Document:

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                       AMENDMENT NO. 2 TO RIGHTS AGREEMENT
          Amendment No. 2 to Rights  Agreements,  dated as of June 23, 2000, by
and  between  CHURCHILL  DOWNS   INCORPORATED,   a  Kentucky   corporation  (the
"Company"),  and FIFTH THIRD BANK, as Rights Agent (the "Rights Agent").

          WHEREAS,  the Board of  Directors  of the Company has  authorized  the
execution  and delivery by the Company of an Agreement  and Plan of Merger dated
of as of June 23,  2000 by and among  the  Company,  A.  Acquisition  Corp.,  an
Illinois  corporation  and a direct or indirect  wholly owned  subsidiary of the
Company ("A Sub"), A. Management  Acquisition Corp., an Illinois corporation and
a direct or indirect  wholly  owned  subsidiary  of the  Company ("A  Management
Sub"),  T. Club  Acquisition  Corp.,  an  Illinois  corporation  and a direct or
indirect  wholly  owned  subsidiary  of the Company  ("T Club  Sub"),  Arlington
International Racecourse,  Inc., an Illinois corporation ("A Corp."), Arlington
Management Services,  Inc., an Illinois corporation ("A Management Corp."), Turf
Club of Illinois,  Inc.,  an Illinois  corporation  ("T Club"),  and  Duchossois
Industries,  Inc.,  an  Illinois  corporation  ("D  Corp.")  and  in  connection
therewith  the Board has  determined in good faith that certain  amendments  set
forth to the Rights Agreement dated as of March 19, 1998 between the Company and
Bank of Louisville  as the initial  Rights Agent,  as heretofore  amended,  (the
"Rights  Agreement")  are  desirable  and,  pursuant to Section 26 of the Rights
Agreement has duly authorized such  amendments to the Rights  Agreement.  A duly
authorized  officer of the Company has executed and delivered this Amendment No.
2 to Rights Agreement (the "Amendment").

          WHEREAS,  Fifth Third Bank has  succeeded  the Bank of  Louisville  as
Rights Agent.

          NOW THEREFORE,  for good and valuable  consideration,  the receipt and
sufficiency  of which are  hereby  acknowledged,  the  parties  hereby  agree as
follows:

          1.    CERTAIN DEFINITIONS.  For  purposes  of  this  Amendment,  terms
which are capitalized but not defined herein and which are defined in the Rights
Agreement shall have the meanings ascribed to them in the Rights Agreement.

          2.    AMENDMENT TO SECTION 1 OF THE RIGHTS AGREEMENT. Section 1 of the
Rights Agreement is hereby amended to add the following definitions:

          "A Corp." shall mean  Arlington  International  Racecourse,  Inc.,  an
Illinois corporation.

          "A Sub" shall mean A. Acquisition Corp, an Illinois  corporation and a
direct or indirect wholly owned subsidiary of the Company.

          "A Management Corp." shall mean Arlington Management  Services,  Inc.,
an Illinois corporation.

          "A  Management  Sub"  shall mean A. Management  Acquisition  Corp,  an
Illinois  corporation  and a direct or indirect  wholly owned  subsidiary of the
Company.

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          "D  Corp."  shall  mean  Duchossois  Industries,   Inc.,  an  Illinois
corporation.

          "D Corp.  Shareholders" shall mean the record and beneficial owners of
the shares of voting securities of D Corp.

          "Mergers"  shall mean the  merger of A Sub with and into A Corp.,  the
merger of A Management Sub with and into A Management  Corp. and the merger of T
Club Sub with and into T Club pursuant to the Merger Agreement.

          "Merger  Agreement"  shall mean the Agreement and Plan of Merger dated
as of June 23, 2000 by and among the Company,  A Sub, A  Management  Sub, T Club
Sub, A Corp., A Management Corp., T Club and D Corp., as the same may be amended
from time to time in accordance with its terms.

          "T Club" shall mean Turf Club of Illinois, Inc., an Illinois
          corporation.

          "T Club Sub" shall mean T. Club Acquisition Corp., an
          Illinois corporation and a direct or indirect wholly owned
          subsidiary of the Company.

          "Voting  Agreement"  shall mean the Voting  Agreement dated as of June
23, 2000 by and among D. Corp.,  Richard L. Duchossois and certain  Directors of
the Company.

          3.     RESTATEMENT  OF THE  DEFINITION OF "ACQUIRING  PERSON".     The
definition of "Acquiring  Person" set forth in Section 1 of the Rights Agreement
is hereby deleted in its entirety and replaced with the following definition:

          "ACQUIRING PERSON" shall mean a Person who or which, alone or together
with all Affiliates and Associates of such Person, shall be the Beneficial Owner
of 15% or more of the Common Shares then  outstanding  but shall not include (a)
the Company,  any  Subsidiary of the Company,  any employee  benefit plan of the
Company or of any of its  Subsidiaries,  or any Person holding Common Shares for
or pursuant to the terms of such  employee  benefit plan, or (b) any such Person
who has become and is such a Beneficial  Owner solely  because (i) of any change
in aggregate  number of Common Shares  outstanding  since the last date on which
such  Person  acquired  Beneficial  Ownership  of any  Common  Shares or (ii) it
acquired  such  Beneficial   Ownership  in  the  good  faith  belief  that  such
acquisition would not (A) cause such Beneficial Ownership to equal or exceed 15%
of the Common  Shares then  outstanding  and such Person relied in good faith in
computing the percentage of its  Beneficial  Ownership on publicly filed reports
or documents of the Company which are inaccurate or out of date or (B) otherwise
cause a  Distribution  Date or the  adjustment  provided for in Section 11(a) to
occur.  Notwithstanding clause (b)(ii) of the prior sentence, if any Person that
is not an  Acquiring  Person  due to such  clause  (b)(ii)  does not  reduce its
percentage  of  Beneficial  Ownership  of Common  Shares to less than 15% by the
Close of Business on the fifth  Business  Day after notice from the Company (the
date of notice being the first day) that such Person's  Beneficial  Ownership of
Common Shares so equals or exceeds 15%,  such Person  shall,  at the end of such
five Business Day period,  become an Acquiring  Person (and such clause  (b)(ii)
shall no longer  apply to such  Person).  For purposes of this  definition,  the
determination

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whether any Person acted in "good faith" shall be conclusively determined by the
Board of Directors of the Company.  Notwithstanding  the foregoing,  (i) D Corp.
shall only be an  Acquiring  Person  when D Corp.,  alone or  together  with all
Affiliates and Associates of D Corp., shall be the Beneficial Owner of more than
31% of the Common  Shares then  outstanding  (after  including the Common Shares
acquired, or subject to acquisition,  by D Corp. under or pursuant to the Merger
Agreement)  plus the Common Shares subject to the Voting  Agreement and (ii) a D
Corp. Shareholder shall only become an "Acquiring Person" when D Corp. and the D
Corp.  Shareholders,  alone or together with all  Affiliates and Associates of D
Corp. and the D Corp.  Shareholders,  shall be the Beneficial Owner of more than
31% of the Common  Shares then  outstanding  (after  including the Common Shares
acquired, or subject to acquisition,  by D Corp. under or pursuant to the Merger
Agreement) plus the Common Shares subject to the Voting Agreement (the foregoing
sentence  referred to herein as the "D Corp.  Exclusion").  The  percentages set
forth in the immediately  preceding  sentence as the D Corp.  Exclusion shall be
automatically  reduced  from time to time,  but in no event to less than 15%, to
that percentage of the then outstanding Common Shares Beneficially Owned by such
Person,  alone or together with all  Affiliates and Associates of such Person as
determined  pursuant to the  immediately  preceding  sentence,  but only if such
percentage  is less than the  percentage of the then  outstanding  Common Shares
Beneficially  Owned by such Person,  alone or together with all  Affiliates  and
Associates of such person, as of the effective time of the Mergers.

          4.     ADDITION  OF  SECTION  33  OF  RIGHTS  AGREEMENT.    The Rights
Agreements  is hereby  amended to add  thereto  Section  33,  which reads in its
entirety as follows:

          Section  33. The Merger  Agreement.  Notwithstanding  anything in this
Rights Agreement to the contrary,  and subject to the scope and applicability of
the D Corp.  Exclusion,  no Distribution  Date shall be deemed to have occurred,
neither D Corp.  nor any D Corp.  Shareholder or any Affiliate or Associate of D
Corp.  shall be deemed to have become an Acquiring Person or have any obligation
under this Rights  Agreement,  and no holder of any Rights  Certificate shall be
entitled to exercise the Rights  evidenced  thereby under, or be entitled to any
rights or benefits  pursuant to, this Rights Agreement in each case by reason of
(a)  the  approval,  execution  or  delivery  of the  Merger  Agreement,  or (b)
consummation of any of the transactions contemplated thereby, including, without
limitation, the Mergers.

          5.     EFFECTIVENESS.   The Amendment  shall be  effective  as of June
23,  2000 as  if  executed  by both  parties on such date.  Except as  expressly
amended by this Amendment,  the Rights  Agreement shall remain in full force and
effect.

          6.     GOVERNING  LAW.   This  Amendment   shall   be  deemed  to be a
contract  under the laws of the  Commonwealth  of Kentucky  and for all purposes
shall be governed by, construed and enforced in accordance with the laws of such
State  applicable  to contracts to be made and  performed  entirely  within such
State.

          7.     COUNTERPARTS.   This  Amendment  may  be executed in any number
of counterparts and each of such  counterparts  shall for all purposes be deemed
to be an original,  and all such counterparts shall together  constitute but one
and the same instrument.

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          8.     SEVERABILITY.   If any term, provision, covenant or restriction
of this  Amendment  is  held  by a court  of  competent  jurisdiction  or  other
authority  to be invalid,  void or  unenforceable,  the  remainder of the terms,
provisions,  covenants and  restrictions  of this Amendment shall remain in full
force and effect and shall in no way be affected, impaired or invalidated.

          9.     DESCRIPTIVE  HEADINGS.   Descriptive  headings  of  the several
Sections of this  Amendment  are  inserted  for  convenience  only and shall not
control or affect the meaning or  construction  of any of the provisions of this
Amendment.

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          IN WITNESS  WHEREOF,  the parties hereto have caused this Amendment to
be duly executed as of the day and year first above written.

