Document:

exv4w2

 

Exhibit 4.2

CERTIFICATE OF DESIGNATION OF TERMS OF

5.125% NON-CUMULATIVE PREFERRED STOCK, SERIES L

1.   Designation, Par Value and Number of Shares.

      The designation of the series of preferred stock of the Federal National
Mortgage Association (“Fannie Mae”) created by his resolution shall be “5.125%
Non-Cumulative Preferred Stock, Series L” (the “Series L Preferred Stock”), and
the number of shares initially constituting the Series L Preferred Stock is
6,000,000*. Shares of Series L Preferred Stock will have no par value and a
stated value and liquidation preference of $50 per share. The Board of
Directors of Fannie Mae, or a duly authorized committee thereof, in its sole
discretion, may reduce the number of shares of Series L Preferred Stock,
provided such reduction is not below the number of shares of Series L Preferred
Stock then outstanding.

2.   Dividends.

     (a)  Holders of record of Series L Preferred Stock (each individually a
“Holder”, or collectively the “Holders”) will be entitled to receive, when, as
and if declared by the Board of Directors of Fannie Mae, or a duly authorized
committee thereof, in its sole discretion out of funds legally available
therefor, non-cumulative quarterly cash dividends which will accrue from and
including April 29, 2003 and will be payable on March 31, June 30, September 30
and December 31 of each year (each, a “Dividend Payment Date”), commencing June
30, 2003 at the annual rate of $2.5625 per share or 5.125% of the stated value
and liquidation preference of $50 per share (without taking into account any
adjustments referred to in clause (b) below). If a Dividend Payment Date is not
a Business Day, the related dividend (if declared) will be paid on the next
succeeding Business Day with the same force and effect as though paid on the
Dividend Payment Date, without any increase to account for the period from such
Dividend Payment Date through the date of actual payment. A “Business Day”
shall mean any day other than a Saturday, Sunday, or a day on which banking
institutions in New York, New York are authorized by law to close. Dividends
will be paid to Holders on the record date fixed by the Board of Directors or a
duly authorized committee thereof, which may not be earlier than 45 days or
later than 10 days prior to the applicable Dividend Payment Date. If declared,
the initial dividend, which will be for the period from and including April 29,
2003 to but excluding June 30, 2003, will be $0.4342 per share and will be
payable on June 30, 2003 and, thereafter, if declared, quarterly dividends will
be $0.6406 per share. After the initial dividend, the dividend period relating
to a Dividend Payment Date will be the period from and including the preceding
Dividend Payment Date to but excluding the related Dividend Payment Date. If
Fannie Mae redeems the Series L Preferred Stock, the dividend that would
otherwise be payable for the then-current quarterly dividend period accrued to
but excluding the date of redemption will be included in the redemption price
of the shares redeemed and will not be separately payable. Dividends payable
on the Series L Preferred Stock for any period greater or less than a full
dividend period will be computed on the basis of a 360-day year consisting of
twelve 30-day months. The amount of dividends per share payable at redemption
will be rounded to the fourth digit after the decimal point. (If the fifth
digit to the right of the decimal point is five or greater, the fourth digit
will be rounded up by one.)

     (b)  If, prior to October 29, 2004, one or more amendments to the Internal
Revenue Code of 1986, as amended (the “Code”), are enacted that eliminate or
reduce the percentage of the dividends-received deduction applicable to the
Series L Preferred Stock as specified in section 243(a)(1) of the Code or any
successor provision thereto (the “Dividends-Received Percentage”), certain
adjustments may be made in respect of the dividends payable by Fannie Mae, and
Post Declaration Date Dividends and Retroactive Dividends (as such terms are
defined below) may become payable, as described below.

     The amount of each dividend payable (if declared) per share of Series L
Preferred Stock for dividend payments made on or after the effective date of
such change in the Code will be adjusted by multiplying the amount of the
dividend payable pursuant to clause (a) of this Section 2 (before adjustment)
by a factor, which will be the number determined in accordance with the
following formula (the “DRD

	*	 	Plus up to 900,000 additional shares pursuant to the Underwriters’
overallotment option.

1

 

	Formula”), and rounding the result to the nearest cent (with one-half cent
rounded up):
	 
	1-.35(1-.70)

1-.35(1-DRP)

     For purposes of the DRD Formula, “DRP” means the Dividends-Received
Percentage (expressed as a decimal) applicable to the dividend in question;
provided, however, that if the Dividends-Received Percentage applicable to the
dividend in question shall be less than 50%, then the DRP shall equal .50. No
amendment to the Code, other than a change in the percentage of the
dividends-received deduction applicable to the Series L Preferred Stock as set
forth in section 243(a)(1) of the Code or any successor provision thereto, will
give rise to an adjustment. Notwithstanding the foregoing provisions, if, with
respect to any such amendment, Fannie Mae receives either an unqualified
opinion of nationally recognized independent tax counsel selected by Fannie Mae
or a private letter ruling or similar form of assurance from the Internal
Revenue Service (the “IRS”) to the effect that such an amendment does not apply
to a dividend payable on the Series L Preferred Stock, then such amendment will
not result in the adjustment provided for pursuant to the DRD Formula with
respect to such dividend. The opinion referenced in the previous sentence shall
be based upon the legislation amending or establishing the DRP or upon a
published pronouncement of the IRS addressing such legislation. Unless the
context otherwise requires, references to dividends herein will mean dividends
as adjusted by the DRD Formula. Fannie Mae’s calculation of the dividends
payable as so adjusted shall be final and not subject to review.

     Notwithstanding the foregoing, if any such amendment to the Code is
enacted after the dividend payable on a Dividend Payment Date has been declared
but before such dividend is paid, the amount of the dividend payable on such
Dividend Payment Date will not be increased; instead, additional dividends (the
“Post Declaration Date Dividends”), equal to the excess, if any, of (1) the
product of the dividend paid by Fannie Mae on such Dividend Payment Date and
the DRD Formula (where the DRP used in the DRD Formula would be equal to the
greater of the Dividends-Received Percentage applicable to the dividend in
question and .50) over (2) the dividend paid by Fannie Mae on such Dividend
Payment Date, will be payable (if declared) to Holders on the record date
applicable to the next succeeding Dividend Payment Date.

     If any such amendment to the Code is enacted and the reduction in the
Dividends-Received Percentage retroactively applies to a Dividend Payment Date
as to which Fannie Mae previously paid dividends on the Series L Preferred
Stock (each, an “Affected Dividend Payment Date”), Fannie Mae will pay (if
declared) additional dividends (the “Retroactive Dividends”) to Holders on the
record date applicable to the next succeeding Dividend Payment Date (or, if
such amendment is enacted after the dividend payable on such Dividend Payment
Date has been declared, to Holders on the record date applicable to the second
succeeding Dividend Payment Date following the date of enactment), in an amount
equal to the excess of (1) the product of the dividend paid by Fannie Mae on
each Affected Dividend Payment Date and the DRD Formula (where the DRP used in
the DRD Formula would be equal to the greater of the Dividends-Received
Percentage and .50 applied to each Affected Dividend Payment Date) over (2) the
sum of the dividend paid by Fannie Mae on each Affected Dividend Payment Date.
Fannie Mae will only make one payment of Retroactive Dividends for any such
amendment. Notwithstanding the foregoing provisions, if, with respect to any
such amendment, Fannie Mae receives either an unqualified opinion of nationally
recognized independent tax counsel selected by Fannie Mae or a private letter
ruling or similar form of assurance from the IRS to the effect that such
amendment does not apply to a dividend payable on an Affected Dividend Payment
Date for the Series L Preferred Stock, then such amendment will not result in
the payment of Retroactive Dividends with respect to such Affected Dividend
Payment Date. The opinion referenced in the previous sentence shall be based
upon legislation amending or establishing the DRP or upon a published
pronouncement of the IRS addressing such legislation.

     Notwithstanding the foregoing, no adjustment in the dividends payable by
Fannie Mae shall be made, and no Post Declaration Date Dividends or Retroactive
Dividends shall be payable by Fannie Mae, in respect of the enactment of any
amendment to the Code on or after October 29, 2004 that eliminates or reduces
the Dividends-Received Percentage.

2

 

     In the event that the amount of dividends payable per share of Series L
Preferred Stock is adjusted pursuant to the DRD Formula and/or Post Declaration
Date Dividends or Retroactive Dividends are to be paid, Fannie Mae will cause
notice of each such adjustment and, if applicable, Post Declaration Date
Dividends and Retroactive Dividends to be given as soon as practicable to the
Holders of Series L Preferred
Stock.

     (c)  No dividend (other than dividends or distributions paid in shares of,
or options, warrants or rights to subscribe for or purchase shares of, the
common stock of Fannie Mae or any other stock of Fannie Mae ranking, as to the
payment of dividends and the distribution of assets upon dissolution,
liquidation or winding up of Fannie Mae, junior to the Series L Preferred
Stock) may be declared or paid or set apart for payment on Fannie Mae’s common
stock (or on any other stock of Fannie Mae ranking, as to the payment of
dividends, junior to the Series L Preferred Stock) unless dividends have been
declared and paid or set apart (or ordered to be set apart) on the Series L
Preferred Stock for the then-current quarterly dividend period; provided,
however, that the foregoing dividend preference shall not be cumulative and
shall not in any way create any claim or right in favor of the Holders of
Series L Preferred Stock in the event that dividends have not been declared or
paid or set apart (or ordered to be set apart) on the Series L Preferred Stock
in respect of any prior dividend period. If the full dividend on the Series L
Preferred Stock is not paid for any quarterly dividend period, the Holders of
Series L Preferred Stock will have no claim in respect of the unpaid amount so
long as no dividend (other than those referred to above) is paid on Fannie
Mae’s common stock (or any other stock of Fannie Mae ranking, as to the payment
of dividends, junior to the Series L Preferred Stock) for such dividend period.

     (d)  The Board of Directors of Fannie Mae, or a duly authorized committee
thereof, may, in its discretion, choose to pay dividends on the Series L
Preferred Stock without the payment of any dividends on Fannie Mae’s common
stock (or any other stock of Fannie Mae ranking, as to the payment of
dividends, junior to the Series L Preferred Stock).

     (e)  No full dividends shall be declared or paid or set apart for payment
on any stock of Fannie Mae ranking, as to the payment of dividends, on a parity
with the Series L Preferred Stock for any period unless full dividends have
been declared and paid or set apart for payment on the Series L Preferred Stock
for the then current quarterly dividend period. When dividends are not paid in
full upon the Series L Preferred Stock and all other classes or series of stock
of Fannie Mae, if any, ranking, as to the payment of dividends, on a parity
with the Series L Preferred Stock, all dividends declared upon shares of Series
L Preferred Stock and all such other stock of Fannie Mae will be declared pro
rata so that the amount of dividends declared per share of Series L Preferred
Stock and all such other stock will in all cases bear to each other the same
ratio that accrued dividends per share of Series L Preferred Stock (including
any adjustments in dividends payable due to changes in the Dividends-Received
Percentage but without, in the case of any noncumulative preferred stock,
accumulation of unpaid dividends for prior dividend periods) and such other
stock bear to each other.

     (f)  No dividends may be declared or paid or set apart for payment on any
shares of Series L Preferred Stock if at the same time any arrears exist or
default exists in the payment of dividends on any outstanding class or series
of stock of Fannie Mae ranking, as to the payment of dividends, prior to the
Series L Preferred Stock.

     (g)  Holders of Series L Preferred Stock will not be entitled to any
dividends, whether payable in cash or property, other than as herein provided
and will not be entitled to interest, or any sum in lieu of interest, in
respect of any dividend payment.

3.   Optional Redemption.

      (a)  The Series L Preferred Stock shall not be redeemable prior to April
29, 2008. On or after that date, subject to the notice provisions set forth in
Section 3(b) below and subject to any further limitations which may be imposed
by law, Fannie Mae may redeem the Series L Preferred Stock, in whole or in
part, at any time or from time to time, out of funds legally available
therefor, at the redemption price of $50 per

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share plus an amount equal to the
amount of the dividend (whether or not declared) for the then-current quarterly
dividend period accrued to but excluding the date of such redemption, including
any adjustments in dividends payable due to changes in the Dividends-Received
Percentage but without accumulation of unpaid dividends on the Series L
Preferred Stock for prior dividend periods. If less than all of the outstanding
shares of Series L Preferred Stock are to be redeemed, Fannie Mae will select
the shares to be redeemed from the outstanding shares not previously called for
redemption by lot or pro rata (as nearly as possible) or by any other method
that the Board of Directors of Fannie Mae, or a duly authorized committee
thereof, in its sole discretion deems equitable.

     (b)  In the event Fannie Mae shall redeem any or all of the Series L
Preferred Stock as aforesaid, Fannie Mae will give notice of any such
redemption to Holders of Series L Preferred Stock not less than 30 days prior
to the date fixed by the Board of Directors of Fannie Mae, or duly authorized
committee thereof, for such redemption. Each such notice will state: (1) the
number of shares of Series L Preferred Stock to be redeemed and, if fewer than
all of the shares of Series L Preferred Stock held by a Holder are to be
redeemed, the number of shares to be redeemed from such Holder; (2) the
redemption price; (3) the redemption date; and (4) the place at which a
Holder’s certificate(s) representing shares of Series L Preferred Stock must be
presented upon such redemption. Failure to give notice, or any defect in the
notice, to any Holder of Series L Preferred Stock shall not affect the validity
of the proceedings for the redemption of shares of any other Holder of Series L
Preferred Stock being redeemed.

     (c)  Notice having been given as herein provided, from and after the
redemption date, dividends on the Series L Preferred Stock called for
redemption shall cease to accrue and such Series L Preferred Stock called for
redemption will no longer be deemed outstanding, and all rights of the Holders
thereof as registered holders of such shares of Series L Preferred Stock will
cease. Upon surrender in accordance with said notice of the certificate(s)
representing shares of Series L Preferred Stock so redeemed (properly endorsed
or assigned for transfer, if the Board of Directors of Fannie Mae, or a duly
authorized committee thereof, shall so require and the notice shall so state),
such shares shall be redeemed by Fannie Mae at the redemption price aforesaid.
Any shares of Series L Preferred Stock that shall at any time have been
redeemed shall, after such redemption, be cancelled and not reissued. In case
fewer than all the shares represented by any such certificate are redeemed, a
new certificate shall be issued representing the unredeemed shares without cost
to the Holder thereof.

     (d)  The Series L Preferred Stock will not be subject to any mandatory
redemption, sinking fund or other similar provisions. In addition, Holders of
Series L Preferred Stock will have no right to require redemption of any shares
of Series L Preferred Stock.

4.   Liquidation Rights.

      (a)  Upon any voluntary or involuntary dissolution, liquidation or winding
up of Fannie Mae, after payment or provision for the liabilities of Fannie Mae
and the expenses of such dissolution, liquidation or winding up, the Holders of
outstanding shares of the Series L Preferred Stock will be entitled to receive
out of the assets of Fannie Mae or proceeds thereof available for distribution
to stockholders, before any payment or distribution of assets is made to
holders of Fannie Mae’s common stock (or any other stock of Fannie Mae ranking,
as to the distribution of assets upon dissolution, liquidation or winding up of
Fannie Mae, junior to the Series L Preferred Stock), the amount of $50 per
share plus an amount equal to the dividend (whether or not declared) for the
then-current quarterly dividend period accrued to but excluding the date of
such liquidation payment, including any adjustments in dividends payable due to
changes in the Dividends-Received Percentage but without accumulation of unpaid
dividends on the Series L Preferred Stock for prior dividend periods.

     (b)  If the assets of Fannie Mae available for distribution in such event
are insufficient to pay in full the aggregate amount payable to Holders of
Series L Preferred Stock and holders of all other classes or series of stock of
Fannie Mae, if any, ranking, as to the distribution of assets upon dissolution,
liquidation or winding up of Fannie Mae, on a parity with the Series L
Preferred Stock, the assets will be distributed to the Holders of Series L
Preferred Stock and holders of all such other stock pro rata, based on the full
respective preferential amounts to which they are entitled (including any
adjustments in dividends payable

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due to changes in the Dividends-Received
Percentage but without, in the case of any noncumulative preferred stock,
accumulation of unpaid dividends for prior dividend periods).

     (c)  Notwithstanding the foregoing, Holders of Series L Preferred Stock
will not be entitled to be paid any amount in respect of a dissolution,
liquidation or winding up of Fannie Mae until holders of any classes or series
of stock of Fannie Mae ranking, as to the distribution of assets upon
dissolution, liquidation or winding up of Fannie Mae, prior to the Series L
Preferred Stock have been paid all amounts to which such classes or series are
entitled.

     (d)  Neither the sale, lease or exchange (for cash, shares of stock,
securities or other consideration) of all or substantially all of the property
and assets of Fannie Mae, nor the merger, consolidation or combination of
Fannie Mae into or with any other corporation or the merger, consolidation or
combination of any other corporation or entity into or with Fannie Mae, shall
be deemed to be a dissolution, liquidation or winding up, voluntary or
involuntary, for the purposes of this Section 4.

     (e)  After payment of the full amount of the distribution of assets upon
dissolution, liquidation or winding up of Fannie Mae to which they are entitled
pursuant to paragraphs (a), (b) and (c) of this Section 4, the Holders of
Series L Preferred Stock will not be entitled to any further participation in
any distribution of assets by Fannie Mae.

5.   No Conversion or Exchange Rights.

      The Holders of shares of Series L Preferred Stock will not have any rights
to convert such shares into or exchange such shares for shares of any other
class or classes, or of any other series of any class or classes, of stock or
obligations of Fannie Mae.

6.   No Pre-Emptive Rights.

      No Holder of Series L Preferred Stock shall be entitled as a matter of
right to subscribe for or purchase, or have any pre-emptive right with respect
to, any part of any new or additional issue of stock of any class whatsoever,
or of securities convertible into any stock of any class whatsoever, or any
other shares, rights, options or other securities of any class whatsoever,
whether now or hereafter authorized and whether issued for cash or other
consideration or by way of dividend.

