  use any  part of the  proceeds  of the LOAN  hereunder  for any
          purpose which  constitutes a violation  of, or is  inconsistent  with,
          regulations of the Board of Governors of the Federal  Reserve  System,
          including  without  limitation,   the  purchase  or  carrying  of  (or
          refinancing of indebtedness  originally incurred to purchase or carry)
          margin securities.

          Section 7.12.  Long Term Contracts.  None of the BORROWERS shall enter
          into any non-competition  contract having a term in excess of thirteen
          (13)  months or  requiring  the  payment  of any  monies by any of the
          BORROWERS on a date occurring more than thirteen (13) months after the
          date of such  contract  with  any  AFFILIATE  if such  non-competition
          contract would materially  adversely affect the BORROWERS  ability to
          perform the OBLIGATIONS.

          Section  7.13.  Changes In Fiscal Year.  None of the  BORROWERS  shall
          change its FISCAL YEAR.

          Section 7.14. Limitation On Issuance Of Certain Equity Interests. None
          of the  BORROWERS  shall  issue or sell any  equity  interest  in such
          BORROWER that, by its terms or by the terms of any security into which
          it is  convertible  or  exchangeable,  is, or upon the happening of an
          event or passage of time would be:  (a)  convertible  or  exchangeable
          into a liability of such  BORROWER;  or (b) required to be redeemed or
          repurchased,  including  at the option of the  holder,  in whole or in
          part,  or has,  or upon the  happening  of an event or passage of time
          would have, a redemption or similar payment due.

                                       ARTICLE 8
                                  EVENTS OF DEFAULT

          The  occurrence  of any of the  following  events shall  constitute an
          EVENT OF DEFAULT.

          Section 8.1.  Failure  To  Pay.  The  failure  by  any  or  all of the
          BORROWERS to pay any of the OBLIGATIONS when and as due.

          Section 8.2.   Representation   Or   Warranty.   The  failure  of  any
          representation or warranty made by any or all of the BORROWERS, any of
          the  GUARANTORS,  or any of the LIMITED  GUARANTORS  to be true in any
          material respect, as of the date made.

          Section 8.3.  Default Under Negative Covenants.  The failure by any of
          the  BORROWERS  to  perform,  or a violation  of, any of the  negative
          covenants set forth in Article 7 of this AGREEMENT.

          Section 8.4.  Default Under Certain  Covenants.  The failure by any of
          the  BORROWERS to perform or a violation of any of the  covenants  set
          forth in Article 3, or Sections 5.18, 6.12, 6.21, 6.22, 6.23, 6.24, or
          6.25 of this  AGREEMENT,  or the  failure by any of the  BORROWERS  to
          provide  to  the  LENDER  any  notice  of  the  existence  of  certain
          conditions or events required pursuant to the terms of this AGREEMENT

          Section 8.5.  Default Under Any Other Covenant.  Any failure by any of
          the BORROWERS to comply with or a violation of any of the covenants or
          agreements  of  any  of  the  BORROWERS   under  this   AGREEMENT  not
          specifically  addressed  in any other  section  or  provision  of this
          Article 8, if such breach or failure  continues for a period of thirty
          (30) days  after  notice  thereof  from the  LENDER  to the  BORROWER;
          provided,  that if with  respect  to any such  event  or  circumstance
          another   provision  of  this   AGREEMENT  or  another  LOAN  DOCUMENT
          specifically  provides a cure period  different from that set forth in
          this Section 8.5, such other,  specifically provided cure period shall
          be the sole cure period applicable.

          Section 8.6.  Default Under Loan Documents.  A breach of or default by
          any or all of the BORROWERS under the terms, covenants, and conditions
          set forth in any other  LOAN  DOCUMENT  which is not cured  within any
          applicable cure period.