                                  CHURCHILL DOWNS INCORPORATED

                                  By:   /S/ ROBERT L. DECKER
                                  Title: Robert L. Decker, Executive Vice
                                         President and Chief Financial Officer

FIFTH THIRD BANK, as Rights Agent

By:      /S/ GEOFFREY D. ANDERSON
Title:   Assistant Vice President

                                        5FIRST AMENDMENT AND MODIFICATION AGREEMENT

                                  by and among

                 DRS TECHNOLOGIES, INC., DRS TECHNOLOGIES CANADA
        COMPANY, DRS TECHNOLOGIES CANADA, INC., DRS SENSOR SYSTEMS, INC.,
  FORMERLY KNOWN AS "DRS EO, INC.", AND DRS INFRARED TECHNOLOGIES, LP, FORMERLY
           KNOWN AS "DRS FPA, L.P.", collectively as the Co-Borrowers

                                       AND

         LAUREL TECHNOLOGIES PARTNERSHIP D/B/A DRS LAUREL TECHNOLOGIES.
        DRS ELECTRONIC SYSTEMS, INC., DRS PHOTRONICS, INC., DRS PRECISION
        ECHO, INC., DRS AHEAD TECHNOLOGY, INC., DRS OPTRONICS, INC., DRS
           SYSTEMS MANAGEMENT CORPORATION, DRS/MS, INC., DRS TECHNICAL
      SERVICES, INC., DRS INTERNATIONAL, INC., DRS AIR, INC., DRS HADLAND,
INC., NAI TECHNOLOGIES, INC., AS SUCCESSOR-IN-INTEREST TO DRS MERGER SUB, INC.,
       DRS FPA, INC., DRS RUGGED SYSTEMS, INC. AND DRS ADVANCED PROGRAMS,
                      INC., collectively as the Guarantors

                                       AND

                               MELLON BANK, N.A.,
                          as the Agent and as a Lender

                                       AND

         MELLON BANK CANADA, THE CIT GROUP / EQUIPMENT FINANCING, INC.,
                      NATIONAL BANK OF CANADA, SUMMIT BANK,
        UNION BANK OF CALIFORNIA, N.A., TRANSAMERICA EQUIPMENT FINANCIAL
           SERVICES CORPORATION, THE TORONTO-DOMINION BANK AND TORONTO
                           DOMINION (NEW YORK), INC.,
                                each as a Lender

                             Dated: August 15, 1999

<PAGE>

                   FIRST AMENDMENT AND MODIFICATION AGREEMENT

     THIS FIRST AMENDMENT AND MODIFICATION AGREEMENT (hereinafter referred to as
this "First Amendment"), is made this 15 day of August, 1999, by and among

     DRS TECHNOLOGIES, INC., A corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware, having its principal
office located at 5 Sylvan Way, Parsippany, New Jersey 07054 (hereinafter
referred to as "DRS"),

     AND

     DRS TECHNOLOGIES CANADA, INC., A corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, having
its principal office located at 5 Sylvan Way, Parsippany, New Jersey 07054
(hereinafter referred to as "DRS Canada Inc."),

     AND

     DRS TECHNOLOGIES CANADA COMPANY, A Nova Scotia company, having its
principal office and chief executive office located at 365 March Road, Kanata,
Ontario K2K 1 X3 (hereinafter referred to as "DRS Flight Safety"),

     AND

     DRS SENSOR SYSTEMS, INC., FORMERLY KNOWN AS "DRS EO, INC.", A corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, having its principal office located at 2000 East El Segundo
Blvd., El Segundo, California 90245 (hereinafter referred to as "DRS Sensor
Systems"),

     AND

     DRS INFRARED TECHNOLOGIES, LP, FORMERLY KNOWN AS "DRS FPA, L.P.", A limited
partnership duly organized, validly existing and in good standing under the laws
of the State of Delaware, having its principal office located at 13588 North
Central Expressway, Dallas, Texas 75243 (hereinafter referred to as "DRS
Infrared" and hereinafter DRS, DRS Canada Inc., DRS Flight Safety, DRS Sensor
Systems and DRS Infrared shall be collectively referred to as the "Co-Borrowers"
and sometimes individually referred to as a "Co-Borrower"),

     AND

     LAUREL TECHNOLOGIES PARTNERSHIP D/B/A DRS LAUREL TECHNOLOGIES, A general
partnership duly organized, validly existing and in good standing under the laws
of the State of Delaware, having its principal office located at 423 Walters
Avenue, Johnstown, Pennsylvania 15904 (hereinafter sometimes referred to as
"Laurel Technologies" and sometimes referred to as the "Partnership Guarantor"),

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<PAGE>

     AND

     DRS ELECTRONIC SYSTEMS, INC., A corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, having
its principal office located at 200 Professional Drive, Gaithersburg, Maryland
20879 (hereinafter referred to as "DRS Electronic Systems"),

     AND

     DRS PHOTRONICS, INC., A corporation duly organized, validly existing and in
good standing under the laws of the State of New York, having its principal
office located at 138 Bauer Drive, Oakland, New Jersey 07436 (hereinafter
referred to as "DRS Photronics"),

     AND

     DRS PRECISION ECHO, INC., a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware, having its
principal office located at 3105 Patrick Henry Drive, Santa Clara, California
95054 (hereinafter referred to as "DRS Precision Echo"),

     AND

     DRS AHEAD TECHNOLOGY, INC., a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware, having its
principal office located at 6410 Via Del Oro, San Jose, California 95054
(hereinafter referred to as "DRS Ahead Technology"),

     AND

     DRS OPTRONICS, INC., A corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, having its principal
office located at 2330 Commerce Park Drive, N.E., Second Floor, Palm Bay,
Florida 32905 (hereinafter referred to as "DRS Optronics"),

     AND

     DRS SYSTEMS MANAGEMENT CORPORATION, A corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, having
its principal office located at 5 Sylvan Way, Parsippany, New Jersey 07054
(hereinafter referred to as "DRS Systems Management"),

     AND

     DRS/MS, INC., A corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, having its principal office
located at 5 Sylvan Way, Parsippany, New Jersey 07054 (hereinafter referred to
as "DRS/MS").

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<PAGE>

     AND

     DRS TECHNICAL SERVICES, INC., A corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, having
its principal office located at 2535 Camino Del Rio, Suite 300, San Diego,
California 92108 (hereinafter referred to as "DRS Technical Services"),

     AND

     DRS INTERNATIONAL, INC., A corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware, having its principal
office located at 5 Sylvan Way, Parsippany, New Jersey 07054 (hereinafter
referred to as "DRS International"),

     AND

     DRS AIR, INC., A corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, having its principal office
located at 5 Sylvan Way, Parsippany, New Jersey 07054 (hereinafter referred to
as "DRS Air"),

     AND

     DRS HADLAND, INC., A corporation duly organized, validly existing and in
good standing under the laws of the Commonwealth of Massachusetts, having its
principal office located at 20480 Pacifica Drive, Suite D, Cupertino, California
95014 (hereinafter referred to as "DRS Hadland"),

     AND

     DRS FPA, INC., A corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, having its principal office
located at 5 Sylvan Way, Parsippany, New Jersey 07054 (hereinafter referred to
as "DRS FPA" and hereinafter DRS Electronic Systems, DRS Photronics, DRS
Precision Echo, DRS Ahead Technology, DRS Optronics, DRS Systems Management,
DRS/MS, DRS Technical Services, DRS International, DRS Air, DRS Hadland and DRS
FPA shall be collectively referred to as the "Original Corporate Guarantors" and
hereinafter the Original Corporate Guarantors, the Partnership Guarantor and DRS
Merger Sub, Inc., a New York corporation (hereinafter referred to as "DRS Merger
Sub"), shall be collectively referred to as the "Original Guarantors"),

     AND

     NAI TECHNOLOGIES, INC., AS SUCCESSOR-IN-INTEREST TO DRS MERGER SUB, INC., A
corporation duly organized, validly existing and in good standing under the laws
of the State of New York, having its principal office located at 5 Sylvan Way.
Parsippany, New Jersey 07054 (hereinafter referred to as "NAI Technologies"),

     AND

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<PAGE>

     DRS RUGGED SYSTEMS, INC., FORMERLY KNOWN AS "CODAR TECHNOLOGY, INC.", A
corporation duly organized, validly existing and in good standing under the laws
of the State of Colorado, having its principal office located at 2405 Trade
Centre Avenue, Longmont, Colorado 80503 (hereinafter referred to as "DRS Rugged
Systems"),

     AND

     DRS ADVANCED PROGRAMS, INC., FORMERLY KNOWN AS "NAI TECHNOLOGIES --SYSTEMS
DIVISION CORPORATION", A corporation duly organized, validly existing and in
good standing under the laws of the State of New York, having its principal
office located at 7125 Riverwood Drive, Columbia, Maryland 21046 (hereinafter
referred to as "DRS Advanced Programs" and hereinafter NAI Technologies, DRS
Rugged Systems and DRS Advanced Programs shall be collectively referred to as
the "New Corporate Guarantors" and hereinafter the Original Corporate
Guarantors, the New Corporate Guarantors and the Partnership Guarantor shall be
collectively referred to as the "Guarantors")

     AND

     MELLON BANK, N.A., A national banking association duly organized and
validly existing under the laws of the United States of America, having an
office located at Mellon Bank Center, 1735 Market Street, Philadelphia,
Pennsylvania 19101, STRICTLY IN ITS CAPACITY as a lender (hereinafter sometimes
referred to as "Mellon US" and/or as a "Lender"),

     AND

     MELLON BANK CANADA, one of the chartered banks of Canada, duly organized
and validly existing under the laws of Canada, having an office located at Royal
Trust Tower, 32nd Floor, Toronto Dominion Center, Toronto, Ontario M5K 1 K2, as
a lender (hereinafter sometimes referred to as "Mellon Canada" and/or as a
"Lender" and hereinafter Mellon US and Mellon Canada shall be sometimes
collectively referred to as the "Original Lenders"),

     AND

     THE CIT GROUP / EQUIPMENT FINANCING, INC., A corporation duly organized,
validly existing and in good standing under the laws of the State of New York,
having an office located at 900 Ashwood Parkway, Suite 600, Atlanta, GA 30338,
Attention: Vice President--Credit (hereinafter sometimes referred to as "CIT
Group" and sometimes referred to as a "Lender"),

     AND

     NATIONAL BANK OF CANADA, one of the chartered banks of Canada, duly
organized and validly existing under the laws of Canada, having notice addresses
located at both (i) Post Office Plaza, 50 Division Street, Suite 201,
Somerville, New Jersey 08876 and (ii) Suite 305, 350 Burnhamthorpe Road,
Mississaugua, Ontario, Canada L5B 3J1 (hereinafter sometimes referred to as
"NBC" and sometimes referred to as a "Lender"),

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<PAGE>

     AND

     SUMMIT BANK, a corporation duly organized, validly existing and in good
standing under the laws of the State of New Jersey, 250 Moore Street, 2n Floor,
Hackensack, New Jersey 07601, Attention: George Barrow, Vice President
(hereinafter sometimes referred to as "Summit" and sometimes referred to as a
"Lender"),

     AND

     UNION BANK OF CALIFORNIA, N.A., a corporation duly organized, validly
existing and in good standing under the laws of the State of California, 445
South Figueroa Street, 16th Floor, Los Angeles, California 90071, Attention: Mr.
Hagop Jazmadarian, Vice President/Credit Executive (hereinafter sometimes
referred to as "Union Bank" and sometimes referred to as a "Lender"),

     AND

     TRANSAMERICA EQUIPMENT FINANCIAL SERVICES CORPORATION, a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, having an office located at 5080 Spectrum Drive, Suite 1100 West,
Dallas, Texas 75248, Attention: Mel Renfro, Vice President/Division Operations
Manager (hereinafter sometimes referred to as "Transamerica" and sometimes
referred to as a "Lender"),

     AND

     THE TORONTO-DOMINION BANK, one of the chartered banks of Canada, duly
organized and validly existing under the laws of Canada, having an office
located at TD Tower, 9th Floor, 55 King Street West, Toronto, Ontario, Canada
M5K 1A2 (hereinafter sometimes referred to as "Toronto-Dominion" and sometimes
referred to as a "Lender"),

     AND

     TORONTO DOMINION (NEW YORK), INC., a state banking institution organized
and existing under the laws of the State of New York, having an office located
at 31 West 52nd Street, New York, New York 10019-6101 (hereinafter sometimes
referred to as "Toronto-Dominion NY" and sometimes referred to as a "Lender" and
hereinafter the Original Lenders, CIT Group, NBC, Summit, Union Bank,
Transamerica, Toronto-Dominion and Toronto-Dominion NY shall be sometimes
collectively referred to as the "Lenders"),

     AND

     MELLON BANK, N.A., a national banking association duly organized and
validly existing under the laws of the United States of America, having an
office located at Mellon Bank Center, 1735 Market Street, Philadelphia,
Pennsylvania 19101, STRICTLY IN ITS CAPACITY as the agent for the Lenders
hereunder (hereinafter referred to as the "Agent").