7.   Voting Rights; Amendments.

      (a)  Except as provided below, the Holders of Series L Preferred Stock will
not be entitled to any voting rights, either general or special.

      (b)  Without the consent of the Holders of Series L Preferred Stock, Fannie
Mae will have the right to amend, alter, supplement or repeal any terms of this
Certificate or the Series L Preferred Stock (1) to cure any ambiguity, or to
cure, correct or supplement any provision contained in this Certificate of
Designation that may be defective or inconsistent with any other provision
herein or (2) to make any other provision with respect to matters or questions
arising with respect to the Series L Preferred Stock that is not inconsistent
with the provisions of this Certificate of Designation so long as such action
does not materially and adversely affect the interests of the Holders of Series
L Preferred Stock; provided, however, that any increase in the amount of
authorized or issued Series L Preferred Stock or the creation and issuance, or
an increase in the authorized or issued amount, of any other class or series of
stock of Fannie Mae, whether ranking prior to, on a parity with or junior to
the Series L Preferred Stock, as to the payment of dividends or the
distribution of assets upon dissolution, liquidation or winding up of Fannie
Mae, or otherwise, will not be deemed to materially and adversely affect the
interests of the Holders of Series L Preferred Stock.

      (c)  Except as set forth in paragraph (b) of this Section 7, the terms of
this Certificate or the Series L Preferred Stock may be amended, altered,
supplemented, or repealed only with the consent of the Holders of at least
two-thirds of the shares of Series L Preferred Stock then outstanding, given in
person or by proxy, either in writing or at a meeting of stockholders at which
the Holders of Series L Preferred Stock

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shall vote separately as a class. On
matters requiring their consent, Holders of Series L Preferred Stock will be
entitled to one vote per share.

     (d)  The rules and procedures for calling and conducting any meeting of
Holders (including, without limitation, the fixing of a record date in
connection therewith), the solicitation and use of proxies at such a meeting,
the obtaining of written consents, and any other aspect or matter with regard
to such a meeting or such consents shall be governed by any rules that the
Board of Directors of Fannie Mae, or a duly authorized committee thereof, in
its discretion, may adopt from time to time, which rules and procedures shall
conform to the requirements of any national securities exchange on which the
Series L Preferred Stock are listed at the time.

8.   Additional Classes or Series of Stock.

      The Board of Directors of Fannie Mae, or a duly authorized committee
thereof, shall have the right at any time in the future to authorize, create
and issue, by resolution or resolutions, one or more additional classes or
series of stock of Fannie Mae, and to determine and fix the distinguishing
characteristics and the relative rights, preferences, privileges and other
terms of the shares thereof. Any such class or series of stock may rank prior
to, on a parity with or junior to the Series L Preferred Stock as to the
payment of dividends or the distribution of assets upon dissolution,
liquidation or winding up of Fannie Mae, or otherwise.

9.   Priority.

      For purposes of this Certificate of Designation, any stock of any class or
series of Fannie Mae shall be deemed to rank:

      (a)  Prior to the shares of Series L Preferred Stock, either as to the
payment of dividends or the distribution of assets upon dissolution,
liquidation or winding up of Fannie Mae, if the holders of such class or series
shall be entitled to the receipt of dividends or of amounts distributable upon
dissolution, liquidation or winding up of Fannie Mae, as the case may be, in
preference or priority to the Holders of shares of Series L Preferred Stock.

      (b)  On a parity with shares of Series L Preferred Stock, either as to the
payment of dividends or the distribution of assets upon dissolution,
liquidation or winding up of Fannie Mae, whether or not the dividend rates or
amounts, dividend payment dates or redemption or liquidation prices per share,
if any, be different from those of the Series L Preferred Stock, if the holders
of such class or series shall be entitled to the receipt of dividends or of
amounts distributable upon dissolution, liquidation or winding up of Fannie
Mae, as the case may be, in proportion to their respective dividend rates or
amounts or liquidation prices, without preference or priority, one over the
other, as between the holders of such class or series and the Holders of shares
of Series L Preferred Stock.

      (c)  Junior to shares of Series L Preferred Stock, either as to the payment
of dividends or the distribution of assets upon dissolution, liquidation or
winding up of Fannie Mae, if such class shall be common stock of Fannie Mae or
if the Holders of shares of Series L Preferred Stock shall be entitled to the
receipt of dividends or of amounts distributable upon dissolution, liquidation
or winding up of Fannie Mae, as the case may be, in preference or priority over
the holders of such class or series.

      (d)  The shares of Preferred Stock of Fannie Mae designated “5.25%
Non-Cumulative Preferred Stock, Series D” (the “Series D Preferred Stock”),
“5.10% Non-Cumulative Preferred Stock, Series E” (the “Series E Preferred
Stock”), “Variable Rate Non-Cumulative Preferred Stock, Series F” (the “Series
F Preferred Stock”), “Variable Rate Non-Cumulative Preferred Stock, Series G”
(the “Series G Preferred Stock”), “5.81% Non-Cumulative Preferred Stock, Series
H” (the “Series H Preferred Stock”), “5.375% Non-Cumulative Preferred Stock,
Series I” (the “Series I Preferred Stock”), “Variable Rate Non- Cumulative
Preferred Stock, Series J (the “Series J Preferred Stock”) and “Variable Rate
Non-Cumulative Preferred Stock, Series K” (the “Series K Preferred Stock”)
shall be deemed to rank on a parity with shares of Series L Preferred Stock as
to the payment of dividends and the distribution of assets upon dissolution,

6

 

liquidation or winding up of Fannie Mae. Accordingly, the holders of record of
Series D Preferred Stock, the holders of record of Series E Preferred Stock,
the holders of record of Series F Preferred Stock, the holders of record of
Series G Preferred Stock, the holders of record of Series H Preferred Stock,
the holders of record of Series I Preferred Stock, the holders of record of
Series J Preferred Stock, the holders of record of Series K Preferred Stock and
the holders of record of Series L Preferred Stock shall be entitled to the
receipt of dividends and of amounts distributable upon dissolution, liquidation
or winding up of Fannie Mae, as the case may be, in proportion to their
respective dividend rates or amounts or liquidation prices, without preference
or priority, one over the other.

10.   Transfer Agent, Dividend Disbursing Agent and Registrar.

      Fannie Mae hereby appoints EquiServe Trust Company, N.A., as its initial
transfer agent, dividend disbursing agent and registrar for the Series L
Preferred Stock. Fannie Mae may at any time designate an additional or
substitute transfer agent, dividend disbursing agent and registrar for the
Series L Preferred Stock.

11.   Notices.

      Any notice provided or permitted by this Certificate of Designation to be
made upon, or given or furnished to, the Holders of Series L Preferred Stock by
Fannie Mae shall be made by first-class mail, postage prepaid, to the addresses
of such Holders as they appear on the books and records of Fannie Mae. Such
notice shall be deemed to have been sufficiently made upon deposit thereof in
the United States mail. Notwithstanding anything to the contrary contained
herein, in the case of the suspension of regular mail service or by reason of
any other cause it shall be impracticable, in Fannie Mae’s judgment, to give
notice by mail, then such notification may be made, in Fannie Mae’s discretion,
by publication in a newspaper of general circulation in The City of New York or
by hand delivery to the addresses of Holders as they appear on the books and
records of Fannie Mae.

      Receipt and acceptance of a share or shares of the Series L Preferred
Stock by or on behalf of a Holder shall constitute the unconditional acceptance
by such Holder (and all others having beneficial ownership of such share or
shares) of all of the terms and provisions of this Certificate of Designation.
No signature or other further manifestation of assent to the terms and
provisions of this Certificate of Designation shall be necessary for its
operation or effect as between Fannie Mae and the Holder (and all such others).

7exv10w7

 

Exhibit 10.7

MASTER LOAN AND SECURITY AGREEMENT

dated as of May 2, 2003,

by and between

NATIONAL CITY BANK

and

OXFORD FINANCE CORPORATION

 

 

TABLE OF CONTENTS

  	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	Page
	 	 	 	 	 	 	 	
	SECTION
          1. GENERAL
          PROVISIONS
	 	 	1	 
	 	1.1
	 	Defined
          Terms
	 	 	1	 
	 	1.2
	 	Guidance
          Line of Credit
	 	 	1	 
	 	1.3
	 	Advances
	 	 	1	 
	 	1.4
	 	Interest
          Rate
	 	 	2	 
	 	1.5
	 	Loan Payments
	 	 	3	 
	 	1.6
	 	Late Charges
	 	 	4	 
	 	1.7
	 	Required
          Prepayments
	 	 	4	 
	 	1.8
	 	Voluntary
          Prepayments
	 	 	4	 
	 	1.9
	 	Collateral
	 	 	5	 
	 	1.10
	 	Closing
          Requirements and the Initial Advance
	 	 	6	 
	SECTION
          2. REPRESENTATIONS
          AND WARRANTIES
	 	 	9	 
	 	2.1
	 	Organization;
          Power; Qualification
	 	 	9	 
	 	2.2
	 	Authorization
	 	 	9	 
	 	2.3
	 	Litigation
	 	 	9	 
	 	2.4
	 	Ownership;
          Management and Subsidiaries; etc.
	 	 	9	 
	 	2.5
	 	Financial
          Condition
	 	 	10	 
	 	2.6
	 	Taxes
	 	 	10	 
	 	2.7
	 	Title to
          Properties and Collateral
	 	 	10	 
	 	2.8
	 	Borrower's
          Name, Business Locations, etc
	 	 	10	 
	 	2.9
	 	Compliance
          with Laws
	 	 	11	 
	 	2.10
	 	Burdensome
          Provisions
	 	 	11	 
	 	2.11
	 	Solvency
	 	 	11	 
	 	2.12
	 	Material
          Agreements
	 	 	11	 
	 	2.13
	 	Absence
          of Defaults
	 	 	11	 
	 	2.14
	 	Liens
	 	 	11	 
	 	2.15
	 	Federal
          Reserve Board Regulations
	 	 	11	 
	 	2.16
	 	ERISA
	 	 	11	 
	 	2.17
	 	Licenses,
          etc
	 	 	12	 
	 	2.18
	 	Labor Matters
	 	 	12	 
	 	2.19
	 	Margin Stock
	 	 	12	 
	 	2.20
	 	Government
          Regulation
	 	 	12	 
	 	2.21
	 	Environmental
          Matters
	 	 	12	 
	 	2.22
	 	Accuracy
          of Information
	 	 	13	 
	 	2.23
	 	Purpose
          of Loan
	 	 	13	 
	 	2.24
	 	Intellectual
          Property Matters
	 	 	13	 
	 	2.25
	 	The Eligible
          Loans
	 	 	14	 
	SECTION
          3. AFFIRMATIVE
          COVENANTS
	 	 	14	 
	 	3.1
	 	Payment
          of Obligations
	 	 	14	 
	 	3.2
	 	Financial
          Statements and Other Reports
	 	 	14	 
	 	3.3
	 	Conduct
          of Business and Maintenance of Existence
	 	 	15	 
	 	3.4
	 	Compliance
          with Laws
	 	 	15	 

(i)

 

  	 	 	 	 	 	 	 	 	 	 
	 	3.5
	 	Payment
          of Liabilities and Taxes
	 	 	15	 
	 	3.6
	 	Contractual
          Obligations
	 	 	15	 
	 	3.7
	 	Maintenance
          of Properties
	 	 	15	 
	 	3.8
	 	Insurance
	 	 	16	 
	 	3.9
	 	Inspection
	 	 	17	 
	 	3.10
	 	Collection
          of Loan Receivables
	 	 	17	 
	 	3.11
	 	Loan Undertakings
	 	 	17	 
	 	3.12
	 	Accounting
          Methods and Financial Records
	 	 	17	 
	 	3.13
	 	Further
          Assurances
	 	 	17	 
	 	3.14
	 	Environmental
          Laws
	 	 	18	 
	 	3.15
	 	Compliance
          with ERISA
	 	 	18	 
	 	3.16
	 	Notice
	 	 	19	 
	 	3.17
	 	Collections
	 	 	19	 
	 	3.18
	 	Use of Proceeds
	 	 	19	 
	 	3.19
	 	Eligible
          Loan Documents
	 	 	20	 
	 	3.20
	 	Business
          Checking Account
	 	 	20	 
	SECTION
          4. NEGATIVE
          COVENANTS
	 	 	20	 
	 	4.1
	 	Financial
          Covenants
	 	 	20	 
	 	4.2
	 	Liens
	 	 	20	 
	 	4.3
	 	Mergers,
          Acquisitions, Etc
	 	 	20	 
	 	4.4
	 	Investments
	 	 	20	 
	 	4.5
	 	Sale of
          Assets and Liquidation
	 	 	20	 
	 	4.6
	 	Change of
          Control
	 	 	20	 
	 	4.7
	 	Change of
          Business
	 	 	21	 
	 	4.8
	 	Change of
          Name, Location, Etc
	 	 	21	 
	 	4.9
	 	Certain
          Accounting Changes; Organizational Documents
	 	 	21	 
	 	4.10
	 	Amendments
	 	 	21	 
	 	4.11
	 	ERISA
	 	 	21	 
	SECTION
          5. DEFAULT
	 	 	21	 
	 	5.1
	 	Payment
          of Obligations
	 	 	21	 
	 	5.2
	 	Perform,
          etc. Certain Provisions of this Agreement
	 	 	21	 
	 	5.3
	 	Perform,
          etc. Other Provisions of this Agreement
	 	 	22	 
	 	5.4
	 	Representations
          and Warranties
	 	 	22	 
	 	5.5
	 	Default
          under Other Financing Documents
	 	 	22	 
	 	5.6
	 	Liquidation,
          Termination, Dissolution, etc
	 	 	22	 
	 	5.7
	 	Default
          under Other Indebtedness
	 	 	22	 
	 	5.8
	 	Attachment
	 	 	23	 
	 	5.9
	 	Judgments
	 	 	23	 
	 	5.10
	 	Inability
          to Pay Debts, etc
	 	 	23	 
	 	5.11
	 	Bankruptcy
	 	 	23	 
	 	5.12
	 	Receiver,
          etc
	 	 	23	 
	 	5.13
	 	Financial
          Condition
	 	 	23	 
	 	5.14
	 	Default;
          Security Interest
	 	 	23	 
	 	5.15
	 	Change of
          Control
	 	 	23	 
	 	5.16
	 	Insecure
	 	 	23	 
	 	5.17
	 	Prospect
          of Payment
	 	 	23	 

(ii)

 

  	 	 	 	 	 	 	 	 	 	 
	SECTION
          6. RIGHTS AND
          REMEDIES
	 	 	24	 
	 	6.1
	 	Rights and
          Remedies
	 	 	24	 
	 	6.2
	 	Default
          Rate
	 	 	26	 
	 	6.3
	 	Liens, Set-Off
	 	 	26	 
	 	6.4
	 	Enforcement
          Costs
	 	 	27	 
	 	6.5
	 	Application
          of Proceeds
	 	 	27	 
	 	6.6
	 	Remedies,
          etc. Cumulative
	 	 	27	 
	 	6.7
	 	No Waiver,
          Etc
	 	 	27	 
	SECTION
          7. MISCELLANEOUS
	 	 	28	 
	 	7.1
	 	Course of
          Dealing; Amendment
	 	 	28	 
	 	7.2
	 	Waiver of
          Default
	 	 	28	 
	 	7.3
	 	Notices
	 	 	28	 
	 	7.4
	 	Right to
          Perform
	 	 	29	 
	 	7.5
	 	Fee; Costs
          and Expenses
	 	 	29	 
	 	7.6
	 	Consent
          to Jurisdiction
	 	 	30	 
	 	7.7
	 	Assignment
          and Participations
	 	 	30	 
	 	7.8
	 	Definitions;
          Certain Definitional Provisions
	 	 	31	 
	 	7.9
	 	Entire Agreement;
          Severability
	 	 	37	 
	 	7.10
	 	Confession
          of Judgment
	 	 	37	 
	 	7.11
	 	Survival
	 	 	38	 
	 	7.12
	 	Successors
          and Assigns
	 	 	38	 
	 	7.13
	 	Applicable
          Law
	 	 	38	 
	 	7.14
	 	Time of
          Essence
	 	 	38	 
	 	7.15
	 	Duplicate
          Originals and Counterparts
	 	 	38	 
	 	7.16
	 	Headings
	 	 	38	 

EXHIBITS

	 	 	 
	A.	 	
Advance Request
	B.	 	
Form of Promissory Note
	C.	 	
Notice of Assignment
	D.	 	
Form of Borrowing Base Certificate
	E.	 	
Form of Allonge to Promissory Notes

SCHEDULES

	 	 	 
	2.4(a)	 	
Stockholders
	2.4(b)	 	
Senior Management
	2.8	 	
List of Other Locations
	2.16	 	
List of Plans
	2.25	 	
List of Prepaid Amounts Under Eligible Loan
	4.4	 	
Permitted Investments

(iii)

 

MASTER LOAN AND SECURITY AGREEMENT

     THIS MASTER LOAN AND SECURITY AGREEMENT (this “Agreement”) is made as of
the 2nd day of May, 2003, by and between NATIONAL CITY BANK, its successors and
assigns (the “Bank”), and OXFORD FINANCE CORPORATION, its successors and
permitted assigns (“Borrower”).

     Borrower has heretofore entered into, or hereafter will enter into,
certain Master Loan and Security Agreements with the borrowers specified
therein and receive certain promissory notes executed by such borrowers,
pursuant to which Borrower has made, or hereafter will make, loans to such
borrowers, secured by the collateral specified therein.

     From time to time, Borrower may request that the Bank lend to Borrower
certain sums on the terms and conditions specified herein. The Bank may
consider such requests on the terms and conditions specified herein.

     NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants set forth herein, the parties hereto, intending to be legally bound,
hereby agree as follows:

SECTION 1. GENERAL PROVISIONS.