          Section 8.7.  Invalidity of any Loan  Document;  Failure of Lien.  Any
          LOAN DOCUMENT or material  provision thereof shall cease to be in full
          force  and  effect  in  accordance  with  its  terms,  or  any  of the
          BORROWERS,  the  LIMITED  GUARANTORS,  the  GUARANTORS  or  any  other
          SUBSIDIARY shall, or shall purport to, terminate,  revoke,  repudiate,
          declare  voidable  or  void  or  otherwise  contest  the  validity  or
          enforceability  of any LOAN DOCUMENT or material  provision thereof or
          any of the  OBLIGATIONS.  Any lien or  security  interest  created  or
          purported to be created by any LOAN DOCUMENT shall fail to be a valid,
          enforceable  and perfected  lien or security  interest in favor of the
          LENDER securing the OBLIGATIONS.

          Section 8.8.  Cross-Default.  A breach of or default  under the terms,
          covenants,  or conditions of any agreement,  loan, guaranty,  or other
          transaction of any or all of the  BORROWERS,  or any of the GUARANTORS
          with the  LENDER or with any other  lender,  after  expiration  of any
          applicable notice and cure rights.

          Section 8.9.  Judgments.  Any of the BORROWERS, any of the GUARANTORS,
          or any of the LIMITED  GUARANTORS shall suffer final judgments for the
          payment of money aggregating in excess of One Hundred Thousand Dollars
          ($100,000.00)  and shall  not  discharge  the same  within a period of
          thirty (30) days unless,  pending further  proceedings,  execution has
          not been commenced or if commenced has been effectively stayed.

          Section 8.10. Levy By Judgment Creditor. A judgment creditor of any of
          the BORROWERS shall obtain  possession of any of the COLLATERAL by any
          means,  including  but not  limited to levy,  distraint,  replevin  or
          self-help,  and none of the BORROWERS  shall remedy same within thirty
          (30) days thereof;  or a writ of  garnishment  is served on the LENDER
          relating to any of the accounts of any of the BORROWERS  maintained by
          the LENDER.

          Section 8.11.  Failure To Pay Liabilities.  Any of the BORROWERS shall
          fail to pay any of its debts,  in any material  amount,  due any third
          PERSON and such failure shall  continue  beyond any  applicable  grace
          period,  unless the applicable  BORROWER holds a good faith defense to
          payment and has set aside reasonable reserves for the payment thereof.

          Section 8.12.  Involuntary Insolvency Proceedings.  The institution of
          involuntary  INSOLVENCY  PROCEEDINGS  against any of the BORROWERS and
          the failure of any such INSOLVENCY  PROCEEDINGS to be dismissed before
          the earliest to occur of: (a) the date which is ninety (90) days after
          the institution of such INSOLVENCY  PROCEEDINGS;  (b) the entry of any
          order  for  relief  in  the   INSOLVENCY   PROCEEDING   or  any  order
          adjudicating  any  or  all  of the  BORROWERS  insolvent;  or (c)  the
          impairment  (as to validity,  priority or  otherwise)  of any security
          interest or lien of the LENDER in any of the COLLATERAL.

          Section 8.13.  Voluntary Insolvency  Proceedings.  The commencement by
          any of the BORROWERS of INSOLVENCY PROCEEDINGS.

          Section 8.14.  Insolvency Proceedings Pertaining To Guarantors,  other
          Subsidiaries  or  Limited  Guarantors.  The  occurrence  of any of the
          events listed in Sections 8.12 and 8.13 above to any GUARANTOR, or any
          other SUBSIDIARY, or any LIMITED GUARANTOR.

          Section 8.15.  Material  Adverse  Event.  The occurrence of a MATERIAL
          ADVERSE EVENT.

          Section 8.16.  Default By Guarantors. A breach of or default by any of
          the GUARANTORS or LIMITED GUARANTORS under the terms,  covenants,  and
          conditions set forth in any GUARANTY AGREEMENT any other LOAN DOCUMENT
          to  which it is a  party.  The  failure  by any of the  GUARANTORS  or
          LIMITED  GUARANTORS to satisfy any  obligation  imposed upon it in the
          GUARANTY AGREEMENTS.