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<PAGE>

                                   WITNESSETH:

     WHEREAS, on October 20, 1998, pursuant to a certain Amended and Restated
Revolving Credit Loan and Term Loan Agreement dated October 20, 1998
(hereinafter as it may be from time to time amended, modified, extended,
renewed, refinanced and/or supplemented referred to as the "Loan Agreement"),
executed by and among the Co-Borrowers, as the co-borrowers, and the Original
Lenders, as the lenders, the Original Lenders agreed to make to the Co-Borrowers
(i) an amended and restated secured recourse revolving credit loan in the
aggregate principal amount of up to Seventy Million and 00/100
(US$70,000,000.00) Dollars for the purposes of financing (a) the purchase of the
scanning and staring infrared detector business and electro-optical business of
Raytheon TI Systems, Inc., Raytheon Company and Raytheon Systems Georgia, Inc.,
(b) the refinance of existing indebtedness, (c) working capital (including,
without limitation, the issuance of trade / commercial and standby letters of
credit) and (d) general corporate purposes (hereinafter referred to as the
"Revolving Credit Loan Facility"), (ii) an amended and restated secured recourse
term loan in the aggregate principal amount of Thirty Million and 00/100
(US$30,000,000.00) Dollars for the purposes of financing (a) the purchase of the
scanning and staring infrared detector business and electro-optical business of
Raytheon TI Systems, Inc., Raytheon Company and Raytheon Systems Georgia, Inc.,
(b) the refinance of existing indebtedness, (c) working capital and (d) general
corporate purposes (hereinafter referred to as the "Term Loan Facility #1") and
(iii) a secured recourse term loan in the aggregate principal amount of Fifty
Million and 00/100 (US$50,000,000.00) Dollars for the purposes of financing (a)
the purchase of the scanning and staring infrared detector business and
electrooptical business of Raytheon TI Systems, Inc., Raytheon Company and
Raytheon Systems Georgia, Inc., (b) the refinance of existing indebtedness, (c)
working capital and (d) general corporate purposes (hereinafter referred to as
the "Term Loan Facility #2"), all subject to the terms, conditions and
provisions of the Loan Agreement; and

     WHEREAS, for the purposes of this First Amendment, the Revolving Credit
Loan Facility, the Term Loan Facility #1 and the Term Loan Facility #2, as they
may be from time to time hereafter amended, modified, extended, refinanced
and/or otherwise supplemented, shall be collectively referred to as the "Loan
Facilities"; and

     WHEREAS, on October 20, 1998, pursuant to a certain Amended and Restated
Agreement of Guaranty dated October 20, 1998 (hereinafter as it may be from time
to time amended, modified, extended, renewed, refinanced and/or supplemented
referred to as the "Agreement of Guaranty"), executed by the Original
Guarantors, ON A JOINT AND SEVERAL BASIS, in favor of the Agent, on behalf of
the Lenders, the Original Guarantors unconditionally agreed to guaranty the
"Liability of the Co-Borrowers" and the "Liabilities of the Co-Borrowers" (as
such terms are defined in the Agreement of Guaranty); and

     WHEREAS, on October 20, 1998, pursuant to a certain Amended and Restated
Security Agreement #1 dated October 20, 1998 (hereinafter as it may be from time
to time amended, modified, extended, renewed, refinanced and/or supplemented
referred to as the "Security Agreement #1"), executed by and among DRS, DRS
Canada Inc., DRS Sensor Systems, DRS Infrared and the Agent, on behalf of the
Lenders, DRS and DRS Canada Inc., DRS Sensor Systems and DRS Infrared granted to
the Agent, on behalf of the Lenders, a security interest in

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<PAGE>

all of the "Collateral" (as such term is defined in the Security Agreement #1),
as security for all of the "Obligations" (as such term is defined in the
Security Agreement #1) of the Co-Borrowers; and

     WHEREAS, on October 20, 1998. pursuant to a certain Amended and Restated
Security Agreement #2 dated October 20, 1998 (hereinafter as it may be from time
to time amended, modified, extended, renewed, refinanced and/or supplemented
referred to as the "Security Agreement #2"), executed by and among the Original
Guarantors and the Agent, on behalf of the Lenders, the Original Guarantors
granted to the Agent, on behalf of the Lenders, a security interest in all of
the "Collateral" (as such term is defined in the Security Agreement #2). as
security for all of the "Obligations" (as such term is defined in the Security
Agreement #2) of the Co-Borrowers; and

     WHEREAS, on October 20, 1998, pursuant to a certain Amended and Restated
Security Agreement #3 dated October 20, 1998 (hereinafter as it may be from time
to time amended, modified, extended, renewed, refinanced and/or supplemented
referred to as the "Security Agreement #3" and hereinafter the Security
Agreement #1, the Security Agreement #2 and the Security Agreement #3 shall be
collectively referred to as the "Security Agreements"), executed by and between
DRS Flight Safety and the Agent, on behalf of the Lenders, DRS Flight Safety
granted to the Agent, on behalf of the Lenders, a security interest in all of
the "Collateral" (as such term is defined in the Security Agreement #3), as
security for all of the "Obligations" (as such term is defined in the Security
Agreement #3) of the Co-Borrowers; and

     WHEREAS, on October 20, 1998, the Co-Borrowers, as the makers, executed and
delivered to Mellon US, as the payee, a certain Amended and Restated Revolving
Credit Loan Note dated October 20, 1998 (hereinafter referred to as the "Mellon
US Revolving Credit Note"). in the original aggregate principal amount of
Seventy Million and 00/100 (US$70,000,000.00) Dollars, which Mellon US Revolving
Credit Note evidenced the maximum amount of the Revolving Credit Loan Facility;
and

     WHEREAS, on October 20, 1998, the Co-Borrowers, as the makers, executed and
delivered to Mellon Canada, as the payee, a certain Amended and Restated
Revolving Credit Loan Note dated October 20, 1998 (hereinafter referred to as
the "Mellon Canada Revolving Credit Note"), in the original aggregate principal
amount of Ten Million and 00/100 (US$10,000,000.00) Dollars, which Mellon Canada
Revolving Credit Note evidenced the "Revolving Credit Commitment" (as such term
is defined in the Loan Agreement) of Mellon Canada; and

     WHEREAS, on October 20, 1998, the Co-Borrowers, as the makers, executed and
delivered to Mellon US, as the payee, a certain Amended and Restated Term Loan
#1 Note dated October 20, 1998 (hereinafter referred to as the "Mellon US Term
Loan #1 Note"), in the original aggregate principal amount of Twelve Million
Five Hundred Thousand and 00/100 (US$12,500,000.00) Dollars, which Mellon US
Term Loan #1 Note evidenced the "Term Loan #1 Commitment" (as such term is
defined in the Loan Agreement) of Mellon US; and

     WHEREAS, on October 20, 1998, the Co-Borrowers, as the makers, executed and
delivered to Mellon Canada, as the payee, a certain Amended and Restated Term
Loan #1 Note

                                      -7-
<PAGE>

dated October 20, 1998 (hereinafter referred to as the "Mellon Canada Term Loan
#1 Note"), in the original aggregate principal amount of Seventeen Million Five
Hundred Thousand and 00/100 (US$17,500,000.00) Dollars, which Mellon Canada Term
Loan #1 Note evidenced the "Term Loan #1 Commitment" (as such term is defined
in the Loan Agreement) of Mellon Canada; and

     WHEREAS, on October 20, 1998, the Co-Borrowers, as the makers, executed and
delivered to Mellon US, as the payee, a certain Term Loan #2 Note dated October
20, 1998 (hereinafter referred to as the "Mellon US Term Loan #2 Note"), in the
original aggregate principal amount of Fifty Million and 00/100
(US$50,000,000.00) Dollars, which Mellon US Term Loan #2 Note evidenced the
original amount of the Term Loan Facility #2; and

     WHEREAS, pursuant to that certain Certificate of Amendment of Certificate
of Incorporation filed in the Office of the Secretary of State of the State of
Delaware on November 2, 1998, DRS EO, Inc. changed its name to "DRS Sensor
Systems, Inc."; and

     WHEREAS, pursuant to that certain Certificate of Amendment of Certificate
of Limited Partnership filed in the Office of the Secretary of State of the
State of Delaware on November 2, 1998, DRS FPA, L.P. changed its name to "DRS
Infrared Technologies, LP"; and

     WHEREAS, on December 31, 1998, pursuant to a certain Assignment and
Acceptance Agreement dated as of December 31, 1998 (hereinafter referred to as
the "CIT Group Agreement"), executed by and between CIT Group, as the assignee,
and Mellon US, as the assignor, Mellon US assigned a portion of its outstanding
"Term Loans #2" and "Term Loan #2 Commitment" (as such terms are defined in the
Loan Agreement) to CIT Group; and

     WHEREAS, the Co-Borrowers, as the makers, executed and delivered to Mellon
US, as the payee, a certain First Substituted and Replacement Term Loan #2 Note
dated December 31. 1998 (hereinafter as it may be from time to time amended,
modified, extended, referred to as the "Mellon US Term Loan #2 Note #2"), in the
original aggregate principal amount of Forty-Five Million and 00/100
(US$45,000,000.00) Dollars, which Mellon US Term Loan #2 Note #2 evidenced the
Term Loan #2 Commitment of Mellon US after giving effect to the CIT Group
Agreement; and

     WHEREAS, the Co-Borrowers, as the makers, executed and delivered to CIT
Group, as the payee, a certain First Substituted and Replacement Term Loan #2
Note dated December 31, 1998 (hereinafter as it may be from time to time
amended, modified, extended, renewed, refinanced and/or supplemented referred to
as the "CIT Group Term Loan #2 Note"), in the original aggregate principal
amount of Five Million and 00/100 (US$5,000,000.00) Dollars, which CIT Group
Term Loan #2 Note evidenced the Term Loan #2 Commitment of CIT Group after
giving effect to the CIT Group Agreement; and

     WHEREAS, the Mellon US Term Loan #2 Note was cancelled and replaced by the
Mellon US Term Loan #2 Note #2 and the CIT Group Term Loan #2 Note; and

     WHEREAS, on January 22, 1999, pursuant to a certain Assignment and
Acceptance Agreement dated as of January 22, 1999 (hereinafter referred to as
the "NBC US Agreement"),

                                      -8-
<PAGE>

executed by and between NBC, as the assignee, and Mellon US, as the assignor,
Mellon US assigned a portion of its outstanding "Revolving Credit Loans" and
"Revolving Credit Commitments" (as such terms are defined in the Loan Agreement)
to NBC; and

     WHEREAS, the Co-Borrowers, as the makers, executed and delivered to NBC, as
the payee, a certain First Substituted and Replacement Amended and Restated
Revolving Credit Loan Note dated January 22, 1999 (hereinafter as it may be from
time to time amended, modified, extended, renewed, refinanced and/or
supplemented referred to as the "NBC US Revolving Credit Note"), in the original
aggregate principal amount of Ten Million and 00/100 (US$l0,000,000.00)
Dollars, which NBC US Revolving Credit Note evidenced the Revolving Credit
Commitment of NBC after giving effect to the NBC Agreement; and

     WHEREAS, on January 22, 1999, pursuant to a certain Assignment and
Acceptance Agreement dated as of January 22, 1999 (hereinafter referred to as
the "Summit Agreement"), executed by and between Summit, as the assignee, and
Mellon US, as the assignor, Mellon US assigned a portion of its outstanding
"Revolving Credit Loans", "Revolving Credit Commitments", "Term Loans #1" and
"Term Loan #1 Commitments" (as such terms are defined in the Loan Agreement) to
Summit; and

     WHEREAS, the Co-Borrowers, as the makers, executed and delivered to Summit,
as the payee, (i) a certain First Substituted and Replacement Amended and
Restated Revolving Credit Loan Note dated January 22, 1999 (hereinafter as it
may be from time to time amended, modified, extended, renewed, refinanced and/or
supplemented referred to as the "Summit Revolving Credit Note"), in the original
aggregate principal amount of Eight Million Four Hundred Eighty-Four Thousand
Eight Hundred Fifty and 00/100 (US$8,484,850.00) Dollars, which Summit Revolving
Credit Note evidenced the Revolving Credit Commitment of Summit after giving
effect to the Summit Agreement and (ii) a certain First Substituted and
Replacement Amended and Restated Term Loan #1 Note dated January 22, 1999
(hereinafter as it may be from time to time amended, modified, extended,
renewed, refinanced and/or supplemented referred to as the "Summit Term Loan #1
Note"), in the original aggregate principal amount of One Million Five Hundred
Fifteen Thousand One Hundred Fifty and 00/100 (US$1,515,150.00) Dollars, which
Summit Term Loan #1 Note evidenced the Term Loan #1 Commitment of Summit after
giving effect to the Summit Agreement; and