     1.1     Defined Terms. Capitalized terms not otherwise defined herein,
shall have the meanings given to such terms in Section 7.8 hereof.

     1.2     Guidance Line of Credit. From time to time, Borrower may
request that the Bank lend to Borrower certain sums (not to exceed $10,000,000
at any time outstanding) on the terms and conditions set forth herein, by
submitting a written request therefor in substantially the form attached hereto
as Exhibit A (an “Advance Request”). Upon receipt of an Advance Request, the
Bank shall consider such request and, subject to the Bank’s internal review
process, the Bank may, at its sole discretion, approve such request. The
availability of this guidance line of credit shall expire on the earlier of (i)
September 30, 2003 and (ii) the six month anniversary of the Closing Date,
unless expressly extended in writing by the Bank. Advances may be borrowed,
repaid, and reborrowed from time to time during the availability period subject
to the Borrowing Base requirements of Section 1.3 and the voluntary repayment
requirements of Section 1.8.

     1.3     Advances.

               (a)     Each advance hereunder is referred to as an “Advance” and all Advances
hereunder are collectively referred to as the “Loan.” The maximum Advance made
hereunder with respect to each Eligible Loan shall be calculated as fifty
percent (50%) of the outstanding principal amount of such Eligible Loan, not to
exceed $3,000,000 per Eligible Loan Obligor.

               (b)     The maximum aggregate amount of the Loan at any one time shall not
exceed the lesser of (i) $10,000,000 or (ii) the Borrowing Base, as set forth
in the then applicable Borrowing Base Certificate delivered to the Bank
pursuant to Section 1.10(b) or Section 3.2 hereof, as the case may be.

               (c)     The obligation to repay the Loan hereunder shall be evidenced by a

 

 

Promissory Note payable by Borrower to the order of the Bank in substantially
the form attached hereto as Exhibit A (the “Promissory Note”).

     1.4     Interest Rate.

               (a)     Each Advance shall bear interest on the unpaid principal balance
thereof from the funding date to maturity (whether by acceleration, stated
maturity, or otherwise) at either (a) the Base Rate or (b) the sum of LIBOR
plus 3.25% per annum as selected by Borrower in the Advance Request for such
Advance. Interest shall be computed on the basis of a three hundred sixty
(360) day year consisting of twelve (12) 30-day months.

               (b)     Bank shall, upon Borrower’s request prior to 9:00 a.m., prevailing
Philadelphia time on any Request Day, advise Borrower of the then-current LIBOR
for loans for one or more LIBOR Periods. Borrower shall then have the right to
fix the rate of interest to be charged by Bank during one or more of such LIBOR
Periods on any LIBOR Amount (provided that Borrower may not have outstanding at
any time more than five LIBOR Amounts). Borrower shall, prior to 12:00 noon
(Philadelphia time) on the Request Day, advise Bank (a) whether (and, if so,
for what LIBOR Period or Periods) Borrower elects to fix the rate of interest
to be charged as aforesaid and (b) the LIBOR Amount with respect to which the
rate of interest will so be fixed during the LIBOR Period or Periods. Each
LIBOR Period, if any, elected by Borrower shall commence on the second Business
Day following the Request Day.

               (c)     If at any time there is any portion of the outstanding principal
balance of the Loan that has not been so designated by Borrower as a LIBOR
Amount for a LIBOR Period, interest on such portion shall be charged at the
Base Rate. Whenever interest is charged at the Base Rate, interest for any day
shall be charged on the basis of the Base Rate in effect on such day. All
interest payable hereunder shall be calculated on the basis of a 360 day year,
but charged for the actual number of days elapsed.

               (d)     If Borrower requests that all or any portion of the principal balance
hereof bear interest at the LIBOR, and Bank reasonably determines that, by
reason of circumstances affecting the interbank Eurodollar market generally,
deposits in U.S. Dollars (in the applicable amounts) are not being offered to
banks in the interbank Eurodollar market, then Bank shall forthwith give notice
thereof to Borrower, whereupon until Bank notifies Borrower that the
circumstances giving rise to such suspension no longer exist, (a) the
obligation of Bank to permit any portion of the principal balance of the Loan
to bear interest with reference to the LIBOR shall be suspended so long as such
circumstances exist, and (b) Borrower shall convert the interest rates on the
applicable portions of the principal balance hereof to the Base Rate on the
last day of the then current LIBOR Period.

               (e)     If, after the date hereof, the adoption of or any change in Rules, or
change in the interpretation or administration thereof, by a governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by Bank with any request or directive
(whether or not having the force of law) of any such authority, central bank or
comparable agency shall make it unlawful or impossible for Bank to make or
maintain or fund loans at the LIBOR, the interest rate on the applicable
portions of the principal balance hereof shall be deemed to have been converted
to the Base Rate on either (i)
the last day of the then current LIBOR Period if Bank may lawfully
continue to maintain loans at

2

 

the LIBOR to such day, or (ii) immediately if
Bank may not lawfully continue to maintain loans at the LIBOR to such day.

               (f)     If
  any governmental authority, central bank or other comparable authority shall
  at any time impose, modify or deem applicable any reserve (including, without
  limitation, any imposed by the Board of Governors of the Federal Reserve System),
  any tax (including without limitation, any United States interest equalization
  tax or similar tax however named applicable to the acquisition or holding of
  debt obligations and any interest or penalties with respect thereto), duty,
  charge, fee, deduction, withholding special deposit or similar requirement against
  assets of, deposits with or for the account of, or credit extended by, Bank,
  or shall impose on Bank or the interbank Eurodollar market any other condition
  affecting loans at the LIBOR, and the result of any of the foregoing is to increase
  the cost to Bank of making or maintaining the interest rate at the LIBOR or
  to reduce the amount of any sum received or receivable by Bank under the Promissory
  Note by an amount deemed by Bank to be material, then within five days
  after demand by Bank, Borrower shall pay to Bank such additional amount or amounts
  as will compensate Bank for such increased cost or reduction. Bank will promptly
  notify Borrower of any event of which it has knowledge occurring after the date
  hereof, which will entitle Bank to compensation pursuant to this Section. A
  certificate of Bank claiming compensation under this Section and setting forth
  the additional amount or amounts to be paid to Bank hereunder shall be conclusive
  in the absence of manifest error. 

               (g)     Failure on the part of Bank to demand compensation for any increased
costs or reduction in amounts received or receivable or reduction in return on
capital with respect to any period shall not constitute a waiver of Bank’s
right to demand such compensation with respect to such period or any other
period. The protection of this Section shall be available to Bank regardless of
any possible contention of the invalidity or inapplicability of the law, rule,
regulation, guideline or other change or condition which shall have occurred or
been imposed.

     1.5     Loan Payments.

               (a)     Each Advance shall be payable in consecutive monthly installments of
principal plus interest in an amount equal to fifty percent (50%) of the
monthly amount due from the Eligible Loan Obligor under the applicable Eligible
Loan (whether such amount has been received by Oxford from such Eligible Loan
Obligor) over a period coterminous with the then remaining term of the Eligible
Loan with respect to which such Advance is made. Payment shall be made in
arrears on the fifteenth day of the month for each month during the term of the
Advance.

               (b)     Whenever any payment to be made by the Borrower under the provisions
of this Agreement is due on a day which is not a Business Day (as hereinafter
defined), the due date thereof shall be extended to the next succeeding
Business Day and, in the case of any payment which bears interest, such
extension of time shall be included in computing interest on such payment.

               (c)     All
  payments and prepayments of the unpaid balance of the principal amount of the
  Promissory Note, interest thereon, Bank’s costs, fees,
  and any other amounts payable hereunder or thereunder shall be paid without
  set-off or counterclaim in lawful money of the United States of America in immediately
  available funds during regular business hours of the 

3

 

Bank at: National City Bank, One South Broad Street, 1345 Chestnut
  Street, 13th Floor, Philadelphia, Pennsylvania 19107, or at such other place
  as the Bank or any other holder of the Promissory Note may
  at any time or from time to time designate in writing to the Borrower. 

     1.6     Late Charges. If the Borrower fails to make any payment of
principal, interest, prepayments, fees or any other amount becoming due
pursuant to the provisions of this Agreement, within five (5) days of the date
due and payable, the Borrower shall pay to the Bank a late charge equal to five
(5) percent of the amount of such payment. Such five (5) day period shall not
be construed in any way to extend the due date of any such payment. Late
charges are imposed for the purpose of defraying the Bank’s expenses incident
to the handling of delinquent payments, and are in addition to, and not in lieu
of, the exercise by the Bank of any rights and remedies hereunder or under
applicable laws and any fees and expenses of any agents or attorneys which the
Bank may employ upon Default.

     1.7     Required Prepayments. The Borrower shall prepay the applicable
Advance as and to the extent that the Eligible Loan with respect to which such
Advance was made ceases to be an Eligible Loan. Notwithstanding the foregoing,
in lieu of such prepayment, Borrower may provide to the Bank additional
Eligible Loans requiring payment of installments in such number and amount as
may be satisfactory to the Bank.

     1.8     Voluntary Prepayments.

               (a)     Notice; Application of Payments. Within the limitations set
forth herein and subject to the provisions of this Agreement, the Borrower may
repay the Loan at any time in whole or in part from time to time without
premium or penalty, and any such repayment need not be accompanied by payment
of interest on the amount repaid except that any repayment of the Loan which
constitutes a final payment of the entire principal balance of the Loan shall
be accompanied by payment of all interest thereon accrued through the date of
repayment. Borrower shall provide not less than five (5) Business Days’ prior
written notice to the Bank of any proposed repayment of the Loan, in whole or
in part. Unless the Borrower requests otherwise, such repayments shall be
applied first to accrued and unpaid interest on the principal amount to be
repaid and then to the unpaid balance of the principal amount in the inverse
order of maturity.

               (b)     Prepayment Premiums for LIBOR Amounts. LIBOR Amounts may be
prepaid prior to the expiration date of the LIBOR Period applicable thereto
only upon payment to Bank of a prepayment premium determined as follows: (i) on
the prepayment date, the remaining payments of principal and interest that
would otherwise have become payable at the expiration of the LIBOR Period
pertaining to the principal being prepaid shall be discounted to a present
value at a rate per annum equal to the “Prepayment Yield to Maturity”, as
hereinafter defined, plus any costs for reserves or assessments or for
reinvesting the amount being prepaid, and if such discounted value shall exceed
the unpaid principal amount being prepaid, then the prepayment premium shall be
an amount equal to such excess; otherwise no prepayment premium shall be
payable; (ii) the “Prepayment Yield to Maturity” shall mean the yield to
maturity of the debt obligation of the United States Treasury (excluding those
commonly known as “Flower Bonds”) maturing nearest in time to the expiration of
the relevant LIBOR Period. The maturity date and yield to maturity of such
United States Treasury obligation shall
be determined on the basis of quotations published in the Wall
Street Journal on the prepayment date. If there shall be more

4

 

than
one such debt obligation of the United States Treasury maturing nearest in time
to the expiration of the relevant LIBOR Period, the Prepayment Yield to
Maturity shall be the arithmetic average of the yields to maturity of all such
obligations.

     1.9     Collateral.

               (a)     In order to secure the full and punctual payment of the Obligations in
accordance with the terms thereof, and to secure the performance of this
Agreement and the other Financing Documents, both now in existence and
hereafter created (as the same may be renewed, extended or modified), the
Borrower hereby pledges and assigns to the Bank, and grants to the Bank a
continuing lien on and security interest in and to all of the following
property of the Borrower, both now owned and existing and hereafter created,
acquired and arising and regardless of where located (all such property being
herein called the “Collateral”): (i) all of the Borrower’s Loan Receivables
relating to each Eligible Loan for which an Advance has been made; (ii) all of
the Borrower’s interest in and to the assets now or hereafter securing the
Eligible Loan which shall be specified as Collateral on the applicable Advance
Request, together with all embedded software, additions, parts, accessories,
attachments, and accessions now and hereafter affixed thereto and/or used in
connection therewith, and all replacements thereof and substitutions therefor
as are now or hereafter subject to any Eligible Loan Documents whether or not
specified as Collateral on the applicable Advance Request; (iii) all right,
title and interest (including, without limitation, any security interest) of
the Borrower in and to the Eligible Loan Documents which shall be specified as
Collateral on the applicable Advance Request; (iv) all equipment, inventory and
goods purchased or leased with the proceeds of the Eligible Loans; (v) all
warrants and other equity interests received by the Borrower in connection with
each Eligible Loan, which shall be more fully described on the applicable
Advance Request, and the capital stock and other equity interests issuable upon
the exercise thereof, including without limitation, all additions, exchanges,
replacements, substitutions, and the proceeds thereof together with all rights
of Borrower in and to any distribution or issuance of additional shares of the
issuer, whether by stock dividend, stock split, recapitalization or otherwise
(collectively, the “Pledged Securities“), and any certificate
representing any Pledged Securities (each a “Certificate“); (vi) all of
the Borrower’s books and records pertaining to any of the Collateral described
in clauses (i), (ii), (iii), (iv) and (v) immediately above; and (vii) all cash
and noncash proceeds of the Collateral described in clauses (i), (ii), (iii),
(iv), (v) and (vi) immediately above, including, without limitation, all cash
and noncash proceeds deposited in any deposit account, all chattel paper,
instruments, inventory, equipment, general intangibles and goods (as such terms
are defined by the UCC) or other property purchased or acquired with cash or
noncash proceeds of such Collateral and all securities entitlements with
respect to any Pledged Securities now or hereafter deposited into any
securities account.

               (b)     Notwithstanding the assignment of and grant of security interest in
Eligible Loan Documents specified as Collateral on an Advance Request, no
obligations (including, without limitation, the obligation to collect the
installments payable thereunder) of the Borrower under any such Eligible Loan
Documents are assigned to or assumed by the Bank, and the Borrower acknowledges
that it is and shall continue to be responsible for such obligations.

               (c)     The Borrower shall deposit the original signature Eligible Loan
Documents and any Certificates or other writings representing Pledged
Securities into the

5

 

possession of Bank through its agent, Riggs Bank, N.A.,
pursuant to the terms of the Custodial Agreement. Borrower shall endorse, by
means of a detachable allonge in the form attached hereto as Exhibit E, all
promissory notes which are Eligible Loan Documents to the order of Bank, and
shall assign all financing statements with respect to Eligible Loans to the
Bank. Borrower may not dispose of or further encumber any of the Collateral
without the prior written consent of the Bank, notwithstanding that proceeds
thereof constitute a part of the Collateral hereunder. The Borrower agrees
that, with respect to the Collateral, the Bank shall have all of the rights and
remedies of a secured party under the UCC. The Borrower hereby authorizes the
Bank to (i) file UCC financing statements describing the Collateral and (ii)
take such other action the Bank may deem necessary to perfect its lien on and
security interest in and to the Collateral.

     1.10     Closing Requirements and the Initial Advance.

               (a)     The obligation of the Bank to make an initial Advance hereunder is, at
the Bank’s option, subject to the satisfaction or written waiver, on or before
the Closing Date, of the following conditions:

                         (i)     Executed
  Financing Documents. This Agreement, the Promissory Note,
  together with any other applicable Financing Documents, shall have been duly
  authorized, executed and delivered to the Bank by Borrower, shall be in full
  force and effect and no Default or Event of Default shall exist thereunder,
  and Borrower shall have delivered original counterparts thereof to Lender. 

                         (ii)     Closing Certificates; etc.

                                   (A)     Officer’s Certificate of Borrower. The Bank shall have
received a certificate from a Responsible Officer, in form and substance
satisfactory to the Bank, to the effect that all representations and warranties
of Borrower contained in this Agreement and the other Financing Documents are
true, correct and complete; that Borrower is not in violation of any of the
covenants contained in this Agreement and the other Financing Documents; that,
after giving effect to the transactions contemplated by this Agreement, no
Default or Event of Default has occurred and is continuing; that Borrower has
satisfied each of the closing conditions; and that the Borrower has elected to
be regulated as a Business Development Company (as defined under Section
2(a)(48) of the Investment Company Act of 1940, as amended).

                                   (B)     Certificate of Secretary of Borrower. The Bank shall have
received a certificate of the secretary or assistant secretary of Borrower
certifying as to the incumbency and genuineness of the signature of each
officer of Borrower executing Financing Documents and certifying that attached
thereto is a true, correct and complete copy of (1) the Articles of
Incorporation and all amendments thereto, certified as of a recent date by the
Secretary of State of the State of Maryland, (2) the Bylaws of the Borrower as
in effect on the date of such certifications, (3) resolutions duly adopted by
the Board of Directors of the Borrower authorizing the borrowings contemplated
hereunder and the execution, delivery and performance of this Agreement and the
other Financing Documents.

                                   (C)     Certificates of Good Standing. The Bank shall have received
long-form certificates as of a recent date of the good standing of Borrower
under the

6

 

laws of its jurisdiction of organization and, to the extent requested
by the Bank, each other jurisdiction where Borrower is qualified to do business
and a certificate of the relevant taxing authorities of such jurisdictions
certifying that Borrower has filed required tax returns and owes no delinquent
taxes.

                                   (D)     Opinion of Counsel. The Bank shall have received a favorable
opinion of counsel to Borrower addressed to the Bank with respect to Borrower,
the Financing Documents and such other matters as the Bank shall request.

                         (iii)    Collateral.

                                   (A)     Filings and Recordings. All filings and recordations that are
necessary to perfect the security interests of the Bank in the Collateral shall
have been received by the Bank and shall have received evidence satisfactory to
the Bank that upon such filings and recordations such security interests
constitute valid and perfected first priority liens therein.

                                   (B)     Lien Search. Lender shall have received the results of a lien
search (including a search as to judgments, pending litigation and tax matters)
made against Borrower under the UCC (or applicable judicial docket) as in
effect in any state in which any of its assets are located or in which Borrower
conducts any business, indicating among other things that its assets are free
and clear of any lien on assets of Borrower that constitute Collateral.