          Section  8.17.  Attempt To  Terminate  Guaranties.  The receipt by the
          LENDER of notice from a GUARANTOR  that the GUARANTOR is attempting to
          terminate  or limit any  portion of its  obligations  under a GUARANTY
          AGREEMENT.  The  receipt  by the  LENDER  of  notice  from  a  LIMITED
          GUARANTOR  that the LIMITED  GUARANTOR is  attempting  to terminate or
          limit any portion of its obligations under a GUARANTY  AGREEMENT other
          than in accordance with the terms thereof.

          Section 8.18.  ERISA. If any  TERMINATION  EVENT shall occur and as of
          the  date  thereof  or any  subsequent  date,  the sum of the  various
          liabilities  of any of the  BORROWERS and its ERISA  AFFILIATES  (such
          liabilities  to include,  without  limitation,  any  liability  to the
          Pension Benefit Guaranty  Corporation (or any successor thereto) or to
          any other party under  Sections  4062,  4063,  or 4064 of ERISA or any
          other provision of LAW and to be calculated after giving effect to the
          tax consequences  thereof) resulting from or otherwise associated with
          such event exceeds One Hundred Thousand Dollars ($100,000.00);  or any
          of the BORROWERS or any of its ERISA  AFFILIATES as an employer  under
          any  MULTIEMPLOYER   PLAN  shall  have  made  a  complete  or  partial
          withdrawal from such MULTIEMPLOYER PLANS and the plan sponsors of such
          MULTIEMPLOYER PLANS shall have notified such withdrawing employer that
          such employer has incurred a withdrawal  liability requiring a payment
          in an amount exceeding One Hundred Thousand Dollars ($100,000.00).

          Section 8.19. Transfer Of Equity Interests. The transfer of any equity
          interests in any of the  BORROWERS  (other than GSE SYSTEMS) or any of
          the GUARANTORS from the ownership existing as of CLOSING and disclosed
          on the  Perfection  Certificates  delivered by the  BORROWERS  and the
          GUARANTORS to the LENDER as of CLOSING,  the dissolution of any of the
          BORROWERS or any of the GUARANTORS, the pledge of any equity interests
          of  any  of the  BORROWERS  (other  than  GSE  SYSTEMS)  or any of the
          GUARANTORS  except to the LENDER, or the issuance of additional equity
          interests in any of the  BORROWERS  (other than GSE SYSTEMS) or any of
          the GUARANTORS  which issuance has the effect of diluting the existing
          interests of the existing  equity  holders in any of such BORROWERS or
          GUARANTORS.

          Section 8.20.  Change  in  Control.  Any  PERSON  or group of  PERSONS
          (within the meaning of Section 13(d) of the Securities Exchange Act of
          1934,  as amended)  other than GP  Strategies  Corporation  or ManTech
          International  Corporation shall obtain ownership or control in one or
          more series of  transactions  of more than twenty percent (20%) of the
          common  stock  or  twenty  percent  (20%) of the  voting  power of GSE
          SYSTEMS  entitled  to vote in the  election of members of the board of
          directors of GSE SYSTEMS.  Any PERSON or group of PERSONS  (within the
          meaning of Section  13(d) of the  Securities  Exchange Act of 1934, as
          amended)  shall  obtain  ownership or control in one or more series of
          transactions  of more than thirty percent (30%) of the common stock or
          thirty  percent  (30%) of the voting power of GSE SYSTEMS  entitled to
          vote in the  election  of  members  of the board of  directors  of GSE
          SYSTEMS.  For purposes of this Section  8.20, a PERSON shall be deemed
          to have  ownership  of all shares that any such PERSON has the right
          to acquire without condition, other than passage of time, whether such
          right is exercisable immediately or only after the passage of time.

          Section 8.21.   Indictment   Of   Borrowers,   Guarantors  or  Limited
          Guarantors.  The  indictment  of  any  of  the  BORROWERS,  any of the
          GUARANTORS,  or any of the LIMITED  GUARANTORS  for a felony under any
          federal, state or other LAW.