     WHEREAS, on January 22, 1999, pursuant to a certain Assignment and
Acceptance Agreement dated as of January 22, 1999 (hereinafter referred to as
the "Union Bank Agreement"), executed by and between Union Bank, as the
assignee, and Mellon US, as the assignor, Mellon US assigned a portion of its
outstanding "Revolving Credit Loans", "Revolving Credit Commitments", "Term
Loans #1" and "Term Loan #1 Commitments" (as such terms are defined in the Loan
Agreement) to Union Bank; and

     WHEREAS, the Co-Borrowers, as the makers, executed and delivered to Union
Bank, as the payee, (i) a certain First Substituted and Replacement Amended and
Restated Revolving Credit Loan Note dated January 22, 1999 (hereinafter as it
may be from time to time amended, modified, extended, renewed, refinanced and/or
supplemented referred to as the "Union Bank Revolving Credit Note"), in the
original aggregate principal amount of Twelve Million Seven Hundred Twenty-Seven
Thousand Two Hundred Seventy-Five and 00/100 (US$12,727,275.00)

                                      -9-
<PAGE>

Dollars, which Union Bank Revolving Credit Note evidenced the Revolving Credit
Commitment of Union Bank after giving effect to the Union Bank Agreement and
(ii) a certain First Substituted and Replacement Amended and Restated Term Loan
#1 Note dated January 22, 1999 (hereinafter as it may be from time to time
amended, modified, extended, renewed, refinanced and/or supplemented referred to
as the "Union Bank Term Loan #1 Note"), in the original aggregate principal
amount of Two Million Two Hundred Seventy-Two Thousand Seven Hundred Twenty-Five
and 00/100 (US$2,272,725.00) Dollars, which Union Bank Term Loan #1 Note
evidenced the Term Loan #1 Commitment of Union Bank after giving effect to the
Union Bank Agreement; and

     WHEREAS, on January 22, 1999, pursuant to a certain Assignment and
Acceptance Agreement dated as of January 22, 1999 (hereinafter referred to as
the "Transamerica Agreement"), executed by and between Transamerica, as the
assignee, and Mellon US, as the assignor, Mellon US assigned a portion of its
outstanding "Term Loans #2" and "Term Loan #2 Commitment" (as such terms are
defined in the Loan Agreement) to Transamerica; and

     WHEREAS, the Co-Borrowers, as the makers, executed and delivered to
Transamerica, as the payee, a certain Second Substituted and Replacement Term
Loan #2 Note dated January 22, 1999 (hereinafter as it may be from time to time
amended, modified, extended, renewed, refinanced and/or supplemented referred to
as the "Transamerica Term Loan #2 Note"), in the original aggregate principal
amount of Ten Million and 00/100 (US$10,000,000.00) Dollars, which Transamerica
Term Loan #2 Note evidenced the Term Loan #2 Commitment of Transamerica after
giving effect to the Transamerica Agreement; and

     WHEREAS, on January 22, 1999, pursuant to a certain Assignment and
Acceptance Agreement dated as of January 22, 1999 (hereinafter referred to as
the "Toronto-Dominion NY Agreement"), executed by and between Toronto-Dominion
NY, as the assignee, and Mellon US, as the assignor, Mellon US assigned a
portion of its outstanding "Revolving Credit Loans", "Revolving Credit
Commitments", "Term Loans #1" and "Term Loan #1 Commitments" (as such terms are
defined in the Loan Agreement) to Toronto-Dominion NY; and

     WHEREAS, the Co-Borrowers, as the makers, executed and delivered to
Toronto-Dominion NY, as the payee, (i) a certain First Substituted and
Replacement Amended and Restated Revolving Credit Loan Note dated January 22,
1999 (hereinafter as it may be from time to time amended, modified, extended,
renewed, refinanced and/or supplemented referred to as the "Toronto-Dominion NY
Revolving Credit Note"), in the original aggregate principal amount of Twelve
Million Seven Hundred Twenty-Seven Thousand Two Hundred Seventy-Five and 00/100
(US$12,727,275.00) Dollars, which Toronto-Dominion NY Revolving Credit Note
evidenced the Revolving Credit Commitment of Toronto-Dominion NY after giving
effect to the Toronto-Dominion NY Agreement and (ii) a certain First Substituted
and Replacement Amended and Restated Term Loan #1 Note dated January 22, 1999
(hereinafter as it may be from time to time amended, modified, extended,
renewed, refinanced and/or supplemented referred to as the "Toronto-Dominion NY
Term Loan #1 Note"), in the original aggregate principal amount of Two Million
Two Hundred Seventy-Two Thousand Seven Hundred Twenty-Five and 00/100
(US$2,272,725.00) Dollars, which Toronto-Dominion NY Term Loan #1 Note evidenced
the Term Loan #1 Commitment of Toronto-Dominion NY after giving effect to the
Toronto-Dominion NY Agreement; and

                                      -10-
<PAGE>

     WHEREAS, on January 22, 1999, pursuant to a certain Assignment and
Acceptance Agreement dated as of January 22, 1999 (hereinafter referred to as
the "NBC Canada Agreement"), executed by and between NBC, as the assignee, and
Mellon Canada, as the assignor, Mellon Canada assigned a portion of its
outstanding "Canadian Revolving Credit Loans", "Canadian Revolving Credit
Commitments", "Canadian Term Loans" and "Canadian Term Loan Commitments" (as
such terms are defined in the Loan Agreement) to NBC; and

     WHEREAS, the Co-Borrowers, as the makers, executed and delivered to NBC, as
the payee, (i) a certain First Substituted and Replacement Amended and Restated
Revolving Credit Loan Note (Canadian Revolving Credit Note) dated January 22,
1999 (hereinafter as it may he from time to time amended, modified, extended,
renewed, refinanced and/or supplemented referred to as the "NBC Canada Revolving
Credit Note"), in the original aggregate principal amount of Two Million Five
Hundred Thousand and 00/100 (US$2,500,000.00) Dollars, which NBC Canada
Revolving Credit Note evidenced the Canadian Revolving Credit Commitment of NB(:
after giving effect to the NBC Canada Agreement and (ii) a certain First
Substituted and Replacement Amended and Restated Term Loan #1 Note (Canadian
Term Loan Note) dated January 22, 1999 (hereinafter as it may be from time to
time amended, modified, extended, renewed, refinanced and/or supplemented
referred to as the "NBC Canada Term Loan #1 Note"), in the original aggregate
principal amount of Five Million and 00/100 (US$5,000,000.00) Dollars, which NBC
Canada Term Loan #1 Note evidenced the Canadian Term Loan Commitment of NBC
after giving effect to the NBC Canada Agreement; and

     WHEREAS, on January 22, 1999, pursuant to a certain Assignment and
Acceptance Agreement dated as of January 22, 1999 (hereinafter referred to as
the "Toronto-Dominion Agreement"), executed by and between Toronto-Dominion, as
the assignee, and Mellon Canada, as the assignor, Mellon Canada assigned a
portion of its outstanding "Canadian Revolving Credit Loans", "Canadian
Revolving Credit Commitments", "Canadian Term Loans" and "Canadian Term Loan
Commitments" (as such terms are defined in the Loan Agreement) to
Toronto-Dominion; and

     WHEREAS, the Co-Borrowers, as the makers, executed and delivered to
Toronto-Dominion, as the payee, (i) a certain First Substituted and Replacement
Amended and Restated Revolving Credit Loan Note (Canadian Revolving Credit Note)
dated January 22, 1999 (hereinafter as it may be from time to time amended,
modified, extended, renewed, refinanced and/or supplemented referred to as the
"Toronto-Dominion Revolving Credit Note"), in the original aggregate principal
amount of Two Million Five Hundred Thousand and 00/100 (US$2,500,000.00)
Dollars, which Toronto-Dominion Revolving Credit Note evidenced the Canadian
Revolving Credit Commitment of Toronto-Dominion after giving effect to the
Toronto-Dominion Agreement and (ii) a certain First Substituted and Replacement
Amended and Restated Term Loan #1 Note (Canadian Term Loan Note) dated January
22, 1999 (hereinafter as it may be from time to time amended, modified,
extended, renewed, refinanced and/or supplemented referred to as the
"Toronto-Dominion Term Loan #1 Note"), in the original aggregate principal
amount of Five Million and 00/100 (US$5,000,000.00) Dollars, which
Toronto-Dominion Term Loan #1 Note evidenced the Canadian Term Loan Commitment
of Toronto-Dominion after giving effect to the Toronto-Dominion Agreement; and

                                      -11-
<PAGE>

     WHEREAS, the Co-Borrowers, as the makers, executed and delivered to Mellon
US, as he payee, (i) a certain First Substituted and Replacement Amended and
Restated Revolving Credit Loan Note dated January 22, 1999 (hereinafter as it
may be from time to time amended, modified, extended, renewed, refinanced and/or
supplemented referred to as the "Mellon US Revolving Credit Note #2"), in the
original aggregate principal amount of Twenty-Six Million Sixty Thousand Six
Hundred and 00/100 (US$26,060,600.00) Dollars, which Mellon US Revolving Credit
Note #2 evidenced the Revolving Credit Commitment of Mellon US after giving
effect to (a) the NBC US Agreement, (b) the Summit Agreement, (c) the Union Bank
Agreement, (d) the Transamerica Agreement and (e) the Toronto-Dominion NY
Agreement; (ii) a certain First Substituted and Replacement Amended and Restated
Term Loan #1 Note dated January 22, 1999 (hereinafter as it may be from time to
time amended, modified, extended, renewed, refinanced and/or supplemented
referred to as the "Mellon US Term Loan #1 Note #2"), in the original aggregate
principal amount of Six Million Four Hundred Thirty-Nine Thousand Four Hundred
and 00/100 (US$6,439,400.00) Dollars, which Mellon US Term Loan #1 Note #2
evidenced the Term Loan #1 Commitment of Mellon US after giving effect to (a)
the NBC US Agreement, (b) the Summit Agreement, (c) the Union Bank Agreement,
(d) the Transamerica Agreement and (e) the Toronto-Dominion NY Agreement; and
(iii) a certain Second Substituted and Replacement Term Loan #2 Note dated
January 22, 1999 (hereinafter referred to as the "Mellon US Term Loan #2 Note
#3"), in the original aggregate principal amount of Thirty-Five Million and
00/100 (US$35,000,000.00) Dollars, which Mellon US Term Loan #2 Note #3
evidenced the Term Loan #2 Commitment of Mellon US after giving effect to (a)
the NBC US Agreement, (b) the Summit Agreement, (c) the Union Bank Agreement,
(d) the Transamerica Agreement and (e) the Toronto-Dominion NY Agreement; and

     WHEREAS, the Co-Borrowers, as the makers, executed and delivered to Mellon
Canada, as the payee, (i) a certain First Substituted and Replacement Amended
and Restated Revolving Credit Loan Note (Canadian Revolving Credit Loan Note
dated January 22, 1999 (hereinafter as it may be from time to time amended,
modified, extended, renewed, refinanced and/or supplemented referred to as the
"Mellon Canada Revolving Credit Note #2"), in the original aggregate principal
amount of Five Million and 00/100 (US$5,000,000.00) Dollars, which Mellon Canada
Revolving Credit Note #2 evidenced the Canadian Revolving Credit Commitment of
Mellon Canada after giving effect to (a) the NBC Canada Agreement, (b) the
Summit Agreement, (c) the Union Bank Agreement, (d) the Transamerica Agreement
and (e) the Toronto-Dominion Agreement; and (ii) a certain First Substituted and
Replacement Amended and Restated Term Loan #1 Note (Canadian Term Loan Note)
dated January 22, 1999 (hereinafter as it may be from time to time amended,
modified, extended, renewed, refinanced and/or supplemented referred to as the
"Mellon Canada Term Loan #1 Note #2"), in the original aggregate principal
amount of Seven Million Five Hundred Thousand and 00/100 (US$7,500,000.00)
Dollars, which Mellon Canada Term Loan #1 Note #2 evidenced the Canadian Term
Loan Commitment of Mellon Canada after giving effect to (a) the NBC Canada
Agreement, (b) the Summit Agreement, (c) the Union Bank Agreement, (d) the
Transamerica Agreement and (e) the Toronto-Dominion Agreement; and