                                   (C)     Hazard and Liability Insurance. The Bank shall have received
certificates of insurance, evidence of payment of all insurance premiums for
the current policy year of each, and, if requested by the Bank, copies
(certified by a Responsible Officer) of insurance policies in form and
substance reasonably satisfactory to the Bank.

                         (iv)     Consents, Defaults.

                                   (A)     Governmental and Third Party Approvals. The Borrower shall
have obtained all necessary approvals, authorizations and consents of any
Person with respect to the transactions contemplated by this Agreement and the
other Financing Documents.

                                   (B)     No Injunction, No Material Adverse Change. No action,
proceeding, investigation, regulation or legislation shall have been
instituted, threatened or proposed before any governmental authority to enjoin,
restrain, or prohibit, or to obtain substantial damages in respect of, or which
is related to or arises out of this Agreement or the other Financing Documents
or the consummation of the transactions contemplated hereby or thereby, or
which, in the Bank’s sole discretion, would make it inadvisable to consummate
the transactions contemplated by this Agreement and such other Financing
Documents. Since December 31, 2002, there shall not have been a material
adverse change in the properties, business, operations, or condition (financial
or otherwise) of the Borrower and no event shall have occurred and no condition
shall have arisen that could have a material adverse effect on the
properties, business operations, or condition (financial or otherwise) of
the Borrower or the ability of the Borrower to perform its obligations under
the Financing Documents (a “Material Adverse Effect”).

7

 

                                   (C)     No Event of Default. No Default or Event of Default shall have
occurred and be continuing.

                         (v)     Financial Matters.

                                   (A)     Financial Statements. The Bank shall have received an audited
balance sheet dated as of December 31, 2002, and related statements of income,
shareholders’ equity and changes in cash flows of Borrower, all in form and
substance satisfactory to the Bank and prepared in accordance with generally
accepted accounting principles consistently applied (“GAAP”).

                                   (B)     Payment of Fees. Borrower shall have paid to the Bank the loan
facility fee set forth in Section 7.5 hereof.

                         (vi)     Other Documents. Borrower shall deliver to the Bank on the
Closing Date such other documents, agreements, waivers and other items
reasonably requested by the Bank. All opinions, certificates and other
instruments and all proceedings in connection with the transactions
contemplated by this Agreement shall be satisfactory in form and substance to
the Bank. The Bank shall have received copies of all other documents,
certificates and instruments reasonably requested thereby, with respect to the
transactions contemplated by this Agreement.

               (b)     On
  or before each date on which the Bank makes an Advance hereunder, including,
  without limitation, the Closing Date, the Borrower shall cause to be done or
  provided to the Bank, as the case may be, the following: (1) a duly completed
  and signed Advance Request and Borrowing Base Certificate not less than three
  (3) Business Days before the date on which the Advance is to be made; (2) a
  certificate executed by a Responsible Officer, certifying that: (i) the representations
  and warranties of the Borrower contained herein remain true and correct as of
  such date; (ii) no Event of Default or Default has then occurred hereunder;
  (iii) there has not been a material adverse change in the properties, business,
  operations, or condition (financial or otherwise) of the Borrower and no event
  has occurred and no condition has arisen that could have a Material Adverse
  Effect, and (iv) no default or event which, with the giving of notice,
  or the lapse of time, or both, would become a default thereunder, has then occurred
  with respect to the Eligible Loan to which such Advance relates; (3) a
  Notice of Assignment, in the form of Exhibit C attached hereto, with respect
  to the Eligible Loan (each, a “Notice of Assignment”); (4) the
  original Eligible Loan Documents (including, without limitation, the promissory
  note endorsed by the Borrower to the order of the Bank) comprising
  the Eligible Loan to which such Advance relates and any Pledged Securities received
  by Borrower in connection therewith shall be deposited with the Custodian as
  agent for the Bank; (5) with respect to any letter of credit which constitutes
  a portion of the Collateral, the Borrower shall cause to be executed and delivered
  an assignment of proceeds of such letter of credit in favor of the Bank as collateral
  security hereunder; (6) a Hedging Agreement, in form satisfactory to the
  Bank, executed and delivered in connection with hedging 50% of the Borrower’s
  interest rate exposure on the Advance; and (7) such documents shall have
  been delivered, and such filings shall have been made and other actions taken,
  as reasonably may be required by the Bank and its counsel to perfect a valid,
  first priority security interest granted by the Borrower to the Bank with respect
  to the Collateral securing such Advance. 

8

 

SECTION 2. REPRESENTATIONS AND WARRANTIES.

     The Borrower represents and warrants to the Bank that the following
statements are true, correct and complete as of the date hereof and as of the
date on which each Advance is made hereunder:

     2.1     Organization; Power; Qualification. The Borrower is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Maryland and has the power and authority to own its
properties and to carry on its business as now being and hereafter proposed to
be conducted. The Borrower is duly qualified to do business in the
Commonwealth of Virginia and all other states where the Borrower conducts
business, except where the failure to qualify could not have a Material Adverse
Effect. The jurisdictions in which the Borrower is qualified to business as of
the Closing Date are set forth on Schedule 2.1 attached hereto.

     2.2     Authorization. The Borrower has the full power and authority
to execute, deliver and perform this Agreement and the other Financing
Documents to which the Borrower is a party. Neither such execution, delivery
and performance, nor compliance by the Borrower with the provisions of this
Agreement and of the other Financing Documents to which the Borrower is a party
(i) will conflict with or result in a breach or violation of the Borrower’s
Articles of Incorporation or By-laws or any judgment, order, regulation, ruling
or law to which the Borrower is subject or any indenture, agreement or other
instrument to which the Borrower is a party or to which any of the Borrower’s
assets and properties is subject, or constitute a default thereunder or (ii)
result in or require the creation or imposition of any lien upon or with
respect to any Collateral other than liens arising under the Financing
Documents. The execution, delivery and performance of this Agreement and all
other Financing Documents to which the Borrower is a party have been duly
authorized and approved by all necessary corporate action by the Borrower and
do not require the consent or approval of, the giving of notice to, the
registration with, or the taking of any other action in respect of, any
Federal, state or foreign governmental authority or agency, except as
contemplated herein. This Agreement and all other Financing Documents to which
the Borrower is a party constitute (or, upon execution, will constitute) the
legal, valid and binding obligations of the Borrower enforceable in accordance
with their terms except as enforceability may be limited by bankruptcy,
insolvency or similar laws affecting the enforcement of creditors’ rights
generally and the availability of equitable remedies.

     2.3     Litigation. There are no actions, suits or proceedings pending
or, to the knowledge of the Borrower, threatened against or in any way relating
adversely to or affecting the Borrower which could have a Material Adverse
Effect.

     2.4     Ownership; Management and Subsidiaries; etc..

               (a)     The authorized capital stock of the Borrower consists of (i)
40,000,000 shares of the Borrower’s common stock, of which 5,200,000 shares are
issued and outstanding
and (ii) 10,000,000 shares of the Borrower’s preferred stock, none of
which are issued and outstanding. The name of each record and beneficial owner
of shares of common stock and the number of shares owned by each record and
beneficial owner are set forth on Schedule 2.4(a) attached hereto.

9

 

               (b)     The name of each executive officer of the Borrower that is employed in
a Senior Management position and the office held by such executive officer is
set forth on Schedule 2.4(b) attached hereto.

               (c)     The Borrower does not directly or indirectly own or control securities
or other ownership interests in any corporation, partnership, association,
organization or other business entity representing more than fifty percent
(50%) of the equity ownership or the ordinary voting power thereof.

     2.5     Financial Condition. The Borrower has heretofore furnished to
the Bank an audited balance sheet dated as of December 31, 2002, and related
statements of income, shareholders’ equity and changes in cash flows. Such
financial statements and all other financial statements and information
furnished or to be furnished to the Bank hereunder have been and will be
prepared in accordance with GAAP and fairly present the financial condition of
the Borrower as of the dates thereof and the results of the Borrower’s
operations for the periods covered thereby. No material adverse change in the
business, financial condition, prospects or operations of the Borrower has
occurred since the date of such financial statements. The Borrower has no
indebtedness or liabilities other than that reflected on such financial
statements or expressly permitted by the provisions of this Agreement.

     2.6     Taxes. The Borrower has filed or caused to be filed all
federal, state and local income, excise, property and other tax returns which
are required to be filed and has paid all federal, sate, local and other taxes,
assessments and governmental charges or levies upon it and its property,
income, profits and assets as shown on such returns or assessments received by
the Borrower (including, without limitation, all FICA payments and withholding
taxes, if appropriate), except for such taxes, if any, as are being contested
in good faith and as to which adequate reserves have been provided. No
governmental authority has asserted any lien or other claim against the
Borrower with respect to unpaid taxes which has not been discharged or
resolved. The charges, accruals and reserves on the books of the Borrower in
respect of federal, state, local and other taxes for all fiscal years and
portions thereof since the organization of the Borrower are in the judgment of
the Borrower adequate, and the Borrower does not anticipate any additional
taxes or assessments for any of such years.

     2.7     Title to Properties and Collateral. The Borrower has good
title to all of its properties, including, without limitation, the Eligible
Loan Documents and Pledged Securities and has a first priority perfected
security interest in, and lien on, all of the Collateral, subject to no liens,
security interests or other encumbrances or interests except for those of the
Bank and the interest of the borrowers of Eligible Loans. Upon the last to
occur of: (a) the making of the Advance by the Bank to the Borrower relating to
an Eligible Loan, (b) delivery of the original Eligible Loan Documents and any
Certificates or other writings representing the Pledged Securities relating to
such Eligible Loan, and (c) filing in the office of the State Department of
Assessments and Taxation of Maryland of UCC financing statements naming the
Borrower, as
debtor, and the Bank, as secured party, and describing the Collateral
relating to such Advance, the Bank will have a valid, perfected first priority
security interest in the Collateral.

     2.8     Borrower’s Name, Business Locations, etc. The correct legal
name of the Borrower is that specified on the signature page of this Agreement.
Within twelve (12) years previous to the date hereof, the Borrower has not
changed its legal name, been the surviving

10

 

corporation in a merger or changed
the location of its chief executive office other than within Alexandria,
Virginia. The Borrower does not do business under any trade or fictitious
names. The chief executive office of the Borrower and the place where its
records concerning Eligible Loans, Loan Receivables and other Collateral are
kept is 133 North Fairfax Street, Alexandria, Virginia 22314. Each other
location at which the Borrower conducts business or keeps any of the Collateral
is listed on Schedule 2.8 attached hereto. The Organizational Number of
the Borrower is D06508667.

     2.9     Compliance with Laws. The Borrower is not in violation of any
applicable federal, state or local law, statute, rule, regulation or ordinance,
except for violations that could not have a Material Adverse Effect, and has
not received any notice nor is the subject of any investigation to the effect
that the Borrower’s operations are not in material compliance with any such
law, statute, rule, regulation or ordinance, including, without limitation,
applicable environmental, health and safety laws and regulations.

     2.10     Burdensome Provisions. The Borrower is not a party to any
indenture, agreement, lease or other instrument, or subject to any corporate,
partnership, governmental or regulatory restriction, which is so unusual or
burdensome as in the foreseeable future could have a Material Adverse Effect.
The Borrower does not presently anticipate that future expenditures needed to
meet the provisions of any statutes, orders, rules or regulations of a
governmental authority will be so burdensome as to have a Material Adverse
Effect.

     2.11     Solvency. As of the Closing Date and after giving effect to
each Advance made hereunder, the Borrower will be Solvent.

     2.12     Material Agreements. The Borrower is not in default or breach
in the performance, observance or fulfillment of any of the terms, conditions
or provisions of any instrument, agreement or document to which the Borrower is
a party (including, without limitation, any instrument or agreement evidencing
or made in connection with any indebtedness or liabilities) which default or
breach could have a Material Adverse Effect.

     2.13     Absence of Defaults. No Default or Event of Default has
occurred and is continuing.

     2.14     Liens. None of the Collateral is subject to any lien, except
liens of the Bank. No financing statement under the UCC of any state which
names the Borrower as debtor and which has not been terminated, has been filed
in any state or other jurisdiction and the Borrower has not signed any such
financing statement or any security agreement authorizing any secured party
thereunder to file any such financing statement, except to perfect those liens
of the Bank.

     2.15     Federal Reserve Board Regulations. The Borrower is not
engaged in the business of extending credit for the purpose of purchasing or
carrying “margin stock” within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System of the United States (the “Board”) and
no part of the proceeds of the Loans will be used for any purpose which entails
a violation of Regulations U, G, T or X of the Board.

     2.16     ERISA. Schedule 2.16 attached hereto contains a true
and complete list of each pension, employee benefit, multi-employer, profit
sharing, savings, stock bonus, 401(k) or
other

11

 

deferred compensation plan
(“Plan”) subject to the requirements of the Employee Retirement Income Security
Act of 1974, as amended (“ERISA”), which is now or previously has been
sponsored or maintained by the Borrower, or to which the Borrower has made
contributions or is required to make contributions. The Borrower satisfied all
termination and distribution requirements of the PBGC (as hereinafter defined)
with respect to any Plan terminated by the Borrower prior to the date hereof.
No lien exists against the Borrower in favor of the Pension Benefit Guaranty
Corporation (“PBGC”), and no “reportable event” (as such term is defined in
ERISA) has occurred with respect to any Plan. The Borrower has not incurred
any “accumulated funding deficiency” within the meaning of ERISA or any
liability to the PBGC in connection with any Plan. The Borrower has no
withdrawal or other liability (absolute, contingent or otherwise) with respect
to any multi-employer plan as defined by Section 3(37) of ERISA. Since
September 2, 1974, the Borrower has complied in all material respects with all
provisions of ERISA and with all provisions of each Plan.

     2.17     Licenses, etc. The Borrower has obtained and now holds all
licenses, permits, franchises, patents, trademarks, copyrights and trade names
which are necessary to the conduct of the business of the Borrower as now
conducted, free of any conflict with the rights of any other person, except as
could not have a Material Adverse Effect.

     2.18     Labor Matters. The Borrower is not subject to any collective
bargaining agreements or any agreements, contracts, decrees or orders requiring
the Borrower to recognize, deal with or employ any persons organized as a
collective bargaining unit or other form of organized labor. There are no
strikes or other material labor disputes pending or threatened against the
Borrower. The Borrower has complied in all material respects with the Fair
Labor Standards Act.

     2.19     Margin Stock. The Borrower is not engaged principally or as
one of its activities in the business of extending credit for the purpose of
“purchasing” or “carrying” any “margin stock” (as each such term is defined or
used, directly or indirectly, in Regulation U of the Board of Governors of the
Federal Reserve System). No part of the proceeds of any Advance will be used
for purchasing or carrying margin stock or for any purpose which violates, or
which would be inconsistent with, the provisions of Regulation T, U or X of
such Board of Governors.

     2.20     Government Regulation. The Borrower has satisfied the
requirements to be qualified as a Business Development Company and a Regulated
Investment Company and the Borrower is not, nor after giving effect to any
Advance will be, subject to regulation under the Public Utility Holding Company
Act of 1935 or the Interstate Commerce Act, each as amended, or any other
applicable law which limits its ability to incur or consummate the transactions
contemplated hereby.

     2.21     Environmental Matters. Except for conditions which could not
reasonably be expected to result in liabilities in excess of $100,000 in the
aggregate:

               (a)     The properties owned, leased or operated by the Borrower now or in the
past do not contain, and to its knowledge have not previously contained, any
Hazardous Materials in amounts or concentrations which (A) constitute or
constituted a violation of applicable Environmental Laws or (B) could
reasonably be expected to give rise to liability under applicable Environmental
Laws;

12

 

               (b)     The Borrower’s properties and operations are in compliance, and have
been in compliance, with all applicable Environmental Laws, and there is no
contamination at, under or about such properties or such operations which could
reasonably be expected to interfere with the continued operation of such
properties or impair the fair salable value thereof,

               (c)     The Borrower has not received any notice of violation, alleged
violation, non-compliance, liability or potential liability regarding
environmental matters, Hazardous Materials, or compliance with Environmental
Laws, nor does the Borrower have knowledge or reason to believe that any such
notice will be received or is being threatened;

               (d)     Hazardous Materials have not been transported or disposed of to or
from the properties owned, leased or operated by the Borrower in violation of,
or in a manner or to a location which could give rise to liability under,
Environmental Laws, nor have any Hazardous Materials been generated, treated,
stored or disposed of at, on or under any of such properties in violation of,
or in a manner that could give rise to liability under, any applicable
Environmental Laws;

               (e)     No judicial proceedings or governmental or administrative action is
pending, or, to the knowledge of the Borrower, threatened, under any
Environmental Law to which Borrower is or will be named as a potentially
responsible party with respect to such properties or operations conducted in
connection therewith, nor are there any consent decrees or other decrees,
consent orders, administrative orders or other orders, or other administrative
or judicial requirements outstanding under any Environmental Law with respect
to the Borrower, and to the knowledge of the Borrower or such operations; and

               (f)     There has been no release, or to the knowledge of the Borrower, threat
of release, of Hazardous Materials at or from properties owned, leased or
operated by the Borrower, now or in the past, in violation of or in amounts or
in a manner that could reasonably be expected to give rise to liability under
Environmental Laws.

     2.22     Accuracy of Information. No information, exhibit, report,
statement, certificate or document furnished by the Borrower or any other
person to the Bank in connection with the Loan, this Agreement or the other
Financing Documents or the negotiation thereof contains any material
misstatement of fact or omitted to state a material fact or any fact necessary
to make the statements contained herein or therein not misleading.

     2.23     Purpose of Loan. The proceeds of the Loan shall be used by
the Borrower only for the purposes permitted under Section 3.19.

     2.24     Intellectual Property Matters. The Borrower owns or possesses
all material rights to use all franchises, licenses, copyrights, copyright
applications, patents, patent rights or licenses, patent applications,
trademarks, trademark rights, service mark, service mark rights, trade names,
trade name rights, copyrights and rights with respect to the foregoing which
are required to conduct its business (collectively, “Intellectual Property”).
No event has occurred and is continuing which permits, or after notice or lapse
of time or both would permit, the revocation or termination of any such rights,
and the Borrower is not liable in amounts exceeding $100,000 in the aggregate
to any Person for infringement under applicable law with respect to any such
rights as a result of its business operations.