          Section 8.22.  Injunction.  The issuance of any injunction against any
          of the BORROWERS  which enjoins or restrains any of the BORROWERS from
          continuing  to conduct any material  part of any  BORROWERS  business
          affairs.

          Section 8.23.  Payment On Subordinated Debt. The payment by any of the
          BORROWERS on the account of any SUBORDINATED DEBT which payment is not
          specifically permitted by the LENDER under the terms of this AGREEMENT
          or any written  subordination  agreements  existing for the benefit of
          the LENDER.

                                    ARTICLE 9
                       RIGHTS AND REMEDIES ON THE OCCURRENCE
                              OF AN EVENT OF DEFAULT

          Section 9.1. Lenders Specific Rights And Remedies. In addition to all
          other rights and remedies provided by LAW and the LOAN DOCUMENTS, upon
          the occurrence of any EVENT OF DEFAULT, the LENDER may: (a) accelerate
          and  call  immediately  due  and  payable  all  or  any  part  of  the
          OBLIGATIONS;  (b) seek specific  performance  or injunctive  relief to
          enforce  performance  of  the  undertakings,  duties,  and  agreements
          provided in the LOAN DOCUMENTS,  whether or not a remedy at law exists
          or is adequate;  (c) exercise any rights of a secured  creditor  under
          the  Uniform  Commercial  Code,  as adopted  and  amended in New York,
          including the right to take  possession of the COLLATERAL  without the
          use of  judicial  process  or  hearing  of any kind  and the  right to
          require any or all of the BORROWERS to assemble the COLLATERAL at such
          place as the LENDER may specify;  and (d) reduce the BILLED COMMERCIAL
          ACCOUNTS  BORROWING BASE, BILLED GOVERNMENT  ACCOUNTS  BORROWING BASE,
          UNBILLED GOVERNMENT ACCOUNTS BORROWING BASE, INVENTORY BORROWING BASE,
          ADDITIONAL COLLATERAL BORROWING BASE, or DOLLAR CAP.

          Section 9.2.  Automatic Acceleration.  Upon the occurrence of an EVENT
          OF DEFAULT as  described in Sections  8.12 or 8.13 of this  AGREEMENT,
          the OBLIGATIONS shall be automatically accelerated and due and payable
          without  any  notice,  demand or action of any type on the part of the
          LENDER.

          Section 9.3.  Sale Of  Collateral.  In  addition  to any other  remedy
          provided  herein,  upon the  occurrence  of an EVENT OF  DEFAULT,  the
          LENDER, in a commercially  reasonable  fashion,  may sell at public or
          private sale or  otherwise  realize  upon,  the whole or, from time to
          time, any part of all COLLATERAL  which is personal  property,  or any
          interest which any of the BORROWERS may have therein. Pending any such
          action,  the LENDER may collect and  liquidate the  COLLATERAL.  After
          deducting  from  the  proceeds  of sale or other  disposition  of such
          COLLATERAL  all expenses,  including all expenses for legal  services,
          the LENDER shall apply such proceeds  toward the  satisfaction  of the
          OBLIGATIONS.  Any remainder of the proceeds after satisfaction in full
          of the OBLIGATIONS shall be distributed as required by applicable LAW.
          Notice of any sale or other  disposition  (other  than  sales or other
          dispositions of COLLATERAL which is perishable or threatens to decline
          speedily  in value or is of a type  customarily  sold on a  recognized
          market)  shall  be  given  to the  BORROWERS  not  less  than ten (10)
          calendar  days before the time of any  intended  public sale or of the
          time after which any intended private sale or other disposition of the
          COLLATERAL is to be made,  which each of the  BORROWERS  hereby agrees
          shall  be  commercially  reasonable  notice  of  such  sale  or  other
          disposition.  The  BORROWERS  shall  assemble,  or  shall  cause to be
          assembled, at the BORROWERS own expense, the COLLATERAL at such place
          or places as the  LENDER  shall  designate.  At any such sale or other
          disposition,   the  LENDER  may,  to  the  extent   permissible  under
          applicable law, purchase the whole or any part of the COLLATERAL, free
          from any  right  of  redemption  on the part of any of the  BORROWERS,
          which  right is hereby  waived and  released  to the  extent  lawfully
          permitted.  Without  limiting the  generality of any of the rights and
          remedies conferred upon the LENDER under this Section, the LENDER may,
          to the full extent  permitted  by  applicable  law: (a) enter upon the
          premises  of  any  of  the  BORROWERS,  exclude  therefrom  any of the
          BORROWERS  or any  PERSON  connected  therewith,  and  take  immediate
          possession  of the  COLLATERAL,  either  personally  or by  means of a
          receiver  appointed by a court of competent  jurisdiction;  (b) at the
          LENDERS option,  use, operate,  manage, and control the COLLATERAL in
          any lawful  manner;  (c) collect  and  receive  all  income,  revenue,
          earnings,  issues, and profits therefrom;  and (d) maintain,  alter or
          remove the  COLLATERAL  as the LENDER may  determine  in the  LENDERS
          discretion.