     WHEREAS, the Mellon US Revolving Credit Note, the Mellon Canada Revolving
Credit Note, the Mellon US Term Loan #1 Note, Mellon Canada Term Loan #1 Note
and the Mellon US Term Loan #2 Note #2 were cancelled and replaced by the Mellon
US Revolving Credit Note #2, the Mellon Canada Revolving Credit Note #2, the
Mellon US Term Loan #1

                                      -12-
<PAGE>

Note #2, the Mellon Canada Term Loan #1 Note #2, the Mellon US Term Loan #2 Note
#3, the NBC Revolving Credit Note, the Summit Revolving Credit Note, the Summit
Term Loan #1 Note, the Union Bank Revolving Credit Note, the Union Bank Term
Loan #1 Note, the Transamerica Term Loan #2 Note, the Toronto-Dominion NY
Revolving Credit Note, the Toronto-Dominion NY Term Loan #1 Note, the NBC Canada
Revolving Credit Note, the NBC Canada Term Loan #1 Note, the Toronto-Dominion
Revolving Credit Note and the Toronto-Dominion Term Loan #1 Note; and

     WHEREAS, for the purposes of this First Amendment, the Mellon US Revolving
Credit Note #2, the Mellon Canada Revolving Credit Note #2, the Mellon US Term
Loan #1 Note #2, the Mellon Canada Term Loan #1 Note #2, the Mellon US Term Loan
#2 Note #3. the CIT Group Term Loan #2 Note, the NBC Revolving Credit Note, the
Summit Revolving Credit Note, the Summit Term Loan #1 Note, the Union Bank
Revolving Credit Note, the Union Bank Term Loan #1 Note, the Transamerica Term
Loan #2 Note, the Toronto-Dominion NY Revolving Credit Note, the
Toronto-Dominion NY Term Loan #1 Note, the NBC Canada Revolving Credit Note, the
NBC Canada Term Loan #1 Note, the Toronto-Dominion Revolving Credit Note and the
Toronto-Dominion Term Loan #1 Note, as they each may be from time to time
amended, modified, extended, refinanced and/or otherwise supplemented, shall be
hereinafter collectively referred to as the "Notes"; and

     WHEREAS, pursuant to that certain Certificate of Merger filed in the office
of the Secretary of State of the State of New York on February 22, 1999, DRS
Merger Sub was merged with and into NAJ Technologies (hereinafter referred to as
the "Merger") with NAI Technologies surviving as a wholly-owned Subsidiary of
DRS; and

     WHEREAS, as a result of the Merger, NAI Technologies became the
successor-in-interest to DRS Merger Sub and the Co-Borrowers acquired the
following "Subsidiaries and/or Affiliates" (as such terms are defined in the
Loan Agreement and, specifically, used in SECTION 6.12 of the Loan Agreement):
(i) DRS Rugged Systems, (ii) DRS Advanced Programs, (iii) DRS Rugged Systems
(Europe) Limited, formerly known as "Lynwood Rugged Systems Limited", a company
incorporated under the laws of England and Wales (hereinafter referred to as
"DRS Rugged Systems UK") and (iv) DRS Rugged Systems Australia PTY Limited,
formerly known as "Lynwood Australia PTY", a company incorporated under the laws
of Australia (hereinafter referred to as "DRS Rugged Systems Australia"); and

     WHEREAS, pursuant to the terms, conditions and provisions of SECTION 6.12
of the Loan Agreement, the Co-Borrowers are required to cause any Subsidiaries
and/or Affiliates which are acquired or formed after the Closing Date of the
Loan Facilities to execute the Agreement of Guaranty, as guarantors; and

     WHEREAS, in order to comply with the requirements of SECTION 6.12 of the
Loan Agreement, the Co-Borrowers, the Guarantors, the Agent and all of the
Lenders have agreed that (i) DRS Rugged Systems and DRS Advanced Programs shall
each assume and accept all of the rights, obligations, responsibilities and
liabilities of a "Guarantor" under the Agreement of Guaranty on A JOINT AND
SEVERAL BASIS with all of the other Guarantors, through their execution and
delivery of this First Amendment and (ii) in lieu of having DRS Rugged Systems
UK and DRS Rugged Systems Australia become "Guarantors" under the Agreement of
Guaranty, (a)

                                      -13-
<PAGE>

DRS Rugged Systems UK shall execute a certain Pledge of Stock Agreement #5 dated
of even date herewith (hereinafter as it may be from time to time amended,
modified, extended, renewed, refinanced and/or supplemented referred to as the
"Pledge of Stock Agreement #5"), pursuant to which DRS Rugged Systems UK shall
pledge to the Agent, on behalf of the Lenders, no more than sixty-five percent
(65%) of the authorized, issued and outstanding capital stock of DRS Rugged
Systems Australia, as security for all of the "Obligations" (as such term is
defined in the Pledge of Stock Agreement #5) and (b) NAI Technologies shall
execute a certain Pledge of Stock Agreement #6 dated of even date herewith
(hereinafter as it may be from time to time amended, modified, extended,
renewed, refinanced and/or supplemented referred to as the "Pledge of Stock
Agreement #6"), pursuant to which NAI Technologies shall pledge to the Agent, on
behalf of the Lenders, no more than sixty-five percent (65%) of the authorized,
issued and outstanding capital stock of DRS Rugged Systems UK, as security for
all of the "Obligations" (as such term is defined in the Pledge of Stock
Agreement #6); and

     WHEREAS, the Co-Borrowers, the Guarantors, the Agent and all of the Lenders
have agreed to amend and modify SECTION 6.12 of the Loan Agreement to provide
for (i) the execution of the Agreement of Guaranty by any domestic Subsidiaries
and/or Affiliates which are acquired or formed by any of the Co-Borrowers after
the Closing Date, (ii) the execution of the Security Agreement #2 by any
domestic Subsidiaries and/or Affiliates which are acquired or formed by any of
the Co-Borrowers after the Closing Date, (iii) the pledge of one-hundred percent
(100%) of the authorized, issued and outstanding stock of any domestic
Subsidiaries and/or Affiliates which are acquired or formed by any of the
Co-Borrowers after the Closing Date and (iv) the pledge of no more than
sixty-five percent (65%) of the authorized, issued and outstanding stock of any
foreign Subsidiaries and/or Affiliates which are acquired or formed by any of
the Co-Borrowers after the Closing Date, all as additional collateral security
for the Loan Facilities; and

     WHEREAS, in conjunction with the amendment and modification of SECTION 6.12
of the Loan Agreement, the Co-Borrowers, the Guarantors, the Agent and all of
the Lenders have further agreed that, DRS Rugged Systems and DRS Advanced
Programs shall each further assume and accept all of the rights, obligations,
responsibilities and liabilities of a "Debtor" under the Security Agreement #2
through their execution and delivery of this First Amendment and shall grant to
the Agent, on behalf of the Lenders, a security interest in all of the
"Collateral" (as such term is defined in the Security Agreement #2), as security
for all of the "Obligations" (as such term is defined in the Security Agreement
#2) of the Co-Borrowers; and

     WHEREAS, in further conjunction with the amendment and modification of
SECTION 6.12 of the Loan Agreement the Co-Borrowers, the Guarantors, the Agent
and all of the Lenders have further agreed that (i) DRS shall execute a certain
Pledge of Stock Agreement #7 dated of even date herewith (hereinafter as it may
be from time to time amended, modified, extended, renewed, refinanced and/or
supplemented referred to as the "Pledge of Stock Agreement #7"), pursuant to
which DRS shall pledge to the Agent, on behalf of the Lenders, one-hundred
percent (100%) of the authorized, issued and outstanding capital stock of NAI
Technologies, as security for all of the "Obligations" (as such term is defined
in the Pledge of Stock Agreement #7) and (ii) NAI Technologies shall execute a
certain Pledge of Stock Agreement #8 dated of even date herewith (hereinafter as
it may be from time to time amended, modified, extended, renewed, refinanced
and/or supplemented referred to as the "Pledge of Stock Agreement #8"), pursuant
to which NAI Technologies shall pledge to the Agent, on behalf of the Lenders,
(a) one-hundred

                                      -14-
<PAGE>

percent (100%) of the authorized, issued and outstanding capital stock of DRS
Rugged Systems and (h) one-hundred percent (100%) of the authorized, issued and
outstanding capital stock of DRS Advanced Programs, all as security for all of
the "Obligations" (as such term is defined in the Pledge of Stock Agreement #8);
and

     WHEREAS, the Loan Agreement, the Notes, the Agreement of Guaranty, the
Security Agreements, the Pledge of Stock Agreement #5, the Pledge of Stock
Agreement #6, the Pledge of Stock Agreement #7, the Pledge of Stock Agreement
#8, this First Amendment and any and all other documents, agreements,
instruments or certificates executed in connection with the Loan Facilities
shall hereinafter collectively be referred to as the "Loan Documents"; and

     WHEREAS, all words, terms, definitions and provisions not otherwise
expressly defined herein shall have their respective meanings and he construed
as provided for in the Loan Agreement. All words, terms, definitions and
provisions of the Loan Agreement are incorporated herein by reference, as if set
forth in their entirety; and

     WHEREAS, the Co-Borrowers, the Guarantors and the Lender now desire to
amend and modify the Loan Agreement and the other Loan Documents for the
purposes of (i) in ARTICLE I, SECTION 1.01 of the Loan Agreement, amending and
modifying the definition of "Loan Documents" to provide for this First
Amendment; (ii) in ARTICLE I, SECTION 1.01 of the Loan Agreement, providing for
a new definition of "First Amendment"; (iii) in ARTICLE I, SECTION 1.01 of the
Loan Agreement, amending and modifying the definition of "Pledge of Stock
Agreements" to provide for the Pledge of Stock Agreement #5, the Pledge of Stock
Agreement #6, the Pledge of Stock Agreement #7 and the Pledge of Stock Agreement
#8; (iv) in ARTICLE VI, SECTION 6.12 of the Loan Agreement, amending and
modifying SECTION 6.12 to provide for (a) the execution of the Agreement of
Guaranty by any domestic Subsidiaries and/or Affiliates which are acquired or
formed by any of the Co-Borrowers after the Closing Date, (b) the execution of
the Security Agreement #2 by any domestic Subsidiaries and/or Affiliates which
are acquired or formed by any of the Co-Borrowers after the Closing Date, (c)
the pledge of one-hundred percent (100%) of the authorized, issued and
outstanding stock of any domestic Subsidiaries and/or Affiliates which are
acquired or formed by any of the Co-Borrowers after the Closing Date and (d) the
pledge of no more than sixty-five percent (65%) of the authorized, issued and
outstanding stock of any foreign Subsidiaries and/or Affiliates which are
acquired or formed by any of the Co-Borrowers after the Closing Date, all as
additional collateral security for the Loan Facilities; (v) in the Agreement of
Guaranty, amending and modifying the Agreement of Guaranty by deleting any and
all references to "DRS Merger Sub" and to "DRS Merger Sub, Inc." and inserting
a new reference to NAI Technologies in their place and stead; (vi) in the
Agreement of Guaranty, amending and modifying the Agreement of Guaranty by
adding DRS Rugged Systems and DRS Advanced Programs as "Guarantors" ON A jOINT
AND SEVERAL BASIS with all of the other Guarantors; (vii) in the Security
Agreement #2, amending and modifying the Security Agreement #2 by deleting any
and all references to "DRS Merger Sub" and to "DRS Merger Sub, Thc." and
inserting a new reference to NAI Technologies in their place and stead; (viii)
in the Security Agreement #2, amending and modifying the Security Agreement #2
by adding DRS Rugged Systems and DRS Advanced Programs as "Debtors"; (ix) in the
Security Agreement #2, amending and modifying SCHEDULE "B" to add the locations
of the Collateral pledged to the Agent, on behalf of the Lenders, by DRS Rugged
Systems and DRS Advanced Programs; (x) in the Loan Agreement and in all of the
other Loan Documents, providing for a new notice address for the Co-Borrowers,
the

                                      -15-
<PAGE>

Corporate Guarantors and the Partnership Guarantor; and (xi) in the Loan
Documents, providing that any and all references to the Loan Documents shall be
deemed to refer to each Loan Document as amended and modified up through and
including this First Amendment.