13

 

     2.25     The Eligible Loans. The originals of the Eligible Loan
Documents and Certificates specified as Collateral on each Advance Request are
true, correct and complete; (b) all signatures, names, addresses, amounts and
other statements and facts contained in the Eligible Loan Documents specified
as Collateral on each Advance Request are true, accurate and complete; (c) the
Eligible Loan Documents specified as Collateral on each Advance Request
constitute the legal, valid and binding obligation of the parties thereto,
enforceable in accordance with the terms thereof; (d) the Eligible Loan
Documents specified as Collateral on each Advance Request and the transactions
evidenced thereby conform to all applicable laws and regulations, and
constitute a valid, perfected first priority security interest in the
Collateral thereunder; (e) the Eligible Loan Documents specified as Collateral
on each Advance Request are free from all defenses, setoffs and counterclaims;
(f) there are no agreements or understandings with respect to the Eligible
Loans, verbal or written, between the Borrower and the borrowers of Eligible
Loans other than those specified as Collateral on each applicable Advance
Request delivered in connection with an Eligible Loan; (g) to Borrower’s
knowledge, no default or event which, with the passage of time or the giving of
notice, or both, would become a default under any Eligible Loan specified as
Collateral on an Advance Request, has occurred; (h) except as set forth on
Schedule 2.25 attached hereto, no Eligible Loans have been prepaid and
no deposits have been made by the Eligible Loan Obligors thereunder except for
prepayments of up to three months by Eligible Loan Obligors in the ordinary
course of Borrower’s business; and (i) as of the date on which an Advance is
made with respect to any Eligible Loan, the principal and interest then
outstanding will be due and payable in accordance with the terms of the
Eligible Loan Documents specified as Collateral on the applicable Advance
Request.

SECTION 3. AFFIRMATIVE COVENANTS.

     The Borrower covenants and agrees with the Bank that so long as any of the
Obligations (or commitments therefor) shall be outstanding, the Borrower shall:

     3.1     Payment of Obligations. Punctually pay when due the principal
of and interest on the Loan and the other Obligations, at the times and places,
in the manner and in accordance with the terms of this Agreement and the other
Financing Documents.

     3.2     Financial Statements and Other Reports. Maintain at all times
a system of accounting established and administered in accordance with sound
business practices, and will deliver, or cause to be delivered, to the Bank (a)
as soon as available but in no event more than forty-five (45) days after the
end of each month in each fiscal year of the Borrower, the balance sheet of the
Borrower as of the end of such month and the related statements of income and
retained earnings for such month internally prepared and in form and content
satisfactory to the
Bank, (b) as soon as available, but in no event more than one hundred
twenty (120) days after the end of each fiscal year of the Borrower, the
balance sheet of the Borrower as of the end of such year and the related
statements of income, retained earnings and cash flows for such year certified
by independent certified public accountants selected by the Borrower and
satisfactory to the Bank, (c) concurrently with the delivery of the financial
statements described in clause (a) above, a certificate of a Responsible
Officer setting forth the computations in reasonable detail and satisfactory to
the Bank demonstrating compliance with the covenants contained in Section 4.1
hereof for the fiscal quarter to which such financial statements relate, (d)
within fifteen (15) days after the end of each month (and at any other time
upon request by the Bank), (i) a Borrowing Base Certificate, (ii) an accounts
receivable aging report with respect to all of the

14

 

Borrower’s accounts
receivable, and (iii) a contractual and recency aging for the Loan Receivables
of Eligible Loans for which an Advance was provided, in each case certified by
a Responsible Officer, (e) at such reasonable intervals as the Bank may
require, such assignments, schedules, statements, reports, certifications,
records and other documents with respect to the Collateral in such form and
detail satisfactory to the Bank, (f) upon the request of the Bank, a copy of
the most recently filed annual report for each Plan, and (g) promptly upon
request of the Bank such other information, reports or documents respecting the
business, properties, operation or financial condition of the Borrower as the
Bank may at any time and from time to time reasonably request.

     3.3     Conduct of Business and Maintenance of Existence. Continue to
engage in business of the same general type as now being conducted by the
Borrower, preserve and maintain its separate corporate existence and all
rights, franchises, licenses and privileges necessary to the conduct of its
business, and qualify and remain qualified as a foreign corporation and
authorized to do business in each jurisdiction where the nature and scope of
its activities require it to so qualify under applicable law except where the
failure to so qualify could not have a Material Adverse Effect. Continue at
all times to satisfy the requirements necessary to be qualified as a Business
Development Company and a Regulated Investment Company.

     3.4     Compliance with Laws. Observe and remain in compliance with
all laws, rules, regulations and decrees to which the Borrower may be subject,
a violation of which could have a Material Adverse Effect.

     3.5     Payment of Liabilities and Taxes. Pay, when due, all of its
indebtedness and liabilities, and pay and discharge promptly all taxes,
assessments and governmental charges and levies (including, without limitation,
FICA payments and withholding taxes) upon the Borrower or upon the Borrower’s
income, profits or property (including, without limitation, the Collateral),
except to the extent the amount or validity thereof is contested in good faith
by appropriate proceedings so long as adequate reserves have been set aside
therefor.

     3.6     Contractual Obligations. Comply in all respects with each
term, condition and provision of all leases, agreements and other instruments
entered into in the conduct of its business; provided that the Borrower may
contest any such lease, agreement or other instrument in good faith through
applicable proceedings so long as adequate reserves are maintained in
accordance with GAAP.

     3.7     Maintenance of Properties. Do all things necessary, and cause
each Eligible Loan Obligor to do all things necessary, to perform, observe and
comply, to maintain,
preserve, protect and keep its properties in good repair, working order
and condition, and make all necessary and proper repairs, renewals and
replacements so that the Borrower’s business may be properly conducted at all
times, unless the failure to do so could not have a Material Adverse Effect.
The Borrower shall promptly notify the Bank of any event causing deterioration,
loss or depreciation in value of any substantial portion of the Collateral and
the amount of such loss or depreciation. The Borrower shall perform, observe,
and comply, and cause each Eligible Loan Obligor to do all things necessary, to
perform, observe and comply, with all of the terms and provisions to be
performed, observed or complied with by it under the Eligible Loan Documents
specified as Collateral on each Advance Request, and each other contract,
agreement or obligation relating to the Collateral. The Bank shall have no
duty to, and the Borrower hereby releases the Bank from

15

 

all claims for loss or
damage caused by the failure of the Bank to, collect, protect, preserve or
enforce any of the Collateral or preserve rights against account debtors and
prior parties to the Collateral, except as may be caused by the Bank’s willful
misconduct or gross negligence.

     3.8     Insurance.

               (a)     Maintain with financially sound, well rated and reputable insurance
companies insurance in such amounts and covering such risks as is consistent
with sound business practice, and in any event as is ordinarily and customarily
carried by companies similarly situated and in the same or similar businesses
as the Borrower. The Borrower will pay, when due, all premiums on such
insurance and will furnish to the Bank, upon request, evidence of payment of
such premiums and other information as to the insurance carried by the
Borrower.

               (b)     In addition, the Borrower will use its best efforts to cause (either
by its own actions or by enforcing the obligations of the borrowers of Eligible
Loans) each Eligible Loan Obligor of an Eligible Loan for which an Advance has
been provided to insure the Collateral securing such Eligible Loan and to list
Borrower as additional loss payee as its interests may appear with not less
than 30 days prior notice of cancellation or change on each such policy.

               (c)     After the occurrence of any Default hereunder, each policy of such
insurance covering the Collateral shall contain a provision or endorsement
satisfactory to the Bank naming the Bank as loss payee or mortgagee and
providing that (A) such policy may not be cancelled or altered without at least
thirty (30) days’ prior written notice to the Bank, and (B) no act or default
of the Borrower or any other person shall affect the right of the Bank to
recover under such policy. The Borrower hereby irrevocably (x) assigns and
grants to the Bank a security interest in any and all proceeds of each such
insurance policy covering the Collateral, (y) directs each insurance company to
pay all such proceeds directly to the Bank, and (z) constitutes and appoints
the Bank (and all officers, employees or agents designated by the Bank) as the
Borrower’s true and lawful attorney-in-fact (coupled with an interest) with
authority and power on behalf of the Borrower to make, adjust, settle or
compromise all claims under each such insurance policy, to collect and receive
all proceeds payable under each such insurance policy and to endorse any check,
draft or instrument for such proceeds. Notwithstanding the foregoing, so long
as no Event of Default or Default has occurred and is continuing, the Bank may
elect not to adjust any such claim, in which case the Borrower will adjust such
claim, or, if the Bank elects to adjust such claim, it will not settle or
compromise the same without the Borrower’s prior approval, which shall not be
unreasonably withheld. Until such time as an Event of Default or
Default has occurred and is continuing, the Bank and the Borrower will
mutually agree upon a reasonable application of the net proceeds of any such
insurance to replace or restore the damaged or destroyed Collateral or to the
payment of the Obligations, whether matured or unmatured, but, if the Bank and
the Borrower cannot agree upon a reasonable application of such net proceeds
within fifteen (15) days of receipt thereof, such proceeds shall be applied as
determined by the Bank in its sole discretion. If an Event of Default or
Default has occurred and is continuing, the net proceeds of any such insurance
shall be applied, as the Bank shall determine in its sole discretion, to
replace or restore the damaged or destroyed Collateral, in a manner and on
terms satisfactory to the Bank, or to payment of the Obligations (whether
matured or unmatured) in such manner and at such times as the Bank may
determine in its sole discretion.

16

 

     3.9     Inspection. Permit the Bank, by its representatives and
agents, at the expense of the Borrower, to inspect any of the properties, books
and financial records of the Borrower, to examine and make copies of the books
of accounts and other financial records of the Borrower, and to discuss the
affairs, finances and accounts of the Borrower with, and to be advised as to
the same by, the Borrower (or its representatives) at such reasonable times and
intervals as the Bank may designate. In connection with the foregoing, the
Bank and its representatives and agents, at the expense of the Borrower, shall
have the right to conduct a field audit and (a) enter any business premises of
the Borrower or any other premises where the Collateral and the records
relating thereto may be located and to audit, appraise, examine and inspect the
Collateral and all records related thereto and to make extracts therefrom and
copies thereof, and (b) verify under reasonable procedures the validity,
amount, quality, quantity, value and condition of, and any other matter
relating to, the Collateral, including contacting account debtors or any person
possessing any of the Collateral (each a “Field Audit”) Field Audits will be
conducted annually; provided, however, that if a Default or an
Event of Default has occurred, and is continuing, the Bank shall have the
right, in its sole discretion, to conduct Field Audits quarterly. An
independent certified public accounting firm, acceptable to the Bank, will
perform each such Field Audit.

     3.10     Collection of Loan Receivables. Collect the Loan Receivables
relating to Eligible Loans only in the ordinary course of business, and shall
not, without the Bank’s prior written consent, compromise or adjust the amount
of any Loan Receivable or extend the time for payment of any Loan Receivable
that, as the result of any such compromises or adjustments, would cause the
Eligible Loan to which such Loan Receivable relates to fail to satisfy the
criteria set forth herein for an Eligible Loan.

     3.11     Loan Undertakings. Without the prior written consent of the
Bank, the Borrower shall not consent to, approve or otherwise acquiesce in any
modification of the terms of the Eligible Loans, except such amendments that
would not cause an Eligible Loan to fail to satisfy the criteria set forth
herein for an Eligible Loan, or waive any term or condition of the Eligible
Loans, or take any action whatsoever with respect to the Eligible Loans (other
than collection of the Loan Receivables or exercising rights with respect to
Pledged Securities in accordance with the provisions of Sections 3.10 and
3.14(a) hereof).

     3.12     Accounting Methods and Financial Records. Maintain a system
of accounting, and keep such books, records and accounts (which shall be true
and complete in all material respects) as may be required or as may be
necessary to permit the preparation of
financial statements in accordance with GAAP and in compliance with the
regulations of any governmental authority having jurisdiction over it or any of
its properties.

     3.13     Further Assurances. Defend the interest of the Borrower to
the Collateral and the security interest and lien thereon of the Bank against
all persons and against all security interests and liens on the Collateral
adverse to those of the Bank. The Borrower will, from time to time, at the
expense of the Borrower, execute, deliver, acknowledge and cause to be duly
filed, recorded or registered any statement, assignment, instrument, paper,
agreement or other document and take any other action that from time to time
may be necessary or desirable, or that the Bank may reasonably request, in
order to create, preserve, continue, perfect, confirm or validate the security
interest and lien of the Bank on the Collateral or to enable the Bank to obtain
the full benefits of this Agreement or to exercise and enforce any of its
rights, powers and

17

 

remedies hereunder or under applicable laws. The Borrower
shall pay all costs of, and incidental to, the filing, recording or
registration of any such document as well as any recordation, transfer or other
tax required to be paid in connection with any such filing, recordation or
registration. The Borrower hereby covenants to save harmless and indemnify the
Bank from and against any liability resulting from the failure to pay any
required documentary stamps, recordation and transfer taxes and recording costs
incurred by the Bank in connection with this Agreement or the Collateral which
covenant shall survive the termination of this Agreement and the payment of all
other Obligations. If, in the reasonable opinion of the Bank, any Collateral
is or may become a part of any real estate owned or leased by the Borrower or
any Eligible Loan Obligor, the Borrower will or will use its best efforts to
cause such Eligible Loan Obligor’s landlord, upon the request of the Bank, to
furnish to the Bank in form and content satisfactory to the Bank, a landlord’s
waiver by the record owner of such real estate and a mortgagee’s waiver by any
person who has a security interest or lien on such real estate which is or may
be superior to the security interest and lien of the Bank on such Collateral.
In the event Borrower takes any further action beyond the filing of a UCC
financing statement to perfect its security interest in the assets purchased
with the proceeds of an Eligible Loan, Borrower agrees promptly to assign to
Bank any such other action to perfect in form and substance satisfactory to
Bank.

     3.14     Environmental Laws. In addition to and without limiting the
generality of Section 3.4, (a) comply in all material respects with, and ensure
such compliance by all tenants and subtenants with all applicable Environmental
Laws and obtain and comply with and maintain, and ensure that all tenants and
subtenants, if any, obtain and comply with and maintain, any and all licenses,
approvals, notifications, registrations or permits required by applicable
Environmental Laws, (b) conduct and complete all investigations, studies,
sampling and testing, and all remedial, removal and other actions required
under Environmental Laws, and promptly comply in all material respects with all
lawful orders and directives of any governmental authority regarding
Environmental Laws, and (c) defend, indemnify and hold harmless, and cause each
Eligible Loan Obligor to defend, indemnify and hold harmless the Bank, its
Affiliates, employees, agents, officers and directors, from and against any
claims, demands, penalties, fines, liabilities, settlements, damages, costs and
expenses of whatever kind or nature known or unknown, contingent or otherwise,
arising out of, or in any way relating to the presence of Hazardous Materials,
or the violation of, noncompliance with or liability under any Environmental
Laws applicable to the operations of the Borrower or any orders, requirements
or demands of governmental authorities related thereto, including, without
limitation, reasonable attorneys’ and consultants’ fees, investigation and
laboratory fees, response costs, court costs and litigation expenses, except to
the extent that any of the foregoing directly
result from the gross negligence or willful misconduct of the party
seeking indemnification therefor.

     3.15     Compliance with ERISA. In addition to and without limiting
the generality of Section 3.4, (a) comply with all applicable provisions of
ERISA and the regulations and published interpretations thereunder with respect
to all Plans, (b) not take any action or fail to take action the result of
which could be a liability to the PBGC or to a Plan, (c) not participate in any
prohibited transaction that could result in any civil penalty under ERISA or
tax under the Code, (d) operate each Plan in such a manner that will not incur
any tax liability under Section 4980B of the Code or any liability to any
qualified beneficiary as defined in Section 4980B of the Code and (e) furnish
to the Bank upon the Bank’s request such additional information about any Plan
as may be reasonably requested by the Bank.

18

 

     3.16     Notice. Promptly give written notice to the Bank (a) of the
occurrence of any Default or any event, development or circumstance which could
have a Material Adverse Effect, (b) of any litigation instituted or threatened
against the Borrower or any judgment against the Borrower where claims against
the Borrower exceed $100,000 and are not covered in full by insurance, (c) of
any notice of a claim against or investigation of the Borrower or any of the
Borrower’s properties with respect to any applicable Federal, state or local
environmental, health or safety laws, statutes, rules or regulations, (d) of
the occurrence of any “reportable event” within the meaning of ERISA or any
assertion of liability of the Borrower by the PBGC, (e) thirty (30) days prior
to any contemplated change in the name or address of the Borrower, and (f) of
the occurrence of any default under an Eligible Loan or of a casualty with
respect to any of the Collateral under an Eligible Loan.

     3.17     Collections.

               (a)     Until the Borrower’s authority to do so is terminated by the Bank
pursuant to subsection (b) below, enforce and collect at the Borrower’s cost
and expense in accordance with the collection practices customary in the
Borrower’s business payment of all amounts due and payable on or in respect of
Loan Receivables relating to Eligible Loans specified as collateral on the
written request by Borrower for the Loan on the Bank’s behalf and for the
Bank’s account as the Bank’s property in trust for the Bank, and use the
proceeds of all such payments for the Borrower’s general business purposes so
long as such use is not inconsistent with the provisions of this Agreement.