          Section 9.4. Letters Of Credit. Upon the request of the LENDER, at any
          time after the occurrence of an EVENT OF DEFAULT,  the BORROWERS shall
          immediately  deposit in a cash collateral account at the LENDER,  over
          which the LENDER has sole  access,  an amount  equal to the  aggregate
          then undrawn and  unexpired  amount of all LETTERS OF CREDIT.  Amounts
          held in such cash collateral account shall be applied by the LENDER to
          the payment of drafts  drawn under  LETTERS OF CREDIT,  and the unused
          portion thereof after all LETTERS OF CREDIT shall have expired or been
          fully  drawn upon  shall be  applied  to repay the other  OBLIGATIONS.
          After all  LETTERS  OF CREDIT  shall  have  expired or have been fully
          drawn upon and all other OBLIGATIONS shall have been paid in full, the
          balance,  if any, in such cash collateral account shall be returned to
          the  BORROWERS.  In the event the  BORROWERS  fail to deposit into the
          cash  collateral  account  an  amount  equal to the then  undrawn  and
          unexpired  amount  of all  LETTERS  OF  CREDIT,  the  LENDER  shall be
          authorized to deposit into such cash collateral  account proceeds from
          the  liquidation of the  COLLATERAL  until the balance in such account
          equals the aggregate then undrawn and unexpired  amount of all LETTERS
          OF CREDIT.

          Section 9.5.  Remedies Cumulative. The rights and remedies provided in
          this  AGREEMENT  and in the other LOAN  DOCUMENTS or  otherwise  under
          applicable LAWS shall be cumulative and the exercise of any particular
          right or remedy shall not preclude the exercise of any other rights or
          remedies  in  addition  to, or as an  alternative  of,  such  right or
          remedy.

                                      ARTICLE 10
                           ENERAL CONDITIONS AND TERMS

          Section 10.1.   Obligations   Are   Unconditional.   The  payment  and
          performance of the OBLIGATIONS shall be the absolute and unconditional
          joint and several duty and  obligation of each of the  BORROWERS,  and
          shall  be  independent  of any  defense  or  any  rights  of  set-off,
          recoupment or counterclaim  which any of the BORROWERS might otherwise
          have against the LENDER.  The BORROWERS  shall pay the payments of the
          principal  and interest to be made upon the  OBLIGATIONS,  free of any
          deductions  and without  abatement,  diminution  or set-off other than
          those herein  expressly  provided.  Until such time as the OBLIGATIONS
          have been fully paid and performed,  none of the BORROWERS  shall: (a)
          suspend or discontinue  any payments  required by the LOAN  DOCUMENTS;
          and (b) fail to perform and observe all of each  BORROWERS  covenants
          and agreements set forth in the LOAN DOCUMENTS.