     NOW, THEREFORE, intending to be legally bound hereby, the Co-Borrowers, the
Guarantors and the Lenders hereby promise, covenant and agree as follows:

     1. PRINCIPAL BALANCE OF THE REVOLVING CREDIT LOAN FACILITY. There is, as of
August 9, 1999, presently due and owing on the Revolving Credit Loan Facility,
the principal sum of US$43,590,318.56 without offset, defense or counterclaim,
all of which are hereby expressly waived by the Co-Borrowers and the Guarantors
as of the date hereof. The foregoing principal balance is allocated as follows:
(i) US$34,175,000.00 for Revolving Credit Loans; (ii) US$5,429 for Letter of
Credit Obligations; (iii) US$3,985,593.84 for Canadian Revolving Credit Loans;
(iv) US$0.00 for Canadian Letter of Credit Obligations; and (v) US$0.00 for
Canadian Bankers Acceptances.

     2. PRINCIPAL BALANCE OF THE TERM LOAN FACILITY #1. There is, as of August
9, 1999, presently due and owing on the Term Loan Facility #1, the principal sum
of US$29,490,777.61 without offset, defense or counterclaim, all of which are
hereby expressly waived by the Co-Borrowers and the Guarantors as of the date
hereof. The foregoing principal balance is allocated as follows: (i)
US$12,083,333.33 for Term Loans #1; and (ii) US$17,407,444.28 for Canadian Term
Loans.

     3. PRINCIPAL BALANCE OF THE TERM LOAN FACILITY #2. There is, as of August
9,1999, presently due and owing on the Term Loan Facility #2, the principal sum
of US$49,937,500.00 without offset, defense or counterclaim, all of which are
hereby expressly waived by the Co-Borrowers and the Guarantors as of the date
hereof.

     4. LOAN AGREEMENT. The Loan Agreement is hereby amended and modified as
follows:

          (i) ARTICLE I, SECTION 1.01 is hereby amended and modified as follows:

               (a) The definition of "Loan Documents" shall be amended and
modified by inserting after the existing phrase "the Swap Agreement(s)" the
following new phrase: "and the First Amendment".

               (b) The definition of "Pledge of Stock Agreements" shall be
amended and modified by inserting after the existing definition the following
new language:

          "; and (xi) that certain Pledge of Stock Agreement #5, dated August
          ____, 1999, executed by DRS Rugged Systems (Europe) Limited, as
          pledgor, pledging no more than 65% of the authorized, issued and
          outstanding voting capital stock of DRS Rugged Systems Australia PTY
          Limited, as hereafter amended, modified, extended, renewed, refinanced
          and/or supplemented; (xii) that certain Pledge of Stock Agreement #6,
          dated August __, 1999, executed by NAI Technologies, Inc., as
          pledgor, pledging no more than 65% of the authorized, issued and
          outstanding voting capital stock of DRS Rugged Systems (Europe)
          Limited, as

                                      -16-
<PAGE>

          hereafter amended, modified, extended, renewed, refinanced and/or
          supplemented; (xiii) that certain Pledge of Stock Agreement #7, dated
          August ____, 1999, executed by DRS Technologies, Inc., as pledgor,
          pledging 100% of the authorized, issued and outstanding voting capital
          stock of NAI Technologies, Inc., as hereafter amended, modified,
          extended, renewed, refinanced and/or supplemented; and (xiv) that
          certain Pledge of Stock Agreement #8, dated August ____ 1999, executed
          by NAI Technologies, Inc., as pledgor, pledging 100% of the
          authorized, issued and outstanding voting capital stock of (a) DRS
          Rugged Systems, Inc. and (b) DRS Advanced Programs, Inc., as hereafter
          amended, modified, extended, renewed, refinanced and/or supplemented;
          and (xv) any and all additional Pledge of Stock Agreements, in form
          and substance satisfactory to the Agent in its sole and absolute
          discretion, executed, made and/or entered into subsequent to the
          Closing Date, including, without limitation, any and all such Pledge
          of Stock Agreements which are consummated for the purposes of pledging
          (a) in the case of any and all domestic Subsidiaries and/or Affiliates
          which are acquired or formed by any of the Co-Borrowers after the
          Closing Date, the pledge of one-hundred percent (100%) of the
          authorized, issued and outstanding stock of any such Subsidiaries
          and/or Affiliates and (b) in the case of any and all foreign
          Subsidiaries and/or Affiliates which are acquired or formed by any of
          the CoBorrowers after the Closing Date, the pledge of no more than
          sixty-five percent (65%) of the authorized, issued and outstanding
          stock of any such Subsidiaries and/or Affiliates, all as provided for
          in SECTION 6.12 of this Loan Agreement."

               (c) The following new definitions shall be inserted:

          ""FIRST AMENDMENT" shall mean that certain First Amendment and
          Modification Agreement dated August 15, 1999, executed by and among
          the Co-Borrowers, as the co-borrowers, the Guarantors, as the
          guarantors, the Agent, as the agent for the lenders, and the Lenders,
          as the lenders, whereby the parties agreed to amend and modify this
          Loan Agreement and the other Loan Documents, all as previously amended
          and modified, for the purposes of (i) in ARTICLE I, SECTION 1.01 of
          this Loan Agreement, amending and modifying the definition of "Loan
          Documents" to provide for the First Amendment; (ii) in ARTICLE I,
          SECTION 1.01 of this Loan Agreement, providing for a new definition of
          "First Amendment"; (iii) in ARTICLE I SECTION 1.01 of this Loan
          Agreement, amending and modifying the definition of "Pledge of Stock
          Agreements" to provide for the Pledge of Stock Agreement #5, the
          Pledge of Stock Agreement #6, the Pledge of Stock Agreement #7 and the
          Pledge of Stock Agreement #8; (iv) in ARTICLE VI, SECTION 6.12 of this
          Loan Agreement, amending and modifying SECTION 6.12 to provide for (a)
          the execution of the Agreement of Guaranty by any domestic
          Subsidiaries and/or Affiliates which are acquired or formed by any of
          the Co-Borrowers after the Closing Date, (b) the execution of the
          Security Agreement #2 by any domestic Subsidiaries and/or Affiliates
          which are acquired or formed by any of the Co-Borrowers after the
          Closing Date, (c) the pledge of one-hundred percent (100%) of the
          authorized, issued and outstanding stock of any domestic Subsidiaries
          and/or Affiliates which are acquired or formed by any of the
          Co-Borrowers after the Closing Date and (d) the pledge of no more than
          sixty-five percent (65%) of the authorized, issued and

                                      -17-
<PAGE>

          outstanding stock of any foreign Subsidiaries and/or Affiliates which
          are acquired or formed by any of the Co-Borrowers after the Closing
          Date, all as additional collateral security for the Loan Facilities;
          (v) in the Agreement of Guaranty, amending and modifying the Agreement
          of Guaranty by deleting any and all references to "DRS Merger Sub" and
          to "DRS Merger Sub, Inc." and inserting a new reference to "NAI
          Technologies, Inc., a New York corporation" in their place and stead;
          (vi) in the Agreement of Guaranty, amending and modifying the
          Agreement of Guaranty by adding DRS Rugged Systems and DRS Advanced
          Programs as "Guarantors", ON A JOINT AND SEVERAL BASIS with all of the
          other Guarantors; (vii) in the Security Agreement #2, amending and
          modifying the Security Agreement #2 by deleting any and all references
          to "DRS Merger Sub" and to "DRS Merger Sub, Inc." and inserting a new
          reference to "NAI Technologies, Inc., a New York corporation" in their
          place and stead; (viii) in the Security Agreement #2, amending and
          modifying the Security Agreement #2 by adding DRS Rugged Systems and
          DRS Advanced Programs as "Debtors"; (ix) in the Security Agreement #2,
          amending and modifying SCHEDULE "B" to add the locations of the
          Collateral pledged to the Agent, on behalf of the Lenders, by DRS
          Rugged Systems and DRS Advanced Programs; (x) in the Loan Documents,
          providing for a new notice address for the Co-Borrowers, the Corporate
          Guarantors and the Partnership Guarantor; and (xi) in the Loan
          Documents, providing that any and all references to the Loan Documents
          shall be deemed to refer to each Loan Document as amended and modified
          up through and including the First Amendment."

          (ii) ARTICLE VI, SECTION 6.12 is hereby amended and modified by
deleting the existing SECTION 6.12 in its entirety and substituting the
following new SECTION 6.12 in its place and stead:

          "Section 6.12 ADDITIONAL CORPORATE GUARANTORS AND/OR PARTNERSHIP
          GUARANTORS. The Co-Borrowers shall cause any domestic Subsidiaries
          and/or Affiliates which are acquired or formed by any of the
          Co-Borrowers after the Closing Date (i) to execute the Agreement of
          Guaranty and (ii) to execute the Security Agreement #2. The
          Co-Borrowers shall further execute or cause to be executed (a) a
          Pledge of Stock Agreement, in form and substance satisfactory to the
          Agent in its sole and absolute discretion, pledging one-hundred
          percent (100%) of the authorized, issued and outstanding stock of any
          domestic Subsidiaries and/or Affiliates which are acquired or formed
          by any of the Co-Borrowers after the Closing Date and (b) a Pledge of
          Stock Agreement, in form and substance satisfactory to the Agent in
          its sole and absolute discretion, pledging no more than sixty-five
          percent (65%) of the authorized, issued and outstanding stock of any
          foreign Subsidiaries and/or Affiliates which are acquired or formed by
          any of the Co-Borrowers after the Closing Date, all as additional
          collateral security for the Loan Facilities."

                                      -18-
<PAGE>

          (iii) Any and all references to the "Loan Documents" shall be deemed
to refer to the Loan Documents as amended and modified up through and including
this First Amendment.

     5. AGREEMENT OF GUARANTY. The Agreement of Guaranty is hereby amended and
modified by deleting any and all references to "DRS Merger Sub" and to "DRS
Merger Sub, Inc." and inserting new references to "NAI Technologies, Inc., a New
York corporation, as successor-in-interest to DRS Merger Sub, Inc." in their
place and stead.

     6. ADDITION OF NAI TECHNOLOGIES, DRS RUGGED SYSTEMS, DRS ADVANCED PROGRAMS
TO THE AGREEMENT OF GUARANTY AS GUARANTORS. In consideration of the Loan
Facilities being made available to the Co-Borrowers and with knowledge that the
Lenders would not have made the Loan Facilities available but for the promises
of NAI Technologies, DRS Rugged Systems and DRS Advanced Programs hereunder, NAI
Technologies, DRS Rugged Systems and DRS Advanced Programs, by their execution
and delivery of this First Amendment, hereby assume and accept, ON A JOINT AND
SEVERAL BASIS with all of the other Guarantors, all of the rights, obligations,
responsibilities and liabilities of a "Guarantor" under the Agreement of
Guaranty and are hereby deemed to be each a "Guarantor" under the Agreement of
Guaranty as if each had originally executed the Agreement of Guaranty. NAI
Technologies, DRS Rugged Systems and DRS Advanced Programs each hereby represent
and warrant to the Agent and to all of the Lenders that they have read,
understand and agree to each of the terms, conditions and provisions of the
Agreement of Guaranty. The addition of NAI Technologies, DRS Rugged Systems and
DRS Advanced Programs as "Guarantors" shall in no way affect, change, modify or
diminish the obligations, responsibilities and liabilities of any of the other
Guarantors under the Agreement of Guaranty.