               (b)     At any time after a Default, the Bank may terminate the authority
given to the Borrower in subsection (a) above whereupon (i) the Bank shall have
the right to send to the borrowers of Eligible Loans for which an Advance has
been made, the Notices of Assignment executed and delivered by the Borrower
concurrently herewith to be held by the Bank hereunder, or otherwise to notify
and direct, and/or require the Borrower to notify and direct, all account
debtors to make all payments on or in respect of Loan Receivables relating to
Eligible Loans directly to the Bank for deposit into a special banking account
maintained by the Bank over which the Bank has exclusive dominion, control and
power of access and withdrawal (the “Collection Account”), (ii) unless
otherwise agreed by the Bank, any cash, checks, drafts, money orders,
instruments or other remittances on or with respect to Loan Receivables
relating to Eligible Loans received by the Borrower shall be delivered to the
Bank within one (1) day of receipt thereof by the Borrower for deposit to the
Collection Account in precisely the form in
which received, except for the addition thereto of the endorsement of the
Borrower where required for collection of any checks, drafts, money orders,
instruments or other remittances which endorsement the Borrower agrees to make
and with respect thereto the Borrower hereby waives notice of presentment,
protest and non-payment, (iii) pending such deposit, the Borrower will not
commingle any such cash, checks, drafts, money orders, instruments or other
remittances with other funds or property but will hold them separate and apart
and in trust for the Bank subject to the security interest and lien of the Bank
on the Collateral hereunder, and (iv) the Bank shall have the right at any time
and from time to time to apply funds held by it in the Collection Account to
the payment of all or any part of the Obligations, whether matured or
unmatured, in such order and manner as the Bank may determine in its sole
discretion.

     3.18     Use of Proceeds. The Borrower shall use the proceeds of each
Advance for the sole purpose of providing Eligible Loans.

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     3.19     Eligible Loan Documents. All Eligible Loan Documents that
constitute Collateral shall contain representations, warranties and covenants
substantially similar to those set forth in this Agreement.

     3.20     Business Checking Account. Establish and maintain an
operating account with the Bank.

SECTION 4. NEGATIVE COVENANTS

     The Borrower covenants and agrees with the Bank that so long as any of the
Obligations shall be outstanding, the Borrower shall not, directly or
indirectly:

     4.1     Financial Covenants. The following financial covenants shall
be tested quarterly upon submission of Borrower’s quarterly and annual
financial statements pursuant to Section 3.2 hereof:

               (a)     Asset Coverage Ratio. Permit its Asset Coverage Ratio to be
less than 200%.

               (b)     Interest Coverage Ratio. Permit its Interest Coverage Ratio to
be less than 1.5:1.0.

               (c)     Net Worth. Permit its Net Worth to be less than $40,000,000.

     4.2     Liens. Create, incur, assume or permit to exist any lien,
security interest or encumbrance of any nature whatsoever on any of the
Collateral, except for any lien or security interest now or hereafter securing
all or any part of the Obligations and the interest of the borrowers under the
Eligible Loans.

     4.3     Mergers, Acquisitions, Etc. Without the Bank’s prior written
consent (which shall not unreasonably be withheld), enter into any merger or
consolidation or acquire or purchase all or substantially all of the assets,
properties or stock of any other person, except that the Borrower may enter
into any merger or consolidation with any other person so long as (a) it is the
surviving entity of such merger or consolidation and (ii) immediately after
giving effect to
such merger or consolidation, no Default or Event of Default will exist
immediately or be continuing.

     4.4     Investments. Except in the ordinary course of business and as
set forth on Schedule 4.4 attached hereto, purchase, acquire or own any
stock, bonds, notes, or securities of, or any partnership interest in, or make
any capital contribution to, any other Person, or become a joint venture
partner in any joint venture, or repurchase any of its capital stock, or agree,
or become liable to do any of the foregoing.

     4.5     Sale of Assets and Liquidation. Sell, lease or otherwise
dispose of, in one transaction or a series of transactions, all or any
substantial part of its business, assets or properties, including, without
limitation, the Collateral, outside of the ordinary course of business or take
any action to liquidate, dissolve or wind up the Borrower or its business.

     4.6     Change of Control. Effect or permit a Change of Control.

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     4.7     Change of Business. Enter into any business other than the
business as conducted by the Borrower on the date hereof.

     4.8     Change of Name, Location, Etc. (a) Change its legal name,
identity or business structure, (b) change the location of its chief executive
office or its chief place of business, (c) change the location where it keeps
its records concerning the Collateral, (d) change the location of any
Collateral under its direct control, or (e) open a new place of business,
unless the Borrower shall have given the Bank prior written notice thereof and
shall at its cost and expense have executed, delivered, acknowledged, filed,
recorded or registered all financing statements and other documents as may be
required by the Bank in order to create, perfect, continue, preserve, confirm
or validate the security interest and lien of the Bank on the Collateral and
its priority; provided, that the Borrower shall not in any event change the
location of any Collateral if such change would cause the security interest and
lien of the Bank on the Collateral (or the perfection thereof) to lapse, or if
required to be perfected prior to such change, to cease to be perfected.

     4.9     Certain Accounting Changes; Organizational Documents. (a)
Change its fiscal year end, or make any change in its accounting treatment and
reporting practices except as required by GAAP or (b) amend, modify or change
its Articles of Incorporation or amend, modify or change its Bylaws (or other
similar documents) in any manner adverse in any respect to the rights or
interests of the Bank.

     4.10     Amendments. Amend or terminate any of the Eligible Loan
Documents specified as Collateral on an Advance Request, except such amendments
that would not cause the Eligible Loan to fail to satisfy the criteria set
forth herein for an Eligible Loan, or settle or compromise any amounts payable
under an Eligible Loan.

     4.11     ERISA. Engage in any “prohibited transaction” (as such term
is defined by ERISA), incur any “accumulated funding deficiency” (as such term
is defined by ERISA) whether or not waived, or terminate any Plan in a manner
which could result in the imposition of a lien on any property of the Borrower
pursuant to the provisions of ERISA.

SECTION 5. DEFAULT

     The occurrence of any one or more of the following events shall constitute
a default under the provisions of this Agreement, and the term “Default“
shall mean, whenever it is used in this Agreement, any one or more of the
following events (and the term “Event of Default“ as used herein means
one or more of the following events, whether or not any requirement for the
giving of notice, the lapse of time, or both has been satisfied):

     5.1     Payment
  of Obligations. The failure of the Borrower to pay any of the Obligations
  as and when due and payable in accordance with the provisions of this Agreement,
  the Promissory Note and/or any of the other Financing Documents,
  whether at the due date thereof or at a date fixed for prepayment thereof or
  by acceleration thereof or otherwise; 

     5.2     Perform, etc. Certain Provisions of this Agreement. The
failure of the Borrower to perform, observe or comply with any of the
provisions of Sections 3.3, 3.8(a) or (c), 3.10, 3.14

21

 

and 3.15 of this
Agreement (Affirmative Covenants) or of Section 4 (Negative Covenants) of this
Agreement;

     5.3     Perform, etc. Other Provisions of this Agreement. The failure
of the Borrower to perform, observe or comply with any of the provisions of
this Agreement other than those covered by Sections 5.1 and 5.2 above, and such
failure is not cured to the satisfaction of the Bank within a period of thirty
(30) days after the date of written notice thereof by the Bank to the Borrower,
unless the nature of such failure is such that (a) in the reasonable opinion of
the Bank it cannot be cured within the thirty (30) day period, (b) the Borrower
institutes corrective action within the thirty (30) day period, (c) the
Borrower diligently pursues such action, and (d) such failure is cured to the
satisfaction of the Bank within a period of ninety (90) days after the date of
such written notice;

     5.4     Representations and Warranties. If any representation and
warranty contained herein or any statement or representation made in any
certificate or any other information at any time given by or on behalf of the
Borrower or furnished in connection with this Agreement or any of the other
Financing Documents shall prove to be false, incorrect or misleading in any
material respect on the date as of which made, and any such representation or
warranty which, in the reasonable opinion of the Bank, is capable of being
cured is not cured to the satisfaction of the Bank within thirty (30) days
after the date of written notice thereof by the Bank to the Borrower, unless
the nature of the same is such that (a) in the reasonable opinion of the Bank
it cannot be cured within the thirty (30) day period, (b) the Borrower
institutes corrective action, if possible, within the thirty (30) day period,
(c) the Borrower diligently pursues such action, and (d) such representation or
warranty is cured to the satisfaction of the Bank within a period of ninety
(90) days after the date of such written notice;

     5.5     Default under Other Financing Documents. The occurrence of a
default (as defined and described therein) under the provisions of any of the
other Financing Documents which is not cured within applicable cure periods, if
any or the Custodial Agreement ceases to be in full force and effect for any
reason unless Bank shall have made alternative custodial arrangements for the
Collateral or taken direct possession thereof;

     5.6     Liquidation, Termination, Dissolution, etc. If the Borrower
shall liquidate, dissolve or terminate its existence;

     5.7     Default under Other Indebtedness. If the Borrower shall
default in any payment of any indebtedness (a) owing to the Bank (other than
the Obligations under the Financing Documents), or (b) to any other person or
persons for a principal amount in excess of $100,000 in the aggregate, beyond
the period of grace, if any, provided in the instrument or agreement under
which such indebtedness was created, or default in the observance or
performance of any other agreement or condition relating to any such
indebtedness or contained in any instrument or agreement evidencing, securing
or relating thereto, or any other event shall occur the effect of which default
or other event is to cause or to permit the holder or holders of such
indebtedness or beneficiary or beneficiaries of such indebtedness (or a trustee
or agent on behalf of such holder or holders or beneficiary or beneficiaries)
to cause, with the giving of notice, if required, such indebtedness to become
due prior to its stated maturity;

22

 

     5.8     Attachment. The issuance of any attachment or garnishment
against property or credits of the Borrower serving as Collateral, or the
issuance of any attachment or garnishment against any other property or credits
of the Borrower for an amount in excess, singly or in the aggregate, of
$20,000, which shall not have been vacated, discharged, stayed or bonded
pending appeal within ninety (90) days after the issuance thereof;

     5.9     Judgments. One or more judgments or decrees shall be entered
against the Borrower involving in the aggregate a liability in excess of
$20,000, and all such judgments or decrees shall not have been vacated,
discharged, stayed or bonded pending appeal within ninety (90) days after the
entry thereof;

     5.10     Inability to Pay Debts, etc. If the Borrower shall admit its
inability to pay its debts as they mature or shall make any assignment for the
benefit of any of its creditors;

     5.11     Bankruptcy. If proceedings in bankruptcy, or for
reorganization of the Borrower, or for the readjustment of any of the
Borrower’s debts, under the United States Bankruptcy Code (as amended) or any
part thereof, or under any other applicable laws, whether state or federal, for
the relief of debtors, now or hereafter existing, shall be commenced against or
by the Borrower and, except with respect to any such proceedings instituted by
the Borrower, shall not be discharged within ninety (90) days of their
commencement;

     5.12     Receiver, etc. A receiver or trustee shall be appointed for
the Borrower or for any substantial part of the Borrower’s assets, or any
proceedings shall be instituted for the dissolution or the full or partial
liquidation of the Borrower and, except with respect to any such appointments
requested or instituted by the Borrower, such receiver or trustee shall not be
discharged within ninety (90) days of his or her appointment, and, except with
respect to any such proceedings instituted by the Borrower, such proceedings
shall not be discharged within ninety (90) days of their commencement;

     5.13     Financial Condition. The occurrence of any material adverse
change or change in the financial condition of the Borrower which in the good
faith judgment of the Bank could have a Material Adverse Effect, and any such
change is not cured to the satisfaction of the Bank within thirty (30) days
after the date of written notice thereof by the Bank to the Borrower;

     5.14     Default; Security Interest. Any Financing Document shall, at
any time, cease to be in full force and effect (unless released by the Bank) or
shall be declared null and void, or the validity or enforceability thereof
shall be contested by the Borrower or the Bank shall not have or shall cease to
have valid, perfected security interests in the Collateral, subject to no other
liens whatsoever.

     5.15     Change of Control. Any Change of Control shall occur.

     5.16     Insecure. If the Bank in good faith deems itself insecure and
provides written notice thereof to Borrower; or

     5.17     Prospect of Payment. If the Bank in good faith determines
that the prospect of payment of any of the Obligations is impaired for any
reason and provides written notice thereof to Borrower.

23

 

SECTION 6. RIGHTS AND REMEDIES

     6.1     Rights
  and Remedies. If any Default shall occur and be continuing, the Bank may
  declare the unpaid principal amount of the Promissory Note,
  together with accrued and unpaid interest thereon, and all other Obligations
  then outstanding to be immediately due and payable, whereupon the same shall
  become and be forthwith due and payable by the Borrower to the Bank, without
  presentment, demand, protest or notice of any kind, all of which are expressly
  waived by the Borrower; provided, that, in the case of any Default referred
  to in Sections 5.10, 5.11 or 5.12 above, the unpaid principal amount of
  the Promissory Note, together with accrued and unpaid interest
  thereon, and all other Obligations then outstanding shall be automatically and
  immediately due and payable by the Borrower to the Bank without notice, presentment,
  demand, protest or other action of any kind, all of which are expressly waived
  by the Borrower. Upon the occurrence and during the continuation of any Default,
  then in each and every case, the Bank shall be entitled to exercise in any jurisdiction
  in which enforcement thereof is sought, the following rights and remedies, in
  addition to the rights and remedies available to the Bank under the other provisions
  of this Agreement and the other Financing Documents, the rights and remedies
  of a secured party under the UCC and all other rights and remedies available
  to the Bank under applicable law, all such rights and remedies being cumulative
  and enforceable alternatively, successively or concurrently: 

               (a)     The Bank shall have the right to take possession of any Collateral not
in its direct possession or the possession of the Custodian for the benefit of
the Bank, and for that purpose, so far as the Borrower may give authority
therefor or to the extent permitted under applicable laws, to enter upon any
premises on which the Collateral or any part thereof may be situated,
temporarily exclude the Borrower therefrom only as and to the extent necessary
to permit the Bank to take possession of the Collateral (if the Bank has reason
to believe that the Borrower has misappropriated funds, committed a fraud or
materially misrepresented any representation or warranty made by it herein),
and remove therefrom all or any of the Collateral without any liability for
suit, action or other proceeding, THE BORROWER IS HEREBY WAIVING ANY AND ALL
RIGHTS TO PRIOR NOTICE AND TO JUDICIAL HEARING WITH RESPECT TO REPOSSESSION OF
COLLATERAL, and require the Borrower, at the Borrower’s expense, to assemble
and deliver all or any of the Collateral to such place or places as the Bank
may designate. Notwithstanding anything to the contrary contained above, the
Bank
acknowledges that any of the terms and provisions of this Agreement
granting the Bank the right to take possession of Collateral or books and
records with respect thereto relates only to items of Collateral with respect
to which a security interest has been granted to the Bank and books and records
relating to the Eligible Loans specified as collateral on the written request
by Borrower for the Loan, and the Loan Receivables relating to Eligible Loans
specified as collateral on all written requests by Borrower for the Loan. The
Bank shall not interfere with the books and records, leases and personal
property of Borrower which do not constitute or pertain to the Collateral.

               (b)     The Bank shall have the right to operate, manage and control all or
any of the Collateral (including use of the Collateral and any other property
or assets of the Borrower in order to continue or complete performance of the
Borrower’s obligations under any contracts of Borrower), or permit the
Collateral or any portion thereof to remain idle or store the same, and collect
all rents and revenues therefrom and sell, lease or otherwise dispose of any or
all of the Collateral upon such terms and under such conditions as the Bank, in
its sole discretion, may

24

 

determine, and purchase or acquire any of the
Collateral at any such sale or other disposition, all to the extent permitted
by applicable law. Any purchaser or borrower of any of the Collateral so sold
or leased shall hold the property so sold or leased free from any claim or
right of the Borrower and the Borrower hereby waives (to the extent permitted
by law) all rights of redemption, stay or appraisal with respect thereto. The
Bank and the Borrower agree that commercial reasonableness and good faith
require the Bank to give to the Borrower no more than ten (10) days’ prior
written notice of any public sale or other disposition of the Collateral or of
the time after which any private sale or other disposition of the Collateral is
to be made.

               (c)     The Bank shall have the right, and the Borrower hereby irrevocably
designates and appoints the Bank and its designees as the attorney- in-fact of
the Borrower, with power of substitution and with power and authority in the
Borrower’s name, the Bank’s name or otherwise and for the use and benefit of
the Bank (i) to send to the borrowers with respect to the Eligible Loans
specified as collateral on the written request by Borrower for the Loan, the
Notices of Assignment executed and delivered by the Borrower to the Bank
concurrently herewith, or otherwise to notify account debtors and other persons
obligated to make payments or other remittances on or with respect to the
Collateral to make such payments and other remittances directly to the Bank,
(ii) to demand, collect, sue for, take control of, compromise, settle, change
the terms of, release, exchange, substitute, extend, renew or otherwise deal
with, the Collateral or any account debtor or other person obligated on or
under the Collateral in any manner as the Bank may deem advisable, (iii) to
remove from any place of business of the Borrower all records in respect of the
Collateral and, at the cost and expense of the Borrower, to make use of any
place of business of the Borrower as may be necessary or desirable to
administer, control, collect, sell or otherwise dispose of the Collateral, (iv)
to receive and endorse the Borrower’s name on any checks, drafts, money orders
or other instruments of payment relating to any of the Collateral, (v) to sign
and send verifications of Loan Receivables relating to Eligible Loans specified
as Collateral on the written request by Borrower for the Loan or other
Collateral and sign any proofs of claim or loss, (vi) to commence, prosecute or
defend any action, suit or proceeding relating to the Collateral or the
collection, enforcement or realization upon the Collateral, (vii) to adjust and
compromise any claims under insurance policies relating to the Collateral, and
(viii) to use, sell, assign, transfer, pledge, make any agreement with respect
to or otherwise deal with any or all of the Collateral and to do all other acts
and things necessary to carry out this Agreement as though the Bank were
absolute owner of the Collateral. This
power of attorney, being coupled with an interest, is irrevocable and all
acts by the Bank and its designees pursuant thereto are hereby ratified and
confirmed by the Borrower. Neither the Bank nor any of its designees shall be
liable for any acts of commission or omission, nor for any error of judgment or
mistake of fact or law other than acts of actual fraud, willful misconduct or
gross negligence. The provisions of this subsection shall not (A) be construed
as requiring or obligating the Bank or any designee to take any action
authorized hereunder and any action taken or any action not taken hereunder
shall not give rise to any liability on the part of the Bank or its designees
or to any defense, claim, counterclaim or offset in favor of the Borrower, (B)
be construed to mean the Bank has assumed any of the obligations of the
Borrower under any instrument or agreement as the Bank shall not be responsible
in any way for the performance of the Borrower of any of the provisions
thereof, and (C) relieve the Borrower of any of its obligations hereunder or in
any way limit the exercise by the Bank of any other or further rights it may
have hereunder, under the other Financing Documents, by law or otherwise.