          Section  10.2.  Indemnity.  Each of the  BORROWERS  agrees to  defend,
          indemnify  and hold  harmless the LENDER and the  entities  affiliated
          with the LENDER and all of the LENDERS and its  affiliated  entities
          employees,  agents,  officers  and  directors,  from and  against  any
          losses, penalties, fines, liabilities, settlements, damages, costs and
          expenses,  suffered  in  connection  with  any  claim,  investigation,
          litigation  or  other  proceeding  (whether  or not the  LENDER  or an
          affiliated  entity is a party thereto) and the prosecution and defense
          thereof,  arising  out  of or in  any  way  connected  with  any  LOAN
          DOCUMENT,  including  without  limitation  reasonable  attorneys  and
          consultants  fees,  except to the  extent  that any of the  foregoing
          directly result from the gross negligence or willful misconduct of the
          party   seeking   indemnification   therefor.    Notwithstanding   any
          termination  of this  AGREEMENT  or  payment  and  performance  of the
          OBLIGATIONS,  the  indemnities  provided for herein shall  continue in
          full  force and effect and shall  protect  all of the  above-described
          PERSONS  against  events  arising after such  termination,  payment or
          performance as well as before.

          Section 10.3.  Lender  Expenses.  All LENDER EXPENSES shall be paid by
          the BORROWERS,  whether incurred prior to or after CLOSING,  such that
          the  subject  transactions  shall  at all  times  be cost  free to the
          LENDER.

          Section 10.4.  Authorization To Obtain Financial Information.  Each of
          the BORROWERS  hereby  irrevocably  authorizes its accounting  firm to
          provide the LENDER from time to time with such  information  as may be
          requested by the LENDER,  and hereby  authorizes the LENDER to contact
          directly such accounting firm in order to obtain such information.

          Section 10.5.  Incorporation; Construction Of Inconsistent Provisions.
          The terms and  conditions of the LOAN  DOCUMENTS are  incorporated  by
          reference and made a part hereof, as if fully set forth herein. In the
          event of any  inconsistency  between this AGREEMENT and any other LOAN
          DOCUMENT,  such  inconsistency  shall be construed,  interpreted,  and
          resolved  so as to benefit  the LENDER,  independent  of whether  this
          AGREEMENT or another LOAN DOCUMENT controls, and the LENDERS election
          of which  interpretation  or construction is for the LENDERS  benefit
          shall govern.

          Section 10.6. Waivers. The LENDER at any time or from time to time may
          waive  all or any  rights  under  this  AGREEMENT  or any  other  LOAN
          DOCUMENT,  but any waiver or  indulgence  by the LENDER at any time or
          from time to time shall not  constitute a future waiver of performance
          or exact performance by any of the BORROWERS.

          Section 10.7.   Continuing   Obligation  Of   Borrowers.   The  terms,
          conditions,  and covenants set forth herein and in the LOAN  DOCUMENTS
          shall survive CLOSING and shall constitute a continuing  obligation of
          each  of  the  BORROWERS   during  the  course  of  the   transactions
          contemplated herein. The security interests,  liens and other security
          provided  by this  AGREEMENT  shall  remain  in  effect so long as any
          OBLIGATION,  whether direct or contingent,  is outstanding,  unpaid or
          unsatisfied.

          Section 10.8.  Choice  Of Law.  The  laws  of the  State  of New  York
          (excluding,  however,  conflict of law principles) shall govern and be
          applied to determine  all issues  relating to this  AGREEMENT  and the
          rights and obligations of the parties hereto,  including the validity,
          construction, interpretation, and enforceability of this AGREEMENT and
          its various  provisions and the  consequences  and legal effect of all
          transactions  and  events  which  resulted  in the  execution  of this
          AGREEMENT  or which  occurred or were to occur as a direct or indirect
          result of this AGREEMENT having been executed.

          Section 10.9.  Submission  To  Jurisdiction;  Venue;  Actions  Against
          Lender.  For  purposes  of any action,  in law or in equity,  which is
          based  directly  or  indirectly  on this  AGREEMENT,  any  other  LOAN
          DOCUMENT  or any matter  related to this  AGREEMENT  or any other LOAN
          DOCUMENT,  including any action for  recognition or enforcement of any
          of the  LENDERS  rights  under  the LOAN  DOCUMENTS  or any  judgment
          obtained  by the  LENDER in  respect  thereof,  each of the  BORROWERS
          hereby:

          Section 10.9.1. Jurisdiction. Irrevocably submits to the non-exclusive
          general  jurisdiction  of the  courts of the State of New York and the
          State of Maryland and, if a basis for federal  jurisdiction  exists at
          any time,  the courts of the United States of America for the Southern
          District of New York and for the District of Maryland.