     7. SECURITY AGREEMENT #2. The Security Agreement #2 is hereby amended and
modified as follows:

          (1) Any and all references to "DRS Merger Sub" and to "DRS Merger Sub,
Inc." shall be deleted and new references to "NAI Technologies, Inc., a New York
corporation, as successor-in-interest to DRS Merger Sub, Inc." shall be inserted
in their place and stead; and

          (ii) The following locations of the Collateral shall be added to
SCHEDULE "B":

               (a)  2405 Trade Centre Avenue, Longmont, Colorado 80503; and

               (b)  7125 Riverwood Drive, Columbia, Maryland 21046.

     8. ADDITION OF NAI TECHNOLOGIES. DRS RUGGED SYSTEMS AND DRS ADVANCED
PROGRAMS TO THE SECURITY AGREEMENT #2 AS DEBTORS.

          (i) In consideration of the Loan Facilities being made available to
the Co-Borrowers and with knowledge that the Lenders would not have made the
Loan Facilities available but for the promises of NAI Technologies, DRS Rugged
Systems and DRS Advanced Programs hereunder, NAI Technologies, DRS Rugged
Systems and DRS Advanced Programs, by their execution and delivery of this First
Amendment, hereby assume and accept all of the rights, obligations,
responsibilities and liabilities of a "Debtor" under the Security Agreement #2
and are

                                      -19-
<PAGE>

hereby deemed to be each a "Debtor" under the Security Agreement #2 as if each
had originally executed the Security Agreement #2.

          (ii) As collateral security for the prompt and complete payment and
performance when due by NAI Technologies DRS Rugged Systems and DRS Advanced
Programs of all obligations and liabilities under the Agreement of Guaranty and
all of the other Loan Documents executed in connection with the Loan Facilities
including, without limitation, the following: (i) all indebtedness of NAI
Technologies, DRS Rugged Systems and DRS Advanced Programs owed to the Agent
and/or the Lenders arising on or after the date hereof under the Agreement of
Guaranty, both principal and interest, and any extensions, renewals, refundings,
substitutions of or for such indebtedness in whole or in part, (ii) all
indebtedness of NAI Technologies, DRS Rugged Systems and DRS Advanced Programs
owed to the Agent and/or the Lenders for reasonable fees and expenses
contemplated by the Agreement of Guaranty, (iii) all obligations of NAI
Technologies, DRS Rugged Systems and DRS Advanced Programs to the Agent and/or
the Lenders arising under the other Loan Documents, (iv) all other indebtedness,
obligations and liabilities of NAI Technologies, DRS Rugged Systems and DRS
Advanced Programs owed to the Agent and/or the Lenders now or hereafter
existing, in connection with the Agreement of Guaranty or the other Loan
Documents whether or not contemplated by the Agent, the Lenders and/or NAI
Technologies, DRS Rugged Systems and DRS Advanced Programs at the date hereof
and whether direct or indirect, matured or contingent, joint or several or
otherwise, (v) all future advances made by the Agent for the protection or
preservation of the Collateral, including, without limitation, reasonable
advances for storage and transportation charges, taxes, insurance, repairs and
the like when and as the same become due whether at maturity or by declaration,
acceleration or otherwise, or if not due when payment thereof shall be demanded
by the Agent and (vi) any and all costs and expenses, including costs and
expenses of collection, paid or incurred by the Agent, on behalf of and for the
benefit of the Lenders, in connection with the collection of the amounts
referred to in the preceding CLAUSES (I), (II), (III), (IV) OR (V), in
connection with the enforcement or realization upon my or all of the collateral
or the Agent's and/or the Lenders' security interest therein or in connection
with the taking of any other action permitted by the Security Agreement #2, NAI
Technologies, DRS Rugged Systems and DRS Advanced Programs hereby collaterally
assign, mortgage, hypothecate, convey, transfer and grant to the Agent, on
behalf of and for the benefit of the Lenders, a continuing security interest in
all of their respective present and future rights, title and interests in and to
all of their personal property, tangible and intangible, including, without
limitation, the personal property described on SCHEDULE "A" of the Security
Agreement #2, wherever said personal property may be located, including, without
limitation, those addresses set forth on SCHEDULE "B" of the Security Agreement
#2, as such personal property may he hereinafter amended and modified from time
to time.

          (iii) NAI Technologies, DRS Rugged Systems and DRS Advanced Programs
each hereby represent and warrant to the Agent and to all of the Lenders that
they have read, understand and agree to each of the terms, conditions and
provisions of the Security Agreement #2. The addition of NAI Technologies, DRS
Rugged Systems and DRS Advanced Programs as "Debtors" shall in no way affect,
change, modify or diminish the obligations, responsibilities and liabilities of
any of the other Debtors under the Security Agreement #2.

     9. CHANGES IN NOTICE PROVISIONS FOR THE CO-BORROWERS, THE CORPORATE
GUARANTORS AND THE PARTNERSHIP GUARANTOR. The Loan Agreement and each of the
other Loan Documents are

                                      -20-
<PAGE>

hereby amended and modified to provide that any and all references to notices
which are required by the terms, conditions and provisions of the Loan Agreement
and the other Loan Documents to he sent (i) to the attention of "Nancy R. Pitek,
Vice President - Finance and Treasurer" shall be deleted and new references to
"Richard Schneider, Executive Vice President and Chief Financial Officer" shall
be inserted in their place and stead and (ii) to "Hannoch Weisman, A
Professional Corporation, 4 Becker Farm Road, Roseland, New Jersey 07068, Attn.:
Jonathan M. Gross, Esq., Telecopy No.: (973) 994-7198" shall be deleted and new
references to "Orloff, Lowenbach, Stifelman & Siegel, P.A., 101 Eisenhower
Parkway, Roseland, New Jersey 07068, Attn.: Geralyn G. Humphrey, Esq., Telecopy
No.: (973) 622-3073" shall be inserted in their place and stead.

     10. LOAN DOCUMENTS. The Loan Documents are hereby amended and modified to
provide that any and all references to the Loan Documents shall be deemed to
refer to each Loan Document as amended and modified up through and including
this First Amendment.

     11. REAFFIRMATION. Each of the Co-Borrowers and the Guarantors hereby
expressly confirm and reaffirm all of their respective liabilities, obligations
and responsibilities under and pursuant to the Loan Documents as amended,
modified and/or supplemented by this First Amendment.

     12. FURTHER AGREEMENTS AND REPRESENTATIONS. The Co-Borrowers and the
Guarantors do hereby:

          (i) ratify, confirm and acknowledge that, as amended and modified, the
Loan Agreement, the Notes, the Agreement of Guaranty, the Security Agreements
and all of the other Loan Documents continue to be valid, binding and in full
force and effect;

          (ii) covenant and agree to perform all of their respective obligations
contained herein and under the Loan Agreement, the Notes, the Agreement of
Guaranty, the Security Agreements and all of the other Loan Documents, as
amended and modified;

          (iii) acknowledge and agree that as of the date hereof, the
Co-Borrowers and the Guarantors have no defense, set-off, counterclaim or
challenge against the payment of any sums due and owing to the Agent or to any
Lender or the enforcement of any of the terms of the Loan Agreement, the Notes,
the Agreement of Guaranty, the Security Agreements and/or any of the other Loan
Documents, all as amended and modified;

          (iv) acknowledge and agree that all of the representations and
warranties of the Co-Borrowers and/or the Guarantors contained in the Loan
Agreement, the Notes, the Agreement of Guaranty, the Security Agreements and/or
all of the other Loan Documents, are true, accurate and correct in all material
respects as of the date hereof as if made on and as of the date hereof;

          (v) represent and warrant that, after giving effect to the
transactions contemplated by this First Amendment, no "Event of Default" (as
such term is defined in the Loan Agreement), exists or will exist upon the
delivery of notice, passage of time, or both, and all information described in
the recitals is true and accurate;

          (vi) acknowledge and agree that nothing contained herein and no
actions taken pursuant to the terms hereof are intended to constitute a novation
of any of the Notes, the

                                      -21-
<PAGE>

Revolving Credit Loan Facility, the Term Loan Facility #1 and/or the Term Loan
Facility #2, or any waiver of any of the other Loan Documents, and do not
constitute a release, termination or waiver of any of the rights and/or remedies
granted to the Agent, on behalf of the Lenders, or to any of the Lenders under
the Loan Documents, all of which rights and/or remedies are hereby expressly
ratified and confirmed; and

          (vii) acknowledge and agree that the failure by the Co-Borrowers
and/or the Guarantors to comply with or perform any of their respective
covenants, agreements or obligations contained herein shall constitute an Event
of Default under the Loan Agreement and each of the Loan Documents, as amended
and modified.

     13. SECURITY INTEREST. The Co-Borrowers and the Guarantors hereby affirm
and confirm that the security interests granted to the Agent on behalf of the
Lenders in the Security Agreements, as amended and modified by this First
Amendment, continues to be a valid first lien on the Collateral.

     14. ADDITIONAL DOCUMENTS: FURTHER ASSURANCES. The Co-Borrowers hereby
covenant and agree to execute and/or deliver to the Agent, on behalf of the
Lenders, or to cause to be executed and/or delivered to the Agent, on behalf of
the Lenders contemporaneously herewith, at the sole cost and expense of the
Co-Borrowers, any and all other documents, agreements, statements, resolutions,
certificates, opinions, consents, searches and information as the Agent, on
behalf of the Lenders, may reasonably request in connection with the matters or
actions described herein. The Co-Borrowers hereby further covenant and agree to
execute and/or deliver to the Lender, or to use their reasonable efforts to
cause to be executed and/or delivered to the Agent, on behalf of the Lender, at
the sole cost and expense of the Co-Borrowers, from time to lime, any and all
other documents, agreements, statements, certificates and information as the
Agent, on behalf of the Lenders, shall reasonably request to evidence or effect
the terms of the Loan Agreement, as amended, or any of the other Loan Documents,
as amended, or to enforce or protect the Lenders' interest in the Collateral.
All such documents, agreements, statements, etc., shall be in form and content
reasonably acceptable to the Agent.

     15. FEES, COSTS, EXPENSES AND EXPENDITURES. The Co-Borrowers shall pay all
of the Agent's and the Lenders' reasonable expenses in connection with the
review, preparation, negotiation, documentation and closing of this First
Amendment and the consummation of the transactions contemplated hereunder,
including, without limitation, fees, expenses and disbursements of legal counsel
retained by the Agent and/or the Lenders and all fees related to filings,
recordings of documents and searches, whether or not the transactions
contemplated hereunder are consummated.

     16. NO NOVATION. It is the intention of the parties hereto that this First
Amendment SHALL NOT constitute a novation and shall in no way adversely affect
or impair the lien priority of the Loan Documents. In the event that this First
Amendment, or any portion hereof, or any of the instruments executed in
connection herewith, shall be construed or shall operate to affect the lien
priority of the Loan Documents, then to the extent such instrument creates a
charge upon the Loan Documents in excess of that contemplated and permitted
thereby and to the extent third parties acquiring an interest in the Loan
Documents between the time of recording of the Loan Documents and the recording
of this First Amendment are prejudiced hereby, if any, this First Amendment
shall be void and of no force and effect; PROVIDED, HOWEVER, that
notwithstanding the

                                      -22-
<PAGE>

foregoing, the parties hereto, as between themselves, shall be bound by all of
the terms, conditions and provisions contained herein until all obligations of
the Co-Borrowers to the Agent and the Lenders under the Loan Documents shall
have been paid in full and the Loan Facilities shall have been terminated.