               (d)     The Borrower recognizes that the Bank may be unable to effect, or to
do

25

 

so only after delay which would adversely affect the value that might be
realized from the Pledged Securities, a public sale of all or part of the
Pledged Securities by reason of certain prohibitions contained in the
Securities Act of 1933, as amended, and may be compelled to resort to one or
more private sales to a restricted group of purchasers who will be obliged to
agree, among other things, to acquire such securities for their own account,
for investment and not with a view to the distribution or resale thereof. The
Borrower agrees that any such private sale may be at prices and on terms less
favorable to the Bank than if sold at public sales, and therefore recognizes
and confirms that such private sales shall be deemed to have been made in a
commercially reasonable manner. The Borrower agrees that the Bank has no
obligation to delay sale of any such securities for the period of time
necessary to permit the issuer of such securities to register such securities
for public sale under the Securities Act of 1933, as amended.

               (e)     The Bank shall have no obligation to take any steps to preserve the
rights of the Borrower in the Pledged Securities against prior parties. The
Bank shall have no obligation to sell or otherwise deal with the Pledged
Securities, whether or not upon request of the Borrower, if at such time the
value of the Pledged Securities, in the opinion of the Bank, is less than the
aggregate amount of the indebtedness secured hereby, and such refusal or
inaction by the Bank shall not be deemed a breach of any duty which the Bank
may have under law to preserve the Pledged Securities.

               (f)     If, in the enforcement of such rights, the Bank shall propose to
dispose of all or any portion of the Pledged Securities, the Borrower agrees
that ten (10) days prior written notice, sent to the Borrower shall be adequate
and reasonable notice.

               (g)     The Borrower waives diligence, presentment, demand, protest and notice
of any kind except for any notice expressly provided for herein.

     6.2     Default Rate. Notwithstanding the entry of any decree, order,
judgment or other judicial action, upon the occurrence of a Default hereunder,
the unpaid principal amount of the Promissory Note and all other monetary
Obligations outstanding or becoming outstanding while such Default exists shall
bear interest from the date on which the Bank notifies the Borrower of such
Default (unless the Bank is legally precluded from providing such notice to the
Borrower, then from the date of such Default) until such Default has been cured
to the
satisfaction of the Bank, at a rate of interest equal at all times to the
Base Rate plus three (3) percent per annum (the “Default Rate”), irrespective
of whether or not as a result thereof, the Promissory Note or any of the
Obligations has been declared due and payable or the maturity thereof
accelerated. The Bank shall provide to Borrower written notice that the Default
Rate became applicable. The Borrower shall on demand from time to time pay
such interest to the Bank and the same shall be a part of the Obligations
hereunder.

     6.3     Liens, Set-Off. As security for the payment of the Obligations
and the performance of the Financing Documents, the Borrower hereby grants to
the Bank a continuing security interest and lien on, in and upon all
indebtedness owing to, and all deposits (general or special), credits,
balances, monies, securities and other property of, the Borrower and all
proceeds thereof, both now and hereafter held or received by, in transit to, or
due by, the Bank. In addition to, and without limitation of, any rights of the
Bank under applicable laws, if the Borrower becomes insolvent, however
evidenced, or any Default occurs, the Bank may at any time and from time to
time thereafter, without notice to the Borrower, set-off, hold, segregate,

26

 

appropriate and apply at any time and from time to time thereafter all such
indebtedness, deposits, credits, balances (whether provisional or final and
whether or not collected or available), monies, securities and other property
toward the payment of all or any part of the Obligations in such order and
manner as the Bank in its sole discretion may determine and whether or not the
Obligations or any part thereof shall then be due or demand for payment thereof
made by the Bank.

     6.4     Enforcement Costs. The Borrower agrees to pay to the Bank on
demand (a) all reasonable enforcement costs paid, incurred or advanced by or on
behalf of the Bank and (b) interest on such enforcement costs from the date
paid, incurred or advanced until paid in full at a per annum rate of interest
equal at all times to the Default Rate. As used herein, the term “enforcement
costs” shall mean and include collectively all expenses, charges, recordation
or other taxes, costs and fees (including attorneys’ fees and expenses) of any
nature whatsoever advanced, paid or incurred by or on behalf of the Bank in
connection with (1) the collection or enforcement of this Agreement or any of
the other Financing Documents, (2) the creation, perfection, maintenance,
preservation, defense, protection, realization upon, disposition, collection,
sale or enforcement of all or any part of the Collateral, and (3) the exercise
by the Bank of any rights or remedies available to it under the provisions of
this Agreement, or any of the other Financing Documents. All enforcement
costs, with interest as above provided, shall be a part of the Obligations
hereunder.

     6.5     Application of Proceeds. Any proceeds of the collection of the
Obligations and/or the sale or other disposition of the Collateral will be
applied by the Bank to the payment of enforcement costs, and any balance of
such proceeds (if any) will be applied by the Bank to the payment of the
remaining Obligations (whether then due or not), at such time or times and in
such order and manner of application as the Bank may from time to time in its
sole discretion determine. If the sale or other disposition of the Collateral
fails to satisfy all of the Obligations, the Borrower shall remain liable to
the Bank for any deficiency.

     6.6     Remedies, etc. Cumulative. Each right, power and remedy of the
Bank as provided for in this Agreement or in the other Financing Documents or
now or hereafter existing under applicable laws or otherwise shall be
cumulative and concurrent and shall be in addition to every other right, power
or remedy provided for in this Agreement or in the other
Financing Documents or now or hereafter existing under applicable laws or
otherwise, and the exercise or beginning of the exercise by the Bank of any one
or more of such rights, powers or remedies shall not preclude the simultaneous
or later exercise by the Bank of any or all such other rights, powers or
remedies.

     6.7     No Waiver, Etc. No failure or delay by the Bank to insist upon
the strict performance of any term, condition, covenant or agreement of this
Agreement or of the other Financing Documents, or to exercise any right, power
or remedy consequent upon a breach thereof, shall constitute a waiver of any
such term, condition, covenant or agreement or of any such breach, or preclude
the Bank from exercising any such right, power or remedy at any later time or
times. By accepting payment after the due date of any amount payable under this
Agreement or under any of the other Financing Documents, the Bank shall not be
deemed to waive the right either to require prompt payment when due of all
other amounts payable under this Agreement or under any of the other Financing
Documents, or to declare a Default for failure to effect such prompt payment of
any such other amount. The payment by the Borrower

27

 

or any other person and the
acceptance by the Bank of any amount due and payable under the provisions of
this Agreement or the other Financing Documents at any time during which a
Default exists shall not in any way or manner be construed as a waiver of such
Default by the Bank or preclude the Bank from exercising any right, power or
remedy consequent upon such Default.

SECTION 7. MISCELLANEOUS

     7.1     Course of Dealing; Amendment. No course of dealing between the
Bank and the Borrower shall be effective to amend, modify or change any
provision of this Agreement or the other Financing Documents. The Bank shall
have the right at all times to enforce the provisions of this Agreement and the
other Financing Documents in strict accordance with the provisions hereof and
thereof, notwithstanding any conduct or custom on the part of the Bank in
refraining from so doing at any time or times. The failure of the Bank at any
time or times to enforce its rights under such provisions, strictly in
accordance with the same, shall not be construed as having created a custom in
any way or manner contrary to specific provisions of this Agreement or the
other Financing Documents or as having in any way or manner modified or waived
the same. This Agreement and the other Financing Documents to which the
Borrower is a party may not be amended, modified, or changed in any respect
except by an agreement in writing signed by the Bank and the Borrower.

     7.2     Waiver of Default. The Bank may, at any time and from time to
time, execute and deliver to the Borrower a written instrument waiving, on such
terms and conditions as the Bank may specify in such written instrument, any of
the requirements of this Agreement or of the other Financing Documents or any
Event of Default or Default and its consequences, provided, that any such
waiver shall be for such period and subject to such conditions as shall be
specified in any such instrument. In the case of any such waiver, the Borrower
and the Bank shall be restored to their former positions prior to such Event of
Default or Default and shall have the same rights as they had hereunder. No
such waiver shall extend to any subsequent or other Event of Default or
Default, or impair any right consequent thereto and shall be effective only in
the specific instance and for the specific purpose for which given.

     7.3     Notices. All notices, requests and demands to or upon the
parties to this Agreement shall be deemed to have been given or made when
delivered by hand, or when deposited in the mail, postage prepaid by certified
mail, return receipt requested, or, in the case of notice by facsimile
transmission, when properly transmitted, addressed as follows or to such other
address as may be hereafter designated in writing by one party to the other:

	 	 	 
	Borrower:	 	
Oxford Finance Corporation
	 	 	
133 North Fairfax Street
	 	 	
Alexandria, Virginia 22314
	 	 	
Attention: Mr. Mike Altenburger
	 	 	
Facsimile: (703) 519-4910

28

 

	 	 	 
	with a copy to:	 	
Sutherland Asbill & Brennan LLP
	 	 	
1275 Pennsylvania Avenue, N.W.
	 	 	
Washington, DC 20004-2415
	 	 	
Attention: Cynthia M. Krus, Esquire
	 	 	
Facsimile: (202) 637-3593
	 	 	 
	Bank:	 	
National City Bank
	 	 	
One South Broad Street, 13th Floor
	 	 	
1345 Chestnut Street
	 	 	
Philadelphia, Pennsylvania 19107
	 	 	
Attention: Michael Labrum, Senior Vice
	 	 	
President
	 	 	
Facsimile: (267) 256-4001
	 	 	 
	with a copy to:	 	
Klehr, Harrison, Harvey, Branzburg & Ellers LLP
	 	 	
260 South Broad Street
	 	 	
Philadelphia, Pennsylvania 19102
	 	 	
Attention: Jeffrey O. Greenfield, Esquire
	 	 	
Facsimile: (215) 568-6603

except in cases where it is expressly herein provided that such notice, request
or demand is not effective until received by the party to whom it is addressed.

     7.4     Right to Perform. If the Borrower shall fail to make any
payment or to otherwise perform, observe or comply with the provisions of this
Agreement or any of the other Financing Documents, then and in each such case,
the Bank may (but shall be under no obligation whatsoever to) without notice to
or demand upon the Borrower remedy any such failure by advancing funds or
taking such action as it deems appropriate for the account and at the expense
of the Borrower. The advance of any such funds or the taking of any such
action by the Bank shall not be deemed or construed to cure a Default or waive
performance by the Borrower of any provisions of this Agreement. The Borrower
shall pay to the Bank on demand, together with interest thereon from the date
advanced or incurred until paid in full at a per annum rate of interest equal
at all times to the Default Rate, any such funds so advanced by the Bank and
any costs and expenses advanced or incurred by or on behalf of the Bank in
taking any such action, all of which shall be a part of the Obligations
hereunder.

     7.5     Fee; Costs and Expenses. (a) Concurrently with execution of
this Agreement, the Borrower shall pay to the Bank a loan facility fee in the
amount of $65,000, which shall include the costs and fees associated with the
preparation of this Agreement and the other Financing Documents.

               (a)     The Borrower agrees to pay to the Bank on demand all fees, recordation
and other taxes, costs and expenses of whatever kind and nature, including
attorneys’ fees and disbursements, which the Bank may incur or which are
payable in connection with the administration of the Loan, including, without
limitation, the recording or filing of any and all of the Financing Documents
and obtaining lien searches, the expense of any inspection made by the Bank
with respect to the Borrower and/or the Collateral, and the expense of the
Field Audit to be performed by the Bank. All such fees, costs, recordation and
other taxes shall be a part of the Obligations hereunder.

29

 

     7.6     Consent to Jurisdiction. The Borrower irrevocably (a) consents
and submits to the jurisdiction and venue of any state or Federal court sitting
in the Commonwealth of Pennsylvania over any suit, action or proceeding arising
out of or relating to this Agreement or any of the other Financing Documents,
(b) waives, to the fullest extent permitted by law, any objection that the
Borrower may now or hereafter have to the laying of the venue of any such suit,
action or proceeding brought in any such court and any claim that any such
suit, action or proceeding brought in any such court has been brought in an
inconvenient forum, and (c) consents to the service of process in any such
suit, action or proceeding in any such court by the mailing of copies of such
process to the Borrower by certified mail at the Borrower’s address set forth
herein for the purpose of giving notice.

     7.7     Assignment and Participations.

               (a)     The Bank may, subject to the consent of the Borrower, which consent
shall not be unreasonably withheld, conditioned or delayed, sell, assign or
transfer to any person or persons, all or any part of the Obligations or all or
any part of the Financing Documents and each such person or persons shall have
the right to enforce the provisions of the Financing Documents and any of the
Obligations as fully as the Bank, provided that the Bank shall continue to have
the unimpaired right to enforce the provisions of the Financing Documents and
any of the Obligations as to so much of the Financing Documents and/or the
Obligations that it has not sold, assigned or transferred. Additionally, the
Bank may sell or grant to any other person or persons participations in all or
any part of the Obligations or all or any part of the Financing Documents
(provided that such person is not a direct competitor of the Borrower).

               (b)     In connection with and prior to and after any such sale, transfer,
assignment or participation, the Bank may disclose and furnish to any
prospective or actual purchaser, transferee, assignee or participant, any and
all reports, financial statements and other information obtained by the Bank at
any time and from time to time in connection with the Obligations, any of the
Financing Documents or otherwise. Each of the Bank and the Borrower hereby
agrees (for itself and its affiliates) that unless otherwise required by
applicable laws, it will maintain the confidentiality of the transaction
contemplated hereby and will not disclose, or cause to be disclosed, the same
to any person, except (1) to prospective purchasers, transferees, assignees or
participants, (2) to its affiliates and its affiliates’ agents, directors,
officers, employees, accountants, counsel or other professional advisors that
have, in each such case, been
instructed or otherwise bound by professional rules of conduct to keep
such information confidential, (3) as may be requested pursuant to applicable
laws by any governmental authority (including Internal Revenue Service auditors
or state taxing and regulatory authorities), (4) to the extent required in
connection with the performance by it of its obligations and the exercise by it
of its rights under this Agreement and the other Financing Documents, (5) to
any nationally recognized rating agency that requires access to information
about such person’s investment portfolio, (6) in response to any subpoena or
other legal process or in connection with any litigation to which such person
is a party (provided that prior notice shall have been provided to the
non-disclosing party), (7) to the extent, but only to the extent, that prior to
such disclosure, such information is in the public domain or has been provided
to such party by a person not a party to this Agreement and the other Financing
Documents (other than by reason of a breach by such person of the
confidentiality provisions hereof or as expressly contemplated hereby), or (8)
with the prior written consent of the other party hereto (which consent shall
not be unreasonably withheld).

30

 

               (c)     The
  Borrower will fully cooperate with the Bank in connection with any such assignment
  and will execute and deliver such consents and acceptances to any such assignment,
  amendments to this Agreement in order to effect any such assignment (including,
  without limitation, the appointment of the Bank as agent for itself and all
  assignees) and a new or a replacement Promissory Note for the
  Promissory Note in conjunction with any such assignment; provided,
  that the Borrower’s indebtedness, obligations and liabilities under this
  Agreement and the other Financing Documents will not be increased by reason
  of any such assignment. 

     7.8     Definitions; Certain Definitional Provisions.

               (a)     As used herein, the following terms shall have the following meanings:

                         (i)     “Affiliate” shall mean any Person which, directly or indirectly, owns
or controls, on an aggregate basis, including all beneficial ownership and
ownership or control as a trustee, guardian or other fiduciary, at least ten
percent (10%) of the outstanding capital stock (or membership interest) having
ordinary voting power to elect the Board of Directors (or other governing body)
(irrespective of whether, at the time, stock of any other class or classes of
such corporation, limited liability company or other entity, shall have or
might have voting power by reason of the happenings of any contingency) of the
Borrower, or which otherwise controls, is controlled by or is under common
control with the Borrower, or any stockholder or member of the Borrower or any
Person which controls any stockholder or member of the Borrower. For the
purpose of this definition, “control” means the possession, directly or
indirectly, of the power to direct or to cause the direction of management and
policies, whether through the ownership of voting securities, by contract or
otherwise.

                         (ii)     “Asset Coverage Ratio” shall mean, the ratio which the value of total
assets, less all liabilities and funded indebtedness not represented by senior
securities (all as determined pursuant to the Investment Company Act of 1940,
as amended and any orders of the Securities and Exchange Commission issued to
Borrower thereunder), bears to the aggregate amount of senior securities
representing funded indebtedness of Borrower.

                         (iii)     “Bank’s Costs” means all costs and expenses of any kind paid or
incurred by Bank in connection with the preparation, execution, delivery,
amendment, modification, restatement, administration or termination of this
Agreement or any Financing Document, any transaction contemplated herein or
therein, and the preservation, enforcement, defense and protection of Bank’s
rights, remedies, obligations and liabilities in any manner concerning this
Agreement or any Financing Document, any Security Document, any transaction
contemplated herein or therein or any existing or future related agreements,
including but not limited to: (a) costs paid to perfect, maintain perfected and
preserve the existence and priority of liens with respect to the Collateral;
(b) after the occurrence of an Event of Default, all Bank’s internal and
external administrative costs and costs incurred with respect to the Collateral
and/or enforcing or administering this Agreement or any Financing Document; (c)
reasonable attorneys’ fees and other expenses paid or incurred by Bank for any
of the foregoing; and wire transfer charges in such amounts as Bank may from
time to time establish for such service.