          Section 10.9.2.  Venue.  Agrees  that  venue  shall be  proper  in any
          circuit court in the State of New York or in the State of Maryland, as
          selected  by the  LENDER,  and,  if a basis for  federal  jurisdiction
          exists,  the courts of the United  States of America for the  Southern
          District of New York or for the  District of Maryland  (as selected by
          the LENDER).

          Section 10.9.3.  Waiver Of  Objections  To Venue.  Waives any right to
          object to the  maintenance of any suit in any of the courts  specified
          in Section  10.9.2 above on the basis of improper venue or convenience
          of  forum.  Each of the  BORROWERS  further  agrees  that it shall not
          institute  any suit or other action  against the LENDER,  in law or in
          equity,  which is based directly or indirectly on this AGREEMENT,  any
          other LOAN  DOCUMENT or any matter  related to this  AGREEMENT  or any
          other LOAN  DOCUMENT,  in any court  other than a court  specified  in
          Section 10.9.2 above; provided, that in any instance in which there is
          then  pending  a suit  instituted  by the  LENDER  against  any of the
          BORROWERS in a court other than a court  specified  in Section  10.9.2
          above, the BORROWERS may file in such suit any counterclaim which they
          have against the LENDER.  Each of the  BORROWERS  agrees that any suit
          brought by it against the LENDER not in accordance with this paragraph
          should be forthwith  dismissed or transferred to a court  specified in
          Section 10.9.2 above.

          Section 10.10.  Notices.  Any notice  required or  permitted  by or in
          connection  with this AGREEMENT  shall be in writing and shall be made
          by facsimile  (confirmed  on the date the  facsimile is sent by one of
          the other methods of giving notice provided for in this Section) or by
          hand delivery, by Federal Express, or other similar overnight delivery
          service, or by certified mail,  unrestricted delivery,  return receipt
          requested,  postage prepaid,  addressed to the LENDER or the BORROWERS
          at the appropriate address set forth below or to such other address as
          may be  hereafter  specified  by  written  notice by the LENDER or the
          BORROWERS.  Notice  shall  be  considered  given as of the date of the
          facsimile or the hand delivery, one (1) calendar day after delivery to
          Federal Express or similar overnight  delivery  service,  or three (3)
          calendar  days after the date of mailing,  independent  of the date of
          actual delivery or whether  delivery is ever in fact made, as the case
          may be,  provided  the giver of  notice  can  establish  the fact that
          notice was given as provided herein. If notice is tendered pursuant to
          the  provisions  of  this  Section  and is  refused  by  the  intended
          recipient thereof,  the notice,  nevertheless,  shall be considered to
          have been given and shall be effective as of the date herein provided.

         If to the LENDER:

                             NATIONAL BANK OF CANADA
                             125 West 55th Street
                             New York, New York 10019

                  And

                             c/o NATIONAL BANK OF CANADA
                             401 E. Pratt Street, Suite 631
                             Baltimore, Maryland 21202
                             Attn: Robert A. Incorvati, Vice President
                             Facsimile: (410) 837-8359

                  If to the BORROWERS:

                             GSE SYSTEMS, INC.
                             GSE PROCESS SOLUTIONS, INC.
                             GSE POWER SYSTEMS, INC.
                             9189 Red Branch Road
                             Columbia, Maryland 21045
                             Attn: Jeffery G. Hough, Sr.Vice President
                             Facsimile: (410) 772-3599

                  With A Courtesy Copy To:

                             GOLDEN & NELSON, PLLC
                             8285 Highglade Court
                             Millersville, Maryland 21108
                             Attn.: Hedy L. Nelson, Esquire
                             Facsimile No.:  (410) 729-2246

          The  failure of the LENDER to send the above  courtesy  copy shall not
          impair  the  effectiveness  of notice  given to the  BORROWERS  in the
          manner provided herein.