     17. NO WAIVER. Nothing contained herein constitutes an agreement or
obligation by the Agent or by any Lender to grant any further amendments to any
of the Loan Documents and nothing contained herein constitutes a waiver or
release by the Agent or by any Lender of any rights or remedies available to the
Agent or such Lender under the Loan Documents, at law or in equity, provided
that the foregoing is not intended to revoke the Agent's or any Lender's
previous consent to the requested actions by the Co-Borrowers and/or the
Guarantors where such consent was delivered by the Agent or such Lender in
writing.

     18. INCONSISTENCIES. To the extent of any inconsistency between the terms
and conditions of this First Amendment and the terms and conditions of the Loan
Agreement or the Loan Documents, the terms and conditions of this First
Amendment shall prevail. All terms and conditions of the Loan Agreement and the
Loan Documents not inconsistent herewith shall remain in full force and effect
and are hereby ratified and confirmed by the Co-Borrowers and/or the Guarantors.

     19. CONSTRUCTION. Any capitalized terms used in this First Amendment not
otherwise defined shall have the meaning as set forth in the Loan Agreement. All
references to the Loan Agreement therein or in any of the other Loan Documents
shall be deemed to be a reference to the Loan Agreement, as amended and modified
hereby.

     20. BINDING EFFECT. This First Amendment shall be binding upon and inure to
the benefit of the parties hereto and their successors and assigns.

     21. COUNTERPARTS. This First Amendment may be executed by one or more of
the parties to this First Amendment in any number of separate counterparts and
all of said counterparts taken together shall be deemed to constitute one and
the same instrument.

                                      -23-
<PAGE>

     IN WITNESS WHEREOF, the Co-Borrowers, the Guarantors, the Agent and the
Lenders have cuased this First Amendment to be executed and delivered by their
duly authorized coporate officers, all as of the day and year first written
above.

[SEAL]                                  DRS TECHNOLOGIES, INC.,
ATTEST:                                 a Delaware corporation, as a Co-Borrower

/s/  NINA LASERSON DUNN                 By: /s/  MARK S. NEWMAN
------------------------------             -------------------------------------
     Nina Laserson Dunn                          Mark S. Newman
     Secretary                                   President

[SEAL]                                  DRS TECHNOLOGIES CANADA COMPANY,
ATTEST:                                 a Nova Scotia company, as a Co-Borrower

/s/  NINA LASERSON DUNN                 By: /s/  DAVID STAPLEY
------------------------------             -------------------------------------
     Nina Laserson Dunn                          David Stapley
     Secretary                                   President

[SEAL]                                  DRS TECHNOLOGIES CANADA, INC.,
ATTEST:                                 a Delaware corporation, as a Co-Borrower

/s/  NINA LASERSON DUNN                 By: /s/  MARK S. NEWMAN
------------------------------             -------------------------------------
     Nina Laserson Dunn                          Mark S. Newman
     Secretary                                   President

[SEAL]                                  DRS SENSOR SYSTEMS, INC, FORMERLY KNOWN
ATTEST:                                 AS "DRS EO, INC.", a Delaware
                                        corporation, as a Co-Borrower

/s/  NINA LASERSON DUNN                 By: /s/  MARK S. NEWMAN
------------------------------             -------------------------------------
     Nina Laserson Dunn                          Mark S. Newman
     Secretary                                   President

                                      -24-
<PAGE>

                                        DRS INFRARED TECHNOLOGIES, LP, FORMERLY
                                        KNOWN AS "DRS FPA, L.P.", a Delaware
                                        limited partnership, as a Co-Borrower

[SEAL]                                  By:  DRS FPA, INC., a Delaware
ATTEST:                                      corporation as the general partner

/s/  NINA LASERSON DUNN                      By: /s/  MARK S. NEWMAN
------------------------------                  --------------------------------
     Nina Laserson Dunn                               Mark S. Newman
     Secretary                                        President

                                        LAUREL TECHNOLOGIES PARTNERSHIP, (ALSO
                                        DOING BUSINESS AS DRS LAUREL
                                        TECHNOLOGIES), a Delaware general
                                        partnership, as a Guarantor

[SEAL]                                  By:  DRS SYSTEMS MANAGEMENT CORPORATION
ATTEST:                                      as the General Partner

/s/  RICHARD A. SCHNEIDER                    By: /s/  PAUL G. CASNER, JR.
------------------------------                  --------------------------------
     Richard A. Schneider                             Paul G. Casner, Jr.
     Secretary                                        President

[SEAL]                                  DRS ELECTRONIC SYSTEMS, INC.,
ATTEST:                                 a Delaware corporation, as a Guarantor

/s/  DAVID M. kNOTT                     By: /s/  TERRENCE L. DEROSA
------------------------------             -------------------------------------
     David M. Knott                              Terrence L. DeRosa
     Secretary                                   President

[SEAL]                                  DRS PHOTRONICS, INC.
ATTEST:                                 a New York Corporation, as a Guarantor

/s/  ROBERT RUSSO                       By: /s/  RICHARD ROSS
------------------------------             -------------------------------------
     Robert Russo                                Richard Ross
     Secretary                                   President

                                      -25-
<PAGE>

[SEAL]                                  DRS PRECISION ECHO, INC.,
ATTEST:                                 a Delaware corporation, as a Guarantor

/s/  RICHARD A. SCHNEIDER               By: /s/  DAVID STAPLEY
------------------------------             -------------------------------------
     Richard A. Schneider                        David Stapley
     Secretary                                   President

[SEAL]                                  DRS AHEAD TECHNOLOGY, INC., a Delaware
ATTEST:                                 corporation, as a Guarantor

/s/  RICHARD A. SCHNEIDER               By: /s/  DENNIS CHARLEBOIS
------------------------------             -------------------------------------
     Richard A. Schneider                        Dennis charlebois
     Secretary                                   President

[SEAL]                                  DRS OPTRONICS, INC., a Delaware
ATTEST:                                 corporation, as a Guarantor

/s/  ROBERT RUSSO                       By: /s/  RICHARD ROSS
------------------------------             -------------------------------------
     Robert Russo                                Richard Ross
     Secretary                                   President

[SEAL]                                  DRS SYSTEMS MANAGEMENT CORPORATION, a
ATTEST:                                 Delaware corporations, as a Guarantor

/s/  RICHARD A. SCHNEIDER               By: /s/  PAUL G. CASNER, JR.
------------------------------             -------------------------------------
     Richard A. Schneider                        Paul G. Casner, Jr.
     Secretary                                   President

[SEAL]                                  DRS/MS, INC., a Delaware corporation,
ATTEST:                                 as a Guarantor

/s/  RICHARD A. SCHNEIDER               By: /s/ MARK S. NEWMAN
------------------------------             -------------------------------------
     Richard A. Schneider                       Mark S. Newman
     Secretary                                  President

                                      -26-
<PAGE>

[SEAL]                                  DRS TECHNICAL SERVICES, INC., a Delaware
ATTEST:                                 corporation, as a Guarantor

/s/  DAVID M. KNOTT                     By: /s/  TERRENCE L. DEROSA
------------------------------             -------------------------------------
     David M. Knott                              Terrence L. DeRosa
     Secretary                                   President

[SEAL]                                  DRS INTERNATIONAL, INC., a Delaware
ATTEST:                                 corporation, as a Guarantor

/s/  NINA LASERSON DUNN                 by: /s/  MARK S. NEWMAN
------------------------------             -------------------------------------
     Nina Laserson Dunn                          Mark S. Newman
     Secretary                                   President

[SEAL]                                  DRS AIR, INC., a Delaware corporation,
ATTEST:                                 as a Guarantor

/s/  NINA LASERSON DUNN                 By: /s/  MARK S. NEWMAN
------------------------------             -------------------------------------
     Nina Laserson Dunn                          Mark S. Newman
     Secretary                                   President

[SEAL]                                  DRS HADLAND, INC., a Massachusetts
ATTEST:                                 corporation, as a Guarantor

/s/  ROBERT RUSSO                       By: /s/  RICHARD ROSS
------------------------------             -------------------------------------
     Robert Russo                                Richard Ross
     Secretary                                   President

                                        NAI TECHNOLOGIES, INC., AS SUCCESSOR-
[SEAL]                                  IN-INTEREST TO DRS MERGER SUB, INC., a
ATTEST:                                 a New York corporation, as a Guarantor

/s/  RICHARD A. SCHNEIDER               By: /s/  TERRENCE L. DEROSA
------------------------------             -------------------------------------
     Richard A. Schneider                        Terrence L. DeRosa
     Secretary                                   President

                                      -27-
<PAGE>

[SEAL]                                  DRS FPA, INC., a Delaware corporation,
ATTEST:                                 as a Guarantor

/s/  NINA LASERSON DUNN                 By: /s/  MARK S. NEWMAN
------------------------------             -------------------------------------
     Nina Laserson Dunn                          Mark S. Newman
     Secretary                                   President

[SEAL]                                  DRS RUGGED SYSTEMS, INC., a Colorado
ATTEST:                                 corporation, as a Guarantor

/s/  RICHARD A. SCHNEIDER               By: /s/  DAVID PRIOR
------------------------------             -------------------------------------
     Richard A. Schneider                        David Prior
     Secretary                                   President

[SEAL]                                  DRS ADVANCED PROGRAMS, INC., a New
ATTEST:                                 York corporation, as a Guarantor

/s/  RICHARD A. SCHNEIDER               By: /s/  STEVEN RICE
------------------------------             -------------------------------------
     Richard A. Schneider                        Steven Rice
     Secretary                                   President

                                      -28-
<PAGE>

                                        MELLON BANK, N.A.,
                                        as a Lender

                                        By: /s/  PETER A. DONTAS
                                           -------------------------------------
                                                 Peter A. Dontas

                                        MELLON BANK CANADA,
                                        as a Lender

                                        By: /s/  WENDY B. H. BOCTI
                                           -------------------------------------
                                                 Wendy B. H. Bocti
                                                 Vice President

                                        THE CIT GROUP/EQUIPMENT FINANCING, INC.,
                                        as a Lender

                                        By: /s/  DANIEL E. A. NICHOLS
                                           -------------------------------------
                                                 Daniel E. A. Nichols
                                                 Assistant Vice President

                                        NATIONAL BANK OF CANADA,
                                        as a Lender

By: /s/ KAREN A. GREXA                  By: /s/  JOHN P. LEIFER
-------------------------     AND          -------------------------------------
        Karen A. Grexa                           John p. Leifer
        Vice President                           Vice President

                                        SUMMIT BANK,
                                        as a Lender

                                        By: /s/  GEORGE W. D. BARRON
                                           -------------------------------------
                                                 George W. D. Barron
                                                 Vice President

                                      -29-
<PAGE>

                                        UNION BANK OF CALIFORNIA, N.A.,
                                        as a Lender

                                        By: /s/  HAGOP V. JAZMADARIAN
                                           -------------------------------------
                                                 Hagop V. Jazmadarian
                                                 Vice Presient

                                        TRANSAMERICA EQUIPMENT FINANCIAL
                                        SERVICES CORPORATION, as a Lender

                                        By: /s/  SEAN D. MCALISTER
                                           -------------------------------------
                                                 Sean D. McAlister
                                                 V.P. Region Credit Manager

                                        THE TORONTO-DOMINION BANK,
                                        as a Lender

                                        By: /s/  R. G. HARRIS
                                           -------------------------------------
                                                 R. G. Harris
                                                 Vice President & Director

                                        TORONTO DOMINION (NEW YORK), INC.,
                                        as a Lender

                                        By: /s/  R. G. HARRIS
                                           -------------------------------------
                                                 R. G. Harria
                                                 Vice President & Director

                                        MELLON BANK, N.A.,
                                        as a Agent

                                        By: /s/  PETER A. DONTAS
                                           -------------------------------------
                                                 Peter A. Dontas
                                                 Vice President

                                      -30-

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