                         (iv)     “Base Rate” means the sum of the Prime Rate plus one and one-half
percent (1.50%) per annum.

31

 

                         (v)     “Borrowing Base” means that amount which is equal to fifty percent
(50%) of the aggregate principal amount outstanding at any time under Eligible
Loans.

                         (vi)     “Borrowing Base Certificate” means a fully completed certificate in
the form attached hereto as Exhibit D, which mathematical calculations used to
determine the Borrowing Base and certified to be true by a Responsible Officer.

                         (vii)     “Business Day” as used herein means any day other than Saturday,
Sunday or other day on which commercial banks in the State of Maryland are
authorized to close.

                         (viii)     “Business Development Company” shall have the meaning given to such
term in Section 1.10(a)(ii)(E).

                         (ix)     “CERCLA” shall mean the Comprehensive Environmental Response
Compensation and Liability Act, 42 U.S.C. §9601 et seq., as amended from
time to time, including all regulations thereunder and published
interpretations thereof and any successor or replacement statute and/or
regulations.

                         (x)     “Certificate” shall have the meaning given to such term in Section
1.9.

                         (xi)     “Change of Control” means an event or series of events by which any
“person” or “group” (as such terms are defined in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder) is or becomes the “beneficial owner” (as defined in
Rules 13d-3 and 13d-5 under such Exchange Act, except that a Person shall be
deemed to have “beneficial ownership” of all shares that any such Person has
the right to acquire without condition, other than passage of time, whether
such right is exercisable immediately or only after the passage of time),
directly or indirectly, of more than 35% of the total voting power of the then
outstanding voting capital stock of the Borrower.

                         (xii)     “Closing Date” means the date of this Agreement or, if later, the
Business Day upon which the Bank provides the initial Advance to the Borrower
hereunder.

                         (xiii)     “Custodial
Agreement” means the agreement dated May 2, 2003
between Bank and Riggs Bank, N.A., among other things, appointing Riggs Bank,
N.A. as Custodian and agent for Bank’s possession of the Collateral.

                         (xiv)     “Custodian” means Riggs Bank, N.A. or such other person or entity
designated by Bank to be its agent for perfection by possession of its security
interest in the Collateral.

                         (xv)     “Debt” means the total liabilities of the Borrower which, in
accordance with GAAP, would be included on the liability side of a balance
sheet.

                         (xvi)     “Default” shall have the meaning given to such term in Section 5.

                         (xvii)     “Eligible Loans” means loans made by Borrower to Eligible Loan
Obligors pursuant to those documents or instruments satisfying the following
criteria

32

 

(collectively the “Eligible Loan Documents”): (1) such documents or
instruments are written agreements (collectively, the “Contract”) pursuant to
which the Borrower agrees to lend amounts to a third party which is organized
under the laws of the United States or any state thereof and which is not an
agency or instrumentality of the United States of America or of any state,
county, municipality or any department, agency or instrumentality thereof and
the equipment, goods or inventory, if any, purchased with the proceeds from the
Contract are located in the United States, (2) the initial stated term of the
Contract is not more than forty-eight (48) months and has a stated maturity
date, (3) the amount of the Advance to be made with respect to such Contract is
not less than $500,000, (4) the Contract arose in the ordinary course of the
Borrower’s business and the Contract is enforceable against all parties
thereto, (5) the amount of periodic installments required to be paid under the
remaining term of the documents or instruments shall be sufficient fully to
amortize the Advance made with respect to such documents or instruments, (6) no
payment of principal or interest is, or other fees and expenses due and owing
under the Contract, or has been, past due more than forty-five (45) days,
except for fees and expenses disputed in good faith, (7) the Contract shall not
be subject to any lien, security interest or prior assignment, (8) all
equipment, goods or inventory purchased with the proceeds from the Contract
shall have been delivered to the obligor under the Contract and shall be
subject to secure the payment obligations under the Contract, (9) the
Borrower’s right, title and interest to the Contract, all amounts due and owing
thereunder, and the assets securing the payment obligations of any obligor
under the Contract is absolute and is lawfully in the Borrower and is subject
to no other assignment, claim, lien or security interest except that of the
Bank, and the Borrower has the right of assignment thereof and the power to
grant the Bank a security interest therein, (10) the Contract is a valid and
enforceable Contract, representing an undisputed indebtedness to the Borrower,
is not subject to any claim or reduction, counterclaim, set-off, recoupment, or
any claim for credits, allowances or adjustments by any party thereto, (11)
proceedings in bankruptcy, or for reorganization, or for the readjustment of
any of its debts, under the United States Bankruptcy Code (as amended) or any
part thereof, or under any other applicable laws, whether state or federal, for
the relief of debtors, now or hereafter existing, shall be commenced against or
by any obligor under the Contract and there shall not have been a material
adverse change in the properties, business, operations, or condition (financial
or otherwise) of the any
such obligor and no event shall have occurred and no condition shall have
arisen that could have a material adverse effect on the properties, business
operations, or condition (financial or otherwise) on the ability of any such
obligor to perform its obligations under the Contract, (12) the Contract shall
not have been modified, amended, restated or otherwise extended such that a
default or breach existing prior to such modification, amendment, restatement
or extension no longer exists, (13) no obligor under the Contract is an
Affiliate of the Borrower, (14) the Contract shall be specified on the
applicable Advance Request, and (15) such document or instrument meets all
other criteria now or hereafter established (provided that any change in such
criteria shall be applied prospectively only and shall not be applicable to
those documents or instruments which have previously qualified as Eligible
Loans specified as collateral on the written request by Borrower for the Loan)
by the Bank in order for a document or instrument to be an Eligible Loan;
provided, that any document or instrument which is at any time an Eligible
Loan, but which subsequently fails to meet the criteria for an Eligible Loan
specified as collateral on the written request by Borrower for the Loan shall
immediately cease to be an Eligible Loan.

                         (xviii)     “Eligible Loan Obligor” means any third party obligated to repay
to the Borrower as Eligible Loan for which an Advance has been made.

33

 

                         (xix)     “Environmental Laws” means any and all federal, foreign, state,
provincial and local laws, statutes, ordinances, rules, regulations, permits,
licenses, approvals, interpretations and orders of courts or governmental
authorities, relating to the protection of human health or the environment,
including, but not limited to, CERCLA and all other requirements pertaining to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transportation, handling, reporting, licensing, permitting, investigation or
remediation of Hazardous Materials.

                         (xx)     “ERISA” shall have the meaning given to such term in Section 2.16.

                         (xxi)     “Event of Default” shall have the meaning given to such term in
Section 5.

                         (xxii)     “Field Audit” shall have the meaning given to such term in Section
3.9.

                         (xxiii)     “Financing
  Documents” means collectively and includes this Agreement, the Promissory
  Note issued pursuant hereto, the Custodial Agreement, and any other
  instrument, document or agreement both now and hereafter executed, delivered
  or furnished by the Borrower or any other person (as hereinafter defined) evidencing,
  securing or in connection with this Agreement or all or any part of the Obligations.
  

                         (xxiv)     “GAAP” shall have the meaning given to such term in Section
1.10(a)(v)(A).

                         (xxv)     “Hazardous Materials” means any substances or materials (a) which
are or become defined as hazardous wastes, hazardous substances, pollutants,
contaminants, chemical substances or mixtures or toxic substances under any
Environmental Law, (b) which are toxic, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic,
mutagenic or otherwise harmful to human health or the environment and are
or become regulated by any governmental authority, (c) the presence of which
require investigation or remediation under any Environmental Law or common law,
(d) the discharge or emission or release of which requires a permit or license
under any Environmental Law or other governmental approval, (e) which are
deemed to constitute a nuisance or a trespass which pose a health or safety
hazard to Persons or neighboring properties, (f) which consist of underground
or aboveground storage tanks, whether empty, filled or partially filled with
any substance, or (g) which contain, without limitation, asbestos,
polychlorinated biphenyls, urea formaldehyde foam insulation, petroleum
hydrocarbons, petroleum derived substances or waste, crude oil, nuclear fuel,
natural gas or synthetic gas.

                         (xxvi)     “Hedging Agreement” means any agreement with respect to an interest
rate swap, collar, cap, floor or a forward rate agreement or other agreement
regarding the hedging of interest rate risk exposure executed in connection
with hedging the interest rate exposure of the Borrower, and any confirming
letter executed pursuant to such hedging agreement, all as amended, restated,
supplemented or otherwise modified from time to time.

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                         (xxvii)     “Intellectual Property” shall have the meaning given to such term
in Section 2.24.

                         (xxviii)     “Interest Rate” means the interest rate applicable to an Advance
selected by Borrower pursuant to Section 1.4.

                         (xxix)     “Interest Coverage Ratio” means, for a period, the ratio of (a)
the sum of Borrower’s net operating income plus interest expense for such
period to (b) interest expense for such period.

                         (xxx)     “LIBOR” means the quotient resulting from dividing (i) the rate per
annum at which deposits of Dollars which appears on Telerate Page 3750 at
approximately 11:00 A.M. London time, two Business Days prior to the first day
of the applicable LIBOR Period for a period equal to the period of such LIBOR
Period, by (ii) one (1.00) minus the Reserve Percentage, if any, pertaining to
eurocurrency liabilities. If, for any reason, such rate does not appear on
Telerate Page 3750, then LIBOR shall be determined by Bank with reference to
the arithmetic average of the rate per annum at which Dollars would be offered
in the London interbank market by first class banks to Bank at such time. If,
and only if, Bank shall be unable or shall otherwise fail to obtain such a rate
or Dollar deposits are not obtainable in the London Eurodollar interbank market
on reasonable terms, the commencement of such LIBOR Period shall be postponed
to the second Business Day after Bank is next able to obtain a fixed rate for
such LIBOR Period in Dollar deposits in the London Eurodollar interbank market
on reasonable terms, and until such date interest shall be charged at the Base
Rate. The LIBOR shall be adjusted automatically on and as of the effective day
of any change in the relevant Reserve Percentage. Payee’s determination of the
LIBOR shall be conclusive in the absence of manifest error.

                         (xxxi)     “LIBOR
  Amount” means all or any portion of the outstanding principal balance of
  the Promissory Note with respect to which Borrower has fixed
  the rate of interest charged thereon at a rate of interest based on the LIBOR,
  for a LIBOR Period, in accordance with the terms of this Agreement; provided
  that no LIBOR Amount may be less than $500,000.00. 

                         (xxxii)     “LIBOR Period” means a period of one (1) month, the first of which
commences on the funding date of any Advance bearing interest with respect to
LIBOR and subsequent ones which commence upon the expiration of the immediately
preceding LIBOR Period, except that no LIBOR Period may end after the maturity
date of the Eligible Loan funded with the proceeds of such Advance. In the
event that a LIBOR Period would otherwise end on a day that is not a Business
Day, such LIBOR Period shall be extended to the next following Business Day.

                         (xxxiii)     “Loan Receivables” means the Borrower’s present and future
general intangibles, chattel paper, documents, supporting obligations, and
instruments (as such terms are defined in the UCC) solely to the extent
relating to Eligible Loans, including, without limitation, all present and
future rights of the Borrower to payment of monetary obligations owed to the
Borrower on account of Eligible Loans, whether due or to become due.

35

 

                         (xxxiv)     “Net Worth” means, as of a date, the sum of Borrower’s (a)
shareholders’ equity (less the value of treasury stock and debt convertible
into Borrower’s capital stock) and (b) cumulative retained earnings, as
reflected on Borrower’s balance sheet for such date.

                         (xxxv)     “Notice of Assignment” shall have the meaning given to such term in
Section 1.10(b).

                         (xxxvi)     “Obligations” means collectively and includes all present and
future indebtedness, liabilities and obligations of any kind and nature
whatsoever of the Borrower to the Bank both now existing and hereafter arising
under, as a result of, on account of, or in connection with, this Agreement and
any and all amendments thereto, restatements thereof, supplements thereto and
modifications thereof made at any time and from time to time hereafter, or the
other Financing Documents, including, without limitation, future advances,
principal, interest, indemnities, fees, late charges, enforcement costs, all
obligations with respect to any interest rate swap, collar, cap, floor or
forward rate agreement or other agreement regarding the hedging of interest
rate risk exposure in connection with hedging the interest rate exposure of
Borrower and any confirming letter executed pursuant to such hedging agreement,
and other costs and expenses whether direct, contingent, joint, several,
matured or unmatured.

                         (xxxvii)     “Pledged Securities” shall have the meaning given to such term in
Section 1.9 hereof.

                         (xxxviii)     “Prime Rate” means that rate of interest per annum established
by the Bank from time to time as its “prime rate” which may not represent the
lowest rate charged by the Bank to other borrowers, or to any class of
borrowers, at any time, or from time to time.

                         (xxxix)     “Regulated Investment Company” shall have the meaning given to
such term in Section 1.10(a)(ii)(E).

                         (xl)     “Request Day” means a Business Day on which Borrower requests Bank to
advise Borrower of the then-current LIBOR with respect to one or more LIBOR
Periods.

                         (xli)     “Reserve Percentage” means for any day that maximum percentage
(expressed as a decimal), whether or not incurred, which is in effect on such
day, as prescribed by the Board of Governors of the Federal Reserve System, for
determining the reserve requirement for a member bank of the Federal Reserve
System in Philadelphia with respect to LIBOR “Eurocurrency liabilities” (as
such term is defined in Regulation D) (or in respect of any other category of
liabilities which includes deposits by reference to which the interest rate on
the outstanding principal amount of the Advance is determined or any category
of extensions of credit or other assets which includes loans by a non-United
States office of Bank to United States residents).

                         (xlii)     “Responsible Officer” means any of the following: the chief
executive officer, the president or chief financial officer of Borrower or any
other officer of Borrower reasonably acceptable to the Bank.

36

 

                         (xliii)     “Rule” means and includes any law, rule or regulation binding upon
Bank as well as any guideline or similar directive issued by a governmental
agency having regulatory jurisdiction over Bank which Bank observes or with
which it complies, whether or not such guideline or directive technically has
the force of law.

                         (xliv)     “Senior Management” means the chairman of the board of directors,
chief executive officer, president and chief financial officer of the Borrower
or such other executive officer of the Borrower performing duties similar to
those performed by any of the foregoing.

                         (xlv)     “Solvent” means, as to Borrower on a particular date, that Borrower
(a) has capital sufficient to carry on its business and transactions and all
business and transactions in which it is about to engage and is able to pay its
debts as they mature, (b) owns property having a value, both at fair valuation
and at present fair salable value, greater than the amount required to pay its
probable liabilities (including contingencies), and (c) does not believe that
it will incur debts or liabilities beyond its ability to pay such debts or
liabilities as they mature.

                         (xlvi)     “UCC” shall mean the Uniform Commercial Code as in effect in any
applicable jurisdiction from time to time.

               (b)     The term “person” or “Person” as used in this Agreement means and
includes any natural person, individual, company, corporation, partnership,
limited liability entity, joint venture, unincorporated association, government
or political subdivision or agency thereof, or any other entity of whatever
nature. All terms defined in this Agreement shall have such defined meanings
when used in any of the other Financing Documents. Accounting terms used in
this Agreement shall have the respective meanings given to them under generally
accepted accounting principles in effect from time to time in the United States
of America. The words “hereof”, “herein” and “hereunder” and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this
Agreement. As used herein, the singular number shall include the plural,
the plural, the singular and the use of the masculine, feminine or neuter
gender shall include all genders, as the context may require. Unless otherwise
defined herein, all terms used herein which are defined by the UCC shall have
the same meanings as assigned to them by the UCC unless and to the extent
varied by this Agreement.

     7.9     Entire Agreement; Severability. This Agreement constitutes the
entire agreement between the parties with respect to the subject matter hereof
and supersedes all prior understandings with respect thereto. This Agreement
shall not be amended except by an instrument in writing signed by each of the
parties. The invalidity, illegality or unenforceability of any provision of
this Agreement shall not affect the validity, legality or enforceability of any
of the other provisions of this Agreement which shall remain effective.

     7.10     Confession of Judgment. In the event the Bank confesses
judgment against Borrower under the Promissory Note, the Bank shall provide
prompt notice thereof to Borrower.

37

 

     7.11     Survival. All representations, warranties and covenants
contained among the provisions of this Agreement shall survive the execution
and delivery of this Agreement and all other Financing Documents.

     7.12     Successors and Assigns. The rights and obligations of the
Borrower under this Agreement may not be assigned or delegated. This Agreement
and all other Financing Documents shall be binding upon and inure to the
benefit of the Borrower and the Bank and their respective successors and
permitted assigns.

     7.13     Applicable Law. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE INTERNAL LAWS OF COMMONWEALTH OF PENNSYLVANIA (WITHOUT
REGARD TO THE CONFLICT OF LAWS PRINCIPLES OF SUCH STATE).

     7.14     Time of Essence. Time is of the essence in connection with
all obligations of the Borrower hereunder and under any of the other Financing
Documents.

     7.15     Duplicate Originals and Counterparts. This Agreement may be
executed in any number of duplicate originals or counterparts, each of such
duplicate originals or counterparts shall be deemed to be an original and all
taken together shall constitute but one and the same instrument.

     7.16     Headings. Section and subsection headings in this Agreement
are included herein for convenience of reference only, shall not constitute a
part of this Agreement for any other purpose and shall not be deemed to affect
the meaning or construction of any of the provisions hereof.

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

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     IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Master Loan and Security Agreement, under seal, as of the day and year first
written above.

	 	OXFORD FINANCE CORPORATION

	 	By:   /s/ Michael
J.
Altenburger                    (SEAL)

        Name: Michael J.
Altenburger

        Title: Chief Financial
Officer

	 	NATIONAL CITY BANK

	 	
By:   /s/ Michael
J.
Labrum                    (SEAL)

        Name: Michael J. Labrum

        Title: Senior Vice President

39

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