          Section 10.11. Participations. The LENDER reserves the right to assign
          all or any portion of its interests in any of the  OBLIGATIONS  or the
          LOAN DOCUMENTS or to participate  with other lending  institutions any
          of the  OBLIGATIONS  and the LOAN  DOCUMENTS on such terms and at such
          times as the LENDER may determine  from time to time,  all without any
          consent  thereto  or  notice  thereof  to the  BORROWERS.  Each of the
          BORROWERS hereby grants to each participating lending institution,  to
          the full  extent  of the  OBLIGATIONS,  the  right to set off  deposit
          accounts  maintained by the BORROWERS with such institution,  and each
          of the  BORROWERS  agrees  to pay  the  LENDER  EXPENSES  of any  such
          participating  lending  institution  which arise or are  incurred as a
          result of the occurrence of an EVENT OF DEFAULT.

          Section 10.12.  Miscellaneous Provisions.  The parties agree that: (a)
          this AGREEMENT  shall be effective as of the date first above written,
          independent  of the date of  execution  or delivery  hereof;  (b) this
          AGREEMENT  shall be binding upon the parties and their  successors and
          assigns,  contains the final and entire agreement and understanding of
          the parties, and may neither be amended or altered except by a writing
          signed by the  parties;  (c) time is  strictly  of the essence of this
          AGREEMENT;  (d) as used herein,  the singular  includes the plural and
          the plural includes the singular, the use of any gender applies to all
          genders;  (e)  the  captions  contained  herein  are for  purposes  of
          convenience  only and are not a part of this AGREEMENT;  (f) a carbon,
          photographic,  photocopy or other reproduction of a security agreement
          or financing  statement shall be sufficient as a financing  statement;
          (g) this  AGREEMENT may be delivered by facsimile,  and a facsimile of
          any partys  signature to this  AGREEMENT  shall be deemed an original
          signature for all purposes;  and (h) this AGREEMENT may be executed in
          several counterparts,  each of which shall be an original,  but all of
          which,  when  taken  together,  shall  constitute  one  and  the  same
          document.  Section 10.13.  Waiver Of Trial By Jury. Each party to this
          AGREEMENT agrees that any suit,  action, or proceeding,  whether claim
          or  counterclaim,  brought or  instituted  by any party  hereto or any
          successor or assign of any party on or with respect to this  AGREEMENT
          or any other LOAN  DOCUMENT or which in any way  relates,  directly or
          indirectly,  to  the  OBLIGATIONS  or  any  event,   transaction,   or
          occurrence  arising  out of or in any way  connected  with  any of the
          OBLIGATIONS,  or the  dealings of the parties  with  respect  thereto,
          shall be tried only by a court and not by a jury.  EACH  PARTY  HEREBY
          EXPRESSLY  WAIVES  ANY  RIGHT  TO A TRIAL  BY JURY IN ANY  SUCH  SUIT,
          ACTION, OR PROCEEDING. [Signatures begin on next page]

          IN WITNESS  WHEREOF,  the LENDER and the BORROWERS  have duly executed
          this AGREEMENT under seal as of the date first above written.

                         WITNESS/ATTEST: THE BORROWERS:

                                GSE SYSTEMS, INC.

                                   By: (SEAL)
                                Jeffery G. Hough,
                              Senior Vice President

                           GSE PROCESS SOLUTIONS, INC.

                                   By: (SEAL)
                                Jeffery G. Hough,
                              Senior Vice President

                             GSE POWER SYSTEMS, INC.

                                   By: (SEAL)
                                Jeffery G. Hough,
                              Senior Vice President

                                   THE LENDER:

                             NATIONAL BANK OF CANADA

                                   By: (SEAL)
                              Robert A. Incorvati,
                                 Vice President

                                   By: (SEAL)
                              Michael E. Williams,
                             Vice President/Manager

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